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Section 40: Discharge of endorser's liability

Negotiable Instruments Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1881
Section 39 All 148 Sections of Negotiable Instruments Act Section 41

Legal Commentary & Landmark Judgments: Section 40

Section 40 regulates the discharge of an indorser's liability where the holder, without the consent of the indorser, impairs the indorser's remedy against prior parties.

  • Holder's Duty to Preserve Remedies: The holder must not release, compromise, or destroy the legal remedies of an indorser against prior parties.
  • Discharge to Extent of Impairment: The indorser is discharged from liability to the holder to the same extent as if the prior party had been discharged by payment.
  • Preservation of Recourse: Applies when a holder strikes out a prior indorser's name from the bill, automatically releasing all subsequent indorsers.
Key Landmark Precedents:
  • Ranchhoddas v. Jagjivan: Held that striking out the name of a prior indorser releases all subsequent indorsers whose right of indemnity is thereby destroyed.
  • State Bank of India v. Ramdas: Affirmed that a holder who fails to present or notify, thereby forfeiting remedies against the maker, cannot enforce payment against the indorser under Section 40.
Courtroom Practice & Strategic Litigation Guidance:

If representing an indorser, examine the bill carefully. If the creditor bank has compromised with the maker or settled with an earlier indorser, plead Section 40 immediately to secure complete dismissal of the suit against your client.

Section 39 All 148 Sections of Negotiable Instruments Act Section 41