Negotiable Instruments Act, Section 92

Negotiable Instruments Act, Section 92:Dishonour by Non-Payment

Section 92 of the Negotiable Instruments Act, 1881 explains the circumstances in which a negotiable instrument is said to be dishonoured by non-payment. 

The provision applies to promissory notes, bills of exchange, and cheques, and lays down the principle that dishonour occurs when the person primarily liable fails to make payment upon proper demand.

Dishonour by non-payment is one of the most important concepts under the law relating to negotiable instruments because it gives rise to the holder’s rights against prior parties and enables legal remedies for recovery.

1. Meaning of Dishonour by Non-Payment

A negotiable instrument is said to be dishonoured by non-payment when payment is not made by the person liable after proper presentment and demand for payment.

The essence of dishonour by non-payment is a valid demand followed by failure or refusal to pay, leaving the instrument unpaid even though payment has become legally due.

2. Applicability of the Provision

Section 92 applies to all three principal categories of negotiable instruments, namely promissory notes, bills of exchange, and cheques.

The provision also identifies the particular person responsible for making payment in each of these instruments.

3. Dishonour of Promissory Note

In the case of a promissory note, dishonour by non-payment occurs when the maker makes default in payment upon being duly required to pay the amount due under the instrument.

The maker is the principal debtor under the promissory note, and therefore failure or refusal to pay upon proper demand results in dishonour of the note.

4. Dishonour of Bill of Exchange

In the case of a bill of exchange, dishonour by non-payment occurs when the acceptor makes default in payment upon being duly required to pay the amount due under the bill.

The acceptor becomes primarily liable after accepting the bill, and therefore failure to make payment at maturity upon proper presentment results in dishonour by non-payment.

5. Dishonour of Cheque

In the case of a cheque, dishonour by non-payment occurs when the drawee bank fails or refuses to pay the cheque upon proper presentment despite sufficient funds and absence of any legal or procedural obstacle.

6. Requirement of Due Presentment and Demand

The section provides that dishonour arises only when the person liable defaults upon being duly required to pay, meaning the instrument must be properly presented for payment unless presentment is legally excused.

7. Meaning of Default in Payment

Default in payment may occur through express refusal, failure, inability, or neglect to pay the instrument when due, and such refusal may be direct or implied from conduct indicating non-payment.

8. Timing of Dishonour by Non-Payment

Dishonour by non-payment occurs when payment due under the instrument is not made at maturity in the case of time instruments or upon demand in the case of instruments payable on demand.

9. Consequences of Dishonour by Non-Payment

Dishonour by non-payment gives the holder the right to proceed against prior parties such as drawers and indorsers, including by giving notice of dishonour and initiating legal proceedings for recovery.