Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is still in force with significant amendments recently. It deals with the law governing the usage of Negotiable Instrument in India. The word "negotiable" means transferable and an Instrument is a document giving legal effect by the virtue of the law. The most important class of Credit Instruments that evolved in India were termed Hundi. Their use was most widespread in the twelfth century and has continued till today. In a sense, they represent the oldest surviving form of credit instrument. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In Modern era Hundi served as Traveller cheque. The Negotiable Instruments Act, 1881 is a legislation enacted in India that governs the usage and regulation of negotiable instruments such as promissory notes, bills of exchange, and cheques. This law defines the characteristics of these instruments, specifies the rules for their creation, transfer, and payment, and provides legal remedies in cases of dishonour. Here's a detailed explanation:

According to Section 13 of the Negotiable Instruments Act, A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. Of late Negotiable Instrument Act has become one of the most important branches of law. This is because of inclusion penal provision of the Act so as to stop dishonour of cheques at the sweet will of the drawers The amending Act of 2018 has made drastic changes in this regards To review and review In June 2020, the Finance Ministry in the Government of India proposed the decriminalisation of a number of white-collar crimes, including cheque bouncing under Section 138 of the Negotiable Instruments Act, in order to improve the ease of doing business as well as to reduce imprisonment rates.[1] The proposal has been opposed by a number of trade and business associations, including the Confederation of all India Traders (CAIT),1 the India’s Bank association (IBA)S and Finance Industry Development Council (FIDC), and the Federation of Industrial and Commercial Organisation (FICO).Types of negotiable instruments recognised and governed by the Act i) Promissory Note ii) Bill of Exchange and Cheque. The provision regarding interim compensation for a Cheque bounce case under Section 138 of NI Act Section 143A of the Negotiable Instruments Act, 1881 was inserted in 2018 to address the issue of delayed resolution of cheque dishonour cases. The court's discretion in applying Section 143A is based on several factors, including: The merits of the complainant's case, The merits of the accused's defence, and The accused's financial distress. The interim compensation is payable within 60 days of the order, or within a further period of up to 30 days if the drawer of the cheque shows sufficient cause. The compensation can be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973. How to get Interim Compensation under Section 143A of NI Act?12 Oct 2024 — Section 143A of Negotiable Instruments Act, 1881

The history of the present Act is a long one. The Act was originally drafted in 1866 by the 3rd Indian Law Commission and introduced in December 1867 in the council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English Law in 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 (Act No.26 of 1881).^[1]

The most important class of Credit Instruments that evolved in India were termed Hundi. Their use was most widespread in the twelfth century and has continued till today. In a sense, they represent the oldest surviving form of credit instrument. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In Modern era Hundi served as Traveller cheque.

According to Section 13 of the Negotiable Instruments Act, "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer."^[3] But in Section 1, it is also described the Local extent, Saving of usage relating to hundis, etc. and Commencement. It extends to the whole of India but nothing herein contained affects the Indian Paper currency1871, Section 21, or affects any local usage relating to any instrument in an oriental language. Provided 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 this Act; and it shall come.

Types of negotiable instruments recognised and governed by the Act 1881. Promissory note

Bill of Exchange Cheque.

The legal definition of negotiable is that anything can be transferable from one party to a different party with the help of delivery so that the title can pass with or without the seal of approval to the transferee. The law concerning negotiable instruments is the law of the industrial world which was practised to facilitate the activities in trade and commerce, creating provision or giving holiness to the instruments of credit that can be deemed to be convertible into cash and easily transferable from one person to another. In the absence of these instruments, trade, and commerce activities were likely to be negatively affected. It was not practicable for the traders to carry the huge amount of currency in force. The supply of Indian law relating to such instruments is avowedly the English Common Law. The significant objective of the Act is to legitimise the system by which instruments contemplated by it could pass from one person to another by negotiation like any other goods. The Law in India concerning negotiable instruments is contained in the Negotiable Instruments Act, 1881. This Act is made to define and change the law relating to Promissory Notes, Bills of Exchange, and Cheques. The Act applies to the whole of India. However, nothing herein contained affects the RBI (RESERVE BANK OF INDIA) Act, 1934, or affects any usage of any instrument in an oriental language. Some usages may be excluded by any words in the body of the instrument that indicates an intention that the legitimate relations of the parties thereto shall be ruled or governed by this Act, and it shall come into force on the 1stof March 1882.The provisions of this Act apply to Hundis unless there is neighbourhood: Multiple native instruments like Treasury Bills, Bearer debentures, etc., are also negotiable instruments either by mercantile custom or under different enactments.

The Negotiable Instruments Act, 1881, is a corner stone of India's financial legal framework, governing instruments like promissory notes, bills of exchange, and cheques. Enacted to facilitate the smooth functioning of financial transactions, it ensures the legality and credibility of negotiable instruments in the Indian economy. The Act was enacted on 9th December 1881 and came into effect on 1st March 1882. Its primary aim was to consolidate the laws relating to negotiable instruments, providing clarity and uniformity for their usage in trade and commerce. Of late Negotiable Instruments Act has become of the most important branches of law. This is because of inclusion of penal provisions in the Act so as to stop dishonour of cheques at the sweet will of the drawers. The Amending Act of 2018 has made drastic changes in this regard[2]. Section 143A provides relief during the trial, while Section 148 applies during the appeal stage The court's discretion in applying Section 143A is based on several factors, including: The merits of the complainant's case, The merits of the accused's defines, and The accused's financial distress. The interim compensation is payable within 60 days of the order, or within a further period of up to 30 days if the drawer of the cheque shows sufficient cause. The compensation can be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973. 12 Oct 2024 — Section 143A of Negotiable Instruments Act, 1881 The provision regarding interim compensation for a Cheque bounce case under Section 138 of NI Act Section 143A provides relief during the trial, while Section 148 applies during the appeal stage.

The object and the purpose of the Act is to legalise the system under which claims upon certain mercantile instruments are treated like ordinary goods passing from hand to hand-Sivaram v Jayaram AIR 1966 Mad -297. Even before passing of the Act the Indian Courts applied the law merchant of England relating to negotiable instruments where the bill was in English form even though the parties were Hindus .But as the Indian Courts hesitated to extend the principle of the law merchant to transactions of the nature of the banking which takes place in the mofussil area, this Act was passed in 1881.But the English law on the subject has been faithfully reproduced in the provision of the Act. However, some modifications and departure have been made owing to the exigencies of the situation in this country[3]. In construing the Act it will not be proper for the Court to find out what the law Marchant had been before act was enacted. Every effort should be made to interpret the provision of the Act so as to achieve and prompt the object of the Act—Brojolal Vs Budhnath -55Cal- 551.AIR 1928

A Negotiable Instrument is a document freely transferable by trade customs from one person to another by delivery or by endorsement. The property in such a document was transferred to a Bonafide transferee for value. The Act does not define the term ‘Negotiable Instruments’ but section 13of the Act provides for only some kinds of negotiable instruments, i.e., promissory notes and cheques, bills of exchange, which are payable either to order or bearer. THE NEGOTIABLE INSTRUMENTS ACT, 1881 ACT NO. 26 OF 1881 [9th December, 1881.] An Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. Preamble. —Whereas it is expedient to define and amend the law relating to promissory notes, bills of exchange and cheques; It is hereby enacted as follows: —

According to section 4 of the NI Act, 1881, A promissory note is a negotiable instrument in writing and is not a banknote or a currency note. The person who has to pay is called the Maker. He is the debtor, and he shall sign on the instrument. The person willing to collect the money is called Payee or the creditor[4].

Illustrations A Signs instruments in the following terms: (a) “I promise to pay B or order Rs. 500.” (b) “I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received.” (c) “Mr. B, I O U Rs. 1,000.” (d) “I promise to Pay B Rs. 500 and all other sums which shall be due to him.” (e) “I promise to Pay B Rs. 500, first deducting thereout any money which he may owe me.” (f) “I promise to Pay B Rs. 500 seven days after my marriage with C.” (g) “I, promise to Pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum

According to section 5 of the NI Act, 1881, A bill of exchange is an instrument that has an unconditionalorder directly signed by the Maker, directing a certain person to pay a certain sum ofmoney only to, or to the order of, a specific person or the owner of the instrument.

A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified even which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain. The sum payble may be “certain”, within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be a “certain person”, within the meaning of this section and section 4, although he is mis-named or designated by description only.

According to section 6 of the NI Act, 1881, A cheque is a bill of exchange on a selected banker and not expressedto be payable other than on-demand, and it contains a cheque in the electronic form or the electronic image of a cheque.

Explanation I.—For the purposes of this section, the expressions— 2[(a) “a cheque in the electronic form” means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be;] (b) “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing. Explanation II.— For the purposes of this section, the expression “clearing house” means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India[5].]

Let us have a look at the purpose of the Negotiable Instrument Act.

This Act aims to create legitimate provisions for the negotiable instruments system currently in operation in the whole country. The regulatory laws would systematically organise the system, and the Act would define a decisive authority to decide any issues relating to negotiable instruments. The Act defines every topic concerned to the negotiable instruments for better vision and understanding. The Act provides the penal provisions for effectively implementing the negotiable instruments process between two parties. If any party breaches its obligation or there is nonfulfillment of the said duty, it may be charged with offences leading to imprisonment. It protects the right of the parties when they discharge their obligations diligently. It mentions different conditions about the transaction systems and lays down its specific provisions. The Act discards all types of discrepancies or hurdles between the parties. In case of disputes, the parties must undergo the established provisions and legally resolve the matter.

Section- 138. Dishonour of cheque for insufficiency, etc., of funds in the account[7].—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 provision of this Act, be punished with imprisonment for [a term which may be extended to two years’], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless— (a) thecheque 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; (b) the payee or the holder in due 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, 5 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) 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. Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

Chapter corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.] (2) Notwithstanding anything contained in sub- section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.—For the purposes of this section, — (a) “company” means anybody corporate and includes a firm or other association of individuals; and (b) “director”, in relation to a firm, means a partner in the firm. 142. Cognizance of offences.—1[(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),— (a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: 2 [Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;] (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.]. 3[(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,— (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. Explanation.—For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.] 4 [142A. Validation for transfer of pending cases.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) or any judgment, decree, order or direction of any court, all cases transferred to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015 (Ord. 6 of 2015), shall be deemed to have been transferred under this Act, as if that sub-section had been in force at all material times. (2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under sub-section (1) and such complaint is pending in that court, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective .

The said amount of interim compensation may be recovered in the manner provided under section 421 of CrPC i.e., Section 463 of the Bhartiya Nagarik Suraksha Sanhita, 2023 – by way of attachment and sale of any movable property of the drawer, or a warrant to the Collector of the concerned district to recover the same as arrears of land revenue from the movable or immovable property of the drawer.

The insertion of Section 148 in the Act of 1881 whereunder, in an appeal by the drawer against conviction under Section 138, the Appellate court is empowered to order the appellant to deposit such sum which shall be a minimum of 20 per cent of the fine or compensation awarded by the trial court. The amount so payable shall be in addition to any interim compensation paid by the Appellant under Section 143A. Also, the same has to be deposited within a period of 60 days from the date of order or within such further period not exceeding 30 days or may be directed by the Court on sufficient reasons being shown by the Appellant.

In case the drawer is acquitted (during trial or by the Appellate court), the court will direct the complainant to return the interim compensation (or deposit in case of an appeal case), along with an interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year. This amount will be repaid within 60 days of the court’s order, or within such further period not exceeding 30 days as may be directed by Court on sufficient grounds shown by the complainant

The court's discretion in applying Section[143. Power of Court to try cases summarily.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) all offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials: Provided that in the case of any conviction in a summary trial under this section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees: Provided further that when at the commencement of, or in the course of, a summary trial under this section, it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code. (2) The trial of a case under this section shall, so far as practicable, consistently with the interests of justice, be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing. (3) Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint. 2

[143A. Power to direct interim compensation.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Court trying an offence under section 138 may order the drawer of the cheque to pay interim compensation to the complainant— (a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and (b) in any other case, upon framing of charge. (2) The interim compensation under sub-section (1) shall not exceed twenty per cent. of the amount of the cheque. (3) The interim compensation shall be paid within sixty days from the date of the order under subsection (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque. (4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.

A mere cheque bounce can attract criminal proceedings as under Section 138 of the Negotiable Instruments Act, 1881. The person in whose favour the cheque was drawn files a complaint against the person who drew the cheque but the payment did not succeed as provided under Section 138 of NI Act. There is a provision under Section 143A of NI Act to provide financial relief to the complainant even before the matter is decided. A complainant can get interim compensation under Section 143A of NI Act, and the accompanying rules which lay the path for interim relief to the complainant in a cheque bounce matter.

Amended Cheque Bounce Provisions- 143A & 148…what is it?

Section 143A- It empowers the Court to order the drawer of the cheque to pay Interim Compensation - 20% - Without depositing this amount the accused cannot defend the case.

Section 148 – It empowers the Appellate Court to order payment pending the appeal against conviction

The Appellate Court may order the appellant to deposit an amount which shall be a minimum of 20% of the fine or compensation awarded by the trial Court.

This amount shall be in addition to the amount already paid by the appellant under Section 143A. It received the assent of the President and was notified in the Official Gazette on 02.08.2018 Insertion of a new section 148 [12]related to Deposit in case of appeal

The Amendment Bill inserts a new Section 143 (A) in the NIA Act of 1881 to provide that the court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant, in a summary trial or a summon case, where the drawerpleads not guilty to the accusation made in the complaint; and in any other case, upon framing of charge. The interim compensation so payable shall be such sum not exceeding 20 per cent of the amount of the cheque. The said interim compensation has to be paid within a period of 60 days from the date on which the order to that effect is made. The interim compensation so recovered shall be deductible from the amount of fine imposed under Section 138 by the Magistrate upon conviction of the drawer or any compensation directed to be paid under section 357 of the Code of Criminal Procedure (CrPC), 1973 (Section 395 of BNSS, 2023). Section 138 of the Act of 1881 provides for imposition of a sentence of imprisonment not exceeding a period of 2 years or fine extending to twice the amount of the dishonoured cheque or both.

The said amount of interim compensation may be recovered in the manner provided under section 421 of CrPC i.e., Section 463 of the Bhartiya Nagarik Suraksha Sanhita, 2023 – by way of attachment and sale of any movable property of the drawer, or a warrant to the Collector of the concerned district to recover the same as arrears of land revenue from the movable or immovable property of the drawer.

the insertion of Section 148 in the Act of 1881 whereunder, in an appeal[13] by the drawer against conviction under Section 138, the Appellate court is empowered to order the appellant to deposit such sum which shall be a minimum of 20 per cent of the fine or compensation awarded by the trial court. The amount so payable shall be in addition to any interim compensation paid by the Appellant under Section 143A. Also, the same has to be deposited within a period of 60 days from the date of order or within such further period not exceeding 30 days or may be directed by the Court on sufficient reasons being shown by the Appellant.

In case the drawer is acquitted (during trial or by the Appellate court), the court will direct the complainant to return the interim compensation (or deposit in case of an appeal case), along with an interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year. This amount will be repaid within 60 days of the court’s order, or within such further period not exceeding 30 days as may be directed by Court on sufficient grounds shown by the complainant

This Act is a keystone in economic and finance-related matters. It is a warning for all the persons who would face any wrongs concerning monetary dealings if mentioned in the Act. After getting a few aspects of the provisions, it is doubtless that the country’s law is highly stringent towards any kind of discrepancies or any voluntary wrong committed by the people. Of late Negotiablle Instruments Act has become one of the most important branches of law. This js because of inclusion of penal provisions in the Act so as to stop dishonour of cheques at the sweet will of the drawers. The Amendment Act 2018 has made some drastic changes in this regard. The Court trying an offence under section138 may order the drawer of the cheque to interim compensation. The interim compensation under sub-section(1) shall not exceed twenty percent amount of the cheque. Negotiable Instrument Act plays not only vital role but it discipline the customer.

The Act was amended from time to time to mitigate the financial cases. The Act also helps the Indian citizens develop the ease of doing any business as there would be a decrement in case of any disputes between the two parties, and it can be solved through the legislation and some other process. Some major provisions added after the amendment are a boon for diligent people.