Negotiable Instruments Act, Section 135

Negotiable Instruments Act, Section 135: Law of Place of Payment Governs Dishonour

Section 135 of the Negotiable Instruments Act, 1881 provides that where a negotiable instrument is payable at a place different from where it was made or indorsed, the law of the place of payment determines what constitutes dishonour.

The same law also determines the sufficiency of notice of dishonour, making the section an important rule of private international law.

1. Meaning of Foreign or Multi-Jurisdictional Instrument

A negotiable instrument may involve more than one place or country, such as a bill drawn in one country and payable in another or a cheque indorsed in one place but payable elsewhere, and such cases commonly arise in international and inter-state commercial transactions.

2. Purpose of Section 135

The object of Section 135 is to remove uncertainty regarding the law applicable to dishonour and notice of dishonour where multiple jurisdictions are involved.

The provision facilitates international banking and trade, determines the applicable legal rules, avoids procedural disputes, and connects dishonour-related matters with the place of payment.

3. Applicability of the Section

Section 135 applies where a promissory note, bill of exchange, or cheque is made or indorsed in one place but payable in another, in which case the law of the place of payment governs matters relating to dishonour.

4. Meaning of Dishonour

Dishonour occurs when a bill is not accepted upon proper presentment or when a promissory note, bill, or cheque is not paid upon due demand.

Since the rules governing dishonour may vary across legal systems, Section 135 determines which law is applicable to such matters.

5. Law Governing Dishonour

The section provides that the law of the place where the instrument is payable determines what constitutes dishonour and the procedure for valid dishonour, thereby making the legal standards of that place controlling.

6. Importance of Place of Payment

The place of payment is significant because performance is expected there, payment or refusal occurs there, and commercial expectations are centered there, so the law treats it as the appropriate jurisdiction for issues relating to dishonour.

7. Law Governing Notice of Dishonour

The section further provides that the law of the place of payment determines what constitutes sufficient notice of dishonour.

This includes the form, timing, recipients, and manner of communication of the notice, which may vary according to the procedural requirements of different legal systems.

8. Reason for Applying Law of Place of Payment

The law of the place of payment governs because dishonour occurs there, payment obligations mature there, and the local banking and commercial practices become relevant.

The provision therefore connects dishonour-related matters with the place of payment and promotes commercial practicality and certainty.

9. Principle of Conflict of Laws

Section 135 reflects the principles of private international law by determining the applicable legal system where a negotiable instrument transaction is connected with multiple jurisdictions.

The section specifically assigns dishonour-related matters and the applicable procedural requirements to the law of the place of payment.