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Dishonour by non-acceptance and non-payment

A bill may be dishonoured by

  1. non-acceptance and
  2. by non-payment.

Section 91 deals with dishonour by non-acceptance and section 92 deals with dishonour by non-payment.

In F. Nanak Chand Ramkishan Das And … vs Lal Chand Ganeshi Lal And Ors.1) while dealing with section 91 and 92 of Negotiable Instruments Act the Hon'ble Punjab-Haryana High Court held that:

A bill of exchange payable at sight may be, though not necessarily required by law, presented by the holder to the drawee for acceptance. Where it is so presented, the holder must, if so required by the drawee, allow the drawee forty-eight hours (exclusive of public holidays) to consider whether he will accept it 2).

Two consequences may then follow and they are:

  1. If the drawee upon being required to accept the bill of exchange makes default in so acceptance, the bill shall be regarded as dishonoured by non-acceptance as contemplated by Section 91 of the Act;
  2. Where the bill of exchange on being so presented is accepted, the drawee may be, simultaneously or at any subsequent time, required to pay the same. If the drawee then makes default in payment, the bill of exchange shall be regarded as dishonoured by non-payment as laid down by Section 92.

Dishonour by non-acceptance

Section 91 of the Negotiable Instruments Act,1881.

A bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of several drawees not being partners, makes default in acceptance upon being duly required to accept the bill, or where presentment is excused and the bill is not accepted. Where the drawee is incompetent to contract, or the acceptance is qualified the bill may be treated as dishonoured.

The drawee is to accept the bill within forty eight hours of presentation. If he does not signify his acceptance or refuses to accept the bill within the aforesaid period it will be taken as dishonoured. When there are more drawees than one who are not partners refusal by one, even though others are willing to accept, will amount to dishonour of the bill at the option of the holder, as he has a right to demand acceptance from all the drawees to make them all liable. In such circumstances he may also treat it as accepted. If the holder chooses to treat the bill as accepted it will be qualified acceptance and the prior parties to the bill will stand discharged unless they assent to it.

In the case of joint drawees who are partners acceptance by one of them will mean acceptance by all as the act of one partner will be deemed to be on behalf of the partnership. Therefore, in the case where some partners accept the bill while others refuse to do so, the bill will, it is submitted, be deemed to have been accepted to make all the drawees liable under the bill. The effect of refusal by some partners will be a matter of settlement between the partners interse and will have no bearing on the holder. Dishonour gives rise to cause of action for suit.

Presentment essential

Where presentation is not excused the bill has to be presented for acceptance. Without proof of such presentation and refusal to accept there can be no dishonour of the bill and no claim will lie.

A suit was brought by the endorsee of a bill of exchange against the endorser and the drawer. He failed to prove presentment but nevertheless he got a decree The endorser appealed, the drawer not being a party to the appeal. The appellate court dismissed the whole suit against both the defendants. On appeal to the High Court it was held that as proof of presentment was essential before the plaintiff could recover judgment against the drawer the suit was rightly dismissed notwithstanding that the drawer did not appeal.3)

Dishonour for drawee’s incompetence

The drawee must be a man who is competent to enter into a contract. If the drawee is incompetent to enter into a valid contract he cannot, for obvious reasons, accept a bill. Therefore, when it is found that the drawee is one incompetent to contract the bill will be deemed to have been dishonoured. Similarly, when the drawee is a fictitious person or a person who is dead or is a bankrupt or one who cannot, after reasonable search, be found, the bill is said to have been dishonoured.

Dishonour by non-payment

Section 92 of the Negotiable Instruments Act,1881.

A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.

This section relates to dishonour by non-payment of a promissory note, bill of exchange or cheque. In case of a bill of exchange it has to be presented for acceptance and when the drawee accepts the bill he becomes the principal debtor liable to pay the bill at maturity when it has to be presented to him for payment. If on such presentment at maturity he fails to make payment the bill is dishonoured by non-payment.

Similarly, when the maker of a promissory note fails to make payment on the due date the note is dishonoured. When the banker refuses to make payment of a cheque on presentment the cheque is dishonoured and the holder can at once proceed against the drawer and other parties, if any, on the cheque. But to return a cheque with an endorsement that it will be honoured after collection of the assets of the drawer does not constitute dishonour. The provision of this section and sections 91 and 93 dealing with dishonour are applicable to bills of exchange payable at sight or on demand. If the drawee refuses to accept such bills, such refusal amounts to dishonour by non-payment. When presentment for payment is excused, the instrument is dishonoured if payment is not made when it is overdue.

AIR 1958 P H 222
Section 63
Sangarmal v Bhudev Sahu, 19 I C 251