285. The Indian firms employ hundis and they are of various forms. We have had before us a large number of examples of hundis (Appendix) and these vary very considerably in their form. They may be worded as bills of exchange or promissory notes or cheques. They are freely used in making remittances for trade purposes, for example, a merchant buying in cotton in Bellary and sending it for sale to another merchant in Bombay goes to the Multani banker in Bellary and signs a hundi obtaining payment. The hundi is sent by the banker to his correspondent or agent in Bombay who collects the amount from the merchants there. It may be payable on demand or at sight as in a darsana hundi or at a fixed period after sight or date (muddati hundis).
286. Again these hundis as in the case of bills of exchange carry interest or not but there is in the case of the Nattukkottai Chettiyars another hundi which bears interest at the nadappu rate, i.e., the current rate of interest (between 6 and 12 per cent) fixed by a meeting of the Nagarathars on the 16th of each Tamil month in Madras and in Rangoon (separately).
287. The Hundis so used are in many cases covered by a genuine trade transaction but the precise transaction is not usually quoted nor do the documents accompany it. They are used largely also purely for accommodation and remittance purposes. The nadappu vaddi hundi, for example, is ordinarily an accommodation hundi. That is to say, a person wishing' to remit money may go to a local banker and buy a hundis and send it to his creditor who will obtain encashment from a local banker but this of course he can only do if the maker of the original hundi is sufficiently well known for his hundis to command credit at a distant place. Consequently if a remittance is to be made over a considerable distance, only very well-known banker's hundis can be used and it is again of little avail for such purposes to employ a hundi the terms of which are not clearly understood at the end of the transaction. Trade hundis are discounted by banks to whom the drawer is known and are frequently rediscounted by the other banks, e.g., the Imperial Bank of India. All obvious difficulty comes in discounting the nadappu vaddi Hundis which bear interest at a rate which varies from time to time and is not always readily available to a discounter at any particular time, particularly if that discounter is not a Nattukkottai Chettiyar but they are chiefly handled by persons conversant with nadappu rate. We were informed that the banker who discounts a hundi of this kind merely takes care to be on the safe side so that if through ignorance of the precise value on the date of discounting or the due date, any one is to suffer, it will not be the discounter. This is not to the advantage of merchants using such instruments. Fixed interest hundis are common only throughout South India.
288. From the very diverse forms in use (vide Appendix) it is evident that there is a clear case for the standardization of such forms and for the facilitation of trade over longer distances it would appear desirable that they should be printed in diglot for inter.provincial use.
289. The precise form to be used for all hundis should be considered and fixed by a committee representing the principal banking communities including' Multanis, Marwaris, Gujarathis and Nattukkottai Chettiyars,
290. In this connexion we invite attention to the recommendation of the last Royal commission on Indian Currency and Finance to the effect that. with a view to promote the growth of commercial bills to furnish part of the security on which a note issued by the Reserve Bank of India should be floated, post offices should stock, for sale bill forms printed in English and the Vernacular in parallel.
291. Although hundis are very widely used they depend for their value on the personal knowledge of the parties concerned. They are discounted and negotiated on this understanding. Although the Nattukkottai Chettiyar banking houses in Madras deal in what are described as current deposits they are not operated upon by cheques to any great extent, but hundis are often drawn on such accounts. These bankers do not now. however, have large sums in deposit or current accounts with them. These bankers do not keep fluid resources of their own in cash and any attempt to encourage the use of cheques in these conditions is not likely to have any very useful results. In fact among' the indigenous bankers the only instrument used for remittance based on credit among themselves is the hundi. Cheques are not ,drawn on such bankers and consequently are not used in transactions between them and their clients. They may themselves have current accounts with joint stock bunks and use those cheques or bank drafts, but that is going outside the realm of indigenous banking