Tuesday 29 April 2014


 Please pardon me if I have  missed any references.

Evolution & Revolution of Negotiable Instruments as Facilitator for Trade and Commerce and
Ten years taking forward

                                                                                   


INDEX
Sr.No                                                          Topic                                                          Page

1.                INTRODUCTION                                                                            03
2.                EVOLUTION OF NEGOTIABLE INSTRUMENTS                        04
3.                NEGOTIABLE INSTRUMENTS                                                     11
4.                TYPES AND FEATURES OF NEGOTIABLE
INSTRUMENTS                                                                               15
5.                DIFFERENCES BETWEEN NEGOTIABLE
INSTRUMENTS                                                                               19
6.                DISHONOR OF NEGOTIABLE INSTRUMENTS                          29
7.                REVOLUTION OF PAYMENT SYSTEMS IN INDIA                             32
8.                FUTURE PROSPECTS OF NEGOTIABLE
INSTRUMENTS                                                                               36
9.                CASE STUDY                                                                                     41
10.              CONCLUSION                                                                                 43
11.              WEBLIOGRAPHY AND BOOKS REFERRED                              44











 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 local usages 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. Objective 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.

EVOLUTION OF NEGOTIABLE INSTRUMENTS
The world as a whole has been the “cradle of commerce” because this exchange is not only between individuals but also between people and nations. This naturally implies the existence of:
1-      Certain surplus of wealth
2-      Certain provision for communication
Both of which are essential for growth of commerce. Unless there is a surplus of wealth and provision for communication, commerce cannot grow.
Example- In the primitive economic society when each tribe or family produced all that is needed and consumed all that it produced, need of commerce did not and could not arise. Only after the division of labour and consistent development of exchange, commerce began to grow. Once it started growing, it spread its invisible thread throughout the length and breadth of the world leading to its present day complex mechanism. These stages may be summarized as follows:
1.      Nonexistence of commerce- In the early stage of economic life of man division of labour scarcely existed. Man produced what he needed and consumed all that he produced. Therefore commerce did not exist in this stage.
2.      Trade in the form of barter- In the second stage, wants of the family became more numerous and many families found themselves with certain goods and surplus and deficient in certain other goods. These families wanted to exchange their surplus goods for those goods which they did not possess. This gave rise to “exchange of goods for goods, i.e., Barter system. Thus this is the place from where commerce may be said to have begun.
3.      Money as a medium of trade and town as the centre of trade- Commerce reached into its third stage of growth when money was evolved as medium of exchange to remove the limitations of barter. Introduction of money began led to the extension of division of labour and specialization. People began to produce goods for certain local markets. Thus, division of labour was extended to a locality. Gradually a separate class of artisans and traders came into existence. They settled down at fixed places which came to be known as towns. Growth of these towns gave great stimulus to commerce. The size of the market and the number of commodities exchanged in the market, both increased. Traders from other countries brought luxury articles, metals and ornaments for sale.

4.      Economy and growth of commerce- Commerce continued to grow both in volume and space. After the decline of Guild system, a new class of people, ENTERPRENEUR class, came into existence. This class of people became a real intermediary between the producers and consumers. Further, growth of commercial enterprise took place. Trade began to assume fixed forms. Production began to be undertaken for the markets extended for the whole country. Division of labour received further impetus. Production was divided into several branches and each branch tended to be localized. Various economic activities came to be clearly marked off into distinct groups:
A-                            Agriculture
B-                            Trade
C-                            Commerce

  World economy and the world market- Commerce entered into another stage of its growth when nations of the world were brought into commercial relationships through the invisible thread of trade. As a result of the geographical discoveries of the late 15th, 16th and 17th centuries new trade routes were opened up and commerce grew between nations. Now, in addition to the local market and the trade extending all over the world, commodities came to be sold and purchased between traders from different countries in the world. This gave rise to an international world market and to an international trade. Thus the nations of the world were linked together through the medium of the world market.
  Evolution of commerce is a never ending process. Almost every day new experiments in its mechanism are made. New forms and methods are being evolved in both socialist and capitalist countries, in both developed and developing nations.







Evolution of Payment Systems in India

1.    The earliest payment instruments used in India were coins, which were either punch marked or cast in silver and copper.

2.    In ancient India, loan deedforms were also used. They were called rnapatraor 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 period loan deeds called inapannawere used. In this era merchants in large towns 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 order that a banker had to pay to a third person.

5.    In the Mughal period, the deeds were called dastawezand were of two types: dastawez-e-indultalabwhich was payable on demand and dastawez-e-miadiwhich 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 called Barattesand was similar to the present day drafts or cheques.

6.      In the twelth Century, the Hundiswas introduced..

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



      8. 
Hundis were of various kinds as follows:
Ø  DarshaniHundi :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-jog– This was a hundi transferable by endorsement and delivery but payable only 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-jog– This 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 a Persian word meaning order anSd 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 the person presenting it to the drawee. Thus it corresponded to a bearer cheque.

Ø  MuddatiHundi :This is a bill that is payable after stipulated time or on a given date or on a determinable future date or on the happening of a certain stipulated event. The most important type of muddatihundi was the jokhamihundi, 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 the predetermined destination

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

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

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



11.    In the 18th century paper money, originated with the note issues of private banks as well as semi-government banks. Amongst the earliest issues were those by the Bank of Hindustan, 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.

12.  In 1827 the British introduced the Post. These were Inland Promissory notes issued by the bank on a distant place. They were mainly used by European businessmen for purpose of sending money to someone at a distance.

13.  In 1835, the East India Company introduced the Company's Rupee to bring about uniformity of coinage over British India.

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

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

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

17.     In 1881, the Negotiable Instruments Act (NI Act) was passed, formalizing the usage and characteristics 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.
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 the business activities smoothly negotiable instruments were introduced.
1.      Coins punch marked or cast in silver and copper
2.      In ancient India, loan deedforms were used namely rnapatraor rnalekhya
3.      In the Buddhist period, loan deeds were called inapanna
4.      In the Mauryan period, the bill of exchange was used. It was called adesha





















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 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 (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 due course’.

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 brother’s name but it is not a negotiable instrument till it is given to your brother.

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.






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 documents are 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, 1881defines 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 else’s 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.
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 sister’s 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.            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 Endorser – the person who endorses the note in favor of another person.
b.      The Endorsee – the person in whose favor the note is negotiated by endorsement.
(Endorsement means transfer of any document or instrument to another person by signing on its back or face or on a slip of paper attached to it)

Specimen of a Promissory Note


2.     BILL OF EXCHANGE:

 Section 5 of the Negotiable Instruments Act, 1881defines 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 person’s 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 Drawer – The 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 debtor of the drawer.
iii. The Payee – The 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 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





















DIFFERENCES BETWEEN NEGOTIABLE INSTRUMENTS
(A) Difference between Bill of Exchange & Promissory Notes
Promissory Note
Bill of Exchange
1.      It contains a promise to pay.
2. It is presented for payment without any previous acceptance by the maker.


3. The maker of a promissory note stands in immediate relationship with the payee and is primarily liable to the payee or the holder.

4. It cannot be made payable to the maker himself. The maker and the payee cannot be the same person.
5. In the case of a promissory note there are only two parties, viz., the maker (debtor) and the payee (creditor).

6. A promissory note can never be conditional.
7. In case of dishonour no notice of dishonour is required to be given by the Holder.

1.      It contains an order to pay.
2.      If a bill is payable sometime after sight, it is required to be accepted either by the drawee himself or by someone else on his behalf, before it can be presented for payment.

3.      The maker or drawer of an accepted bill stands in immediate relationship with the acceptor and the payee.

4.      The drawer and payee or the drawee and the payee may be the same person.

5.      There are three parties, viz, drawer, drawee and payee, and any two of these three capacities can be filled by one and the same person.

6.      A bill of exchange too cannot be drawn conditionally, but it can be accepted conditionally with the consent of the holder.
7.      A notice of dishonour must be given in case of dishonour of a Bills of Exchange. 


3.      CHEQUES:

TheNegotiable Instruments Act, 1881defines 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.
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.

BlankCheque:

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’. The payment 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’.

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 categorization of cheques which is discussed below:

1.      Ante-dated cheque: -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.

2.      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.

3.      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.

4.      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.











Difference between a Cheque and a Bill of Exchange
Cheque
Bill of Exchange
·         It is drawn on a banker
·         It may be drawn on any party or individual.
·         It has three parties - the drawer, the drawee, and payee.
·         There are three parties - the drawer, the drawee, and the payee.
·         It is seldom drawn in sets
·         Foreign bills are drawn in sets
·         It does not require acceptance by the drawee.
·         It must be accepted by the drawee before he can be made liable to pay the bill.
·         Days of grace are not allowed to a banker
·         Three days of grace are always allowed to the drawee.
·         No stamp duty is payable on checks
·         Stamp duty has to be paid on bill of exchange.
·         It is usually drawn on the printed f
·         It may be drawn in any paper and need not necessarily be printed.

Complaints of cheque:
1.      To answer in nutshell, a person desirous to initiate action under section 138 of Negotiable Instruments Act ("Complainant"), should ensure following:
2.      The instrument is a cheque (and not any other instrument like bill of exchange or   promissory note).   
3.      Complainant is a payee or holder in due course of a returned cheque.
4.      Thecheque should have been in discharge of debt or liability (and not gift etc.).
5.      The cheque should have returned for reasons "want of funds", “a/c closed” or “stopped payment”.
6.      Complainant should make out a prima facie case. Thereafter, the accused has to prove absence of consideration.
7.      Complainant should issue a demand notice within 30 days from the Complainant's receiving information of return. Notice need not be received by the accused (i.e. drawer of the cheque) within 30 days.
8.      It is advisable to give demand notice only once by a single mode, say registered ad letter.
9.      Demand notice may cover more than one returned cheque.
10.  Demand notice should demand the drawer to pay within 15 days from its receipt by the drawer of the cheque. Advisable to gather the date and evidence of receipt of demand notice by the drawer of the cheque.
11.  Cause of action arises on 16th day when the drawer of the cheque doesn't pay within 15 days from the Drawer’s receiving or refusing demand notice.
12.  Cause of action arises only once, though there can be several returns. Hence advisable to give notice only when it is decided to file a complaint.
13.  Complaint should be filed within 30 days from 16th day from the date of receipt by Drawer of the Demand Notice.
14.  Complaint is maintainable against all the partners for a cheque return of their firm.
In case of a company, managing director/ deputy managing director’s liability is assumed while as regards other directors etc it is necessary that such person was in charge of and responsible for the conduct of business of the company and this is specifically averred in the complaint. It is not necessary to make the company or the firm a party to the complaint. Complaint runs independent of any other proceeding. Complaint is not maintainable against legal heirs of the Drawer.














5.      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.

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. DarshaniHundi: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. MuddatiHundi:A muddati or miadihundi 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, Jawabeehundi, Jokhamihundi, 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 123:
Where a cheque bears across its face an addition of words 'and company' or any abbreviation thereof, between two parallel transverse lines or of two pair parallel lines simply, either, with or without the words 'Not Negotiable' that addition shall be deemed a crossing and the cheque shall be deemed to be crossed generally.
What constitutes a crossing
It is an addition
The effect of general crossing is that the cheque must be presented to the paying banker through any banker and not by payee himself at the counter. The collecting banker credits the proceeds to the account of the payee or the holder of the cheque. It is a direction to the paying banker.
Special crossing

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". 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. A cheque may be crossed by following parties:-
1)      By Drawer:-
2)      The Holder:-
3)      The Banker:-
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 126)Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker. And 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. 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 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.
1. Liability to the True Owner of the cheque.
2. Liability to the Drawer

Not Negotiable crossing
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.
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..[Sec.130]
The effect of the words 'not negotiable' in the crossing will be clear from the following examples:
(1)     A draws a crossed cheque on his banker in favour of 'B' without the words not negotiable therein C steals it from the house of B and endorses it to D who receives it for value and in good faith from C (i.e. without the knowledge of the fact that C had no title to the cheque). D will be its holder in due course and will have valid title, though his transferor (endorser) had no title thereto.
(2)     In the above, example if the cheque bears the words "NOT NEGOTABLE" then 'D' will not have a valid title even if all the above circumstances are satisfied.Collection of 3rd Party Crossed bearer cheques.
In trade circles particularly in Mumbai in textile trade it was observed that as per practice the crossed bearer cheques were circulated exchanged freely for trade transactions and were in the past collected by bank through the instrument was issued in the name of third parties.








DISHONOR OF NEGOTIABLE INSTRUMENTS (SEC 138)
Dishonor of the bill:
 When the bill of exchange is not accepted or not paid on maturity, the bill is said to have been dishonored. The bill is dishonored on two accounts.
a. Dishonor by non-acceptance
b. Dishonor by non-pay
a.      Dishonor by non-acceptance:
When the drawee refuses to accept the bill, it stands to be dishonored. The dishonor by-non-acceptance may have the following reasons:
1. The drawee doesn’t accept the bill within 24 hours of its receipt.
2. When the drawee is not entitled to accept it.
3. When the drawee is a fake person.
4. If the bill is to be conditionally accepted
5. When the drawee disappears.
6. In cas0e there are many drawees, and all the drawees do not sign the bill.
b.Dishonor by Non-Payment:
Another reason for the dishonor of a bill is its non-payment at maturity the drawee may refuse to make the payment of the bill when it is presented at maturity, this refusal gives rise to dishonor by nonpayment.
The dishonor affects all the parties to the bill. They include the drawer, all endorse and endorse,who are all accountable and liable to the holder.
·         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 theamount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless.
1.      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.
2.      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
3.      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.

IMPORTANT INGREDIENTS OF S. 138

Object & Purpose:

The Parliament in its wisdom had chosen to bring section 138 on the Statute book in order to introduce financial discipline in business dealings. Prior to insertion of section 138 of the Negotiable Instruments Act, a dishonoured cheque left the person aggrieved with the only remedy of filing a claim. The object and purpose of bringing new provisions in the Act was to make the persons dealing in commercial transactions work with a sense of responsibility and for that reason, under the amended provisions of law, lapse on their part to honour their commitment renders the person liable for criminal prosecution. In our country, in a large number of commercial transactions, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of cheques in commercial transactions was eroded to a large extent. The Parliament, in order to restore the credibility of cheques as a trustworthy substitute for cash payment, enacted the aforesaid provisions. The remedy available in Civil Court is a long drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee.








Drawing of a Cheque:

The drawer in payment of a legal liability to discharge the existing debt should have drawn cheque. Therefore any cheque given say by way of gift would not come within the purview of the section. It should be a legally enforceable debt; therefore time barred debt and money-lending activities are beyond its scope.

The words any debt or any other liability appearing in section 138 make it very clear that it is not in respect of any particular debt or liability The presumption which the Court will have to make in all such cases is that there was some debt or liability once a cheque is issued. It will be for the accused to prove the contrary. i.e., there is no debt or any other liability. The Court shall statutorily make a presumption that the cheques were issued for the liability indicated by the prosecution unless contrary is to be proved.

Where the Complaint lacks necessary ingredients of the offence under Section 138: Hon’ble Supreme Court in JugeshSehgal Vs. Shamsher Singh Gogi[10] 2009(3) CC Cases (SC) 2004. The  Supreme Court noted that the cheque alleged to have been issued by the petitioners to the complainant was issued from an account pertaining to some other person. The Court also noted that one of the essential ingredients of the offence punishable under Section 138 of Negotiable Instruments Act is that the cheque must have been drawn on an account maintained by the accused. Since the cheque in the case before the Supreme Court was not issued from the account maintained by the petitioner, it was held that one essential ingredient of offence under Section 138 of Negotiable Instruments Act was not.

SadanandanBhadran v. Madhavan Sunil Kumar
Complaint U/s. 138- Maintainability - conditions precedent to applicability of sec. 138 - A cheque can be presented any number of times during the period of its validity- Whether dishonour of the cheque on each occasion of its presentation gives rise to a fresh cause of action within the meaning of Sec. 142(b) of the act - Held No. - A competent court can take cognizance of a written complaint of an offence u/s.138 if it is made within one month of the date on which the cause of action arises under clause c of Sec.142 gives it is a restrictive meaning - it is the failure to make payment within 15 days from date of receipt of notice which will give rise to cause of action - Cause of action within meaning of Sec. 142 (c) arises and can arise only once - impediments which negate concept of successive causes of action



REVOLUTION OF PAYMENT SYSTEMS IN INDIA

Digital cash
A ‘digital coin’ or digital cash consists of a message issued by a bank or 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 code with retailers bank account code to transfer money into retailer’s 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 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 A wants 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, adigital signature can be employed, anddigital 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:
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 electroniccheque 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 and access 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& A PIN on an ATM 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 acquired naturally 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 an individual. 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
·          Retinal Scan - analyzing blood vessels in the eye
·          DNA - analyzing genetic makeup





Advantages of Biometrics in negotiable instruments:
·         Increase security - Provide a convenient and low-cost additional tier of security.
·         Reduce fraud by employing hard-to-forge technologies and materials. For e.g. Minimize the opportunity for ID fraud, buddy     punching.
·         Eliminate problems caused by lost IDs or forgotten passwords by using physiological attributes.        For e.g. Prevent     unauthorized use of lost, stolen or "borrowed" ID cards.
·         Reduce password administration costs.
·         Replace hard-to-remember passwords which may be shared or observed.
·         Integrate a wide range of biometric solutions and technologies, customer applications and databases into a robust and     scalable control solution for facility and network access
·         Make it possible, automatically, to know WHO did WHAT, WHERE and WHEN!
·         Offer significant cost savings or increasing ROI in areas such as Loss Prevention or Time & Attendance











FUTURE PROSPECTS OF NEGOTIABLE INSTRUMENTS
Negotiable instruments 10 years down
Payments in India going the e-way
The Reserve Bank of India is doing its best to encourage alternative methods of payments which will bring security and efficiency to the payments system and make the whole process easier for banks. The Indian banking sector has been growing successfully, innovating and trying to adopt and implement electronic payments to enhance the banking system. Though the Indian payment systems have always been dominated by paper-based transactions, e-payments are not far behind. Ever since the introduction of e-payments in India, the banking sector has witnessed growth like never before. According to a survey by Celent, the ratio of e-payments to paper based transactions has considerably increased between 2004 and 2008. This has happened as a result of advances in technology and increasing consumer awareness of the ease and efficiency of internet and mobile transactions
In the case of India, the RBI has played a pivotal role in facilitating e-payments by making it compulsory for banks to route high value transactions through Real Time Gross Settlement (RTGS) and also by introducing NEFT (National Electronic Funds Transfer) and NECS (National Electronic Clearing Services) which has encouraged individuals and businesses to switch to electronic methods of payment. With the changing times and technology so have changed the methods of payments in India. E-payments in India have been growing at a fast rate of 60% over the last 3 years.
In India ‘plastics’ have been fast over-taking ‘papers’. With 130 million cards in circulation currently, both credit and debit, and an increasing consumer base with disposable income, India is clearly one of the fastest growing countries for payment cards in the Asis-Pacific region. Behaviourial patterns of Indian customers are also likely to be influenced by their internet accessibility and usage, which currently is about 32 million PC users, 68% of whom have access to the net. However these statistical indications are far from the reality where customers still prefer to pay “in line” rather than online, with 63% payments still being made in cash. E-payments have to be continuously promoted showing consumers the various routes through which they can make these payments like ATM’s, the internet, mobile phones and drop boxes.
The Indian payments systems have however undergone a change with respect to methods of payments, there now being card-based payments, Electronic Funds Transfers, Electronic Clearing Services and ways to pay via the mobile and internet. In India payments can be divided in two ways- firstly, large-scale payments and small-scale payments and secondly, paper-based and electronic. Most large-scale payments concern corporates or government payments and are settled by the RBI. Small-scale payments are mainly retail payments concerning individuals which are generally paper-based transactions. Most large-value payments are handled electronically. However, even the retail payments are showing a tendency of shifting to the e-payment mode, mainly because of consumer awareness and regulations by the RBI

Types of e-payments
Electronic Clearing Service (ECS Credit)
Known as “Credit-push” facility or one-to-many facility this method is used mainly for large-value or bulk payments where the receiver’s account is credited with the payment from the institution making the payment. Such payments are made on a timely-basis like a year, half a year, etc. and used to pay salaries, dividends or commissions. Over time it has become one of the most convenient methods of making large payments.
Electronic Clearing Services (ECS Debit)
Known as many-to-one or “debit-pull” facility this method is used mainly for small value payments from consumers/ individuals to big organizations or companies. It eliminates the need for paper and instead makes the payment through banks/corporates or government departments. It facilitates individual payments like telephone bills, electricity bills, online and card payments and insurance payments. Though easy this method lacks popularity because of lack of consumer awareness.
National Electronic Funds Transfer (NEFT)
NEFT is a facility provided to bank customers to enable them to transfer funds easily and securely on a one-to-one basis. It is done via electronic messages. In order to speed up the transactions there are up to 6 transactions in one day. Even though it is not on real time basis like RTGS (Real Time Gross Settlement), NEFT facilities are available in 30.000 bank branches all over the country and work on a batch mode.




Credit cards and Debit cards
As mentioned above India is one of the fastest growing countries in the plastic money segment. Already there are 130 million cards in circulation, which is likely to increase at a very fast pace due to rampant consumerism. India’s card market has been recording a growth rate of 30% in the last 5 years. Card payments form an integral part of e-payments in India because customers make many payments on their card-paying their bills, transferring funds and shopping.
Ever since Debit cards entered India, in 1998 they have been growing in number and today they consist of nearly 3/4th of the total number of cards in circulation.
Credit cards have shown a relatively slower growth even though they entered the market one decade before debit cards. Only in the last 5 years has there been an impressive growth in the number of credit cards- by 74.3% between 2004 and 2008. It is expected to grow at a rate of about 60% considering levels of employment and disposable income. Majority of credit card purchases come from expenses on jewellery, dining and shopping.
Another recent innovation in the field of plastic money is co branded credit cards, which combine many services into one card-where banks and other retail stores, airlines, telecom companies enter into business partnerships. This increases the utility of these cards and hence they are used not only in ATM’s but also at Point of sale (POS) terminals and while making payments on the net.
NEFT
NEFT refers to National Electronic Funds Transfer. It is an online system for transferring funds from one financial institution to another within India (usually banks). The system was launched in November 2005, and was set to inherit every bank that was assigned to the SEFT clearing system. It was made mandatory by the RBI for all banks on the SEFT system to migrate to NEFT by mid December 2005. As such, SEFT was discontinued as of January 2006. The RBI welcomed banks that were full members of the RTGS to join the NEFT system.



RTGS
RTGS is an acronym that stands for Real Time Gross Settlement. RTGS is a funds transfer system where money is moved from one bank to another in ‘real-time’, and on gross basis. When using the banking method, RTGS is the fastest possible way to transfer money. ‘Real-time’ means that the payment transaction isn’t subject to any waiting period. The transaction will be completed as soon as the processing is done, and gross settlement means that the money transfer is completed on a one to one basis without clustering with another transaction. The transaction is treated as final and irrevocable as the money transfer occurs in the books of the RBI (Reserve Bank of India). This system is maintained by the RBI, and is available during working days for a given number of hours. Banks using RTGS need to have Core banking to be able to initiate RTGS transactions.

MOBILE PAYMENT
Mobile payment, also referred to as mobile money, mobile money transfer, and mobile wallet generally refer to payment services operated under financial regulation and performed from or via a mobile device. Instead of paying with cash, check, or credit cards, a consumer can use a mobile phone to pay for a wide range of services and digital or hard goods.
Combined market for all types of mobile payments is expected to reach more than $600B globally by 2013, which would be double the figure as of February, 2011 while mobile payment market for goods and services, excluding contactless NFC transactions and money transfers, is expected to exceed $300B globally by 2013.
In developing countries mobile payment solutions have been deployed as a means of extending financial services to the community known as the "unbanked" or "underbanked," which is estimated to be as much as 50% of the world's adult population, according to Financial Access' 2009 Report "Half the World is Unbanked", These payment networks are often used for micropayments. The use of mobile payments in developing c0ountries has attracted public and private funding by organizations such as the Bill and Melinda Gates Foundation, USAID and Mercy Corps.


Biometric Payments
Electronic payments using biometrics are still largely in their infancy. Most biometric payments involve using fingerprints as the identification and access tool, though companies like Visa International are piloting voice recognition technology and retina scans are also under consideration. Essentially, a biometric identifier such as a fingerprint or voice could replace the plastic card and more securely identifies the person undertaking the transaction. The electronic payment is still charged to a credit card or other account, with the biometric identifier replacing the card, check or other transaction mechanism. Eg. Aadhar card uses.















CASE STUDY
Cheque Fraud - Forged Signature
The client was shocked to discover that a cheque for $4,900 has been cleared through his account the previous month – and he didn’t write it.  He informed the bank immediately, which produced the original cheque.  It was obvious that the signature was a forgery, and the client asked for the money back.
However, the bank refused, saying the client was to blame.  He couldn’t remember receiving the cheques for the account, or where they were stored, and the bank cited the account agreement which required the account holder to be responsible for safeguarding the cheques.
In our investigation, there was no dispute about the forgery – the signature wasn’t even close.  And the bank admitted that it did not verify the signature before cashing the cheque, and then allowed it to clear.  Nonetheless, the client’s responsibility was also clear – he should have ensured the blank cheques were secure.
In our interview with the client, he confirmed that he did not remember receiving the blank cheques.  He then suggested several places where they might have been stored in his home, but he couldn’t be sure.  We also considered that on the specific cheque used in the transaction, the forger had to add the name and address manually, which was correctly done.
We recommended the bank compensate the client for half the amount, recognizing the joint responsibility for this unfortunate incident.(2005)










Bill of Exchange
In Canara Bank vs. Canara Sales Corporation and Others
[(1987)2 Supreme Court Cases 666]
The company has a current account with the bank which was operated by the Company’s Managing Director. The Company’s account in whose custody the cheque book was, forged the signature of the Managing Director in 42 Cheques totaling Rs.326047.92 over a period of time. This was detected by another accountant. The company immediately on detected of the fraud demanded the amount from the bank. The bank refused payment and therefore the company files a suit against the bank. The bank lost the suit and took the matter up to the Supreme Court.
The Supreme Court dismissed the appeal of the bank and held thatSince the relationship between the customer and the bank is that of acreditor and debtor, the bank had no authority to make payment of a cheque containing a forged signature. The bank would be acted against the law in debiting the customer with the amount of the forged cheque as there would be no mandate on the bank to pay. The Supreme Court pointed out that the document in the cheque form on which the customer’s name as drawer was forged was a mere nullity. The bank would succeed only when it would establish adoption or estoppels. In dealing the case the Supreme Court relied on its earlier judgment in Bihta Cooperative Development and Cane Marketing Union Ltd vs. bank of Bihar (AIR 1967 Supreme Court 389)








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.
Taking these factors into consideration The Negotiable Instrument Act was passed. Negotiable instrument include promissory notes, Bills of exchange and Cheque. These instruments had conditional and unconditional undertakings signed by the maker. These instruments are internationally accepted.
v  Negotiable instrument helped exporters and importers of goods and services to drag their defaulters to court.
v  A smooth flow of trade was observed after the introduction of negotiable instruments.
v  Exporters of goods and services felt a sigh of relief when they export their goods and services on credit basis as they had the negotiable instrument with them dually signed by both the parties i.e. drawer and the drawee which was a strong proof document.
Negotiable instruments play a vital role in the economic development of every country with its significant features. One of the main features includes that Negotiable instruments are freely transferable and while transferring it is also not required to give a notice to the previous holder. Negotiable instrument is always in writing so there is no fear of the drawee backing off the instrument. Whereas stamping of bills of exchange and promissory notes are mandatory.
The peace and harmony which we see today in regards to the wholesome trade which goes on a very big scale and which is rising every single day is because of the existing negotiable instruments which are accepted internationally by every individual. The complaints regarding negotiable instruments should be filed as early as possible in there nearby allocated court. So it helps the complainant to get its judgment at the earliest. The grievances regarding the negotiable instruments are taken at the top priority as it directly affects the economy of the country. Each country is trying hard to do the necessary amendments for making these negotiable instruments run more smoother and efficiently so that the growing economy grows with more pace and peace.


Webiography


Book Referred-

Business law by TejpalSheth
Negotiable instruments By Avtar Singh
Business laws, ethics and communication (The institute of charatered accountants of India )

Mentor
Manish Parab( M.B.A - Finance, L.L.B., Taxation degree)



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