Dishonour Of A Bill Of Exchange

          Dishonour Of A Bill Of Exchange

We have discussed all options or possibilities in which a bill of exchange is presented to the acceptor on the due date and he readily honours it. Now let us see what happens when a bill is not honoured by the acceptor on the due date (cash is not paid to holder of the bill)? A bill of exchange is said to be Dishonoured when its acceptor refuse to pay the amount of the bill to the holder of the bill on its maturity. The bill then become useless and the party from whom it has been received will be liable to pay the for the amount. It is very important to know that, when a bill is dishonoured, in whose possession it  was ? because when a bill is dishonoured, all the parties involved are affected and books of accounts of all the parties have to be adjusted. 

For example:

 A draws a bill of Rs.5000 on B and B accepts it and returns it to A. A retains the bill in his possession till the due date . On the due date the bill is not honoured by the acceptor. We can see, there are two parties involved whose books are to be adjusted. If suppose, A has discounted or endorsed the bill, then there are three parties involved and books of accounts of all the parties are affected.

                               Notary Public

 

When a bill is dishonoured, the holder of the bill , (drawer, banker, endorsee or any other party) in order to make a strong ground for drawing legal proceeding against the acceptor may get the official recognition that the bill has been dishonoured. He goes to an official called Notary Public, and gives the bill to him .The Notary Public will present the bill for payment again to the acceptor and if the money is received he will hand over the money to the original party. But if the bill is again dishonoured, the notary public will note the face of dishonour and the reasons of dishonoured on the bill and will give back to the holder of the bill . It is now a strong evidence against the acceptor, in case, if the case id filed in the court.

                      Noting Charges

For this service the notary public will charge a small fee obviously from the holder of the bill. This fee is known as "noting charges" and is always recoverable from the party which is responsible for the dishonour (the acceptor).

Generally who pays noting charges :

(a) If the bill is retain by the drawer = The drawer will pay .

(b)If the bill has discounted = The bank will pay.

(c) If the bill has endorsed to the endorsee = The endorsee will pay. 

(d) If the endorsee has endorsed the bill to his creditor (a new endorse) = The new endorse will pay.