Negotiable Instruments Act, 1881 Negotiable Instruments Act, 1881, was passed by British India and for over

130 years and expect for amendments, the question revising the Act as a whole never been raised. In India, there is reason to believe that Instrument to exchange was in use from early times and money was introducing into the country by one of the Mohammedan sovereigns of Delhi in the early part of the fourteenth century.

HISTORY 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 redrafted 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) The most important class of Credit Instruments that evolved in India was 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

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.' 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. With the growth of the Economy, Negotiable Instruments have given the new dimensions to the commercial and corporate world. Now people 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 Dishonored cheque there is a civil liability accrued. However in reality it takes a long time to recover the money. 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.

With the insertion of these provisions in the Act the situation certainly improved and the instances of dishonor 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 dishonor of cheques the trends of the verdicts of the Supreme Court of India unequivocally demonstrate that there is subconscious judicial pressure in the mind of the Judges which leans heavily in favor of the holder of the cheque.

Having regard to the working of these penal provisions on dishonor of cheques and the bottlenecks that have surfaced in strictly implementing these provisions, 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 has been recently brought into force on Feb. 6, 2003

DEFINATIONS BILL OF EXCHANGE An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated. An unsigned bill of exchange is also called a draft. Promissory note A written, signed, unconditional promise to pay a certain amount of money on demand at a specified time. A written promise to pay money that is often used as a means to borrow funds or take out a loan. The individual who promises to pay is the maker, and the person to whom payment is promised is called the payee or holder. If signed by the maker, a promissory note is a negotiable instrument. It contains an unconditional promise to pay a certain sum to the order of a specifically named person or to bearerthat is, to any individual presenting the note. A promissory note can be either payable on demand or at a specific time.

Cheque A cheque is bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Explanation: I. - For the purposes of this section, the expressions(a) a cheque in the electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;

(b) a truncated cheque means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing. Explanation II - For the purposes of this section, the expression clearing house means the clearing house managed by the Reserve Bank of India or a clearing house recognized as such by the Reserve Bank of India.

Negotiable Instruments A Negotiable Instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation (i).-A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Explanation (ii).-A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. Explanation (iii).-Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option. (2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or -some of several payees

Cheque Crossed Generally Where a cheque bears across its face an addition of the words and company or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words, not negotiable, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. Section 124 - Cheque crossed specially[3] Where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.

Cheque crossed specially Where a cheque is crossed generally, the banker, on whom it is drawn, shall not pay it otherwise than to a banker. Payment of cheque crossed specially. - Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent, for collection.