Sat. May 8th, 2021

Section 117 of The Negotiable Instruments Act, 1881

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117. Rule as to compensation. –  The compensation payable in case of dishonour of a promissory note, bill of exchange or cheque, by any party liable to the holder or any indorsee, shall [***] be determined by the following rules:—

(a) the holder is entitled to the amount due upon the instrument together with the expenses properly incurred in presenting, noting and protesting it;

(b) when the person charged resides at a place different from that at which the instrument was payable, the holder is entitled to receive such sum at the current rate of exchange between the two places;

(c) an indorser who, being liable, has paid the amount due on the same is entitled to the amount so paid with interest at [eighteen per centum] per annum from the date of payment until tender or realisation thereof, together with all expenses caused by the dishonour and payment;

(d) when the person charged and such indorser reside at different places, the indorser is entitled to receive such sum at the current rate of exchange between the two places;

(e) the party entitled to compensation may draw a bill upon the party liable to compensate him, payable at sight or on demand, for the amount due to him, together with all expenses properly incurred by him. Such bill must be accompanied by the instrument dishonoured and the protest thereof (if any). If such bill is dishonoured, the party dishonouring the same is liable to make compensation thereof in the same manner as in the case of the original bill.


Where the payee is the holder of the bills of exchange and is not willing to part with the same unless the entire amount covered by the bills is realized and the bills are subsequently dsihonoured, it is not open for the drawer to institute the suit for compensation against the acceptor after bills are dishnonured for clause (c) of section 117 clearly provides that the compensation can be sought only by person who is holder of the bill; M. Ramnarain Pvt Ltd v. State Trading Corporation of India Ltd., 1988 Bom 45.


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