Discharge and dishonor of negotiable instruments (INDIA)

Discharge and dishonor of negotiable instruments (According to Indian Law)

Modes of Discharge
Discharge of an Instrument
Discharge of a Party
Material Altercation
Dishonor of a Negotiable instrument
Dishonor by Non-Acceptance
Dishonor by Non-payment
Compensation

1. Discharge and dishonor of negotiable instruments Presented by JOYDEEP SINGH 191103 Department of management studies Central university of haryana

2. Discharging of Negotiable Instrument Discharging of a negotiable instrument means that all the rights of action under it are completely extinguished and it ceases to be negotiated anymore. When the liability of the party, primarily and ultimately liable on the instrument, comes to an end, the instrument is said to be discharged. After discharge of a negotiable instrument, even a holder-in-due-course acquires no right under it and he cannot bring a suit on the face of it.

3. modes of discharge of an instrument The term discharge in relation to negotiable instrument is used in two senses (1) discharge of the instrument and (2) discharge of one or more of the parties from liability thereon.

4. Discharge of an instrument 1. DISCHARGE BY PAYMENT IN DUE COURSE Payment of the due amount to the holder results in discharge of the instrument. 2. DISCHARGE BY DEBTOR AS A HOLDER When the acceptor of a bill of exchange becomes its holder on or after maturity thereof, all rights of actions thereon are extinguished. 3. DISCHARGE BY EXPRESS WAIVER If the holder of a negotiable instrument expressly gives up or renounces his rights against all the parties, the instrument is discharged.

5. 4. DISCHARGE BY CANCELLATION Cancellation intentionally by holder or his agent 5. DISCHARGE BY MATERIAL ALTERATION When a party primarily liable is discharged

6. Discharge of a party or parties 1. DISCHARGE BY CANCELLATION If the holder of a negotiable instrument or his agent cancels the name of any party on the instrument, with an intention to discharge him, such party is discharged from liability to the holder. 2. DISCHARGE BY RELEASE If the holder of a negotiable instrument releases any party to the instrument by any method other than cancellation, the party so released is discharged from liability. 3. DISCHARGE BY PAYMENT Payment to the person in possession of the bearer instrument discharges the party.

7. 4. DISCHARGE BY DELAY IN PRESENTMENT OF CHEQUE If a cheque is not presented for payment within a reasonable time of its issue and the drawer suffers actual damage through the delay, he is discharged to the extent of such damage. 5. DISCHARGE BY OPERATION OF LAW Discharge can take place on account of an order of the insolvency court, by the lapse of time or merger of securities. 6. DISCHARGE BY MATERIAL ALTERATION When a negotiable instrument is materially altered without the assent of all the parties on the instrument, the instrument is avoided.

8. Material alteration An alteration which in any way alters the operation of the instrument and the liabilities of the parties thereto or which alters the business effect of the instrument is a material alteration. INSTANCES OF MATERIAL ALTERATION (1) alteration of date, time (2) alternation of name (3) alteration of amount, Rate of interest (4) signature, etc.

9. Instances which are not alteration Correction of mistake in date/clerical error. Alteration made with the consent of the parties. Addition of the words which do not prejudice anyone.

10. Dishonor of a negotiable instrument Dishonor means not honoring one’s obligation. A negotiable instrument can be dishonoured either by 1. non-acceptance 2. non-payment. A cheque and a promissory note can only be dishonored by non-payment but a bill of exchange can be dishonored either by non acceptance or non payment

11. Dishonor By Non-Acceptance (sec 91) 1. If a bill is presented to the drawee for acceptance and he does not accept it within 48 hours from the time of presentment for acceptance. 2. When the drawee is a fictitious person or non-traceable after reasonable search. 3. Where the drawee is incompetent to contract, or the acceptance is qualified. 4. When a bill is accepted with some consideration. 5. When the drawee has either become insolvent or is dead. 6. When presentment for acceptance is excused and the bill is not accepted.

12. Dishonour by non-payment (Sec 92) If the acceptor fails to make payment when it is due, the bill is dishonoured by non-payment. 1. if the maker fails to make payment on the due date 2. a banker refuses to pay. Effect of dishonour. When a negotiable instrument is dishonoured either by non acceptance or by non-payment, the other parties thereto can be charged with liability.

13. Notice of dishonour (Section 93) Notice of dishonour means the actual notification of the dishonour of the instrument by non-acceptance or by non-payment. Failure to give notice of the dishonour by the holder would discharge all parties other than the maker or the acceptor A notice given after two year of dishonour is not a notice given within a reasonable time.

14. Noting (sec-99) Noting is made to authenticate the fact that the bill having been dishonoured. Noting is a minute recorded by a notary public on the dishonoured instrument or on a paper attached to such instrument. When a bill is to be noted, the bill is taken to a notary public who represents it for acceptance or payment as the case may be and if the drawee or acceptor still refuses to accept or pay the bill, the bill is noted as stated above.

15. Contents of noting Noting should specify in the instrument, (a) the fact of dishonour, (b) the date of dishonour, (c) the reason for such dishonour, (d) the notary’s charges, (e) a reference to the notary’s register 

16. Notice by whom and to whom (section 93) Notice of dishonour must be given to all parties to whom the holder seeks to make liable. Each party receiving notice of dishonour must, in order to render any prior party liable give notice of dishonour to such party within a reasonable time after he has received it. No notice need be given to a maker, acceptor or drawee, Who are the principal debtors

17. MODE OF NOTICE The notice of dishonour may be oral or written or partly oral and partly written. It may be sent by post. PLACE OF NOTICE The place of business or (in case such party has no place of business) at the residence of the party for whom it is intended, is the place where the notice is to given.

18. When notice of dishonour is unnecessary (Sec 98) 1. when it is dispensed with by the party entitled thereto. 2. in order to charge the drawer when he has countermanded payment. 3. When the party entitled to notice cannot after due search be found or the party bound to give notice is unable, without any fault of his own to give it. 4. when the party charged could not suffer damage for want of notice 5. Where the drawer and acceptor are the same person. 6. In the case of promissory note which is not negotiable. 7. When the party entitled to notice, knowing the facts, unconditionally agrees to pay the amount.

19. Protest Protest is a formal certificate of the notary public attesting the dishonour of the bill by non-acceptance or by non-payment. After noting, the next step for notary is to draw a certificate of protest, which is a formal declaration on the bill or a copy thereof. The chief advantage of protest is that the court on proof of the protest shall presume the fact of dishonour.

20. Contents of protest (sec-101) 1. The instrument itself or a literal transcript of the instrument ; and of everything written or printed thereupon. 2. The name of the person for whom and against whom the instrument has been protested 3. The fact of and reasons for dishonour 4. The time and place of demand and dishonour 5. The signature of the notary public 6. In the case of acceptance for honor or payment for honor the person by whom or for whom such

21. Compensation for dishonour (Section 117) 1. The holder is entitled to the amount due upon the instrument together with the expenses properly incurred in presenting, nothing and protesting it. 2. An endorser who has paid the amount due on the instrument is entitled to the amount so paid with interest at 18 per cent per annum from the date of payment. 3. Where the person sought to be charged, resides in a country different from the country in which the bill is payable He is entitled to receive the sum at the current rate of exchange between the two countries at the date of dishonour. 4. When the person charged and such endorser reside at different places, the endorser is entitled to receive such sum at the current rate of exchange between the two places.

22. THANK YOU