Negotiable Instruments Act: An Overview

In order to facilitate the expansion of banking and commercial activities, the Negotiable Instruments Act was enacted in 1881. The primary goal was to formalize the exchange of legal tender. The majority of the Act's provisions have not changed since it was first put into effect during the British administration. The body in charge of overseeing the system for regulating negotiable instruments is the Ministry of Finance.

A negotiable instrument is something that can be transferred from one person to another in legal transactions involving money. According to the law, something is negotiable if it can be delivered from one party to another party with the intent that title will pass to the transferee with or without the endorsement. The remaining crucial components of the Act have been covered in the material since the notion was clarified.

What is Negotiable Instrument Act?

A promissory note, bill of exchange, or cheque that is payable to order or to the bearer is a negotiable document, according to section 13 of the Negotiable Instruments Act, 1881. A negotiation instrument is a piece of paper that is used to make payments and whose ownership can be changed several times before the final payment is completed. In other words, a document that is transferable is a negotiable instrument, where instrument refers to a document and negotiable denotes transferability.

What does "Negotiability" Mean?

The distinctive characteristic of a negotiable instrument is its negotiability, which denotes that the instrument is freely transferable. As a result, the title of the transferee is stronger if the transferee purchased the instrument honestly and for fair value while under these conditions, without any suspicion of a defect in the transferee's title. A holder is designated for such a transfer in due time. According to the NI Act, there are several transferable instruments that aren't also considered negotiable instruments if the transferee doesn't receive a higher title, such as railway receipts, bills of lading, warehouse receipts, etc.

Types of Negotiable Instrument

Promissory notes, bills of exchange, and checks are the only types of instruments that are considered negotiable under the Negotiable Instruments Act of 1881. On the basis of usage and custom, several additional documents, such as hundis, treasury bills, share warrants, etc., are also recognized as negotiable instruments, provided they include a negotiability feature.

Negotiable instruments are classified as −

• Promissory Notes − Promissory notes are described as "an instrument in writing (not being a bank note or a currency note) contains 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" in the Negotiable Instruments Act (Section 4), 1881.

• Bills of Exchange − A bill of exchange is defined as "an instrument in writing containing an unconditional order, signed by the maker, directs 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" in the Negotiable Instruments Act (Section 5), 1881.

• Cheque − A cheque is a bill of exchange drawn on a specific banker and not expressly stated to be payable other than on demand, according to the Negotiable Instruments Act of 1881. A cheque is actually an instruction given by the account holder of the concerned bank to his banker to pay the specified amount to the person mentioned therein or to the bearer's order on demand.

Features of the Negotiable Instruments Act

• Moveable − Moving money is made simple and portable with the help of a negotiable instrument. Simple actions are required to transfer ownership of the instrument by simple delivery or by a legitimate endorsement; therefore, there are no complicated or drawn-out processes.

• Written − All transactions involving negotiable instruments should be made in writing. The documentation pieces may be typed, printed, or handwritten.

• Defined period − The time frame for the payment order must be known. Additionally, it must be within a reasonable time frame if the date is not provided. Payment orders cannot be regarded as negotiable instruments if they depend on convenience and personal preference.

• Specified individuals − The payee must likewise be known or certain, just like the time. In negotiable instruments, there might be more than one drawee, and the person could be a firm, another independent legal organization, or an authorized individual.

Amendments of the Act

The Negotiable Instruments Act has been timely revised to remove any inconsistencies or other obstacles that could diminish the effectiveness of the Negotiable Instruments Act. The widespread acceptance of the system and people's use of instruments in every aspect of life, whether it be business or personal, made it necessary. The reach of the regulations created earlier has been constrained by the advancement of electronic data sharing and technology.

Agriculture used to be the main industry, and the majority of transactions were made in cash. However, as industries and services expanded, the general population became more aware of the possibilities offered by banking, which led to an increase in the volume of money being transferred through banks. Since they are among the greatest options for moving money, negotiable instruments have long been extensively used in commercial and banking operations. The goal of negotiating instruments has been undermined by certain outdated legislation. The need for changes to close the loopholes has been made clear by the rise in dishonours of cheques.

The 2002 revisions broadened the parent Act's reach and reduced its limitations by adding new provisions from Section 143 through Section 147. The Amendment Act and the addition of five additional sections went into effect on February 6, 2002. The Sections fall under Chapter XVII, which is largely for criminal provisions because violating the Sections could result in charges of dishonouring cheques in cases when there is insufficient cash.

The provisions from Sections 262 to 265 of the Code of Criminal Procedure shall be applied in accordance with the facts of the case, according to Section 143, which specifies the court's authority to handle cases that would fall under the jurisdiction of a Judicial Magistrate of the First Class or Metropolitan Magistrate.

The various summoning methods are described in Section 144 of the NI Act. When a magistrate issues a summons to an accused person, he or she may send a copy of the summons through speed post or another courier service that the court of session may permit to the accused person's original residence, place of business, or place of employment for profit.

According to Section 145, the evidence on affidavit is the testimony provided by the complainant and may be admitted into evidence in any investigation, trial, or action conducted in accordance with the said code, subject to all reasonable exceptions. If the court discovers such circumstances, it may summon any witness who provided factual testimony in the affidavit.

Conclusion

The Act is a cornerstone in matters of commerce and finance. If it is specified in the Act, it serves as a lighthouse for everyone who would experience any type of wrongdoing in connection with financial transactions. After learning about a few components of the laws, it is clear that the country's laws are quite strict when it comes to any sort of irregularities or any voluntary wrongs committed by the populace.

The Act was occasionally revised to address the financial issues. Because disagreements between parties are less likely and can be settled through the law or another method, the Act also contributes to the growth of commercial accessibility. For industrious people, a few unique provisions that were added following the amendment are a blessing.

Frequently Asked Questions

Q1. What is a Negotiable Instrument?

Ans. In Section 13 of the Negotiable Instruments Act of 1881, the phrase "negotiable instrument" is defined. The old French word "negociación," which means interacting with people, traffic, trade, and business, is where the word "negotiable" originated.

Q2. What ingredient consists of a negotiated instrument?

Ans. The accused must draw the check from a bank account he maintains with a specific banker in a bank. When a check is dishonoured, it is either returned unpaid because there is not enough money to cover it or it is returned because the amount it contains exceeds the agreement signed with the bank. When a check is returned to the holder or drawer of the check unpaid, the offence is said to have been committed.

Q3. Is it an offence if a check bounces?

Ans. Cheque bounce is a criminal offence that carries a possible two-year prison sentence, a fine that could be twice as much as the original amount of the check, or a combination of the two.