AHSEC - Class 12: Banking Notes | Negotiable Instruments for Feb' 2022 - 23 Exam

VERY SHORT TYPE QUESTIONS ANSWERS            

1.       A negotiable instrument should be received for consideration. True

2.       Negotiable Instrument Act was passed in 1881 and it come into force in 1^st March, 1882.

3.       Three parties are involved in Bills of Exchange and cheque: (i) The Drawer (ii) The Drawee, and (iii) The payee.

4.       Share Certificate is not a negotiable instrument.

5.       Give an example of Special endorsement. [2008]: If an a cheque, “A adds the words, “pay to B” or “pay to B or order, “such endorsement is called special endorsement.

6.       A bill of exchange is a conditional document. False

7.       The person who pays the amount of the bill is known as the payee. False

8.       Three days are given as ‘days of grace’ to a bill. True

9.       When a bill is renewed, the question of interest must come in. True

10.   Where a bill is dishonoured, the drawee is relieved of his liability. False

11.   On dishonouring a discounted bill, the drawer credits bank account. True

12.   The person to whom a bill of exchange is endorsed is called the endorser. False

13.   If the due date happens to be a public holiday the bill is payable on the next succeeding working day.  False

14.   Accommodation bills are not negotiable instruments. False

15.   When a bill is paid before its due date it is said to be renewed. False

16.   No days of grace are allowed on bills payable on demand or on slight. True

17.   In case of cheque, no grace periods are allowed for payment.  True.

18.   Three days of grace are allowed for payment, in case of promissory notes.  True.

19.   Bills are drawn by creditors.

20.   Bills receivable account is a real account.

21.   Bills of exchange before its acceptance are called a draft.

22.   The maker of a bill of exchange is called the drawer.

23.   The acceptor of a bill of exchange is known as drawee.

24.   There are three parties to a bill of exchange.

25.   Bill of exchange contains an unconditional order and promissory note contains an unconditional promise.

26.   Three days are given as grace to find out the data of maturity of a bill.

27.   When a bill of exchange is drawn in indigenous language it is called Hundi.

28.   A person to whom a bill is endorsed is called the endorsee.

29.   If payment of a bill is not made on the due date it is said to be dishonoured.

30.   Nothing charges are ultimately borne by drawee.

31.   Rebate is allowed if a bill of exchange is paid before maturity.

32.   On renewal of a bill, the interest charge is debited to the acceptor.

33.   Accommodation bills are also known as kite bills.

34.   Accommodation bills are drawn and accepted without any Consideration.

35.   A promissory note is made by purchaser.

36.   Bills receivable account is a real account.

37.   What is general and qualified acceptance?

Ans: When a bill is accepted by the drawee without any condition with or without the word “Accepted”, it is called general acceptance and when the drawee accepts the bill by adding any condition it is known as qualified acceptance. 

Long Answers Types Questions (2/3/5/8)

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Also Read:

1. HS 12 Banking Chapter wise Notes

2. AHSEC Class 12 Banking Question Papers From 2012 Till Date

3. AHSEC Class 12 Banking Solved Question Papers From 2012 Till Date

4. Banking Chapter wise MCQs

5. Class 12 Banking Important Questions and Question Bank

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Q.1. What is Negotiable Instruments? What are its various kinds? Mention its features/essentials/characteristics and presumptions. 2+1+6    1999, 2001, 2003, 2005, 2010, 2011, 2013, 2015, 2017, 2020

Ans: Negotiable instrument: Negotiable Instrument means a written document which guarantees the specific amount of money to the person named therein and is transferable by delivery or by endorsement. According to Section 13 of the Negotiable Instrument Act 1881, “A Negotiable Instrument means a Promissory Note, Bill of Exchange and Cheque, payable either to order or to bearer.

There are different kinds of negotiable instruments:

a) Negotiable Instruments by statue: Bills of Exchange, Promissory Notes and Cheques.

b) Negotiable Instruments by customs or usages: Treasury Bills, Dividend Warrants, Share Warrants, Bearer Debentures, Hundi, Banker’s Draft.

The characteristics of a Negotiable Instrument are:

a)      Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.

b)      Payable by Money: Negotiable Instruments are payable by the legal tender money of India.

c)       Unconditional Promise and order:  If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.

d)      Freely transferable:  A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.

e)      Acquisition of Property:  Any person, who possesses a negotiable instrument, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument.

f)       No Need of Giving Notice:There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.

Presumptions regarding Negotiable Instruments:

a)      Every negotiable must be drawn, accepted and endorsed, made or transferred for consideration.

b)      The date mentioned on the instrument in the date on which it was made.

c)       The instruments were accepted within a reasonable time after being made.

d)      That every transaction was made before maturity.

e)      That the endorsements were made in the same order in which they appear.

f)       The instrument was duly signed and stamped.

g)      The holder of the instrument is the holder in due course unless it is proved otherwise.

h)      That in a suit upon a dishonoured instrument, the court shall on proof of protest, presume that is was dishonoured until this fact is disproved.

Q.2. What is Bills of Exchange? What are its essentials? Mention three parties of bills of exchange.  2002, 04, 10, 20

Ans: Bills of Exchange: According to Section 5 of the Negotiable Instrument Act 1881, “A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker-directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.”

Features of bills of exchange:

a)      A bill of exchange is an instrument in writing.

b)      It contains an unconditional order to pay money and money only.

c)       It must be signed by the drawer. Unsigned document will be invalid.

d)      It must be stamped as per the requirement of law.

e)      The payment to be made must be certain.

f)       The date on which payment is made must also be certain.

g)      The bill of exchange must be payable to a certain person.

h)      The amount mentioned in the bill of exchange is payable either on demand or within a stipulated time.

i)        There are three parties in bills of exchange: Drawer, Drawee and Payee.

There are three parties to a bill of exchange namely:

a)      Drawer: Drawer is the maker of the bill of exchange. A seller/creditor that is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor.

b)      Drawee: Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods who is liable to pay the bill.

c)       Payee: A payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment.

Q.3. What are various types of bills of exchange? Explain them briefly.

Ans: Types of bills of exchange:

A)     Inland bill and Foreign bill: An inland bill or instrument is defined as a negotiable instrument which is drawn or made or payable in India and a foreign bill is a negotiable instrument which is drawn or made or payable outside India.

B)      Time bill and Demand bill: A time bill is payable at a fixed period after its date or after sight and a demand bill is to be payable on demand or on sight.

C)      Trade bill and Accommodation bill: A trade bill is bills which arise out of genuine trade transaction. An accommodation bill is drawn, accepted or endorsed without consideration to provide financial assistance.

D)     Clean bill and Documentary bill: Clean bill is that bill which is not accompanied by any documents. Documentary bill is that bill to which certain documents are attached.

Q.4. Mention advantages of bills of exchange. Give a specimen of bills of exchange.                     2013

Ans: Advantages of bill of exchange

a)      Framework for relationship: A bill of exchange represents a device, which provides a framework for enabling the credit transaction between the seller/creditor and buyer/debtor on an agreed basis.

b)      Certainty of terms and conditions: The creditor knows the time when he would receive the money so also debtor is fully aware of the date by which he has to pay the money.

c)       Convenient means of credit: A bill of exchange enables the buyer to buy the goods on credit and pay after the period of credit.

d)      Conclusive proof: The bill of exchange is a legal evidence of a credit transaction implying thereby that during the course of trade buyer has obtained credit from the seller of the goods; therefore, he is liable to pay to the seller.

e)      Easy transferability: A debt can be settled by transferring a bill of exchange through endorsement and delivery.

Specimen of bill of exchange                     2017

REVENUE STAMP       Rs.50,000	Mr. A (Drawer) Assam April 01,2019
Three Months after date pay to Mr. A or on order, a sum of rupees fifty thousand for value received. Sd/- Mr. A
To Mr. B (Drawee) Dibrugarh, Assam	Accepted By Sd/- Mr. B (April 04, 2019)

Q.5. What is Promissory note? Mention its two parties? What are its essentials? Draft a specimen of a promissory note. 2+1+6+5               2004, 06, 13

Ans: According to the Section 4 of the Negotiable Instrument Act, 1881 “A Promissory Note is an instrument in writing not being a bank note or a current note containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or do the order of, a certain person, or to the bearer of the instrument.”

There are two parties to a Promissory Note:

a) Maker: It is the debtor, who promises to make the payment. It must be signed by its maker.

b) Payee: The person who receives the payment of the promissory note is the payee.

Features of Promissory note are:

a)      A promissory note is an instrument in writing.

b)      It contains an unconditional promise to pay money and money only.

c)       It must be signed by the maker. Unsigned note will be invalid.

d)      It must be stamped as per the requirement of law.

e)      The payment to be made must be certain.

f)       The date on which payment is made must also be certain.

g)      The promissory note must be payable to a certain person.

h)      The amount mentioned in the bill of exchange is payable either on demand or within a stipulated time.

i)        There are two parties in a promissory note: Maker and Payee.

Specimen of Promissory Note (2015, 2018)

REVENUE STAMP       Rs.50,000	Mr. A (Maker) Tinsukia, Assam April 01,2019
Three months after date I promise to pay Mr. B or order a sum of Rupees Fifty Thousand only for value received. Sd/- Mr. A
To Mr. B (Drawee) Dibrugarh, Assam

Ans: Difference between bill of exchange and Promissory Note

Basis	Bill of Exchange	Promissory Note
Drawer	It is drawn by the creditor	It is drawn by the debtor.
Parties	There can be three parties to it, viz. the drawer, the Drawee and the payee.	There are only two parties to it, viz. the drawer and the payee.
Order or Promise	It contains an unconditional order to pay.	It contains an unconditional promise to pay.
Acceptance	It requires acceptance by the Drawee or someone else on his behalf.	It does not require any acceptance.
Payee	Drawer and payee can be the same party	Maker cannot be the payee of it.
Set	A bill of exchange can be drawn in sets.	Promissory note cannot be drawn in sets.
Notice	In case of its dishonour due notice of dishonour is to be given by the holder to the drawer.	No notice needs to be given in case of its dishonour.

Q.7. Define Cheque. Name its parties. Mention its features and advantages.

Ans: According to Section 6 of the Negotiable Instrument Act, 1881, “A Cheque is a bill of exchange, drawn upon a specified banker and payable on demand.”  (2014)

Specimen of blank cheque

A cheque has three parties: The Drawer, The Drawee and The payee.

The features (Contents) of a cheque are:

a)      A cheque is payable on demand either to the bearer or to the order.

b)      A cheque has three parties, viz the drawer, the drawee and the payee.

c)       A cheque is always drawn on a specified banker who is to pay the sum involved on its presentation.

d)      The signature on the cheque must tally with the specimen signature kept in the bank.

e)      A cheque must be dated and is valid for period of three months from the date of the cheque.

f)       A cheque with a future date is valid but it is payable on or after the specific date.

The following are the important advantages of cheque:

a)      It is very easy and safe to transfer of funds through cheque. The customer of a bank can transfer any amount by the help of a cheque.

b)      Cheque is the easiest from of making payment. It saves time which would have been wasted in country notes and coins.

c)       Payment by cheque can serve the purpose of receipt. Cheque can become an evidence for the payment made.

d)      The traders can make bulk payments by just drawing a cheque.

e)      The record of money transaction by cheque is kept in bank so it serves as legal evidence.

Q.8. Distinguish between cheque and bills of exchange and promissory note and cheque.          2012, 2017, 2019

Ans: Difference between cheque and bill of exchange                                  2012, 2014, 2017

Basis	Cheque	Bills of Exchange
Drawee	A cheque is always drawn on a bank or banker.	A bill of exchange can be drawn on any person including a banker.
Acceptance	A cheque does not require any acceptance.	It requires acceptance by the Drawee or someone else on his behalf.
Payment	A cheque is payable on demand without any days of grace.	A bill of exchange may or may not be payable on demand.
Stamp	A cheque does not require any stamp.	A bill of exchange must be stamped.
Payee	A cheque may be issued payable to the bearer.	A bill can never be issued payable to bearer.
Days of grace	No days of grace are allowed for a payment of a cheque.	3 days of grace are allowed for payment of a bill unless it is payable on demand.
Crossing	A cheque may be crossed.	A bill of exchange cannot be crossed.

Difference between Promissory Note and Cheque:                        2015, 2020

Basis	Promissory Note	Cheque
Nature	It is an unconditional promise by the maker to pay the money.	It is an unconditional order to the bank to pay certain sum of money.
Days of Grace	Three days of grace are allowed for payment.	No days of grace are allowed for payment.
Crossing	A promissory note cannot be crossed.	A cheque can be crossed.
Stamping	A promissory note must be stamped.	A cheque does not require a stamp.
Drawer	The maker of a promissory note is one who pays the money.	The drawer of a cheque is one who withdraws the money from the drawee.
Payee	The maker of promissory note cannot be payee.	The drawer of a cheque can be the payee.

Q.9. Define holder (2015) and holder in due course (2014, 2018) of Negotiable Instrument. When a person becomes a holder in due course?

Ans: According to Section 8 of the Negotiable Instrument Act, 1881, “Holder of a promissory note, bills of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties there to.”

According to Section 9 of the Negotiable Instrument Act, 1881, “Holder in due course means any person who, for consideration, become the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof if payable to order, before the amount mentioned, in it became payable and without having sufficient course to believe that defect existed in the title of the person from whom he derived his title.”

A person is said to be holder in due course in the following cases:

a)      A negotiable instrument must be in the possession of the holder-in-due-course.

b)      A negotiable instrument must be regular and complete in all aspects.

c)       The instrument must have been obtained for valuable consideration.

d)      The instrument must have been obtained before the amount mentioned therein becomes payable or before maturity.

Q.10. What are the rights enjoyed by the Holder of Negotiable Instrument?

Ans: The Holder of a Negotiable Instrument enjoys the following rights:

a)      He can claim payment of the instrument and can sue in his own name on the instrument.

b)      An endorsement in blank may be converted by him into an endorsement in full.

c)       He is entitled to cross a cheque either generally or special and also with the words “Not Negotiable”.

d)      He can negotiate a cheque to a third person, if such negotiation is not prohibited by the direction given in the cheque.

e)      A duplicate copy of a lost cheque may be obtained by a holder.

Q.11. Explain the rights and privileges of Holder in due course.                2020

Ans: A Holder in Due Course enjoys the following rights and privileges:

a)      He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.

b)      All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.

c)       No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.

d)      Right in case of fictitious bills: Where both drawer and payee of a bill are fictitious persons, the acceptor is liable on the bill to a holder in due course.

e)      Right of the holder in due course in case of inchoate instrument: If a negotiable instrument was originally an inchoate (incomplete) instrument and subsequent transferor completed the instrument for a sum greater than what was the intention of the market, the right of a holder in due course to recover the money of the instrument is not at all affected.

f)       Right is cane the instrument is obtained by unlawful means or for unlawful consideration: A person liable on negotiable instrument cannot denied himself against payment to a holder in due course on the ground that the instrument was lost or obtained from him by means of an offense or fraud or far an unlawful consideration.

g)      Estoppel against endorser to deny capacity of prior parties: The endorser of a negotiable instrument in a suit thereon by the holder-in-due-course cannot deny the signatures or capacity to contract of any prior party to the instrument.

Q.12. Write the differences between “Holder” and “Holder in due course”.

Ans: Distinction between “Holder” and “Holder in due course”:

Basis	Holder	Holder in Due Course
Meaning	Holder means any person entitled in his own name to the possession of the negotiable instrument and to recover or receive the amount due thereon from the parties thereto.	A holder in due course means a holder who takes the instrument in good faith for consideration before it is overdue and without any notice of defect in the title of the person who transferred it to him.
Consideration	The existence of consideration is not essential in case of a holder.	The existence of consideration in essential in case of a holder in due course.
Title in good faith	A Holder may or may not obtained title in good faith.	A Holder in due course obtained the title in good faith.
Maturity	A person can become holder, before or after the maturity of negotiable instrument.	A person will be a holder in due course only before the maturity of negotiable instrument.
Right to sue	A holder cannot sue all prior parties.	A holder in due course can sue all prior parties.

Q.13. What do you mean by Negotiation and endorsement (2016)? Who can endorse? What are the different kinds of endorsement? Explain them briefly. 99, 09, 14, 2018, 2020

Ans: Negotiation refers to the act of transferring a negotiable instrument by one person to another with a view to convey the title or ownership to the other. It can be done by mere delivery and by endorsement and delivery.

The term “Endorsement” of a negotiable instrument means writing of a person’s name of the back of the instrument for the purpose of negotiation. According to Section 15 of the Negotiable Instrument Act, 1881, “When the maker or holder of a negotiable instrument sings his name, otherwise than such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto he is said to have endorsed the instrument.” The person who puts his signature is called the “endorser” and the person in whose favour it is being endorsed in called the “endorsee”.

Endorsement of negotiable instruments can be made only by the following parties of to the instrument:

a)      The Payee b) The holder c) The drawer of a bill of exchange d) The endorsee e) The maker.

Different kinds of endorsement with their respective significance are explained below:

a)      Blank or General Endorsement: An endorsement is said to be blank or general, if the endorser sings on the back or on the face of the instrument without specifying the name of any endorsee. The effect of his endorsement makes the instrument payment to bearer even though originally it was payable to order. For example, a cheque payable to Mr. X or order and Mr. X endorse the cheque to Mr. Y by simply affixing his signature. The effect of this endorsement makes the instrument payable to bearer even though originally it was payable to order.

b)      Full or Special Endorsement: If an endorser signs his name and adds a direction to pay the amount mentioned in the instrument to or to the order of a specified persons, such an endorsement is said to be a full or special endorsement.  For example, “Pay to Mr. X or order” S/d Mr. Y is an example of full endorsement. Here Mr. Y is the endorser and he has mentioned the name of the endorsee – Mr. X.

c)       Conditional Endorsement: An endorsement is conditional or qualified if it limits or neglects the liability of the endorser.  For example, “Pay to Mr. X on his marriage” s/d Mr. Y is a conditional endorsement. In case of conditional endorsement, the liability of the endorser and the rights of the endorsee becomes conditional on the happening of a particular event.

d)      Restrictive Endorsement: An endorsement is said to be Restrictive, when it prohibits or restrictive the future negotiability of the instrument, it merely entitles the holder of the instrument to receive the amount on the instrument for a specified purpose. For example, “Pay to Mr. X only” s/d Mr. Y. This endorsement confers all the rights of an endorser to the endorsee except the right of negotiation.

e)      San Recourse endorsement and San frais endorsement: In San recourse endorsement, the endorser by his expressed words excludes his own liability and in San frais endorsement, the holders have no right against the endorser if the instrument is dishonoured. For example,”Pay to Mr. X or order – Notice of dishonour waived.” These types of endorsement are generally used to avoid personal liability.

f)       Facultative endorsement: In such type of endorsement, the endorser by his express words increases his liability or give up some of his rights under the negotiable instruments Act.

g)      Partial Endorsement: When the endorser intends to transfer to the endorsee only a part of the amount of instrument by endorsement, the endorsement is said to be partial. Such type of endorsement is legally invalid. For example, when a cheque of Rs. 10,000 is endorsed for Rs. 5000 is an example of partial endorsement.

h)      Forged endorsement: When a negotiable instrument is endorsed with the forged signature of the endorser, the endorsement is called forged endorsement.

Difference between blank and special endorsement

Basis	General/Blank endorsement	Special Endorsement
1. Name of the endorsee	The name of the endorsee is not mentioned.	The name of the endorsee is mentioned.
2. Nature	It is a bearer instruments	It is an order instrument or payable on order.
3. Conversion	General endorsement can be converted into special endorsement.	Special endorsement cannot be converted into general endorsement.

Q.14. Write briefly about the rules and regulations of a valid endorsement.       2012, 2016

Ans: The rules and regulations regarding endorsement may be summarised as follows:

a)      Signature of the endorser: A regular endorsement implies signature of the holder of the negotiable instrument himself or his duly authorised agent on its face or back of the instrument for the purpose of negotiation.

b)      Spelling: The endorser must sign his name in the exact spelling as appearing on the negotiable instrument.

c)       Prefixes and suffixes to be excluded: Endorsement need not contain the complementary Prefixes or Suffixes e.g. Mr., Mrs., Shri, Smtetc need not be given by the endorser otherwise the endorsement would not be regular.

d)      Sign in Ink: Endorsement in pencil or by a rubber stamp is usually not accepted.

e)      Endorsement by a married woman: In the case of married women, the name of her husband must also be mentioned in the endorsement.

f)       Endorsement by illiterate person: An illiterate person can make a valid endorsement by putting his thumb impression on the instruments in the presence of a witness.

g)      Endorsement by companies, firms: In case of joint stock companies, firms, associations etc., the endorsement should be made by persons who are dully authorised to sign on behalf of these institutions.

h)      Endorsement by an agent: When a negotiable instrument is endorsed by an agent on behalf of the principal he should disclose the fact that he is endorsing as an agent by adding the words “For and on behalf of”.

i)        Delivery of the instrument: An endorsement must be completed by delivery of the instrument.

Q.15. What are the liabilities or responsibilities of an Endorser?

Ans: Following are the most important liabilities of an Endorser:

a)      As per Section 35 of Negotiable Instrument Act, The endorser is liable to all subsequent holders in case of dishonour of the instrument by the drawee or payee.

b)      The liability does not cease with the death of either the endorser or endorsee. The legal representatives of an endorsee may sue the legal heirs of the endorser.

c)       The endorser shall be discharged once the payment is made to the holder in due course.

d)      Endorser cannot be held liable if he is not served the notice of dishonour.

e)      Endorser can endorse ‘sans recourse’ and thus get rid of his liability.

Q.16. What is Bank Draft? What are the differences between Bank Draft and Cheque? 2015, 2019

Ans: Bank Draft also known as banker’s cheque which is drawn by one branch after receiving cash from his customer and such payable on demand by another branch of the same bank to the person named in the draft.

Features of bank draft:

a) It is payable on demand. b) It is drawn by one branch on another. c) It is conditional order of payment. d) It bears no stamp. e) The name of the person to whom payment is to be made is written on bank draft.

Distinction between bank draft and cheque:

a)      Bank Draft is payable in different cities, whereas Cheque is payable in same city it is prepared.

b)      Demand Draft is drawn on individuals also whereas Cheque is drawn on banks.

c)       Bank Draft or Demand Draft can be prepared for any station, where we need money. But a cheque is like a local draft, which can be encashed locally only.

Q.17. What do you mean by Payment In Due Course? What are its essential features?  2012, 2019

Ans: The payment of a negotiable instrument should be made to the right person by the paying banker or the acceptor of the bill; otherwise the latter shall be responsible for the same. The negotiable instrument Act provides protection to the paying banker or the acceptor of the bill only when payment is made as per the provisions of the Act. Payment of the amount due as per the provisions of the Act is called payment in due course.

According to Section 10 of the Negotiable Instrument Act, 1881, “Payment in due course means payment according to the true intention of the parties and without negligence to any person in possession thereof under circumstances which do not arouse suspicion about his title to possess the instrument and to receive payment.”

Essential features or conditions of payment in due course:

a)      The payment should be made according to the true intention of the parties thereto.

b)      Payment may be made either in cash or through a clearing house or by a draft.

c)       The paying banker should made payment in good faith and without negligence.

d)      Payment must be made to the person who has the actual possession of the instrument.

e)      The payment must be made under the circumstances which do not arouse suspicion about his title to possess the instrument and to receive payment.

Q.18. Give the meaning of Hundies.  Write the two main types of Hundi. Distinguish between Bills of exchange and Hundi.                  2015, 2020

Ans: The word, “Hundi” has been derived from the Sanskrit word “hund” or “huna” (2017) which means to “collect”. A Hundi is a traditional bill of exchange which is written in oriental Indian languages.  A Hundi may be defined as “a written unconditional order signed by the creditor, directing the debtor to pay a certain sum of money on demand or after a specified period to a person named therein”. It may be payable at sight or demand or at the expiry of a certain period. (2012)

Types of Hundies:                            2015

1) Darshani Hundi: It is a type of Hundi which is payable at sight or on demand.

2) Muddati Hundi: It is similar to a time of bill of exchange. It is payable after a specified period of time. It is also known as “Miadi Hundi.”

3) Shah-Jog Hundi: It is drawn by a merchant upon another asking the later to pay the amount of the Hundi to a shah – respectable person in the market.

4) Jokhmi Hundi: It is drawn by the consignor of goods on the consignee against the goods shipped.

5) Nam-Jog Hundi: It is payable to the person named on the Hundi.

6) Dhani Jog Hundi: It is payable to the “dhani” i.e. owner who holds the instruments or to the bearer.

7) Nishan Jog Hundi: It is payable to the person who present it for payment.

8) Jawabi Hundi: It is used to transfer money from one place to another. It is similar to “Money Order”.

Difference between Bills of exchange and Hundi:

Basis	Bills of Exchange	Hundi
1. Status	It is recognised by the Negotiable Instruments Act, 1881.	It is not recognised by the Negotiable Instruments Act, 1881.
2. Stamping	A bill requires a stamp.	Hundi does not require any stamp.
3. Acceptance	A bill must be accepted by the drawee.	A Hundi does not need acceptance.
4. Language	A bill is written generally in English.	A Hundi may be written in any recognised Indian language.
5. Condition	A bill can never be conditional.	A Hundi can be conditional.