General

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This Blog is written by Reva Gupta from Symbiosis Law School, Noida. Edited by Pranoy Singhla.

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INTRODUCTION

In India, the “Negotiable Instruments Act” was passed in “1881”. [1]Earlier to its implementation, the regulations of the “English Negotiable Instruments Act” applied in “India”, and the existing Act is based on the “English Act” with some revisions. Text writers speculate on the early origins of these instruments. Of course, the system of bills of trade could not have existed in early cultures; for one thing, money, which it represents, was not conceived until much later, and for another, the art of composing was unfamiliar to them. When trading grew burdensome, it was agreed that a common medium of exchange and a weapon of easily convertible character were required, and “money” was devised. It may have had a lowly origin, but once the significance of money was discovered, it was never discarded. The “provisions” of “Sections 31” and “32” of the “Reserve Bank of India Act, 1934” govern the function of the Act. “Section 31” of the “Reserve Bank of India Act” states that “no person” in India, other than the “Bank” or the “Central Government” as expressly authorised by this Act, shall “draw”, “accept”, “make”, or “issue” any “bill of exchange”, “hundi”, “promissory note”, or “engagement” for the “payment of money” payable to bearer on demand. This Clause further states that “no one, other than the RBI or the Central Government, may make or issue a promissory note that is payable on demand or after a specific period of time”.

WHAT ARE THE “ACT’S OBJECTIVES”?

The basic goal of the “Negotiable Instruments Act of 1881” is to codify the mechanism by which documents anticipated by it might be passed from hand to hand by “negotiation”, just like any other good. [2]The “Act’s objective” was to give an orderly and authoritative exposition of the leading common law governing “negotiable instruments”. To fulfil the “Act’s goal”, the “legislature” felt it appropriate to include provisions in the Act that confer specific rights on the “mercantile instruments” intended by it, as well as specialized procedures in the event that the obligation under the instrument was not executed.  (Case – Shri Ishar Alloy Steels Ltd v. Jayaswals Neco Ltd. ). Furthermore, because the “value of the instrument” is easily “transferable”, it simplifies the administration of payments in business. It gives “legal protection” to many “mercantile instruments”. It offers a structured and authoritative description of the eminent laws governing “negotiable instruments”. It outlines a particular process in the event that the commitments imposed by the documents must be met. It supervises the many types of “negotiable instruments”, such as “promissory notes”, “bills of exchange”, and “cheques”. It outlines the competence and responsibility of the instrument’s signatories. It explains several themes covered by the Act, including as “negotiation”, “assignment”, and “endorsement”. It instils trust in the effectiveness of “banking operations” as well as “credibility” in conducting “business on negotiable instruments”. [3]The “Apex Court” referred to the intention of “Section 138” of the Act in the case of “Dalmia Cement(Bharat) Ltd. v. Galaxy Traders and Agencies Ltd”. The court noted that the Law was enacted, and “Section 138” thereof was included, with the specific purpose of providing a “special provision” by introducing “strict responsibility” in the case of a “cheque”, a “negotiable instrument”. The law relating to “negotiable instruments” is a “business legislation” that was enacted to “ease trade and commerce” by granting “sanctity to instruments of credit” that might be believed to be transformed into “money” and easily “transferable” from “one person to another”.

HIGHLIGHTS OF THE “NEGOTIABLE INSTRUMENTS (AMENDMENT) ACT OF 2018”

On the “02-08-2018”, the “Negotiable Instruments (Amendment) Act, 2018” was notified. “Section 143” now includes a “new proviso 143A”, which allows a court to try an “offence” under “Section 138” and order the “drawer of a cheque to pay interim compensation to the complainant in summary trials/summons cases if he pleads not guilty to the allegations in the complaint. Furthermore, “interim compensation” must not “exceed 20%” of the “total amount”  and must be paid within 60 days of the order’s date. The “fine” will be reclaimed in the same manner as under “Section 421” of the “Code of Criminal Procedure, 1973”.  In the event of an “acquittal”, the Court now has the “authority” to order the “complainant” to “reimburse” the sum granted to the “appellant”, at “interest rates” set by the “RBI”. “Section 148” — now provides the “appellate court” to order the “appellant” to deposit a “minimum of 20%” of the “fine/compensation awarded”, in addition to “interim compensation” given “under S. 143A”, in “appeals” against “convictions under S. 138”.

ANALYSIS

The fundamental mission of the law, that is, to consider the rights of parties entering into “business transactions”, is once again emphasized by the insertion of these revisions. The “amendment” ensures that the “payee of the cheque interest” is not impaired by a “lengthy trial” and allows for “similar interim remedies” as those found in “civil actions”. The “Amendment” not only assures that “fewer false appeals” are filed, but also that “payees” are adequately covered throughout this time. In the lacking of any “provision” regulating the “Amendment’s prospective” or “retrospective application”, it appears that the “Amendment” may have “retrospective effect”, and “interim compensation” may be paid by the “Trial Court” if the allegations have not yet been formulated by the “Trial Court”.

LATEST JUDGMENTS

The Supreme Court held in “Shiv Kumar Alias Jawahar Saraf v. Ramavtar Agarwal” that “rebuttal of presumption” under “Section 139 of the Negotiable Instruments Act” can only be done after adducing data. The Supreme Court concurred with the “High Court” that “rebuttal of presumption” cannot be weighed at the time the court takes cognizance of the case. While failing to dismiss the complaint, the High Court stated that all the Court would have to address when registering the matter is whether there is a strong case that meets the criteria precedent set down in “Section 138 of the NI Act”. The Supreme Court held in “D. K. Chandel v. M/S Wockhardt” Ltd that the discovery of “account books/cash books” may not be useful in a “criminal prosecution” brought under “Section 138 of the Negotiable Instruments Act”. The “Supreme Court” maintained in “Surinder Singh Deswal @ Col. S.S. Deswal Vs. Virender Gandhi” that “Section 148” of the “Negotiable Instruments Act” is “retroactive”, whereas “Section 143A” is not. [4]“S.B. Criminal Miscellaneous, Anand Sharma v. State Of Rajasthan”,  The “Honble Rajasthan High Court” relied on the “Supreme Court’s decision” in “Surendra Singh Deswal @ Col. S.S. Deswal & Ors. Versus Virender Gandhi & Anr”., which held that when a” trial court” grants a “conditional suspension”, “non-compliance” with the condition has an “adverse effect” on the continuation of the suspension. After observing “non-compliance” with a “condition”, a court that has “suspended” a “sentence” on that circumstance can very well hold that the “suspension is dismissed” due to “non-compliance”. In, “Petro 6 Engineering and Construction Private Limited and Ors. v. New Laxmi Engineering and Trolley Works S.B. Criminal Misc”. The “complainant” filed a “motion” to “quash the proceedings” on the lines that a particular “General Manager” of the Company was not a “signatory” to the cheque against which the case was lodged. The Honble “Rajasthan High Court”, interpreting “Section 141(1) of the N.I. Act”, found that the “complainant” made a “clear accusation” in the complaint that “petitioner No. 2”, as the “Company’s General Manager”, was answerable for the company’s “day-to-day functioning”. As a result, the accused would have to prove at trial that he was not truly responsible for the “Company’s affairs”, and only then could he seek “exoneration”. “Shri Ram Transport Finance Co. Ltd. v. State of Rajasthan and Ors” – “Dishonour of cheque” given for “full” and “final repayment of loan amount”—”Burden of proof”—Accused denied his “liability” towards “disputed cheque”—”Complaint and evidence” led in support thereof is devoid of any exact details regarding the “loan transaction”—”Burden of proving facts” essential to unfurl the key tools of “offence u/Sec. 138 and 139” of the “Negotiable Instruments Act, 1881”.

CONCLUSION

Records relating to business transactions are known as negotiable instruments. In the “world of trade”, “negotiating mechanisms” are quite important. For “international trading”, we can employ “negotiable instruments”. By statute or mercantile usage, an “instrument” can become “negotiable”. Because these documents are “written”, the person to whom the “payment” is to be made can “sue” the person to whom the payment is to be made if the payment is not made. Three” major “negotiable instruments” with “distinct characteristics” are the “bill of exchange”, the “cheque”, and the “promissory note”. These are the most commonly used “instruments in international trade”.  The “NI Act” modifications are a major step toward improving “efficacy” and “expediency”, which will aid in the “swift resolution of disputes” while also limiting frivolous and superfluous prosecution. It also secures the complainant’s welfare by providing “interim compensation” and “demanding payment” by the accused in the event of a “conviction appeal”. The “Amendment Act” is undoubtedly a positive start toward raising the legitimacy of  “trade and commerce”. Even after the technology advancement, these “negotiable instruments” are still in use. The next “important phase” in the “replacement of negotiable instruments” is the “electronic revolution”.

REFERENCES

(1) https://www.lexology.com/library/detail.aspx?g=070d1241-a9ed-4dc1-8deb27bbf81dea99#:~:text=The%20Negotiable%20Instrument%20(Amendment)%20Act%2C%202018%20%2D%20an%20OverviewSinghania%20%26%20Partners%20LLP&text=The%20Negotiable%20Instrument%20Act%2C%201881,bill%20of%20exchange%20and%20cheques

(2) https://www.mondaq.com/india/financial-services/732202/central-government-amends-the-negotiable-instruments-act-1881-provides-greater-protection-to-payee-of-dishonoured-cheques

(3) https://egazette.nic.in/WriteReadData/2018/188048.pdf

(4) https://indiankanoon.org/doc/1499382/

[1] https://indiankanoon.org/doc/1499382/

[2] https://www.mondaq.com/india/financial-services/732202/central-government-amends-the-negotiable-instruments-act-1881-provides-greater-protection-to-payee-of-dishonoured-cheques

[3] https://www.mondaq.com/india/financial-services/732202/central-government-amends-the-negotiable-instruments-act-1881-provides-greater-protection-to-payee-of-dishonoured-cheques

[4]https://www.lexology.com/library/detail.aspx?g=070d1241-a9ed-4dc1-8deb27bbf81dea99#:~:text=The%20Negotiable%20Instrument%20(Amendment)%20Act%2C%202018%20%2D%20an%20OverviewSinghania%20%26%20Partners%20LLP&text=The%20Negotiable%20Instrument%20Act%2C%201881,bill%20of%20exchange%20and%20cheques