Explain the terms 'Noting' and 'Protest'. State the rules as to their exercise.

Noting and Protest Under the Negotiable Instruments Act, 1881

When a negotiable instrument is dishonoured — whether by refusal to accept or refusal to pay — the holder is not left entirely without remedy. The law has devised two mechanisms by which the fact of dishonour may be officially recorded and authenticated: noting and protest. Both are the work of a Notary Public, both spring from the same occasion of dishonour, and both are governed by Chapter IX of the Negotiable Instruments Act, 1881, under Sections 99 to 104A. Though closely related, they are distinct acts serving distinct purposes, and the rules governing their exercise differ significantly depending on whether the instrument in question is an inland or a foreign one.

I. Noting — Section 99

What Noting Means

Noting is defined under Section 99 of the Act. 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, upon a paper attached thereto, or partly upon each.

In its simplest description, noting is the minute recorded by a Notary Public on a dishonoured instrument at the time of dishonour. It consists of a brief, formal record on the face of the bill — typically the Notary's initials, the date, the noting charges, and a reference to the Notary's register. A ticket or label is also commonly attached to the bill on which the answer received from the drawee or acceptor is written — for instance, "No orders" or "No effects" — as evidence of the response to the Notary's demand.

The section uses the word "may" — noting is entirely optional for inland bills and promissory notes. The omission to have an instrument noted does not in any way affect the holder's rights thereon, and he may still sue the drawer and indorsers without any noting having been made.

The Procedure for Noting

The procedure is simple and practical. When a bill is dishonoured, the holder applies to a Notary Public. The Notary Public — in person, through his clerk, or where authorised by agreement or usage, by registered letter — presents the instrument a second time to the drawee or acceptor and makes a fresh formal demand for acceptance or payment. If this second demand also meets with refusal, the Notary notes the facts of the case upon the instrument or upon a paper attached to it.

Contents of the Noting

Section 99 prescribes the following as the mandatory contents of a noting:

• The fact of dishonour

• The date of dishonour

• The reason, if any, assigned for dishonour — for example, "no funds", "no orders", "refer to drawer"

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

• The Notary's charges

Rules as to the Exercise of Noting

The following rules govern the exercise of noting:

1. Noting is optional for inland instruments — The provisions of Section 99 are directory and not mandatory in nature, as has been expressly recognised in CH Java and Co v State Bank of India (I 2007 BC 47 DRATDRT Mumbai). The holder of a dishonoured inland bill is not bound to note the instrument, and his failure to do so does not prejudice his legal rights or remedies in any way.

2. Noting must be made within a reasonable time — The noting must take place within a reasonable time after dishonour. Under English practice, which the Indian courts have followed, noting may take place on the day of dishonour itself and must be completed no later than the next succeeding business day. Delay beyond this period requires justification.

3. Delay is excused by circumstances beyond the holder's control — Under Section 99, delay in noting is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. As soon as the cause of delay ceases to operate, the instrument must be noted with reasonable diligence.

4. Noting as an incipient protest — Noting is not an independent and self-sufficient act. Its greatest legal significance lies in the fact that it constitutes an incipient or preliminary protest. As Section 104A provides, where an instrument is required to be protested within a specified time or before some further proceeding is taken, it is sufficient if the instrument 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.

5. Noting is not evidence of presentment or dishonour — A mere noting on the bill, even if it shows the name of the Notary in full, is not of itself conclusive evidence of presentment or dishonour. It is simply a convenient method of authenticating those facts.

II. Protest — Section 100

What Protest Means

Protest is the higher and more formal act. Section 100 defines it as the formal certificate of a Notary Public, attesting the dishonour of a bill by non-acceptance or non-payment, issued after the dishonoured instrument has been noted. The Notary amplifies the initial minute of noting into a full, signed, and detailed certificate — and that certificate is called the protest.

Protest is therefore based upon noting. The noting is the foundation; the protest is the completed structure built upon it. As has been observed, noting is the skeleton and protest is the body clothed around it.

Protest for Better Security

Section 100 also creates a special type of protest unavailable through noting alone: the protest for better security. When the acceptor of a bill of exchange has become insolvent, has suspended payment, 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 from the acceptor. If the acceptor refuses, the Notary notes and certifies those facts. The certificate issued in such circumstances is specifically called a protest for better security.

It is important to note that the acceptor is under no legal obligation to furnish such security, and the holder acquires no immediate right of action against the drawer or indorsers as a result of this protest alone. The holder must still wait for the maturity of the bill. The great advantage of a protest for better security is that it enables the bill to be accepted for honour by a third party, because Section 7 of the Act defines an acceptor for honour as a person who accepts a bill that has been noted or protested for non-acceptance or for better security.

Contents of a Protest — Section 101

The contents of a protest are prescribed in precise and exhaustive terms by Section 101. A protest that omits any of the following particulars is defective and invalid. In Sineximco Pte. Ltd. v Dinesh International Pvt. Ltd. (174 (2010) DLT 422), the Delhi High Court confirmed the mandatory nature of these contents. A protest must contain:

• Either the instrument itself or a literal transcript of it and everything written or printed thereon

• 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 answer given, if any; or a statement that he gave no answer, or could not be found

• The place and time of dishonour; or, in case of a protest for better security, the place and time of refusal to give better security

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

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

A Notary Public may make the demand mentioned in clause (c) either in person or through his clerk, or where authorised by agreement or usage, by registered letter.

Rules as to the Exercise of Protest

The following rules govern the exercise of protest:

1. Protest is optional for inland instruments — As with noting, the provisions of Section 100 with respect to inland bills and promissory notes are directory and not mandatory, as confirmed in CH Java and Co v State Bank of India. A holder who wishes to preserve his rights against the drawer and indorsers of an inland bill may do so by notice of dishonour alone, without any protest.

2. Protest is compulsory for foreign bills — Section 104 — This is the most critical rule. Section 104 provides 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. The practical effect, as clearly stated, is that all bills drawn outside India must be protested, for under the law of most countries a protest is necessary to preserve recourse against prior parties. This is a mandatory requirement, and failure to protest a foreign bill where required discharges the drawer and all indorsers from liability. The courts will not allow any other evidence of dishonour in place of the protest. As was observed drawing from Hamilton Finance Co. Ltd. v Coverly (1969 1 Lloyd's Rep 53), "the slightest deviation from the rules as to the notice of dishonour can involve the parties concerned in heavy and irretrievable loss."

3. Protest must be made within a reasonable time — The bill ought to be protested within a reasonable time — generally, on the day of dishonour itself. The formal protest may, however, be drawn up later, provided the instrument was noted within the required time. By virtue of Section 104A, the formal protest relates back to the date of noting.

4. Delay is excused when caused by circumstances beyond the holder's control — The same rule that applies to noting applies here. Delay in protesting is excused when the delay is caused by circumstances beyond the holder's control and not attributable to his default, misconduct, or negligence. The moment the cause of delay ceases, the instrument must be protested with reasonable diligence.

5. Protest on a lost bill — If the bill to be noted and protested is lost or destroyed, Section 100 provides that protest may be made on a copy or written particulars of the lost instrument. The law does not allow the holder to be prejudiced merely because the original instrument has gone missing.

6. Protest for non-payment after dishonour by non-acceptance — Section 103 — Where a bill is drawn payable at a place other than the residence of the drawee, and it is dishonoured by non-acceptance, it may be protested for non-payment at the place specified for payment without any further presentment to the drawee, unless it is paid before or at maturity. For example, a bill drawn on C in Kolkata but payable in Mumbai is dishonoured by non-acceptance in Kolkata. It may be protested for non-payment in Mumbai without being presented again to C.

Notice of Protest — Section 102

When a negotiable instrument is required by law to be protested — as in the case of all 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 significant difference is that notice of protest may be given by the Notary Public who makes the protest, in addition to the holder. The rules as to this notice of protest are otherwise the same as for notice of dishonour — it may be waived expressly or by implication, and a subsequent promise to pay unconditionally will have the same effect as a waiver of notice of dishonour.

Special Advantages of Protest

Protest carries three advantages that mere noting does not:

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

2. Under Section 119, a court shall, on proof of protest, presume the fact of dishonour unless and until it is disproved — a powerful evidentiary advantage that shifts the entire burden of proof

3. It enables the bill to be accepted for honour or paid for honour by a third party, which is only possible if the instrument has first been noted or protested

Noting as Equivalent to Protest — Section 104A

Section 104A is a provision of great practical value. It provides that where an instrument is required to be protested within a specified time or before some further proceeding is taken, it is sufficient that the bill has been noted for protest before the expiration of the specified time, and the formal protest may be drawn up at any time thereafter as of the date of the noting. This section makes noting a legally sufficient substitute for protest insofar as the timing requirement is concerned, recognising the practical reality that the full formal certificate cannot always be prepared in the hurry immediately following dishonour.

The overall scheme of Chapter IX is thus one of carefully graduated formality — noting is the quick, inexpensive, informal record; protest is the complete, formal, authenticated certificate. Both serve the common object of officially documenting dishonour so that prior parties may be effectively charged, and so that third parties such as acceptors and payers for honour may step in to rescue the credit of the drawer or indorsers.