dishonour, noting and protesting.NI Act 1881

This presentation on “Dishonour, Noting, and Protesting” provides a detailed overview of the legal and commercial aspects of dishonoured negotiable instruments, particularly cheques, under the Negotiable Instruments Act, 1881. It explains the grounds for dishonour of cheques, procedures for issuing notice of dishonour, unnecessary situations where notice is not required (Sec. 98), and the provisions relating to notice (Sec. 93–106). The slides further cover the process of noting and protesting (Sec. 99–104A), the concept of protest for better security, and legal implications under Sections 138–142.

Additionally, the presentation highlights classification of offences, legal remedies, penalties, trial procedures, interim compensation (Sec. 143A), service of summons (Sec. 144), evidence on affidavit (Sec. 145), compounding of offences (Sec. 147), and appeals (Sec. 148). With case references and practical insights, this resource is highly useful for students, law aspirants, academicians, and professionals seeking clarity on cheque dishonour laws and their implications in commercial transactions.

1. Assistant Professor : Renu Soni

4. 7. When drawee can’t be found after reasonable
research
8. When drawee in case of need refuses to
accept it
9. When presentment is excused and bill is not
accepted.

6. Grounds for dishonour of cheques
•1.Insufficiency of funds
•2.Irregular signature
•3.Alteration
•4.Post dated cheque
•5.Stale cheque
•6.Stop payment instructions
•7.Frozer account ( freezed by the court)

8. Notice of Dishonour
•In the case of dishonour of a negotiable instrument by non-
acceptance or non-payment, a liable holder should notify all the
parties of his liability by issuing a notice of dishonour.
•Upon receiving a notice of dishonour, a party must issue a notice of
dishonour to other parties rendering them liable to himself, within
a reasonable amount of time.
•in case of a drawer, it helps to protect himself in case of a
dishonour occurring at the end of a drawee or acceptor.
•In fact, the notice of dishonour is so important that an omission to
it discharges all parties other than the maker or acceptor.
•Further, a notice of dishonour can be oral or written. However, it
must be formal and should be issued within a reasonable amount
of time.

9. Unnecessary Situations For A
Notice Of Dishonour , sec 98
There are certain situations where we do not require
a notice of dishonour, which are:
•When it is dispensed or waived by the entitled party. For e.g.,
if the endorser writes along with the instrument- ‘notice of
dishonour waived’.
•When the drawer himself cancels(countermands) the
payment.
•In a situation where the charged party would not suffer
damages for the want of notice.
•When we cannot find the party entitled to notice after a due
search.
•When omission is a result of unavoidable circumstances. For
example, in the case of the holder being critically ill.
•In the case of an acceptor is a drawer.
•If the promissory note is non-negotiable.
•When the party entitled to notice agrees to pay
unconditionally.

10. Provisions Relating to Notice of
Dishonour
•1.Notice by whom (u/s 93)
•2.Notice to whom
To all the parties to whom the holder seeks
to make liable
To duly authorised agents
To legal representatives in case of death
In case of insolvency, to his official assignee
3.Form and Content of Notice (U/S 94)
Reason of dishonour
the way in which it has been dishonoured
No special form of words is necessary
4.Mode of Service
5.Time limit for serving (U/S 105 to 106 )
nature of instrument
distance between the parties
nature of communication
Public holidays shall be excluded (U/S 105)

11. Provisions Relating to Notice of
Dishonour
•6.Place of notice
•7.Notice to agent
•8.Effect of omission to give notice of dishonour
•9.Duties of the holder upon dishonour:
a).to give notice of dishonour
b).Noting (u/s 99) and protesting (u/s 100)
c).Suit for money
10.Compensation for dishonour
a).Amount of compensation
b).Expenses incurred on presentment
c).Current rate of exchange
d). Compensation to indorser

16. Category of Bare ActName of the Act Year of Promulgation
Criminal Laws Negotiable Instruments
Act
1881
Act Number Enactment Date Chapter Number
26 09.12.1881 9
Chapter Title Ministry Department
No noting and ProtestMinistry of Finance Department of Financial
Services

17. Protest U/S 100
•When a promissory note or bill of exchange has been
dishonoured by non-acceptance or non-payment, the
holder may, within a reasonable time, cause such
dishonour to be noted and certified by a notary public.
Such certificate is called a protest.
•Protest for better security. When the acceptor of a bill of
exchange has become insolvent, or his credit has been
publicly impeached, before the maturity of the bill, the
holder may, within a reasonable time, cause a notary public
to demand better security of the acceptor, and on its being
refused may, within a reasonable time, cause such facts to
be noted and certified as aforesaid. Such certificate is
called a protest for better security.

21. Section 102 – Protest for non-payement
after dishonour by non-acceptance
•When a promissory note or bill of exchange is
required by law to be protested, notice of
such protest must be given instead of notice
of dishonour, in the same manner and subject
to the same conditions; but the notice may be
given by the notary public who makes the
protest.

22. ection 103 – Protest for non-payement
after dishonour by non-acceptance
•All bills of exchange drawn payable at some
other place than the place mentioned as the
residence of the drawee, and which are
dishonoured by non-acceptance, may, without
further presentment to the drawee, be
protested for non-payment in the place
specified for payment, unless paid before or at
maturity.

23. Section 104 – Protest of foreign bills
•Foreign bills of exchange must be protested for dishonour when
such protest is required by the law of the place where they are
drawn.
Section 104A – When noting
equivalent to protest
For the purposes of this Act, where a bill or note is
required to be protested within a specified time or
before some further proceeding is taken, it is sufficient
that the bill has been noted for protest before the
expiration of the specified time or the taking of the
proceeding; and the formal protest may be extended at
any time thereafter as of the date of the noting.

24. •With the fast growth of business and trade, the use of
cheques grew as well, as did the number of cheques
bouncing disputes
•[i]. The purpose of Sections 138-142 of the Negotiable
Instruments Act of 1881 is to improve the efficiency of
banking operations and maintain the legitimacy of
commercial transactions involving cheques.
•[ii]A person who issues a cheque to satisfy a debt or
liability in whole or in part and the cheque is
dishonored by the bank on presentation is guilty of a
criminal offence punishable by imprisonment, fine, or
both
•[iii]. Section 138 was established to penalize dishonest
check draws who, although claiming to be releasing
their responsibility by issuing a check, have no
intention of really doing so.

25. Classification of Offence
•The violation under Section 138 is a non-
cognizable offence (a case in which a police
officer cannot arrest the accused without an
arrest warrant). It is also a bailable offence.

26. If cheque is dishonored
•When a cheque is returned unpaid, the drawee bank
sends a ‘Cheque Return Memo’ to the payee’s banker,
detailing the cause for non-payment. The dishonored
cheque and the memo are then given to the payee by
the payee’s banker. If the holder or payee feels the
cheque will be honored a second time, he or she can
resubmit it within three months after the date on it. If
the cheque issuer fails to make a payment, the payee
has the right to take legal action against the drawer.
•The drawer cannot be charged if the cheque was given
as a gift, used to lend money, or was used for illegal
purposes.

27. Legal action
•Dishonoring a cheque, according to Section 138 of the Act, is a
criminal offence punishable by up to two years in prison, a
monetary penalty, or both.
•The payee has 30 days from the date of receiving the “Cheque
Return Memo” from the bank to send the notice to the drawer. The
notification should state that the amount of the check must be paid
to the payee within 15 days of the drawer receiving the notice.
•The payee has the right to file a criminal complaint under Section
138 of the Negotiable Instruments Act if the cheque issuer fails to
make a new payment within 30 days of receiving the notification.
•However, within a month of the notice period expiring, the
complaint must be filed in a magistrate’s court. In this scenario, it is
critical to seek the advice of an attorney who is well-versed and
skilled in this field of law to proceed further in the matter.

28. Grounds for dishonour of cheques
•1.Insufficiency of funds
•2.Irregular signature
•3.Alteration
•4.Post dated cheque
•5.Stale cheque
•6.Stop payment instructions
•7.Frozer account ( freezed by the court)

29. Under secton 139
•It shall be presumed that the holder of
the cheque has received the cheque of
the nature defined u/s 138
Under Section 140
Defence may not be allowed in any
prosecution under section 138( means
drawer has no reason excuse for that)

30. Under section 141
•Only That Person Who Was Responsible For Conduct Of
Company's Affairs At The Time Of Cheque Dishonour Is
Liable: Supreme Court
•If the person committing an offence under section 138 is a
company, every person who, at the time the offence was
committed, was in charge of, and was responsible to the
company for the conduct of the business of the company, as
well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and
punished accordingly.
For the purposes of this section,—(a)“company” means any body
corporate and includes a firm or other association of individuals;
and(b)“director”, in relation to a firm, means a partner in the firm.

31. Cognizance of offences (U/S 142)
•(a) no court shall take cognizance of any
offence punishable under section 138
except upon a complaint, in writing, made
by the payee or, as the case may be, the
holder in due course of the cheque
•(b) no court inferior to that of a
Metropolitan Magistrate or a Judicial
Magistrate of the first class shall try any
offence punishable under section 138.].

32. Summarily Trial of Cases (U/S 143)
•Provided that in the case of any conviction in a summary trial under
this section, it shall be lawful for the Magistrate to pass a sentence
of imprisonment for a term not exceeding one year and an amount
of fine exceeding five thousand rupees.
•The trial of a case under this section shall, so far as practicable,
consistently with the interests of justice, be continued from day to
day until its conclusion, unless the Court finds the adjournment of
the trial beyond the following day to be necessary for reasons to be
recorded in writing.
•Every trial under this section shall be conducted as expeditiously as
possible and an endeavour shall be made to conclude the trial
within six months from the date of filing of the complaint.

33. Insertion Of Section 143A-Interim
Compensation
•The interim compensation under sub-section (1)
shall not exceed twenty percent of the amount of
the cheque.
•The interim compensation shall be paid within
sixty days from the date of the order under sub-
section (1), or within such further period not
exceeding thirty days as may be directed by the
Court on sufficient cause being shown by the
drawer of the
cheque.

34. Service of Summons (Section 144)
•Magistrate issuing a summons to an accused or a witness
may direct a copy of summons to be served at the place
where such accused or witness ordinarily resides or carries
on business or personally works for gain, by speed post or
by such courier services as are approved by a Court of
Session.
•Where an acknowledgment purporting to be signed by the
accused or the witness or an endorsement purported to be
made by any person authorised by the postal department
or the courier services that the accused or the witness
refused to take delivery of summons has been received,
the Court issuing the summons may declare that the
summons has been duly served.

35. Evidence on Affidavit(U/S 145)
•Where an acknowledgment purporting to
be signed by the accused or the witness or
an endorsement purported to be made by
any person authorised by the postal
department or the courier services that the
accused or the witness refused to take
delivery of summons has been received,
the Court issuing the summons may
declare that the summons has been duly
served.
•Use of ‘Cheque Return Memo’(U/S 146)

36. Compounding Of Offence (U/S 147)
•“Section 147 of the N.I. Act has made every
offence punishable under the N.I. Act as
compoundable. As such, there is no bar for
the parties in the proceeding to compound
the offence. However, at the same time, the
guidelines laid down by the Hon’ble Apex
Court in Damodar S. Prabhu’s Case regarding
imposing graded cost on litigant also is to be
borne in mind.”

37. Deposit in case of Appeal – Insertion
of section U/s 148
•The Madras High Court has directed the
District Courts across the State of Tamil
Nadu to not mechanically impose a
condition of deposit of 20% of the
compensation amount/cheque amount
u/s.148 of the Negotiable Instruments Act.