Dishonour by Non-Acceptance and Non-Payment (Sections 91–93)

Sections 91 and 92 of the Negotiable Instruments Act, 1881 define the two operative kinds of dishonour: dishonour by non-acceptance under Section 91 and dishonour by non-payment under Section 92. Section 93 then imposes the holder's primary duty in the wake of either: he must, in order to make prior parties severally liable on the instrument or some only of them jointly liable, give notice of dishonour to all the parties he proposes to charge. The three sections, read together, are the bridge between presentment under Sections 61 to 77 and the holder's pursuit of recovery against the secondary parties on the paper. They are the structural step at which a contingent indorser's liability becomes an actual one.

The chapter sits in the heart of the general law of negotiable instruments under the NI Act, 1881. The voice is commercial-doctrinal: the sections reward exact reading, and the case law turns on whether the holder has done his procedural duties. This article treats the substantive content of Sections 91 to 93. The mechanics of how notice must be given, the form of the notice, and the cases in which it is excused under Section 98, together with noting under Section 99 and protest under Section 100, are dealt with in the related chapter on notice of dishonour, noting and protest.

Section 91 — Dishonour by non-acceptance

Section 91 enumerates the five circumstances in which a bill of exchange is treated as dishonoured by non-acceptance.

1. Where the bill is duly presented for acceptance and the drawee, or one of several drawees not being partners, refuses acceptance within 48 hours from the time of presentment. The 48-hour period is supplied by Section 63: the holder must allow the drawee that period of grace, exclusive of public holidays, in which to consider whether to accept. If the drawee makes default in acceptance upon being duly required to accept, the bill is dishonoured.
2. Where the drawee is incompetent to contract — for example, where he is a minor or a person of unsound mind — the bill may be treated as dishonoured. The reason is that an acceptance, to be operative, must be by a person capable of contracting; an incompetent drawee cannot, in law, fix his liability on the bill. The same capacity-rule informs the wider scheme of capacity and liability of parties under Sections 26 to 32.
3. Where the drawee gives a qualified acceptance, the holder may treat the instrument as dishonoured. A qualified acceptance, in the language of Section 86, varies the effect of the bill as drawn — it may be conditional, partial, qualified as to place, qualified as to time, or by some only of several drawees. The taxonomy is treated in detail in the chapter on bills of exchange and their essentials. The holder may take the qualified acceptance, but only at his own risk and with the consequence of discharging the prior parties; if he chooses not to take it, he treats the bill as dishonoured.
4. Where presentment for acceptance is excused under the Act and the bill is not in fact accepted, it is treated as dishonoured. The cases of excused presentment for acceptance — drawee fictitious or incompetent, drawee not found after reasonable search, presentment irregular but acceptance refused on a different ground — are catalogued in Sections 61 and 91 itself.
5. Where the drawee is a fictitious person, or, after reasonable search, cannot be found, the bill may be treated as dishonoured. A fictitious drawee can give no acceptance; a drawee who cannot be found after reasonable search is, for the purposes of the Act, treated as one who has refused.

The doctrinal effect of dishonour by non-acceptance is sharp. The holder need not wait for the maturity of the bill. He may, on the very fact of dishonour by non-acceptance, start an action against the drawer and the indorsers. The reason is commercial: the contingent obligation of the secondary parties was that the bill, when due, would be honoured; once acceptance has been refused, the prospect of payment at maturity has been substantially diminished, and the law gives the holder his remedy at once.

Section 92 — Dishonour by non-payment

Section 92 deals with the second branch. A promissory note, bill of exchange, or cheque is dishonoured by non-payment when the maker of the note, the acceptor of the bill, or the drawee of the cheque makes default in payment upon being duly required to pay. The 'duly required' language means that the holder has done what the Act requires him to do — he has presented the instrument under Sections 64 to 73, at the time and place fixed by Sections 65 to 71, and the principal debtor has nevertheless failed to pay.

A negotiable instrument is also dishonoured by non-payment when presentment for payment is excused under Section 76 and the instrument, when overdue, remains unpaid. In other words, where the Act has dispensed with the formality of presentment because the principal debtor cannot be found, has shut his place of business, has obstructed the holder, or for any of the other ten grounds Section 76 enumerates, the instrument is deemed dishonoured on the due date and the holder may proceed accordingly.

The case-law gives one practical illustration of the mechanics. In K. Venkatasubbayya v. P.R. Rao Tobacco Co. AIR 1972 AP 72, a pronote was sent by registered post for presentment, and the party liable refused to receive the post; the High Court held that the instrument was dishonoured. The reasoning is consistent with Section 76: the obstruction of presentment by the maker is itself the equivalent of dishonour. The point is consonant with the related rule, in the law of payment in due course, that a payer who is denied the chance to make payment is treated as having performed his obligation when he was ready and willing to do so.

The default in payment must be by the principal debtor on whom the obligation primarily rests. Where the maker of the pronote is solvent and present but, on the demand made at the time and place of presentment, declines to pay or claims that he is not liable, the dishonour is complete and the holder need not make a second demand. The point matters in fact-patterns where the principal debtor offers a partial sum or pays under protest; the rule is that anything short of unconditional payment of the full sum due is, for the purposes of Section 92, dishonour by non-payment.

The effect of dishonour by non-payment is the same in form as dishonour by non-acceptance: the holder may proceed against the prior parties — the drawer and the indorsers — provided he has performed his procedural duty under Section 93 of giving notice of dishonour. The principal debtor — the maker of the pronote, the acceptor of the bill, the drawee of the cheque — is, however, primarily liable already; the holder's right of action against him does not depend on Section 93 at all.

Section 93 — Notice of dishonour

Section 93 imposes the holder's duty. When a negotiable instrument has been dishonoured by non-acceptance or by non-payment, the holder of the instrument, or some party to it who is liable thereon, must give notice that the instrument has been so dishonoured to all other parties whom the holder seeks to make severally liable thereon, and to some one of several parties whom he seeks to make jointly liable thereon. If he does not give the notice, all parties other than the maker, acceptor, or drawee — that is, the secondary parties — are discharged of their liability.

The principle is fundamental and is explored in detail in the related chapter on holder and holder in due course. The omission on the part of the holder to give due notice of dishonour discharges the drawer not only from his liability upon the cheque but also from his liability upon the original debt or consideration. The Allahabad High Court captured the rationale in Moti Lal v. Moti-Lal 6 All 78: the doctrine of notice of dishonour is based upon a just and equitable principle. The drawer, the indorsers, and other secondary parties are entitled to know, promptly, that the principal debtor has failed; on knowing it, they may take their own measures — call back the instrument, demand security, or pay and step into the holder's shoes against the prior parties.

Why the principal debtor needs no notice

Section 93 expressly excludes notice to the maker of the dishonoured pronote, the drawee or acceptor of the dishonoured bill, and the drawee of the dishonoured cheque. The reason is mechanical: those parties are themselves the persons primarily liable on the paper, and it is they who have dishonoured the instrument by their default. Notice to them would simply be notice of a fact already within their own knowledge. So, for example, where the drawer of a cheque himself stops the payment of the cheque, no notice of dishonour to him is required, because he himself is the cause of the dishonour.

By whom and to whom — the structure of notice under Section 93

The notice may be given by the holder, or by any person liable on the instrument — typically a prior indorser on the chain of title. It is not necessary that the notice should always emanate from the holder; he may avail himself of a notice given by any party liable on the paper. A notice of dishonour given by a stranger — that is, by a person not the holder and not himself liable on the instrument — is of no effect. Even a notice given by a party to the instrument is not valid if, at the time of giving the notice, he is not in fact liable thereon.

Notice is to be given to the parties whom the holder proposes to charge. If he wants to make the drawer and three indorsers severally liable, he must give notice to each. If, by virtue of the chain, he gives notice to one indorser and not to the others, the indorser to whom he has given notice may, in turn, give notice to those above him under Section 95 — a transmission rule that protects the indorsers' own rights of recourse and is dealt with in the chapter on notice of dishonour and noting.

Time and form

Section 93 itself does not prescribe the form. The form is governed by Section 94: notice may be oral or written; it may, if written, be sent by post; it may be in any form, but it must inform the party to whom it is given, either in express terms or by reasonable intendment, that the instrument has been dishonoured, and in what way, and that he will be held liable thereon. The notice must be given within a reasonable time after dishonour, at the place of business, or, in the absence of a place of business, at the residence of the party for whom it is intended. If the notice is duly directed and sent by post and miscarries, the miscarriage does not render the notice invalid.

The reasonable-time test is supplied by Sections 105, 106, and 107. Where the holder and the party to whom notice is given carry on business or live in different places, notice is given within a reasonable time if it is dispatched by the next post or on the day after the day of dishonour. Where they carry on business or live in the same place, notice is given within a reasonable time if it is dispatched in time to reach its destination on the day next after the day of dishonour. A party who has himself received a notice of dishonour and seeks to enforce his right against a prior party transmits notice within a reasonable time if he transmits it within the same time after receipt as he would have had to give as the holder.

Cases in which Section 93 notice is dispensed with — Section 98

Although Section 93 is the duty-imposing section, the Act recognises six cases in which notice is unnecessary; they are catalogued in Section 98 and are central to the operation of Sections 91 and 92.

Waiver: where notice is dispensed with by the party entitled to it, expressly or impliedly. The waiver may be made at the time of drawing or indorsing, or before or after the time for giving notice has arrived; a waiver by a party ensures for the benefit of all parties coming after him.

Countermand of payment: in order to charge the drawer, no notice is required when he has himself countermanded payment. The reason is that the drawer who has put an obstacle in the way of the holder's obtaining payment cannot complain of the absence of a notice that would simply tell him what he already knows.

No damage from the want of notice: where the party charged could not suffer damage for want of notice. So, where a cheque is dishonoured because the drawer has no account, or has closed his account, no question of damage arises (Chunilal v. Amerendra AIR 1953 Assam 94). Likewise, neither presentment nor notice of dishonour is necessary if it is shown that, when the instrument was drawn, there were no funds belonging to the drawer in the hands of the drawee (Subrao v. Sitaram 2 Bom LR 891). A cheque drawn for Rs 500 on an account holding Rs 100, where the drawer has no authority to overdraw, is the standard illustration.

Party entitled to notice cannot be found: where the party entitled to notice cannot, after due search, be found, or where the party bound to give notice is, for any other reason, unable without his own fault to give it — illness, death, natural calamity. In the first case, if the address of the place of business or residence is found, notice must be given within a reasonable time of the discovery.

Acceptor as drawer: to charge the drawer where the acceptor is also the drawer. Knowledge of the acceptor is knowledge of the drawer when they are the same person, and the second hat does not generate a fresh notice obligation.

Promise to pay: when the party entitled to notice, knowing the facts, promises unconditionally to pay the amount due on the instrument. The promise may be express or inferred from conduct, and it operates as a waiver of the notice that would otherwise have been due.

Effect of dishonour on the holder's rights

Once the instrument has been dishonoured by non-acceptance or non-payment, and notice has been given (or excused), the holder acquires an immediate right of action against the drawer and against every indorser whose conditional liability has, by the holder's compliance, become absolute. Compensation is governed by Section 117, which lays down the rules for the amount due and the rate of interest payable by the indorsers and the drawer. The holder is entitled to the amount due upon the instrument together with the expense properly incurred in presenting, noting, and protesting it. An indorser who, being liable, has paid the amount is entitled to recover from prior parties the amount paid with interest at eighteen per cent per annum from the date of payment until tender or realisation, together with all expenses caused by the dishonour and payment.

The holder's right against the principal debtor — the maker of the pronote, the acceptor of the bill, the drawee of the cheque on whom the cheque has been drawn — is not contingent on Section 93. The principal debtor's liability is primary; the holder's right of action against him arises from the very dishonour, without any procedural addendum. Section 93 is the procedural device for catching the secondary parties.

Drawing the chapter together

Sections 91 to 93 form a tight, three-step scheme. Section 91 catalogues the five ways in which a bill of exchange is dishonoured by non-acceptance — refusal within 48 hours, drawee incompetent, qualified acceptance, presentment excused without acceptance, drawee fictitious or not found. The doctrinal effect is the holder's immediate right of action against the secondary parties without waiting for maturity. Section 92 fixes the parallel rule for dishonour by non-payment: default in payment by the principal debtor on due demand, or non-payment of an overdue instrument where presentment was excused. Section 93 then imposes the holder's duty: he must give notice of dishonour to every secondary party he proposes to charge, and the omission discharges them. The principal debtor needs no notice, because he is the cause of the dishonour. The cases of excused notice are catalogued in Section 98, and the form, time, and reasonable-time tests are governed by Sections 94, 105, 106, and 107. The compensation payable on the dishonour is governed by Section 117.

For the exam-aspirant, three propositions are worth committing to deep memory. First, dishonour by non-acceptance gives the holder an immediate right of action against the prior parties, without waiting for maturity — a feature that distinguishes the law of bills from the law of pronotes, where the question of acceptance does not arise. Second, dishonour by non-payment requires the holder to have done his procedural duty under Sections 64 to 73, except where presentment is dispensed with under Section 76; the principal debtor is liable from the dishonour itself, but the secondary parties are protected unless Section 93 notice has been given. Third, Section 93 protects the principal debtor's secondary co-parties — the drawer, the indorsers — by requiring the holder to alert them so they may take their own measures; the omission of notice discharges the secondary parties not only from the cheque liability but from the original debt itself. These three lines, applied carefully, drive every fact-pattern in which dishonour figures, including those that ripen into the criminal proceedings under the discharge provisions and into the cheque-bounce ecosystem under Sections 138 to 147.

Frequently asked questions

When is a bill dishonoured by non-acceptance under Section 91?

Section 91 lists five circumstances. First, where the bill is duly presented for acceptance and the drawee refuses acceptance within 48 hours from the time of presentment. Second, where the drawee is incompetent to contract. Third, where the drawee gives a qualified acceptance and the holder elects to treat the bill as dishonoured. Fourth, where presentment for acceptance is excused under the Act and the bill is in fact not accepted. Fifth, where the drawee is a fictitious person or cannot, after reasonable search, be found. In each case the holder may proceed at once against the drawer and the indorsers without waiting for maturity.

Why does the holder not have to wait for maturity once a bill is dishonoured by non-acceptance?

Because the contingent liability of the secondary parties — drawer and indorsers — was that the bill, when due, would be honoured. Once acceptance has been refused, the prospect of payment at maturity has been substantially diminished. The Act treats the dishonour by non-acceptance as the trigger for the holder's right of action against the drawer and the indorsers. The holder need not wait for maturity, must of course comply with Section 93 by giving notice of dishonour to the parties he proposes to charge, and may then sue immediately. Compensation is governed by Section 117.

What constitutes dishonour by non-payment under Section 92?

Section 92 treats a promissory note, bill of exchange, or cheque as dishonoured by non-payment when the maker of the note, the acceptor of the bill, or the drawee of the cheque makes default in payment upon being duly required to pay. 'Duly required' means the holder has presented the instrument as the Act requires under Sections 64 to 73. A negotiable instrument is also dishonoured by non-payment when presentment is excused under Section 76 and the instrument, when overdue, remains unpaid. In K. Venkatasubbayya v. P.R. Rao Tobacco Co. AIR 1972 AP 72, a pronote sent by registered post that the party liable refused to receive was held to be dishonoured.

Why is no notice of dishonour required to the maker of a pronote or to the acceptor of a bill?

Because they are the parties primarily liable on the instrument, and it is they who, by their default, dishonoured the instrument in the first place. Section 93 expressly excludes notice to them. To require notice would be to require notice of a fact already within their own knowledge. By the same reasoning, where the drawer of a cheque himself stops payment, no notice of dishonour to him is required, because he is himself the cause of the dishonour. The secondary parties — drawer of a bill, indorsers — are the only parties who must be served, because the dishonour has consequences for their conditional liability.

What happens if the holder fails to give notice of dishonour under Section 93?

The omission discharges all parties other than the maker, acceptor, or drawee — that is, the secondary parties — of their liability on the instrument. The Allahabad High Court in Moti Lal v. Moti-Lal 6 All 78 held that the doctrine is based on a just and equitable principle: the secondary parties are entitled to know promptly of the dishonour so they may take their own measures. The discharge extends not only to liability on the instrument but also, in the case of a drawer, to the original debt or consideration. The principal debtor's liability, however, is primary and unaffected by the omission of notice.

When is notice of dishonour excused under Section 98?

Section 98 lists six grounds. First, waiver by the party entitled to notice, expressly or impliedly. Second, where the drawer has himself countermanded payment. Third, where the party charged could not suffer damage from want of notice — as where a cheque is dishonoured because the drawer has no account or has closed it (Chunilal v. Amerendra AIR 1953 Assam 94). Fourth, where the party entitled to notice cannot, after due search, be found, or the party bound to give notice is, without his fault, unable to give it. Fifth, where the acceptor is also the drawer. Sixth, where the party entitled, knowing the facts, promises unconditionally to pay the amount due.