Negotiable Instruments Act, Section 35

Negotiable Instruments Act, Section 35: Liability of Indorser

Section 35 of the Negotiable Instruments Act, 1881 defines the extent of liability undertaken by an indorser of a negotiable instrument. 

It clarifies the circumstances in which an indorser becomes responsible for payment and the conditions subject to which such liability arises.

1. Absence of Contract to the Contrary

The section begins with the phrase “in the absence of a contract to the contrary.”

 This means that the liability described under this provision will apply unless the indorser has expressly entered into an agreement limiting or excluding his responsibility.

If there is no special contract modifying the obligation, the statutory rule governs the indorser’s liability.

2. Indorsement and Delivery Before Maturity

Where a person indorses and delivers a negotiable instrument before it reaches maturity, he undertakes a specific legal obligation. 

Indorsement involves signing the instrument, usually on the back, with the intention of transferring it to another person. 

Delivery completes the transfer and passes title to the transferee.

By indorsing and delivering the instrument, the indorser becomes liable to subsequent holders under certain conditions.

3. No Express Exclusion or Conditional Liability

The liability of the indorser arises unless, in the indorsement itself, he expressly excludes his own liability or makes it conditional.

An indorser may protect himself by clearly stating words such as “without recourse” or by otherwise indicating that he does not intend to incur liability. 

In the absence of such express exclusion or condition, the indorser is presumed to undertake responsibility in accordance with the Act.

4. Nature of Liability to Subsequent Holders

The indorser is bound to every subsequent holder of the instrument. 

This means that any person who lawfully acquires the instrument after the indorsement is entitled to rely upon the indorser’s obligation.

If the instrument is dishonoured by the drawee, acceptor, or maker, the indorser must compensate the holder for any loss or damage caused by such dishonour.

Thus, the indorser’s liability is secondary in nature, as the primary liability rests with the maker in the case of a promissory note or the acceptor in the case of a bill of exchange, but if they fail to pay the indorser becomes liable to make good the amount.

5. Condition of Notice of Dishonour

The liability of the indorser is subject to an important condition: due notice of dishonour must be given to him or received by him in accordance with the provisions of the Act.

Notice of dishonour informs the indorser that the instrument has not been accepted or paid. 

Without proper notice, the indorser may be discharged from liability, unless the case falls within statutory exceptions.

Thus, timely communication is essential to enforce the indorser’s responsibility.

6. Liability of Indorser After Dishonour

The section further provides that every indorser after dishonour is liable as upon an instrument payable on demand.

This means that if a person indorses the instrument after it has already been dishonoured, his liability is immediate and enforceable upon demand, rather than being tied to a future date of maturity.

In such cases, the instrument is treated, for the purpose of liability, as if it were payable on demand.