Negotiable Instruments Act, Section 115

Negotiable Instruments Act, Section 115: Drawee in Case of Need

Section 115 of the Negotiable Instruments Act, 1881 deals with the concept of a “drawee in case of need” in relation to a bill of exchange. 

The provision states that where a drawee in case of need is named in the bill or in an indorsement upon it, the bill is not considered dishonoured until it has also been dishonoured by such drawee in case of need.

The section provides an additional safeguard against dishonour and is intended to protect the commercial credit and reliability of bills of exchange.

1. Meaning of Drawee in Case of Need

A drawee in case of need is a person whose name is mentioned in a bill of exchange, or in an indorsement on it, to whom the holder may resort if the original drawee refuses acceptance or payment.

Such a person acts as an alternative source of payment or acceptance in order to avoid dishonour of the bill.

The drawee in case of need is generally named to provide additional security and confidence in commercial transactions.

2. Purpose of Section 115

The object of Section 115 is to provide another opportunity for a bill to be honoured before it is finally treated as dishonoured, thereby protecting the credit of parties connected with it.

The provision reduces the risk of dishonour, facilitates smooth commercial dealings, increases confidence in negotiable instruments, and encourages payment through alternative arrangements.

3. Naming of Drawee in Case of Need

The drawee in case of need may be named either in the bill itself or in an indorsement appearing on the bill.

Such naming indicates that the holder should approach that person if the original drawee fails to honour the bill when duly presented.

4. Position of Drawee in Case of Need

The drawee in case of need is not the original drawee but an auxiliary or substitute person designated in relation to the bill.

His role becomes relevant only when the original drawee refuses acceptance or payment, and he is called upon to act after such default.

5. Bill Not Immediately Dishonoured

The section specifically provides that a bill is not treated as dishonoured immediately upon refusal by the original drawee.

The holder must first approach the drawee in case of need, and only if that person also dishonours the bill does it become finally dishonoured.

6. Importance of This Rule

The rule is important because it gives the bill another opportunity to be honoured while protecting parties from premature dishonour.

It also preserves commercial reputation and credit, and therefore delays the final consequence of dishonour until all available remedies have been exhausted.

7. Obligation of Holder

Where a drawee in case of need is named, the holder should present the bill to that person after refusal by the original drawee.

Failure to do so may affect the holder’s rights against certain parties because the bill is not legally dishonoured until the drawee in case of need also refuses acceptance or payment.

8. Commercial Importance of Drawee in Case of Need

The concept is commercially important because it provides additional security in transactions, reduces the risk associated with dishonour, and enhances confidence in bills of exchange.

It also protects the goodwill of merchants and traders and was historically especially useful in international and mercantile trade practices.