NOTES ON THE INDIAN NEGOTIABLE

INSTRUMENTS ACT.

By M. D. CHALMERS, M.A., &c.

THE Indian Government has recently passed an Act of considerable importance, not only to the Indian banks and houses of business, but also to all English houses which are engaged in the Indian trade or have dealings with Indian bills.

The Indian Negotiable Instruments Act, 1881 (Act XXVI. of 1881) was passed on the 17th December, last year, and came into operation on the 1st of March, this year. It codifies for India the law relating to bills of exchange, promissory notes, and cheques. The Act affects English banks and houses in two respects; First, in the case of bills drawn in India on England, it regulates the rights and liabilities of the Indian drawers and indorsers. Secondly, in the case of bills drawn in England on India, it regulates the rights and liabilities of the acceptors; and further prescribes and regulates the proceedings to be taken in India by the holders of dishonoured bills, in order to preserve their right of recourse against English drawers or indorsers.

For the most part, the Indian Act reproduces in a statutory form the existing English law relating to bills, notes, and cheques. Even such anomalies as days of grace, the dubious rule as to conditional indorsements, and the negotiability of a bill indorsed without words authorizing transfer, are faithfully preserved. In the few points in which the code-for such it is-departs from English law, it is not always very clear whether the departure is intentional, or whether it is due to the accidents of drafting.

On the whole, the wording of the Act is clear and simple, though a few of the sections are not very happily expressed. For instance, the definition of "holder" (Sec. 8), which is made to include the true owner of a lost bill, is not a fortunate one. But, for the most part, the law relating to negotiable instruments is expressed in plain and untechnical language. No principle of importance is omitted; yet the whole Act consists of only 137 sections. There is no doubt that a clear and concise statement of the law on this important and difficult subject, in the authoritative form of an Act, will be an immense boon to the mercantile as well

as to the legal community. The Act, of course, deals only with the principles of law peculiar to bills, notes, and cheques. In so far as these instruments are governed by rules of law common both to them and other contracts, such rules must be sought for outside the limits of the Act. As regards general principles, the Act is supplemented by the provisions of the Indian Contract and Evidence Acts, while, as regards special matters, such as stamps, and the limitation of actions, the provisions of the Indian Stamp and Limitation Acts must be consulted.

Passing now from generalities, it may be convenient to call attention to a few sections of the Act which appear to have an international operation.

By Sec. 104, "Foreign bills of exchange (i.e., bills drawn out of British India), must be protested for dishonour when such protest is required by the law of the place where they are drawn." The probable effect of this clause is that when a bill drawn in England on India is there dishonoured, it must be protested. But the point is not quite clear, because the necessity for protest is determined by the law of the place where the bill is dishonoured, and English law, of course, can only deal with the case of bills dishonoured in England.

The Act contains no provision for the case when a bill is dishonoured in a place where the services of a notary cannot be obtained; nor does it specify the time within which a dishonoured bill is to be noted or protested. Ss. 99, 100 merely require the noting and protest to be made "within a reasonable time" after the dishonour of the bill.

The most important part of the Act, perhaps, to English holders, is that which deals with conditional acceptances. It must be borne in mind that a bill is accepted conditionally which is accepted payable against delivery of bills of lading-a common form of acceptance in the Indian trade (Smith v. Vertue, 30 L. J. C. P. 60). By Sec. 86, "An acceptance is justified when it is conditional, declaring the payment to be dependent on an event therein stated.

"If the holder of a bill of exchange acquiesces in a qualified acceptance, all previous parties whose consent is not obtained to such acceptance are discharged as against the holder and those claiming under him, unless, on notice given by the holder, they assent to such an acceptance."

It is evident that unless there is clear authority from the drawer to take a conditional acceptance, the holders should exercise great caution in taking one. He is of course under no obligation to take a conditional acceptance. A holder both in England and in India is entitled to an absolute and unconditional acceptance, and may, if he likes, treat a conditional acceptance as equivalent to a refusal to accept.

The Clearing System in Scotland, Ireland, and the Colonies. 267

A clause in the Act which deserves the attention of Indian banks is Sec. 85. That section provides that "where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course." It is not clear whether this enactment protects the paying banker when the indorsement of the payee is genuine but a subsequent indorsement is forged. The corresponding English Act, 16 & 17 Vict. c. 59, expressly provides for the latter case, as well as for the more common case where the indorsement of the payee is forged.

One other point deserves mention. For the purposes of the Act, the term "negotiable instrument" is confined to bills of exchange, promissory notes, and cheques. Negotiable bonds and scrip are not touched by the Act. As regards such instruments, therefore, the lines of English law, in so far as it is settled, would presumably be followed.

THE CLEARING SYSTEM IN SCOTLAND, IRELAND, AND THE COLONIES.*

SCOTLAND.

DURING almost the entire period of the banking history of Scotland notes have formed the principal medium of exchange, and for very many years arrangements for their daily exchange have been in force in most of the towns. The establishment of Draft Clearings is of comparatively recent date, and commenced with that of Glasgow in 1856, but has been already extended to seven other places. They all appear to be very highly organised institutions, and to afford extensive convenience to their members. They clear not only cheques on all the branches of the banks associated, but also those drawn on branches of any other banks at such places as the delivering bank has no branch. Inland bills, payable at other places, and having not more than five days to run, are also included in the clearing. Unfortunately, no account of the transactions of any of these clearing-houses is obtainable, and though we may reckon that in some of the cities the amounts are considerable, it is

The following remarks continue an enquiry into the origin and working of some of the principal Clearing Houses in this country and elsewhere, which was commenced by the note on the London Clearing House, pp. 89-102 of this volume of the Journal, and continued on pp. 222-226.

probable that they would appear small as compared with the known activity of banking business in Scotland. The fact that all the banking offices, some nine hundred in number, have between them but ten head offices, would alone account for a large proportion of the transactions being settled without appearing in the clearing.

The establishment in Edinburgh of a Clearing House for note exchanges is quoted by Mr. Gilbart as having preceded the commencement of the London clearing, but its operations were not extended to drafts and bills till 1860.

An Exchange of Notes is held daily, except on Mondays, at 10 a.m., and on Saturdays, at 1.30 p.m., an additional one is held for large notes only. Fifteen minutes after the time appointed the doors are closed; any Bank not having appeared by that time being precluded from delivering notes for clearing, but being required to clear those presented by other banks. Each bank has a separate enclosed desk, wherein one clerk is required to remain to receive the charges of notes, whilst another is engaged in delivering those on the other banks at their respective desks. To prevent disputes, the clerks are required to remain in the Exchange Room until the notes have been counted.

The Draft Clearing opens at 1 p.m. on ordinary days, on Saturdays at 11 a.m. and on half-holidays at 10 a.m., on each occasion closing fifteen minutes thereafter. Charges are delivered complete, with lists which are at once checked by the clerks receiving them. Unpaid drafts, drawn on Head Offices, are returned direct to the Head Office of the bank presenting them by 3 p.m., on ordinary days, and by 12.30 p.m., on Saturdays; those drawn on district branches are returnable through the Clearing House on the day after that on which they were cleared. Those returned direct are repaid in cash.

The settlements are conducted during alternate months by the Bank of Scotland, and the Royal Bank of Scotland, and are divided into two classes, the ordinary settlements being on Tuesdays, Wednesdays, Fridays and Saturdays, and the general settlements on Mondays and Thursdays. The settling bank on each ordinary settlement receives from the Debtor banks, and delivers to the Creditor banks, Exchange vouchers for the balances due, including therein the whole transactions of the day, both in notes and drafts. These vouchers must be brought into the next clearing, and bear interest at the rate of 2 per cent. until then, that is to say for one day, except on Saturdays, when they bear two days' interest. The interest is included in the next Voucher given. On Saturdays, special Exchange Vouchers are given for the balances of the Large Note Exchange.

On Mondays and Thursdays the General Settlement takes place at 2 p.m. Notes exchanged the same day are not included, but the balances of the day's draft clearing are brought in (with the excep

tion of the odd shillings and pence, which are paid for in cash) and thus the settlement includes the net result of the transactions of the three days preceding. The final balance is paid by transfer in London four days later, and the Debtor banks, whilst advising these transfers to be made, deliver to the Creditor banks letters informing them of the same. These letters bear interest at the rate of 3 per cent. per annum, payable in cash on the fourth day, or, if that should be a Bank Holiday in London, on the first business day thereafter, with additional interest for that time.

These somewhat complicated arrangements will perhaps be better understood by reference to the rules of the Edinburgh Exchanges and Clearing; which, however, it is unnecessary to print here, as they have been so recently given in Mr. Wenley's paper on the "Development of Banking in Scotland," and will be found at pp. 157-161, vol. III. of this Journal.

The Glasgow Draft Clearing dates from 1856, and includes as members the principal offices of the seven banks in the city, through whom are cleared drafts or bills on their numerous district offices, and on their other branches, as mentioned above. The arrangements are generally similar to those in force at Edinburgh. The hours of clearing are 12.30 p.m. on ordinary days, on Saturdays 11 a.m., and on half-holidays 10 a.m., the doors being closed ten minutes after the time appointed. Charges are delivered complete, with lists of the items, and checked at the house by the clerk receiving them. The balances are settled through the medium of the Bank of Scotland, or the Royal Bank of Scotland, each acting as settling bank for a month at a time, the Exchange Vouchers (odd shillings and pence being excluded and paid for in cash) being brought into the next Note Exchange. The balances of the Note Exchanges are settled by drafts on Edinburgh, which are sent daily per Railway Guard to Edinburgh, where they are received by the Clearing House Messenger, and by him delivered to the various banks.

The other clearing-houses are at Aberdeen, Dundee, Greenock, Inverness, Leith and Paisley. In each town all the banks are members of the clearing; and two, or at Aberdeen three of them, conduct the settling by turns. In every case the Clearing is conducted in an Exchange Room, and the arrangements are almost exactly similar; Note Exchanges being generally held at an early hour every day except Mondays, and twice on Saturdays. Draft clearings at later times, lists of items being generally delivered with the charges. In some cases balances of Note Exchanges are carried forward to Draft Clearing, and final settlement made then by draft on Edinburgh; in others Draft balances are held over by Exchange voucher till the next Note Exchange, when drafts on Edinburgh are given for balances. In