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CAN BANK INITIATE RECOVERY AGAINST GUARANTOR WITHOUT NOTICE OF DISHONOUR?

December 4, 2019

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 […]

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