Section 93 of the Negotiable Instruments Act,1881.
When a promissory note, bill of exchange or cheque is dishonoured by non-acceptance or non-payment, the holder thereof, or some party thereto who remains liable thereon, must give notice that the instrument has been so dishonoured to all other parties whom the holder seeks to make severally liable thereon, and to some one of several parties whom he seeks to make jointly liable thereon.
Nothing in this section renders it necessary to give notice to the maker of the dishonoured promissory note, or the drawee or acceptor of the dishonoured bill of exchange or cheque.
The section deals with the steps that have to be taken, after dishonour of a negotiable instrument by non-acceptance or non-payment, in order to bind all parties to such an instrument other than the principal debtors. Notice of such dishonour of the instrument is a condition precedent to make the parties liable. On dishonour the holder of the instrument, or some party thereto who remains liable thereon, must give notice of dishonour to all the other parties except the maker, acceptor, or the drawee of a note, bill or cheque respectively, whom the holder seeks to make liable.1) In default of such notice all the parties other than the maker, the acceptor and the drawee who do not require any notice of dishonour under the last clause of this section will be discharged from liability.
In short, in the case of negotiable instruments notice of dishonour is absolutely necessary to make the parties liable on the instrument as it is regarded as a part of the contract of the drawer and the indorsers of a bill that they will be liable only if presentment is duly made, and, in case of dishonour, they are promptly informed that acceptance or payment has not been made.
The reason of the rule is that without such information the drawer and the indorsers cannot safeguard their interests by taking the necessary steps for getting payments from other parties liable to them and from withdrawing their effects from the drawee or the acceptor. Therefore, when a bill is dishonoured by non-acceptance and no notice of such dishonour is given but the holder presents it for payment at maturity and on non-payment gives notice of such dishonour, the drawer and the endorser stand discharged from liability as no notice of dishonour by non-acceptance has been given. If, however, the notice of dishonour by non-acceptance is given then no notice of dishonour by non-payment is necessary in case such bill is again presented for payment at maturity and dishonoured. But if the drawee having at first dishonoured the bill by non-acceptance again accepts it before maturity and then fails to make payment when presented at maturity, notice of dishonour by non-payment becomes necessary and want of such notice will discharge the drawer and the indorsers.2). The maker of a note and the acceptor of a bill and the drawee of a cheque are specifically excluded by the section from those who are entitled to such notice.
The provisions of this section dealing with dishonour by non-payment are applicable to bills of exchange payable at sight or on demand3), and also, to accommodation bills or notes. Even in a case where the instrument payable on demand is indorsed after dishonour and the fact of dishonour is known to the endorser, notice of dishonour by non-acceptance or non-payment is absolutely necessary to make the parties liable.
In F. Nanak Chand Ramkishan Das And … vs Lal Chand Ganeshi Lal And Ors.4) while dealing with sections 91 to 93 of Negotiable Instruments Act the Hon'ble Punjab-Haryana High Court held that:
If notice of dishonour was necessary in every case where any type of bill of exchange had been dishonoured, it was not necessary at all to enact Sections 91 to 93. Section 30 itself had provided for a notice of dishonour and it would have been quite enough for the aforesaid purpose. After a good deal of consideration of the various aspects of the case. I have come to the following conclusions-
Notice of dishonour must be given within a reasonable time from the date of dishonour. As to what constitutes reasonable time depends on the circumstances of each case and has been laid down in section 106.
It is the holder or some party to the instrument who is liable thereon at the time of its dishonour by non-acceptance or non-payment or at the time of giving notice of dishonour that can give notice. Obviously, therefore, a stranger who is not a party to the instrument cannot give a notice of dishonour. If a notice is given by a stranger it will be a nullity. Nor a person who, though a party to the instrument, has been discharged from his liability for want of due notice within a reasonable time is competent to give an effectual notice , for, after such discharge he does not remain liable on the instrument and his position is like that of a stranger. It is not necessary that the party giving such notice should have knowledge of the fact of dishonour or should have received any such notice himself. Therefore, where the holder of a bill gives notice of dishonour one day late to the first endorser and the latter who had no knowledge of dishonour immediately gives notice to the drawer on the same day the notice is bad as the indorser is not a person liable on the instrument at the time of giving the notice, he having been discharged by the late notice of the holder and this would be so even if successive notices by one party to another did not reach the drawer earlier.
Notice given by one party to the other enures to the benefit of all intermediate parties and can be taken advantage of by them. An agent can give notice on behalf of his principal and such notice need not necessarily be in the name of the principal.
No notice is necessary to the maker of a dishonoured promissory note or acceptor or the drawee of a bill or cheque as provided in the second paragraph of this section. Notice must be given to all the other parties to the instruments whom the holder seeks to charge with liability. No notice is to be given to the guarantors who are not parties to the instruments and who are not discharged from liability by reason of delay in the giving of notice by the holder. When two or more persons are drawers or indorsers notice to one of them is sufficient to bind all. But where the liability of such drawers or indorsers is joint and several notice to one of them is not sufficient to make all such persons severally liable to the holder.
Notice to the manager of a joint Hindu family is good to bind all but the members of the family can set up a defence of defective notice to the managing members in a suit by the holder.
It has been held that dishonour forms a part of the cause of action of the holder.5) After dishonour the condition precedent to make all parties, other than the maker or acceptor or drawee liable, is to give them due notice unless notice is excused under Section 98. It follows, therefore, that want of due notice will discharge all parties to the instrument except the maker or the acceptor, who does not require any such notice, not only from liability under the instrument but also from the original consideration. Knowledge of dishonour does not dispense with the necessity of the formal notice.6) The fact of presentment and issue of or notice of dishonour should be clearly stated in the plaint.
In the absence of a local usage to the contrary the provisions of this Act will apply to hundis as well and the doctrine of notice of dishonour, as laid down in this Act, in the absence of a contrary local usage, will apply to hundis. In the case of a hundi payable at sight notice of dishonour is not compulsory.