Notes On Negotiable Instrument Act 1881
Notes On Negotiable Instrument Act 1881
Notes On Negotiable Instrument Act 1881
By Pranjal Srivastava
(Advocate)
The Negotiable Instruments Act was passed in 1881. Some provisions of the Act have
become redundant due to passage of time, change in methods of doing business and
technology changes. However, the basic principles of the Act are still valid and the Act
has stood test of time. The Act extends to the whole of India. There is no doubt that
the Act is to regulate commercial transactions and was drafted to suit requirements of
business conditions then prevailing.
The instrument is mainly an instrument of credit readily convertible into money and
easily passable from one hand to another.
LOCAL USAGE PREVAILS UNLESS EXCLUDED - The Act does not affect any local
usage relating to any instrument in an oriental language. However, the local usage
can be excluded by any words in the body of the instrument, which indicate an
intention that the legal relations of the parties will be governed by provisions of
Negotiable Instruments Act and not by local usage. [section 1]. - - Thus, unless
specifically excluded, local usage prevails, if the instrument is in regional language.
Crossing of Cheque – The Act makes specific provisions for crossing of cheques.
CHEQUE CROSSED SPECIALLY - Where a cheque bears across its face an addition
of the name of a banker, either with or without the words “not negotiable”, that
addition shall be deemed a crossing, and the cheque shall be deemed to be crossed
specially, and to be crossed to that banker. [section 124].
It must be noted that even if penalty is imposed on drawer, he is still liable to make
payment of the cheque which was dishonoured. Thus, the fine/imprisonment is in
addition to his liability to make payment of the cheque.
Return of cheque should be for insufficiency of funds - The offence takes place
only when cheque is dishonoured for insufficiency of funds or where the amount
exceeds the arrangement. Section 146 of NI Act only provides that once complainant
produces bank’s slip or memo having official mark that the cheque is dishonoured, the
Court will presume dishonour of the cheque, unless and until such fact is disproved.
In case of Promissory Note, such acceptance is not required, as the maker who has
signed the note himself is liable to make payment. However, if the promissory note is
payable certain days ‘after sight’ [say 30 days after sight], it will have to be presented
for ‘sight’.
If the instrument uses the expressions “on demand”, “at sight” or “on presentment”,
the amount is payable on demand. In such case, presentment for acceptance is not
required. The Negotiable Instrument will be directly presented for payment.
Acceptance and payment for honour and drawee in need - Provisions for
acceptance and payment for honour have been made in case when the negotiable
instrument is dishonoured. Bill is accepted for honour when it is dishonoured when
presenting for acceptance, while payment for dishonour is made when Bill is
dishonoured when presented for payment.