Negotiable Instruments Act 1881 / Sections 27 and 28

Sections 27 and 28 of Negotiable Instruments Act 1881: Agency and Liability of Agent Signing

Sections 27 and 28 of the Negotiable Instruments Act, 1881 regulate the use of agents in transactions involving promissory notes, bills of exchange and cheques. Section 27 deals with authority to act through an agent, while Section 28 determines when an agent who signs an instrument incurs personal liability.

Section 27: Agency

Every person capable of binding himself or of being bound, as mentioned in Section 26, may so bind himself or be bound by a duly authorized agent acting in his name.

A general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind the principal.

An authority to draw bills of exchange does not of itself import an authority to indorse.

Meaning and Scope of Agency under Section 27

Section 27 recognizes that a person having capacity under Section 26 may act through a duly authorized agent. The authority must extend to the relevant act. The section expressly prevents certain broad or general business authorities from automatically being treated as authority to accept or indorse bills of exchange.

Duly Authorized AgentThe agent must act in the principal's name and within the authority conferred for the relevant negotiable-instrument transaction.

General Business Authority Is Not EnoughGeneral authority to transact business and receive and discharge debts does not by itself authorize acceptance or indorsement of bills so as to bind the principal.

Authority to DrawAuthority to draw bills of exchange does not, merely by itself, include authority to indorse them.

Connection with Section 26The principal's capacity to bind or be bound is linked expressly to the capacity rule in Section 26.

Section 28: Liability of Agent Signing

An agent who signs his name to a promissory note, bill of exchange or cheque without indicating on the instrument that he signs as agent, or that he does not intend thereby to incur personal responsibility, is personally liable on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.

When an Agent May Become Personally Liable

Section 28 focuses on what appears on the negotiable instrument when the agent signs it. If the agent signs his own name without indicating that the signature is made in an agency capacity, or without indicating an intention not to incur personal responsibility, the statutory rule makes the agent personally liable, subject to the exception stated in the section.

Exception under Section 28

The statutory exception applies in relation to persons who induced the agent to sign upon the belief that only the principal would be held liable. The section therefore distinguishes the general rule of personal liability from this specific circumstance.

Promissory Note, Bill of Exchange and Cheque

The instruments referred to in Section 28 are defined elsewhere in the Act. A promissory note is defined in Section 4, a bill of exchange in Section 5, and a cheque in Section 6.

Difference between Sections 27 and 28

Section 27 primarily concerns the authority of an agent to bind the principal in relation to negotiable instruments. Section 28 concerns the personal liability that may arise when an agent signs a negotiable instrument without appropriately indicating the agency capacity or absence of personal responsibility.

Official legal text: The current statutory text of the Negotiable Instruments Act, 1881 should be checked on India Code, the official Government of India legal database.