Section 84 of the Negotiable Instruments Act,1881.
(1) Where a cheque is not presented for payment within a reasonable time of its issue, and the drawer or person on whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a large amount than he would have been if such cheque had been paid.
(2) In determining what is a reasonable time, regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case.
(3) The holder of the cheque as to which such drawer or person is so discharged shall be a creditor, in lieu of such drawer or person, of such banker to the extent of such discharge and entitled to recover the amount from him.
(a) A draws a cheque for Rs. 1,000, and, when the cheque ought to be presented, has funds at the bank to meet it. The bank fails before the cheque is presented. The drawer is discharged, but the holder can prove against the bank for the amount of the cheque.
(b) A draws a cheque at Ambala on a bank in Calcutta. The bank fails before the cheque could be presented in ordinary course. A is not discharged, for he has not suffered actual damage through any delay in presenting the cheque.
The section is complementary to section 72 and has to be read along with it. Formerly the section ran thus:
“When the holder of a cheque fails to present it for payment within a reasonable time, and the drawer thereof sustains loss or damage from such failure, he is discharged from liability to the holder.”
This has been substituted by the present section by the Amending Act VI of 1897 following the wordings of section 74 of the English Bills of Exchange Act. The section lays down an equitable doctrine that where for non-presentation of a cheque within a reasonable time the drawer suffers actual damage through such delay he is discharged to the extent of his damage.1)
A cheque is issued by a person for payment of money to his creditor against a bank where the former has funds. A creditor is not bound to accept payment by a cheque which is not a legal tender. A tender to be valid must be made in the current coin of the realm. But where no objection is raised by the creditor when the cheque is given as to the medium in which the tender is made the tender cannot be held to be bad because it has been made by a cheque and not in coin or currency notes. When, therefore, a creditor accepts a cheque as a medium of payment the provisions of the section will operate. In order to take payment the payee must present the cheque to the bank and that must be done within a reasonable time, that is to say, without undue delay. When on such presentment payment is refused by the bank there arises a cause of action against the person who issued the cheque i.e. the drawe. What is a reasonable time is a question of fact in each case and is determined regard being had to the nature of the instrument, the usage of trade and of bankers and the circumstances of each particular case.
In Haji Sheikh Hasanoo vs S. Natesa Mudliar And Co.2) the Hon'ble Bombay High Court held that:
“Thus, the main reason for drawing a distinction between a cheque and an instrument of other kind is that if a cheque is drawn by a drawer on a bank he is forced to keep sufficient funds in that bank for enabling the person in whose favour he has drawn the cheque to cash it. As he has to keep his money tied up in that manner, he cannot properly withdraw it even if he knew that the condition of the bank was not satisfactory. It is for this reason necessary that cheques should be presented for payment without undue delay.”
Cheques are not meant for circulation but for immediate payment. When, therefore, a cheque is not recovered immediately after it is issued for encashment but is circulated for sometime before the holder presents it for payment the drawer may, if he suffers actual damage meanwhile, claim a discharge to the extent of his loss.3) While the present section enjoins early presentation of a cheque in the interest of the drawer there are other cogent reasons also for the same. Delay in presentation may put the holder in difficulty in getting payment at all for during this time the bank may fail , the drawer may withdraw his whole amount from the bank or may issue an order stopping payment , or the bank may, out of suspicion on account of delay, postpone payment for ascertainment of the real position.
Clause (2): It is not quite intelligible why this subsection has been inserted. In view of section 105 which lays down how a reasonable time is to be determined the present clause appears to be unnecessary.
Clause (3): This clause puts the holder of the cheque, who has suffered on account of his own latches in making presentment for payment within a reasonable time, in the position of the drawer in relation to the bank. To the extent of the loss suffered by him i.e. the amount for which the drawer has got his discharge for late presentation, the holder steps into the shoes of the drawer and becomes a creditor of the bank. The holder can prove his claim for such an amount against the bank in insolvency. Where, however, the drawer had no funds in the bank at the time the cheque was issued but he was allowed to overdraw, the drawer would get his discharge if the bank failed. But the holder in such a case would not be able to prove his claim against the insolvent bank
The effect of delay in presenting bills or notes on the one hand and cheques on the other should be carefully noted. In the case of the former negligence absolutely discharges the drawer, while, in the case of the latter, under the provisions of the present section, the discharge, if at all, is qualified and conditional. It depends on whether any loss has been suffered by the drawer on account of the late presentation and, if so, what loss has been suffered, because the loss suffered will be the measure of the drawer's discharge. If in spite of delay no loss has been suffered by the drawer no question of discharge arises. The discharge will be proportionate to the loss of the drawer.