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
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:
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.
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.
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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