Law relating to promissory notes, bills of exchange, cheques and other negotiable instruments is codified in India under the Negotiable Instruments Act, 1881. It defines promissory note, bill of exchange, cheque, foreign instrument and negotiable instrument. As per the provisions of this Act, in India, every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by making, drawing, accepting, endorsing, delivering and negotiating of a promissory note, bill of exchange or cheque and every person capable of binding himself or of being bound, may so bind himself or be bound by a duly authorized agent acting in his name. The act provides for the liability of an agent, legal representative, drawer, drawee, maker and acceptor of a bill, endorser, holder in due course, suretyship, etc. As per the provisions laid down in the said act, a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer and when a promissory note, bill of exchange or cheque is transferred to any person so as to constitute the person, the holder thereof the instrument is to be negotiated. Detailed provisions have been made in the Act concerning presentment, payment, interest, discharge from liability, notice of dishonour, noting and protest, reasonable time for payment, acceptance and payment for honour and reference in case of need, compensation, special rules of evidence, providing for certain presumptions and estoppels, cross cheques, bills in sets, etc.

 CHAPTER XVI comprising of Section 134 to 137 is of an International Law and the said 4 sections read as follows:

 "134. Law governing liability of maker, acceptor or endorser of foreign instrument.

 In the absence of a contract to the contrary, the liability of the maker of drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and endorser by the law of the place where the instrument is made payable.

A bill of exchange was drawn by A California where the rate of interest is 25 per cent and accepted by B, payable in Washington where the rate of interest is 6 per cent. The bill is endorsed in [India], and is dishonoured. An action on the bill is brought against B in [India]. He is liable to pay interest at the rate of 6 per cent, only; but if A is charged as drawer, A is liable to pay interest at the rate of 25 per cent.

 135. Law of place of payment governs dishonours.

 Where a promissory note, bill of exchange or cheque is made payable in a different place from that in which it is made or endorsed, the law of the place, where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient.

 A bill of exchange drawn and endorsed in [India], but accepted payable in France, is dishonoured. The endorsee cause it to be protested for such dishonour and gives notice thereof in accordance with the law of France through not in accordance with the rules herein contained in respect of bills which are not foreign. The notice is sufficient.

 136. Instrument made, etc. out of India, but in accordance with the law of India

If a negotiable instrument is made, drawn accepted or endorsed [outside India], but in accordance with the [law of India], the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or endorsement made thereon [within India].

 137. Presumption as to Foreign Law.

 The law of any foreign country [***] regarding promissory note, bills of exchange and cheques shall be presumed to be the same as that of [India], unless and until the contrary is proved.

 A very noteworthy amendment has been recently made with effect from 1st April 1989 in the form of Chapter XVII which provides for penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts. Under this Chapter dishonour of a cheque in certain cases is an offence. After a cheque is dishonoured, written notice is required to be given within 15 days of the receipt of information from the bank regarding the return of cheque as unpaid and if the drawer of the cheque fails to make the payment of the cheque within 15 days from the receipt of such notice, then only the dishonour of the cheque amounts to an offence. If a cheque, which is dishonoured, is issued by way of gift or loan, it does not become an offence. The cheque should have been issued for the discharge of any debt or any other liability which can be legally enforced AND the dishonour should be on account of insufficiency of funds. The cheque should be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier. A cheque otherwise valid does not become invalid merely by reason of its being either post dated or ante dated. The complaint with the Metropolitan Magistrate has to be filed within one month from the date on which the cause of action arose. It shall be presumed that the holder of the cheque has received it for the discharge of any debt or liability and the onus would be on the issuer of the cheque to prove otherwise. The punishment of the offence is imprisonment for a term which may extend to one year or with fine which may extend to twice the amount of the cheque or with both.

Click here to see the headnotes of the recent judgements under Sections 138 and other related Sections of the Negotiable Instrument Act.

 Business Laws-Transfer of Property