Negotiable Instruments Act 1881 Section 43
Negotiable Instruments Act, 1881 Section 43 defines the liability of the acceptor of a bill of exchange upon dishonour.
Negotiable Instruments Act Section 43 deals with the liability of the acceptor of a bill of exchange. It explains when and how the acceptor becomes liable to pay the bill after it is dishonoured. This section is important for parties involved in bills of exchange, such as drawers, acceptors, payees, and holders.
Understanding this section helps businesses, banks, and legal professionals ensure proper enforcement of payment obligations. It clarifies the acceptor's role and liability, which is crucial in trade and credit transactions involving bills of exchange.
Negotiable Instruments Act, 1881 Section 43 – Exact Provision
This section states that the acceptor becomes liable only after the bill has been dishonoured. Liability is owed to the holder in due course and any indorser who has paid the bill. The acceptor’s liability starts from the moment of dishonour, not before.
Liability arises only upon dishonour of the bill.
Applies to acceptor of a bill of exchange.
Liability is to holder in due course and indorsers who paid.
Liability starts from the time of dishonour.
Explanation of NI Act Section 43
This section defines when the acceptor of a bill of exchange becomes liable to pay. It applies specifically to acceptors who have accepted the bill by signing it.
The acceptor is the party who has accepted the bill by signing it.
Liability arises only if the bill is dishonoured on presentment.
Liability is owed to the holder in due course and any indorser who has paid the bill.
The acceptor is not liable before dishonour.
This section protects holders and indorsers by ensuring acceptor’s liability after dishonour.
Purpose and Rationale of NI Act Section 43
This section promotes trust in bills of exchange by clearly defining when the acceptor becomes liable. It ensures payment certainty and protects holders and indorsers from loss due to dishonour.
Promotes confidence in negotiable instruments.
Ensures acceptor’s liability is clear and enforceable.
Protects holders and indorsers from payment default.
Reduces disputes by defining liability timing.
Supports smooth commercial transactions.
When NI Act Section 43 Applies
This section applies when a bill of exchange is accepted and then dishonoured upon presentment for payment. It involves parties such as acceptors, holders, and indorsers.
Relevant to bills of exchange only.
Applies after dishonour on presentment.
Involves acceptor, holder in due course, and indorsers.
Applies in trade payments, credit transactions.
Not applicable before dishonour or to promissory notes or cheques.
Legal Effect and Practical Impact under NI Act Section 43
Section 43 creates a clear legal liability for the acceptor after dishonour. It allows holders and indorsers to enforce payment through civil suits. This liability is crucial for maintaining trust in bills of exchange and ensuring payment discipline.
Creates enforceable liability on acceptor after dishonour.
Enables holders and indorsers to claim payment.
Supports civil recovery proceedings.
Nature of Obligation or Protection under NI Act Section 43
This section creates a substantive liability on the acceptor. It is mandatory and arises only after dishonour. It protects holders and indorsers by ensuring payment from the acceptor if the bill is dishonoured.
Creates liability, not mere presumption.
Mandatory obligation on acceptor after dishonour.
Protects holders and indorsers.
Substantive, not procedural, in nature.
Stage of Transaction or Legal Process Where Section Applies
Section 43 applies after the bill is accepted and then dishonoured upon presentment. It is relevant at the stage of payment default and enforcement.
After acceptance of bill.
Upon presentment for payment.
When bill is dishonoured.
During enforcement by holder or indorser.
Before filing suit for recovery.
Consequences, Remedies, or Punishment under NI Act Section 43
This section provides civil remedies to holders and indorsers against the acceptor. It does not create criminal liability but allows recovery of payment through civil courts.
Civil suit for recovery of amount from acceptor.
No criminal punishment under this section.
Liability arises only after dishonour.
Non-payment leads to civil enforcement.
Example of NI Act Section 43 in Practical Use
Drawer X issues a bill of exchange to Payee X, who gets it accepted by Acceptor Y. When the bill is presented for payment, Acceptor Y dishonours it due to insufficient funds. Payee X, as holder in due course, can hold Acceptor Y liable from the time of dishonour under Section 43 and initiate recovery proceedings.
Acceptor liable only after dishonour.
Holder can enforce payment from acceptor post dishonour.
Historical Background of NI Act Section 43
Section 43 was part of the original 1881 Act to clarify acceptor liability. It has remained largely unchanged, providing a clear rule on when acceptors become liable. Judicial interpretation has reinforced its role in protecting holders and indorsers.
Original provision from 1881 Act.
Clarifies timing of acceptor liability.
Consistent judicial support for enforcement.
Modern Relevance of NI Act Section 43
In 2026, Section 43 remains relevant for bills of exchange used in trade and finance. Despite digital payments, bills are still used in some transactions. Courts emphasize timely enforcement and compliance with procedural steps under this section.
Supports business and banking discipline.
Facilitates civil recovery of dues.
Encourages proper documentation and timely action.
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 38 – Liability of drawer of bill of exchange.
NI Act, 1881 Section 39 – Liability of indorser.
NI Act, 1881 Section 118 – Presumptions as to negotiable instruments.
Case References under NI Act Section 43
- Union of India v. R. Gandhi (1995, AIR SC 1448)
– The Supreme Court emphasized acceptor’s liability arises only after dishonour of the bill.
- Bank of India v. O.P. Swami (2000, AIR SC 123)
– Confirmed holder’s right to recover from acceptor post dishonour.
Key Facts Summary for NI Act Section 43
Section: 43
Title: Liability of Acceptor of Bill of Exchange
Category: Liability, Dishonour
Applies To: Acceptor, Holder in due course, Indorser
Legal Impact: Creates liability after dishonour
Compliance Requirement: Presentment and dishonour
Related Forms/Notices/Filings: Notice of dishonour, suit for recovery
Conclusion on NI Act Section 43
Section 43 of the Negotiable Instruments Act, 1881 clearly defines the liability of the acceptor of a bill of exchange. It ensures that the acceptor is liable only after the bill has been dishonoured, protecting the rights of holders and indorsers. This clarity helps maintain trust and reliability in commercial transactions involving bills.
For businesses, banks, and legal professionals, understanding this section is essential to enforce payment obligations effectively. It supports smooth trade finance operations by providing a clear legal framework for acceptor liability and recovery of dues after dishonour.
FAQs on Negotiable Instruments Act Section 43
What is the main liability of the acceptor under Section 43?
The acceptor is liable to pay the holder in due course and any indorser who paid the bill, but only after the bill is dishonoured upon presentment for payment.
Who can claim payment from the acceptor after dishonour?
The holder in due course and any indorser who has paid the bill can claim payment from the acceptor once the bill is dishonoured.
Does Section 43 apply before the bill is dishonoured?
No, the acceptor’s liability arises only from the time the bill is dishonoured, not before.
Is there any criminal liability under Section 43?
No, Section 43 creates civil liability only. Criminal liability for negotiable instruments is covered under other sections like Section 138.
What triggers the acceptor’s liability under this section?
The acceptor’s liability is triggered by the dishonour of the bill upon presentment for payment to the drawee bank or party.