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Hundi

Shivani (Learner) (1881 Points)

17 October 2016

Dear Friends

What is Hundi?

Can anyone please explain it with the help of an example?

Also what is the "amount borrowed on hundi" ?

Regards

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14 Replies

Abhimanyu (CA) (316 Points)
Replied 17 October 2016

Thanks for the query, Shivani,

There is already enough material available on the net to understand hundi, however you may try,
https://en.m.wikipedia.org/wiki/Hundi

Hundis are India originated Bills of exchange, hope you have an idea about BOEs, they are used as an instrument equivalent to money, the guarantee or rather promise is given by a person how signs it and returns back to the writer of the hundi, not going into the type of hundi, it basically is a paper telling that the person mentioned and signed will pay mentioned money to the other person within or at a specific point in time.

Now, say Mr. Tata signs a hundi saying that he will pay you Rs. 100000 on 31.12.2017, that since Mr. Tata enjoy a great credibility in the market you can trade against such hundi, such as you can go to a bank and ask for money against the hundi or go to tata motors and ask for a vehicle against that hundi, though the will honor the hundi but also they will charge a fees for that basically interest amount that they have lost since Mr. Tata will only pay after a year.
You will transfer the hundi in the name of bank or tata motors saying "The money shall be paid to the Bank/Motors Co. in place of me" sign it stamp it and you will get the money against that hundi.

Hope you get an idea about hundi already,
Please do go to wiki it will really help, for any other issue please revert,

Thanks,
Abhimanyu

Karan Chandna (Self Employed) (81 Points)
Replied 17 October 2016

Hindi name of Negotiable Instrument.... Various types of Hundi are there...

Karan Chandna (Self Employed) (81 Points)
Replied 17 October 2016

Hindi name of Negotiable Instrument.... Various types of Hundi are there...

Karan Chandna (Self Employed) (81 Points)
Replied 17 October 2016

Hindi name of Negotiable Instrument.... Various types of Hundi are there...

Shivani (Learner) (1881 Points)
Replied 18 October 2016

Dear Karan

Hundis are not covered by Negotiable Instruments Act.

Dear Abhimanyu

Thanks again

Shivani (Learner) (1881 Points)
Replied 18 October 2016

Dear Friends

I have a question regarding bills of exchange.

Are they still in practice?

Is there a specific format for a Bill of Exchange?

Can anyone please the share the format, if any?

regards

Abhimanyu (CA) (316 Points)
Replied 18 October 2016

Thanks for reverting,

Yes, they surly are operative but since the finance sector is flourished here and business is now so deep and beyond boundaries of city state and nations it would be hard to counter any BOE without bank being involved in it.
For eg. if I want to trade with you and say I am a novice to the arena and you are an established brand how would you rely on mine accepted BOE for say Rs.500000 it is risky and hence you would ask to get it countersigned by bank so that if I fail to pay your money is secured by the bank.
This is often called as BG or Bank Guarantee mostly used now a days including in international trade, govt. tenders etc.
The unofficial version however is still there, since India is huge, there are places where it is used for security purposes since there is less transportation of cash involved, there is possibility to reduce tax(black money/hawala) there is trust generated between parties through decades old business relationships that one can trust another.
You will find these in agricultural sector, maybe in small business or alike, otherwise BOEs are now routed through banking institutions or in some cases governments too play the role of a bank.

No, I don't think that there is a specific format, however, I have seen a set format followed by almost in all BOEs,
There are a few essential elements of a BOE which include, Names and details of parties, dates, amount, period, conditions, if any, type of BOE, etc. Stamping as per Revenue rules is required (I think if the amount is above Rs. 5000) so that it is legally enforced in case of dishonor of the instrument.
Though let other contribute, if RBI rules notify any set format, though I doubt it.

Hope it helps you, in case of further issues please revert,

Thanks,
Abhimanyu

Dharmesh (Student) (1025 Points)
Replied 19 October 2016

Yes bills of exchange are used however often secured by a letter of credit or a bank guarantee as the case may be.

As mentioned above there is no legal set format of a boe , it must contain all essential details without which the bank may reject it.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 23 October 2016

Hundi have verious meanings in local language . however in commerce, its just called unofficial "promisory note" .

at certain places, the cash box is called hundi .

some places the donation boxes at temples are also called hundi .

but in general, its part of billing system of payment through third party ( agent) who discharge the payment to company immediately on billing and later on the agent is authorized with "hundi" issued by the company and accepted by the buyer. .

hundi borrowing is also a type of getting short term borrowing (loan) aginast some promise/surity/ security for very short term, and usually in practise at wholesale markets, where the wholeseller takes short term loan in CASH, signs hundi and pay back on very short time, with the terms and interest as mentioned in hundi,

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 23 October 2016

under money laudering rules hundi is illegal, but still some people keep it in practice,

a history of hundi at wiki https://en.wikipedia.org/wiki/Hundi

Shivani (Learner) (1881 Points)
Replied 26 October 2016

Dear Abhimanyu

I could not understand the black money hawala part you wrote. Can you please explain?

Dear U S Sharma

I could not understand the following part you wrote:

"and later on the agent is authorized with "hundi" issued by the company and accepted by the buyer"

Also a question to both of you, if hundi is illegal then why is it existing and why is bank giving money by discounting it.

Regards

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 28 October 2016

@ shivani

Hundi word has been used for many instances and instruments, most of them got renemed and their new version set of words are in practice

Here to the topic

People use the term HUNDI(old name) for promissiory note (new name), promissory note is legal.

it is usually executed bny mills to get payment from buyers through their dealers

PN is executed by Mills, annexed with their invoices, under which it is clearly mentioned that after the Credit period, the buyer ( receipent of goods) will pay the amount of invoice, to "dealer" ............

delear has certain deposits and arrangements of credit with mills to get the goods for buyer,

PN is an negotiable intrument for banking and non banking institutions.

Shivani (Learner) (1881 Points)
Replied 01 November 2016

Dear US Sharma

As i am not aware of Mills and how they get their payment.

I tried hard to understand but got confused.

Mill sells to dealers so why will it give promissory note. Mill is the one who gets payment from dealer, isnt it? Or are teh dealer sells teh goods to mill? I am all confused here.

please explain by giving a quick example.

regards

shivani

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 01 November 2016

Dealers are authorised agents of mills to sell goods on behalf of mills

mills does not raise invoice to dealers, but invoice is raised to the buyer direct

payment is received by dealer, and dealer send the payment in collective mode to mills

the instrument, which is used to authorise the dealer to collect the payment on behalf of mills, is a Promissiory Note, where the mill authorize the dealer to collect payment from buyer on behalf of mill, .............the buyer signs the same also on receipt of invoice ( bill) with accepting the term with promise to pay on due date as mentioned in PN

PN is called hundi in common people language.