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negotiable-instruments:liability-of-drawer

Liability of drawer

Section 30 of Negotiable Instruments Act,1881

Liability of drawer. The drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been given to, or received by, the drawer as hereinafter provided.

The drawer of a bill of exchange or cheque is the original promisor. The promise he makes is to the effect that in case the drawee or the acceptor dishonours the bill or the cheque, if he refuses acceptance or payment then the holder will not suffer in any way but will be able to recover the amount from him. This also governs the drawer of a hundi who becomes liable as principal debtor after the instrument has been dishonoured either by non-acceptance or non-payment. But in the case of a Namjog hundi the liability of the drawer arises after dishonour provided the hundi is returned to him in an undischarged state.

This section lays down the formality the holder has to observe before he can enforce payment from the drawee. The drawer must have due notice of dishonour under section 93.

Notice absolutely necessary

The notice of dishonour to the drawer is absolutely necessary, and until and unless it is given, the holder has no cause of action against him. Such notice must be proved by the holder unless he can come within any of the exceptions under section 98 dispensing with the service of such notice. Neglect to serve this notice will absolutely discharge the drawer from liability. Subject to local usage to the contrary, the principle of this section is applicable to hundis as well. The notice must be immediate notice. Instead of the holder, if anybody else, liable under the instrument, has given notice to the drawer the holder can utilise that notice.

Parties to suit

If the drawee has accepted, the holder may proceed against either the drawer or the drawee or against both. If the drawee does not accept, the holder can proceed against the drawer alone. Where both the drawer and the acceptor are liable, in a suit against the drawer, he can plead neither that the holder's remedy against the acceptor is time-barred nor that the holder has got a decree against the acceptor when the decree has not been satisfied. In a suit by the holder the drawer cannot be heard to say that the bill had been discounted before maturity by the acceptor and re-issued by him. But if he proves that the bill was with the acceptor at maturity and was delivered by him to the plaintiff after it became due he will be discharged from liability. The suit has to be instituted by the holder within three years from the time of refusal to accept.

Contrary contracts

The liability of the drawer is subject to any special contract that may be entered into by the parties As for instance, he may contract himself out of any liability by an express stipulation in the body of the instrument as by putting the words '“without recourse” or by limiting his liabilities to the assets in his hand by executing the instrument as an executor, or, he may wave the notice of dishonour or other duties imposed by the Act upon the holder. To limit the holder's prima facie right of recourse against the drawer, the drawer must show that when he discounted the drafts he bargained that the transaction should be “without recourse” or some breach of contract or duty which would have the effect in law of discharging or limiting his liability. The liability of the drawer will not be affected in any way even if a collateral security is given and lost.

Time of dishonour

There now remains to be considered when does dishonour take place In case of a bill, payable on demand, the drawer, on failure of payment by the drawee, immediately becomes liable to the payee for the amount. When a bill is payable after sight it is essential that the bill should be presented for acceptance, and if on such presentment for acceptance the drawee refuses to accept it, the bill stands dishonoured1), and no matter whether the bill has matured or not, the holder on giving notice of dishonour to the drawer can immediately proceed against him. But if due notice of dishonour be not served and the drawer does not otherwise get notice the mere fact that the payee of a hundi meets the drawer sometime after the maturity of the instrument and demands payment from him will not be sufficient compliance with the provisions of the Act and the drawer will not be liable.

In case of bills payable at or after a fixed date presentment for acceptance is not necessary before that date. But if the holder presents it before maturity for acceptance and acceptance is refused by the drawer the holder becomes immediately entitled to proceed against the drawer the reason being that the holder’s right of action against the drawer arises immediately on dishonour by non-acceptance. If after dishonour before maturity, the bill is again presented after maturity the latter course will not give rise to a separate cause of action. It has been held by the High Court of Allahabad that no presentment is valid unless it is made after the bill has reached maturity. The latter opinion, it is submitted, is more in accord with what is contemplated by section 91 which says “refuses to accept upon being duly required to accept the bill” and one cannot be duly required to do a thing before the time for this comes Where the acceptor of a hundi accepted it unconditionally but subsequently said that he would pay in three day’s time and the holder agreed to the arrangement but did not give notice to the drawer and when afterwards the acceptor failed to make payment within three days and the holder did not give notice of dishonour to the drawer before ten days it was held that the conduct of the holder discharged the drawer from liability.

A member of a Hindu family whom it is sought to make liable by a suit on a hundi drawn by a manager of a family is entitled to urge want of notice upon the manager. Where there is no allegation that presentment was excused, the plaintiff must prove that the drawee was required to accept the bill and that he dishonoured it by non-acceptance.

A cheque is a revocable order to pay and before payment by the bank the drawer is competent to stop payment

1)
Section 91

Created on 2021/02/13 17:18 by LawPage • Last modified on 2021/02/13 17:18 by LawPage