DIHONOUR

&
DISCHARGE
OF
NEGOTIABLE
INSTRUMENT

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 DIHONOUR:
• A negotiable instrument is said to be
dishonoured when the DRAWEE refuse to
accept the same or make payment
thereon.
• An instrument may be dishonoured by the
following two modes:
1.Dishonoured by non-acceptance
2.Dishonoured by non-payment.
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 1. Dishonoured by non-
acceptance (sec 91)
• An bill of exchange is said to be
dishonoured by non-acceptance:
1. If the DRAWEE does not accept it with in
48 hours from the time of presentment.
2. If all the DRAWEES (in case there are
more than one drawee) do not accept.
3. When the presentment for acceptance is
excused and the bill is not accepted.
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 Conti…….
4. When the drawee is incapable to contract.
5. When the drawee gives a qualified
acceptance.
6. When the drawee is a fictitious person.
7. When the drawee can not be found after
reasonable search.

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 2. DISHONOURED BY NON-
PAYMENT (sec. 76 and 92)
• An instrument is said to be dishonoured
by non-payment in anyone of the
following circumstances:
1. When the party primary liable, makes
default in payment upon being duly
required to pay the same. (sec 92)
2. When the presentment for payment is
excused and the instrument when
overdue remains unpaid.
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 Difference between dishonour by
non-acceptance and by non-
payment
Dishonour by non- Dishonour by non-
acceptance payment

1. It occurs when the bill 1. It occurs when the

is presented by the maker of promissory
drawer and drawee note, the accepter of a
refuse to accept it. bill of exchange or bank,
refuse to make payment
therefore.
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Dishonour by non- Dishonour by non-
acceptance payment

2. In this case, a suit 2. In this case the

cannot be filled against holder can file a suit if
the debtor, since he is he has served notice of
not a party to the dishonour on all the
instrument before he other parties.
accept the same.

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Notice of Dishonour (sec 93
to 98)

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 Provision relating to notice
Matter Provision

Notice by whom (sec Notice of dishonour must

93) be given by the holder or
by a party liable on the
instrument.

Notice to whom (sec 93, 1. To all the parties.

94, 97) 2. To legal
representatives in
case of death. 9
 3. To receiver or official
assignee in case of
insolvency.

Contents of notice (sec • Notice must inform the

94) party to whom it is given
that the instrument has
been dishonoured
• In what way
• Who will be held liable
thereon.
Form of notice (sec 94) Notice may be in any form

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Effect of omission to give notice
of dishonour
• If notice is not given to any party to whom
it is required to be given, within reasonable
time. Such party is discharged from
liability.

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 When the notice of dishonour is
unnecessary (sec 98)
1. When it is dispensed with by the party entitled
thereto.
2. When the drawer has himself ordered against
making payment.
3. When the party liable on the instrument does
not incur any loss due to non-service of the
notice.
4. When the party entitled to such notice of
dishonour cannot be found even after due
search

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 Conti……….
5. When the notice of dishonour cannot be
served due to circumstances beyond the
control of holder.
6. When the acceptor himself is the drawer.
7. When the party entitled to the notice of
dishonour promises to unconditionally pay
the dishonoured instrument.

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Noting and protest

Sec(99 - 104A)

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 Noting
• Meaning: Noting is a mode of authenti-
cating the fact that a bill or note has been
dishonoured.
• Who does Noting (NOTARIES ACT
1952): Noting is done by a person officially
designated for this purpose and this is
known as Notary Public. Notary Public is
appointed by the CENTRAL or STATE
GOVERNMENT.

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 PROCEDURE & OF NOTING
• A dishonoured bill is handed over to a
notary public who present it against for
acceptance or payment as the case may
be, and if the drawee or acceptor still
refuse to accept or pay the bill, the notary
public records it.

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 CONTENT OF NOTING
a) The date of dishonour.
b) The reason of dishonour.
c) Notary’s charges.

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 Noting Charges & Time
• CHARGES: The fee charged by Notary
Public for noting is called Notary’s
Charges.
• Time within Noting is to be Done:
Noting must be done within a reasonable
time after dishonour.
• Compulsory or Optional: Noting is
compulsory in case of foreign bill and is
optional in case of INLAND BILL.
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 PROTEST
• Meaning: Protest is a formal certificate
issued by the Notary Public about the
dishonour of a bill or note.
• Time within Protest is to be
Done(sec100): Protest must be done
within a reasonable time.

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 Meaning of protest for better
security (sec 100)
• When the acceptor for a bill of exchange
becomes insolvent before its maturity, the
holder can demand better security from
acceptor, through the Notary Public and, in
case of refusal by the acceptor, get the
same noted and protested within
reasonable time. Such a certificate is
known as a ‘protest for better security’.

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 Content of Protest (sec 101)
• The original instrument and a copy
thereof.
• The names of parties to whom, and
against whom the instrument has been
protested.
• The fact that instrument has been
dishonoured and, the reason thereof.

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 CONTI……
• The time and place of dishonour of the
instrument and, in case Better Security for
the instrument has been refused, time and
place of such refusal.
• The description of Notary Public making
the certificate.
• If the instrument has been accepted for
honour or paidfor honour, then proper
description thereof.
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 Notice of protest (sec 102)
• It is mandatory to get any bill of exchange
or promissory note protested, notice of
such protest should be served on all
parties thereto.
• PROTEST of FORGIEN BILL: Foreign
bills of exchange may be protested for
dishonour when such protest is required
by the law of the place where they are
drawn.

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• WHEN NOTING EQUIVALENT TO
PROTEST (SEC 104A): when a bill or
note is required to be protested within a
specified time or before some further
proceeding is taken, it is sufficient that the
bill has been noted for protest before
expiration of the specified time. The
instrument which has been noted can be
protested anytime thereafter for taking
legal action against the parties.

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 DISCHARGE OF AN
INSTRUMENT AND A PARTY
• MEANING of DISCHARGE of an
INSTRUMENT: An instrument is said to be
discharged only when the party who is
ultimately liable thereon is discharged from
liability.

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 MODES OF DISCHARGE OF AN
INSTRUMENT
Modes of discharged
of an instrument

By party
By payment Primarily
By cancellation By release
In due course Liable become
holder

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• BY PAYMENT IN DUE COURSE: If the
maker or acceptor makes payment to the
holder of the instrument at or after maturity
in good faith and without notice of any
defect in the title of instrument, the
instrument is discharged
• BY CANCELLATION: If the holder of an
instrument cancels acceptor’s or
endorser’s name with intent to discharge
him, the instrument is discharged.

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• BY RELEASE: If the holder of an
instrument renounces his right against all
the parties to the instrument, the
instrument is discharged.
• BY PARTY PRIMARILY LIABLE
BECOMING HOLDER SEC(90): If the
acceptor of a bill of exchange becomes its
holder at or after maturity in his own right.
It happens by ‘Negotiation Bank’.

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 DISCHARGE OF A PARTY
• MEANING: A party is said to be
discharged only when a party or parties to
a negotiable instrument is or are
discharged and the instrument continues
to be negotiable with the liabilities of
undischarged parties attaching thereto.

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 MODES OF DISCHARGE OF A
PARTY (SEC 82-90)
• BY PAYMENT(SEC 82 (C)): If the maker,
acceptor or endorser makes payment to
the holder of the instrument at or after
maturity, in good faith and without notice
of any defect in the title to the instrument,
all the parties to the instrument are
discharged.

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• BY CANCELLATION SEC (82 (a)): If the
holder of an instrument cancels the name
of any of the parties liable under the
instrument with the intention to
discharged him, such party and all
subsequent parties deriving their title from
such party are discharged from the liability
to the holder.
• BY RELEASE SEC (82(b): If the holder of
an instrument renounces his right against
any party to the instrument, such party is
discharged from liabilities to the holder.
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• BY ALLOWING DRAWEE MORE THAN
48 HOURE TO ACCEPT (SEC (83)): If
the holder of a bill of exchange allows the
drawee more than 48 hours exclusive of
public holidays to decide whether he will
accept the same, all provision parties not
consenting to such allowance are
discharged from liability to such holder.

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• BY NON-PRESENTMENT OF CHEQUE
WITHIN A REASONABLE TIME SEC
(84): The drawer of a cheque is
discharged to the extent of the loss or
damage suffered by him if the following
two conditions are fulfilled:
1. The cheque is not presented for payment
within a reasonable time of its issue.
2. The drawer suffer actual damages
through the delay.

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 EXAMPLE
• X draws a cheque for Rs. 1000. The
bank fails before the cheque is
presented. State the extent to which the
drawer shall be discharged if-
a) X had Rs. 1000 in his account when the
cheque sought to be presented and the
cheque is not presented within a
reasonable time.

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b) X had Rs. 900 in his account when the
cheque sought to be presented and the
cheque is not presented within a
reasonable time.
c) X had Rs. 1000 in his account when the
cheque sought to be presented and the
bank failed before the cheque could be
presented within a reasonable time.

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 Answer…
a) The drawer is discharged to the extent of
Rs. 1000 but the holder can proceed
against the bank for the amount of the
cheque.
b) The drawer is discharged to the extent of
Rs. 900 and the holder can proceed
against (a) The bank for Rs. 900, (b) the
drawer for Rs. 100.
c) The drawer is not discharged at all.
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• BY PAYMENT OF A CHEQUE
PAYBLE TO ORDER OR BEARER BY
THE DRAWEE BANKER (SEC(85)):
When a cheque payble to order is
endorsed by the payee. And the bank
makes payment thereof in due course,
the bank is relieved of its liability even if
the endorsement is subsequently
proved to be false.

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• BY OPERATION OF LAW: The parties to
a negotiable instrument may also be
relieved of their liability thereon by the
operation of any law.
• For example, debtor declared an insolvent.

• BY ACCEPTOR BECOMING HOLDER

OF A BILL AT OR AFTER MATURITY
(SEC (90)): If a bill of exchange which has
been negotiated is, at or maturity, held by
the acceptor in his own right, all right of
action thereon are extinguished. It is done
by ‘Negotiation Bank’. 38
• BY MATERIAL ALTERATION: In case
any material alteration is made to any
negotiable instrument , then all parties
liable at the time of making such alteration
who have not consented to it will be
relieved of their liability on an instrument.

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• BY PAYMENT OF AN INSTRUMENT
ON WHICH ALTERATION IS NOT
APPARENT: The payer of a materially
altered instrument is discharged from all
liability under the instrument, if
I. The alteration must not be apparent.
II. The payment must be made in due
course.

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DIFFERENCES BETWEEN
DISCHARGE OF AN
INSTRUMENT AND
DISCHARGE OF A PARTY

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BASIS OF DISCHARGE OF DISCHARGE OF
DIFFERENCE INSTRUMENT PARTY
1. When takes When the party When any party
place who is ultimately or parties to an
liable, is instrument is/are
discharged from discharged.
liability.

2. Negotiability The instrument The instrument

ceases to be continues to be
negotiable. negotiable.

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3. All rights of All rights of
Extinguishment action under the action under the
of all right of instrument are instrument are
action completely not completely
extinguished extinguished.

4. Discharge of Discharge of an Discharge of a

all parties instrument party does not
means mean discharge
discharge of all of all parties.
parties.

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Any Quarry

Thanks

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