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ACT 1881

Negotiable means : transferable by delivery
Instrument means: a written document by
which a right is created in favour of some
Negotiable instrument means a document
transferable by delivery
Negotiable Instruments act of 1881 regulates
the issue and negotiation of bills, promissory
notes and cheques.
Sec 13(1) of Negotiable Instruments act states
that A negotiable instrument means a
promissory note, B/E or cheque payable either
to order or to bearer.
An instrument is negotiable if it satisfies two
(1) it is in a form which is capable of being used
by the holder for the time being in his own
(2) It is transferable like cash by delivery

Examples of Negotiable instruments:
(a) Negotiable instruments recognised by statute:
- Promissory notes
- Bills of Exchange
- Cheques
(b) Negotiable instruments recognised by usage or
- Hundis like TCs
- Treasury Bills - short term borrowing by the
Central/State govt
- Share warrants
- Dividend warrants chq payable to a shareholder
- Bankers draft
- Debentures of Port trust
- Indira vikas patra
Non-negotiable instruments
Money orders
FD receipts
Share certifcates
Postal orders
Quasi negotiable instruments
- instruments capable of being transferred by
delivery and/or endorsement , but the
transferor of these documents cannot give to
the holder a better title than he himself had.
1. Bill of lading
2. Railway receipt
3. Dock warrant
Characteristics of a Negotiable
1. Property: Possessor is the owner
2. Freely transferable (negotiability)
- by delivery if the instrument is payable to the
- by the presentment & delivery if it is payable to
3. Title of holder free from defects a bonafide
transferee is free from any defect of title on the
part of the transferor
4. Recovery: The transferee of the Negotiable
instrument can sue in his own name, in case of

5. Presumption: Presumption that consideration
has been paid.
6. Prompt payment: enables the holder of the
instrument to expect prompt payment
7. As good as cash: Its a contract to pay money
8. Transferability: can be transferred any number
of times till its maturity & the holder of the
instrument need not give any notice of
transfer to the debtor
Presumptions as to Negotiable
1. Every negotiable instrument was made, drawn,
accepted or endorsed for consideration
2. If the negotiable instrument is dated, then it is
presumed that the Negotiable instrument is
made or drawn on the date
3. Every accepted B/E, if the time of acceptance is
not noted its presumed that it is accepted within
a reasonable time after its issue and before its
maturity. If the acceptance is dated, that date is
taken as date of acceptance

4. Transfer of NI is presumed to have been made
before its maturity
5. Endorsement appearing in the NI were made
in the order in which they appear
6. The holder of a negotiable instrument is the
holder in due course

Promissory Note
PN is an instrument in writing (not being a bank
note or currency note) containing an
unconditional undertaking signed by the
maker, to pay a certain sum of money only to
or to the order of a certain person or to the
bearer of the instrument.
The person who makes the PN and promises to
pay is called the maker
The person to whom the payment is to be made
is called payee.
A specimen of a Promissory note

Rs. 5000 Kochi
Nov1, 2012

On demand, I promise to pay Boban or order, the sum of Rs. 5000 (Rupees
Five Thousand only) with interest at 8% per annum for value received

Sd/- Stamp
Essentials of a Promissory Note
1. In writing: PN should be in writing
2. Promise to pay must be express: A mere
acknowledgement is not enough
3. Definite & unconditional: A promise to pay is not
conditional if
- it depends on an event which is certain to
- if it is to pay at a particular place or at a
specified time
A promise to pay as soon as possible is conditional

4. To be signed by the maker:
PN must be signed by the maker otherwise it is
Signature is inevitable
Signature is to authenticate the contract contained
in the instrument
5. Certainty in the case of parties: The maker and
the payee should be pointed out with certainty.
They can be described by their name or
6. Certainty in the case of sum of money: The sum
payable must be certain. If the interest is payable
and the rate of interest is not mentioned, it is not
a promissory note
7. Promise to pay money only: Payment must be
in the legal tender money of India.
8. Formalities are not essential:
Formalities like no:, date, place etc are usually
found in PN but it is not essential in law
PN must be properly stamped under the
Indian Stamp Act.
9. It may be payable on demand or after a
definite period of time. Where no time is
mentioned, the note is payable on demand.
Bill of exchange
A B/E is an instrument in writing containing
the unconditional order, signed by the maker,
directing a certain person to pay a certain sum
of money only to or to the order of a certain
person or to the bearer of the instrument.
Thus B/E is an order from the creditor to the
debtor to pay a specified amount to a person
mentioned therein.
Parties to B/E
There are three parties to a B/E
The maker of the B/E - Drawer (Creditor)
The person who is directed to pay Drawee
The person who will receive the money is the
- The drawer/payee who is in possession of the bill
is called the holder
- It is the duty of the holder to present the bill to
the drawee for his acceptance
- The drawee accepts by signing the bill.
- After such acceptance, the drawee becomes the
A specimen of a B/E

Rs. 5000 Kochi
Nov1, 2012

Three months after date, pay to Kunchacko or order, the sum of Rs. 5000
(Rupees five thousand only) for the value received.

Sd/- Stamp
Essential elements of a B/E
1. The instrument must be in writing
2. The instrument must contain an order to pay, which is
express & conditional
3. There must be three parties drawer, drawee &
4. The instrument must be signed by the drawer
5. The amount of money to be paid must be certain
6. The payment must be in legal tender money of India
7. The money must be payable to a definite person or
according to the order
8. It must comply with the formalities such as date,
consideration, stamp etc
Difference between PN & B/E
1. PN 2 parties
B/E 3 parties
2. A PN is an unconditional promise to pay
A B/E is an unconditional order to pay
3. In PN, liability of the maker is primary
In B/E, the liability of the drawer is secondary
4. A PN cannot be made payable to the maker
In B/E the drawer & the payee may be the same
5. A PN requires no acceptance
A B/E is to be accepted by the drawee before it is
submitted for the payment
6. A PN cannot be made payable to bearer while a
B/E can be so drawn provided it is not payable to
bearer on demand
7. Maker of the PN stands in immediate relation
with the payee.
Drawer of a bill stands in immediate relation with
the drawee( acceptor) and not the payee
8. Presentment of a PN for acceptance and
acceptance for honour are not necessary while
they are necessary for a bill
9. For a B/E, due notice of dishonour must be
given to all who are liable to pay in case of
But no such notice to the maker is necessary
in a PN.

A cheque is a B/E drawn upon a specified banker
and not expressed to be payable otherwise on
demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic
Cheque payable to bearer or to order
In both the cases, it should be payable on
demand provided:
- office hours
- sufficient funds
- validly drawn
- All cheques are B/E but all B/E are not
- A cheque must fulfill all the requirements of a
- Printed cheque
- Signature
- Must be dated
- Becomes due for payment on the date
specified on it.
- A cheque drawn on a future date
- Period of validity of a cheque
- Cheque must be addressed by one person to

Specimen of a cheque
Difference b/w B/E and Cheque
1. A B/E may be drawn on any person including
a banker. But a cheque is always drawn on a
2. A B/E is accepted before it can be called upon
for payment. A cheque does not require
3. A B/E is entitled to 3 days of grace.
A cheque is intended for immediate payment
4. A B/E may be payable on demand or after the
expiry of certain period. A cheque is always
payable on demand
5. A B/E must be duly presented for payment to the
Drawer of the B/E is not necessarily discharged
form liability by delay of the holder on
6. Cheque may be crossed. B/E no such provision
7. B/E requires stamp. A cheque requires no stamp.
8. Payment of B/E cannot be countermanded by the
Payment by cheque can be countermanded by
the drawer
9. When the B/E is dishonoured it is necessary
to give a notice of dishonour
When a cheque is not met, notice of
dishonour is not necessary.

Marking of cheques
Marking of cheque is equivalent to an
acceptance so as to bind the banker to pay the
cheque as marked
The effect of marking a cheque is that it would
be honoured when presented for payment.
Types of cheques
Open Cheque A cheque which can be presented
by the payee for payment at the counter of the
bank of which they are drawn, are called open
Crossed Cheque
- General Crossing
- Special Crossing
- Restrictive crossing
- Not Negotiable crossing

1. Inland instrument
2. Foreign instrument
3. Ambiguous instrument
4. Inchoate instrument
5. Accommodation bill
6. Fictitious bill (Kite)
7. Bearer instrument
8. Order instrument
9. Instruments payable on demand
10. Instruments payable at a future time
11. Bills in sets

When a bill is delivered conditionally or for a special
purpose as a collateral security or for safe custody only,
and not for transferring absolutely, property therein, it
is called an escrow.
The liability to pay in case of an escrow does not arise if
the conditions agreed upon are not fulfilled or the
purpose for which the bill was delivered is not
This however, does not affect the rights of the holder in
due course.
Eg:Silliya,the holder of a bill endorses it to Suriya for the
express purpose that she can get it discounted. Suriya
negotiates the bill to Neethu who takes it bonafide and
for value. Neethu is the holder in due course and she
acquires a good title to the bill.
Documentary bill
- one to which the document of title like bill of
lading are annexed. When the bill is accepted or
paid, the documents of title are handed over.
Undated bills
- when the date of the bill is not mentioned & the
date of acceptance is omitted, any holder may
insert the true date of issue or acceptance .
Bankers draft
- an order addressed by one bank to another or
by a bank to its branch, directing the latter to pay
a specified sum of money to a named person or
his order.
BD & Cheque
Maturity of bills & days of grace

Every PN or B/E which is not expressed to be
payable on demand, at sight or presentment,
is at maturity on the third day after the day on
which it is expressed, to be payable.
- Days of grace
- Instruments entitled to days of grace.
- Instruments not entitled to days of grace.

Payment in due course
Payment in accordance with the apparent
tenor of the instrument
In good faith
And with out negligence
To any person in possession thereof under
circumstances which do not afford a
reasonable ground for believing that he is not
entitled to receive amount mentioned therein.
A payment not in due course
- Payment made to person not entitled to
- Payment made before date of maturity.

Essentials of a payment in due course

If a bill payable to bearer is lost or stolen

Payment of interest
1.If rate of interest is specified
- from the date of the instrument till the
realisation of the Principal amount
2. If rate of interest is not specified
- Interest is charged at 6% p.a & is to be charged
from the date when the Principal amt become
3. Payment of interest by endorser
- Endorser of a bill is liable to pay int only from the
time he receives notice of the dishonour.
Parties to negotiable instruments
Parties to B/E
1. Drawer Sec 7
2. Drawee sec 7
3. Acceptor Sec7
4. Payee Sec7
5. Holder Sec 8
6. Indorser / Endorser
7. Indorsee / endorsee
8. Drawee in case of need Sec 7
9. Acceptor for honour
Parties to a Promissory note
1. Maker
2. Payee
3. Holder : Payee / endorsee
4. Endorser
5. Endorsee

Parties to a cheque
1. Drawer
2. Drawee drawers bank on whom the cheque is
3. Payee
4. Holder
5. Endorser
Pay to the order of:
[the name of the party youre paying]
[your signature]
6. Endorsee
Holder in relation to a NI
- any person entitled in his own name to the
possession of the NI and to recover or receive
the amount due thereon from the parties
- a person though in possession of the
instrument but has no right to recover the
money due thereon is not a holder
Holder in due course
- a holder who takes the instrument in good
faith for value before it is overdue and without
any notice of defect in the title of the person
who transferred it to him.
Every holder is not a holder in due course
Before a person can be considered as a holder in
due course, he must show:
- that he has given a valuable consideration for the
- that he became its possessor before the amount
mentioned in it became payable
- that he took delivery of the instrument without
having sufficient cause to believe that any defect
existed in the title of the person from whom e
received it.
- that the bill in is hands was complete on the face
of it

(a) he has obtained the instrument by gift, or
(b) he has obtained the instrument for unlawf
ul consideration, or
(c) he has obtained the instrument after its ma
turity, or
(d) he has obtained the instrument by
some illegal method, or
(e) he has not obtained the instrument in goo
d faith
Every holder is not a holder in due course
Privileges of a holder in due course
1. Protected against all defects of title of person from
whom he received the instrument
2. HDC serves as channel to protect all subsequent
3. An inchoate instrument is valid if it subsequently come
into the hands of a holder in due course, provided it is
properly stamped.
4. When both drawee and payee of a bill are fictitious
persons, the acceptor is liable to the holder in due
5. Where a bill or note delivered conditionally is
negotiated to holder in due course
6. The defences on the part of the person liable on a NI
cannot be set up against a holder in due course
7. No maker of a note, no drawer of bill or cheque and no
acceptor of a bill for honour of the drawer is in a suit
thereon by the HDC, permitted to deny the validity of
the instrument
8. The maker of the PN or the acceptor of a B/E is
precluded from denying against a HDC the existence of
the payee and his capacity to endorse
9. An endorses of a bill is estopped from denying against
such holder the genuineness & the regularity of the
drawers signature
10. The law presumes every holder is a HDC.
Diff b/w holder & HDC
Better title
Legal action
Time of possession of the instrument
Capacity of Parties
- Parties competent to contract
- NI Act does not prohibit a minor from being a
party to a NI.
- He can draw, endorse, deliver, or negotiate a
- An instrument does not become void merely
because a minor is a party to it.

1. Minor

- is not liable under NI act.
- he can set up his incapacity even against a
holder in due course
- An instrument can be drawn or made in his
favour as a payee
- An instrument signed by a minor & major

2. Insolvent
- During insolvency, he cannot accept or
endorse a bill.
- Recovery: If he endorses an instrument, of
which he is the payee to a holder in due
3. Persons of unsound mind
- B/E & PN drawn or made by such persons are
void as against them, though the other parties
remain liable.
4. Corporation
- the power of a corporation to bind itself by PN ,
bills, and cheques is derived from its
memorandum of association.
- if its is ultra vires, it will be void & even a HDC
cannot make the corporation liable.
5. Agent
- the authority of the agent to draw, accept or
negotiate Nis must expressly conferred by the
6. Legal Representative
- a legal rep of a deceased person who signs his
name to a PN, B/E or cheque is liable personally
unless he expressly limits his liability.
Liabilities of parties to a NI
1. The drawer of a B/E or a chq is bound, in case
of dishonour to compensate the holder
provided due notice of dishonour has been
Eg: Anand draws a chq in favour of Thomaskutty,
But the chq returns Anand has to
compensate Thomaskutty
2. The drawee of a chq must honour the chq
provided he has sufficient funds of the drawer.
eg: Harsha has account with HDFC Bank and she
gives a chq to Rohini, but the bank by mistake
dishonour the chq
3. The maker of a PN signs & delivers the PN, the
maker of it is liable to the payee.
4. The acceptor of a B/E at or after maturity is
bound to pay the amount thereof to the holder
on demand
5. The acceptor cannot deny the holders title,
though obtained through forgery if he had
accepted the instrument knowing to be
6. When an endorser endorses & delivers a bill
he undertakes that the bill endorsed by him
shall be accepted and paid and that if it is
dishonoured he will compensate the holder
who is compelled to pay the amount notice of
dishonour has been received by him
- NI - Freely transferable form one person to
- The transfer may take place by:
(1) by negotiation
(2) by assignment

Sec 14
when a PN,B/E or cheque is transferred to any
person so as to constitute that person the
holder thereof, the instrument is said to be
Negotiation - 2 conditions:
(1) There must be a transfer of the instrument to
another person
(2) The transfer must be made in such a manner
the transferee becomes the holder
Eg: Handing over a NI for safe custody
Riya is an employee at Roy & co. Roy & co pays her
a salary cheque for Rs.30,000/-. Riya goes to
Bismi agencies and buys a Television set for
Rs.30,000/-. To pay the dealer, she signs the
reverse of the cheque and writes the name of the
dealer, Pay to Bismi Agencies.
Bismi agency holder of the chq & the endorsee
Riya Endorser
Here the chq is payable to order
Riya can also just sign the chq without mentioning
the name of the dealer.
A simple signature converts an order chq to bearer.
Negotiation can be done in 2 ways:
1. Negotiation by delivery Sec 47
- when a PN, B/E or chq is payable to a bearer it
may be negotiated by delivery thereof.
Here no endorsement is necessary
2. Negotiation by endorsement & delivery Sec 48
- a PN, B/E or chq payable to order can be
negotiated only by endorsement & delivery.
- Unless the holder signs & delivers the instrument,
the transferee does not become the holder
- If there are more payees than one, all must
endorse it.
- Not only endorsement is necessary but delivery is
also equally important

Effect of negotiation by endorsement
& delivery
(1) to transfer property in the instrument from the
endorser to the endorsee
(2) to vest in the latter the right of further negotiation
(3) a right to endorsee to sue on the instrument, all other
Who may negotiate? Sec 51
- Maker
- Drawer
- Payee
- Endorsee
* More than 1 person, every body should endorse
A stranger endorsing a bill
A person obtaining an instrument by theft
B/E, PN & chqs represent debts : they are
assignable without endorsement.
Transfer by assignment takes place when the
holder of a NI sells his right to another person
without endorsing it.
Difference b/w Negotiation &
2. Better title
3. Notice of transfer by the holder to the
debtor is not required in negotiation
Notice of assignment must be given by the
assignee to the debtor
4. Negotiation can be effected by:
- delivery or by endorsement & delivery
Assignment can de done only by a written
document signed by the transferor

Negotiation back
When an endorser after he has negotiated the
instrument again becomes the holder before
its maturity.
Eg: A B/E is drawn payable to Susan. Susan
endorses it to Rajmohan, Rajmohan endorses
to Sony, Sony endorses it to Anupama,
Anupama endorses it to Amritha and Amritha
endorses it back to Susan. This endorsement
by Amritha is Negotiation back.
Means writing on an instrument
According to NI act, it means the writing of a
persons name on the face or back of a NI or
on a slip of paper annexed thereto, to the
purpose of negotiation.
The person who signs the instrument -
Essentials of endorsement
Must be on the instrument or on a slip of
paper called Allonge
It must be made by the maker or holder of the
It must be signed by the endorser
It may be made by the endorser by merely
signing his name on the instrument or by
specifying in addition to the signature the
name of the person to whom it is endorsed
It must be completed by delivery
Who may endorse?
The first endorsement will be done by the payee
Subsequent endorsement will be done by any
person who becomes the holder
Sec 15 provides that an endorsement cannot be
made by the maker of the instrument as a maker.
Thus if a bill is drawn payable to the drawers
order the first signature of the drawer(maker) as
a drawer (maker) is not an endorsement, but if he
signs the bill second time for the purpose of
negotiating it, the second signature would be

Kinds of endorsement

An endorsement may be:
1. Blank or general endorsement
2. Special or full endorsement
3. Restrictive endorsement
4. Partial endorsement
5. Conditional endorsement

1. Blank or general endorsement
If the endorser signs his name only on the face
or back of the instrument
Blank endorsement specifies no endorsee
Thus the instrument becomes payable to
bearer even though originally it was to order

Example of Riya & Roy & Co.
2. Special or Full endorsement
If the endorser adds a direction to pay the
amount mentioned in the instrument to or to
the order of a specified person, the
endorsement is said to be in full
3. Restrictive endorsement
When either by express words restricts or
prohibits further negotiation of the
Eg: Riya says Pay Bismi Agencies only
4. Partial endorsement
When an endorsement purports to transfer to
the endorsee a part of the amount only
A partial endorsement does not operate as a
negotiation of the instrument

Eg: The holder of a bill of Rs.1000 endorses as
Pay X or order Rs. 500
This is partial endorsement and its is invalid
for further negotiation
5. Conditional or qualified
An endorsement which limits or excludes the
liability of the endorser
An endorsement may be conditional in te following
(a) Sans recours endorsement
- a qualified endorsment is done by adding Sans
recours without recourse to me.
Eg: Danly holder, endorses it to Dancia by writing
Pay Dancia or order sans recours
(b) Facultative endorsement
Contrary to sans recours endorsement, when
the endorser, by express words, abandons
some of is rights or increases his liability under
the NI, the endorsement is called facultative.
Eg: X holder of a B/E for Rs. 5000. He makes an
endorsement pay to Y or order, notice of
dishonour waived.
- given up the right to receive the notice of
dishonour, but will remain liable to the
endorsee for non-payment

( c ) Sans frais
- when the endorser does not want the
endorsee to incur any subsequent expenses
on is account on the instrument, such
endorsement is called sans frais
6. Contingent endorsement
An endorser may endorse the instrument in
such a manner that his liability depends upon
the happening of a specified event which may
or may not happen.

Eg: Pay B or order, if a Mareena ship arrives
within 6 months.
Pay Shanu or order, if Saif Ali Khan marries
Kareena Kapoor
- showing it to the drawee, acceptor or maker
thereof with the object of getting it accepted
or getting its payment.
Presentment is divided into parts:
Presentment for acceptance and
Presentment for payment
Presentment for acceptance
- implies getting the NI accepted by the person
liable to make payment on due date.
It makes the instrument tantamount to a
binding undertaking on the part of acceptor to
make payment of the instrument.
Presentment for acceptance: B/E, PN, Cheque
B/E: Required
PN: Not required
Cheque: Not required
(a) Presentment necessary
- Where a B/E is payable at a fixed time after sight, in
order to fix its date of maturity.
- Where presentment for acceptance has been made an
express requirement, before presentment for payment
(b)Presentment unnecessary
- where B/E is payable on demand and where B/E is
payable on a fixed date
( c ) Presentment for acceptance is excused where:
- The drawee cannot after reasonable search be found
- The drawee is dead or insolvent
- The drawee is a fictitious person on incapable of
- Where although presentment has been irregular,
acceptance has been refused on some other ground

Presentment for payment
- implies presentment to the person responsible
to make payment of the instrument on the date.
Presentment for payment is necessary in all cases,
except the following and the parties are made
1. If the maker, drawee or acceptor intentionally
prevents the presentment of the instrument
2. If the instrument, is payable at a place or
business of drawee & he closes his business on
due date before the usual business hours
3. Same as 2, but the person authorised to make
payment is not present during usual business
4. If the instrument is not payable at any specified
place and the payee cannot be found after search
5. If there is a promise to pay not withstanding
6. If the presentment for payment is waive either
expressly or impliedly by the party entitled to
7. If the drawer could not possibly have suffered
any damage for want of non-presentment
8. If the drawee is a fictitious person, or one
incompetent to contract
9. If the bill is dis-honoured by non-acceptance
10. If the drawer & the drawee are one & the same
11. If the presentment becomes impossible
eg:curfew in the city etc

Dishonour of a NI
A bill may be dishonoured by non-acceptance
or non-payment
A PN and a cheque are dishonoured by non-
payment only
When a NI is dishonoured, the holder must
give a notice of dishonour to all the previous
parties in order to make them liable on the
If he fails to do so, except in cases when notice
of dishonour may be excused, he forfeits his
right of action against the prior parties
(a) Dishonour by non-acceptance
A B/E is dishonoured by non-acceptance in any
of the following ways:
(1) If the drawee does not accept within 48 hrs
from the time of presentment though the bill
was duly presented for acceptance
(2) If there are several drawees & if all of them
do not accept
(3) When presentment for acceptance is excused
the bill is not accepted

(4) When the drawee is incompetent to contract
(5) When the drawee gives a qualified acceptance
(6) When the drawee is a fictitious person or if after
reasonable search cannot be found
(b) Dishonour by non-payment
- B/E - If the acceptor fails to make payment when
it is due, the bill is dishonoured by non-payment
- PN - If the maker fails to make payment on the
due date, the PN is dishonoured by non-payment
- Cheque - If the banker refuses to pay when a chq
is presented, the chq is dishonoured by non

Notice of dishonour
How is it given?
- When a NI is dishonoured either by non-
acceptance or non-payment, the holder must
give notice of dishonour to all the prior parties
whom he wants to make liable on the
- If he does not give notice except in cases
when notice of dishonour is excused, all the
prior parties are discharged of their liability.
Given by whom?
1. The holder of the instrument must give notice of
dishonour to all the prior parties whom he
wants to make liable on the instrument
2. A notice given by a stranger is not valid.
A party receiving a notice of dishonour to make
the prior party liable, should give notice of
discharge to such party within a reasonable time
3. If an instrument deposited with an agent for
presentment is dishonoured, the notice of
dishonour may be given either by the agent
himself, or by his principal
Given to whom?
1. Notice of dishonour must be given to all the
parties whom the holder seeks to make liable
2. It need not be given to the acceptor of a bill or to
the maker of a note or the drawee of a cheque
because it is they who dishonour the instrument
by non-acceptance or non-payment
3. Notice of dishonour may be given to
- to the party liable, or
- to his duly authorised agent, or
- Where he has died, to his legal representative, or
- Where he had been declared insolvent, to his
4. When the party to whom notice of dishonour is
dead but the party despatching the notice is
ignorant of his death, the notice is sufficient
Mode of notice
- may be oral, written or sent by post
The rule of giving notice of dishonour
1. If the holder & the party entitle to the notice
of dishonour carry on business or live in diff
cities, the notice must be despatched by the
next post or on the day next after the day of
2. If these parties carry on business or live in
same place, the notice must be despatched
in time to reach its destination on the next
day after the day of dishonour
Notice of dishonour unnecessary
No notice of dishonour is necessary:
1. When it is dispensed with the by the party
entitled thereto
2. To charge the drawer, when he has
countermanded payment
3. When the party charged could not suffer
damage for want of notice (eg: minor)
4. When the person entitled to notice cannot after
due search be found
5. To charge the drawer when the acceptor is also
the drawer
6. In the case of a PN which is not negotiable
7. When the party entitled to notice, knowing the
facts, promises unconditionally to pay the
amount due on the instrument

Duties of the holder upon dishonour
Upon dishonour:
1. Give notice of dishonour to all the parties on
the instrument whom he seeks to make liable
2. The holder may cause such dishonour to be
noted by a notary public upon the
The holder may also get the instrument
protested by a notary public
3. After going through noting & protesting, the
holder may bring a suit against the parties
liable for recovery

Compensation for dishonour
1. Amount due on the instrument plus exps
incurred in presenting, noting & protesting it.
2. An endorser who has paid the amount due on
the instrument, is entitled to the amount so paid
with interest.
3. The holder can receive the sum @ the current
rate of exchange on the date of dishonour if the
holder resides in a country different from the
country in which the bill is payable
4. A party entitled to compensation may draw a bill
payable at sight or on demand for the amount
due to him together with all the expenses
incurred by him
Bouncing of cheques
A chq is bounced when there is insufficient
funds in the drawers a/c
Chq dishonour punished with imprisonment
for 2 yrs, or
With fine twice the amt of the chq, or
With both
Bouncing of chqs - exceptions
A chq is given in gift
A chq not presented within the validity period
The payee & the holder have not given notice
within 15 days of dishonour
The payee has been paid the same within 15
days of receipt of notice
The complaint was made after a month of
cause of action