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CSEET · Business Laws and Management · Elements of Law relating to Negotiable Instruments

Meera draws a cheque for Rs. 1,000 on her bank when she has enough funds. Before the holder presents it, within a reasonable time, the bank fails. Under Section 84 and its illustration, what is the position?

Meera is discharged to the extent of the damage caused by the delay in presentment, and the holder steps into her place as a creditor of the bank. So the holder can prove against the failed bank for the cheque amount, as illustrated in Section 84.

  1. AMeera is discharged, but the holder can prove against the bank for the amountCorrect
  2. BMeera remains fully liable and the holder has no claim against the bank
  3. CMeera is discharged and the holder has no remedy at all
  4. DMeera is discharged only if the holder gives her a notice of dishonour

Explanation

Section 84 discharges the drawer to the extent of actual damage caused by delay in presentment, and the holder becomes a creditor of the banker in her place. Illustration (a) covers this situation: the drawer is discharged but the holder can prove against the bank. Option B is wrong because it ignores this discharge.

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