Section 106 NI Act: Reasonable time of giving notice of dishonour

Negotiable Instruments Act, 1881

Section 106 NI Act at a Glance

Section 106 NI Act defines what counts as a reasonable time for giving notice of dishonour, depending on whether the holder and the recipient live or carry on business in different places or in the same place.

Section 106 NI Act Bare Act Text

106. Reasonable time of giving notice of dishonour.

If the holder and the party to whom notice of dishonour is given carry on business or live (as the case may be) in different places, such notice is given within a reasonable time if it is dispatched by the next post or on the day next after the day of dishonour.

If the said parties carry on business or live in the same place, such notice is given within a reasonable time if it is dispatched in time to reach its destination on the day next after the day of dishonour.

Section 106 NI Act in Simple Words

Section 106 NI Act lays down two rules for when a notice of dishonour from the holder to a party is given within a reasonable time, depending on the places where the holder and that party carry on business or live.

Under the first paragraph of Section 106 NI Act, if the holder and the party to whom notice of dishonour is given carry on business or live (as the case may be) in different places, the notice is given within a reasonable time if it is dispatched by the next post or on the day next after the day of dishonour.

Under the second paragraph of Section 106 NI Act, if the holder and that party carry on business or live in the same place, the notice is given within a reasonable time if it is dispatched in time to reach its destination on the day next after the day of dishonour.

When Section 106 NI Act Applies

  • When the holder and the party receiving notice of dishonour carry on business or live in different places: the notice is given within a reasonable time if dispatched by the next post or on the day next after the day of dishonour.
  • When the holder and the party receiving notice of dishonour carry on business or live in the same place: the notice is given within a reasonable time if dispatched in time to reach its destination on the day next after the day of dishonour.

Example of Section 106 NI Act

Iqbal carries on business in Hubballi and is the holder of a bill of exchange drawn by Lakshmi, who also carries on business in Hubballi, and indorsed by Nikhil, who carries on business in Ajmer. The bill is dishonoured on Tuesday. Under Section 106 NI Act, Iqbal gives notice of dishonour to Lakshmi (in the same place, Hubballi) within a reasonable time if Iqbal dispatches the notice in time to reach Lakshmi's address in Hubballi on Wednesday, the day next after the day of dishonour. For Nikhil (in a different place, Ajmer), Iqbal gives notice within a reasonable time under Section 106 NI Act if Iqbal dispatches the notice by the next post or on Wednesday.

FAQs on Section 106 NI Act

What is Section 106 NI Act?▼

Section 106 NI Act defines when a notice of dishonour is given within a reasonable time. It sets one rule when the holder and the recipient carry on business or live in different places, and an arrival rule when both parties carry on business or live in the same place.

What is a reasonable time for notice of dishonour when parties are in different places under Section 106 NI Act?▼

By the next post or on the day next after the day of dishonour. Under the first paragraph of Section 106 NI Act, if the holder and the recipient carry on business or live in different places, the notice is given within a reasonable time if it is dispatched by the next post or on the day next after the day of dishonour.

What is a reasonable time for notice of dishonour when parties are in the same place under Section 106 NI Act?▼

Dispatch in time to reach on the day next after the day of dishonour. Under the second paragraph of Section 106 NI Act, if the holder and the recipient carry on business or live in the same place, the notice must be dispatched in time to reach its destination on the day next after the day of dishonour.

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Disclaimer: This is for informational purposes only. Always consult a qualified advocate for legal advice.

Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·