Section 35 NI Act: Liability of indorser

Negotiable Instruments Act, 1881

Section 35 NI Act at a Glance

Section 35 NI Act makes a person who indorses and delivers a negotiable instrument before maturity liable to compensate every subsequent holder upon dishonour, subject to due notice of dishonour. Every indorser after dishonour is liable as upon an instrument payable on demand.

Section 35 NI Act Bare Act Text

35. Liability of indorser.

In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity without, in such it indorsement, expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonour, provided due notice of dishonour has been given to, or received by, such indorser as hereinafter provided.

Every indorser after dishonour is liable as upon an instrument payable on demand.

Section 35 NI Act in Simple Words

Section 35 NI Act sets out the liability of a person who indorses a negotiable instrument. Under the first paragraph, in the absence of a contract to the contrary, a person who indorses and delivers a negotiable instrument before maturity becomes bound to every subsequent holder if the instrument is dishonoured by the drawee, acceptor, or maker.

Upon such dishonour, the indorser must compensate the subsequent holder for any loss or damage caused to that holder by the dishonour. This liability under the first paragraph is subject to two limits stated in the text: the indorser must not have expressly excluded or made conditional the indorser's own liability in the indorsement, and due notice of dishonour must have been given to, or received by, the indorser as provided in the Act. The official text prints "in such it indorsement"; the sense is "in such indorsement".

The second paragraph of Section 35 NI Act deals with indorsement after the instrument has been dishonoured. Every person who indorses a negotiable instrument after dishonour is liable as upon an instrument payable on demand.

When Section 35 NI Act Applies

  • There is no contract to the contrary.
  • A person indorses and delivers a negotiable instrument before maturity.
  • The indorsement does not expressly exclude or make conditional the indorser's own liability.
  • The instrument is dishonoured by the drawee, acceptor, or maker.
  • Due notice of dishonour is given to, or received by, the indorser as provided in the Act.
  • If a person indorses the instrument after dishonour, that indorser is liable as upon an instrument payable on demand.

Example of Section 35 NI Act

Hema holds a bill of exchange for ₹80,000 accepted by Mahesh in Kota. Before maturity, Hema indorses and delivers the bill to Swati without any contract to the contrary and without expressly excluding or making conditional Hema's liability in the indorsement. At maturity, Mahesh dishonours the bill by not paying it, and Swati gives due notice of dishonour to Hema. Under Section 35 NI Act, Hema is bound to compensate Swati for the loss or damage caused to Swati by the dishonour.

FAQs on Section 35 NI Act

What is Section 35 NI Act?▼

Section 35 NI Act states that, unless there is a contract to the contrary, a person who indorses and delivers a negotiable instrument before maturity without expressly excluding or making conditional the indorser's liability must compensate every subsequent holder if the drawee, acceptor, or maker dishonours the instrument, provided due notice of dishonour is given to or received by the indorser. It also provides that every indorser after dishonour is liable as upon an instrument payable on demand.

Can an indorser avoid liability under Section 35 NI Act through the terms of the indorsement?▼

Yes. Under Section 35 NI Act, an indorser before maturity is not bound where there is a contract to the contrary, or where the indorser expressly excludes or makes conditional the indorser's own liability in the indorsement.

Is notice of dishonour required to hold an indorser before maturity liable under Section 35 NI Act?▼

Yes. Section 35 NI Act requires that due notice of dishonour be given to, or received by, the indorser as provided in the Act.

What is the liability of a person who indorses an instrument after dishonour under Section 35 NI Act?▼

Under the second paragraph of Section 35 NI Act, every indorser after dishonour is liable as upon an instrument payable on demand.

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Disclaimer: This is for informational purposes only. Always consult a qualified advocate for legal advice.

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