Introduction
Under the Negotiable Instruments Act, 1881, negotiable instruments such as promissory notes, bills of exchange, and cheques carry certain obligations for payment. Dishonour occurs when the instrument is not honoured on presentation, either due to insufficient funds, refusal to accept, or other legal reasons. Understanding dishonour, its consequences, and discharge mechanisms is crucial for holders, makers, and drawers to enforce rights and seek remedies.
Dishonour of Negotiable Instruments
Meaning
Dishonour refers to the failure of the instrument to be accepted or paid according to its terms. Dishonour can occur either:
- By Non-Acceptance: In case of a bill of exchange, if the drawee refuses to accept it.
- By Non-Payment: When the instrument, on presentation, cannot be paid due to insufficient funds, incapacity, or other reasons.
Modes of Dishonour
- Dishonour by Non-Acceptance
- Occurs when the drawee refuses to accept a bill of exchange.
- Requires protest or notice to parties to preserve the holder’s rights.
- Case Law: R. Parameswaran v. State Bank of India (1978) – Non-acceptance with proper notice upheld as valid dishonour.
- Dishonour by Non-Payment
- Occurs when the instrument is presented but payment is refused or impossible.
- Notice of dishonour must be promptly sent to parties liable.
- Case Law: K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) – Payment refusal leads to actionable offence under Section 138 (cheques).
Notice of Dishonour
Importance
- Sections 90–99 require the holder to give immediate notice to the drawer, endorser, or maker.
- Ensures that liability is invoked promptly.
- Delay in giving notice may result in loss of recourse against endorsers.
Requirements
- Must be written or verbal within a reasonable time.
- Must specify reason for dishonour.
- Must be communicated to liable parties.
- Case Law: Dr. Arvind Kumar v. Union of India (2015) – Timely notice requirement emphasized.
Also Read: Promissory Notes, Bills of Exchange, and Cheques
Discharge of Negotiable Instruments
Meaning
A negotiable instrument is discharged when the obligation to pay ceases. Discharge can occur in several ways:
- By Payment
- Full payment by the maker, drawee, or acceptor discharges the instrument.
- Case Law: M/s. Bharat Petroleum v. Great Eastern Shipping (2002) – Payment by maker discharged liability.
- By Cancellation or Renunciation
- Holder may expressly cancel the instrument or renounce rights.
- By Material Alteration
- Any unauthorised alteration by a party may discharge the instrument.
- Case Law: Union of India v. Raman Iron Foundry (1970) – Instrument altered without consent is discharged.
- By Agreement
- Parties may mutually agree to release the liability.
- By Operation of Law
- For example, insolvency or death of liable party may discharge obligation under certain conditions.
Key Provisions
- Sections 87–99: Define dishonour and notice requirements.
- Section 138: Criminal liability for dishonour of cheques.
- Sections 139–142: Presumption of dishonour and notice.
- Sections 60–64: Discharge by material alteration, cancellation, or performance.
Case Laws
- K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) – Dishonour of cheque, liability under Section 138.
- Dr. Arvind Kumar v. Union of India (2015) – Timely notice required for dishonour.
- M/s. Bharat Petroleum v. Great Eastern Shipping (2002) – Payment discharges liability.
- Union of India v. Raman Iron Foundry (1970) – Material alteration discharges the instrument.
Conclusion
The dishonour and discharge of negotiable instruments form the backbone of commercial and banking law in India. Dishonour triggers legal rights, including civil suits or criminal proceedings, while discharge ensures that obligations are properly terminated. Understanding these provisions is essential for holders, drawers, and endorsers to secure payments and enforce legal remedies effectively.