Chapter XII - Of Compensation
Section 117
Section 117: Compensation for dishonour
Section 117 sets compensation rules following dishonour, distinguishing a holder's recovery from the reimbursement rights of a liable indorser who has paid.
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This article is for general information. Refer to the Negotiable Instruments Act, 1881 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
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.
Key rule and applicability
The holder may recover the instrument amount and properly incurred presenting, noting and protesting expenses. A liable indorser who has paid may recover the amount paid, interest at eighteen per cent per annum from payment until tender or realization, and expenses caused by dishonour and payment. The section also deals with exchange between different places and permits a qualifying compensation bill payable at sight or on demand, accompanied by the dishonoured instrument and any protest.
Limits and related provisions
The eighteen per cent rule in clause (c) belongs to the liable indorser who has paid; it is not an automatic interest rate for every holder, invoice or commercial dispute. Expense claims require the specified connection and propriety. Exchange rules depend on the stated location differences. The section does not state that this interest is compounded, and other interest provisions should be considered separately.
Hypothetical business example
Hypothetical: An indorser liable on a dishonoured bill pays the amount and seeks reimbursement from a liable prior party. The claim separates the amount actually paid, the clause (c) interest period starting on payment, and evidenced dishonour and payment expenses. It does not apply that interest retrospectively from the bill's original date merely because the bill existed then.
Practical decision flow
Identify whether the claimant is the holder or a liable indorser who has actually paid, and identify the party liable to compensate.
Document the amount, qualifying expenses, payment and tender or realization dates, and any relevant difference in places.
If using a compensation bill, verify its sight or demand terms and attach the dishonoured instrument and protest, if any.
Practical checklist
Do
- Identify whether the claimant is the holder or a liable indorser who has actually paid, and identify the party liable to compensate.
- Document the amount, qualifying expenses, payment and tender or realization dates, and any relevant difference in places.
- If using a compensation bill, verify its sight or demand terms and attach the dishonoured instrument and protest, if any.
Avoid
- The eighteen per cent rule in clause (c) belongs to the liable indorser who has paid; it is not an automatic interest rate for every holder, invoice or commercial dispute. Expense claims require the specified connection and propriety. Exchange rules depend on the stated location differences. The section does not state that this interest is compounded, and other interest provisions should be considered separately.
Glossary
- Compensation
- The recovery determined by the section's claimant-specific amount, expense, interest and exchange rules.
- Tender
- An offer of payment relevant to the end of the indorser's statutory interest period.
Frequently asked questions
Does every holder automatically receive eighteen per cent?
No. Clause (c) provides that rate for an indorser who was liable and paid the amount, subject to the stated period.
When does the paying indorser's interest start?
From the date of payment, continuing until tender or realization under clause (c).
What accompanies a compensation bill?
The dishonoured instrument and its protest, if any, accompany the sight or demand bill described in clause (e).
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026