What is the Negotiable Instrument Act?
The Negotiable Instrument Act of 1881 prescribes the legal framework regarding negotiable instruments like promissory notes, bills of exchange, and cheques in India. The very first draft of it was done in 1866 and came into practice in the year 1881, which was during the British rule, but it still works in modern India. It ensures smooth financial transactions as well as facilitates business dealings by giving the guarantee of payment for such instruments.
Under Section 13 of the Negotiable Instrument Act, a negotiable instrument is "a promissory note, bill of exchange, or cheque payable to order or bearer." However, the act does not regulate paper currency, governed separately by the Indian Paper Currency Act 1871.
Types of Negotiable Instruments
According to the act, the main types of negotiable instruments include:
- Inland Instruments
- Foreign Instruments
- Bank Instruments
- Instruments issued by Finance Companies
Each of these is regulated under the provisions of the Negotiable Instrument Act, ensuring legal protection for both parties involved in the transaction.
Amendments to the Negotiable Instrument Act
1988 Amendment – Cheque Dishonour as a Criminal Offense
The first major amendment was done in 1988, when it introduced cheque bounce or dishonour of cheques. Till then, there were instances of cheque bounce without any severe rules. This helped in criminalizing the issuance of a cheque against insufficient balance and reduced fraud through cheques as well as held people accountable in business dealings.
2002 Amendment – Closing Loopholes
The Negotiable Instrument Act, despite its amendment in 1988, had various loopholes that caused inconsistent judgments in different courts. In order to correct this anomaly, the act was again amended in 2002 and five new sections were added to make the legal structure stronger. The amendment came into effect in the year 2003 and provided clear uniformity and law enforcement throughout India.
Advantages of the Negotiable Instrument Act
- Legal Assurance in Financial Transactions
The act ensures that the payee receives a payment; thereby, the businessman and other cheque users can easily carry out transactions without much insecurity. - Protection Against Cheque Dishonour
The act helps maintain trust and discipline in financial dealings by penalising cheque bounce cases. - Uniform Regulation
This act uniformly regulates negotiable instruments in all parts of the country. So, the businessmen can conduct transactions without much hassles. - Supports Business Growth
Since most business transactions involve big cheques and other negotiable instruments, this act plays an important role in the promotion of business expansion, as it grants legal protection to the transactions.
Key Takeaways
The government and courts have sped up the resolution process of cheque-related disputes over the past few years. The increasing use of digital methods and filing cases through online portals in case of cheque dishonour have reduced the load on the judiciary. Further innovation in financial technology and regulations should improve the functioning of the act to make all financial transactions take place without hitch.
