Contents of Protest (Sec. 101)
A protest to be valid, must contain the particulars given below, and the omission of one or more of them will render the protest invalid. The particulars that a protest must
contain are:—
1. The instrument itself, or a literal transcript thereof.
2. The names of the parties for and against whom the instrument has been protested.
3. The fact and reasons for dishonor.
4. Place and time of dishonor or refusal to give better security.
5. The signature of the notary public.
6. In the event of an acceptance for honor or of payment for honor, the name of the person by whom, or the person for whom, and the manner in which, such acceptance or payment was offered or effected.
Notice of Protest (Sec. 102):
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.
Protest of Foreign Bills (Sec. 104):
Foreign bills must be protested for dishonor when such protest is required by the law of the place where they are drawn. Foreign promissory notes need not be so protested. Where a bill is required by law to be protested, then instead of a notice of dishonor, notice of protest must be given by the notary public.
When noting is equivalent to Protest (Sec. 104A):
When a bill or note is required to be protested within a certain time or proceeding, it is sufficient if the bill or note is noted within that time or proceeding; the formal protest may be issued later.
The difference between Noting and Protest
Noting is merely a record of the fact of dishonor. When the notary public issues a certificate stating the particulars regarding the dishonor, it is called a Protest.
Acceptance of Honor:
Definition
When a bill of exchange has been noted or protested for non-acceptance or for better security, any person not already liable on the bill, may accept the bill for the honor, of any party thereto (Sec.108). This is called Acceptance for Honor.
Rules regarding Acceptance for Honor
1. Consent: Consent of the holder is necessary before a bill' can be accepted for honor. (Sec. 108).
2. How acceptance for honor must be made : The acceptor for honor must, by writing on the bill in his own hand, declare that he accepts under protest the protested bill for the honor of the drawer or of a particular endorser whom he twines, or generally for honor.—Sec. 109.
3. Acceptance not specifying for whose honor it is made: Where the acceptance does not express for whose honor it is made, it shall be deemed to be made for the honor of the drawer (Sec. 110).
4. Liability of acceptance for honor: An acceptor for honor binds himself to all parties subsequent to the party, for whose honor tic accepts to pay the amount of tile bill if the drawee does not; 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 (Sec. 111, para l)
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 (Sec. 111, Para 2)
5. 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 6)- protested for such dishonor. (Sec. 112).
Payment for Honor
When a bill of exchange has been noted or protested for non-payment, any person may pay the same for the honor of any party liable to pay the same. Such payment is called payment for honor.
Declaration: The person paying for honor or his agent must declare before a notary public the party for party for whose honor he is paying. The notary public most record the declaration. (Sec. 113).
Right of payer for honor: Any person paying for honor is entitled to all the rights of the holder of the bill at the time of the payment. He 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. (Sec. 114)
Acceptance and payment without protest: A drawee in case of need may accept and pay the bill of exchange without previous protest. (Sec. 116).
Discharge of Parties and Instrument
The term discharge in relation to negotiable instruments has two meanings, namely, (i) the discharge of the instrument, and (ii) discharge of one or more parties from liability on the instrument.
Discharge of the Instrument:
A negotiable instrument is said to be discharged when it becomes completely useless, i.e. no action on that will lie, and it cannot be negotiated further. After a negotiable instrument is discharged the rights against all the parties thereto comes to an end, and no party, even a holder in due course, can claim the amount of the instrument from any party thereto.
Discharge of the party primarily and ultimately liable on the instrument results in the discharge of the instrument itself. For example, in the following cases the instrument is deemed to be discharged:
1. When the party primarily liable on the instrument (i.e., the maker of the note, acceptor of the bill or drawee bank) makes the payment in due course to the holder at or after maturity (Sec. 78). A payment by a party who is secondarily liable does not discharge the instrument because in that case the payer holds it to enforce it against prior endorsers and the principal debtor.
2. When a bill of exchange which has been negotiated is-, -at or-after maturity, held by the acceptor in his own right, the instrument is discharged (Sec. 90).
3. When the party primarily liable becomes insolvent, the instrument is discharged and the holder cannot make any other prior party liable thereon. Notice that in the case of insolvency, the acceptor or maker is unable to pay and it is only on refusal to pay that the instrument is deemed to be dishonored and prior parties can be made liable thereon. Similarly, an instrument stands discharged when the primary party liable is discharged by material alteration in the instrument (Sec. 87), or by lapse of time making the debt time barred under the Limitation Act.
4. When the holder cancels the instrument with an intention to release the party primarily liable thereon from the liability, the instrument is discharged and ceases to be negotiable (Sec. 82).
A negotiable instrument may be discharged:—
- By payment in due course;
- When the principal debtor becomes the holder;
- By an act that would discharge a simple contract;
- By renunciation; and
- By cancellation.
1. By Payment: A negotiable instrument is discharged by payment made in due course by or for the primary party or by a person who is accommodated, in case the instrument was made or accepted for accommodation. Payment in due course means that it must be made at or after the maturity of the instrument to the Holder in good faith or his agent as agent. A payment by one secondarily liable does not discharge the instrument. The payer holds it to enforce it against prior endorsers and the principal, debtor. He may also strike out his and subsequent endorsements and further negotiate the instrument. The right of further negotiation is denied (a) when the drawer pays an instrument which is payable to the order of a third person, or (b) when an instrument executed or accepted for accommodation is paid by the party for whose accommodation the instrument was executed. This denial is based on the theory that further negotiation would unfairly continue the liability of the payee endorser or of the person who executed or accepted the instrument for the accommodation of the person making the payment.
To complete payment, the principal and interest, if any, must be paid. The person paying the instrument should demand the surrender of the instrument when paid. Payment is a personal defense and is not valid against a holder in due course. Thus, if a maker of a pro-note pays the original payee after the note has been transferred to a holder in due course, the maker is liable for payment to such a holder. The possession by the payer of a receipt for payment is no. substitute for the surrender of the instrument.
2. Debtor as Holder: When the primary party lawfully becomes the holder of the instrument in his own right at or after maturity, the instrument is discharged. The instrument will not be discharged, (i) if the debtor acquires the instrument before maturity, in which case he may negotiate it further in the same way as any other holder could; or (ii) if the holder did not acquire it lawfully or in his own right, as when he acquired it by fraud or as an agent for another person.
3. Discharge as Simple Contract: A negotiable instrument in some instances may be discharged in the same way as a simple contract for the payment of money. Like an ordinary contract, the instrument may be discharged by agreement of the parties in the form of a notation, a covenant not to sue, or by rescission or substitution of another instrument or obligation. For example, where the holder of a note agreed to accept a conveyance of a house and certain acts by the maker in payment of the note, the instrument was discharged. The instrument may be discharged by operation of law in the case of insolvency, in the case of lapse of time under the Statute of Limitations. This provision regarding discharge of an instrument in the same way as a simple contract applies only to immediate parties. It cannot be raised as a defense against a holder in due course. In result it will discharge certain parties to the instrument and not the instrument itself, unless expressly agreed.
4. By Renunciation: A negotiable instrument is discharged when, the holder renounces or gives up his right against all the parties to the instrument. The renunciation must be in writing unless the instrument is also surrendered to the party primarily liable.
5. By Cancellation: The party who is entitled to enforce payment of an instrument may surrender it to the party liable thereon with an intent to release him from the obligation. This operates as a discharge of the instrument and is known as cancellation. Cancellation may also take place by physical destruction of the instrument itself made with the intention io terminate liability, or by crossing out signatures on the instrument.
Discharge of a Party or Parties
When any particular party or parties are discharged, the instrument continues to be negotiable and the undischarged parties remain liable on it. For example, the non-presentment of a bill on the due date discharges the endorsers from their liability, but the acceptor remains liable on it.
A party may be discharged from liability in the following ways:
1. By cancellation: Where the holder of a negotiable instrument cancels the name of any party to it with the intention of discharging him from liability, such party and all other persons between the holder and such party are discharged from liability. But a cancellation made unintentionally or by mistake will not discharge any party. The proper and safe mode of cancellation is to draw a line through the name so as to leave it legible.
In an accommodation bill, where it is drawn for the accommodation of the drawer the cancellation of the name of the acceptor who is the accommodating party discharges the endorser, but not the drawer; and where it is drawn for the accommodation of the payee, the cancellation of drawer's name does not discharge the payee [Sec. 82(a)].
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By Release: Where the holder releases any party to the instrument by any method other than cancellation, the party so released is discharged from liability. Sec. 63 of the Contract Act permits a promisee to remit wholly or in part the performance of the contract [Sec. 82 (b)].
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Discharge of Secondary Parties: A person secondarily liable on the instrument is discharged also by the discharge of a prior party and by a valid tender of payment made by a prior party.
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By Operation of Law: Discharge from liability takes place by operation of law, e.g., by insolvency of the debtor, or by loss of remedy on expiry of the limitation or by merger of note into the judgment debt or of a lesser security into a higher security.
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By allowing drawee more than 48 hours: If the holder of a bill allows the drawee more than 48 hours, exclusive of public holidays, to consider whether he will accept the same, all previous parties not consenting to such allowance are discharged from liability to the holder (Sec. 83).
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By non-presentment of check: Where a check is not presented for payment within a reasonable time of its issue, and the bank fails and the drawer suffers actual damage through the delay, he is discharged from liability to the holder to the extent to which such drawer is a creditor of the banker, but no more (Sec. 84).21
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Check payable to order: Where a check payable to order purports to be indorsed by or on behalf of the payee, the banker is discharged by payment in due course, even though the endorsement might turn out to be z forgery. In the case of a check originally drawn payable to bearer, the banker is discharged by paying in due course to the bearer thereof, even if any endorsement restricts or excludes further negotiation (Sec. 85).
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Drafts by one branch on another: Where a draft, i.e., 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 indorsed by or on behalf of the payee, the bank is discharged by payment in due course (Sec. 85-A).
9. By taking qualified acceptance: If the holder of a bill takes a qualified acceptance all the previous parties whose consent is not obtained to such acceptance are discharged from liability, unless on notice being given, they assent to such acceptance (Sec. 86).
Abdul Majid v. M/s. G. Kalooram 1954 Orissa 124
10. By 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 the alteration and does not consider thereto, unless it was made in order to cart' out the common intention of the original parties. Any alteration made by an endorsee discharges his endorser from all liability to him in respect of the consideration thereof (Sec. 87). The section, however, recognizes certain cases in which alteration may be allowed. They are: (i) the filling in of the blanks in an inchoate instrument (Sec. 20), (ii) the conversion of an endorsement in blank into an endorsement in full (Sec. 49), (iii), the qualifying or limiting of an acceptance (Sec. 86), and (iv) the crossing of a check after it has been issued. These are not material alterations and do not render the instrument void.
The rule as to alteration in this section is based upon two grounds, namely (a) that no man is permitted to take chance of committing a fraud without running any risk on its detection, and (b) that by the alteration the identity of the instrument is destroyed. In these cases it is immaterial whether the alteration is beneficial or detrimental to the party charged on the contract, or whether the alteration ultimately involves any change in the rights and liabilities of the parties or not.24 What is necessary to make the instrument void is that the alteration must be material. A material alteration in the pronote debars the person from recovering the amount of the pronote on the basis of original contract.
Suresh Chandra v. Satish Chandra, 1983 All. 81
11. Discharge by payment of altered instrument: Where an instrument has been materially altered but does not appear to have been so altered, or where a check 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 of the amount due on the instrument according to the apparent tenor thereof and in due course discharges the person making the payment (Sec. 89).
12. Bill in acceptor's hand: If a bill which has been negotiated is, at or after maturity, held by the acceptor in his own right, all rights of action thereon are extinguished (Sec. 90). This is the final discharge of the bill, and the principle applies to notes as well.
Chapter: 3
Hundis
Hundis are negotiable instruments written in an oriental language. They are sometimes promissory notes, but more often bills of exchange, and subject to local usages. The Hundis were in circulation in India long before the Negotiable Instruments Act, 1881. Traditions as to their use in the court date as far back as 5000 B.C. The word Hundi is derived from the Sanskrit word “Hund”—to collect. It appears that Hundis were originally used for the purpose of collecting debts. Even now they are often employed for the same purpose, although now Hundis are used more and more as internal bills of exchange. Hundis are negotiable instruments under the Act, although they are so independently of the provisions of the Act. They are recognized by custom as negotiable, and the Act recognizes the custom pertaining to Hundis.
Figure 1: British India Hundis
Figure 2: Opium Hundi
There are several varieties of Hundis current in the country, but only the more important among them are given below:
A Darshni Hundi is a Hundi which is payable at sight. A Darshni Hundi payable on demand must be presented for payment within a reasonable time after its receipt by the holder. Any loss caused to the drawer by delay in presentment falls on the party at fault.
A Hundi payable after a specified period of time is called a Muddati or Miyadi Hundi—the time bill of exchange.
A shah means a respectable and responsible person, a man of worth, and known in the bazar. A Shah Jog Hundi is payable to or through a shah. A Hundi payable to shah is payable on the responsibility of the shah, and if he or the parties through whom he claims became the holder of the Hundi through offence or fraud, the drawee can proceed against him for the re-imbursement of the amount Thus if the Hundi turns out to be false, stolen or forged, the shah is bound to refund the amount of the Hundi with interest unless he produces the actual drawer or the person who committed the fraud. The drawee to recover money should file a separate suit against the shah.
The words Shah Jog in a Hundi lend to it additional credit and make it of the nature of a check generally crossed. But it is payable only to a respectable bearer and only when it is indorsed to the last endorsee—on the shah presenting the Hundi. It is neither a bill nor a note; but if attested, it can be sued on either as a bond or a promissory note. A Shah Jog Hundi differs from a bill in two respects, namely, (i) the acceptance of the drawee is not generally written across it but the particulars are entered in the drawer's book, and (ii) it is not usually presented for acceptance before due date. The Shah Jog Hundi in its inception is a Hundi which passes from hand to hand by delivery and requires no endorsement, until it reaches the shah who after making inquiries to secure himself should present it to the drawee for acceptance or payment. Although it passes by delivery, it is not similar to the bearer bill. The shah's name must always be indorsed on the Hundi at the time of the presentment. It can any time be restricted by being specially indorsed and when so restricted, the Hundi ceases to be a Hundi. If it is dishonored, notice of dishonor must be given as in the case of a bill.
The shah does not guarantee the solvency of the drawer, although he guarantees the genuineness of the Hundi. A drawee will not pay the Hundi unless he has funds in his hands belonging to the drawer, or he is willing to give credit. And he is not bound to pay unless he is satisfied as to the respectability of the shah presenting the Hundi, as he has to look to the shah in the event of the Hundi turning out to be a forged one.
A Shah Jog Hundi may be Darshni or Muddati. It may mention the name of the depositor or not, but it is payable only to a shah. It differs from an ordinary Hundi inasmuch as (i) it need not be presented for acceptance and the acceptance of the drawee is not necessary and need not be written across the Hundi, and (ii) the holder is relieved from liability if he produces the forger.
A Nam Jog Hundi, in contradistinction to Shah Jog Hundi, is payable to the person whose name is specified in the body of the Hundi. In form both are similar except with the difference that the Nam Jog has the name of the payee, while the Shah Jog has the name of the shah inserted therein. The Nam Jog Hundi is payable to the order of the payee and can be indorsed like a bill of exchange payable to order.
In the case of a Dhani Jog Hundi, we amount is payable to a Dhani, owner, and the words "Dhani Jog" are inserted in the Hundi. The amount of the Hundi is, therefore, payable to the owner or holder or bearer. It is indeed a negotiable instrument payable to bearer; where it is indorsed in full, it ceases to be a bearer Hundi.
A Jokhami Hundi is drawn by the consignor of goods on the consignee against the goods shipped on the ship mentioned in the Hundi. According to the custom of Hindu merchants the money of the Hundi is payable only when and if the goods arrive. The Hundi is in the nature of a policy of insurance, but with this difference that the money is paid beforehand, and is to be recovered if the ship arrives safely. The Jokhami Hundi is drawn with two-fold object, namely, to put the drawer of the Hundi in funds, and at the same time to affect an insurance on the goods themselves. The Hundi is drawn by the consignor on the consignee and negotiated with the insurer at a price which is less than the amount of the Hundi by the amount of the premium of insurance. If the goods arrive safely the insurer may obtain them or their value as stated in the Hundi.
The Hundi is an authority to the consignee to pay for the goods or deliver them up to the holder, but the holder has no right of action against the consignee and holds the Hundi on the credit of the drawer or endorser. As the holder is an insurer, he cannot claim payment if the goods are totally lost, although he is entitled to be paid in full in case of partial loss or damage (particular average loss). If the loss is a general average loss then a rebate is made to the extent of the loss.
Jawabi Hundi is used as a means of remittance of money from one place to another via a banker. The nature of the transaction known as Jawabi Hundi is as follows: A person desirous of making a remittance writes to the payee and delivers the letter to a banker, who either indorses it on to any of the correspondents near the payee's place of residence or negotiates its transfer. On its arrival the letter is forwarded to the payee who attends and gives his receipt in the form of an answer to the letter which is forwarded by the same channel to the drawer of the order.
The Zikri Chit is a letter of protection given to the holder of a Hundi by the drawer or any other prior party when the Hundi is dishonored by non-acceptance or even when the dishonor is feared. It is addressed to some person residing in the town where the Hundi is payable, asking him to take up the Hundi in case of its dishonor. The addressee of the letter there accepts the Hundi for honor and pays it at maturity. According to the custom prevalent among the Marwari Shroffs, the Zikri Chit enables the person to accept for hondur the Hundi without being noted or protested. Zikri Chits are used throughout the country in connection with Marwari Hundis.
It is a request in writing by the borrower to the lender to pay the amount mentioned therein. It bears a ten poise stamp. The Purja is not a bill of exchange, and is not negotiable. Purjas are commonly used for temporary loans.
It is a Hundi which is payable to order, and Dekhanhar is payable to bearer. When a Hundi is lost the holder may demand from the drawer a duplicate, which is called a Peth. If the duplicate is lost the holder may ask for a triplicate and so on. Each of these subsequent Hundis is called a Per Peth. When a Hundi has been paid and cancelled it is called a Khokha.
Chapter: 4
Bankers and Customers
A banker is one who does banking business. The Banking Regulation Act, 1949, defines a `banking company' as a company which transacts the business of banking in India. The term `banking' is defined as "accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or, otherwise, and withdrawable by check, draft, and order or otherwise" [Sec. 5(b), The Banking Regulation Act, 11949]. It may be emphasized that the primary function of a banking company consists of accepting of deposits for the purpose of lending or investing the same. If the purpose of accepting of deposits is not to lend or invest, e.g., where a trader accepts deposits of money from the public merely for the purpose of financing his business, the business will not be called the banking business. Another special feature of banking business is that the deposited money should be repaid to the depositor on demand or according to the agreement. The demand should be made through an order, check, draft or otherwise and not merely by verbal order.
The term `customer' of a bank is not defined by law. Ordinarily, a person who has an account in a bank is considered to be a customer of the bank. But to constitute a customer of the bank in the technical sense, besides opening of an account with the bank it is also essential that the dealings with the banker must relate to the business of banking, e.g., depositing and withdrawing money or taking loans. Merely availing of services rendered by the banker, i.e., encashing a check, remitting money through a bank draft or depositing valuables in the safe deposit vaults in the bank, do not create the relationship of banker and customer.
Checks
A check is a special type of draft that is drawn on a bank, ordering it to pay a sum of money on demand. The person who writes the check is called the drawer and is usually a depositor in the bank on which the check is drawn. The person to whom the check is payable is the payee. The bank or financial institution on which the check is drawn is the drawee.
The payee can indorse the check to another person, thereby making that receiver a holder. A holder is a person who is in rightful possession of an instrument that is drawn to that person's order (or drawn to bearer) or that is indorsed to that person (or in blank. The payee as a holder of a check has the right to transfer or negotiate it or to demand its payment in his or her own name, as does any subsequent holder.
A check does not, in and of itself, operate as an assignment of funds. The drawee bank is not liable to a payee or holder who presents the check for payment, even though the drawer has sufficient funds to pay the check. The payee's, or holder's, only recourse is against the drawer. (The drawer, however, may subsequently hold the bank liable for its wrongful refusal to pay.)
Cashier's Checks
Checks are usually three-party instruments, but on certain types of checks, the bank can serve as both the drawer and the drawee. For example, when a bank draws a check upon itself, the check is called a cashier's check and is a negotiable instrument upon issue. In effect, with a cashier's check, the bank lends its credit to the purchaser of the check, thus making it available for immediate use in banking circle A cashier's check is therefore an acknowledgment of a debt drawn by the bank upon itself.
Figure 4: Cashier's Checks
Traveler's Checks
A traveler's check has the characteristics of cashier's check. It is an instrument on which financial institution is both the drawer and the drawee. The institution is directly obligated t accept and pay its traveler's check according t the instrument's terms. The purchaser must pr( vide his or her authorized signature on the traveler's check at the time it is bought and when is used.
Certified Checks
When a person writes a check, it is assumed that he or she has money on deposit to cover that check when it is presented for payment. To ensure against honor for insufficient funds, a check may be certified by the drawee bank. A certified check is recognized and accepted by a bank officer as a valid appropriation of the specified amount that is drawn against the funds held by the bank. The usual method of certification for the cashier or teller to write across the face of the check, over the signature, a statement that it is good when properly indorsed.
The certification should contain the date, the amount being certified, and the name and title of the person certifying. Certification prevents the bank from denying liability. It is a promise that "sufficient funds are on deposit and have been set aside to cover the check. Certified checks are used in many business dealings, especially when the buyer and seller are strangers.
A drawee bank is not obligated to certify a check, and failure to do so is not a dishonor of the check. When a bank agrees certification, it immediately charges the drawer’s account with the amount of the check and transfers those funds to its own certified check punt. In effect, the bank is agreeing in advance to accept that check when it is presented for payment and to make payment from those funds reserved in the certified check account.
Drawer’s Request for Certification:
The legal liability of the drawer varies on the basis of whether the certification is requested by the drawer or the holder. The drawer who obtains certification remains secondarily liable on the instrument if for some reason the certifying bank cannot or does not honor the check when it is presented for payment.
Holder’s Request for Certification:
If the check is certified at the request of the holder, then the drawer and any indorsers prior to certification are completely discharged. A holder's request for certification is viewed as a choice of the bank's promise to pay over the drawer's and any indorser's promises. In this situation, the holder can look only to the bank for payment.
Revocation of Certification:
The bank's ability to revoke certification is extremely limited. If a good faith holder has changed position in reliance on that certification, the bank cannot revoke. Furthermore, since certification constitutes acceptance of an instrument under the Uniform Commercial Code, a bank can never revoke certification against an HDC regardless of whether the HDC has changed position in reliance on the certification.
Relevant Case
SAM GOODY, INC. v. FRANKLIN NAT'L BANK OF LONG ISLAND
Supreme Court of New York, 1968.
57 Misc.2d 193, 291 N.Y.S.2d 429.
Backgrounds and Facts:
A customer ordered merchandise Sam Goody, Inc., and stated that he would secure a certified check from employer drawn directly to Sam Goody to pay the balance. The customer then presented a check for $16 payable to Sam Goody to Franklin Bank for certification. After certification, the customer altered the check from $16 to $1,600. (The certification stamp did not show for which the check was certified.) The next day he presented the check to Sam Goody. Franklin National Bank later dishonored the check. The Bank asserted that it was responsible only for paying the instrument ac to its tenor at the time of certification—$16. Sam Goody asserted bank should pay because it was negligent in not reflecting its certification stamp.
Decision and Rationale:
Franklin National Bank was liable for the original tenor of the note—$16. When a bank certifies a check denotes that the signature of the drawer is genuine. A bank is not alterations made after the check is certified. The presiding judge stated that “The controlling fact that alteration occurred after certification of instrument is not disputed. The bank in checking its records, discover alteration and refused payment. Under these circumstances, the decision of the bank, if any, is not a substantial or proximate cause of the in accordance with the rules mentioned above, it is not liable except for the amount for which the check was originally drawn."
Honoring Checks
When a commercial bank provides checking services, it agrees to honor the checks written by its customers with the usual stipulation that there be sufficient funds available in the account to pay each check. When a drawee bank wrongfully fails to honor a check, it is liable to its customer for damages resulting from its refusal to pay. The Code does not attempt to specify the theory under which the customer may recover for wrongful dishonor; it merely states that the drawee is liable. Thus, the drawer customer does not have to prove that the drawee bank breached its contractual commitment, or slandered the customer's credit, or was negligent. When the bank properly dishonors a check for insufficient funds, it has no liability to the customer.
On the other hand, a bank may charge against a customer's account an overdraft—that is, a check that is paid from that account even though the account contains insufficient funds to cover the check. Once a bank makes special arrangements with its customer to accept overdrafts on an account, the payer bank can become liable to its customer for damages proximately caused by its wrongful dishonor of overdrafts.
The customer's agreement with the bank includes a general obligation to keep sufficient money on deposit to cover all checks written. The customer is liable to the payee or to the holder of a check in a civil suit if a check is not honored. If intent to defraud can be proved, the customer can also be subject to criminal prosecution for writing a bad check.
The following case illustrates that when a bank agrees with a customer to pay overdrafts, the bank's refusal to honor checks on an overdrawn account is a wrongful dishonor.
Relevant Case
KENDALL YACHT CORP. v. UNITED CALIFORNIA BANK
Court of Appeal of California, 1975.
50 Cal.App.3d 949,123 Cal.Rptr. 848.
Backgrounds and Facts:
Lawrence and Linda Kendall were officers and principal shareholders of Kendall Yacht Corporation. Kendall Yacht had never issued stock and was undercapitalized. It had a payroll checking account and a general business checking account with United California Bank. Because the company was running into some financial problems, the bank agreed to honor overdrafts on the corporate accounts until, as the Kendalls claimed, the corporation was "out of the woods." Subsequently, the accounts became badly overdrawn, and the bank dishonored a number of their checks. The Kendalls brought suit against United California Bank, charging that wrongful dishonor of checks that the bank had originally agreed to accept as overdrafts damaged the Kendalls' personal reputation and their credit rating. The bank contended wrongful dishonor of a check of a corporation does not give a cause of action for damages to officers and shareholders of the corporation. The trial court held for Kendall, and bank appealed.
Decision and Rationale:
The appellate court held that the bank was liable to the Kendalls for attorneys' fees in the civil and criminal proceedings brought against them, as well as compensatory damages for the emotional distress and damage to reputation they suffered as a result of the banks wrongful dishonor of the corporation's checks. Where wrongful dishonor is merely accidental, injury to reputation and emotional distress are more difficult to prove, and courts often award only nominal damages. Here, however, the bank had promised to honor the company's checks, and it was on this basis that the Kendalls continued to write the checks. Since sufficient evidence of emotional distress and damage to their reputation was presented (for example, several criminal prosecutions against them for writing checks against insufficient funds), the Kendalls were able to recover for them. The court stated: "[It) was entirely foreseeable that the dist-:- of the Corporation's checks would reflect directly on the personal credit and reputation of the Kendalls and that they would suffer the adverse personal consequences which resulted when the Bank reneged on its commitments.”
Stale Checks
The bank's responsibility to honor its customers' checks is not absolute. A bank is not obliged to pay an uncertified check presented more than six months from its date [UCC 4-404]. Commercial banking practice regards a check outstanding for longer than six months as a stale check. The usual banking practice is to consult the customer, but if a bank pays in good faith without consulting the customer, it has the right to charge the customer's account for the amount of the check.
In the following case, a bank's payment of a stale check is at issue. The court's discussion of this issue is illustrative.
Relevant Case
GRANITE EQUIPMENT LEASING CORP. v. HEMPSTEAD BANK
Supreme Court of New York, 1971. 68
Misc.2d 350, 326 N.Y.S.2d 881.
Backgrounds and Facts:
Five days after Granite Equipment Leasing Corporation issued a check to Overseas Equipment Company, the latter indicated that the check had not been received. Granite ordered payment stopped on the check and wired the funds to Overseas Equipment. Approximately one year later, the Hempstead Bank paid the check without making any inquiries of Granite Equipment Leasing. Granite Equipment Leasing sought to have the bank reimburse its account. The bank claimed that the stop-payment order had expired and it had paid the stale check in good faith.
Decision and Rationale:
Hempstead Bank was legally justified in paying the check when presented and therefore it did not have to reimburse - Granite's account. First, a customer's written stop-payment order on a check is effective for only six months unless it is renewed. Since more than a year had passed, and the stop-payment order had not been renewed in writing, it was no longer effective. Second, Granite could
Crossing of Checks
Checks may be of two types—(i) Open or uncrossed checks and (ii) crossed checks. An open check is payable at the counter of the drawee bank on the presentation of the check. Such a check runs great risk in the course of circulation because once a wrong person takes away the payment of an open check it is difficult to trace him. A crossed check is payable only through a collecting banker and not directly at the counter of the bank. Thus, crossing affords security and protection to the holder of the check because when payment of a check has been drawn through a banker it may easily be detected to whose use the money has been received. The collecting banker credits the proceeds to the account of the payee of the check.
A check is said to be crossed when two parallel transverse lines, with or without any words, are drawn on the left hand top corner of the check. It is relevant to state that such lines are essential for "general crossing' and may not be drawn in case of 'special crossing.'
Crossing of a check does not affect its negotiability. A crossed check can be negotiated in the same way as uncrossed one, i.e., it can be negotiated by mere delivery in case it is payable to bearer and by endorsement and delivery if it is payable to order.
Where the holder of a crossed check has no account in any bank then either he may open an account with some banker and pay the check in that account to enable the banker to collect its payment on his behalf and credit the same into his account, or he may obtain payment by indorsing the check in favor of some person who has got an account in any bank.
Types of Crossing
There are two types of crossing: (1) General or (2) Special.
1. General crossing: Where a check bears across its face (usually on the left hand top comer) two parallel transverse lines without any words or with words 'and company' (or & Co.) or/and 'not negotiable' written in between these two parallel lines, it is called general crossing. Thus, general crossing may take any of the following forms:
Where a check is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker (Sec. 126). In the case of general crossing, therefore, the holder may get the check collected through some bank. Collecting bank may be any bank of the choice of the holder.
2. Special crossing: Where a check bears across its face (transverse lines are not compulsory) 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 check shall be deemed to be crossed specially, and to be crossed to that banker (Sec. 124). Thus, special crossing may take any of the following forms:
Where a check is crossed specially, the tanker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent for collection (Sec. 126). Thus, in the case of special crossing the paying banker is to honor the check only when it is presented through the banker mentioned in the crossing, or an agent of such bank (i.e., another banker acting as agent for collection of that bank). According to Section 127, where a check is crossed specially to more than one banker, except when that bank to whom it has been specially crossed makes another special crossing in the name of another bank for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.
A special crossing makes the check safer than a general crossing because now a thief will have to search an account-bolder of that particular bank only whose name appears in the crossing which may create more difficulty.
Account Payee or Restrictive Crossing
To give still more protection to the payee of a check the practice of restrictive crossing is also prevalent in the business community. Such crossing can be made in both the cases of 'general' as well as 'special' crossing by adding the words 'Account Payee' (A/c Payee), 'Account Payee only' (A/c Payee only) or 'Account Mr. X only.' Thus, restrictive crossing may take any of the forms shown below:
Figure 9: Restrictive Crossing
The effect of 'Account Payee' crossing is that the collecting banker is supposed to credit the amount of the check to the Account of the payee only and nobody else. This should not be taken to mean that an 'Account Payee' crossed check cannot be negotiated further. Such a check remains transferable, but the liability of the collecting banker is enhanced in case he credits the proceeds of a check so crossed to any person other than the payee and the endorsement in favor of last payee is proved forged. The banker will be held guilty of negligence in such a case and will not be entitled to the protection given under Section 131 (where a banker acting bona fide will not be liable to the true owner, if he receives payment of a crossed check for a customer whose title is defective). Thus, the collecting banker must act like a blood hound and make proper enquiries as to the title of the last endorsee (whether endorsement in his favor is genuine or not) from the original payee named in the check before collecting an `Account Payee' crossed check in his (i.e., the last endorsee) account.
‘Not Negotiable’ Crossing
As stated earlier, the words 'Not Negotiable' may also be written in both types of crossing—'general' and 'special' (Sec. 123 and 124), and a crossing with these words is said to be 'Not Negotiable' crossing. Section 130 states the effect of such a crossing in the following words:
"A person taking a check 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 check than that which the person from whom he took it had.”
Thus, the effect of such a crossing is that it takes away one of the essential characteristics of a negotiable instrument, in the sense, that the transferee of such a crossed check cannot get a better title than that of the transferor (i.e., cannot become the holder in due course) and cannot convey a better title to his own transferee, though the instrument remains transferable.
The object of 'not negotiable' crossing is to afford protection to the holder or drawer of a check, because even if such a check goes to wrong hands and from there it is transferred to holder in due course, the true owner will not lose his claim against such an endorsee. Thus an endorsee of such a crossed check must not accept the check unless he knows the endorser very well and is convinced about his having a good title thereto.
Who may Cross a Check?
Crossing of an uncrossed check does not amount to a material alteration
as to affect the validity of the instrument. Obviously the drawer of a -que may cross it generally or specially at the time of issue. Section 125 permits the crossing being made even after issue of a check in the following ways:
(i) Where a check is uncrossed, the holder may cross it generally or specially.
(ii) Where a check is crossed generally, the holder may cross it specially.
(iii) Where a check is crossed generally or specially, the holder- may add the words 'not negotiable'.
(iv) Where a check is crossed specially, the- banker to whom it is crossed -may again cross it especially to another banker as his agent for collection.
Crossing once made becomes a material part of the check and only the drawer of the check is entitled to cancel or open the crossing by writing the words 'Pay Cash' and cancelling the crossing along with his full signature. Similarly, any alteration in the crossing, except in the ways stated above, must be authenticated by the signature of the drawer, otherwise the same will be treated as material alteration so as to discharge the instrument itself. Thus where a check is crossed 'Account Payee' and the holder alters it into a general crossing by striking out the words 'Account Payee,' the alteration is irregular and discharges the instrument.
Liability of a Banker
The relationship between banker and customer primarily is that of a debtor and a creditor and therefore it is the prime duty of a banker to honor his customers' checks unless there are valid reasons for refusing payment of the same. In case he dishonors a check without justification he is liable to compensate the customer (i.e., the drawer) for any loss or any damage caused by such default (Sec. 31). It must be noted that the liability of the banker for wrongful refusal to pay a check is only towards the drawer and not towards the payee of the check. The payee has no right of action against the banker for refusing to honor the check for the simple reason that there is no privity of contract between him and the banker. He can, however, hold the drawer liable in damages for breach of contract.
The rule of awarding damages: In case of wrongful dishonor of check, a non-trader customer is entitled only to general damages for such monetary loss which he might have actually suffered. But a trader or businessman customer is entitled to claim not only the general damages, but special damages also for loss of credit or reputation in the market and even without proving-the actual loss suffered by him. "In cases where a check issued by a trader customer is wrongfully dishonored even special damages could be awarded without proof of special loss or damage'. The fact that such dishonoring took place due to a mistake of the bank is no excuse nor can the offer of the bank to write and apologize to the payees of such dishonored checks affect the liability of the bank to pay damages for their wrongful act." (New Central Hall vs United Commercial Bank Ltd.). In the case of a trader customer claiming damages, the rule of awarding damages is, 'the smaller the amount of the check wrongfully dishonoured the larger the amount of damages.'
When Banker 'Must Refuse' Payment of his Customer's Checks
There are some cases when a banker must refuse payment of his customer's checks without incurring any liability. In these cases the payment made is not good against the drawer and the banker will have to bear the loss himself or may recover it from the wrong payee, if traceable, in some cases only. The cases in which a banker is bound to dishonour, his customer's checks are as follows:
1. When customer countermands payment:
When a customer countermands the payment, that is, issues instructions to the bank not to honour a particular check issued by him, the banker is bound to comply with such instruction. The countermand order must, however, be given in sufficient time before the banker actually makes the payment of the check. Oral countermand is sufficient. Any payment made by mistake after a due notice of countermanding the payment is not good against the drawer, nor is the banker entitled to a refund from the-payee (because the payee gets payments of an otherwise valid check), and the banker will have to bear the loss caused by such payment.
2. Garnishee order:
On receipt of the 'garnishee order,' i.e., a prohibitory order by any court attaching money in customer's account, the banker is bound to dishonour the customer's checks. If by mistake the banker makes payment of any check after the receipt of such an order, he will have to bear the loss himself. He cannot recover from the payee who gets payment of an otherwise valid check.
3. Death, Insolvency or Insanity of the customer:
When the banker receives a notice that his customer has died, or has been adjudged insolvent, or has become insane, his authority to pay checks drawn by the customer stands revoked and therefore he must not pay the checks. Any payment made after a due notice is not good against the drawer, nor is the banker entitled to a refund from the payee, who gets payment of an otherwise valid check.
4. Notice of assignment:
When the banker receives a notice of assignment of his credit balance from a customer, he must refuse payment of the checks drawn by the customer. The banker would be liable if he makes the payment of any check after the receipt of such a notice.
5. Defective title of the Party:
When the banker becomes aware of the defective title of the person presenting the check, e.g., he is a thief, the banker must refuse to honour the check.
6. Loss of check:
When the customer has informed the banker about the loss of the check, he must not pay it. In case the payment of such a check is made by mistake it is not good against the drawer but the banker can recover from the wrong payee, if traceable, as he is not entitled to possession and payment of the check.
7. When the check is irregular:
When there is material alteration in the check or the signature of the drawer does not tally with the specimen signature kept in the bank, the banker must dishonour the customer's check. In case of payment by mistake the banker can recover from the wrong payee, if traceable, otherwise will have to bear the loss himself.
8. Closing of account:
On receipt of the 'notice for closing the account' from the customer, the banker must not pay the customer's checks. If the banker makes payment of any check after the receipt of such a notice, he will have to bear the loss himself.
When Banker 'May Refuse' Payment of his Customer's Checks
There are some cases when a banker may refuse payment of his customer's checks. In these cases, if payment is refused, the banker shall not be liable for damages, and if payment is actually made, the court will decide as to whether the payment made is good against the drawer (i.e., the customer) or not, taking into account the various facts of the case. The cases in which a banker may dishonour his customer's checks are as follows:
1. Where the check is post-dated and is presented before the ostensible date. A customer's order to pay a check is deemed to be made on the date it bears and therefore if the check is presented before that date the banker is justified in refusing the payment of the same. But if a banker pays a postdated check, the payment is good against the drawer provided the check is not countermanded until the stated date. The banker honoring a post dated check, thus takes a great risk. Such a banker may also be made liable for damages to the customer if he is not able to meet the customer's other checks presented within the intervening period.
2. When the balance to the credit of the customer's account is insufficient to meet the check and there is no overdraft arrangement.
3. When the funds of the customer in the hands of the banker are not properly applicable to the payment of such check. Thus, if the funds in his hands are earmarked for some specific purpose by the customer, or he is entitled to a set-off in respect of them, the said funds are not available for honoring the check and the banker may refuse the payment.
4. When the check is not properly presented, for example, it is presented at a branch where the customer has no account, or where the check is presented after banking hours, the banker is justified in dishonoring the check. But for personal reasons he may make the payment.
5. Where the check is not presented within a reasonable time of its issue. Ordinarily a period of six months is considered sufficient within which the check must be presented for payment. On the expiry of this period the check is treated as 'stale' and the banker may dishonor the same. He may, after getting the stale check confirmed by the drawer, honor it.
6. When the check is of doubtful validity, i.e., it is drawn on a paper different from what has been issued by the bank, the bank may refuse payment. But if he so likes he-may make the payment because legally a check can be totally handwritten and may be drawn on any paper.
It is relevant to state that where payment is refused, a holder can sue the drawer within three years from the date of issue of the check because a check becomes time-barred after three years from its date of issue.
Protection to the Paying Banker
The Negotiable Instruments Act provides special protection to a banker who honors, his customer's checks. The rationale of the protection may be explained as follows. While the paying banker knows the state of, and takes the responsibility for the authenticity of the signature of, the drawer, he cannot be presumed to have any special knowledge about the payee or other holders of the instrument. As such a paying banker acting in good faith and in the ordinary course of business should not be saddled with responsibility if the payee's title is subsequently found defective or wanting. Moreover, checks have to be honored or rejected promptly and the banker does not have time, nor necessary experience, to enable him to enquire or investigate about the identity of the person who presents the check for payment.
Protection in case of order checks:
Section 95(l) provides protection to the paying banker in case of order checks as follows: "Where a check payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by 'payment in due course'. Accordingly, the paying banker shall be discharged from liability if he makes payment of an order check to the payee or the apparent endorsee thereof in good faith and without negligence even though subsequently it may turn out that such an endorsement was forged.
This protection to a paying banker is an exception to the general rule that 'a forged endorsement is no endorsement in law.' In practice the banker usually gets the identity of the holder of an order check verified by some responsible man of the bank or by an account-holder, but this simply means that in case the endorsement of the payee subsequently comes out to be a forged one, the verifier will be liable to the original payee and not the banker.
The banker is also protected against forged endorsements in case of `bank drafts' (Sec. 85A) and crossed checks (Sec. 128), if he makes payment in due course.
Protection in case of bearer checks:
Section 85 (2) provides protection to the paying banker in respect of bearer checks as follows: "Where a check is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any indorsement whether in full or in blank appearing thereon, and notwithstanding that any such indorsement purports to restrict or exclude further negotiation." Accordingly, where a check is originally issued as a bearer check, the banker may ignore any indorsements on the check. He shall be discharged by payment in due course to the bearer of the check. Thus, for the. purpose of discharge of the paying banker from liability, once a bearer check always remains bearer check.
No protection when the drawer's signature is forged:
A banker is not protected even by a payment in due course if the drawer's signature is forged, and as such if he makes payment on forged signature, he cannot debit the customer's account with such payment and will have to bear himself the loss so caused (Allahabad Bank vs Kul Bhushan). There is, however, one exception to this rule. Where the customer has been negligent and his negligence was the proximate cause of the wrong payment, for example, where the customer did not inform the banker immediately on becoming aware of the forgery, the banker can debit the customer's account with the amount so paid.
Protection to the Collecting Banker
A collecting banker is one who receives the payment of a crossed check on behalf of his customer. Section 131 grants protection to the collecting banker and states that "a banker who has in good faith and without negligence received payment for a customer of a check crossed generally or specially to himself shall not, in case the title to the check proves defective, incur any liability to the true owner of the check by reason only of having received such payment.” Accordingly, if the collecting banker has collected a check on behalf of a person whose title to the check was defective, he would be protected and would not be held liable in 'conversion' to the true owner, provided he proves that:
(i) he acted in good faith and without negligence;
(ii) the check was already crossed before it reached his hands; and
(iii) he received the payment on behalf of a 'customer' and not on his own account, i.e., he acted as an agent for collection and not in the capacity of holder for value.
It may be noted that if a banker credits his customer's account with the amount of the check before receiving payment thereof, he does not become a holder for value and the protection of this Section shall be available to such a collecting banker as well (Explanation to Sec. 131). This protection, however, is not available where the banker allows the proceeds of an "Account payee crossed check" to be credited to any account other than the payee and the endorsement in favor of the last payee is proved forged.
The protection afforded by Section 131 to the collecting banker is very valuable in view of the fact that when one person deals with the goods of another without his permission, he is liable to an action for 'conversion', and in the absence of this protection the position of the banker would not be different from that of any other person.
Right of Holder against Banker
As observed earlier, the liability of a banker for wrongful refusal to pay a check is only towards the customer (i.e., the drawer) and not towards the holder or payee-of the check. The holder has no right of action against the banker for refusing to pay the check because there is no privity of contract between him and the banker. But the holder is entitled to enforce payment from the banker in the following two cases:
1. Where the holder does not present the check within a reasonable time of its issue and on account of the delay the drawer suffers actual damage by the failure of the bank and is therefore discharged to the extent of such damage, then the holder can prove his debt to the extent of such discharge against the banker in insolvency proceedings. The holder in such case shall be a creditor, in place of such drawer, of such banker to the extent of such discharge and can recover the amount from him. (Sec. 84)
2. Where a banker pays a check crossed ,generally overthe counter or a check crossed specially otherwise than to the banker to whom the same is crossed, he is liable to the true owner of the check for any loss he may sustain owing to the check having been so paid (Sec. 129). Of course the banker can recover from the wrong payee, if traceable.
Bouncing of Checks
A check is said to be bounced or dishonored by non-payment when the drawee of the check makes default in payment upon being duly required to pay the same. With a view to enhancing the acceptability of checks in settlement of liabilities, it is necessary that the checks drawn are honored and not bounced.
To ensure better discipline in the matter of circulation and payment of checks, the Negotiable Instruments Act, 1881 has been amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, which came into force on April 1, 1989. Apart from few minor amendments, the major amendment pertains to insertion of a new, Chapter (Chapter XVII) in the Negotiable Instruments Act, whose heading is "Penalties in case of Dishonor of certain Checks for Insufficiency of Funds in the Accounts". This Chapter comprises five Sections — Sections 138 to 142.
The salient features of the provisions of new Sections 138 to 142 are discussed below:
A drawer of a dishonored check shall be deemed to have committed an offence and shall, without prejudice to any other provision of the Negotiable Instruments Act, be punishable with imprisonment for a term which may extend to one year, or with a fine which may extend to twice the amount of the check, or with both. However, Wore the penal provisions can be invoked against the drawer of a check which has bounced, the following requirements should be satisfied:
(1) The check should have been dishonored due to insufficiency of funds standing to the credit of the account on which the check was drawn or for the reason that the amount of check drawn on the account exceeds the sanctioned limit of overdraft.
(2) The check should have been issued by the drawer in favour of another person for the discharge of legally enforceable debt or other liability, in whole or in part. Therefore, when any check issued for meeting social obligations, such as charity, marriage presents, birthday gifts, etc., is dishonored for want of funds, the drawer would not be deemed to have committed an offence.
(3) The check should Never been presented to the bank within a period of six months from the date 94 which it is drawn or within the period of its validity, whichever is earlier.
(4) The payee or the holder in due course of the check should have made a demand for the payment of the said amount of money by giving a notice in writing to the drawer of the check within 15 days of the receipt of information by him from the bank regarding the return of the check unpaid.
(5) The drawer of such check should have failed to make the payment of the said amount of money to the payee or the holder in due course of the check within 15 days of the receipt of the said notice.
(6) The payee or the holder in due course of the check dishonored should have made a written complaint of the offence to a Court not inferior to that of a metropolitan magistrate or a first class judicial magistrate, within one month of the date on which the cause of action arose under the said provisions.
It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such check received the check in the discharge of a liability.
If the person committing an offence under the foretasted provisions is a company, the company itself as well as every person who was in charge of, and was responsible to, the company for the conduct of the business of the' company, shall be deemed to be guilty of offence and shall be liable to 'be proceeded against and punished accordingly. But a person will not be liable in a case where 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.
Conclusion
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). Since its revision the negotiable instruments has been playing a significance role in maintaining a sound trade and commerce of this subcontinent.
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- http://www.rbi.org.in/currency/museum/m-hundi.html
- http://www.vakilno1.com/bareacts/negoinstruact/negoinstruact.htm
The Negotiable Instruments Act, 1881, has been amended for more than a dozen times so far. The latest in the series is the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988.
Thomas, Commerce, Its Theory and Practice.
AIR (1971), Supreme Court 761
Central Bank of India v. Khub Ram, 1960 Punj. 157
National Bank v. Silke, (1981), 1 Q.B. 415
"Payment in due course" means payment in accordance with the apparent tenor of the instrument in good fail 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 (Sec. 10).