What are the circumstances under which a bill of exchange can be disho...
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 or drawee of the cheque makes default in payment upon being duly required to pay the same.1 It has been noted above that dishonour by non-acceptance could be only of a bill of exchange.
This question is part of UPSC exam. View all B Com courses
What are the circumstances under which a bill of exchange can be disho...
Dishonour by non-acceptance (Section 91, the Negotiable Instruments Act, 1881): A bill
may be dishonoured either by non-acceptance or by non-payment. A dishonour by non-
acceptance may take place in any one of the following circumstances:
(i) when the drawee either does not accept the bill within forty-eight hours of presentment or
refuse to accept it;
(ii) when one of several drawees, not being partners, makes default in acceptance;
(iii) when the drawee gives a acceptance;
(iv) when presentment for acceptance is excused and the bill remains unaccepted; and
(v) when the drawee is incompetent to contract.
An instrument is dishonoured by non-payment when the party primarily liable e.g., the
acceptor of a bill, the maker of a note or the drawee of a cheque, make default in payment.
An instrument is also dishonoured for non-payment when presentment for payment excused
and the instrument, when overdue, remains unpaid, under section 76 of the Act.
Dishonour of cheque for insufficiency, etc. of funds in the account: Where any cheque
drawn by a person on an account maintained by him with a banker for payment is dishonoured
due to insufficiency of funds, he shall be punished 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 [Section 138 of the Negotiable Instruments Act, 1881].
Provided that nothing in this section shall apply unless:
(i) such cheque should have been presented to the bank within a period of 3 months of the
date of drawn or within the period of its validity, whichever is earlier.
(ii) The payee or holder in due course of such cheque had made a demand in writing for the
payment of the said amount of money from the drawer 30 days of the receipt of
information by him from the bank regarding the return of the cheque unpaid; and
(iii) The drawer of the cheque had failed to pay the money to the payee or holder in due
course of the cheque within 15 days for the written demand for payment.
What are the circumstances under which a bill of exchange can be disho...
Circumstances of Dishonour by Non-Acceptance in a Bill of Exchange:
A bill of exchange is a written order from one party (the drawer) to another party (the drawee) to pay a specified sum of money to a third party (the payee) on a specific date. If the drawee refuses to accept the bill, it is called dishonour by non-acceptance. Here are some circumstances under which a bill of exchange can be dishonoured by non-acceptance:
1. Refusal to accept: The drawee may refuse to accept the bill for various reasons, such as a dispute over the terms of the bill, doubts about the genuineness of the bill, or financial difficulties.
2. Absence or incapacity of the drawee: If the drawee is absent or unable to accept the bill due to illness, bankruptcy, or any other reason, the bill may be dishonoured by non-acceptance.
3. Failure to present the bill for acceptance: The bill must be presented to the drawee for acceptance within a reasonable time. If the bill is not presented or is presented after the specified period, it may be dishonoured by non-acceptance.
Consequences of Dishonour of a Cheque for Insufficiency of Funds:
A cheque is a written order from an account holder to a bank, instructing the bank to pay a specific amount of money to a payee. If a cheque is dishonoured due to insufficient funds in the account, it can have various consequences:
1. Legal action: The payee of the dishonoured cheque may choose to take legal action against the drawer. In many jurisdictions, issuing a cheque without sufficient funds is considered a criminal offense, and the drawer may face penalties, fines, or even imprisonment.
2. Additional charges: The bank may impose charges for dishonoured cheques, such as a fee for insufficient funds or a penalty for bouncing the cheque. These charges can vary depending on the bank and the specific circumstances.
3. Damage to reputation: Dishonouring a cheque can negatively impact the drawer's reputation, both personally and professionally. It may affect their creditworthiness and make it difficult to obtain future financial services.
4. Loss of trust: Dishonouring a cheque can lead to a loss of trust between the drawer and the payee. It can strain relationships, particularly in business transactions, and may result in difficulties in future dealings.
To avoid the dishonour of a cheque due to insufficient funds, it is crucial for account holders to maintain a sufficient balance in their accounts and ensure that they have enough funds to cover the amount of the cheque before issuing it. Regularly monitoring account balances and reconciling statements can help prevent such situations.