Negotiable Instruments Act • Official Statutory Text & Practice Guide
Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1881
Section 27 of Negotiable Instruments Act: Agency
Official Bare Act Text
Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary
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 his principal.
An authority to draw bills of exchange does not of itself import an authority to indorse.
Legal Commentary & Landmark Judgments: Section 27
Section 27 governs agency in negotiable instruments, enacting that a general authority to transact business does not empower an agent to draw, accept, or indorse bills on behalf of the principal.
Strict Construction of Authority: Authority to sign negotiable paper must be expressly conferred; a general power of attorney to manage property or business does not include power to issue notes.
Binding the Principal: An agent acting within explicit authority binds the principal as if the principal had personally signed.
Prohibition of Implied Expansion: Authority to draw does not imply authority to indorse; authority to accept does not imply authority to borrow on bills.
Key Landmark Precedents:
Sankaralingam Chettiar v. Veluchami Pillai (AIR 1943 Mad 43): The Full Bench laid down that agency under Section 27 must be strictly construed; authority to manage properties does not empower an agent to execute promissory notes binding the principal.
Syndicate Bank v. R.V. Transport: Affirmed that banks discounting instruments signed by alleged attorneys must verify express negotiable borrowing clauses in the power of attorney.
Courtroom Practice & Strategic Litigation Guidance:
When accepting a promissory note or cheque signed by an attorney or manager, ensure the power of attorney explicitly contains the phrase: 'to draw, accept, sign, indorse, and negotiate bills of exchange and promissory notes'. Standard general power of attorney clauses will not suffice in court.
Legal Commentary & Landmark Judgments: Section 27
Section 27 governs agency in negotiable instruments, enacting that a general authority to transact business does not empower an agent to draw, accept, or indorse bills on behalf of the principal.
When accepting a promissory note or cheque signed by an attorney or manager, ensure the power of attorney explicitly contains the phrase: 'to draw, accept, sign, indorse, and negotiate bills of exchange and promissory notes'. Standard general power of attorney clauses will not suffice in court.