Meaning of ‘Dishonour’
When some negotiable instrument is presented for acceptance or payment and it is neither accepted or paid, it is known as the “dishonour’ of the negotiable instrument. A bill or exchange is dishonoured by its non-acceptance or non-payment. But in case of a cheque or pronote, since there is no acceptance to be obtained, their dishonour is caused by the refusal to be paid.
● Conditions for dishonour :
(1) Dishonour by Non-Acceptance- As per Section 91 of the Indian Negotiable Instruments Act, the dishonour by non-acceptance could be possible under the following circumstances:
There are the following two main conditions for dishonour
i.If within 48 hours of the presentation before the debtor (drawee), the acceptance is not given, the instrument shall be considered to have been dishonoured.
ii.If the debtor is incapable of making a contract, there is no sense in the ‘acceptance’ and the instrument shall be presumed to have been dishonoured.
iii.If the debtor gives conditional or restricted acceptance and if the creditor doesn’t agree to it, the instrument shall be treated to have been dishonoured. It is clear that the bill shall not be dishonoured, but if the preceding parties don’t agree to such acceptance, they shall be presumed to be free from their liability.
iv.If the debtor is some imaginary or fictitious person, then the bill could not be possibly presented for acceptance, hence it shall be treated to have been dishonoured.
v.In case of the debtor’s death or having become insolvent, acceptance could be sought from the payee or the successor, but it depends upon the discretion of the creditor.
vi.If the address or whereabouts of the creditor could not be located despite exhaustively searching, the instrument shall be considered to have been dishonoured.
(vii) If the instrument has been written against more than one persons and some of those debtors don’t accord acceptance.
(2) Dishonour by non-payment- In the following conditions, the dishonour occurs due to non-payment :
i.As per section 92 of the Indian Negotiable Instruments Act, if some cheque, pronote or bill of exchange.has been respectively presented before its bank,drawer or acceptor, and he refuses to make its payment, such instruments shall be treated as dishonoured.
ii.As per section 76 of the Indian Negotiable Instruments Act, in that event too shall the instrument be treated as dishonoured if the debtor refuses from presentation for payment, or doesn’t make its payment at the stipulated time.
iii.Very often, in case of need, the name of the debtor is written who makes payment in case of non-payment by the acceptor. As per Section 115 of the IndianNegotiable Instruments Act, if in case of need, the instrument is presented before the debtor for payment, and he too refuses to make payment, the instrument shall be treated to have been dishonoured.
Thus, in the above two situations, the negotiable instruments become dishonoured. After such dishonour, the holder after informing the other parties, may make them liable. But if the dishonour has been caused due to ‘not giving the acceptance’, the debtor shall not be liable.
Criminal Liability on dishonour
Since the passing of the Amendment Act, the dishonour of a cheque creates a crimina liability on the drawer of the cheque, w.e.f. 1st April, 1989. Any such dishonour, hence, may result into imprisonment of a maximum period of 1 year or twice the amount of the cheque. This liability shall be apart from the civil liability of the drawer. Sections-138 and 142 now provide for criminal liability under the Indian Negotiable Instruments Act.