Amending Negotiable Instrument Act—1

After joining a bank at the beginning of career, this writer had to undergo a month-long extensive training programme before placement in the operational department. Although the training programme was designed to cover all banking areas including general banking, credit and foreign exchange, the main focus was on Negotiable Instrument (NI) Act, 1881. One renowned central banker, who was conversant with this law, was responsible for imparting training to us on the NI Act. In one session while he was explaining various crossing of cheques, we asked about the implication of crossing with 'Not Negotiable'. In response, he said "stealing is a good art, if not caught". To speak the truth, we did not understand what he had meant by the proverb and even none of the participants could understand the implication of the crossing with "Not-Negotiable".
Subsequently, we had opportunity to participate in some other training programmes, organised by the BIBM (Bangladesh Institute of Bank Management) on NI Act, 1881 where many speakers from nationalised commercial banks had taken classes on this topic. Yet we did not clearly understand this Act. In fact, this was not the problem of speakers; rather the Act itself was a problem because this law had been drafted in the most complicated language making very clumsy legal interpretation.
In general, legal books are written in a very complex language making it beyond common people's understanding. Linguistic complexity and interpretational ambiguity of the NI Act is more difficult than any other law or Act. As a part of LLB programme, this scribe have had an opportunity to study some laws and had never found any law book written in such a complicated language as the NI Act. Consequently, most people do not understand this Act and in many cases, different people interpret various ways which create more confusion among the people, particularly the bankers, who are to apply the Act in their day-to-day operation.
The way we tried to grasp the basic knowledge of the NI Act, 1881 and its applicability as well as implication in discharging banking responsibility is ostensibly impossible for most of the ordinary bankers.
Furthermore, this Act was enacted in 1881 i.e. 133 years ago but is still in force and banking transactions are carried out in compliance with this Act. During this long period, banking business has seen phenomenal development. Revolutionary changes have taken place in the banking transaction.
Cheque is no more only a means of withdrawing money, as many other sophisticated banking services have been developed and used in banking business. Internet banking, mobile banking and electronic fund transfer are now very popular and faster means of transaction are followed by the banks.
Besides, use of bank card, instead of deposit slip or cheque books, is getting popularity in banking transaction. Following changes that had taken place during the last hundred years and development of many new banking services, some sections of the NI Act, 1881 has lost its enforceability. At the same time, new banking services as well as modern means of transaction require legal protection which has been missing in this Act.  
Since enactment of this Act in 1881, no amendment or change was made to it. On the other hand, enactment of the Bank Companies Act, more widely enforcement of the Contact Act, the Criminal Act (CRPC/CPC), the Registration Act, the AML (Anti Money Laundering) Act and some other relevant acts in resolving disputes over bank transactions have understated the enforcement of the NI Act. In many cases, some sections of this Act are found to be conflicting with other applicable laws of the country.
Moreover, because of complex as well as ambiguous nature of this law, people involved in the fraudulent activities in banking transactions, are hardly charged under the NI Act. Instead, the accused persons are indicted under other laws. Besides, some new concepts have emerged in the present-day banking operation and among them KYC (Know Your Customer), KYCC (Know Your Customer's Customer), DD (Due Diligence) and EDD (Enhanced Due Diligence) are the most complying factors for the bankers.
Under the changing scenario and in the era of modern banking, time has come to bring about necessary changes to the NI Act in order to make it up-to-date so that it can meet the needs of present-day banking. In this connection, some sections are required to be repealed while some new sections may have to be inserted.
DEFINITION OF NI: Section 4, 5 and 6 of this Act has defined the negotiable instruments. According to the NI Act, only promissory note, bill of exchange and cheque are defined as Negotiable Instrument. Under Section 4 and 5, promissory notes or demand promisory (DP) note and bill of exchange have been explained while cheque has been described under Section 6 of this Act.
All three instruments are exclusively used in banking transactions. Bill of exchange is used as an important document against the transactions carried out under Letter of Credit (LC) while DP Note is used as a part of basic documents executed against sanctioning credit facility.
    Cheque is the most popular and common instrument used in withdrawing money, making payment and settling transactions. This is the only instrument rampantly used in carrying out banking transactions. Therefore, importance of applying the knowledge of the NI Act in handling cheque is paramount. Every banker has to have clear understanding of this Act, particularly the sections applicable to honouring cheques.
Transaction carried out against LC is governed by UCPDC (Uniform Customs and Practice of Documentary Credit) and any dispute arisen out of transaction undertaken by LC is resolved within the purview of the UCPDC. Although bill of exchange is a part of export/import documents, the use of Section 4 of the NI Act in dealing with this instrument is very limited and its applicability arises only when the dispute escalates to the court.   Otherwise, this section does not come to any use.
Therefore, retaining Section 4 in respect of bill of exchange seems to be redundant. Similarly, a borrower has to execute a bunch of documents which include borrowing agreement and personal guarantee. These two documents are good enough to bind the borrower to repay the loan.
Although the borrower promises to pay through execution of DP Note, legal action is initiated and trial is conducted based on all the documents including the executed deed of agreement and personal guarantee. So DP Note has very negligible role or no role at all. If the country's receivables market poses any potentiality, separate laws can be enacted in the name of Bill of Exchange Act in order to govern the purchase and sale of receivables and the use of bill of exchange in carrying out transaction under LCs.
Similarly, importance of DP Notes can be supplemented by inserting necessary clause/promise in the executed deed of agreement. Therefore, these two instruments can be taken out through deleting Section 4 and 5 of this Act.
Section 17 of this Act has described quasi or ambiguous negotiable instrument which states that there are some commercial papers which are not included in the definition of negotiable instrument under Sections 4, 5 and 6 and therefore, are not considered as negotiable instrument.
Common examples of these instruments are prize bond, currency and dividend warrant. However, these papers are used like negotiable instrument in settling transaction. So these instruments are defined as quasi-negotiable instrument under Section 17 of this Act. Although bank randomly deals with this instrument and this Act has clearly defined/referred to these kind of instruments, the dispute arising over handling of quasi-negotiable instrument are not dealt under this Act.
Instead, the matter is resolved under the criminal laws. Since this Act is not applied in dealing with the issue related to quasi negotiable instrument, the Section 17 should not be continued as a part of the NI Act and therefore need to be deleted.
SECTIONS 8 AND 9:  'Holder', 'holder for value' and 'holder in due course' are three important parties which are eventually the payee of the negotiable instruments. Section 8 has described 'holder' and 'holder for value' while Section 9 has described 'holder in due course'. As described in this Act, there is precise difference among these three parties.
However, drawing clear distinction between them and ascertaining the responsibility of 'holder', 'holder for value' and 'holder in due course' is a very difficult task. 'Holder' is the person who is in possession of the instrument regardless whether he or she is the owner or mere bearer and whether he or she has paid true value for this instrument or not. Obtaining instrument through unlawful means does not construe the holder of the instrument.
On the other hand, 'holder for value' is in possession of the instrument in exchange of due consideration. Although due consideration has been given by the 'holder for value' he or she has not ascertained the genuineness of the instrument.
'Holder in due course' has become the owner of the instrument not only by making due consideration but also ensuring the authenticity of the genuineness of the instrument. Therefore, 'holder in due course' is the true owner of the instrument and his title is free from all the previous defects. The common difference between 'holder for value' and 'holder in due course' is that the latter can transfer better title than what he has while the former cannot transfer better title than what he has.
From experience this writer believes that most of the bankers do not clearly understand this subtle difference between 'holder for value' and 'holder in due course' although their efforts are always underway to ascertain 'holder in due course' for making payment against cheque.
Since 'holder in due course' is considered as the best owner in the eye of law and making payment to him can provide protection to the bankers under the NI Act, the Sections 8 and 9 should be amended by restating only 'holder in due course' and excluding other two parties i.e. 'holder' and 'holder for value'.
The writer, a banker, writes from Toronto, Canada. [email protected]