Liabilities of Banker and Dishonor of Negotiable Instruments like Hundis etc.

Dishonor by non-acceptance (Section 91)

A little kind of negotiable tools, i.e., bill of exchange, promissory note, or cheque may be desecrated by non-payment by the acceptor thereof. But a bill may also be despoiled by non-acceptance because bill of disagreement is the only negotiable instrument which supplies its presentment for acceptance and non-acceptance thereof, can sum to disgrace.

Dishonor means failure to honor a negotiable instrument. This may be by non-acceptance, when a bill of argument is accessible for receipt and this is declined or cannot be obtained or by non-payment, when the bill is presented for payment and payment is refused or cannot be obtained.

A negotiable tool is made-up to be violated any by non-acceptance or non-payment.

Dishonor by non-payment (section 92)

An instrument is dishonored by non-payment when the party mainly answerable e.g., the acceptor of a bill, the maker of a not or the drawee of a cheque, make default in sum. A tool is also violated for non-payment when a formal presentation of information to a court for payment relieved and the instrument, when overdue, remains unpaid, under section 76 of the Act.

Distinction between dishonor by non-acceptance and by non-payment. If a bill is dishonored by non-acceptance, there is no right of action against the drawee as he is not a party to the bill. The holder of the bill can proceed only against the drawer or endorser, if any, on Dishonor by non-payment the drawee can be sued.


A cheque is a negotiable tool. Crossed and account payee cheques are not accessible by any individual other than the recipient. The cheques have to be placed into the recipient’s bank account.

Lawfully, the writer of the cheque is called ‘drawer’, the individual in whose service, the cheque is drawn is called ‘payee’, and the bank who is focused to compensation the amount is recognized as ‘drawee’.

However, cases of cheque spring back are common these times. Rarely cheques bearing big amounts continue unpaid and are repaid by the bank on which they are drawn.

As presently as a cheque is violated, the drawee bank straight queries a ‘Cheque Return Memo’ to the banker of the payee upholding the purpose for non-payment. The payee’s banker then gives the violated cheque and the memo to the payee. The holder or payee can resubmit the cheque in three months of the date on it, if he faiths it will be delighted the second time. Though, if the cheque issuer flops to make an amount, then the payee has the exact to prosecute the drawer lawfully.

The payee may legally litigate the nonpayer/drawer for discredit of cheque only if the sum specified in the cheque is towards release of an obligation or any other responsibility of the nonpayer towards recipient.

If the cheque was delivered as a skill, towards advancing a loan or for illegal drives, then the drawer cannot be impeached in such cases.

Lawful act

As per Section 138 of the Act, the disgrace of cheque is an illegal crime and is disciplinary by custody up to two years or with financial forfeit or with both.

If payee chooses to continue lawfully, then the drawer should be given a chance of recompensing the cheque sum directly. Such a chance must be given only in the form of notice in writing.

The recipient must show the sign to the drawer with 30 days from the date of in receipt of “Cheque Return Memo” from the bank. The notice must be positioning that the cheque sum must be remunerated to the recipient within 15 days from the date of receiving of the notice by the drawer. If the cheque issuer discontents to make a new sum within 30 days of receiving the sign, the payee has the exact to file a banned grievance under Section 138 of the Negotiable Instruments Act.

Though, the grievance should be listed in a judge’s court within a month of the termination of the notice period. It is vital in this case to refer a supporter who is well experienced and accomplished in this area of practice to proceed additional in the stuff. It’s very important to follow the rules and regulations as per the act.

The cheque should have been reimbursed or despoiled because of inadequate assets in the drawer’s account.

After in receipt of the notice, if the drawer doesn’t make the sum within 15 days from the day of in receipt of the notice, then he obligates a wrongdoing disciplinary under Section 138 of the Negotiable Instruments Act.

Penalty & forfeit

On getting the complaint, along with an affirmation and relevant paper track, the court will matter order and get the substance. If found mortified, the debtor can be disciplined with financial consequence which may be double the quantity of the cheque or custody for a term which may be long to two years or both. The bank also has the correct to stop the cheque book ability and close the explanation for replication crimes of bounced cheques.

If the drawer makes sum of the cheque quantity within 15 days from the date of receiving of the sign, then drawer does not obligate any crime. Then, the payee may continue to file a grievance in the court of the jurisdictional judge within one month from the date of finish of 15 days agreed in the sign.

In the case of Dalmia Cement(Bharat) Ltd. V Galaxy Traders and Agencies Ltd.5, the Apex Court referred to the article of Section 138 of the Act. The court detected that the Act was passed and section 138 thereof combined with a stated object of making a distinct capability by counting a strict responsibility so far as the cheque, a negotiable instrument, is concerned. The law connecting to the negotiable instruments is the law of commercial world passed to ease the actions in trade and commerce making founding of giving sanctity to the instruments of credit which could be estimated to be redeemable into cash and effortlessly drivable from one person to one more.

The wrongdoing under section 138 is not a usual crime like offended or killing. It is an offence shaped by a lawful fiction in the law. It is a public obligation altered into an illegal obligation, under limited circumstances by way of an alteration to the Act, which is carried into force only in 1989. Till then, the criminal acts mentioned to in section 138 established only a pure civil obligation. Legally, the legislature thought it fit to deliver for passable protections in the Act to defend truthful drawers from unnecessary annoyance.

Though, the sections 138 to 142 of the alleged Act were, originally missing in dealing with disgrace of cheques. According to this, the Negotiable Instruments Act, 2002, put in the ground, modified sections 138, 141 and 142 and offered new segments 143 to 147 in the said Act.

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