The Director of Fair Trading has the following duties:-
(i) To advise the Secretary of State for Prices and Consumer Protection of any matters in the social and commercial development of the country which may require action regarding the provision of consumer credit?
(ii) To license all businesses where consumer credit given or goods are hired, after ensuring that the person to whom licenses are given are fit and proper persons to carry on this type of business. He must keep the licence under review and may renew, withdraw or suspend it for improper conduct.
The word ‘credit’ means cash loan or any other type of financial help. Most licensing of hire purchase businesses and credit brokers has now taken place.
(iii) To disseminate information and advice for the benefit of the general public.
(iv) To superintend the working of the Act and any regulations made under it, and to enforce it if necessarily.
(v) To present an annual report.
The Protection of the Consumer in Britain
In 1962 the Moloney Committee Report on Consumer Protections made over 200 recommendations to protect the consumer. The Hire Purchase Act of 1964 Consumer Credit Act is gradually implementing closer control of many aspects of hire purchase, but the 1965 Act is still in force as regards documentation.
It was a particularly effective Act in this respect and to date the Secretary of State has not called for any revisions. Neither the 1965 Act nor the 1974 Act protects companies, since it is assumed that they are able to protect themselves.
The chief points are:-
(i) The memorandum-Under the Act the memorandum is very important, for a hire-purchase agreement is enforceable only if a note or memorandum is available in writing. This must contain a box reading:-
There must also be a notice of the hire’s rights under the Act.
The memorandum must be signed by the hirer or buyer in person, and by the owner or his agent. A wife cannot sign for her husband, even if she has her husband’s authority.
The following rules must be adhered to regarding the delivery to the hirer of the statutory copy of the agreement: – if the agreement is signed at the trade premises of the seller, one statutory copy;
if the agreement is signed anywhere else, for instance in the customer’s home, or on his doorstep, or in a car on the public highway, two statutory copies, one at once and the second copy post. Also any hirer can have a further copy, showing the amount owing at the time, whenever he wishes on payment of Rs. 1000.
(ii) The upper limit of value of goods covered by the Act is Rs. 40000, and may be raised shortly to Rs. 800,000. Under the original Act of 1938 the limit was Rs. 400, later raised to Rs. 24000, and then to Rs. 160,000. By raising the limit to Rs. 40, 0000 most small cars are now protected.
(iii) The lower limit is Rs. 2400 on credit-sales agreements-but on certain matters it is dispensed with. This is to cover mail-order sales of clothing etc., freeing it from the need for written legal agreement and the right to return the goods, but keeping it within other protective clauses.
(iv) Declaration of cash price. Before making a hire- purchase agreement the seller has to tell the buyer in writing the cash price of the goods, so that the customer knows the difference between the cash price and the hire purchase price. These requirements are satisfied if (a) the price is in the agreement, or (b) it was stated in writing separately, or (c) it was written on the goods and these were inspected by the buyer, or (d) it was in the advertisement, catalogue or price list.
(v) Restriction of the right to retake goods. The Act creates a special class of protected goods. Goods are protected’ under the Act if (a) they were sold under a hire- purchase or conditional-sale agreement (b) one third of the price has been paid or tendered, and (c) the hirer has made no attempts to terminate the agreement.
Such goods are protected by a restriction on the owner’s right to recover the goods without a court order begins obtained from the Country Court. At such proceedings the Court may:-
Order the specific delivery of all or some proportion of the goods, bearing in mind how much has been paid.
Order the hirer to pay the outstanding balance in such a way as it deemed fit, or it may order a new agreement according to the detailed rules laid down in the Act.
(vi) Right of cancellation exists on all contracts signed elsewhere, i.e. made in usual trade premises. A right or cancellation exists on all contracts signed elsewhere, i.e. doorstep sales, etc. Such as sale will be cancelled if the buyer gives notice within four days of receiving the second statutory copy.
The buyer then has lien on the goods for recovery of the deposit and the return of any goods to the shop, but may wait for them to be collected, being responsible for their safekeeping for 21 days. After that time responsibility for the goods ceases.
(vii) Right of the hirer to terminate the agreement. At any time the hirer or buyer may terminate the agreement, buy must pay half the price, or what is due if the contract has already passed the half-way mark. The hirer must also pay for any damage done to the goods. Any clause in the agreement increasing the hirer’s duties and making them more onerous than the Act requires is void.
This right to terminate the agreement is a great protection to consumers who get into difficulties, for they can always escape from the agreement by giving notice to the trader; Give in notice to the finance company. The trader must past the message on to the finance company.
Forms & Types of Bills
1. Accommodation Bill
Often bills are drawn, accepted and endorsed, for the accommodation of one more of the parties concerned, though no value has passed on them. These are known as Accommodation Bills or Kites. They then divide the proceeds among themselves. This bill is an accommodated, whereas the banker is a holder for value.
The holder for value can, therefore, recover the amount of the bill on due date from the acceptor B and, failing him. Here the fact that the bill was an accommodation bill, and that full consideration of it was not received by, the acceptor, would not affect the banker as a holder for value.
With regard to the accommodated parties, the parties who accepted or endorsed a bill without receiving value, may raise that question successfully, and plead it against any of the parties to the accommodation.
2. Foreign Bills
Foreign bills are generally drawn in sets of three, each of which is called a ‘via’ and as soon as any one of them is paid, the others become imperative. They are drawn in a set so that they may be different mails, or through different routes to ensure at least one reaching its destination. We shall take the following as an example.
3. Inchoate Instrument
When a person signs and delivers to another a stamped paper, in accordance with the law relating to negotiable instruments, in blank or partially written, he is thereby taken to give prima facie authority to the holder to make or complete upon it a negotiable instrument for any amount specified therein, but not exceeding the amount covered by the stamp. Thus the person so signing is liable upon the instrument, in the capacity in which he has signed, to a holder in due course.
The person by signing the document and delivering to the rules applying to negotiable instruments, and should have been given to a holder, apparently with a view to be converted into negotiable instrument. Not only the original holder, but also for safe custody cannot the document must be filled in before it can be enforced.
4. Lost Bill
If a bill of exchange is lost before it is overdue, the holder may apply to the drawer to give him another bill of the same tenor, giving security to the drawer, if required, to indemnify him against all persons who may claim from him in case the lost bill should again be found, and if the drawer refuses he may be compelled to do so.
This rule only applies to bills, and not to promissory notes, and the right to claim new bills prevails only against the drawer. The law is silent as to whether the acceptor and endorsers can be compelled to accept it and endorse respectively.
In some European countries bills are drawn as ‘usances,’ i.e. payable after a period fixed by custom for payment of a draft drawn in one country on another and made payable there. The usances have to be proved in each particular case by the person who pleads usance.
Bills of Exchange & Promissory Notes
A Bill of Exchange is an instrument in writing containing an unconditional order, signed, by the maker, directing a certain person to pay certain sum of money only to, or the order of a certain person or to the bearer of the instrument. A promissory note is an instrument in writing 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.
1. Parties to Bill
The Parties to a bill are:-
(i) the Holder of the bill who may be the original pay named in the bill, or one to whom the bill is endorsed over by this original payee or where the bill or promissory note is payable to bearer, the bearer is the holder.
(ii) The Drawee, i.e. the person who draws the bill, who is known as the Maker in the case of a promissory note,
(iii) The Drawer, i.e. the person who draws the bill, who is known as the Maker in the case of a promissory note;
(iv) The Endorse, e.g., the person to whom it is endorsed,
(v) The Endorser, i.e. the person to whom the payee endorses the bill, and
(vi) the Payee, i.e. the person to whom the bill is payable, who may be the drawer himself as he can make the bill payable to himself or may name another person in the bill to whom it has to be paid; and
We shall now proceed to discuss the various peculiarities as to acceptance. The question of acceptance does not apply to a promissory note as it is in the form of an “undertaking” signed by the debtor himself. A bill of exchange is however drawn by the creditor on the debtor and thus the question of acceptance by the debtor arises. The acceptance of a bill of exchange may be general or qualified.
A general acceptance is where the drawee signs his name across the face of the bill with or without the word ‘accepted,’ thereby signifying his assent to the bill. As a general rule the bill must always be accepted generally, and if the acceptor adds any qualification to it, it becomes conditional acceptance, in which case the drawee may either agree to such an acceptance, or treat the bill as dishonored for non-acceptance, and move on it.
3. Qualified Acceptance
An acceptance may be qualified in various ways as follow.
(i) It may, on the other hand, be qualified, as to place and made payable at a particular place, and there only, as, Accepted payable at Lloyds Bank, and there only.’
(ii) It may be qualified as to the amount, e.g. a bill may have been drawn for Rs. 500, whereas the acceptor, perhaps arguing that he owes only Rs. 300 may accept for Rs. 300, as, Accepted for Rs. 300.’
(iii) It may, qualify as to time, e.g., where a bill is drawn payable one month after date, the drawee accepts it as Accepted payable three months after date.’
(iv) It may be accepted as payable in instalments, as Accepted payable in monthly instalments of Rs. 50.’ The drawer or holder of a bill is not bound to agree to an acceptance which is qualified. He can treat the bill as dishonored, and move for remedies open to him on that ground.
(v) In foreign bills, a Case in Need is generally stated on the bill. This ‘Case in need’ is the agent of the drawer in the foreign country where the bill is made payable. When, therefore, the bill is dishonored, either by non-acceptance, qualified acceptance, or by non-payment, the holder refers to this ‘case in need.’
The ‘case in need’ either gets the proper acceptance, or failing that, gets the bills protested for non-acceptance and accepts it himself for the Tionour of the drawer.’ This is known as an ‘acceptance for honour supra protest.’
The holder then holds it till the due date, when he presents it again to the drawee for payment. If payment of the bill be also refused, he should first get it protested for non-payment, and then present it to the ‘acceptor for honour’ who pays it for the honour of the drawer.
The object served by this acceptance and payment for honour by the ‘case in need’ is to save expense by way of the interest and loss on exchange which would necessarily follow as these foreign bills are generally drawn and discounted in the country of their origin. In the absence of such an arrangement, on the drawee’s refusals to accepts or pay the bill, the banker’s foreign agent or branch office would refer the bill back to the office through which it was sent to him for collection.
This would mean waste of time, during the whole of which the banker’s interest keeps mounting, not to speak of the great inconvenience caused to the drawer and loss on exchange; whereas it may be that the refusal to honour was based on grounds that could easily have been settled by an agent on the spot.
It may be noted; however, that protest is only necessary in the case of foreign bills especially when they appear to be such; if there is nothing on the face of the bill to indicate its foreign origin, it need not be protested in English law protest is not necessary for foreign promissory notes
A cheque is “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.” Thus, there are three requirements of a cheque, namely that it should
(a) Be payable on demand;
(b) Be drawn on a banker; and
(c) Answer the definition of a bill exchange.
A banker’s cheque is therefore, a peculiar sort of instrument very like a bill of exchange but in some respects different. For example, a cheque does not require acceptance, it is not entitled to days of grace.
Although strictly speaking it is an order upon a debtor by a creditor to pay third person, it is more in the nature of an appropriation of the customer’s money in the hands of the banker in favour of a creditor.
Protest for Better Security
It may happen that the acceptor of a bill suspends payment or becomes insolvent before maturity of the bill, and in that case the holder for value may, for his protection, get the bill protested for better security against the drawer and previous endorsers.
This gives the drawer, or the endorsers; an opportunity to accepts for honour. The only disadvantage is that the expenditure on this protest for better is not recoverable from the other side.
Acceptance for Honour
With regard to the acceptance for honour, it may be noted that the acceptance for honour may be for honour of the drawer, or endorser, or one or more of them. If the acceptance does not state for whose honour it is made, it is presumed to be for the honour of the drawer.
The acceptor for honour must be a person who is not in any way liable on the bill, but who simply intervenes on behalf of friend with the consent of the holder of the bill. When he pays the bill, which he has accepted for honour, he succeeds to the rights and duties of the holder, as against the party for whose honour he pays and against all parties liable to that party.
When a bill is accepted for honour, it is understood that it will be presented for payment on the due date by the holder and that in the case of non-payment, it will be noted and protested, and that due notice will be given to the drawer.
Letter of Credit
According to Storey, ‘a letter of credit is an open letter of request by one person, usually a merchant or a banker, requesting some other person or persons to advance money or give credit to a third person named therein, for a certain amount, and promises that he will repay the same to the person advancing the same, or accept bills drawn upon himself, for the like amount.’
It is called a General Letter of Credit when it is addressed to all merchants, or other persons, in general, requesting such advance to a third person; and it is called a Special Letter of Credit when it is addressed to a particular person by name, requesting him to make such advance to a third person’.
Varying Forms of the Letter of Credit
A letter of credit may be given in various forms, the most simple of which requests the banker on whom it is given to permit the holder to draw a specified sum of money, either by way of cheques on the bank giving the letter, or on the bank to whom the letter is addressed.
In short, the banker giving it asks the banker to whom it is addressed to keep a specific sum of money at the disposal of the holder. When this letter is addressed to more than one banker, it is known as a ‘circular letter of credit,’ in which came the bankers to whom it is addressed have to endorse on the letter the amount paid.
Sometimes these letters of credit are accompanied by circular notes in the form of cheques, of the value or denomination of such sums as may be convenient to the holder, in which case the letter of credit becomes virtually a letter of indication, stating the amount up to which the circular notes are due, their numbers, and containing a specimen signature, of the holder. Here, the holder has to keep the letters of credit of indication, as well as the circular notes, letter of credit, as well as the signed circular notes, at the various banks to which the letter or credit or indication is addressed.
In business the most important letters of credit are hose used for the financing of produce and shipments of goods, where the banker takes a very prominent part. It may be added that the customer who arranges to get a letter of credit from his banker, with or without security, as may be necessary. In the case of letters, of credit granted to travellers, cash is usually; provided, or the customer’s current account debited. Otherwise, the customer guarantees to provide funds to the banker in time to enable him to pay the bill on maturity.
There are several different types of hundis used in India at present; We shall deal with some of them.
In the words of J. Bayley. ‘Jokhmi Hundi is in the nature of a policy of insurance, with this difference, that the money is paid before hand, to be recovered if the ship is not lost.’ It is, in fact, a mode of insuring goods shipped peculiar to the Indian merchants. There are here three parties; the drawer or shipper of the goods, the hundiwala, and the malwala.
The consignor consigns the goods, say from a port in Dutch or elsewhere, to his agent or vendor in Bombay. The •then draws hundi on the consignee or malwala for the value of the goods, and sells it to the insurer for cash, which is the value less the insurance premium charged. The hundiwala either sends the hundi to his branch office or agent in Bombay.
The hundi is then presented, after the goods arrive safely in Bombay, to the consignee, or malwala, who pays it an takes delivery of the goods, or in case he does not wish to take up the goods, he may hand over the goods to the hundiwalas and leave him to fight the matter out with the consignor.
The hundiwala, by this peculiar custom, has no right to sue the malwala or consigns in case of non-payment or non-acceptance. His remedy is to recover the amount from the consignor. If the goods are lost totally, the hundi cannot be presented and the loss has to be borne by the hundiwala is entitled to be paid in full. In case of general average loss the hundiwala, or underwriter, receives payment for so much loss as may be computed towards the general average loss on these gods by the average adjusters.
This is a hundi which is not payable on demand like the darsani, but is payable according to usance or custom. Hundis payable to order are called firm among hundis.
Shah Joghi Hundi
This is a hundi drawn by one merchant on another, asking the latter to pay the said hundi to* a shah after making proper inquiry and taking the precautions usually taken by merchants in that line of business. It usually states the name of the person on whose account the hundi is drawn or who has deposited money with the drawer against the hundi in question.
The documents are generally used for the purpose of remittance. The drawee never accepts this hundi, but generally they are presented to the drawee at the time of payment by the holder. They are not instruments which come under the designation of those payable to bearer, but are payable to respectable holder or shah, and usage throws the duty of ascertaining that the payee is a shah on the drawee.
If the hundi is endorsed as payable to particular person named in the endorsement, the drawee must see that he pays to that person and no other. As long as the drawee pays the said hundi bona fide to shah he is entitled to recover the amount from the drawer. If the shah makes a mistake in collecting the hundi for a wrong party he has to make good the amount, with interest at the rate of 6 percent from the date of payment to the date of refund.
This is hundi which is payable only to a shah, but it may be cashed by the dhani or holder of it.
Darsanui and Nadappu vaddi Hundis
These are sight hundis, payable at sight, but the second has this peculiarity, that it carries interest at the nadappu vaddi rate from the date of presentation.
This is a sheet bound in the account book of a creditor and entered in the form of a ledger, bearing a 10 P. stamp and the signature of the borrower.
Bills of exchange and promissory notes are known as negotiable instruments. An instrument is negotiable either by law, or by custom of trade. Bills of exchange and promissory notes have long been held to be negotiable instruments all over the commercial world. By negotiability’ is meant that not only is the instrument transferable by endorsement or delivery, but that apart from its transferability, the holder in due course of a bill who has received it complete and regular on the face of it, for value, and without any notice as to the defect in title of a previous holder, acquires a good title, notwithstanding any defect in a previous holder’s title.
For example, A gave a bearer cheque to B, which B dropped on the road. C picked it up and gave it to D in settlement of money due by C to D. C then disappeared. D cashed the cheque, in this case neither a nor B can ask D to refund the money, because D can plead that he was a holder in due course’ or a negotiable instrument.
Presumptions in the Case of Negotiable Instrument
The following presumptions shall be made in the case of negotiable instruments until the contrary is proved:-
(i) That every transfer was made before maturity.
(ii) That it was accepted within a reasonable time after its date and before its maturity.
(iii) That the holder of it was a holder in due course.
(iv) That every negotiable instrument was drawn, accepted and endorsed made or transferred for consideration.
(v) That the date it bears is the date on which it was made or drawn.
(vi) That the endorsements appearing upon it we are made in the same order in which they appear.
(vii) In case of a lost instrument that it was duly stamped.
In the case of negotiable instruments, contrary to the ordinary law of agreements, consideration is presumed, and the party who denies it must prove his case. This applies to drawing, accepting as well as endorsing.
The next presumption is the correct date. Also, it is presumed that both its acceptance and transfer were made before maturity; that the endorsements were placed in the order in which they appear on the bill; and that, in the case of lost instruments, they were properly stamped. All these presumptions can be rebutted by evidence, but the party challenging them must prove his case.
Discounting a Bill
We have seen that a merchant is given a bill of exchange in payment of amounts due to him by his debtor to whom he may have sold goods or furnished money, which bill is to fall due at some future, date. If, before such due date has arrived, the merchant happens to be in want of money, he can discount the bill with his banker, and the banker will furnish him with the money less a certain discount, determined according to the current rate of discounting bills.
Supposing the bill was for Rs. 5,000 and the banker chargers Rs. 50, as discount, the banker would credit the merchant for Rs. 5,000 in his current account for the amount of the bill, and debit the same account for Rs. to for the discount charged. When the bill falls due, the banker will cash it for the full amount of Rs. 5,000 thus securing a profit of Rs. 50.
A bill is said to be dishonored when the drawee refuses to accept it when duly presented, or when it has been accepted and the acceptor fails to meet it on the due date. A bill must be presented for payment to the acceptor on the due date, at his business place and at a reasonable hour. If he has no place of business, it may be presented at his residence. The presentment must be made to the acceptor or his agent duly appointed.
The amount payable in case of dishonor of a bill, or a cheque, by any party liable to the holder, includes the amount due upon the instrument, with interest, plus the expenses properly incurred in noting and protesting. When the person charged resides at a place different from that at which the instrument is payable, the holder is entitled to receive such sum at the current, rate of exchange between the two place.
If an enforcer of all bills has paid the amount due on it, he is entitled to the amount so paid, plus expenses. With interest at the rate of six percent per annum from the date of his paying to the date of his receiving back the amount and where the endorser and the person charged reside at different place, the endorser would be entitled to receive such sums at the current rate of exchange between the two places.
It is also open to the party entitled to compensation on dishonor of such a bill, note or cheque, to draw a bill on the party liable to compensate him, making it payable at sight or on demand for the amount due to him together with all expenses properly incurred by him. Such a bill must be accompanied by the instrument dishonored and the protest thereof, if any. If such a bill is dishonored, the party dishonoring it is liable to make compensation thereof in the same manner as in the case of the original bill.
Alteration of a Bill or Cheque
It should be noted that a cheque or a bill cannot be altered by any holder, unless the bills or cheques become void and inoperative. In the case of cheques, an alternation can only be made by the drawer, who has to put his initials to the alteration, but in the case of a bill of exchange all parties to the bill must initial the alteration.
Notice of Dishonour
As soon as a bill is dishonored, the holder must give notice of dishonor to the drawer and all previous endorsers. The notice, though not required to be in writing at law, should for safety be a written notice. The notice must be given within a reasonable time, i.e. if both the giver and the receiver of the notice reside in the same place, it should be given the day after dishonor.
If on the other hand, they live in different countries the notice must be posted the day after dishonor. Of course, if for any reason the notice could not be given, or did not reach any of the parties, through no fault of the giver of the notice, he would be excused. Otherwise, failure to give notice within a reasonable time would release all endorsers previous to the party failing to give notice, as well as the drawer.
Noting and Protesting
In addition to giving notice as mentioned above, the holder must get the bill noted. This is done through a Notary Public who presents the bill and notes down in his register the fact of such dishonor as well as the reason given, if any, by the acceptor for doing so. In case of a foreign bill, protesting is required.
The protest includes a copy of the bill, signed by the
Notary making it, and states the name of the person at whose request the protest was made, the cause and the reason of protesting, the demand made and the answer given, or if the drawee or the acceptor could not be found that fat is stated in the protest. In the case of inland bills noting alone is required.
On Bills of Exchange, Promissory Notes and Cheques
The stamp duty payable on bills of exchange and promissory notes is provided for by the Indian Stamp Act, 1989, Article 13. A “Bill of Exchange” for the purpose of the Stamp Act has been defined by section of the Indian Stamp Act.
A bill of exchange is exempt from stamp duty where payable on demand. The duty of one on cheques was abolished from 1st July 1927 and cheques are therefore exempt from stamp duty. A bank note issued by the Reserve Bank of Indian is also exempted from stamp duty.
One a promissory note payable otherwise than on demand the stamp duty is the same as in the case of similar bills of exchange.
Calculation of Due Dates
The Method of Calculation
While calculation the date on which a bill or promissory note which is made payable so many months after date or sight falls due, the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated, or sighted, or accepted, or noted, or protested for “non-acceptance. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month.
Where if an instrument dated 29 January 1971 is payable one month after date, it falls due on the 3rd day after 28 February 1971 and instrument dated 30 August, 1971 made payable 3 months after date is due on 3 December, 1971. There is in law no limit as to the period for which a bill may draw.
Indian and English Law Calculations Distinguished
When an after-sight bill is accepted for honour in India, the period is to be calculated from the day on which it was so accepted, and not from the date of noting for non- acceptance. If the date on which an instrument falls due is a public holiday, the instrument shall be deemed to be due on the next preceding business day.
Here our Indian Act makes no distinction between a Bank Holiday and other holidays, as is done by the English Act, where it is laid down that when the last day of grace is a Sunday, Christmas Day, Good Friday, or a day appointed by Royal Proclamation as a public Feast of Thanksgiving Day, the bills is payable on the preceding business day, but when the last day of grace a Bank holiday, the bill is payable on the succeeding business day.