Negotiable Instruments Act

Topics: Cheque, Negotiable instrument, Promissory note Pages: 6 (1614 words) Published: November 7, 2013
NI provides holder two rights:-
1.To receive amount specified in such document from person who is liable 2.To transfer aforesaid right to any other person
Applicability :-
1.Location: Whole India except state of J&K
2.Instrument based: Section 13 gives definition of NI  B/E, Pro Note and Cheque -For DD it is applicable
-Not App on share certificate
-Not App on share warrant
-Not App on Document of title
-Not App on Currency note
-Not App on Bonds/Commercial papers/ T Bills/ FDs
-App on Hundi (traditional instruments)  Local rules are applicable, if not then NI Act is applicable

Two amendments have been made since 1881
oCheque Truncation : Section 143  Cheque made electronic oCheque Dishonour: Section 138 (2 yrs imprisonment)

The history of the present Act is a long one. The Act was originally drafted in 1866 by the 3rd India 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 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 Travellers Cheques.[2] Types of Negotiable Instruments

According to Section of the Negotiable Instruments Act means "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 that Local extent, Saving of usage relating to hundis, etc., Commencement. -It extends to the whole of India but nothing herein contained affects the Indian Paper Currency Act, 1871, Section 2, 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 and intention that the legal relations of the parties thereto shall be governed by this Act; and it shall come into force on the first day of March, 1882.[3]

Main Types of Negotiable Instruments are

1. Inland Instruments

2. Foreign Instruments

3. Bank Draft[4][5] 4. bearer
Modern era and Negotiable Instruments

We prefer to carry a small piece of paper known as Cheque rather than carrying the currency worth the value of the Cheque. Before 1988 there being no provision to restrain the person issuing the Cheque without having sufficient funds in his account. Of course on Dishonoured cheque there is a civil liability accrued. 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 Negotiable Instruments Act, 1988.[3]

With the insertion of these provisions in the Act the situation certainly improved and the instances of dishonour have relatively come down but on account of application of different interpretative...
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