Holder and Holder in Due course

1. HOLDER AND HOLDER IN DUE COURSE
SHARLET ABRAHAM
ROLL NO 54
7TH SEM BA

2. INTRODUCTION
 Concept of Holder and Holder in Due Course - discussed in Section 8 and 9 of NI Act 1881.
 NI Act 1881 statute that regulates working of instruments on which amounts can be negotiated.
 sets out framework under which these instruments operate & any violation in rules -
punished.

3. WHO IS A HOLDER UNDER NI ACT 1881?
 According to Section 8 of NI Act, 1881 - Holder is a party who is entitled in his own name and has legally
obtained the possession of the negotiable instrument (bill, cheque or note), from a party who
transferred it, by delivery or endorsement, to recover the amount from the parties liable to meet it.
 Meaning - a holder is a person who legally obtains the NI, with his name entitled on it, to receive the
payment from the parties liable.
 Party transferring the negotiable instrument must be legally competent and the holder does not include :
 the person who finds the lost instrument payable to carrier
 the one in wrongful possession of the instrument.
 For Example :
 Mr. Z gave his employee Mr. P his monthly salary of Rs. 1,00,000.
 Here, Mr. P - Holder as he is entitled to the salary cheque bearing his name.
 If in case, Mr. P lost his cheque and it was found by Mr. Q, then, Mr. Q will not be the holder.

4. KINDS OF HOLDER
 de jure Holder : holder of a NI as a matter of legal right
 not necessary to be in actual physical possession but a right must be acquired under a legal title.
 name should be as payee or indorsee
 in case where holder dies, his heirs can be the holder
 de facto Holder : holder of NI as virtue of possession but not entitled on his own name
 if not legally entitled in his own name to receive the amount, then not a holder
 Thus, the Act implies de jure Holder not de facto Holder.

5. RIGHTS OF A HOLDER
 SECTION 8 : right to possess an instrument and to receive and recover the amount due as per the
instrument.
 SECTION 45A : right to get a copy of instrument which is lost.
 SECTION 49 : right to convert blank endorsement to full endorsement
 SECTION 50 : right to endorse the instrument.
 SECTION 61 & 64 : right to present the instrument door approval if it is bill and if it is some other
instrument, then get paid for it
 SECTION 125 : right to cross the instrument after it is issued. [when a cheque is issued, the holder can
cross is specifically or generally. In such cases, he has the option to add words like not negotiable or
account payee].

6. WHO IS A HOLDER IN DUE COURSE?
 According to Section 9 of the NI Act, 1881 - person who acquires the negotiable instrument in good
faith for consideration before it becomes due for payment and without any idea of the defective title of
the party who transfers the instument to him.
 Thus, the person who acquires the NI bonafide for some consideration, whose payment is still due, is
called as Holder in Due Course - becomes the true owner of the NI.
 Essential Elements :
 person must hold instrument for the valuable consideration
 person must hold the instrument before maturity
 NI must be complete in all aspect and requirements
 Holder must have received the instrument in good faith
 A Holder in Due Course does not include :
 a person who acquires the NI after its maturity period

7. RIGHTS OF A HOLDER IN DUE COURSE
 SECTION 20 : Holder in Due Course gets a good title even though the instruments were originally
stamped but were incohate instruments.
 [person who signed and delivered the incohate instrument cannot plead as against the Holder in Due
Course.
 a Holder who himself completes the NI is not a Holder in Due Course.]
 SECTION 36 : every prior party to the instrument is liable to a Holder in Due Course until the instrument
is duly satisfied.
 SECTION 42 : acceptor cannot plead against a Holder in Due Course that the bill is drawn in fake name.
 In Bank of England v. Vagilano Brothers (1891) - held that before signing acceptance in the bill, the
acceptor should consider whether the bill is genuine.
 SECTION 46 : other parties liable to pay cannot claim that the delivery of the instrument was for a
specific purpose.

8. .......
 SECTION 53 : he gets a good title to the instrument even though the title of the transferor or any price
party to the instrument is defective. He can recover the full amount unless he was a party to fraud or if
the instrument is negotiated by means of forged endorsement.
 SECTION 58 : the person liable cannot claim against the Holder in Due Course that the instrment has
lost or was acquired by means of fraud or for an unlawful consideration.
 SECTION 120 : validity of instrument as originally made cannot be denied by the maker of a NI or by the
acceptor of a bill of exchange for the honor of the drawer.
 SECTION 121 : the maker of the note or acceptor of a bill payable to order cannot deny the payee’s
capacity to indorse the same at the date of the note or bill.
 SECTION 122 : the endorser is not permitted against the Holder in Due Course to deny the signature or
capacity to contract of any prior party to the instrument.
 In Sukhan Rajkhim Raja a firm of Merchants, Bombay v. N. Raja Gopalan (1988) - court held that
the plaintiff was concious that the cheque was dishonoured and endorsement in his favour was only
after it was returned by the bank and it has lost its negotiability.Thus, he cannot be the Holder in Due
Course.

9. CONCLUSION
 Thus we have learnt That Holder and Holder in Due Course are not the same individuals.
 Holder - Section 8 of NI Act, 1881 - individual who is the payee of the NI, who is in possession of it -
entitled to receive the amount on the instrument from the parties thereto.
 Holder in Due Course - Section 9 of NI Act, 1881 - individual who obtains the instrument bonafide
before the maturity period - without any knowledge of the defect in title of the person transferring the
instrument.
 A person needs to be a Holder to be a Holder in Due Course but a person need not be a Holder in Due
Course to be a Holder.
THANKYOU