DISCHARGE AND DISHONOUR OF NEGOTIABLE INSTRUMENTS

Group 6 Shikhar Saxena 136 Shivani Gokhale 138 Shreya Vashisht 142 Sohini Bhattacharya 144 Vimal Romeo 174 Vishal Verma - 178

Dishonour
S(91)

Non -Acceptance

Drawee Does not accept the bill within 48 hrs Presentment of acceptance is excused & bill remains unaccepted Drawee is incompetent to contract Drawee Makes the acceptance Qualified

Non - Payment
Default in payment by maker of the note, acceptor of bill, drawee of cheque Presentment of payment is excused expressly by maker of the note, acceptor of bill & bill remains unpaid at or after maturity

Only for BOE

S(92)

S(76)

S(61)

Drawee is fictitious

S-115: Drawee incase of need if named in a bill: is not dishonored unless done by such drawee

Effect of Dishonor
The holder becomes entitled to sue the parties liable to pay. The drawer of cheque, maker of note, acceptor & drawer of bill & all indorsers are liable jointly and severally to a holder in due course. Holder MUST give a notice of dishonor, may have the instrument noted & protested before a notary public.

Notice of Dishonor
Formal communication Serves as a warning Enables the person liable to protect himself

S(93) Notice By Whom? By the Holder; or some party to the instrument that remains liable thereon. Any party receiving notice must also transmit the same within reasonable time to all prior parties to render them liable to himself. S(95) Cannot sue any prior party to whom he hasnt sent the notice to unless they have received it from the holder or another party to the instrument. S(96) By duly authorized agent of the person who is bound to give notice Agent isnt obligated to do so, he may give notice to principal.

Notice of Dishonor
Notice to whom? To all parties except maker of note, acceptor of bill or drawee of cheque If there are two or more people jointly liable: Notice to anyone of them is sufficient No notice need be given to the maker of a note, acceptor of a bill or drawee of a cheque whore the principal debtors and have themselves dishonored the instrument S(93) In case of death of a person; Notice to be given to the legal representative Mode of giving notice: May be oral or written Language used must clearly indicate that the instrument has been dishonored and in what way. Must be sent within a reasonable time at the place of business or residence.

Reasonable time
Nature of instrument is considered Usual course of dealing with respect to similar instruments Distance between parties (public holidays excluded) (S-105) Notice may be sent by the next post S-106 or the day after the day of dishonor. If parties live in the same place, notice should be dispatched in time to reach destination on the next day of dishonor Receiver needs to give notice to his parties within the same time after its receipt as he would have had to give notice if he had been the holder S-107

When notice of dishonor is unnecessary:

98. When, notice of dishonor is unnecessary No notice of dishonor is necessary,(a) when it is dispensed with by the party entitled thereto; (b) in order to charge the drawer, when he has countermanded payment; (c) when the party charged could not suffer damages for want of notice; (d) when the party entitled to notice cannot after due search be found; or the party bound to give notice is, for any other reason, unable without any fault of his own to give it; (e) to charge the drawers, when the acceptor is also a drawer; (f) in the case of a promissory note which is not negotiable; (g) when the party entitled to notice, knowing the facts, promises unconditionally to pay the amount due on the instrument.

Consequences of not giving notice of dishonor:

NOTING AND PROTEST

Noting ( SEC 104 and 99):

As mentioned above, when a negotiable instrument within the meaning of this Act is dishonored, the holder of the instrument, after giving notice of the same, can sue any or all the prior parties liable thereon. But before he does so, he can get the fact of the dishonor of the instrument authenticated by noting by a notary public ( 99) . Noting is the authentic and official proof of presentment and dishonor of the instrument. Noting means nothing but the recording of the fact of dishonor of the instrument by a notary public within a reasonable time after dishonor. Of course, nothing is not compulsory neither it affects the rights of the holder thereon,

Noting contains the following particulars.

a)
b) c)

The fact and the date of dishonor of the instrument

The reason or reasons if any, assigned for such dishonor. The rotary charges incurred.

d) If the instrument has not been expressly dishonored, the reason as to why the holder wants to treat the same as dishonored.

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Protest:
According to section 100 of this Act, when a promissory note or a bill of exchange has been dishonored by non-acceptance or nonpayment, the holder may, within a reasonable time, cause such dishonor to be noted and certified by a notary public. Such certificate is called a protest. Thus protest is a formal certificate of dishonor of an instrument issued by the notary public. Of Course, it is issued to the holder of the instrument on his demand only.

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Contents of protest:
1.Either the instrument itself, or a literal transcript of the instrument and of every thing written or printed thereupon; 2.The name of the person for whom and against whom the instrument has been protested; 3. A statement that payment or acceptance, or better security, as the case may be, has been demanded of such person by the notary public; the terms of his answer. If any, or a statement that he gave no answer, or that he could not be found;

4. When the note or bill has been dishonored, the place and time of dishonor, and when better security has been refused, the place and time of refusal;
5. The subscription of the notary public making the protest; 1. 6 . In the event of an acceptance for honor or of a payment for honor, the name of the person by whom, of the person for whom, and the manner in which, such acceptance or payment was offered and effected. 2. 7. The signature of the notary public.
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DISCHARGE OF THE INSTRUMENT AND THE PARTIES

WAY 1

Discharge of the instrument

WAY 2

Discharge of one or more parties from the liability of the instrument.

Discharge of the instrument

No action will lie on it. It cannot be negotiated further

Consequences

Rights against all parties thereto come to an end. No parties, including even a holder in due course, can claim the amount of the instrument from any party thereto

A few cases where the instrument is deemed to be discharged Discharge of One or More Parties
A party is said to be discharged from liability when 4. Instrument also stands his liability on the instrument discharged when primary party comes to an end. The liable is discharged by material instrument continues to be alteration in the instrument (Sec. negotiable and enforceable 87) or by lapse of time making the 2. When a bill of exchange which debt time barred under the against parties who continue has been negotiated is, at or after Limitation Act. maturity, held by the acceptor in his to be liable, even though some own right, the instrument stands other parties to it are discharged. (Sec. 90) discharged from liability. 5.The holder cancels the
1. Party primarily liable on the instrument makes the payment to the holder in due course at or after maturity (Sec. 78).
3. When the party primarily liable becomes insolvent, the instrument is discharged and the holder cannot make any other party primarily liable thereon. instrument with an intention to release the party primarily liable thereon from the liability (Sec. 82).

WAYS FOR DISCHARGE FROM LIABILITIES

By not giving notice of dishonour

Any party to a negotiable instrument (other than the party primarily liable) to whom notice of dishonour is not sent by the holder is discharged from liability as against the holder, unless the circumstances are such that no notice of dishonour is required to be sent.

By non presentment for acceptance of a bill [Sec. 61]

When a bill of exchange is payable certain period after sight, its holder must present it for acceptance to the drawee within reasonable time after it is drawn. If he makes a default in making such presentment, the drawer and indorsers who were liable towards such a holder are discharged from their liability towards him.

By delay in presenting cheques [Sec. 84]

It is the duty of the holder of the cheque to present it for payment within reasonable time of its issue. If he fails to do so and in the meanwhile the bank fails causing any damage to the drawer, the drawer is discharged as against the holder to the extent of the actual damage suffered by him.

WAYS FOR DISCHARGE FROM LIABILITIES

By Cancellation [Sec. 82(a)]

When the holder or his agent cancels or strikes out the name of the acceptor or endorser with the intention to discharge him, such a party is discharged from liability to the holder and all subsequent parties. Cancellation by mistake does not discharge the party. Cancellation must be intentional, and also be legible and apparent on the face of the instrument.

By Release [Sec. 82(b)]

If the holder of the negotiable instrument releases any party to the instrument by any method other than cancellation of names (i.e., by a separate agreement of waiver, release or remission), the party so released and all parties subsequent to him, who have the right of action against the party so released are discharged from liability

By Payment [Sec. 82(c) and Sec. 78] When the party primarily liable on the instrument makes the payment in due course to the holder at or after maturity, all parties to the instrument stand discharged By allowing drawee more than 48 hours to accept [Sec. 83] If the holder of the bill of exchange allows the drawee more than 48 hours, exclusive of public holidays, to consider whether he will accept the same,. By taking qualified acceptance [Sec. 86]

What is a material alteration?

A material alteration varies the apparent nature of relationship of the parties as it alters rights, liabilities or legal position vis-vis what was originally stated in the document.

It may also It may Impact of otherwise also affect changes the legal could be change that the the legal remedies character available document to the becomes and effect parties. void. of the document.

Examples of material alteration

o Any alteration of the date, the sum payable, the time of payment and the place of payment o Alteration by the addition of a new party to the instrument o Alteration to the rate of interest

Alterations not vitiating the instrument

o o o o o o o o o o Alterations made for correcting a mistake or clerical error Alterations made to carry out the common intention of the original parties Alteration made before the instrument is issued Alteration made with the consent of the parties liable on the instrument Conversion of a bearer cheque into an order cheque Filling blanks in case of incomplete instruments Conversion of a blank indorsement into an indorsement in full Making qualified acceptance Crossing of an uncrossed cheque Alteration which is the result of an accident

Payment of instruments on which alteration is not apparent

o Sometimes a negotiable instrument is materially altered but does not appear to have been altered so

By Negotiation back of a bill

When a bill of If a bill of exchange exchange comes which has been back to the acceptor negotiated is, at or by the process of after maturity, held by negotiation and he the acceptor in his becomes its holder, it own right, all rights of is called as action theron are negotiation back. extinguished

Cheque has been dishonored because of lack of funds in the account

Cheque has been issued for the discharge of some liability

The defaulter fails to make the payment within the 15 days of notice

When a case can filed Under section 138 of the Negotiable Instruments Act

The cheque has been presented within the period of its validity

The payee or the holder has given a written notice to the defaulter to pay within 30 days

The payee should have made a written complaint of the offence to a court

CASE 1: B.N. TRIPATHI v/s RAJENDRA KUMAR SRIVASTAV- CIVIL COURT (KANPUR)

PLAINTIFF DEFENDENT

B.N TRIPATHI RAJENDRA KUMAR SRIVASTAV

CASE

DECISION

Tripathi took a loan of Rs. 35,000 in Nov. 2011 from the complainant for the Special Metropolitan magistrate J.P. marriage of his daughter. Agarwal, on Thursday 11th October 2012 He passed a cheque of loan amount to punished B.N. Tripathi a professor at Rajendra kumar just to clear his dues Chandra Shekhar Azad Agriculural but the cheque was not cleared by his University under Negotiable bank. Instrument Act (Cheque bouncing) with One year simple imprisonment and a fine of Rs. 70,000 . Despite the service of legal notice, B.N. Tripathi did not returned the amount.

Recent Amendments
empowers the Magistrate to pass a sentence for imprisonment for a term not exceeding one year or a fine not exceeding twice the amount of the cheque notwithstanding anything contained to the contrary in CrPC.

allows the summons to be served through the speedpost and notified private couriers besides the normal process
it contemplates summary trial and provides for continuous day-to-day hearing of the case till its conclusion and further stipulates that the trial is to be completed within 6 months from the date of filing of the complaint

The court shall presume that the cheque was returned for the reason of insufficient funds unless and until such fact is disapproved by the accused drawer

CASE 2: PVR CINEMAS v/s RAJ KUMAR SANTOSHI PLAINTIFF PVR CINEMAS RAJ KUMAR SANTOSHI

DEFENDENT

CASE

DECISION

Raj Kumar Santoshi gave a cheque of The PVR lawyers sent a legal notice to Rs. 50 Lakhs against the advance for Santhoshi demanding the payment but filmmaking to PVR pictures, which did he failed to make it on the due date. not get cleared due to insufficient funds , so a cheque-bouncing case has The court issued the summon to appear in court in Oct. 2012. been filed against the director at the Metropolitan Magistrates Court in Delhi The case is still sub-judice. by PVR cinemas.