- Kinds of Hundis
- Case Law
The concept of Bills of Exchange is not something which is new and was unknown earlier. It is the modern form by which we know a bill of exchange. In the vernacular language a bill of exchange is called a Hundi. These are negotiable instruments which are written in the oriental language.
The Negotiable Instruments Act, 1881 (hereinafter referred to as the Act) does not define Hundis and does not include provisions for governing them.
Kinds of Hundis
Following are two types of Hundis:
- Darshni Hundi
These types of Hundis are paid on sight. They can be transferred by endorsement and they pass amongst the indigenous bankers freely. These are negotiable and their price depends upon the demand and supply. It may be sold at a higher rate or at a discount.
These are the most common type of hundis and they become payable on demand. Once they are received by the holder they must be presented for collecting the money within a reasonable time.
- Muddati or Miadi hundi
Such types of Hundis are payable after a specific period of time. Loans are advanced by the shroffs on the basis of these Hundis. The interest is deducted in advance by the shroffs for the period upto the due date. The Hundi includes the amount advanced and the rate of interest as part of an agreement in the Hundi.
- Shah Jog Hundi
Shah denotes a respectable person. Such a Hundi is payable only to a Shah. The hundi requires no endorsement and can be transferred freely from one person to another by mere delivery. The person upon whom the hundi is drawn must make sure that he makes the payment only to a Shah on a Shah jog hundi.
- If the payment is made to any other person than a Shah then the person will not be entitled to recover the money paid to the holder of the hundi from the person who has drawn the hundi.
- A hundi which is a Shah Jog Hundi is paid on the responsibility of the Shah. A Shah Jog Hundi passes from many hands and no endorsement is required. Once it reaches a Shah, the Shah makes necessary inquires for securing himself and he then presents it to the maker of the Hundi for payment or acceptance.
- Nam Jog Hundi
This is a hundi which is payable to the person whose name is specified in the hundi. It is like a bill of exchange and can be negotiated like that. It is just like a Shah Jog Hundi in nature; the only difference is that in a Nam Jog Hundi the name of the person is written who has to be paid than the word Shah.
- If a Nam Jog Hundi is altered to turn it into a Shah Jog Hundi then the hundi becomes invalid and it can be payable to the order of the payee.
- Dhani Jog Hundi or Dekhandar Hundi
The term Dhani translates into ‘holder’. It is a type of hundi which is payable to the person holding the Hundi or the bearer. It can be negotiated by delivery and it is just like a instrument which is payable to the bearer.
- Firman Jog Hundi
A firman means an order. As the name suggests that a firman hundi is one which is payable to order. It can also be negotiated like instruments payable to orde. It is also payable on delivery and can be endorsed.
- Jawabee Hundi
A Jawabee Hundi is used for transferring money from one place to another. The person who receives the money has to send a jawab to the remitter that he has received the money.
- Jokhami Hundi
Jokhami means Risky. Such a type of hundi is drawn on goods which are shipped on vessels mentioned in the hundi. It implies a condition that the money will be paid by the person who is buying the goods only when the goods reach safely. The goods are the ones for which the hundi has been drawn.
- Such type of Hundi can be said to be a culmination of a bill of exchange and an insurance policy. It appears that there is a twin purpose for such a type of hundi. Firstly to put funds in the hands of the drawer and secondly to make an insurance upon the goods for which the hundi is made.
- Illustratio: A sells apples to B for Rs 500/-. A draws a Jokhami hundi by which he asks B to pay the amount to the holder of the hundi. B accepts this on a condition that the amount will be paid only when the goods are delivered to B. A discounts of the hundi with a third person who acts like an insurer.
This third person who is the insurer pays the amount of the Hundi after making deductions based upon the risk involved in the carriage of goods from A to B and the interest. If the goods reach the buyer i.e., B safely the insurer gets the amount however, if they don’t then the insurer has to bear he loss.
A Jokhami hundi places the maker of the Hundi in funds since he gets the price for the products sold with less charges of insurance immediately. At the same time the person who purchased the goods becomes insured and pays only on safe delivery of the goods.
Hundis are financial instruments which are used in the India for trade and credit transactions. They have been used for the purposes of:
- transferring funds from one place to another as remittance instruments;
- for borrowing money as credit instruments;
- as bills of exchange for trade transactions.
A Hundi is an order which is in writing and it is unconditional. It is made by a person directing another person to pay the amount mentioned in the Hundi to the person whose name is specified in the Hundi.
Hundis are an informal mode of instrument or bill of exchange, thus it has no place in the legal system and the Negotiable Instruments Act does not regulate or cover them. They are a bill of exchange and were used in a manner in which cheques are used today in common parlance. They were issued by local or indigenous bankers in a city.
They were generally drawn in the vernacular language in accordance with the local customs which the merchants observed. It is derived from a Sanskrit word ‘hund’ which translates in to ‘to collect’.
Hundis are a part of the local customs and traditions. Although they do not have a place in the Act; but they are regarded by a court of law only is there is local custom pertaining to a Hundi.
The person who draws the Hundi is called a Shroff or a Nanavati. The payee is called Rakhya Dhani. Once the Hundi is paid or cancelled it becomes invalid and is called Khoka.
Although the Act does not discuss a Hundi or its regulation; Sec 1 of the Act contemplates that the act does not affects any local usage relating to an instrument which is in the vernacular form.
It further contemplates that the usage of the local customs can be excluded and the regulation by the Act can be done if it is expressly mentioned by way of words in the instrument that the hundi will be regulated by the laws of the Act.
- In the case of Harsukdas Balkissendas v Dhirendra Nath Roy AIR 1941 Cal 498, it was held that there is no definition of a Hundi in the Negotiable Instruments Act, although a Hundi is a bill of exchange.
- In the case of Mangal Sen-Jai Deo Prasad v. Ganeshi Lal AIR 1936 All 396, it was held that a Hundi to be a bill of exchange shall satisfy some conditions:
- It should be an instrument in writing;
- It must have an unconditional direction or order;
- It must be signed by the maker;
- It must direct the drawee to pay an amount of money;
- It must only be paid to the bearer of the hundi or to the order of a certain person.
- In the case of Hanuman v Fattu AIR 1967 Raj 235, it was held that the analogy of a cheque which is post dated can’t be applied to the instruments of a hundi or a promissory note.
- In the case of The Central Bank Of India Ltd. v Khub Ram Roop Chand AIR 1960 P H 157, it was held that a ‘Shah Jog Hundi’ does not technically fall within the definition of a negotiable instrument or a bill of exchange as per the Negotiable instruments Act, but it is a negotiable instrument and has all the requisites of it.
- It was further held that Sec 1 of the Negotiable Instruments Act specially recognises such instruments which are written in a vernacular language. A hundi of such a nature must be presented to the drawee and if it is dishonoured then the notice must be given to the drawer of the Hundi and the other parties.
- The technicalities and time period with regard to dishonour as per the Negotiable Instruments Act will not apply but a notice must be given to the drawee and other parties. The provisions of the Negotiable Instruments Act will not apply technically but will apply substantially.
- In the case of Krishna Devi v Firm Tikayaram Lekhraj Batra AIR 2002 MP 47, it was held that a document cannot be analysed by looking at the heading rather it needs to be looked as a whole. Mere insertion of the word Hundi on the top of the document will not make it a Hundi.
- It was further held that there are three types of hundi which are darshani hundi that are payable on sight, muddati hundi that are paid after a specified time and shah jog hundi which are paid only to a person who has respectable standing . Thus the responsibility is on the drawee to ascertain the respectabilityof the payee before making the payment.
- In the case of Lallubhai Bhikhabhai Chunawalla v Ratanchand Raichand (1939) 41 BOMLR 1237, it was held that an alteration in a hundi cannot be done. If a person alters the Hundi from a nam jog hundi to s shah jog hundi then the same will be a material alteration making the hundi invalid or void.
Thus it can be concluded that although a Hundi has not been specifically dealt or defined in the Act, it has been held to be a bill of exchange. The Act has given scope for the local customs and usages to keep themselves alive. Many a times the indigenous people are reluctant to rely on the banking system. Such scope helps them.
For an instrument to be a Hundi it must satisfy the elements of a bill of exchange. The in It should be an instrument in writing and It must have an unconditional direction or order. It shall be signed by the maker and it must direct the drawee to pay an amount of money. This money must only be paid to the bearer of the hundi or to the order of a certain person.