Read the case below carefully and answer the questions given at the end: A Negotiable Instrument (NI) means a promissory note, bill of exchange or cheque payable either to order or to bearer. Negotiable Instrument may be

CS Professional · Banking - Law & Practice · PYQS · December 2020
Read the case below carefully and answer the questions given at the end: A Negotiable Instrument (NI) means a promissory note, bill of exchange or cheque payable either to order or to bearer. Negotiable Instrument may be made payable to two or more payees jointly, or in the alternative to one of the two, or one or some of several payees. A Promissory Note is an instrument in writing containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. The maker of a bill of exchange or cheque is called the drawer, the person thereby directed to pay is called drawee, when in the bill or in any endorsement there on the name of any person is given in addition to the drawee to be resorted to in case of need after the drawee of a bill has signed his assent upon the bill, or if there are more parts thereof than one, one of such parts and delivered the same, or given notice of such. Signing to the holder or to some person on his behalf, he is called the acceptor. The person name in the instrument, to whom or to whose order the money is to be paid is called payee. The 'holder' of Negotiable Instrument means any person entitled in his own name to possession thereof and to receive or recover the amount due thereon from the parties thereto. The 'Holder in due course' mean any person who for consideration became the possessor of Negotiable Instrument, if payable to bearer or the payee or endorsee thereof if payable to order, before the amount mentioned in it became payable and without having sufficient cause to believe his title of the person from whom he derived his title. When banker dishonour a cheque of a customer, appropriate reason in writing, duly singed by its official must be given. Such cheque may either be returned across the counter or through clearing. Define holder and holder in due course with their rights. Explain difference between them.

Answer & Explanation:

Holder: As per section 8 of the Negotiable Instrument Act, 1881 the holder is a person who is entitled in his own name to the possession thereof (legal right to possess is also sufficient), to receive or recover the amount due thereon from the parties thereto. Finder of an instrument lying somewhere or a thief, cannot become holder by mere possession. Consideration is not compulsory to become a holder. Rights of a holder: He can obtain a duplicate of the lost instrument. He can cross the cheque if not already crossed, convert a general crossing to a special crossing and endorse and can negotiate, if the negotiation is not restricted. He can sue in his own name in relation to the instrument. He can complete an inchoate instrument. He can give proper discharge to the person making the payment. Holder in due course: As per section 9 of the Negotiable Instrument Act, 1881 a holder in due course is a person (a bearer or endorsee or a payee) who must have instrument in his possession. He must obtain possession of it for valuable and lawful consideration before its maturity. He must obtain it in good faith without any sufficient reason to believe that any defect existed in the title of the person from whom he obtained it. He gets a defect free title even when the transferor had defective title, provided transferee has no notice of defect in title of the transferor. Right of Holder in due course: If any inchoate/incomplete instrument has been handed over for a sum greater than what it was intended by maker, the maker cannot challenge the right of holder in due course to recover the amount mentioned. If a bill is drawn payable to the drawer's order in a fictitious name, the acceptor is not relieved from liability to any holder in due course, provided endorsement and the drawer's signatures are in the same handwriting. A person, liable on a NI, cannot be relieved from his liability towards the holder in due course on the ground that the bill was lost or obtained by fraud or for unlawful consideration. Every prior party to a NI is liable thereon to a holder in due course until the instrument is duly satisfied. Difference between the holder and holder in due course: Transaction Holder Holder and holder in due course Right of Possession Compulsory Compulsory Consideration Not Essential Essential Possession of Instruments Not Essential Essential Nature of Title Gets the same title as that of the transferor. Defective when defective. Gets good title even if transferor was having defective title. Authority Can sue in his own name. Can sue in his own name.

Topics: Negotiable Instruments

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