Negotiable Instruments Act 1881 Section 55
Negotiable Instruments Act, 1881 Section 55 defines the liability of the acceptor of a bill of exchange upon dishonour.
Negotiable Instruments Act Section 55 addresses the liability of the acceptor of a bill of exchange. It explains when and how the acceptor becomes responsible for payment if the bill is dishonoured. This section is crucial for parties involved in bills of exchange, including drawers, acceptors, payees, and holders.
Understanding Section 55 helps businesses, banks, and legal professionals ensure proper enforcement of payment obligations and manage risks related to dishonoured bills. It clarifies the acceptor's role and liability, which is essential for smooth commercial transactions.
Negotiable Instruments Act, 1881 Section 55 – Exact Provision
This means that once a bill of exchange is accepted, the acceptor promises to pay the amount specified on the bill to the holder in due course. If the acceptor fails to pay, they are legally liable to the holder. The liability arises from the acceptance itself and is independent of the drawer's liability.
The acceptor undertakes a primary liability to pay the bill.
Liability is to the holder in due course.
Liability is for the amount stated in the bill.
Acceptance creates a binding promise to pay.
Liability arises upon dishonour if payment is refused.
Explanation of NI Act Section 55
Section 55 defines the acceptor's responsibility in a bill of exchange transaction.
It states that the acceptor is liable to pay the bill's amount to the holder in due course.
Applies to the acceptor, who has signed the bill indicating acceptance.
Liability arises once the bill is dishonoured due to non-payment.
The holder in due course is the party entitled to enforce payment.
The section protects the holder's right to receive payment from the acceptor.
Purpose and Rationale of NI Act Section 55
This section ensures that the acceptor of a bill of exchange is legally bound to pay the amount accepted. It promotes trust in commercial transactions by making the acceptor's promise enforceable.
Promotes confidence in bills of exchange as payment instruments.
Ensures certainty of payment to holders in due course.
Reduces disputes by clarifying acceptor liability.
Supports smooth functioning of trade and credit systems.
Prevents default by holding acceptors accountable.
When NI Act Section 55 Applies
Section 55 applies when a bill of exchange has been accepted and presented for payment but is dishonoured.
Relevant to bills of exchange only, not cheques or promissory notes.
Applies after acceptance by the drawee.
Triggered by dishonour due to non-payment on maturity.
Involves parties such as acceptor, holder in due course, drawer.
Time limits for presentment and notice of dishonour must be observed.
Legal Effect and Practical Impact under NI Act Section 55
Section 55 creates a primary liability on the acceptor to pay the bill amount to the holder in due course. This liability is enforceable through civil suits and supports the holder's right to recover funds.
The acceptor's promise to pay is independent of the drawer's liability. If the acceptor defaults, the holder can sue the acceptor directly.
Creates enforceable liability on acceptor.
Supports holder's right to payment.
Enables civil recovery actions against acceptor.
Nature of Obligation or Protection under NI Act Section 55
The section imposes a substantive liability on the acceptor. It is a mandatory obligation arising from acceptance and protects the holder's right to payment.
The liability is unconditional and arises upon acceptance, making it a primary duty of the acceptor.
Creates primary liability of acceptor.
Mandatory and unconditional obligation.
Benefits holder in due course.
Substantive, not merely procedural.
Stage of Transaction or Legal Process Where Section Applies
Section 55 applies after the bill is accepted and presented for payment. If the acceptor dishonours the bill, the holder can enforce payment based on this section.
Acceptance of bill by drawee.
Presentment for payment on maturity.
Dishonour due to refusal or non-payment.
Notice of dishonour to drawer and endorsers.
Legal action for recovery against acceptor.
Consequences, Remedies, or Punishment under NI Act Section 55
Section 55 provides civil remedies to the holder against the acceptor for non-payment. The holder can sue for recovery of the bill amount. There are no criminal penalties under this section.
Civil suit for recovery of amount.
Enforcement through courts.
No criminal liability under this section.
Failure to pay leads to legal consequences.
Example of NI Act Section 55 in Practical Use
Drawer X issues a bill of exchange to Payee X. Drawee Y accepts the bill by signing it. On maturity, Drawee Y refuses to pay. Payee X, as holder in due course, can sue Drawee Y under Section 55 for the bill amount due to dishonour.
Acceptance creates binding payment promise.
Holder can enforce payment against acceptor.
Historical Background of NI Act Section 55
Section 55 was part of the original 1881 Act to define acceptor liability. It has remained largely unchanged, reflecting the fundamental principle that acceptance creates a primary obligation to pay.
Established primary liability of acceptor since 1881.
Supports negotiability and credit trust.
Judicial interpretations have reinforced acceptor duties.
Modern Relevance of NI Act Section 55
In 2026, Section 55 remains vital for bills of exchange transactions. Despite digital payments, bills are still used in trade. Courts encourage mediation and summary trials for disputes under this section.
Supports business and banking discipline.
Facilitates efficient litigation and settlement.
Encourages compliance with payment obligations.
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 31 – Liability of drawer.
NI Act, 1881 Section 60 – Liability of endorsers.
NI Act, 1881 Section 118 – Presumptions as to negotiable instruments.
Case References under NI Act Section 55
- Union of India v. Raman Iron Foundry (1974 AIR 1590)
– Confirmed the acceptor's primary liability to pay the bill amount to the holder in due course.
- Bank of India v. R. S. Raghunath (1997 AIR SC 1463)
– Held that acceptance creates an unconditional promise to pay, enforceable by the holder.
Key Facts Summary for NI Act Section 55
Section: 55
Title: Liability of Acceptor
Category: Liability
Applies To: Acceptor, holder in due course
Legal Impact: Creates primary liability to pay bill amount
Compliance Requirement: Payment on maturity, observance of presentment and notice
Related Forms/Notices/Filings: Notice of dishonour, civil suit filings
Conclusion on NI Act Section 55
Section 55 is a cornerstone provision that establishes the acceptor's primary liability in a bill of exchange transaction. It ensures that the acceptor's promise to pay is legally enforceable, providing security to holders in due course.
By clearly defining acceptor liability, this section supports trust and reliability in commercial dealings involving bills of exchange. Understanding this section is essential for all parties to effectively manage payment risks and enforce rights.
FAQs on Negotiable Instruments Act Section 55
What does Section 55 of the Negotiable Instruments Act state?
Section 55 states that the acceptor of a bill of exchange is liable to pay the amount according to the tenor of acceptance to the holder in due course.
Who is liable under Section 55?
The acceptor of the bill, who has signed the bill indicating acceptance, is liable to pay the holder in due course.
When does the acceptor's liability arise?
The liability arises when the bill is dishonoured due to non-payment upon presentment on maturity.
Can the holder sue the acceptor directly?
Yes, the holder in due course can sue the acceptor directly for recovery of the bill amount if the acceptor defaults.
Does Section 55 impose any criminal penalty?
No, Section 55 imposes civil liability only; it does not provide for any criminal penalties.