Sections 40-42 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.
Section 40 discharges an indorser if the holder, without his consent, destroys or impairs the indorser's remedy against a prior party. Section 41 says an acceptor who knew or had reason to believe an indorsement was forged when he accepted is not relieved. Section 42 says an acceptor of a bill drawn in a fictitious name is not relieved from liability to a holder in due course on that ground, in a defined case. This article reads all three as per the consolidated text consulted. If a dispute turns on a doubtful indorsement, early advice on legal dispute resolution can protect your position.
If the holder, without the indorser's consent, destroys or impairs the indorser's remedy against a prior party, the indorser is discharged as if the instrument had been paid at maturity (s.40). An acceptor of a bill already indorsed is not relieved because an indorsement is forged if he knew or had reason to believe it was forged when he accepted (s.41). An acceptor of a bill drawn in a fictitious name and payable to the drawer's order is not relieved from liability to a holder in due course claiming under an indorsement by the same hand as the drawer's signature (s.42).
A note on the text
The consolidated copy prints section 40 twice, with identical text, one after the other. This article reads it once. The illustration to section 40 is printed with the section and is part of the text.
Section 40: discharge of indorser's liability
The text says: where the holder of a negotiable instrument, without the consent of the indorser, destroys or impairs the indorser's remedy against a prior party, the indorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity.
The elements
| Element | Text |
|---|---|
| Who acts | The holder of a negotiable instrument |
| What he does | Destroys or impairs the indorser's remedy against a prior party |
| Condition | Without the consent of the indorser |
| Result | The indorser is discharged from liability to the holder |
| Extent | To the same extent as if the instrument had been paid at maturity |
An indorser who has to pay a holder usually looks to the parties before him in the chain for reimbursement (see our article on sections 37 to 39, which explains how each prior party is a principal debtor in respect of each subsequent party). If the holder takes away or weakens that remedy without the indorser's consent, the section protects the indorser by discharging him.
The illustration
The text gives this illustration. A is the holder of a bill of exchange payable to the order of B, which contains these indorsements in blank: first, "B"; second, "Peter Williams"; third, "Wright & Co."; fourth, "John Rozario". A puts the bill in suit against John Rozario and strikes out, without John Rozario's consent, the indorsements by Peter Williams and Wright & Co. The text says A is not entitled to recover anything from John Rozario.
Why? John Rozario, as the last indorser, would normally have a remedy against the earlier indorsers: Peter Williams and Wright & Co. By striking out their indorsements, A has destroyed or impaired that remedy without John Rozario's consent. John Rozario is therefore discharged, and A recovers nothing from him. The names, the old style of the bill and the "in blank" indorsements are part of the printed text and are not current examples.
Example with new names
Kamla Textiles holds a bill indorsed in turn by Lalit, Mohit and Nitin. Kamla sues Nitin, the last indorser, but before suing it deletes the indorsements of Lalit and Mohit without asking Nitin. Following the text, Nitin is discharged to the same extent as if the instrument had been paid at maturity.
Points to note
- The protection depends on lack of consent. If the indorser consents, the section does not discharge him.
- The words are "destroys or impairs"; the text does not say how much impairment is enough, and none is suggested here.
- The discharge is "from liability to the holder"; the text says nothing about other holders.
For the general law on a creditor impairing a surety's remedy, see our article on section 139 of the Indian Contract Act, 1872. That article is for background only; section 40 of this Act stands on its own words.
Section 41: acceptor bound although indorsement forged
The text says: an acceptor of a bill of exchange already indorsed is not relieved from liability by reason that such indorsement is forged, if he knew or had reason to believe the indorsement to be forged when he accepted the bill.
| Element | Text |
|---|---|
| Who | An acceptor of a bill of exchange already indorsed |
| Fact | An indorsement on the bill is forged |
| Condition | He knew, or had reason to believe, the indorsement to be forged when he accepted |
| Result | He is not relieved from liability by reason of the forgery |
The section works by exception. It tells you one situation in which the forgery is no excuse for the acceptor: when he knew or had reason to believe it was forged at the time he accepted. The text does not say what the position is where the acceptor did not know and had no reason to believe the indorsement was forged. This article does not fill that silence; the other provisions of the Act and the facts of the case would have to be examined.
The test has two limbs, "knew" and "had reason to believe", and the time is fixed: "when he accepted the bill". What the acceptor learned afterwards is not within the words.
Example: Oberoi Traders is asked to accept a bill that already bears two indorsements. It has been told by a clerk that the second signature was written by someone other than the named indorser, and it accepts anyway. If the bill is later presented, section 41 says Oberoi is not relieved from liability by reason of the forged indorsement, because it had reason to believe the indorsement forged when it accepted.
Section 42: acceptance of bill drawn in fictitious name
The text says: an acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer's order is not, by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an indorsement by the same hand as the drawer's signature, and purporting to be made by the drawer.
Breaking it down
- The bill is drawn in a fictitious name.
- It is payable to the drawer's order.
- The holder is a holder in due course (see our article on sections 8 to 10).
- The holder claims under an indorsement that is by the same hand as the drawer's signature and purports to be made by the drawer.
- In that case the acceptor is not relieved from liability merely because the name is fictitious.
Each condition must be met. The section protects a holder in due course whose title comes through an indorsement written by the same person who wrote the fictitious drawer's signature, in the drawer's name. The text consulted does not discuss other cases, such as a holder who is not a holder in due course, and it does not explain why the rule exists. This article gives no reasons beyond the words.
Example: Pavan signs a bill as "R. K. Mehra", a name that does not belong to any real person, and addresses it to Quest Traders, which accepts it. The bill is payable to the order of "R. K. Mehra". Pavan then indorses it as "R. K. Mehra", in the same handwriting, and negotiates it for value to Rani Finance, which has no reason to doubt the title. If Quest Traders resists payment on the ground that "R. K. Mehra" is not a real person, section 42 says Quest is not relieved from liability to Rani Finance, a holder in due course claiming under the indorsement in the same hand as the drawer's signature.
Comparing the three sections
| Section | Who is protected or discharged | Key condition |
|---|---|---|
| 40 | The indorser | Holder destroys or impairs the indorser's remedy against a prior party without consent |
| 41 | The holder, against an acceptor | The acceptor knew or had reason to believe the indorsement forged when he accepted |
| 42 | The holder in due course, against an acceptor | Fictitious drawer; payable to drawer's order; indorsement in the same hand as the drawer's signature |
Need help with a disputed indorsement?
If a bill or cheque in your hands bears an indorsement you doubt, or you have been told your remedy against a prior party was affected, we can look at the papers and the chain with you. See our legal dispute resolution service.
Key takeaways
- An indorser is discharged, as if the instrument had been paid at maturity, if the holder without his consent destroys or impairs his remedy against a prior party.
- An acceptor is not relieved by a forged indorsement if he knew or had reason to believe it was forged when he accepted.
- An acceptor of a bill drawn in a fictitious name and payable to the drawer's order is not relieved from liability to a holder in due course claiming under an indorsement in the same hand as the drawer's signature.
- Section 40 is printed twice in the consolidated copy; the text is identical.
Read next
- Sections 37-39: principal debtors, sureties and suretyship
- Section 43: instrument made without consideration
- Sections 35-36: liability of indorser and of prior parties to a holder in due course
- Types of negotiable instruments
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.