Section 134 NI Act: Law governing liability of maker, acceptor or indorser of foreign instrument

Negotiable Instruments Act, 1881

Section 134 NI Act at a Glance

Section 134 NI Act provides that, absent a contract to the contrary, the law of the place where a foreign instrument is made governs the maker's or drawer's liability, while the law of the place of payment governs the acceptor's and indorser's liabilities.

Section 134 NI Act Bare Act Text

134. Law governing liability of maker, acceptor or indorser of foreign instrument.

In the absence of a contract to the contrary, the liability of the maker or drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and indorser by the law of the place where the instrument is made payable.

Illustration

A bill of exchange was drawn by A in California, where the rate of interest is 25 per cent., and accepted by B, payable in Washington, where the rate of interest is 6 per cent. The bill is erdorsed in India, and is dishonoured. An action on the bill is brought against B in India. He is liable to pay interest at the rate of 6 per cent. only; but if A is charged as drawer, A is liable to pay interest at the rate of 25 per cent.

Amendments to this section
  • Subs. by Act 3 of 1951, s. 3 and the Schedule for "the States".

Section 134 NI Act in Simple Words

Section 134 NI Act sets out which country's or place's law governs the liabilities of the different parties to a foreign promissory note, bill of exchange or cheque when there is no contract to the contrary.

Unless the parties have made a contract to the contrary, Section 134 NI Act divides the governing law into two rules. First, the liability of the maker or drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where the maker or drawer made the instrument. Second, the respective liabilities of the acceptor and the indorser are regulated by the law of the place where the instrument is made payable.

The Illustration to Section 134 NI Act shows how both rules work on a dishonoured bill of exchange. In the Illustration, A draws a bill of exchange in California, where the rate of interest is 25 per cent., and B accepts the bill payable in Washington, where the rate of interest is 6 per cent. After the bill is indorsed in India and dishonoured, an action on the bill is brought in India: B, as acceptor, is liable to pay interest at the rate of 6 per cent. only, whereas if A is charged as drawer, A is liable to pay interest at the rate of 25 per cent. The official text prints "erdorsed" in the Illustration; the sense is "indorsed". Act 3 of 1951 put "India" in place of "the States" in both places in the Illustration.

When Section 134 NI Act Applies

  • The instrument is a foreign promissory note, bill of exchange or cheque.
  • There is no contract to the contrary between the parties.
  • The liability of the maker or drawer is regulated in all essential matters by the law of the place where the maker or drawer made the instrument.
  • The respective liabilities of the acceptor and indorser are regulated by the law of the place where the instrument is made payable.

Example of Section 134 NI Act

Karan draws a foreign bill of exchange for ₹5,00,000 in Place X, where the statutory interest rate on dishonoured bills is 18 per cent., and Vivek accepts the bill made payable in Place Y, where the statutory interest rate is 8 per cent. The bill has no contract to the contrary regarding the governing law, is indorsed to Leela in Visakhapatnam, and is dishonoured upon presentation for payment. Leela brings a suit on the dishonoured bill in Visakhapatnam against Vivek as the acceptor and Karan as the drawer. Under Section 134 NI Act, Vivek's liability as acceptor is governed by the law of Place Y (where the bill is made payable) at 8 per cent. interest, while Karan's liability as drawer is governed by the law of Place X (where Karan made the bill) at 18 per cent. interest.

FAQs on Section 134 NI Act

What is Section 134 NI Act?▼

Section 134 NI Act determines which place's law governs the liability of the maker, drawer, acceptor and indorser of a foreign promissory note, bill of exchange or cheque. Absent a contract to the contrary, the law of the place where the instrument was made governs the maker or drawer, and the law of the place where the instrument is made payable governs the acceptor and indorser.

Which law governs the liability of the acceptor and indorser of a foreign instrument under Section 134 NI Act?▼

The law of the place where the instrument is made payable governs their liabilities. This rule applies under Section 134 NI Act in the absence of a contract to the contrary.

Can the parties to a foreign instrument agree to a governing law different from the rule in Section 134 NI Act?▼

Yes. Section 134 NI Act expressly begins with the words 'In the absence of a contract to the contrary', so a contract to the contrary overrides the default rules in Section 134 NI Act.

In the Illustration to Section 134 NI Act, why do drawer A and acceptor B pay different rates of interest when sued in India?▼

Different places govern their respective liabilities under Section 134 NI Act. B accepted the bill payable in Washington, so B is liable for interest at the Washington rate of 6 per cent. only, whereas A drew the bill in California, so if A is charged as drawer, A is liable for interest at the California rate of 25 per cent.

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