Dishoour of Negotiable Instruments

When is a Negotiable Instrument be dishonoured? What steps should be taken by the holder of a dishonoured bill?

A negotiable instrument, such as a bill of exchange, promissory note, or cheque, is considered dishonoured when it is not accepted or paid when presented for acceptance or payment. The Indian Negotiable Instruments Act, 1881, provides detailed provisions regarding the dishonour of negotiable instruments.

Dishonour of Negotiable Instruments

A negotiable instrument can be dishonoured by non-acceptance or non-payment.

  1. Dishonour by Non-Acceptance:
    • A bill of exchange is dishonoured by non-acceptance when the drawee refuses to accept it or cannot be found (Section 91).
  2. Dishonour by Non-Payment:
    • A negotiable instrument is dishonoured by non-payment when the maker, acceptor, or drawee fails to pay the amount due on the instrument upon its maturity (Section 92).

Steps to be Taken by the Holder of a Dishonoured Bill

When a negotiable instrument is dishonoured, the holder must take certain steps to protect their rights and seek recourse:

  1. Notice of Dishonour:
    • The holder must give notice of dishonour to all parties liable on the instrument, such as the drawer and endorsers, within a reasonable time (Section 93). The notice can be oral or written.
  2. Noting and Protesting:
    • In the case of a foreign bill of exchange, the holder may have the dishonour noted and protested by a notary public (Sections 99 and 100). Noting is a formal recording of the fact of dishonour, and protesting is a formal declaration by the notary public.
  3. Suit for Recovery:
    • The holder can file a suit for recovery of the amount due on the dishonoured instrument against the parties liable, such as the drawer, maker, or endorsers (Section 138).

Relevant Case Laws

  1. Bharat Barrel & Drum Manufacturing Co. v. Amin Chand Pyarelal (1993): This case emphasized the importance of giving notice of dishonour to all parties liable on the instrument.
  2. K. Bhaskaran v. Sankaran Vaidhyan Balan (1999): This case highlighted the legal recourse available to the holder of a dishonoured cheque under Section 138 of the Negotiable Instruments Act, 1881.

These sections and case laws provide a comprehensive understanding of the dishonour of negotiable instruments and the steps to be taken by the holder of a dishonoured bill.

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