Negotiable Instruments Act

November 30, 2014

Chapter I – Preliminary

Section 1. Short title.

(26 of 1881)

(9th December, 1881)

An Act to define and Law relating to Promissory Notes, Bills of Exchange and cheques.

WHEREAS it is expedient to define and amend the law relating to promissory notes, bills of exchange and cheques.It is hereby enacted as follows:

This Act may be called the Negotiable Instruments Act, 1881.

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 (3 of 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.

1. The Act has been extended to Goa, Daman, and Diu by Regulation 12 of 1962, sec. 3 and Sch. (w.e.f. 1-12-1965) and to Dadra and Nagar Haveli by Regulation 6 of 1963, sec. and Sch. I (w.e.f. 1-11-1956).

2. Substituted by the A.O. 1950, for “all the Provinces of India”.

3. The Words “except the State of Jammu and Kashmir” omitted by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956).

Section 2. Repeal of enactments.

[Rep. By the Amending Act, 1891 (12 of 1891), sec. 2 and Sch. I, Pt. I.

Section 3. Interpretation clause

In this Act

¹[* * *]

“Banker”: ²[“banker” includes any person acting as a banker and any post office savings bank].

³[* * *]

1. Definition of “India” omitted by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956) .

2. Substituted by Act 37 of 1955, sec. 2 for the definition of word “banker” (w.e.f. 1-4-1956).

3. Definition of “notary public” omitted by Act 53 of 1952, sec.16 (w.e.f. 14-2-1956).

INTRODUCTION

In India, there is reason to believe that instrument to exchange were in use from early times and we find that papers representing money were introducing into the country by one of the Mohammedan sovereigns of Delhi in the early part of the fourtheenth century. The word ‘hundi’, a generic term used to denote instruments of exchange in vernacular is derived from the Sanskrit root ‘hund’ meaning ‘to collect’ and well expresses the purpose to which instruments were utilised in their origin. With the advent of British rule in India commercial activities increased to a great extent. The growing demands for money could not be met be mere supply of coins; and the instrument of credit took the function of money which they represented.

Before the enactment of the Negotiable Instrument Act, 1881, the law of negotiable instruments as prevalent in England was applied by the Courts in India when any question relating to such instruments arose between Europeans. When then parties were Hindu or Mohammedans, their personal law was held to apply. Though neither the law books of Hindu nor those of Mohammedans contain any reference to negotiable instruments as such, the customs prevailing among the merchants of the respective community were recognised by the courts and applied to the transactions among them. During the course of time there had developed in the country a strong body of usage relating to hundis, which even the Legislature could not without hardship to Indian bankers and merchants ignore. In fact, the Legislature felt the strength of such local usages and though fit to exempt them from the operation of the Act with a proviso that such usage may be excluded altogether by appropriate words. In the absence of any such customary law, the principles derived from English law were applied to the Indians as rules of equity justice and good conscience.

The history of the present Act is a long one. The Act was originally drafted in 1866 by the 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 (26 of 1881)

Chapter II – Of Notes, Bills And Cheques

Section 4. “Promissory note”.

A “promissory note” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument

Section 5. “Bill of exchange”.

A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

The sum payable may be “certain”, within the meaning of this section and section and section4, although it includes future indicated rater of change, or is according to the course of exchange, or is according to the course of exchange, and although the instrument provides that, on default of ayment of an installment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be a “certain person,” within the meaning of this section and section 4, although he is misnamed or designated by description only

Section 6. Cheque

¹[6. “Cheque”

A ”cheque” is a bill of exchange drawn on a specified banker and not expressedto 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 recognised as such by the Reserve Bank of India.]

1. Substituted for section 6 Act No. 55 of 2002, sec. 2 for “A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on damand” (w.e.f. 6-2-2003).

Section 7. Drawer, drawee

The maker of a bill of exchange or Cheque is called the “drawer”; the person thereby directed to pay is called the “Drawee”.

“Drawee in case of need “: When the bill or in any endorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in case of need”.

“Acceptor”: After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such part, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the “acceptor”.

“Acceptor for honour”: ¹[When a bill of exchange has been noted or protested for non-acceptance or for better security], and any person accepts it supra protest for honour of the drawer or of any one of the endorser, such person is called an “acceptor for honour”.

“Payee”: The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “payee”.

1. Substituted by Act 2 of 1885, sec. 2 for “When acceptance is refused and the bill is protested form on-acceptance”.

Section 8. “Holder”.

The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.

Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.

Section 9. “Holder in due course”.

“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorse thereof, if [payable to order] before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

1. Subs. by Act 8 of 1919, sec. 2, for “payable to, or to the order of, a payee.

Section 10. “Payment in due course”.

“Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

Section 11. “Inland instrument”.

A promissory note, bill of exchange or cheque drawn or made in [India] and made payable in, or drawn upon any person resident in, [Indian] shall be deemed to be an inland instrument.

1. Substituted by Act 36 of l957, sec. 3 and Sch. II, for wards” a State”.

Section 12. “Foreign instrument”.

Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument.

Section 13. “Negotiable instrument”.

[(1) 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 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 endorsements is an 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 or two, or one or some of several payees.]

1. Substituted by Act 8 of 1919, sec. 3, for sub-section (1).

2. Ins. by Act 5 of 1914, sec. 2.

Section 14. Negotiation.

When a promise note, bill of exchange or cheque is transferred to any person, so as to continue the person the holder thereof, the instrument is said to be negotiated.

Section 15. Endorsement.

When the marker or holder of an negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, one the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paperintended to be completed as a negotiable instrument, he is said to indorse the same, and is called the endorser.

Section 16. Endorsement in blank and in full-endorsee

¹[(1)] If the endorser signs his name only, the endorsement is said to be “in blank”, and if he adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the endorsement is said to be “in full”, and the person so specified is called the “endorsee” of the instrument.

²[(2) The provisions of this Act relating to a payee shall apply with the necessary modifications to an endorsee.]

1. Section 16 renumbered as sub-section. (1) by Act 5 of 1914, sec. 3.

2. Added by Act 5 of 1914, sec. 3.

Section 17. Ambiguous instruments.

Where an instrument may be construed either as a promissory note or bill of exchange, the holder may at his election treat it as either and the instrument shall be thenceforward treated accordingly.

Section 18. Where amount is stated differently in figures and words.

If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.

Section 19. Instruments payable on demand.

A promissory note or bill of exchange, in which no time for payment is specified, and, a cheque, are payable on demand.

Section 20.Inchoate stamped instruments.

Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in [India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as then case may be, upon it a negotiable instrument, instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount, provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.

1. Substituted by Act 3 of 1951, sec. 3 and Sch., for “the States”.

Section 21. “At sight”, “On presentment”, “After sight”.

In a promissory note or bill of exchange the expressions “at sight” and “on presentment” means on demand. The expression “after sight” means, in a promissory note, after presentment for sight, and, in a bill of exchange after acceptance, or noting for non-acceptance, or nothing for non-acceptance, or protest for non-acceptance.

Section 22. “Maturity”.

The maturity of a promissory note or bill of exchange is the date at which it falls due.

Days of grace.-Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.

Section 23. Calculating maturity of bill or note payable so many months after date or sight

In calculating the date at which a promissory note or bill of exchange, made payable at stated number of months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the day of months, which corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non-acceptance, or protested for non-acceptance, or the event happens or, where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honour, with the day on which it was so accepted. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month.

Illustrations

(a) A negotiable instrument dated 29th January, 1878, is made payable at one month after date. The instrument is at maturity on the third day after the 28th February, 1878.

(b) A negotiable instrument, dated 30th August, 1878, is made payable three months after date. The instrument is at maturity on the 3rd December, 1878.

(c) A promissory note or bill of exchange, dated 31st August, 1878, is made payable three months after date. The instrument is at maturity on the 3rd December, 1878.

Section 24. Calculating maturity of bill or note payable so many days after date so sight.

In calculating the date at which a promissory note or bill of exchange made payable a certain number of days after date of after sight or after a certain event is at maturity, the day of the date, or of presentment for acceptance or sight, or of protest for non-acceptance, or on which the event happens, shall be excluded.

Section 25. When day of maturity is a holiday

When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next preceding business day.

Explanation: The Expression “Public Holiday” includes Sunday” ¹[***] and any other day declared by the ²[Central Government], by notification in the Official Gazette, to be a public holiday.

1. Words “New-Year’s day, Christmas day: if either of such days falls on a Sunday, the next following Monday; Good Friday;” omitted by Act 37 of 1955, sec. 3 (w.e.f. 1-4-1956).

2. Substituted by the AO 1937, for “Local Government”.

Chapter III – Parties To Notes, Bills And Cheques

Section 26. Capacity to make, etc., promissory notes, etc.

Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.

Minor.- A minor may draw, indorse, deliver and negotiate such instruments to as to bind all parties except himself.

Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered.

Section 27. Agency.

Every person capable of binding himself or of being bound, as mentioned in section 26, may so bind himself or be bound by a duly authorised agent acting in his name.

A general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind his principal.

An authority to draw bills of exchange does not of itself impart an authority to endorse.

Section 28. Liability of agent signing.

An agent who sign his name to a promissory note, bill of exchange or cheque without indicating thereon that he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.

Section 29. Liability of legal representative signing.

A legal representative of a deceased person who sign his name to a promissory note, bill of exchange or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by him as such.

Section 30. Liability of drawer

The drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been give to, or received by, the drawer as hereinafter provided.

Section 31. Liability of drawee of cheque.

The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.

Section 32. Liability of maker of note and acceptor of bill.

In the absence of contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity according to the apparent tenor of the note or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand.

In default of such payment as aforesaid, such maker or acceptor is bound to compensate any party to the note or bill for any loss or damage sustained by him and caused by such default.

Section 33. Only drawee can be acceptor except in need for honour.

No person except the drawee of a bill of exchange, or all or some of several drawees, or a person named therein as a drawee in case of need, or an acceptor for honour, can bind himself by an acceptance.

Section 34. Acceptance by several drawee not partners.

Where there are several drawees of a bill of exchange who are not partners, each of them can accept if for himself, but non of the them can accept it for another without his authority.

Section 35. Liability of endorser.

In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity, without in such endorsement, expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonor, provided due notice of dishonour has been given to, or received by, such endorser as hereinafter provided.

Every endorser after dishonour is liable as upon an instrument payable on demand.

Section 36. Liability of prior parties to holder in due course.

Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.

Section 37. Maker, drawer and acceptor principals.

The maker of a promissory note or cheque, the drawer of bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.

Section 38. Prior party a principal in respect of each subsequent party.

As between the parties so liable as sureties, each prior party is, in the absence of a contract to the contrary. Also liable thereon as a principal debtor in respect of each subsequent party.

ILLUSTRATION

A draws a bill payable to his own order on B, who accepts, A afterwards endorses the bill to C, C to D to E. As between E and B, B is the principal debtor, and A, C and D are his sureties. As between E and A., A is the principal debtor, and C and D are his sureties. As between E and C, C is the principal debtor and D is his surety.

Section 39. Surety ship.

When the holder of an accepted bill of exchange enters into any contract with the acceptor which, under section 134 or 135 of the Indian Contract Act,1872 ( 9 of 1872), would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such case they are not discharged.

Section 40. Discharge of endorser’s liability.

Where the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorser’s remedy against a prior party, the endorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity.

Illustration

A is the holder of a bill of exchange made payable to the order of B, which contains the following endorsements in blank

First endorsement, “B”.

Second endorsement, “Peter Williams”.

Third endorsement, “Wright & Co.”.

Fourth endorsement “John Rozario”.

This bill A puts in suit against John Rozario and strikes out, without John Rosario’s consent, the endorsements by Peter Williams and Wright & Co. A is not entitled to recover any thing from John Rozario.

Section 41. Acceptor bound, although endorsement forged.

An acceptor of a bill of exchange already indorsed is not relieved from liability by reason that such endorsement is forged, if he knew or had reason to believe the endorsement to be forged when he accepted the bill.

Section 42. Acceptance of bill drawn in fictitious name.

An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer’s order is not, by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an endorsement by the same hand as the drawer’s signature, and purporting to be made by the drawer.

Section 43. Negotiable instrument made, etc., without consideration.

A negotiable instrument made, drawn, accepted, indorsed, or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without endorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.

Exception I.- No party for whose accommodation a negotiable instrument has been made, drawn, accepted or indorsed can, if he has paid the amount thereof, recover thereon such amount from any person who became a party to such instrument for his accommodation.

Exception II.-No party to the instrument who has induced any other party to make, draw, accept, indorse or transfer the same to him for a consideration which he has failed to pay or perform in full shall recover there in an amount exceeding the value of the consideration (if any) which he has actually paid or performed.

Section 44. Partial absence or failure of money-consideration.

When the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of money, and was originally absence in part relation with such signer id entitled to receive from him is proportionally reduced.

Explanation.-The drawer of a bill of exchange stands in immediate relating with the acceptor. The maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee, and the endorser with his endorsee. Other signers may by agreement stand in immediate relation with a holder.

Illustration

A draws a bill on B for Rs. 500 payable to the order of A. B accepts the bill, but subsequently dishonours it by non-payment. A sues B on the bill. B proves that it was accepted for value as to Rs. 400, and as an accommodation to the plaintiff as to the residue. A can only recover Rs. 400.

Section 45. Partial failure of consideration not consisting of money.

Where a part of the consideration for which a person signed a promissory note, bill of exchange or cheque, though not consisting of money, is ascertainable in money without collateral enquiry, and there has been a failure of that party, the sum which a holder standing in immediate relation with such signer is entitled to receive from him is proportionally reduced.

Section 45A. Holder’s right to duplicate of lost bill

¹[45A. Holder’s right to duplicate of lost bill

Where a bill of exchange has been lost before it is overdue, the person who was the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the drawer, if required, to indemnify him against all persons whatever in case the bill alleged to have been lost shall be found again.

If the drawer on request as aforesaid refuses to give such duplicate bill, he may be compelled to do so].

1. Inserted by Act 2 of 1885, sec. 3.

Chapter IV – Of Negotiation

Section 46. Delivery.

The making, acceptance or endorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive.

As between parties standing in immediate relation; delivery to be effectual must be made by the party making accepting or indorsing the instrument, or by a person authorised by him in that behalf.

As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purposes only, and not for the purpose of transferring absolutely the property therein.

A promissory note, bill of exchange or cheque payable to bearer is negotiable by the deliver thereof.

A promissory note, bill of exchange or cheque payable to bearer is negotiable by the deliver thereof.

Section 47. Negotiation by delivery.

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by deliver thereof.

Exception.-a promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable (except in the hands of a holder for value without notice of the condition) unless such event happens.

Section 48. Negotiation by endorsements.

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque [payable to order], is negotiable by the holder by endorsement and delivery thereof

1. Substituted by Act 8 of 1919, sec. 4, for “payable to the order of a specified person, or to a specified person or order”.

Section 49. Conversion of endorsement in blank into endorsement in full.

The holder of a negotiable instrument indorsed in blanks may, without signing his own name, by writing above the endorser’s signature a direction to pay to any other person as endorsee, convert the endorsement in full; and the holder does not thereby incur the responsibility of an endorser.

Section 50. Effect of indorsement.

The of a negotiable instrument followed by delivery transfers to the indorsee the property therein with the right of further negotiation; but the indorsement may be express words, restrict or exclude such right, or may merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser, or for some other specified person.

Section 51. Who may negotiate.

Every sole maker, drawer, payee or indorsee, or all of several joint makers, drawers, payee or indorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded as mentioned in section 50, indorse and negotiate the same.

Explanation.-Nothing in this section enables a maker or drawer to indorse or is holder thereof, or enables a payee or indorse to indorse or negotiate an instrument, unless he is holder thereof.

Section 52. Indorser who excludes his own liability or maker it conditional.

The indorser of a negotiable instrument may, by express words in the indorsement, exclude his own liability thereon, or make such liability or the right of the indorsee to receive the amount due thereon depend upon the happening of a specified event, although such event may never happen.

Where an indorser so excludes his liability and afterwards becomes the holder of the instrument all intermediate indorsers are liable to him.

Section 53. Holder deriving title from holder in due course.

a holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that holder in due course.

Section 54. Instrument indorsed in blank.

Subject to the provisions hereinafter contained crossed cheques, a negotiable instrument indorsed in blank is payable to the bearer thereof even although originally payable to order.

Section 55. Conversion of indorsement in blank into indorsement in full.

If a negotiable instrument, after having been indorsed in blank, is indorsed in full, the amount of it cannot be claimed from the indorser in full, except by the person to whom it has been indorsed in full, or by one who derives title through such person.

56. Indorsement for part of sum due.

No writing on a negotiable instrument is valid for the purpose of negotiation of such writing purports to transfer only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid a note to that effect may be indorsed on the instrument, which may then be negotiated for the balance.

Section 57. Legal representative cannot by delivery only negotiate instrument indorsed by deceased.

The legal representative of a deceased person cannot negotiate by delivery only a promissory note, bill of exchange or cheque payable to order and indorsed by the deceased but not delivered.

Section 58. Instrument obtained by unlawful means or for unlawful consideration.

When a negotiable instrument has been lost, or has been obtained form any maker, acceptor or holder thereof by means of offence or fraud, or for an unlawful consideration, no possessor or indorsee who claims through the person who found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee is, or some person through whom he claims was, a holder thereof in due course.

Section 59. Instrument acquired after dishonour or when overdue.

The holder of a negotiable instrument, who has acquired it after dishonour, whether by non-acceptance or non-payment, with notice thereof, or after maturity, has only, as against the other parties, the rights thereon of his transferor;

Accommodation note or bill.- Provided that any person who, in good faith and for consideration, becomes the holder, after maturity, of a promissory note or bill of exchange made, drawn or accepted without consideration, for the purpose of enabling some party thereto to raise money thereon, may recover the amount of the note or bill from any prior party.

Illustration

The acceptor of a bill of exchange, when he accepted it, deposited with the drawer certain goods as a collateral security for the payment of the bill, with power to the drawer to sell the goods and apply the proceeds in discharge of the bill if it were not paid at maturity. The bill not having been paid in maturity, the drawer sold the goods and retained the proceeds, but endorsed the bill to A.. A’s title is subject to the same objection as the drawer’s title.

Section 60. Instrument negotiable till payment or satisfaction.

A negotiable instrument may be negotiated (except by the maker, drawee or acceptor after maturity) until payment or satisfaction thereof by the maker, drawee or acceptor at or after maturity, but not after sect payment or satisfaction.

Chapter V – Of Presentment

Section 61. Presentment for acceptance.

A bill of exchange payable after sight must, if no time or place is specified therein for presentment, be presented to the draweee thereof for acceptance, if he can, after reasonable search, be found, by a person entitled to demand acceptance, within a reasonable time after it is drawn, and in business hours on a business day, in default of such presentment, on party thereto is liable thereon to the person making such default. If the drawee cannot, after reasonable search, be found, the bill is dishonoured.

If the bill is directed to the drawee at a particular place, it must be presented at that place, and if art the due date for presentment he cannot, after reasonable search, be found thereon, the bill is dishonoured.

[Where authorized by agreement or usage, a presentment through the post office by means of a registered letter is sufficient.]

1. Added by Act 2 of 1885, sec. 4.

Section 62. Presentment of promissory note for sight.

A promissory note, payable at a certain period after sight must be presented to the maker thereof for sight ( if he can after reasonable search be found ) by a person entitled to demand payment, within a reasonable time after it is made and in business hours on a business day. In default of such presentment, no party thereto is liable thereon to the person making such default.

Section 63. Drawee’s time for deliberation.

The holder must, if so required by the drawee of a bill of exchange presented to him for acceptance, allow the drawee [forty –eight ] hours (exclusive of public holidays ) to consider whether he will accept it.

1. Substituted by Act l2 of 1921, sec. 2 for “twenty-four”.

Section 63. Drawee’s time for deliberation.

The holder must, if so required by the drawee of a bill of exchange presented to him for acceptance, allow the drawee [forty –eight ] hours (exclusive of public holidays ) to consider whether he will accept it.

1. Substituted by Act l2 of 1921, sec. 2 for “twenty-four”.

Section 64. Presentment for payment

¹[(1)] Promissory notes, bill of exchange and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf or the holder as hereinafter provided. In default of such presentment, the other parties thereto are not liable thereon to such holder.

²[Where authorized by agreement or usage, a presentment through the post office by means of a registered letter is sufficient.]

Exception:-Where a promissory note is payable on demand and is not payable at a specified place, no presentment is necessary in order to charge the maker thereof.

³[“(2) Notwithstanding anything contained in section 6, where an electronic image of a truncated cheque is presented for payment, the drawee bank is entitled to demand any further information regarding the truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled to further demand the presentment of the truncated cheque itself for verification:

Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if the payment is made accordingly.]

1. Section 64 renumbered as sub-section (1) thereof by Act 55 of 2002, sec. 3 (w.e.f. 6-2-2003).

2. Inserted by Act 2 of 1885, sec. 4.

3. Inserted by Act No. 55 of 2002. sec. 3 (w.e.f. 6-2-2003)

Section 65. Honours for presentment.

Presentment for payment must be made during the usual hours of business and, if at a banker’s, within banking hours.

Section 66. Presentment for payment of instrument payable after date or sight.

a promissory note or bill of exchange, made payable at a specified period after date or sight thereof, must be presented for payment at maturity.

Section 67. Presentment for payment of promissory note payable by instalments.

A promissory note payable by instalments must be presented for payment on the third day after the date fixed for payment of each instalment; and non-payment on such presentment has the same effect as non-payment of a note at maturity.

Section 68. Presentment for payment of instrument payable at specified place and not elsewhere.

A promissory note, bill of exchange or cheque made, drawn or accepted payable at a specified place and not elsewhere must, in order to charge any party thereto, be presented for payment at that place.

Section 69. Instrument payable at specified place.

A promissory note or bill of exchange made, drawn or accepted payable at a specified place must, in order to charge the maker or drawer thereof, be presented at the place.

Section 70.- Presentment where no exclusive place specified.

A promissory note or bill of exchange, not made payable as mentioned in section 68 and 69, must be presented for payment at the place of business (if any), or at the usual residence, of the maker, drawee or acceptor thereof, as the case may be.

Section 71. Presentment when maker, etc., has no known place of business or residence.

If the maker, drawee or acceptor of a negotiable instrument has no known place of business or fixed residence, and no place is specified in the instrument for presentment for acceptance or payment such presentment may be made to him in person wherever he can be found.

Section 72. Presentment of cheque to charge drawer.

[Subject to the provisions of section 84] a cheque must, in order to charge the drawer, be presented at the bank upon which it is drawn before the relation between the drawer and his banker has been altered to the prejudice of the drawer.

1. Inserted by Act 6 of 1897, sec. 2

Section 73. Presentment of cheque to charge any other person.

A cheque must, in order to charge any person except the drawer, be presented within a reasonable time after delivery thereof by such person.

Section 74. Presentment of instrument payable on demand.

Subject to the provisions of section 31, a negotiable instrument payable on demand must be presented for payment within a reasonable time after it is received by the holder receives it.

Section 75. Presentment by or to agent, representative of deceased, or assignee of insolvent.

Presentment for acceptance or payment may be made to the duly authorized agent of the drawee, maker or acceptor, as the case may be, or, where the drawee, maker or acceptor has died, to his legal representative, or, where he has been declared an insolvent, to his assignee.

Section 75A. Excuse for delay in presentment for acceptance or payment

¹[75A. Excuse for delay in presentment for acceptance or payment

Delay in presentment ²[for acceptance of payment] is excused if the delay is caused by circumstances beyond the control of the holder, and not imputable to his default, misconduct or negligence. When the cause of the delay ceases to operate, presentment must be made within a reasonable time.]

1. Inserted by Act 25 of 1920, sec. 2.

2. Subs. by Act 12 of 1921, sec. 3, for “for payment”

Section 76. When presentment unnecessary.

No presentment for payment is necessary, and the instrument is dishonoured at the due date for presentment, in any of the following cases:

(a) if the maker, drawee or acceptor intentionally prevents the presentment of the instrument, or if the instrument being payable at his place of business, he closes such place on a business day during the usual business hours, or if the instrument being payable at some other specified place, neither he nor any person authorized to pay it attends at such place during the usual business hours, or if the instrument not being payable at any specified place, he cannot after due search be found;

(b) as against any party sought to be charged therewith, if he has engaged to pay notwithstanding non-presentment ;

(c) as against any party if, after maturity, with knowledge that the instrument has not been presented.- he makes a part payment on account of the amount due on the instrument, or promises to pay the amount due therein whole or in part, or otherwise waives his right to take advantage of any default in presentment for payment;

(d) as against the drawer, if the drawer could not suffer damage from the want of such presentment.

Section 77. Liability of banker for negligently dealing with bill presented for payment.

When a bill of exchange, accepted payable at a specified bank, has been duly presented there for payment and dishonoured, if the banker so negligently or improperly keeps, deals with or delivers back such bill as to cause loss to the holder, he must compensate the holder for such loss.

Chapter VI – Of Payment And Interest

Section 78. To whom payment should be made.

Subject to the provisions of section82, clause (c), payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the instrument.

Section 79. Interest when rate specified.

When interest at a specified rate is expressly made payable on a promissory note or bill of exchange , interest shall be calculated at the rate specified, on the amount of the principal money due thereon, from the date of the instrument, until tender or realization of such amount, or until such date after the institution of a suit to recover such amount as the Court directs.

Section 80. Interest when no rate specified.

When no rate of interest is specified in the instrument, interest on the amount due thereon shall, [notwithstanding any agreement relating to interest between any parties to the instrument], be calculated at the rate of [eighteen per centum] per annum, from the date at which the same ought to have been paid by the party charged, until tender or realization of the amount due thereon, or until such date after the institution of a suit to recover such amount as the Court directs.

Explanation.- When the party charged is the endorser of an instrument dishonoured by non-payment, he his liable to pay interest only form the time that he receives notice of the dishonour.

1. Substituted by Act 30, of 1926, sec. 2 for “except in case provided for by the Code of Civil Procedure, section 532″.

2. Substituted by Act 66 of 1988, sec. 2 for ‘six per centum’ (w.e.f. 30-12-1988).

Section 81. Delivery of instrument on payment or indemnity in case of loss

¹[(1)] Any person liable to pay, and called upon by the holder thereof to pay, the amount due on a promissory note, but of exchange or cheque is before payment entitled to have it shown, is on payment entitled to have it delivered up to him, or, if the instrument is lost or cannot be produced, to be indemnified against any further claim thereon against him.

²[(2) Where the cheque is an electronic image of a truncated cheque, even after the payment the banker who received the payment shall be entitled to retain the truncated cheque.

(3) A certificate issued on the foot of the printout of the electronic image of a truncated cheque by the banker who paid the instrument, shall be prima facie proof of such payment.]

1. Section 81 renumbered as sub-section (1) thereof by Act 55of 2002, sec. 4 (w.e.f. 6-2-2003).

2. Inserted by Act 55 of 2002, sec. 4 (w.e.f. 6-2-2003).

Chapter VII – Of Discharge From Liability On Notes, Bills And Cheques

Section 82. Discharge from liability.

The maker, acceptor or indorser respectively of a negotiable instrument is discharged from liability thereon

(a) BY cancellation.-to a holder thereof who cancels such acceptor’s or indorser’s name with intent to discharge him, and to all parties claiming under such holder;

(b) By release- to a holder thereof who otherwise discharges such maker, acceptor or indorser, and to all parties deriving title under such holder after notice of such discharge;

(c) By payment- to all parties thereto, if the instrument is payable to bearer, or has been indorsed in blank, and such maker, acceptor or indorser makes payment in due course of the amount due thereon.

Section 83. Discharge by allowing drawee more than forty-eight hours to accept.

If the holder of a bill of exchange allows the drawee more than [forty eight] hours, exclusive of public holidays, to consider whether he will accept the same, all previous parties not consenting to such allowance are thereby discharged from liability to such holder.

1. Substituted by Act 12 of 1921, sec. 2 for “twenty-four”.

Section 84. When cheque not duly presented any drawer damaged thereby.

(1) Where a cheque is not presented for payment within a reasonable time of its issue, and the drawer or person on whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a large amount than he would have been if such cheque had been paid.

(2) In determining what is a reasonable time, regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case.

(3) The holder of the cheque as to which such drawer or person is so discharged shall be a creditor, in lieu of such drawer or person, of such banker to the extent of such discharge and entitled to recover the amount from him.

Illustrations

(a) A draws a cheque for Rs. 1,000, and, when the cheque ought to be presented, has funds at the bank to meet it. The bank fails before the cheque is presented. The drawer is discharged, but the holder can prove against the bank for the amount of the cheque.

(b) A draws a cheque at Umballa on a bank in Calcutta. The bank fails before the cheque could be presented in ordinary course. A is not discharged, for he has not suffered actual damage through any delay in presenting the cheque.

1. Substituted by Act 6 of 1897, sec. 3 for section 84.

Section 85. Cheque payable to order

¹[(1)] Where a cheque payable to order purports to be endorsed by or on behalf of he payee, the drawee is discharged by payment in sue course.

²[(2) Where a cheque is originally expressed to be payable to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict of exclude further negotiation.]

1. Section 85 re-numbered as sub-section. (1) thereof by Act 17 of 1934, sec. 2.

2. Inserted by Act 17 of 1934, sec. 2.

Section 85A. Drafts drawn by one branch of a bank on another payable to order

¹[85A. Drafts drawn by one branch of a bank on another payable to order

Where any draft, that is an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be endorsed by or behalf of the payee, the bank is discharged by payment in due course.]

1. Inserted by Act 25 of 1930, sec. 2.

Section 86. Parties not consenting discharged by qualified or limited acceptance.

If the holder of a bill of exchange acquiesces in qualified acceptance, or one limited to part of the sum mentioned in the bill, or which substituted a different place or time for payment or which, where the drawees are not partners, is not signed by all the drawees, all previous parties whose consent is not obtained to such acceptance are discharged as against the holder and those claiming under him, unless on notice given by the holder they assent to such acceptance.

Explanation.-An acceptance is qualified

(a) where it is conditional, declaring the payment to be dependent or the happening of an event therein stated;

(b) where it undertakes the payment of part only of the sum ordered to be paid;

(c) where, no place of payment being specified on the order, it undertakes the payment at a specified place, and not otherwise or elsewhere, or where a place of payment being specified in the order, it undertakes the payment at some other place and not otherwise or elsewhere;

(d) where it undertakes the payment at a time other than that at which under the order or would be legally due.

Section 87. Affect of material alteration.

Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties;

Alteration by endorsee:- And any such alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof.

The provisions of this section are subject to those of sections 20, 49, 86 and 125.

Section 88. Acceptor or endorser bound notwithstanding previous alteration.

An acceptor or endorser of a negotiable instrument is bound by the acceptance or endorsement notwithstanding any previous alteration of the instrument.

Section 89. Payment of instrument on which alteration is not apparent

¹[(1)] Where a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been so altered, or where a cheque is presented for payment which does not at the time of presentation appear to be crossed or to have had a crossing which has been obliterated, payment thereof by a person or banker liable to pay an paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such person or banker liable to pay and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such a person or banker from all liability thereon, and such payment shall not be questioned by reasons of the instrument having been altered, or the cheque crossed.

²[(2) Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image.

(3) Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.]

1. Section 89 re-numbered as sub-section (1) thereof by Act 55 of 2002, sec. 5 (w.e.f. 6-2-2003).

2. Ins. by Act 55 of 2002, sec. 5 (w.e.f. 6-2-2003).

Section 90. Extinguishments of rights of action on bill in acceptor’s hands.

If a bill of exchange which has been negotiated is, at or after maturity, held by the acceptor in his own right, all rights of action thereon are extinguished.

Chapter VIII – Of Notice Of Dishonor

Section 91. Dishonor by non- acceptance.

A bill of exchange is said to be dishonored by non-acceptance when the drawee, or one of several drawee not being partners, makes default in acceptance upon being duly required to accept the bill, or where presentment is excused and the bill is not accepted. Where the drawee is incompetent to contract, or the acceptance is qualified the bill may be treated as dishonored

Section 92. Dishonors by non-payment.

A promissory note, bill of exchange or cheque is said to be dishonored by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.

Section 93. By and to whom notice should be given.

When a promissory note, bill of exchange or cheque is dishonored by non-payment, the holder thereof, or some party thereto who remains liable thereon, must given notice that the instrument has been so dishonored to all other parties whom the holder seeks to make severally liable thereon, and to some one of several partied whom he seeks to make jointly liable thereon.

Nothing in this section renders it necessary to give notice to the maker of the dishonored promissory note, or acceptor of the dishonored bill of exchange or cheque.

Section 94. Mode in which notice may be given.

Notice of dishonor may be given to a duly authorized agent of the person to whom it is required to be given, or , where he has died, to his legal representative, or, where he has been declared an insolvent, to his assignee, maybe oral or written, may, if written, be sent by post, and may be in any form, but it must inform the party to whom it is given, either in express terms or by reasonable intendment that the instrument has been dishonored, and in what way, and that he will be held liable thereon, and it must be given within a reasonable time after dishonor, at the place of business or (in case such party has no place of business) at the residence of the party for whom it is intended.

IF the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice invalid.

Section 95. Party receiving must transmit notice of dishonor.

Any party receiving notice of dishonor must in order to render any prior party liable to himself, give notice of dishonor to such party within a reasonable time , unless such party otherwise receives due notice as provided by section 93.

Section 96. Agent for presentment.

When the instrument is deposited with an agent for presentment, the agent is entitled to the same time to give notice to his principal as if he were the holder giving notice of dishonor, and the principal is entitled to a further like period to give notice of dishonor.

Section 97. When party to whom notice given is dead.

When the party to whom notice of dishonor is dispatched is dead, but the party dispatching the notice is ignorant of his death, the notice is sufficient.

Section 98. When notice of dishonor is unnecessary.

Notice of dishonor is necessary

(a) when it is dispensed with by the party entitled thereto

(b) in order to charge the drawer, when he has countermanded payment

(c) when the party charged could not suffer damage for want of notice

(d) when the party entitled to notice cannot after due search be found, or the party bound to give notice is, for any other reason, unable without any fault of his own to give it.

(e) to charge the drawers, when the acceptors is also a drawer.

(f) in the case of a promissory note which is not negotiable.

(g) when the party entitled to notice, knowing the facts, promise unconditionally to pay the amount due on the instrument.

Chapter IX – No Noting And Protest

Section 99. Noting.

When a promissory note or bill of exchange has been dishonored non-acceptance or non-payment, the holder may cause such dishonor to be noted by a notary public upon the instrument, or upon a paper attached thereto, or partly upon each.

Such note must be made within a reasonable time after dishonor, and must specify the date of dishonor, the reason, if any, assigned for such dishonor, or, if the instrument has not been expressly dishonored, the reason why the holder treats it as dishonored, and the notary’s charges.

Section 100. Protest.

When a promissory note or bill of exchange has been dishonored by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonor to be noted and certified by a notary public. Such dishonor to be noted and certified by a notary public. Such certificate is called a protest.

Protest for bitter security.- When the acceptor of a bill of exchange has become insolvent, or his credit has been publicly impeached, before the maturity of the bill, the holder may, within a reasonable time, cause a notary public to demand better security of the acceptor, and on its being refused may, with a reasonable time, cause such facts to be noted and certified as aforesaid. Such certificate is called a protest for better security.

Section 101. Contents of protest.

A protest under section 100mmust contain

(a) either the instrument itself, or a literal transcript of the instrument and of everything written or printed thereupon;

(b) the name of the person for whom and against whom the instrument has been protested;

(c) a statement that payment or acceptance, or better security, as the case may be, has been demanded of such person by the notary public; the terms of his answer, if any, or a statement that he could not be found;

(d) when the note or bill has been dishonored, the place and time of dishonor, and, when better security has been refused, the place and time of refusal;

(e) the subscription of the notary public making the protest;

(f) in the event of an acceptance for honor or of a payment for honor, the name of the person by whom, of the person whom, and the manner in which, such acceptance or payment was offered and effected.

¹[A notary public may make the demand mentioned in clause (c) of this section either person or by his clerk or, were authorised by agreement or usage, by registered letter.]

1. Added by Act 2 of 1885, sec. 5.

Section 102. Notice of protest.

When a promissory note or bill of exchange is required by law to be protested; notice of such protest must be given instead of notice of dishonor, in the same manner and subject to the same conditions; but the notice may be given by the notary public who makes the protest.

Section 103. Protest of non-payment after dishonor by non-acceptance.

All bills of exchange drawn payable at some other place than the place mentioned as the residence of the drawee, and which are dishonored by non-acceptance, may, without further presentment to the drawee, be protested for non-payment, in the place specified for payment, unless paid before or at maturity.

Section 104. Protest of foreign bills.

Foreign bills of exchange must be protested for dishonor when such protest is required by the law of the place where they are drawn.

Section 104A. When noting equivalent to protest

¹[104A.When noting equivalent to protest

For the purpose of this Act, where a bill of notes is required to be protested within a specified time or before some further proceeding is taken is it sufficient that the bill has been noted for protest before the expiration of the specified time or the taking of the proceeding; and the formal protest may be extended at any time thereafter as of the date of the noting.]

1. Inserted by Act 2 of 1885, sec. 6.

Chapter X – Of Reasonable Time

Section 105. Reasonable time.

In determining what is a reasonable time for presentment for acceptance or payment, for giving notice of dishonor and for noting, regard shall be had to the nature of the instrument and the usual course of dealing with respect to similar instruments; and., in calculating such time, public holidays shall be excluded.

Section 106. Reasonable time of giving notice of dishonor.

If the holder and the party to whom notice of dishonor is give carry on business or live (as the case may be) in different places, such notice is given within a reasonable time if it is dispatched by the next post or on the day next after the day of dishonor.

If the said parties carry on business or live in the same place, such notice is given within a reasonable time if it is dispatched in time to reach its destination on the day next after the day of dishonor.

Section 107. Reasonable time for transmitting such notice.

A party receiving notice of dishonor, who seeks to enforce his right against a prior party, transmits the notice within a reasonable time if he transmits it within the same time after its receipt as he would have had to give notice if he had been the holder.

Chapter XI – Of Acceptance And Payment For Honor And Reference In Case Of Need

Section 108. Acceptance for honour

When a bill of exchange has been noted or protested for non-acceptance or for better security, any person not being a party already liable thereon may, with the consent of the holder, by writing on the bill accept the same for the honour of any party thereto.

¹[* * *].

1. Second sentence omitted by Act 2 of 1985, sec. 7.

Section 109. How acceptance for honour must be made

A person desiring to accept for honour must, ¹[by writing on the bill under his hand], declare that he accepts under protest the protested bill for the honour of the drawer or of a particular endorser whom he names, or generally for honour ²[* * *].

1. Substituted by Act 2 of 1885, section. 8, for “in the presence of a notary public, subscribe the bill with his own hand, and”.

2. The Words “and such declaration must be recorded by the notary in his register” omitted by Act 2 of 1885, section 8.

Section 110. Acceptance not specifying for whose honor it is made.

Where the acceptance does not express for whose honor it is made for the honor of the drawer.

Section 111. Liability of acceptor for honor.

An acceptor for honor binds himself to all parties subsequent to the party for whose honor he accepts to pay the amount of the bill if the drawee do not; and such party and all prior parties are liable in their respective capacities to compensate the acceptor for honor for all loss or damage sustained by him in consequence of such acceptance.

But an acceptor for honor is not liable to the holder of the bill unless it is presented, or (in case the address given by such acceptor on the bill is a place other than the place where the bill is made payable) forwarded for presentment, not later than the day next after the day of its maturity.

Section 112. When acceptor for honor may be charged.

An acceptor for honor cannot be charged unless the bill has at its maturity been presented to the drawee for payment, and has been dishonored by him, and noted or protested for such dishonor.

Section 113. Payment for honour

When a bill of exchange has been noted or protested for non-payment, any person may pay the same for the honour of any part liable to pay the same; provided that the person so paying ¹[or his agent in that behalf] has previously declared before a notary public the party for whose honour he pays, and that such declaration has been recorded by such notary public.

1. Inserted by Act 2 of 1885, Section 9.

Section 114. Right of payer for honor.

Any person so paying is entitled to all the rights in respect of the bill, of the holder at the time of such payment, and may recover from the party for whose honor he pays all sums so paid, with interest thereon and with all expenses properly incurred in making such payment.

Section 115. Drawee in case of need

Where a drawee in case of need is named in a bill of exchange, or in any endorsement thereon, the bill is not dishonored until it has been dishonored by such drawee.

Section 116. Acceptance and payment without protest

A drawee in case of need may accept and pay the bill of exchange without previous protest.

Chapter XII – Of Compensation

Section 117. Rules as to compensation

The compensation payable in case of dishonour of promissory note, bill of exchange or cheque, by any party liable to the holder or any indorsee, shall ¹[***] be determined by the following rules:

(a) The holder is entitled to the amount due upon the instrument together with the expense property incurred in presenting, noting and protesting it;

(b) When the person charged resides at a place different from that at which the instrument was payable, the holder is entitled to receive such sum at the current rate of exchange between the two places;

(c) An endorser who, being liable, has paid the amount due on the same is entitled to the amount so paid with interest at ²[eighteen per centum] per annum from the date of payment until tender or realisation thereof, together with all expenses caused by the dishonour and payment.

(d) When the person charged and such endorser resides at different places, the endorser is entitled to receive such sum at the current rate of exchange between the two places;

(e) The party entitled to compensation may draw a bill upon the party, liable to compensate him, payable at sight or on demand, for the amount due to him, together with all expenses properly incurred by him. Such bill must be accompanied by the instrument dishonoured and the protest thereof (if any). If such bill is dishonoured , the party dishonoring the same is liable to make compensation thereof in the same manner as in the case of the original bill.

1. The words figure and brackets “(except in cases provided for by the Code of Civil Procedure’ sections 532)” omitted by Act 30 of 1926, section 3.

2. Substituted by Act 66 of 1988, section 3 for ‘six per centum’ (w.e.f. 30-12-1988).

Chapter XIII – Special Rules  Of Evidence

Section 118. Presumptions as to negotiable instruments of consideration

Until the contrary is proved, the following presumptions shall be made:

(a) of consideration-that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;

(b) as to date- that every negotiable instrument bearing a date was made or drawn on such date;

(c) as to time of acceptance- that every accepted bill of exchange was accepted within a reasonable time after its date its date and before its maturity;

(d) as to time of transfer.- that every transfer of a negotiable instrument was made before its maturity;

(e) as to order of endorsements – that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;

(f) as to stamps-that a lost promissory note, bill of exchange or cheque was duly stamped;

(g) that holder is a holder in due course – that the holder of a negotiable instrument is a holder in due course; provided that, where the instrument has been contained from its lawful owner, or form any person in lawful custody thereof, by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.

Section 119. Presumption on proof of protest

In a suit upon an instrument which has been dishonored, the Court shall, on proof of the protest, presume the fact of dishonor, unless and until such fact is disproved.

Section 120. Estoppels against denying original validity of instrument

No maker of a promissory note, and no drawer of a bill of exchange or cheque, and no acceptor of a bill of exchange for the honor of the drawer shall, on proof of the protest, presume the fact of dishonor, unless and until validity of the instrument as originally made or drawn.

Section 121. Estoppel against denying capacity of payee to endorse

No maker of a promissory note and no acceptor of a bill of exchange or cheque, and no acceptor of a bill of exchange ¹[payable to order] shall, in suit thereon by a holder in due course, be permitted to deny the payee’s capacity, at the rate or the note or bill, to endorse the same.

1. Substituted by Act 8 of 1919, sec. 5 for “payable to, or to the order of, a specified person”.

Section 122. Estoppels against denying signature or capacity of prior party

No. endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity to contract to contract of any prior party to the instrument.

Chapter XIV – Of Crossed Cheques

Section 123. 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

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.

Section 125. Crossing after issue

Where a cheque is uncrossed, the holder may cross it generally or specially.

Where a cheque is crossed generally, the holder may cross it specially.

Where a cheque is crossed generally or specially, the holder may add the words “not negotiable”.

Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to another banker, his agent, for collection.

Section 126. Payment of cheque crossed generally

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.

Section 127. Payment of cheque crossed specially more than once

Where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.

Section 128. Payment in due course of crossed cheque

Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof.

Section 129. Payment of cheque crossed specially more than once

Any banker paying a cheque crossed generally otherwise than to a banker or a cheque crossed specially otherwise than to the banker to whom the same is crossed, or his agent for collection, being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.

Section 130. Cheque bearing “not negotiable”

A person taking a cheque crossed generally or specially, bearing in either case the words “not negotiable”, shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had.

Section 131. Non-liability of banker receiving payment of cheque

A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.

¹[²[Explanation I]:- A banker receives payment of a crossed cheque for a crossed cheque for a customer within the meaning of his section notwithstanding that he credits his customer’s accounts with the amount of the cheque before receiving payment thereof].

³[“Explanation II:- It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.

1. Added by Act 18 of 1922, sec. 2.

2. Explanation re-numbered as Explanation I thereof by Act 55 of 2002, sec. 6 (w.e.f. 6-2-2003).

3. Inserted by Act 55 of 2002, sec. 6 (w.e.f. 6-2-2003).

Section 131A. Application of chapter to drafts

¹[131A.Application of chapter to drafts

The provisions of this chapter shall apply to any draft, as defined in section 85A, as if the draft were a cheque.

1. Added by Act 33 of 1947, section 2.

Chapter XV – Of Bills In Sets

Section 132. Set of bills

Bills of exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue payable only so long as the others remain unpaid. All the parts together make a set; but the whole set constitutes only one bill, and is extinguished when one of the parts if a separate bill, would be extinguished.

Exception:- When a person accepts or indorses different parts of the bill in favour of different persons, he hand the subsequent endorsers of each are liable on such part as if it were a separate bill.

Section 133. Holder of first acquired part entitled to all

As between holders in due course of different parts of the same set, he who first acquired title to his part is entitled to the other parts and the money represented by the bill.

Chapter XVI – Of International Law

Section 134. Law governing liability of maker, acceptor or endorser of foreign instrument

In the absence of a contract to the contrary, the liability of the maker of drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and endorser by the law of the place where the instrument is made payable.

Illustration

A bill of exchange was drawn by A California where the rate of interest is 25 percent, and accepted by B, payable in Washington where the rate of interest is 6 per cent. The bill is endorsed in ¹[India], and is dishonoured. An action on the bill is brought against B in ¹[India]. He is liable to pay interest at the rate of 6 per cent, only; but if A is charged as drawer, A is liable to pay interest at the rate of 25 percent.

1. Subs. by Act 3 of 1951, sec. 3 and Sch., for “the State”

Section 135. Law of place of payment governs dishonours

Where a promissory note, bill of exchange or cheque is made -payable in a different place from that in which it is made or endorsed, the law of the place, where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient.

Illustration

A bill of exchange drawn and endorsed in ¹[India], but accepted payable in France, is dishonoured. The endorsee cause it to be protested for such dishonour, and gives notice thereof in accordance with the law of France through not in accordance with the rules herein contained in respect of bills which are no! foreign. The notice is sufficient.

1. Subs. by Act 3 of 1951, sec. 3 and Sch., for “the State”.

Section 136. Instrument made, etc. out of India, but in accordance with the law of India

If a negotiable instrument is made, drawn accepted or endorsed 1[outside India], but in accordance with the ¹[law of India] the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or endorsement made thereon ¹[within India]

1. The words “out of British India” were successively amended by the A.O. 1948, the A.O. 1950 and Act 3 of 1951, sec. 3 and Sch to read abobe.

Section 137. Presumption as to foreign law

The law of any foreign country ¹[* * *] regarding promissory note, bills of exchange and cheques shall be presumed to be the same as that of ²[India], unless and until the contrary is proved.

1. The words “or the State Jammu and Kashmir” omitted by Act 62 of 1956, sec. 2 and Sch.

2. Subs. by Act 3 of 1951, sec. 3 and Sch., for “the State”.

Chapter XVII – Of Penalties In  Case Of Dishonor Of Certain Cheque For Insufficiency Of Funds In The Accounts

Section 138. Dishonour of cheque for insufficiency, etc., of funds in the accounts

¹[CHAPTER XVII]

OF PENALTIES IN CASE OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNTS

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for ²[“a term which may extend to two year”], or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless

(a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

(b) The payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, ³[“within thirty days”] of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and

(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability].

OBJECTS AND REASONS OF AMENDING ACT OF 2002

The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due fo insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The existing provisions in the Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques, Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matters has been found to be cumbersome. The Courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act- (Para 1)

Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments, Act, 1881, namely:

(i) to increase the punishment as prescribed under the Act from one year to two years;

(ii) to increase the period for issue of notice by the payee to the drawer from 15 days to 30 days; (Para 4)

1. Inserted by Act 66 of 1988, , sec. 4 (w.e.f. 1-4-1989). Earlier Chapter XVII relating to ” Notaries Public” Inserted by Act 2 of 1985, sec. 10, was replaced by the Notaries Act, 1952 (53 of 1952), sec. 16 (w.e.f. 14-2-1956).

2. Substituted by Act 55 0f 2002, sec. 7 for “a term which may extended to one year” (w.e.f. 6-2-2003).

3. Substituted by Act 55 of 2002, sec. 7, for “within Fifteen days” (w.e.f. 6-2-2003).

Section 139. Presumption in favour of holder

¹[Presumption in favour of holder

It shall be presumed, unless the Contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, or any debt or other liability].

1. Ins. by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989).

Section 140. Defence which may not be allowed in any prosecution under section 138

¹[Defence which may not be allowed in any prosecution under section 138 It shall not be a defence in a prosecution of an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section].

1. Ins. by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989)

Section 141- Offences by companies.

¹[Offences by companies.

(1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and proceeded against and punished accordingly];

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.

²[“Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.]

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any director, Manager, secretary, or other office of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation: For the purpose of this section.

(a) “Company” means any body corporate and includes a firm or other association of individuals; and

(b) “Director”, in relating to a firm, means a partner in the firm.

OBJECTS AND REASONS OF AMENDING ACT OF 2002

The existing provisions in the Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matters has been found to be cumbersome. The Courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act

Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments, Act, 1881, namely:

(viii) to exempt those directors from prosecution under section 141 of the Act who are nominated as directors of a company by virtue of their holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government, or the State Government, as the case may be;

1. Ins by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989).

2. Ins. by Act 55 of 2002, sec. 8 (w.e.f. 6-2-2003).

Section 142. Cognizance of offences

¹[Cognizance of offences

Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974).

(a) No court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) Such complaint is made within one month of the date on which the cause of action arises under clause (C) of the proviso to section 138:

²[“Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.]

(c) No court inferior to that of a Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138].

OBJECTS AND REASONS OF AMENDING ACT OF 2002

Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments, Act, 1881, namely:

(iii) to provided discretion to the Court to waive the period of one month, which has been prescribed for taking cognizance of case under the Act;

1. Ins. by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989).

2. Ins. by Act 55 of 2002, sec. 9 (w.e.f. 6-2-2003).

Section 143. Power of Court to try cases summarily.

¹[143. Power of Court to try cases summarily.

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) all offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials:

Provided that in the case of any conviction in a summary trial under this section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees:

Provided further that when at the commencement of, or in the course of, a summary trial under this section, it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.

(2) The trial of a case under this section shall, so far as practicable, consistently with the interests of justice, be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.

(3) Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.]

1. Section 143 to 147 ins. by Act 55 of 2002, sec. 10 (w.e.f. 6-2-2003).

Section 144. Mode of service of summons.

¹[Mode of service of summons.

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974) and for the purposes of this Chapter, a Magistrate issuing a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness ordinarily resides or carries on business or personally works for gain, by speed post or by such courier services as are approved by a Court of Session.

(2) Where an acknowledgment purporting to be signed by the accused or the witness or an endorsement purported to be made by any person authorised by the postal department or the courier services that the accused or the witness refused to take delivery of summons has been received, the Court issuing the summons may declare that the summons has been duly served.

1. Section 143 to 147 ins. by Act 55 of 2002, sec. 10 (w.e.f. 6-2-2003).

Section 145. Evidence on affidavit.

¹[Evidence on affidavit.

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974.) the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding under the said Code.

(2) The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.]

1. Section 143 to 147 ins. by Act 55 of 2002, sec. 10 (w.e.f. 6-2-2003).

Section 146. Bank’s slip prima facie evidence of certain facts.

¹[146. Bank’s slip prima facie evidence of certain facts.

The Court shall, in respect of every proceeding under this Chapter, on production of bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.]

1. Section 143 to 147 ins. by Act 55 of 2002, sec. 10 (w.e.f. 6-2-2003).

Section 147. Offences to be compoundable.

¹[147. Offences to be compoundable.

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974.) every offence punishable under this Act shall be compoundable.]

OBJECTS AND REASONS OF AMENDING ACT OF 2002

Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments, Act, 1881, namely:

(iv) to prescribe procedure for dispensing with preliminary evidence of the complainant

(v) to prescribe procedure for servicing of summons to the accused or withness by the Court through speed post or empanelled private couriers;

(vi) to provide summary trial of the cases under the Act with a view to speeding up disposal of cases;

(vii) to make the offences under the Act compoundable;

1. Section 143 to 147 ins. by Act 55 of 2002, sec. 10 (w.e.f. 6-2-2003).

SCH1. Schedule

Enactment repealed

[Rep. by Amending Act, 1891 (12 of 1891), sec. 2 and Sch. I.]

INTRODUCTION

In India, there is reason to believe that instrument to exchange were in use from early times and we find that papers representing money were introducing into the country by one of the Mohammedan sovereigns of Delhi in the early part of the fourtheenth century. The word ‘hundi’, a generic term used to denote instruments of exchange in vernacular is derived from the Sanskrit root ‘hund’ meaning ‘to collect’ and well expresses the purpose to which instruments were utilised in their origin. With the advent of British rule in India commercial activities increased to a great extent. The growing demands for money could not be met be mere supply of coins; and the instrument of credit took the function of money which they represented.

Before the enactment of the Negotiable Instrument Act, 1881, the law of negotiable instruments as prevalent in England was applied by the Courts in India when any question relating to such instruments arose between Europeans. When then parties were Hindu or Mohammedans, their personal law was held to apply. Though neither the law books of Hindu nor those of Mohammedans contain any reference to negotiable instruments as such, the customs prevailing among the merchants of the respective community were recognised by the courts and applied to the transactions among them. During the course of time there had developed in the country a strong body of usage relating to hundis, which even the Legislature could not without hardship to Indian bankers and merchants ignore. In fact, the Legislature felt the strength of such local usages and though fit to exempt them from the operation of the Act with a proviso that such usage may be excluded altogether by appropriate words. In the absence of any such customary law, the principles derived from English law were applied to the Indians as rules of equity justice and good conscience.

The history of the present Act is a long one. The Act was originally drafted in 1866 by the 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 (26 of 1881)