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Answer:
“When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may cause such dishonor to be noted by a notary public upon the instrument or upon a paper attached there to, or partly upon each. 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 holder treats it as dishonoured and notary’s charges.”
“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 afore said. Such 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 dishonor by non-acceptance.
What the law says about noting and protest?
Noting and Protest 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 the fact that the bill is dishonoured.
The liability and obligation of party to the negotiable instrument:
The section of 30 of negotiable instrument act 1881 casts certain obligations and liabilities upon 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 are deemed as principal debtors to the holder and all other parties (endorsers) are liable as sureties for the maker, drawer or acceptor as the case may be. In case of bills of exchange, the liability and obligation of the acceptor is 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 dishonor to the principal debtors and sureties. In case of inland bills, the noting and protest is not compulsory, but in case of foreign bills, the fact that the bill is dishonoured must be noted and protested. This is in addition to notice of dishonor already served on all the parties to the bill.