धारा 42

Section 42 of the Negotiable Instruments Act, 1881, provides that the drawer of a bill of exchange or a cheque, and the maker of a promissory note, shall be deemed to have entered into a contract of indemnity with the holder of the instrument. The contract of indemnity implies that the drawer or maker shall compensate the holder for any loss or damage sustained due to the dishonour of the instrument. The section further states that every person who endorses a negotiable instrument shall, without reserve, indemnify the holder of the instrument against any loss or damage which the holder may sustain due to the dishonour of the instrument. The Bombay High Court has held in 'Hindustan Co-operative Bank Ltd. vs. Surendra Mills' (1985) that the contract of indemnity under Section 42 is a statutory contract and is implied by law.