Negotiable Instruments: Section 13 of Negotiable Instruments Act says- negotiable instrument means a promissory note, cheque (payable either to bearer or order) or bill of exchange. A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one or two, or one or some of several payees.
Dishonour of negotiable instrument
Dishonour means not honouring the obligation. A negotiable instrument may be dishonoured by-
(a) Non acceptance
(b) Non-payment
A bill of Exchange is dishonoured either by non-acceptance or by non-payment but a cheque and promissory notes can be dishonoured by non-payment.
Section 91: Dishonour by non-acceptance
The following cases say when a bill of exchange is dishonoured:
i. When the acceptance of the bill is not done within 48 hrs from the time of presentment for acceptance by the drawee.
ii. When drawee is a fictitious person and cannot be traced (Section 61)
iii. When drawee is incompetent to contract.
iv. When drawee accepts with qualified acceptance.
v. When drawee is insolvent or dead.
vi. When the presentment for acceptance is excused and the bill is not accepted i.e., remains unaccepted.
Section 92: Dishonour by non payment
i. When a bill is accepted then it has to be presented on the date of its maturity.
ii. When the acceptor fails to pay when it is due, the bill is dishonoured by non-payment.
iii. When the holder of a bill or pro-note may treat it as dishonoured, without placing for payment when presentment for payment is excused expressly by the maker of the pro-note, or acceptor of the bill and the note or bill when overdue remains unpaid.
iv. When the banker refuses to pay then the cheque is dishonoured by non-payment.
Section 93: Effect of dishonour
i. When a negotiable instrument is dishonoured either by non-acceptance or non-payment, the holder has all the rights to sue the parties liable to pay.
ii. It is compulsory for the holder to give notice of dishonour to every party against whom he intends to proceed.
iii. Holder of the instrument has to give the notice.
iv. Notice is given to all the parties, it may be given to endorser or argent.
v. The notice may be in oral or in writing (must be sent by post).
vi. The notice should be given in a reasonable time.
vii. Except in the cases which notice is dispensed with Section 98 is to discharge all parties who are entitled to such notice.
Discharge of instrument
Discharge means to release from the obligation. When the Negotiable Instrument is issued, there is a liability to pay at a certain time and amount and when the liability is satisfied, the instrument is discharged. Discharge means the discharge of the instrument and the discharge of one or more parties liable on the instrument. When the Instrument is discharged then it will not be negotiable but when a particular party is discharged then the instrument is negotiable.
A party to a negotiable instrument is discharged in the following ways
- By cancellation of the name of a party to the instruments
- By the release of any party to the instruments
- By payments
- By allowing drawee more than 48 hours to accept
- By delay in presenting a cheque for payment
- By payment in due course of a cheque (payable to order)
- By taking qualified acceptance
- By non-presentment for acceptance of a bill of exchange
- By operation of law
- By material alteration
“The views of the authors are personal“
Frequently Asked Questions
What is the basic difference between dishonour and discharge?
Dishonour means not honouring the obligation. Discharge means to release from the obligation.
How a bill of exchange can be dishonoured?
A bill of Exchange is dishonoured either by non-acceptance or by non-payment but a cheque and promissory notes can be dishonoured by non-payment.
What is the Discharge of Instrument?
Discharge means to release from the obligation. When the Negotiable Instrument is issued, there is a liability to pay at a certain time and amount and when the liability is satisfied, the instrument is discharged. Discharge means the discharge of the instrument and the discharge of one or more parties liable on the instrument. When the Instrument is discharged then it will not be negotiable but when a particular party is discharged then the instrument is negotiable.
