Dear esteemed clients,
We, as a law firm, would like to shed some light on the intricacies of Section 16 of The Negotiable Instruments Act, 1881 (India), which deals with the concept of delivery.
Delivery is the act by which possession or control over a negotiable instrument is transferred from one person to another. This transfer may be physical or constructive in nature. In essence, delivery is what gives legal effect to a negotiable instrument.
Section 16 lays down that for an instrument to be validly negotiated, it must be delivered either with an intention to transfer ownership or under such circumstances that give rise to an inference that ownership has been transferred. It is important to note here that mere endorsement of an instrument does not amount to delivery if there was no intention behind it.
Furthermore, Section 16 also specifies certain situations where delivery can take place without actual physical transfer of the instrument. For instance, if the payee authorizes someone else (an agent) to hold and collect payment on their behalf then this agent’s possession will amount to valid delivery.
In terms of relevance for Non Resident Indians (NRI), it is often observed that NRIs may face difficulties in transferring and collecting payments through negotiable instruments due to logistical challenges and distance barriers. However, understanding these provisions can enable them to effectively utilize such instruments while carrying out transactions in India.
A few relevant case laws further clarify this position:
In Mohd Hanif Vs State Bank Of Patiala (2015), it was held that delivering a cheque merely by affixing postage stamps and posting it did not constitute valid delivery as there was no physical transmission from one hand to another.
Similarly in Brijendra Singh Vs State Of UP & Ors (2007), it was held even when handing over cheques as security towards loans against future supplies cannot constitute valid transfer unless endorsed for collection before being handed over.
It should also be noted that the legal implications of Section 16 should be read in conjunction with other provisions of The Negotiable Instruments Act, particularly Sections 15 and 18 which lay down conditions for a negotiable instrument to qualify as valid.
To conclude, understanding Section 16 is crucial in determining the validity and legality of negotiable instruments. As a law firm, we advise our clients to seek professional guidance while dealing with such transactions to ensure compliance with relevant laws and regulations.