Negotiable Instruments Act, 1881

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The Negotiable Instruments Act, 1881
Star of the Order of the Star of India (gold).svg
Imperial Legislative Council
  • An Act to define and amend the law relating to negotiable instruments which are Promissory Notes, Bills of Exchange and cheques
Citation Act No. 26 of 1881
Territorial extentBritish Raj Red Ensign.svg  British India (1881-1947)
Flag of India.svg  India (1947-present)
Enacted by Imperial Legislative Council
Enacted9 December 1881
Commenced1 March 1882
Codification
Code sections created148
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

Contents

History

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:

  1. Inland Instruments
  2. Foreign Instruments
  3. Bank
  4. Finance Companies (listed) Draft [4]

Types of negotiable instruments recognised and governed by the Act

Structure

The Act comprises 148 sections classified into 17 chapters and they are as follows: [5]

Table of Structure
ChapterSectionsContents
Chapter ISections 1 – 3Preliminary
Chapter IISections 4 – 25Notes, Bills and Cheques
Chapter IIISections 26 – 45AParties to Notes, Bills and Cheques
Chapter IVSections 46 – 60Negotiation
Chapter VSections 61 – 77 Presentment
Chapter VISections 78 – 81Payment and Interest
Chapter VIISections 82 – 90Discharge from Liability of Notes, Bills and Cheques
Chapter VIIISections 91 – 98Notice of Dishonour
Chapter IXSections 99 – 104ANoting and Protest
Chapter XSections 105 – 107Reasonable Time
Chapter XISections 108 – 116)Acceptance and Payment for Honour and Reference in Case of Need
Chapter XIISection 117Compensation
Chapter XIIISections 118 – 122Special Rules of Evidence
Chapter XIVSections 123 – 131ACrossed Cheques
Chapter XVSections 132 – 133Bill in Sets
Chapter XVISections 134 – 137International Law
Chapter XVIISections 138 – 148Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts

Recent legislation

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]

Review and Reform

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]

Related Research Articles

<span class="mw-page-title-main">Dishonoured cheque</span> Cheque that a bank declines to pay

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.

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<span class="mw-page-title-main">Promissory note</span> Legal instrument of payment

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.

<span class="mw-page-title-main">Hundi</span> Indian financial instrument

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."

<span class="mw-page-title-main">Negotiable instrument</span> Contract document exchangeable for money

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.

<span class="mw-page-title-main">Cheque</span> Method of payment

A cheque is a document that orders a bank, building society to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay the amount of money stated to the payee.

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<span class="mw-page-title-main">Demand draft</span> Financial document exchangeable for money

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<span class="mw-page-title-main">Crossing of cheques</span> Method of restricting redemption of cheques

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<span class="mw-page-title-main">Bills of Exchange Act 1908</span> Act of Parliament in New Zealand

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<i>Smith v Lloyds TSB Group plc</i>

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References

  1. "11th Report – Law Commission of India" (PDF). 1958.
  2. "Reserve Bank of India – Publications". Reserve Bank of India.
  3. 1 2 "Section 13 – Negotiable Instruments Act, 1881 – Government of India".
  4. Archived at Ghostarchive and the Wayback Machine : "Type of Negotiable Instruments" via YouTube.
  5. Code, India. "Bare Act of the Negotiable Instruments Act, 1881" (PDF).
  6. Casemine, Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, accessed 11 August 2023
  7. "Union Finance Ministry proposes to decriminalise host of minor offences under 19 legislations". The Hindu. PTI. 10 June 2020. ISSN   0971-751X . Retrieved 22 July 2020.
  8. Ministry of Finance, Government of India, Department of Economic Affairs (12 June 2020). "Statement of Reasons- Decriminalization of Minor Offences for Improving Business Sentiment and Unclogging Court Processes" (PDF). Archived (PDF) from the original on 27 July 2020. Retrieved 27 July 2020.
  9. "Decriminalising bounced cheques will nullify their sanctity, says CAIT to Fin Min". The Economic Times. Retrieved 22 July 2020.
  10. Kumar, K. Ram (21 July 2020). "Banks oppose Finance Ministry move to decriminalise cheque-bounce offence". @businessline. Retrieved 22 July 2020.
  11. "FICO opposes finance ministry's proposal to decriminalise cheque bounce offences". Hindustan Times. 19 June 2020. Retrieved 22 July 2020.