Dishonour of a Bill

  • When the Drawee fails to make the payment on the date of maturity of the bill it is called dishonour of bill.
  • Under dishonour of bill, the liability of the acceptor is restored. So the entries made on the receipt of the bill should be reversed.
  • A fee is charged by the Notary Public to note the dishonour of bill is called Noting charges.
  • The bill should be presented on the date of maturity to the acceptor during business working hours.
  • The drawer has four options to deal with the bill viz. retain the bill till the date of maturity, discount the bill with the bank, endorse the bill in favour of a creditor and send the bill for collection.
  • There are different entries in the books of drawer depends upon the circumstances of the case. However entries in the books of drawee will remain the same.
  • It may be noticed that the party which presents the bill for payment, pays the noting charges, ultimately noting charges have to be borne by the drawee.
  • Notary public is an officer appointed by the central or state government. Sometimes, the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may, therefore, approach the drawer with the request for extension of time for payment.
  • In case of Renewal of Bill, old bill is cancelled and the fresh bill with new terms of payment is drawn and duly accepted and delivered. Since the cancellation of bill is mutually agreed upon noting of the bill is not required.
  • Drawee may have to pay interest to the drawer for the extended period of credit. The interest is paid in cash or may be included in the amount of the new bill.
  • In the case of Insolvency of the acceptor, the drawee will not be in a position to meet his acceptance on due date. As such, the bill accepted by his is treated as dishonoured.
  • The amount received from the insolvent's estate is known as 'dividend' and the amount remaining unpaid is debited to Bad Debts A/c in the books of the drawer.

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