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INTRODUCTION TO THE NEGOTIABLE INSTRUMENTS ACT

Table of Contents

ORIGIN AND INTRODUCTION OF THE NEGOTIABLE INSTRUMENTS ACT[1]

In ancient times, the routes along with vast commerce were unsecured, and pirates robbed merchants carrying coins (money) on sea or land. Therefore, to avoid robbery of coins, an idea of exchange came, whereby letters of credit (i.e. Bill of Exchange) from the Marchant of one country were issued, requiring the debt to be paid to a third person who carried the letter of credit, to the place where the debtor resides. A Bill of Exchange was thus originally an order to pay a trade debt in one country due to a person in another country not being in danger of carrying money from one country to another. E.g. A in Mumbai buys goods from B a merchant at London and C a merchant in London owes A a sum of money. A draws a Bill of Exchange ordering C to pay B the sum mentioned in the instrument (Bill of Exchange). Thus, B can collect the price of his goods in London without the risk or trouble of carrying the coins from Mumbai to London. However, this practice of issuing a Bill of Exchange, considering their utility, is also made applicable to inland debts.

Negotiable Instrument Act 1881 is passed to define and amend the law relating to promissory notes, Bill of Exchange and cheques. This Act is based on the English Common Law of Merchant. The Law of Merchant is now codified in two legislations: the Bill of Exchange Act 1982 and the Cheque Act 1957. Since the Negotiable Instrument Act 1881 is based on the English Common Law of Merchants, Indian Courts are allowed to interpret the provisions of the Act in the light of English law.

However, this Act does not affect the operation of the Indian Paper Currency Act, 1871 or any local usage relating to any instrument (document) in an oriental language such as hundi etc. In fact, the title of the Negotiable Instrument Act 1881 is misleading. It is due to two reasons-

Firstly, the Act seems to have laid down the whole law regarding the cheque, Bill of Exchange, and promissory note, but in fact, it merely regulates their issues and negotiations and does not include assignment or devolution of rights.

Secondly, the scope of the Act is confined to the cheques, Bills of Exchange, and Promissory Notes (as the Act’s preamble denotes); however, the Act’s provisions are wide enough to include non-negotiable as well as negotiable instruments. Most of the provisions make no distinction between negotiable and non-negotiable instruments of Bill of Exchange, Cheque, or Promissory Note.

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[1] ‘‘परक्राम्य लेख’’-चलनक्षम दस्ताऐवज अधिनियम [“परक्राम्य लेख” – परक्राम्य लिखत अधिनियम]