The Negotiable Instrument Act, passed in India in 1881, defines check, promissory note, and bill of exchange. It regulates monetary transactions and defines responsibilities of parties. Amendments in 1988 and 2002 added penalties for bad checks and electronic checks, respectively. The act also covers liability, acceptance, maturity, and loss of negotiable instruments. Counterfeiting and its effects are also considered.
The Negotiable Instrument Act is an act of specific financial definitions which was passed in India in 1881. It mainly differs with the three types of negotiable instruments: check, promissory note and promissory note. It is the basis and reference for both civil and criminal law with respect to the obligations of all parties to an implied or actual contract for the exchange of monetary consideration for goods and/or services. Passed when India was a colony of the British monarchy, the act took nearly two decades of legal fees to finally become an approved bill and work its way into common law.
In 1988, all party responsibilities were added in an amendment to The Negotiable Instrument Act to cover penalties for bad checks, and it leaned heavily in favor of the check holder. In 2002, the Negotiable Instruments Act was again amended to include not only definitions for the acceptance of electronic checks and truncated electronic checks, but also to fill some gaps. The holder of a bad check had been left with no other collection option but to file an appeal in civil court, which is a lengthy process, but the 2002 amendment moved the appeal to the criminal courts. The introduction of check penalties of up to two years’ imprisonment, a fine of twice the amount of the check, or both have resulted in a marked decline in the need to enforce the law.
The Negotiable Instrument Act regulates transactions that affect the lives of people and businesses around the world whenever they engage in any type of monetary transaction that has to do with issuing and accepting checks. Defines that a check is a type of bill. Checks under this act also have free transferability and carry title to the transferee, and the bearer has certain presumptions that a suit can be brought if the check is dishonored, except when the check was obtained from the rightful owner by means of any type of crime or fraud. The law also defines the responsibilities and obligations of the issuing bank.
A bill of exchange is also defined within the Negotiable Instrument Act, as is how it is differentiated from a bill of exchange. The essential difference is that a bill of exchange is a promise to pay rather than a demand for payment. Further definitions are the liability capabilities of the negotiable instrument, the essentials of a valid acceptance, how to calculate maturity, and what to do if the negotiable instrument is lost. The effects of counterfeiting and the extinction of liability for counterfeit instruments are also contemplated. As a holder, negotiable instruments are a method by which payment is made and any commercial obligation is fulfilled.
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