The Negotiable Instruments Act and its special provisions

Introduction:

In 1881, the Negotiable Instrument Act was passed in order to facilitate the
growth of banking and commercial activities. The primary goal was to make the
system of negotiable instruments legal. The Act was enacted during British
control, and the majority of its provisions have remained unmodified to this day.
The Ministry of Finance is the nodal agency in charge of overseeing the system of
negotiable instruments. The negotiable instrument is the process of transferring
monetary value from one person to another using legal documents. The legal
definition of negotiable is something that can be transferred from one party to
another by delivery, with or without endorsement, such that title passes to the
transferee.

Objective:

A signed written document is a negotiable instrument. This document's aim is to

transfer a certain sum of money to the designated recipient.
The document contains a promise to pay a specified amount of money at a future
date or on-demand, as the case may be. A draft, which is a particular amount of
money due by the payer or a personal check, is a regular example that we can
witness in our day-to-day lives. There is no set of defined characteristics that must
be met for a document to be considered a negotiable instrument; nonetheless, an
instrument must be marked with a mark or signature by the creator of the
instrument, who is also the one who issues drafts. The drawer of funds is the one
who promises the amount of money, while the drawee of funds is the person who
receives it.
Characteristics:

Movable- The negotiable instrument is a convenient and portable method of

transferring money. Simple steps are required for transferring ownership of the
instrument by simple delivery or proper endorsement, therefore there are no
complicated or lengthy formalities.

Written- All transactions involving negotiable instruments should be in writing.

The documentation can be in the form of handwritten notes, printed documents,
or typed documents.

Time limit- The time limit for placing an order for payment must be set in stone. If
no date is given, it must be within a reasonable amount of time. If the payment
order depends upon convenience and choice then it cannot be considered as a
negotiable instrument.

Specified individuals- Just like the time, the payee must be certain or determined.
In negotiable instruments, there can be more than one drawee, and the person
can be artificial, such as a firm, a separate legal body, or authorized persons.

Types:

Promissory notes—In most cases, this transaction occurs between the debtor and
the creditor. The debtor constructs the instrument by agreeing to pay a specific
amount on a certain date.

Bills of Exchange- This is the polar opposite of promissory notes because it is a

creditor's directive to the debtor. The creditor creates the instrument instructing
the debtor to pay a specific sum of money to the payee. The creditor is the one
who creates the bill.
Cheque- A cheque is one of the different types of bills of exchange. The drawee in
this situation is a bank, and these checks are payable on demand. The debtor
instructs the bank to pay a specific amount to the designated payee.

Features Of Act:

Writing- Every transaction involving negotiable instruments would be in writing,

as the parties would have necessary negotiable instrument paperwork. This can
vary depending on the rules and the type of negotiable instruments used, such as
promissory notes, bills of exchanges, and checks. According to the law, all verbal
dealings between the parties are void and will not be regarded in the event of a
dispute. In the event of a dispute between the parties, a written document serves
as a prima facie document or evidence in a court of law, describing the facts.

Signature- Unless it is validated by the parties, the instrument has no value. The
sign serves as a validation of the parties' valid permission to the settlement
transactions. As a result, all instruments must be signed by both parties.

Monetary value- Negotiable instruments should only be dealt with in terms of

money that are recognised by the government and the country's laws. The
primary purpose of having this under negotiable instruments would be to conduct
transactions in legal tender money. The items or any other transactions would be
null and void, thus it must be exclusively monetary.

Demand- "This approach is quite widespread in business and other commercial

transactions these days." This is a safe and convenient mode of payment and
settlement between the parties. There is no need for cash because the funds will
be directly transferred to the payee according to banking transaction standards.
Reliable System- For development and progress, both the convenient method of
transactions and the efficient mode of the system is essential. The safe
mechanism and the banks' trustworthiness would ensure that money is
distributed quickly and to the correct recipients.

SECTION 143A:

New Section 143A inserted in the present Act is to provides power to the Court
trying an offence under section 138 to pass an order against the drawer of the
cheque to pay interim compensation to the complainant, in a summary trial or a
summons case, where he pleads not guilty to the accusation made in the
complaint and in any other case, upon framing of charge. The interim
compensation will not exceed twenty percent of the cheque amount and has to
be paid within sixty days from the date of the order.
However, if the drawer is acquitted then the Court will direct the complainant to
repay to the drawer the interim compensation, with interest at the rate as fixed
by the RBI. The amount will be paid within 60 days from the date of the order,
with a further extension of 30 days.
The interim compensation payable under this section will be recovered as if it
were a fine under section 421 of Code of Criminal Procedure, 1973. Any amount
of fine further imposed under section 138 or amount of compensation awarded
under section 357 of the Code of Criminal Procedure, 1973 will be reduced from
the interim compensation already paid under Section 143A.

SECTION 148:

The new section 148 provides that an appeal against conviction under section
138pending before the Appellate Court, the court may pass an order directing
drawer to deposit minimum twenty percent of compensation awarded by the trial
Court. This deposit is in addition to any interim compensation paid by the drawer
under section 143Aand the amount has to be paid within 60 days from the date of
the order, with a further extension of 30 days.
At any time during the pendency of the appeal, the Appellate Court may direct
the release of the amount deposited by the drawer to the complainant. Provided
that if the appellant is acquitted, the court shall direct the complainant to repay
the amount so released, with interest at the rate as fixed by RBI. The amount shall
be paid within 60 days from the date of the order, with a further extension of 30
days.
These new provisions provide relief to complainants from delay tactics of
unscrupulous drawers of dishonoured cheques due to easy filling of appeals and
obtaining stay on proceedings. As a result of these provisions, no injustice will be
caused to the payee of a dishonoured cheque who spend considerable time and
resources, in court proceedings to realise the value of the cheque.

Section 144 of the NI Act defines the different modes of summoning. When the
Magistrate issues summons to an accused, he may direct a copy of the summons
at the place where the accused originally resides or carries business or personally
works for the gain by the method of speed post or other courier services which
can be authorized by the court of session.

Section 145 defines the evidence on affidavit as the evidence of the complainant
may be given by him on affidavit and it may be subject to all just exceptions
that to be read in evidence in any inquiry, trial, or proceedings under the said
code. The court, if finds such situations, t can summon any person giving
evidence on the affidavit as to the facts.

Case Laws:

Dalmia Cements v. Galaxy Trading Agencies- M/s. Dalmia Cement (Bharat) Ltd. v.
M/s.Galaxy Traders & Agencies Ltd. & Ors. is one of the cases in which the
Supreme Court's verdict became a landmark. In this case, the logic behind the
enactment of Section 138 of the Negotiable and Instruments Act, 1881 was given.
The case revolves around the dishonouring of a check, for which a notice was
issued to notify the accused. When the complainant got it by that time, the
deadline for submitting the complaint was extended. The same scenario
happened a second time, with the accused failing to produce the required funds.
The court stated that Section 138 of the Act was enacted to prevent any
infringement of the legal rights of the person whose payment has not been
issued, and that if a situation arises that makes it impossible for the person to
receive the payment, the section should function as intended to achieve the Act's
goal. As a result, in this case, the court ruled that the respondent be subjected to
the Act's provisions.

Canara Bank v. Canara Sales Corporation-

The case of Canara Bank v. Canara Sales Corporation (1987) provides a foundation
for understanding the connection between a banker and its customers, which is
bound by threads of obligations and equity, even when one party is negligent or
engaged in fraudulent activity.

In this instance, the respondent had a current account with the plaintiff's bank
that was later linked to fraudulent activity due to encashed checks that did not
include the initials of the managing director, the respondents. As a result, forgery
occurred in the case at hand. The respondents have filed a lawsuit to recover the
money they have lost. The Court stated that both the creditor and the debtor
were negligent, but the balance of negligence favoured the lender over the
corporation. As a result, the bank's negligence cannot be used as a justification for
not using it. After concluding that the firm is entitled to compensation, the court
dismissed the lawsuit.

References:
https://www.indiacode.nic.in/bitstream/123456789/2189/1/A1881-26.pdf
https://www.incometaxindia.gov.in/pages/acts/negotiable-instruments-
act.aspx

https://legallands.com/new-provisions-in-negotiable-instruments-act-1881/
#:~:text=The%20amendment%20introduces%20new%20provisions%2C
%20Section%20143A%20and,proceeding%20to%20realise%20the%20value
%20of%20the%20cheque.

https://blog.ipleaders.in/landmark-judgments-section-138-negotiable-
instruments-act/#Dalmia_Cements_v_Galaxy_Trading_Agencies