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Notice of Dishonor is Non-Negotiable: High Court Dismisses Bank’s Recovery Suit for Procedural Lapse

03 February 2025 7:59 PM

By: sayum


In a significant ruling, the Punjab and Haryana High Court dismissed an appeal by Punjab & Sind Bank in a recovery suit involving the dishonor of Hundis. The court upheld the decisions of the Trial Court and the First Appellate Court, which both found that the plaintiff-appellant failed to issue the mandatory notice of dishonor under Section 30 of the Negotiable Instruments Act, 1881. The judgment, delivered by Justice Alka Sarin on August 22, 2024, highlights the critical importance of procedural compliance in recovery suits.

The case originated when Punjab & Sind Bank filed a suit for the recovery of ₹86,313 against M/s Heera Rubbers, a proprietorship concern managed by Shri Mohinder Singh. The bank had extended a facility to M/s Heera Rubbers for the purchase of bills against Goods Receipt (GR) and Railway Receipt (RR). However, when the consignor failed to make payments, the bank sought to recover the credited amount, which was 70% of the bill value. Despite several reminders and an alleged acknowledgment of dues by Mohinder Singh, the defendant failed to make the payment, prompting the bank to file a recovery suit.

The Trial Court dismissed the suit on June 1, 1990, citing the bank's failure to prove the execution of key documents by the defendant and the lack of a dishonor notice as required under the Negotiable Instruments Act. This decision was upheld by the First Appellate Court on September 23, 1994.

Requirement of Dishonor Notice: Justice Alka Sarin emphasized that under Section 30 of the Negotiable Instruments Act, 1881, the drawer of a bill of exchange or cheque is obligated to compensate the holder only if a due notice of dishonor has been given. The court observed, "Both the Courts have concurrently found that there was not an iota of evidence on the record that a dishonor notice was issued as contemplated under Section 30 of the Negotiable Instruments Act, 1881." The court further noted that it is unimaginable for a public sector bank to be lax in issuing a dishonor notice, which is a standard procedure in such cases.

The court also highlighted the bank’s failure to provide substantial evidence proving that the defendant had executed the necessary documents on July 19, 1984. The lack of such evidence, including the absence of testimony from a handwriting expert, was a critical flaw in the bank's case.

The High Court reaffirmed that compliance with statutory requirements, such as issuing a notice of dishonor, is crucial in recovery suits involving negotiable instruments. The court stated, "In the absence of any evidence to prove its case, no fault can be found with the judgments and decrees passed by both the Courts."

The dismissal of the appeal by the Punjab & Haryana High Court serves as a strong reminder of the importance of adhering to procedural requirements in recovery suits. The ruling underscores that even financial institutions like banks must strictly follow legal protocols to ensure the enforceability of their claims. The judgment is expected to influence future cases by reinforcing the necessity of issuing dishonor notices under the Negotiable Instruments Act.

Date of Decision: August 22, 2024​.

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