Discharge and dishonor of negotiable instruments (According to Indian Law) Modes of Discharge Discharge of an Instrument Discharge of a Party Material Altercation Dishonor of a Negotiable instrument Dishonor by Non-Acceptance Dishonor by Non-payment Compensation

1. DISCHARGE AND
DISHONOR OF
NEGOTIABLE
INSTRUMENTS
Presented by
JOYDEEP SINGH
191103
DEPARTMENT OF MANAGEMENT STUDIES
CENTRAL UNIVERSITY OF HARYANA

2. DISCHARGING OF NEGOTIABLE
INSTRUMENT
Discharging of a negotiable instrument means that all the rights of
action under it are completely extinguished and it ceases to be
negotiated anymore.
When the liability of the party, primarily and ultimately liable on the
instrument, comes to an end, the instrument is said to be discharged.
After discharge of a negotiable instrument, even a holder-in-due-
course acquires no right under it and he cannot bring a suit on the
face of it.

3. MODES OF DISCHARGE OF AN
INSTRUMENT
The term discharge in relation to negotiable instrument is used in two
senses
(1) discharge of the instrument and
(2) discharge of one or more of the parties from liability thereon.

4. DISCHARGE OF AN INSTRUMENT
1. DISCHARGE BY PAYMENT IN DUE COURSE
Payment of the due amount to the holder results in discharge of the
instrument.
2. DISCHARGE BY DEBTOR AS A HOLDER
When the acceptor of a bill of exchange becomes its holder on or
after maturity thereof, all rights of actions thereon are extinguished.
3. DISCHARGE BY EXPRESS WAIVER
If the holder of a negotiable instrument expressly gives up or
renounces his rights against all the parties, the instrument is
discharged.

5. 4. DISCHARGE BY CANCELLATION
Cancellation intentionally by holder or his agent
5. DISCHARGE BY MATERIAL ALTERATION
When a party primarily liable is discharged

6. DISCHARGE OF A PARTY OR
PARTIES
1. DISCHARGE BY CANCELLATION
If the holder of a negotiable instrument or his agent cancels the name
of any party on the instrument, with an intention to discharge him,
such party is discharged from liability to the holder.
2. DISCHARGE BY RELEASE
If the holder of a negotiable instrument releases any party to the
instrument by any method other than cancellation, the party so
released is discharged from liability.
3. DISCHARGE BY PAYMENT
Payment to the person in possession of the bearer instrument
discharges the party.

7. 4. DISCHARGE BY DELAY IN PRESENTMENT OF CHEQUE
If a cheque is not presented for payment within a reasonable time of
its issue and the drawer suffers actual damage through the delay, he
is discharged to the extent of such damage.
5. DISCHARGE BY OPERATION OF LAW
Discharge can take place on account of an order of the insolvency
court, by the lapse of time or merger of securities.
6. DISCHARGE BY MATERIAL ALTERATION
When a negotiable instrument is materially altered without the assent
of all the parties on the instrument, the instrument is avoided.

8. MATERIAL ALTERATION
An alteration which in any way alters the operation of the instrument
and the liabilities of the parties thereto or which alters the business
effect of the instrument is a material alteration.
INSTANCES OF MATERIAL ALTERATION
(1) alteration of date, time
(2) alternation of name
(3) alteration of amount, Rate of interest
(4) signature, etc.

9. INSTANCES WHICH ARE NOT
ALTERATION
 Correction of mistake in date/clerical error.
 Alteration made with the consent of the parties.
 Addition of the words which do not prejudice anyone.

10. DISHONOR OF A NEGOTIABLE
INSTRUMENT
Dishonor means not honoring one’s obligation.
A negotiable instrument can be dishonoured either by
1. non-acceptance
2. non-payment.
A cheque and a promissory note can only be dishonored by non-
payment but a bill of exchange can be dishonored either by non
acceptance or non payment

11. DISHONOR BY NON-ACCEPTANCE
(SEC 91)
1. If a bill is presented to the drawee for acceptance and he does not
accept it within 48 hours from the time of presentment for
acceptance.
2. When the drawee is a fictitious person or non-traceable after
reasonable search.
3. Where the drawee is incompetent to contract, or the acceptance is
qualified.
4. When a bill is accepted with some consideration.
5. When the drawee has either become insolvent or is dead.
6. When presentment for acceptance is excused and the bill is not
accepted.

12. DISHONOUR BY NON-PAYMENT
(SEC 92)
If the acceptor fails to make payment when it is due, the bill is
dishonoured by non-payment.
1. if the maker fails to make payment on the due date
2. a banker refuses to pay.
Effect of dishonour.
When a negotiable instrument is dishonoured either by non
acceptance or by non-payment, the other parties thereto can be
charged with liability.

13. NOTICE OF DISHONOUR (SECTION
93)
Notice of dishonour means the actual notification of the dishonour of
the instrument by non-acceptance or by non-payment.
Failure to give notice of the dishonour by the holder would discharge
all parties other than the maker or the acceptor
A notice given after two year of dishonour is not a notice given within
a reasonable time.

14. NOTING (SEC-99)
Noting is made to authenticate the fact that the bill having been
dishonoured.
Noting is a minute recorded by a notary public on the dishonoured
instrument or on a paper attached to such instrument. When a bill is
to be noted, the bill is taken to a notary public who represents it for
acceptance or payment as the case may be and if the drawee or
acceptor still refuses to accept or pay the bill, the bill is noted as
stated above.

15. CONTENTS OF NOTING
Noting should specify in the instrument,
(a) the fact of dishonour,
(b) the date of dishonour,
(c) the reason for such dishonour,
(d) the notary’s charges,
(e) a reference to the notary’s register

16. NOTICE BY WHOM AND TO WHOM
(SECTION 93)
Notice of dishonour must be given to all parties to whom the holder
seeks to make liable.
Each party receiving notice of dishonour must, in order to render any
prior party liable give notice of dishonour to such party within a
reasonable time after he has received it.
No notice need be given to a maker, acceptor or drawee, Who are the
principal debtors

17. MODE OF NOTICE
The notice of dishonour may be oral or written or partly oral and
partly written. It may be sent by post.
PLACE OF NOTICE
The place of business or (in case such party has no place of business)
at the residence of the party for whom it is intended, is the place
where the notice is to given.

18. WHEN NOTICE OF DISHONOUR IS
UNNECESSARY (SEC 98)
1. when it is dispensed with by the party entitled thereto.
2. in order to charge the drawer when he has countermanded
payment.
3. When the party entitled to notice cannot after due search be found
or the party bound to give notice is unable, without any fault of his
own to give it.
4. when the party charged could not suffer damage for want of notice
5. Where the drawer and acceptor are the same person.
6. In the case of promissory note which is not negotiable.
7. When the party entitled to notice, knowing the facts,
unconditionally agrees to pay the amount.

19. PROTEST
Protest is a formal certificate of the notary public attesting the
dishonour of the bill by non-acceptance or by non-payment.
After noting, the next step for notary is to draw a certificate of
protest, which is a formal declaration on the bill or a copy thereof.
The chief advantage of protest is that the court on proof of the
protest shall presume the fact of dishonour.

20. CONTENTS OF PROTEST (SEC-101)
1. The instrument itself or a literal transcript of the instrument ; and
of everything written or printed thereupon.
2. The name of the person for whom and against whom the
instrument has been protested
3. The fact of and reasons for dishonour
4. The time and place of demand and dishonour
5. The signature of the notary public
6. In the case of acceptance for honor or payment for honor the
person by whom or for whom such

21. COMPENSATION FOR DISHONOUR
(SECTION 117)
1. The holder is entitled to the amount due upon the instrument
together with the expenses properly incurred in presenting, nothing
and protesting it.
2. An endorser who has paid the amount due on the instrument is
entitled to the amount so paid with interest at 18 per cent per annum
from the date of payment.
3. Where the person sought to be charged, resides in a country
different from the country in which the bill is payable He is entitled to
receive the sum at the current rate of exchange between the two
countries at the date of dishonour.
4. When the person charged and such endorser reside at different
places, the endorser is entitled to receive such sum at the current rate
of exchange between the two places.

22. THANK
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