Section 39 NI Act: Suretyship

Negotiable Instruments Act, 1881

Section 39 NI Act at a Glance

Section 39 NI Act allows the holder of an accepted bill of exchange to keep other parties liable when making a contract with the acceptor. If the holder expressly reserves the right to charge the other parties, they are not discharged.

Section 39 NI Act Bare Act Text

39. Suretyship.

When the holder of an accepted bill of exchange enters into any contract with the acceptor which, under section 134 or 135 of the Indian Contract Act, 1872 (9 of 1872), would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such case they are not discharged.

Section 39 NI Act in Simple Words

Section 39 NI Act lets the holder of an accepted bill of exchange preserve the liability of other parties to the bill when the holder enters into a contract with the acceptor. It applies to any contract between the holder and the acceptor that would otherwise discharge the other parties under Section 134 or Section 135 of the Indian Contract Act, 1872 (9 of 1872).

In that situation, the holder may expressly reserve the right to charge the other parties to the bill of exchange. When the holder makes this express reservation, the other parties are not discharged and remain liable on the bill.

When Section 39 NI Act Applies

  • There is an accepted bill of exchange.
  • The holder of the bill enters into a contract with the acceptor.
  • That contract would discharge the other parties to the bill under Section 134 or Section 135 of the Indian Contract Act, 1872 (9 of 1872).
  • The holder expressly reserves the right to charge the other parties, keeping them from being discharged.

Example of Section 39 NI Act

Rohan draws a bill of exchange in Jalandhar that Prakash accepts, and the bill is indorsed to Tanvi, who becomes the holder. Tanvi enters into a contract with Prakash, the acceptor, of a kind that would discharge Rohan and any indorsers under Section 134 or Section 135 of the Indian Contract Act, 1872. In that contract, Tanvi expressly reserves the right to charge the other parties to the bill. Under Section 39 NI Act, Rohan and the other parties are not discharged from liability to Tanvi.

FAQs on Section 39 NI Act

What is Section 39 NI Act?▼

Section 39 NI Act states the rule on suretyship when the holder of an accepted bill of exchange makes a contract with the acceptor. Even if the contract would discharge the other parties under Section 134 or Section 135 of the Indian Contract Act, 1872, the other parties are not discharged if the holder expressly reserves the right to charge them.

Can the holder of an accepted bill of exchange keep other parties liable when making a contract with the acceptor?▼

Yes. Under Section 39 NI Act, the holder may expressly reserve the right to charge the other parties when entering into a contract with the acceptor. When the holder does so, the other parties are not discharged.

Which provisions of the Indian Contract Act, 1872 does Section 39 NI Act refer to?▼

Section 134 and Section 135 of the Indian Contract Act, 1872 (9 of 1872). Section 39 NI Act applies when a contract between the holder and the acceptor would discharge the other parties under either of those provisions.

Have questions about Section 39 NI Act?

Ask NyayGuru about your situation and get an answer based on the Negotiable Instruments Act, 1881.

Ask NyayGuru →

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) ·