A hundi is a negotiable instrument written in any oriental language. They are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. It is almost like bills of exchange in form and substance. It is an informal system of remittance that is illegal as the money exchange takes place outside the banking channels. Technically, it is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. But the Negotiable Instrument Act generally does not apply to this instrument. This is governed by local customs or trade. It a form of informal monetary instruments developed under the economic expansion and consequent monetization processes of the Mughal economy.
Hundi is an informal system of remittance that is illegal as the money exchange takes place outside the banking channels. It is an informal system for transferring money, especially in South Asia, in which local agents disperse or collect money or goods on behalf of friends, relatives, or other agents without legal protection or supervision, trusting that all remaining obligations will be settled through future transactions. Anyone found involved in such transactions is liable to punishment. The widespread discussions about remittance flows and the Hundi market are largely wrong in their understanding of what is happening. These are generally in the form of bills of exchange but may sometimes look like promissory notes in shape and contents.
Technically, a hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. These are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. According to police, major businessmen were very confidentially adopting Hundi as the best method to legalize their black money which they first send abroad in the name of buying or importing various goods. The Reserve Bank of India describes the Hundi as “an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.” Hundis are popular among Indian merchants, especially those operating in sub-urban areas, even today, and are governed by the Negotiable Instrument Act,1881 unless there is a local usage to the contrary.
