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Understanding Holders and Holders in Due Course: The Negotiable Instrument Act


"Holder: The "holder" of a promissory note, bill of exchange, or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill, or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction."[1]

According to the definition provided in the Negotiable Instrument Act, of 1881, the person called the holder has the right to possess the instrument on his own name and to receive or reclaim the amount thereon from the parties thereto. Another point to be noticed from the definition is that section 8 of the act does not need actual possession of the goods rather it is sufficient that the holder is entitled to the possession of the good in his own name. In other words, the holder must have obtained the instrument in the role of payee or endorsee in a lawful manner. The individual who obtained the instrument by forgery or deception cannot never be termed as a holder.

Holder In Due Course:

"Holder in due course:
"Holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange, or cheque if payable to bearer, or the payee or indorsee thereof, if [payable to order], before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title."[2]

Holder in Due Course can be termed as a person who acquires a negotiable instrument for consideration in good faith before it becomes due for payment and without having knowledge of the party who transfers the instrument to him with a defective title. Holder in due course is a person who actually receives the negotiable instrument for some value and for which the payment is still owed.

Salient Features:
Some of the common characteristics of negotiable instruments are:
  • It should always be in written form.
  • It is having to be paid to the bearer and is transferred solely by delivery. And it becomes due to the orderer before its delivery and approval.
  • The person having possession of the negotiable written record has the right to sue the other party based on it.
  • The document does not mention any consideration rather it is already assumed that it was drawn for a worthwhile consideration.
  • It functions similarly to that of money and hence can also be transferred further.
  • It is regarded as one of the easiest modes for the repayment of debts.

  1. Ruby Leather Exports vs K. Venu on 10 December, 1993[3]:
    Fact in question: Can this be said that no complaint can be taken into cognizance unless the complaint is made by the payee or the holder in due course of the cheque if there is no prohibition on the power of attorney agent acting on behalf of the payee or holder in due course of the cheque?
    Judgment: A statutory provision must specify any special qualification or eligibility criteria for initiating criminal proceedings then no court has the authority to refuse to take cognizance solely on the grounds that the complainant lacked the legal capacity to file the complaint or as the case may be.
  2. D.M Battar vs State Bank:
    In this case, it was stated that "A simple reference to Section 9 of the Negotiable Instruments Act demonstrates that "holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange, or payee or endorsee thereof. He has the right to sue on the instrument in his own name."[4]
  3. Ramnarain P. Ltd. V. State Trading Corporation [1988] BJ 265:
    In this case, the division of the court observed the following; - "The drawer can file suit for compensation against the acceptor only if he has made payment to the payee and acquired a bill of exchange in his favor, as determined by the Division Bench of this court."[5]
Following the above observation, we can say that the holder of the Negotiable Instrument Act, of 1881 is any person who is currently entitled in his name and right to possession of the instrument, as well as to collect and recover the amount due on the instrument. A holder in good faith is someone who accepts a negotiable instrument in a value-for-value exchange without questioning its legitimacy.

It is also evident that a holder and a holder in due time are two different terminologies. Furthermore, in order to become a holder in due course, a person must first be a holder, but to become a holder, a person does not need to be a holder in due course first.

  1. (Section 8 in The Negotiable Instruments Act, 1881)
  2. (Section 9 in The Negotiable Instruments Act, 1881)
  3. 2007 SCC OnLine Bom 166 : (2007) 3 Bom CR 249 : (2007) 3 AIR Bom R 475
  4. D.M Battar vs State Bank�2022 Cr.LJ 4851
  5. Ramnarain P. Ltd. V. State Trading Corporation [1988] BJ 265

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