INTRODUCTION

In India, there  is reason to believe that instrument  to exchange were in use from early times  and we find that papers representing money were introducing into the country by one  of the Mohammedan sovereigns of Delhi in the early part of the fourtheenth century. The word 'hundi', a generic term used  to denote instruments of exchange in vernacular is derived from the Sanskrit root 'hund' meaning 'to   collect' and well expresses the purpose to which instruments were utilised in their origin. With the advent of British rule in India commercial activities increased to a great extent. The growing demands  for money could not be met be mere supply of coins; and the instrument  of credit took the function of money which they represented.

Before the enactment of the Negotiable Instrument Act, 1881, the law of negotiable instruments as prevalent in England  was applied by the Courts in India when any question relating to such instruments arose between Europeans. When  then parties were Hindu or Mohammedans, their personal law was held to apply. Though neither the law books of Hindu nor those  of Mohammedans contain any reference to negotiable instruments as such, the customs prevailing among the merchants of the respective community were recognised by the courts and applied to the transactions among them. During the course of time there had developed in the country a strong body of usage relating to hundis, which even the Legislature could not  without hardship to Indian bankers and merchants ignore. In fact, the  Legislature felt  the strength of such local usages and though  fit to exempt them from  the operation of the Act with a proviso that such usage  may be  excluded altogether by appropriate words. In the absence of any such customary law, the principles derived from English law were applied to the Indians as rules of equity  justice and good conscience.

The  history of the present Act is a long one. The Act was originally drafted in 1866 by the India Law Commission and introduced  in December, 1867 in the Council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English  Law which it contained. The Bill had to be redrafted in 1877. After the lapse of a sufficient period for criticism by the Local Governments,  the High Courts and the chambers of commerce, the Bill was revised by a Select Committee. In spite of this Bill could not  reach the final stage. In 1880 by the Order of the Secretary of State, the Bill had to be referred to a new Law Commission. On the recommendation of  the  new Law Commission the Bill was re-drafted and again it was sent to a Select Committee which adopted most  of the additions recommended by the new Law Commission. The draft thus prepared for the fourth time was introduced in the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881 (26 of 1881)