Noting and Protest under negotiable instrument act

Section 99 of the Negotiable instrument Act 1881 provides that

“When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may cause such dishonour to be noted by a notary public upon the instrument or upon a paper attached thereto, or partly upon each. A such note must be made within a reasonable time after dishonour and must specify the date of dishonour or if the instrument has not expressly dishonoured the reason why the holder treats it as dishonoured and notary’s charges.”

Section 100 of the Negotiable Instrument Act 1881 provides as under.

“When the acceptor of a bill of exchange has become insolvent, or his credit has been publicly impeached before the maturity of the bill, the holder may, within a reasonable time, cause a notary public to demand better security of the acceptor, and on its being refused may, within a reasonable time, cause such facts to be noted and certified as aforesaid. Such a certificate is called protest for better security”.

What is the meaning of ‘Protest for better security’?

Upon the insolvency of the acceptor before the maturity of the bill, the holder may protest it for better security. The effect is that anyone who wishes to accept the bill for honour may accept it as if the bill has been protested for dishonour by non-acceptance.

What the law says about noting and protest?

Noting and Protesting is a proactive measure to protect the holder’s right of recourse against the drawer and endorsers of a dishonoured bill. Noting means recording (noting) the minutes of dishonour, by the ‘Notary Public’ on the dishonoured bill.  Noting on a paper affixed to the dishonoured bill or partly on the dishonoured bill and partly on the paper attached to the bill is permitted under Negotiable Act. Protest is the next step of noting. A formal certificate is issued with Notary’s seal, attesting to the fact that the bill is dishonoured.

The liability and obligation of the party to the negotiable instrument:

Section 30 of the negotiable instrument act 1881 casts certain obligations and liabilities upon a party for acceptance or payment of a negotiable instrument. The maker of a promissory note or drawer of a cheque or acceptor of a bill of exchange is deemed as a principal debtor to the holder and all other parties (endorsers) are liable as sureties for the maker, drawer or acceptor as the case may be. In the case of bills of exchange, the liability and obligation of the acceptor are that of a principal debtor and the drawer of the bill and subsequent endorsers become sureties. When a negotiable instrument is dishonoured due to non-acceptance or non-payment as the case may be, the holder must send the notice of dishonour to the principal debtors and sureties. In the case of inland bills, noting and protest are not compulsory, but in the case of foreign bills, the fact that the bill is dishonoured must be noted and protested. This is in addition to the notice of dishonour already served on all the parties to the bill.

How a negotiable instrument should be noted?

When a promissory note or bill of exchange is to be noted, the holder of the bill approaches the Notary Public with the dishonoured instrument to secure official evidence of dishonour. The Notary Public on receipt of the complaint, re-presents the dishonoured instrument for acceptance or payment as the case may be to the defaulting parties. If the drawee or acceptor still refuses to accept or the pay bill, the Notary Public makes note of the reason for the dishonour of the bill which comprises the following details as provided under sec.99 of the NI Act.

1. The date of dishonour

2. Reasons if any assigned for dishonour.

3. If the instrument is not expressly dishonoured, then the reason for the holder coming to the conclusion that the bill is dishonoured.

4. The Notary Charges.

Noting must take place at a reasonable time after the dishonour date (Generally ‘noting ’takes place on the dishonour date or the next succeeding business day).

Protest:  Protest is a more formal process of noting.  The Protest must contain the following;

1. The transcript of the instrument or instrument itself
2. The names of persons against whom the instrument has been protested.
3. A statement showing that Acceptance or Payment or better security as the case may be, has been demanded by the Notary, from the persons against whom the instrument has been protested. A Statement of record should be made, containing the parties’ reply if any or result like “No answer received from the parties” or “the parties could not be found” to the notice of the Notary etc.
4. The place and time of dishonour and place and time of refusal when better security is demanded.
5. Signature of the Notary.

Originally posted: August 22, 2013, edited and reposted on March 4, 2023