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Current affairs is an
important component of several competitive exams such as the UPSC Civil
Services Examination, SSC CGL, Bank PO & PSU entrance tests, etc.
Therefore, understanding the terms/concepts/events that make news is critical
for aspirants. We at PaGaLGuY bring you series of articles explaining some of
these important concepts/events. Read on to know about the Negotiable
Instruments Act of 1881.
This Act was originally drafted in 1866 by the 3rd
India Law Commission and introduced in December, 1867 in the Council and before
being referred to a Select Committee. However, oppositions led to several revisions
and redrafting procedures. In 1880, by the Secretary of State’s order, the Bill
was referred to a new Law Commission. Most of Its recommendations were adopted by
the Select Committee. The draft was then introduced in the Council and passed as
the Negotiable Instruments Act, 1881.
It extends to the whole of India apart from Jammu
& Kashmir. The Act is subject to the provisions of Sections 31 & 32 of the
Reserve Bank of India Act, 1934.
What
is a negotiable instrument?
According to Section 13 of the Negotiable Instruments
Act, “A negotiable instrument is a promissory note, bill of exchange or
cheque payable either to order or to bearer.” In other words, any agreed upon
medium of exchange of payment is a negotiable instrument.
While the maker of a negotiable instrument is called
the “drawer”, the person directed to pay is called the “drawee”
Types
of negotiable instruments outlined in the NI Act
Promissory
Note- As explained in Section 4 of the act, it is an
instrument in writing (not a currency-note) containing an unconditional promise
signed by the maker, to pay a specified sum of money only to, or to the order
of a particular person, or to the bearer of the instrument.
Bill
of Exchange- As explained in Section 5 of the act, it 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.
Cheque- It
is a bill of exchange drawn on a specified bank and not expressed to be payable
except on demand, according to Section 6 of the act.
Other negotiable instruments not defined in the act
can also be used so long as they (i) are easily transferable by trade; (ii) are free of conditions, defects and the person getting it in good faith
is entitled to the amount specified.
Major
sections of the NI Act
· Section
15 defines
endorsement as when the marker or holder of a 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 paper intended to be completed as a negotiable
instrument, he is said to endorse the same, and is called the endorser.
In other words, when a
person writes his/her name on the back of the instrument or any paper attached
to it, he/she does so with intent of transferring the rights. The person who
makes the endorsement is called ‘endorser’ and the person who receives the
instrument is called ‘endorser’.
· Section
17 defines ambiguous instrument as one that is either a promissory note or bill of
exchange. The holder may choose to use it as either.
· Section
118 and 119 specify presumptions that are presumed to
exist in every negotiable instrument and thus need not be proved. The
presumptions, unless proved to the contrary, are as follows:
(a) of consideration- It shall be
presumed that every negotiable instrument was made drawn, accepted or endorsed
for consideration.
(b) as to date – That every
negotiable instrument bearing a date was drawn on or made on said date.
(c) as to time of acceptance. – That
every accepted bill or note was accepted within a reasonable time after 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
endorsements written upon a negotiable instrument were made in the order in
which they appear thereon.
(f) as to stamp – That a lost
promissory note, bill of exchange or cheque was duly stamped.
(g) Holder is a holder in due course
– That the holder of a negotiable instrument is a holder in due course.
· Section 138 outlines penalties in case of dishonour of
certain cheques due to insufficient funds in the specified account. The following should be proved to constitute an offence under this act:
a.
A person must have drawn a cheque on an account of his in a bank for
payment of a specified amount of money to another person from that account.
b.
The cheque should have been issued for the discharge, in part or whole,
of a debt/liability.
c.
The cheque was presented to the bank within a period of three months
from the date of its drawing or within its validity period.
d.
That cheque is returned by the bank unpaid, either because of the amount
of money standing to the credit of the account is insufficient to honour the
cheque or that it exceeds the amount to be paid from that account by an
agreement made with the bank.
e.
The payee or the holder of the cheque demands for payment of the specified
amount of money by giving a written notice, to the drawer of the cheque, within
30 days of getting informed by the bank about the return of the cheque as
unpaid.
f.
Finally, if the drawer of such cheque fails to make payment of the said
amount of money to the payee within 15 days of the receipt of the said notice.
Highlights of the Negotiable
Instruments (Amendment) Bill, 2015
·
This
Bill was passed on May 13 this year by the Lok Sabha seeking reversal of a 2014
Supreme Court ruling that said the case has to be filed where the
cheque-issuing branch of the bank was situated.
·
On
June 10, the Cabinet decided to bring in an ordinance to amend the parent act
i.e. the Negotiable Instruments Act, 1881 that stipulates filing of cheque
bounce cases in the place where the cheque was issued.
·
The
aim is to accelerate settlement of cheque bounce cases piling up in courts (21
lakh such cases in 259 courts).
·
Clarity
on jurisdiction for trying such cases would increase the credibility of the
cheque as a financial instrument.
·
It
also seeks to amend the definition of cheque in the electronic form. While the
parent act defines it as a cheque containing the exact mirror image of a paper
cheque, generated in a secure system using a digital signature, the amendment
bill re-defines it as a cheque drawn in electronic medium using any computer
resource, which is signed in a secure system with a digital signature, or
electronic system.
To know about the RBI Act of 1934, visit the link below:
https://www.pagalguy.com/articles/sbi-po-2015-gk-update-the-reserve-bank-of-india-act-1934-3478684
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