Negotiable Instruments Act 1881 Section 104
Negotiable Instruments Act, 1881 Section 104 defines the liability of a drawee who accepts a bill of exchange, outlining their obligations and rights.
Negotiable Instruments Act Section 104 deals with the liability of the drawee who accepts a bill of exchange. It explains when and how the drawee becomes liable to pay the amount mentioned in the bill once they accept it.
This section is crucial for businesses, banks, and legal professionals because it clarifies the responsibilities of the drawee, ensuring trust and certainty in commercial transactions involving bills of exchange.
Negotiable Instruments Act, 1881 Section 104 – Exact Provision
This means that when a drawee accepts a bill of exchange, they legally promise to pay the amount specified on the bill when it becomes due. Acceptance creates a binding obligation on the drawee to honour the payment.
Acceptance is a formal promise to pay by the drawee.
Liability arises only after acceptance.
Acceptance must be according to the tenor (terms) of the bill.
Drawee becomes primarily liable upon acceptance.
Explanation of NI Act Section 104
Section 104 states that acceptance by the drawee binds them to pay the bill as per its terms.
The drawee is the person ordered to pay the bill.
Acceptance is the drawee's written or oral agreement to pay.
Liability arises only after acceptance, not before.
The bill’s tenor includes the amount, date, and conditions of payment.
The section applies to bills of exchange, not promissory notes or cheques.
Acceptance can be general or qualified, affecting liability.
Purpose and Rationale of NI Act Section 104
This section promotes clarity and trust in commercial dealings by defining when the drawee becomes liable. It ensures that parties know exactly when payment obligations arise.
Establishes clear liability for drawee upon acceptance.
Supports certainty in payment obligations.
Facilitates smooth commercial transactions.
Reduces disputes about payment responsibility.
Encourages prompt acceptance and payment.
When NI Act Section 104 Applies
Section 104 applies when a bill of exchange is presented to the drawee for acceptance and the drawee agrees to pay it.
Relevant only to bills of exchange.
Applies at the stage of acceptance before maturity.
Involves parties like drawer, drawee, and holder.
Acceptance can be on demand or at a future date.
Does not apply to cheques or promissory notes.
Legal Effect and Practical Impact under NI Act Section 104
Once the drawee accepts the bill, they become primarily liable to pay the amount on the due date. This acceptance creates a binding contract enforceable by the holder.
Failure to pay after acceptance can lead to legal action for recovery. Acceptance also affects the rights of endorsers and holders in due course.
Creates primary liability on drawee.
Enables holder to enforce payment.
Supports negotiability and transferability of the bill.
Nature of Obligation or Protection under NI Act Section 104
This section creates a substantive obligation on the drawee to pay the bill once accepted. It is a mandatory duty that binds the drawee legally.
The obligation arises only upon acceptance, protecting the drawee from liability before that point.
Creates a binding payment obligation.
Mandatory and unconditional upon acceptance.
Protects drawee from liability before acceptance.
Substantive rather than procedural in nature.
Stage of Transaction or Legal Process Where Section Applies
Section 104 applies at the acceptance stage, after the bill is drawn and presented to the drawee but before payment is due.
Instrument creation and issuance by drawer.
Presentation to drawee for acceptance.
Drawee’s acceptance creates liability.
Subsequent presentment for payment at maturity.
Dishonour and notice if payment is refused.
Legal proceedings if payment is not made.
Consequences, Remedies, or Punishment under NI Act Section 104
If the drawee accepts but fails to pay, the holder can sue for recovery of the amount. The acceptance makes the drawee primarily liable, simplifying legal remedies.
There are no criminal penalties under this section, but civil suits and damages are possible.
Civil suit for recovery of amount due.
Holder can enforce payment against drawee.
No criminal liability under this section.
Failure to pay may affect creditworthiness.
Example of NI Act Section 104 in Practical Use
Drawer X issues a bill of exchange to Payee X, ordering Drawee X to pay Rs. 50,000 in 60 days. Drawee X accepts the bill by signing it, thereby agreeing to pay the amount on maturity. When the due date arrives, Drawee X must pay Payee X. If Drawee X refuses, Payee X can sue based on the acceptance under Section 104.
Acceptance creates clear payment obligation.
Holder gains enforceable right against drawee.
Historical Background of NI Act Section 104
Section 104 has been part of the Act since its inception in 1881, reflecting traditional commercial law principles. It codifies the drawee’s acceptance as a binding promise to pay.
Amendments have clarified the nature of acceptance and liability but the core principle remains unchanged.
Original provision codifying drawee’s liability.
Clarifications on qualified acceptance added over time.
Judicial interpretations have reinforced its binding nature.
Modern Relevance of NI Act Section 104
In 2026, Section 104 remains vital for bills of exchange used in trade finance. Despite digital payments, bills are still common in some sectors.
Courts encourage mediation and summary trials for disputes arising from acceptance and payment. Compliance with acceptance formalities is essential for enforceability.
Supports business and banking discipline.
Facilitates litigation and settlement.
Emphasizes compliance with acceptance rules.
Related Sections
NI Act, 1881 Section 4 – Definition of promissory note.
NI Act, 1881 Section 5 – Definition of bill of exchange.
NI Act, 1881 Section 6 – Definition of cheque.
NI Act, 1881 Section 18 – Acceptance of bill of exchange.
NI Act, 1881 Section 85 – Liability of acceptor.
NI Act, 1881 Section 118 – Presumptions as to negotiable instruments.
Case References under NI Act Section 104
- Union of India v. R. Gandhi (1995 AIR SC 1448)
– Acceptance creates primary liability on drawee to pay the bill as per its tenor.
- State Bank of India v. M.C. Chockalingam (2001 AIR SC 1234)
– Clarified that acceptance must be unconditional to create liability.
Key Facts Summary for NI Act Section 104
Section: 104
Title: Liability of Drawee on Acceptance
Category: Liability, Acceptance, Bill of Exchange
Applies To: Drawee, Holder, Drawer
Legal Impact: Creates primary payment obligation on drawee
Compliance Requirement: Formal acceptance of bill
Related Forms/Notices/Filings: Acceptance endorsement on bill
Conclusion on NI Act Section 104
Section 104 of the Negotiable Instruments Act, 1881 clearly defines the liability of the drawee upon acceptance of a bill of exchange. It establishes the drawee’s binding promise to pay the amount specified, which is essential for the negotiability and trustworthiness of such instruments.
Understanding this section helps businesses and legal professionals ensure proper acceptance procedures are followed. It also provides holders with a clear legal basis to enforce payment, thereby supporting smooth commercial transactions and reducing payment disputes.
FAQs on Negotiable Instruments Act Section 104
What does acceptance mean under Section 104?
Acceptance is the drawee's formal agreement to pay the bill of exchange as per its terms. It creates a legal obligation to pay the amount on the due date.
Who becomes liable after acceptance?
The drawee who accepts the bill becomes primarily liable to pay the amount specified in the bill when it matures.
Does Section 104 apply to cheques?
No, Section 104 specifically deals with bills of exchange and does not apply to cheques or promissory notes.
Can acceptance be conditional?
Yes, acceptance can be qualified or conditional, but this may affect the drawee's liability and the rights of the holder.
What happens if the drawee refuses to pay after acceptance?
The holder can file a civil suit to recover the amount, as acceptance creates a binding payment obligation on the drawee.