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Negotiable Instruments Act

International Laws Relating to Negotiable Instruments

Talking about negotiable instruments, it is also important to understand the international laws governing them. In this article, we will look at sections 134, 135, 136, and 137 of the Negotiable Instruments Act, 1881 which offer details about these international laws.

international laws

International Laws Pertaining to Negotiable Instruments

  • Section 134 – Law governing the liability of the maker, acceptor, or endorser of a foreign instrument
  • Section 135 – The Law of the place of payment governs dishonour
  • Section 136 – An instrument made, drawn, accepted or endorsed outside India, but in accordance with the law of India
  • Section 137 – Presumption as to Foreign Law

Let us see all the sections in detail:

Section 134 – Law governing the liability of the maker, acceptor, or endorser of a foreign instrument

The liability of the maker or drawer of a foreign promissory note, cheque, or bill of exchange is subject to the laws of the place where he makes the instrument.

Further, the liabilities of the acceptor and/or endorser are subject to the laws of the place where the instrument is payable. Also, this rule holds true is there is no contract between the parties which states the contrary.

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Let’s understand this with the help of an example.

Example 1

John draws a bill of exchange in California where the rate of interest is 25 percent. Oliver accepts the bill, payable in Washington where the rate of interest is 6 percent.

Further, the bill is endorsed in India and subsequently dishonoured. This leads to action against Oliver in India. As per this rule, Oliver is liable to pay interest at the rate of 6 percent only.

However, if John is charged as the drawer of the bill, then he is liable to pay interest at the rate of 25 percent.

Section 135 – The Law of the place of payment governs dishonour

Let’s say that a promissory note, cheque, or bill of exchange is made payable in a different place from that in which it is made or endorsed.

In such cases, the law of the place where the negotiable instrument is payable determines the definition of dishonour. It also determines the rules pertaining to sufficient notice of dishonour.

Let’s understand this with the help of an example.

Example 2

John draws a bill of exchange in India and endorses it too.

However, it is payable in France, where it gets dishonoured. The endorsee protests against the dishonour and serves notice in accordance with the laws of France.

Even though the notice is not in accordance with the rules pertaining to bills which are not foreign, this notice is sufficient.

Section 136 – An instrument made, drawn, accepted or endorsed outside India, but in accordance with the law of India

Let’s say that a negotiable instrument is made, drawn, accepted or endorsed outside India. However, it is in accordance with the law of India.

Further, let’s say that this instrument is invalid according to the law of the country where it was made. In such a circumstance, its subsequent acceptance or endorsement in India does not invalidate it.

Section 137 – Presumption as to Foreign Law

It is presumed that the law regarding negotiable instruments in any foreign country is the same as that of India. This is unless and until there is proof of the contrary.

Question on International Laws relating to Negotiable Instruments

Q1. What are the international laws governing the liability of the maker, acceptor, or endorser of a foreign instrument?

Answer According to Section 134 of the Negotiable Instruments Act, 1881:

  • The liability of a drawer /maker is subject to the law of land where he makes the instrument.
  • The liability of the acceptor /endorser is subject to the law of the place where the instrument is payable.
  • This rule is however subject to the contract between parties.
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