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CS Executive · Jurisprudence, Interpretation and General Laws · Law relating to Negotiable Instruments

Mehta, an indorser of a dishonoured cheque, is liable and pays Rs 1,00,000 to the holder. Mehta wants compensation from the drawer. Which statement is correct under Section 117 on compensation?

Mehta may recover Rs 1,00,000 with interest at eighteen per cent per annum from the date of payment until tender or realization, together with all expenses caused by the dishonour and payment, as Section 117(c) provides. The old six per cent rate no longer applies.

  1. AMehta is entitled to the amount paid with interest at six per cent per annum from the date of payment, plus expenses
  2. BMehta is entitled to the amount paid with interest at eighteen per cent per annum from the date of payment until tender or realization, together with all expenses caused by the dishonour and paymentCorrect
  3. CMehta is entitled only to the amount paid, with no interest
  4. DMehta is entitled to the amount paid with interest at eighteen per cent per annum from the date of dishonour, without expenses

Explanation

Section 117(c) gives an indorser who has paid the amount due the sum paid with interest at eighteen per cent per annum from the date of payment until tender or realization, plus all expenses caused by dishonour and payment. Six per cent was the old rate, substituted in 1988. Interest runs from payment, not dishonour.

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