Sections 117 and 118 of Negotiable Instruments Act 1881: Compensation and Presumptions
Section 117 of the Negotiable Instruments Act, 1881 sets out rules for determining compensation when a promissory note, bill of exchange or cheque is dishonoured. Section 118 creates statutory presumptions concerning negotiable instruments until the contrary is proved.
Section 117 - Rules as to Compensation
The compensation payable in case of dishonour of a promissory note, bill of exchange or cheque, by any party liable to the holder or any indorsee, shall be determined by the following rules:
(a) The holder is entitled to the amount due upon the instrument, together with the expenses properly incurred in presenting, noting and protesting it;
(b) When the person charged resides at a place different from that at which the instrument was payable, the holder is entitled to receive such sum at the current rate of exchange between the two places;
(c) An indorser who, being liable, has paid the amount due on the same is entitled to the amount so paid with interest at eighteen per centum per annum from the date of payment until tender or realization thereof, together with all expenses caused by the dishonour and payment;
(d) When the person charged and such indorser reside at different places, the indorser is entitled to receive such sum at the current rate of exchange between the two places;
(e) The party entitled to compensation may draw a bill upon the party liable to compensate him, payable at sight or on demand, for the amount due to him, together with all expenses properly incurred by him. Such bill must be accompanied by the instrument dishonoured and the protest thereof (if any). If such bill is dishonoured, the party dishonouring the same is liable to make compensation thereof in the same manner as in the case of the original bill.
Meaning of the compensation rules
Section 117 provides a statutory framework for compensation after dishonour. It covers the amount due on the instrument, proper expenses of presentment, noting and protest, exchange-rate adjustments where parties are at different places, and the rights of a liable indorser who has paid the amount due. Clause (c) expressly provides interest at eighteen per cent per annum from the date of payment until tender or realization.
Section 118 - Presumptions as to Negotiable Instruments
Until the contrary is proved, Section 118 requires the following presumptions to be made:
(a) Of consideration: every negotiable instrument was made or drawn for consideration, and every such instrument, when accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.
(b) As to date: every negotiable instrument bearing a date was made or drawn on that date.
(c) As to time of acceptance: every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity.
(d) As to time of transfer: every transfer of a negotiable instrument was made before its maturity.
(e) As to order of indorsements: the indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon.
(f) As to stamp: a lost promissory note, bill of exchange or cheque was duly stamped.
(g) That holder is a holder in due course: the holder of a negotiable instrument is presumed to be a holder in due course. However, where the instrument was obtained from its lawful owner or a person in lawful custody by means of an offence or fraud, or was obtained from the maker or acceptor by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon the holder.
Nature of the presumptions under Section 118
The presumptions in Section 118 operate "until the contrary is proved". They are therefore rebuttable statutory presumptions. The provision addresses consideration, date, timing of acceptance and transfer, order of indorsements, stamping of a lost instrument and the status of a holder in due course. Clause (g) also specifies circumstances in which the burden of proving holder-in-due-course status shifts to the holder.
Related Provisions
Section 119 provides for a presumption of dishonour on proof of protest in a suit upon a dishonoured instrument. Section 120 deals with estoppel against denying the original validity of an instrument in a suit by a holder in due course. These provisions form part of the same chapter of special rules of evidence as Section 118.
Official Statutory Source
The statutory text of the Negotiable Instruments Act, 1881 can be verified through India Code and the Legislative Department of the Ministry of Law and Justice. For litigation, professional advice or statutory interpretation, the official text and applicable amendments should be checked.