The Negotiable Instruments Act, 1881 | |
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Imperial Legislative Council | |
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Citation | Act No. 26 of 1881 |
Territorial extent | ![]() ![]() |
Enacted by | Imperial Legislative Council |
Enacted | 9 December 1881 |
Commenced | 1 March 1882 |
Codification | |
Code sections created | 148 |
Committee report | Third Law Commission |
Status: In force (amended) |
Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is still in force with significant amendments recently. It deals with the law governing the usage of negotiable instruments in India. The word "negotiable" means transferable and an "instrument" is a document giving legal effect by the virtue of the law
The history of the present Act is a long one. The Act was originally drafted in 1866 by the 3rd Indian Law Commission and introduced in December 1867 in the council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English Law in which it contained. The Bill had to be redrafted in 1877. After the lapse of a sufficient period for criticism by the Local Governments, the High Courts and the chambers of commerce, the Bill was revised by a Select Committee. In spite of this Bill could not reach the final stage. In 1880 by the Order of the Secretary of State, the Bill had to be referred to a new Law Commission. On the recommendation of the new Law Commission, the Bill was re-drafted and again it was sent to a Select Committee which adopted most of the additions recommended by the new Law Commission. The draft thus prepared for the fourth time was introduced in the council and was passed into law in 1881 being the Negotiable Instruments Act, 1881 (Act No.26 of 1881). [1]
The most important class of Credit Instruments that evolved in India were termed Hundi. Their use was most widespread in the twelfth century and has continued till today. In a sense, they represent the oldest surviving form of credit instrument. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In Modern era Hundi served as traveller's cheques. [2]
According to Section 13 of the Negotiable Instruments Act, "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer." [3] But in Section 1, it is also described the Local extent, Saving of usage relating to hundis, etc. and Commencement. It extends to the whole of India but nothing herein contained affects the Indian Paper Currency Act, 1871, Section 21, or affects any local usage relating to any instrument in an oriental language. Provided that such usages may be excluded by any words in the body of the instrument, which indicate an intention that the legal relations of the parties thereto shall be governed by this Act; and it shall come.
Main Types of Negotiable Instruments are:
The Act comprises 148 sections classified into 17 chapters and they are as follows: [5]
Chapter | Sections | Contents |
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Chapter I | Sections 1 – 3 | Preliminary |
Chapter II | Sections 4 – 25 | Notes, Bills and Cheques |
Chapter III | Sections 26 – 45A | Parties to Notes, Bills and Cheques |
Chapter IV | Sections 46 – 60 | Negotiation |
Chapter V | Sections 61 – 77 | Presentment |
Chapter VI | Sections 78 – 81 | Payment and Interest |
Chapter VII | Sections 82 – 90 | Discharge from Liability of Notes, Bills and Cheques |
Chapter VIII | Sections 91 – 98 | Notice of Dishonour |
Chapter IX | Sections 99 – 104A | Noting and Protest |
Chapter X | Sections 105 – 107 | Reasonable Time |
Chapter XI | Sections 108 – 116) | Acceptance and Payment for Honour and Reference in Case of Need |
Chapter XII | Section 117 | Compensation |
Chapter XIII | Sections 118 – 122 | Special Rules of Evidence |
Chapter XIV | Sections 123 – 131A | Crossed Cheques |
Chapter XV | Sections 132 – 133 | Bill in Sets |
Chapter XVI | Sections 134 – 137 | International Law |
Chapter XVII | Sections 138 – 148 | Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts |
We prefer to carry a small piece of paper known as cheque rather than carrying the currency worth the cheque's value. Before 1988 there was no provision to restrain a person issuing the a cheque without having sufficient funds in their account, although for a dishonoured cheque a civil liability would accrue. In order to ensure promptitude and remedy against the defaulters of the Negotiable Instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 by amending it with Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (insertion of chapter XVII). [6]
With the insertion of these provisions in the Act the situation has improved and the instances of dishonour have relatively come down but on account of application of different interpretative techniques by different High Courts on different provisions of the Act it further compounded and complicated the situation although on dishonour of cheques the trends of the verdicts of the Supreme Court of India.
Parliament enacted the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 (55 of 2002), which is intended to plug the loopholes. This amendment Act inserts five new sections from 143 to 147 touching various limbs of the parent Act and Cheque truncation through digitally were also included and the amendment Act was into force on 6 February 2003. [3]
In June 2020, the Finance Ministry in the Government of India proposed the decriminalisation of a number of white-collar crimes, including cheque bouncing under Section 138 of the Negotiable Instruments Act, in order to improve the ease of doing business as well as to reduce imprisonment rates. [7] [8] The proposal has been opposed by a number of trade and business associations, including the Confederation of All-India Traders (CAIT), [9] the Indian Banks' Association and Finance Industry Development Council (FIDC), [10] and the Federation of Industrial and Commercial Organisation (FICO). [11]
A dishonoured cheque is a cheque that the bank on which it is drawn declines to pay (“honour”). There are a number of reasons why a bank might refuse to honour a cheque, with non-sufficient funds (NSF) being the most common, indicating that there are insufficient cleared funds in the account on which the cheque was drawn. An NSF check may be referred to as a bad check, dishonored check, bounced check, cold check, rubber check, returned item, or hot check. Lost or bounced checks result in late payments and affect the relationship with customers. In England and Wales and Australia, such cheques are typically returned endorsed "Refer to drawer", an instruction to contact the person issuing the cheque for an explanation as to why it was not paid. If there are funds in an account, but insufficient cleared funds, the cheque is normally endorsed “Present again”, by which time the funds should have cleared.
Public Holidays in India also known as Government Holidays colloquially, consist of a variety of cultural, nationalistic, and religious holidays that are legislated in India at the union or state levels.
A promissory note, sometimes referred to as a note payable, is a legal instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms and conditions.
A hundi or hundee is a financial instrument that was developed in Medieval India for use in trade and credit transactions. Hundis are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. The Reserve Bank of India describes the hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order."
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a contract, which promises the payment of money without condition, which may be paid either on demand or at a future date. The term has different meanings depending on its use in the application of different laws and depending on countries and contexts. The word "negotiable" refers to transferable and "instrument" refers to a document giving legal effect by the virtue of the law.
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