Report No. 11
9. Language should not exclude an instrument if it comes within the definition of the Act.-
We are, however, of the opinion that in cases of this kind, any usage contrary to the provisions of the Act should not be allowed to be established. There is no reason to exclude the applicability of any of the provisions of the Act to an instrument (in whatever language it may be written) which fulfils the requirements of one or other of the instruments dealt with under the Act. Thus, if a hundi, in spite of the name that is given to it in the document by the parties, comes within the definition of a promissory note, or a bill of exchange or a cheque, it should be governed by the provisions of the Act alone, notwithstanding any usage or custom applicable to it which may be at variance with such provisions.
To this extent, we think, indigenous instruments should be brought within the scope of this Act. With this end in view we have proposed a new provision1 in place of the existing saving clause in section 1. We would also like to point out that with the increasing emphasis on the use of Indian language a growing number of negotiable instruments will come to be made in these languages and it is necessary that these instruments should be brought within the ambit of the provisions of the Act: Many of the commercial bodies consulted by us have expressed agreement with our proposal.
1. Section 3 of App I.
10. Other hundis cannot be brought under the Act if abolished.-As regards hundis which do not conform to the definition of any of the negotiable instruments dealt with in the Act, a different problem arises.
It is clear that no provision of the Act as it stands can possibly be applied to such hundi1 and that they must be governed exclusively by usage unless, of course, the provisions of the Act are imported by the agreement of the parties themselves.
1. Champaklal v. Kehsrichand, (1925) 50 Bom 765 (781); Raja Komalsing v. Rambharosa, AIR 1943 Nag 99 (Shah Jog hundi).
11. It may be recalled that the framers of the Act, though they did not desire to abolish the local usages suddenly, cherished the desire that the introduction of the Act which imported the English law would facilitate the assimilation of the practice of the local merchants to that of the English merchants. When the Bill was before the Select Committee, the Chief Justice of Bengal and the Bank of Bengal urged that the provisions of the Act should be made applicable to hundis also in order to bring about uniformity in the law and to avoid uncertainty. The Government of the Punjab, however, was for the total exclusion of hundis from the Bill. A via media was adopted in the Act by providing that usages might be excluded by expressing in the instrument an intention to be governed by the provisions of the Act.
It was hoped that in course of time the mercantile community would realise the necessity of uniform rules governing all instruments and gradually choose to be governed by the provisions of the Act. In the words of the Select Committee of 1879 on the Negotiable Instruments Bill, "the effect of the Bill will be to induce the native mercantile community gradually to discard them for the corresponding rules contained in the Bill. The desirable uniformity of mercantile usage will thus be brought about without any risk of causing hardship to Native bankers and merchants. How long this change will take, it is of course impossible to prophesy". But though over three quarters of a century have passed the practice of the local mercantile community has belied the expectations of the Select Committee. The option contained in the saving clause does not appear to have been availed of and our businessmen still continue to stick to the bewildering usages governing these instruments.
12. In pursuance of a suggestion that the use of indigenous instruments should be discontinued altogether after the lapse of a specified period, we sought the views of representative commercial bodies once again on the specific question of omitting the saving clause as to local usage on the expiry of a specified period. If this suggestion had been accepted, it would have meant that after an appointed date only those instruments which conform to the requirements of the Negotiable Instruments Act,-irrespective of the language in which they are written,-would get the protection of the law and that no other instrument or any usages relating thereto would have any legal sanction.
The suggestion did not, however, find favour with the commercial bodies except in those parts of the country where mercantile transactions are rarely carried on through the medium of hundis or similar indigenous instruments having special incidents.
13. Having given our anxious consideration to the question, we are of the opinion that hundis and the shroffs who finance commercial transactions through hundis do a very useful service over the larger part of the country, particularly in the villages where the modern banking system has not so far been extended. Though it would have been a great advance towards securing uniformity of the law if all negotiable instruments could be brought under the codified law, we cannot afford to prevent the use of the hundis so long as we are not in a position to have an efficient Bank in each village. As things are, we cannot prevent the operation of the indigenous system without causing a serious dislocation of our trade and commerce.
14. The suggestion made by some of the Chambers, however, was that hundis should be allowed to retain their peculiar incidents according to usage and that those usages should be codified by us. It is, however, not easy to define a hundi or to discover its essential attributes. It would appear from the text-books1 and judicial decisions that no less than a dozen varieties of hundis are in vogue in this country. The usages differ so widely as between these species and from place to place that we can discover only a few characteristics or incidents which may be attributed to hundis in general; for instance-
(1) Hundis payable to a specified person or order are negotiable without endorsement by the payee;2
(2) a holder is entitled to sue on a hundi without an endorsement in his favour;
(3) a hundi accepted by the drawee could be negotiated without endorsement;3
(4) if a hundi is lost, the owner could claim a peth (duplicate) or parapeth (triplicate) from the drawer and present it to the drawee for payment;4
(5) interest above 6 per centum per annum can be charged where usage is established.5
(6) even though a hundi is silent as to payment of interest, the market rate of interest is payable, according to usage.6
1. Cf. Bhashyam & Adiga Negotiable Instruments Act, 10th Edn., pp. 18 et seq.; Singh Law of Mercantile Usages in India, 1939, pp. 131-141.
2. Rajroopram v. Buddo, (1863) I Ind Jur (OS) 93.
3. East India Bank v. Khojah Vullie, (1866) 1 Ind Jur (NS) 247.
4. Mulchand v. Suganchand, 1 Bom 23.
5. Komal Singh v. Rambharosa, AIR 1943 Nag 99.
6. Har Narain v. Bihari Lal, AIR 1932 Lah 582.
15. Apart from a few common features such as the above, each kind of hundi has its own peculiar characteristics and incidents. Though it is not necessary for our purpose to analyse these features exhaustively we shall refer to the characteristics of some of those types of hundis which cannot possibly claim to be one of the three instruments governed by the Act-only to demonstrate the impracticability of any attempt to codify the usages relating to them.
Thus, a Shah Jog hundi, a most commonly used form of hundi, has been held to be neither a bill of exchange nor a promissory note. It is not payable to a specified person or his order or to bearer. It is payable to a Shah, that is, a respectable person, a man of worth and substance known in the bazar though not specified in the instrument. The drawee, before making payment, has to satisfy himself that the person demanding payment is a 'Shah'.1 It is not usually presented for acceptance on the due date and may be accepted orally.
1. Champaklal v. Keshrichand, (1926) 50 Bom 765; Keshrichand v. Asharam, AIR 1916 Cal 888; Murli Dhar v. Hukam Chand, AIR 1932 Lah 312.
A Nam Jog hundi is payable to the person whose name is specified in the body of the instrument. It is similar in form to a Shah Jog hundi except that in place of 'Shah' the name of a particular person as the payee is specified. It has been held3 that all that the drawer of a Nam Jog hundi guarantees is that the drawee will honour and pay the hundi when it is presented to him on maturity, and if the drawee fails to do so, then the drawer would repay the amount thereof provided the hundi is returned to him in an undischarged state. Where, however, the drawee is not in a position to return the hundi in an undischarged state, it is the drawee who shall be liable in damages to the owner of the hundi for wrongful conversion, the measure of damages being the amount of the hundi.1
1. Lallubhai v. Ratnachand, AIR 1940 Bom 82.
A Dhani Jog hundi, on the other hand, has been held1 to be an instrument "payable to the person who purchases it, as distinguished from Shah Jog,-an ephithet importing that the person presenting it is worthy and may be trusted with the cash answering to payable to bearer (Molesworth)" and the word 'dhani' has been held not to be equivalent to "bearer" in the sense that word is used in the Negotiable Instruments Act. In the result, a mere bearer of a Dhani Jog hundi is not, as such, entitled to payment. It is, accordingly, not a negotiable instrument within the meaning of the Act.2
1. Champaklal v. Kehsrichand, (1926) 50 Bom 765; Keshrichand v. Asharan, AIR 1916 Cal 888; Murli Dhar v. Hukam Chand, AIR 1932 Lah 312.
2. Jetha Parkha v. Ramchandra Vithoda, (1892) 16 Bom 689 (699).
A Jokhmi hundi is payable only in the event of arrival of goods. It is both a contract of insurance and an instrument for payment of money. Sargent J., in Jadowji Gopal v. Jetha Shamji, (1879) 4 Bom 333(340) summarised the incidents of this species of hundi as follows-
"a jokhmi hundi is always drawn on or against goods shipped on the vessel mentioned in the hundi; and, lastly, that the price paid for a jokhmi hundi depends on the rate of exchange, the vessel in which the goods are shipped, the season, and the nature of the goods. A jokhmi hundi would thus appear to have been designed with a double purpose, viz., to put the drawer of the hundi in funds, and, at the same time, to effect an insurance upon the goods themselves, by reversing the position of the insurer and insured from that which obtains in ordinary policies, the insurer being the buyer of the hundi who pays the insurance money down, and is entitled to recover it with a premium (together making the amount of the hundi) in case the vessel arrives safely."
A Jowabi hundi is described by Macpherson on Contracts at p. 166 as follows:
"A person desirous of making a remittance writes to the payee and delivers the letter to a banker who either endorses it on to any of his correspondents near the payee's place of residence or negotiates its transfer. On its 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."
A Zikrichit hundi is a letter of protection which is given to the holder of a hundi by the drawer or any other prior party to be used by him in case the hundi gets dishonoured. It is mostly in use amongst Marwari Shroffs.
16. The foregoing account of some of the hundis would suffice to show that it is not possible to evolve uniform rules applicable to hundis of the various kinds for the purpose of codification. The Bharat Chamber of Commerce, Calcutta, furnished us with a copy of Rules which have had the approval of eleven trade associations. But these Rules relate to one kind of hundis only, namely, Darshani hundis, and we have not been able to discover whether there are any agreed Rules governing the other kinds of hundis, or whether the Rules referred to by the Bharat Chamber are accepted throughout the country.
Codification not being possible, we must leave such instruments in use as at present. We, therefore, propose to make it clear1 that the Act will be confined in its application to the three kinds of instruments, viz., bills of exchange, promissory notes and cheques, but that it will apply to them irrespective of the language in which they are written. Instruments which do not answer the requirements of the Act in respect of any of these three kinds of instruments will remain outside the purview of the Act, so that no saving clause is required to save the usages relating to such instruments.
1. Vide section 3 of App I.
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