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Report No. 11

23. Conflict of laws.-

While we shall explain our detailed proposals in the course of our examination of the existing provisions of the Act, we consider it proper to accord a special treatment to one major topic which has been largely modified and recast by us, namely, the provisions relating to Conflict of Laws.

24. The first thing that strikes one on this subject is the lack of uniformity in the principles embodied in the English and the Indian enactments and also as between such principles and those followed in other countries. This want of uniformity is regrettable, particularly in view of the fact that negotiable instruments have become the usual medium of the ever expanding international trade and commerce. An attempt to evolve uniform rules in this behalf was indeed made at the Geneva Convention of 1930. The nations who were parties to that Convention agreed:-

(a) to adopt a uniform law for bills of exchange and promissory notes;

(b) to settle questions of private international law arising in connection with bills and notes; and

(c) to unify the rules concerning stamp duties.1

The Conventions agreed upon2 were adopted by Austria, Belgium, Denmark, Dunkirk, Finland, France, Germany, Greece, Italy, Japan, Monaco, Netherlands, Norway, Portugal, Sweden and Switzerland. They were not, however, adopted by England (except on one matter), the United States and the Commonwealth countries.

1. Vide Cheshire Private International Law, 4th Edn., p. 247.

2. League of Nations Doc C 346 (1), M 142 (1), 1930 (II).

As India has not adopted them we are free to incorporate such rules as are widely acknowledged and are consonant with the general principles of Private International Law, justice and equity.

25. The primary reason for disturbing the existing provisions as contained in sections 134-137 of our Act is that they do not deal with all the questions which ordinarily arise in this branch of the law. The English Act is no better guide on this subject because it deals with the entire subject in one section (section 72) which is no more exhaustive than the provisions of our Act. Moreover, the English section has been severely criticised as "ambiguous" and "unintelligible".1

1. Cheshire Private International Law, 4th Edn., p. 253-254.

26. The principal questions which require to be solved in connection with international dealings in negotiable instruments are-the capacity of parties, the formal and essential validity of the contract, the liability of the parties including the formalities regulating presentment for acceptance, presentment for payment, notice of dishonour for non-acceptance and non-payment, noting and protest. Our Act does not provide for the first two at all. We shall now examine the principles relevant to each of these questions.

27. For determining the capacity of the parties the choice is between lex domicilii (law of domicile) and lex loci contractus (law of the place where the contract took place).

In England, the current opinion is that so far as mercantile contracts are concerned, there is a presumption that the parties submitted to the law of the place of contract and that governs the matter unless the presumption is rebutted.1 This view has been accepted by the Madras High Court.2

1. Schmitthoff Conflict of Laws, 3rd Edn., p. 117-118; Dicey Conflict of Laws, 6th Edn., p. 621.

2. T.N.S., Firm v. Md. Husain, AIR 1933 Mad 756.

As pointed out by Cheshire,1 under modern conditions of trade, the domicile of the parties cannot be allowed to govern the question of capacity, for, in that case, a foreigner, contracting in another country, would be allowed to escape liability on the ground, for instance, that according to the law of his own country, which may not be known to the other party, a person does not attain majority even at the age of 21. It can hardly be overlooked that the Geneva Convention (on Conflict of Laws) which starts with the general rule based on lex domicilii has to make an exception on the basis of lex loci contractus.

Thus, while the first clause of Article 2 of the Convention says that the capacity of a person to bind himself should be determined by his national law, the second clause of that. Article provides that "a person who lacks capacity according to law specified in the preceding rule shall nevertheless be bound if his signature had been given in any territory in which according to law in force there, he would have the requisite capacity." We would prefer to adopt the lex loci contractus instead of any such compromise formula which would introduce unnecessary complications.

1. Private International Law, 4th Edn., p. 213.

28. But though we elect in favour of the lex loci contractus, we would not prevent the parties from having their own choice in the matter of the law which would govern their contract, by an express stipulation in the instrument itself.

We have, accordingly, proposed the simple rule that in the absence of any contract to the contrary, the capacity of the parties to an instrument shall be determined by the law of the country where the contract constituted by the negotiable instrument was made.

29. But this rule, without more, would be incomplete, for, a negotiable instrument involves a composite contract. It consists not only of the original contract between the parties to the instrument but also of "supervening contracts" (to adopt the expression used by the Bills of Exchange Act) made by the acceptor or indorser. Each of these contracts may be entered into at different places and the validity of each must naturally be determined according to the place where such contract was made.1 We have made this clear in our proposal.2

1. Cf. Palaniappa Chetty v. Peria Karuppanchetty, 17 Mad 262.

2. Section 108(a) of App I.

30. In formulating the foregoing rule, we have followed the provision in sub­section (1) of section 72 of the English Act, but as that sub-section shows, the rule should be made subject to two exceptions:

(a) The first exception is in respect of the requirement of stamp. The rule recognised by English private international law in this behalf was that if under the law of the place where the contract is made an instrument is void for want of proper stamp, it should not be recognised as valid in any other country.1 If, however, the want of requisite stamp makes the instrument only inadmissible in evidence under the law of the place of contract its validity is not affected as it is only a rule of evidence.2 The Bills of Exchange Act has done away with this distinction and laid down that a bill issued outside the United Kingdom is not invalid by reason only that it is not stamped in accordance with the law of the place of issue. Its admissibility or enforceability in the U.K. will depend upon the requirements of English law in that behalf.

1. Alves v. Hodgson, (1797) 7 TR 275.

2. Bristow v. Sequeville, (1850) 5 Ex 275.

In India, the Act is silent and the old rule was applied in Venkatarami v. Seetharama, ILR (19300) 53 Masd 968, and Manattil Ali v. Vazhapulli Varial, (1914) 1 MLJ 35 n. Under our stamp law a document is not void but becomes inadmissible in evidence even in cases where the defect of stamp is not curable under section 35 of the Stamp Act. A foreign instrument, when brought into India, has to be stamped according to our law (vide section 19 of the Stamp Act). Hence, there is no justification for invoking the technicality of a foreign law relating to stamp revenue to invalidate the instrument in India and the liberal rule introduced by the English Act should be adopted by us. It may be noticed that a similar view was expressed by Whitley Stokes.1

1. Anglo-Indian Code, vol. 1, p. 664.

(b) The other exception recognised by the Proviso (b) to section 72(1) of the English Act, is already embodied in section 136 of our Act. It may be mentioned that paragraph 2 of Article 3 of the Geneva Convention is also to the same effect. Hence, we do not think it necessary to disturb the existing provision.

31. Regarding the liability of the parties, section 134 of our Act makes a distinction between the maker or drawer of a foreign instrument on the one hand, and the acceptor or indorser, on the other. The liability, in the case of the maker or drawer, is determined by the law of the place where the instrument is made but in the case of an acceptor or indorser it is determined by the law of the place where the instrument is made payable. But the liability of the maker of the note should, according to the true principles of international law, be governed by the law of the place where it is payable (lex loci solutionis). In the case of a drawer the place of drawing is, of course, usually the place of payment. The acceptor being the principal debtor, his liability is also determined by the place of payment in accordance with the contract of acceptance. The liability of the indorsers should naturally follow the liability of the principal debtor.

We have, accordingly, suggested a clear provision that the liability of all parties to the instrument shall be governed by the law of the place where such instrument is payable.

32. It follows that the conditions governing liability, such as what constitutes dishonour and what notice of dishonour is sufficient, the due date,1 or the duties of the holder with respect to presentment for acceptance or payment must be governed by the law of the place where the money is payable. This principle is, in substance recognised by section 135 of our Act, though not fully developed. The corresponding provision in sub-section (3) of section 72 of the English Act is ambiguous and has been rightly criticised as verging "perilously on the unintelligible".2

1. Rouquette v. Overmann & Sohan, (1874-75) 10 QB 525; Section 72(5), B.E. Act; Article of the Geneva Convention.

2. Cheshire Private International Law, 4th Edn., p. 253

We have suggested simpler provisions.

33. All questions relating to payment and satisfaction including interest should, logically, be governed by the law of the place where the instrument is payable.1

1. Foote Private International Law, 5the Edn., pp. 460-1, quoted in Cheshire, 4th Edn., pp. 253-4.

As section 72(4) of the Bills of Exchange Act provides, the rate of exchange at which payment is to be made, being an incident of payment, should also be governed by the place of payment, if the instrument is expressed in a foreign currency. Representations having been made before us that in the absence of a provision in our Act in this behalf considerable inconvenience is experienced, we have proposed a clear provision regarding this matter.

34. Examination of the provisions of the Act, indicating the changes proposed.-Having dealt with the broader questions, we now proceed to examine the provisions of the Act seriatim, pointing out the problems which have arisen and indicating, broadly, our proposals for their solution.

Negotiable Instruments Act, 1881 Back

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