Dishonour And Discharge Of Negotiable Instrument | UGC NET Commerce Preparation Course PDF Download

Understanding Dishonour and Discharge of Negotiable Instruments

A negotiable instrument is a document that guarantees the payment of a specific amount of money either immediately or at a predetermined date. Typically, the payee is identified in the document. The Negotiable Instruments Act was established to oversee and resolve conflicts concerning negotiable instruments in circulation. Some common examples of negotiable instruments include promissory notes, cheques, and bills of exchange.

Negotiable Instrument-Meaning 

A negotiable instrument is a type of document that guarantees the payment of a specific sum of money to a designated individual (the payee). It necessitates payment either upon demand or at a predetermined time and is structured akin to a contract.

Defamation of a Negotiable Instrument 

Defamation essentially involves making a false statement presented as a fact that results in harm or damage to the reputation of the person it concerns.
Defamation can occur towards the drawer, lender, or acceptor of the instrument, which can render the instrument invalid. Various situations can lead to a negotiable instrument being deemed defective, some of which are outlined below.
Causes of Defamation of a Negotiable Instrument

•  Fraudulent Alteration:  This refers to unauthorized modifications made to the instrument with the intent to deceive. Such alterations can render the instrument void.
•  Forgery:  Forgery involves falsely creating or altering the instrument with the aim of deceiving others. If detected, it can lead to the instrument being invalidated.
•  Lack of Consideration:  When the instrument is issued without any consideration or value exchanged, it can be considered defective.
•  Incapacity of Parties:  If any party involved in the transaction lacks the legal capacity to enter into such an agreement, it can result in the instrument being deemed void.

This response provides detailed information about the meaning of a negotiable instrument and the concept of defamation related to it, along with causes of defamation in a negotiable instrument, presented in a structured and easy-to-understand format for educational purposes.

Dishonor of Negotiable Instruments 

Dishonor of negotiable instruments refers to the refusal to accept the obligation or promise outlined in them. There are two primary ways in which a negotiable instrument can be dishonored: through non-acceptance and non-payment, both of which are explained below.

Dishonour by Non-Acceptance

Dishonor by non-acceptance, as per Section 91, occurs when a negotiable instrument is not accepted. Notably, non-acceptance is commonly seen in bills of exchange where acceptance or non-acceptance is crucial. In cases of dishonor due to non-acceptance, only the makers and endorsers are accountable to the holder of the bill if proper notice of dishonor is given.
Various circumstances can lead to the dishonorable non-acceptance of a bill, including:

• The payee's refusal to accept the bill within 48 hours of presentation.
• Presentation under false pretenses, leading to non-acceptance.
• The incapacity of the drawee to enter into a contract.
• Failure to locate the payee after a diligent search.
• Fictitious identity of the payee.
• Invalid endorsement.

Process After Dishonour of Negotiable Instrument

• Step 1: When a negotiable instrument is dishonored due to non-acceptance or non-payment, the payee must inform all involved parties about their liability through a formal notice.
• Step 2: Upon receipt of the dishonor notice, each party must serve a similar notice to the other parties promptly to establish liability amongst themselves.

Importance of Notification of Dishonor

Notification of dishonor is crucial to inform parties about their liabilities and safeguards in case of non-payment. Failure to provide this notice generally releases all parties except the drawer or endorser from their obligations. The notice can be oral or written but must be formal and timely. Exceptions where notice may not be necessary include situations where the involved party would not suffer harm from lack of notification, inability to locate a party entitled to notice after a diligent search, unavoidable circumstances like serious illness, non-negotiability of the bill, or unconditional agreement by the party to pay.

Scope and Significance of International Business

You can also delve into the breadth and importance of international business, which involves commercial activities that cross national boundaries. It encompasses various aspects such as trade, investment, technology transfer, and cultural exchange among different countries, leading to economic growth, innovation, and global interconnectedness.

Dishonor by Non-Payment

Dishonor by Non-Payment 
Dishonor by non-payment occurs when a promissory note, such as a cheque or bill of exchange, is not honored due to the maker, acceptor, or drawee failing to make the required payment when due, as outlined in section 92.

Effects of Dishonour 

• The holder of a negotiable instrument retains the right to take legal action against parties responsible for non-payment or non-acceptance of the instrument.
• It is obligatory for the holder to notify all relevant parties of the dishonor before initiating any legal proceedings.
• The holder is considered to have given notice, which can be communicated orally or in writing.
• The notice must be provided within a reasonable timeframe.

This HTML snippet provides a paraphrased explanation of dishonor by non-payment and outlines the effects of dishonoring negotiable instruments, following the formatting and content guidelines provided. 

Discharge of Instrument 

Discharge refers to the release from obligations associated with an instrument. This discharge can involve the instrument itself as well as one or more parties responsible for it.

Conclusion 

Dishonor occurs when an instrument, which is expected to be recognized, is not honored. This can be due to reasons such as non-acceptance or non-payment. Both dishonor and discharge of a negotiable instrument are connected to situations where instruments are not encashed for various reasons.