In a Writ Petition before Bombay High Court, Petitioner challenged the Trial Court order passed under Section 101 of the Maharashtra Co-operative Societies Act, 1960 which was rejected by both the Trial Courts even in Appeal on the ground inter-alia that no due notice of dishonor of Bill of Exchange was given by the Petitioner Bank.

Petitioner resisted stating that inter-alia No reasoned award is passed for rejecting the recovery certificate. And No notice of dishonor was given. Neither the original dishonoured bill of exchange was produced before the Trial Court. The guarantor challenged the maintainability of the above Petition on the legal grounds and on the basis of precedents and stare-decisis laid down by the common law under the Negotiable Instruments Act 1881 and the principles of banking system
The Petitioner relied upon Section 64 of NI Act. There is no liability of the parties because the Promissory Note and Bill of Exchange must be presented by the Bank for payment to the making / acceptor / drawee by and on behalf of the holder and in default of such presentment, the other parties thereto are not liable thereon. The Bill of Exchange produced before the Trial Court is payable after site after expiry of 90 days and therefore, the notice of dishonor is mandatory under the law.

Let us now study provisions of Section 64 Negotiable Act,1881 (NIAct)

Presentment for payment. – [(1)] Promissory notes, bills of exchange and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf of the holder as hereinafter provided. In default of such presentment, the other parties thereto are not liable thereon to such holder.
[Where authorized by agreement or usage, a presentment through the post office by means of a registered letter is sufficient.]
Exception. Where a promissory note is payable on demand and is not payable at a specified place, no presentment is necessary in order to charge the maker thereof.

[(2) Notwithstanding anything contained in section 6, where an electronic image of a truncated cheque is presented for payment, the drawee bank is entitled to demand any further information regarding the truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled to further demand the presentment of the truncated cheque itself for verification:
Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if the payment is made accordingly.]

Neither Borrower nor Guarantor was not aware of presentment, or dishonor of the Bill of Exchange.

What Law say on such circumstances?
Case Law
In the matter of Bhagwati Natwarlal vs. Jagjivan Mavji 1954 AIR ( SC) 554 it was held that liability of bill arises only after acceptance. In para 5 of the Judgment Supreme Court held that, it is acceptance that establishes privity on the instrument between payee and the drawee.
Under Section 91 of NI Act
91. Dishonour by non-acceptance.—A bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of several drawees not being partners, makes default in acceptance upon being duly required to accept the bill, or where presentment is excused and the bill is not accepted. Where the drawee is incompetent to contract, or the acceptance is qualified the bill may be treated as dishonoured.

Under Section 98 of the NI Act 1881, there is no necessity for giving notice of dishonor when an evidence is produced of dishonor. Notice of dishonor is to be given under Article 38 of the Limitation Act, the period stands from the date of delivery of the payee. In a given case the neither borrower nor guarantor was not aware when the promissory note was presented for payment. The Bank even failed to produce evidence of date of presentment or date of refusal to accept before the Trial Court and therefore, the bill discount statement produced before the Trial Court is also not acceptable because it does mention due date but does not mention the date of dishonor.
In matter of Bhoovaraha Kounder Versus Bhoovarahamurthy Rao 2000 (100) CC 250
12. A further reading of Section 35 of the Negotiable Instruments Act would go to show that in order to charge the endorser, due notice of dishonour should be given to him by the holder in due course. The word “dishonour” in Section 30 of the Negotiable Instruments Act as well as in this Section 35 of the Negotiable Instruments Act has been used in its general and commercial
Tindal Vs Brown ITR 166 1033 – In this case, it was held that if the holder give time to the acceptor of the bill or drawer of a note after it has been dishonoured, the endorser is discharged. Notice of Bill of Exchange, or promissory note, being dishonoured, must come from the holder what is reasonable notice to the endorser of non-payment by the drawer of a promissory note or acceptor of Bill of Exchange is a question of law and therefore, here the holder was the Petitioner Bank. In this matter, the Lord Mansfield observed that it is of great consequences that this question should be settled. Certainty and diligence are of utmost importance in mercantile transaction. It is extremely clear that the holder of the bill when dishonored by the acceptor must give reasonable notice to the drawer or endorser. It was further observed that the purpose of giving notice is not merely that the endorser should know that the note is not paid, for he is chargeable only in a secondary degree; but to render him liable, you must show that the holder looked to him for payment and gave him notice that he did so.
Chapman Vs Keane 3AD. & E 192 – In this case, it was held that the holder of a bill is entitle to avail himself of notice of dishonor given by any party to the bill. A party is not liable to be sued till he has had the opportunity of paying; and, for this purpose, he ought to have notice from the party to whom he is to pay. It may be observed, that in Jameson vs. Swinton (2 Campb. 373), the defendant, as Lawrence J. puts it, was enabled to take up the bill if he pleased.
So in Rosher v. Kieren (4 Campb. 87), the notice stated where the bill was. In Chitty on Bills, the doctrine, that the notice imports that the holder in tends to call (196) upon the party receiving notice, is mentioned; but the author afterwards says (p.527). “However, according to the more recent decisions, it is not absolutely necessary that the notice should come from the person who holds the bill when it has been dishonoured, and it suffices if it be given after the bill was dishonoured, by any person who is a party to the bill, or who would, on the same being returned to him, and after paying it be entitled to require reimbursement, and such notice will, in general endure to the benefit of all the antecedent parties, and render a further notice from any of those parties unnecessary, because it makes no difference who gives the information:” and Shaw vs Croff is cited from a MS Note.
Darbishire Vs Parkar 1184 6 East 3. – In this case, Where notice of the dishonor of a bill of exchange by the acceptors in London was sent by the post to the holder in Manchester, where the letter was delivered out between 8 and 9 o’clock in the morning, and the post went out for Liverpool, where the drawer lived, between 12 at noon and I and the holder did not send notice to the drawer by the post either of the same day or the next, but sent it in a letter by a private person on the latter day, who did not deliver it to the drawer till two hours after the post delivery, and only about one hour before the post left Liverpool for London, whereby the drawer was so agitated that he could not write in time for that day’s post to London: Held that at all events the holder had made the bill his own by his laches. For whether reasonable notice be a question of law or of fact, or whether the general rule of law require notice of the dishonor of a bill to be sent to a party living at another place by the next post after it is received, (by which must be understood the next practicable post in point of time and distance); and whether four hours between the coming in and going out of the post be a sufficient interval in point of practical convenience to receive the notice and to prepare a letter of advice to the drawer; at all events the holder ought to have written by the post of the next day after notice received by him, and ought not to have delayed the receipt of notice by the drawer until after the arrival of the next post by sending the letter by a private hand.
In absence of notice of dishonor, the guarantor cannot be made liable for any payment. The Petition filed by the Bank was summarily dismissed.
Shruti Desai
4th December,2019