Short notes on Payment for honour

When a bill of exchange has been noted or protested for non-payment, any person for the honour of any party liable to pay the same, provided the intention to pay before a Notary Public and has been noted by him on the bill (Sec. 113).

Essentials of a valid payment for honour :

1. The bill must have been dishonoured for non-payment.

2. It must have been noted and protested for non-payment.

3. The declaration to pay for the honour must be made before the notary public.

4. The fact of such declaration must be recorded by the notary public on the bill.

However, it should be noted that a drawee in case of need can accept and pay the bill without such protesting or noting.

5. Payment for honour must be made for the honour of any party liable on the bill.

6. Payment for honour may be made by any party, whether or not already liable on the bill.

It should be noted that acceptance for honour cannot be made by a person who is already liable on the bill, whereas payment for honour may be made even by a person who is already liable on the bill.

Rights of a Payer for Honour :

A payer for honour, after paying the amount, steps into the shoes of the holder.

Any person so paying is entitled to all the rights in respect of the bill, of the holder at the time of such payment. He may recover from the party for whose honour he pays all sums so paid, with interest there on with all expenses properly incurred in making such payment (Sec. 114).

Dishonour of Negotiable Instrument :

A negotiable instrument is dishonoured by non-payment. While a bill is dishonoured, in addition, by non-acceptance also. Needless to say, it is only bills of exchange and, that too of certain types, require acceptance.

Dishonour by non-acceptance (Sec. 91) :

A bill is dishonored by non-acceptance in any of the following ways:

1. When the bill is duly presented and any of the drawee does not accept the bill within 48 hours of presentment (Sec. 63).

2. When there are several drawees who are not partners, and any of them does not accept the bill within 48 hours of presentment (Sec. 63).

3. When presentment for acceptance is excused and the bill is not accepted (Sec. 61).

4. When the drawee is incompetent to contract.

5. When the acceptance is qualified (Sec. 86).

6. When the drawee is a fictitious person.

7. When the drawee, after reasonable search, cannot be found.

It should be noted that in case of qualified acceptance, the holder may or may not treat the bill as dishonoured. In case he does not treat the bill as dishonoured, he is bound by the qualified acceptance.

Again, where a drawee in case of need is named in a bill of exchange or in any indorsement thereon, the bill is not dishonoured until it has been dishonoured by such drawee (Sec. 115).

Dishonour by non payment (Sec. 92) :

A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill drawee of the cheque or drawee in case of need, if there is any, does not pay the amount upon being duly required to pay the same.

Sec. 76 further provides that where presentment for payment is not necessary and the instrument, after maturity remains unpaid, it is dishonoured by non-payment.

Penalty for Dishonour of Cheque for Insufficiency of Funds :

The Banking, Public Financial Institutions and Negotiable Instrument Laws (Amendment) Act, 1988 has made the drawer liable, with effect from 1 April, 1989 for penalties in case of dishonour of cheques for insufficiency of funds in the account of the drawer. This has been done with a view to enhance the acceptability of cheques in settlement of liabilities.

Where any cheque drawn by a person for the discharge of any debt or liability is returned by the bank unpaid, due to insufficiency of funds, or it exceeds the arrangements made by the drawer with the banker for that account, the drawer shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to twice the amount of the cheque or with both.

The following conditions should be satisfied:

(a) The cheque should have been given in discharge of a debt or liability. As such, a cheque given as a gift will not attract penalty;

(b) The cheque should have been presented within six months of the date of its drawal or within the period of its validity;

(c) The payee or holder in due course should have given a notice in writing demanding payment within 15 days of receiving the information of dishonour of cheque;

(d) The payee should have failed to make the payment of the said amount within 15 days of the receipt of the said notice;

(e) The cheque should have been dishonoured due to insufficiency of the said amount in the account or arrangements made with the banker; and

(f) The complaint should have been made by the payee or holder in due course within one month of the date of the failure of the drawer to make the payment of the cheque returned.