Conflict of Laws: International Rules (Sections 134 to 137)

A bill may be drawn in one country, accepted in a second, indorsed in a third and payable in a fourth, each with different rules on interest, protest and notice. Chapter XVI of the Act, headed "Of International Law", supplies choice of law rules for such instruments: which country's law governs the liability of each party, what counts as dishonour and notice, how an instrument invalid abroad is treated, and what the court presumes about foreign law.

1. Liability of the Parties (Section 134)

Section 134, Negotiable Instruments Act, 1881

In the absence of a contract to the contrary, the liability of the maker or drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and indorser by the law of the place where the instrument is made payable.

Maker or drawer: the law of the place where he made the instrument (lex loci contractus).
Acceptor and indorser: the law of the place where the instrument is made payable (lex loci solutionis).
Contract to the contrary: the parties may choose otherwise.
"In all essential matters": the rule covers the substance of liability, such as the rate of interest.

Statutory illustration: a bill is drawn by A in California, where interest is 25 per cent, and accepted by B payable in Washington, where it is 6 per cent. It is indorsed in India and dishonoured. In a suit in India, B, the acceptor, is liable for interest at 6 per cent, the rate of the place of payment; but A, as drawer, is liable at 25 per cent, the rate of the place where he drew the bill.

2. Dishonour and Notice (Section 135)

Section 135, Negotiable Instruments Act, 1881

Where a promissory note, bill of exchange or cheque is made payable in a different place from that in which it is made or indorsed, the law of the place where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient.

What constitutes dishonour and what notice is sufficient are governed by the law of the place of payment. For example, if a bill drawn and indorsed in India is accepted payable in France, and the indorsee protests it and gives notice in accordance with French law, the notice is sufficient even though it does not follow the Act's rules for inland bills. Separately, Section 104 requires foreign bills to be protested where the law of the place of drawing requires it (Topic 31).

3. Instruments Made Abroad Under Indian Law (Section 136)

Section 136, Negotiable Instruments Act, 1881

If a negotiable instrument is made, drawn, accepted or indorsed outside India, but in accordance with the law of India, the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or indorsement made thereon within India.

An instrument made abroad in conformity with Indian law may be invalid under the local law of the place where it was made, for example for want of a local stamp or formality. Section 136 protects parties who accept or indorse it in India: their acceptance or indorsement is not invalidated by the foreign defect. The provision supports the free circulation of instruments in India.

4. Presumption as to Foreign Law (Section 137)

Section 137, Negotiable Instruments Act, 1881

The law of any foreign country regarding promissory notes, bills of exchange and cheques shall be presumed to be the same as that of India, unless and until the contrary is proved.

Foreign law is a question of fact that must be pleaded and proved, usually by expert evidence. Section 137 relieves the court of deciding cases in a vacuum: until a party proves that foreign law is different, the court applies Indian law. A party who relies on a different foreign rule, such as a different interest rate or notice requirement under Section 134 or 135, must prove it.

5. International Context

Geneva Conventions: many civil law countries follow the Uniform Law on Bills of Exchange and Promissory Notes (1930) and the Uniform Law for Cheques (1931). India and the common law countries follow the English model instead.
UNCITRAL Convention (1988): the United Nations Convention on International Bills of Exchange and International Promissory Notes has not attracted enough ratifications to come into force.
ICC rules: in practice, documentary collections and letters of credit are governed by contractual rules of the International Chamber of Commerce (URC 522 and UCP 600), which banks incorporate into their contracts.
Foreign exchange law: cross-border instruments must also comply with the Foreign Exchange Management Act, 1999 and RBI directions.

⚠ Key point

Unless otherwise agreed, the liability of the maker or drawer of a foreign instrument is governed by the law of the place where he made it, and that of the acceptor and indorser by the law of the place where it is payable (Section 134; the California and Washington interest illustration). What constitutes dishonour and sufficient notice are governed by the law of the place of payment (Section 135). An instrument made abroad in accordance with Indian law is not invalidated, as to later acceptances or indorsements in India, by invalidity under the foreign law (Section 136). Foreign law is presumed to be the same as Indian law until the contrary is proved (Section 137).

6. Related Topics and Provisions

Key definitions: inland and foreign instruments (Topic 4)
Noting and protest (Topic 31)
Bills in sets (Topic 39)
The NI Act and the English Bills of Exchange Act (Topic 57)