Legal Definitions - hundi

A hundi is a traditional financial instrument that originated in the Indian subcontinent, serving as a form of bill of exchange, promissory note, or a remittance instrument. It allows for the transfer of funds from one person or entity to another without the physical movement of cash, often across different cities or even countries. Essentially, it is a written order or promise to pay a certain sum of money to a specified person, either on demand or after a set period. Hundis were historically vital for facilitating trade, commerce, and personal remittances, relying on a network of trusted financial intermediaries.

• Example 1: Inter-city Business Transaction

  Imagine a textile merchant in Surat, India, who wants to purchase a large quantity of raw cotton from a supplier in Coimbatore. Instead of physically transporting a large sum of cash, the Surat merchant issues a hundi to the Coimbatore supplier. This hundi acts as a promise that the Surat merchant's bank or a designated agent in Coimbatore will pay the supplier the agreed amount upon presentation of the hundi. This system allows for secure and efficient payment across long distances, reducing the risks associated with carrying physical currency.

• Example 2: Personal Remittance to Family

  Consider a construction worker in Mumbai who earns a living and wishes to send a portion of their wages to their family living in a remote village in Rajasthan. The worker approaches a local hundi broker (often called a 'shroff') in Mumbai, gives them the cash, and specifies the recipient and location in Rajasthan. The Mumbai broker then issues a hundi. The worker's family can present this hundi to a corresponding broker in their village to receive the equivalent amount, minus a small commission. This provides a quick and accessible way for individuals to transfer money, especially in areas with limited access to formal banking services.

• Example 3: Historical Cross-Border Trade

  In the 17th century, a spice trader in Goa wanted to pay for goods purchased from a merchant in Muscat (present-day Oman). The Goan trader could issue a hundi through their established network of financial agents. This hundi would be honored by a corresponding agent in Muscat, who would then pay the Omani merchant. This system facilitated long-distance international trade by providing a trusted mechanism for payment across different regions and currencies, long before the advent of modern international banking systems.