Negotiable Instruments Act, Section 95

Negotiable Instruments Act, Section 95: Party Receiving Must Transmit Notice of Dishonour

Section 95 of the Negotiable Instruments Act, 1881 lays down the duty of a party who has received notice of dishonour of a negotiable instrument. 

The provision requires such party to further communicate the notice to prior parties if he intends to hold them liable on the instrument.

The section ensures continuity in the chain of notice and protects the rights of parties who may seek recovery from persons prior to them in the sequence of liability.

1. Purpose of the Provision

When a negotiable instrument is dishonoured, notice of dishonour is necessary to charge parties secondarily liable such as drawers and indorsers, and Section 95 ensures that every party receiving notice acts promptly.

The provision also ensures that prior parties are informed of the dishonour and that rights of recovery against earlier parties are preserved, thereby supporting fairness and commercial certainty in negotiable instrument transactions.

2. Duty of Party Receiving Notice

The section provides that any party receiving notice of dishonour must give notice to prior parties if he intends to make them liable to himself.

A party receiving notice cannot remain inactive and must pass on the notice to earlier liable parties, since failure to do so may discharge those prior parties from liability toward him.

3. Prior Parties

Prior parties include persons who became liable before the party giving notice, such as earlier indorsers, the drawer of the bill or cheque, and other persons secondarily liable on the instrument.

The section enables each liable party to preserve his remedy and right of recovery against parties preceding him in the chain of liability.

4. Requirement of Reasonable Time

Notice to prior parties must be given within a reasonable time after receiving notice of dishonour, and what constitutes reasonable time depends upon the nature of the instrument, business practices, and the means of communication.

The question of reasonable time also depends upon the circumstances of the particular case, and therefore the law requires promptness and diligence in giving notice.

5. Exception to the Requirement

The section states that further notice is unnecessary where the prior party has otherwise received due notice under Section 93.

Thus, if the earlier party has already been properly informed through another valid source, repetition of notice is not required.

6. Purpose of Transmission of Notice

The requirement of transmitting notice serves important commercial functions by enabling prior parties to protect their interests and arrange payment or recovery against earlier liable parties.

The requirement also prevents surprise liability and maintains an orderly chain of communication among parties connected with the negotiable instrument.

7. Consequence of Failure to Give Notice

If a party receiving notice fails to notify prior parties within a reasonable time, those prior parties may be discharged from liability toward him.

Such failure may also result in loss of his right of recovery against earlier parties, and therefore compliance with the section is essential for preserving such rights.