Section 136 NI Act: Instrument made, etc., out of India, but in accordance with the law of India

Negotiable Instruments Act, 1881

Section 136 NI Act at a Glance

Section 136 NI Act provides that if a negotiable instrument is made, drawn, accepted or indorsed outside India in accordance with Indian law, the invalidity of its underlying agreement under foreign law does not invalidate any subsequent acceptance or indorsement made in India.

Section 136 NI Act Bare Act Text

136. Instrument made, etc., out of India, but in accordance with the law of India.

If a negotiable instrument is made, drawn, accepted or indorsed outside India, but in accordance with the law of India, the circumstances that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or indorsement made thereon within India.

Amendments to this section
  • Subs. by the A.O. 1948, A.O. 1950 and the Act 3 of 1951, s. 3 and the Sch. for "out of British India".
  • Subs. by Act 3 of 1951, s. 3, for "law of British India".
  • Subs. by Act 3 of 1951, s. 3, for "in British India".

Section 136 NI Act in Simple Words

Section 136 NI Act protects subsequent acceptances and indorsements made within India on a negotiable instrument that originated or was dealt with outside India in accordance with the law of India. Specifically, Section 136 NI Act applies when a negotiable instrument is made, drawn, accepted or indorsed outside India, but in accordance with the law of India.

In that situation, even if any agreement evidenced by the negotiable instrument is invalid according to the law of the foreign country where that agreement was entered into, that circumstance does not invalidate any subsequent acceptance or indorsement made on the instrument within India. The Adaptation Orders of 1948 and 1950 and Act 3 of 1951 put "outside India" in place of "out of British India". Act 3 of 1951 put "law of India" in place of "law of British India" and "within India" in place of "in British India".

When Section 136 NI Act Applies

  • A negotiable instrument is made, drawn, accepted or indorsed outside India.
  • The making, drawing, acceptance or indorsement outside India is in accordance with the law of India.
  • An agreement evidenced by the instrument is invalid according to the law of the country wherein the agreement was entered into.
  • That foreign invalidity does not invalidate any subsequent acceptance or indorsement made on the instrument within India.

Example of Section 136 NI Act

Harpreet draws a bill of exchange for ₹3,00,000 outside India in accordance with the law of India, based on an agreement entered into in that foreign country. Under the law of that foreign country, the agreement evidenced by the bill is invalid. After the bill is brought to India, Amit accepts the bill in Siliguri and Sarita subsequently indorses the bill in Jammu. Under Section 136 NI Act, the circumstance that the agreement evidenced by the bill is invalid according to the law of the foreign country where it was entered into does not invalidate the subsequent acceptance by Amit in Siliguri or the subsequent indorsement by Sarita in Jammu.

FAQs on Section 136 NI Act

What is Section 136 NI Act?▼

Section 136 NI Act deals with negotiable instruments made, drawn, accepted or indorsed outside India in accordance with the law of India. It states that even if an agreement evidenced by such an instrument is invalid under the law of the country where it was entered into, that circumstance does not invalidate any subsequent acceptance or indorsement made on the instrument within India.

Does the invalidity of an underlying agreement under foreign law invalidate a subsequent indorsement made within India under Section 136 NI Act?▼

No. Provided the negotiable instrument was made, drawn, accepted or indorsed outside India in accordance with the law of India, Section 136 NI Act states that the invalidity of the agreement under the law of the country where it was entered into does not invalidate any subsequent acceptance or indorsement made within India.

What condition must the foreign making, drawing, acceptance or indorsement satisfy for Section 136 NI Act to apply?▼

Compliance with the law of India is required. The negotiable instrument made, drawn, accepted or indorsed outside India must have been made, drawn, accepted or indorsed in accordance with the law of India.

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