Evolution And Revolution Of Negotiable Instruments As Facilitators For Trade And Commerce 10 Years Taking Forward

Mumbai Educational Trust’s Institute of Management

Course: PGDM (e-BUSINESS)
Batch: 2014-16
Semester: I

Subject: Legal Aspects of Business

Topic: Evolution and Revolution of Negotiable Instruments as Facilitators for Trade and Commerce & 10 years taking forward

Group: 4

Content
Sr No.
Particular
Page No.
1
Introduction of Negotiable Instruments
3
2
Need of Negotiable Instrument
6
3
Features of Negotiable Instrument
8
4
Types of Negotiable Instruments
10
5
Promissory Notes
10
6
Evolutions in Promissory Notes
13
7
Bills of Exchange
16
8
Cheque
22
9
Section 138, Negotiable Instruments Act
23
10
Ingredients of offence under section 138
24
11
Revolution in cheques
27
12
Necessity to Introduced Negotiable Instruments
31
13
Evolution
33
14.
Revolution
35
15.
Revolution of Payment Systems in India
39
16.
Case Study 1
43
17.
Case Study 2
45
18.
Case Study 3
48
19.
Recommendation
49
20.
Conclusion
50
21.
Bibliography
51

INTRODUCTION TO NEGOTIABLE INSTRUMENTS

The world as a whole has been the “cradle of commerce” because this exchange is not only between individuals but also between people and nations. This naturally implies the existence of certain surplus of wealth and certain provision for communication. Both of which are essential for growth of commerce. Unless there is a surplus of wealth and provision for communication, commerce cannot grow.
Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern business, large number of transactions involving huge sums of money takes place every day. It is quite inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these documents are called negotiable instruments.

Meaning of Negotiable Instruments
It is an instrument which is transferable (by customs of trade) by delivery like cash and is also capable of being sued upon by the person holding it for the time being. The property in such an instrument passes to a bona fide transferee for value.

Section 13:- “A Negotiable instrument means a promissory note, bill of exchange or cheque either to order or bearer."

This definition does not say anything about the characteristics of a negotiable instrument but it mentions about instruments, which can be legally called as a negotiable instrument. It fortunately, however does not prohibit any other instrument which satisfies the features of negotiability from being designated as negotiable instruments.

A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time with the payer named on the negotiable instrument. More specifically, it is a document contemplated by a contract, which warrants the payment of money without condition which may be paid on demand or at a future date.

The instrument should be freely transferable by the custom of trade. Transferability may be by
(i) delivery or
(ii) endorsement and delivery
The person who obtains it in good faith and for consideration gets it free from all defects and can sue upon it in his own name
The holder has the right to transfer.
The negotiability continues till the maturity
To understand the meaning of negotiable instruments let us take a few examples of day-to-day business transactions.

Example 1:
Suppose Mr.Ajay, a wholesaler has sold goods to Mr.Atul for Rs 10,000/- for three months credit. To be sure that Atul will pay the money after three months, Ajay may write an order addressed to Atul that he is to pay after three months, for value of goods received by him, Rs.10,000/- to Ajay or anyone holding the order and presenting it before him (Atul) for payment. This written document has to be signed by Atul to show his acceptance of the order. Now, Ajay can hold the document with him for three months and on the due date can collect the money from Atul. He can also use it for meeting different business transactions. For instance, after a month, if required, he can borrow money from Sumit for a period of two months and pass on this document to Sumit. He has to write on the back of the document an instruction to Atul to pay money to Sumit, and sign it. Now Sumit becomes the owner of this document and he can claim money from Atul on the due date. Sumit, if required, can further pass on the document to Amit after instructing and signing on the back of the document. This passing on process may continue further till the final payment is made.

In the above example, Atul who has bought goods worth Rs. 10,000/- can also give an undertaking stating that after three month he will pay the amount to Ajay. Now Ajay can retain that document with himself till the end of three months or pass it on to others for meeting certain business obligation (like with Sumit, as discussed above) before the expiry of that three month time period. This is nothing but transferability.

Example 2:
Cheque: It is a document issued to a bank that entitles the person whose name it bears to claim the amount mentioned in the cheque. If he wants, he can transfer it in favor of another person. For example, if Narendra issues a cheque worth Rs. 5,000/ - in favor of Ramesh, then Ramesh can claim Rs. 5,000/- from the bank, or he can transfer it to Suraj to meet any business obligation, like paying back a loan that he might have taken from Suraj. Once he does it, Suraj gets a right to Rs. 5,000/- and he can transfer it to Dayanand, if required. Such transfers may continue till the payment is finally made to somebody. In the above examples, we find that there are certain documents used for payment in business transactions and are transferred freely from one person to another. Such documents are called Negotiable Instruments.

Thus, we can say negotiable instrument is a transferable document, where negotiable means transferable and instrument means document. To elaborate it further, an instrument, as mentioned here, is a document used as a means for making some payment and it is negotiable i.e., its ownership can be easily transferred.

Thus, negotiable instruments are documents meant for making payments, the ownership of which can be transferred from one person to another many times before the final payment is made.

Need of Negotiable Instruments
Negotiable instruments such as cheques, bills of exchange, promissory notes etc are playing a vital role in today 's boosting trade and commerce. One of the reasons behind the expanding of the trade and commerce so rapidly is also the negotiable instruments. In trade the transactions are now becoming much depending on the negotiable instruments. Wherein commerce also the negotiable instruments are helping us in the following ways.
Helpful in Business:
Imagine how it is possible to get the business products for resale purpose without the use of money. This is happening just because of the negotiable instruments. Further suppose that you want to do a business of refrigerators but you do not have the money to purchase the refrigerators for resale purpose. And also if you do not have any other resource to get the money for purchase you can still purchase the products for your business purpose with the help of the negotiable instruments.
Negotiable such as promissory note and specially the bills of exchange are specially made for this purpose. Bills of exchange are helping many people who do not have the money to spend money as capital in their business.
No need to carry cash with you:
Due to the negotiable instruments it is became so easy to make payments through negotiable instruments such as cheques etc so that the use of cash is not their because most of the times when you are taking cash with you anywhere it is not felt secure that because the cash may be stolen by any one. In other words you can say that negotiable instruments make us feel confident to deal at any place without the use of cash.
The law relating to negotiable instruments is the law of the commercial world which was enacted to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. In the absence of such instruments, the trade and commerce activities were likely to be adversely affected as it was not practicable for the trading community to carry on with it the bulk of the currency in force. The source of Indian law relating to such instruments is admittedly the English Common Law. The main objective of the Act is to legalize the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The Law in India relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. It deals with Promissory
Notes, Bills of Exchange and Cheques. These are the three most common types of negotiable instruments. The Act applies to the whole of India and to all persons resident in India, whether foreigners or Indians. The provisions of this Act are also applicable to Hundis, unless there is a local usage to the contrary. Other native instruments like Treasury Bills, Bearer debentures etc. are also considered as negotiable instruments either by mercantile custom or under other enactments.
Instant receipts and payments of the dealings and transactions:
We don’t need to wait for days to get money from the bank and from the other places but instead of it we just have to pay in the form of negotiable instrument such as cheques etc. so that the people to whom we have to pay would receive that money.

Features of Negotiable Instruments

After discussing the various types of negotiable instruments let us sum up their features as under
i. A negotiable instrument is freely transferable
Usually, when we transfer any property to somebody, we are required to make a transfer deed, get it registered, pay stamp duty, etc. But, such formalities are not required while transferring a negotiable instrument. The ownership is changed by mere delivery (when payable to the bearer) or by valid endorsement and delivery (when payable to order) i.e. handing over the cheque to the bearer is enough. Further, while transferring it is also not required to give a notice to the previous holder.

ii. Negotiability confers absolute and good title on the transferee
It means that a person who receives a negotiable instrument has a clear and undisputable title to the instrument. However, the title of the receiver will be absolute, only if he has got the instrument in good faith and for a consideration. Also the receiver should have no knowledge of the previous holder having any defect in his title. Such a person is known as holder in due course. For example, suppose Jinesh issued a bearer cheque payable to Pratik. It was stolen from Pratik by a person, who passed it on to Neha. If Neha received it in good faith and for value and without knowledge of cheque having been stolen, she will be entitled to receive the amount of the cheque. Here Neha will be considered as ‘holder in due course.

iii. A negotiable instrument must be in writing
This includes handwriting, typing, computer printout and engraving, etc.

iv. In every negotiable instrument there must be an unconditional order or promise for payment.

v. The instrument must involve payment of a certain sum of money only and nothing else. For example, one cannot make a promissory note on assets, securities, or goods.

vi. The time of payment must be certain
It means that the instrument must be payable at a time which is certain to arrive. If the time is mentioned as ‘when convenient’ it is not a negotiable instrument. However, if the time of payment is linked to the death of a person, it is nevertheless a negotiable instrument as death is certain, though the time thereof is not.

vii. The payee must be a certain person
It means that the person in whose favor the instrument is made must be named or described with reasonable certainty. The term ‘person’ includes individual, body corporate, trade unions, even secretary, director or chairman of an institution. The payee can also be more than one person.

viii. A negotiable instrument must bear the signature of its maker. Without the signature of the drawer or the maker, the instrument shall not be a valid one.

ix. Delivery of the instrument is essential
Any negotiable instrument like a cheque or a promissory note is not complete till it is delivered to its payee. For example, you may issue a cheque in your brother’s name but it is not a negotiable instrument till it is given to your brother.

x. Stamping of Bills of Exchange and Promissory Notes is mandatory
This is required as per the Indian Stamp Act, 1899. The value of stamp depends upon the value of the bill and the time of their payment.
Evolution
Non Existence of Commerce
In the early stage of economic life of man division of labor scarcely existed. Man produced what he needed and consumed all that he produced. Therefore commerce did not exist in this stage.

Trade in the Form of BARTER
In the second stage, wants of the family became more numerous and many families found themselves with certain goods and surplus and deficient in certain other goods. These families wanted to exchange their surplus goods for those goods which they did not possess. This gave rise to “exchange of goods for goods, i.e., Barter system. Thus this is the place from where commerce may be said to have begun.

MONEY as a medium of trade & town as centre of trade
Commerce reached into its third stage of growth when money was evolved as medium of exchange to remove the limitations of barter. Introduction of money began led to the extension of division of labor and specialization. People began to produce goods for certain local markets. Thus, division of labor was extended to a locality. Gradually a separate class of artisans and traders came into existence. They settled down at fixed places which came to be known as towns.

Growth of these towns gave great stimulus to commerce. The size of the market and the number of commodities exchanged in the market, both increased. Traders from other countries brought luxury articles, metals and ornaments for sale.

Economy & Growth of Commerce
Commerce continued to grow both in volume and space. After the decline of Guild system, a new class of people, ENTERPRENEUR class, came into existence. This class of people became a real intermediary between the producers and consumers. Further, growth of commercial enterprise took place. Trade began to assume fixed forms. Production began to be undertaken for the markets extended for the whole country. Division of labour received further impetus. Production was divided into several branches and each branch tended to be localized. Various economic activities came to be clearly marked off into distinct groups:

AGRICULTURE
TRADE
COMMERCE

World Economy & the World Market
Commerce entered into another stage of its growth when nations of the world were brought into commercial relationships through the invisible thread of trade. As a result of the geographical discoveries of the late 15th, 16th and 17th centuries new trade routes were opened up and commerce grew between nations. Now, in addition to the local market and the trade extending over the whole area of a single country, commodities came to be sold and purchased between traders from different countries in the world. This gave rise to an international world market and to the international trade. Thus the nations of the world were linked together through the medium of the world market.

Evolution of commerce is a never ending process. Almost every day new experiments in its mechanism are made. New forms and methods are being evolved in both socialist and capitalist countries, in both developed and developing nations.

Necessity to Introduce Negotiable Instruments
Historically business developed by stages.
Pastoral stage
Agricultural stage
Handicrafts stage
Guild stage
Domestic stage
Factory stage

Pastoral stage
In primitive society man used things just as they were found in nature. With time, he learned to domesticate animals and breed them for food and clothing. Since he had to find pastures for his animals, he tended to lead a wandering life. But in this stage his work served mainly to support only him with his own needs and left very little surplus available foe exchange on a business basis.

Agricultural stage
In course of time, the nomadic tribes settled permanently at fixed places, built up the huts and shelters for their residences and began cultivating the land in common. Growing corns, grasses etc. became the main occupation. Agriculture emerged as the basic feature of economic living of man. He gradually produced more and then started to exchange it with other commodities. This was known as barter system.

Handicraft stage
In this stage manufacturing was limited to the human efforts to transform raw materials into finished goods. It included candle and soap making, spinning, weaving, making of clothes and shoes, blacksmithing, leather dressing, carpentry etc.

Guild stage
A guild is an association of persons following a similar occupation and it is formed to protect and promote the interest of its members through cooperative endeavors.

Domestic stage
A new class entrepreneur emerged as a link between producer and consumer. Now entrepreneur purchased the raw materials for the purpose of manufacture and sale but did not do the processing himself. He took the risk of productions and sale. Out of the proceeds of his undertaking, he paid for the materials and labor. The amount left was his profit.
Factory stage
In this stage an organized system of production under a single roof came to be identified as a factory. Large scale operations with the use of mechanized production processes resulted in producing good quality products at cheaper rates. However it was greatly influenced not only by its own processes but also by government under which it operates.

These were the different stages of evolution of business. However it was noted that the growth was very slow and the system was very complex. There were different instruments used to purchase different commodities in different stages. The system of exchange was such that it led to confusion and various complexities. To avoid such confusion and to operate the business activities smoothly negotiable instruments were introduced.

Types of Negotiable Instruments

According to the Negotiable Instruments Act, 1881 there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque. However many other documents are also recognized as negotiable instruments on the basis of custom and usage, like hundis, treasury bills, share warrants, etc., provided they possess the features of negotiability. In the following sections, we shall study about Promissory Notes (popularly called pronotes), Bills of Exchange (popularly called bills), Cheques, in detail.

PROMISSORY NOTE
Key Terms:
There are primarily two parties involved in a promissory note.
The Maker or Drawer – the person who makes the note and promises to pay the amount stated therein.
The Payee – the person to whom the amount is payable. In course of transfer of a promissory note by payee and others, the parties involved may be -
The Endorser – the person who endorses the note in favor of another person...
The Endorsee – the person in whose favor the note is negotiated by endorsement. (Endorsement means transfer of any document or instrument to another person by signing on its back or face or on a slip of paper attached to it)

Definition: Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”

Elements of a Promissory note:
The following are the elements that a Promissory note should posses:
It must be in writing: A Promissory note should be in a writing format, a verbal communication or any kind of verbal promise done between two parties is not considered as a Promissory note. The method of writing can be either in ink or pencil or printing, etc. which cannot be easily altered.
It must certainly an express promise or clear understanding to pay: There must be an express undertaking to pay. A mere acknowledgment is not enough.
The following cannot be a Promissory note as there is no promise to pay:
Example:
“I have taken from you Rs. 100, whenever you ask for it has to pay”
“Mr. A, I owe you Rs. 100” The following can be considered as a Promissory note as there is an express promise to pay:
Example:
“I promise to pay Mr. A or order Rs. 100”
“I acknowledge myself to be indebted to An in Rs. 100 to be paid on demand, for the value received”.
Promise to pay must be unconditional: A conditional undertaking destroys the negotiable character of an otherwise negotiable instrument. Therefore, the promise to pay must not depend upon the happening of some outside contingency or event. It must be payable absolutely.
It should be signed by the maker: The person who promises to pay must sign the instrument even though it might have been written by the promissory him. There are no restrictions regarding the form or place of signatures in the instrument. It may be in pencil or ink, a thumb mark or initials. The pronote can be signed by the authorized agent of the maker, but the agent must expressly state as to on whose behalf he is signing, otherwise he himself may be held liable as a maker.
The maker must be certain: The note self must show clearly who the person is agreeing to undertake the liability to pay the amount. In case a person signs in an assumed name, he is liable as a maker because a maker is taken as certain if from his description sufficient indication follows about his identity.
The payee must be certain: The instrument must point out with certainty the person to whom the promise has been made. The payee may be ascertained by name or by designation. A note payable to the maker himself is not pronate unless it is indorsed by him. Even where the name of a dead person is entered as payee in ignorance of his death, his legal representative can enforce payment.
The amount should be certain: The amount paid by the party should be paid by only money and one of the important characteristics of a promissory note is certainty regarding the person to whom or by whom payment is to be made but also regarding the amount.
Other formalities: The other formalities regarding number, place, date, consideration etc. though usually found given in the promissory notes but are not essential in law. The date of instrument is not material unless the amount is made payable at a certain time after date.
In case of default:
Promissory notes are legally binding documents, even if they are considered to be negotiable. Negotiable simply means that the document may be altered by a later agreement, and changes must usually be enforced by further monetary consideration.
If the borrower defaults on the note, there can be several consequences. First, the lender may initiate a lawsuit in order to force the debtor to complete the payments. In some instances, defaulting on one payment can result in the debtor collecting on the entire balance. For example, suppose the lender made a loan of Rs.10, 000 to the borrower, and the borrower has already made payments totaling Rs.5, 000. If they default on the next payment, the lender may be legally entitled to collect the remaining Rs.5, 000 immediately.
Default can also result in a lien being placed on the borrower’s property. Additionally, if the default was made with a malicious or criminal intent, the debtor could be subject to penalties under criminal laws.
Finally, failure to fulfill a promise recorded in a promissory note can result in poor credit scores. Violations can even affect child custody rights, particularly in the case of repeated or habitual defaults. Types of Promissory Notes:

There are four kinds of promissory notes, and they are

1. Promissory notes payable on demand; 2. Promissory notes payable after date; 3. Joint promissory notes; and 4. Joint and several promissory notes.
1. Promissory note payable on demand :

When the drawer or you can say the maker gives an unconditional undertaking, under his signature, to pay on demand certain sum of money to the payee, it is called a promissory note payable on demand. In such a note, no time is fixed for payment.

2. Promissory note payable after date :

When the maker or buyer promises, under this signature to pay certain amount of money to the payee, at future date say for example, three months after date is called as promissory note payable after date, or at a future date.

3. Joint promissory note :

When a promissory note is made by two or more persons jointly, it is known as joint promissory note, in such a case liability of promissory is joint and collective towards a payee i.e. in case of default payee can take legal action against one or all of them. If he elects to take an action against one of the promissory, it is deemed to be action against all of them. He cannot in that case take action against the remaining promissory. Payee has only one right of action.

4. Joint and several promissory note :

When promissory note is made by two or more persons jointly or severally, it is called as joint and several promissory notes. The promissory of such promissory notes are not only collectively liable to the payee but also individually and separately liable to him.

Evolutions in Promissory Notes
Earlier
promissory note was used as debt instruments that allow companies and individuals to get financing from a source other than a bank. This can be individuals or other companies who are willing to carry the note (provide the financing) under the agreed-upon terms. The terms include the interest rate, repayment schedule and the consequences of default.
Promissory notes have had an interesting history. At times, they have circulated as a form of alternate currency, free of government control. In some places, the currency is a form of promissory note called a demand promissory note (a note with no stated maturity date, allowing the lender to decide when to demand payment). In the United States, however, promissory notes have been issued only to corporate and sophisticated investors.
Recently
promissory notes are also seeing increasing use when it comes to selling homes and securing mortgages.
Corporate Credit
Promissory notes offer alternative credit for companies that have exhausted other options. The levels of credit a company can access, through corporate lending, bond issues and so on, is quite extensive. Therefore, a promissory note issued by a company is at a higher risk of default than, say, a corporate bond. This also means the interest rate on a corporate promissory note is likely to provide a greater return than a bond from the same company - high-risk means higher potential returns.
Promissory notes offer alternative credit for companies that have exhausted other options. The levels of credit a company can access, through corporate lending, bond issues and so on, is quite extensive. Therefore, a promissory note issued by a company is at a higher risk of default than, say, a corporate bond. This also means the interest rate on a corporate promissory note is likely to provide a greater return than a bond from the same company - high-risk means higher potential returns.

Mortgage
The promissory note is one of the ways in which people who don 't qualify for a mortgage can purchase a home. The mechanics of the deal are quite simple: the seller continues to hold the mortgage (taking it back) and the buyer signs a promissory note saying that he or she will pay the price of the house plus an agreed upon interest rate in regular installments. Assuming the house has appreciated and/or the mortgage is paid off, the payments from the promissory note result in a positive monthly cash flow for the seller.

Usually, the buyer will put down a large down payment on the house to bolster the seller 's confidence in the buyer 's ability to keep his or her promise. Although it varies by situation and state, the deed of the house is often used as a form of collateral and it reverts back to the seller if the buyer can 't make the payments. There are cases in which a third party acts as the creditor in a take-back mortgage instead of the seller, but this can make matters more complex and prone to legal problems in the case of default.

Investing in promissory notes
Investing in promissory notes involves risk. There is the risk of default due to any of the many unpleasant surprises life may have in store for the person or corporation that creates the note to raise capital. To help minimize these risks, an investor needs to register the note or have it notarized so that the obligation is both publicly recorded and legal. This is perfectly acceptable because if the issuer dies, the holder of the note will resume related expenses that he or she may not be prepared to handle.
After an investor has agreed to the conditions of a promissory note, it can be sold to another investor, much like a security. Notes sell for a discount from their face values because of the effects of inflation on future payments. The money is worth less in the future. Other investors can also do a partial purchase of the note, buying the rights to a certain number of payments - once again, at a discount to the true value of each payment. This allows the note holder to raise a lump sum of money quickly, rather than waiting for payments to accumulate.

CASELET:
2011 (2) CTC 806
Tatipamula Naga Raju vs. Pattem Padmavathi
Negotiable Instruments Act, 1888 (26 of 1881), Section 20 – Promissory Note – Suit for recovery of money on Promissory Note – Suit filed by Plaintiff on basis of Promissory Note executed by Defendant for 1,25,000/- - Case of Defendant that one Promissory Note for 50,000 and three Promissory Note for 25,000/- each executed by Defendant and favor of son of Plaintiff – Amount settled between Defendant and Plaintiff’s son and money paid back to Plaintiff’s son, however one Promissory Note of 25,000/- not returned to Defendant as it was said to be misplaced – Case of Defendant that Plaintiff interpolated figure ‘1’ in said misplaced Promissory Note and took undue advantage – Handwriting expert supported case of Defendant and mediators deposed in favor of settlement of dues by Defendant – In such circumstances, held, mere admission of signature of Promissory Note does not make Defendant liable to pay amount in respect of tampered Promissory Note.

BILLS OF EXCHANGE
Key terms:-
Drawer
A person who signs the bill of exchange is a drawer.
Drawee
The party who is to be paid on a bill of exchange of cheque is a drawee.
Payee
The person in whose favour the bill of exchange is made payable.
Endorsee
Person or firm to whom a negotiable instrument (bill of exchange) is transferred by endorsement. Also called a transferee or payee the endorsee becomes a holder in due course upon delivery of the endorsed document.

Definition of Bills of Exchange
An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer

Need for Bills of exchange
No business wants to sell goods on credit to his customers who may prove unable or unwilling to pay their debts. Today, however, in every field of retail trade it appears that sales and profits can be increased by selling goods on credit basis. The manufacturers and the wholesalers sell goods mostly on credit. Credit is a very powerful instrument to promote sales, so most of the business transactions, in most business concerns, are carried on credit basis. A bill of exchange is a method of payment used between businessmen which has certain advantages over other methods of payment

Classification of Bills of Exchange:
Types of bill of exchange on the Basis of Period:
On the basis of period bills are of two types:
i. Demand bills ii. Term bills
Demand Bills of Exchange:
There is no fixed date for the payment of such bill. They become payable at any time, when they are presented before payee by the holder.
Term Bills of Exchange:
These bills are payable after specified period of time. The period after which these bills become due for payment is called tenor.
Types of Bills of Exchange on the Basis of Object:
On the basis of purpose of writing the bills, the bills can be classified as:
i. Trade Bills ii. Accommodation Bills
Trade Bills:
These bills are drawn and accepted against the sale and purchase of goods on credit. These are drawn by the seller (creditor) and accepted by the buyer (debtor).
Accommodation Bills:
Such bills do not involve any sale and purchase of goods; rather they are drawn without any consideration. The purpose of such bills is to help one party or both the parties financially.

Classification of Bills of Exchange:
The bills can be classified into two classes given as under:
Inland Bill:
These bills are drawn in a country upon person living in the same country or made payable in the same country. Both drawer and the drawee reside in the same country.
Foreign Bills:
These bills are drawn in one country and accepted and payable in another country, e.g. a bill drawn in England and accepted and payable in India. Use of Bills of exchange

Discounting of bill of Endorsement of Bill sent to bank exchange bill of exchange for collection.

1. Discounting of bill of exchange :
If the drawer of the bill does not want to wait till the due date of the bill and is in need of money, he may sell his bill to a bank at a certain rate of discount. The bill will be endorsed by the drawer with a signed and dated order to pay the bank. The bank will become the holder and the owner of the bill. After getting the bill, the bank will pay cash to the drawer equal to the face value less interest or discount at an agreed rate for the number of days it has to run. This process is known as discounting of a bill of exchange.

2. Endorsement of Bill of Exchange :
If the holder of the bill puts his signature on the back of the bill with a view to transfer the property contained in it (right to receive money from the acceptor), then he becomes endorser, and the person to whom the bill of exchange is transferred will become endorsee. This procedure by which a bill is transferred from one person to another person for the settlement of debts is called "endorsement".
3. Bill sent to Bank for collection :
If a business has numerous bills he got from various debtors he may send these bills to his banker for collection purposes. It should be remembered that, this is not discounting of a bill of exchange. The bill is sent for safety and collection purposes. The bank keeps the bill in its custody till the due date and on the due date; the bank will present the bill to acceptor. After collecting the amount, the bank transfers the amount to the account of its customer (by giving credit to his account). The bank charges some nominal fee from the customer for service he rendered. This is an expense for the customer and revenue for the bank.

DISHONOR OF BILL OF EXCHANGE:
What happens when a bill is not honored by the acceptor on the due date (cash is not paid to the holder of the bill)? A bill of exchange is said to be dishonored when its acceptor refuses to pay the amount of the bill to the holder of the bill on its maturity. The bill then becomes useless and the party from whom it has been received will be liable to pay for the amount. It is very important to know that, when a bill is dishonored, in whose possession it was? Because when a bill is dishonored, all the parties involved are affected and books of accounts of all the parties have to be adjusted.

Accommodation bill of exchange:
Generally a bill of exchange is drawn by a creditor on his debtor to settle a trade debt. A creditor is a person who has sold goods on credit basis and a debtor is a person who has purchased goods on credit basis. Thus, a bill which is drawn by a creditor and accepted by a debtor is known as a trade bill of exchange.
On the other hand, a bill of exchange which is drawn to oblige a friend or to give him a temporary assistance or to provide him a loan or to accommodate one or more parties is called an "accommodation bill of exchange".
Such a bill is drawn and accepted without any sale and purchase of goods. As the bill is drawn to fulfil the temporary need of money, there is no question of retaining this bill by the drawer until the due date. The bill will be discounted and cash will be received immediately. The drawer before maturity date is required to provide the acceptor with funds so that he may need his acceptance on the due date.
Example:
For example, let us suppose A is in need of money, he approaches his friend B and asks him to give him a loan for $5,000. B also shows his inability but agrees that he will accept a bill of exchange. ‘A’ draws a bill on ‘B’ which he accepts at three months. Discounts the bill with his bank and gets the money. After three months but before the due date, A sends $5,000 to B in order to meet his acceptance. B receives amount and pays his acceptance.

CHEQUE

Section 6 of Negotiable Instruments Act defines cheque as: “Cheque“.-A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Explanation I.-For the purposes of this section, the expressions-
(a) “a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;
(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, substitute in 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 recognized as such by the Reserve Bank of India.’.

Essentials\Characteristics of a Cheque:

1. Instrument in Writing:
A cheque must be writing. It can be written in ink, typed or even printed. The ink used should not be easily erasable. Overwriting or alteration will make the cheque dishonor. Oral orders are not considered as cheques.

2. Unconditional Order:
In cheque there must contain an order by a depositor (drawer) on its bank (drawee) for paying money to the holder (payees) and order should be unconditional. A cheque containing conditional order is dishonored by the bank.

3. Payable on Demand:
A cheque when presented for payment must be paid on demand. If cheque is made payable after the expiry of certain period of times then it will not be a cheque.

4. Certain Sum of Money:
Cheque must be for money only and it must be written in words and figures. If the amount in words and figured will differ from each other or if there will be insufficient balance in the account then the cheque will be dishonored.

5. Payee must be Certain:
The payee of the cheque should be certain person i.e. either real person or artificial person e.g. Joint Stock Company. The name of payee must be written on the cheque or it can be made payable to bearer.

Different Kinds / Types of Cheques ↓

1. Bearer Cheque
When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky; this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.

2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).

3. Uncrossed / Open Cheque
When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.

4. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee 's account.

5. Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid up to three months from the date of the cheque.

6. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honored earlier than the date on the cheque.

7. Stale Cheque
If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque. A stale cheque is not honored by the bank.

E-Cheque

Electronic cheque (e-cheque) is the image of a normal paper cheque generated, written and signed in a secure system using digital signature and asymmetric crypto system. Simply said an electronic cheque is nothing more than an ordinary cheque produced on a computer system and instead of signing it in ink, it is signed using the digital equivalent of ink. After the coming into force of The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, legal recognition has been accorded to e-cheques and they have been brought at par with the normal cheques. Now, a ‘cheque’ includes an e-cheque.

SECTION 138 NEGOTIABLE INSTRUMENTS ACT 1881
Section 138 Negotiable Instruments Act as it is at present after coming into force of The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002:
138. Dishonor of cheque for insufficiency, etc., of funds in the account:
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 honor 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 extend 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-
i. the cheque 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; ii. 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, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and iii. 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 or other liability” means a legally enforceable debt or other liability.

Ingredients of Offence under Section 138
i. The cheque should have been issued for the discharge , in whole or part, of any debt or other liability ii. The cheque should have been presented within a period of six months or within its validity period whichever is earlier. iii. The payee or holder in due course should have issued a notice in writing to the drawer within 30 days of the receipt of information by him from the Bank regarding the return of the cheque as unpaid. iv. After receipt of the said notice from the holder in due course, the drawer should have failed to pay the cheque within 15 days of receipt of the said notice.

Grounds for Dishonor of Cheque
i. Insufficient Funds:
The amount of money standing to the credit of the account of the drawer on which the cheque is drawn is insufficient to honor the cheque, or
a) The cheque amount exceeds the amount that can be paid by the bank under an arrangement entered into between the bank and the drawer of the cheque.

ii. Account Closed: “ It is an offence under section 138 of the Act – Closure of account would be an eventuality after the entire amount in the account is withdrawn – It means that there was no amount in the credit of ‘that account’ on the relevant date when the cheque was presented for honoring the same” iii. Stop Payment’ instructions:
“Once the cheque has been drawn and issued to the payee and the payee has presented the cheque, ‘stop payment’ instructions will amount to dishonor of cheque.”

iv. Refer to drawer:
“ …….. Makes out a case under section 138 of the Negotiable Instruments Act, 1881 which expression means that there were not sufficient funds with the bank in the account of the respondent”
v. Not a clearing member:
“Cheque returned with endorsement ‘not a clearing member’. To attract the provisions of section 138 NI Act, the cheque should be presented with the bank on which it I drawn- If the cheque is not presented to the bank on which it is drawn, then provisions of sec 138 would not be attracted. If bank on which the cheque is drawn is not a clearing member of the Reserve Bank of India – unpaid return of the cheque would not attract section 138.” vi. Post Dated Cheque:
Post dated cheque is not a “cheque” on the date it is drawn – It becomes a “cheque” only on the date written on it – Till that date post-dated cheque remains a bill of exchange.
The post-dated cheque becomes a cheque within the meaning of section 139 on the date which is written thereon and not the 6 months period is to b reckoned for the purposes of proviso (a) to sec 138 from the date. Thus in case of a pot-dated cheque, six months period is to be reckoned from the date mentioned on the face of the cheque and not any earlier date on which the cheque was made over by the drawer to the drawee.

vii. Blank Cheque:
Respondent issued a blank cheque without mentioning the date and amount and sent it with a letter requesting complainant to present it after a month – Question whether blank cheque will come within the definition of cheque? – If the cheque is not drawn for a specified amount it would not fall within a definition of bill of exchange - Act of complainant in filling up amount portion and date was a material change and it could not be enforced even though it was issued for a legal liability – Alteration without the consent of the party who issued the cheque rendered cheque invalid.

Admission of signature on the cheque is not equivalent with admission of execution – Right of the accused to contend that a blank signed cheque was mis-utilised by the payee cannot be taken away by such mere admission of signature.

Accused entered into security arrangement with complainant for sale of its product – Accused issued blank cheques as security to security agency agreement – No debt or liability existed when cheques were handed over to drawee complainant – Complaint based on blank cheque issued towards security is not maintainable.

Revolutions in Cheques
Despite to rapid acceptance of online banking and online payment transfers by Indian banking customers, cheques based payments are still a significant mode of payments in India. Statistics published by RBI mentions that in year 2006-07, more than a billion cheques were processed in India. You may be aware of the The Magnetic Ink Character Recognition (MICR) code printed in black at the bottom of your cheques. These were introduced in mid eighties and have greatly added to the efficiency and reduction of time taken to process cheque based payments. I believe the next round of efficiency after the success of MICR would be CTS or Cheque Truncating System. Currently the cheques are being physically moved from one location to another as the cheques are required to be presented physically to the drawee bank. For example, if A drew a cheque of Rs. 10K on ICICI Bank and gave it to B. B deposits the cheque in his HDFC Bank account. Here, A is a drawer, B is a payee, ICICI Bank is a drawee bank, and HDFC Bank is a payee bank. The cheque would have to reach from HDFC Bank (payee bank) to ICICI Bank (drawee bank) physically so that ICICI bank can do all checks such as signature, authenticity of the cheque, etc. before releasing the payment. You can perhaps appreciate that this would add to the time required in processing the cheque owing to physical transportation of cheques and a series of intermediaries involved in the process. The rationale behind this process was – Negotiable Instrument Act (which governs the cheques) required physical instrument to be sent to the drawee branch for release of payment. The Act has now been amended to allow for digital movement of cheques and hence forming a basis of CTS.
CTS truncate the physical movement of cheque. The cheques can now be scanned by the payee bank and sent digitally to the drawee bank for release of payment. This makes the process efficient as well as reduces the payment time / cost involved in processing. However, one of the basic challenges faced in implementing CTS across the country is – lack of standardization of cheques which prevents digital movement of the cheques. Cheques are of varied sizes, designs, having fields located in different locations making it difficult to scan the cheques and allowing for a standardized system based recognition of cheque details (via Optical Character Reader technology).
The article from here after would discuss upon what changes have hence been introduced by Reserve Bank of India to standardize the cheque books, make them more secure and compliant with CTS technology / process.
Impact on Retail Customers
Any changes being made to a common financial instrument is bound to have significant impact upon the population of clients of retail banks. A couple of impacts are:
Existing stock of Cheques – this is perhaps an administrative and logistics issue where customers having existing supply of cheques which are not CTS compliance would have to be issued with new CTS compliant cheque books. Obviously it would be a painful and costly process for the banks and perhaps a hassle for customers who would have to replace their old issued cheques with new ones.
PDCs or Post Dated Cheques – This will be a biggest administrative hit for customers who have given PDCs for the payment of their loan EMIs or SIP based investment transactions. Such customers would have to revisit their respective banks to replace non compliant cheques with new cheques.
NRIs – The issue which NRIs mostly face is documents not reaching them / getting lost in post. At times one reason is that their correspondence address is of a location where they don’t reside and hence the associated hassle of first updating their address and then getting their updated cheque book. I won’t be surprised that many such chequebooks may inadvertently be posted to an incorrect address owing to an outdated address in bank’s records.
Faster & Secure Clearing – If the above 3 were hassles, the advantages are perhaps worth the pain. Currently clearing of cheques takes minimum 3 working days. With CTS, this may be reduced to 1-2 day. It would add to security of payments by having strict guidelines on cheque stationery and hence reducing frauds. Errors may be reduced whereby the processing of cheques would be automated and digitized. Changes to the Cheques
Proposed layout of a sample CTS compliant cheque is pasted below (sourced from RBI’s website)
Some of the new features introduced as a part of the CTS are:
i. Paper Quality – paper will be image friendly and will have security features such as chemical sensitivity to acids, alkalis, bleaches and solvents giving a visible result after a fraudulent modification being made to the paper. ii. 2. No UV Glow – The new cheques will not glow under an Ultra Violet light. This would ensure a uniform look and feel of cheques across different banks. iii. 3. Watermark – a new standardized watermark ‘CTS-INDIA’ will be present which would be visible by holding a cheque against a light source. The objective is to make it difficult for fraudsters to print / photocopy a cheque on a normal paper. There are specific requirements for shape and size of this watermark. A sample of the illustrative watermarks are iv. VOID pantograph – This is a technology used to detect counterfeit documents / cheques once a person has made an unauthorized copy of a protected document (cheque). In the current era of color photocopies, it is very easy to take a print of a cheque which resembles exactly like the original cheque. VOID pantograph uses a technology where the background design of the cheque has a pattern of repeating words like “void” or “copy”. When such a document / cheque is photocopied, the words “void” or “copy” (as the case may be) would appear multiple times on the reproduced photocopy / print, hence making it apparent that the copy is not original preventing the release of funds on an unauthorized cheque. RBI has made it mandatory for all new cheques to have such a feature.
v. Bank’s Logo in UV: The logo will be printed with invisible ink which shall be visible under an ultra violet lamp to establish genuineness of a cheque. vi. Field Placements – Location of important fields such as Payee, Amount, Date shall be standardized on the cheques to enable the OCR reader machines perform automatic payment processing. vii. Clutter free Background: In order to improve the clarity and quality of scanned images, the background of the cheque shall be made clutter free. viii. Account numbers are filled : Account numbers for cheques shall be pre printed and would be a must for current account holder / corporate clients;
Banks may also additionally have other security features such as additional watermarks, embedded fluorescent fibers, patterns, etc. which may enhance the security features of cheques. However such features should be compatible with the minimum required mandatory features enumerated above.
Implementation Timelines
RBI has asked banks to adhere to the following timelines (in circular DPSS.CO.CHD.No. 399/04.07.05/2012-13) in order to ensure timely migration to the CTS compliant cheque formats:
Issue only multi-city/payable at par CTS compliant cheque books by September 30, 2012.
i. Withdraw non CTS compliant cheques from circulation before December 31, 2012 by creating awareness among customers. This can be via through multiple mechanisms like emails, SMS, letters, notification on the web-site etc. ii. Arrangement to replace non CTS Post-dated EMI cheques with CTS compliant cheques by December 31, 2012. Considering this deadline as challenging, RBI has subsequently extended it to 31 March 2013.
Revolution
Present Scenario of Negotiable Instruments
Legal issues relating to electronic transaction processing at banks are very many and the need to address them by amending some of the existing Acts and by promoting legislation in a few hitherto unexpected areas has assumed critical urgency. Necessary legislative support is essential to protect the interests as much of the customers as of the banks / branches in several areas relating to electronic banking and payment systems. This is specially required to establish the credibility of ECS and EFT schemes based on the electronic message transfer. Since the Reserve Bank is embarking on large electronic schemes such as the nationwide RTGS, it is time that efforts are made to bring about necessary legislative framework that synchronizes and synthesizes with the initiatives taken by the Government of India, Department of Electronics for promotion of the Information Technology Bill, 1999 and / or the Electronic Commerce Bill, 1999.
Electronic Negotiable Instruments
The recent and rapid development of Information and Technology has revolutionized the way people and business transfer of goods and services. Electronic revolution is real and continues to grow as a medium to order goods, services or tickets. Compared with traditional payment methods, such as cheques, electronic medium indeed have got many advantages. However, electronic medium are often costly, challenging to implement and sometimes technically hard to understand by common man. When we pay for goods or service in a shop using a credit or a debit card, the retailer must pay a commission to the financial institution processing the card details; additionally there shall be an operating cost for the system used to process the cards. Due to various factors like that in the present day cheques are still viable payment method and will continue to be in future.

e-Bills of Exchange and Promissory Notes
It is necessary for negotiable instruments in the form of bills of exchange and promissory notes have to preserve their expediency in international trade in the modern day. They must be recognized in a valid electronic format. These electronic instruments should be capable of satisfying the legal requirements which are set out in various statutory provisions and different jurisdictions. In order to ensure certainty in the international trade context, a uniform law shall be adopted, for example UNCITRAL Model Law on Electronic Commerce 1996, which was amended in 1988, these sort of uniform laws can overcome the deficiencies in the current statutory regime and increase the certainty in relation the enforceability of electronic bills of exchange and promissory notes. However, in the absence of such a uniform law and in order to effectively analyze whether or not it is feasible to substitute the negotiable instrument with the electronic medium, it shall be necessary to examine, if those electronic variants satisfy the requirements of the present law. If we compare the characteristics as outlined in the UK Bill Of Exchange Act 1882; the definition provided in section 3(1) emphasizes on two central characteristics for a valid bill of exchange and a promissory note they are namely ‘in writing ' and ‘signed '. Therefore the electronic bill of exchange should overcome this hurdle to replace the traditional paper based method.
Advantages of Electronic Revolution
As the technology has improved there are various benefits to be found and they are namely
i. Faster, better, cheaper
The present day would claim that faster, better and cheaper have become the key mantra of electronic revolution, whereas anytime, anywhere has become the mantra of consumers. This form has made the work much simpler, one need no travel from place to place and waste time or mails a document. Therefore due to the emergence of e- revolution this has been possible.

ii. Convenience, confidence and complexity
In this convenience refer to the capital, time, labour and any other resources that are needed to make transactions. For example, consumers with computer modems can access banks by using banking software installed on their personal computer. Secondly confidence is the trust that the parties shall have in transactions that generate risk. This risk includes legal risks and operational security which affect both the users and provides of such service. For example, the use of electronic check payment may increase a paying bank risk of check fraud (US General Accounting Office, Janauary15, 1988; July 14, 1988). Complexity refers to the ease of making transactions.

iii. Better funds management
According to this point the customers can easily access and download the history of different accounts or transactions which are present. In this way a savvier customer can better manage his funds and payments.
Benefits of an Institution from e- Revolution
As there are advantages present for the individuals through the emergence of e- revolution similarly there are few benefits for institutions namely
i. Reduced branch load
The emergence of e- revolution has helped the institution to reduce the load of transactions at the physical branch. This shall be useful catering to a large number of customers. Due to this the institution can address a greater customer base while maintaining the same number of branches and staff strength.

ii. Attracting the customers in future
Providing internet access to the customers has become very essential because this makes the consumer work faster and cheaper. Therefore implementing this institution shall attract more and more customer in the future.

AMENDMENTS TO THE NEGOTIABLE INSTRUMENTS ACT, 1881
1. Substitution of new section for section 6.-For section 6 of the Negotiable Instruments Act, 1881 (26 of 1881) (hereinafter referred to as the principal Act), the following section shall be substituted, namely:-
‘6. “Cheque”.-A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Explanation I. For the purposes of this section, the expression-
(a) “a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;
(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 recognized as such by the Reserve Bank of India.’
2. Amendment of section 64.-Section 64 of the principal Act shall be re-numbered as sub-section (1) thereof, and after sub-section (1) as so re-numbered, the following sub-section shall be inserted, namely:—
“(2) Notwithstanding anything contained in section 6, where an electronic image of a truncated cheque is presented for payment, the drawee bank is entitled to demand any further information regarding the truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled to further demand the presentment of the truncated cheque itself for verification:
Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if the payment is made accordingly.”
Amendment of section 81.-Section 81 of the principal Act shall be re-numbered as sub-section (1) thereof, and after sub-section (1) as so re-numbered, the following sub-sections shall be inserted, namely:-
“(2) Where the cheque is an electronic image of a truncated cheque, even after the payment the banker who received the payment shall be entitled to retain the truncated cheque.
(3) A certificate issued on the foot of the printout of the electronic image of a truncated cheque by the banker who paid the instrument, shall be prima facie proof of such payment.” 3. Amendment of section 89.-Section 89 of the principal Act shall be re-numbered as sub-section (1) thereof, and after sub-section (1) as so re-numbered, the following sub-sections shall be inserted, namely:—
“(2) Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image.
(3) Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.”
4. Amendment of section 131.-In section 131 of the principal Act, Explanation shall be re-numbered as Explanation I thereof, and after Explanation I was so re-numbered, the following Explanation shall be inserted, namely:—
“Explanation II.—It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.” 5. Amendment of section 138.-In section 138 of the principal Act,-
(a) For the words “a term which may be extended to one year”, the words “a term which may be extended to two years” shall be substituted;
(b) In the provision, in clause (b), for the words “within fifteen days”, the words “within thirty days” shall be substituted.
6. Amendment of section 141.-In section 141 of the principal Act, in sub-section (1), after the proviso, the following proviso shall be inserted, namely:-
“Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial 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.”
7. Amendment of section 142.-In section 142 of the principal Act, after clause (b), the following provision shall be inserted, namely:-
“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.”
8. Insertion of new sections after section 142.-After section 142 of the principal Act, the following sections shall be inserted, namely:-
“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 is 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 endeavor shall be made to conclude the trial within six months from the date of filing of the complaint.
144. Mode of service of summons.-(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), and for the purposes of this Chapter, a Magistrate issuing a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness ordinarily resides or carries on business or personally works for gain, by speed post or by such courier services as are approved by a Court of Session.
(2) Where an acknowledgement purporting to be signed by the accused or the witness or an endorsement purported to be made by any person authorized by the postal department or the courier services that the accused or the witness refused to take delivery of summons has been received, the Court issuing the summons may declare that the summons has been duly served.
145. Evidence on affidavit.-(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding under the said Code.
(2) The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.
146. Bank’s slip prima facie evidence of certain facts.-The Court shall, in respect of every proceeding under this Chapter, on production of bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonored, presume the fact of dishonor of such cheque, unless and until such fact is disproved.
147. Offences to be compoundable.-Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.

CASELET:
(2011) 4 Supreme Court Cases 275
Milind Shripad Chandurkar vs Kalim M. Khan and Anr
Negotiable Instrument Act, 1881 – Ss. 142 and 7 to 9 – Cheque payable to sole proprietary concern –Dishonor of – “Payee” – Who is – Locus standi to file complaint – Principles reiterated – Person if sole proprietor – Proof of Appellant having failed to establish that he was proprietor of firm concerned, held, had no locus standi to file complaint under S. 138 – Corporate Laws – Sole proprietorship.
Held:
In a case of this nature, where the “payee” is a company or a sole proprietary concern, such issue cannot be adjudicated upon taking any guidance from Section 142 of the 1881 Act but the case shall be governed by the general law i.e. the Companies Act, 1956 or by civil law where an individual carries on business in the name or style other than his own name.

Revolution of Payment Systems in India
Digital Cash
A digital coin or digital cash consists of a message issued by a bank or other entity and encrypted by its Private Key. The message contains the serial number of the cash, the identity of the issuer and its Internet address, the amount of the cash and an expiry date. This serial number is unique to bank and can be decrypted by bank only this serial cannot be altered unless message is tweaked i.e. it is permanent in nature and once set cannot be changed. Main feature of digital cash is that 1) it is not traceable i.e. one cannot track the initial user or whom the money is been transferred.2) it is transnational it can be sent anywhere in world. Example- when Ganesh buy a book from online retailer and wants to make payment in digital cash then for given price digital-cash code that is associated with the requested digital-cash value i.e. book price generated from Ganesh bank who provides him digital cash service this code Is then communicated to online retailer ,the retailer will confirm the code from bank whether it is correct value and there is no multiple transaction and then enter the encrypted code with retailers bank account code to transfer money into retailers account.

Smart Card
A smart card is like an "electronic wallet". It is a standard credit card-sized plastic intelligent token within which a microchip has been embedded within its body and which makes it smart. Amongst other things, the card can be used to store money, or a value of money, including digital coins Example: Rajesh had gone out of station at his cousin marriage for 5 days to Delhi. He had gone out for shopping in a mall. He purchase clothes, shoes and perfume for his cousin marriage. He saw that cash he was carrying in his wallet was not enough to pay the bill. So he thought rather of withdrawing cash from A.T.M he would pay directly by using his credit card. This will save his time and easy to do the transaction.

Electronic fund transfer
Electronic Funds Transfer (EFT) is the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems. The primary modes of funds transfer at present are demand draft, mail transfer and telegraphic transfer. The time taken by these modes of transfer for transferring the money from sender to beneficiary is around 8 to 10 days. In the case of Electronic fund transfer, fund reaches the beneficiary either on the same day or the next day. For e.g.: Suppose there are two parties party A and party B entered into to a contract. If party A wants to make payment to party B through Electronic Funds Transfer then party A will approach his bank to make the payment to party B. Party A will give all the details of party A and party B required for making a Electronic Fund Transfer to his bank and then the bank of party A will make the payment to the bank of party B. The bank of party B then will make the payment to party B.

Digital Cheque
Digital cheque is a form of payment used in Ecommerce. A digital cheque functions in the same way as a paper cheque. It acts as a message to a bank to transfer funds to a third party; however, it has a number of security advantages over conventional cheques since the account number can be encrypted, a digital signature can be employed, and digital certificates can be used to validate the payer, the payer 's bank, and the account.

There are two types of digital cheques:

Electronic cheque: Electronic cheque is issued electronically and no paper is involved. The electronic cheques are issued in electronic form with digital signatures / biometric signatures /encrypted data.

Truncated cheque: In cheque truncation, at some point in the flow of the cheque, the physical cheque is replaced with an electronic image of the cheque and that image moves further. The processing is done on the basis of this truncated cheque and physical cheque is stored.
For example, a company that is depending on the received cheque clearing in time to use the funds to manage an employee payroll will appreciate the speed that the electronic cheque deposit method provides in comparison to waiting several days for paper cheque to clear.

Kiosk Banking
Kiosks are aesthetically and ergonomically designed cabins containing computers. They are used for advertising, promotion and information purposes by equipping them with necessary security conditions. Kiosks can be used for viewing or doing banking transactions.

MacID
MacID is the unique id that is given to the each system used by a KIOSK operator. We can find our MacID by typing the command "ipconfig /all" in the command prompt. It is shown as Physical Address in the result.

RTGS System
The acronym 'RTGS ' stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting). 'Real Time ' means the processing of instructions at the time they are received rather than at some later time.’ Gross Settlement ' means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.

Difference between National Electronics Funds Transfer System (NEFT) & RTGS
NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. These transactions are netted (payable and receivables) in NEFT whereas in RTGS the transactions are settled individually. For example, currently, NEFT operates in hourly batches - there are eleven settlements from 9 am to 7 pm on week days and five settlements from 9 am to 1 pm on Saturdays. Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.

The minimum / maximum amount stipulation for RTGS transactions
The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is Rs. 2 lacs. There is no upper ceiling for RTGS transactions.
Comparison between India & Australia
Sr. No
Points
India
Australia
1
Governing act
Negotiable Instruments Act, 1881.
Controlled by Indian Govt.
1. Bills of Exchange Act 1909
Promissory notes.
Cheques before 7th July 1987.
2. Cheques Act 1986.
3. Controlled by ‘Australian Securities and Investments Commission (ASIC)’

2
Contents
1. Bills of Exchange
2. Promissory Notes
3. Cheques
1. Bills of exchange
2. Promissory notes
3. Cheques
4. Treasury notes
5. Certificate of Deposits

3
Objectives of governing act
1. Understand meaning, essential characteristics and types of negotiable instruments
2. Describe the meaning and marketing of cheques, crossing of cheques and cancellation of crossing of a cheque
3. Explain capacity and liability parties to a negotiable instruments
4. Understand various provisions of negotiable instrument Act, 1881 regarding negotiation, assignment, endorsement, acceptance, etc. of negotiable instruments
1. Provide uniformity of law in Australia in relation to bills of exchange and promissory notes.
2. Provide legal certainty by confirming the nature of bills of exchange and promissory notes as negotiable instruments.
3. Promote efficiency in the marketplace that utilizes bills of exchange and promissory notes through the concept of negotiability

Statistical Data on Negotiable Instruments Act
INSTITUTION, DISPOSAL AND PENDENCY OF NIA CASES IN THE SUPREMECOURT
Year
Institution
Disposal
Pendency
2013
8096
8202
19831
2012
7700
7072
18972
2011
7761
7750
16943

INSTITUTION, DISPOSAL AND PENDENCY OF NIA CASES IN 2013 IN FOUR HIGH COURTS
HIGH COURT
Institution
Disposal
Pendency
BOMBAY
10670
12139
34616
DELHI
1988
2372
6415
MADRAS
20819
17724
54126
CALCUTTA
7189
6514
30591

Case Studies - 1
Case Study: Samikannu Naicker vs. Sigamani on 22 February, 2002
In this case the promissory note is the defendant’s signature, but the rest were filled up by somebody else. In this connection only, the learned advocate for the plaintiff relied upon Section 20 of the Negotiable Instruments Act, which reads as follows:- "Inchoate stamped instruments: Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in the States, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same to any holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid there under."
The suit is filed by the plaintiff for recovery of the amount due under a promissory note. The defendant admitted the execution of the promissory note, but denied the consideration, stated in the promissory note. As against a sum of Rs.15, 000 being the consideration stated in the promissory note, the defendant admitted the receipt of only Rs.5, 000 and pleaded failure of consideration to the extent of Rs.10, 000. But, the plaintiff 's suit was decreed. On appeal, the lower appellate court modified the decree. In the said case, the provisions of Section 92 of the Evidence act and the presumption that could be drawn under Section
In our case, I would be able to point out that Section 20 of the Negotiable Instruments Act was not brought to the notice either before the trial court or before the lower appellate court, which resulted in the dismissal of the suit by the trial court and affirmed by the lower appellate court. A fair and careful reading of Section 20 of the Negotiable Instruments Act would make it very clear that when the defendant signs and delivers to another a paper stamped in accordance with the law, relating to negotiable instruments, the holder of the inchoate stamped instrument is entitled to fill up the blanks and to negotiate the instrument. The instrument may be wholly blank or incomplete in particular and in either case the holder has the authority to make or complete the instrument as a negotiable one. In our case, it is the case of the defendant that he has signed only in a blank stamped paper and the rest of the writings were filled up by somebody else and the suit promissory note is a created one and it is not his case that the signature
In our case, the defendant admitted the signature in the suit promissory note and what he would state is that the rest of the contents in the suit promissory note were not there at the time when he signed in the stamped paper and the writings were subsequently filled up. We have already seen Section 20 of the Negotiable Instruments Act, which empowers the 'holder in due course ' to fill up the blanks and to negotiate the instrument. As such, the promissory note given by the defendant is admitted and the burden shifts upon the defendant that the writings in the promissory note were subsequently filled up and he has not borrowed the amount under the promissory note, which the defendant has not proved in this case. Presumptions with regard to the negotiable instruments as stated under Section 118 of the Negotiable Instruments Act are also in favor of the plaintiff. As the defendant is not able to prove the contrary versions with regard to consideration, the case has gone in favor of the plaintiff.
Source- Madras High Court cases (www.indiankanoon.com)
Author/Bench- K. Gnanaprakasam

Case Study - 2
S. Gopal Vs. D. Balachandran on 22nd. January 2008
Petitioner: S. Gopal
Respondent: D. Balachandran
The petitioner is accused in the case for u/s 138 of the N.I. Act on the file of the learned judicial magistrate I, erode, he filled the petition under section 145 of the evidence act to send the disputed cheque for comparison by an expert to determine the date of the ink of the signature found in the disputed cheque marked as Ex. P1 before the trial court. It is his contention that the signature found in Ex. P1 has been put in a different ink from that of the other particulars filled in the cheque. It is his further contention that he issued blank cheques and pro notes with his sign there in. but, the same has been filled and misused by the respondent. Therefore the petitioner has prayed for sending the disputed cheque, Ex. P1 to the forensic laboratory in Hyderabad to determine the age of the ink of the sign of the petitioner. The trial court has rejected such a plea on the grounds that:-
There is no necessity to send the disputed cheque for experts opinion as the sign found there in had been categorically admitted by the petitioner.
Inchoate stamped instruments- where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments than in force in India, and either wholly blank or having written there on and incomplete negotiable instruments, he thereby gives prima facie authority to the holder thereof to make or complete or make, as the case maybe, upon it a negotiable instrument, for any amongst any specified there in and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount: provided that no person other than the holder in due course shall recover from the person delivering the instrument anything in access of the amount intended by him to be paid there under then a bare reading of sec 20 of the N.I. Act would go to show that it would apply to only a stamped instrument.

Case Study – 3
Mohammad Azharuddin Case:
Azharuddin was accused of not being able to honor a cheque he had given to Sanjay Solanki, a Delhi-based businessman, who was supposed to buy a property in Mumbai belonging to the former cricketer.
According to the complaint against Mohammad Azharuddin, he wanted to sell his Mumbai-based property worth around Rs 4.5 crore, jointly owned by him and his estranged wife Sangeeta Bijlani. The complainant Sanjay Solanki, a Delhi-based businessman, approached Azharuddin to purchase the property and the deal was finalized after which Solanki paid Rs 1.5 crore in advance to Azharuddin.
During that time, due to some marital dispute, Azharuddin refused to sell the property and agreed to pay the money back to Solanki as per the agreement. The former captain issued a cheque of Rs 1.5 crore to Solanki in 2008 but it was dishonored by the bank, the complainant said. After Azharuddin’s cheques were dishonored again twice, once in 2009 and later in 2010, Solanki approached a court with a complaint against Azharuddin.
After 2 years of court case, on 7th March 2012 former India cricket captain Mohammad Azharuddin was directed to pay a fine of Rs.15 lakh by a Delhi court for wasting its time in a cheque bounce case.
The order was handed down to Azharuddin after he told the court of metropolitan magistrate Vikrant Vaid that he had settled the matter with the complainant. The court was unhappy with Azharuddin for ignoring several non-bailable warrants issued against him for his failure to appear in court on a number of occasions, though his counsel had sought an exemption since the MP was busy campaigning in the Uttar Pradesh polls.
Solanki 's counsel had then told the court that out of the 26 dates that was set for hearing in the case, Azharuddin had appeared only on three occasions.

CONCLUSION
Globally, there are many options to dematerialize these financial instruments, but a very few can provide guaranteed security to the user’s information and money. In order to maintain the security level & to save the time; Government needs to use more resources, do research about the latest facilities, test them, regularize it & spread awareness about these facilities.

BIBLIOGRAPHY: http://archive.indianexpress.com/news/azharrudin-issued-nbw-in-rs-4.5-cr-cheque-bounce-case/918753/ http://www.hcmadras.tn.nic.in/jacademy/e%20journal/2011/eMay%202011.pdf http://www.ddegjust.ac.in/studymaterial/mcom/mc-207-f.pdf http://www.indiankanoon.org/docfragment/1465663/?formInput=S.%20Gopal%20Vs.%20D.%20Balachandran http://supremecourtofindia.nic.in/

Bibliography: x. Stamping of Bills of Exchange and Promissory Notes is mandatory This is required as per the Indian Stamp Act, 1899