Rules Regarding Notice of Dishonour & When Notice of Dishonour is Unnecessary

Section 93 deals with cases of dishonour of negotiable instruments, either by non-acceptance or by non-payment. The law requires that notice of dishonour should be given either by the holder or by some party liable on the instrument. Promptness in giving notice is required to enable the drawer of a bill and the endorser to safeguard himself from further loss in the hands of the drawee or the acceptor, and also to enable parties to take necessary steps to recover the amount from all the parties liable to them. 

Even in cases, where an instrument payable on demand is indorsed after dishonour, notice of dishonour by non-acceptance or non-payment is absolutely necessary to make the parties liable.


Notice of dishonour by non-payment: Where a bill is dishonoured by non-acceptance and due notice of dishonour is given, it shall not be necessary to give notice of a subsequent dishonour by non-payment unless the bill in the meantime, has been accepted. But where a bill has not been dishonoured by non-acceptance there is no cause of action until dishonoured by non-payment.


Dishonour by non-acceptance: Whenever the drawee refuses to accept a bill duly presented to him for acceptance, the bill must be treated as dishonoured, and the notice of dishonour must be given in accordance with the Act. But, where a bill is dishonoured by non-acceptance and notice of dishonour is not given, the rights of a person who becomes a holder in due course subsequent to the omission to give notice are not prejudiced by the omission. The rules for giving notice of dishonour are the same whether the dishonour by non-acceptance or by non-payment.


Notice by whom: Notice of dishonour must be given by the holder or by a party liable on the instrument. A notice given by a stranger is not valid.


Notice to whom: Notice of dishonour must be given to all parties other than the maker or acceptor who are sought to be made liable, or to their duly authorised agents. If a party entitled to notice has been declared an insolvent, notice may be given to his assignee. Similarly, if the party has died, notice may be given to his legal representative. Notice to drawer is not dispensed with by reason of the fact that the drawee has declared that he could not pay the bill and that the drawer must take it up.

A formal notice is necessary to bind the parties and mere knowledge on the part of the party is sought to be bound is ineffective without such notice. Consequently, it has been held that the fact that a party is already aware of the fact that the instrument in question has been dishonoured does not disentitle him to a notice from the holder. Mere demand does not amount to a notice. Hence, where the payee of a hundi meets the drawer after maturity and demands payment, it cannot be said to amount to a notice. Nor can asking for a duplicate of a lost bill be deemed a notice of dishonour. But an intimation that the instrument is unpaid coupled with a request for payment or speedy attention to the matter is a valid notice. Notice means the actual notification of the dishonour of bill by non-acceptance or by non-payment.


Form of Notice: A notice of dishonour may be given in any form fulfilling the requirements of the law (section 94). It may be oral or written or partly oral and partly written, and may be given in any terms which sufficiency identify the instrument and inform the party to whom it is given that the instrument has been dishonoured by non-acceptance or non-payment and that he will be held liable thereon.


Effect of omission to give notice: Except in case in which notice is dispensed with under-section 98, a drawer or an endorser to whom due notice of dishonour is not given is discharged from liability on the instrument.


When notice of dishonour is unnecessary: Notice of dishonour is not necessary in the following circumstances:

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 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 (section 98).

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