Section 37 NI Act: Maker, drawer and acceptor principals
Negotiable Instruments Act, 1881
Section 37 NI Act at a Glance
Section 37 NI Act makes the maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor liable as principal debtors, absent a contract to the contrary. Other parties are liable as sureties.
Section 37 NI Act Bare Act Text
37. Maker, drawer and acceptor principals.
The maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.
Section 37 NI Act in Simple Words
Section 37 NI Act establishes which party on a negotiable instrument is liable as the principal debtor and which parties are liable as sureties. These rules apply in the absence of a contract to the contrary.
Under Section 37 NI Act, the party liable as the principal debtor depends on the type of instrument and whether a bill of exchange has been accepted. For a promissory note or a cheque, the maker is liable as the principal debtor. For a bill of exchange before it is accepted, the drawer is liable as the principal debtor. Once the bill of exchange is accepted, the acceptor becomes liable as the principal debtor.
All other parties to the promissory note, cheque, or bill of exchange are liable on the instrument as sureties for the maker, the drawer, or the acceptor, as the case may be.
When Section 37 NI Act Applies
- There is no contract to the contrary.
- On a promissory note or cheque, the maker is liable as the principal debtor.
- On a bill of exchange until acceptance, the drawer is liable as the principal debtor.
- On an accepted bill of exchange, the acceptor is liable as the principal debtor.
- All other parties to the instrument are liable as sureties for the maker, drawer, or acceptor, as the case may be.
Example of Section 37 NI Act
When Section 37 NI Act Does Not Apply
- There is a contract to the contrary altering which party is liable as principal debtor or surety.
FAQs on Section 37 NI Act
What is Section 37 NI Act?▼
Section 37 NI Act identifies who is liable as a principal debtor and who is liable as a surety on a negotiable instrument, in the absence of a contract to the contrary. The maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor are liable as principal debtors, while all other parties are liable as sureties.
Who is the principal debtor on a bill of exchange before and after acceptance under Section 37 NI Act?▼
Until acceptance, the drawer of the bill of exchange is liable as the principal debtor. Once the bill is accepted, the acceptor is liable as the principal debtor, unless there is a contract to the contrary.
What is the position of indorsers and other parties under Section 37 NI Act?▼
They are liable as sureties. In the absence of a contract to the contrary, Section 37 NI Act makes all parties other than the maker, drawer (until acceptance), or acceptor liable on the instrument as sureties for the principal debtor.
Can parties change the principal and surety relationship set by Section 37 NI Act?▼
Yes. Section 37 NI Act applies only in the absence of a contract to the contrary.
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Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·