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INTRODUCTION TO THE NEGOTIABLE

INSTRUMENTS ACT.

This Act codifies the law relating to the chief negotiable instruments, that is to say, bills of exchange, promissory notes and cheques, which law, except in the case of the Native bills called hundís, was and substantially is the same in India as in England. It reduces to an Act of only 137 sections about 3100 judicial decisions which have been estimated to occupy about 35,000 pages, and which are scattered through nearly 2000 volumes of Reports hardly to be found in India outside the Bar-libraries in the Presidency Towns. It does not deal with negotiable bonds or scrip!, bills of lading?, or dock-warrants.

The Act is divided into sixteen chapters.

Chapter I contains, besides the usual preliminary matter, a saving of local usages relating to instruments in an oriental language, and a proviso that such usages may be excluded by any words in the body of the instrument, which indicate an intention that the legal relations of the parties thereto shall be governed by the Act. As the Presidency Banks and other large dealers in hundís refuse to buy such instruments unless the usages in question are excluded, the result of this proviso will doubtless be that the practice of the Native mercantile community as to negotiable paper will ultimately become identical with that of their European and East Indian fellow-subjects. An eminent critic of the Bill which afterwards became Act XXI of 1881 said that he could not see why uniformity of practice was desirable. The reasons are that it prevents uncertainty and litigation as to what has been called the most cosmopolitan of all contracts, and that it facilitates dealings not only between English and Native merchants, but between Native merchants in different parts of India. The practical working of a system of credit is made safer and more beneficial when the bills of exchange under which a banker or merchant is responsible are governed by precisely the same legal conditions as those on which he was a creditor, and in reference to which the others were issued or accepted.

1 As to these see Gorgier v. Mie- supply cotton to the order of A in rille, 3 B. & C. 45; Goodwin v. consideration of specified advances by Robarts, 10 L. R. Ex. 337; Rumball A. In certain parts of India these 5. Metropolitan Bank, 2 Q. B. D. 194. sattás are (or lately were) regarded as Debentures are not promissory notes, negotiable. British India S. N. Co. v. Inland Rev. ? See as to the rights of the con: Commrs., 7 Q. B. D. 165. Nor are signee or indorsee of these instrucoupons for interest, whether attached ments, Act IX of 1856, secs. 1-3, or not to the debentures, Enthoven

and the Contract Act, supra, secs. 78, 5. Hoyle, 13 C. B. 373. And it has 102, 103, 108, exc, 1. lately been held in England that

3 See the Contract Act, supra, secs. Post Office orders are not negotiable. 108, 178. The Act is also silent as to cotton

4 Sir James Stephen. zattás or engagements in writing to

The Act also declares that nothing contained in it affects the

Indian Paper Currency Act, 1871, sec. 21, now represented by Act XX of the following section of Act XX of 1882: 'No body corporate 1882, sec.

or person in British India shall draw, accept, make or issue any 25.

bill of exchange, hundí, promissory note, or engagement for the payment of money payable to bearer on demand, or borrow, owe, or take up any sum or sums of money on the bills, hundís or notes payable to bearer on demand, of any such body corporate or of any

such person :

* Provided that cheques or drafts payable to bearer on demand or otherwise may be drawn on bankers, shroffs or agents by their customers or constituents in respect of deposits of money in the hands of those bankers, shroffs or agents and held by them at the credit and disposal of the persons drawing such cheques or drafts.

The rest of the Act is a recast of a draft Bill prepared in England by the Indian Law Commission', which in December 1867 was introduced to the Council of the Governor General by the Right Hon. W. N. Massey and referred to a Select Committee. The then mercantile members of Council (Mr. Steuart Gladstone and Mr. Skinner), while admitting the desirability of codification, objected to the Bill on account of its numerous deviations from English and Anglo-Indian mercantile law. The Bill, for instance

(a) discarded days of grace;

(6) did not except a person becoming, in good faith and for consideration, the holder of an overdue accommodation bill from the rule that an indorsee for value after maturity should have only the rights of his indorser;

(c) made all instruments falling due on a holiday payable on the next succeeding business day;

1 Their report dated 24 July, 1867, is signed by Lord Romilly, Sir E. Ryan, Mr. Robert Lowe, Sir Robert

Lush, Sir John M. Macleod, and Sir
W. M. James.

(d) made no provision for the case in which interest at a specified rate is expressly made payable on a note or bill;

(e) omitted the rule that a notice of dishonour must inform the party to whom it is given that he will be held liable;

(f) made no provision for a suit against the indorser of a lost

bill;

(9) discharged the acceptor, maker or indorser of an instrument payable to order by payment to any person in possession of the instrument.

The Bill, moreover, contained no saving of the customs of Native merchants regarding hundís; and its definitions might have given rise to difficulty. Thus according to them, a bill of exchange differs from a cheque only in requiring that the money ordered by the instrument to be paid should be held at the disposal of the drawer. The definition of cheque would include a tradesman's bill on which the debtor writes, for presentation to a cash-keeper, an order to pay! Such an instrument would apparently be negotiable—a rather serious result. Again, the definition of a cheque' does not require that it should be drawn on a banker or a person acting as such, nor that it should be payable on demand.

During his tenure of office as law-member Mr. (now Lord) Hobhouse perused the Bill, discovered a number of changes and omissions which had escaped the mercantile members; and satisfied himself that the Bill, if it were to go on at all, must be completely redrawn. The Bill was therefore altered, added to, rearranged and (except as to the illustrations and the chapters on compensation and international law) practically redrawn by Mr. Arthur Phillips, of the Calcutta Bar, then Secretary to the Government of India in the Legislative Department. His work was repeatedly revised by Select Committees aided by the criticisms received from the Chambers of Commerce at Calcutta, Madras, Bombay, and Rangoon, and the managers of the principal Indian banks. It was also revised by the Indian Law Commission of 1879. Having been just fourteen years under consideration it was passed in 1881; and, to judge from the fewness of the reported decisions upon it and the moderate amount of amending legislation found necessary during the past five years, it has been a highly successful measure.

Chapter II contains definitions of the technical words used in the Act. Of these definitions that of 'holder' has been much criticised; and it might be well replaced by the payee or indorsee

· This is the ordinary mode of pay- in Calcutta, and is adopted by many ing bills in mercantile houses, at least private persons.

of a bill of exchange or promissory note who is in possession of it, or, when the bill or note is payable to bearer, the person in possession of it' (compare 45 & 46 Vic. c. 61, sec. 2). Chapter II also contains rules as to ambiguous instruments (sec. 17); as to the case where the amount is stated differently in figures and in words? (sec. 18); as to when notes and bills specifying no time for payment are payable (sec. 19); as to inchoate stamped instruments (sec. 20); as to days of grace (sec. 22); as to calculating maturity (secs. 23, 24); and as to notes and bills maturing on public holidays (sec. 25).

In such case the instrument is deemed to be due always on the next preceding business day, and not, as in England, sometimes on the preceding, sometimes on the succeeding, business day?

Chapter III deals with the parties to notes, bills and cheques, their capacity and respective liabilities. It declares (sec. 26) that a minor may draw, indorse, deliver and negotiate such instruments so as to bind all parties except himself. It also rules (sec. 35) that every indorser after dishonour is liable as upon an instrument payable on demand. To this chapter, Act II of 1885 has added a section (45 a) declaring the holder's right to a duplicate of a bill lost before it is overdue, and copied from 45 & 46 Vie. c. 61, sec. 69.

Chapter IV deals with negotiation. It closely reproduces the English law on the subject.

Chapter V-of Presentment—substantially reproduces the English law relating to presentment for acceptance and presentment for payment. It has been recently amended by inserting in secs. 61 and 64 a statement that “where authorised by agreement or usage, a presentment through the post office by means of a registered letter is sufficient. This is equivalent to 45 & 46 Vie. c. 61, sec. 41 (1), (2), and sec. 45 (8), except that the English code does not require registrati

Chapter VI treats of payment and interest, and Chapter VII of discharge from liability. In the latter chapter sec. 85 declares that where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course. This is taken from the English enactment 16 & 17

1 The Law Commission of 1879 thought that this section should be extended so as to meet cases of error not uncommon in Native documents purporting to specify the sum, its half, and the double of the half.

* Byles, 278: 45 & 46 Vic. c. 61, see. 14. The French Code de Commerce, (1. i. tit. 8. art. 134, like the Indian Act, puts all non-business days on the same footing.

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