Sections 37-39 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 37 to 39 sort the parties to a note, bill or cheque into principal debtors and sureties. Section 37 says who is the principal debtor and that the other parties are sureties for him. Section 38 says that among the sureties, each prior party is also a principal debtor in respect of each later party, and gives an illustration with five people. Section 39 allows a holder who deals with an acceptor in a way that would discharge the other parties under the Indian Contract Act, 1872 to reserve his rights expressly. This article reads them as per the consolidated text consulted. If you are working out who can be pursued on an instrument and in what order, a legal consultation can save time.
The maker of a note or cheque, the drawer of a bill until acceptance and the acceptor are, absent a contrary contract, principal debtors; the other parties are sureties for them (s.37). Among sureties, each prior party is also a principal debtor in respect of each subsequent party (s.38). A holder of an accepted bill who makes a contract with the acceptor that would discharge the others under section 134 or 135 of the Indian Contract Act, 1872 may expressly reserve his right against the other parties, who are then not discharged (s.39).
Section 37: principal debtors and sureties
The text says: the maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.
| Instrument | Principal debtor | Sureties |
|---|---|---|
| Promissory note | The maker | The other parties, such as indorsers |
| Cheque | The maker (the drawer of the cheque) | The other parties |
| Bill of exchange, before acceptance | The drawer | The other parties |
| Bill of exchange, after acceptance | The acceptor | The other parties |
"Respectively" matters: each principal debtor is the principal for the role named, and the other parties are sureties "for the maker, drawer or acceptor, as the case may be". The words "in the absence of a contract to the contrary" leave room for the parties to agree differently.
The section uses "surety" in the sense of the law of contract. For the extent of a surety's liability under the general law, see our article on section 128 of the Indian Contract Act, 1872. This Act does not reproduce those provisions.
Section 38: prior party as principal debtor to subsequent parties
The text says: as between the parties so liable as sureties, each prior party is, in the absence of a contract to the contrary, also liable thereon as a principal debtor in respect of each subsequent party.
So section 37 gives the first split: principal and sureties. Section 38 then looks inside the group of sureties. Between any two of them, the earlier one is the principal debtor and the later is, in effect, the surety, again unless a contract says otherwise.
The illustration
The text gives this illustration: A draws a bill payable to his own order on B, who accepts. A afterwards indorses the bill to C, C to D, and D to E.
| As between | Principal debtor | Sureties |
|---|---|---|
| E and B | B | A, C and D |
| E and A | A | C and D |
| E and C | C | D |
The text states each of these results. The pattern is that the person on the left of each row is the principal debtor and every person who came after him in the chain, and before E, is a surety.
A plain reading of the illustration: E, the last holder, may look to B (the acceptor). If B does not pay, E may look to A, who is liable as principal debtor to E, with C and D as sureties for A. Or E may look to C, with D as his surety. The text does not describe the order in which E must proceed or any procedure, and this article does not add any.
Why the illustration matters for someone who pays
A person who has to pay as a surety may have a right against the party who was the principal for him. The text consulted does not set out that right in these sections. The sections here only label who is principal and who is surety.
Example with invented names
Anita Exports draws a bill on Basant Stores, which accepts it. Anita indorses it to Chitra Finance, Chitra to Dinesh Bank, and Dinesh to Eshwar Traders. Eshwar, as the last holder, can look to Basant as the principal debtor, with Anita, Chitra and Dinesh as sureties. In a claim by Eshwar against Anita, Anita is the principal debtor and Chitra and Dinesh are her sureties. These are the same relationships as in the printed illustration, with new names.
Section 39: suretyship
The text says: when the holder of an accepted bill of exchange enters into any contract with the acceptor which, under section 134 or 135 of the Indian Contract Act, 1872 (9 of 1872), would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such case they are not discharged.
The pieces
| Piece | Text |
|---|---|
| Who | The holder of an accepted bill of exchange |
| What he does | Enters into a contract with the acceptor which, under section 134 or 135 of the Indian Contract Act, 1872, would discharge the other parties |
| What he may do | Expressly reserve his right to charge the other parties |
| Result | The other parties are not discharged |
Sections 134 and 135 of the Contract Act are the sections named in this text. Our articles on them are section 134 of the Indian Contract Act, 1872 (discharge of a surety by release or discharge of the principal debtor) and section 135 of the Indian Contract Act, 1872 (discharge when the creditor compounds with, gives time to, or agrees not to sue the principal debtor). This article takes those descriptions from the site's own titles for those sections, and does not reproduce their text.
What section 39 means in practice
Suppose a holder agrees with the acceptor to give more time. Under the Contract Act sections named, such an agreement would discharge the sureties, which here means the other parties. Section 39 gives the holder a way to avoid that result: he may "expressly reserve his right to charge the other parties". If he does, they are not discharged.
The word "expressly" matters. The reservation must be express, not implied. The text does not say in what form or where it is to be made. The prudent course is to record it in the agreement with the acceptor and in writing to the other parties, but that is a suggestion, not a quotation from the Act.
Section 39 applies to "an accepted bill of exchange". The text does not extend it to notes or cheques.
Example
Fatima Chemicals holds a bill accepted by Gopal Industries. The bill falls due and Gopal asks for time. Fatima agrees to extend the time and records in the agreement that it reserves its right to charge the drawer and the indorsers. On the text of section 39, the other parties are not discharged by the extension. If Fatima had made the agreement without reserving its right, the Contract Act sections named would be the place to look for the effect on the other parties.
Putting the three sections together
- Section 37 labels the principal debtor and the sureties.
- Section 38 refines the labels among the sureties, using the order of the chain.
- Section 39 deals with a dealing between the holder and the acceptor that could discharge the sureties, and how a holder can protect his rights.
Need help with claims against several parties?
If a bill has passed through several hands and an acceptor has asked for time, the way you reserve your rights can decide whether other parties stay liable. We can review the documents and the position with you; see our legal consultation service.
Key takeaways
- The maker of a note or cheque, the drawer of a bill until acceptance and the acceptor are principal debtors unless a contract says otherwise.
- The other parties are liable as sureties for the principal debtor.
- Among the sureties, each prior party is also a principal debtor in respect of each subsequent party.
- A holder of an accepted bill who gives the acceptor time or releases him may expressly reserve his right against the other parties, so that they are not discharged.
- Section 39 names sections 134 and 135 of the Indian Contract Act, 1872.
Read next
- Sections 35-36: liability of indorser and of prior parties to a holder in due course
- Sections 40-42: discharge of indorser, forged indorsement and fictitious drawer
- Sections 32-34: liability of maker and acceptor, and who can accept a bill
- Section 139 of the Indian Contract Act, 1872: discharge of surety by creditor's act or omission
Disclaimer: Based on a consolidated text of the Negotiable Instruments Act, 1881 stating the position as of 26 December 2015 and on the Negotiable Instruments (Amendment) Act, 2018, as consulted on 2 October 2026. Later amendments and current criminal procedure law should be checked. This article is general information, not legal advice; check the official text before acting.