A Hundi is a negotiable instrument written in an oriental (vernacular) language. The term ‘Hundi’ includes all indigenous negotiable instruments whether they are in the form of notes or bills. But they are mostly of the nature of bills of exchange. They are virtually inland bills of exchange and recognized by custom and law in India. The term comes from the Sanskrit word Hund which means to collect. It means that Hundis were used as means of collection of debts. Hundis are very popular among the Indian merchants and indigenous bankers from ancient times.
The Negotiable Instruments act does not apply to Hundis. Hundis are governed by the custom and usages of the locality in which they are intended to be used. In case there is no customary rule known as to a certain point, the court can apply the rules of the Negotiable Instruments Act. It is also open to the parties to exclude expressively the applicability of any custom relating to Hundis by agreement and include the provision of the Negotiable Instrument Act.
A Hundi is a negotiable instrument by usage. It is often in the form of a bill of exchange drawn in any local language in accordance with the custom of the place. Some times it can also be in the form of a promissory note. A hundi is the oldest known instrument used for the purpose of transfer of money without its actual physical movement. The provisions of the Negotiable Instruments Act shall apply to hundis only when there is no customary rule known to the people.
Types of Hundis
There are a variety of hundis used in our country. Let us discuss some of the most common ones.
- Shah-jog Hundi: This is drawn by one merchant on another, asking the latter to pay the amount to a Shah. Shah is a respectable and responsible person, a man of worth and known in the bazaar. A shah-jog hundi passes from one hand to another till it reaches a Shah, who, after reasonable enquiries, presents it to the drawee for acceptance of the payment.
- Darshani Hundi: This is a hundi payable at sight. It must be presented for payment within a reasonable time after its receipt by the holder. Thus, it is similar to a demand bill.
- Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. This is similar to a time bill.
- Jawabi Hundi: It is issued in response to an existing it. It is used when a person wants to settle a debt or make a payment related to a previous Hundi transaction. The Jawabi hundi is a reply to the initial hundi.
- Dhani Jog Hundi: In this type, the remitter instructs the hawaladar to pay the money to the receiver only after the remitter receives confirmation. This adds an extra layer of security and ensures that payment is made after verification.
- Nam Jog Hundi: This type requires the receiver to provide a password or code shared with the sender before the funds are released. It ensures that the money goes to the intended recipient.
- Hundis Payable to Bearer: These are payable to the person who has the hundi, not a specific individual. They can be transferred from one person to another, making them flexible and convenient for transactions.
- Hundis Payable to Order: These are payable only to a specific person mentioned on the hundi. It can be transferred to another person, but the final payment is made to the person named on the hundi.