Short essay on Negotiable Instruments

We have discussed in the beginning that the Negotiable Instruments Act, 1881 has not given an exhaustive definition of the term ‘Negotiable Instruments’. As such it includes hundis also, because hundis by local custom or usage are transferable like a negotiable instrument and the transferee acquires a good title irrespective of the defect of title of the transferor.

Meaning of Hundi:

The word ‘Hundi’ is derived from the Sanskrit word ‘hund’ which means to collect. Hundi is written in an oriental language, i.e., Mahajani, Hindi, etc. Hundis are drafted more or less in the form of bills of exchange or promissory notes. Thus, a hundi is a negotiable instrument written in an Indian language.

The provisions of the Negotiable Instruments Act, 1881 apply only where there are no customary rules. By and large, hundis are governed by local usages and customs and as such the provisions of the Negotiable Instruments Act, 1881 do not apply. For example, a hundi may by accepted orally or notice of dishonour need not be given, if there is a local usage or custom to that effect or parties have agreed expressly to that effect.

Kinds of Hundis :

Hundis are of various kinds. However, broadly speaking, hundis may be classified into:

1. Darshini Hundi,

2. Muddati Hundi.

1. Darshini Hundi:

‘Darshan’ means at sight. ‘Darshini hundi’ means a hundi which is payable at sight. It is like a note or bill payable on demand.

2. Muddati Hundi:

‘Muddat’ means a period. ‘Muddati hundi’ means a hundi which is payable after a period. It is like a note or bill payable after a certain period.

These types of hundis may be further classified into the following types:

1. ‘Shah jog hundi’:

‘Shah’ means a respectable person. As such, a ‘Shah jog hundi’ is a hundi which is payable to a respectable and responsible person known in the market, i.e. to a Shah only. The person who holds the hundi can transfer it freely and merely by delivery, without any endorsement.

It is in the nature of a bearer instrument. The person on whom such hundi is drawn, i.e. the drawee is under an obligation to make the payment on Shah Jog hundi to a Shah only, otherwise he will not be able to recover the money paid to the holder from the drawer.

It should be noted that if a Shah obtains payment of a hundi which turns out to be stolen or forged, he is bound to return the amount with 18% interest unless he produces the actual drawer.

2. Nam jog hundi:

It means a hundi which is payable to a person (party) named in the hundi.

3. Firman jog hundi:

‘Firman’ means order. A ‘Firman jog hundi’ therefore, means a hundi which is payable to order. It can be transferred like an order instrument by indorsement and delivery.

4. Dhani jog hundi:

Dhani’ means a ‘holder’. Hence, it is a hundi which is payable to the holder. Thus it is a bearer instrument transferable merely by delivery.

5. Jababee hundi:

The word ‘jababee’ means reply or answer. In a jababee hundi, the payee on receipt of the amount has to send a reply or answer that he has received the amount. This type of hundi is used to remit money from one place to another.

6. Jokhami hundi:

The word ‘Jokhami’ means ‘risk’. In this type of hundi the risk is covered in as much as the amount of the hundi is payable only on the happening of an event. For example, hundi is payable only on the arrival of the goods by a ship. Thus the buyer’s risk in covered.

The holder can get this hundi discounted with a third party, i.e. the insurer. The insurer deducts the insurance charges and pays the balance. In case the goods are destroyed, the insurer suffers the loss against the premium. Thus, a jokhami hundi protects the buyer a well as provides funds to the seller.

Some Allied or General Terms :

Zikri Chit:

It is very common all over India and is used in connection with Marwari hundis. It is in the nature of drowning case of need and acceptor for honour. This chit is addressed to some respectable person residing in the town to whom reference may be made where the hundi is being refused acceptance or is likely to be refused acceptance. Such respectable person accepts the hundi or/and pays the amount at maturity. A hundi may be accepted for honour under a ‘zikri chit’ without being noted or protested which is necessary in case of bills.

Khoka:

Khoka means a bare cover, i.e., without contents. In the same sense, this word is used for a hundi which has been paid and cancelled.

Purja:

It is a written request made by the borrower to the lender to pay amount mentioned in the instrument. It is used for temporary accommodation. It bears a revenue stamp.

Peth:

In case the original hundi is lost, one may obtain a duplicate of a hundi, which is called peth. Supposing the duplicate is also lost, then second duplicate may be obtained. It is called per-peth.