Hundis were legal financial

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 instruments that evolved on the Indian sub-continent. These were used in trade and credit transactions; they were used as remittance instruments for the purpose of transfer of funds from one place to another. In the era of bygone kings and the British Raj

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 these Hundis served as Travellers Cheques. They were also used as credit instruments for borrowing and as bills of exchange for trade transactions.

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. Being a part of an informal system, hundis now have no legal status and were not covered under the Negotiable Instruments Act, 1881. They were mostly used as cheques by indigenous bankers.

Types of Hundis

• Sahyog Hundi: This is drawn by one merchant on another, asking the latter to pay the amount to a third merchant. In this case the merchant on whom the hundi is drawn is of some 'credit worthiness' in the market and is known in the bazaar. A sahyog hundi passes from one hand to another till it reaches the final recipient, who, after reasonable enquiries, presents it to the drawee for acceptance of the payment. Sahyog means co-operation in Hindi and Gujrati, the predominant languages of traders. The hundi is so named because it required the co-operation of multiple parties to ensure that the hundi has an acceptable risk and fairly good likelihood of being paid, in the absence of a formalized credit monitoring and reporting framework.

• Darshani Hundi: This is a hundi payable on 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.

There are few other varieties; the Nam-jog hundi, Dhani-jog hundi, Jawabee hundi, Jokhami hundi, Firman-jog hundi, etc.

• Nam-jog hundi - such a hundi is payable only to the person whose name is mentioned on the Hundi. Such a hundi cannot be endorsed in favour of any other person and is akin to a bill on which a restrictive endorsement has been made.

• Furman-jog Hundi - such a hundi can be paid either to the person whose name is mentioned in the hundi or to any person so ordered by him. Such a hundi is similar to a cheque payable on order and no endorsement is required on such a hundi.

• Dhani-jog Hundi - when the hundi is payable to the holder or bearer,it is known as a dhani jog hundi. It is similar to an instrument payable to bearer.

• Jokhim Hundi - normally a hundi is unconditional but a jokhim hundi is conditional in the sense that the drawer promises to pay the amount of the hundi only on the satisfaction of a certain condition. Such a hundi is not negotiable, and the prevalence of such hundis is very rare these days because banks and insurance companies refuse to accept such hundis.

• Jawabi Hundi - if money is transferred from one place to another through the hundi and the person receiving the payment on is to give an acknowledgement (jawab) for same, then such a hundi is known as a Jawabi Hundi.

• Khaka Hundi - a hundi which has already been paid is known as a Khaka Hundi.

• Khoti Hundi - In case there is any kind of defect in the hundi or in case the hundi has been forged, then such a hundi is known as a khoti hundi.