Negotiable Law

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1: 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 fourteenth 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 utilized 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 recognized 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 localusages 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


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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.

Negotiable Instruments

Exchange of goods and services is the basis of every business activity. Goods are bought

and sold for cash as well as on credit. All these transactions require flow of cash either

immediately or after a certain time. In modern business, large number of transactions involving

huge sums of money takes place every day. It is quite inconvenient as well as risky for either

party to make and receive payments in cash. Therefore, it is a common practice for businessmen

to make use of certain documents as means of making payment. Some of these documents are

called negotiable instruments.

Definition of Negotiable Instrument

The term 'negotiable instrument' has been defined as- A 'negotiable instrument' means a

promissory note, bill of exchange or cheque payable either to order or to bearer."

The word 'negotiable' means transferable from one person to another and the term 'instrument'

means 'any written document by which a right is created in favor of some person.' Thus, the

negotiable instrument is a document by which rights vested in a person can be transferred to

another person in accordance with the provisions of the Negotiable Instruments Act, 1881.

Meaning of Negotiable Instruments

The concept of negotiability is one of the most important features of commercial paper. A

negotiable instrument is a written document, signed by the maker or drawer, and containing an

unconditional promise to pay (or order to pay) a certain sum of money on delivery, or at a

definite time, to the bearer (or to the order).

Example

Suppose Pitamber, a book publisher has sold books to Prashant for Rs 10,000/- on three

months credit. To be sure that Prashant will pay the money after three months, Pitamber may

write an order addressed to Prashant that he is to pay after three months, for value of goods

received by him, Rs.10,000/- to Pitamber or anyone holding the order and presenting it before


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him (Prashant) for payment. This written document has to be signed by Prashant to show his

acceptance of the order. Now, Pitamber can hold the document with him for three months and on

the due date can collect the money from Prashant. He can also use it for meeting different

business transactions. For instance, after a month, if required, he can borrow money from Sunil

for a period of two months and pass on this document to Sunil. He has to write on the back of the

document an instruction to Prashant to pay money to Sunil, and sign it. Now Sunil becomes the

owner of this document and he can claim money from Prashant on the due date. Sunil, if

required, can further pass on the document to Amit after instructing and signing on the back of

the document. This passing on process may continue further till the final payment is made.

In the above example, Prashant who has bought books worth Rs. 10,000/- can also give an

undertaking stating that after three month he will pay the amount to Pitamber. Now Pitamber can

retain that document with himself till the end of three months or pass it on to others for meeting

certain business obligation (like with Sunil, as discussed above) before the expiry of that three

months time period.

Thus, we can say negotiable instrument is a transferable document, where negotiable means

transferable and instrument means document. To elaborate it further, an instrument, as

mentioned here, is a document used as a means for making some payment and it is negotiable

i.e., its ownership can be easily transferred.

Features of Negotiable Instruments

After discussing negotiable instruments let us sum up their features as under

1.A negotiable instrument is freely transferable. Usually, when we transfer any property to

somebody, we are required to make a transfer deed, get it registered, pay stamp duty, etc. But,

such formalities are not required while transferring a negotiable instrument. The ownership is

changed by mere delivery (when payable to the bearer) or by valid endorsement and delivery


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(when payable to order). Further, while transferring it is also not required to give a notice to the

previous holder.

2.Negotiability confers absolute and good title on the transferee. It means that a person who

receives a negotiable instrument has a clear and undisputable title to the instrument. However,

the title of the receiver will be absolute, only if he has got the instrument in good faith and for a

consideration. Also the receiver should have no knowledge of the previous holder having any

defect in his title. Such a person is known as holder in due course. For example, suppose Rajiv

issued a bearer cheque payable to Sanjay. It was stolen from Sanjay by a person, who passed it

on to Girish. If Girish received it in good faith and for value and without knowledge of cheque

having been stolen, he will be entitled to receive the amount of the cheque. Here Girish will be

regarded as holder in duecourse.

3.A negotiable instrument must be in writing. This includes handwriting, typing, computer

printout and engraving, etc.

4. In every negotiable instrument there must be an unconditional order or promise for

payment.

5.The instrument must involve payment of a certain sum of money only and nothing else .

For example, one cannot make a promissory note on assets, securities, or goods.

6.The time of payment must be certain. It means that the instrument must be payable at a time

which is certain to arrive. If the time is mentioned as when convenient it is not a negotiable

instrument. However, if the time of payment is linked to the death of a person, it is nevertheless a

negotiable instrument as death is certain, though the time thereof is not.

7.The payee must be a certain person. It means that the person in whose favour the instrument

is made must be named or described with reasonable certainty. The term person includes

individual, body corporate, trade unions, even secretary, director or chairman of an institution.

The payee can also be more than one person.

8.A negotiable instrument must bear the signature of its maker. Without the signature of the

drawer or the maker, the instrument shall not be a valid one.

9. Delivery of the instrument is essential. Any negotiable instrument like a cheque or a

promissory note is not complete till it is delivered to its payee. For example, you may issue a

cheque in your brothers name but it is not a negotiable instrument till it is given to your brother.


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10.Stamping of Bills of Exchange and Promissory Notes is mandatory. This is required as

per the Indian Stamp Act, 1899. The value of stamp depends upon the value of the pronote or bill

and the time of their payment.

Need for Negotiable Instruments:

1. Negotiable instruments such as cheques, bills of exchange, promissory notes etc. are playing a

vital role in today's boosting trade and commerce. Negotiable such as promissory note and

specially the bills of exchange are specially made for this purpose. Bills of exchange help many

people who do not have the money to spend money as capital in their business.

2. There were the different stages of evolution of business. However it was seen that the

growth was very slow and the system was very complex. There were different instruments

used to purchase different commodities in different stages. The system of exchange was such

that it led to confusion and various complexities. To avoid such confusion and to operate the

business activities smoothly negotiable instruments were introduced.

3. Due to the negotiable instruments it became very easy and secure to make payments through

cheques.

Objectives Of Negotiable Instruments

1. To study the evolution and revolution of negotiable instruments act.2. To study negotiable instruments act.3. To study types of negotiable instruments.4. To study the differences between the different negotiable instruments.5. To study the impact of negotiable instruments act 10 years in future.6. To get a better understanding of negotiable instruments act through case studies.


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TYPES & FEATURES OF NEGOTIABLE INSTRUMENTS

Types of Negotiable Instruments:

According to the Negotiable Instruments Act, 1881 there are just three types of negotiable

instruments i.e., promissory note, bill of exchange and cheque. However many other documentsare also recognized as negotiable instruments on the basis of custom and usage, like hundis,

treasury bills, share warrants, etc., provided they possess the features of negotiability. In the

following sections, we shall study about Promissory Notes (popularly called pronotes), Bills of

Exchange (popularly called bills), Cheques and Hundis (a popular indigenous document

prevalent in India), in detail.

1.Promissory Note:

Section 4 of the Negotiable Instruments Act, 1881 defines a promissory note as 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.

Example:

Suppose you take a loan of Rupees Five Thousand from your friend Ramesh. You can make a

document stating that you will pay the money to Ramesh or the bearer on demand. Or you can

mention in the document that you would like to pay the amount after three months. This

document, once signed by you, duly stamped and handed over to Ramesh, becomes a negotiable

instrument. Now Ramesh can personally present it before you for payment or give this document

to some other person to collect money on his behalf. He can endorse it in somebody elses name

who in turn can endorse it further till the final payment is made by you to whosoever presents it

before you. This type of a document is called a Promissory Note

Features of a promissory note:

The features of a promissory note are:

i.A promissory note must be in writing, duly signed by its maker and properly stamped as per

Indian Stamp Act.

ii.It must contain an undertaking or promise to pay. Mere acknowledgement of indebtedness is

not enough. For example, if someone writes I owe Rs. 5000/ - to Satya Prakash, it is not a

promissory note.


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iii.The promise to pay must not be conditional. For example, if it is written I promise to pay

Suresh Rs 5,000/- after my sisters marriage, is not a promissory note.

iv.It must contain a promise to pay money only. For example, if someone writes I promise to

give Suresh a Maruti car it is not a promissory note.

v.The parties to a promissory note, i.e. the maker and the payee must be certain.

vi.A promissory note may be payable on demand or after a certain date. For example, if it is

written three months after date I promise to pay Satinder or order a sum of rupees Five

Thousand only it is a promissory note.

vii.The sum payable mentioned must be certain or capable of being made certain. It means that

the sum payable may be in figures or may be such that it can be calculated.

Parties to a Promissory Note:

There are primarily two parties involved in a promissory note. They are

i. The Maker or Drawer the person who makes the note and promises to pay the

amount stated therein is a drawer.

ii. The Payee the person to whom the amount is payable is a payee. In course of

transfer of a promissory note by payee and others, the parties involved may be:

a. The Endorserthe person who endorses the note in favor of another person.

b. The Endorseethe person in whose favor the note is negotiated by endorsement.

(Endorsement means transfer of any document or instrument to another person by signing on itsback or face or on a slip of paper attached to it)

Specimen of a Promissory Note

Rs. 10,000/- New Delhi

15th

March 2013

On demand, I promise to pay Abhay, s/o Sitaram of Meerut or order a sum of Rs

10,000/- (Rupees Ten Thousand only), for value received.

To , Abhay Sd/ Sanjeev

Address.. Stamp


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2.Bill of Exchange:

Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange as 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.

Example:

Suppose Rajiv has given a loan of Rs.10,000 to Sameer, which Sameer has to return. Now, Rajiv

also has to give some money to Tarun. In this case, Rajiv can make a document directing Sameer

to make payment up to Rs.10,000 to Tarun on demand or after expiry of a specified period. This

document is called a Bill of Exchange, which can be transferred to some other persons name by

Tarun.

Features of a bill of exchange:

The various features of a bill of exchange are:

i. A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly

stamped as per Indian Stamp Act.

ii. It must contain an order to pay. Words like please pay Rs 5,000/- on demand and oblige are

not used.

iii. The order must be unconditional.

iv. The order must be to pay money and money alone.

v. The sum payable mentioned must be certain or capable of being made certain.

vi. The parties to a bill must be certain.

Parties to a Bill of Exchange:

There are three parties involved in a bill of exchange. They are:

i. The DrawerThe person who makes the order for making payment. I

ii. The Drawee

The person to whom the order to pay is made. He is generally a debtorof the drawer.

iii. The PayeeThe person to whom the payment is to be made.

The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the

words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like


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the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This

is called a Demand Bill.

Specimen of a Bill of Exchange

Rs. 10,000/- New Delhi

May 2,2001

Five months after date pay Tarun or (to his) order the sum of Rupees Ten

Thousand only for value received.

To Accepted Stamp

Sameer Sameer S/d

Address Rajiv

3.Cheques:

The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a

specified banker and not expressed to be payable otherwise than on demand. Actually, a cheque

is an order by the account holder of the bank directing his banker to pay on demand, the

specified amount, to or to the order of the person named therein or to the bearer.

Cheque is a very common form of negotiable instrument. If you have a savings bank account or

current account in a bank, you can issue a cheque in your own name or in favour of others,

thereby directing the bank to pay the specified amount to the person named in the cheque.

Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is

always the drawee in case of a cheque.

Features of a cheque:

The features of a cheque are:

i. A cheque must be in writing and duly signed by the drawer.

ii. It contains an unconditional order.

iii. It is issued on a specified banker only.

iv. The amount specified is always certain and must be clearly mentioned both in figures and

words.


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v. The payee is always certain.

vi. It is always payable on demand.

vii. The cheque must bear a date otherwise it is invalid and shall not be honoured by the bank.

Specimen of a Cheque:

......20.......

Pay..............................................................................................................

....................................................................................................... or Bearer

Rupees

STATE BANK OF INDIA

Jawaharlal Nehru University, New Delhi110067

MSBL 6 5 3 0 0 3 1 1 0 0 0 2 0 5 6 1 0

Types of Cheque:

Broadly speaking, cheques are of four types.

a) Open cheque, and

b) Crossed cheque.

c) Bearer cheque

d) Order cheque

a) Open cheque: A cheque is called Open when it is possible to get cash over the counter at

the bank. The holder of an open cheque can do the following:

i. Receive its payment over the counter at the bank,

ii. Deposit the cheque in his own account

iii. Pass it to someone else by signing on the back of a cheque.

b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue such

cheques. This risk can be avoided by issuing other types of cheque called Crossed cheque. Thepayment of such cheque is not made over the counter at the bank. It is only credited to the bank

account of the payee. A cheque can be crossed by drawing two transverse parallel lines across

the cheque, with or without the writing Account payee or Not Negotiable.


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c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the

bank counter is called Bearer cheque. A bearer cheque can be transferred by mere delivery and

requires no endorsement.

d) Order cheque: An order cheque is one which is payable to a particular person. In such a

cheque the word bearer may be cut out or cancelled and the word order may be written. The

payee can transfer an order cheque to someone else by signing his or her name on the back of it.

There is another categorizationof cheques which is discussed below:

Ante-dated cheques:- Cheque in which the drawer mentions the date earlier to the date of

presenting if for payment. For example, a cheque issued on 20th May 2003 may bear a date 5th

May 2003.

Stale Cheque:- A cheque which is issued today must be presented before at bank for payment

within a stipulated period. After expiry of that period, no payment will be made and it is then

called stale cheque. Find out from your nearest bank about the validity period of a cheque.

Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for payment,

such a cheque is called a mutilated cheque. The bank will not make payment against such a

cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no

material fact is erased or cancelled, the bank may make payment against such a cheque.

Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to the date

on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th

May 2003 bears a date of 25th May 2003, it is a post-dated cheque. The bank will make payment

only on or after 25th May 2003.

4. Hundis

A Hundi is a negotiable instrument by usage. It is often in the form of a bill of exchange drawn

in any local language in accordance with the custom of the place. Sometimes it can also be in the

form of a promissory note. A hundi is the oldest known instrument used for the purpose of

transfer of money without its actual physical movement. The provisions of the Negotiable

Instruments Act shall apply to hundis only when there is no customary rule known to the people.


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Types of Hundis

There are a variety of hundis used in our country. Let us discuss some of the most common ones.

1. Shah-jog Hundi:This is drawn by one merchant on another, asking the latter to pay the

amount to a Shah. Shah is a respectable and responsible person, a man of worth and known in the

bazaar. A shah-jog hundi passes from one hand to another till it reaches a Shah, who, after

reasonable enquiries, presents it to the drawee for acceptance of the payment.

2. Darshani Hundi:This is a hundi payable at sight. It must be presented for payment within a

reasonable time after its receipt by the holder. Thus, it is similar to a demand bill.

3. Muddati Hundi:A muddati or miadi hundi is payable after a specified period of time. This is

similar to a time bill.

There are few other varieties like Nam-jog hundi, Dhani-jog hundi, Jawabee hundi, Jokhami

hundi, Firman-jog hundi, etc.

Section 123-131 & 138

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, either with or without the words "not

negotiable" that 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 to be crossed specially.

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".


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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. Whoever, being a public servant, legally

bound as such public servant to apprehend or to keep in confinement any person charged with or

liable to apprehended for an offence, intentionally omits to apprehend such person, or

intentionally suffers such person to escape, or intentionally aids such person in escaping or

attempting to escape from such confinement, shall be punished as follows, that is to say:-

With imprisonment of either description for a term which may extend to seven years, with

or without fine, if the person in confinement, or who ought to have been apprehended, was

charged with, or liable to be apprehended for, an offence punishable with death; or

With imprisonment of either description for a term which may extend to three years, with

or without fine, if the person in confinement or who ought to have been apprehended, was

charged with, or liable to be apprehended for, an offence punishable with *[imprisonment for

life] or imprisonment for a term which may extend to ten years; or

With imprisonment of either description for a term which may extend to two years, with or

without fine, if the person in confinement, or who ought to have been apprehended, was charged

with, or liable to be apprehended for, an offence punishable with imprisonment for a term less

than ten years.

* Subs. by Act 26 of 1955, sec.117 and sch., for "transportation for life" (w.e.f.1-1-1956 ).

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.


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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 138- Dishonour of cheque for insufficiency, etc., 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:


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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.


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Evolution of Payment Systems in India

1. The earliest payment instruments used in Indiawere coins, which were either punch marked or

cast in silver and copper.

2. In ancient India, loan deedforms were also used. They were called rnapatra or rnalekhya .They contained details such as the name of the debtor and the creditor, the amount of loan,

the rate of interest, the condition of repayment and the time of repayment. The deed was

witnessed by a person of respectable means and endorsed by the loan-deed writer.

3. In the Buddhist periodloan deeds called inapanna were used. In this era merchants in largetowns gave letters of credit to one another. Promissory notes were also used widely.

4. In the Mauryan period, the bill of exchange was used. It was called adesha. It was an orderthat a banker had to pay to a third person.

5. In the Mughal period, the deeds were called dastawez and were of two types: dastawez-e-indultalab which was payable on demand and dastawez-e-miadi which was payable after a

stipulated time. In the this period, foreign travellers used the bills of exchange in the then

great shopping centres. The Indian bankers also issued bills of exchange on foreign countries,

mainly for financing sea-borne trade. Another instrument used was the Pay order. It was

calledBarattes and was similar to the present day drafts or cheques.

6. In the twelth Century, theHundiswas introduced..

7. . Hundis were used to transfer funds from one place to another to borrow money as bills of exchange


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8. Hundis were of various kinds as follows: Darshani Hundi : This was a demand bill of exchange, payable on presentation

according to the usage and custom of the place. This was mainly of four types.

Sah-jogThis was a hundi transferable by endorsement and delivery but payableonly to a Sah or to his order. A Sah was a respectable and responsible person, a

man of worth and substance who was known in the market.

Dhanni-jogThis was a demand bill of exchange, payable only to the dhanni,i.e. the payee. This hundi was not negotiable.

Firman-jog- Hundis came into existence during the Mughal period. Firman is aPersian word meaning order and therefore, firman-jog hundis were payable to the

order of the person named. These hundis could be negotiated with a simple or

conditional endorsement.

Dekhavanhar- Hundi was a bearer demand bill of exchange, payable to theperson presenting it to the drawee. Thus it corresponded to a bearer cheque.

Muddati Hundi: This is a bill that is payable after stipulated time or on a given date or ona determinable future date or on the happening of a certain stipulated event. The most

important type of muddati hundi was the jokhami hundi, which was a documentary bill of

exchange corresponding to the present day bill of lading i.e. The bill of lading is a legal

document serves as a receipt of shipment when the good is safely delivered to thepredetermined destination

9. The princely states of India had their own distinct coins. An example of this was the ArcotRupee coin struck by the Nawab of Arcot in the Madras Presidency.

10.By 1740, the Europeans coined this rupee, and the coins came to be known as English,French and Dutch arcots.

11. In 1770, the first public bank-The bank of Hindustan introduced the cheque.

12.In the 18thcenturypaper money, originated with the note issues of private banks as well assemi-government banks. Amongst the earliest issues were those by the Bank of Hindustan,


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the General Bank in Bengal and Behar, and the Bengal Bank. Later, three Presidency Banks

were established and the job of issuing notes was taken over by them.

13.In 1827 the British introduced the Post. These were Inland Promissory notes issued by thebank on a distant place. They were mainly used by European businessmen for purpose of

sending money to someone at a distance.

14.In 1835, the East India Company introduced the Company's Rupee to bring about uniformityof coinage over British India.

15.In 1833, the Bank of Bengal started granting loans against the security of Company's paper,plate, jewels or goods of non-perishable goods.

16.From 1839the Bank of Bengal began the buying and selling bills of exchange.

17. In 1861, The Paper Currency Act gave the Government of India the monopoly to IssueNotes, thus bringing an end to note issues of private and Presidency Banks.

18.In 1881, the Negotiable Instruments Act (NI Act) was passed, formalizing the usage andcharacteristics of instruments like the cheque, the bill of exchange and promissory note. The

NI Act provided a legal framework for non-cash paper payment instruments in India.

Why was it necessary to introduce Negotiable Instruments?

Historically business developed by stages.

(1)Pastoral stage (2) Agricultural stage (3) Handicrafts stage (4) Guild stage (5)Domestic stage and (6) Factory stage.

Pastoral stage: In primitive society man used things just as they were found in nature. With

time, he learned to domesticate animals and breed them for food and clothing. Since he had

to find pastures for his animals, he tended to lead a wandering life. But in this stage his work

served mainly to support only him with his own needs and left very little surplus available for

exchange on a business basis.


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Agricultural stage: In course of time, the nomadic tribes settled permanently at fixed places,

built up the huts and shelters for their residences and began cultivating the land in common.

Growing corns, grasses etc. became the main occupation. Agriculture emerged as the basic

feature of economic living of man. He gradually produced more and then started to exchange

it with other commodities. This was known as barter system.

Handicraft stage: In this stage manufacturing was limited to the human efforts to transform

raw materials into finished goods. It included candle and soap making, spinning, weaving,

making of clothes and shoes, blacksmithing, leather dressing, carpentry etc.

Guild stage: A guild is an association of persons following a similar occupation and it is

formed to protect and promote the interest of its members through cooperative endeavors.

Domestic stage: A new class entrepreneur emerged as a link between producer and

consumer. Now entrepreneur purchased the raw materials for the purpose of manufacture and

sale nut did not do the processing himself. He took the risk of productions and sale. Out of

the proceeds of his undertaking, he paid for the materials and labour. The amount left was his

profit

Factory stage: In this stage an organized system of production under a single roof came to

be identified as a factory. Large scale operations with the use of mechanized production

processes resulted in producing good quality products at cheaper rates. However it was

greatly influenced not only by its own processes but also by government under which it

operates.

These were the different stages of evolution of business. However it was noted that the

growth was very slow and the system was very complex. There were different instruments

used to purchase different commodities in different stages. The system of exchange was such

that it led to confusion and various complexities. To avoid such confusion and to operate thebusiness activities smoothly negotiable instruments were introduced.


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REVOLUTION OF PAYMENT SYSTEMS IN INDIA

Digital cash

A digital coin or digital cash consists of a message issued by a bankor other entity and

encrypted by its

Private Key. The message contains the serial number of the cash, the identity of the issuer and its

Internet address, the amount of the cash and an expiry date. This serial number is unique to bank

and can be decrypted by bank only this serial cannot be altered unless message is tweaked i.e it is

permanent in nature and once set cannot be changed.

Main feature of digital cash is that

1)It is not traceable i.e one cannot track the initial user or whom the money is been transferred.

2) It is transnational it can be sent anywhere in world.

Example- when ganesh has bought a book from online retailer and wants to make payment in

digital cash then for given price digital-cash code that is associated with the requested digital-

cash value i.e book price generated from ganesh bank who provides him digital cash service this

code Is then communicated to online retailer ,the retailer will confirm the code from bank

weather it is correct value and there is no multiple transaction and then enter the encrypted codewith retailers bank account code to transfer money into retailers account.

Smart Card

A smart card is like an "electronic wallet". It is a standard credit card-sized plastic

intelligent token within which a microchip has been embedded within its body and which makes

it smart. Amongst other things, the card can be used to store money, or a value of money,

including digital coins

Example: Rajesh had gone out of station at his cousin marriage for 5 days to Delhi. He had gone

out for shopping in a mall. He purchase clothes, shoes and perfume for his cousin marriage. He

saw that cash he was carrying in his wallet was not enough to pay the bill. So he thought rather


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of withdrawing cash from A.T.M he would pay directly by using his credit card. This will save

his time and easy to do the transaction.

Electronic fund transfer

Electronic Funds Transfer (EFT) is the electronic exchange or transfer of money from

one account to another, either within a single financial institution or across multiple institutions,

through computer-based systems. The primary modes of funds transfer at present are demand

draft, mail transfer and telegraphic transfer. The time taken by these modes of transfer for

transferring the money from sender to beneficiary is around 8 to 10 days. In the case of

Electronic fund transfer, fund reaches the beneficiary either on the same day or the next day.

For e.g: Suppose there are two parties party A and party B entered into to a contract. If party Awants to make payment to party B through Electronic Funds Transfer then party A will approach

his bank to make the payment to party B. Party A will give all the details of party A and party B

required for making a Electronic Fund Transfer to his bank and then the bank of party A will

make the payment to the bank of party B. The bank of party B then will make the payment to

party B.

Digital Cheque

Digital cheque is a form of payment used inEcommerce. A digital cheque functions in

the same way as a paper cheque. It acts as a message to a bank to transfer funds to a third party;

however, it has a number of security advantages over conventional cheques since the account

number can be encrypted, a digital signature can be employed, and digital certificates can be

used to validate the payer, the payer's bank, and the account.

There are two types of digital cheques

1. Electronic cheque:Electronic cheque is issued electronically and no paper is involved. The electronic

cheques are issued in electronic form with digital signatures / biometric signatures /

encrypted data.

2. Truncated cheque:
http://en.wikipedia.org/wiki/Computerhttp://www.google.com/url?q=http%3A%2F%2Fwww.encyclopedia.com%2Fdoc%2F1O12-ecommerce.html&sa=D&sntz=1&usg=AFQjCNHHsE-hTUA_ze9GhFGQdQxXr-pd0Ahttp://www.google.com/url?q=http%3A%2F%2Fwww.encyclopedia.com%2Fdoc%2F1O12-digitalsignature.html&sa=D&sntz=1&usg=AFQjCNFlESvMMSgXCJKVn93ELycAH9mc7Ahttp://www.google.com/url?q=http%3A%2F%2Fwww.encyclopedia.com%2Fdoc%2F1O12-digitalcertificate.html&sa=D&sntz=1&usg=AFQjCNFDOViGGNuNe5sTe-PuYKkotdwQeghttp://www.google.com/url?q=http%3A%2F%2Fwww.encyclopedia.com%2Fdoc%2F1O12-digitalcertificate.html&sa=D&sntz=1&usg=AFQjCNFDOViGGNuNe5sTe-PuYKkotdwQeghttp://www.google.com/url?q=http%3A%2F%2Fwww.encyclopedia.com%2Fdoc%2F1O12-digitalsignature.html&sa=D&sntz=1&usg=AFQjCNFlESvMMSgXCJKVn93ELycAH9mc7Ahttp://www.google.com/url?q=http%3A%2F%2Fwww.encyclopedia.com%2Fdoc%2F1O12-ecommerce.html&sa=D&sntz=1&usg=AFQjCNHHsE-hTUA_ze9GhFGQdQxXr-pd0Ahttp://en.wikipedia.org/wiki/Computer


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In cheque truncation, at some point in the flow of the cheque, the physical cheque is

replaced with an electronic image of the cheque and that image moves further. The

processing is done on the basis of this truncated cheque and physical cheque is stored.

For example, a company that is depending on the received cheque clearing in time to use the

funds to manage an employee payroll will appreciate the speed that the electronic cheque deposit

method provides in comparison to waiting several days for paper cheque to clear.

Biometrics

It consists of methods for uniquely recognizing humans based upon one or more intrinsic

physical or behavioral traits.The traits that are considered include fingerprints, retina and iris

patterns, facial characteristics and many more. Biometrics is used as a form of identity access

management andaccess control

The meaning of Biometrics is life measurement" which measure a particular set of a person's

vital statistics in order to determine identity. E.g. Identify individuals in groups are means of

identity access management & APIN on anATM system at a bank is means of access control.

Biometric characteristics can be divided in two main classes

1. Behavioral biometrics: it is basically measures the characteristics which are acquirednaturally over a time. It is generally used for verification.

e.g.

Speaker Recognition - analyzing vocal behavior Signature - analyzing signature dynamics Keystroke - measuring the time spacing of typed words

2. Physical biometric definition: it is measures the inherent physical characteristics on anindividual. It can be used for either identification or verification.

e.g.

Fingerprint - analyzing fingertip patterns Facial Recognition - measuring facial characteristics Hand Geometry - measuring the shape of the hand Iris Scan - analyzing features of colored ring of the eye
http://en.wikipedia.org/wiki/Intrinsichttp://en.wikipedia.org/wiki/Traitshttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Access_controlhttp://en.wikipedia.org/wiki/Access_controlhttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Personal_identification_numberhttp://en.wikipedia.org/wiki/Automatic_Teller_Machinehttp://en.wikipedia.org/wiki/Automatic_Teller_Machinehttp://en.wikipedia.org/wiki/Personal_identification_numberhttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Access_controlhttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Identity_access_managementhttp://en.wikipedia.org/wiki/Traitshttp://en.wikipedia.org/wiki/Intrinsic


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Conclusion

A global world means different people, different culture, different opinions, different

understanding and different laws in every country. When trade of goods and services started,

problems also started taking up their roles. The cases of payment problems were observed among

the exporting parties. Since the laws of different countries differ from each other, these matters

could not be solved legally and the distance between each country made it even more

uncomfortable. The ups and downs in the foreign exchange of every country were making them

go through stagnancy. A certain kind of negotiation was required at an international level to

make the road of trade go smooth. There was indeed a need for a negotiable instrument which is

accepted by every law internationally.

Negotiable Law

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Transcript of Negotiable Law