Negotiable Instruments Act, Section 108

Negotiable Instruments Act, Section 108: Acceptance for Honour

Section 108 of the Negotiable Instruments Act, 1881 deals with acceptance for honour, allowing a person who is not already liable on a bill to voluntarily accept it after dishonour by non-acceptance or protest for better security.

The provision protects the credit and reputation of parties connected with the bill and provides additional assurance to the holder that payment will be made at maturity.

1. Meaning of Acceptance for Honour

Acceptance for honour means the acceptance of a dishonoured bill of exchange by a third person who is not already liable on the bill, for the purpose of protecting the honour or credit of a party liable on the instrument.

The person accepting the bill undertakes to pay it at maturity if the original drawee or acceptor fails to do so, making it a special and voluntary form of acceptance recognized under negotiable instrument law.

2. Applicability of the Provision

Section 108 applies only where a bill of exchange has been noted or protested for non-acceptance or has been protested for better security, and only after such dishonour or protest can acceptance for honour take place.

3. Dishonour by Non-Acceptance

Dishonour by non-acceptance occurs when the drawee refuses or fails to accept the bill upon proper presentment, after which the bill is dishonoured and may be accepted for honour.

4. Protest for Better Security

A bill may be protested for better security before maturity where the acceptor becomes insolvent or his financial credit is publicly questioned.

In such circumstances, another person may voluntarily step forward to accept the bill for honour and provide additional assurance to the holder.

5. Who May Accept for Honour

The section provides that any person may accept for honour if he is not already a party liable on the bill and the holder consents to such acceptance.

Accordingly, a stranger to the bill may become an acceptor for honour, whereas an existing liable party cannot do so because he is already bound by the instrument.

6. Consent of the Holder

Acceptance for honour cannot be forced upon the holder, and the holder must consent before such acceptance becomes effective.

This requirement exists because the holder is entitled to decide whether to rely on the new acceptor, and acceptance for honour may affect the holder’s remedies and rights.

7. Requirement of Writing on the Bill

Acceptance for honour must be made in writing on the bill itself, and an oral acceptance is not sufficient for this purpose.

This requirement ensures authenticity, provides clear evidence of liability, and creates certainty regarding the acceptor and the party for whose honour the acceptance is made.

8. Acceptance for Honour of Any Party

Acceptance may be made for the honour of the drawer, an indorser, or any other party already connected with the bill, generally to protect that party’s commercial reputation.

9. Purpose of Acceptance for Honour

The object of this provision is to preserve commercial confidence and business reputation by preventing the complete failure of the bill, providing additional security to the holder, and protecting the honour and credit of liable parties.

10. Liability of Acceptor for Honour

The acceptor for honour undertakes a conditional liability to pay if the original drawee or acceptor fails to pay at maturity and the required presentment and protest formalities are fulfilled, with such liability arising upon dishonour by non-payment.