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When notice of dishonour is unnecessary

Section 98 of the Negotiable Instruments Act,1881.

No notice of dishonour is necessary

(a) when it is dispensed with by the party entitled thereto;
(b) in order to charge the drawer, when he has countermanded payment;
(c) when the party charged could not suffer damage for want of notice;
(d) when the party entitled to notice cannot after due search be found; or the party bound to give notice is, for any other reason, unable without any fault of his own to give it;
(e) to charge the drawers, when the acceptor is also a drawer;
(f) in the case of a promissory note which is not negotiable;
(g) when the party entitled to notice, knowing the facts, promises unconditionally to pay the amount due on the instrument.

This section is an exception to the general rule, laid down in section 93, that in case of dishonour it is absolutely necessary to give a notice of such dishonour to the party, except the drawee, acceptor or the maker, sought to be made liable. This section lays down when notice of dishonour is not necessary and the person relying upon any of the terms of the section must establish all the requirements thereof, although this may not be specifically pleaded.

In Indian Overseas Bank vs Global Marine Products1) the Hon'ble Kerala High Court held that

It is well settled law that notice of dishonour to the drawer is mandatory and unless and until notice is given the holder has no cause of action against the drawer of the cheque or bill of exchange under Section 30 of the Negotiable Instruments Act unless and until notice to drawer is exempted under Section 98 of the Act.

Dispensed with

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 endorser 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 been refused. Since it is a part of the contract it follows that where a party entitled to notice of dishonour has dispensed with or expressly waived it no such notice is necessary.

Waiver may be express as where it is written on the instrument itself as “Notice of dishonour waived”. It may be implied from agreement as where the drawer of a bill, before maturity, intimated to the holder that he had no regular place of residence and would call and see if the acceptor had paid the bill. In such a case notice was deemed2) to have been dispensed with. So also where a drawer intimated to the holder that the bill would not be paid on presentment, notice of dishonour was deemed to have been dispensed with. A waiver of notice of dishonour in favour of the holder enures for the benefit of all subsequent parties. A waiver of notice by the drawer with respect to one of the hundis by renewing it by another will not affect his right to object to the other hundis in suit on the ground of want of notice of dishonour. Waiver may be made at any time before dishonour.

Payment countermanded

A bill or a cheque is an order from the drawer to pay and before payment he has a right to countermand such order. When a drawer countermands payment no notice of dishonour to him is necessary. The reason of the rule is that the drawer having himself stopped payment and caused dishonour is not entitled to a notice.

No damage to party charged

No notice of dishonour is necessary where the party charged suffers no damage for want of it. Therefore, neither presentment nor notice of dishonour is necessary if it is shown that at the time when the hundi was drawn there were no funds belonging to the drawer in the hands of the drawee. Notice is not necessary where the acceptance of the bill is illegal or where the drawee is under no obligation to the drawer to accept or where the payee endorses the note to a third person after it is time barred. The onus of proving that the party charged has not suffered damage is on him who alleges exemption of notice on this ground. This rule applies when the suit is brought on a negotiable instrument and not on a collateral security or on the original consideration.

Party not found

No notice is necessary to a party when his place of residence or business is not known. But the holder must make a diligent and reasonable search. If after such reasonable search it is not found notice is excused. And if after such search it is found notice must be given within a reasonable time but the time spent in the search will be excluded from computation. Again, when a party, bound to give notice, cannot give the notice on account of some inevitable accident or on account of circumstances beyond his control, like death, omission to give notice will be excused, but when owing to dangerous illness or wrong address given by the indorser, or where the giving of notice will involve desecration of a sacred day the delay in giving notice will be excused , but when these special circumstances cease notice must be given. Where the drawee is a fictitious person or is one not competent to contract, notice of dishonour will be excused in relation to the drawer and also to the indorser if he was aware of this fact at the time of his indorsement.

Drawer is the same person as the acceptor

When there are several drawers and the acceptor is one of them, all the drawers would be liable even though no notice of dishonour has been given. Similarly, where the drawer is the same person as the acceptor no notice is necessary. The reason of these rules is that being a party to the dishonour he cannot ask for any formal notice of the same and when one of the drawers is an acceptor his knowledge of dishonour is the knowledge of the others. The same rule Will apply when the drawer and the drawee are one and same person. But, where of the two partners one is a drawer and the other is an acceptor of a bill, the rule will not apply as they are not partners in respect of the drawing of the bill and the bill was not drawn by one of them on behalf of both.3)

Non-negotiable note

All promissory notes are not negotiable i.e. transferable by indorsement and delivery. When a non-negotiable promissory note is indorsed, the indorsee has no claim against the maker or other indorsers and, therefore no one can be prejudiced by its non-presentment or want of notice.

Waiver of notice

If, after dishonour but before the time for giving notice of it has expired, the party, entitled to such a notice, with full knowledge of the fact of dishonour, promises unconditionally to pay the amount due on the instrument he dispenses with the notice of dishonour, and if he does so after the time for notice has expired he waives such notice. This promise to pay must be by the party charged and need not be express.

Where the drawer and the acceptor has a common secretary the knowledge of the latter of the fact of dishonour does not absolve the holder of the duty of giving notice unless it can be shown that it is his duty to communicate his knowledge on behalf of the one to the other.4)

2003 114 CompCas 733 Ker, 2003 (1) KLT 48
Philpson vs Knaller, (1815) 4 Camp 285
Jambu vs Sundaraja, 26 Mad 239
Re Fenwick Stobart & Co (1902) 1 Ch 507