Explain and distinguish: Noting and Protest.

Noting and protest, though they are closely related and spring from the same event — the dishonour of a negotiable instrument — are two distinct legal acts that serve different purposes and carry different legal consequences. They are governed by Chapter IX of the Negotiable Instruments Act, 1881, principally under Sections 99 to 104A. Understanding their relationship requires, first, a clear grasp of each concept individually, followed by a careful appreciation of how they differ.

Noting — Section 99

Nature and Object of Noting

When a promissory note or bill of exchange is dishonoured — whether by non-acceptance or by non-payment — the holder may, if he chooses, take the instrument to a Notary Public and have the fact of dishonour officially recorded. This act of official recordation by the Notary is called noting. Section 99 of the Act describes it as the minute recorded by a Notary Public upon a dishonoured bill, at the time of dishonour, attesting the fact of the refusal to accept or pay.

The operative word in Section 99 is "may" — the holder is not compelled to have the instrument noted. Noting is entirely optional in the case of inland bills and promissory notes. Its omission does not in any way affect the rights of the holder, and he may still bring suit and recover from the drawer and indorsers without having obtained any noting. The practical value of noting is evidentiary and facilitative: it secures authentic evidence of dishonour and sets the stage for a formal protest to follow.

The Noting Procedure

The procedure for noting is straightforward. The holder presents the dishonoured instrument to a Notary Public. The Notary — or his clerk, or where authorised by agreement, by registered letter — makes a fresh demand for acceptance or payment upon the drawee or acceptor. If this second demand also meets with a refusal, the Notary makes a brief minute on the face of the instrument, or upon a paper attached to it, or partly on each. This minute constitutes the noting.

Section 99 prescribes the following as essential contents of the noting:

• The fact of dishonour and its date

• The reason, if any, assigned by the drawee or acceptor for non-acceptance or non-payment

• If the instrument has not been expressly dishonoured, the reason why the holder treats it as dishonoured

• The Notary's charges

Under English practice, the minute consists of the Notary's initials, the date, the noting charges, and a reference to the Notary's register. A ticket or label is also attached to the bill, recording the answer given upon the Notary's clerk's presentment — such as "No orders" or "No effects."

Time for Noting

The noting must be made within a reasonable time after dishonour. Under English practice, the noting may take place on the day of dishonour itself and must be completed not later than the next succeeding business day. However, delay in noting is excused when caused by circumstances beyond the holder's control and not attributable to his own default, misconduct, or negligence — but once the cause of delay ceases, noting must be done with reasonable diligence.

An important rule in Section 104A provides that where an instrument is required to be protested within a specified time, it is sufficient if the bill has been noted for protest before the expiration of that time. The formal protest may then be drawn up at any time thereafter and it relates back to the date of noting. This provision recognises that noting is in fact an incipient protest — an incomplete or preliminary protest which the Notary amplifies into a formal certificate at a later stage.

Protest — Section 100

Nature and Object of Protest

Protest is a higher and more formal act than noting. Under Section 100, when a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonour to be noted and certified by a Notary Public. This formal certificate issued by the Notary is called a protest.

The relationship between noting and protest is one of foundation and structure: protest is based upon noting. The Notary who has made the noting subsequently amplifies that minute into a full-blown formal certificate — the protest. As the saying goes, the noting is the skeleton and the protest is the body clothed around it.

The special advantages of protest over mere noting are three-fold:

1. A protest affords authentic and satisfactory evidence of dishonour to a drawer or indorser living abroad, who cannot easily make local inquiries and would otherwise have to rely on the holder's word alone

2. Under Section 119, in a suit upon a dishonoured instrument, the court shall, on proof of protest, presume the fact of dishonour unless and until it is disproved — protest is therefore a powerful evidentiary tool, for it raises a statutory presumption rather than leaving the matter of dishonour open to dispute

3. A protested instrument opens the door to acceptance for honour — a third party who steps in to save the credit of the drawer or an indorser — which is not possible unless the instrument has first been noted or protested

Contents of a Protest — Section 101

Section 101 prescribes the contents of a valid protest with strict particularity. Any omission of any of the prescribed particulars renders the protest invalid. A protest must contain:

• The instrument itself or a literal transcript of the instrument and everything written or printed on it

• The names of the person for whom and against whom the instrument has been protested

• A statement that payment, acceptance, or better security (as the case may be) was demanded of the drawee or acceptor by the Notary; the terms of the drawee's answer, if any; or a statement that he gave no answer, or could not be found

• The place and time of dishonour; and if it is a protest for better security, the place and time of refusal to give security

• The subscription (signature) of the Notary Public making the protest

• In the event of an acceptance for honour or payment for honour, the name of the person by whom, and of the person for whom, and the manner in which, such acceptance or payment was offered and effected

The Delhi High Court in Sineximco Pte. Ltd. v Dinesh International Pvt. Ltd. (174 (2010) DLT 422) confirmed these mandatory contents and held that a protest not containing them is invalid and cannot be acted upon.

Protest for Better Security

An additional type of protest, not available in the case of ordinary noting, is the protest for better security. Under Section 100, when the acceptor of a bill of exchange has become insolvent, or has suspended payment, or his credit has been publicly impeached before the maturity of the bill, the holder may cause a Notary Public to demand better security from the acceptor. On the acceptor's refusal to give such security, the Notary notes and certifies those facts, and the resulting certificate is called a protest for better security.

The acceptor is not legally bound to give the demanded security, and the holder acquires no immediate right of action against the drawer or indorsers merely upon such protest — he must still wait for the bill's maturity before suing. The great advantage of this form of protest is that it enables the bill to be accepted for honour, because Section 7 of the Act defines an acceptor for honour as a person who accepts a bill of exchange which has been noted or protested for non-acceptance or for better security.

When Protest is Compulsory — Section 104

The most significant dimension of protest, which sharply distinguishes its importance from noting, is that protest is compulsory in the case of foreign bills of exchange. Section 104 mandates that foreign bills of exchange must be protested for dishonour when such protest is required by the law of the place where they are drawn. Since most countries of the world require protest as a condition for preserving the recourse against prior parties on a foreign bill, the practical effect in India is that all bills drawn outside India must be protested.

The consequences of failing to protest a foreign bill when required are severe: the courts will not allow any other evidence of dishonour, and the drawer and indorsers are discharged from liability. As was stated by the court drawing on Hamilton Finance Co. Ltd. v Coverly (1969 1 Lloyd's Rep 53), the slightest deviation from the rules as to protest on a foreign bill can involve the parties in heavy and irretrievable loss.

Inland bills, by contrast, need not be protested. Noting and protesting inland bills is entirely at the holder's option, and the omission to have an inland bill protested does not in any way affect the holder's rights thereon.

Notice of Protest — Section 102

When protest is required by law (as in the case of foreign bills), Section 102 provides that notice of such protest must be given instead of notice of dishonour, in the same manner and subject to the same conditions as apply to notice of dishonour. One difference is that in the case of foreign bills, the notice may be given by the Notary Public who makes the protest — a departure from the general rule that notice of dishonour must be given by the holder.

Distinction Between Noting and Protest

Having understood both individually, the distinction between them may now be drawn with precision. The following table captures the essential points of difference:

The Relationship: Noting as the Foundation of Protest

The essential internal relationship between the two must be firmly grasped. Noting is not an independent act standing apart from protest — it is the raw material out of which protest is built. A Notary Public who has noted a bill may draw up the formal protest at any time thereafter, and by virtue of Section 104A, the protest relates back to the date of noting. This is what the courts mean when they describe noting as an incipient protest. Where an instrument must be protested within a specified time, it is sufficient compliance if noting was made within that time, though the formal protest may be extended later.

The philosophical reason for this distinction rests on practical commercial necessity: in the hurry of dishonour, it is often impossible to prepare a full formal protest immediately. The Notary notes the instrument quickly to preserve the holder's rights, and then prepares the elaborate certificate at his leisure without any loss to the holder. The law thus achieves both immediacy (through noting) and authenticity (through protest) in documenting the dishonour of negotiable instruments.