Compensation on Dishonor

Chapter XII Compensation, Section 117 of the Negotiable Instruments Act 1881 provides the following rules to determine the compensation payable in case of dishonor of promissory note, bill of exchange or cheque, by any party liable to the holder or any indorsee shall

(a) the holder is entitled to the amount due upon the instrument together with the expense 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 endorser 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 realization thereof, together with all expenses caused by the dishonor and payment;

(d) when the person charged and such endorser reside at different places, the endorser 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 dishonored and the protest thereof (if any). If such bill is dishonored, the party dishonoring the same is liable to make compensation thereof in the same manner as in the case of the original bill.

Compensation on Dishonor | Banking Law