Who is a drawee in case of need?

To understand the drawee in case of need, one must first appreciate the underlying commercial anxiety from which this concept springs. When a drawer issues a bill of exchange, he does so confident in the expectation that the drawee will honour it. But commercial reality is rarely so simple. The drawee may refuse to accept — and when that happens, the drawer who warranted payment finds himself exposed. To guard against this very contingency, the law has recognised a practical safety device embedded in Section 7 of the Negotiable Instruments Act, 1881: the drawee in case of need.

The Statutory Definition

Section 7 provides in express terms:

"When in the bill or in any indorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need, such person is called a drawee in case of need."

The key phrase here is "in addition to the drawee." The drawee in case of need is not a substitute for the original drawee — he is a supplementary figure, an alternate port of call that the holder must approach before the bill is treated as finally dishonoured. In the language of English mercantile law, this person is also called a referee in case of need, a term that captures the idea of referring the bill to a nominated alternative when the primary direction fails.

How and Where the Name is Inserted

The name of the drawee in case of need may be inserted either in the body of the bill itself by the drawer, or in any indorsement on the bill by any subsequent indorser. This flexibility is deliberate — even a party who takes up the bill after it has been issued may wish to protect its commercial standing by nominating someone who will step in should the primary drawee disappoint. The bill, once such a name appears on it, carries this safety net throughout its currency.

The Practical Operation

The drawee in case of need comes into play only when there is a "case of need" — that is, when the original drawee refuses acceptance or fails to pay. Until that eventuality arises, the drawee in case of need has no role whatsoever. Section 115 of the Act makes the practical consequence explicit: where a drawee in case of need is named in a bill, the bill is not considered dishonoured until it has been presented to and dishonoured by such drawee. This means the holder is not merely permitted to approach the drawee in case of need — he is obliged to do so. The Lahore High Court confirmed this in Bahadur Chand Prabh Dial v Gulab Rai Nanak Chand (AIR 1929 Lah 577), holding that non-presentment of the bill to the drawee in case of need absolves the drawer entirely from liability. The burden thus falls squarely on the holder: if he ignores this figure and proceeds directly against the drawer, he does so at his own peril.

Acceptance and Payment Without Protest

Section 116 of the Act provides that the drawee in case of need may accept and pay the bill without previous protest. This is a deliberate departure from the English rule, where prior protest is required. The Indian legislature, alive to the needs of commerce, recognised that insisting on protest before the drawee in case of need could act would add needless procedural hurdle to an already strained transaction.

It is, however, essential that the drawee in case of need must accept the bill before he can be bound. The Bombay High Court in John Andrew Lammas Dore v Karachivalla Co. (AIR 1938 Bom 364) settled this clearly: where a bill was neither presented for acceptance to, nor accepted by, the drawee in case of need, he incurred no liability whatsoever. Acceptance is the gateway to liability — without it, even the drawee in case of need remains a stranger to the instrument.

The Position After Acceptance

Once the drawee in case of need accepts and pays the bill, he acquires the rights of a holder and may recover the amount from the original drawee. In Sajjan Rao v Kothari Textiles (1981 1 MLJ 202), it was held that the drawee in case of need who accepts and pays the bill stands in the position of a statutory surety vis-à-vis the original drawee, and is entitled to claim the amount from him. He is thus not a mere volunteer — the law gives him a clear right of recourse, ensuring that the ultimate burden falls on the party who first failed.

In short, the drawee in case of need is the law's recognition that commerce sometimes stumbles, and prudence demands that a second road be kept open even as the first is taken.