What is the Negotiable Instrument Act?
The negotiable Instrument Act was originally drafted in the year 1866 and implemented in the year 1881. This act was implemented during the British rule of India and is still in function even in modern India.
The section 13 of the Negotiable Instrument Act states that, “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer”. The negotiable instrument act governs the usage of these negotiable instruments between two parties. However, no section of this act affects the usage of paper currency, which is governed by the Indian paper currency act of 1871.
According to the Negotiable Instrument Act, there are four main types of negotiable instruments—inland instruments, foreign instruments, bank and finance companies. All of these are regulated by the negotiable instrument act.
The negotiable instrument act which was implemented in 1881, was amended in the year 1988 to include cheque defaulters. Under this act, the people issuing cheques without having sufficient money in their accounts were considered to be defaulters and were charged a penalty, considering it as a criminal offense.
Majority of payments are done in the form of cheques, especially those of high amounts. Hence, the act of dishonour of cheques was common before 1988 when there was no law against it. The 1988 amendment of the negotiable instrument act helped to control the dishonouring of cheques by specifying it as a criminal activity.
However, even after this first amendment, there were many loopholes in the act which led to different interpretations of the act by different high courts. In an effort to close these loopholes, the negotiable instrument act was amended again in the year 2002 by inserting five new sections in the act. The new amendment came into force from the year 2003.
