Sections 35 and 36 of Negotiable Instruments Act 1881: Liability of Indorser and Prior Parties
Sections 35 and 36 form part of Chapter III of the Negotiable Instruments Act, 1881, dealing with parties to notes, bills and cheques. Section 35 states when an indorser is liable after dishonour, while Section 36 protects a holder in due course by keeping prior parties liable until the instrument is duly satisfied.
Section 35 - Liability of indorser
In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity without, in such indorsement, expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonour, provided due notice of dishonour has been given to, or received by, such indorser as hereinafter provided.
Every indorser after dishonour is liable as upon an instrument payable on demand.
Meaning and effect of Section 35
An indorser is a person who signs a negotiable instrument for the purpose of negotiation in the manner contemplated by the Act. Section 35 creates a statutory liability where an instrument is indorsed and delivered before maturity, unless the indorser has expressly excluded or made his liability conditional.
- The rule operates subject to any contract to the contrary.
- The indorser must have indorsed and delivered the instrument before maturity.
- The indorser may expressly exclude or condition his own liability in the indorsement.
- Where the instrument is dishonoured by the drawee, acceptor or maker, the indorser may be required to compensate a subsequent holder for resulting loss or damage.
- The statutory requirement concerning due notice of dishonour must be satisfied where applicable.
- An indorser who indorses after dishonour is liable as on an instrument payable on demand.
Section 36 - Liability of prior parties to holder in due course
Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.
Meaning and effect of Section 36
Section 36 gives a holder in due course recourse against prior parties to the negotiable instrument until the instrument has been duly satisfied. Under Section 9 of the Act, a holder in due course is, broadly, a person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque payable to bearer, or the payee or indorsee thereof when payable to order, before the amount becomes payable and without sufficient cause to believe that any defect existed in the title of the person from whom title was derived.
A prior party means a party whose liability on the instrument precedes that of the holder in due course in the chain of parties. Section 36 keeps the liability of such prior parties alive until the negotiable instrument is duly satisfied.
Difference between Sections 35 and 36
Section 35 specifically regulates the liability of an indorser and links that liability to matters including dishonour and notice of dishonour. Section 36 is broader in relation to a holder in due course: it declares that every prior party remains liable to such holder until the instrument is duly satisfied.
Official statutory source
The current central text of the Negotiable Instruments Act, 1881 is available from India Code - Negotiable Instruments Act, 1881.
Article reviewed for statutory accuracy: October 2026.