What is Dishonour? : When a promissory note or bill of exchange or cheque is rejected by the drawee for payment, then it amounts to dishonour of the instrument.
Types of Dishonour: Dishonour is of two types.
i) Dishonour by non-acceptance,
(ii) Dishonour by non-payment.
i) Dishonour by non-Acceptance (Sec.91):
The following are the instances which amounts to dishonour by non-acceptance.
a) When drawee refuses to accept
b) When drawee becomes incompetent
c) When drawee gives qualified acceptance
d) When drawee's present is excused.
any person in the negotiable instrument fails to pay the money to the person entitled in it, then it amounts to dishonour by non-payment.
Whenever any negotiable instrument is dishonoured, a notice on the part of that claimant is necessary. It is nothing but to warn the drawee or other persons for its dishonour. So notice of dishonour should be served to the parties responsible in the instrument.
Notice by Whom: By holder or by any person who is entitled to get the money.
Notice to Whom: Notice should be given to dishonoured persons generally, but sec.94 says that notice should be given to :
i) Authorised agent to whom it is required to be given.
ii) Legal representative, when the drawee or endorsee is died.
iii) Official Assignees or Receiver, when the party to whom the notice is required to be given has been declared as an insolvent.
Effects of omission to give notice: Sec. 38 and 35 of Negotiable Instruments Act requires the notice of dishonour to the endorsee as well as endorser respectively without which they are not responsible.
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