Negotiable Instruments

Evolution and Revolution of Negotiable Instruments as facilitator for Trade and Commerce and 10 years Taking forward
MET’S BKC
Institute Of Management
MBA IST Year
Div- B

Group members:- Roll No.
1. Khushboo Lalwani 22
2. Yogesh Mali 24
3. Murtaza Raj 26
4. Snehal Nikam 28
5. Adhikar Patil 30
6. Atul Patil 32
7. Poonam Shinde 36
8. Ritu Singh 38
9. Salar Shaikh 40

Index
1. Introduction
2. History
3. Characteristics of Negotiable Instruments
4. Presumptions of Negotiable Instruments
5. Promissory Notes 5.1. Characteristics of a Promissory Note
5.2. Specimen of Promissory Note
6. Bill of Exchange 6.1. Definition of Bill of Exchange 6.2. Characteristics of Bill of Exchange
6.3. Specimen of A Bill Of Exchange
7. Cheque 7.1. Definition of Cheque 7.2. Essential Elements of a cheque 7.3. Specimen of a Cheque
7.4. Types of Cheque
7.5. Dishonor of Cheques
7.6. Five Ingredients of the offence
8. Difference between Promissory Note and Bill of Exchange
9. Difference between Bill of Exchange and Cheque
10. Hundis
11. Types of Hundis
12. JVC Case study.
8. Summary
9. Bibliography.

Introduction
Money is the most common medium of exchange in any advanced society. The reason for this is that money has the exchange value and is also freely transferable. In trade and commerce, the use of ready cash is desirable, because of its acceptability, but it may cause inconvenience and risk. In the modern age, business tran sactions do not take place only through ready cash or currency notes. It is neither possible nor desirable to do all business transactions through ready cash as it is inconvenient and risky mode of dealings. The need for some safe and effective substitute for money leads to the development of the use of negotiable instruments and therefore, the use of negotiable instruments has become the order of the day in business transactions.
Credit instruments used in business consist of :-
1. Negotiable Instrument :- The word negotiable means “ transferable from one person to another in return for consideration” and Instrument means “ a written document by which a right is created in favour of some person”. Thus, a negotiable instrument is a document which can be used to secure the payment of money. It is transferable by mere delivery or by endorsement and delivery. Delivery means to handover the documents. Endorsement means to sign the document for the purpose of negotiation.
For example :- bill of exchange , promissory note, cheque.
2. Non Negotiable Instrument:- In the case of Non Negotiable Instruments, negotiability is restricted. The ownership of this instrument can be transferred only after fulfilling certain legal conditions.
For example :- Share warrant, postal orders, letters of credit, bill of lading, etc.
Meaning :-
The word negotiable means ‘transferable by delivery’, and the word instrument means ‘a written document by which a right is created in favour of some person’. Thus the term ‘Negotiable Instrument” means “a written document transferable by delivery”.
Definition:-
According to section 13(1) of the negotiable instrument act, “ A negotiable instrument means a promissory note, bill of exchange, or cheque payable either to order or to bearer”. “ A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some several payees”[ Section13(2) ].

History

The history of the present Act is a long one. The Act was originally drafted in 1866 by the 3rd India Law Commission and introduced in December, 1867 in the Council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English Law which it contained. The Bill had to be redrafted in 1877. After the lapse of a sufficient period for criticism by the Local Governments, the High Courts and the chambers of commerce, the Bill was revised by a Select Committee. In spite of this Bill could not reach the final stage. In 1880 by the Order of the Secretary of State, the Bill had to be referred to a new Law Commission. On the recommendation of the new Law Commission the Bill was re-drafted and again it was sent to a Select Committee which adopted most of the additions recommended by the new Law Commission. The draft thus prepared for the fourth time was introduced in the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881 (Act No.26 of 1881)[1]
The most important class of Credit Instruments that evolved in India were termed Hundi. Their use was most widespread in the twelfth century, and has continued till today. In a sense, they represent the oldest surviving form of credit instrument. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In Modern era Hundi served as Travellers Cheques.[2]
According to Section of the Negotiable Instruments Act means "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. '[3] But in Section 1, it is also described that Local extent, Saving of usage relating to hundis, etc., Commencement. -It extends to the whole of India but nothing herein contained affects the Indian Paper Currency Act, 1871, Section 2, or affects any local usage relating to any instrument in an oriental language. Provided that such usages may be excluded by any words in the body of the instrument, which indicate and intention that the legal relations of the parties thereto shall be governed by this Act; and it shall come into force on the first day of March, 1882.[3]
Main Types of Negotiable Instruments are:
1. Inland Instruments
2. Foreign Instruments
3. Bank Draft[4][5]

Characteristics of Negotiable Instruments:-

1. Writing and signature : Negotiable instruments must be written and signed by the parties according to the rules relating to promissory notes, bills of exchange , and cheques. Demand drafts are also construed as negotiable instruments in the limiting case as they have the same property as negotiable instruments.
2. Money : Negotiable instruments are payable by legal tender money of India. The liabilities of the parties of negotiable instruments are fixed and determined in terms of legal tender money.
3. Freely Transferable : The property in a negotiable instruments is freely transferable. They can be transferred from one person to another by a simple process. In the case of order instruments , two things are required for a valid transfer-endorsement (i.e., signature of the holder) and delivery. In case of bearer instruments, it is transferable by using suitable words, e.g., “Pay to X only”.
4. Title of Holder Free from all Defects: A person taking an instrument ‘bona fide’ and ‘for value’ or the transferee of a Negotiable Instruments, when he fulfills certain Conditions, known as a holder in due course , gets the instrument free from all defects in the title of the transferor. The holder in due course gets a good title of the instrument even in cases where the title of the transferor is defective . He is not in any way affected by any defect in the title of the transferor or of any prior party.

Section 118 - Presumptions as to Negotiable Instruments
Until the contrary is proved, the following presumptions shall be made:
(a) Of consideration. - that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;

(b) As to date. - that every negotiable instrument bearing a date was made or drawn on such date;

(c) As to time of acceptance. - that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;

(d) As to time of transfer. - that every transfer of a negotiable instrument was made before its maturity;

(e) As to order of indorsements. - that the indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;

(f) As to stamp. - that a lost promissory note, bill of exchange or cheque was duly stamped;

(g) That holder is a holder in due course. - that the holder of a negotiable instrument is a holder in due course;
Provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.

Definition of Promissory Notes [Section 4]
A “promissory note” is an instrument in writing(not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.
The person who makes the promissory note an promises to pay is called the maker. The person whom the payment is to be made is called the payees.
FOR EXAMPLE:-
A sings instrument in the following terms:
1)”I promise to pay B or order Rs.500.”
2)”I acknowledge myself to be indebted to B in Rs.1000 to be paid on demand for value received.”
3)”Mr. B I owe you ( I O U) Rs.1000.”
4)”I promise to pay B Rs.500 and all other sum that shall be due to him.”
5)”I promise to pay B Rs.500, first deducting there out any money which he may owe me.”
6)”I promise to pay B Rs.500, seven days after my marriage with c.”
7)”I promise to pay B Rs.500, and D’s death, provided D leave me enough to pay that sum.”
8)”I promise to pay B Rs.500, and to deliver to him my black horse on 1th January next.”

The instruments respectively numbered as (1) and (2) are promissory notes. The instruments numbered (3),(4),(5),(6),(7)and (8) are not promissory notes.

Characteristics of a Promissory Note
The characteristics of a promissory note are as follows:
1. It is an instrument in writing: A mare verbal promise to pay is not a promissory note. The promise should be in writing. The writing may be in ink or pencil, or printing, engraving, or litho-graphing. It may be any form, it will be a promissory note so long as it satisfy the other requirement of Section 4 In other words, an oral promise does not make a promissory note since it is note an instrument.
2. It is a promise to pay:- There must be an express undertaking or promise to pay. A mere acknowledgement of indebtedness or implied undertaking by the use of the word ‘debt’ or ‘pro-note’ is not sufficient an it does not constitute a promissory note.
3. Signed by the Maker:- The instrument must be signed by the maker, otherwise it is incomplete and of no effect. Even if it is written by the maker himself and his name appears in the body of the instrument, his signature must be there. Signature means the writing of a person’s name in order to authenticate and give effect to the contract contained in the instrument. It is, at the same time, essential that a mind of signals must accompany the signature.
4. 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. Even in such a case, omission of date does not invalidate the instrument if the date of execution can be independently ascertained and proved. The words “value received” is also unnecessary. But a promissory note must be properly stamped as required By the Indian stamps Act. Each stamp must also be properly cancelled.
7. Maker must be a Certain Person:- The instrument itself must indicate with certainty who is the person or are the persons engaging him or themselves to pay. 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. Where there are two or more makers, they may bind themselves jointly and severally.
8. Payee must be Certain:- Like the maker, the payee of promissory note must also be certain on the face of the instrument. A note is valid even if the payee is misnamed or indicated by his official designation only (Section 5) provided he can be ascertained by evidence, It may be made payable to two or more payees jointly or it may be made payable in the alternative to one of two, or one or some of several payees. Thus, alternatives payees are permissible in law. But it must be made payable to order originally.
9. Sum payable must be Certain:- For a valid promissory note it is also essential that the sum of money promised to be payable must be certain and definite. The amount payable must not be capable of contingent additions or subtractions.
10. It may be Payable on Demand or After a Definite period of Time:- The expression ‘on demand’ means payable immediately or forthwith.
11. It cannot be Made Payable to Bearer on Demand:- The Reserve Bank of India Act, 1934 prohibits issue of such promissory notes excepted by the Reserve Bank of India itself or the Central Government

Specimen of Promissory Note

Rs. 10,000 New Delhi- 110016 Oct. 10, 2006

Six months after date I promise to pay ‘X’ or order the sum of Rupees of Ten Thousands only for value received.

To X
Address ____________________ ____________________

Bill Of Exchange
Definition of Bill of Exchange Section 5
“An instrument ’ in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of , a certain person, or to the bearer of the instrument.”
In England, a bill of exchange is defined under Section 3(1) of the Bill of Exchange Act as “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 terminable future time a sum certain in money or to the order of a specified person, or to the bearer.”
Characteristics of a Bill of Exchange :-
Both the aforesaid definitions point out that a bill of exchange should have the following characteristics features –
1. It must be in writing.
2. It must contain an order to pay and not a promise or order. Words, like ‘Please pay Rs. 10,000 to A on demand and oblige, do not constitute the instrument a bill of exchange.
3. The order must be unconditional.
4. There must be three parties, viz., drawer, drawee and payee. However, one person may assume the role of two parties, e.g., a person may drawer bill of exchange in his own favour , i.e., he may be a drawer or as well as a payee. He cannot, however, be a drawer as well as a drawee because that will render the instrument a promissory note.
5. The parties must be certain.
6. It must be signed by the drawer.
7. The sum payable must be certain or capable of being made certain.
8. The order must be to pay money and money alone.
9. It must be duly stamped as per the Indian Stamp Act. Accordingly, all bills of exchange other than ‘demand bills’ must bear the adhesive stamps of the requisite amount and the same must been affixed either before or at the time of execution and also cancelled.
10. Number, date and place are not essential. Oral evidence may be obtained as to date and place of execution.
Specimen of A Bill Of Exchange

Specimen of a Bill Of Exchange

Rs. 10,000 New Delhi- 110016 Oct. 10, 2006

Six months after date I pay ‘A’ or order the sum of Rupees of Ten Thousands only for value received.

To X
Address ____________________ ____________________

Definition of Cheque(Section 6)
Section 6 of the Negotiable Instruments Act, 1881 defines a cheque as “ a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. A cheque is also, therefore, a bill of exchange with two additional qualification:
1 It is always drawn on a specified banker
2 It is always payable on demand
All cheques are bills of exchange but bills are not cheques. A cheque must have all the requisites of a bill of exchange. It must be signed by the drawer. It must contain an unconditional order on a specified banker to pay a certain sum of money to or to the order of a specified person or the bearer of the cheque. But it does not require acceptance as it is intended for immediate payment.

Essential Elements of a cheque
The essential elements of a cheque are as follows
1 In writing: it must be in writing
2 Epress Order to Pay: There must be an express order to pay and not request to pay.
3 Definite and Unconditional Order: The order must be definite and unconditional.
4 Signed by the Drawer: It must be signed by the drawer.
5 Order to Pay Certain Sum: The order must be pay to a certain sum.
6 Order to Pay Money Only: The order must be to pay money only.
7 Certain Three Parties: The three parties (i.e., drawer, drawee and payee)must be certain and must be mentioned in the instrument.
8 Drawn upon a Specified Banker: It must always be drawn on a specified banker.
9 Payable on Demand: It must always be payable on demand.
Parties to a Cheque
The parties of a cheque are as follows:
1 Drawer: Drawer is the person who draws the cheque, i.e the depositer of money in the bank.
2 Drawee: Drawee is the drawer’s banker whom the cheque has been drawn.
3 Payee: Payee is the person who is entitled to receive the payment of a cheque.
Specimen of a Cheque

Types of Cheque
Broadly speaking, cheques are of four types.
a) Open cheque, and
b) Crossed cheque.
c) Bearer cheque
d) Order cheque

Types of Cheque
Let us know details about these cheques.
a) Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at the bank. The holder of an open cheque can do the following:
i. Receive its payment over the counter at the bank, ii. Deposit the cheque in his own account iii. Pass it to someone else by signing on the back of a cheque.
b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue such cheques. This risk can be avoided by issuing other types of cheque called ‘Crossed cheque’. The payment of such cheque is not made over the counter at the bank. It is only credited to the bank account of the payee. A cheque can be crossed by drawing two transverse parallel lines across the cheque, with or without the writing ‘Account payee’ or ‘Not Negotiable’.
c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere delivery and requires no endorsement.
d) Order cheque: An order cheque is one which is payable to a particular person. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.

There is another categorization of cheques which is discussed below:
Anti-dated cheques:- Cheque in which the drawer mentions the date earlier to the date of presenting if for payment. For example, a cheque issued on 20th May 2003 may bear a date 5th May 2003.
Stale Cheque:- A cheque which is issued today must be presented before at bank for payment within a stipulated period. After expiry of that period, no payment will be made and it is then called ‘stale cheque’. Find out from your nearest bank about the validity period of a cheque.
Mutilated Cheque:- In case a cheque is torn into two or more pieces and presented for payment, such a cheque is called a mutilated cheque. The bank will not make payment against such a cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make payment against such a cheque.
Post-dated Cheque:- Cheque on which drawer mentions a date which is subsequent to the date on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th May 2003 bears a date of 25th May 2003, it is a post-dated cheque. The bank will make payment only on or after 25th May 2003.

Dishonor of Cheques
Provided that nothing contained in this section shall apply unless-
(a) The cheque has been presented to the bank within a period of three months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) The payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) The drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within 15 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.

Another very important section is presumptions as to Negotiable Instruments under Section 118 of the Act.
Five Ingredients of the offence under Section 138
It is manifest that to constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled:-
1. A person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account
2. The cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;
3. That cheque has been presented to bank within a period of three months from the date on which it is drawn or within the period of its validity whichever is earlier;
4. That cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the 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 the bank;
5. The payee or the holder in due course of the cheque 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 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
6. The drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;

Difference between Promissory Note and Bill of Exchange

Promissory Note
Bill of Exchange
1. There are only two parties- the maker (debtor) and the payee (creditor)

2. A note contains an unconditional promise by the maker to pay the payee.

3. No prior acceptance is needed

4. The liability of the maker or drawer is primary and absolute.

5. No notice of dis-honor need to be given.

6. The maker of the note stands in immediate relation with the payee.
1. There are three parties- The drawer, the drawee and the payee- although any two of these capacities may be filled by one and the same person.

2. It contains an unconditional order to the drawee to pay according to the drawer’s directions.

3. A bill payable ‘after sight’ must be accepted by the drawee or his agent before it is presented for payment.

4. The liability of the drawer is secondary and conditional upon non-payment by the drawee.

5. Notice of dis-honor must be given by the holder to the drawee and the intermediate endorsers to hold them liable thereon.

6. The maker or drawer does not stand in immediate relation with the acceptor or drawee.

Difference between Bill of Exchange and Cheque

Cheque
Bill of Exchange
1. It must be drawn only on a banker.

2. The amount is always payable on demand.

3. The cheque is not entitled to days of grace.

4. Acceptance is not needed.

5. A cheque can be crossed.

6. Notice of dishonor is not necessary. The parties thereon remain liable, even if no notice of dishonor is given.

7. A cheque is not to be noted or protested in case of dishonor.

8. The protection given to the paying banker in respect of crossed cheques is peculiar top this instrument.
1. It can be drawn on any person including a banker.

2. The amount may be payable on demand or after a specified time.

3. A usance (time) bill is entitled to three days of grace.

4. A bill payable after sight must be accepted.

5. Crossing of a bill of exchange is not possible.

6. Notice of dishonor is necessary to hold the parties liable thereon. A party who does not receive a notice of dishonor can generally escape its liability thereon.

7. A bill is noted or protested to establish dishonor.

8. No such protection is available in the case of bills.

Hundis
Introduction : Hundis are instruments written in an oriental language. The word “Hundi” appears to have been derived from the Sanskrit work ‘Hund’ which means to ‘collect’. These hundis were therefore originally used for the collection of debts even now they are normally employed for the same purpose. Hundis are some time drawn in the form a promissory note but more offen they take the form of a bill of exchange.
Hundis have been a circulation in India from very early times, long before the Negotiable Instruments Act, 1881. The Negotiable Instruments Act does not apply to Hundis, but where, by any words in the Instruments itself, the usages regarding such instruments are excluded, or where it is expressly Indicated that the legal relations of the parties thereto shall be governed by the Negotiable Instruments Act 1881, the act becomes applicable. In the absence of any of the above indications, Hundis shall be governed by local usages applying to such documents.

Types of Hundis
There are several varieties of Hundis current in the country. Some of the Hundies are discussed as follows:-
1. Shah-Jog Hundis :- A shah- jog hundi is drawn by one merchant on another asking the letter to pay the said Hundi ‘Shah’. ‘Shah’ is a respectable and responsible person, a man of worth and known in the Bazar. A Shah – Jog Hundi is payable to or through a Shah and , therefore , he incures the responsibility of compensating the amount in case he or the party for whom he claims became the holder of the Hundis through offence or fraud. These incase a shah- jog Hundi turns out to be false, stolen or forged one, the Shah is bound to refund the amount of the Hundi with Interest.
A Shah- Jog Hundi is not a Bill of Exchange under the definition of the Negotiable Instruments Act 1881. But all the sum of Shah – Jog Hundi is a Negotiable Instruments independently of the provisions of the Negotiable Instruments Act.
A Shah – Jog Hundi is neither payable to bearer nor to order but to respectable holder according to the practice in collection with Hundis. The drawee cannot escape liabilities even on payament unless he can show that the payment was made to a Shah. The words Shah - Jog Hundi, therefore, lend to be additional cedit and make it of the nature of a cheque generally crossed.
2. Darshni Hundi :- Darshni Hundi is a Hundi payable at sight. Darshni Hundis sometimes sell at discount and sometimes they command a premium. A Darshni Hundi must be presented for payment within a responsible time after its receipt by the holder. If there is any loss caused to the drawer by daily in presentment, it falls on the party at fault and not on the drawer.
3. Muddati Hundi or Miadi Hundi :- a Muddati or Miadi hundi is payable after a specified period of time. These hundis may be either Shah- Jog or Nam-jog or Dhami- Jog Hundis.
4. Nam – Jog Hundi :- A Hundi payable to the specie]d person is called Nam- Jog Hundi. In form, it is similar to the Shah-Jog Hundi except that in a place of the word Shah the name of the payee is inserted. The Nam – Jog Hundi is payable to the payee or his order, therefore can be negotiated by endorsement and delivery.
5. Nishan – Jog Hundi :- A Nishan – Jog Hundi is payable only to the persons to present it. The word Nishan – Jog is inserted in the Hundi.
6. Dhani – Jog Hundi :- Dhani means ‘owner’. A Dhani – Jog Hundi is payable to a Dhani, owner. The words Dhani – Jog are inserted in the Hundi. It is, in fact, a Negotiable Instrument payable to bearer, the amount being payable to the owner, holder or bearer thereof.
7. Firman – Jog and Dekhanhar Hundis:- Hundis payable to order are called Firman - Jog Hundis and those payable to bearer are called as Dekhanhar Hundis.
8. Jawabee Hundi :- Jawabee Hundi is a means of remittance of a money from one place to another via a banker. The nature of the transaction involved in this type is as follows :- A person desires of making a remittance writes to the payee and delivers the letter to a banker. The banker either endorses the same to any of his correspondence near the payee’s place of residence or negotiates its transfer. On the arrival, the letter is forwarded to the payee who attends and gives his receipt in the form of an answer to the letter, which is forwarded by the same channel to the drawer of the order
Jokhami Hundi :- A Jokhami hundi is in the nature of a policy of insurance, says Justie Baley in Raisey Amerchad v. Jusraj Vizpal, 1871, with the difference that the money is paid beforehand to be recovered if the slip is not lost. In a Jokhami Hundi, there are 3 Parties – 1. The Drawer or Shipper of the goods, 2. The Hundiwala, i.e., the underwriter, and 3. The Malwala, the Consignee. The Hundi is drawn by the Consigner on the Consignee and negotiated with the insurance premium. In case the goods arrive safely the underwriter obtains therm to there value as stated in the hundi. The Hundiwala i.e., The underwriter has no right to sue the consignee in case of non-payment or non- acceptance. He can recover only from the Consignee. In case the goods are lost totally, he cannot claim payment. But in case of a partial loss or damage, the hundiwala is entitled to full payment. If the loss is a general average loss, then a rebate is made to the extent of the loss.

Case studies
THE JVG SCANDAL
JVG 's troubles started in June 1997, after the Securities and Exchange Board of India (SEBI) asked JVG Finance to refund the Rs 45 crore it had raised from a public issue in March 1997. A day after the issue had opened, RBI issued a show-cause notice asking why JVG Finance should not be barred from accepting deposits as the group companies had already exceeded their deposit limits. By the time RBI conditionally cleared the issue after assurances from Sharma, the 70-day stipulated period for listing the shares had passed. Because of the time-lapse, SEBI intervened and ordered the refund of the public 's money according to the allotment rules. Sharma refused to refund the money to the investors and appealed against the order to the Finance ministry.
He admitted that JVG had exceeded its limits while accepting deposits but claimed that since December 1996 (much before the RBI ban) it had stopped accepting deposits on its own and had even given RBI an undertaking. RBI did not accept the argument and barred the group from accepting any more public deposits. In September 1997, post-dated cheques issued for principal as well as interest on JVG 's deposits bounced. Investors then complained to the civil courts, consumer courts, Company Law Board and criminal courts under the Negotiable Instruments Act upon which legal proceedings were initiated against the group. The government received a large number of complaints on non-repayment of deposits on maturity by the JVG group.
On a complaint filed by the RBI, the Delhi High Court ordered the winding up of the company. The court also appointed an official liquidator and said that the RBI did not consider the revival scheme filed by the company viable. The RBI also filed criminal prosecution petitions in the Metropolitan Magistrates ' Courts in New Delhi.
RBI alleged that the company had accepted deposits worth Rs 88.82 crore which was 756.68% of its net owned fund. This was much higher than the permissible limit of 25% [1]. Similarly, JVG Leasing had received deposits worth Rs 19.28 crore which was 147.58% of its net owned fund. The RBI complaint also said that the deposit forms issued by the JVG Group did not contain any information regarding premature withdrawals, which was necessary as per RBI provisions. The companies had not provided any information about the rate of interest to the investors on the receipts issued to them. Further, the companies failed to submit their audited balance sheets for the period ending March 31, 1994 and 1995 15 days after their annual general meeting (AGM) and did not inform the RBI about the changes in the composition of the board of directors.

RBI 's petition also stated that the company had not maintained liquid assets as required by section 45IB of the RBI Act, 1934. RBI further contended that JVG Securities accepted public deposits through JVG Leasing Ltd. and had illegally credited it to the account of JVG Finance Ltd. Thus, JVG Securities facilitated collection of further deposits by JVG Finance Ltd., a company which had already accepted public deposits beyond the permissible limit in spite of the warning from RBI not to accept any further deposits.

Bibliography
1. Business Law Including Company Law (Author – S.S. Gulshan and G.K. Kapoor.
2. Legal Aspects of Business Law (Thakur Publishers)
3. Google.com
4.

Bibliography: 1. Business Law Including Company Law (Author – S.S. Gulshan and G.K. Kapoor. 2. Legal Aspects of Business Law (Thakur Publishers) 3. Google.com 4.