Report No. 11
The Negotiable Instruments Act, 1881
1. History of the Legislation.-
"Mercantile usage is the raw material, mercantile law is the manufactured article", said Sir McKenzie Chalmers1 while speaking about the state of the English law before the Bills of Exchange Act, 1882. This statement brings out clearly the process of evolution of mercantile law which includes the law of negotiable instruments. The mercantile community found in such instruments an easy mode of payment of money by the endorsement and delivery or by mere delivery of these instruments. With the expansion of trade and commerce, negotiable instruments have assumed international importance.
1. Introduction to the 1st Edn., of Chalmers' Negotiable Instruments Act, p. 9.
2. An attempt at the codification of mercantile usages was made in France as early as 1818 and the French Commercial Code was later adopted as a model by other countries on the Continent. In England, the movement for codification was not started till 1880 when Sir McKenzie Chalmers drafted a bill on the subject. This was enacted as the Bills of Exchange Act, 1882. In India, an effort in the same direction was made earlier, in 1867, when the (third) Indian Law Commission prepared a bill. But, for various reasons it was kept in cold storage for a number of years.
In 1879 Mr. Arthur Phillips, the then Law Secretary and a member of the Calcutta Bar, redrafted the bill. Criticisms were invited on it from banks, chambers of commerce and leading merchants. This bill, after passing through Select Committees more than once, was again referred to a new Law Commission in 1879. The recommendations of the Commission were considered by another Select Committee and eventually the bill, in a modified form, became the Negotiable Instruments Act, 1881.
3. The principal source for codification of this law both in England and in India was the English common law of contracts as modified by the law merchant. But, curiously, there has been a considerable divergence, whether intended or not, between the two Acts though the raw material for both was the same. The arrangement of the sections in the English Act is more logical and the principles enunciated therein are more comprehensive than in the Indian Act.