Negotiable Instruments

Client/Matter: -None-
20. [s 20] Inchoate stamped instruments—

21. [s 21] ‘At sight’, ‘On presentment’, ‘After sight’—
22. [s 22] ‘Maturity’—
23. [s 23] Calculating maturity of bill or note payable so many months after date or sight.—
24. [s 24] Calculating maturity of bill or note payable so many days after date or sight.—
25. [s 25] When day of maturity is a holiday—
26. [s 26] Capacity to make, etc., promissory notes, etc—
27. [s 27] Agency—
28. [s 28] Liability of agent signing—
29. [s 29] Liability of legal representative signing—
30. [s 30] Liability of drawer—
31. [s 31] Liability of drawee of cheque—
32. [s 32] Liability of maker of note and acceptor of bill—
33. [s 33] Only drawee can be acceptor except in need or for honour—
34. [s 34] Acceptance by several drawees not partners—
35. [s 35] Liability of indorser—
36. [s 36] Liability of prior parties to holder in due course—
37. [s 37] Maker, drawer and acceptor principals—
38. [s 38] Prior party a principal in respect of each subsequent party—
39. [s 39] Suretyship.—
40. [s 40] Discharge of indorser’s liability—
41. [s 41] Acceptor bound, although indorsement forged—
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42. [s 42] Acceptance of bill drawn in fictitious name—
43. [s 43] Negotiable instrument made, etc., without consideration—
44. [s 44] Partial absence or failure of money-consideration—
45. [s 45] Partial failure of consideration not consisting of money—
46. [[s 45A] Holder’s right to duplicate of lost bill.—
47. [s 46] Delivery—
48. [s 47] Negotiation by delivery—
49. [s 48] Negotiation by indorsement—
50. [s 49] Conversion of indorsement in blank into indorsement in full—
51. [s 50] Effect of indorsement—
52. [s 51] Who may negotiate—
53. [s 52] Indorser who excludes his own liability or makes it conditional—
54. [s 53] Holder deriving title from holder in due course—
55. [s 54] Instrument indorsed in blank—
56. [s 55] Conversion of indorsement in blank into indorsement in full—
57. [s 56] Indorsement for part of sum due—
58. [s 57] Legal representative cannot by delivery only negotiate instrument indorsed by deceased—
59. [s 58] Instrument obtained by unlawful means or for unlawful consideration—
60. [s 59] Instrument acquired after dishonour or when overdue—
61. [s 60] Instrument negotiable till payment or satisfaction—
62. [s 61] Presentment for acceptance—
63. [s 62] Presentment of promissory note for sight—
64. [s 63] Drawee’s time for deliberation—
65. [s 64] Presentment for payment—
66. [s 65] Hours for presentment—
67. [s 66] Presentment for payment of instrument payable after date or sight.—
68. [s 67] Presentment for payment of promissory note payable by instalments—
69. [s 68] Presentment for payment of instrument payable at specified place and not elsewhere—
70. [s 69] Instrument payable at specified place.—
71. [s 70] Presentment where no exclusive place specified—
72. [s 71] Presentment when maker, etc., has no known place of business or residence.—
73. [s 72] Presentment of cheque to charge drawer—
74. [s 73] Presentment of cheque to charge any other person.—
75. [s 74] Presentment of instrument payable on demand.—
76. [s 75] Presentment by or to agent, representative of deceased, or assignee of insolvent—
77. [[s 75A] Excuse for delay in presentment for acceptance or payment.—
78. [s 76] When presentment unnecessary—
79. [s 77] Liability of banker for negligently dealing with bill presented for payment—
80. [s 78] To whom payment should be made—
81. [s 79] Interest when rate specified.—
82. [s 80] Interest when no rate specified—
83. [s 81] Delivery of instrument on payment or indemnity in case of loss—
84. [s 82] Discharge from liability—
85. [s 83] Discharge by allowing drawee more than forty-eight hours to accept.—
86. [s 84] When cheque not duly presented and drawer damaged thereby.—
87. [s 85] Cheque payable to order—
88. [[s 85A] Drafts drawn by one branch of a bank on another payable to order.—
89. [s 86] Parties not consenting discharged by qualified or limited acceptance—
90. [s 87] Effect of material alteration—
91. [s 88] Acceptor or indorser bound notwithstanding previous alteration—
92. [s 89] Payment of instrument on which alteration is not apparent—
93. [s 90] Extinguishment of rights of action on bill in acceptor’s hand.—
94. [s 91] Dishonour by non-acceptance—
95. [s 92] Dishonour by non-payment—
96. [s 93] By and to whom notice should be given—
97. [s 94] Mode in which notice may be given—
98. [s 95] Party receiving must transmit notice of dishonour—
99. [s 96] Agent for presentment—
100. [s 97] When party to whom notice given is dead.—
[s 1] Short title—
Khergamvala: The Negotiable Instruments Act, 23rd Edn
Khergamvala P Krishna Kumar & S Abdul Khader Kunju
Khergamvala: The Negotiable Instruments Act, 23rd Edn > Khergamvala: The Negotiable Instruments
Act, 23rd Edn > THE NEGOTIABLE INSTRUMENTS ACT, 1881 > PART I GENERAL > CHAPTER 1
PRELIMINARY
THE NEGOTIABLE INSTRUMENTS ACT, 1881
PART I GENERAL
THE NEGOTIABLE INSTRUMENTS ACT 1881
(Act XXVI of 1881)
[9th December 1881]
An Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques.
PREAMBLE
Whereas it is expedient to define and amend the law relating to promissory notes, bills of exchange and cheques;
It is hereby enacted as follows:

CHAPTER 1 PRELIMINARY
This Act may be called the Negotiable Instruments Act, 1881.
Local Extent, saving of usages relating to Hundis, etc., Commencement.—It extends1 to 2[the whole of India
3[***]], but nothing herein contained affects the 4Indian Paper Currency Act, 1871 (3 of 1871), section 21, or
affects any local usage relating to any instrument in an oriental language:
Provided that such usages may be excluded by any words in the body of the instrument, which indicate an
Page 2 of 32
intention that the legal relations of the parties thereto shall be governed by this Act; and it shall come into force
on the first day of March, 1882.
[s 1.1] Historical Background of the Legislation
The earliest attempt to codify a law relating to merchantile usages was made in France as early as in the year
1818 and the French Commercial Code was later adopted as a model by many other countries.
In England, the movement for such a codification of law relating to merchantile usages materialised only in
1880 when Sir McKenzie Chalmers drafted a Bill which was later enacted as Bills of Exchange Act, 1882. This
English Act had the distinction of containing a provision by way of section 13(2) which stated that a bill is not
invalid by reason only that it is ante-dated or post-dated.
The history of law relating to Negotiable Instruments as applicable in India and as codified in the pre-
independence era is a long one.
The 3rd Indian Law Commission originally prepared a draft of this legislation in 1866. Thereafter, the draft
legislation was introduced in the Council in December, 1867 and the Council referred it to as Select Committee.
This draft legislation met with strong objections raised by the mercantile community on multifarious aspects,
including the aspect of certain deviations from English Law which this legislation contained. This led to the initial
draft of legislation being subjected to redrafting in 1877 so as to meet the objections and demands of
merchantile community.
After needful deliberation on this draft legislation, including criticism by the Local Governments, the High Courts
and the Chambers of Commerce, the draft Bill was revised by a Select Committee. In spite of this, the draft Bill
could not attain finality.
In 1879, Mr Arthur Phillips, the then Law Secretary and a Member of the Calcutta Bar, redrafted the Bill. This
Bill, after passing through the Select Committee more than once, was again referred to a new Law Commission
in 1879.5 On the recommendation of the new Law Commission, the Bill was re-drafted and again it was sent to
Page 3 of 32
a Select Committee which adopted most of the additions recommended by the new Law Commission. The draft
thus prepared for the fourth time was introduced in the Council and was passed into law in 1881 being the
Negotiable Instruments Act, 1881.6
[s 1.2] Legislative Competence
Article 246 of the Constitution endows Parliament with the exclusive power to make laws with respect to any of
the matters enumerated in List I (Union List) in the Seventh Schedule. Entry 46 in the Union List comprises of
bills of exchange, cheques, promissory notes and other like instruments. Entry 45 of the List relates to banking.
The law pertaining to negotiable instruments and banking, thus, falls within the exclusive jurisdiction of
Parliament, which alone can alter or amend the Act.
It is important to note the powers of Parliament and of the state legislatures to enact laws regarding bills of
exchange, cheques and promissory notes. The question whether the state legislatures, in including law relating
to this subject within their own list, had transgressed their jurisdiction and incidentally encroached upon the
jurisdiction of the federal subjects under the Government of India Act, 1935, was decided by the Supreme Court
in State of Bombay v Narothamdas.7 In that case, the plaintiff instituted a suit in the High Court of Bombay for
recovery of Rs 11,074 on the basis of a promissory note. He contended that the Bombay City Civil Court Act,
1935 enacted by the provincial legislature was ultra vires the Government of India Act, 1935; as the subject of
promissory notes was covered by Entry 53, List I of the Seventh Schedule to the Government of India Act,
1935. It was held that the impugned Act was, in pith and substance, a law with respect to a matter enumerated
in List II (Entry 2 read with Entry 1) of the Seventh Schedule to the Government of India Act, 1935 and hence
not ultra vires and the fact that incidentally it affected suits relating to promissory notes (a subject falling within
Entries 28 and 53 of List I) would not affect its validity.
A similar issue of transgression of power had arisen before the Privy Council in Prafulla Kumar Mukherjee v
Bank of Commerce Ltd, Khulna.8 In that case, the Bengal Money Lenders Act enacted by the provincial
legislature which restricted the amount of loan and interest that may be recovered from the debtor with
retrospective effect was challenged being ultra vires the Government of India Act, 1935 as the subject of
negotiable instruments and banking was covered by Entries of List I. It was held that the impugned Act was, in
pith and substance, a law with respect to a matter enumerated in List II dealing with money lenders and money
lending and for relief of debtors, and hence not ultra vires and the fact that incidentally it affected matters in List
I would not affect its validity.
[s 1.3] Subsequent Amendments

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In its 131 odd years of existence, the Negotiable Instruments Act has been subjected to numerous
amendments, so much so that the legislation which was initially meant to regulate the merchantile usages and
commercial transactions dealing with bills of exchange and promissory notes, has now become infamous for
governing the cheque-bouncing criminal cases which has the tendency of threatening the entire criminal justice
delivery system in India.
The amendments carried out are as follows:
(i) The Negotiable Instruments Act, 1885 (II of 1885)
(ii) The Amending Act, 1891 (XII of 1891)
(iii) The Negotiable Instruments (Amendment) Act, 1897 (VI of 1897)
(iv) The Decentralization Act, 1914 (IV of 1914)
(v) The Negotiable Instruments (Amendment) Act, 1914 (V of 1914)
(vi) The Negotiable Instruments (Amendment) Act, 1919 (VIII of 1919)
(vii) The Negotiable Instruments (Amendment) Act, 1920 (XXV of 1920)
(viii) The Negotiable Instruments (Amendment) Act, 1921 (XII of 1921)
(ix) The Negotiable Instruments (Amendment) Act, 1922 (XVIII of 1922)
(x) The Negotiable Instruments (Interest) Act, 1926 (XXX of 1926)
(xi) The Negotiable Instruments (Amendment) Act, 1930 (XXV of 1930)
(xii) The Negotiable Instruments (Amendment) Act, 1934 (XVII of 1934)
(xiii) The Government of India (Adaptation of Indian Laws) Order, 1937
(xiv) The Negotiable Instruments (Amendment) Act, 1947 (XXXIII of 1947)
(xv) The Indian Independence (Adaptation of Central Acts and Ordinances) Order, 1948
(xvi) The Merged States (Laws) Act, 1949 (LIX of 1949)
(xvii) The Adaptation of Laws Order, 1950
(xviii) The Part B States (Laws) Act, 1951 (III of 1951)
(xix) The Notaries Act, 1952 (LIII of 1952)
(xx) The French Establishments (Application of Laws) Order, 1954
(xxi) The Negotiable Instruments (Amendment) Act, 1955 (XXXVII of 1955)

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(xxii) The Jammu and Kashmir (Extension of Laws) Act, 1956 (LXII of 1956)
(xxiii) The Repealing and Amending Act, 1957 (XXXVI of 1957)
(xxiv) The Repealing and Amending Act, 1960 (LVIII of 1960)
(xxv) The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amending) Act, 1988
(LXVI of 1988)9
(xxvi) The Negotiable Instruments (Amendment & Miscellaneous Provisions) Act, 2002 (LV of 2002)10
(xxvii) The Negotiable Instruments (Amendment) Act, 2015 (XXVI of 2015)11
(xxviii) The Negotiable Instruments (Amendment) Act, 2018 (XX of 2018)12
The ‘Statement of Objects and Reasons’ appended to the Bill which was passed as ‘The Banking, Public
Financial Institutions and Negotiable Instruments Laws (Amending) Act, 1988 (LXVI of 1988)’ explained the
provisions of the new Chapter in following words:
This clause [Clause (4) of the Bill] inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions
contained in the new Chapter provide that where any cheque drawn by a person for the discharge of any liability is
returned by the bank unpaid for the reason of the insufficiency of the amount of money standing to the credit of the
account on which the cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the
cheque with the bankers for that account, the drawer of such cheque shall be deemed to have committed an offence.
In that case, the drawer, without prejudice to the other provisions of the said Act, shall be punishable with
imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the
cheque, or with both.
The provisions have also been made that to constitute the said offence:
(a) such cheque should have been presented to the bank within a period of six months of the date of its drawal or
within the period of its validity, whichever is earlier; and
(b) the payee or holder in due course of such cheque should have made a demand for the payment of the said
amount of money by giving a notice, in writing, to the drawer of the cheque within fifteen days of the receipt of
the information by him from the bank regarding the return of the cheque unpaid; and
(c) the drawer of such cheque should have failed to make the payment of the said amount of money to the payee
or the holder in due course of the cheque within fifteen days of the receipt of the said notice.
It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such cheque
received the cheque in the discharge of a liability. Defences which may or may not be allowed in any prosecution for
Page 6 of 32
such offence have also been provided to make the provisions effective. Usual provision relating to offences by
companies has also been included in the said new Chapter. In order to ensure that genuine and honest bank
customers are not harassed or put to inconvenience, sufficient safeguards have also been provided in the proposed
new Chapter. Such safeguards are:
(a) that no court shall take cognizance of such offence except on a complaint, in writing, made by the payee or the
holder in due course of the cheque;
(b) that such complaint is made within one month of the date on which the cause of action arises; and
(c) that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate or a Judicial Magistrate of the
First Class shall try any such offence.
The ‘Statement of Objects and Reasons’ appended to the Bill which was passed as ‘The Negotiable
Instruments (Amendment & Miscellaneous Provisions) Act, 2002 (LV of 2002)’ stated as follows:
The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable
Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of
dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. These provisions were
incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument.
The existing provisions in the Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have
been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to
be inadequate, the procedure prescribed for the courts to deal with such matters has been found to be cumbersome.
The courts are unable to dispose of such cases expeditiously in a time-bound manner in view of the procedure
contained in the Act.
2. A large number of cases are reported to be pending under sections 138 to 142 of the Negotiable Instruments Act in
various courts in the country. Keeping in view the large number of complaints under the said Act pending in various
courts, a working group was constituted to review section 138 of the Negotiable Instruments Act, 1881 and make
recommendations as to what changes were needed to effectively achieve the purpose of that section.
3. The recommendations of the Working Group along with other representations from various institutions and
organisations were examined by the Government in consultation with Reserve Bank of India and other legal experts,
and a Bill, namely, the Negotiable Instruments (Amendment) Bill, 2001 was introduced in the Lok Sabha on 24-7-2001.
The Bill was referred to the Standing Committee on Finance which made certain recommendations in its report
submitted to Lok Sabha in November 2001.
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4. Keeping in view the recommendations of the Standing Committee on Finance and other representations, it has been
decided to bring out, inter alia, the following amendments in the Negotiable Instruments Act, 1881, namely:—
(i) to increase the punishment as prescribed under the Act from one year to two years;
(ii) to increase the period for issue of notice by the payee to the drawer from 15 days to 30 days;
(iii) to provide discretion to the court to waive the period of one month, which has been prescribed for taking
cognizance of the case under the Act;
(iv) to prescribe procedure for dispensing with preliminary evidence of the complainant;
(v) to prescribe procedure for servicing of summons to the accused or witness by the court through speed post or
empanelled private couriers;
(vi) to provide for summary trial of the cases under the Act with a view to speeding up disposal of cases;
(vii) to make the offences under the Act compoundable;
(viii) to exempt those Directors from prosecution under section 141 of the Act who are nominated as Directors of a
company by virtue of their holding any office or employment in the Central Government or State Government
or a financial corporation owned or controlled by the Central Government, or the State Government, as the
case may be;
(ix) to provide that the Magistrate trying an offence shall have power to pass sentence of imprisonment for a term
exceeding one year and amount of fine exceeding five thousand rupees;
(x) to make the Information Technology Act, 2000 applicable to the Negotiable Instruments Act, 1881 in relation to
electronic cheques and truncated cheques subject to such modifications and amendments as the Central
Government, in consultation with the Reserve Bank of India, considers necessary for carrying out the
purposes of the Act, by notification in the Official Gazette; and
(xi) to amend definitions of “bankers’ books” and ‘certified copy’ given in the Bankers’ Books Evidence Act, 1891.
5. The proposed amendments in the Act are aimed at early disposal of cases relating to dishonour of cheques,
enhancing punishment for offenders, introducing electronic image of a truncated cheque and a cheque in the electronic
form as well as exempting an official nominee Director from prosecution under the Negotiable Instruments Act, 1881.
6. The Bill seeks to achieve the above objects.
[s 1.4] The Amendment of 2015

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The amendment of 2015 (26 of 2015) has made considerable changes in the Act. Before the amendment, the
applicable general law contained under section 177 of CrPC governed theterritorial jurisdiction for filing the
complaint under section 138. There were numerous litigations regarding this issue. Hence, the amendment
brought jurisdiction clause to the Act. It brought sub-section (2) to section 142 and an additional section 142A.
The amendment of 2015 also brought some changes in the definition of ‘cheque’ by providing changes in
Explanations regarding electronic cheques.
[s 1.5] The Amendment of 2018
The recent Amendment Act 20 of 2018 has made some more changes in the Negotiable Instrument Act, 1881
(NI Act). It gives power to both the trial court and the appellate courts to order against the accused-appellant
interim compensation to be given to the complainant.
[s 1.6] Preamble
The preamble of an Act, in general, affords a good clue to discover the plain object and general intention of the
Legislature. The preamble of this Act is very plainly worded and from the preamble the object of the Act is
apparent. The policy and purpose of a given enactment may legitimately be deduced from the long title and
preamble thereof.13 In the words of Chief Justice Dyer, the preamble is ‘a key to open the minds of the makers
of the Act, and the mischief which they intended to redress.’14
In Kochuni v State of Madras and Kerala15 the Supreme Court has held that the preamble of a statute is a key
to the understanding of it and it may legitimately be consulted to solve ambiguity, or to fix the meaning of words
which may have more than one, or to keep effect of the statute within its real scope whenever the enacting part
is in any of these respects open to doubt. According to Lord Normand, when there is a preamble it is generally
in its recitals the mischief to be remedied and the scope of the Act are described. It is therefore, clearly
permissible to have recourse to it as an aid to constructing the enacting provisions.16
Preamble is a good means of finding out the meaning of an Act. Since it usually states the object and intention
of the Legislature in passing the enactment, it may legitimately be consulted to solve any ambiguity.17 While it
is permissible to look at the preamble for understanding the import of the various clauses contained in the Bill,
the full effect should be given to the express provisions of the Bill even though they appear to go beyond the
terms of the preamble. It is one of the cardinal principles of construction that where the language of an Act is
clear, the preamble must be disregarded though, where the object or meaning of an enactment is not clear, the
preamble may be used to explain it.18
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It should, however, be remembered that although preamble is a part of an Act, but it is not an operative part
thereof.19 As such, the preamble of an Act does not control or override its substantive provisions.20 A preamble
can only be brought in as an aid to construction, if the language of a statute is not clear and admits of plurality
of meanings, but where it is clear and unambiguous preamble cannot be used to extend or limit the meaning
and scope of a statute.21
In the case of Commissioner of Labour v Associated Cement Co Ltd22 it has been held by Bombay High Court
that where there is an ambiguity and where the expression used by the Legislature is capable of more than one
meaning that it is permissible to look to the preamble. Where the language and scope and object of the
enactment are not open to doubt, the preamble cannot either restrict or extend the enacting Article.23 In the
case of conflict between the preamble and a section, it is the section that prevails.24
[s 1.7] Rules of Construction
[s 1.7.1] General
In construing a statute the dominant purpose is to ascertain the intention of the Legislature. This intention is
primarily to be sought in the words used in the statute itself. If the words are plain and unambiguous, they must
be applied as they stand, however strongly it may be suspected that the result does not represent the real
intention of Parliament.25 While interpreting a statute, the Court is trying to ascertain the intention and the
policies of statute to the extent they may be gathered from the language used in it. Consequently, when
construing a statute the object of its enactment should be kept in mind and the statute be construed with
reference to its intended scope and purpose, and in order to carry out this purpose rather than to defeat it.26 In
the words of Krishna Iyer, J, ‘every legislation is a social document and judicial construction seeks to decipher
the statutory mission of suppressing the evil and advancing the remedy.’
The primary mode of interpretation of statutes is the rule of literal construction. The length and detail of modern
legislation has undoubtedly reinforced the claim of literal construction as the only safe rule. If there is nothing to
modify, alter or qualify the language which the statute contains, it must be construed in the ordinary and natural
meaning of the words and sentences.27 As observed by the Supreme Court in Darshan Singh v State28, the
language used in a statute is the true depository of the legislative intent. Words and phrases occurring in a
statute are to be taken not in an isolated or detached manner dissociated from the context but are to be read
together and construed in the light of the purpose and object of the Act itself.
Page 10 of 32
The cardinal rule of construction is to read the statute literally, by giving to the words used their ordinary and
natural grammatical meaning. The question of considering some other possible meaning can arise only if the
former method results in absurdity. Where the words or phraseology used is plain and unambiguous, the
reference to the object and intention of the legislature is irrelevant and immaterial.29 But if such literal
interpretation leads to an anomalous and absurd situation and if it leads to a conflict between two provisions of
the law on the subject, the Court has to find the real intention of the legislature. If two views are possible, one
which result in anomaly and the other not, the duty of the Court is to adopt the latter and not the former.30 In
the case of Chamarbaugwala v UOI,31 the Supreme Court pointed out that in order to arrive at the real
meaning, it is necessary to consider (i) what was the law before the Act was passed; (ii) what was the mischief
or defect for which the law had not provided; (iii) the remedy Parliament has pointed out, and (iv) the true
reason of the remedy. This rule recognises the well-known principle laid down in Heydon’s case.32
The words of the statute, when there is doubt about the meaning, are to be understood in the sense in which
they best harmonise with the subject of the enactment. According to Maxwell, ‘their meaning is to be found not
so much in a strict grammatical or etymological propriety of language, nor even in its popular use, as in the
subject, or the occasion on which they are used and the object to be attained.’33 In a famous English case
Smith v Hughes,34Lord Parker, CJ, held that prostitutes who attracted passers-by from balconies or windows
were soliciting ‘in a street’ within the meaning of section 1(1) of the Street Offences Act, 1959. It was pointed
out that if the Act was intended to clean up the streets, the precise place from which a prostitute addressed her
solicitations to somebody walking in the street became irrelevant. In the words of Justice Holmes, ‘a word is not
a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in colour and
content according to the circumstances and the time in which it is used.’35
The Negotiable Instruments Act was initially meant to regulate the merchantile usages and commercial
transactions dealing with bills of exchange and promissory notes. However, the provisions of the subsequently
inserted Chapter XVII, on coming into force with effect from 1 April 1989, have brought in a veritable deluge of
cases in the criminal court system. In the metropolitan cities and the commercial centres of the country, it
almost appears that the main function of the Magistrate’s court is to recover monies on behalf of parties on the
wrong end of the commercial transactions that had gone sour. Complaints under section 138 of the Act have
come to be filed in such large numbers that it has become impossible for courts to handle them within a
reasonable time and it is also having a highly adverse effect on the courts’ normal work in ordinary criminal
matters. As such, by way of remedy, which was felt to be urgently required, the legislature took action by
introducing further amendments in the Act by the Negotiable Instruments (Amendment and Miscellaneous
Provisions) Act, 2002. The 2002 Amendment inserted in the Act for the first time sections 143 to 147 besides
bringing about a number of changes in the existing provisions of sections 138 to 142. Therefore, while
construing the provisions of this Act, the purpose for which this law has been enacted must be kept in mind. If
Page 11 of 32
the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of
the legislation, we should avoid a construction which would reduce the legislation to futility and should rather
accept the bolder construction based on the view that Parliament would legislate only for the purpose of
bringing about an effective result.36
At the same time, it has to be remembered that the drawer of a cheque is meant to be subjected to a criminal
trial, and the procedure of summary trials is adopted under section 143 subject to the qualification ‘as far as
possible’, thus, leaving sufficient flexibility so as not to affect the quick flow of the trial process. Even while
following the procedure of summary trials, the non obstante clause and the expression ‘as far as possible’ used
in section 143 coupled with the non obstante clause in section 145 allow for the evidence of complainant to be
given on affidavit, that is, in the absence of accused. This would have been impermissible (even in a summary
trial under the Code of Criminal Procedure) in view of sections 251 and 254 and especially section 273 of the
Code. The accused, however, is fully protected, as under section 145(2) he has the absolute and unqualified
right to have the complainant and any or all of his witnesses summoned for cross-examination. Therefore, while
interpreting the provisions of this Act, it is also to be seen that where a provision is meant for protecting the
rights of an accused in a criminal trial, it is so interpreted, either liberally in favour of the accused or strictly
against the complainant. This balancing act by courts is expected to be a continuous juggling in their endeavour
to dispense with justice without compromising with the status of an accused and his craving for justice.
[s 1.7.2] Construction of Penal Statutes
A penal statute should be strictly construed. If two possible and reasonable constructions can be put upon a
penal statute, the court must lean towards that construction which exempts the subject from penalty rather than
one which imposes the penalty.37 Any reasonable doubt or ambiguity will be resolved in favour of the person
who should be liable to the penalty. In a case under the Prevention of Food Adulteration Act, Justice Sarkaria,
in Municipal Corporation of Delhi v Kacheroo Mal,38 held as follows:
Whenever possible, without unreasonable stretching or straining, the language of such a statute should be construed
in a manner which would suppress the mischief, advance the remedy, promote its object, prevent its subtle evasion
and foil its artful circumvention.
In yet another case under the same law, Justice Krishna Iyer, in his inimitable style held as follows:
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In the field of legal interpretation, dictionary scholarship and precedent-based connotation cannot become a universal
guide or semantic tyrant, oblivious of the social context, subject of legislation and object of the law.39
All statutes are now construed with a more attentive regard to the language and criminal statute with a more
rational regard to the aim and intention of the legislature, than formerly. It is unquestionably right that the
distinction should not be altogether erased from the judicial mind, for it is required by the spirit of our free
institutions that the interpretation of all statutes should be favorable to personal liberty.40
[s 1.7.3] Harmonious Construction
It is a well-settled rule of interpretation of statutes that the court must endeavour to harmonise different
provisions of the same Act and prefer an interpretation which would lead to a harmonious construction rather
than to lead to inconsistency.41 When one section of an Act takes away what another confers, by using a non-
obstante clause, it is the duty of Courts to harmonise them and avoid a head-on clash. While, no doubt, it is
permissible to supply a clear and obvious lacuna in a statute and imply a right of appeal, it is incumbent on the
Court to avoid a construction, if reasonably permissible on the language, which would render a part of the
statute devoid of any meaning or application.42
Every part of a statute should be construed in harmony and not in isolation. In construing the provisions of a
statute Courts should be slow to adopt a construction which tends to make any part of the statute meaningless
and ineffective; and attempt must always be made to reconcile the relevant provisions as to advance the
remedy intended by the statute.43 In the words of Justice Hidayatullah (as his Lordship then was) in
Golaknath’s Case,44 if there are two provisions which seem to be hostile ‘juridical hermeneutics requires the
Court to interpret them by combining them and not by destroying one with the aid of the other.’
In the Bengal Immunity Co Ltd v State of Bihar45, the Supreme Court held as follows in para 168:
It is a cardinal rule of construction that when there are in a statute two provisions which are in conflict with each other
such that both of them cannot stand, they should, if possible be so interpreted that effect can be given to both, and that
a construction which renders either of them inoperative and useless should not be adopted except in the last resort.
This is what is known as the rule of harmonious construction. (Per Venkatrama Ayyar, J)
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The principle of harmonious construction applies not only in the case of different provisions of statutes but also
in the case of same words appearing in the same paragraph of a statutory notification or in the same section of
a statute. In Upendra Kumar v Don Finance Corporation, Mangalore,46 the accused was having an account
with the Cooperative Society. The Cooperative Society was carrying on banking business. It was held the
scope of section 3 of the Act was wider than Banking Regulation Act. Accordingly, the Cooperative Society was
held to be falling within the definition of ‘Banker’ in view of section 3 of the Act.
[s 1.7.4] Mandatory and Directory Provisions
In ordinary usage, the word ‘may’ is permissive and ‘shall’ is imperative. In other words the use of the word
‘may’ and ‘shall’ indicates whether the relevant requirement of law is ‘directory’ or ‘mandatory’. But it is not
conclusive on the question. The governing factor is the meaning and intent of the legislature, which should be
gathered not merely from the words used but a variety of other circumstances and considerations. The
circumstance that the legislature has used a language of compulsive force is always of great relevance and in
the absence of anything contrary in the context indicating that a permissive interpretation is permissible, the
statute ought to be construed as peremptory.
Although judicial decisions propound several tests for determining whether a provision is directory or
mandatory, no universal rule can be laid down. In each case one must look to the subject matter and consider
the importance of the provision to the general object intended to be secured.47 In Brett v Brett,48 the matter has
been put in succinct words as follows:
The key to the opening of every law is the reason and spirit of the law, it is the animusimponentis, the intention of the
law maker expressed in the law itself, taken as a whole.
In the Presidential Election case,49 the Supreme Court has held that in determining the question whether a
provision is mandatory or directory, the subject-matter, the importance of the provision, the relation of that
provision to the general object intended to be secured by the Act will decide whether the provision is directory
or mandatory. No doubt, all laws are mandatory in the sense that they impose the duty to obey on those who
come within its purview. But it does not follow that every departure from it shall taint the proceeding with a fatal
blemish.50 However, a statute cannot be said to be mandatory unless the non-compliance with it has been
made penal.51
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The following passage form Crawford on Statutory Construction appropriately sets out the principle:
…the question as to whether a statute is mandatory or directory depends upon the intent of the legislature and upon
the language in which it is clothed. The meaning and intention of the legislature must govern, and these are to be
ascertained, not only from the phraseology of the provision, but also by considering its nature, its design and the
consequences which would follow from construing it one way or the other.52
The use of the expression ‘shall’ cannot be a true guide to the exact nature of a provision as to whether it is
mandatory or directory. The real intention of the legislature is to be gathered by looking to the subject matter, by
considering the importance of the provision that has been disregarded and the relation of that provision with the
general object intended to be secured by the Act.53
According to Maxwell, when a statute requires that something shall be done, or done in a particular manner or
form, without expressly declaring what shall be the consequence of non-compliance, the question to be
considered is whether it is imperative (or mandatory) or merely directory (or permissive)? In some cases, the
conditions or forms prescribed by the statute have been regarded as essential to the Act or thing regulated by
it, and their omission has been held fatal to its validity. In others, such prescriptions have been considered as
merely directory, the neglect of them involving nothing more than liability to a penalty, if any were imposed, for
breach of the enactment. An absolute enactment must be obeyed or fulfilled exactly but it is sufficient if a
directory enactment be obeyed or fulfilled substantially.54
[s 1.7.5] Proviso
A proviso is subservient to the main provision and in effect it limits the principal enactment. It carves out an
exception to the general rule contained in the main provision. In Ram Narain Sons Ltd v Asst. Commissioner of
Sales Tax55, NH Bhagwati, J observed as follows:
It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is
covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a
proviso and to no other.
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The proper function of a proviso is that it qualifies the generality of the main enactment by providing exception
and taking out, as it were, from the main enactment, a portion, which, but for the proviso would fall within the
main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by
way of an addendum or dealing with a subject which is foreign to the main enactment.56 But a proviso ‘is of
necessity…limited in the scope to the ambit of the section which it qualifies’.57
According to Lord Russel, although a proviso may well be incapable of putting upon preceding words a
construction which they cannot possibly bear, it may without doubt operate to explain which two possible
meanings is the right one to attribute to them. One must however read the whole clause before attempting to
construe any portion of it and a perusal of the proviso fixes the meaning of the words which precede it.58 Lord
Watson in West Derby v Metropolitan Life Assurance59 cautioned that it is ‘a very dangerous and certainly
unusual course to import legislation from a proviso wholesale into the body of the statute. In Statute Law by
Craies60 it is observed as follows:
The effect of an excepting or qualifying proviso, according to ordinary rules of construction, is to except out of the
preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it
… The natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-
matter of the proviso.
In State of Rajasthan v Leela Jain61 it was held as follows:
So far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a
proviso is to limit the main part of the section and carve out something which but for the proviso would have been
within the operative part.
In Hiralal Ratan Lal v State of UP62 it has been observed as follows:
Ordinarily, a proviso to a section is intended to take out a part of the main section for special treatment. It is not
expected to enlarge the scope of the main section. But cases have arisen in which this court has held that despite the
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fact a provision is called proviso, it is really a separate provision and the so called proviso has substantially altered the
main section.
In the words of Hidayatullah, J (as he then was), ‘as a general rule, a proviso is added to an enactment to
qualify or create an exception to what is in the enactment, and ordinarily a proviso is not interpreted as stating a
general rule.’63
In S. Sundaram Pillai v VR Pattabhiraman,64Fazl Ali, J, observed as follows:
… the well established rule of interpretation of a proviso is that a proviso may have three separate functions. Normally,
a proviso is meant to be an exception to something within the main enactment or to qualify something enacted therein
which but for the proviso would be within the purview of the enactment. In other words, a proviso cannot be torn apart
from the main enactment nor can it be used to nullify or set at naught the real object of the main enactment.
However, if a proviso cannot reasonably be construed otherwise than as contradicting the main enactment,
then the proviso will prevail on the principle that it speaks the last intention of the makers.65 On the same
analogy, where there are two provisos to a section and the second is repugnant to the first, the second must
prevail for it stands last in the enactment and so speaks the last intention of the makers.66
[s 1.7.6] Doctrine of Pith and Substance
The doctrine of pith and substance is an important means in Constitutional Law to ascertain the constitutional
validity of an enactment. This doctrine is to be applied not only in cases of apparent conflict between the
powers of two Legislatures but in any case where question arises whether a legislation is covered by a
particular legislative power in exercise of which it is purported to be made.
This doctrine means that if an enactment substantially falls within the powers expressly conferred by the
Constitution upon the Legislature which enacted it, it cannot be held to be invalid, merely because it incidentally
encroaches on matters assigned to another Legislature.67 In other words, when a law is impugned as ultra
vires, what has to be ascertained is the true character of the legislation. If on such examination it is found that
the legislation is in substance one on a matter assigned to the Legislature, then it must be held to be valid in its
entirety, even though it might incidentally trench on matters which are beyond its competence.68
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The question of invasion into the territory of another Legislature is to be determined not by degree but by
substance. Nevertheless, the extent of invasion is not altogether irrelevant for determination of the question.
Though the validity of an Act is not to be determined by discriminating between degrees of invasion, the extent
of invasion into another sphere may itself determine what is the ‘pith and substance’ of the impugned Act.69 But
once the ‘pith and substance’ of the legislation is determined and is found to be within the powers of the
Legislature, the extent of invasion into the other sphere cannot invalidate the law.70
In all such cases, the name given by the Legislature to the impugned enactment is not conclusive on the
question of its own competence to make it. It is the ‘pith and substance’ of the legislation which decides the
matter.71
The said principle was enunciated in Burah’s Case72 in which it has been held as follows:
The established Court of Justice, when a question arises whether the prescribed limits have been exceeded, must of
necessity determine that question; and the only way in which they can properly do so, is by looking to the terms of the
instrument by which, affirmatively, the legislative powers were created, and by which, negatively, they are restricted. If
what has been made is legislation, within the general scope of the affirmative words which give the power, and if it
violates no express condition or restriction, by which that power is limited, it is not for any court of justice to inquire
further or to enlarge constructively those conditions and restrictions.
In State of Bombay v Narothamdas,73the plaintiff had instituted a suit in the High Court of Bombay for recovery
of Rs 11,074 on the basis of a promissory note. He contended that the Bombay City Civil Court Act, 1935
enacted by the provincial legislature was ultra vires the Government of India Act, 1935; as the subject of
promissory notes was covered by Entry 53, List I of the Seventh Schedule to the Government of India Act,
1935. It was held that the impugned Act was, in pith and substance, a law with respect to a matter enumerated
in List II (Entry 2 read with Entry 1) of the Seventh Schedule to the Government of India Act, 1935 and hence
not ultra vires and the fact that incidentally it affected suits relating to promissory notes (a subject falling within
Entries 28 and 53 of List I) would not affect its validity.
A similar issue of transgression of power had arisen before the Privy Council in Prafulla Kumar Mukherjee v
Bank of Commerce Ltd, Khulna.74 In that case, the Bengal Money Lenders Act enacted by the provincial
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legislature which restricted the amount of loan and interest that may be recovered from the debtor with
retrospective effect was challenged being ultra vires the Government of India Act, 1935 as the subject of
negotiable instruments and banking was covered by Entries of List I. It was held that the impugned Act was, in
pith and substance, a law with respect to a matter enumerated in List II dealing with money lenders and money
lending and for relief of debtors, and hence not ultra vires and the fact that incidentally it affected matters in List
I would not affect its validity.
[s 1.7.7] Presumptions and Doctrine of ‘Reverse Onus’ Clause
Explaining the ‘reverse onus’ cast upon an accused or a defendant in the cases under this Act, it was held by
the Supreme Court75 that the use of the phrase ‘until the contrary is proved’ in section 118 of the Act and use
of the words ‘unless the contrary is proved’ in section 139 of the Act read with definitions of ‘may presume’ and
‘shall presume’ as given in section 4 of the Evidence Act, makes it at once clear that presumptions to be raised
under both the provisions are rebuttable. When a presumption is rebuttable, it only points out that the party on
whom lies the duty of going forward with evidence, on the fact presumed and when that party has produced
evidence fairly and reasonably tending to show that the real fact is not as presumed, the purpose of the
presumption is over.
It has been further explained that an accused in a trial under section 138 of the Act or a defendant in a suit
based on a negotiable instrument has two options. He can either show that consideration and debt did not exist
or that under the particular circumstances of the case the non-existence of consideration and debt is so
probable that a prudent man ought to suppose that no consideration and debt existed. To rebut the statutory
presumptions an accused is not expected to prove his defence beyond reasonable doubt as is expected of the
complainant in a criminal trial. The accused may adduce direct evidence to prove that the note in question was
not supported by consideration and that there was no debt or liability to be discharged by him. However, the
court need not insist in every case that the accused should disprove the non-existence of consideration and
debt by leading direct evidence because the existence of negative evidence is neither possible nor
contemplated. At the same time, it is clear that bare denial of the passing of the consideration and existence of
debt, apparently would not serve the purpose of the accused. Something which is probable has to be brought
on record for getting the burden of proof shifted to complainant. To disprove the presumptions, the accused
should bring on record such facts and circumstances, upon consideration of which, the court may either believe
that the consideration and debt did not exist or their non-existence was so probable that a prudent man would
under the circumstances of the case, act upon the plea that they did not exist. Apart from adducing direct
evidence to prove that the note in question was not supported by consideration or that he had not incurred any
debt or liability, the accused may also rely upon circumstantial evidence and if the circumstances so relied upon
are compelling, the burden may likewise shift again on to the complainant or the plaintiff, as the case may be.
The accused or the defendant, as the case may be, may also rely upon presumptions of fact, for instance,
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those mentioned in section 114 of the Evidence Act to rebut the presumptions arising under sections 118 and
139 of the Act.76
The accused or the defendanthas also an option to prove the non-existence of consideration and debt or
liability either by letting in evidence or in some clear and exceptional cases, from the case set out by the
complainant or the plaintiff, that is, the averments in the complaint or the plaint, the case set out in the statutory
notice and evidence adduced by the complainant or the plaintiffduring the trial. Once such rebuttal evidence is
adduced and accepted by the court, having regard to all the circumstances of the case and the preponderance
of probabilities, the evidential burden shifts back to the complainant or the plaintiff, as the case may be, and,
thereafter, the presumptions under sections 118 and 139 of the Act will not again come to the rescue of the
complainant or the plaintiff.77
[s 1.8] ‘Extends to the Whole of India’ - Meaning
Before the passing of the Indian Independence Act, 1947, the Negotiable Instruments Act, 1881 (the Act)
extended to the whole of British India including all territories and places within His Majesty’s dominions which
were for the time being governed by His Majesty through the Governor General of India.
Section 18(3) of the Independence Act, 1947 provided:
Save as otherwise expressly provided in this Act, the law of British India and of the several parts thereof existing
immediately before the appointed day shall, so far as applicable and with the necessary adaptations, continue as the
law of each of the new dominions and the several parts thereof until other provision is made by laws of the legislature
or other authority having power in that behalf.
Presently under Article 372 of the Constitution of India, all legislations in force in the territory of India
immediately before the commencement of the Constitution shall continue to have effect, until altered or
repealed or amended by a competent legislature or other competent authority.
Therefore, this Act extends to the whole of India.78 The Constitution of India79 defines the extent of India as
follows:
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(3) The territory of India shall comprise—
(a) the territories of the States;
(b) the Union territories specified in the First schedule; and
(c) such other territories as may be acquired.
Originally, India was defined to comprise the territories of Part A, Part B and Part C states and the territories of
Andaman and Nicobar Islands. After the reorganisation of States in 1956 and the Constitution (Seventh
Amendment) Act, 1956 and after the bifurcation of several existing States and passing of J&K Reorganisation
Act, 2019, the territory of India now comprises the following States and Union Territories:
1. Andhra Pradesh
2. Arunachal Pradesh
3. Assam
4. Bihar
5. Chhattisgarh
6. Goa80
7. Gujarat
8. Haryana
9. Himachal Pradesh
10. Jharkhand
11. Karnataka
12. Kerala
13. Madhya Pradesh
14. Maharashtra
15. Manipur
16. Meghalaya
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17. Mizoram
18. Nagaland
19. Odisha
20. Punjab
21. Rajasthan
22. Sikkim
23. Tamil Nadu
24. Telangana
25. Tripura
26. Uttarakhand
27. Uttar Pradesh and
28. West Bengal
Union Territories:
1. Delhi
2. The Andaman and Nicobar Islands
3. Lakshadweep
4. Dadra and Nagar Haveli81 and Daman and Diu82
5. Puducherry
6. Chandigarh
7. Ladakh83
8. Jammu & Kashmir84
India has also been defined in the General Clauses Act (Act X of 1897). Section 3(28) stands as follows:
India shall mean:

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(a) As respects any period before the establishment of the Dominion of India, British India together with all
territories of Indian Rulers then under the Suzerainty of His Majesty, all territories under the Suzerainty of
such an Indian Ruler and the tribal areas;
(b) as respects any period after the establishment of the Dominion of India and before the commencement of the
Constitution, all territories for the time being included in that Dominion; and
(c) as respects any period after the commencement of the Constitution, all territories for the time being comprised
in the territory of India.
The Act has been extended to Goa, Daman and Diu by Reg. 12 of 1962, Dadra and Nagar Haveli by Reg. 6 of
1963, Pondicherry by Reg. 7 of 1963.
In Pale Horse Designs v Natarajan Rathnam,85 the respondent, furnishing a local address in Chennai preferred
three criminal complaints against the petitioners/accused persons for alleged offences punishable under
sections 138 and 141 of Negotiable Instruments Act in respect of seven dishonoured cheques drawn on M/s.
Danvers Savings Bank, One Conant Street, Danvers, MA 01923 in favour of the respondent herein. The
cheques were presented for collection through the banker of the respondent, namely M/s. ICICI Bank Limited,
Anna Nagar, Chennai-102 and the same were dishonoured for the reason that ‘stop payment’ instructions were
issued by the drawer. The said fact of dishonour of the cheques was intimated to the accused and upon non-
payment of the cheque amount, three complaints were preferred by the complainant alleging offences
punishable under sections 138 and 141 of the Act. The Magistrate ordered issuance of summons to
petitioners/accused, pursuant to which summons were served on them in the United States of America. On
receipt of summons, the accused persons invoked the inherent powers of High Court under section 482 CrPC,
for quashing all the three complaints on the grounds of jurisdiction.
The Madras High Court noticed the decision of Supreme Court in the cases of Shri Ishar Alloy Steels Ltd v
Jayaswals Neco Limited,86 and Harman Electronics (P) Ltd (M/s) v M/s. National Panasonic India Ltd87 The
High Court further noticed that Chapter XVI of the Negotiable Instruments Act deals with - i) the law governing
the liability of maker, acceptor or indorser of foreign instrument; ii) law applicable in case of dishonour of
negotiable instruments when it is made payable in a different place from that in which it is made or endorsed; iii)
law applicable to negotiable instruments which are made in accordance with law of India even though made out
of India and iv) presumption as to the foreign law in this regard. The High Court discussed the four sections in
Chapter XVI.
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PR Shivakumar, J observed as under:
31. A combined reading of sections 1, 11, 12 and 134 to 137 of the Negotiable Instruments Act, 1881, will make it clear
that a cheque made/drawn in a foreign country on a drawee bank functioning in the foreign country and made payable
therein shall be a foreign instrument and the law of the country wherein the cheque was drawn or made payable shall
be the law governing the rights and liabilities of the parties and the dishonour of the cheque. As such the payee cannot
select a country and present it through a bank therein for collection to confer jurisdiction on a court functioning therein.
If the payee is given such a right to proceed criminally against the drawer by selecting the jurisdiction, the same will
encourage forum shopping making the payees to go to a country wherein the dishonour of the cheque is made a
criminal offence and wherein the law is more favourable to the payee enabling him to collect the amount covered by
the cheque by way of fine or compensation by resorting to criminal prosecution. A person who is not a citizen of India
for an act committed in a foreign country wherein it is not a punishable offence, cannot be prosecuted in India. In this
case, none of the petitioners is a citizen of India. The acts constituting the offence, namely issuance of the cheque, the
dishonour of the cheque, the failure to make payment of the cheque after receipt of the statutory notice were all
committed by them not in India, but in USA. Therefore, they cannot be prosecuted in India for the said act as an
offence punishable under section 138 of the Negotiable Instruments Act, 1881. This court comes to the conclusion that
the learned IX Metropolitan Magistrate, Saidapet does not have the jurisdiction to entertain the complaint since the
offence was not committed within the jurisdiction of the said Metropolitan Magistrate.
32. Yet another aspect in this case is worth mentioning. Even the collecting branch which is situated in Anna Nagar,
Chennai does not come under the territorial jurisdiction of the IX Metropolitan Magistrate, Saidapet. Only the address
of the respondent shown in the complaint and in the statutory notice is in Adyar. We have already seen that the place
of issuance of notice shall not be the only criterion conferring jurisdiction on the court. All the transactions were made
in USA. The cheques were drawn on a bank in USA. The cheques were payable at Massachusetts branch, United
States of America. That being so, the respondent, with a view to invoke the provisions of section 138 of the Negotiable
Instruments Act, 1881 in order to have a short cut method of collecting the cheque amount, has chosen to present the
cheques in a bank at Anna Nagar, Chennai, Tamil Nadu for collection, issue notice from Adyar, Chennai and prefer the
complaint on the file of the IX Metropolitan Magistrate, Saidapet. The said act on the part of the respondent not only
amounts to forum shopping but also is an example of abuse of process of the court. Therefore, this court does have no
hesitation to arrive at the conclusion that in order to avoid miscarriage of justice, to prevent abuse of process of court
and to render complete justice, it shall exercise its inherent power under section 482 CrPC to quash the criminal
proceedings in C.C.Nos.1506, 1507 and 1505 of 2007 on the file of the IX Metropolitan Magistrate, Saidapet.
Accordingly, the criminal proceedings were quashed by Madras High Court for want of territorial jurisdiction.88
[s 1.9] Commencement and Enforcement

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This Act received the assent of the Governor General on 9 December 1881. However, as mentioned in section
1 itself, the Act came into force w.e.f. 1 March 1882.
[s 1.10] The Indian Paper Currency Act, 1871
The Act does not affect the provisions of section 21 of the Indian Paper Currency Act, 1871. The Act of 1871
was followed by a succession of paper currency legislations, the last being the Indian Paper Currency Act, 1923
which was repealed by the Reserve Bank of India Act, 1934. Section 21 of the Act of 1871 has been re-enacted
with slight modification as section 31 of the Reserve Bank of India Act, 1934 which, as amended by Act 23 of
1946, reads:
(1) No person in India other than the Bank or, as expressly authorized by this Act, the Central Government shall draw,
accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable
to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to
bearer on demand of any such person:
Provided that cheques or drafts, including hundis, payable to bearer on demand or otherwise may be drawn on a
person’s account with a banker, shroff or agent.
(2) Notwithstanding anything contained in the Negotiable Instruments Act, 1881, (26 of 1881) no person in India other
than the Bank or, as expressly authorised by this Act, the Central Government shall make or issue any promissory note
expressed to be payable to the bearer of the instrument.
(3) Notwithstanding anything contained in this section, the Central Government may authorise any scheduled bank to
issue electoral bond.
Explanation.—For the purposes of this sub-section, “electoral bond” means a bond issued by any scheduled bank
under the scheme as may be notified by the Central Government.
The object of the paper currency legislation was to prevent banks and private persons from infringing the
government monopoly over the issuance of paper currency in India.89 This monopoly has now been vested in
the Reserve Bank of India in certain cases and the Central Government in others. Payable to bearer on
demand means that anybody can get payment even without an endorsement from the holder of the note.90 The
section allows the issues of bearer cheques on bank accounts, but disallows bank drafts made payable to
bearer.
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[s 1.11] Local Usages
The Act does not apply to any local custom relating to any instrument in an oriental language.91 The Act
applies to promissory notes, bills of exchange and cheques, but where the instrument is in an oriental
language, e.g. a hundi?92 or rukka, any local usage relating to such an instrument applies notwithstanding the
provisions of the Act. The saving clause does not render the Act altogether inapplicable to hundis. It is only
when there is a local usage to the contrary that the local usage overrides the provisions of the Act. The said
usage must be alleged and established by the party relying upon it. In the absence of proof as to the existence
of any such usage, the Act applies as much to hundis as to instruments in English.93 Such local usage may,
however, be excluded by incorporating a specific clause in the body of the instrument indicating an intention
that the legal relations of the parties thereto shall be governed by the Act, in which case the local usage shall
cease to operate.
By excluding the applicability of the Act to instruments in oriental languages, unnecessary confusion in the state
of law has been established. The law of negotiable instruments being closely related to the commercial world
should be, by and large, uniform in its application. The Law Commission of India has also suggested that
instruments drawn in oriental language which fulfill the requirements of instruments dealt with under the Act
should also be governed by the Act.94
[s 1.12] Recommendations of the Law Commission of India
The clogging of the criminal justice delivery system in India due to sudden spurt of cheque-bouncing cases has
compelled the Supreme Court, the High Courts, and the Law Commission as also the jurists and legal thinkers
to ponder about ways and means of regulating it.
The Law Commission of India, in its 213th Report submitted to the Government on 24 November 2008 by its
then Chairman Dr Justice AR Lakshmanan95 noticed that more than 38 lakh cheque bouncing cases were
pending before various courts in the country as of October 2008, which was putting an unprecedented strain on
the judicial system, and proposed the following by way of conclusions and recommendation:
6.1 Issuing a cheque which is dishonoured is crime in India. But we hardly see any people being punished for bouncing
of cheques. People are dissuaded to trust bank cheques. This is all because courts in India are awefully overburdened
with dishonoured cheque cases.
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6.2 Legal experts are unanimous in their opinion that the present system of criminal jurisprudence is destined to fail if
the backlog of cases is not substantially reduced. Recently, the Law Commission of India mooted the concept of ‘plea-
bargaining’ – pre-trial negotiations between the accused and the prosecution in which if the accused agrees to plead
guilty for the charges leveled against him he would get in exchange certain concessions as a quid pro quo, by taking a
lenient view by the courts, particularly in cases of lesser gravity. Actually, the courts have been practically following
such a practice, for several years, now.
6.3 A speedy trial is not only required to give quick justice but it is also an integral part of the fundamental right of life
and liberty, as envisaged in Article 21 of the Constitution of India.
6.4 The Law Commission of India is of the firm opinion that considering the alarming situation of the pendency of cases
and the constitutional rights of a litigant for a speedy and fair trial, the Government of India should direct the State
authorities for setting up of Fast Track Courts in the country, which alone, in the opinion of the Law Commission, will
solve the perennial problem of pendency of cases, which are even summary in nature.
6.5 The Law Commission is of the view that the backlog of cheque bouncing cases need to be speedily disposed of
through this measure lest litigants may lose faith in the judicial system. The commercial circles should have confidence
that we have quite faster judicial system.
6.6 We, accordingly, recommend as under:
(a) Fast Track Courts of Magistrates should be created to dispose of the dishonoured cheque cases under section
138 of the Negotiable Instruments Act, 1881;
(b) The Central Government and State Governments must provide necessary funds to meet the expenditure
involved in the creation of Fast Track Courts, supporting staff and other infrastructure.
The latest Amendment to the Negotiable Instruments Act (Act No. 20 of 2018) aims at reducing undue delay in
completion of trial of offences under section 138 of the Act. In addition to this, the recent judgment of the
Supreme Court in, Re Expeditious Trial of Cases Under Section 138 of NI Act 188196 is a significant turn in the
endeavour to speed up the trial of such cases and thereby to reduce its pendency.
Page 27 of 32
1 The Act has been extended to Goa, Daman and Diu by Regulation 12 of 1962, section 3 and Sch (w.e.f. 1-12-1965).
and to Dadra and Nagar Haveli by Regulation 6 of 1963, section 2 and Sch. I (w.e.f. 1-7-1965) and to the Union territory
of Lakshadweep by Reg. 8 of 1965, section 3 and Sch. (w.e.f. 1-10-1967).
2 Subs. by the A.O. 1950, for “all the Provinces of India”.
3 The words ‘except the State of Jammu and Kashmir’ was omitted by the Jammu and Kashmir (Extension of Laws) Act,
1956 (62 of 1956), section 2 and Sch. (w.e.f 1-11-1956).
4 See now the Reserve Bank of India Act, 1934 (2 of 1934).
5 11th Report – Law Commission of India, 1958.
6 Act No. 26 of 1881; For ‘Statement of Objects and Reasons’, please see Gazette of India, 1876, p 1836; For ‘Report of
the Select Committee’, please see ibid, 1877, Part V, p 321; 1878, Part V, page 145; 1879, Part V, p 75; 1881, Part V, p
85.
7 State of Bombay v Narothamdas, [1951] SCR 51 .
8 Prafulla Kumar Mukherjee v Bank of Commerce Ltd, Khulna, AIR 1947 PC 60 .
9 Vide this amendment, Chapter XVII was inserted in the Act, in light of the report submitted in 1975 by the Committee on
Banking Laws headed by Dr Rajamannar.
10 Ins. in the Act for the first time secs. 143 to 147 besides bringing about a number of changes in the then existing
provisions of secs 138 to 142. This Act was repealed by the Repealing and Amending (Second) Act, 2015 (19 of 2015),
Section 2 and First Sch. (w.e.f. 14-5-2015). The Repeal of this Act shall not affect the validity, invalidity, effect or
consequences of anything already done or suffered, or any right, title, obligation or liability already acquired, accrued or
incurred, or any remedy or proceeding in respect thereof, or any release or discharge of or from any debt, penalty,
obligation, liability, claim or demand, or any indemnity already granted, or the proof of any past act or thing.
11 The Act came into force w.e.f. 15-6-2015.
12 The Act came into force w.e.f. 1-9-2018 vide S.O. 3995(E), dated 16-8-2018.
13 Re Kerala Education Bill, AIR 1958 SC 956 : 1958 KLT 465 : 1958 ILR (Ker) 1167 : 1959 SCR 995 .
14 Stowel v Lord Zouch, (1797) 1 Plowden 353 (369).
15 Kochuni v States of Madras and Kerala, AIR 1960 SC 1080 .
16 Attorney General v HRH Prince Ernest Augustus of Hanover, [1957] AC 436 .
17 Maxwell on Interpretation of Statutes, 8th edn., p 4D.
18 Craies on Interpretation of Statutes, 5th edn., p 188-189.

Page 28 of 32
19 Md. Yusuf v Imtiaz, AIR 1939 Oudh 131 (137).
20 Zeenatunissa Begum v Nawab Syed Waris Ali Mirza Saheb Bahadur, AIR 1965 Cal 473 .
21 Kagra Valley State Co Ltd v Kidar Nath, AIR 1961 Punj 540 (F.B.).
22 Commissioner of Labour v Associated Cement Co Ltd, AIR 1955 Bom 363 (365).
23 Maxwell on Interpretation of Statutes, 8th edn., pp 41-42.
24 Secretary of State v Maharaj of Bobbili, ILR 43 Mad 529 : 46 I. A. 303 (PC).
25 Halsbury’s Laws of England, 3rd edn., para 578, pp 387-88.
26 Mukundilal Agrawal v Shanker Lal Vishwanath Prasad, AIR 1960 MP 285.
27 Maxwell on Interpretation of Statutes, 12th edn., p 28.
28 Darshan Singh v State, AIR 1953 SC 83(86).
29 Rama Anand Patil v Appa Bhima Radekar, AIR 1969 Bom 205.
30 Veluswami Thevar v G Raja Naimar, AIR 1959 SC 422.
31 RMD Chamarbaugwala v Union of India, AIR 1959 SC 628 : 1957 SCR 930.
32 Heydon, (1584) 3 Rep. 7b.
34 Smith v Hughes, [1960] 1 WLR 830.
35 Towne v Eisner, (1917) 245 US 418 (425) : 62 Law Ed. 372.
36 Nokes v Doncaster Analgamated Collieries Ltd, [1940] A.C. 1014, per Viscount Simon, LC.
37 Talaram Rebunal v State, AIR 1958 Bom. 347 (F.B.).

Page 29 of 32
38 Municipal Corporation of Delhi v Kacheroo Mal, AIR 1976 SC 394 : 1976 CrLJ 336.
39 PK Tejani v MR Dange, AIR 1974 SC 228 .
41 Dhan Devi v Bakshi Ram, AIR 1969 Punj 270 (283) : 70 Punj LR 913.
42 Rao Shiv Bahadur Singh v State of Vindhya Pradesh, AIR 1953 SC 394(397).
43 Serajul Haque Khan v Sunni Central Board of Wakf, UP, AIR 1950 SC 198.
44 Per Hidayatullah, J (as he then was) at p 1693 in Golaknath v State of Punjab, AIR 1967 SC 1643.
45 Bengal Immunity Co Ltd v State of Bihar, AIR 1955 SC 661.
46 Upendra Kumar v Don Finance Corporation, Mangalore, 2009 CrLJ 1901 Kar. : AIR 2009 Kar. 184.
47 Hardiwar Singh v Bagun Sumbrui, AIR 1972 SC 1242 (1247).
48 Brett v Brett, (1826) 3 Adams 210 (216).
49 Re Presidential Election, per Ray, CJ, AIR 1974 SC 1682 (1686) : (1974) 2 SCC 33.
50 State of Mysore v Kangan, AIR 1975 SC 2190 (2192).
51 Jagan Nath v Jaswant Singh, AIR 1954 SC 210 (214).
52 Crawford on Statutory Construction (edn. 1940), Article 261, p 516.

Page 30 of 32
53 Jamshedpur Notified Area Committee v Niranjan Paul, 1976 CrLJ 421.
55 Ram Narain Sons Ltd v Asstt. Commissioner of Sales Tax (per NH Bhagwati, J), AIR 1955 SC 765.
56 CIT, Mysore and Travancore- Cochin v Indo Mercantile Bank Ltd (per Kapoor, J), AIR 1959 SC 713 (717).
57 Lloyds Scottish Finance Ltd v Modern Cars and Caravans (Kingston) Ltd (per Edmond Daries), [1966] 1 QB 764.
58 Jennings v Kelly (per Lord Russel), [1939] 4 AIR ER 464 (HL).
59 West Derby v Metropolitan Life Assurance (per Lord Watson), 1897 A.C. 647.
60 Craies, Statute Law, 7th edn., p 218.
61 State of Rajasthan v Leela Jain, AIR 1965 SC 1296.
62 Hiralal Ratan Lal v State of UP, AIR 1973 SC 1034.
63 Shah Bhojraj Kuverji Oil Mills & Ginning Factory v Subhash Chandra Yograj (per Hidayatullah, J), AIR 1961 SC 1596.
64 S Sundaram Pillai v VR Pattabhiraman (per Fazl Ali, J), AIR 1985 SC 582.
65 Maxwell on Interpretation of Statutes, 12th edn., pp 190-191.
66 The King v Dominion Engineering Co Ltd, AIR 1947 PC 94.
67 Ram Krishna v Municipal Committee, (1950) SCR 15.
68 Manmohan v State of Bihar, AIR 1961 SC 189.

Page 31 of 32
69 Amar Singh v State of Rajasthan, (1955) 2 SCR 803.
70 Chaturbhai v Union of India, AIR 1960 SC 424.
71 Ibid.
72 Queen v Burah, (1877-78) 5 Ind App 178.
73 State of Bombay v Narothamdas, [1951] SCR 51.
74 Prafulla Kumar Mukherjee v Bank of Commerce Ltd, Khulna, AIR 1947 PC 60.
75 Kumar Exports v Sharma Carpets, (2009) 2 SCC 513.
78 The words ‘except the State of Jammu and Kashmir’ was omitted by the Jammu and Kashmir (Extension of Laws) Act,
1956 (62 of 1956), section 2 and Sch. (01.11.1956).
79 Under Clause (3) of Article 1.
80 The Act has been extended to Goa, along with Daman and Diu by Regulation 12 of 1962, s 3 and Sch. (w.e.f. 1-12-
1965).
81 The Act has been extended to Dadra and Nagar Haveli by Regulation 6 of 1963, s and Sch. I (w.e.f. 1-11-1956).
82 The Act has been extended to Daman and Diu along with Goa by Regulation 12 of 1962, s 3 and Sch. (w.e.f. 1-12-
1965).
83 Vide Jammu & Kashmir Reorganisation Act, 2019, J&K and Ladakh were transformed into two Union Territories.
Page 32 of 32
84 Vide Jammu & Kashmir Reorganisation Act, 2019, J&K and Ladakh were transformed into two Union Territories.
85 Pale Horse Designs v Natarajan Rathnam, AIR 2011 Mad 274 : 2011 (3) KLT (SN) 20 : 2011 (2) RCR (Civil) 785 :
2011 (2) RCR (Criminal) 672.
86 Shri Ishar Alloy Steels Ltd v Jayaswals Neco Limited, (2001) 3 SCC 609 .
87 Harman Electronics (P) Ltd (M/s) v M/s National Panasonic India Ltd, AIR 2009 SC 1168 .
88 Pale Horse Designs v Natarajan Rathnam, AIR 2011 Mad 274 : 2011 (3) KLT (SN) 20 : 2011 (2) RCR (Civil) 785 :
2011 (2) RCR (Criminal) 672.
89 Jetha Parkha v Ramchandra, (1892) 16 Bom 689, p 700.
90 Gopal Chandra v Bepin Behari, AIR 1955 Cal 353 .
91 Mangumal v ALVRCCT Firm, (1908) 4 Mad LT 309; Gulamsa v Viswanatham, (1917) MWN 344 .
92 The name is derived from a Sanskrit word ‘hund’ which means ‘to collect’ and thus summarise the very purpose of
hundi. Hundis have been in usage long before the Act was passed and varies with each locality and its respective
customs.
93 Krishnaset v Hari Valji, (1918) 20 Bom 488, p 490; Jambu Chetty v Palaniappa, (1903) ILR 26 Mad 256.
94 Eleventh Report of the Law Commission of India, 1958.
95 Retired Judge, Supreme Court of India.
96 Re Expeditious Trial of Cases Under Section 138 of NI Act 1881, AIR 2021 SC 1957 .
End of Document
[s 2] Repeal of enactments—
PRELIMINARY
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 2] Repeal of enactments—
[Repealed by the Amending Act 1891 (Act 12 of 1891), section 2 and Sch. I].
End of Document
[s 3] Interpretation clause—
PRELIMINARY
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

In this Act—
97[***]
“Banker”.—98[“banker” includes any person acting as a banker and any post office savings bank.]
Page 2 of 5
99[***]
[s 3.1] Corresponding Provision
This section corresponds to section 2 of the Bills of Exchange Act, 1882.
[s 3.2] Banker
The Act does not define the term ‘banker’. In one of the early cases, it was held that a banker is a person who
receives the money of his customer to be drawn out again as the customer has occasion for it, the customer
being the lender, and the bank being the borrower with the super added obligation of honouring the customer’s
cheques up to the amount of the money received and still in the banker’s hands.100 Paget’s Law of Banking
stated:
It is therefore a fair deduction that no one and no body, corporate or otherwise, can be a ‘banker’ who does not:
(i) open current accounts;
(ii) pay cheques drawn on himself;
(iii) collect cheques for his ‘customers’.101
In United Dominions Trust Ltd v Kirkwood,102 the characteristics usually found in modern bankers were stated
to be:
(i) they accept money from, and collect cheques for, their customers and place them to their credit;
(ii) they honour cheques or orders drawn on them by their customers when presented for payment and
debit their customers accordingly; and
Page 3 of 5
(iii) they keep current accounts, or something of that nature, in their books in which the credits and debits
are entered.
Apart from these, there are characteristics such as stability, soundness and probity that constitute the persona
of a banker. Reputation may exclude a person from being a banker; so also it may make him one.
In India, the following definitions of banking and banking company contained in the Banking Regulation
Act,1949 would assist in determining whether a person is a banker. Section 5(b) and (c) of the Banking
Regulation Act, 1949 provides as follows:
(b) ‘banking’ means the accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
(c) ‘banking company’ means any company which transacts the business of banking in India.
Explanation.—Any company which is engaged in the manufacture of goods or carries on any trade and which accepts
deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall
not be deemed to transact the business of banking within the meaning of this clause.
The Act allows banking companies to transact various other kinds of business specified in section 6 of the Act.
Section 7 of the Act generally prohibits non-banking companies and co-operative societies other than co-
operative banks from using, as part of their names, any of the terms ‘bank’, ‘banker’ or ‘banking’. No company
or co-operative society can carry on banking business in India unless it uses at least one of the terms as part of
its name.
Under section 49A of the Banking Regulation Act, 1949, no person other than a banking company, the Reserve
Bank of India, the State Bank of India or any other banking institution, firm or person notified by the Central
Government, on the recommendation of the Reserve Bank, shall accept public deposits that can be withdrawn
Page 4 of 5
by cheque. This restriction does not apply to a primary credit society, certain other co-operative societies and
any government savings bank scheme such as the postal savings bank.
Receiving money from customers and repaying it by honouring their cheques as and when required is one
function which distinguishes banking business from other kinds of business. Therefore, Nattukottai Chettiars
who carry on money-lending business cannot be considered bankers.103 However, in Upendra Kumar v Don
Finance Corporation, Mangalore,104 the accused was having an account with the Cooperative Society. The
Cooperative Society was carrying on banking business. It was held that the scope of section 3 of the Act was
wider than Banking Regulation Act. Accordingly, the Cooperative Society was held to be falling within the
definition of ‘Banker’ in view of section 3 of the Act.
A company lacking the power to grant loans and to receive public deposits repayable in the manner indicated
under section 5(b) of the Banking Regulation Act, 1949 cannot be considered a banking company.105
A government treasury was held to be a banker under the section.106
97 The definition of the term ‘India’ omitted by Acts 62 of 1956, section 2 and Sch. (w.e.f. 1-11-1956).
98 Subs. by Act 37 of 1955, section 2, for the definition of the word “banker” (w.e.f. 1-4-1956).
99 Definition of ‘Notary Public’ omitted by Act 53 of 1952, section 16 (w.e.f. 14-2-1956).
100 Foley v Hill, (1884) 2 HL Cas 28.
101 Paget’s Law of Banking, 7th edn, p 6.
102 United Dominions Trust Ltd v Kirkwood, [1966] 1 All ER 968 .
103 Karuppan Chettiar v Somasundram Chettiar, AIR 1961 Mad 122 .
104 Upendra Kumar v Don Finance Corporation, Mangalore, 2009 CrLJ 1901 Kar : AIR 2009 Kar 184 .
Page 5 of 5
105 Mahalaxmi Bank Ltd v Registrar of Companies, West Bengal, (1961) 31 Comp Cas 287 ; Sajian Bank (P) Ltd v
Reserve Bank of India, (1959) 2 MLJ 455 .
106 Irinjalakuda Bank Ltd v Poruthussery Panchayat, (1970) 40 Comp Cas 767 ; Rangaswami Pillai v Sankaralinga Ayyar,
(1920) 43 Mad 816; SMA Somasundaram Mudaliar v District Collector, Chitoor, AIR 1967 AP 126 .
End of Document
[s 4] Promissory note—
OF NOTES, BILLS AND CHEQUES
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 2 OF NOTES, BILLS AND CHEQUES
A ‘promissory note’ is an instrument in writing (not being a bank-note or a currency-note) 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.
Illustrations
Page 2 of 40
A signs instruments in the following terms:—
(a) ‘I promise to pay B or order Rs 500’.
(b) ‘I acknowledge myself to be indebted to B in Rs 1,000 to be paid on demand for value received’.
(c) ‘Mr B, IOU Rs 1,000’.
(d) ‘I promise to pay B Rs 500 and all other sums which shall be due to him’.
(e) ‘I promise to pay B Rs 500, first deducting there out any money which he may owe me’.
(f) ‘I promise to pay B Rs 500 seven days after my marriage with C’.
(g) ‘I promise to pay B Rs 500 on D’s death, provided D leaves me enough to pay that sum’.
(h) ‘I promise to pay B Rs 500 and to deliver to him my black horse on 1st January next’.
The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked
(c), (d), (e), (f), (g) and (h) are not promissory notes.
[s 4.1] Requisites of Promissory Notes
The definition of a promissory note under section 4 is exhaustive and excludes from the category of promissory
notes, instruments which do not fall within its terms.1
No particular form of words is essential to constitute a promissory note. Any form of expression from which an
undertaking to pay can be inferred is sufficient. The mere nomenclature given to the instrument does not
determine the nature of the instrument. The instrument has to fulfil all the requisites of a promissory note to be
called so and merely because the parties describe it as a promissory note does not make it so.2
The description and language of the instrument taken as a whole, the circumstances under which it came to be
executed, the intention of the parties manifest from the face of the instrument and the surrounding
circumstances would have a cumulative bearing on a proper construction of the instrument as to whether it is a
promissory note.3 A document has to be read as a whole to determine its nature. If there is 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 it will be a promissory note. The mere inscription of words to some effect does
Page 3 of 40
not determine its nature. Thus, where the document is in the form of an acknowledgement coupled with a
promise to pay by a particular day, it is a promissory note though stated to be a hundi.4
To find out whether a particular document is a promissory note, the intention of the parties has to be looked into
with reference to the substance of the document, the surrounding circumstances in which the document has
been executed and its negotiability in the popular sense, whether the document was intended to be promissory
note or was intended to be a mere acknowledgement of debt or receipt of consideration.
A single instrument may embody several purposes and the document is to be read as a whole to find out its
dominant purpose which is relevant for the purposes of the Act.5
In Kadorilal v Sukhlal,6 after reviewing several authorities, it was held that the whole document, its tenor, the
purpose for which it was executed, as described in the document itself, should be considered for determining
the nature of the documents. Collateral circumstances, which may be contained in evidence, cannot be looked
into for this purpose.
The most important element for determination of the question whether the instrument is a promissory note is
the intention of the parties. If the parties had no intention to execute a promissory note then, even though the
instrument fulfils all the requirements of a promissory note, it may not be a promissory note. Thus, a document
primarily intended to be a receipt or a bond and not intended to be negotiable in the ordinary mercantile sense
does not become a promissory note within the meaning of the Act.7 Conversely, merely because the parties
intended to execute a promissory note does not make it so, if it does not fulfil all the requisites of a promissory
note.8
The incident of negotiability is not essential to the validity of the promissory note, provided the requirements of
the section are complied with. Therefore, if an instrument satisfies the requirements of the definition contained
in the section, it must be held to be a promissory note, irrespective of whether it is negotiable.9
Negotiable instruments, including a promissory note are meant for free circulation and thus the most important
requisite of these instruments is certainty regarding all their essential aspects. The essential characteristics of a
promissory note statutorily recognise the various aspects as to certainty. A promissory note may contain a
promise to pay a certain sum of money to a certain person or to his order or to the bearer. In order to fall within
Page 4 of 40
the definition of promissory note, it is necessary that there should be an unconditional undertaking to pay a
certain sum of money, to a certain person or to bearer and the maker should sign it. Apart from fulfilling the
above terms, the promise to pay must be the substance of the instrument, there should be nothing else
inconsistent with the character of the instrument and the instrument must be intended to be a promissory
note.10
In Jakka Gopal Reddy v Neelakantam Venkata Krishna,11 the respondent had instituted a suit against the
defendant praying for a decree for recovery of the amount based on the strength of a promissory note. The
case of the respondent was that the appellant borrowed a sum of Rs 12,000 from one Chenna Reddy
Ramakrishna Reddy and executed a promissory note in his favour and that he borrowed the said amount for his
contract works agreeing to repay the same with interest at 12% per annum either to the said Chenna Reddy
Ramakrishna Reddy or his order on demand and subsequent thereto, he demanded for payment on several
occasions but the defendant did not pay the same and the said Chenna Reddy Ramakrishna Reddy transferred
the said promissory note by receiving a sum of Rs 15,000 in favour of the respondent. After transfer, the
respondent informed the said fact to appellant and demanded payment, but since he did not repay the same,
the suit was instituted. The appellant resisted the same by denying the execution of the promissory note and
also had taken a stand that the said Chenna Reddy Ramakrishna Reddy had no capacity to pay the amount at
all and the promissory note in question is a forged and fabricated document and further it was pleaded that the
respondent is a life convict for murder and the suit promissory note is not genuine and not supported by
consideration and it is also unstamped and unenforceable in law and hence the respondent is not entitled to
recover the said amount.
The Trial Court came to the conclusion that the promissory note and the transfer endorsement cannot be
believed and ultimately dismissed the suit. The appellate Court proceeded to discuss the oral and documentary
evidence and ultimately allowed the appeal, decreeing the suit of respondent. In Second Appeal, the Andhra
Pradesh High Court noticed that there was no serious controversy that the recitals appearing on the 1st page of
the promissory note would satisfy the essentials of a promissory note. The same was duly signed by the
executant and ‘PTO’ was written. On the next page, the receipt of Rs 12,000 had been referred to on the self-
same day and on the Revenue Stamps, duly affixed, the executant signed and the same was duly attested by
two witnesses. The High Court also noticed that if the portion of the document shown on the reverse is to be
severed from the other portion shown on the 1st page, it may have to be taken that inasmuch as the promissory
note as such is not duly stamped, the same is inadmissible and a suit cannot be based on the strength of such
promissory note. The High Court further noticed that on a reading of the recitals of the promissory note at the
1st page, it appears to be a complete promissory note, but however, the stamps were not affixed there, though
the executant had signed, but on the reverse, on the self-same day, as a continuation, it was recited that the
consideration of Rs 12,000 had been received and the stamps had been duly affixed and the same was duly
Page 5 of 40
signed by the executant and further the same had been duly attested by two attesters. The appellate Court had
recorded reasons in detail and came to a conclusion that all these recitals may have to be taken into
consideration while deciding whether the document in question is a promissory note or not. Based on these, the
High Court was of the considered opinion that the later portion of the document, the 3 lines on the 2nd page
underneath which the stamps had been affixed and the executant had duly signed cannot be separated or
severed from the former portion of the document i.e., the 1st page of the promissory note, especially, in the light
of ‘PTO’ shown on the 1st page and also in the light of the fact that it was recited that the same had been
scribed by the executant himself. In the light of these reasons, the High Court held that the document in
question is to be treated as promissory note since all the recitals appearing both on the 1st page and the 2nd
page of the promissory note is to be read as a whole for the purpose of deciding whether the essentials of a
promissory note within the meaning of section 4 of the Act are satisfied or not. Accordingly, the document was
held to be a promissory note.12
An instrument, which contained the words, “On demand I will pay Rs 22,00,000/- I have borrowed from you with
interest at Rs 3/- per Rs 100/- per month” was held to be a bond.13
A careful examination of the definition will show the following requisites of promissory notes.
[s 4.1.1] A Promissory Note must be in Writing
Every engagement connected with a promissory note must be signified by writing upon the instrument itself.
The object of this requirement is to exclude an oral engagement to pay, from the purview of the Act. The writing
may be in pencil or ink, and writing shall be construed to include printing, lithography, and other modes of
representing or reproducing words in a visible form.14 The writing may also consist of either printed or
typewritten as well as handwritten matter. There is also no requirement that the writing should be on a paper
and the note may be written on cloth, linen or any other thing that can be used for such purposes.
No particular form of writing is necessary for the validity of a promissory note, provided the requirements of the
section are complied with.15 It is not necessary to adhere to any form of words so long as the conditions of the
definition are observed, in which case the language in which the instrument is written is immaterial.16
It is not necessary that the word ‘promise’ should be used, provided the language used clearly shows an
intention on the part of the maker to give an unconditional undertaking to pay the amount.17
Page 6 of 40
An instrument, however might satisfy the requirements of the section and yet not be a promissory note. Thus, a
banker’s deposit note in the form, received of A Rs 500 to be accounted for on demand and signed by the
maker, is not a promissory note.18 Further, the instrument must show the party’s intention to make a note.19
The word ‘hand-note’ in a blank endorsement written across the stamp was held to convey an unqualified
undertaking to pay as was necessary in the case of a promissory note.20 The instrument may be written in any
language, but when it is in an oriental language, it is a hundi and may be subject to local usages.21
[s 4.1.2] A Promissory Note must Contain an Undertaking to Pay
The essential element of a promissory note is an express promise to pay. A mere acknowledgement of
indebtedness without an express promise to pay the debt is not a promissory note. Examples of instruments
which are not promissory notes:
(i) ‘Mr X, I owe you Rs 100.’
(ii) ‘I have received Rs 1,000 which I borrowed of you, and I have to be accountable to you for the same
with interest.’22
(iii) ‘The amount which I have this day received from you in cash is Rs 1,000. This sum I am bound to pay
to you.’
(iv) ‘Deposited with me Rs 1,000 to be returned on demand.’
(v) ‘I am liable to A in sum of Rs 1,000 which is to be paid by instalments for rent.’23
(vi) ‘This receipt is hereby executed by B for Rs 43,900...received from the firm of...for and on behalf of A.
The amount to be payable after two years. Interest at the rate of Rs 5-4-0 per cent per year to be
charged. Dated: 1 April 1947.’
The Privy Council held that the document was a receipt for money containing the terms on which it
was to be repaid; and being primarily a receipt, even if coupled with a promise to pay, it was not a
promissory note, or a document which was a negotiable instrument within the meaning of sections
4 and 13 of the Act.24
Page 7 of 40
(vii) ‘I, of my own free will and accord approached A and borrowed from him, the sum of Rs 100 bearing
interest at the rate of annas 8% per mensem...I have, therefore executed these few presents by way of
a promissory note so that it may serve as evidence and be of use when needed.’
Here, it was held that an instrument is not a promissory note as defined in section 4 unless it
contains an express undertaking to pay the amount mentioned in the instrument. An implied
undertaking inferred merely from the use of the word debt or pro-note is not sufficient.25
A piece of writing containing a signature with the words ‘Rs 150’ on a one-anna stamp, even if the signature be
genuine, was held not a promissory note within the meaning of section 4 of the Act.26
A receipt containing an undertaking to repay a GBP 10,000 loan in full by a stated date at an agreed interest
was held not to be a promissory note by the Court of Appeal as the borrower had the option to repay earlier
than the stated date. The document was held to be only a receipt setting out the repayment terms, and was not
intended to be a negotiable instrument.27
A document that stated: ‘We have received the sum of Rs 9,240 from R. The above amount will be repaid on
demand. We have received Rs 9,240 in cash today, which was signed by the maker and also contained an
endorsement by a third party guaranteeing repayment’ was held to be a promissory note and not a bond.28
Where a promise to pay is absent, even the fact that the document is written on a hundi paper and attested
cannot make it a promissory note.29 However, the mere absence of the words ‘I promise to pay’ does not alter
the character of the document, provided a promissory note fulfils the requirements of the section and there is a
clear intention on the part of the parties to treat the document as a promissory note.30
A mere acknowledgement of indebtedness does not constitute a promissory note.31 However, if in addition to
an acknowledgement of indebtedness, there is an express promise to pay the amount acknowledged as being
due, that instrument is a promissory note.32 Where, however, the acknowledgement of indebtedness contained
in the document is for a defined sum of money payable on demand, the document need not necessarily
stipulate that the debtor promises to repay the amount.33 A document described as an acknowledgement was
nevertheless held to be a promissory note as it satisfied the requirements of the section.34An instrument
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containing an acknowledgement of indebtedness without an express promise to pay, though not a promissory
note, is valid as an agreement, and may be sued upon as such.35
A document containing a promise to pay would not be a promissory note if it were primarily intended to be a
receipt and not intended to be negotiable in the ordinary mercantile sense. The legal character of the document
would depend upon the facts of the case.36 The stamping of a document as a receipt reflects the parties’
intention not to treat it as a note.37
The mere fact that the document recites how the consideration was fixed and that a part of it is worded like an
agreement does not deprive the document of its character as a promissory note, provided it contains words
which, in law can be construed as meaning a promise to pay.38 Similarly, an instrument that satisfies the
statutory requirements of a promissory note would not lose its character as such, merely because it states the
purpose for which the maker borrowed the money.39 Also, a reference in the note to the sale contract which
gave rise to the note would not alter its character.40
The following instruments were held to be promissory notes:
(i) ‘Rs 1,000 balance due to you I am still indebted and do promise to pay.’41
(ii) ‘Received from X Rs 1,000 which I promise to pay on demand with interest.’42
(iii) ‘I do acknowledge myself to be indebted to X in Rs 1,000 to be paid on demand for value received.’43
(iv) ‘We shall order the borrowed moneys to be repaid.’44
(v) ‘Whereas with regard to glass of Hamiman Glass Works account is due from us, we therefore
acknowledge and promise to pay on demand Rs 1,781 with interest at 2% per mensem.’45
(vi) ‘We have executed this promissory note for a total sum of Rs 2,400...made up of...On demand by you
[we] will pay the amount [due on] this promissory note along with compound interest at 13 annas per
cent per month with annual rests. [We] have executed this promissory note. A four-anna revenue
stamp had been affixed. The document, purported to be signed by the executants, was held to be a
promissory note.’46
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(vii) An undertaking to pay on demand necessarily implies a promise to pay. Therefore, a promissory note
expressed as payable on demand is a promissory note within the meaning of the section.
(viii) ‘I have already received Rs 15,000 from Colombo AS shop for doing business of my own. I shall pay it
after two years on demand by you with interest at two annas per month per Rs 100 to you or to your
order and receive back this promissory note.’47
A promissory note is no less a note merely because it contains a recital that the maker of the note has
deposited title deeds with the payee.48
The expression ‘on demand’ is a technical expression meaning that the amount mentioned in the instrument is
payable immediately. However, it does not imply that a demand has to be made before payment can be
enforced.49
The word ‘on demand’ only means that the note is payable immediately or at sight, and does not in itself take
the promissory note out of the purview of section 49 of the Indian Contract Act, 1872.50
A holder, who sues on an on demand instrument without having first demanded payment thereon, may have to
bear the costs of the action, if the debtor shows that he was always ready and willing to pay. Further, where a
note is payable after demand or when demanded, it is not deemed to be payable till an actual demand has
been made. Where a promissory note payable on demand is accompanied by a writing which postpones the
time for payment to a fixed period, such a writing is valid and enforceable.51 The negotiable character of the
promissory note is not affected and bona fide holders, without notice of the accompanying writing will be
protected, even if they sue before the term mentioned in the accompanying writing expires. However, as
between the parties to the note and as between the drawer and holders with notice, or holders who are not
holders in due course, the accompanying writing would be enforced.
Where there is an express promise to pay, an instrument will not be any less a promissory note because it
contains expressions of politeness or gratitude.52
A promissory note payable on demand would not cease to be so merely because of an endorsement thereon
by the maker and the payee that no interest would be payable if the note was paid within a month.53
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A promissory note need not be payable on demand. It may be made payable on a fixed future date or on the
expiry of a specified period. An instrument containing a mere acknowledgement of indebtedness coupled with a
promise to repay within a few days was held not to be a promissory note.54
A promissory note does not lose its character as such, merely because it contains a promise to pay at a certain
place.55
[s 4.1.3] The Promise to Pay should be Unconditional
An unconditional undertaking to pay a certain sum of money is an indispensable statutory requisite without
which no instrument can be a promissory note within the meaning of the Act. Thus, a valid promissory note
must contain an unconditional promise to pay.56
Certainty is the key element in negotiable instruments, and unless they are per se valid, they are not
negotiable. Lord Kenyon stated thus, in Carlos v Fancourt:57
It would perplex the commercial transactions of mankind if paper securities of this kind were issued out into the world,
encumbered with conditions and contingencies and if persons to whom they were offered in negotiation were obliged to
inquire when these uncertain events would probably be reduced to certainty.
Notes that are payable on a contingency are, therefore, not negotiable, as their actual payment is not certain.
An instrument must be valid ab initio and carry its own validity on its face. Therefore, if payment is contingent
upon the happening of an uncertain event, it would be invalid even if the event occurs before the expiry of the
period fixed for the performance of the obligation.58
The following are examples of instruments held as not promissory notes:

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(i) ‘I promise to pay X Rs 5,000 in instalments with a proviso that no payment shall be made after my
death.’59
(ii) A letter requesting a loan stating that the amount lent would be repaid is not a promissory note
because the repayment is dependent on the advance being made. Thus, a document stating: ‘Rs 100
already received. A sum of Rs 500 is also required. Please send it per bearer.’ The amount will be
returned with interest at 6% without delay, is not a promissory note.60
(iii) ‘I promise to pay X Rs 500 on A’s death, provided he leaves me sufficient money to pay the said sum’
is conditional and void as promissory note.61
(iv) An instrument containing a promise to pay a certain sum to X, a certain time after his marriage is not a
good promissory note, as X may not marry at all.62
(v) ‘I promise to pay AB Rs 500 out of money due to me from XY as soon as XY pays,’ it is conditional
because XY may never pay the money.
(vi) ‘I promise to pay on demand at my convenience.’ The words at ‘my convenience’ import a condition
and the writing is not a promissory note.63
(vii) An instrument containing a promise to pay on settlement of account when the litigation comes to an
end.64
An instrument given for an executed consideration, e.g. liquidated damages, was held to be a promissory
note.65
An instrument expressed to be a promissory note, but which merely states the fact that a certain sum is due
and that as the executant was unable to pay the amount, he has agreed to pay an interest, is not a promissory
note as it contains no unconditional promise to pay.66
Also, a letter stating: ‘shall repay within 10 days, amount of Rs 300 which I borrowed today from you together
with interest at 1% per month and shall take return of this letter’, was held not a promissory note.67
An undertaking to repay the amount only when demanded is not a conditional promise to pay.68 In view of the
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first explanation to section 5, an undertaking to pay on demand after a specified period of time was held not
unconditional.69 This was differed from in Thenappa Chettiar v Andiyappa Chettiar,70 where an undertaking to
pay the amount after two years was held to be an unconditional promise to pay. A document containing such an
undertaking was held to be chargeable as a bond under Indian Stamp Act, 1899, Sch I, Article 15.71
A note contained an undertaking to pay on or before a specified date, and that actions on the note would be
subject to the jurisdiction of courts in India, Singapore and Seychelles. It was held that the promise was not
conditional.72
In Kochuthressia v Devadas,73 the Kerala High Court seemed inclined to treat a promise to pay the amount
after receiving a month’s notice as an unconditional undertaking to pay.
In Y Veeraiah v Margadarsi Chit Fund Ltd,74 a chit-fund subscriber executed in favour of the fund a document
which stated: ‘On demand I... promise to pay MC Fund or order the sum of Rs 9,800 repayable with interest at
12% pa, being the amount of future instalments due to MC Fund in respect of ticket 3 in LT 12E series in
monthly instalments of Rs 200 for 49 months on or before fifth of each month commencing from August 1975
and in default of any single monthly instalment on demand, the entire balance shall be due.’ A Division Bench
of the Andhra Pradesh High Court held that the instrument was only an agreement and not a promissory note,
on the grounds that it was not negotiable and for the fund to make a demand, certain events had to take place
and payment by the promisors was subject to the satisfaction of certain conditions and contingencies (which the
judgment does not specify). The Bench relied on Venkata Subbayya v Atyanamyanamurthy75 and Mehrunnisa
Begum v Sheik Chand Bi.76
A document in which the executant recited that he had borrowed a certain sum against the mortgage of his
property and agreed to repay the loan within a certain period and undertook to establish a good title to the
property, was held to be a mortgage bond, and not a promissory note.77
A promissory note is not invalidated by a default clause that allows the promisee to realise the amount from
certain properties of the promisor, in the event of his default to pay.78
A promise to pay is not ‘conditional’ within the meaning of the section, if it depends upon an event that is certain
to happen though the time of its happening may be uncertain. Thus, a promissory note in the form: ‘I promise to
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pay X Rs 500 seven days after the death of AB’ is not conditional as it is certain that AB will die, though the
exact time of his death is uncertain.79 An instrument promising payment on a certain date if the promisee
performed a specified agricultural activity was held as not a promissory note.80
[s 4.1.4] The Promissory Note must be Signed by the Maker
Until the maker of a promissory note affixes his signature thereto, the instrument is incomplete and of no effect.
The maker of a note, the drawer of a bill of exchange or cheque or an indorser may, if he is unable to write his
name, sign by a mark in lieu of a signature.81 Mere marks and initials have been held to be signatures, if they
were intended to be such.
A signature in pencil is valid.82 It may be lithographed or even printed, but in such a case it must be shown that
it has been adopted and used by the party as his signature. Even the affixing of initials may amount to a
signature.
Signature is ordinarily understood to mean the writing of a person’s name in order to authenticate and give
effect to the contract contained in the document. Hence, the signature need not be in any particular part of the
instrument.83 The words ‘self of my own handwriting’ written at the foot of an instrument whereby, the writer
declares himself to be bound to pay may be a sufficient signature.84 Further, it is an essential requirement of a
signature that the mind of the signatory should accompany the signature, i.e. the executant should intend to
subscribe to the terms of the document.
[s 4.1.5] The Maker must be Certain
It is of utmost importance that the promissory note should give a clear indication of the person who enters into
the contract and engages or undertakes to pay.
A promissory note may be made by several persons jointly or jointly and severally. Where a promissory note is
made in the form: ‘I promise to pay’ and is signed by A and B, it is deemed to be made by them jointly and
severally.85
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In the UK, it was held that on a note in the form: ‘I promise to pay...’ and signed by A, a partner of a firm, on
behalf of himself and his co-partners, A is not severally liable, as it was a joint note of all the partners.86
In India, the liability of partners of a firm is both joint and several.
A joint and several note though on one piece of paper, comprises in reality and in legal effect, several notes.
Thus, if A, B and C jointly make a joint and several promissory note, there are, in effect four notes. There is the
joint note of the three makers, and there are also several notes of each of the three.87
A note cannot be made in the alternative or with several liabilities.88 Thus, a promissory note in the form ‘I, JC,
promise to pay’ and signed by JC or also HB, is not a valid note as regards HB, but is a valid note as against
JC.
[s 4.1.6] The Sum Payable must be Certain
The sum expressed to be payable in the instrument must be certain and not susceptible to contingent changes.
An instrument that envisaged payment of interest at a certain time before the principal amount had been
demanded, was held to be an instrument for an uncertain sum.89 The following instruments were as held not
promissory notes:
(i) ‘I promise to pay A Rs 100 and all other sums which may be due to him’.90
(ii) ‘I promise to pay A Rs 100 after deducting any interest or money which he may owe me.’91
(iii) ‘I promise to pay A the proceeds of a shipment of goods value of Rs 2,000.’92
(v) ‘I promise to pay A Rs 1,000, and all fines according to rule.’93
The sum payable under a promissory note is, however, certain within the meaning of the section although it is
required to be paid with interest, or at an indicated rate of exchange or according to the course of exchange, or
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by instalments, with a provision that on default being made in payment of an instalment the balance unpaid
shall become due.94
Where a promissory note expressed a promise to pay the sum mentioned therein with interest at 10% per
annum with quarterly rests, it was held that the note was for a sum certain under sections 4 and 5 of the Act,
and was, therefore, a negotiable instrument.95
Where a bill contained an order to pay Rs 21,000 inclusive of interest at nil, it was held to be a certain sum of
money under section 5 of the Act.96
Where a document acknowledged a debt and contained a promise to repay the debt with interest, but no
interest rate was mentioned, it was held not to be a promissory note as the sum payable was not certain.97
However, in Seth Tulsidoss Lalchand v Rajagopal98 it was held that where the rate of interest was not
mentioned, a rate of 6%99 would be applicable under section 80 of the Act.
[s 4.1.7] The Instrument must Contain a Promise to Pay Money and Money Only
To operate as a valid promissory note, the medium of payment must be money and money only, i.e. in legal
tender. A promissory note is a document which consists substantially of a promise to pay a sum of money, and
of nothing else.100 An agreement containing an undertaking other than to pay money cannot be a promissory
note. Thus, an instrument promising to pay money and deliver paddy is not a promissory note.101
An instrument containing a promise to pay X in East India Bonds, or a promise to deliver to X 100 tons of iron,
or a promise to pay Rs 100 and to deliver up a wharf to the payee is not a promissory note.102
A document in the following form was held in Scotland, not to be a promissory note:
‘I, X, do hereby agree to pay Y the sum of £950 to be paid at the rate of £50 per month. First payment on the
first day of every month commencing 1 February 1969. Also the present staff employed and paid by myself for
the next two weeks (from 20 January 1969).’103
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A document, containing a promise to pay money in a currency, which is not that of the country where the note is
made and payable may, notwithstanding that, be a promissory note.104
In P Padmanabha Rao v Bathini Srinivasa Rao,105 payment by way of cheque was written in the document.
Except for this additional recital in the document relating to the cheque, conditions of a promissory note were
satisfied. Therefore, it was held by the Andhra Pradesh High Court that the document in question would be
termed as a promissory note.
In Bijoy Shankar Roy v Sujit Agarwalla,106 the plaintiff had filed a suit for recovery of money based on a
document. The case of plaintiff was that money was borrowed by defendants for solemnising the marriage of
one of the defendants. The Gauhati High Court held that document contained a promise made by defendants to
repay on demand, the loan taken by her from plaintiff and therefore, falling within the meaning of ‘promissory
note’ in the light of the definition prescribed in sections 4 and 13 of Negotiable Instruments Act.
[s 4.1.8] The Payee must be Certain
To make a promissory note, there must be a payee ascertained by name or designation.107 The instrument
must point out with certainty the party, who is to receive the money.108 The payee’s name may be set out in
any part of the instrument and so long as it clearly appears on a reading of the whole instrument that the payee
is specified with certainty, the instrument is a promissory note, assuming other requirements of the definition
are satisfied.109
Where a debtor made an entry of receipt of money in his creditor’s book and stated that the money borrowed by
him would be repaid on a certain date, without stating as who was to be the payee, it was held that such an
entry did not amount to a promissory note.110
Where an instrument contains an unconditional undertaking by the maker to pay a certain sum of money but
the payee is not certain, the instrument is not a promissory note.111 The person to whom payment is to be
made may be a certain person within the meaning of the section although he is misnamed or designated by
description only. Thus, a promissory note payable to the manager of a bank is payable to a certain person
within the meaning of section 4.112 Extrinsic evidence is admissible to identify the payee when he is misnamed
or when he is designated by description only, but not to explain an uncertainty patent on the note.113
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The expression ‘certain person’ in sections 4 and 5 of the Act means a person capable of being ascertained on
the date on which the note is made or the bill is accepted.
An instrument made payable to the members of a firm for the time being was held not to be a promissory note,
as the members could not be ascertained as on the date of execution.114
In B Jaya Raghava Naidu v B Rama Suba Reddy,115 the document in question only contained an
acknowledgment of the fact that the defendant had received a sum of Rs 5 Lakhs. The said document did not
refer to any person to whom the defendant had undertaken to pay the money. It was held by Andhra Pradesh
High Court that in the absence of such an undertaking as contemplated under section 4 of the Act, the said
document was merely a receipt and not a ‘promissory note’.
However, absence of the name of the payee in a promissory note will not make the instrument invalid, when the
payee is known with certainty at the time of its execution. When the payee is described in the note as son of P
and a particular son of P is known to have lent the amount to the maker, the instrument cannot be held
unenforceable. Section 92, proviso 6 of the Indian Evidence Act, 1872 would apply to the case and evidence
regarding the name of the payee is admissible, when the description is defective.116
In M Nyamathulla v A Chitharanjan Reddy,117 a reference was made to the Division Bench of the Andhra
Pradesh High Court as to ‘Whether an instrument to be a promissory note, requires a recital which conjunctively
incorporates a promise to pay not only a certain person, but also to the order of a certain person and to the
bearer of the instrument, as well’. While making reference, the learned Single Judge had doubted the
correctness of the decision rendered by another learned single Judge of this Court118 as to the reading of the
proposition of law laid down by the Full Bench.119 In this case,120 A Chitharanjan Reddy, the respondent had
filed a suit for recovery of an amount of Rs 6,90,000 on an instrument dated 3 February 2002 executed by the
petitioner. The instrument read as,
Today 03.02.2002 I, Md Nyamatullah s/o MA Jabbar Sab, Hasnabad, Hindupur. I, promise to pay A Chittaranjan
Reddy, s/o A Kesava Reddy, Hindupur. To pay Rs 6,90,000 (Rupees six lakhs ninety thousands only). This amount will
be paid on or before March, 2002.
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The instrument was signed by the respondent and duly witnessed. During trial, the plaintiff sought to mark the
instrument as Ex.A1. The defendant raised objection to the admission of the instrument on the ground that it
does not constitute a promissory note. The Court below had overruled the objection and permitted the plaintiff
to mark the instrument as Ex.A1. Hence, the defendant filed this revision. While dealing with the definition of
‘promissory note’ as prescribed in section 4 of the Negotiable Instruments Act, the Division Bench121 held as
under:
12. The sentence in the definition of ‘promissory note’ i.e. to pay a certain sum of money only to, or to the order of’ is
read to be one sub-clause. The clear intention of the legislative is the unconditional undertaking is to pay a certain sum
of money only to or to the order of. The sentence cannot be split into two and read that the unconditional undertaking
may be either to the person in the name therein or to the order. If the clause is split into two, it produces unintelligible
and incongruous result. The comma succeeding and preceding the word ‘to the order of indicates that a certain sum of
money must be paid to or to the order of.’ If that reading is not permissible, there would not have been any difference
between a bond and a promissory note.
It was further held by the Division Bench122 as under:
15. The principle ingredient, which makes a difference lot between the bond and the promissory note, is that if the
instrument is an unconditional undertaking to pay or to the order of a certain person, it is to be classified as a
promissory note. The learned Single Judge of this Court in Kotla Sudheer Kumar v Mallavarapu Jojayya @ Jojaiah
Chowdary (2002 (2) ALD 715) has dealt the definition of ‘promissory note’ and ‘bond’ very exhaustively and came to
the conclusion that all the ingredients stated above are required to be satisfied to classify an instrument as a
promissory note. We approve the view taken by the learned single Judge of this Court in Kotla Sudheer Kumar v
Mallavarapu Jojayya @ Jojaiah Chowdary (supra).
16. Accordingly, the reference is answered as follows:
An instrument to be a promissory note must necessarily contain the words ‘to the bearer, or to the order’. In a way
these two words i.e. ‘to the bearer or to the order’ are to be read conjunctively and not disjunctively.
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A promissory note cannot be made payable to the maker himself; such a note is a nullity, the reason being that
the same person is both the promisor and the promisee. Thus, a note in the form: ‘I promise to pay myself’ is
not a promissory note. It is, however, valid if it is indorsed by the maker, because then it becomes payable to
bearer, if indorsed in blank, or to the indorsee or order, if specially indorsed.123
A promissory note made by several persons and made payable to: ‘one and each of our order’ is valid if it is
indorsed by one of the makers and on such a note, an action can lie against the indorser.124
[s 4.2] The Bearer of the Instrument
The requirement as to certainty of the payee does not apply if the note is payable to bearer. However, under
section 31(2) of the Reserve Bank of India Act 1934, no person in India except the Reserve Bank of India or the
Central Government as expressly authorised by the Act shall make or issue a promissory note payable to
bearer.
Dhani means an owner and not bearer. A document, making a sum of money payable to a dhani on demand is
not negotiable by mere delivery as an instrument payable to bearer.125
A promissory note would be payable to the order of the payee even if it is not expressed to be payable to his
order, unless it is payable to the bearer or its negotiability is expressly prohibited.126
A promissory note need not necessarily state that it is payable to the payee’s order or to bearer.127 However,
where an instrument did not express that it was payable either to the payee’s order or to bearer and was
attested, it was held to be a bond, and not a promissory note.128
A promissory note, however, would not cease to be so merely because it is attested.129
In determining whether an instrument is a promissory note, in some cases the test of negotiability has been
applied. Thus, it has been held that even though an instrument contained an unconditional undertaking to pay
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money, it was not a promissory note if it was not negotiable.130 Thus, a document primarily intended to be a
receipt or a bond and not intended to be negotiable in the ordinary mercantile sense was held not to be a
promissory note within the meaning of the Act.131 Where the document did not state that the amount was
payable to the promisee’ order or to the bearer, it was held to be a bond, and not a promissory note for the
purpose of stamping.132
It would, however, appear that negotiability is not essential to the validity of a promissory note. All promissory
notes are not negotiable.
In Yalamanchili Vijaya Kishore v Peeta Brahmananda Rao,133 the suit was filed on the basis of an
endorsement made in respect of a promissory note in favour of the appellant by P.W. 2. There did not exist any
privity of contract between the appellant and the respondent. The appellant had not filed the suit against the
respondent by impleading the transferor of the promissory note, but the transferor was examined as P.W. 2. It
was held by the Andhra Pradesh High Court that to enforce the liability under the promissory note, the holder
thereof was required to prove the execution of the promissory note as well as its contents. The respondent
denied both. Therefore, it was obligatory on the part of the appellant to prove the promissory note, on both the
aspects. However, neither the execution of promissory note nor the payment of consideration was established.
The capacity of the appellant to purchase the promissory note was also disputed and several aspects in relation
to the transaction in question remained unexplained. Therefore, it was held by the High Court that the suit for
recovery based on said promissory note is liable to be dismissed.
Therefore, if an instrument satisfies the requirements of the definition contained in the section, it must be held
to be a promissory note, irrespective of whether it is negotiable.134
[s 4.3] Definition in Other Acts
A promissory note has also been defined in other legislation such as the Limitation Act 1963, Public Debt Act
1944, and the Stamp Act 1899. A definition in an Act is for the purpose of the Act containing it.135 However,
definitions in the General Clauses Act 1897, apply to other Central Acts. In Laxman Krishanji Mustilwar v
Ramesh Amarchand Agrawal,136 it was held that the definition of promissory note in the Stamp Act for the
purposes of stamp duty is wider than the definition given in section 4 of the Act, but it is only to the extent that in
order to fall within the extended meaning, a document should be a promissory note in all respects except for the
contingencies affecting the payment in the two cases envisaged in the proviso in the ordinarily mercantile
sense. The extended meaning only extends to a document:
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(i) which includes the promise to pay the sum named out of the particular fund and such amount may or
may not be available with the fund; or
(ii) where promise to pay a sum depends upon happening of a condition or a contingency which may or
may not happen.
When the payment is not dependent upon any condition envisaged above, the inclusive definition does not
become operative.
[s 4.4] Consideration, Place, Date, Etc
Though it is usual to mention in a note that it is made for value received, such a statement is not an essential
feature of the note, and its omission will not render the instrument invalid.137 Even without that statement,
consideration is presumed until the contrary is proved. The fact that sometimes the note recites the transaction,
out of which, the obligation under it arises does not affect the character of the instrument.
It is also usual and proper to state in a note the place where it is made. However, omission to do so does not
make the instrument invalid.
Again, a promissory note does not become invalid because it contains a promise to pay at a certain place. Such
an instrument answers the definition of a promissory note as defined by the Act.138
Though it is usual to state the date on which a note is made, the date is not an essential requisite of a note, and
want of date does not make it invalid. An undated instrument is deemed to have been dated on the date of its
delivery.139 Under section 118(b) of the Act, until the contrary is proved, it will be presumed that every
negotiable instrument bearing a date was made or drawn on that day.
It is, however, open to the holder of an instrument to show by parole evidence that the instrument was intended
to operate from a future uncertain period, and not from the date of its delivery.140
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An instrument is not invalid because it is ante-dated or post-dated or that it bears date on a Sunday.141 A post-
dated promissory note is no less a promissory note because it can be negotiated, even during the period from
its execution to the date, it bears on its face. There is no prohibition in the Act against post-dating, and a
promissory note which is post-dated is thus an effective negotiable instrument though it cannot be sued upon till
that date. Post-dating of a promissory note does not denote per se that there is no consideration, because
consideration can be paid at any time and need not necessarily be left to be paid on the date the note
bears.142
In Mascarenhas v Mercantile Bank of India,143 the Privy Council held that the debentures of the Bombay
Improvement Trust were promissory notes. The plaintiff entrusted 41 debentures issued by the Trust and one
debenture issued by the Bombay Municipality to the first defendant for collection of interest. The first defendant
forged an indorsement in his own favour on the debentures, indorsed them to the Alliance Bank (AB), and
handed them over to the bank as security for debts owed by him. Subsequently, AB renewed the debentures
into new ones in their own name. The first defendant then took a fresh loan from the Mercantile Bank of India
(MBI) to pay AB and, on his instruction, AB indorsed the debentures in favour of, and delivered them over to,
MBI, which retained them as security for the loan. The plaintiff came to know of the first defendant’s fraud, and
sued to recover the debentures from MBI. The Privy Council, in dismissing the suit, held that the so-called
debentures were promissory notes as defined by section 4 of the Act, and were, therefore, negotiable
instruments under section 13 of the Act.
[s 4.5] Unstamped Promissory note etc.,–Effect of the Amendment to the Indian Stamp Act, 1899
Every promissory note is chargeable with stamp duty as per Article 49, Sch I of the Indian Stamp Act, 1899.
The duty depends upon the value of the note and whether it is payable on demand or at a future date. An
unstamped or insufficiently stamped promissory note was not admissible in evidence and no suit could have
been maintained thereon, in view of section 35 of the Indian Stamp Act. But, proviso (a) to section 35 was
amended with effect from 18 April 2006, so as to admit such documents by paying penalty. Before amendment
section 35 read as follows:
S. 35: Instruments not duly stamped inadmissible in evidence, etc. - No instrument chargeable with duty shall be
admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence,
or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument
is duly stamped:
Provided that–
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(a) any such instrument not being an instrument chargeable with a duty not exceeding ten naye paise only, or a
bill of exchange or promissory note, shall, subject to all just exceptions, be admitted in evidence on payment
of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the
amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount
of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or
portion;
By section 69 of Act 21 of 2006, the exceptions made to the proviso were taken away. Now proviso (a) to
section 35 reads as follows:
(a) any such instrument shall, be admitted in evidence on payment of the duty with which the same is
chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up
such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or
deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion
Thus it is clear that now an unstamped/insufficiently stamped promissory note or bill of exchange is admissible
in evidence by paying penalty. Stamp duty for promissory note otherwise than on demand is also governed by
item 49 read with Article 13 of the Stamp Act. Maximum stamp duty for promissory note payable otherwise than
on demand is 1%. This document also can be made admissible in evidence by paying penalty under section 35
of the Act, even if it is not properly stamped. As the prime object of section 35 of the Indian Stamp Act is to
regulate the admissibility of documents which are improperly stamped, the amended provision will also govern
the documents which were executed prior to the amendment, but brought in evidence later, though the
amendment came into force only on 18 April 2006.
Even after the amendment, the exhaustive discussion made in the previous edition of this book has not lost its
purpose, particularly when rectification of instruments chargeable with higher duty is extremely burdensome.
Further, the corresponding law enacted by many of the State Legislatures also contains similar provisions
relating to unstamped instrument. Hence, the said discussion is retained hereunder.
The case related to the above position has come up before the Division Bench of the High Court of Bombay, in
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Neolite Polymer Industries Pvt Ltd v Standard Chartered Bank144, and the bench held that, because of
amendment to clause (a) of the proviso to section 35 of the Stamp Act by Finance Act of 2006, bill of exchange
and promissory note, which were not stamped or which were insufficiently stamped earlier, were made
admissible and the embargo stood lifted.
[s 4.6] Stamping of Promissory Notes and Bills of Exchange
An unstamped promissory note is not admissible in evidence and no suit can be maintained thereon. However,
once the note is admitted in evidence by a court, section 36 of the Stamp Act comes into operation, and it is not
open either to that court or to a superior court to question that order.145
In terms of section 17 of the Stamp Act, 1899, a promissory note should be stamped either before or at the time
of its execution. Execution is defined to mean signing or affixing signature. It has been held that the stamp can
be affixed and cancelled immediately after the signature; in such a case, the signing and stamping are
continuous acts in the same transaction, or are practically simultaneous.146 This view was not accepted by
Chagla J in Rohini Chandrakant Vijayakar v AI Fernandes.147 The decision of the Bombay High Court was,
however, dissented from, in Kuruvilla v Varkey148 and also in Devendrappa v K Basalingayya149 in which
refugee relief stamps were not available when the note was executed, but were bought immediately thereafter
and affixed alongside the revenue stamps thereon.
By virtue of Article 372 of the Constitution of India, a negotiable instrument executed or negotiated in the State
of Jammu & Kashmir should be stamped in accordance with the Jammu & Kashmir Stamp Act, 1977, and not
the Indian Stamp Act, 1899.150
Stamping of a promissory note (or a bill of exchange) need not be by using adhesive stamps. A note or bill
could be executed on paper impressed with adequate stamps.151
Section 13 of the Indian Stamp Act, 1899 requires that:
…every instrument written upon paper stamped with impressed (or embossed) stamp shall be written in a manner that
the stamp may appear on the face of the instrument and cannot be used for any other instrument.
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Under section 15 of the Stamp Act 1899, an instrument written otherwise shall be deemed unstamped. Rule 7
of the Stamp Rules, 1925 provides that where two or more sheets of paper on which stamps are engraved or
embossed are used to make up the amount of duty chargeable in respect of any instrument, a portion of such
instrument shall be written on each sheet so used.
Where a blank impressed stamp paper was attached to another impressed stamp paper on which a promissory
note had been written, since the blank paper had not been cancelled (and the value of the stamp on the other
one was not adequate), it was held that the promissory note was not duly stamped.152 Similarly, where a bill of
exchange was written on one impressed stamp paper to which 16 other impressed stamp papers (which were
blank except for the plaintiff bank’s rubber stamp and bill number) were attached to make up the value of the
stamp fee required for the bill, the court held that the bill was to be treated as unstamped and was not
admissible in evidence.153
In Alen Co-operative Bank Ltd v RH Windsor (India) Ltd,154 a hundi was written entirely on one stamp paper to
which were attached (to make up for the stamp duty) two more stamp papers bearing merely the maker’s
signature. It was held that the hundi was to be treated as unstamped. In Union Bank of India v Ankur Corp,155
a bill of exchange was written on one stamp paper. Three more stamp papers were attached thereto, and the
drawer and acceptor had signed them together with a notation that these were attached to the bill written on the
first page. It was held that the bill was duly stamped.156
An adhesive stamp affixed to a promissory note should be cancelled in such a manner that it cannot be used
again. Otherwise, the note shall be deemed to be unstamped.157 The maker’s signature or initials with a date
across the stamp would cancel the stamp effectively. The drawing of a single line across the stamp was held
insufficient, and the note inadmissible in evidence.158
A promissory note which is made payable to a named payee (and not to his order or to bearer) and is attested
attracts stamp duty as a bond under section 2(5)(b) of the Indian Stamp Act, 1899.159
For the opposite view, some of the cases are RB Deshpande v BK Dave,160 RT Bhandary v S Punja,161
Khirodnath Gountia v Arjun Panda162 and also Kadorilal v Sukhlal,163 in which the decision was overruled by
a Full Bench of the Madhya Pradesh High Court in Sant Singh v Madandas Panika,164 where it was held that
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though an instrument satisfies the definition of a promissory note contained in section 2(22) of the Indian Stamp
Act 1899, read with section 4 of the Act, if it is attested and is not expressly payable to order or bearer, it is also
to be treated as a bond and is chargeable under section 6 of the Indian Stamp Act, 1899 with the higher duty,
i.e. as a bond and not as a promissory note.
An improperly stamped promissory note, containing a statement of the amounts due on a previous note, cannot
be admitted in evidence to prove the amount of liability and thus save limitation in respect of the previous note.
In a suit on such an inadmissible note, an amendment to the pleading so as to fall back on the original cause of
action cannot be permitted if the suit on the basis of the earlier note is time-barred, either on the date of suit or
of the amendment petition, and no special circumstances exist.165
However, an acknowledgement made on the back of insufficiently stamped promissory note is admissible in
evidence.166 In Saffia Khathoon v Kunhambu,167 the Division Bench of Madras High Court held that although
document (Ext. A1) is inadmissible as a promissory note, the endorsement subsequently made in the document
by the defendant recording the factum of the payments made by him towards the suit debt are admissible in
evidence since they do not form an integral part of the promissory note properly, and such endorsement did not
require to be stamped.
Similarly, where an unstamped promissory note was taken in respect of a pre-existing debt and a part-payment
was indorsed thereon, it was held that the endorsement was an acknowledgement of liability under section 18
of the Limitation Act, 1963, and started a fresh period of limitation. There is a vital distinction between an
acknowledgement under the Limitation Act, 1963 and an acknowledgement under the Indian Stamp Act 1899,
Sch I, Article 1.168
Section 19 of the Stamp Act, 1899 requires that the first holder in India of a promissory note made outside India
shall, before he endorses, transfers or otherwise negotiates the same in India, affix thereto the proper stamp,
and cancel the same. Where the plaintiff is the payee, there is no question of endorsement, transfer or
negotiation of the note by the first holder in India, and hence the section is not attracted.169
[s 4.7] Suit on the Original Consideration
As discussed in the previous paragraphs, before the amendment to the section 35 of the Indian Stamp Act,
1899, insufficiently stamped or unstamped negotiable instruments could not have been admitted in evidence by
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the operation of section 35 of the said Act and hence it was not possible to sue for money based on such
instruments. To advance the course of justice, a method was evolved viz., to institute suits based on original
transaction or the oral agreement. Even though this topic has lost its importance owing to the amendment
brought to proviso (a) to section 35, to understand the development of law in respect of suits based on original
cause of action, the discussion made by the original author and the former revising editors are retained
hereunder.
A question arises whether a creditor (who is given a negotiable instrument in respect of a debt by the debtor)
can, in the event of non-repayment of the debt, sue the debtor on the debt, or whether his rights would be
confined only to those he may have on the instrument itself.
The issue assumes particular importance if the instrument is inadmissible in evidence e.g., as being unstamped
or is time-barred, and the creditor cannot proceed thereon against the debtor. Generally, the delivery of a note
or bill in respect of a debt operates as conditional payment only, unless the parties agree otherwise. Where it is
a conditional payment, the debt is discharged when the instrument is paid. During the currency of the
instrument, if and so long as the rights of the parties under the instrument subsist and are enforceable, the
cause of action on the original consideration for money lent remains suspended. If the instrument is not paid at
maturity, or rights under it are not enforceable, the original cause of action to recover the debt revives and the
creditor can sue the debtor on that basis. However, this is subject to the qualification that the creditor has not
indorsed or lost or parted with the instrument under such circumstances as to make the debtor liable upon it to
a third party, or the creditor has done some act or omission on his own in relation to the instrument, destroyed
the debtor’s right of recourse against a prior party to it, or discharged him from liability, e.g., where the creditor
has not given proper notice of dishonour to the debtor who is an indorser.170
If the instrument has been given not as conditional payment but as collateral security, the lender is entitled to
sue upon the original consideration independent of the security and without regard to any rights he may
possess under the instrument.171
Where an instrument is executed in respect of an antecedent debt, there would be a strong presumption that it
is taken only as a collateral security or conditional payment. Based on the ruling of a Division Bench of the
Kerala High Court in Saffia Khathoon v Kunhambu,172 it was held in PC Gopinathan Nair v Appu Pillai173 that,
where a promissory note is executed by the debtor merely in acknowledgement of a loan he has already
obtained, a suit by the creditor on the original cause of action cannot be dismissed on the ground that the note
is defective and inadmissible in evidence. The Division Bench had held that a creditor is not precluded from
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pursuing his ordinary legal remedy of enforcing loan repayment by a suit on the original cause of action. The
Bench observed that the Indian Stamp Act, 1899 is a fiscal measure to secure revenue for the state, and that its
provisions are not intended to arm a litigant with a weapon of technicality to deny his contractual obligation, and
defeat the just claim of an opponent.
Judicial opinion has differed in cases where the loan transaction and the delivery of the instrument, usually a
promissory note, were simultaneous or contemporaneous or so close in point of time as to form part of one
transaction. One extreme view has been that in such cases, the creditor cannot sue on the debt since it would
not be correct to say that the transaction regarding advance of the loan was separate and distinct from the
execution of the instrument.174
A test that has been applied by some courts in such cases is, whether the instrument embodies all the terms of
the contract of debt. In Sheikh Akbar v Sheikh Khan,175 Garth CJ. observed:
But, when the original cause of action is the bill or note itself and does not exist independently of it, as for instance,
when in consideration of depositing money with B, B contracts by a promissory note to repay with interest at six
months date, there is no cause of action for money lent otherwise than upon the note itself because the deposit is
made upon the terms contained in the note and no other. In such a case, the note is the only contract between the
parties, and if for want of proper stamp or some other reasons, the note is not admissible in evidence, the creditor must
lose his money.
It has been held that where the loan is advanced simultaneously with the execution of a promissory note which
contains all the terms of the contract (and the parties agree that it should be the sole repository of evidence of
the liability), the creditor can sue only on the note. If the note is not duly stamped, he cannot fall back on the
original consideration. Oral evidence of the debt cannot be admitted under section 91 of the Indian Evidence
Act, 1872.176
A suit on the original cause of action would lie, provided the plaint alleges and the evidence shows that the
promissory note did not incorporate all the terms of the loan contract, and that the note was executed as a
conditional payment or collateral security, as was the majority view in L Sambaiva Rao v T Balakotiah.177 Also,
if the instrument embodies all the terms of the contract but is improperly stamped, no suit on the debt will lie,
being barred by section 91 of the Indian Evidence Act, 1872. Nor can section 70 of the Indian Contract Act,
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1872 be invoked in such case on the theory of implied promise, quasi-contract, unjust enrichment, or other
equitable doctrine. While agreeing with the majority view, Kuppuswami J. stated that, even where the borrower
executes a promissory note in respect of a past debt, it may be the intention of the parties that the debt is
discharged by the execution of the note, which alone should thereafter be treated as constituting the contract
between the parties. In such a case, there is accord and satisfaction of the debt. The terms of the contract are
then reduced to a document within the meaning of section 91 of the Indian Evidence Act, 1872, and it is not
permissible to prove the contract terms by any evidence except the note, and if the note is inadmissible in
evidence, a suit must fail. This decision was relied on in B Venkataiah v VV Ramana Reddy,178 where it was
stated that if the borrowing and the execution of the note form part of an integral transaction, there would be no
separate and independent existence for the original cause of action, which gets merged in the contract
embodied in the note as there was accord and satisfaction of the debt.
In some other cases, where the granting of the loan and the execution of the note were simultaneous, the
courts have proceeded on the basis that the note was given as collateral security only, and not in complete
accord and satisfaction of the debt.179
It has been held that in special circumstances, the plaintiff may be allowed to amend his pleadings, so as to fall
back on the original cause of action, where a suit on a promissory note given in respect of a debt is time-
barred.180
Where a note executed in respect of an antecedent debt is inadmissible in evidence, the plaintiff can be
permitted to fall back on the original cause of action, provided it is within the period of limitation.181
In PL CT SP Subramaniam Chettiar v Muthiah Chettiar,182 the defendant executed a promissory note for the
consolidated amount of principal and interest he owed to the plaintiff on two earlier notes, on which
indorsements were made to the effect that they were discharged by the execution of the third note. The third
note was not adequately stamped and the plaintiff could not sue the defendant thereon. The plaintiff, therefore,
instituted a suit against the defendant on the two earlier notes, claiming that the indorsements thereon served
as acknowledgements of the defendant’s liability and that the suit was in time, having been filed within three
years from the date of the indorsements. Accepting this contention, the Madras High Court held that in the case
of an insufficiently stamped promissory note, it is open to the promisee to rely on the original cause of action.
The endorsements on the two old notes amounted to an acknowledgement of a subsisting liability and the
substitution of a new security. Even where the transactions are contemporaneous, if the original cause of action
is considered separate from and independent of the note, the creditor is not, where the note is inadmissible in
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evidence, barred from suing on the original cause of action by the fact that it arose out of the same transaction
in the course of which the note was executed.183
In a suit on a promissory note, no personal decree can be granted against defendants who are not parties to
the note and no privity of contract is established between them and the plaintiff.184
[s 4.8] Minor’s Interest
In Koncha Hanuma Reddy v Koppuravari Satyanarayana,185 a promissory note was executed in favour of
minor and his father. Father subsequently made a transfer of that pronote in favour of the appellants. No
mention was made in the endorsement about the interest of the minor. When the appellant made a claim for
recovery on the basis of said pronote based upon transfer endorsement, it was held by the Andhra Pradesh
High Court that since the minor’s interest was not represented and as the interest of father and minor under that
promissory note were inseparable so much so that the rights arising through it could not be split, hence
appellant was not entitled to maintain his claim on the basis of the said promissory note.
1 Jetha Parkha v Ramchandra, (1892) 16 Bom 689.
2 See Packing Paper Sales (M/s) v Smt. Veena Lata Khosla, AIR 2007 Del 175 .
3 Rangaswamy v Govindaswamy, AIR 1961 Mad 434 .
4 Krishna Devi v Firm Tikayaram Lekhraj Batra, (2002) 1 BC 354 .
5 Re Hamdard Dawkhana (Wakf), Delhi, 1968 AIR Del 1.
6 Kadori Lal v Sukhlal, AIR 1968 MP 4 .
7 Laxman Krishanji Mustilwar v Ramesh Amarchand Agrawal, (2002) 1 BC 406 .
8 Jagjivandas v Gumanbhai, AIR 1967 Guj 1 .
9 Chhabildas Mangaldas v Luhar Kohan Arya, AIR 1967 Guj 7 ; Jagjivandas v Gumanbhai, AIR 1967 Guj 1 ; Jaikumar
Shivlal Shah v Motilal Hirachand Gandhi, AIR 1973 Bom 27 .
10 Bahadurunnisa Begum v Vasudev Naik, AIR 1967 AP 123 .

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11 Jakka Gopal Reddy v Neelakantam Venkata Krishna, AIR 2008 [NOC] 255 (AP) : 2007 (5) ALD 427 .
12 Jakka Gopal Reddy v Neelakantam Venkata Krishna, AIR 2008 [NOC] 255 (AP): 2007 (5) ALD 427 .
13 Jagadeesh v AK Thomas, ILR 2016 (2) Kerala 509 : 2016 (2) KHC 457 .
14 General Clauses Act 1897, section 3(65).
15 Brooks v Elkins, (1836) 2 M&W 74; Hooper v Williams, (1848) 2 Exch 20.
16 Re Marseilles Extension Rly and Land Co, Smallpage’s and Brandon’s Cases, (1885) 30 Ch D 598.
17 Cashorne v Dutton, (1727) 1 Sel NP (13th edn) p. 329.
18 Hopkins v Abbot, (1875) LR 19 Eq 222.
19 Sibree v Tipp, (1846) 15 M&W 23.
20 Hari Prasad v Nathuni Sahu, AIR 1962 Pat 165.
21 See the Negotiable Instruments Act, 1882, section 1.
22 Home v Redfearn, (1838) 4 Bing NC 433.
23 Moffat v Edwards, (1841) Car & M 16; Fellette v Moore, 4 Ex 410.
24 Sir Mohammed Akbar Khan v Attar Singh, AIR 1936 PC 171 ; Claydon v Bradley, [1987] 1 All ER522 : [1987] 1 WLR
521 (CA.).
25 Bachan Singh v Ram Avadh, AIR 1949 All 713 ; Brij Kishore Rai v Lakhan Tewari, AIR 1978 All 314 .
26 Barju Das v Krishna Chandra Misra, AIR 1953 Ori 104.
27 Cladon v Bradley, [1986] The Times, 15 December.
28 Surjit Singh v Ram Ratan Sharma, AIR 1975 Gau 14.

Page 32 of 40
29 Mohinder v Nagina, (1932) ILR Lah 22.
30 Bal Mukund v Munnalal Ramjilal, AIR 1970 Punj 516.
31 Laxmibai v Ganesh Raghunath, (1901) ILR 25 Bom 373.
32 Tirupathi v Rama Reddi, (1898) ILR 21 Mad 49; Maneckchand v Jamoona Das, (1882) 8 Cal 645.
33 Muthu Gownder v Perumayammal, AIR 1961 Mad 347.
34 Shrinivas Pansari v Hari Prasad Mehra, AIR 1983 Pat 321.
35 Laxmibai v Ganesh Raghunath, (1901) ILR 25 Bom 373.
36 Kundan Mal v Nand Kishore, AIR 1994 Raj 1 (where the document was held to be a receipt); Gordhan Singh v
Suwalal, AIR 1959 Raj 156; Nanga v Dhanna Lal, AIR 1962 Raj 68.
37 Mohammed Akbar Khan (Sir) v Attar Singh, AIR 1936 PC 171.
38 Chhabildas Mangaldas v Luhar Kohan Aria, AIR 1967 Guj 7.
39 TA Umapathy v TA Masilamani, AIR 1987 Mad 156.
40 R Kannusamy v VVK Swamy & Co, AIR 1988 Mad 336.
41 Chadwick v Allen, (1725) 1 Stra 706.
42 Green v Davis, (1825) 4 B & C 235.
43 Casborne v Dutton, (1727) 1 Sel NP (13th edn) 329.

Page 33 of 40
44 Yerruganti Chinna v Kota Egiri, (1913) 5 Mad WN 1005.
45 Sushil Chandra v Wali Ullah, AIR 1941 All 264 .
46 Balmukund v Ambadas, AIR 1946 Nag 81 .
47 Thenappa Chettiar v Andiyappa Chettiar, AIR 1971 Mad 290 .
48 Ramachandra v Sesha, (1894) ILR 17 Mad 85.
49 Ramchandar v Juggotmonmohiney, (1879) ILR 4 Cal 283, p 294; State Bank of Hyderabad v Ranganatha Rathi, AIR
1966 AP 215.
50 Jivatlal v Lalbhai, (1942) 44 Bom LR 495.
51 Annamalai v Velayuda, (1916) ILR 39 Mad 129.
52 Ruff v Webb, (1794) 1 Esp 129.
53 Sreenivasan v Subbarama Sastrikal, AIR 1988 Ker 112.
54 B Krishnayya v Chaparala, AIR 1977 NOC 42 (AP).
55 Bhagwandas v Chaganlal, (1922) 46 Bom LR 411.
56 Balck v Pilcher, (1909) 25 TLR 497.
57 Carlos v Fancourt, (1794) 5 TR 482, p 485.
58 Hill v Halford, (1801) 2 Bac 413.
59 Worley v Harrison, (1835) 5 Neo & M 173.
60 Bharata Pisharodi v Vasudevan Nambudri, (1907) ILR 27 Mad 1; Dhondbhai v Aunaram, (1889) ILR 13 Bom 669.
Page 34 of 40
61 Roberts v Peake, (1757) 1 Burr 323; see also illustration (g) to the section.
62 Bardesleyt v Baldwin, (1741) 3 Stra 1151; Pearson v Garrett, (1643) 4 Mod 242 [see illustration (f) to section 4].
63 Nathoobha v Himatlal, (1921) 23 Bom LR 1231 .
64 Sakaran Namboodiri v Mathai Abraham, AIR 1973 Ker 22 .
65 Shenton v James, [1843] 5 QB 199 .
66 Ratan Singh v Pirbhu, AIR 1931 All 302.
67 P Kamaraju And Sons v Kattala Paradesi, (1966) 1 Andh LT 439.
68 Bal Mukund v Munna Lal Ramji Lal, AIR 1970 Punj 516.
69 Muthu Gownder v Perumayammal, AIR 1961 Mad 347.
70 Thenappa Chettiar v Andiyappa Chettiar, AIR 1971 Mad 290.
71 R Devi v DL Issu, 1970 BLJR 1243.
72 R Kannusamy v VVK Swamy & Co, AIR 1988 Mad 336.
73 Kochuthressia v Devadas, AIR 1988 Ker 282.
74 Y Veeraiah v Margadarsi Chit Fund Ltd, (1990) 68 Comp Cas 484.
75 Venkata Subbayya v Atyanamyanamurthy, (1958) 1 Andh WR 224.
76 Mehrunnisa Begum v Sheik Chand Bi, (1985) 58 Comp Cas 197.
77 Ariban Kishorjit v K Arun, AIR 1969 Mani 23.

Page 35 of 40
78 Muthu Thevar v Singaram, (1966) 1 Mad LJ 406.
80 CN Sankara Nambudiripad v Vijayan, AIR 1988 Ker 120.
81 George v Surrey, (1830) M&M 516; Baker v Dening, (1838) 8 A&E 94; see the Section 3(52) of the General Clauses
Act, 1897.
82 Geary v Physic, (1826) 5 B&C 234.
83 Mathura Das v Babu Lal, (1875–77) ILR 1 All 683; Mahalakshmi Bai v Firm of Nageshwar, (1886) ILR 10 Bom 71.
84 Jebunissa Begum v Manekji, (1869) 6 Bom HCR 36.
85 March v Ward, (1792) 1 Peak 177.
86 Ex p Buckley, (1845) 14 M&W 475.
87 Beckam v Smith, (1858) 27 LTQB 257.
88 Ferrires v Bond, 4 B & Ad 679.
89 Pratapchand v Purshothamdas, (1894) 18 Bom LR 124.
90 Smith v Nightingale, (1818) 2 Stark 376; Crawford v Gurney, (1832) 9 Bing 372; see illustration (b) to section 4.
91 Barlow v Broadhurst, (1826) 4 Moo PC 471 [see illustration (e) to section 4].
92 Jones v Simpson, (1923) 2 B&C 318.

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93 Ayrey v Feurusides, (1838) 14 M&W 168.
94 See section 5; Carlon v Kenealy, (1843) 12 M&W 139.
95 Lakshminath v Benares Bank Ltd, AIR 1929 Pat 136.
96 Canara Bank v Sanjeev Enterprises, AIR 1988 Del 372.
97 Official Liquidator v Bishan Singh, 1968 All LJ 171.
98 Seth Tulsidoss Lalchand v Rajagopal, (1967) 2 Mad LJ 66.
99 The rate was raised to 18% by a 1988 amendment to section 80.
100 Mortgage Insurance Corpn v IRC, (1888) 21 QBD 352, p 358 (CA); Wirth v Weigel Leygonie & Co Ltd, [1939] 3 All ER
712, p 720.
101 Muthu Chetti v Muttan Chetti, (1882) ILR 4 Mad 296.
102 Bolton v Richards, (1795) 6 TR 139; Ex p Mason, (1815) 2 Rose 225; Martin v Chantry, (1784) 2 Stra 1271.
103 Dickie v Singh, 1974 SLT (Notes) 3, relying on the Privy Council decision in Sir Mohammed Akbar Khan v Attar Singh,
[1936] 2 All ER 545.
104 Syndic in Bankruptcy of Salim Nasrallah Khoury v Khayat, [1943] AC 507 : [1943] 2 All ER 406 (PC) [decided on the
Palestine Bills of Exchange Ordinance, 1929 (No 47 of 1929)]; and see John Burrows Ltd v Subsurface Surveyors Ltd,
[1968] SCR 607 : 68 DLR (2d) 354 (Can SC); quoted in Halsbury’s Law of England.
105 P Padmanabha Rao v Bathini Srinivasa Rao, AIR 2007 [NOC] 487 (AP).
106 Bijoy Shankar Roy v Sujit Agarwalla, AIR 2007 [NOC] 1151 (Gau).
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107 Cowie v Stirling, 6 E&B 327, per Jervis CJ.
108 Ramana Reddi v Rukmanamma, (1968) 1 Andh WR 221.
109 Jagjivandas v Gumanbhai, AIR 1967 Guj 1.
110 Emperor v Kallu Mal,(1903) All WN 174; Lal Jethaji v Bhagu Gopal, (1901) 3 Bom LR 699.
111 Ambalal Purshottamdas & Co v Jawarla,l (1955) ILR 1 Cal 441.
112 Mahant Damodar Das v Benares Bank Ltd, (1920) 5 Pat LJ 536.
113 Willis v Barrett, (1816) 2 Stark 29.
114 Yeo Eng Paw v Firm of Chetty, 5 LBR 102.
115 B Jaya Raghava Naidu v B Rama Suba Reddy, AIR 2011 AP 62.
116 Pomuswami Chettiar v Vellaimuthu Chettiar, (1957) 1 MLJ 179.
117 M Nyamathulla v A Chitharanjan Reddy, AIR 2008 AP 141.
118 Kotla Sudheer Kumar v Mallavarapu Jojayya @ Jojaiah Chowdary, 2002 (2) ALD 715.
119 Bolisetti Bhavannarayana @ Venkata Bhavannarayana v Kommuri Vullakki Cloth Merchant Firm, Tenali. 1996 (2) ALD
424 (FB).

Page 38 of 40
121 Ibid.
123 Browne v De Winton, (1848) 17 LTCP 281; Gay v Landal, (1848) 17 LTCP 286 [see Bills of Exchange Act, 1882,
section 83(2)].
124 Absolon v Marks, [1847] 11 QB 19 .
125 Jetha Parkha v Vithoba, (1892) ILR 16 Bom 689, p 698.
126 AKH Haji v Appukutti, AIR 1969 Ker 189 ; Kochuthressia v Devadas, AIR 1988 Ker 284 [see also explanation (i) to
section 13(1)].
127 Bahadurunnisa Begum v Vasudev Naik, AIR 1967 AP 123 ; P Ramana Reddy v K Rukmaniamma, (1968) 1 Andh WR
221; P Vajramma v M Agaiah, AIR 1979 AP 2 ; KL Lona v Dada Haji Ibrahim Hilari, AIR 1981 Ker 86 .
128 Kartey v Iftikhar Ahmed, AIR 1981 All 386 .
129 Raj Bahadur Singh v Mahadeo Prasad, AIR 1981 All 58 .
130 Nanga v Dhannalal, AIR 1962 Raj 68 (FB); Chunilal Tukki Mal v Mukant Lal Ramchandra, AIR 1968 All 164 .
132 State Bank of Hyderabad v Ranganatha Rathi, AIR 1966 AP 215 .
133 Yalamanchili Vijaya Kishore v Peeta Brahmananda Rao, AIR 2007 AP 55 .
134 Chhabildas Mangaldas v Luhar Kohan Arya, AIR 1967 Guj 7 ; Jagjivandas v Gumanbhai, AIR 1967 Guj 1 ; Jaikumar
Shivlal Shah v Motilal Hirachand Gandhi, AIR 1973 Bom 27 .
135 Anant v Ratnagiri District Local Board, (1952) 54 Bom LR 841 .
137 Hatch v Trayes, (1840) 11 A&E.
138 Deva Ratna v Fakir Adam, (1902) 4 Bom LR 428 .
139 Giles v Bourne, (1817) 6 M&S 573.
140 Davis v Jones, (1856) 25 LJ CP 91.
141 Bills of Exchange Act, section 13(2); Pasmore v North, (1811) 13 East 517; Usher v Dancy, (1814) 4 Camp 97.
Page 39 of 40
142 Seth Fulchand v Seth Laxminarayan, AIR 1953 Nag 233 .
143 Mascarenhas v Mercantile Bank of India, (1932) 34 Bom LR 1 .
144 Neolite Polymer Industries Pvt Ltd v Standard Chartered Bank, 2007(6) Bom CR 539 : 2007(109) BOM LR 1930 .
145 Javer Chand v Pukhraj Surana, AIR 1961 SC 1655 , followed in Brij Kishore Rai v Lakhan Tewari, AIR 1978 All 314 .
146 Surij Mull v Hudson, (1901) ILR 24 Mad 259.
147 Rohini Chandrakant Vijayakar v AI Fernandes, AIR 1956 Bom 421 .
148 Kuruvilla v Varkey, (1969) ILR 2 Ker 630.
149 Devendrappa v K Basalingayya, AIR 1979 Kant 21 .
150 Gulab Nabi Mathanji v Lal Md Bangree, AIR 1975 J&K 50.
151 G Hanumanthappa v S Bala Rangaiah, AIR 1987 Kant 285 .
152 Mohanlal Kanailal v Keshrimull Chordiya, AIR 1914 Mad 358 .
153 Central Bank of India v Light Gauge Metal Products (P) Ltd, (1987) 61 Comp Cas 312 .
154 Alen Co-operative Bank Ltd v RH Windsor (India) Ltd, AIR 1988 Bom 352 .
155 Union Bank of India v Ankur Corp, AIR 1993 Bom 297 .
156 Dena Bank v Gladstone Lyall & Co Ltd (1985) 87 Bom LR 477 .
157 See the Indian Stamp Act, 1899, section 12.
158 Dhirajlal v Ranchhod, (1978) 76 Bom LR 189 .
159 Jaikumar v Motilal, AIR 1973 Bom 27 .
160 RB Deshpande v BK Dave, AIR 1972 Mys 159 .
161 RT Bhandary v S Punja, AIR 1972 Mys 344 .
162 Khirodnath Gountia v Arjun Panda, AIR 1972 Orissa 95 .
163 Kadorilal v Sukhlal, AIR 1968 MP 4 .
164 Sant Singh v Madandas Panika, AIR 1976 MP 144 .
165 Y Veeraiah v Kawali Mining Corp, AIR 1973 AP 170 ; Nageswara Rao v Narayana Murthy, AIR 1938 Mad 75 .
166 Janardhan v TA Aneefa Rawther, (2005) 3 Bank CLR 126 (Ker).
167 Saffia Khathoon v Kunhambu, 1977 Ker LT 448 (Mad) (DB).
168 Chowdary Punamchand Hastimal Co v S Venkataswami, AIR 1972 AP 282 ; PL CT SP Subramaniam Chettiar v
Muthaiah Chettiar, AIR 1984 Mad 215 .
169 R Kannusamy v VVK Swamy & Co, AIR 1988 Mad 336 , relying on Rattanchand v Kharaitiram, AIR 1955 Punj 88 .
Page 40 of 40
170 Sheikh Akbar v Sheikh Khan, (1881) ILR 7 Cal 256; Chit Maung v Roshan NMA Kareem Comer & Co, AIR 1934 Rang
389 (FB).
171 Sarajoo Prasad v HT Rampayari, (1950) ILR Pat 493.
172 Saffia Khathoon v Kunhambu, (1977) KLT 448 .
173 PC Gopinathan Nair v Appu Pillai,1992) 75 Comp Cas 263 .
174 Ramjas v Shahabuddin, (1927) ILR Lah 89; Shrikishan v Bhanwarlal, AIR 1974 Raj 96 .
175 Sheikh Akbar v Sheikh Khan, (1881) ILR 7 Cal 256.
176 Srinivasa Gowda v Siddiah AIR 1971 Mys 144 .
177 L Sambaiva Rao v T Balakotiah, AIR 1973 AP 342 (FB).
178 B Venkataiah v VV Ramana Reddy, AIR 1985 AP 26 .
179 Chit Maung v Roshan NMA Kareem Comer & Co, AIR 1934 Rang 389 (FB); Perumal Chettiar v Kamakshi Ammal,
AIR 1938 Mad 785 (FB); Dewan Chand v Jay Pee Finance Corpn, AIR 1977 J&K 61.
180 Official Assignee v Kuppuswami Naidu, AIR 1936 Mad 785 (FB).
181 Gangaram v Keshav Deo, AIR 1960 Raj 10 ; Janardhan v TA Aneefa Rawther, (2005) 3 Bank CLR 126 (Ker).
182 PL CT SP Subramaniam Chettiar v Muthiah Chettiar, AIR 1984 Mad 215 , relying on Pandit Saligram v Radhey Shiam,
AIR 1931 All 560 followed in V Kondamma v KK Venkataraydu, (1938) 2 MLJ 846 .
183 Ram Sarup v Jasoda Kunwar, (1912) ILR 34 All 158; Anwaruddin v Pathim Bai, AIR 1927 Mad 379 .
184 PR Subramania v Lakshmi Ammal, AIR 1974 SC 1930 .
185 Koncha Hanuma Reddy v Koppuravari Satyanarayana, 2012 CrLJ 155 [NOC] (AP) : 2011 (5) ALD 623 .
End of Document
[s 5] Bill of exchange—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

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 promise or order to pay is not ‘conditional’, within the meaning of this section and section 4,
by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse
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of a certain period after the occurrence of a specified event which, according to the ordinary expectation of
mankind, is certain to happen, although the time of its happening may be uncertain.
The sum payable may be “certain”, within the meaning of this section and section 4, although it includes future
interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although
the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.
The person to whom it is clear that the direction is given or that payment is to be made may be a ‘certain
person’, within the meaning of this section and section 4, although he is misnamed or designated by description
only.
This section corresponds to sections 3, 6(1), 7(1), 9(1) and 11 of the Bills of Exchange Act, 1882.
[s 5.2] Requisites of Bill of Exchange
The definition of a bill of exchange under the Act is fairly exhaustive and almost covers all the aspects related to
it at one place. The English Act also gives almost identical definition.186 A bill of exchange requires three
parties:
(i) the drawer, i.e. the person who is the maker of the bill and who gives the order;
(ii) the drawee, i.e. the person who is directed to pay the bill and who on affixing his signature becomes
the acceptor; and
(iii) the payee, i.e. the person to whom or to whose order the amount of the instrument is payable, unless
the bill is payable to bearer.
It is, however, not necessary that three separate persons should answer the description of drawer, drawee, and
payee. One person may fill any two of these positions. Thus, one person may become the drawer and
payee;187 likewise one person may become the drawee and payee if he is acting in two different
capacities.188 Lastly, the drawer may also be the drawee. In this case, as also in the case of the drawee being
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a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option
either as a bill of exchange or as a promissory note.189 The section requires three parties, drawer, drawee,
and payee to be pointed out in the bill with reasonable certainty. A demand draft drawn by one office of a bank
upon another office may be treated as a bill of exchange. A bill can be drawn by more than one drawer, in
which case they are jointly liable. Likewise, a bill may be drawn on more than one drawee, but a bill cannot be
drawn with a liability in the alternative. A bill of exchange is sometimes called a draft. An analysis of the
definition shows the following essential requisites of a bill of exchange:
[s 5.2.1] A Bill of Exchange must be in Writing
A bill of exchange may be written in any language, and any form of words may be used, provided the
requirements of this section are complied with.190
[s 5.2.2] A Bill of Exchange must Contain an Order to Pay
When a bill of exchange is drawn, the presumption is that there are funds in the hands of the person to whom
the order is given, which are payable in any case to the person giving the order. The essence of a bill of
exchange is that the drawer orders the drawee to pay money to the payee. As a bill of exchange is an order, it
is necessary that it must, in its terms, be imperative and not perceptive. The use of any particular form or words
is not essential and any words would do if there is a demand. To frame a bill, therefore, in such a manner that it
might be treated as a mere request would cause inconvenience and uncertainty. However, the insertion of a
term of politeness or a courteous expression like ‘please pay affixed to the order’ will not invalidate an
instrument purporting to be a bill of exchange. Thus, an instrument running ‘Mr AB will much oblige Mr CD by
paying to the order of P’ was held good as a bill.191
Excessive terms of politeness may lead to the construction that the communication contained in the bill was not
an order. Thus, where a document was drawn in the form: ‘Mr Little, please do let the bearer have seven
pounds and place into my account, and you will oblige...’, was held not to be a demand made by a party having
a right to call on the other to pay. The fair meaning to put on such an instrument was stated to be, ‘...you will
oblige me by doing it’.192 The direction to the drawee, however, need not be expressed by the word ‘pay’, but
any other word conveying the idea of payment, e.g. credit in cash, will be sufficient.193 A mere request to pay
to an account was held not amounting to an order.194
In pursuance of an agreement to lend money, A gave his creditors some ‘chits’ for certain sums, addressed to
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B and required him to pay the amounts mentioned therein. B did so and sued A for the amount so advanced. It
was held that chits were neither bills of exchange, nor cheques as the agreement did not make B a banker.195
[s 5.2.3] The Order Contained in the Bill should be Unconditional
It is the essence of a bill that it should be payable at all events, hence this requisite must appear on its face with
reasonable certainty. A bill of exchange cannot be drawn so as to be payable conditionally. The drawer’s order
to the drawee must be unconditional, and should not make the payment of the bill dependent on some
contingency. Where an instrument is payable on a contingency, it does not cease to be invalid by the
happening of the event before the expiry of the period fixed for the performance of the obligation, for the
instrument must be valid ab initio, and carry its validity on its face.196 A conditional bill of exchange is invalid.
The addition of the words as per agreement does not make a note conditional. 197
The following instruments were held not valid bills of exchange, i.e., instruments containing an order to pay:
(i) ‘...ninety days after sight or when realized…’.198
(ii) ‘...sixty days after the arrival of the ship ‘Victory’ at Mumbai…’.199
(iii) ‘When I am in prosperous circumstances…’.200
(iv) ‘...on condition that a receipt form at the top thereof is duly signed…’.201
(v) ‘When I marry…’.202
(vi) ‘Debt that may come into existence at a future date…’.203
(vii) ‘Rs 10,000 on the sale of 3 bales of cotton…’.204
(viii) ‘if we would have means to pay it…’.205
[s 5.2.4] Bills Payable out of a Particular Fund
On the same principle, a bill or note expressed to be payable out of a particular fund is conditional and invalid,
because it is uncertain whether the fund will be in existence or prove sufficient when the bill becomes payable.
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Thus, a bill containing an order to pay ‘out of money due from A as soon as you receive it’ or ‘out of money
remaining in your hands belonging to X Company’, is invalid.206 Similarly, an order to pay ‘out of the moneys
now due or hereafter to become due to me under the will of my late father and before making any payment to
me thereout’ is not a valid bill,207 nor is the promise to pay out of the proceeds of a sale a valid note.208
However, an unqualified order to pay, coupled with an indication of the particular fund, out of which the drawee
is to reimburse himself, or of a particular account to be debited with the amount, is not conditional and is
therefore valid.209 Thus, a bill containing an order to pay ‘against cotton per Victory or being a portion of a
value as under deposited in security for the payment hereof or against credit No 20, and place it to account as
advised per Co,’ constitutes a valid bill.210
[s 5.2.5] A Bill of Exchange must be Signed by the Drawer
A bill is not valid unless the drawer signs it and if the drawer has not signed it, no action can be maintained
against the acceptor or any other party who has affixed his signature thereto. If the drawer is unable to write his
name, he can sign by a mark in lieu of a signature.211 Thus, if a bill is accepted by the drawee without the
drawer’s signature and negotiated with a third party, the instrument is not a bill of exchange.212 However, the
signature may be added at any time after the issue of the bill but, until it is so added, the instrument remains
inchoate and ineffectual. A document in the form of a bill signed by the acceptor but not by the drawer is not a
bill, but may be valid as an acknowledgement of debt.213
[s 5.2.6] The Drawee must be Certain
The next requisite is that the instrument must order a person to pay the amount of the bill. The person to whom
the bill is addressed is called the ‘drawee’, and he must be named or otherwise indicated in the bill with
reasonable certainty. In the interest of all parties, it seems absolutely indispensable that the drawee must be
indicated in the bill with reasonable certainty, so that the payee knows the person to whom he should present
the instrument for acceptance and payment. Likewise, the person who accepts and pays a bill on account of the
drawer should know with reasonable certainty whether it is addressed to him. Thus, where an instrument is
drawn in the form of a bill, and is addressed to no one in particular, it is not a valid bill, even though a person
writes his acceptance on it. However, such an instrument may be treated as a promise to pay, the acceptor
being liable as the maker of a note.214
In Santhi C Santhi Bhavan v Mary Sherly,215 on a complaint filed by appellant, the 1st respondent stood trial
Page 6 of 18
for offence under section 138 of the Act. The accused did not adduce any evidence, but took up a contention
that he received only a lesser amount from complainant and as security, he handed over a cheque in blank
form to complainant. The transaction took place on a different date and not any date alleged by complainant.
The blank cheque tendered as security was misused to file a false complaint. After consideration of evidence
and materials on record, the trial court acquitted the accused mainly for the reason that the accused had not
admitted either the signature on the cheque or the execution thereof and so, it was the duty of the complainant
to prove the execution of cheque. It was only when the execution of cheque was proved that the offence under
section 138 of the Act would be attracted. It was further opined by trial court that mere allegation to the effect
that the cheque was given by the accused will not prove the execution of the cheque because issuance and
execution are different. The term ‘issuance’ is not equivalent to ‘execution’. There was nothing in the testimony
of PW1 to the effect that the cheque was executed by the accused. There was absolutely no other evidence to
prove the execution of the cheque and therefore, the trial court concluded that the execution of cheque was not
proved and the offence under section 138 of the Negotiable Instruments Act was not made out. Challenging the
order of acquittal, this appeal was filed by the complainant.
A Single Judge of the Kerala High Court216 held that the contention raised by an accused in a prosecution
under section 138 of the Act that he issued a blank signed cheque will not amount to admission of execution of
cheque. It was further held that a signed blank cheque leaf is very often referred to as a blank ‘cheque’, but,
strictly speaking, it is not a ‘cheque’, as defined under the Act. It can be treated only as a ‘cheque leaf’
containing admitted signature of accused. The admission of signature in a cheque leaf alone will not constitute
admission of execution of the cheque. The argument that accused admitted ‘execution’ of the cheque in the
reply notice etc., cannot therefore, be accepted.
While holding so, K Hema, J discussed the relevant provisions of Negotiable Instruments Act and observed217
as follows:
6. True, the expression, ‘execution’ is not used in section 138 of the Act. A reading of section 138 of the Act however,
shows that to prove the offence under the said section, prosecution shall inevitably prove that the cheque was ‘drawn’
by accused. The only overt act which makes a person liable for the offence under section 138 of the Act is ‘drawing’ of
cheque by him. So, the main factor to be proved by complainant to establish guilt of accused under section 138 of the
Act is that accused has ‘drawn’ the cheque.
7. The expressions ‘draw’ or ‘drawn’ is not defined in the Act. Section 7 defines ‘drawer’ thus: ‘maker of a cheque is
called the drawer’. So, a person who ‘makes’ the cheque is the drawer and the corollary follows that ‘draw’ means, ‘to
Page 7 of 18
make a cheque’. As per Oxford Advanced Learner’s Dictionary, 7th Edition, the word, ‘make’ means ‘to create or
prepare something by combining materials or putting parts together or to write, create or prepare something’. As per
Black’s Law Dictionary, Eighth Edition, ‘draw’ means, ‘to create and sign; to prepare and frame (a legal document).’
8. Thus, a person can be said to have ‘drawn’ a cheque, if he has made, prepared or created a ‘cheque’. Cheque is an
instrument which is created, in conformity with the requirements of section 6 read with section 5 of the Negotiable
Instrument Act. A reading of sections 5 and 6 of the Act shows that a cheque consists of mainly, two parts. One is, an
unconditional order in writing directing the banker to pay a certain sum of money only, or to the order of, a certain
person or to the bearer of the cheque. The second part is the signature of the drawer.
9. Therefore, if prosecution proves that accused has made or prepared or created a cheque, which contains an order in
writing, under his signature, directing the banker to pay a certain sum of money only to the payee or the bearer or to
the order of a certain person, he can be said to have ‘drawn’ the cheque. Such ‘drawing’ is also referred to as
‘execution’ as a legal synonym by various courts and the Bar. Therefore, absence of word ‘execution’ in section 138 is
of no consequence. It is also not an excuse not to prove execution/drawing in a prosecution under section 138 of the
Act.
Furthermore, dealing with the mode and manner in which the prosecution is to prove the execution of the
cheque in question, K Hema, J, observed218 as under:
17. In cases in which only circumstantial evidence is produced before court to prove drawing of cheque, court shall
follow the mode adopted for appreciation of circumstantial evidence, to enter a finding whether cheque is drawn by
accused, as alleged by prosecution. If any circumstance or circumstances proved in the case can be explained on any
hypothesis which is inconsistent with the assertion of drawing of cheque by accused, accused cannot be said to have
drawn the cheque.
18. Whether the cheque was handed over or delivered to complainant by accused and whether it was drawn by
accused are independent facts, which require independent proof. The mere production of the cheque in court will not
prove either of the above facts. It seems from the records in various appeals involving offence under section 138 of the
Act that most of the complaints do not contain even the relevant facts. Neither the complainant nor the witnesses are
made to speak the relevant facts in box. Everything seems to be taken for granted. This case also falls under that
category.
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19. The cases are often proceeded with, as though mere production of cheque proves all the relevant facts which
prosecution must establish in a prosecution under section 138 of the Act. This approach is not a correct. For a
successful prosecution of offence under section 138 of the Act, complainant must allege and prove that the cheque
was ‘drawn’ or executed by the accused. In the absence of an allegation in the complaint that the cheque was drawn
by the accused and in the absence of proof of such fact, an accused cannot be convicted for offence under section 138
of the Act.
20. The court must be satisfied from the allegations in the complaint and from the evidence adduced that the cheque
was made, prepared or created by accused. The court must be convinced that the order in writing which is found in the
cheque was made by accused himself or by some other person at the instance of accused or under his instructions.
Even if such other person cannot be identified or examined, complainant can still prove execution by circumstantial
evidence. There must also be satisfactory evidence to show that accused himself signed the cheque. Then alone, it
can be said that accused has drawn the cheque.
In the light of the aforesaid principles, it was held by the Kerala High Court that there was no allegation or proof
of the fact that the cheque was ‘drawn’ or ‘executed’ by accused. The only fact alleged in complaint and stated
in evidence by the sole witness, PW1 was that accused ‘gave’ the cheque to complainant. It was held that from
such evidence alone, it cannot be concluded that the cheque was ‘drawn’ by accused. The High Court
accordingly opined that the trial court rightly acquitted accused, in the absence of proof of ‘drawing’ of the
cheque, which is the most essential ingredient of the offence under section 138 of the Act. It was further held
that Magistrate rightly held that ‘execution’ is different from ‘issuance’ of cheque. Proof of issuance or giving of
cheque by accused to complainant alone was not considered sufficient to constitute offence under section 138
of the Act. The acquittal was thus upheld.219
However, where an instrument was drawn in the form of a bill, not containing the name of the drawee, but
expressed to be payable at a certain place, and was accepted by a person residing at that place, it was held to
be a valid bill and hence the acceptor was liable to pay the amount. It was held that, by his acceptance, the
acceptor acknowledged that he was the person to whom the bill was directed.220
A bill cannot be addressed to two or more drawees in the alternative, because it would create difficulties as to
recourse if the bill were dishonoured.
[s 5.2.7] The Sum Payable must be Certain

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The sum payable is certain even though it is required to be paid with interest, or at the indicated rate of
exchange or by instalment with the proviso that on the default in payment of instalment, the whole amount shall
become due and payable.221 If at the time of the issue of a cheque the amount is not specified and payee is
uncertain, then the cheque is not bill of exchange and does not become a valid negotiable instrument.222
In England, where a bill or note is expressed to be with interest, but no rate is prescribed, a court would
probably allow the appropriate commercial rate.223 An instrument payable with lawful interest is thus not valid
for uncertainty.224
The sum may also be expressed to be payable by stated instalments with or without a provision that upon
default in payment of any instalment, the whole shall become due,225 but the dates of the instalments must be
stated.226
The sum may also be expressed to be payable according to an indicated rate of exchange or according to a
rate of exchange to be ascertained as directed by the instrument.227
A bill to pay the proceeds of the sale of a consignment of goods even when valued by the drawer at a definite
sum is a good bill.228
[s 5.2.8] The Instrument must Contain an Order to Pay Money and Money Only
The medium of payment should be the legal tender, i.e., money and nothing else. An instrument containing
order to pay money along with some other thing or merely some other thing is not a valid bill. An instrument
ordering the delivery up of houses and a wharf in addition to the payment of a sum of money is not a valid
bill.229
[s 5.2.9] The Payee must be Certain
A bill must state with certainty the person to whom payment is to be made. A bill of exchange ought to specify
to whom the same is payable, for in no other way can the drawee, if he accepts it, know to whom he may
properly pay it, so as to discharge himself from all further liability.230
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Where a bill is payable to bearer, the payee is indicated with certainty. Bills are rarely drawn payable to bearer,
but cheques are commonly so drawn. A bill cannot be drawn payable to bearer on demand.231
Where a bill is not payable to bearer, the payee must be named or otherwise indicated therein with reasonable
certainty. A bill of exchange may be made payable to two or more payees jointly or it may be made payable in
the alternative to one of two, or one or some of several payees.232 A bill may be drawn payable to the order of
the drawee, but such a bill cannot be enforced until the drawee has indorsed it away.233
Where in a bill the drawee or payee is misnamed or misdescribed, extrinsic evidence is admissible to identify
him.234
In NS Rasheed v R Loganathan,235 it was held by Madras High Court that a post-dated cheque remains a bill
of exchange till the date mentioned on it and only thereafter it becomes a cheque. Dishonour of a post-dated
cheque will not attract the offence under section 138 of CrPC. However, on facts, it was noticed by the High
Court that the post dated cheque in question, bearing the date of 5 September 2006, was presented for
collection to Bank of payee and the Bank on which the cheque was drawn received the cheque only after 5
September 2006. As such it was held to be a valid cheque on the date on which it was presented by the Bank
on which it was drawn and upon dishonour of the said cheque, the proceedings under section 138 of
Negotiable Instruments Act was held to be maintainable.
In Hitenbhai Parekh, Proprietor v State of Gujarat,236 the complainant and the accused person had business
relations in which pharmaceutical raw materials was supplied by the appellant and a cheque was given by the
respondent which was dishonoured by the bank for insufficient fund. After notice and upon non-compliance
thereof, the complaint was filed. The defence of the accused in reply to the statutory notice consisted of denial
of issuance of cheque and misuse of the cheque, besides the contention that the goods sold and supplied to
her firm were returned and that there were other disputes. During trial, no witness was examined in defence,
and the accused relied upon the delivery challan under which the goods were sent back through a transporter
to the complainant. The accused also relied upon the statements made by complainant in cross-examination
and put up the defence that complainant had failed to prove enforceable debt against her. The trial Court,
relying upon the oral and documentary evidence produced by complainant, came to the conclusion that the
cheque was issued against the invoice for the supply of goods worth Rs 1,48,668 to which other amounts
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debited to her account were added and the total amount of the cheque of Rs 2,08,074 was proved to be due by
the invoice, debit notes and other charges. Thus, the trial Court recorded conviction of the accused.
In appeal, the respondent, inter alia, contended that no amount was outstanding against her since the goods
sold to her by the invoice were returned and the cheque which was given as advance towards settlement of
account was misused. The appellate court adopted the view that complainant had totally failed in discharging
the initial burden of proving that there was legally enforceable debt, by producing cogent proof, such as books
of account, account note book, income-tax report, income-tax return, audit report, audit books etc. and,
therefore, in absence of proof of legally enforceable debt on the part of the complainant, the accused could not
be asked to discharge her burden of rebutting the presumptions arising under section 139 of the Act. The
appellate Court noted that the complainant had not examined any independent witness in support of his case
and it relied upon judgment of Andhra Pradesh High Court in case of Nagisetty Nagaiah v State of AP.237 The
accused having thus succeeded in the first appeal, the complainant has approached the High Court with the
plea that legally enforceable debt was duly proved by sufficient evidence and the judgment of appellate court
was perverse and illegal. Therefore, the sole issue requiring consideration in this appeal was as to whether the
cheque was drawn, delivered and received for payment of any amount to the payee for the discharge, in whole
or in part, of any legally enforceable debt or other liability.
The High Court held238 that when a cheque bearing only signature of the drawer is delivered and received by a
payee for the discharge, in whole or in part, of any debt or liability, there is an implied authority for the person
receiving such cheque to complete it by filling the blanks and the amount having been filled up under such
implied authority would be the amount intended by him to be paid thereunder. The focus in such cases would
shift to the aspect of such amount being for the discharge, in whole or in part, of any legally enforceable debt or
other liability. It further held that a blank cheque, drawn by a person on an account maintained by him with a
banker, for payment of any amount of money to another person, by merely putting his signature on it, would not
be a ‘cheque’ fulfilling the requirements of section 6 in the first place, because of not being a ‘bill of exchange’
in terms of section 5 as it did not contain direction to a certain person to pay a certain sum of money to or to the
order of a certain person or to the bearer of the instrument. When the Negotiable Instruments Act expressly
permits and authorises by a substantive provision the completion of an inchoate instrument by section 20 with
the safe-guard provided in section 87, provisions of sections 5 and 6 defining ‘bill of exchange’ and ‘cheque’
have to be harmoniously read to mean that an instrument which was initially not a ‘cheque’ falling within the
definition of section 6 would become a ‘cheque’ when it was completed by filling the blanks and its dishonour
shall have all the legal consequences of dishonour of a cheque proper.
It was observed by DH Waghela, J as under239 :

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9. The presumption under section 139 is mandatory but rebuttable by proof of facts contrary to the receipt of cheque
for discharge of any debt or other liability. The initial burden, however, of proving that the cheque was drawn by the
drawee for payment of any amount of money and it being returned by the bank unpaid remains with the complainant.
The presumptions under section 118 are also mandatory but rebuttable and could be availed only until the contrary is
proved. Even as a bill of exchange, by definition, requires signature of the maker as also direction to pay a certain sum
of money only to or to the order of a certain person or to the bearer of the instrument, the provisions of section 20
permits signature and delivery of an incomplete negotiable instrument and provides that the maker thereby gives prima
facie authority to the holder thereof to make or complete it into a negotiable instrument and makes the signatory of
such instrument liable to any holder in due course to the extent of the amount intended to be paid thereunder.
Therefore, harmonious reading of the provisions of sections 5, 6, 20, 118 and 139 would clearly indicate that a cheque
could be drawn, delivered and received by the payee or holder in due course and could legally be completed under a
legal authority and when such inchoate instrument is completed to make it a negotiable instrument, it would fall within
the definition of ‘bill of exchange’ and would render the signatory liable upon such instrument to the extent the amount
mentioned therein is intended by him to be paid thereunder. Unless and until contrary is proved, such negotiable
instrument would be presumed to be made or drawn for consideration and receipt thereof would be presumed to be for
discharge, in whole or in part, of any debt or other liability. However, such debt or other liability is not by any legal
presumption presumed to be a legally enforceable debt or other liability. Therefore, the onus of proving that the
presumed or proved debt or legal liability was legally enforceable remains with the complainant. Consequently, in all
given fact-situations, the Court is required to examine whether the presumptions regarding consideration and there
being any debt or other liability are rebutted by the accused person by preponderance of probabilities and whether the
complainant has proved that the debt or other liability, presumed or proved by overwhelming evidence, was legally
enforceable. Although there is no presumption as regards any debt or other liability being legally enforceable, it would
be found that once a debt or other liability is presumed and not properly rebutted, it would be legally enforceable,
unless and until it is shown to be legally unenforceable. Such scheme of the provisions of law clearly indicates the
object of serving the purpose of realisation of the promise apparently contained in a negotiable instrument, which is
that the amount for payment of which the bill of exchange was intended to be made will be paid to the payee or the
holder in due course.
9.1 Any material alteration of a negotiable instrument, however, renders it void as against anyone who is a party
thereto at the time of making such alteration and does not consent thereto, unless the alteration was made in order to
carry out the common intention of the original parties. The provision to that effect contained in section 87 has to be
read in harmony with section 20 which permits and authorizes the holder of a negotiable instrument to complete the
instrument for any amount and renders the drawer liable to the holder in due course to the extent of the amount
intended by the drawer to be paid under such instrument. It is clear from plain reading of provisions of sections 20 and
87 that the injunction, under the pain of invalidating a negotiable instrument, against alteration operates only after an
inchoate instrument is completed or a complete instrument falls within the definition of ‘negotiable instrument’.
Therefore, the legally permissible completion of an inchoate instrument cannot be construed as material alteration of a
negotiable instrument.
Page 13 of 18
Applying the above-said principles, the High Court held240 that the legal presumptions in favour of the
complainant and the proof of legal liability of the accused were not rebutted or disproved by any credible
preponderance of probabilities. Under such circumstances, not only all the ingredients and circumstances for
constituting the offence of dishonour of cheque were fulfilled, but the accused person appeared to have relied
upon irrelevant facts for setting up a dishonest defence by denying any liability. Therefore, it was held to be a fit
case for convicting the respondent for the offence punishable under section 138 of the Act and sentencing her
to proper punishment.
[s 5.3] Bills of Exchange and Promissory Notes Compared
For most purposes, the rules that apply to bills of exchange are, in general, applicable to promissory notes.
However, there are certain points of difference between them. These are:
(i) The liability of the maker of a promissory note is primary and absolute, but the liability of the drawer of
a bill of exchange is secondary and conditional.241
(ii) The maker of a promissory note corresponds, generally, to the acceptor of a bill of exchange (section
32 of the Act). Hence, unless a promissory note is expressed to be payable at a certain place,
presentment is not necessary to make him liable, and notice of dishonour is not required.
(iii) The position of the maker of a note, however, differs from the acceptor’s, in that a note cannot be
made conditionally, while a bill may be accepted conditionally. The reason for this distinction is that the
acceptor of a bill is not the originator of the bill and his contract is supplementary, being superimposed
on that of the drawer, while the maker of the note originates the instrument.
(iv) A promissory note indorsed by the payee corresponds with an accepted bill payable to the drawer’s
order, the payee of the promissory note having the same rights and responsibilities as the drawer of an
accepted bill.
(v) The maker of a promissory note stands in immediate relation with the payee, whereas the drawer of an
accepted bill of exchange stands in immediate relation with the acceptor and not the payee.
(vi) The following provisions relating to bills do not apply to notes, namely; presentment for acceptance,
acceptance, acceptance supra protest, and bills in sets.
(vii) Foreign bills must be protested for dishonour, when such protest is required by the law of the place
where they are drawn.242
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186 Section 3—A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future
time a sum certain in money to or to the order of a specified person, or to bearer.
187 Chamberlain v Young, [1893] 2 QB 206 (CA).
188 Holdsworth v Hunter, (1830) 10 BC 449 .
189 Halsbury’s Laws of England.
190 See also notes on ‘writing’ under section 4.
191 Ruff v Webb, 21 Esp 129.
192 Little v Slackford, (1828) M&M 171.
193 Edison v Collingridge, (1850) 19 LJCP 268.
194 P Morris v Solomon, (1840) 2 Mood & R 266.
195 Ratulal v Vrijbhukkan, (1893) ILR 17 Bom 684.
196 Colehan v Cooke, (1742) Willes 393.
197 Jury v Barker, (1858) EB & E 459.
198 Alexander v Thomas, [1851] 16 QB 333 .

Page 15 of 18
199 Palmer v Pratt, (1824) 2 Bing 185.
200 Ex p Tootell, (1798) 4 Ves Jr 372.
201 Bavins & Sims v L & SW Bank Ltd, [1900] 1 QB 270 ; Capital and Counties Bank v Gordon, [1903] AC 240 , p 252.
See, however, Nathan v Ogdens Ltd, (1905) 93 LT 553 a bill with almost similar words was held valid.
202 Pearson v Garett, (1693) 4 Mod 242.
203 Banbury v Lesset, (1744) 2 Stark 1211.
204 Hill v Halford, (1801) 2 B&P 413.
205 Robert v Peake, (1757) I Burr 323.
206 Jenney v Herele, (1723) 2 Ld Raym 1361; Dankes v Deloraine, (1770) 3 Willes 207.
207 Fisher v Calvert, (1879) 27 WR 301.
208 Hill v Halford, (1801) 2 Bos & P. 413.
209 Macleod v Snee, (1727) 2 Stra 762; Re Boyse, Crofton v Crofton, Canonge’s Claim, (1886) 33 Ch D 612.
210 Griffin v Weatherby, [1868] LR 3 QB 753; Haussouiller v Hartsinek, (1798) 7 TR 733; Macleod v Snee, (1726) 2 LD
Raym 1481; Guaranty Trust Co of New York v Hannay & Co, [1918] 1 KB 43, 45 : [1918] 2 KB 623; Re Bayse, (1886)
33 Ch D 612, p 621.
211 George v Surrey, (1830) M&M 516; Baker v Dening, (1838) 8 A&E 94. See the General Clauses Act, 1897, section
3(52).
212 McCall v Taylor, 34 LJ CP 365; Stoessiger v SE Rly Co, (1854) 3 E&B 549; Goldmid v Hampton, (1858) 5 CBNS 94.
213 Lawson’s Executors v Watson, 1907 SC 1353.
214 Fielder v Marshall, 30 LJCP 158; Peto v Reynolds, (1854) 9 Ex 410 ; see also 11 Ex 418.
Page 16 of 18
215 Santhi C Santhi Bhavan v Mary Sherly, AIR 2011 [NOC] 425 (Ker.) : IV (2011) BC 475 : ILR 2011 (3) Kerala 365 :
2011 (4) RCR (Civil) 269.
216 Santhi C Santhi Bhavan (supra).
220 Gray v Milner, (1819) 2 Taunt 739.
221 Carlon v Kenealy, (1843) 12 M&W 139.
222 Capital Syndicate v Jameela, (2003) 2 JCC (NI) 152 (Ker) : (2003) 3 Bank CLR 434 (Ker).
223 Halsbury’s Laws of England, referring to Practice Direction (Claims for Interest) [1983] 1 All ER 934 : [1983] 1 WLR
377.
224 Warrington v Early, (1853) 23 LJQB 47.
225 Carlon v Kenealy, (1843) 12 M &W 139.
226 Moffat v Edwards, (1841) Car & M 16.
227 Re Hodgson & Co and Wigglesworth & Co Ltd, [1920] WN 198.
228 Jones v Simpson, (1823) 2 B&C 318; See also notes on ‘Certain sum’ under section 4.
Page 17 of 18
229 Martin v Chauntry, (1747) 2 Stra 1271.
230 Storey on Bills, section 14.
231 Reserve Bank of India Act, 1934, section 31.
232 See section 13 of the Act.
233 Holdsworth v Hunter, (1830) 10 B & C 449.
234 Willis v Barret, (1816) 2 Stark 29; Jacobs v Benson, (1855) 20 Maine R 132.
235 NS Rasheed v R Loganathan, AIR 2008 [NOC] 149 (Mad.).
236 Hitenbhai Parekh, Proprietor v State of Gujarat, 2010 CrLJ [NOC] 455 Guj : 2009 GLH (3) 742 : 2009 GLH (742) 3.
237 Nagisetty Nagaiah v State of AP, 2004 CrLJ 4107.
238 Hitenbhai Parekh (supra).
241 See sections 30 and 32 of the Act.
242 For specimens of bills of exchange, see Bills of Exchange Act, 1882.
Page 18 of 18
End of Document
[[s 6] “Cheque”.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

243[[s 6] “Cheque”.—
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.
Explanation 1—For the purposes of this section, the expression-

Page 2 of 12
244[(a) “a cheque in the electronic form” means a cheque drawn in electronic form by using any computer
resource and signed in a secure system with digital signature (with or without biometrics signature) and
asymmetric crypto system or with electronic signature, as the case may be;]
(b) “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either
by the clearing house or by the bank whether paying or receiving payment, immediately on generation
of an electronic image for transmission, substituting the further physical movement of the cheque in
writing.
Explanation II—For the purposes of this section, the expression “clearing house” means the clearing house
managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India.]
245[Explanation III—For the purposes of this section, the expressions “asymmetric crypto system”, “computer
resource”, “digital signature”, “electronic form” and “electronic signature” shall have the same meanings
respectively assigned to them in the Information Technology Act, 2000 (21 of 2000).]
[s 6.1] Broader Definition and Scope of Cheque
The definition of cheque has been broadened to include the electronic image of a truncated cheque, and a
cheque in the electronic form. The Information Technology Act introduced in the year 2002 recognises
electronic transfers and digital signatures. The present amendment in the definition of cheque was also
required to bring the Act in tune with the Information Technology Act, 2002. Despite the amendment, the
original basic definition of the cheque has been retained and the definition has only been enlarged to include
cheques in the above form as well.
A cheque is a bill of exchange drawn on a specified banker and is payable only on demand. The necessary
parties to a cheque are the same as those to a bill of exchange, save that the drawee must be a banker. The
banker does not become acceptor of the cheque, but there is an implied contract between the banker and his
customer that he will honour cheques drawn upon him by his customer up to the amount of the funds of his
customer which he has in his hands or, where there is an agreement to let the customer overdraw, up to the
limits of the amount of the overdraft agreed on. The banker’s liability is to the drawer (his customer) only; the
mere dishonour of a cheque gives no right of action to anyone other than the drawer.246
As a cheque is a species of bill of exchange, the definition implies that it must be drawn in accordance with the
Page 3 of 12
requirements of section 5 of the Act. No particular form of words is required and an instrument would be a
cheque if it conforms to the requisites of a bill of exchange. Accordingly, a cheque must be signed by the
drawer, and must give an unconditional order to a specified banker for payment on demand of a certain sum of
money to or to the order of a specified person or to the bearer of the instrument.
All cheques are bills of exchange, but all bills of exchange are not cheques. A demand draft drawn by one office
of a bank on another office of the same bank has been held not to be a cheque. However, such a draft is
treated like a cheque for certain purposes (section 131A of the Act).
It has been held in an English case that an instrument in the form of a cheque drawn on a non-existent bank
could be treated as a cheque by the holder according to the terms of the Bills of Exchange Act, 1882, section
5(2), which provides that a bill drawn on a fictitious person can be treated by the holder at his option as a bill of
exchange or a promissory note.247
Though cheques are bills of exchange, being payable on demand, they do not require acceptance. The drawing
of a cheque does not create, in favour of the payee, an assignment of the drawer’s money in the hands of the
drawee-banker so as to entitle the payee to enforce payment of the cheque as against the banker. In England,
a practice developed some decades ago among bankers of marking or certifying cheques as good for
payment.248 The Privy Council held in Bank of Baroda Ltd v Punjab National Bank Ltd249 that certification is
not acceptance and might be construed as a representation of the genuineness of the cheque and of the
drawer’s signature and of the current sufficiency of the drawer’s account to meet the cheque. Marking is now
discouraged, instead, banks are advised to issue their own pay orders or drafts in exchange for the cheques
sought to be marked.
A cheque is not invalid by reason that it is ante-dated or post-dated. A post-dated cheque is only a bill of
exchange when it is written or drawn and becomes a cheque on or after the date it bears.250
It has been held by Gujarat High Court251 that when a cheque bearing only signature of the drawer is delivered
and received by a payee for the discharge, in whole or in part, of any debt or liability, there is an implied
authority for the person receiving such cheque to complete it by filling the blanks and the amount having been
filled up under such implied authority would be the amount intended by him to be paid thereunder. The focus in
such cases would shift to the aspect of such amount being for the discharge, in whole or in part, of any legally
enforceable debt or other liability. It further held that a blank cheque, drawn by a person on an account
Page 4 of 12
maintained by him with a banker, for payment of any amount of money to another person, by merely putting his
signature on it, would not be a ‘cheque’ fulfilling the requirements of section 6 in the first place, because of not
being a ‘bill of exchange’ in terms of section 5 as it did not contain direction to a certain person to pay a certain
sum of money to or to the order of a certain person or to the bearer of the instrument. When the Negotiable
Instruments Act expressly permits and authorises by a substantive provision the completion of an inchoate
instrument by section 20 with the safe-guard provided in section 87, provisions of sections 5 and 6 defining ‘bill
of exchange’ and ‘cheque’ have to be harmoniously read to mean that an instrument which was initially not a
‘cheque’ falling within the definition of section 6 would become a ‘cheque’ when it was completed by filling the
blanks and its dishonour shall have all the legal consequences of dishonour of a cheque proper.
A cheque may bear the date of a Sunday or a holiday.
An instrument drawn in the form of a cheque, but made payable to cash or order is not a cheque or a bill of
exchange as the payee is not certain.252
Similarly, in NS Rasheed v R Loganathan,253 it was held that a post-dated cheque remains a bill of exchange
till the date mentioned on it and only thereafter it becomes a cheque. Dishonour of a post-dated cheque will not
attract the offence under section 138 of the Act.
As held by Kerala High Court,254 the contention raised by an accused in a prosecution under section 138 that
he issued a blank signed cheque will not amount to admission of execution of cheque. It was further held that a
signed blank cheque leaf is very often referred to as a blank ‘cheque’, but, strictly speaking, it is not a ‘cheque’,
as defined under the Act. It can be treated only as a ‘cheque leaf’ containing admitted signature of accused.
The admission of signature in a cheque leaf alone will not constitute admission of execution of the cheque. The
argument that accused admitted ‘execution’ of the cheque in the reply notice etc., cannot therefore, be
accepted.
In P Chandrabose v C Gopalan,255 the accused had handed over a duly filled withdrawal slip to the
complainant and the same was dishonoured. It was held by the Madras High Court that a withdrawal slip is not
a cheque as it cannot be used in favour of any person other than the account holder. It is not even a negotiable
instrument as it cannot be negotiated. Hence, the accused cannot be prosecuted for the offence under section
138 the Act upon a withdrawal slip being dishonoured due to insufficient funds.
Page 5 of 12
[s 6.1.1] Cheque in the Electronic Form
With the advent of communication technology and the e-commerce, the nature of banking transactions also
changed considerably. Usage of e-cheques is also progressing simultaneously with the traditional paper
cheques. E-cheques are authorised by secured digital signatures, which eliminate the chances of disputes
regarding the execution or drawing of cheques. The Negotiable Instruments (Amendment) Act, 2002 gave legal
sanctity to e-cheques in India. Compared to the advanced countries, India is still far behind in the use of e-
cheques.
[s 6.2] Cheques and Bills of Exchange Compared
Cheques and bills of exchange are in many respects governed by the same rules and principles, as they have
many points in common.256 As a general rule, the provisions applicable to bills of exchange payable on
demand apply to cheques as well. However, there are a few points of difference between bills of exchange and
cheques that require special mention and they are as follows:
(i) A bill of exchange must be accepted before the acceptor can be made liable upon it. A cheque requires
no acceptance and is intended for immediate payment. While it cannot be said that a cheque can
never be accepted, it is only done in very unusual and special circumstances, and would require strong
and unmistakable words. Thus, certification of a cheque does not constitute an acceptance within the
meaning of the Act.257
(ii) A bill of exchange is normally entitled to three days of grace, unless it is payable on demand. A cheque
is payable immediately on demand without any days of grace.258
(iii) The drawee of a cheque is always a banker, whereas the drawee of a bill of exchange may be anyone
including a banker.259
(iv) A bill must be duly presented for payment or else the drawer will normally be discharged. The drawer
of a cheque is not discharged by the holder’s delay in presenting it for payment, unless the drawer has
been injured because of the delay.
(v) In order to charge the drawer, of a bill of exchange that has been dishonoured by non-payment, notice
of dishonour should be sent to him, except in certain circumstances. When a cheque is dishonoured,
notice of dishonour to the drawer may not be necessary in a large number of cases, as the want of his
funds in the hands of the banker is sufficient notice.
(vi) Cheques may be crossed, but not bills.

Page 6 of 12
(vii) Statutory protection is given to the drawee-banker with regard to payment of cheques in certain
circumstances.260 No such protection is available to the drawee or acceptor of an ordinary bill of
exchange.
(viii) Subject to certain conditions, statutory protection is available to the collecting banker against liability for
conversion of crossed cheques. Such protection is not available while collecting bills.
The differences between a bill of exchange and a cheque have been pointed out by Parke CB in Ramchurn
Mullick v Lachmeechand Radakissen,261 as follows:
A banker’s cheque is a peculiar sort of instrument, in many respects resembling a bill of exchange, but in some
entirely different. A cheque does not require acceptance; in the ordinary course it is never accepted; it is not
intended for circulation, it is given for immediate payment; it is not entitled to days of grace; and though it is,
strictly speaking, an order upon a debtor by a creditor to pay a third person the whole or part of a debt, yet, in
the ordinary understanding of persons, it is not so considered. It is more like an appropriation of what is treated
as ready money in the hands of the banker, and in giving the order to appropriate it to a creditor, the person
giving the cheque must be considered as the person primarily liable to pay, who orders his debt to be paid at a
particular place, and as being much in the same position as the maker of a promissory note, or the acceptor of
a bill of exchange, payable at a particular place and not elsewhere, who has no right to insist on immediate
presentment at that place.
In Mojj Engineering Systems Ltd v AB Sugars Ltd,262 it was held by Delhi High Court that a ‘cheque’ under
section 6 of the Act means a bill of exchange which is drawn on a banker and is not expressed to be payable
otherwise than on demand. Thus a bill of exchange acquires the status of a cheque when it is payable on
demand. For example, a ‘post-dated cheque’ when it is drawn, is only a bill of exchange and is not payable till
the date which is specified on it.
In VS Yadav v Reena,263 the Metropolitan Magistrate had acquitted the accused of the offence under section
138 of the Act on the ground that the complainant had failed to prove that the cheques were issued by the
respondent against a liability i.e. refund of loan, whereafter the complainant had filed an appeal. The said
complaint was filed by the complainant on the facts that three cheques issued by the accused got dishonoured
and the complainant filed a complaint under section 138 of the Act against the accused after service of a Notice
of Demand as the respondent failed to pay the amount despite notice of demand. Notice under section 251
CrPC was served upon the accused and the accused took no specific defence and only pleaded not guilty. The
Page 7 of 12
complainant led his own evidence by way of an affidavit and testified that cheques were issued to him after he
had advanced loan of Rs 2.25 lakh to the accused. The dishonour memos of the cheques were proved by the
bank official. No defence evidence was produced by the accused. In her examination under section 281 CrPC
the accused did not deny issuance of cheques, but, took a defence that cheque were issued as security for
seeking loan but no loan was advanced and the cheques were therefore without consideration.
The Delhi High Court noticed that section 6 of the Act defined ‘Cheque’ as ‘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’. Based on this definition, the High Court held
that a bare definition of cheque shows that cheque is a Bill of Exchange drawn on specified banker and is an
order by drawer on his own agent i.e. bank for payment of certain sum of money to the bearer or the order to
person in whose favour cheque is drawn. This order of payment by person to the holder of cheque is not made
in casual manner just for the sake of fun. This order is made for consideration and that is why section 139 of the
Act provides that the holder of a cheque is presumed to have received the cheque in discharge of whole or in
part of a debt or liability. The High Court further held that it was sufficient for complainant to prove the debt and
liability by making a statement that the cheques were issued by the respondent for payment of debt. Merely
because the complainant did not remember the exact date and stated that the loan was taken from him about a
week before 23rd /24th June, 2006, would not throw doubt on the testimony of the complainant, more so, when
the complainant specifically testified that the accused and her husband were having business in the name of
SK Enterprises, situated at RZ-133/213 and he was approached for a friendly loan by the accused/respondent
through her husband. Whether the complainant was having a license for giving loans or not, was not the subject
matter of the inquiry before the Metropolitan Magistrate as it was not the defence of accused that loan was
advanced without license.
[s 6.3] Pay Order, a Cheque?
The Supreme Court, in Punjab and Sindh Bank v Vinkar Sahakari Bank Ltd,264 examined whether the pay
order holds the characteristics of a cheque and after having adverted to the definition under section 5/6 opined
that the pay order qualifies the specifications of cheque, and held that section 138 is applicable in a case where
the pay order is returned unpaid. However, the Supreme Court, in a later case265 incidentally entertained a
very serious doubt as against the applicability of section 138 in a ‘bill of exchange’ as against a cheque and
observed thus:
…when we refer to the decision relied upon by Learned Counsel for the Appellant it is stated therein that a pay order is
nonetheless a ‘cheque’ having regard to the definition of ‘cheque’ under section 6 read along with definition of a ‘Bill of
Exchange’ under section 5 of the Negotiable Instruments Act. However, when we read the said judgment in detail, we
Page 8 of 12
were not able to discern any definite principle laid down therein as to how far section 138 of the Negotiable Instruments
Act can be applied with reference to a ‘Bill of Exchange’ as against ‘cheque’. Section 138 has been set out in detail by
making specific reference to the ‘drawer’ of the ‘cheque’ by a person on an ‘account’ maintained by him for payment of
any amount of money from out of ‘that account’ for the discharge of any debt or other liability because of non-
availability of that amount of money standing to the credit of ‘that account’ was insufficient or it exceeded the amount
arranged to be paid from ‘that account’ by way of an agreement made with the Bank. Having regard to such specific
prescriptions set out in Section 138 referring to ‘the person’ who issued the ‘cheque’ again referable to ‘an account’ of
that person so on and so forth, we have our own doubts as to how far the said decision rendered in respect of pay
order issued can be applied to the facts of this case.
The Supreme Court in Omniplast Pvt Ltd (supra), left the question whether the non-payment by a bank of a pay
order would constitute offence under section 138 of the Act, for consideration in an appropriate case.
In Vinod Baid v SGK Oriental Degree College266, the AP High Court has held that since the main ingredient
payable on demand was absent in the refund order and final interest warrant, therefore, the documents did not
fall within the definition of ‘cheque’ and thus, section 138 will not be attracted. However, in Ashok Chaturvedi v
Dr Nirmala Jayawant Patil,267 the Bombay High Court has held that since interest warrant is bill of exchange
and cheque is defined as a bill of exchange, provisions of section 138 will apply on dishonour of interest
warrant.
[s 6.4] Payment By Cheque
In National Insurance Co Ltd v Yellamma,268 the insured had tendered a third-party cheque as a consideration
for the policy but the insurer insisted on the personal cheque of the insured and refused to accept a third party
cheque. An erroneously issued cover note was also withdrawn by the insurer upon finding the factum of a third-
party cheque. On these facts, in the context of sections 6 and 30 of the Act, the Supreme Court noticed that the
cheque tendered by the third-party on behalf of the insured was not encashed and opined that cheque is a valid
mode of payment subject to its realisation.
Payment by cheque is generally conditional, depending upon its payment when presented to the drawee-bank.
If the cheque is paid, payment relates back, for the purpose of limitation, to the date of delivery of the cheque to
the creditor.269 In K Saraswathy v PSS Somasundaram Chettiar,270 a deposit made by cheque into a court on
the last day of the six-month period allowed therefore, was held to be a valid payment, although the cheque
Page 9 of 12
was presented for payment and paid later. There was nothing to show that the cheque would not have been
honoured, had it been presented for payment on the day of its delivery to the court. If the cheque is
dishonoured on proper presentment to the drawee-bank, there is no binding payment.
Where a cheque given in payment of insurance premium was returned unpaid on presentment by the insurance
company, the cover note that had been issued by it to the drawer upon receipt of the cheque was held to be
ineffective.271 The result might have been different if the insurance company had failed to present the cheque
for payment.272
When a cheque is sent by post, payment relates back to the time of dispatch.273 In the case of a post-dated
cheque, the date of payment would be the date it bears.274
It has been held that the delivery of a cheque in part repayment of a debt would not give a fresh start of
limitation if the cheque is dishonoured on proper presentation. The giving of the cheque does not amount to an
acknowledgement of liability.275 Where a cheque given in partial repayment of a loan is not drawn or indorsed
by the debtor, it does not go to start a fresh period of limitation.276
Where a debtor sends his creditor a cheque for an amount smaller than the debt, and the latter accepts and
enchases the cheque, the mere acceptance and encashment does not raise a conclusive presumption that it
was accepted in discharge of the whole debt. It is a question of fact if it was so accepted.277
A cheque deposited with a court under O XX, rule 14 of the Code of Civil Procedure, 1908, was held a valid
tender as it was equivalent to cash payment unless dishonored on proper presentment.278
[s 6.5] Death of Drawer of Cheque
In Vijay Singh v Manali Malik,279 the cheque in question was presented for payment to the Bank after the
death of the drawer and was returned unpaid for the death of the drawer. On a suit having been filed under O
XXXVII of CPC on the basis of said cheque, when the defendant moved an application seeking leave to defend
the suit, it was held by the Delhi High Court that since the cheque was not presented during the lifetime of the
drawer, it ceased to be a cheque after demise of the drawer since it ceased to be an order of a person entitled
to make an order to the Bank to pay the money. Seeing the peculiar facts of the case, inter alia, that the plaintiff
Page 10 of 12
was working in the drawee Bank and the three cheques though bearing dates of a few days apart appeared to
be drawn from three different cheque books, as also that besides the cheques the plaintiff had not filed any
document whatsoever to show any financial transactions with the predecessor of the defendants, the Court
granted leave to the defendant to contest the suit.
Referring to section 6 of the Act, it was observed by the Delhi High Court280 that a cheque is a bill of exchange
drawn on a specified banker and not expressed to be payable otherwise than on demand. Normally cheques
are issued on the banks holding the monies of the drawer of the cheque. The bank is in the position of the
debtor of the drawer of the cheque. The cheque is thus an order of the drawer thereof as creditor, to the bank
who is his debtor, to pay to the payee of the cheque on the date of presentment the amount thereof. The
relationship between the drawer of the cheque and his banker is contractual. Rajiv Sahai Endlaw, J, referred to
and followed the legal proposition as enunciated by Sir Ernest Pollock MR speaking for the Court of Appeal in
Re Swinburne; Sutton v Featherley,281 wherein it was held that a cheque is clearly not an assignment of
money in the hands of a banker and quoted the following words of Lord Romilly in Hewitt v Kaye L,282:
A cheque is nothing more than an order to obtain a certain sum of money, and it makes no difference whether
the money is at the banker or anywhere else. It is an order to deliver the money and if the order is not acted
upon in the lifetime of the person who gives it, it is worth nothing.
243 Subs. by Act 55 of 2002, section. 2, for “A “cheque” is a bill of exchange drawn on a specified banker and not
expressed to be payable other wise than on demand” (w.e.f. 6.2.2003).
244 Subs. by the Negotiable Instruments (Amendment) Act, 2015, (26 of 2015), section. 2, w.e.f. 15.06.2015 for the
following:-
“(a) ‘a cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque,
and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of
digital signature (with or without biometrics signature) and asymmetric crypto system;”.
Page 11 of 12
245 Ins. by Act 26 of 2015, section 2(ii) (w.r.e.f. 15-6-2015).
246 Halsbury’s Laws of England.
247 Aziz v Knightsbridge Gaming & Catering Supplies Ltd, The Times, 6 July 1982.
248 Robson v Bennet, (1810) 2 Taunt 388; Goodwin v Roberts, (1875) LR 10 Ex 251.
249 Bank of Baroda Ltd v Punjab National Bank Ltd, [1944] 2 All ER 83 ; Sita Ram v Bombay Bullion Association, AIR 1965
SC 1628 .
250 Whistler v Forster, (1863) 32 LJCP 161; Anil Kumar Sawhney v Gulshan Rai, (1994) 79 Comp Cas 150 (SC): (1993) 4
SCC 424 : (1993) IV CCR 433 (SC); Shri Ishwar Alloy Steels Ltd v Jayaswals Neco Ltd, (2001) 1 RCR (Cri) 834 (SC);
Ashok Yeshwant Badave v Surendra Madhavrao Nighojakar, (2001) 3 SCC 726 : (2001) I CCR 358 (SC) : (2001) II
SLT 669 : (2001) II BC 1 (SC) : AIR 2001 SC 1315 : (2001) 2 RCR (Cri) 165 (SC); Goaplast Pvt Ltd v Shri Chico
Vrisula D’Souza, (2003) 1 JCC 99 (NI) (SC) : (2003) 3 JCC (NI) 305 (SC) : AIR 2003 SC 2035 , (2003) CrLJ 1723 :
(2003) I CCR 410 (SC) : (2003) IV CCR 403 (SC) : (2003) 2 Bank CLR 240 (SC); Sheelam Raji Reddy v Samudrala
Bixmaiah (2003) 2 JCC (NI) 203 (AP); ATV Projects India Ltd v Nagarjuna Finance Ltd, (2002) 1 ALD (Crl) 364; Wg Cdr
RR Dass (Retd) v Satya Bhama Lal, (2003) I CCR 340 (Del).
251 Hitenbhai Parekh, Proprietor v State of Gujarat, 2010 CrLJ [NOC] 455 Guj : 2009 GLH (3) 742 : 2009 GLH (742) 3 .
252 Cole v Milsome, [1951] 1 All ER 311 ; Orbit Mining & Trading Co Ltd, v Westminster Bank Ltd, [1962] 3 All ER 565 .
253 NS Rasheed v R Loganathan, AIR 2008 [NOC] 149 (Mad.).
2011 (4) RCR (Civil) 269 .
255 P Chandrabose v C Gopalan, 2008 CrLJ 953 NOC Mad.
256 M’Lean v Clydesdale Banking Co, (1883) 9 App Cas 95 , p 107; Sutters v Briggs, [1922] 1 AC 1 , p 12.
257 Bank of Baroda Ltd v Punjab National Bank Ltd, [1944] 2 All ER 83 .
258 Ram Saroop v Hardeo, AIR 1928 All 68 .
259 M’Lean v Clydesdale Banking Co, (1883) 9 App Cas 95 .
260 See sections 85 and 128 of the Act.
261 Ramchurn Mullick v Lachmeechand Radakissen, (1854) 9 Moo PC 46, pp 54 and 69.
262 Mojj Engineering Systems Ltd v AB Sugars Ltd, 154 (2008) DLT 579 .
Page 12 of 12
263 VS Yadav v Reena, 172 (2010) DLT 561 .
264 Punjab and Sindh Bank v Vinkar Sahakari Bank Ltd, AIR 2001 SC 3641 : (2001)7 SCC 721 : 2001(6) SCALE 352 .
265 Omniplast Pvt Ltd v Standard Chartered Bank, 2015 (2) RCR (Civil) 493 : 2015 (2) RCR (Criminal) 362 : 2015 (3) RCR
(Criminal) 984 : 2015 (5) SCALE 29 .
266 Vinod Baid v SGK Oriental Degree College, (2003) 3 Bank CLR 601 AP.
267 Ashok Chaturvedi v Dr Nirmala Jayawant Patil, II (2003) CCR 102 Bombay : (2003) 2 Bank CLR 746 (Bom).
268 National Insurance Co Ltd v Yellamma, (2008) 7 SCC 526 : (2008) 3 SCC (Cri) 177 : (2008) 2 KLT 1006 .
269 Kirloskar Brotheres Ltd v CIT, AIR 1952 Bom 356 .
270 K Saraswathy v PSS Somasundaram Chettiar, (1990) 67 Comp Cas 67 ; relying on CIT v Ogale Glass Works Ltd,
(1954) 24 Comp Cas 520 , both being Supreme Court decisions.
271 United India Insurance Co Ltd v Ratansingh, AIR 1993 MP 197 .
272 Oriental Insurance Co Ltd v K Gowramma,, (1989) 1 SCC 200 .
273 Beevers v Mansion, The Times, 19 July 1978.
274 Jivanlal Acharya v Rameshwarlal Agarwalla, AIR 1967 SC 1118 ; see, however, the dissenting judgment of RS
Bachawat J.
275 Northern Indian Finance Corpn Pvt Ltd v RL Soni, (1973) 4 Comp Cas 495 relying on Chintaman Dhundiraj v SNMD
Sansthan, AIR 1956 Bom 553 ; Arjunlal Dhanji Rathod v Dayaram Premji Padhiar, AIR 1971 Pat 278 .
276 A Ramavel v Pandyan Automobiles (P) Ltd, AIR 1973 Mad 359 .
277 Basudeo Ram Sarup v Dil Sukh Rai, AIR 1922 All 461 ; UOI v Gangaram Bhagwandas, AIR 1977 MP 215 .
278 Sher Singh v Vijay Kumar AIR 1980 P&H 270.
279 Vijay Singh v Manali Malik, 160 (2009) DLT 259 .
280 Vijay Singh v Manali Malik (supra).
281 Sutton v Featherley, 1926 (134) Law Times 121.
282 Hewitt v Kaye L, Reports 6 EQ 198.
End of Document
[[s 7] ‘Drawer, drawee.’—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The maker of a bill of exchange or cheque is called the ‘drawer’, the person thereby directed to pay is called the
‘drawee’.
‘drawee in case of need.’—When in the bill or in any indorsement thereon the name of any person is given in
addition to the drawee to be resorted to in case of need, such person is called a ‘drawee in case of need’.
Page 2 of 14
‘acceptor.’—After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than
one, upon 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’.
‘acceptor for honour.’—283[When a bill of exchange has been noted or protested for non-acceptance or for
better security], and any person accepts it supra protest for honour of the drawer or of any one of the indorsers,
such person is called the ‘acceptor for honour’.
‘payee.’—The person named in the instrument, to whom or to whose order the money is by the instrument
directed to be paid, is called the payee.
This section corresponds to sections 15, 17, 18 and 65 of the Bills of Exchange Act, 1882.
[s 7.2] Drawer and Drawee
[s 7.2.1] Meaning
As apparent from the definition, the person who makes the cheque is called the drawer of cheque. In Shiv
Kumar Verma v Manoj Pandey,284 it was held by the Delhi High Court that a drawer of cheque can also be
either a company, or a Firm or an association of individuals. It is only the drawer of a cheque who can be held
responsible for an offence under section 138 of Negotiable Instruments Act.
In Pratap Singh Yadav v Atal Behari Pandey,285 the son had issued a cheque to discharge debt of his father.
Upon cheque being returned dishonored, complaint under section 138 of the Act was filed against the father as
well as his son. It was held that only son was liable and not the father since the offence under section 138 is
essentially against the drawer of the cheque.
In Arsh Electronics Pvt Ltd v Telematica Star Ltd,286 the accused issued two cheques in favour of the
complainant for some electronic goods that were supplied to him. When these cheques were dishonoured, the
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complainant filed two complaints, both of which arrayed the Director (Respondent 2) of the accused firm.
However, there was no averment in the complaints regarding the vicarious liability of the Director so as to make
him liable by virtue of section 141. Based on the evidence adduced, the trial court found that the cheques had
been drawn by a different entity ‘Telematica Star Systems’ and not by the accused, i.e. Telematica Star Ltd
Since the accused was not the drawer of the cheque, no offence under section 138 could be made out. The fact
that the Director of the accused firm is also a partner in Telematica Star Systems is irrelevant because the
complaint must be made against the ‘drawer’. Accordingly, the accused was acquitted.
Referring to section 7 of the Act which envisages that the maker of a bill of exchange or cheque is called the
‘drawer’ and the person thereby directed to pay is called the drawee, it was held by the Delhi High Court287 as
under:
A conjoint reading of sections 7 and 138 of the said Act clearly indicates that it is only the drawer of the cheque who
can be held responsible for the offence under section 138 of the said Act. Exception to this rule is provided in section
141 of the Act which makes the persons other than drawer liable for the offence under section 138 of the said Act, but
only if drawer is a company or firm or association of individual and in such an eventuality all such persons who at the
time when offence was committed, were in charge or responsible for the conduct of the business of such company or
firm or association of individuals, would be deemed to be guilty for the offence under section 138 of the said Act.
Hence, the high court held that the accused could not be held liable as the cheques were not issued by them.
Also, the accused director was impleaded as the director of the accused firm which is not the drawer of the
cheque. In such case, he cannot be held vicariously liable under section 141. Accordingly, the acquittal of the
accused firm and director was upheld.
[s 7.2.2] Liability of the Drawer of Cheque
The liability under section 138 of the Act is essentially against the drawer of the cheque.288
In Santhi C Santhi Bhavan v Mary Sherly,289 on a complaint filed by appellant, the 1st respondent stood trial for
offence under section 138 of the Act. To prove complainant’s case, PW1 was examined and documents were
exhibited. The accused did not adduce any evidence, but contended that he received an amount from the
complainant and as security, he handed over a cheque in blank form to the complainant. The blank cheque
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tendered as security was misused to file a false complaint. The trial court acquitted the accused because the
accused had not admitted the signature on the cheque or the execution thereof and it was the duty of the
complainant to prove the execution of the cheque. Mere allegation to the effect that the cheque was given by
the accused will not prove execution of the cheque because issuance and execution are different. There was
no evidence to prove the execution of the cheque and therefore, the trial court concluded that the offence under
section 138 of the Act was not made out. Challenging the order of acquittal, this appeal was filed by the
complainant.
A Single Judge of the Kerala High Court290 held that the contention raised by an accused in a prosecution
under section 138 of the Act that he issued a blank signed cheque will not amount to admission of execution of
cheque. It was further held that a signed blank cheque leaf is very often referred to as a blank ‘cheque’, but,
strictly speaking, it is not a ‘cheque’, as defined under the Act. It can be treated only as a ‘cheque leaf’
containing admitted signature of accused. The admission of signature in a cheque leaf alone will not constitute
admission of execution of the cheque. The argument that accused admitted ‘execution’ of the cheque in the
reply notice etc., cannot therefore, be accepted.
While holding so, K Hema, J, discussed the relevant provisions of Negotiable Instruments Act and observed as
follows:
6. True, the expression, ‘execution’ is not used in section 138 of the Act. A reading of section 138 of the Act however,
shows that to prove the offence under the said section, prosecution shall inevitably prove that the cheque was ‘drawn’
by accused. The only overt act which makes a person liable for the offence under section 138 of the Act is ‘drawing’ of
cheque by him. So, the main factor to be proved by complainant to establish guilt of accused under section 138 of the
Act is that accused has ‘drawn’ the cheque.
The Judge then deliberated upon the ingredients necessary to determine whether the cheque was ‘drawn’ by
the accused. Considering that ‘draw’ or ‘drawn’ are not defined in the Act, she relied on sections 5, 6 and 7 of
the Act. She also referred to Oxford Advanced Learner’s Dictionary, 7th Edition to get the definition of ‘make’
and Black’s Law Dictionary, 8th Edition, for the definition of ‘draw’ which means, ‘to create and sign; to prepare
and frame (a legal document).’ Based on this she concluded that for a cheque to be ‘drawn’ by a person, the
facts that need to be established are as follows:
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• That the drawer has created or made a cheque under his signature
• That this cheque contains an order in writing
• That it directs the banker to pay a certain sum of money only.
• That the sum be given to the bearer or payee or to the order of a certain person.
Only if the above facts can be proved, will the accused be said to have ‘drawn’ a cheque. Further, she added
that ‘drawing’ and ‘execution’ were legal synonyms; thus the absence of the word ‘execution’ in section 138 is
insignificant.
On the issue of evidentiary value of the cheque, the Judge elaborated that, the fact that the cheque was
delivered to the complainant by the accused, and that it was drawn by the accused, are independent facts
requiring separate proof. Mere production of the cheque does not prove either of these facts. To establish an
offence under section 138, the complainant needs to allege and prove that the cheque was ‘drawn’ or executed
by the accused.291
In light of all of the above deliberations, it was held by the Kerala High Court292 that there was no allegation or
proof of the fact that the cheque was ‘drawn’ or ‘executed’ by accused. The only fact alleged in complaint and
stated in evidence by the sole witness, PW1 was that accused ‘gave’ the cheque to complainant. It was held
that from such evidence alone, it cannot be concluded that the cheque was ‘drawn’ by accused. The High Court
accordingly opined that the trial court rightly acquitted the accused, in the absence of proof of ‘drawing’ of the
cheque, which is the most essential ingredient of the offence under section 138 of the Act. It was further held
that Magistrate rightly held that ‘execution’ is different from ‘issuance’ of cheque. Proof of issuance or giving of
cheque by accused to complainant alone was not considered sufficient to constitute offence under section 138
of the Act. The acquittal was thus upheld.
In Aneeta Hada v Godfather Travels and Tours (P) Ltd,293 the appellant who was purportedly an authorised
signatory of M/s Intel Travels Ltd (the Company) had business transactions with the respondent Company. The
appellant, on behalf of the Company, issued a cheque in favour of the respondent which was dishonoured. The
respondent did not even serve any notice upon the Company in terms of section 138 and served a notice only
on the appellant presumably on the premise that she was in charge and responsible to the Company for its day-
Page 6 of 14
to-day affairs. Thereafter, the respondent filed a complaint against the appellant under section 138 of the Act
without arraying the Company an accused. The Magistrate took cognizance of the offence against the
appellant, challenging which, she approached the Delhi High Court. The High Court refused to quash the
proceedings, as prayed for by the appellant, holding that for the purposes of section 139 of the Act, the debt or
other liability would include the due from any other person and not necessarily the debt or liability due from the
drawer only. The High Court said that the cheque can be issued for the discharge of any other man’s debt or
liability. A legally enforceable debt or liability would have a reference to the nature of the debt or liability and not
the person against whom the debt or liability can be enforced. However, when this matter came to Supreme
Court, there was a difference of opinion amongst the two Hon’ble Judges of the Division Bench.
SB Sinha J was of the opinion that if a person is proceeded against for being vicariously liable for the acts of
the company, then the company must be made an accused. Section 141 creates a legal fiction when certain
conditions are fulfilled. One such condition is that the company be prosecuted, as the section uses the words
‘as well as the company’.294
The Judge then dealt with the issue of whether a company can be proceeded against in a criminal proceeding,
even when a mandatory imprisonment is prescribed in law. He referred to the Constitutional Bench decision of
the Supreme Court in Standard Chartered Bank v Directorate of Enforcement295 where it was held that a
company can be prosecuted for grave offences which have mandatory custodial sentences because the
legislative intent could not be to grant companies complete immunity for these offences. Wherever a
punishment of fine and imprisonment is prescribed, the company shall be punished with a fine. He concluded
by placing reliance on BSK Prasad v Laxmi Vessels296 where it was held that only the drawer of the cheque
can be held liable for an offence under section 138 of the Act, and where the ‘person’ drawing the cheque is a
company, then all persons in charge of the day-to-day affairs of the company, apart from the company, shall
also be liable.
VS Sirpurkar, J had an opinion to the contrary. He agreed with his fellow Judge as regards proceeding against
a company in a criminal matter even when it involves a punishment of imprisonment. However, he relied on the
cases of SMS Pharmaceuticals Ltd v Neeta Bhalla297 and Sabitha Ramamurthy v RBS
Channabasavaradhya298 where it was held that even if the company is not made an accused, the person
running the company or the signatory of the cheque can be proceeded against.
In view of the difference of opinion between the two Hon’ble Judges, the matter was referred to a Three Judges
Bench. Deciding the issue involved in this case alongwith other cases involving the same issue, a Three
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Judges Bench of Supreme Court299 unanimously allowed the appeal and quashed the criminal proceeding
initiated against the appellant. They reiterated that if a person who commits offence under section 138 of the
Act is a company, the company as well as every person in charge of and responsible to the company for the
conduct of business of the company at the time of commission of the offence is deemed to be guilty of the
offence. Speaking for the bench on the issue of corporate criminal liability Deepak Misra J held as follows:
18. Section 141 uses the term ‘person’ and refers it to a company. There is no trace of doubt that the company is a
juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so
luminescent from the language employed under section 141 of the Act. It is apposite to note that the present
enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to
be guilty of the offence.
In conclusion, the Supreme Court held that, to maintain a prosecution under section 141 of the Act, it is
imperative to arraign the company as an accused. The other category of offenders can only be vicariously liable
for the actions of the company.
[s 7.3] Drawee in Case of Need
Besides the parties necessary to a bill of exchange another person may be introduced at the option of the
drawer called the drawee in case of need (in English law ‘referee in case of need’, and amongst merchants
‘case of need’). The drawer in that case inserts in the bill the name of a person who may be resorted to ‘in case
of need’, i.e., in the event of the bill being dishonoured by non-acceptance or non-payment.
Under section 115 of the Act, where a drawee in case of need is mentioned, the bill is not considered to be
dishonoured until it has been dishonoured by such drawee in case of need. The effect of this is to make it
obligatory on the part of the holder to present the bill to the drawee in case of need if the bill is dishonoured by
the drawee.
Under section 15 of the Bills of Exchange Act 1882, it is the option of the holder to resort to the drawee in case
of need or not as he may think fit.
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[s 7.4] Acceptance
The acceptance of a bill is an indication by the drawee of his assent to the order of the drawer. The essentials
of a valid acceptance are, that it must be written on the bill and signed by the drawee. The acceptance has to
be by the drawee, and cannot be by a stranger. If a stranger writes an acceptance on it, he is still not liable as
an acceptor though he may be liable as an indorser.300
Acceptance of a bill of exchange is the signification by the drawee of his assent to the order of the drawer. It is
the act by which the drawee evinces his consent to comply and be bound by, the request contained in a bill of
exchange directed to him and is the drawee’s agreement to pay the bill when it falls due.301 Any appropriate
words may be used by the drawee to convey his assent to the drawer’s order. An oral acceptance, however, is
not sufficient in law.302 The usual form in which the drawee accepts the instrument is by writing the word
‘accepted’ across the face of the bill and signing his name underneath. The mere signature of the drawee
without the addition of the words accepted is a valid acceptance, what is material is the true intent of the
drawee when he signs the bill.303
Under section 32 of the Act, the acceptance by the drawee of the instrument, without an acknowledgement of
the liability, is sufficient for fixing the liability. As the law prescribes no particular form for acceptance, there can
be no difficulty in construing and acknowledging that as an acceptance so long as it satisfies the requirements
of section 7 of the Act, i.e., it must appear on the bill and must be signed by the drawee.304
Where the drawee writes on a bill ‘accepted’, but does not sign it, it is not an acceptance.
It is not necessary that the acceptance should be on the face of the bill. An acceptance written on the back of a
bill has been held to be sufficient in law.305 The essential thing, however, is that it must be written on the bill.
Otherwise, it does not create any liability as acceptor on the part of the person signing it. In Ardeshir v
Khushaldas,306 the plaintiff sued the defendant to recover the amount due on certain bills drawn on the
defendant and indorsed to the plaintiff, as the defendant had failed to pay them. In one of the bills, the
defendant’s acceptance was signed on the original bill, while in others, it was merely on copies of the bills. The
court held that, under section 7 of the Act, acceptance could be signed anywhere on the bill. However, the
defendant’s assent was signed only upon copies of the bills and thus, a material requirement of the law had not
been satisfied with the result that there was no valid acceptance.
Page 9 of 14
The drawee of a bill is not liable on the bill in the absence of an acceptance, even though he may be in
possession of the funds of the drawer. Even admission of possession of funds is not sufficient to bind him. If the
drawee of a bill refuses to accept it, the payee or any holder cannot sue him on the bill, either.307
In State of Orissa v Punjab National Bank,308 the plaintiff bank had extended credit facilities to a client on the
strength of bills drawn on the state government in respect of the client’s supplies to the government. The bills
were not paid, and the bank sued the government and obtained a decree from the trial court. However, a
Division Bench of the high court set aside the decree on the ground that the government had not accepted the
bills and was, therefore not, liable to the bank.
An instrument purporting to be a promissory note, in which there is no mention of a drawee, may become a bill
of exchange if acceptance is indorsed thereon by a third party. Thus, a third person who indorses an
acceptance admits to be a drawee and becomes liable under it, even though he is not named as a drawee.
However, the acceptance by him should not be inconsistent with the reference on the bill of exchange. The
acceptor having signified his acceptance is estopped from contending that he is not the drawee.309
Though a drawer cannot make conditional order to pay the bill, an acceptance may be either absolute or
qualified. An acceptance by the drawee to perform his promise by means other than by the payment of money
is invalid. For instance, a bill is drawn by A on B for Rs 5,000. B accepts it as payable in bills or payable in
goods. This is not a valid acceptance.310
An acceptance is not complete and binding upon the drawee until the drawee has delivered over the accepted
bill to the holder, or has given notice of such acceptance to the holder, or some person on his behalf. Thus,
where a drawee, having once written his acceptance with the intention of accepting a bill afterwards changes
his mind, and before it is communicated to the holder of the bill, it is delivered back to him and he obliterates his
acceptance, he is not bound as an acceptor.311
[s 7.5] Payee
The term ‘payee’ does not include the term ‘indorsee’ or ‘indorser’. From sections 9, 15, and 16, it is clear that
the term, ‘payee’ is used in a restricted sense, i.e., the person referred to in the instrument by the drawer, to
whom or to whose order the money is directed to be paid.
Page 10 of 14
The use of the word person, which is in singular form in the definition of the payee indicates that two persons
cannot be joint payees. Thus, where the cheque is drawn by M/s Credential Finance Ltd in favour of M/s
Indusind bank Ltd A/c Credential Finance Ltd, the bank does not become the payee and cannot maintain a
complaint. Such a cheque was a specially crossed cheque with directions to the bank to send the same for
encashment and thereafter to credit the proceeds.312
In Vishnupant Chaburao Khaire v Kailash Balbhir Madan,313 the petitioner-accused had issued a cheque in
favour of father of the Respondent-complainant. The Respondent-complainant presented the said cheque for
encashment after about 5 months of the death of his father. However, the same was dishonoured and returned
with endorsement ‘insufficient funds’. The Respondent-complainant issued legal notice through Advocate
calling upon the petitioner-accused to pay the amount due under the said cheque. However, since the accused
failed to pay the amount, the respondent filed a criminal case against the accused for the offence under section
138 of the Negotiable Instruments Act. The Magistrate passed an order issuing process which was challenged
in the writ petition. The point raised in the petition was whether one of the heirs of deceased payee can file
complaint under section 138 of the Negotiable Instruments Act. It was held by Bombay High Court that the
Respondent-complainant was not the person named in the instrument nor he was a person to whom or to
whose order money by the instrument was directed to be paid. There was no endorsement on the cheque by
the deceased payee in favour of Respondent-complainant. So, it was not that the amount under the instrument
was directed to be paid to him and the Respondent-complainant was not a payee in terms of the definition
prescribed in section 7 of the Negotiable Instruments Act.
In Milind Shripad Chandurkar v Kalim M Khan,314 the complainant, Shri Chandurkar, the sole proprietor of a
firm, Vijaya Automobiles, had supplied a huge quantity of diesel to the accused, for which the accused issued a
cheque in the name of the firm. The complainant deposited the cheque in the account of the Firm but it was
returned dishonoured with a memorandum ‘funds are insufficient’. The complainant sent a legal notice to the
accused; no reply was filed and the amount was not paid, so the complainant filed a suit. The trial court
convicted the accused for the offence under section 138 of the Act and ordered the accused to pay the amount
on the cheque. The Sessions Court subsequently dismissed the appeal of the accused who then approached
the High Court through a Criminal Revision Application. The High Court decreed in favour of the accused on the
grounds that the complainant had not provided any evidence to show that he was the sole proprietor of the firm.
Aggrieved by this, the complainant approached Supreme Court.
The Supreme Court noticed that the only issue involved before it was as to whether the appellant owns the said
Page 11 of 14
firm i.e. whether he was the proprietor of the said firm. They examined the definitions given in section 7 of
‘payee’ as ‘the person named in the instrument, to whom or to whose order the money is by the instrument
directed to be paid’, in section 8 of ‘the holder of the cheque’ as ‘any person entitled in his own name to the
possession thereof and to receive or recover the amount due thereon from the parties thereto’, and in section 9
of ‘holder in due course’ as ‘any person who for consideration became the possessor of a cheque if payable to
a bearer or the payee or endorsee thereof’. In light of these definitions the Supreme Court relied upon its earlier
decision in the case of Shankar Finance and Investments v State of AP in which the Court dealt with the issue
involved herein elaborately and held that for cases where the ‘payee’ is a proprietary concern, the complaint
can be filed:
(i) by the proprietor of the proprietary concern, describing himself as the sole proprietor of the ‘payee’;
(ii) the proprietary concern, describing itself as the sole proprietary concern, represented by its sole
proprietor; and
(iii) the proprietor or the proprietary concern represented by the attorney-holder under the power of
attorney executed by the sole proprietor.’
Dr BS Chauhan, J, speaking for the Court315 on the issue of the payee being a proprietary concern, opined as
under:
22. …where the ‘payee’ is a company or a sole proprietary concern, such issue cannot be adjudicated upon taking any
guidance from section 142 of the 1881 Act but the case shall be governed by the general law i.e. the Companies Act,
1956 or by civil law where an individual carries on business in the name or style other than his own name. In such a
situation, he can sue in his own name and not in the trading name, though others can sue him in the trading name. So
far as section 142 is concerned, a complaint shall be maintainable in the name of the ‘payee’, proprietary concern itself
or in the name of the proprietor of the said concern.
The Judge then referred to other Supreme Court judgments to conclude that a complainant under section 142
of the Act must be the ‘payee’ or the ‘holder in due course’. As a result, in this case, the appellant could only be
the complainant if he could prove that the cheques were issued in his name, or if he is the sole proprietor of the
firm, in which case, he would be the payee himself. However, it was found that the appellant had failed to prove
or adduce any evidence to prove that he was the proprietor of the firm. The respondent had raised the
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contention regarding the proprietorship from the initiation of the proceedings but the appellant, even at the
appellate stage, had not put forth any evidence to prove that he was the sole proprietor of the firm.316
Accordingly, the Supreme Court declined to interfere in the appeal of the complainant and dismissed the same.
In Sunil v State of Kerala317, the accused issued a cheque to the complainant for an amount of Rs 2,60,000/-
wherein the amount due to him was only Rs 20,000/- and the rest of the money was due to 12 different persons
@ Rs 20,000/- each. The High Court of Kerala held that the complainant cannot be considered as the payee of
the cheque. The, ‘payee’ or ‘holder in due course’ should have the authority to collect the amount on behalf of
others. ‘Payee’ or ‘holder in due course’ should produce the power of attorney or other authorisation or other
evidence before the court to establish that, he received the cheque on behalf of some others also.
283 Subs. by Act 2 of 1885 section 2 for ‘When acceptance is refused and the bill is protested for non-acceptance’.
284 Shiv Kumar Verma v Manoj Pandey, CrLJ 191 (Del.) : 2010 (9) AD (Delhi) 295 : 2010 (120) DRJ 373 : 2010 (4) JCC
365 (NI).
285 Pratap Singh Yadav v Atal Behari Pandey, 2003 (1) RCR (Criminal) 697 : 2002 Indlaw DEL 895.
286 Arsh Electronics Pvt Ltd v Telematica Star Ltd, 172 (2010) DLT 340.
287 Arsh Electronics Pvt Ltd v Telematica Star Ltd, 172 (2010) DLT 340.
288 See Proviso (c) to section 138 of Negotiable Instruments Act.
2011 (4) RCR (Civil) 269.
Page 13 of 14
291 Santhi C Santhi Bhavan (supra); pp 7-9, 17-19.
293 Aneeta Hada v Godfather Travels and Tours (P) Ltd, (2008) 13 SCC 703.
294 Aneeta Hada v Godfather Travels and Tours (P) Ltd, (2008) 13 SCC 703, at para 14-17.
295 Standard Chartered Bank v Directorate of Enforcement, (2005) 4 SCC 530.
296 BSK Prasad v Laxmi Vessels, 2004 CrLJ 4079 : (2005) 1 KLJ (NOC) 7 : (2005) 1 JCC (NI) 86 (AP).
297 SMS Pharmaceuticals Ltd v Neeta Bhalla, (2005) 8 SCC 89 : 2005 SCC (Cri) 1975; also see SV Muzumdar v Gujarat
State Fertilizer Co Ltd, (2000) 1 SCC 1; Sarav Investment and Financial Consultants (P) Ltd v Llyods Register of
Shipping Indian Office Staff Provident Fund, (2007) 5 SCC 103; Bilakchand Gyanchand Co v A Chinnaswami, (1999) 5
SCC 693.
298 Sabitha Ramamurthy v RBS Channabasavaradhya, (2006) 10 SCC 581 : (2007) 1 SCC (Cri) 621 : (2006) 9 Scale 212.
299 Aneeta Hada v Godfather Travels & Tours (P) Ltd, (2012) 5 SCC 661.
300 Jackson v Hudson, (1810) 2 Camp 447.
301 Precision Processors (India) Private Limited v Bank of India, 2016(2) CHN (CAL) 469 : 2016(2) ICC 192, 469.
302 Gurdas Mal v Khem Chand, AIR 1930 Lah 471 .
303 Manickchand v Chartered Bank, AIR 1961 Cal 653 ; Union Bank of India v Swastika Motors, AIR 1983 Del 240 .
304 Jagjivan v Ranchhoddas, AIR 1054 SC 544 , relied on in Manickchand v Chartered Bank, AIR 1961 Cal 653 .
305 Young v Clover, (1857) 33 Jur NS 637, relied on in Manickchand v Chartered Bank, AIR 1961 Cal 653 .
Page 14 of 14
306 Ardeshir v Khushaldas, (1908) 10 Bom LR 268 .
307 Goodwin v Robarts, (1875) LR 10 Ex 351.
308 State of Orissa v Punjab National Bank, (1991) 71 Comp Cas 220 .
309 Jogeshchandra v Mahammud, (1950) ILR 57 Cal 695; Lloyd v Oliver, 18 QB 417.
310 Russell v Phillips, (1850) 14 DB 891.
311 Cox v Troy, (1822) 5 B & Ald 474; Chapman v Cottrell, (1865) 24 LT Ex 186.
312 Credential Finance Ltd v State of Maharashtra, (2001) 105 Comp Cas 864 : (2001) 1 BC 157 .
313 Vishnupant Chaburao Khaire v Kailash Balbhir Madan, 2010 CrLJ 2166 Bom : AIR 2010 [NOC] 872 (Bom.) : IV (2010)
BC 381 : 2010 (3) BomCR 644 : (2010) 112 BOMLR 564 : 2010 (3) MhLj 259 .
314 Milind Shripad Chandurkar v Kalim M Khan, 2011 CrLJ 1912 : (2011) 4 SCC 275 .
315 Milind Shripad Chandurkar (supra).
316 Ibid at para 24-27.
317 Sunil v State of Kerala, Crl. A. No. 1014 of 2005, decided on 3 July 2020.
End of Document
[s 8] ‘Holder’—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

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.
Page 2 of 8
[s 8.2] Entitled to Possession
The definition contained in this section is obscure and the word entitled has caused difficulties in
interpretation.318 The definition in the Bills of Exchange Act, 1882 is simpler and considerably different in
substance and states: ‘Holder means the payee or indorsee of a bill or note who is in possession of it, or the
bearer thereof’.
Under the Act, before a person can claim to be the holder of a negotiable instrument, he should:
(a) be entitled in his own name to the possession of the instrument; and
(b) have the right to receive or recover the amount due thereon from the parties thereto.
While possession of the instrument is essential under the Bills of Exchange Act, 1882, it is not so under the
Indian Act. All that is required by the section is that the holder must be entitled in his own name to the
possession of the instrument. A person may be entitled to possession of the instrument although he does not
have actual possession. For instance, where a bill payable to order is, without indorsement, entrusted by the
payee to his agent, the agent does not become the holder and the payee is entitled in his own name to the
possession of the bill.
A person claiming to be the holder of an instrument should be the owner thereof in law, irrespective of his
position in equity. The definition seems to suggest that the term holder means only a de jure holder, and does
not necessarily apply to a de facto holder.
Page 3 of 8
A person may, by operation of law, become the holder of a negotiable instrument although he is not the bearer,
payee or indorsee thereof. Thus, the heir or legal representative of a deceased payee can claim as the holder.
An indorsee for collection is not a holder, as he does not acquire any interest in the instrument.319 However, in
English law, such an indorsee is a holder.
The assignee of a promissory note or a bill of exchange is not a holder, unless the instrument is indorsed in his
favour or is payable to bearer, and is in his possession.320
[s 8.3] Right to Receive or Recover Amount Due
Under the section, a holder must have the right to receive or recover the amount due on the instrument from the
parties thereto. The definition also implies that he has a right to sue on the instrument. The term ‘holder’,
therefore, does not include a person who does not have the right to recover the amount due thereon from the
parties thereto, though he is in possession of the instrument.321 Therefore, to qualify as a holder, a person
should have derived title to the instrument in a lawful manner. A person who takes an instrument from a person,
who forges an indorsement or from a thief or from a finder of an instrument having no claim to it or a payee or
indorsee, who is prohibited by a court order from receiving the amount due on the instrument is not a holder.
There is considerable difference in judicial opinion as to whether the beneficial owner can maintain a suit on a
negotiable instrument, if he is not the holder. Several decisions support the proposition that only a holder can
bring a suit on a negotiable instrument, and that no person can sue on a negotiable instrument unless his name
appears thereon as the payee or indorsee, or unless the instrument is made payable to bearer and he is in
possession, thereof.
Accordingly, a plaintiff who is a benamidar or a trustee or guardian, and has taken the instrument in his own
name, is entitled to sue upon it.322 Therefore, in a suit on a negotiable instrument by the payee or indorsee, it
is not open to the defendant to plead that such payee or indorsee is a mere benamidar.323
Where the cheques were issued in due discharge of liability under promissory note, it was held that the
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presumption under sections 118 and 139 of the Act would be available to the payee as well as to the holder of
the cheques.324
According to one view, the beneficial owner of an instrument cannot bring a suit on it, if he is not the holder.325
A minor cannot sue on a promissory note, taken in the name of his adoptive mother.326
The fact that the holder is admittedly a benamidar and is impleaded in the suit does not remedy the situation. It
is also immaterial that the consideration proceeded from the beneficial owner and not from the holder.327
Where the plaintiffs alleged that the suit promissory note had been executed in respect of a loan advanced by
them to the maker, and that the payee of the note was merely their agent, it was held that they were not entitled
to sue on the note.328
For instance, A, a debtor of B, executed a promissory note in favour of C in discharge of B’s debt to C. It was
held that C could sue A on the note and A could not avoid liability by pleading that he had only executed the
note on behalf of B and that he had later repaid his debt to B.329
[s 8.4] Suit by Someone other than the Holder
Some judges have expressed the view that sections 78 of the Act does not preclude any one other than the
holder from suing on a negotiable instrument and that a suit by the real owner is maintainable, if he is in a
position to obtain a good discharge of liability for the person liable thereon.330 This view was indorsed in
Bhagirath v Gulab Kanwar,331 where it was held that a true owner could maintain a suit on a negotiable
instrument if the holder is impleaded in the suit as a co-plaintiff or a defendant.
Four promissory notes were executed in favour of A, the karta of a joint Hindu family consisting of himself and
his two brothers, B and C. On partition, the notes came to the share of B, who filed a suit on them. They were
not indorsed in his favour. The court held that he could maintain the suit. The right to file such a suit,
irrespective of any indorsement in his favour was recognised, on the basis of the vesting of survivorship of
money in the person who in the absence of the holder can give a valid discharge to the maker.332
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Where at a partition of a firm, a note executed in favour of the firm was allotted to a partner without any
indorsement, it was held that the partner could sue on the note.333
Where a note was in favour of a person as a partner of a firm, it was held that the firm can sue on the note.334
Where a note was in favour of a partner of a firm without specifying that he would hold it on behalf of the firm,
the firm was held not capable of suing on the note, even if the money of the firm had been advanced against
it.335
Where a promissory note is drawn in favour of a joint Hindu family firm, all the individual members who
comprise that firm can bring a suit on the note.336
Coparceners governed by the Mitakshara law, carrying on a joint family business can be described as the
holders of a promissory note executed in the family’s collective or business name.337 In Bijoy Kumar Karnani v
Lahori Ram,338 two notes were made in favour of K, and his two minor sons. K could bring a suit on the notes
in his own name since he was the karta of a joint family consisting of himself and the two sons and he could
give a valid discharge of the notes.
On the death of the holder, the holder of the succession certificate can sue on the instrument.339 The heir of a
deceased holder can sue on the basis of the instrument to recover the amount due thereon. The crux of the
matter is whether the plaintiff receiving payment on the basis of the instrument can give a valid discharge.340
When the holder of a negotiable instrument dies, his right passes to his heirs by devolution and all of them must
join in a suit to enforce the deceased holder’s right. If any one of them does not join as plaintiff, he should be
impleaded as a defendant.341 Where, however, on the death of the payee of a note, his son brought a suit, not
as the payee’s heir or legal representative, but as the surviving coparcener, the suit was held not
maintainable.342 The daughter of the deceased payee of a promissory note could not sue its maker on the
note since she did not qualify as a holder thereof. If she was the sole heir of the payee, or if the property in the
note had been bequeathed to her, she would have had a valid claim against the maker.343
As held by Karnataka High Court,344 a ‘Holder’ as defined under section 8 means any person entitled to his
own name to the possession thereof and to receive or recover the amount under the instrument from the
drawer. Therefore, the legal representatives of a payee or holder in due course are entitled to the legal
possession of the instrument and further to receive and recover the amount covered under the instrument from
Page 6 of 8
the drawer. Section 118(g) of the Act specifies that holder of a negotiable instrument is a holder in due course.
Therefore, the legal representatives of deceased payee or holder in due course are entitled to file a complaint
under section 146 of the Act for offence punishable under section 138 of the Act.
In Kerala Arecanut Stores v Ramkishore Sons,345 it was held that an unregistered firm was not prevented by
section 69(2) of the Indian Partnership Act, 1932, from suing, as the indorsee, the drawers of certain cheques
which had been dishonoured. The court came to the conclusion on the basis of the fact that the right of action
of a holder in due course on negotiable instrument is not a contractual but a statutory right conferred by the Act.
In such case, the firm was an indorsee and not the payee.
In Milind Shripad Chandurkar v Kalim M Khan,346 noticing the definitions given section 8 of ‘the holder of the
cheque’ as ‘any person entitled in his own name to the possession thereof and to receive or recover the amount
due thereon from the parties thereto’ read with the definitions of section 7 and section 9, the Supreme Court
relied upon its earlier decision in the case of Shankar Finance and Investments v State of AP347 in which the
Supreme Court dealt with the issue involved herein elaborately and held that for cases where the ‘payee’ is a
proprietary concern, the complaint can be filed:
(i) by the proprietor of the proprietary concern, describing himself as the sole proprietor of the ‘payee’;
(ii) the proprietary concern, describing itself as the sole proprietary concern, represented by its sole
proprietor; and
(iii) the proprietor or the proprietary concern represented by the attorney-holder under the power of
attorney executed by the sole proprietor.’
Accordingly, the Supreme Court declined to interfere in the appeal of the complainant and dismissed the same.
[s 8.5] Assignment of Negotiable Instruments
Negotiable instruments can be assigned under section 130 of the Transfer of Property Act 1882, i.e., transfer of
actionable claims. The assignee of a promissory note can, sue the maker for recovering the amount due on the
note by virtue of his rights under that Act. The assignee, however, takes the instrument, subject to the liabilities
and equities to which the assignor was subject at the time of the assignment.
Page 7 of 8
An assignment of a promissory note at a partition to a member of a joint family does not amount to a transfer by
act of parties, but by operation of law; no document in support of the assignment is, therefore, required under
section 130 of the Transfer of Property Act, 1882.348
318 The Law Commission, in its Eleventh Report has also suggested amendment of the definition to remove the word
‘entitled’.
319 Irinjalakuda Bank Ltd v Poruthussery Panchayat, (1970) 40 Comp Cas 767 .
320 Umbu v Gopalan, 1961 Ker LJ 25 .
321 Lachmichand v Modanlal, AIR 1947 All 52 .
322 Bojianna v Venkatramayya, (1898) ILR 21 Mad 30; Sarat Chunder v Kedar Nath, (1898) 2 CWN 286 ; Ramanuja v
Sadagopa, (1905) ILR 28 Mad 205.
323 Subba Narayana v Ramaswami, (1907) ILR 30 Mad 88; VK Velappu v MJ Varu, (1987) 61 Comp Cas 368 .
324 PN Gopinathan v Sivadasan Kunju, 2007 CrLJ 2776 (AP) : AIR 2007 [NOC] 2022 (AP).
325 Bacha Prasad v Janaki, AIR 1957 Pat 380 .
326 Ramanuja v Sadagopa, (1905) 28 Mad 205.
327 Subbaraya v Abirami, AIR 1965 Mad 157 ; Harikishore v Gura Mia, (1933) ILR 58 Cal 752; Virappa v Katti, (1934) 36
Bom LR 807 .
328 VB Kalingarayar v Rajam, AIR 1978 Mad 192 .
329 Joseph Zacharia v Joseph Kuriakose, AIR 1992 Ker 103 .
330 Lachmichand v Modanlal, AIR 1947 All 52 ; Sewa Ram v Hotilal, AIR 1931 All 108 .
331 Bhagirath v Gulab Kanwar, AIR 1956 Raj 174 .
332 Rai Ram Kishore v Ram Prasad, (1952) 2 All 178 (FB).
333 Assuram v Niranjandass, (1963) ILR 13 Raj 963.
334 Davvuru Jayarama Reddy v Revathi Mica Co, (1972) 1 Andh WR 7.
335 Lingam v Vijayagopal, (1969) 2 Andh WR 421; M Kasi Viswanadham v C Radhakrishna Rao, AIR 1973 Andh Pra 99 .
Page 8 of 8
336 Madhubai Damel v Vadilal, (1939) 41 Bom LR 219 .
337 Zujya Pascol Damel v Manmohandas, (1940) 42 Bom LR 248 .
338 Bijoy Kumar Karnani v Lahori Ram, AIR 1973 Cal 465 .
339 Anjanaiah v Nagappa, (1965) 2 Andh WR 506.
340 Padam Parshad v Lok Nath, AIR 1964 Punj 497 (FB); Lala Ram v Ram Swarup, AIR 1964 All 495 ; see also section
78.
341 Champalal Gajanand v PCS Jain, AIR 1971 MP 133 .
342 Shantaram v Shantaram, (1938) 40 Bom LR 964 .
343 Singeshwar Mandal v Gita Devi, AIR 1975 Pat 81 .
344 Ashok Kumar v Dr TR Bhageerathi, 2009 CrLJ 221 Kar : AIR 2009 [NOC] 131 (Kar).
345 Kerala Arecanut Stores v Ramkishore Sons, AIR 1975 Ker 144 .
347 Shankar Finance and Investments v State of AP, (2008) 8 SCC 536 : AIR 2009 SC 422 .
348 Muthuveeran v Govindan, AIR 1961 Mad 518 (FB).
End of Document
[s 9] ‘Holder in due course’.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

‘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 349[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.
Page 2 of 23
A person claiming to be a ‘holder in due course’ must show:
(i) That, for consideration he became the possessor of a negotiable instrument when it is payable to
bearer or the payee or indorsee thereof when it is payable to order.350
(ii) That he became the holder of the instrument before the amount mentioned in it became payable.
(iii) That he became the holder of the instrument, without having sufficient cause to believe that any defect
existed in the title of the person from whom he derived his title.351
This section corresponds to section 29(1) of the Bills of Exchange Act, 1882.
[s 9.2] ‘Holder in due Course’ – Who Is ?
In India Saree Museum v P Kapurchand,352 the Karnataka High Court held that it is not only the endorsee who
becomes a holder in due course but also a person who gets possession of the negotiable instruments for
consideration, which means that he need not be an endorsee to be a holder in due course. Once it is
established to the satisfaction of the Court that the cheques were issued for discharge of the debt of the
company, the bank who had given this debt to the company would be considered as ‘holder in due course’. The
‘holder in due course’ of cheque means any person entitled to receive or recover the amount due thereon from
the parties thereto.
In Anil Kumar Jaiswal v State,353 while hearing a petition for quashing, it was held by Allahabad High Court
that the plea of accused that the complainant is not the ‘holder in due course’ was not a question of law since it
can be decided on facts and therefore requires investigation which can only be done after evidence had been
recorded and all circumstances have come to light. Hence, quashing sought at the initial stage was declined.
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A person claiming to be a holder in due course must show that he acquired the instrument for valuable and
lawful consideration and he became the holder of the instrument before the amount mentioned in it became
payable.354
In Somisetty Subbarao v Mynampati Ramakrishna Rao,355 plaintiff had got the suit promissory note transferred
for consideration from the original creditor. Later, he filed the suit against the defendant for recovery of the
money. Upon the suit being decreed and the appeal having been dismissed, the defendant filed revision
petition urging two grounds to convince the Andhra Pradesh High Court that the suit itself was not maintainable
as it was filed before the wrong Court, which has no jurisdiction to entertain the suit. It was further contended by
the defendant that even though there was a transfer endorsement in favour of the plaintiff, it was made
subsequent to the demand made by the original creditor to the defendant through a registered notice.
Therefore, the defendant pleaded that the plaintiff cannot become the ‘holder in due course’ as he cannot have
better rights than the transferor and hence, the suit filed within the jurisdiction of Ongole is not maintainable.
It was undisputed that the transferee of the promissory-note had issued a legal notice to the defendant
demanding the payment of the money covered by the suit promissory-note and subsequent to the demand
notice the pronote was transferred in favour of the plaintiff through an endorsement for consideration. In order
to get the status of holder in due course, the plaintiff had to get the transfer of the promissory note in his favour
before making the demand for payment from the defendant.
The High Court noticed that according to section 9 of the Act there is a difference between a holder for
collection and a holder in due course. A holder in due course is entitled to claim better rights than the transferor.
Any defect in the title of the transferor will not affect the rights of the holder in due course. It is only where the
transferee of the payee wants to claim higher rights than the transferor that he must satisfy the requirements of
a holder in due course as laid down in section 9.
After going through various previous decisions of the High Court, it was held that the plaintiff cannot be treated
as holder in due course, and therefore, he cannot acquire better rights than the transferor. When once the
plaintiff has no better rights no part of the transaction regarding the execution of the promissory note passing of
the consideration took place within the territorial jurisdiction at Ongole. Therefore, it was held that the Court at
Ongole has no jurisdiction to entertain the suit and the suit was held as liable to be dismissed.
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In Anil Kumar S v N Ramakrishna Kartha Gokulam,356 the question decided by Kerala High Court was that can
a person who was neither the payee nor the indorsee be entitled to file a complaint under section 138 of the
Act.
In that case, the Revision petitioner issued a cheque for Rs 1,00,000 in favour of Krishnadas. First respondent
claiming that for consideration he received the cheque from the brother of the payee as the payee is out of
India, presented the cheque for encashment and as it was dishonoured for want of sufficient funds, sent notice
demanding the amount and on the failure, lodged the complaint, which was taken cognizance by the learned
Magistrate. Revision petitioner pleaded not guilty. The Magistrate found the revision petitioner guilty and
convicted and sentenced him for the offence under section 138 of the Act. Revision petitioner challenged the
conviction before Sessions Court which rejected the case of revision petitioner that first respondent was not a
‘holder in due course’ and therefore is not entitled to file a complaint under section 142 of the Act, and
accordingly dismissed the appeal. Thereafter, a revision petition was filed before High Court.
After discussing the various provisions of the Negotiable Instruments Act, it was held by the High Court357 that
in order to make a person other than a payee, a holder in due course of a cheque payable to order, there must
be indorsement in his favour and a delivery of the cheque as provided under section 48 of the Negotiable
Instruments Act. Delivery alone is not sufficient to make him a holder in due course, indorsement is mandatory.
In the instant case, the High Court observed the cheque showed that it was payable to Krishnadas. There was
no indorsement by Krishnadas in favour of first respondent. Even if, there was delivery of Ext. P1 cheque by the
brother of the payee in favour of first respondent as alleged in complaint and that too for consideration as
claimed by first respondent, he could not be the holder in due course as defined under section 9 of Act so long
as there is no indorsement in his favour. Hence, first respondent was held to be not a ‘holder in due course’.
When he was not the ‘holder in due course’, the Magistrate could not have taken cognizance of the offence
punishable under section 138 of Act, except upon a complaint in writing by the payee or the holder in due
course of the cheque. Therefore, the conviction was held to be bad in law.
In Milind Shripad Chandurkar v Kalim M Khan,358 the complainant, a sole proprietor of the firm, had supplied a
huge quantity of diesel to Respondent 1 and in order to meet the liability, Respondent 1 made the payment in
the name of the said proprietary Firm drawn on Development Credit Bank, Kurla Branch, Bombay for an
amount of Rs 7,00,000. The complainant deposited the said cheque in the account of the Firm in Bank of India,
Uran Branch. In the ensuing criminal complaint for the offence of section 138, it was held by the High Court that
the complainant could not produce any evidence to establish that he was the sole proprietor of the proprietary
concern in question. Hence, the complainant approached Supreme Court. It was noticed by the Supreme Court
Page 5 of 23
that the firm, namely, Vijaya Automobiles, was the payee and the complainant could not have claimed to be the
payee of the cheque, nor could he claim to be the holder in due course, unless he established that the cheques
were issued to him or in his favour or that he was the sole proprietor of the concern and being so, he could also
be the payee himself and thus, entitled to make the complaint. Accordingly, the Supreme Court opined that the
complainant had miserably failed to prove any nexus or connection by adducing any evidence, whatsoever,
worth the name with the said firm, namely, Vijaya Automobiles. Mere statement in the affidavit in this regard,
was not considered sufficient to meet the requirement of law. Since the appellant had failed to produce any
documentary evidence to connect himself with the said firm, the order of acquittal as passed by High Court was
confirmed.
In Surindera Steel Rolling Mills v Sh Sanjiv Kumar,359 a criminal complaint under section 138 of the Act was
filed through the Manager, Ram Sarup. It was noticed that Ram Sarup, Manager, who had filed the complaint
was neither the payee of the cheque, nor the holder of the same as per the definition under section 9 of the Act.
He had admitted in categorical terms, during the course of his cross-examination, that he was not authorised by
any one to file the complaint against the accused. Accordingly, it was held that the complainant being un-
registered firm, could only file the complaint, through one of its duly authorised partners or its duly authorised
officer and not through Ram Sarup, Manager, who was not authorised as is evident from his cross-examination.
Had the instant complaint, been filed by the Company, through its Officer or by a Corporation through its
Officer, the matter would have been different. Since there is a special provision under section 142(a) of the Act
regarding the mode and manner in which the cognizance could be taken, the general provisions of section 190
CrPC could not be made applicable. The trial Court was therefore right in coming to the conclusion that the
complaint having not been filed through a duly authorised person, the cognizance thereof, could not be taken
and, as such, the accused was entitled to acquittal.
In Bank of India v State,360 it was held by the Delhi High Court that Bank is a ‘holder in due course’ even if
there is no endorsement made on the cheques because the moment amount of cheque had gone to the
account of company, it was to go to the Bank towards the loan taken by company. It was further observed that if
a person hands over a cheque to the Bank with clear understanding to the Bank that the cheque was towards
the debt payable to the Bank, what is to be seen is that whether the Bank has come into possession of the
cheque for a value pursuant to a contract between the parties express or implied. It is not necessary that the
cheque should be endorsed in favour of the Bank. What is to be seen is if the Bank becomes holder for value
and comes in possession of the instrument for a consideration. Accordingly, the finding of the Sessions’ Court
that Bank cannot be treated as ‘holder in due course’ was held to be unsustainable and set aside.
[s 9.3] Self-Cheques
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In Intech Net Ltd (M/s) v State,361 self cheque was returned for insufficient funds. A plea was raised on behalf
of the accused that it does not attract the offence under section 138 of the Act. It was held by Andhra Pradesh
High Court that once the issuance of the cheques is admitted and as the words ‘or bearer’ have not been
struck-off, the complainant is the holder of the said cheques in due course though it was written as ‘self’ and
thus he is entitled to receive the cash and on dishonouring of the said cheques, he can very well file the
complaint.
In Sardar Jasvir Singh v State of Uttar Pradesh,362 since the cheque was payable to the bearer and the
Respondent (Complainant) was in possession of the cheque, it was held that the Respondent (Complainant) is
the ‘holder in due course’ and has the locus to file complaint upon dishonour of cheque
In Babulal Jain v Kewalchand Jain,363 the cheque in question was not issued by the accused to the
complainant in his name. The cheque was issued by the accused to himself while mentioning the word ‘self’ in
the cheque. It was the case of the accused that cheque is a bill of exchange under section 6 of Negotiable
Instruments Act and as defined in section 5 of the Act, cheque is always to be issued to a certain person. The
complainant contended that the cheque was bearer also, which was encashed by complainant. As per the
averment in the complaint and statements of the witness the cheque was given against legal liability of the
petitioner.
However, it was held by the High Court that as provided by section 9 of the Act, the complainant becomes
holder in due course with regard to cheque in question. The relevant part of the cheque – ‘Pay to....Self....or
bearer Rupees One lac fifty thousand only’- showed that the cheque was bearer also as the words ‘or bearer’
were not cut by the petitioner. Therefore, as provided by section 6 of the Act, a cheque is a bill of exchange and
as provided by section 5 of the Act, bill of exchange is an instrument in writing 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. It was an admitted fact that the complainant was a bearer of the cheque in question and also holder
in due course thereof, which was issued against a debt/liability. Consequently, the petition challenging the
taking of cognizance was rejected.
In Avtar Singh v Canara Bank,364 a bearer cheque was issued by the guarantor of firm for adjustment towards
the cash credit facility account of the borrower firm. Upon the said cheque being dishonoured, a question was
raised about the maintainability of complaint under section 138 of Negotiable Instruments Act. It was held by
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the Punjab & Haryana High Court that in view of section 9 of the Act, the Bank would be termed as ‘holder in
due course’ and therefore, the complaint was held as maintainable.
In Gurpal Dass v Om Prakash,365 the plaintiff had filed the suit against defendant for recovery of Rs 25,000
alleging that the defendant borrowed Rs 25,000 from the plaintiff as friendly loan and agreed to repay the same
after 2-3 months, but failed to repay the same. Thereupon, defendant issued cheque for Rs 25,000 in favour of
plaintiff, but the said cheque was dishonoured twice by bank on account of insufficient funds. Accordingly,
plaintiff sought recovery of Rs 25,000 from defendant. The defendant denied having borrowed Rs 25,000 from
the plaintiff or having issued the cheque in question to the plaintiff. The defendant alleged, inter-alia, that the
said cheque was drawn in favour of himself and was misplaced and the plaintiff took the cheque and filed this
false case.
The trial court decreed the plaintiff’s suit for recovery of Rs 25,000 with interest and the First Appeal preferred
by defendant was also dismissed by lower appellate court, whereafter the defendant approached High Court in
second appeal with the plea that the cheque was issued by defendant in favour of ‘self’, and therefore, plaintiff
was not holder thereof in due course, as per the definition under section 9 of the Act and consequently, the suit
could not be decreed. The Punjab & Haryana High Court found the plaintiff’s plea to be without any factual
basis. The High Court noticed that there was not even an iota of evidence on record to depict that cheque was
not issued or endorsed in favour of the plaintiff or that the plaintiff was not holder thereof in due course. On the
contrary, the High Court noticed that both bank memos intimating the plaintiff about dishonouring of the cheque
mentioned reason of dishonouring as ‘insufficient funds’. The said memos did not mention that cheque was not
duly endorsed in favour of plaintiff. The Hon’ble High Court further noticed that the defendant had also been
convicted under section 138 of the Act for dishonour of the cheque in question. Accordingly, the appeal was
dismissed in limine.
Even if the cheques were issued by the petitioners in its own name but was in possession of the complainant
who was entitled to receive or recover the amount due thereon, unless the contrary is proved by the petitioner,
the complainant being the holder of the negotiable instruments shall be presumed to be the holder in due
course.366
[s 9.4] Consideration
It is essential that a person who claims to be a holder in due course must show that he acquired the instrument
for valuable and lawful consideration. Valuable consideration consists in either some right, profit, or benefit
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accruing to one party, or some forbearance, detriment, loss or responsibility given to, or suffered or undertaken
by the other.367 The consideration must be a valuable consideration, which can be considered so under the
law. It can be either positive in that, it requires doing of something or negative in that, it requires
forbearance.368
The consideration must have passed at the desire of the promisor.369 In Rajah of Venkatgiri v Sri
Krishnayya,370 the plaintiff’s father had given a letter to the defendant’s natural father undertaking that he
would furnish funds for a litigation challenging the defendant’s adoption. Pursuant to this undertaking, the
plaintiff’s father advanced monies to the defendant, from time to time for the expenses of the litigation, and after
the father’s death, the plaintiff also continued to make the payment. Subsequently, the defendant, at the
plaintiff’s request, executed a promissory note, the suit promissory note for the total amount advanced for the
litigation. The suit promissory note also stipulated that, if the litigation was decided against the defendant in the
Privy Council, the plaintiff would not enforce the note. The litigation ended in favour of the defendant and
thereafter, the plaintiff sued the defendant on the note. The defendant denied his liability and contended that
the promissory note was void for want of consideration. The Privy Council, agreeing with the Indian judiciary,
upheld the defendant’s contention. The Privy Council also observed that, the advances of money were not
made at the desire of the defendant, as required by the definition of consideration in section 2(d) of the Indian
Contract Act 1872, and therefore the note was without consideration.
It is also necessary that the consideration should be lawful, i.e., it should not be forbidden by law, fraudulent,
immoral or opposed to public policy and should not cause any injury to the person or property of another.371
Thus, a debt due on a wager is not valid consideration, and a person who acquires a bill or note in
consideration for such a debt is not a holder in due course.372 Under the Indian law, an agreement in which the
consideration or object is illegal, immoral or against public policy, is not a contract; and money due or paid
under such an agreement cannot be recovered by a suit.
Monies due on a promissory note, executed in consideration for the balance of the security deposit for the lease
of a house taken for immoral purposes, cannot be recovered by suit.373
Consideration for a note or bill can, however, operate as such only once, and when it has so operated for once,
it is spent and cannot be used for another and subsequent promise. A single consideration cannot support an
indefinite series of subsequent and independent promises or contracts.374
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Consideration for a negotiable instrument, however, may appear in various ways. Thus, a person who
discounts a bill is a holder for value and if he satisfies the other requirements of the section, he will be a holder
in due course.375 If a bill is discounted with a bank and is indorsed and delivered over to it, the bank becomes
an indorsee for value.376
A bank purchasing a cheque indorsed in blank by crediting the current account of the payee becomes a holder
in due course of the cheque, and does not act as a collecting agent.377 Where the holder of a bill or note has a
lien upon it, he is a holder for consideration to the extent of the advance for which he has a lien.378
Where a promissory note is executed in respect of a loan, it cannot be said that the note is not for consideration
merely because the loan is granted subsequent to the execution of the note.379
Under section 2(d), of the Indian Contract Act 1872, past consideration is a good consideration and will support
a negotiable instrument. An antecedent debt or liability is sufficient to constitute a valuable consideration for a
negotiable instrument.380
Where a bill of exchange payable after date is transferred before maturity in discharge of a pre-existing debt,
the creditor can became a holder in due course of the bill.381 Consideration, being necessary to support the
title of a holder in due course, it follows that a donee of a negotiable instrument is not a holder in due course
and he cannot maintain an action against the donor on the instrument.382 The reason for this being, if the
donor is not a holder in due course, the donee merely succeeds to the rights of his transferor. However, if the
donor is a holder in due course, by virtue of the rule contained in section 53 of the Act viz, that a holder without
value of a negotiable instrument who derives his title from a holder in due course has the rights thereon of that
holder in due course, the donee ipso facto acquires all the rights of the holder in due course.
In Sakharam v Gulabchand,383 the plaintiff, an indorsee of a hundi drawn by the defendant in favour of one M,
sued the indorser. The lower court dismissed the suit on the ground that no consideration had passed between
the defendant and M. The plaintiff applied to the high court under its extraordinary jurisdiction. The court held
that the plaintiff’s suit as an indorsee was not necessarily barred because of the fact that no consideration had
passed between the defendant and M. An indorsee from the (payee) of a hundi must be presumed, until the
contrary is proved, to have been a holder in due course, i.e., a holder for consideration form the payee within
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the meaning of section 9 by reason of section 118(g) of the Act. He is, unless the contrary is proved, unaffected
by failure of consideration as between the drawer and the payee.
Though valuable consideration is necessary for the validity of a bill or note, the court will not go into the
question of the adequacy of such consideration.384 However, where the bona fides of the transaction is
impeached, the extent of the consideration given is a factor that the court will consider in determining the
question of bona fides.385
The question whether the consideration for a negotiable instrument is adequate cannot be subject matter of
controversy in the suit when once it is admitted that the negotiable instrument has been executed by the
defendant and there was some consideration for it.386
It is further necessary that in return for a consideration, the holder must become (i) the possessor of the
instrument if it is payable to bearer; or (ii) the payee or indorsee of the instrument, if it is payable to order. Also,
in the latter case, his title must be completed by indorsement and delivery of the instrument to him, as no
contract on a negotiable instrument is complete without delivery.387
In India Saree Museum v P Kapurchand,388 it was held that a person need not be an indorser to become a
holder in due course. It is not clear from the judgment whether the cheques in question were payable to bearer
or had been indorsed in blank so the plaintiff could claim as a holder in due course.
In Madhya Bharat Khadi Sangh v Bal Kishen Kapur,389 a distinction was drawn between an instrument
payable to bearer and one payable to order, as regards consideration. It was held that under section 9, where
the instrument is payable to order, it is not necessary for a person claiming as a holder in due course to show
that he took it for consideration; the payee or indorsee thereof becomes the holder in due course. However,
where the instrument is payable to bearer, the possessor can claim as a holder in due course only if he has
come in possession of the instrument for consideration. It is submitted that this decision does not seem to lay
down the law correctly.
In Vishnupant Chaburao Khaire v Kailash Balbhir Madan,390 the petitioner-accused had issued a cheque
bearing for Rs 3,00,000 in favour of father of the Respondent-complainant. The Respondent-complainant
presented the said cheque for encashment after about five months of the death of his father. However, the
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same was dishonoured and returned with endorsement ‘insufficient funds’. The Respondent-complainant
issued legal notice through Advocate calling upon the petitioner-accused to pay the amount due under the said
cheque. However, since the accused failed to pay the amount, the respondent filed criminal case against the
accused for the offence under section 138. The Magistrate passed an order issuing process which was
challenged in the writ petition. The point raised in the petition was whether one of the heirs of deceased payee
can file complaint under section 138 of the Act.
After referring to the various provisions of Negotiable Instruments Act, it was held by the Bombay High Court
that the Respondent-complainant was not the person named in the instrument nor he was a person to whom or
to whose order money by the instrument was directed to be paid. Admittedly, there was no endorsement on the
cheque by the deceased payee in favour of the Respondent-complainant. So, it was not that the amount under
the instrument was directed to be paid to him. The holder in due course is defined in section 9 of the Act as the
person who for consideration is entitled to the possession of the bearer cheque or payee or endorsee thereof. It
was submitted that as a legal representative of the deceased payee-father, the Respondent-complainant, is
entitled to possession of the valuable security/movable property left by his deceased father and also to receive
or recover the amount thereunder.
It was further held that by demise of payee itself, it cannot be said that any of the heirs or legatees get right to
issue notice under proviso (b) to section 138 of the Act and then lodge a complaint under section 142 (a) of the
said Act as if he automatically enters into the shoes of the deceased payee. Only a person who is authorised by
succession certificate, letters of administration or probate granted by the court, is entitled to call upon the
drawer to pay the amount of dishonour cheque, by issuing notice under proviso (b) of section 138 of the Act
and he would be entitled to file complaint under section 142 of the Act as he would be then really entering into
the shoes of the deceased payee. The writ petition was allowed as the complainant was held to be not a payee
or holder in due course within meaning of law. The order of issuance of process against the petitioner was
accordingly quashed.
In Jayaram Finance, Kancheepuram (M/s) v Jayaprakash,391 the cheques were drawn by the accused in
favour of one Gnanavel towards debt liability, who in turn endorsed those cheques in favour of complainant.
Thus, the complainant was the holder in due course of those cheques. On the cheques being presented for
encashment with his Bankers, those cheques were dishonoured on the ground that it exceeded arrangement.
Statutory notice was issued by the complainant and the accused also sent a reply. Since, the accused failed to
pay the cheque amount, the complaint was filed before Magistrate. The trial court found the accused guilty and
convicted and sentenced him upon which the accused preferred appeals before the Session Court, which set
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aside the conviction and sentence imposed by trial court and allowed the appeals. Against that, the complainant
approached the Madras High Court.
The High Court noticed that there was no endorsement as contemplated under section 50 of the Act. It was
held that in order to make a person other than the payee, holder in due course of a cheque payable to order,
there should be an endorsement in favour of proposed holder and delivery of cheque concerned. Mere delivery
was not sufficient. In the instant case, the instrument in question was given in favour of one Gnanavel but
necessary endorsement had not been made on the cheque for transferring the same. As such, the High Court
opined that there was no privity of contract between the complainant and the accused, who was the drawer of
the cheque. The High Court noticed that the accused had sent a reply to the statutory notice issued by the
complainant, wherein he had clearly disputed the very liability and privity of contract between the complainant
and the accused. The High Court further noticed that the complainant did not choose to examine the payee
namely Gnanavel to prove that consideration had passed to the payee at the time of transfer and it was given in
lieu of the debt. Accordingly, the High Court held that as no endorsement had been made on the overleaf of the
cheques thereby enabling the complainant to possess the same in his own name, so as to receive or recover
the contents thereof from the accused thereto, the complainant could not be considered to be ‘holder in due
course’ within the meaning of section 9 of the Act. As such, the High Court upheld the acquittal of the accused.
[s 9.5] Before the Amount became Payable
The second essential aspect is the time of acquisition of the negotiable instrument by the person who claims to
be a holder in due course. The section says that the holder must have become the possessor of the instrument
before the amount mentioned in it became payable. Therefore, a person who takes a bill or note on the day on
which it becomes payable cannot claim the rights of a holder in due course, because he takes it after it
becomes payable, as the bill or note can be discharged by payment at any time on that day.
There is some difficulty in applying the words ‘before the amount mentioned in it became payable’ to cheques
and demand bills since they are payable immediately. The words ‘before it was overdue’ appearing in section
29(1) of the Bills of Exchange Act 1882 are preferable.
The fact that a promissory note payable on demand has been outstanding for a long period at the time of
negotiation to the holder does not necessarily debar him from claiming as a holder in due course, since
according to custom and practice, a promissory note payable on demand is treated as a continuing security.392
In Gopalan v Lakshminarasamma,393 it was held that a demand promissory note is not payable until demand
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is made. There the maker of a demand promissory note left the note in the hands of the payee after making
payment thereon. The payment was not recorded on the note. After receipt of such payment, the payee
indorsed the note to another person who had no knowledge of the fact of payment. In a suit by the indorsee
against the payee and the maker, it was held that under sections 9, 22 and 60 of the Act, the indorsee was
entitled to recover from both the payee and the maker.
In Asirvatham v Palaniraju,394 a promissory note payable on demand and executed on 6 April 1960 was
negotiated to the plaintiff on 10 September 1964. The court held that the note was not overdue when the
plaintiff took it, and he could proceed as a holder in due course.
A person who takes a negotiable instrument after the date of maturity cannot be a holder in due course, and the
rights of such a holder are coextensive only with those of his immediate transferor. In Sumani Ferro Alloys Ltd v
Super Forging Steel Sales (P) Ltd,395 the drawer of certain trade bills discounted them with a bank. Upon their
dishonour, the drawee claiming that the drawer had committed a breach of the underlying sale contract, the
bank indorsed and returned them to the drawer. It was held that the drawer company was not a holder in due
course of the bills since they had been dishonoured when the bank returned them. The court did not seem to
have considered the applicability of section 53 of the Act to the case.
Several English decisions have established the principle that, as between the immediate parties to a bill of
exchange, the fact that the defendant may have a counterclaim for unliquidated damages arising out of the
same transaction is no defence against an action on a bill of exchange. Also, there is no ground on which he
can be granted a stay of execution of the judgment in an action for proceeds of the bill.396 There can be a
holder in due course of a post-dated cheque.
[s 9.6] Without having Sufficient Cause to Believe that any Defect Existed in the Title of the Person from whom
he Derived his Title
[s 9.6.1] English Law
Under English law, the only question to be considered is whether the holder took the instrument in good faith
and, once it is proved that he did so, he is entitled to all the rights of a holder in due course notwithstanding that
he was careless, that he made no enquiry, and that he was informed of facts which would have led a
reasonable man to make further inquiry, provided, however, that he had no notice of any defect in the
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transferor’s title.397 It is sufficient if he took the instrument honestly, and however gross his negligence may be,
if he stops short of fraud, he has a good title.398
Section 90 of the Bills of Exchange Act 1882 states: ‘...a thing is deemed to be done in good faith within the
meaning of this Act, where it is in fact done honestly, whether it is done negligently or not.’
Accordingly, no man shall be deemed to be a bona fide holder of a negotiable instrument, if at the time of taking
it, he suspected that some wrong was perpetrated by the person with whom he was dealing, but did not make
reasonable inquiries to get the suspicion cleared. It is not necessary that a holder should have actual
knowledge of what the particular wrong was, and if he, suspecting that there is something wrong, avoids
inquiry, lest he should come to know of any defect in the title, he cannot be deemed to be acting honestly.399
However, if as a matter of fact, there is no evidence of mala fides or bad faith, then it is immaterial whether at
the time of taking the instrument, he was negligent. Thus, in Raphael v Bank of England400 it was held that,
when a person takes a negotiable instrument bona fide he is entitled to recover on it, even though he may have
had, at the time, the means to knowledge of facts which he neglected to avail himself of.
[s 9.6.2] Indian Law
As regards the Indian law, prior to the passing of the Act, it was held by the Privy Council, relying upon English
decisions that the defective title of the transferor would not attach to the transferee merely because of the
latter’s negligence.401
However, under the Act, the words used in section 9 are ‘...without having sufficient cause to believe...’
Therefore, the legislature seems to have intended to make due care and caution on the part of the holder, a test
of his bona fides, and that mere good faith on his part would not suffice. Accordingly, it seems negligence on
the part of a holder at the time of taking a negotiable instrument, would disentitle him to the rights of a holder in
due course. There will be sufficient cause to believe in the existence of defects if the holder was in fact
negligent or careless, though he was acting honestly and in good faith. Thus, a transferee, neglecting to avail
himself of any means at his disposal to detect the defects in the title of the transferor, cannot claim to be a
holder in due course. Under the Indian law, it is not enough to show that the holder acquired the instrument
honestly, if in fact, he was negligent or careless.
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In this respect, the Act seems to have followed the old English rule laid down by Lord Tenterden in Gill v
Cubitt,402 according to which due care and caution were made the tests of bona fides. The Indian law is stricter
and requires a higher degree of diligence from the person who claims to be a holder in due course than in
England, where it is sufficient for such a person to show that he took the instrument in good faith.
In Raghavji v Narandas,403 the Mumbai High Court, however, cited the later English decisions as applicable to
India, but without discussing the question in the light of section 9, and held that mere negligence would not
invalidate the title of a person taking a negotiable instrument in good faith for value.
The Supreme Court of India has held404 that the decision in Raghavji’s case does not lay down the correct law.
After reviewing the case law and leading authorities on the subject, the court held that the Indian definition of
‘holder in due course’ (based on Gill v Cubitt), imposes a more stringent condition than the English definition.
The Indian definition requires that he should act in good faith and with reasonable caution. The court agreed
with the Allahabad High Court’s decision in Durga Shah Mohan Lal Bankers v Governor-General-in-Council405
that mere failure of the plaintiff to prove bona fides or absence of negligence on his part would not negative his
claim as a holder in due course. However, the Supreme Court added that, if in the circumstances of a given
case, there was patent gross negligence on his part, it could negate his claim for he could not negligently
disregard a ‘red flag’ which aroused suspicion regarding the title. In this case, a bank purchased two cheques
indorsed to it by the payee. Upon their dishonour, the bank claimed the amounts from the drawer, who denied
liability on the ground that the payee had failed to deliver the goods contracted for. The court rejected the plea,
and held that the bank need not have inquired if the goods had been supplied, and even if the payee had failed
to supply, there was no sufficient cause for the bank to doubt his title to the cheques.
Relying on the above-mentioned Supreme Court ruling in Praveen Metal Agencies v M Balasubramanyam,406
the Karnataka High Court upheld the contention of the plaintiff who claimed as a holder in due course of two
cheques issued in business transactions, and the court saw no red flag that should have put the plaintiff on
inquiry. The defendant contended that he had left signed blank cheques with his employee, who, exceeding his
authority, had completed and issued them to a third party, who later colluded with the plaintiff in bringing the
suit against the defendant. The court rejected the defence, and held that the plaintiff had taken the cheques for
valuable consideration under the payee’s indorsements. The court held that the plaintiff was not bound to
enquire about the genuineness of the transactions between the drawer and the payee.
There are many circumstances due to which an honest holder may have sufficient cause to believe that there is
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something wrong with the instrument he is taking. For example, if there is an irregularity patent upon the face of
the instrument, it puts the holder on his guard, and if in spite of such irregularity he takes it, he does so, at his
own peril. As the instrument itself conveys a warning to him, the rule of caveat emptor applies. Thus, if a person
takes a blank acceptance, or a bill which is not complete and regular on the face of it, eg, a bill without the
signature of the drawer; or a bill which has been torn up and the pieces pasted together, the tears appearing to
show an intention to cancel it; or a bill on which the payee’s indorsement is altered and the alternation is
apparent on the face of it; in all these cases he takes the instrument at his own risk.407 However, the fact that a
cheque is post-dated does not make it irregular so as to preclude a bona fide purchaser of the instrument from
claiming the rights of a holder in due course.408
In Sridhar Narayan Hegde etc. v Karnataka Bank Ltd, Mangalore,409 the accused no. 1 in each of the four
cases issued cheques in favour of accused no. 2, who in turn got those cheques discounted with the
complainant Bank. Accordingly, after deducting the commission, the Bank paid the balance amount covered
under those cheques to accused no. 2, and thus became a holder in due course of those cheques. When the
complainant Bank presented the cheques, they were returned unpaid due to insufficiency of funds in the
account of accused no. 1. Upon service of legal notice, and non-payment thereafter, the Bank filed a criminal
complaint each for the four cheques in question. After cognizance, in all the complaints the respective accused
no. 1 pleaded not guilty for the accusation made against them. However, the accused no. 2 in all the complaints
sought their discharge, inter-alia, contending that as he was not the drawer of the cheque in question, he
cannot be prosecuted for the offence under section 138 of the Act. The trial court heard both the parties and
ordered discharge of accused no. 2 in all the cases. After trial, it was held by trial court that the accused no. 1
had failed to rebut the presumption of section 139 of the Act. Accordingly, the accused no. 1 was held guilty
and convicted in all the cases and their appeals were also dismissed by Sessions Court. In revision, it was held
by the High Court that any person can become a ‘holder in due course’ of a negotiable instrument by satisfying
the following requirements – (i) he must be a ‘holder’ for consideration; (ii) the instrument must have been
transferred to him before it became overdue; and (iii) he must be a transferee in good faith and he should not
have any reason to believe that there was any defect in the title of the transferor. The Karnataka High Court
noticed that on the reverse side of the cheques in question, there was an endorsement to the effect that the
payee’s account was being credited, which established the circumstance that the complainant Bank became
the possessor of the cheques in question for consideration. However, it was observed by KN
Keshavanarayana, J, as under:
14. Section 118(g) of the Act raises presumption that holder of the instrument is a holder in the due course. However
as per proviso, where an instrument has been obtained from its lawful owner, or from any person in lawful custody
thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of any
offence or fraud or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon
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him. In the present case, it is not the contention of the accused that the complainant Bank obtained the custody of the
cheques by means of any offence or fraud or for unlawful consideration. Therefore, as per the presumption under
section 118(g) of the Act, the complainant became holder in due course of the cheques in question. It is not the case of
the accused that the cheques are not negotiable. Therefore, the complainant Bank was not prevented from purchasing
the cheques for valuable consideration.
The next issue to be dealt with was whether the complainant had proved that it was a transferee in good faith
and that it did not have sufficient reason to suspect any defect in the title of the transferor over the cheques.
This is the third requirement under section 118(g). Referring to judgments of the Supreme Court, the learned
Judge explained the issue of burden of proof under section 118(g). This section has a presumption in favour of
the holder but if any requirement gets rebutted, the onus to prove he is the holder lies with him.
Ordinarily, negligence does not negate the claim of a holder in due course. However, in a case of patent gross
negligence, where the holder completely ignores a ‘red flag’, his claim may be vitiated. In the current case, the
drawers and the payees were family members; two cheques issued from the mother to her son, and two from
one brother to another. At the time of discounting these cheques, there were no enquiries as to why such
substantial amounts were being drawn. These facts should be sufficient to arouse suspicion in any individual,
let alone a bank official.
In the Judge’s opinion, the bank official should have made this enquiry, in addition to inquiring from the drawer’s
bank, whether the accounts had sufficient funds. Failure to do this was held to be negligent on part of the Bank
and they had not acted in good faith. Thus, the Bank did not become the holder in due course and the findings
of the lower courts were set aside.410
Another circumstance that ought to put an honest holder on his guard is inadequacy of consideration. There is
no criterion more useful for the purpose of determining the bona fides of a person who takes a negotiable
instrument than the value he gives for it. As a general rule, courts do not inquire into the adequacy of
consideration given bona fide. The fact that a holder gives full value for the bill raises a strong presumption in
favour of his good faith. On the other hand, inadequacy of consideration may be evidence of bad faith or fraud
on the part of the holder, and may be an important factor in considering whether he had cause to believe that a
defect existed in the bill he was purchasing.411 Though, neither adequacy nor inadequacy of consideration by
itself is conclusive of a holder’s good faith, or lack of it, sometimes inadequacy may leave no doubt that the bill
was not taken in good faith, and sometimes adequacy will alone be sufficient to establish good faith. Therefore,
the extent of the consideration may be of vital importance in determining the question of bona fides. Thus,
Page 18 of 23
where a person offers to take up a bill for a considerable under-value, or for a consideration which is out of
proportion with the face value of the bill, the presumption is that he knew that his transferor was not acting
honourably or had not come by all the bill honestly, and if he takes up such a bill without sufficient inquiry, he
does so at his own peril, and he may not become a holder in due course.
[s 9.7] Notice of Defects
If, at the time when the holder acquires his title as such, he has sufficient notice that a defect exists in the title of
his transferor, he is not a holder in due course. Notice means knowledge of the facts or a suspicion that
something is wrong combined with a wilful disregard of the means of knowledge. Notice of defects may be
either actual or constructive. Proof of such notice may be given by evidence that the transferee received actual
notice, or that he was made aware of facts from which knowledge of such defect may reasonably be
inferred.412 All circumstances in connection with the transaction, whereby the holder became the owner of the
instrument, have a bearing on the question whether he had sufficient cause to believe that any defects existed
in the title of his transferor. The ordinary rules of law as to principal and agent apply, and as regards parties
having notice, notice to the principal is notice to the agent, and vice versa.413
Where the indorsee of fourteen post-dated cheques aggregating a very large sum had known that they were
issued without the possibility of any business transaction between the parties concerned, the court held that the
circumstances should have put him on inquiry about the transferor’s title.414
In Mehrunnisa Begum v Sheik Chand Bi,415 a prize money-winning subscriber to a chit fund executed a
promissory note in favour of the chit fund company as collateral security for the due payment of future monthly
instalments payable by him to the company. Two sureties signed the note. It was transferred to the plaintiff,
another subscriber, with an indorsement purportedly made by the chairman of the company. In an action by the
plaintiff against the maker of the note and the sureties, it was held that the plaintiff was not a holder in due
course, as it could not be said that she did not have sufficient cause to believe that a defect existed in the title
of the chit fund company from which she derived title. As a subscriber, she should have known that the note
had been executed as collateral security. The indorsement by the company did not, therefore, transfer any title
to her. The learned judge also held that the plaintiff did not establish that the company had authority to transfer
promissory notes. From the facts noted in the judgment, it would appear that the company might not have been
able to claim the full amount of the note from the maker because of certain subsequent payments made by him
and certain credits due to him from the company. However, this cannot be equated, it is submitted, with a
defect in the company’s title to the note. Moreover, under section 43 of the Act, a holder for value could sue the
transferor for consideration or any prior party to the instrument.
Page 19 of 23
The time when notice affects the title of a holder who takes a negotiable instrument, is when he takes the
instrument, for it is then that his relation to the bill is formed; notice received subsequent to his perfecting his
title will not affect his title or his right to sue upon it. Further, the defect which disqualifies a person from
claiming the rights of a holder in due course, must be a defect in the title of his immediate transferor, and,
accordingly, notice of defect in the title of any prior party does not affect the title of the holder. Thus, if a holder
knew when he took the instrument of any fraud practised by any party prior to his transferor, he would not be
affected by it.
[s 9.8] Holder in Due Course of an Inchoate Document
In Tarachand Kevalram v Sikri Brothers,416 the court held that it is only a person who comes into possession of
an instrument after having paid consideration for it and being a bona fide transferee that can be holder in due
course within the meaning of section 9. Section 9 implies and contemplates that there must be a negotiation or
a transfer to the holder in due course by some one who has the authority to transfer the negotiable instrument.
The transfer and the negotiation must be of an inchoate instrument, which is not a negotiable instrument under
the Act. From the point of view of the proviso to the section, it may also be said that in the case of inchoate
document, it would be difficult to hold that the possessor of it is a bona fide transferee or in possession of the
[s 9.9] Irregular Indorsement
If cheque is not indorsed in favour of purchaser, he does not become holder in due course.417
Where a bill was drawn in favour of AB & Co but was indorsed AB, without the addition of the words ‘& Co’, it
was held that the indorsement was irregular and that the indorsee was not a holder in due course, though he
might be a holder for value. Titles and descriptions can often be omitted without impairing the regularity of the
indorsement, but the word ‘company’ is one of considerable legal significance and its omission makes an
indorsement irregular.418
[s 9.10] Forged Indorsement
It is an established rule that forgery conveys no title. Hence, there can be no holder in due course under a
Page 20 of 23
forged indorsement. However, the forged indorsement should be one essential to pass title. Thus, if a bill is
payable to A or order, A indorses it to B and C forges B’s indorsement and transfers it to D, D is not a holder in
due course. A similar result would follow if B’s indorsement is genuine, but A’s indorsement is forged. The
position would be different if the bill was drawn payable to bearer. If, in the first example, B was for some
reason, estopped from setting up the forgery, D would have, as against him, the rights of a holder in due
course.
349 Subs. by Act 8 of 1919, section 2 for ‘payable to, or to the order of, a payee’.
350 Punjab National Bank v Himgiri, (2004) 1 JCC 1 (P&H) : (2004) II BC 12 (P&H) (DB); See however, section 118(a)
regarding the statutory presumption of consideration.
351 M Ethirajulu v Rangam Adinarayana, (2005) 2 JCC (NI) 166 (AP) : (2006) 2 Bank CLR 123 (AP).
352 India Saree Museum v P Kapurchand, 1991 (1) BC 344 : 1989 Indlaw KAR 67.
353 Anil Kumar Jaiswal v State, 2007 CrLJ 377 All.
354 Precision Processors (India) Private Limited v Bank of India, 2016(2) CAL HCN 469 : 2016(2) ICC 192.
355 Somisetty Subbarao v Mynampati Ramakrishna Rao, AIR 2008 AP 129 .
356 Anil Kumar S v N Ramakrishna Kartha Gokulam, 2009 CrLJ 816 NOC Ker. : AIR 2009 [NOC] 1541 (Ker.).
357 Anil Kumar S (supra).
359 Surindera Steel Rolling Mills v Sh Sanjiv Kumar, 2009 CrLJ 556 NOC P&H : AIR 2009 [NOC] 958 (P&H) : (2009) 154
PLR 342 .
360 Bank of India v State, 2010 (7) AD (Delhi) 885 : 2010 (119) DRJ 401 : 2010 (4) JCC 302 (N).
361 Intech Net Ltd(M/s) v State, 2007 CrLJ 216 AP.
362 Sardar Jasvir Singh v State of Uttar Pradesh, 2007 CrLJ 2538 All.
363 Babulal Jain v Kewalchand Jain, AIR 2008 [NOC] 434 (MP).
Page 21 of 23
364 Avtar Singh v Canara Bank, AIR 2008 [NOC] 1771 (P&H).
365 Gurpal Dass v Om Prakash, 2012 Indlaw PNH 883.
366 Adigear International v State, 2016(2014) DLT 307 .
367 Currie v Misa, (1875) LR 10 Ex 153, p. 162; See also Indian Contract Act. 1872, section 2(d).
368 Chidambram v Ranga, AIR 1966 SC 193 .
369 Indian Contract Act, 1872, section 2(d).
370 Rajah of Venkatgiri v Sri Krishnayya, AIR 1948 PC 150 .
371 See Indian Contract Act, 1872, section 23.
372 Trikam Damodar v Lala Amirchand, 8 BHCR AC 131.
373 Kalikumari v Manomohinee, (1916) 43 Cal 445 .
374 Ramaswami Pandia v Anthappa Chettiar, (1907) 16 MLJ 422 .
375 Ex p Schofield, (1879) 2 Ch D 337 CA.
376 Babu Goridut v Ebrahim, (1921) 14 Bur LR 25.
377 LN Beriwala v Bharat Bank Ltd, (1951) ILR Pat 708.
378 Collins v Martin, (1797) IB&P 648; Mutha Krishna v Veeraraghava, (1915) 38 Mad 297; as to consideration for
negotiable instruments, see sections 43, 44 and 45.
379 SD Burman v K Malokar, AIR 1976 Gau 103 .
380 Poirier v Morris, (1853) E&D 89; SD Burman v K Malokar, AIR 1976 Gau 103 ; JMS Pinto v AC Rodrigues, AIR 1976
Goa 8 ; see also the Supreme Court decision in Indian Bank v K Nataraja Pillai, (1994) 79 Comp Cas 674 .
381 Daulatram v Nagindas, (1913) 15 Bom 333.
382 Milnes v Dawson, (1850) 5 Ex 948 ; Holliday v Atkinson, (1826) 5 B&C 501.
383 Sakharam v Gulabchand, (1914) 16 Bom LR 743 .
384 Indian Contract Act, 1872, section 25, Explanation II; Muthu Kurapppa v Habib, AIR 1955 Mad 43 .
385 Jones v Gordon, (1877) 2 App Cas 616 , p 631.
386 NR Thiagarajan v OV Rengaswamy Reddiar, (2000) 1 BC 136 .
387 Chapman v Cottrel, (1865) 34 LJ Ex 186 ; Smith v Miendry, (1860) 29 LJQB 172 .
388 India Saree Museum v P Kapurchand, (1992) 73 Comp Cas 375 .
389 Madhya Bharat Khadi Sangh v Bal Kishen Kapur, AIR 1979 All 253 .
390 Vishnupant Chaburao Khaire v Kailash Balbhir Madan, 2010 CrLJ 2166 Bom. : AIR 2010 [NOC] 872 (Bom).
Page 22 of 23
391 Jayaram Finance, Kancheepuram (M/s) v Jayaprakash, 2010 CrLJ 3323 (Mad.).
392 Ramanadan Chettiar v Gundu Aiyyar AIR 1928 Mad 1238 , per Phillips, J.
393 Gopalan v Lakshminarasamma, AIR 1940 Mad 631 .
394 Asirvatham v Palaniraju, AIR 1973 Mad 439 .
395 Sumani Ferro Alloys Ltd v Super Forging Steel Sales (P) Ltd,.AIR 1982 All 136 .
396 Montecchi v Shimco (UK) Ltd, (1980) 1 Lloyd’s Rep 50; Cebora SNC v SIP (Industrial Products) Ltd, (1976) 1 Lloyd’s
Rep 271.
397 Jones v Gordon, (1877) 2 App Cas 619 , p 625.
398 Swan v North British Australasian Co, (1863) 2 H&C 184; Re Gomersall, (1857) 1 Ch D 137.
399 Jones v Gordon, (1877) 2 App Cas 616, p 628.
400 Raphael v Bank of England, (1855) 17 CB 161.
401 Bank of Bengal v Fagan, (1851-54) 5 MIA 27, p 38.
402 Gill v Cubitt, (1824) 3 B&C 466.
403 Raghavji v Narandas, (1906) 8 Bom LR 921.
404 U Ponnappa Moothan & Sons v Catholic Syrian Bank Ltd, AIR 1991 SC 441, (1991) 1 SCC 113.
405 Durga Shah Mohan Lal Bankers v Governor-General-in-Council, AIR 1952 All 590.
406 Praveen Metal Agencies v M Balasubramanyam, (1995) 84 Comp Cas 782.
407 Awde v Dixon, (1851) 6 Ex 869 ; Hogarth v Latham & Co, [1878] 3 QBD 643; Ingham v Primrose, 7 CBNS 82;
Colson v Arnot, 54 New York R 253.
Page 23 of 23
408 Royal Bank of Scotland v Tottenham, [1894] 2 QB 715; Hajee Md. Haneef Saheb & Co v Abu Backer, (1956) 1 MLJ
471.
409 Sridhar Narayan Hegde etc. v Karnataka Bank Ltd, Mangalore, LNIND 2008 KANT 619 : AIR 2009 [NOC] Kar. 954.
410 Ibid; at paragraphs 15-20.
411 Raphael v Bank of England, (1855) 17 CB 161.
412 Muthia Chetty v Kasivasi Somasundara, (1911) 10 MLT 79 .
413 De la Chaumette v Bank of England, (1827) 9 B&C 208.
414 Ramiah Venkiteshiah & Co v VN Sundareswaran, (1967) Ker LJ 237 .
415 Mehrunnisa Begum v Sheik Chand Bi, (1985) 58 Comp Cas 197 .
416 Tarachand Kevalram v Sikri Brothers, (1953) 55 Bom LR 231 : AIR 1953 Bom 290 .
417 Punjab National Bank v Himgiri, (2004) 1 JCC 1 (P&H) : (2004) II BC 12 (P&H) (DB).
418 Arab Bank Ltd v Ross, [1952] 1 All ER 709 .
End of Document
[s 10] Payment in due course—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

‘Payment in due course’ means payment in accordance with the apparent tenor of the instrument in good faith
and without negligence to any person in possession thereof, under circumstances which do not afford a
reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

Page 2 of 5
This section corresponds to sections 59(1) and 90 of the Bills of Exchange Act, 1882.
[s 10.2] Payment in Due Course, Requisites
Payment, in order to operate as a discharge of a negotiable instrument, must satisfy the following conditions:
[s 10.2.1] The Payment Should be in Accordance with the Apparent Tenor of the Instrument
Only such payment which is made in accordance with the apparent tenor of the instrument is a ‘payment in due
course’. Therefore, a payment made either to a person not entitled to receive such payment on the face of the
instrument, or on a date which is not the due date on the face of the instrument is not a payment in due course.
Apparent tenor means ‘in accordance with what appears on the face of the instrument,’ i.e., the intention of the
parties. It is, therefore necessary that payment should be made at or after maturity. A payment before maturity
is not a payment according to the apparent tenor of the instrument, and is therefore not a payment in due
course. Thus, if a bill payable at a future date is paid before its maturity, the payment is not in accordance with
the apparent tenor of the instrument and consequently is not a payment in due course. A payment before
maturity may discharge the immediate parties to the transaction, but its effect on third parties is otherwise, for a
payment in due course is a payment at maturity, and not by anticipation. Thus, if an instrument is paid before
maturity and is subsequently indorsed over, it is valid in the hands of a bona fide indorsee.419
A payment by the drawee or acceptor before maturity merely operates as a purchase of the instrument and he
is not precluded from re-issuing it.420 Payment must be made by or on behalf of the drawee or acceptor.
A payment in due course should be made in money only, for the instrument is expressed to be payable in
money only. The holder is entitled to be paid in money only and no other form of payment can be substituted
except with his consent, in which case, any mode of payment may be adopted, eg, payment by cheque or
another bill.
However, in K Saraswathy v Somasundaram Chettiar,421 the question before Supreme Court was whether the
payment made by the appellant on 29 May 1980 by cheque of the amount of Rs 6,02,000 together with the
amount deposited earlier on 11 April 1980 was in due compliance of the first condition of this Court’s order
dated 29 November 1979. The High Court had held that the simple delivery of the cheque on 29 May 1980
could not be deemed to be deposit of the specified sum on 29 May 1980 when the amount of the cheque was
actually realised only on 16 June 1980. The Supreme Court referred to its earlier decision in the case of CIT v
Page 3 of 5
Ogale Glass Works Ltd, Ogale Wadi422 wherein it was laid down that payment by cheque realised
subsequently on the cheque being honoured and encashed relates back to the date of the receipt of the
cheque, and in law the date of payment is the date of delivery of the cheque. There was nothing to suggest that
the cheque was not honoured in due course and that the bank had at any time declined to honour it for want of
funds in the ordinary course. In any event, there was nothing to suggest that, under the arrangements made for
payment of the cheque, even if it had been encashed on the date it was delivered the cheque would not have
been encashed. There was no finding by the High Court that on 29 May 1980 the cheque would not have been
realised. Accordingly, the date of payment was held to be the date of payment by cheque.
[s 10.2.2] The Person to Whom Payment is Made Should be in Possession of the Instrument
A payment cannot be a payment in due course, if made without requiring production of the instrument. It is
necessary that payment should be made to a person who is in a position to give a valid discharge. Therefore,
payment must be made to the holder or some person authorised to receive payment on his behalf. Where the
instrument is payable to a particular person or order, and is not indorsed by him, payment to any person in
actual possession of such an instrument will not amount to a payment in due course. An instrument is payable
to bearer or is indorsed in blank, payment to the person in possession of the instrument, in the absence of
suspicious circumstances, is a payment in due course.
The next issue is as to who can make the payment. Any party to a bill can make the payment, and such party
acquires the right of the holder, from whom he took the instrument, against all parties prior to him. No stranger
has a right to pay a bill or note payable by another, so as to acquire the right of a holder. A stranger may,
however, pay supra protest and for honour of some party to the bill or note. A payment by a stranger has been
held to be valid satisfaction of the bill if it is made on account of the acceptor, and the acceptor either presently
agree to it or subsequently adopts it.423
[s 10.2.3] Liability of the Person making the Payment - As regards Good Faith and Negligence
If the circumstances are suspicious, the person making the payment must make inquiries, and if he pays and
neglects to make inquiries, such payment is not a payment in due course. Thus, where a bill payable to bearer
is stolen, and the thief presents it to the acceptor at maturity, and the acceptor pays it to him in good faith,
without having reason to believe that the presenter is the thief, it is a payment in due course and the acceptor is
discharged. However, payment of an instrument in effect payable to the bearer is not in due course, if the
person paying knows or has reason to believe that the instrument is a stolen one and the person demanding
payment is not entitled to receive the payment. A payment by the acceptor of a bill, after receiving orders from
the drawer to stop payment, is not a payment in due course.424
Page 4 of 5
As regards a Shah Jog hundi, payment made without inquiring about the respectability of the person presenting
it for payment, is not a payment in due course.425 Further, before making a payment on a negotiable
instrument, the person making such payment should ensure that the person presenting it for payment is the
person entitled to receive such payment thereon. Thus, if the drawee of a hundi negligently makes payment to
a wrong person, such payment is not a payment in due course, and the drawee will remain liable to pay the
lawful owner for the full amount of the hundi again.426
Payment made on a cheque with a forgery of the drawer’s signature cannot be regarded as payment in due
course.427 In reality, the position of a cheque partly written but signed by the account holder and rest filled up
by another is valid as per section 10 of the Negotiable Instruments Act, 1881.428
In Bank of Maharashtra v Automotive Engineering Co,429 the High Court had concluded that ultraviolet ray
lamp was not provided in the Thana Branch and such ultraviolet ray lamp was provided to other branches of the
said bank. The High Court was of the view that the appellant-Bank did not act with proper care and caution in
not providing necessary device for detecting forged cheques. Absence of the ultraviolet ray lamp, according to
the High Court, amounted to negligence on the part of the bank. Accordingly, the High Court was of the view
that the payment was not made in due course and the appellant-Bank was not entitled to claim relief under
section 89 of the Act. Setting aside this conclusion of the High Court, it was held by Supreme Court that the
court of appeal had categorically come to the finding that on visual examination no sign of forgery or tampering
with the writings on the cheque could be detected. There was also evidence on record which was not upset by
the court of appeal that the then agent of the bank had taken the care to verify the serial number of the cheque,
the signature on the cheque with the specimen signature of the defendant and on a scrutiny of the cheque
visually no defect could be detected by him. It also transpired from the evidence that the defendant had
sufficient amount in the bank to cover the said payment of Rs 6,500 at the relevant date when the cheque was
presented for payment. Under section 31 of the Negotiable Instruments Act, the appellant-Bank had a liability to
honour the said cheque and make payment if the cheque was otherwise in order. ‘Payment in due course’
under section 10 of the Act meant payment in accordance with the apparent tenor of the instrument in good
faith and without negligence. In the facts of the case, there was no occasion to doubt about the genuineness of
the cheque from the apparent tenor of the instrument. There was nothing on record from which it could have
been held that the payment of the said cheque was not made in good faith. Further, it was not established in
evidence that invariably the other branches of the appellant-Bank or the other commercial banks had followed a
practice of scrutinising each and every cheque under the ultraviolet ray lamp or there was any prevalent
practice to scrutinise cheques involving a particular amount under such lamp by way of extra precaution.
Page 5 of 5
419 Burbridge v Manners, (1812) 3 Camp 193.
420 Morley v Culverwell, (1840) 7 M&W 174.
421 K Saraswathy v Somasundaram Chettiar, (1989) 4 SCC 527.
422 CIT v Ogale Glass Works Ltd, Ogale Wadi, AIR 1954 SC 429 : (1955) 1 SCR 185 : (1954) 25 ITR 529.
423 Babshaw v Bush, (1851) 11 CB 191; Cook v Lister, (1863) 32 LJCP 121.
424 Lalla Mal v Keshav Dass, (1904) 26 All 495.
425 Ganesh Das v Lachmi Narayan, (1916) 18 Bom 570; Bhuputram v Hari Prio, (1901) 5 CWN 313.
426 Rai Bahadur Sahu v Charles, (1904) 8 CWN 841.
427 Allahabad Bank Ltd v Kul Bhushan, AIR 1961 Punj 571, relying on Abbu Chettiar v Hyderabad State Bank,
AIR 1954 Mad 1001.
428 C Ponnusamy v Chinnamman Constructions, 2014(4) MLJ (Crl) 225 : 2015 ALLMR (Cri) 260 (Mad).
429 Bank of Maharashtra v Automotive Engineering Co, (1993) 2 SCC 97.
End of Document
[s 11] Inland instrument—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note, bill of exchange or cheque drawn or made in 430[India] and made payable in, or drawn
upon any person resident in, 431[India] shall be deemed to be an inland instrument.432
Page 2 of 5
[s 11.2] Requisites of Inland Instruments
The liabilities of the drawer of the bill of exchange and the maker of the promissory note are to be determined
by the law of the place where the instrument is drawn or made.433 The same is applicable to the issues about
the form of the instrument and its negotiability is determined based on the place where they are drawn or made.
Thus, the determination whether the instrument is an inland as laid down in section 11 is very important. If the
instrument is covered under section 11, then the Act applies to it. The requisites of an inland instrument are:
(a) that it must be drawn and made payable in India; or
(b) that it must be drawn in India upon some person resident in India, though it may be made payable in a
foreign country.
As a promissory note is not drawn upon any person, it is necessary that an inland note should be both made
and payable in India. An inland instrument does not cease to be such because it is indorsed in a foreign country
and is in circulation there.434
In AG Kidston & Co v Seth Bros,435 it was held that a bill of exchange drawn upon a resident of India is an
inland bill irrespective of the place where it was drawn. This decision, it is submitted, does not appear correct,
but was followed in C Somayya v EV Chinniah Konar,436 where the parties to a promissory note were Indians
temporarily residing in Singapore and the note was executed there and affixed with Indian stamps.
Examples of inland bills:
(i) A bill drawn in Calcutta on a merchant in Mumbai but indorsed in Paris.
(ii) A bill drawn in Mumbai on a merchant in Chennai and accepted payable in America.
Page 3 of 5
(iii) A bill drawn in Chennai upon a merchant in Brussels and accepted payable in Mumbai.
In Pale Horse Designs v Natarajan Rathnam,437 the respondent, furnishing a local address in Chennai,
preferred three criminal complaints against the Petitioners/accused persons for alleged offences punishable
under sections 138 and 141 of the Act in respect of seven dishonoured cheques drawn on M/s Danvers
Savings Bank, One Conant Street, Danvers, MA 01923 in favour of the respondent. The cheques were
presented for collection through the banker of the respondent, namely M/s ICICI Bank Limited, Anna Nagar,
Chennai-102 and the same were dishonoured for the reason that ‘stop payment’ instructions were issued by the
drawer. The dishonour of the cheques was intimated to the accused and upon non-payment of the cheque
amount, three complaints were preferred by the complainant alleging offences punishable under sections 138
and 141 of the Act. The Metropolitan Magistrate ordered issuance of summons to the petitioners/ accused,
pursuant to which summons were served on them in the United States of America. On receipt of summons, the
accused persons invoked the inherent powers of High Court under section 482 CrPC, for quashing all the three
complaints on the grounds of jurisdiction.
It was the contention of the accused that since the cheques were issued in the United States of America, drawn
on a bank in the United States of America and made payable in the United States of America, the mere fact that
the cheques were presented in a bank in Chennai in Tamil Nadu, India for collection, shall not confer
jurisdiction on the Judicial Magistrate exercising territorial jurisdiction over the place where the collecting branch
of the bank is situated. The accused further argued that accepting the contention of the respondent court, that it
has jurisdiction over the place of the branch of the payee’s bank where the cheques were presented for
collection and that it can entertain the complaint against the drawer, when the actual place of drawal of the
cheques and the place where the cheques were made payable are situated outside the said jurisdiction, will
enable unscrupulous litigants to select a forum wherein a particular act is made punishable as an offence and
where the procedure makes it easy to recover money by resorting to criminal prosecution rather than civil
litigation. This will amount to encouraging forum shopping and also abuse of process of court.
The Madras High Court noticed the decision of the Supreme Court in the cases of Shri Ishar Alloy Steels Ltd v
Jayaswals Neco Limited438 and Harman Electronics (P) Ltd (M/s) v M/s National Panasonic India Ltd439 and
held that the place from where legal notice was issued would not by itself give rise to cause of action for
prosecution for the dishonour of the cheque under section 138 of the Negotiable Instruments Act, 1881. The
High Court further noticed that Chapter XVI of the Negotiable Instruments Act deals with - i) the law governing
the liability of maker, acceptor or indorser of foreign instruments; ii) law applicable in case of dishonour of
negotiable instruments when it is made payable in a different place from that in which it is made or endorsed; iii)
Page 4 of 5
law applicable to negotiable instruments which are made in accordance with law of India even though made out
of India and iv) presumption as to the foreign law in this regard. The High Court discussed the four sections in
Chapter XVI.
PR Shivakumar, J observed as under:
31. A combined reading of sections 1, 11, 12 and 134 to 137 of the Negotiable Instruments Act, 1881, will make it clear
that a cheque made/drawn in a foreign country on a drawee bank functioning in the foreign country and made payable
therein shall be a foreign instrument and the law of the country wherein the cheque was drawn or made payable shall
be the law governing the rights and liabilities of the parties and the dishonour of the cheque. As such the payee cannot
select a country and present it through a bank therein for collection to confer jurisdiction on a court functioning therein.
If the payee is given such a right to proceed criminally against the drawer by selecting the jurisdiction, the same will
encourage forum shopping making the payees to go to a country wherein the dishonour of the cheque is made a
criminal offence and wherein the law is more favourable to the payee enabling him to collect the amount covered by
the cheque by way of fine or compensation by resorting to criminal prosecution. A person who is not a citizen of India
for an act committed in a foreign country wherein it is not a punishable offence, cannot be prosecuted in India.
The judge went on to observe that in the present case, all the petitioners were foreign citizens and the acts
constituting the offence, i.e. issuance of cheques, dishonor of these cheques, and the failure to make the
payment after receiving the statutory notice, were all committed in USA. Hence, the petitioners/accused cannot
be tried for an offence under section 138 of the Act, in India.
On a different aspect, it was found that even the collecting branch which is situated in Anna Nagar, Chennai
does not come under the territorial jurisdiction of the IX Metropolitan Magistrate, Saidapet. It was only the
address of the complainant in the statutory notice that fell within its jurisdiction. Place of issuance of notice
cannot be the only criterion conferring jurisdiction on the court.
In conclusion it was found that the act of the respondent amounts to forum shopping as he was looking for an
easy way to recover the amount. The respondent was clearly aware that the cheques were drawn on a bank in
USA and that they were payable at Massachusetts branch, United States of America. Hence, in order to
prevent an abuse of process of court, the Court quashed the criminal proceedings against the petitioners by
exercising its inherent powers under section 482 of CrPC.
Page 5 of 5
In Trilux Technologies Singapore Pvt Ltd v Boon Technologies rep by its Manager Baskaran440 the cheques
issued by a foreign company situated in Singapore in favour of the complainant in India and drawn on a bank
situated in Singapore was construed to be an inland instrument and therefore the complaint filed before a court
in Chennai was held to be valid. In this case, the Court referred to sections 135, 136 and 137 of the Act. In a
later case, the Division Bench of the Madras High Court, referring to Trilux case, held that in case of an
instrument construed to be an inland instrument, then proceedings under the Negotiable Instrument Act can be
initiated in India.441
430 Subs. by Act 36 of 1957, section 3 and Sch. II, for “a State” (w.e.f. 17-9-1957).
431 Ibid.
432 See sections 4 and 83(4) of the Bills of Exchange Act, 1882.
433 Negotiable Instruments Act, 1881, section 134.
434 Hirschfield v Smith, (1866) LR ICP 340.
435 AG Kidston & Co v Seth Bros, (1953) ILR 57 Cal 730.
436 C Somayya v EV Chinniah Konar, AIR 1976 Mad 254 .
437 Pale Horse Designs v Natarajan Rathnam, AIR 2011 [NOC] 274 (Mad.) : AIR 2011 Mad 274 : 2011 (3) KLT (SN) 20 :
2011 (2) RCR (Civil) 785 : 2011 (2) RCR (Criminal) 672.
438 Shri Ishar Alloy Steels Ltd v Jayaswals Neco Limited, (2001) 3 SCC 609 .
439 Harman Electronics (P) Ltd (M/s) v M/s National Panasonic India Ltd, AIR 2009 SC 1168 .
440 Trilux Technologies Singapore Pvt Ltd v Boon Technologies rep. by its Manager Baskaran, [2005]123 Comp Cas 551
(Mad) : 2004(4) CTC 12 .
441 Al Rostamani International Exchange v The Official Liquidator, [2016] 199 Comp Cas 603 (Mad) : 2016(6) CTC 673 .
End of Document
[s 12] Foreign instrument—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument.
Page 2 of 3
This section corresponds to sections 4 and 83(4) of the Bills of Exchange Act, 1882.
[s 12.2] Foreign Instrument
Foreign bills of exchange are:
(a) Bills drawn outside India and made payable in or drawn upon any person resident in any country
outside India.
(b) Bills drawn outside India and made payable in, or drawn upon any person resident in, India.
(c) Bills drawn in India upon persons resident outside India and made payable outside India.
The special point to note about foreign bills is that they must be protested for dishonour if such protest is
required by the law of the place where they are drawn. However, protest in the case of inland bills is optional.
The mere fact that a bill is negotiable in the country of its issue will not make them negotiable in another
country, unless the same is negotiable by the usage of that country.442
In Pale Horse Designs v Natarajan Rathnam,443 the respondent, furnishing a local address in Chennai
preferred three criminal complaints against the Petitioners/accused persons for alleged offences punishable
under sections 138 and 141 of the Act in respect of seven dishonoured cheques drawn on M/s Danvers
Savings Bank, One Conant Street, Danvers, MA 01923 in favour of the respondent herein. The cheques were
presented for collection through the banker of the respondent, namely M/s ICICI Bank Limited, Anna Nagar,
Chennai-102 and the same were dishonoured for the reason that ‘stop payment’ instructions were issued by the
drawer. The said fact of dishonour of the cheques was intimated to the accused and upon non-payment of the
cheque amount, three complaints were preferred by the complainant alleging offences punishable under
sections 138 and 141 of the Act. The Metropolitan Magistrate ordered issuance of summons to petitioners /
accused, pursuant to which summons were served on them in the United States of America. On receipt of
summons, the accused persons invoked the inherent powers of High Court under section 482 CrPC, for
quashing all the three complaints, inter alia, on the grounds of jurisdiction.
Page 3 of 3
Relying upon the decision of Supreme Court444 the High Court noticed that Chapter XVI of the Act deals with -
(i) the law governing the liability of maker, acceptor or indorser of foreign instrument; (ii) law applicable in case
of dishonour of negotiable instruments when it is made payable in a different place from that in which it is made
or endorsed; (iii) law applicable to negotiable instruments which are made in accordance with law of India even
though made out of India and (iv) presumption as to the foreign law in this regard.
Noticing the section 12 of the Act read alongwith sections 1, 11 and 134 to 137 of the Act, it was held by the
Madras High Court that a cheque made/drawn in a foreign country on a drawee bank functioning in the foreign
country and made payable therein shall be a foreign instrument and the law of the country wherein the cheque
was drawn or made payable shall be the law governing the rights and liabilities of the parties and the dishonour
of the cheque. It was further held that the acts constituting the offence, namely issuance of the cheque, the
dishonour of the cheque, the failure to make payment of the cheque after receipt of the statutory notice were all
committed by the accused persons not in India, but in USA. Therefore, they cannot be prosecuted in India for
their actions for the offence punishable under section 138 of the Act. Accordingly, the criminal proceedings
pending were quashed by the Madras High Court for want of territorial jurisdiction.
442 Picker v London & County Banking Co, 18 QBD 515; see sections 100 and 104.
443 Pale Horse Designs v Natarajan Rathnam, AIR 2011 [NOC] 274 (Mad).
444 Shri Ishar Alloy Steels Ltd v Jayaswals Neco Limited, (2001) 3 SCC 609 and Harman Electronics (P) Ltd (M/s) v M/s
National Panasonic India Ltd, AIR 2009 SC 1168 .
End of Document
[s 13] Negotiable instrument.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

445[(1) A ‘negotiable instrument’ means a promissory note, bill of exchange or cheque payable either to
order or to bearer.
Explanation (i).—A promissory note, bill of exchange or cheque is payable to order which is
Page 2 of 9
expressed to be so payable or which is expressed to be payable to a particular person, and does

not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii).—A promissory note, bill of exchange or cheque is payable to bearer which is
expressed to be so payable or on which the only or last indorsement is an indorsement in blank.
Explanation (iii).—Where a promissory note, bill of exchange or cheque, either originally or by

indorsement, is expressed to be payable to the order of a specified person, and not to him or his
order, it is nevertheless payable to him or his order at his option.]
446[(2) A ‘negotiable instrument’ may be made payable to two or more payees jointly, or it may be made
payable in the alternative to one of two, or one or some of several payees.]
[s 13.2] Negotiable Instrument
Bills of exchange, promissory notes, and cheques are the most common examples of what are called
negotiable instruments. It is a fundamental principle of English law that no person can acquire a title to a
personal chattel from a person who is not the rightful owner, i.e., a person cannot give a better title than he
himself has; Nemo dat quod non habet. The only exception to this general rule arises by virtue of a statute or
custom prevailing among merchants. Bills, notes and cheques are made negotiable by law merchant. A
negotiable instrument can also be defined as follows:
A negotiable instrument is one the property in which is acquired by anyone who takes it bona fide, and for
value, notwithstanding any defect of title in the person from whom he took it; from which it follows that an
instrument cannot be negotiable unless it is such and in such a state that the true owner could transfer the
contract or engagement contained therein by simple delivery of the instrument.447
A negotiable instrument differs from ordinary chattels in the following three important aspects:
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(a) The property in it, i.e., the complete right of ownership, passes by delivery and not merely the
possession, i.e., the right to retain it as against anyone except the true owner.
(b) The holder in due course is not in any way affected by any defect of title of his transferor or of any prior
party.
(c) The holder in due course can sue upon it in his own name.
In order to be valid, a bill, note or cheque need not be ‘negotiable’, because, under the Act non-negotiable
notes, bills or cheques fall within the definition contained in sections 4 and 5, and are subject to all provisions of
the Act except those which relate to instruments which are negotiable. According to the Act, an instrument to be
negotiable must be payable in any one of the following five forms:
(i) ‘...to X.’
(ii) ‘...to X or order.’
(iii) ‘...to the order of X.’
(iv) ‘...to bearer.’
(v) ‘...to X or bearer.’
[s 13.2.1] Significance of Words ‘Payable’ and ‘Order’
Prior to the passing of the Negotiable Instruments (Amendment) Act 8 of 1919, it was held in India that a bill or
note drawn payable to a specified person, without words authorising transfer, as not negotiable.448 Therefore,
in India, an instrument drawn payable to a specified person, e.g. ‘pay AB’, would not be negotiable. Under the
old law, therefore, in order to make an instrument negotiable, it was necessary to add the words ‘...or order’ or
‘...or bearer’, to the name of the payee. Even so, the mercantile community as well as banks dealt with cheques
payable without the addition of the words ‘or order’ or ‘or bearer’ as payable to the named payee or his order.
The Bombay High Court in Dossabhai v Virchand,449 (confirmed on appeal) held that a cheque having the
word ‘bearer’ struck out, without substitution of the word ‘order’ is not negotiable within the meaning of the Act,
Page 4 of 9
and that the custom of trade which existed in the Bombay market, whereby such a cheque was regarded as an
order cheque and negotiable, extended the definition of the phrase negotiable instrument contained in section
13 of the Act and, therefore, no legal recognition could be given to it. This decision caused a great deal of
confusion in commercial circles.
This brings the law in conformity with the prevailing custom, and to set right the difficulty created by the decision
of the Bombay High Court, the Negotiable Instruments (Amendment) Act was passed in 1919. The amendment
is incorporated in explanation (i) of the Act. Thus, where an instrument is made payable to a particular person
and does not contain any words prohibiting transfer or indicating an intention that it should not be transferable,
it should be deemed to be an instrument, payable to ‘order’ and negotiable. The result of the amendment is
that, the word order or bearer is no longer necessary to render a bill, note or cheque negotiable. Also the mere
scoring off of the words ‘...or bearer’ appearing on a cheque does not take away its negotiability. To deprive it of
negotiability, there should be an express prohibition of transfer or an indication that the cheque is not
negotiable.450 For instance:
(i) A bill or cheque is drawn in the form ‘Pay C one hundred rupees’. This, in legal effect, is a bill or
cheque payable to C or order and is a negotiable instrument.451
(ii) A note is made in the form ‘I promise to pay Rs 500 to B only’. The note is not negotiable.
When a bill, note or cheque contains words prohibiting transfer or indicating an intention to make it non-
transferable, it is valid as between the parties thereto, though it is not a negotiable instrument.
[s 13.2.2] Meaning of ‘Payable to Bearer’
The word ‘bearer’ is not defined by the Act, but it refers to the person in possession of a bill or note payable to
bearer. By virtue of explanation (ii) of the Act, a bill, note or cheque is payable to bearer, when expressed to be
so payable or when the only or last indorsement on it, is an indorsement in blank. Where a payee indorses in
blank, a cheque payable to order, the cheque becomes payable to bearer within the meaning of explanation (ii).
For instance:
Page 5 of 9
(i) A promissory note in the form ‘...three months after date I promise to pay bearer’ is payable to bearer.
(ii) A bill payable ‘...to AB or bearer’ is payable to bearer.
(iii) A bill is made payable to ‘William Smith or order’. William Smith indorses it in blank and negotiates it.
The bill is payable to bearer.
Where a self cheque was returned for insufficient funds, a plea was raised on behalf of the accused that it does
not attract the offence under section 138 of Negotiable Instruments Act. It was held by Andhra Pradesh High
Court that once the issuance of the cheques is admitted and as the words ‘or bearer’ have not been struck-off,
the complainant is the holder of the said cheques in due course though it was written as ‘self’ and thus he is
entitled to receive the cash and on dishonouring of the said cheques, he can very well file the complaint.452
In M Nyamathulla v A Chitharanjan Reddy,453 a reference was made to the Division Bench of the Andhra
Pradesh High Court as to ‘Whether an instrument to be a promissory note, requires a recital which conjunctively
incorporates a promise to pay not only a certain person, but also to the order of a certain person and to the
bearer of the instrument, as well’. While making reference, the learned Single Judge had doubted the
correctness of the decision rendered by another learned single Judge of this Court as to the reading of the
proposition of law laid down by the Full Bench.454 In this case, A Chitharanjan Reddy, the respondent had filed
a suit for recovery of an amount of Rs 6,90,000 on an instrument dated 3 February 2002 executed by the
petitioner. The instrument read as, ‘Today 03.02.2002 I, Md. Nyamatullah s/o MA Jabbar Sab, Hasnabad,
Hindupur. I, promise to pay A Chittaranjan Reddy, s/o A Kesava Reddy, Hindupur. To pay Rs 6, 90, 000
(Rupees six lakhs ninety thousands only). This amount will be paid on or before March, 2002.’
The instrument was signed by the respondent and duly witnessed. During trial, the plaintiff sought to mark the
instrument as Ex.A1. The defendant raised objection to the admission of the instrument on the ground that it
does not constitute a promissory note. The Court below overruled the objection and permitted the plaintiff to
mark the instrument as Ex.A1. Hence, the defendant filed this revision. While dealing with the definition of
‘promissory note’ as prescribed in section 4 of the Negotiable Instruments Act, the Division Bench held as
under:
12. The sentence in the definition of ‘promissory note’ i.e., to pay a certain sum of money only to, or to the order of’ is
read to be one sub-clause. The clear intention of the legislative [sic] is the unconditional undertaking is [sic] to pay a
certain sum of money only to or to the order of. The sentence cannot be split into two and read that the unconditional
Page 6 of 9
undertaking may be either to the person in the name therein or to the order. If the clause is split into two, it produces
unintelligible and incongruous result. The comma succeeding and preceding the word ‘to the order of indicates that a
certain sum of money must be paid to or to the order of. If that reading is not permissible, there would not have been
any difference between a bond and a promissory note.
It was further held by the Division Bench as under:
15. The principle ingredient, which makes a difference lot between the bond and the promissory note, is that if the
instrument is an unconditional undertaking to pay or to the order of a certain person, it is to be classified as a
promissory note. The learned single Judge of this Court in Kotla Sudheer Kumar v Mallavarapu Jojayya @ Jojaiah
Chowdary455 has dealt with the definition of ‘promissory note’ and ‘bond’ very exhaustively and came to the
conclusion that all the ingredients stated above are required to be satisfied to classify an instrument as a promissory
note. We approve the view taken by the learned single Judge of this Court in Kotla Sudheer Kumar v Mallavarapu
Jojayya @ Jojaiah Chowdary.456
16. Accordingly, the reference is answered as follows:
An instrument to be a promissory note, must necessarily contain the words ‘to the bearer, or to the order’. In a
way these two words i.e., ‘to the bearer, or to the order’ are to be read conjunctively and not disjunctively.
[s 13.2.3] Meaning of ‘Payable to Order’
Explanation (iii) of the Act is declaratory.457 It lays down that a bill ‘payable to the order of X’ is in legal effect
payable to X or order, so that X can demand payment without giving a responsible indorsement, but if X orders
it to be paid to any other person, he must indorse it. X, of course, is bond to give a receipt to the same extent as
any other person who receives payment of money.
[s 13.3] Negotiable Instrument by Usage or Custom

Page 7 of 9
Negotiability is a creation of mercantile custom, which therefore became part of the law merchant. The test of
negotiability is thus stated by Blackburn J:
It may, therefore, be laid down as a safe rule that where an instrument is by the custom of trade transferable like cash,
by delivery, and is also capable of being sued upon by the person holding it pro tempore, then it is entitled to the name
of a ‘negotiable instrument’ and the property in it passes to a bona fide transferee for value, though the transfer may
not have taken place in market overt.458
The character of negotiability has been acquired by certain documents by custom. Thus, in England, exchequer
bills, dividend warrants, circular notes, share warrants, scrip certificates, debenture bonds of companies, and
bonds of foreign and colonial governments have been held to be negotiable by custom.459 In the case of
foreign instruments, however, the mere fact that they are negotiable in the country in which they were issued
will not make them negotiable in England, unless they are negotiable by the usage of England.460 It is
presumed, therefore, that the list of negotiable instruments is not closed.
The Act mentions three kinds of negotiable instruments only, namely, bills, notes and cheques. However, the
fact that instruments other than these are not referred to in section 13 does not imply that there cannot be
negotiable instruments other than those enumerated in the section. Usage may endow other instruments with
incidents of negotiability, and the Indian legislature has indicated that courts in India may follow the practice of
English courts in extending the character of negotiability to other instruments. Section 137 of the Transfer of
Property Act, 1882 recognises the negotiability of instruments ‘by law or custom’. Thus, in India, government
promissory notes, Shah Jog hundis,461 and delivery orders for goods have been held to be negotiable by
usage or custom.462
A customer may authorise his banker to make payment from his account by instruments which are not
cheques. These may be valid orders, but they will not have the characteristics of negotiable instruments.463
It is well settled that a bill of lading is negotiable although it is not a negotiable instrument in the strict sense of
the term. There is conflicting judicial opinion on the question whether a railway receipt is negotiable.464
Page 8 of 9
A share certificate is not a negotiable instrument.465 A commercial letter of credit is not negotiable, but the
benefit of the credit is negotiable. The credit itself may be assigned or transferred with the beneficiary’s
consent. The benefit under a letter of credit has been held to be a chose in action.466
[s 13.4] Government Promissory Notes
Government promissory notes come within the definition of the section, and considering the provisions of
section 6 of the Indian Securities Act, 1886, it appears that the Act is intended to apply to government
promissory notes.467 They can be transferred by indorsement, and need not be assigned as ordinary choses in
action.
445 Subs. by Act 8 of 1919, section 3 for sub-section (1).
446 Ins. by Act 5 of 1914, section 2.
447 Willis, The Law of Negotiable Securities, p 6.
448 Jetha Parkha v Ramchandra, 16 Bom 689.
449 Dossabhai v Virchand, (1919) 21 Bom LR 1.
450 Muthoottu Chitty Fund v VC Lukose, (1992) 73 Comp Cas 414; M George & Bros v KC Cherian, (1990) 68 Comp Cas
188.
451 AK Hameed Haji v Appukutty, AIR 1969 Ker 189 ; Jagjivandas Bhikhabai v Gumanbhai Narottamdas, AIR 1967 Guj 1 ,
where the maker of note undertook to pay ‘...whenever you demand’.
452 Intech (M/s) Net Ltd v State., 2007 CrLJ 216 AP.
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454 Bolisetti Bhavannarayana @ Venkata Bhavannarayana v Kommuri Vullakki Cloth Merchant Firm, Tenali, 1996 (2) ALD
424 (FB).
455 Kotla Sudheer Kumar (supra).
456 Kotla Sudheer Kumar (supra).
457 Smith v M’Clure, (1804) 5 East 476; Harvey v Cane, (1876) 34 LTNS 64.
458 Crouch v The Crdit Foncier Co, (1873) LR 8 QB 374, p 381.
459 Brandao v Barnett, (1846) 12 CI & F 787; Gorgier v Mieville, (1824) 3 B&C 45; London Joint Stock Bank v Simmons,
[1892] AC 201 ; Bechuanaland Exploration Co v London Trading Bank, [1898] 2 QB 658 ; Goodwin v Robarts, LR 10
Ex 337.
460 Picker v London and County Banking Co, [1887] 18 QBD 515 .
461 Means a hundi which is payable only to a respectable holder; it is a negotiable instrument which does not fall within the
technical definition as defined in the Act.
462 Bank of Bengal v McLeod, (1851–1854) 5 MIA 1; Kanniyalal v Balaram, 31 MTT 248; Anglo-India Jute Mills Co v
Omada Mull, (1928) 38 Cal 127 ; Ameerchand & Co v Ramdas, (1914) 16 Bom LR 525 .
463 James Mc Loughlin, Introduction to Negotiable Instruments, 1975 edition, p 130; relied upon in Vinod Baid v SGK
Oriental Degree College, (2003) 3 Bank CLR 601 (AP).
464 Ibrahim Isaphai v UOI, AIR 1996 Guj 6 ; Morvi Mercantile Bank Ltd v UOI, (1965) 35 Comp Cas 629 .
465 Praga Tools Corpn. Ltd v Patny, AIR 1968 AP 320 .
466 Trans Trust SPRL v Danubian Trading Co Ltd, [1952] 1 All ER 970 ; Joseph Pyke & Son v Kedarnath, AIR 1959 Cal
329 ; United Bank of India v Nederlandsche Standard Bank, AIR 1962 Cal 325 .
467 Hunsraj v Ruttonji, 24 Bom 65; Bank of Bengal v McLeod, (1851–1854) 5 MIA 1.
End of Document
[s 14] Negotiation.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that
person the holder thereof, the instrument is said to be negotiated.
Page 2 of 5
[s 14.2] Transfer of a Negotiable Instrument
A negotiable instrument may be transferred from one person to another in two ways:
(1) By negotiation under the Act (sections 14, 46, 47, 48).
(2) By assignment of the instrument as an ordinary chose in action under the Transfer of Property Act
1882, chapter VIII, section 130.
[s 14.2.1] Transfer by Negotiation
Transfer by negotiation is the only mode of transfer recognised by the Act. An instrument is considered to be
negotiated from one person to another when the transferee is constituted the holder. The holder of an
instrument is one who is entitled in his own name to the possession of the instrument and to recover the
amount due thereon from the parties thereto. It has been held that the delivery of cheque to the original payee
is not negotiation.468
To constitute the transferee the holder of the instrument, the provisions of the Act with regard to the mode of
transfer must be followed. These provisions are found in sections 47 and 48 of the Act. The transfer of a
negotiable instrument payable to bearer can be effected by mere delivery, but if it is payable to order it can only
be negotiated by indorsement and delivery.469
Thus, a promissory note payable to the order of the payee can be negotiated by indorsement and delivery, and
if such note be assigned without indorsement the assignee cannot sue on the note as such.470 Similarly, a
promissory note payable to order cannot, without indorsement, be negotiated by the mere execution of a deed
of assignment.471
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[s 14.2.2] Transfer as Chose in Action
Bills, notes and cheques are chooses in action, and such have been held to be assignable without indorsement.
The Act leaves untouched the principles of the general law which apply to the transfer of chooses in action.
Thus, notes, bills and cheques may be assigned by instruments in writing and without any indorsement.
However, by such an assignment, the assignee only acquires the rights of his assignor and no more.472 The
essential difference between transfer by negotiation and transfer as a chose in action lies in the fact that in the
latter case, the assignee does not acquire the rights of a holder in due course, but only the right, title and
interest of his assignor; whereas in the former case, the transferee may become a holder in due course.473
Every transfer of instrument which is not expressly prohibited by words appearing on its face may be
negotiated. When inspite of such words a bill is indorsed, the indorser is liable to the indorsee on his
indorsement, for he is virtually the drawer of a new bill.474
A non-negotiable bill, note or cheque, cannot be assigned by mere indorsement or by mere delivery, but if its
transferability is not expressly prohibited by its terms, it may be assigned as a chose in action or an actionable
claim by a separate instrument in writing under the provisions of the Transfer of Property Act, 1882. An
assignee of such an instrument claiming under a mere indorsement cannot maintain a suit upon it.475 An oral
assignment of a promissory note is not a valid assignment under section 130 of the Transfer of Property Act,
1882.476
A promissory note was allotted, in partition proceedings, to the share of the payee’s father. The payee did not
indorse it in favour of his father. The father brought a suit on the note, impleading the son as a defendant. It
was held that there was no assignment of the note by operation of law.477
If a person hands over a negotiable instrument to an agent for safe custody, it is not negotiation as defined by
the section. There must be a transfer, and the transfer should be such as to constitute the transferee a holder
under section 8 of the Act.478
In a case relating to a negotiable instrument drawn in India, to which the Act applied, it was held that though the
word issue is not defined in the Act, (section 2 of the Bills of Exchange Act 1882, defines issue as the first
delivery of a bill or note, complete in form, to a person who takes it as a holder) the definition of negotiation in
Page 4 of 5
the section makes the payee a holder by negotiation and, therefore, a cheque delivered to the payee was
issued and that he was a holder.479
[s 14.3] Differences Between Assignability and Negotiability
The differences are as follows:
(i) Consideration is presumed to have been given for a negotiable instrument until the contrary is proved.
In the case of assignment of ordinary choses in action, consideration must be proved as in the case of
any ordinary contract.
(ii) Notice of transfer of negotiable instruments is not necessary, whereas notice of the assignment of
choses in action must be given by the assignee to the debtor.
(iii) The assignee of a chose in action takes it subject to the defences and equities between the assignor
and the original debtor, even though he took the assignment in good faith and for value. However, the
holder in due course of a negotiable instrument takes it free from any defect in the title of his transferor,
and thus at times, may acquire a better title.
While discussing section 130 of the Transfer of Property Act, 1882, which provides that an actionable claim
may be assigned for value, it has been held by the Supreme Court that negotiable instruments, another species
of actionable claim, are transferable under section 14 of the Negotiable Instruments Act, 1881. It was
accordingly held that transferability is not the point of distinction between actionable claims and other goods
which can be sold. The distinction lies in the definition of actionable claim. Therefore, if a claim to the beneficial
interest in movable property not in the vendee’s possession is transferred, it was held to be not a sale of goods
for the purposes of the sales tax laws.480
468 RE Jones Ltd v Waring and Gillow Ltd, [1926] AC 670, pp 680, 687, 695 (HL).
Page 5 of 5
469 See the Negotiable Instruments Act, 1882, sections 46, 47, 48.
470 Arunachalla Reddi v Subba Reddi, (1907) 17 MLJ 393.
471 Abbey Chetti v Ramchandra Row, (1894) ILR 17 Mad 461.
472 Subba Narayana v Ramaswami Aiyar, (1905) ILR 28 Mad 244.
473 Mohammad v Rango Rao, (1905) ILR 24 Mad 654.
474 Gwinnell v Herbert, (1836) 6 Nev & MKB 723; Plimley v Westley, (1835) 2 Bing NC 249.
475 Parfitt v Chainsekh, 144 PR 1906.
476 M Rama Kotatih v M Seshama, AIR 1971 AP 315.
477 Virappa v Katti, (1934) 36 BLR 807.
478 Parsotam v Bankey Lal, (1935) All 1041.
479 Lloyds Bank Ltd v Chartered Bank of India, [1929] 1 KB 40, p 57.
480 Sunrise Associates v Govt. of NCT of Delhi, (2006) 5 SCC 603 .
End of Document
[s 15] Indorsement—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When the maker or the holder of a negotiable instrument signs the same, otherwise than as such maker, for the
purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the
same purpose a stamped paper intended to be completed as the negotiable instrument, he is said to indorse
the same, and is called the ‘indorser’.
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This section corresponds to sections 2, 32(1) and 56 of the Bills of Exchange Act, 1882.
[s 15.2] Indorsement
Section 15 contemplates that a promissory note, bill of exchange or a cheque can be negotiated or transferred
by making an endorsement either on the instrument or on a separate paper annexed thereto.481
Indorsement ordinarily means anything written or printed upon the back of a deed or writing. The indorsement
of a bill of exchange, promissory note, or cheque means the writing of a person’s name, usually on the back of
the instrument, for the purpose of negotiation. No particular form of words is necessary for an indorsement.482
The indorsement must be written on the instrument and must be signed by the indorser. The simple signature
of the indorser without any additional words is sufficient. However, in order that the signature may operate as a
transfer of the instrument, the signature must be on the instrument or on a slip of paper annexed to it.
The ‘indorsement’ in its literal sense imports writing on the back of an instrument but in this technical sense it is
applicable to negotiable papers, and it means writing of one’s name on the back thereof with the intent to
transfer therein.483
For an indorsement to bind the payee or holder of a promissory note, it must be made either by the payee or
the holder himself or by a duly authorised agent acting in his name under section 27 of the Act.484An
indorsement on the face of an instrument is valid.485 The signature, placed on the back of a negotiable
instrument of a person, who is neither the maker not the holder thereof, does not amount to an indorsement
within the meaning of the section.486
Where the words made over or the word assign are used, the intention of the parties has to be looked into, i.e.,
whether the parties wanted to have an indorsement of the promissory note, and not an assignment thereof. If
an indorsement contains words equivalent to a direction to pay, though these may not be the actual words
connecting the directions, it would amount to a direction to pay and would be an indorsement.487
Page 3 of 9
An express promise in writing to indorse a bill is not an indorsement.488 Similarly, the assignment of a note by
a separate writing is not an indorsement.489
Where A gave a bankrupt person, (before his bankruptcy) cash for a bill, but the bankrupt refused to indorse it,
thinking it better without his name, and afterwards, on dishonour of the bill, proved the amount under the
commission, the Lord Chancellor ordered the debt to be expunged, observing that this was a sale of the bill.490
It is not necessary to use any particular form of words. Thus, where a promissory note bore on it the words ‘I
have received this day from you the sum of Rs X due for the principal and interest and assigned this note to you
with power to recover the amount due under it by showing the same,’ it was held to be a valid indorsement.491
In Mangati Ganta Avadhani v Kopuri Sreenivasa Rao,492 the complaint under section 138 of the Act was filed
on the allegations that the accused borrowed an amount of Rs 4,20,000 from the complainant for the purpose
of business and discharge of sundry debts. The accused executed three different promissory notes agreeing to
pay the said amount with interest at the rate of 24% per annum. The complainant made several demands, but
the accused failed to repay the entire amount and ultimately issued a cheque towards part payment of the debt
due under the promissory notes. On 16 August 2003 the accused paid an amount of Rs 5,000 towards part
payments of the said three promissory notes and the same were endorsed on the promissory notes separately.
The complainant presented the cheque issued by the accused for collection but it bounced due to insufficiency
of funds in the account. Upon issuance of notice, the accused gave reply with false allegations, but failed to
repay the amount, upon which the complaint was filed.
After completing the examination of complainant, the accused filed a Criminal Petition under section 482 of
CrPC contending that the cheque is materially altered and it was endorsed on the cheque ‘sans recourse’ i.e.,
without recourse and the cheque was obtained by the complainant in due course with a specific understanding
that complainant will not have the recourse. Therefore, it was urged by accused that the complainant is not
entitled to file a complaint and the trial court ought to have rejected the same. It is further contended that as the
cheque itself speaks that the payee will not have recourse to file the complaint, taking cognizance of the
complaint is barred and the proceedings against the accused are liable to be quashed.
The Andhra Pradesh High Court held that from a reading of section 52 in the light of section 15 and section
Page 4 of 9
123, it can be said that making of some endorsement by accused himself on the cheque does not exonerate
him from the penal provision under the statute which is further clear from illustration (b) of section 52 of the Act.
When once the cheque is dishonoured, the endorsement on the cheque which was made by the accused
without knowledge of the complainant and in the absence of mentioning the said fact in reply notice given by
the accused to complainant, the prosecution cannot be quashed exonerating the accused from liability under
section 138 of the Act. The High Court further held that the object of the Act is to prevent debtors from issuing
of cheques without sufficient money to their accounts and making the creditors to believe that they have money
in the accounts. In such a case, the accused having given the cheque in favour of complainant for discharge of
the part of the debt cannot escape from the liability under section 138 of the Act. Whether there is any
enforceable debt, whether the accused gave the cheque for discharge of such debt and whether there was any
material alteration in the cheque are the question to be considered during the course of trial of the case.
Accordingly, it was held that there are no grounds to quash the impugned proceedings and the Criminal Petition
was dismissed.
If a payee intending to complete a bill already indorsed by a third person, places his indorsement inadvertently
below the indorsement already on the bill, his inadvertence does not nullify the intention of the parties or alter
the rights which they would have had otherwise. Similarly, in completing the bill, the drawer may inadvertently
place his own indorsement below that of the third person. In this case, the order in which indorsements appear
is disregarded and the drawer is entitled to enforce the bill in accordance with the intention of the parties.493
As there is no legal limit to the number of indorsements that may be written on an instrument, it may happen
that there is no room left to write them all on the back of the instrument. In such a case, a slip of paper is
annexed to it on which all the extra indorsements may be written. The slip of paper is called an ‘allonge’.494 It
becomes a part of the bill, and indorsements may be written on it.495
In Joseph Sartho v G Gopinathan,496 the accused had issued a cheque for an amount of Rs 4,61,400 in favour
of appellant towards discharge in full of a debt due to him. Thereafter, the 1st respondent paid an amount of Rs
2,26,400, as part payment towards the amount due under the aforementioned cheque. The balance amount
due to appellant was only Rs 2,35,000. Since the said balance amount was not paid, the appellant, without
making any endorsement regarding receipt of the said amount on the cheque, presented the cheque for
collection, claiming the entire amount shown in it. But, the cheque was returned dishonoured for insufficiency of
funds in the account of the accused. After notice, the appellant preferred a complaint under section 138 of the
Act. On summons, the accused appeared and pleaded not guilty. After trial, the trial court concluded that since
the cheque presented was not for the amount due from accused, no offence was made out under section 138
of the Act and hence, the accused was acquitted.
Page 5 of 9
At the time of hearing of the appeal before Single Judge, the appellant relied on the decision of Single Judge of
same High Court.497 In that case, part payment was made towards the amount due under the cheque. When
the cheque was dishonoured, it was held that the offence under section 138 of the Act was made out.498 On
the other hand, the defence relied on another decision Single Judge of same High Court,499 in which, where
the amount represented by the cheque was larger than the amount due from the drawer, a contrary view was
taken. In view of the apparent conflict of opinion, the Single Judge referred this case for decision by Division
Bench.
The Division Bench held that in view of section 56 of the Act, the appellant could have claimed only the balance
amount due under the cheque. The above section envisages any number of endorsements on the reverse of
the cheque and if there is not sufficient space to make further endorsements, a slip of paper can be annexed to
it, recognised under section 15 of the Act, to get over the said difficulty, which is called ‘allonge’ in banking
circles, which is thus described by Couch, C.J. as, ‘an allonge is a slip of paper annexed to a bill upon which,
there being no legal limit to the number of indorsements, when there is no room to write them all distinctly on
the back of the bill, the supernumerary indorsements may be written. It is annexed by the holder in order that he
may write the indorsement and they do not require fresh stamps’.
[s 15.3] Delivery
The indorsement of a promissory note, bill of exchange or cheque is completed only by delivery, actual or
constructive, made by the indorser, or by his duly constituted agent, with the intention of passing the property
therein.500 Until delivery of the instrument, the contract of the indorser on the bill or note is incomplete and may
be revoked at any time.501 In the words of Maule J:
The liability of an indorser to his immediate indorsee arises out of the contract between them; and this contract in no
case consists exclusively in the writing popularly called an indorsement, which is indeed necessary for the contract in
question; but that contract arises out of the written indorsement itself, the delivery of the bill to the indorsee and the
intention with which the delivery was made an accepted as evinced by words, spoken or written by the parties, and the
circumstances, such as the usage of the place, the course of dealing between the parties and their respective situation,
under which the dealing took place.502
Page 6 of 9
[s 15.4] Who may Indorse
The answer to this question can be found in section 15 read with sections 8 and 51. Under section 15,
indorsement can be made by the holder of a negotiable instrument or the maker signing it otherwise than as
such maker. Section 51 provides that every sole maker, drawer, payee or indorsee, or all of several joint
makers, drawers, payees or indorsees of a negotiable instrument may indorse and negotiate it.
A payee or indorsee may indorse an instrument only if he is the holder. For an indorsement to bind the payee or
the holder of a promissory note, it must be made either by the payee or the holder himself or by a duly
authorised agent acting in his name.503
By virtue of section 8, the payee of an instrument can be the holder, and so he may indorse it. The present
section, while it mentions indorsements by the maker or holder of a negotiable instrument, does not provide for
indorsements by the drawer of a bill when it is drawn payable to drawer’s order. In such a case, the drawer
being in lawful possession of the instrument may indorse it.504
If a bill or note is made payable to the drawer’s or the maker’s order, in order to negotiate the instrument, the
drawer or the maker should indorse it. However, in indorsing such an instrument, the maker is acting neither as
the maker nor as a holder, but in a different capacity. He merely indorses the instrument as a person in lawful
possession of the instrument.505 The payee of a promissory note may indorse it in his own favour, or two joint
payees may indorse it in favour of either of them.506
Under English law, a person who signs a negotiable instrument incurs the liabilities of an indorser to a holder in
due course, even if he is a stranger to it.507 A third person, signing a bill, usually places his signature upon the
back of it. Hence, he is said to back the bill (and he is called the backer) and his signature is commonly called
an indorsement. The object of backing a bill is to increase its value by reason of the additional credit derived
from the signature of the third person. This presupposes that the third person, by his signature, has made
himself liable upon the bill. This is the case where the bill has been discounted and the bill is in the hands of a
holder in due course. The third person comes under an obligation to all subsequent holders in a way precisely
similar to that of the drawer. The indorsement, however, does not impose the same obligation in the case of
prior parties.508
Page 7 of 9
The backer of the instrument would be liable to the parties, if that is the intention of the parties to the
transaction.509
(i) C undertakes to guarantee a debt from B to A. B signs a blank acceptance, and C adds his signature
as indorser. The document is handed to A, who fills it up as a bill payable to the drawer’s order,
inserting his own name as drawer. C, though an indorser, is liable to A, the drawer of the bill.510
(ii) A sells goods to B, and draws on him a bill payable to his own order. Before the goods are delivered C
indorses the bill to guarantee B. B accepts the bill, and C hands back the bill to A. A completes the bill
by making it payable to himself. If the bill is dishonoured, A can recover from C, the indorser, although
he can only so recover on a variation of the written agreement, since an indorser is not liable to the
drawer or payee, but vice versa.511
Under the section, a stranger cannot indorse a negotiable instrument. If, however, a person who is neither the
maker nor the holder of an instrument backs it with his signature, he neither becomes an indorser, nor incurs
the liabilities of such a person. However, such a person may be held liable as a surety, if he intends to
guarantee payment. If an instrument is indorsed by a stranger, no suit can be maintained thereon by him as the
indorsement is not by a holder.512
When, in a bill payable to order the payee or indorsee is wrongly designated, or his name is misspelt, he may
indorse the bill as therein described, adding if he thinks fit, his proper signature.513 Mrs W Brown is legally a
misnomer of the wife of W Brown, and if her name is Sarah, her proper signature ought to be Sarah Brown.
481 M Ethirajulu v Rangam Adinarayana, (2005) 2 JCC (NI) 166 (AP) : (2006) 2 Bank CLR 123 (AP).
482 Sivarama Krishna v Moideen, (1910) ILR 33 Mad 34.
483 Precision Processors (India) Private Limited v Bank of India, 2016(2) Cal HCN 469 : 2016(2) ICC 192.
Page 8 of 9
484 Rai Ram Kishore v Ram Prasad Mishir, AIR 1952 All 245 ; Punjab National Bank v Britannia Industries Ltd, (2001) 2
BC 707 DB.
485 Young v Clover, (1857) 3 Tar NSQB 637; Ex p Yates, (1858) 2 De G&J 191; Ramanlal v Haran Chandra, 3 BLR OCJ
130.
486 Thakursey v Kishen Das, (1922) 67 IC 282 .
487 Murugan v Ramaswami, AIR 1955 Mad 53 .
488 Harrop v Fisher, (1861) 10 CBNS 204 ; Rose v Sims, (1830) IB & Ad 521.
489 Re Barrington, (1804) Scho & Lef 122.
490 Ex p Shuttleworth, (1797) 3 Ves 368.
491 Sivaramakrishna v Moideen, (1910) 33 Mad 34.
492 Mangati Ganta Avadhani v Kopuri Sreenivasa Rao, 2007 CrLJ 2901 AP.
493 National Sales Corpn. v Bernadi, [1931] 2 KB 188 .
494 Allonges are found in countries where the Geneva Convention No. 3313 of 7 June 1930 has been adopted.
495 Manmohinee v Secretary of State for India, 13 BLR 359, p 373.
496 Joseph Sartho v G Gopinathan, 2009 CrLJ 367 NOC Ker. [DB].
497 P Gopikuttan Pillai v Sankara Narayanan Nair, (2004) 1 DCR 222.
498 Same view was also taken in Thekkan & Co v Anitha, 2003 (3) KLT 870 .
499 Supply House v Ullas, 2006 (3) KLT 921 .
500 Denton v Peters, (1870) LR 5 QB 475.
501 Brind v Hampshire, (1836) 1 M&W 365, p 373.
502 Castrinque v Buttingieg, (1865) 10 Moo 95, p 108 (PC).
503 Ram Kishore v Ram Prasad, AIR 1952 All 245 (FB).
504 See explanation to section 51.
505 Ibid.
506 Muhammad v Rango Rao, (1901) 24 Mad 654.
507 See Bills of Exchange Act, 1882, section 56.
508 Steele v Mckinley, (1880) 5 App Cas 772 , p. 782.
509 McDonald (Gerald) & Co v Nash & Co, [1924] AC 625 .

Page 9 of 9
510 Re Gooch, [1921] 2 KB 593 .
511 McDonald (Gerald) & Co v Nash & Co, [1924] AC 625 .
512 K Naidu v Muttiah Chetty, (1918) 45 IC 186 .
513 Willis v Barret, (1816) 2 Stark 26; Leonard v Wilson, (1834) 2 Cr & M 489.
End of Document
[s 16] Indorsement ‘in blank’ and ‘in full’, ‘Indorsee’—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

514[(1) If the indorser signs his name only the indorsement is said to be ‘in blank’ and if he adds a direction
to pay the amount mentioned in the instrument to, or to the order of, a specified person, the
indorsement is said to be ‘in full’, and the person so specified is called the ‘indorsee’ of the instrument.
515[(2) The provisions of this Act relating to a payee shall apply with the necessary modifications to an
indorsee.]
Page 2 of 4
[s 16.1] Indorsement in Blank and Full
An indorsement in blank, also known as a general indorsement, specifies no indorsee. It consists of the bare
signature of the indorser, and a bill so indorsed becomes payable to bearer. A bill is payable to the order of
Jonathan Jones. Jonathan Jones signs on the back of the bill thus: ‘Jonathan Jones’. This is an indorsement in
blank. In such a case, so long as the indorsement continues in blank, the property in the instrument is payable
to bearer. For, there is no difference between a note indorsed in blank and one payable to bearer. They both go
by delivery and possession proves property in both cases.516
An indorsement in full, also known as a ‘special indorsement’ specifies, in addition to the signature of the
indorser, the person to whom or to whose order, the instrument is payable. Thus, an indorsement, ‘Pay
Jonathan Jones or order or Pay to Jones’ followed in each case by the signature of the indorser, is an
indorsement in full. No specific form of words is necessary for an indorsement in full, and it is sufficient if the
words contain a direction of the nature contemplated by the section.
An indorsement in blank can be converted by the transferee into an indorsement in full in his favour.517
In Hitenbhai Parekh, Proprietor v State of Gujarat,518 the complainant and the accused person had business
relations in which pharmaceutical raw materials were supplied by the appellant and a cheque was given by the
respondent which was dishonoured by the bank for insufficient funds. After notice and upon non-compliance
thereof, the complaint was filed. The defence of the accused in reply to the statutory notice consisted of denial
of issuance of cheque and misuse of the cheque, besides the contention that the goods sold and supplied to
her firm were returned and that there were other disputes. During trial, no witness was examined in defence,
and the accused relied upon the delivery challan under which the goods were sent back through a transporter
to the complainant. The accused also relied upon the statements made by complainant in cross-examination
and put up the defence that complainant had failed to prove enforceable debt against her. The trial Court,
relying upon the oral and documentary evidence produced by complainant, came to the conclusion that the
cheque was issued against the invoice for the supply of goods worth Rs 1,48,668 to which other amounts
debited to her account were added and the total amount of the cheque of Rs 2,08,074 was proved to be due by
the invoice, debit notes and other charges. Thus, the trial Court recorded conviction of the accused.
Page 3 of 4
In appeal, the respondent, inter alia, contended that no amount was outstanding against her since the goods
sold to her by the invoice were returned and the cheque which was given as advance towards settlement of
account was misused. The appellate court adopted the view that complainant had totally failed in discharging
the initial burden of proving that there was legally enforceable debt, by producing cogent proof, such as books
of account, account note book, income-tax report, income-tax return, audit report, audit books etc. and,
therefore, in absence of proof of legally enforceable debt on the part of the complainant, the accused could not
be asked to discharge her burden of rebutting the presumptions arising under section 139 of the Act. The
appellate Court noted that the complainant had not examined any independent witness in support of his case
and it relied upon judgment of Andhra Pradesh High Court in case of Nagisetty Nagaiah v State of AP.519 The
accused having thus succeeded in the first appeal, the complainant approached High Court with the plea that
legally enforceable debt was duly proved by sufficient evidence and the judgment of appellate court was
perverse and illegal. Therefore, the sole issue requiring consideration in this appeal was as to whether the
cheque was drawn, delivered and received for payment of any amount to the payee for the discharge, in whole
or in part, of any legally enforceable debt or other liability.
The Hon’ble High Court held520 that when a cheque bearing only signature of the drawer is delivered and
received by a payee for the discharge, in whole or in part, of any debt or liability, there is an implied authority for
the person receiving such cheque to complete it by filling the blanks and the amount having been filled up
under such implied authority would be the amount intended by him to be paid thereunder. It further held that a
blank cheque, drawn by a person on an account maintained by him with a banker, for payment of any amount
of money to another person, by merely putting his signature on it, would not be a ‘cheque’ in the first place,
because of not being a ‘bill of exchange’ as it did not contain direction to a certain person to pay a certain sum
of money to or to the order of a certain person or to the bearer of the instrument.
Although it was stated on the back of certain promissory notes that they were assigned to a certain person or
order, it was held that the writing amounted to an indorsement under the section. It has been held that there
could be an assignment of a debt, but not of a promissory note.521
514 Section 16 renumbered as sub-section (1) by Act 5 of 1914, section 3.

Page 4 of 4
515 Added by Act 5 of 1914, section 3.
516 Peacock v Rhodes, (1781) 2 Doug 633.
517 D Sethuramalingeswara Rao v P Pichaiah, (1993) 78 Comp Cas 616 .
518 Hitenbhai Parekh, Proprietor v State of Gujarat, 2010 CrLJ [NOC] 455 Guj : 2009 GLH (3) 742.
519 Nagisetty Nagaiah v State of AP, 2004 CrLJ 4107 .
520 Hitenbhai Parekh, Proprietor v State of Gujarat (supra).
521 Mulji Mehta & Sons v C Mohan Krishna, AIR 1997 AP 153 . See, however, notes to section 14.
End of Document
[s 17] Ambiguous instruments.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Where an instrument may be construed either as a promissory note or bill of exchange, the holder may at his
election treat it as either, and the instrument shall be thence forward treated accordingly.
Page 2 of 5
[s 17.2] Ambiguous Instruments
The cases in which an instrument may be treated as ambiguous are given in section 5 as follows:
Where in a bill drawer and drawee are the same person, or where the drawee is a fictitious person or a person
is not having capacity to contract, the holder may treat the instrument, at his option, either as a bill of exchange
or as a promissory note.522
The section is intended to meet a situation where the parties, being unaware of the technicalities contained in
sections 4 and 5, have used such words in framing the instrument that it becomes a serious issue of contention
as to whether it is a promissory note or a bill of exchange. The section does not apply to a situation where there
is no ambiguity, and it can be held that the instrument is either a promissory note or a bill of exchange.523 For
instance:
(i) A addresses an instrument in the form of a promissory note to B, who accepts it. The holder may, at
his option, treat it as a note or bill.524
(ii) A bill is drawn by an agent acting within the scope of his authority upon his principal. The holder may,
at his option, treat it as a note or bill because the drawer and the drawee are one and the same
person.
(iii) X draws a bill on Y and negotiates it away. Y is fictitious drawee. The holder may treat the bill as a note
made by X.525
(iv) A firm carries on business in Mumbai and Calcutta. The Mumbai house draws a bill on the Calcutta
house. The holder may treat it as a note made by the Mumbai house payable in Calcutta.526
(v) The directors of a joint stock company draw a bill in the name of the company and addressed to the
cashier. The holder may treat it as a note by the company.527
(vi) An instrument in the form of a bill of exchange not addressed to any one, may be construed as a
promissory note.528
Page 3 of 5
(vii) An instrument on which the word hundi is written need not necessarily be a bill of exchange.
A document was in the following form:
‘Sixty days after date, we promise to pay AB or order the sum of Rs 1,000 only for value received.’
Across the document were the word ‘accepted’ and the signature of the maker XY. The document was held to
be a promissory note.529
A bank draft issued by one office of a bank upon another may be treated by the holder as a bill of exchange
under the section.530
Once the holder of an ambiguous instrument makes his election either way, he must abide by it, and cannot
afterwards fall back on a defence that it is the other kind of instrument.531 In the event of the drawer’s
insolvency, only one proof is allowed against the estate, and there cannot be two proofs by reason of the forms
of the instrument.532
The right of election given to a holder of an instrument by section 17 is not taken away by the Indian Stamp Act
and where an instrument can be construed as a pronote or hundi, the holder may at his election treat it as
either and such an election made by the holder will also be for the purposes of Indian Stamp Act.533
An ambiguous instrument should be distinguished from an inchoate instrument. In the case of an ambiguous
instrument, the holder, having made his election to treat the instrument as a note or bill can institute a suit on it,
and he is not precluded from doing so because of the ambiguous character of the instrument. An inchoate
instrument only operates as an authority to the holder to fill in the instrument, but until that is done the holder
cannot maintain an action upon it. Also in the case of an ambiguous instrument, the court puts a construction
most favourable to its validity, and construes it as a bill or note.534 However, an instrument in the form of a bill,
containing the name neither of payee nor of drawer, is an inchoate instrument, though it is addressed to a
person and is accepted by him. Such an instrument cannot be treated as an ambiguous instrument within the
meaning of the section.535
Page 4 of 5
[s 17.2.1] Demand Draft and Cheque
In Punjab and Sindh Bank v Vinkar Sahakari Bank Ltd,536 the question was whether a Demand Draft could be
construed as a cheque and the Court held that such a draft qualifies the characteristics of a cheque. The Court
further observed that even if it is possible to construe the draft either as a promissory note or as a bill of
exchange, law has given the option to the holder to treat it as he chooses. This can be discerned from section
17 of the Act which says «where an instrument may be construed either as a promissory note or bill of
exchange, the holder may at his election treat it as either and the instrument shall be thenceforward treated
accordingly.» This means once the holder, which in this case is the complainant-bank, has elected to treat the
instrument as a cheque it cannot but be treated as a cheque thereafter.
522 Bills of Exchange Act, 1882.
523 Shiv Kumar Gupta v Permanand Ramgopal, AIR 1973 Del 135 .
524 Block v Bell, (1831) Moo & R 149; Eddis v Bury, (1827) 6 B&C 433.
525 Smith v Bellamy, (1817) 2 Stark 233.
526 Miller v Thompson, (1841) 11 LJCP 21.
527 Allen v Sea Fire Life Assurance Co, (1850) 9 CB 574 .
528 Fielder v Marshall, (1861) 330 LJCP 158; Peto v Reynolds, (1854) 9 Ex 410 .
529 Harsukdas v Dhirendra Nath, (1941) ILR 2 Cal 107; relied on in Shiv Kumar Gupta v Permanand Ramgopal, AIR 1973
Del 135 .
Page 5 of 5
530 State Bank of India v Jyoti Ranjan Mazumdar, AIR 1970 Cal 503 .
531 Sulleman v New Oriental Bank Corpn Ltd, (1913) ILR 15 Bom 267.
532 Banes v Waddell, [1880] 5 AC 161 .
533 Alagappa Chetti v ALALN Narayanan Chettiar, AIR 1932 Mad. 765 ; Also see Raman v Kunchu, S.A. No. 1488 of
1962, decided on 3 June 1966 (Kerala HC)[DB].
534 Mare v Charles, (1856) 5 E&B 978, p 981.
535 M’Call v Taylor, (1865) 34 LJCP 365.
536 Punjab and Sindh Bank v Vinkar Sahakari Bank Ltd, AIR 2001 SC 3641 : (2001)7 SCC 721 : 2002 CrLJ 93.
End of Document
[s 18] Where amount is stated differently in figures and words—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in
words shall be the amount undertaken or ordered to be paid.
Page 2 of 4
[s 18.2] Figures and Words Contradictory
In bills and notes, the amount is written in figures in the margin at the top of the instrument, and in words, in the
body of the instrument. However, the figures at the top, called marginal figures, do not form part of the bill. The
object of adding the marginal figures is that the amount of the instrument might strike the eye immediately, and
may in fact form a summary of the contents.537 The section states that when there is a discrepancy between
the amount stated in figures and in words, the amount stated in words shall prevail, and no extrinsic evidence
can be adduced to explain the ambiguity.538 For example:
• A bill is drawn ‘Pay to X or order the sum of one thousand rupees’. In the margin, the amount stated is
Rs 100. This is a bill for Rs 1,000.
• A bill is drawn for five hundred rupees. In the margin, it is superscribed Rs 550. This is a bill for Rs 500
only.
If the amount is expressed in figures in the body of the instrument and in words in the margin and there is a
discrepancy between the two, having regard to the words of the section, it seems that the amount stated in
words shall prevail over that stated in figures. However, Byles states: ‘whether written in words or figures, the
amount in the body of the bill is the amount to prevail. The superscription is a mere index or summary of the
contents.’539
Where there is an ambiguity as regards the words in the body of the instrument, the figures in the margin and
the stamp may be looked at in construing these words.540 Again, if there is an obvious omission in the body of
the instrument, the marginal figures may be referred to explain them. Thus, where a bill ran ‘Pay fifty...’ and the
marginal figures stated GBP 50, it was held to be a valid bill for GBP 50.541
An instrument is not rendered invalid by obvious or intelligible mistakes or omission in the written words, where
the intention is quite clear.542 Thus, where a promissory note bearing a 6p stamp, with the figures GBP 50 in
Page 3 of 4
the margin was made, but no amount was stated in the body, it was held that as between the parties, it was a
good note for GBP 50, there being evidence to show that they had so regarded it.543
In N Hasainar v M Hasainar544, there was a difference in the amount as mentioned in the words and figures. It
was held by Karnataka High Court that the cheque cannot be termed as invalid. Accordingly, it was held that
the amount stated in words shall be the amount undertaken as ordered to be paid.
The mandatory nature of section 18 gives no choice to either the Bank or the courts to give preference to the
sum mentioned in figures over the amount mentioned in words.545
In practice, bankers generally return cheques containing a discrepancy between the amount in words and that
in figures, with the reason words and figures differ. Sometimes, such cheques are paid if the discrepancy is
very small. However, such practices do not have the sanction of law and the Act contains this specific provision
for such cases of discrepancy.
537 Garrard v Lewis, [1882] 10 QBD 30 .
538 Saunderson v Pipe, (1839) 5 Bing NC 425.
539 Byles on Bills, 21st edn., p 97, note (r).
540 Hutley v Marshall, (1873) 46 LT 186 .
541 R v Elliot, (1777) 1 Leach CC 175.
542 Phipps v Tanner, (1833) 5 C&P 488; R v Post, (1806) R&R 101.
543 Henry v Addy, (1910) 2 IR 688 .
544 N Hasainar v M Hasainar, 2009 CrLJ 1213 Kar.
545 The Jammu and Kashmir Bank Ltd v Qazi Taj Din, AIR 1954 J&K 56 (FB); Also Kishanlal v Jograj Bantia, (1987) 100
Mad LW 981 (DB).
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End of Document
[s 19] Instruments payable on demand.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note or bill of exchange, in which no time for payment is specified, and a cheque, are payable on
demand.
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This section corresponds to section 10(1)(b) of the Bills of Exchange Act, 1882.
[s 19.2] Instruments Payable on Demand
The section must be read with section 21 the first sentence of which seems to form a part of this section. The
following instruments are payable on demand:
(a) A promissory note or bill of exchange is payable on demand:
(i) When it is expressed to be payable ‘on demand’, or ‘at sight’ or ‘on presentment’ (section 21).
(ii) When no time for payment is specified in it (section 19).
(b) A cheque is always payable on demand and it cannot be expressed to be payable otherwise than on
demand (sections 6, 19).
A promissory note, wherein there is neither an undertaking to pay on demand nor any time fixed for payment, is
payable on demand and attracts stamp duty under Article 49(a) of Sch I to the Indian Stamp Act, 1899.546
If a hundi is made payable to a respectable person, this will not prevent it from being a hundi payable on
demand even though the payer may be required to make inquiries about the respectability of the payee.547 A
hundi payable on demand is payable on the date of execution.548
Relying on section 19, it has been held by the Supreme Court549 that since a ‘cheque’ is an instrument which
is payable on demand, and since a post-dated cheque is not payable on demand till a particular date mentioned
thereupon, such a post-dated cheque is not a cheque in the eyes of law till the date it becomes payable on
demand. Referring to the various relevant provisions of the Act, Kuldip Singh, J, observed as under:
12. Sections 5 and 6 of the Act define ‘Bill of Exchange’ and ‘Cheque’. A ‘Bill of Exchange’ is a negotiable instrument in
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writing containing an instruction to a third party to pay a stated sum of money at a designated future date or on
demand. A ‘cheque’ on the other hand is a bill of exchange drawn on a bank by the holder of an account payable on
demand. Thus a ‘cheque’ under section 6 of the Act is also a bill of exchange but it is drawn on a banker and is
payable on demand. It is thus obvious that a bill of exchange even though drawn on a banker, if it is not payable on
demand, it is not a cheque. A ‘postdated cheque’ is only a bill of exchange when it is written or drawn, it becomes a
‘cheque’ when it is payable on demand. The postdated cheque is not payable till the date which is shown on the face of
the said document. It will only become cheque on the date shown on it and prior to that it remains a bill of exchange
under section 5 of the Act. As a bill of exchange a postdated cheque remains negotiable but it will not become a
‘cheque’ till the date when it becomes ‘payable on demand’.
13. It is clear from section 19 that a ‘cheque’ is an instrument which is payable on demand. A postdated cheque, which
is not payable on demand till a particular date, is not a cheque in the eyes of law till the date it becomes payable on
demand.550
It was further observed that an offence under section 138 can be made out only during the validity of the
cheque. This period is six months from the date on which it is drawn or the specified validity period, whichever
is earlier. In the case of a post-dated cheque, this period only commences on the date mentioned on the
cheque, before which it is merely a bill of exchange. One of the main ingredients of section 138 is the
requirement that a cheque be returned from the bank unpaid. Only on the date mentioned, does the post-dated
cheque become a ‘cheque’ as envisaged under the Act. So the question of the bank returning them before this
date does not arise. In the present case, the post-dated cheques were drawn in 1990 but they became
‘cheques’ in the year 1991 on the dates mentioned therein. The validity of the cheque, therefore, would only
commence from these dates.
[s 19.3] ‘On Demand’ – Meaning of
The Supreme Court had the occasion to examine and interpret the meaning of ‘on demand’ in Syndicate Bank v
Channaveerappa Beleri.551 In this case, the Bank had extended credit facilities by way of overdraft, goods
loan, and demand loan against supply bills to a company in which the Respondent 1 was its Managing Director
and Respondents 2 to 7 were its Directors. The credit facilities were renewed and enhanced from time to time.
Respondents 1 to 7 executed guarantee bonds in favour of the Bank, personally agreeing and undertaking to
pay and satisfy the Bank on demand all sums which may be due on account of the credit facilities granted to
the Company subject to the limits mentioned therein. The limit of total liability undertaken exclusive of interest
was Rs 22.20 lakhs in the case of Respondents 1, 4 and 5, Rs 10.50 lakhs in the case of Respondents 2 and 3
and Rs 11.70 lakhs in the case of Respondents 6 and 7. Their liability was joint and several with the Company.
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On account of the Company allegedly incurring losses and stopping its activities, operations in the accounts of
the Company with the Bank stopped in the middle of 1986. In view of the failure on the part of the Company
(principal debtor) in paying the amounts due, the Bank sent a letter dated 12 October 1987 to the Company and
its seven Directors (Respondents 1 to 7) informing them that the following amounts were outstanding in the
accounts of the Company as on 30 September 1987 and calling upon the Company as principal debtor and
Respondents 1 to 7 as guarantors to pay the said amounts aggregating to Rs 13,48,264.79 with interest @
18.5% per annum from 1 October 1987 within 15 days. Finally, The Bank filed a suit against Respondents 1 to
7 for recovery of Rs 19,77,478.60 (the liability of Respondents 2 and 3 restricted to Rs 15,75,960 and liability of
Respondents 6 and 7 restricted to Rs 17,56,070.60) together with interest @ 18.5% per annum compounded
quarterly from the date of suit till the date of realisation. This suit was dismissed on the ground of limitation and
the appeal came to the Supreme Court. Allowing the appeal and decreeing the suit, RV Raveendran, J, made
the following observations in relation to the meaning of ‘on demand’:
12. … the High Court was of the view that the words ‘on demand’ in law have a special meaning and when an
agreement states that an amount is payable on demand, it implies that it is always payable, that is payable forthwith
and a demand is not a condition precedent for the amount to become payable. The meaning attached to the
expression ‘on demand’ as ‘always payable’ or ‘payable forthwith without demand’ is not one of universal application.
The said meaning applies only in certain circumstances. The said meaning is normally applied to promissory notes or
bills of exchange payable on demand. …. Article 21 provides that for money lent under an agreement that it shall be
payable on demand, the period of limitation (3 years) begins to run when the loan is made. On the other hand, the very
same words ‘payable on demand’ have a different meaning in Article 22 which provides that for money deposited
under an agreement that it shall be payable on demand, the period of limitation (3 years) will begin to run when the
demand is made. Thus, the words ‘payable on demand’ have been given different meanings when applied with
reference to ‘money lent’ and ‘money deposited’. In the context of Article 21, the meaning and effect of those words is
‘always payable’ or payable from the moment when the loan is made, whereas in the context of Article 22, the meaning
is ‘payable when actually a demand for payment is made.552
Studying the language of the guarantee bonds, it was found that the guarantors agreed to pay the Bank ‘on
demand’, and the liability to pay interest would arise from the date on which the Bank demands the payment.
Also, it was a continuing guarantee mandating payment of the ultimate balance due to the Bank from the
guarantors. The provisions also stated that the limitation period would begin from the date the contract was
broken or the right to sue accrues. In the present case, this date would be when the demand for payment by the
Bank, was refused by the guarantors. If a period for payment has been stipulated, then the breach occurs when
this period expires, else it would be the day the demand was served on the guarantors.553
Page 5 of 5
It is also important to note that the demand served on the guarantors, should be for an amount legally due and
recoverable from the principal debtor; in this case, the Company. When the demand was made to the
guarantors, if the debt against the principal debtor had become time-barred, then the claim of the Bank would
be invalid. If however, the demand was made within the limitation period of the debt against the Company, then
the Bank has the right to sue the guarantors within three years from the date of demand and refusal to pay
even if the claim against the principal debtor gets subsequently time-barred.554
546 KR Krishnan v P Shanmugam, (1995) 82 Comp Cas 608 .
547 Shah Jayantilal v Thakore Bharat Singh, (1965) ILR Guj 1199.
548 Suraj Ram Khurana v Hari Rattan, (1973) 75 PLR (D) 88.
549 Anil Kumar Sawhney v Gulshan Rai, (1993) 4 SCC 424 .
550 Anil Kumar Sawhney v Gulshan Rai, (1993) 4 SCC 424.
551 Syndicate Bank v Channaveerappa Beleri, (2006) 11 SCC 506 .
552 Syndicate Bank v Channaveerappa Beleri (supra).
553 Ibid.
554 Ibid.
End of Document
[s 20] Inchoate stamped instruments—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When one person signs and delivers to another a paper stamped in accordance with the law relating to
negotiable instruments then in force in 555[India], and either wholly blank or having written thereon an
incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or
complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not
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exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the
capacity in which he signed the same, to any holder in due course for such amount:
Provided that no person other than a holder in due course shall recover from the person delivering the
instrument anything in excess of the amount intended by him to be paid thereunder.
[s 20.1] Inchoate Instruments
The principle of the rule contained in the section is that a person who gives possession of his signature on a
blank stamped paper to another person, prima facie authorises the latter as his agent to fill up and give to the
world, the instrument as accepted by him. The principle is one of estoppel. The section enables a person to
lend his mercantile credit to another by the issue or negotiation of a stamped paper containing his signature
and intended to be filled up by the holder as a negotiable instrument.556 By virtue of such signature, the
signatory binds himself as drawer, maker, acceptor or indorser. His signature on the blank paper purports to be
the authority given to the holder to fill up the blanks and complete the paper as a negotiable instrument, and
thereafter, the signatory becomes liable in the capacity in which he signed.557 The instrument may be either
wholly blank or incomplete as regards some particulars but, in either case, the holder is authorised to make or
complete the instrument as a negotiable instrument.558 The instrument might be wholly blank or incomplete. It
could not be taken as a defence to avoid a decree on the basis of such an instrument, if it satisfies the
requirements of section 20.559
The right of filling up a blank or inchoate instrument may be exercised by any holder, and the first holder to
whom the paper is delivered is not the only person who is empowered to fill the omission.560 However, the
liability of a person who signs and delivers a blank or an inchoate instrument arises only when the blanks are
filled in and the instrument is completed. Till then, the instrument is not a valid negotiable instrument, and no
action is maintainable on it.561
The capacity in which a person signs an inchoate instrument may be determined by the mode and place in
which he puts his signature.562 An instrument may be wholly blank or it may be wanting in one or more
requisites of a complete bill, i.e., it may be blank as to date, amount, drawer, payee, etc. If the date is left blank,
on an instrument any holder has a right to insert the true date. If a man accepts a bill that is blank as to the
name of the drawer and delivers it to another person, the latter is entitled to insert his name as a drawer, or to
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negotiate it. Similarly, where an instrument is executed with the name of the payee left blank, any bona fide
holder for value may fill it up with his own name and sue upon it.563
Where the holder is given authority to complete an instrument by filling in a certain amount, and in fact he fills
up a higher amount, the signer will not be bound by it, except to a holder in due course.564
Where the plaintiff filed in court only stamped promissory notes with the payee’s name left blank, he was
allowed to fill in the payee’s name under the provisions of the section and re-present them in court.565
Section 20 is itself an authority to the holder of the signed instrument to fill up the blanks and to negotiate
instrument. Once execution of an instrument is admitted, the presumption under section 118(a) would arise that
it is supported by consideration.566 But where plaintiff fails to prove the signature of defendant on the pro-note,
section 20 has no application.567
The plaintiff-Bank of India having its Adityapur branch, had filed a suit against the respondents for recovery of
the loan amount together with interest taken by them. The plaintiff-appellant’s case inter alia was that
defendant-respondent No. 2 as proprietor of defendant-respondent No. 1 M/s Aswi Electricals, approached the
plaintiff-bank for financial assistance by way of loan and cash credit facility. On the request of the respondents,
the plaintiff-bank sanctioned a loan of Rs 1,10,000 and a cash credit facility to a limit of Rs 60000. Respondent
No. 2 for self and as proprietor of defendant No. 1 executed number of documents including demand
promissory notes, agreement of hypothecation, continuing security, letter of lien, agreement of guarantee, etc.
Defendant-respondent No. 3 became the surety and executed letter of continuing guarantee in favour of the
Bank. The plaintiff’s further case was that the defendants defaulted in liquidating the amount taken from the
Bank. The plaintiff by notice requested the respondents to repay the outstanding dues, but the latter did not pay
any heed. Further case of the plaintiff was that the respondents executed letters of acknowledgement
acknowledging their liability, but they have not liquidated the dues. Hence, the suit was filed. The defendants-
respondents contested the suit by filing written statement. The defendants’ case was that the suit as framed
was not maintainable because the plaint was not properly signed and verified. They admitted the taking of loan
and execution of documents in favour of the plaintiff-Bank, but according to the defendants, neither they have
received any notice from the bank nor have they acknowledged their liability. The defendants’ case was that the
signatures of the respondents were obtained in blank documents which have been used as per the
convenience of the bank.568
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The trial court found that the last transaction in the account was made on 31 August 1993 and the suit was filed
in the year 1997. The trial Court further noticed the averments made in the plaint that defendants executed
letters of acknowledgement on various dates including 9 March 1996. The trial court did not rely on the various
documents filed on behalf of plaintiff-Bank on the ground that there were many spaces in the documents left
unfilled and there was no date below the signature of respondents. The trial court further held that the letters of
acknowledgement were not filled up at the time when the defendants put their signatures. On these grounds,
the suit was dismissed as time barred.569
Against dismissal of suit, the plaintiff-Bank approached the Jharkhand High Court in appeal against original
decree. Relying upon the presumption prescribed under section 118 of the Act, the High Court held that every
negotiable instrument is made or drawn for consideration. The High Court further held that the trial court
committed grave error of law in holding that the onus was on the holder of the instrument to prove by cogent
evidence that he or she has signed a filled up paper. Referring to section 20 of the Act, MY Eqbal, J observed
as under:570
13. From perusal of the aforesaid provision, it is manifestly clear that the provision confers an authority to the holder of
the instrument to make or complete the instrument. It is well settled that when the negotiable instrument contains a
date, then it shall be presumed that those instruments have been executed on the same date. Merely because the
executant of the document has not put the date below his signature does not take away the right of the holder of the
document to recover the amount from the persons who have signed those documents.
It was accordingly opined by the High Court that the trial court committed error in holding that the plaintiff-Bank
did not discharge its onus and the findings arrived at by the trial court cannot be sustained in law.
A Division Bench of the Kerala High Court has held in CT Joseph v IV Phillip,571 that section 20 is not
applicable to cheques since it is not required to be stamped.
[s 20.2] Delivery and Stamp Necessary
The section further requires as a condition of liability that the signer as a maker, drawer, indorser, or acceptor,
should deliver the instrument to another. There must be negotiation of the instrument, i.e., a transfer from one
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person to another, in order to render the signatory of the document liable upon it. In the absence of delivery, the
signer is not liable. Thus, where a man signed a blank acceptance, with a stamp upon it, and kept it in his desk,
from where it was stolen, completed and negotiated as a bill, it was held that he was not even liable to a holder
in due course.572
If an inchoate instrument is delivered by the signer to another for safe custody, and the latter, without
instructions fills up and negotiates it, under the English law the person so delivering the instrument is not even
liable to a holder in due course, as he did not deliver the instrument for the purpose of converting it into a
bill.573 Though it is not clear whether the same rule prevails in India, it is submitted that the same should be
the rule in India, as the present section gives the authority to fill the instrument only to a holder.574
Further, in order that the statutory estoppel provided for by the section may arise, it is necessary that the paper
signed and delivered must be stamped in accordance with the law relating to negotiable instruments in force in
India at the time it is so signed and delivered. If the paper is unstamped, the signatory is not estopped from
showing that the instrument was filled without his authority.575 If the paper is void for want of stamp, then the
signer will not be liable. Inchoate cheques would appear to be covered by the section though they are not
stamped since cheques do not attract stamp duty.
A holder in due course is entitled to fill up the blanks, negotiate the instrument and can recover any amount
specified thereunder, but he can recover anything exceeding the amount covered by the stamp.576
In terms of section 20(2) of the Bills of Exchange Act, 1882, in order that an inchoate instrument, when
completed, may be enforceable against any person who became a party prior to its completion, it must be filled
up within a reasonable time. There is no similar requirement in the Indian Act. It was, however, held that
completion of an incomplete promissory note nearly two years and nine months after filing a suit on the note
was not ‘within a reasonable time after the plaintiff received it.577
[s 20.3] Holder, Holder in Due Course, Excess of Authority
Under the section, the authority to fill up a blank or inchoate instrument may be exercised by any ‘holder’. This
is not restricted to the first holder to whom the paper is delivered, and the person who receives an instrument,
while still incomplete, from a former holder, has the authority of the former holder delegated to him. However,
this right cannot be exercised by a person who is not a ‘holder’. Thus, an agent, to whom a blank stamped
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paper is given to be retained till further instructions are received from his principal, has no authority to fill up and
negotiate it.
A person, who signs and delivers a blank or an incomplete instrument, gives prima facie authority to the holder
thereof, to make or complete a negotiable instrument for any amount not exceeding that covered by the stamp.
If the authority to fill the amount has been clearly stated, as between the parties to the instrument, when
completed, there is no liability attaching to the person who signed it if the authority is exceeded, because the
proviso to the section says that no person other than a holder in due course shall recover from the person
delivering the instrument anything in excess of the amount intended by him to be paid thereunder. However, if
the instrument is completed and negotiated to a holder in due course, he is entitled to enforce payment of the
full amount even though the authority has been exceeded, and even though the signatory might have given
secret instructions to the holder that it should be filled in for a smaller amount.578
In the same manner, a person who signs an instrument cannot escape liability by showing that the person to
whom the instrument was delivered had, in violation of the confidence reposed in him used the instrument for
purposes other than those for which he was authorised to use it.579
The estoppel created by the section against the signatory of an incomplete instrument is only for the benefit of a
holder in due course. Thus, if a holder has exceeded the authority given in filling an inchoate instrument, the
signatory is not estopped by the section from asserting, as against a holder, other than a holder in due course,
that the instrument has not been filled in accordance with the authority given.580
A person cannot claim the rights of a holder unless he can show that he took the instrument in perfect condition
and in terms of a complete contract. As to a bona fide holder, the question as to the effect of acceptance or
endorsement having been written on a blank piece of paper can be of no importance, unless he can be
fastened with the notice of the imperfection. If the holder has notice of the imperfection, he can be in no better
position than the person who took it in blank as to any right against the acceptor or indorsee who gave it in
blank.581
[s 20.4] Whether Payee a Holder in Due Course
A person, who for consideration obtains from the maker, a signed but inchoate document that is properly
stamped and who, in pursuance of the prima facie authority conferred on him by the maker under the section
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completes it by making himself the payee, is not a holder in due course within the meaning of section 9. It is
only a person who comes into possession of a negotiable instrument after paying consideration for it, and being
a bona fide transferee, who can be a holder in due course within the meaning of section 9.582
Section 9 seems to imply and contemplate a negotiation or a transfer to the holder in due course by someone
who had the authority to transfer or negotiate the negotiable instrument. The transfer and the negotiation must
be of a negotiable instrument, not the transfer of an inchoate document that is not a negotiable instrument
under the Act. From the point of view of the proviso contained in section 20, it may also be said that, in the case
of an inchoate document, it would be difficult to hold that the possessor of it was either a bona fide transferee or
possessor of a negotiable instrument.583 While concurring with the above decisions, Abdul Hadi J in
Kadarkarai Reddiar v Arumugam Nadar584 held that, the plaintiff could not hold the defendant liable on a
document executed as a blank promissory note and delivered to the plaintiff, who later completed it for an
amount larger than what the defendant admitted to have owed him. The learned judge expressed the view that
section 20 does not imply that the person to whom an inchoate promissory note is delivered acquires, by the
very act of his filling up the blanks, the right of a promisee under the note and that such a person, not being a
holder in due course, cannot render the maker liable on the note within the meaning of the second part of
section 20. With due respect, it is submitted that although under section 20, only a holder in due course can
hold the maker liable for the amount shown in the instrument to be payable, albeit it is in excess of what the
maker intended to pay, it does not follow that a holder other than a holder in due course (such as the plaintiff in
this case) cannot hold the maker liable even for the amount intended by the maker to be paid, otherwise, such
an instrument may prove to be worthless in the hands of even a holder, who has completed it as authorised by
the maker.
For example:
(i) A bill is drawn ‘payable to...or order.’ Any holder for value may write his own name as payee in the
blank and sue upon the instrument.585
(ii) A owes B Rs 1,000 and gives him a blank acceptance for Rs 1,000. B may fill in his own name as
drawer and payee and recover the amount from A.586
(iii) A signs as acceptor on a stamped bill with the amount left blank. In the margins is superscribed Rs
100. This is fraudulently altered to Rs 1,000 and the bill is, in words, filled in for a thousand rupees.
The bill gets into the hands of a holder in due course. The latter can recover rupees one thousand from
A.587
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(iv) A gives a blank acceptance to a money-lender, who fills it up as a bill drawn payable to drawer’s order
and inserts a fictitious signature as that of drawer and indorser. The bill is negotiated to H, a holder in
due course. H can recover upon it.588
(v) A signs, as maker, a blank stamped paper and gives it to B, and authorises him to fill it as a note for Rs
500, to secure an advance which C is to make to B. B fraudulently fills it up as a note for Rs 2,000,
payable to C, who has in good faith advanced Rs 2,000. A is estopped from setting up B’s fraud, and C
is entitled to recover Rs 2,000 from A.589
(vi) A, the acceptor of a bill, is asked to renew it. A accordingly signs his name on the back of a blank
stamped bill form. This is an authority to fill it up as a bill, making A liable as an indorser, and not as an
acceptor.590
In all the above examples, it is assumed that the instruments were sufficiently stamped.
[s 20.5] Applicability in the Cases of Cheques – Divergent Views
In T Nagappa v YS Muralidhar,591 the appellant who was an accused in a criminal case arising out of the
bouncing of cheque issued by him, filed an application before the Magistrate for referring the cheque in
question for examination by the Director of Forensic Science Laboratory for determining the age of his
signature, contending that the respondent had obtained a signed cheque from him in the year 1999 as a
security for a hand loan of Rs 50,000 which had been paid back, but instead of returning the cheque, the same
has been misused by entering a huge amount, which he did not owe to the appellant. The learned Magistrate
dismissed the said application. A revision application filed there against was also dismissed by the High Court,
stating that since the signature on the cheque is admitted, the petitioner cannot dispute the contents of the
cheque in view of the provisions of section 20 of the Negotiable Instruments Act. Hence, there is no need to
refer the cheque to handwriting expert. After noticing the facts of the case, and the previous judgment of
Supreme Court in Kalyani Baskar v MS Sampoornam592, the Supreme Court upheld the right of an accused to
be subject to fair trial with an opportunity to prove his defence. SB Sinha, J speaking for the Bench held as
follows:
7. When a contention has been raised that the complainant has misused the cheque, even in a case where a
presumption can be raised under Sections 118(a) or 139 of the said Act, an opportunity must be granted to the
accused for adducing evidence in rebuttal thereof. As the law places the burden on the accused, he must be given an
opportunity to discharge it.
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8. An accused has a right to fair trial. He has a right to defend himself as a part of his human as also fundamental right
as enshrined under Article 21 of the Constitution of India. The right to defend oneself and for that purpose to adduce
evidence is recognised by Parliament in terms of sub-section (2) of Section 243 of the Code of Criminal Procedure,
which reads as under:
243. Evidence for defence.—(1) *????*????*
(2) If the accused, after he has entered upon his defence, applies to the Magistrate to issue any process for
compelling the attendance of any witness for the purpose of examination or cross-examination, or the production
of any document or other thing, the Magistrate shall issue such process unless he considers that such application
should be refused on the ground that it is made for the purpose of vexation or delay or for defeating the ends of
justice and such ground shall be recorded by him in writing:
Provided that, when the accused has cross-examined or had the opportunity of cross-examining any witness
before entering on his defence, the attendance of such witness shall not be compelled under this section, unless
the Magistrate is satisfied that it is necessary for the ends of justice.
9. What should be the nature of evidence is not a matter which should be left only to the discretion of the court. It is the
accused who knows how to prove his defence. It is true that the court being the master of the proceedings must
determine as to whether the application filed by the accused in terms of sub-section (2) of Section 243 of the Code is
bona fide or not or whether thereby he intends to bring on record a relevant material. But ordinarily an accused should
be allowed to approach the court for obtaining its assistance with regard to summoning of witnesses, etc. If permitted
to do so, steps therefor, however, must be taken within a limited time. There cannot be any doubt whatsoever that the
accused should not be allowed to unnecessarily protract the trial or summon witnesses whose evidence would not be
at all relevant.
In Jayant S/o Binod Agrawal v Nirmalkumar Hariprasad Jejani,593 the accused who was facing prosecution
under section 138 of the Act had moved an Application praying for an opportunity to lead evidence of expert in
respect of the cheque in question since according to the applicant, signature on the cheque was admitted,
which was issued in the sum of Rs 5,00,000 only, but it was alleged that complainant or somebody on his
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behalf completed the cheque in his handwriting and inserted figure ‘1’ prior to the figure of Rs 5,00,000 in the
cheque so as to give impression that cheque was issued in the sum of Rs 15,00,000. However, after hearing
the applicant, the trial court passed an order thereby rejecting the application of the applicant.
The Nagpur Bench of Hon’ble High Court followed the decision of Supreme Court594 and accordingly held that
although opinion as regards age of the writing on the cheque is not possible, the opinion regarding other points
may be received. The High Court was further of the view that the accused cannot be allowed to protract hearing
of the trial under section 138 of the Act, unreasonably. Hence, it was directed that opinion, if any, from the
expert as desired by the accused may be sought by him within a period of six months in the interest of fair trial.
It was observed that the accused deserves an opportunity to adduce evidence in defence or to rebut statutory
presumptions available in favour of the complainant in the trial under section 138 of the Act but the period of six
months to seek expert’s opinion shall not at all be extended for any reason.
In S Gopal v D Balachandran,595 the accused in a case under section 138 of the Act filed a petition under
section 45 of the Evidence Act to send the disputed cheque for comparison by an expert to determine the age
of the ink of the signature found in the disputed cheque before the Trial Court. His contention was that the
signature found on the disputed cheque was put in a different ink from that of the other particulars filled in the
cheque. His further contention was that he had issued blank cheques and pronotes with his signature therein.
But the same has been filled and misused by the complainant. He prayed to the trial court for sending the
disputed cheque to the Forensic Laboratory at Hyderabad to determine the age of the ink of the signature of the
accused. The trial court rejected such a plea on the ground that there was no necessity to send the disputed
cheque for expert’s opinion as the signature found therein was categorically admitted by the petitioner.
It was held by the Madras High Court that a bare reading of section 20 of the Act would show that it would apply
to only a stamped instrument viz., pronote and bill of exchange and not to the cheques. As per section 20 of the
Act, the holder in due course has every authority to complete the blank pronote and bill of exchange delivered
to him after properly signing therein by the maker of the instrument. But, section 20 will have no application to
the blank cheques issued after signing by the drawer. It was accordingly held that as far as the other negotiable
instruments viz., pronotes and bills of exchange, there is a clear mandate under section 20 of the Act to the
effect that such an instrument can be negotiated by the maker thereof by simply signing and delivering the
same to the holder in due course giving thereby ample authority to the latter to fill up the content of the
instrument as intended by the maker thereof.
It was therefore, held that the age of the ink cannot be determined by an expert with scientific accuracy.
Page 11 of 16
Further, use of old ink manufactured long ago will definitely create a dent in the opinion furnished by an expert.
Therefore, there was no necessity for sending the disputed cheque admittedly signed by the accused to an
expert for his opinion.
Similarly in R Dennis Raja v T Subbiah,596 the complainant filed a complaint against the respondent herein for
an offence under section 138 of the Act. Pending trial, the accused filed an Application with a prayer to send the
documents to the Handwriting and Finger Prints Expert to find out the age of the signature, age of the writings
in the body of the cheques, age of the signature of the petitioner/accused in the letter-head papers, age of the
computerised written matter and to compare the signature with the specimen signatures. The said Application
was allowed by the trial court against which the complainant approached the Madras High Court in Revision. It
was reiterated that the age of the ink cannot be determined by an expert with scientific accuracy. Further, the
use of the old ink manufactured long ago will definitely create a dent in the opinion furnished by an expert.
Therefore, the order of the trial court was set aside and the Revision was allowed.
In Pioneer Drip System Pvt Ltd (M/s) v M/s Jain Irrigation System,597 the respondent had filed criminal case
against the petitioners for the offence of section 138 of the Act alleging that the respondent company was doing
business of manufacturing/marketing PVC pipes, irrigation system and components etc. Petitioner No. 2 was
the Managing Director of petitioner No.1 and was also doing business of PVC pipes, drip irrigation system and
components, as dealer of complainant/respondent company. From time to time the petitioners purchased
irrigation system and components from the respondent company on credit on the terms and conditions mutually
agreed upon.
An amount of Rs 50,90,622 was due and the petitioners/accused issued cheque bearing for the same amount
drawn on the State Bank of India, Commercial Branch, Secunderabad. When said cheque was presented at
Jalgaon Branch of the State Bank of India, it was dishonoured and therefore notice was issued to the petitioner
but inspite of receipt of said notice, payment was not made and therefore complaint was filed. Upon issuance of
summons, the same was challenged before Sessions’ Court in revision and upon dismissal of revision, a
criminal writ petition was preferred before Bombay High Court.
It was held by the High Court that as per section 20 of the Act, the holder is to specify amount not exceeding
the amount covered by the stamp and the person signing shall be liable upon such instrument, in the capacity
in which he signed the same, to any holder in due course for such amount. However, the proviso makes it clear
that no person other than holder in due course shall recover from the person delivering the instrument anything
in excess of the amount intended by him to be paid thereunder. So, prima facie so far as original holder is
Page 12 of 16
concerned, drawer is liable to pay only the amount intended by him to be paid thereunder. Only the holder in
due course is entitled to recover the entire amount mentioned in the cheque, may be in excess of the amount
intended by drawer thereunder, from the drawer and in such case drawer is entitled to recover excess amount.
‘Holder in due course’ has been defined in section 9 of the Act. Section 20 was held to be very clear that holder
is not entitled to amount more than intended by the drawer to be paid under the instrument. The High Court
accordingly observed that whenever blank cheque or post dated cheque is issued a trust is reposed that the
cheque will be filled in or used as per the understanding or agreement between parties. If there is prima facie
reason to believe that said trust is not honoured then continuation of prosecution under section 138 of the Act
would be abuse of process of law. It was held to be in the interest of justice that parties in such cases are left to
explore civil remedy. Therefore, in this case, the petition was allowed and the order of issuance of process
under section 138 of the Act was set aside.
Section 20 of the Act contemplates signing and delivery of a paper stamped in accordance with the law relating
to negotiable instruments. Therefore, in order to attract section 20, besides the paper being signed and
delivered, it must also be duly stamped in accordance with the law relating to negotiable instruments. Since
stamping is not required in the cases of cheques, it is doubtful as to whether section 20 would at all be
applicable in the cases of cheques.
The views expressed by the Lahore High Court598 and the Madras High Court599 are also that section 20 will
only apply in cases of stamped instruments viz. pronotes and bills of exchange and not to the cheques.
However, in Nikhil P Gandhi v State of Gujarat,600 the High Court of Gujarat opined that the collective reading
of the various provisions of the Act shows that even under the scheme of the Act, it is possible for the drawer of
a cheque to give a blank cheque signed by him to the payee and consent either impliedly or expressly to the
said cheque being filled up at a subsequent point in time and present the same for payment by the drawee.
In Bir Singh v Mukesh Kumar601, the Supreme Court held that if a signed blank cheque is voluntarily presented
to a payee, towards some payment, the payee may fill up the amount and other particulars. A Three Judges
Bench of the Supreme Court approved this proposition in Kalamani Tex v P Balasubramanian602.
[s 20.6] How it Apply to Cheques
As the Supreme Court in Kalamani Tex (supra) has finally said that the payee may fill up the signed blank
cheque, if given towards some payment, section 20 applies also to cheques. However, certain aspects are
being discussed here to know how section 20 can be extended to cheques. The Negotiable Instrument Act was
Page 13 of 16
enacted before the commencement of the Indian Stamp Act, 1899. When the expression used in section 20 is
that “a paper stamped in accordance with the law relating to negotiable instruments then in force” it seems, the
apparent tenor of the provision is to ensure that the instrument should have been duly stamped to come under
the purview of section 20 and not vice versa. Further, the Stamp Act expressly defines the term ‘cheque’,
obviously to bring that instrument also within the scope of the Act. As per section 2(7) of the Stamp Act,
‘cheque’ means a bill of exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand. Originally, bill of exchange payable on demand (which expression would takes in cheques as
per the said definition) was chargeable with stamp duty under Article 13(a) of Schedule I of the Stamp Act. Sub-
clause (a) of Article 13 was omitted by section 5 of the Act 5 of 1927 (Finance Act, 1927). Hence, as of now, bill
of exchange payable on demand is also not chargeable with stamp duty. If the logic behind the said decisions is
applied, section 20 should not be made applicable also to such bill of exchange. Therefore, these propositions
militate against the very purpose for which section 20 was enacted.
The following features are clear from the plain reading of section 20 of the Act: (a) Section 20 not only deals
with delivery of incomplete note which is signed and stamped, but it also pertains to delivery of ‘papers’ which
are wholly blank, which is signed and stamped in accordance with law relating to negotiable instruments then in
force; (b) As per section 20, it is even permissible to the holder of such completely blank paper to ‘make upon it
a negotiable instrument’ (see Maregowda v Thippamma AIR 2000 Kant 169); (c) When the law in force relating
to negotiable instruments insists no stamp duty for cheque or bill of exchange payable on demand, cheques
and bills of exchange can be prepared on plain papers. That paper is indeed ‘stamped in accordance with the
law in force’ (as the said instrument requires no stamp).
It is obvious that in section 20 the expression “a paper stamped in accordance with the law relating to
negotiable instruments then in force” is not used by the lawmakers as a safeguard against the misuse of blank
signed paper. Moreover, this does not mean that the papers/instruments, which need no stamp as per the
Stamp Act are excluded from its operation. Stamp Act is for governing the revenue respecting the instruments,
it is a fiscal measure enacted to secure revenue for the State on certain classes of instruments.603 Reasonable
meaning that can be given to this provision is that so long as the Stamp Act does not provide for stamping of
cheques, those cheques are unstamped, in other words, it is nil stamped in accordance with the Stamp Act,
because, for the time being Stamp Act does not intend to make any revenue on it. It could not be forgotten that
the main purpose of section 20 is to enable the holder to complete the instrument in accordance with the
intention of the maker. Proviso to section 20 clarifies that except the holder in due course, no one else is
entitled to recover any amount on such instrument other than the amount intended by the maker. It is true that
loan sharks may misuse this provision by inserting any amount in the instrument, as there is no upper limit for
the amount to be inserted, since there would be no stamp. But, this is possible in the case of promissory notes
too. There will not be any outer limit when a stamp required to cover the maximum amount is affixed (Article
Page 14 of 16
49(a)(iii) of the Indian Stamp Act). But as rightly observed by the Bombay High Court in Pioneer Drip
System604 case, whenever it appears from evidence that, if the holder of the cheque did not honour the implied
trust created at the time when an inchoate cheque was handed over, the courts should take a firm stand
against the abuse of its process. It is better to make legislative changes for curbing such unconscionable
practices.
When section 20 is read along with various other provisions in the Act such as sections 15, 16, 49 and later part
of section 87 of the Act, it is evident that it is within the scheme of the Act that the bearer of such an instrument
can complete any negotiable instrument, in order to carry out the common intention of parties and those
provisions do not exclude cheques from their operation. Further, section 118(f) of the Act reads as follows:
“...that a lost promissory note, bill of exchange or cheque was duly stamped”. This explicitly shows that
lawmakers envisaged that cheque would also be required to be stamped. In fact, it could be made chargeable
with stamp duty at any time, as it was done originally. The reference made in section 20 of the Act to the
provision relating to the stamp of negotiable instruments was not made with a view to limit the real scope and
ambit of the provision by the changes brought out in the stamp law periodically, but to see that such inchoate
instruments also should be stamped.
Therefore, these revising editors are of the humble opinion that the framers of law never meant to exclude
cheques from the clutches of section 20.
555 Subs. by Act 3 of 1951, section 3 and Sch., for “the States” (w.e.f. 1-4-1951).
556 Daniel, section 142.
557 Punjab and Sind Bank v Ram Prakash Jagdish Chander, (1991) 70 Comp Cas 20 .
558 PK Narayana Kaimal v State Bank of Bikaner & Jaipur, (2005) IV BC 104 Chennai DRAT (DRT/DRAT).
559 H Maregowda and Etc. v Thippamma, AIR 2000 Kant 169 .
560 Crutchley v Clarence (1813) 2 M&S 99; Schultz v Astley (1836) 2 Bing NC 544.
561 Montague v Perkins, (1853) 22 LJCP 187; Ex p Hayward, (1871) LR 6 Ch 546; Sesharal Bajna v VC Subramanian,
AIR 1983 Mad 368 .
Page 15 of 16
562 Foster v Mackinnon, (1869) LR 4 CP 704, p 712.
563 Schultz v Astley, (1836) 2 Bing NC 544; Russel v Langstaffe, (1780) 2 Doug 514.
564 Swan v North British Austalasian Co, (1863) 2 H&C 175, p 184; Lloyds Bank Ltd v Cooke, [1907] 1 KB 794 .
565 Irulandi v Syed Ibrahim, AIR 1962 Mad 326 .
566 Mohammed Ali v Abdul Sinab, (2001) 2 BC 188 ; P Talamalai Chetty v Rathinasamy, AIR 1998 Mad 23 .
567 S Ramasamy Gurukal v KC Mahalinga Gurukal, (2003) 3 Bank CLR 404 (Mad).
568 Bank of India, Jamshedpur v Aswi Electricals, 2010 CrLJ 2948 Jha.
569 Bank of India, Jamshedpur v Aswi Electricals (supra).
570 Bank of India, Jamshedpur v Aswi Electricals (supra).
571 CT Joseph v IV Phillip, (2001) 2 BC 498 : AIR 2001 Ker 300 . Also see Purushothaman Nair, P v Sreekantan Nair, ILR
2013(4) Kerala 115 : 2013 (3) KHC 628 .
572 Baxendale v Bennett, [1878] 3 QBD 525 ; Awde v Dixon, (1875) 6 Ex 869 .
573 Smith v Prosser, [1907] 2 KB 735 .
574 Punjab National Bank Ltd v Mercantile Bank of India Ltd, (1911) 13 Bom LR 835 .
575 Smith v Prosser, [1907] 2 KB 735 .
576 Naicker v Sigamani, (2002) 1 MLJ 830 (Mad); see also Chidambaram v PT Ponnusamy, (1997) 1 LW 843 (Mad); P
Talamali Chetty v Rathinasamy, (1977) 2 MLJ 147 (Mad).
577 Sesharal Bajna v VC Subramanian, AIR 1983 Mad 368 .
578 Baxendale v Bennett, (1878) 3 QBD 525 ; London & SW Bank v Wentworth, (1880) LR 5 EX D 96.
579 Schultz v Astley, (1936) 2 Bing NC 544.
580 Hogarth v Latham & Co, [1878] QBD 643 .
581 Hatch v Searles, (1854) 2 Sm & G 147, p 153.
582 NR Thiagarajan v OV Rengaswamy Reddiar, (2000) 1 BC 136 .
583 Tarachand v Sikri Brothers, (1953) 55 Bom LR 231 ; relied on in S Ramajya Thevar v Balasundaram, (1982) I MLJ
431.
584 Kadarkarai Reddiar v Arumugam Nadar, AIR 1992 Mad 346 .
585 Crutchley v Mann, (1814) 5 Taunt 529.
586 Carter v White, (1882) 20 Ch D 225 .

Page 16 of 16
587 Garrard v Lewis, [1882] 10 QBD 30 .
588 Schultz v Astley, (1836) 2 Bing NC 544.
589 Lloyds Bank Ltd v Cooke, [1970] 1 KB 794 .
590 Belfast Banking Co v Keown, (1898) 33 Ir LTR 95.
591 T Nagappa v YS Muralidhar, (2008) 5 SCC 633 : (2008) 2 SCC (Cri) 677 : AIR 2008 SC 2010 : (2008) 3 KLT 158 .
592 Kalyani Baskar v MS Sampoornam, (2007) 2 SCC 258 .
593 Jayant S/o Binod Agrawal v Nirmalkumar Hariprasad Jejani, 2012 Bom CR (Cri) 511 .
594 T Nagappa v YR Muralidhar, (2008) 5 SCC 633 : (2008) 2 SCC (Cri) 677 : AIR 2008 SC 2010 : (2008) 3 KLT 158 .
595 S Gopal v D Balachandran, AIR 2008 [NOC] 1300 (Mad).
596 R Dennis Raja v T Subbiah, 2012(3) RCR (Cri) 212 : LNIND 2010 BMM 42 .
597 Pioneer Drip System Pvt Ltd (M/s) v M/s Jain Irrigation System, 2010 CrLJ 2149 Bom. : AIR 2010 [NOC] 873 (Bom.).
598 AR Dower v Sohan Lal, AIR 1937 Lahore 816 .
599 S Gopal v D Balachandran, 2008 (1) CTC 491 : (2008) 1 MLJ (Crl) 769 . Also see Fatima Fausia v Rajesh Malhotra,
[2009] 4 MLJ (Crl) 434 .
600 Nikhil P Gandhi v State of Gujarat, 2016 CrLJ 4338 : 2016(4) Crimes 413 (Guj.).
601 Bir Singh v Mukesh Kumar, AIR 2019 SC 2446 : 2019(4) Crimes 149 (SC) : 2019 GLH(1) 338 : 2019 (1) KHC 774 :
(2019)4 SCC 197 .
602 Kalamani Tex v P Balasubramanian, 2021 (2) RCR (Criminal) 160 : 2021 (2) BLJ 226 : 2021 (2) CTC 357 .
603 Hindustan Steel Ltd v Dilip Construction Co, AIR 1969 SC 1238 .
604 Pioneer Drip System (M/s) v M/s Jain Irrigation Systems Ltd, 2010(2) MhLJ 458 : 2010 CrLJ 2149 (Bom).
End of Document
[s 21] ‘At sight’, ‘On presentment’, ‘After sight’—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

In a promissory note or bill of exchange the expressions ‘at sight’ and ‘on presentment’ means on demand. The
expression ‘after sight’ means, in a promissory note, after presentment for sight, in a bill of exchange after
acceptance, or noting for non-acceptance, or protest for non-acceptance.

Page 2 of 3
This section corresponds to sections 10(1)(a) and 11(2) of the Bills of Exchange Act, 1882.
[s 21.2] ‘At Sight,’ ‘On Presentment’, and ‘On Demand’
Though the expressions ‘at sight’ and ‘on presentment’ mean on demand, yet instruments containing these
expressions bear a different significance from those that are expressed to be payable on demand. Instruments
expressed to be payable on demand need not necessarily be presented for payment, whereas instruments
payable at sight or on presentment must be presented before payment can be demanded on them. Again,
though at sight means on demand yet for the purpose of limitation, a bill payable ‘at sight’ is regarded as
different from a bill payable on demand. In the former case, the period of limitation is three years from the date
when the bill is presented and in the latter case, the time is three years from the date of the bill or note.
As held by the Bombay High Court,605 the Bills of exchange have been made payable ‘90 days sight’. This can
only mean 90 days after sight because Bills are clearly made payable on expiry of 90 days after a specific point
of time.
[s 21.3] ‘After Sight’, ‘After Date’
The expression ‘after sight’ cannot be put in a bill or note by itself, without stating the period after sight at the
expiration of which, it would become payable. Notes and bills may be expressed to be payable at a certain
period after sight or after date or after the occurrence of a specified event, which is certain to happen, though
the time of its happening may be uncertain. Thus, a note or a bill may be made payable fifty days after sight or
six months after date or sixty days after the death of A. The expression ‘after sight’ is used differently in bills
and notes. In a note, it means that payment is not to be demanded till it has been exhibited to the maker,
because a note is incapable of acceptance; whereas in a bill, it means that the sight must appear in a legal
way, i.e., after acceptance, if the bill has been accepted, or after noting for non-acceptance or protest for non-
acceptance.606
605 Bank of India v Laffans India Exports Private Ltd, 1994(1) Bom CR 419 : 1994 Bank J 263 (Bom) at p 265.
606 Homes v Kerrison, (1810) 2 Taunt 323; Compbell v French, (1795) 6 TR 200, p 212.
Page 3 of 3
End of Document
[s 22] ‘Maturity’—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The maturity of a promissory note or bill of exchange is the date at which it falls due.
Days of grace.—Every promissory note or bill of exchange which is not expressed to be payable on demand, at
sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.
Page 2 of 3
Sections 22 to 25 lay down rules for determining the time at which negotiable instruments fall due. Negotiable
instruments payable on demand become due and payable at once, while instruments payable at sight or
presentment become payable on the instrument being presented. Instrument payable at a certain date after
sight or presentment become payable after such period.
[s 22.2] Days of Grace
Days of grace are days of indulgence, originally granted to the acceptor for the payment of his bill of exchange.
It was originally a gratuitous favour, but the custom of merchants has rendered it a matter of legal right. All
instruments other than those expressed to be, or in effect, payable on demand, are entitled to days of grace.
The following, therefore, are not entitled to days of grace: a cheque, a bill or note payable at sight, on
presentment or on demand, or one in which no time for payment is specified. However, days of grace are
allowed on all bills and notes that are expressed to be payable on a specified day, or at a certain period after
date, after sight, or at a certain period after the happening of a certain event.607 These days are allowed to
these instruments after the day on which they are expressed to be payable. Thus, a bill, not expressed to be
payable on demand, at sight or on presentment, is at maturity on the third day after the day on which it is
expressed to be payable. For example:
(i) A bill dated 30 November is made payable three months ‘after date’. It falls due on 3 March.
(ii) A note dated 1 January is payable one month ‘after date.’ It falls due on 4 February.
(iii) A bill dated 1 January is payable thirty days ‘after date.’ It falls due on 3 February.
(iv) A hundi payable on 28 January falls due on 31 January.608
(v) A hundi drawn on 7 May and payable after sixty-one days falls due on 10 July.609
Where an instrument is payable in instalments, it must be presented for payment on the third day after the day
Page 3 of 3
fixed for the payment of each instalment. Days of grace are allowed for each instalment.610 The use of the
word punctually in a note payable in instalments does not take away the days of grace to which the maker is
entitled.611 Days of grace form such an integral part of the contract on a negotiable instrument, in that where
days of grace are allowed on an instrument, the instrument must be presented for payment only on the last day
of grace. An earlier presentment is premature and void in order to charge the prior parties.612 Days of grace
were abolished in England in 1971.613 Earlier, it had been held that a cause of action does not arise until the
day next after the last day of grace, and that when a bill was dishonoured by non-payment by the acceptor on
the last day of grace, the holder was entitled to give notice of dishonour at once to persons whom he chose to
hold liable; but he had no cause of action on the bill against the acceptor or any other party until the day had
expired.614 It was, however, competent for the parties to a negotiable instrument to disallow, by contract, days
of grace by any language to that effect, such as, without grace, no grace etc. Under English law, express
provision had been made to this effect by section 14(1) of the Bills of Exchange Act, 1882. In India, though the
present section is not clear on the point, it seems open to parties to enter into such a contract that the
provisions of section 22 of the Act relating to days of grace would not apply to them.615
607 Brown v Harraden, (1791) 4 TR 148.
608 Nanak Singh v Kasho Das, (1915) 27 Ind Cas 608.
609 Ganga Prasad v Hira Lal, (1917) 39 All 86 .
610 Oridge v Sherborne, (1843) 11 M&W 374.
611 Schaverien v Morris, (1921) 37 TLR 366 .
612 Wiffen v Roberts, (1795) 1 Esp 262.
613 Pursuant to the Banking and Financial Dealings Act, 1971, section 3(2).
614 Kennedy v Thomas, [1894] 2 QB 759 .
615 Valliappa v Subramanian, (1914) 26 MLJ 494 .
End of Document
[s 23] Calculating maturity of bill or note payable so many months after date or
sight.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 23] Calculating maturity of bill or note payable so many months after date or
sight.—
In calculating the date at which a promissory note or bill of exchange, made payable a stated number of months
after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the
day of the month which corresponds with the day on which the instrument is dated, or presented for acceptance
Page 2 of 3
[s 23] Calculating maturity of bill or note payable so many months after date or sight.—
or sight, or noted for non-acceptance, or protested for non-acceptance, or the event happens, or, where the
instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for
honour, with the day on which it was so accepted. If the month in which the period would terminate has no
corresponding day, the period shall be held to terminate on the last day of such month.
Illustrations
(a) A negotiable instrument, dated 29 January 1878, is made payable at one month after date. The
instrument is at maturity on the third day after the 28 February 1878.
(b) A negotiable instrument, dated 30 August 1878, is made payable three months after date. The
instrument is at maturity on the 3 December 1878.
(c) A promissory note or bill of exchange dated 31 August 1878, is made payable three months after date.
The instrument is at maturity on the 3 December 1878.
This section corresponds to sections 14(2) to (4) and 65(5) of the Bills of Exchange Act, 1882.
[s 23.2] Maturity of Bills and Notes Payable After Sight
The section reproduces the English law as it was on the subject with one small difference. The English rule with
regard to bills of exchange made payable a stated number of months after sight, which have been accepted for
honour, was that the period stated should be held to terminate on the day of the month which corresponds to
the day on which the bill was accepted for honour.616 This rule has been changed by section 65(5) of the Bills
of Exchange Act, 1882, which now provides for calculating maturity from the date of noting for non-acceptance,
and not from the date of acceptance of honour. As stated by Chalmers:617 ‘This sub-section brings the law into
line with mercantile understanding, and gets rid of an inconvenient ruling that maturity has to be calculated from
the date of acceptance of honour’.
The Indian law still retains the old English rule. In the case of bills not accepted for honour, the period of
payment terminates on the day of the month that corresponds to the date of the instrument, or the day on which
it is presented for acceptance, or noted for non-acceptance, as the case may be.
Page 3 of 3
[s 23] Calculating maturity of bill or note payable so many months after date or sight.—
Where a note or a bill is expressed to be payable at a certain period after sight, or after a certain event, the
period of payment terminates on the date of the month that corresponds to the date of the instrument, or with
the day of acceptance if the bill is accepted, or presented for sight, or noted or protested for non-acceptance.
Where a bill of exchange is expressed to be payable at a stated period after sight, and has been accepted for
honour, the rule is that the period stated should terminate on the day of the month that corresponds with the
day on which it was accepted for honour. The last sentence of the section in effect means that the term ‘month’
in the bill or note means a calendar month, and not a lunar month.
Under section 24 of the Limitation Act, 1963, all instruments should be deemed to be made with reference to
the Gregorian calendar for the purpose of the Limitation Act.
[s 23.3] Usances
Continental bills are sometimes drawn at usances. A usance is the time that is fixed by the custom of countries,
for payment of bills drawn in one country and made payable in another. The length of a usance varies in
different countries. In commercial parlance, the term ‘usance bill’ is used to denote a bill payable at a future
date.
616 Williams v Germaine, (1827) 7 B & C 468, p 471.
617 Chalmer’s Bills of Exchange, 13th edn., p 231.
End of Document
[s 24] Calculating maturity of bill or note payable so many days after date or
sight.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 24] Calculating maturity of bill or note payable so many days after date or
sight.—
In calculating the date at which a promissory note or bill of exchange made payable a certain number of days
after date or after sight or after a certain event is at maturity, the day of the date, or of presentment for
acceptance or sight, or of protest for non-acceptance, or on which the event happens, shall be excluded.
Page 2 of 2
[s 24] Calculating maturity of bill or note payable so many days after date or sight.—
This section corresponds to section 14(2) and (3) of the Bills of Exchange Act, 1882.
[s 24.2] Determination of Time of Payment
The rule stated in this section is that where a bill or note is payable after date or after sight, or after the
happening of a specified event, the time of payment is determined by excluding the day from which the time
begins to run. Where a bill drawn payable at a fixed period after date is not dated, the date of its maturity is
calculated by computing the time from the date on which it was made.618
618 Giles v Brown, (1871) 6 M&S 73.
End of Document
[s 25] When day of maturity is a holiday—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument
shall be deemed to be due on the next preceding business day.
Explanation.—The expression ‘public holiday’ includes Sundays, 619[* * *] and any other day declared by the
620[Central Government], by notification in the Official Gazette, to be a public holiday.
Page 2 of 2
[s 25.2] Day of Maturity as Holiday, Explained
Under this section, all holidays are placed on the same footing, and unlike the English law, no distinction is
observed between bank holidays and other holidays.621 The section lays down a rule that has to be uniformly
applied whenever the day of maturity falls on a public holiday, and enacts that if the day on which the
instrument is payable is a public holiday, it is payable the next preceding business day. The rule is not
satisfactory and that instead of preceding business day, the instrument should fall due on the succeeding
business day.622 The powers which were given to the local government under the explanation to declare
holidays have been taken away from them and vested now in the Union Government as a result of listing ‘Bills,
Notes and Cheques’ as a Union subject.
619 The words ‘New Years day, Christmas day, if either of such days fall on a Sunday, the next following Monday;
Good Friday;’ omitted by section 3, Act 37 of 1955, section 3 (w.e.f. 1.4.1956).
620 Subs. by the AO 1937, for ‘Local Government.’
621 Section 14. If the last day falls on a bank holiday, the instrument is due and payable on the next succeeding
business day.
622 The Law Commission has also recommended this in its Eleventh Report.
End of Document
[s 26] Capacity to make, etc., promissory notes, etc—
PARTIES TO NOTES, BILLS AND CHEQUES
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 3 PARTIES TO NOTES, BILLS AND CHEQUES
Every person capable of contracting, according to the law to which he is subject, may bind himself and be
bound by the making, drawing, acceptance, indorsement, delivery and negotiation of a promissory note, bill of
exchange or cheque.
Minor.—A minor may draw, indorse, deliver and negotiate such instruments so as to bind all parties except
himself.
Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such
instruments except in cases in which, under the law for the time being in force, they are so empowered.
Page 2 of 7
[s 26.2] Contractual Capacity
The section lays down the rule that the capacity of a person to incur liability as a party to a bill, note or cheque,
is co-extensive with his capacity to contract. As a party to a bill, note, or cheque by doing any of the stipulated
acts undertakes certain liabilities, it is necessary that he should be competent to contract. If a party, who
purports to do any one of these acts, is legally incompetent to do so, the contract is void as against him.
However, the incapacity of one or more of the parties to a negotiable instrument in no way diminishes the
liability of the other competent parties thereto. The section declares that a person’s capacity to contract shall be
regulated by his personal law, i.e., the law to which he is subject.
[s 26.3] The Law to which he is Subject
Section 11 of the Contract Act, 1872 lays down that
every person is competent to contract, who is of the age of majority according to the law to which he is subject, and
who is of sound mind, and is not disqualified from contracting by any law to which he is subject.
[s 26.4] Minor
It is provided by the Majority Act, 1875 that for all persons domiciled in India, the period of minority should last
until the completion of the eighteenth year and in the case of persons who have had guardians appointed to
them by a court of justice, or have been brought under the court of wards, until the completion of the twenty-first
year.1
Under section 11 of the Indian Contract Act, 1872, a minor’s contract is absolutely void, and is incapable of
ratification after he attains majority.2 Contracts on bills of exchange and promissory notes, being generally
considered to be injurious to a minor’s interests, do not normally bind a minor and minors are incapable of
making themselves liable as makers, drawers, acceptors or indorsers on negotiable instruments.3
Page 3 of 7
Under the section, if a minor makes, draws or indorses a note or bill, the holder would be entitled to enforce the
instrument and receive payment on it against all parties except the minor. The minor himself cannot incur any
liability on the instrument by reason of such making, drawing or endorsing, and the instrument is wholly void as
against him. Thus, a minor acts as a channel to convey title and liability, but not to originate it.
Where there are several persons jointly mentioned in a bill or note as drawers, makers, acceptors or indorsers,
and one of them is a minor, though the minor cannot be sued, the other parties on that ground are not
discharged from liability. The holder can sue the adult parties without joining the minor.4 Though the section
does not deal with the case of acceptance of a bill or the making of a note by a minor, by accepting a bill or
making a note, a minor cannot bind himself. Such a bill or note is not enforceable against the minor but is
enforceable against the other adult parties. Where a minor and her father jointly executed a promissory note, it
was held that the father was liable thereon.5 A person who accepts a bill when he is of full age is liable on it,
though it was drawn when he was a minor.6 A person is not precluded under the section from denying the
validity of the note on the ground that he was a minor on the date of the note, since the general provision in
section 120 is subject to the specific rule in section 26.7 However, it seems that though a minor cannot incur
liabilities on a bill or note, he can acquire rights under it, and if he becomes the holder of a bill or note, he is
perfectly entitled to sue upon the instrument all the prior parties thereto.8A promissory note payable on demand
and executed in favour of a minor is not void so as to disentitle him to sue on it.9 However, such a suit must be
instituted in the name of the minor by his next friend.10
A minor cannot bind himself by a bill or note given by him for necessaries supplied to him.11 Though the minor
will not be personally liable on such a note or bill, the person who has supplied the necessaries is entitled to
reimbursement from the property of the minor.12 Even where a minor executes a note or bill on the
representation that he is of full age, it is not enforceable against him as the contract is void.13 Accordingly,
where a minor obtains a loan on a promissory note by falsely representing his age, he can neither be made to
pay the amount of the loan as damages for fraud, nor be compelled in equity to repay the money.14 Again, a
promissory note given by a person on attaining majority, in renewal of a note executed by him while he was a
minor, is also void in law for want of consideration.15 When a minor, within three months of turning 21,
accepted a bill payable six months after date and ratified the transaction on his attaining majority, it was held
that he was not liable on his acceptance.16
In Koncha Hanuma Reddy v Koppuravari Satyanarayana,17 a promissory note was executed in favour of minor
and his father. Father subsequently made a transfer of that pronote in favour of the appellants. No mention was
made in the endorsement about the interest of the minor. When the appellant made a claim for recovery on the
basis of said pronote based upon transfer endorsement, it was held by the Andhra Pradesh High Court that
since the minor’s interest was not represented and as the interest of father and minor under that promissory
Page 4 of 7
note were inseparable so much so that the rights arising through it could not be split, hence appellant was not
entitled to maintain his claim on the basis of the said promissory note.
[s 26.5] Lunatics, Persons of Unsound Mind, Drunken Persons
It may be stated as a general principle that want of capacity, arising from any source, renders a contract void.
Accordingly, contracts of lunatics, persons of unsound mind and drunken persons are on the same footing as
agreements of minors, and are void. Bills and notes drawn or made by such persons are void as against them,
though the other parties remain liable. A promissory note or a bill of exchange executed by a lunatic or a person
of unsound mind is void against him, if that person was incapable of understanding it at the time of executing it
and forming a rational judgment on its effect on his interests.18 However, a person of unsound mind may bind
himself by a negotiable instrument entered into by him during a lucid interval. According to English law,
unsoundness of mind is not a valid defence, unless it is proved that the plaintiff had knowledge of the fact.19
The effect of drunkenness is the same, and a negotiable instrument executed by a drunken person will be void
against him, if he shows that it was made at such time, when by reason of drunkenness, he did not know what it
was about.20
[s 26.6] Other Disqualified Persons
Where a person suffers from some disqualification due to any law to which he is subject, he cannot enter into a
valid contract.21 A person may not be competent to contract due to the application of any local law, to which he
is subject. The provision covers not only a law, which the person is permanently subject to, but also a law,
which for the time being is applicable to that person. Thus, an insolvent is subject to laws of insolvency and can
only contract to the extent as provided under the Insolvency Act.
[s 26.7] Companies
Though the section says that a person having capacity to contract may bind himself by becoming a party to a
note or bill, the proviso to the section declares that a corporation forms an exception to this general rule. The
law for the time being in force with reference to corporations regulates the capacity of a corporation to make,
draw, accept and indorse a bill or note. Although a corporation possesses capacity to contract, it cannot, under
the section, so bind itself, unless it is empowered in this behalf by the law for the time being in force. The power
to bind itself by notes, bills and cheques is not necessarily implied in the general power possessed by a
corporation to enter into a contract. A corporation, being an artificial creation of law, possesses only such rights
which the charter of its creation confers upon it, either expressly or as incidental to its very existence.22 The
contractual capacity of a corporation or company depends generally upon the purposes for which it is formed,
as set forth in the charter of incorporation or memorandum of association by which it is constituted.
Page 5 of 7
If a corporation exceeds its powers in this behalf, and executes a negotiable instrument, the act is ultra vires the
corporation, and absolutely void and incapable of ratification even by the unanimous assent of all its members.
On such a note or bill, even a bona fide holder for value cannot make the corporation liable.23 However, it is
not necessary that such a power be expressly stated in the charter or memorandum of association. Such a
power can be implied, as necessary and incidental to the company’s main objects as disclosed in the charter or
memorandum of association. Thus, a corporation or a company formed for the purpose of carrying on trade has
the capacity to draw or indorse notes and bills. The courts will presume that a business corporation or company
has the power to do those acts without which, it cannot subsist as a corporation or a company carrying on
business according to a charter or memorandum.24 A non-trading corporation or company cannot exercise
such powers, unless such powers are expressly given by its charter or memorandum of association.25
The section does not purport to make any provision of substantive or procedural law. The latter part of the
section merely establishes that a company cannot claim authority to issue a cheque under its first part. The law
with regard to a company’s power to issue negotiable instruments is to be found in the relevant provisions of
the Companies Act, 1956.26 Section 4727 of the Companies Act 1956, states that a bill of exchange, hundi or
promissory note shall be deemed to have been made, accepted, drawn or indorsed on behalf of a company if
made, accepted, drawn, or indorsed in the name of, or on behalf of, or on account of the company by any
person acting under its authority, express or implied. Where an instrument is apparently drawn on behalf of a
company, the onus is upon the company to show that the instrument is not binding on it.28
Where a promissory note was executed in Tamil by Ramanatha Reddiar, proprietor of Sri Rajagopal Bus
Transport, and the money was utilised for the purchase of a bus for Sri Rajagopal Transports Private Ltd of
which, Ramanatha Reddiar was the managing director, in a suit on the note, it was held that the company was
liable since the intention was made clear in the note.29
Section 147 of the Companies Act, 1956 requires every company to have its name mentioned in legible
characters in all bills of exchange, hundis, promissory notes, indorsements, cheques and orders for money or
goods purported to be signed by or on behalf of the company and the company shall be punishable with fine for
non-compliance with the statutory requirement. Further, if an officer of a company, or any person on its behalf
signs, or authorises to be signed, any bill of exchange, cheque, etc wherein the company’s name is not so
mentioned, such officer or person shall also be punishable with fine and shall be personally liable to the holder
of the instrument for the amount thereof, unless it is duly paid by the company.
Similar provisions are contained in sections 108 and 349 of the Companies Act 1985 of England. English courts
have taken a strict view in this regard and have held company officials personally liable on dishonoured
Page 6 of 7
cheques, which had not described correctly the names of the drawer—companies concerned as in British
Airways Board v Parish30 where ‘Ltd’ had been omitted from the company’s name, and Barber & Nicholls Ltd v
R&G Associates (London) Ltd31 where ‘London’ had been omitted from the company’s name, on cheque
drawn on the respective company’s account.
1 As regards persons not so domiciled, see Rollo v Smith, 1 BLR 10.
2 Mohori Bibi v Dharmodas Ghose, (1926) 30 Cal 539 ; Dattaram v Vinayak, (1904) ILR 28 Bom 181.
3 Ma Hint v Hashim, (1920) 38 Mad LJ 353.
4 Burgess v Merill, (1812) 4 Taunt 468; Boyle v Webster, [1852] 17 QB 950 .
5 Sulochana v Pandyan Bank Ltd, AIR 1975 Mad 70 .
6 Stevens v Jackson, (1815) 4 Camp 164.
7 Chengal Roya v Nainappa, (1938) 177 IC 133 .
8 Warwick v Bruce, (1813) 2 M&S 205.
9 Sathrurasu v Bassappa, (1913) 24 Mad LJ 363.
10 Code of Civil Procedure 1908, O XXXII, rule 1.
11 Re Soltykoff, ex p Margrett, [1891] 1 QB 413 .
12 Williams v Harrison, (1689) Carthey Rep 160; see also, the Indian Contract Act, 1872, section 68.
13 Kanhai Lal v Babu Ram, (1911) 8 All LJ 1058; Dharasingh v Gayanchand, (1918) 16 All LJ 441.
14 R Leslie Ltd v Sheill, [1914] 3 KB 607 ; Mohamed v Yeoh Ooi, (1918) 43 IA 256 .
15 Indra v Anthiappa, (1906) 16 Mad LJ 422.
16 Ex p Kibble, (1875) LR 10 Ch App 373.
17 Koncha Hanuma Reddy v Koppuravari Satyanarayana, 2 CrLJ 155 [NOC] (AP).
18 Section 12 of the Indian Contract Act, 1872.
19 Imperial Loan Cov Stone, [1892] 1 QB 599 .
20 Molton v Camroux, (1849) 4 Ex 17 .
22 British South African Co v De Beers Consolidated Mines, [1910] 1 Ch 354 .
23 Broughton v Manchester Water Works Co, (1819) 3 B & Ald 1.

Page 7 of 7
24 Mayor of Ludlou v Charlton, (1840) 6 M&W 815; South of Ireland Colliery Co v Waddle, (1867) LR 4 CP 617;
Shamnuggar Jute Factory Co v Ram Narain, (1887) 14 Cal 189 .
25 Bateman v Midlands Railway Co, (1886) LR 1 CP 499, p 505; Wheatley v Smithers, [1907] 2 KB 684 ; Harmer v
Steele, (1845) 4 Ex; Rickets v Bennett, (1847) 4 CB 595 , p 699.
26 Oriol Industries Ltd v Bombay Mercantile Bank Ltd, AIR 1961 SC 993 , p 996.
27 Section 47 of the Companies Act, 1956 corresponds to section 22 of the Companies Act, 2013
28 Kishan v Mondal Bros & Co Ltd, 1967 Cal 75 .
29 P Rangaswami Reddiar v R Krishnaswami Reddiar, (1973) 43 Comp Cas 232 .
30 British Airways Board v Parish, (1979) 2 Lloyd’s Rep 361.
31 Barber & Nicholls Ltd v R&G Associates (London) Ltd, (1981) 132 NLJ 1076.
End of Document
[s 27] Agency—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 27] Agency—
Every person capable of binding himself or of being bound, as mentioned in section 26, may so bind himself or
be bound by a duly authorized agent acting in his name.
A general authority to transact business and to receive and discharge debts does not confer upon an agent the
power of accepting or indorsing bills of exchange so as to bind his principal.
Page 2 of 6
[s 27] Agency—
An authority to draw bills of exchange does not of itself import an authority to indorse.
This section corresponds to sections 25 and 26 of the Bills of Exchange Act, 1882.
[s 27.2] Principal and Agent
The section deals with authority and power of a person to bind another by acting on his behalf. It provides that
every person capable of binding himself or being bound by the making, drawing, acceptance, indorsements,
delivery and negotiation of a promissory note, bill of exchange or cheque, may so bind himself or be bound by a
duly authorised agent acting in his name.
An agent who signs a negotiable instrument for his principal may do so in one of two ways:
(i) the agent may simply sign the principal’s name, for it is immaterial whose hand actually signs the
principal’s name, if in fact, there exists an authority to put it there;
(ii) the agent may sign by procuration, stating on the face of the instrument that he signs as agent.
It is a general principal of commercial law that the name of the person or firm sought to be charged upon a
negotiable instrument as a principal party must be clearly stated on the face or on the back of the instrument.
By doing so, the responsibility is made plain and can be instantly recognised as the document passes from
hand to hand. The principal’s name must be so disclosed on the instrument that on a fair interpretation of it, it
becomes quite apparent that his name is the name really liable upon the instrument.32 The effect of the section
is that the principal could only be made liable through his agent on a negotiable instrument when the agent acts
in the principal’s name, i.e., when he signs as agent, and that an undisclosed principal cannot be sued on a
Page 3 of 6
[s 27] Agency—
It is essential that at the time of putting his signature to the instrument, the agent must have authority, express
or implied, to enter into the particular contract on behalf of his principal, who shall be legally competent to
contract. The authority of an agent to make, draw, accept or indorse notes and bills depends upon the general
law of agency, and is a question of fact. Utmost care and caution are required in dealing with persons who
profess to act as agents on behalf of their principals. A prudent man will always call for proof that the alleged
authority has been given.
The authority given may either be general or special. In case the authority given is general, then all acts falling
within the scope of the general authority bind the principal. However, if the authority given is merely a special
one, the principal can only be bound by the acts done within such authority.
A signature by procuration operates as a notice that the agent has only a limited authority to sign, and that the
principal will only be bound, if the agent so signing, was acting within the actual limits of his authority. Hence, a
person who takes a bill signed per procurationem must take it with the greatest caution, and should satisfy
himself that the authority alleged to exist really exists.33 Where a person signs a note or bill on behalf of
another without the other’s authority, or in excess of the authority conferred upon him, the signature is wholly
inoperative, and the principal will not be liable in the absence of ratification or estoppel.34 The person, who
takes such a note or bill acquires no title to it. If an agent indorses without authority a bill on behalf of his
principal, the indorsement does not convey title to the person taking it.35 An authority to sign and negotiate
notes and bills must be expressed in clear and unequivocal terms.
The section provides that a general authority to transact business, and to receive and discharge debts, does
not confer upon an agent, the power of accepting or endorsing bills of exchange so as to bind his principal.36
An authority to draw bills of exchange does not itself import an authority to indorse. An authority to indorse does
not import an authority to accept a bill. Special authorities given to an agent to make, draw, accept or indorse
notes or bills are construed strictly. Where there is a special authority to accept or indorse, the authority may be
limited to the acceptance or indorsement of bills drawn by particular persons, or for a particular purpose or in a
particular form.37
On a plain reading of sections 27 and 28, it is clear that a general authority to transact business and to
discharge debts does not confer upon an agent, the power of endorsing bills of exchange so as to bind the
principal.38 Nor can an agent escape personal liability, unless he indicates that he signs as an agent and does
not intend to incur personal liability.39
Page 4 of 6
[s 27] Agency—
In J Ramaraj v Iliyaz Khan,40 a contract for supply of goods was entered intoin which the accused (Petitioner
before High Court) transacted business purportedly on behalf of the company of which he claimed to be a
commission agent. Upon the cheque being dishonoured due to insufficient funds, the accused took a plea that
the cheques were signed by him only as an agent of the company which was the principal. He pleaded that he
was merely a commission agent and urged that it was the principal and not the agent who should be held liable.
However, rejecting his plea, the Karnataka High Court held that the petitioner, being a signatory to the cheque,
renders himself liable and shall be liable to be proceeded against. It was further held to be well settled that
company alone or the person-in-charge of business of company alone or both can be prosecuted for offence
under section 138 of the Act.
[s 27.3] Partners
The law, which regulates the liability of partners for the acts of their co-partners is a branch of the law of
agency. In the contemplation of law, every partner is the general and accredited agent of the partnership, and
each partner, who does any act necessary for or usually done in carrying on the business of such a partnership
as that of which he is a member, binds his co-partners. Thus, in a trading firm, each partner has prima facie
authority to bind his co-partners by drawing, making, signing, endorsing, accepting, transferring, negotiating or
procuring notes, bills, cheques and other negotiable papers to be discounted in the name and on account of the
partnership.41 A partner of a non-trading firm has no such implied authority to bind his co-partners by signing
bills or notes in the partnership name. A partner can bind the firm only if he has express authority to do so and it
is incumbent upon anyone taking such bills or notes to satisfy himself, as to the extent of the partner’s
authority.42
A firm cannot be made liable on a negotiable instrument signed by a partner of a firm, unless it is signed by him
in the name of the firm. Thus, where a bill or note is signed by a partner in the name of a trading firm, it binds
and renders liable all the partners in that firm, whether working, dormant, or secret, for credit is generally given
to the firm, whomsoever it may consist of.43 Where a partner executes a note or bill, and the same is not
signed by him as a partner or on behalf of the firm, but in his own name only, it does not bind or render liable
the other partners, even though, it was drawn for the benefit of the firm and in consideration of an advance
made on account of the joint trade.44 A promissory note passed by one of the partners, not in the name of a
firm but in his individual capacity, is binding on him alone and not on the other members of the firm.45
In two of three promissory notes signed by a partner of a firm, it was indicated that he was signing on behalf of
Page 5 of 6
[s 27] Agency—
the firm. In the third, there was no such indication, though it was mentioned that he was a partner of the firm.
The firm was held to be liable on the first two notes and not on the third.46
Where there is a conflict between sections 19 and 22 of the Indian Partnership Act, 1932 and sections 26–28 of
the NI Act, the latter Act will prevail. A claim against a firm based on a written contract by one partner in the
course of business with authority to act will be held to bind the firm. However, when such a claim is made on
the strength of a promissory note or bill of exchange, the firm will be held liable on the instrument only if it
clearly discloses the firm’s liability. A firm was held liable on three promissory notes executed on the firm’s
letterheads and signed by a partner, though it had not been indicated that he was signing on behalf of the firm,
and in one note, he was described as the managing partner.47
[s 27.4] Hindu Joint Family
The karta or manager of a Hindu joint family represents the family in all its dealings with the outside world and
has an implied authority to contract debts on behalf of the family and for that purpose also has an implied
authority to pledge the credit of the family where he carries on the family business.48 Thus, where a note or bill
is executed by the manager of a Hindu joint family for monies borrowed for the family purposes, or for the family
business, the same is binding on all the members of the joint family, and can be enforced against them.49 On
such an instrument, the other members of the family cannot escape liability on the ground that it was not made
or signed by them but by the manager.50 A manager of a joint Hindu family who executes a promissory note as
manager for family purposes can be sued on the note so as to bind the family just as effectively as if he had
executed a mortgage or a bond. The manager of a Hindu joint family is not an agent of the other coparceners.
He is not like a partner who can be treated as an agent of the other partners and sections 26, 27 and 28 of the
Act do not apply to the case.51 The minor members of the joint family are equally liable with the major
members to the extent of their shares.52
32 Sadasuk Janki Das v Kishen Prashad, (1919) 46 Cal 663 .
33 Attwood v Munnings, (1827) 7 B&C 278; Alexander v Mackenzie, (1848) 6 CB 766 ; Smith v Prosser, [1970] 2 KB 735
.
Page 6 of 6
[s 27] Agency—
34 Bank of Bengal v Mcleod, (1851-54) 5 MIA 1.
35 Bank of Bengal v Fagan, (1851-54) 5 MIA 27.
36 Hogg v Smith, (1808) 1 Taunt 347; Murray v East India Co, (1821) 5 B & Ald 204.
37 Altwood v Munnings, (1827) 7 B&C 278; Fearn v Felica, (1844) 14 LJCP 15.
38 Punjab National Bank v Britannia Industries Ltd, (2001) 2 BC 707 (DB).
39 Pramod Kumar v Damodar, (1953) ILR Cut 221.
40 J Ramaraj v Iliyaz Khan, 2007 CrLJ 902 Kar.
41 Bank of Australasia v Breillat, (1847) 6 Moo PCC 152, p 193.
42 Premabai v TH Brown, 10 BHCR 319; Brown v Byers, (1847) 16 LJ Ex 112 ; Dickinson v Valpay, (1829) 10 B&C 125;
A Subbaraju v C Suryanarayanamurthy, (1966) 1 Andh WR 178.
43 Lloyd v Ashby, (1831) 2 B & Ald 23; Bunarasse Das v Gholam Hossein, (1869-70) 13 MIA 358; Gurram Subharayudu v
MP Narasimham, AIR 1974 Andh Pra 307 .
44 Somasundaram v Krishna Murthi, (1907) 17 Mad LJ 126; Kutti Ammu v Raggi Seth, (1911) 9 Mad LT 120; Yorkshire
Banking Co v Beatson, (1880) 5 CPD 109 .
45 Sharanbasappa v Rachappa, (1933) 35 Bom LR 68 .
46 MM Abbas Bros v Chetandas, AIR 1979 Mad 272 ; Johnstone v Mst. Jan Bibi, AIR 1928 Lah 722 ; Rangaraju v Firm
Devichand Bhootaji, AIR 1945 Mad 439 .
47 M Rajagopal v KS Imam Ali, AIR 1981 Ker 36 .
48 Sakhabhai v Maganlal, (1881-82) ILR 6 Bom LR 206; Abdul Majid v Saraswathi, 1934 PC 4 .
49 Raghunath Singh v Sri Narayan, (1923) 45 All 434 .
50 Pachkauri Lal v Mulchand, (1922) ILR 44 All 544.
51 Shankarrao v Vinayak, 1945 Nag 806.
52 Raghunathji v Bank of Bombay, (1880-1881) ILR 5 Bom 72; RP Koneti Naicker v T Gopala Ayyar, (1915) ILR 38 Mad
482.
End of Document
[s 28] Liability of agent signing—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

An agent who signs his name to a promissory note, bill of exchange or cheque without indicating thereon that
he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the
instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.
Page 2 of 8
[s 28.2] Agent, how to Sign in Order to Avoid Personal Liability
When an agent signs or indorses a negotiable instrument, he must signify thereon the capacity in which he
does so otherwise he will make himself personally liable upon the instrument. Unless the agent has clearly
affixed his signature to an instrument on behalf of a principal, who is disclosed, or unless he has in some
portion of the document clearly and unequivocally disclaimed personal liability, he will remain personally liable.
An agent who signs a promissory note, bill of exchange or cheque for his principal may sign the principal’s
name only. Otherwise, to exclude personal liability he must state on the instrument itself that he signs as agent,
or that he does not intend to incur personal liability. D, the chairman of a ‘weavers’ co-operative society,
executed a promissory note, in which he described himself as the chairman of the society and agreed to pay
the amount of the promissory note, but did not exclude his personal liability or state that he was making the
note on behalf of or on account of the society. On a suit by the plaintiff to recover the amount of the note, it was
held that as there were no words excluding the personal liability of D in the note and as he was a party to the
negotiable instrument, he was personally liable.53Lord Ellenborough stated in Leadbitter v Farrow:54
Is it not a universal rule that a man who puts his name to a bill of exchange thereby makes himself personally liable,
unless he states on the face of the bill that he subscribes for another or by procuration of another which are words of
exclusion? Unless he says plainly, ‘I am the mere scribe’ he becomes liable.
The section, in effect, embodies the principle of the above decisions. The Act does not specify the manner in
which an agent is to indicate that he signs as agent but any words which clearly indicate that intention will be
sufficient to protect the agent. Thus, an agent may sign by adding to his signature such words as sansrecours,
‘without recourse’, or other words to that effect. Again the words ‘per pro’, i.e., per procurationem, are often
prefixed by an agent to the name of his principal. The best manner for an agent to sign or indorse a negotiable
instrument, where he wishes to make his principal liable, is to sign or indorse the same as follows:
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(a) ‘For James Robinson, Richard Brown.’
(b) ‘James Brown, by his agent or attorney Richard Smith.’
(c) ‘James Brown, by Richard Harris.’
(d) ‘James Brown, agent for Richard Smith.’
(e) ‘For the AB Railway Co, XY, Secretary.55
(f) ‘Hudson Co Ltd, James Brown, Managing Director.’56
In all the above cases, the agent is not personally liable. The signature, however, must not be such as merely
to describe him in his capacity as agent, or as filling a representative character, for this does not exempt him
from personal liability. An agent, therefore, who signs a negotiable instrument, cannot escape personal liability
thereon by the mere addition to his signature of words describing him as agent.57 In making a promissory note
or accepting a bill, where parties describe themselves as directors, or by any similar form of description, but do
not state on the face of the document that it is on account of or on behalf of those whom they might otherwise
be considered as representing—if they merely describe themselves as directors, but do not state that they are
acting on behalf of the company—they are individually liable.58
Thus, an agent, who signs or indorses a negotiable instrument, cannot escape personal liability thereon, by the
mere addition to his signature of such words as ‘agent’, ‘secretary’, ‘manager’ or ‘director’ because such words
are merely descriptive and are regarded as designatio personae. When the executant of a promissory note
described himself as the managing director of a firm, it was not indicative of the fact that he was acting on
behalf of the firm and the firm was held not liable.59
When, in a promissory note written in an Indian language, the signer, after giving his own description, adds that
he is the agent of another, it means that he is acting as the other’s agent in executing the note.60
In Tirumalareddi Ramagopalal Reddy v Bhimavarapu Paravathi,61 the third appellate omitted to mention that
she was executing the instrument note on behalf of her minor son and signed it as if she was executing it for
herself. The Andhra Pradesh High Court held that if third appellant intended to execute the instrument on behalf
of minor, she ought to have mentioned in the instrument that she was signing the instrument on behalf of the
minor and since she omitted to do so, she was personally liable under the instrument.
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In the following cases, the agent is personally liable:
A bill of exchange signed:
(a) James Brown;
(b) Directors of AB Co Ltd;
(c) Richard Harris William Smith;62
(d) ‘We, the directors of the AB Co Ltd, promise to pay Rs 10,000;
(e) (Signed) James Brown, Richard Harris;63
(f) A bill indorsed, ‘James Brown, Agent.’
(g) A note signed, ‘James Brown, Manager.’
(h) A note signed, ‘James Brown, Secretary of AB Co Ltd.’
The managing director of a company was personally liable on a promissory note to the payee in the absence of
any indication therein that the maker was acting on behalf of the company, although the company later agreed
to repay the debt.64
Where the wahiwatdar of a temple executed a promissory note, without indicating that he was acting for the
temple management, he was held to be personally liable.65
The karnawan of a tarwad was held personally liable on a promissory note executed by him in his own name,
although in the body of the note he had described himself as the karnawan of the tarwad.66
Where the plaintiffs drew a bill prepared by them on the defendants and the bill got accepted on behalf of the
defendants by one of their directors but the name of the defendants was wrongly mentioned in the bill as M
Jackson (Fancy) Good Ltd instead of Michael Jackson (Fancy) Goods Ltd and the error was not rectified, the
director was held to be personally liable. However, the plaintiffs could not enforce the liability as they were
deemed to have taken the acceptance as regular.67 Two officials of a company had indorsed certain bills
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apparently on behalf of the company. The same officials had also signed the bills on behalf of the company as
the acceptor. Evidence showed that the payees had taken the bills on the understanding that the officials would
be personally liable on the bills apart from the company’s liability as acceptor. The officials were held to be
personally liable on the indorsements.68
[s 28.3] Minor’s Liability
The issue of the liability of a minor on negotiable instruments executed by his guardian raises some difficulties.
It is a well-recognised principle that a guardian cannot impose personal liability on a minor and if a note or any
other negotiable instrument is to be regarded as an undertaking merely to pay out of the minor’s estate, it is not
a negotiable instrument as there is no ‘unconditional undertaking to pay.’69 Where the creditor, not being
satisfied by a mere promise on the part of the guardian to pay, secures his right by way of mortgage or charge
of the minor’s property, which is certainly in the power of a guardian to give, the minor’s estate will be liable.70
Where a guardian signed his name alone across the stamp on a note and below it, he signed his name as
guardian of a minor, he was held personally liable on the note.71
[s 28.4] Non-Liability of Undisclosed Principal
It is a general principle of mercantile law that no person can be charged as a principal party to a negotiable
instrument unless his name is in some way disclosed on the instrument itself. Thus, an undisclosed principal
cannot be used on a negotiable instrument, because in the case of such instruments passing from hand to
hand, usage requires that the real contract should appear on the face of the instrument. Accordingly, the
section forms an exception to the general law relating to contracts that a principal, though undisclosed, may be
sued if it is discovered that some agent acted for him. It has been held that the general provisions of the Indian
Contract Act, 1872 as to the rights and liabilities of undisclosed principals, were not intended to alter the well-
established rules as to negotiable instruments, which declare that no person could be sued on an instrument,
unless he appears as a party by name or designation on the face of the instrument.72 Where a person draws a
negotiable instrument, and it does not appear on the face of it that he drew it as agent, he cannot set up as a
defence that he drew the bill as an agent.73
It is the essence of a claim upon a negotiable instrument that the person executing the document should
disclose on the face of the document itself that he is not personally liable and that he is executing it for
someone else.
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The name of the person or firm to be charged upon a negotiable instrument must be clearly stated on the face
of or on the back of the document, so that the responsibility is made plain and can be instantly recognised as
the document passes from hand to hand, and further, the principal’s name must be disclosed in such a way that
on any fair interpretation of the instrument, his name is the real name of the person liable.74 Where a
promissory note was executed by the managing partner of a firm in his individual capacity, even assuming that
the borrowed amount had been utilised by the firm, the firm cannot be made liable on the note.75 It is not open
by way of claim or defence to show that the signatory was, in reality, acting for an undisclosed principal.76
Where a person executes a promissory note in his own name and not as an agent acting in the name of
another, the maker whose name appears on the promissory note can alone be made liable thereunder. Hence,
members of a joint Hindu family cannot be held liable in a suit filed on a promissory note signed by one of its
members in his individual capacity, even though the maker of the promissory note may be proved to be the
manager of the family.77 In a suit on a promissory note, the person signing the document is the person actually
liable. It is not open either by way of claim or of defence, nor is any evidence admissible, to prove that the
signatory executed it on behalf of an undisclosed principal.78 In deciding whether the maker of a promissory
note executed it as an agent of someone, the instrument alone can be looked into and not the surrounding
circumstances.79
[s 28.5] Agent Exceeding Authority
When a person signs a bill or note on behalf of another without authority or in excess of the authority conferred
upon him, what remedy the holder has against the person so signing? The principal cannot generally be held
liable to the holder unless he has ratified the agent’s act or is estopped from denying the agent’s lack of
authority. The holder cannot proceed against the principal, if the holder had knowledge of the agent’s want of
authority. Otherwise, the holder may proceed against the agent in an action for damages for deceit, and for a
breach of the warranty of authority.80
In J Ramaraj v Iliyaz Khan,81a contract for supply of goods was entered intoin which the accused (Petitioner
before High Court) transacted business purportedly on behalf of the company of which he claimed to be a
commission agent. Upon the cheque being dishonoured due to insufficient funds, the accused took a plea that
the cheques were signed by him only as an agent of the company which was the principal. He pleaded that he
was merely a commission agent and relied upon section 28 of the Act to urge that it was the principal and not
the agent who should be held liable. However, rejecting his plea, the Karnataka High Court held as follows:
12. …If really the petitioner was serious, he would have sought the complainant to produce the records in this regard
and the account books maintained by him nor has he himself produced any account books maintained by him in this
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regard. It appears as an alternative defence, petitioner has tried to shift the burden stating that it is the company which
is the principal and the petitioner is only a commission agent and relying upon section 28 of the Negotiable Instruments
Act, contended that the principal is liable and not the commission agent. In this regard, the petitioner has also sought
the assistance of various provisions under the Negotiable Instruments Act to stand by his contention that primarily the
principal is liable and not the agent. Even as per section 141 of the Negotiable Instruments Act, the petitioner being an
agent who had transacted the business on behalf of the company and much less he is signatory to the cheque renders
himself liable and shall be liable to be proceeded against. It is well settled that company alone or the person-in-charge
of business of company alone or both can be prosecuted for offence under section 138 of the Negotiable Instruments
Act.
53 Damodar v Ramnath, (1933) 34 Bom LR 1327 .
54 Leadbitter v Farrow, (1816) 5 M & S 345, p 349.
55 Alexander v Sizer, (1869) LR 4 EX 102.
56 Chapman v Smethurst, [1909] 1 KB 927 .
57 Thomas v Bishop, (1734) 2 Stra 955; Rem v Pettet, (1834) 1 A&E 196.
58 Dutton v Marsh, [1871] LR 6 QB 361, per Lord Cockburn CJ.
59 Chandan Mai v Musammat Krishna, (1945) ILR 20 Luck 1.
60 Sivagurunatha v Padmavathi, AIR 1941 Mad 417 .
61 Tirumalareddi Ramagopalal Reddy v Bhimavarapu Paravathi, (2004) III BC 111 : (2004) II BC 536 (AP).
62 Courtland v Sanders, (1867) 16 LJ (NS) 562.
63 Button v Marsh, [1871] LR 6 QB 361.
64 M Mahadeva Pillai v Vedavalli Ammal, AIR 1992 Mad 183 .

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65 B Radhakrishnan v Harihar Ramachandra Sansthan, (1971) Mah LJ 43 .
66 P Govindan Nair v K Nana Menon, (1914) 27 Mad LJ 595 (FB).
67 Durham Fancy Goods Ltd v Micheal Jackson(Fancy) Goods Ltd, [1968] 2 All ER 987 .
68 Rolfe Lubell & Co v Keith, [1979] 1 All ER 860 .
69 Wagela Rajsanji v Sheikh Masludin, (1887) ILR 11 Bom 551 (PC); Mir Sarwarjan v Fakhruddin, (1912) 39 Cal 232
(PC).
70 Hanooman Persaud v Mussamut Babooee, (1854-1857) 6 MIA 393.
71 Seshagiri v Seshagiri, (1935) Mad 160.
72 Subba Narayana v Ramaswami, (1907) ILR 30 Mad 88, p 91.
73 Tarachand v Mohesh Chunder, 2 WR 30.
74 Suraj Bahu v Jaitley & Co, AIR 1946 All 361 .
75 Rama Rao v Venkateswara, (1962) 1 Andh WR 247; Adaikappa Chettiar v Official Assignee, Madras, (1969) 2 Mad LJ
115.
76 Sadasuk v Kishan Prashad, (1919) 46 IA 33 ; Sitaram v Chimandas, (1928) 30 Bom LR 1300 ; Sivagurunatha v
Padmavathi, AIR 1941 Mad 17 (FB) relied on in Pillai v Manuel, 1964 Ker LT 164 .
77 Manchersha v Govind, (1900) 2 Bom LR 1305 ; Soma v Soma, AIR 1962 AP 92 .
78 Pramod Kumar v Damodar, (1953) ILR Cut 221.
79 JL Lourenco v Xec Hameza, AIR 1975 Goa 29 .
80 Polhill v Walter, 3 B & Ad 114.
81 J Ramaraj v Iliyaz Khan, 2007 CrLJ 902 Kar.
End of Document
[s 29] Liability of legal representative signing—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A legal representative of a deceased person who signs his name to a promissory note, bill of exchange or
cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by
him as such.
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[s 29.1] Nature and Scope of Personal Liability of Legal Representative upon Signing
If an executor or an administrator or a legal representative makes or indorses a bill or note in his own name
adding thereto, the words ‘executor’, ‘administrator’ or ‘legal representative’, he will still be personally liable
thereon, the representative terms being treated as mere surplusage.82
It has been held by Madras High Court that the terms ‘legal representative’ used in this section includes
executors and administrators. It was further held that it is not necessary for the applicability of this section that
the alleged executor should be an executor in fact.83
Thus, an executor is personally liable where he signs or indorses a bill or notes as follows:
(a) ‘AB, executor of CD’.84
(b) ‘AB, administrator of the estate of CD’.85
Where a promissory note titled ‘Estate of the late W’, was passed by the defendants who were described, as
‘executors of the estate of the late W’, in a suit to recover the amount from the defendants, it was held that
under the section, in the absence of express words limiting the defendant’s liability to the estate of the
deceased in their hands, they were personally liable to pay the amount.86 Unless, therefore, the legal
representative in signing a negotiable instrument expressly limits his liability to the extent of the assets received
by him, he will be held personally liable.87
A legal representative may sign or indorse as follows so as to exclude personal liability:
(a) ‘AB, executor of CD, without recourse.’
(b) ‘AB, executor of the said CD, without recourse against me personally.’
(c) ‘AB, executor of CD, with recourse against the estate of the said CD only.’
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The legal representative of the deceased holder of a promissory note can file a suit for the recovery of the
money due on the promissory note.88
82 Liverpool King v Thorn, (1876) 1 TR 487.
83 Koyyalamudi Subbanna v Koduri Subbarayudu, AIR 1926 Mad. 390 [DB] : 92 Ind. Cas. 805 : (1926) 50 MLJ 125 .
84 Bank v Walker, (1859) 4 De G&T 24.
85 Childs v Monins, (1821) 2 Brod & B 460.
86 Hirijibhoy v Ratnabai, (1934) 35 Bom LR 969 ; Radhakrishnan v Narainibai, AIR 1963 MP 191 .
87 Ammalu v Parwathi, (1917) 33 Mad LJ 631.
88 Shantaram v Shantaram, (1938) 40 Bom LR 964 .
End of Document
[s 30] Liability of drawer—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to
compensate the holder, provided due notice of dishonour has been given to, or received by, the drawer as
hereinafter provided.
Page 2 of 5
[s 30.2] Liability and Nature of Drawer’s Engagement
The acceptor is primarily liable to pay the amount of a bill that has been accepted. If the drawee declines to
accept a bill, or having accepted it refuses or fails to pay at the stipulated time, then under the section, the
drawer becomes liable to the holder. The nature of the drawer’s engagement is that, by drawing a bill, he
engages that:
(a) on due presentment, it shall be accepted and paid according to its tenor; and
(b) if it be dishonoured, he will compensate the holder or any indorser, provided notice of dishonour has
been duly given to him.
The contract of the drawer of a bill of hundi is a conditional one. The drawer only undertakes to pay the amount
of the bill in case of dishonour, so there is no demand or debt until dishonour.89 Once the bill is dishonoured
and notice of dishonour given, whatever may be the state of account between the drawer and the drawee, the
former becomes liable to the payee for that amount which would place him at the stipulated time and place in
the same position as if the money has been duly paid.90 In the same manner, the liability of the drawer under
the section arises when a bill is dishonoured by non-acceptance, for it is a part of the drawer’s engagement that
on due presentment, the bill will be accepted by the drawee. On dishonour of a bill by non-acceptance, followed
by a notice of dishonour, the right to sue the drawer for the full amount of the bill immediately accrues to the
holder and there is no need to wait till the maturity of the bill or to present it to the drawer for payment.91 If the
holder of a bill of exchange that has been dishonoured by non-acceptance chooses to wait till the maturity of
the instrument, and does not sue the drawer upon it, he does not acquire a fresh cause of action by reason of
its non-payment on the due date. By the non-acceptance, the holder acquires the most complete right of action
against the drawer, and no subsequent act or omission of the drawer can give the holder a more extensive right
against the drawer than he has already acquired. Similarly, the dishonour by non-acceptance of a hundi
payable at a fixed date gives an immediate cause of action against the drawer, and there is no need to wait
until the maturity of the hundi, or to present it for payment before proceeding against the drawer.92
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In an action on a bill, the drawer cannot plead a collateral agreement as a defence.93 The drawer of a bill,
however, can exclude or limit his liability upon the bill through an express stipulation. Thus, ‘pay X or order
without recourse to me, pay X or order sans recours’, ‘pay X or order at his own risk, are cases in which the
drawer’s liability is excluded or restricted. Bills under letters or credit are often drawn without recourse to the
drawer.
The drawer of a cheque cannot escape liability to the holder in due course by stopping payment.94 The
defendant gave a cheque to the plaintiff for payment of the price of the goods supplied. The cheque was drawn
on branch X of bank A. The plaintiff sent the cheque to bank B for collection. Bank B sent the cheque to branch
Y of bank A for realisation. Branch Y realised the amount from branch X, but before making over the sum
realised to bank B, bank A went into liquidation and bank B could not realise the money. It was held that
payments are always made on behalf of the bank, if the branch does not pay. This liability is not affected
because one branch pays the money to the other branch of the same bank. Bank A had failed to pay the money
by dishonouring the cheque, and, therefore, bank B could not be held liable to the plaintiff. Bank B’s liability
could only arise if money had been paid by bank A by honouring the cheque. It was further held that the
defendant was bound to pay his dues to the plaintiff and ifpayment of the cheque had failed by reason of his
bank going into liquidation, his liability still remained to pay the plaintiff. In this view, the defendant as the
drawer of the cheque was the principal party liable.95
In National Insurance Co Ltd v Yellamma,96 the insured had tendered a third-party cheque as a consideration
for the policy but the insurer insisted on the personal cheque of the insured and refused to accept a third party
cheque. An erroneously issued cover note was also withdrawn by the insurer upon finding the factum of a third-
party cheque. On these facts, in the context of section 6 and section 30 of the Negotiable Instruments Act, the
Supreme Court noticed that the cheque tendered by the third party on behalf of the insured was not encashed
and opined that cheque is a valid mode of payment subject to its realisation.
The presumption of law in cases of acceptance of a cheque in payment of a debt is that if it is dishonored, the
creditor could fall back on the original cause of action.97
[s 30.3] Liability of Unregistered Partnership Firm
In Afsal Baker v Maya Printers98, the High Court of Kerala held that the bar under section 69(2) of the Indian
Partnership Act applies only to the suit based on the original cause of action on the original contract between
Page 4 of 5
the parties. By virtue of sections 30 and 37 of the Negotiable Instruments Act, on the dishonour of a cheque,
the statute creates a liability on the drawer, apart from the general law of contracts. The right to sue on the
contract is available and open to the parties. However, apart from that, the statute creates a liability against the
drawer of the instrument.
[s 30.4] Notice of Dishonour
The secondary liability of the drawer is dependent upon notice of dishonour being given and requisite
proceedings taken thereon. The section requires that in order to give the holder a cause of action on the
dishonoured bill, he is bound to take all steps necessary to obtain payment and to preserve the rights of the
drawer of the bill, such as due presentment and notice of dishonour. Omission on the part of the holder to give
due notice of dishonour would discharge the drawer not only from his liability upon the bill, but also upon the
original debt. The doctrine of notice of dishonour is based upon a just and equitable principle and may be
applied to hundis.99 However, in certain circumstances, notice of dishonour to the drawer is not necessary.100
death of the drawer and was returned unpaid for the death of the drawer. On a suit having been filed under
OXXXVII of CPC on the basis of said cheque, when the defendant moved an Application seeking leave to
defend the suit, it was held by the Delhi High Court that since the cheque was not presented during the lifetime
of the drawer, it ceased to be a cheque after demise of the drawer since it ceased to be an order of a person
entitled to make an order to the Bank to pay the money. Seeing the peculiar facts of the case, inter alia, that the
plaintiff was working in the drawee Bank and the three cheques though bearing dates of a few days apart
appeared to be drawn from three different cheque books, as also that besides the cheques the plaintiff had not
filed any document whatsoever to show any financial transactions with the predecessor of the defendants, the
Court granted leave to the defendant to contest the suit.
Referring to section 30 of the Negotiable Instruments Act, it was held by Rajiv Sahai Endlaw, J, as under:
12. Section 30 also requires due notice of dishonour to be given to the drawer of the cheque for maintaining a claim for
compensation on account of dishonour of the cheque. Thus, the dishonour of the cheque is actionable under O. 37 of
the CPC only if notice of dishonour has been given to the drawer. If the drawer is dead on the date of dishonour or
even on the date of presentment, no notice can possibly be given to him. That also leads to the inevitable conclusion
that in such an eventuality no suit under O. 37 of the CPC is maintainable on the basis of a cheque.
Page 5 of 5
[s 30.5] Drawer’s Criminal Liability
The drawer of a cheque which is dishonoured for want of funds can be criminally prosecuted, if certain
conditions are fulfilled, under the provisions of Chapter XVII of the Act, which was introduced by an amendment
in 1988.102 Earlier, the question whether the drawer of a dishonoured cheque could be criminally charged
depended upon the interpretation and application of the general penal law relating to cheating.
89 AB Miller v National Bank of India, (1892) ILR 19 Cal 146, p 158.
90 Sheth Ka-Haridas v Bahia Bhai, (1878-79) 3 Bom 182.
91 Whitehead v Walker, (1842) 9 M&W 506.
92 Ram Ravji v Praldhaddas, (1896) ILR 20 Bom 33.
93 Karim v People’s Bank of India, (1915) 30 IC 35 .
94 India Saree Museum v P Kapurchand, (1992) 73 Comp Cas 375 .
95 Bengal Bank Ltd v Satyendra Nath, AIR 1952 Cal 385 .
96 National Insurance Co Ltd v Yellamma, (2008) 7 SCC 526 : (2008) 3 SCC (Cri) 177 : (2008) 2 KLT 1006 .
97 Meerasahib v Padmanabha, AIR 1965 Ker 28 ; Jiwanal Achariya v Rameshwarlal Agarwalla, AIR 1967 SC 1118 .
98 Afsal Baker v Maya Printers, 2017 (1) KHC 222 : 2017(1) KLT 213 .
99 Moti Lal v Moti Lal, (1919) 6 All 78 .
102 See notes to sections 138–142 for a discussion of this aspect.
End of Document
[s 31] Liability of drawee of cheque—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of
such cheque must pay the cheque when duly required so to do, and, in default of such payment, must
compensate the drawer for any loss or damage caused by such default.
Page 2 of 16
[s 31.1] Banker’s Liability as Drawee of Cheque and Relation with Customer
As a cheque is a bill of exchange drawn on a specified banker, the drawee of a cheque must always be a
banker. A banker’s business consists in receiving money from or on account of a customer, and repaying the
same on demandwhen drawn on by cheque. In order to make a person a customer of a bank, it is necessary
that there must be some sort of account, such as a saving deposit or current account.103 A person who has no
sort of account with a bank, but is merely in the habit of cashing cheques across the counter is not a
customer.104
The relation between a banker and a customer, who pays money into a bank, arises out of contract and is
generally one of a debtor and a creditor, with the added obligation on the part of the banker to honour the
customer’s cheques, so long as there are funds of the customer in the hands of the banker.105 As soon as the
customer deposits money with the banker, the money becomes the property of the banker, and the latter can
deal with it as his own, and is not bound to return it in specie. The relation of a banker and a customer neither
partakes of a fiduciary character, nor is analogous to the relation between a principal and his agent.106 A
banker’s obligation to honour his customer’s cheques may be extended by an agreement supported by a valid
consideration to allow the customer to overdraw to a certain limit.107
It is a standard practice for banks to issue blank cheque books (or leaves) to customers holding accounts like
current and savings from which, funds can be withdrawn by cheques. These cheque leaves are imprinted with
magnetic ink characters that help sort cheques presented for payment and connect them to the account on
which they have been issued.
On one hand, a cheque is a mandate to the banker to pay the amount according to the tenor of the cheque and
at the same time, the customer contracts that he will draw his cheques in such a manner as will enable the
banker to fulfill his obligations, and therefore, in a manner which does not leave any room for any misgiving.108
Either party may put an end to the contract between banker and customer. The customer holding a current
account can recover his loan by drawing a cheque on the bank for the amount due to him and presenting it to
the banker for payment. Similarly, the banker, having decided not to have dealings with the customer, can close
the account after giving sufficient notice and repay the money or tender repayment to the customer.109
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If a customer has two accounts at a bank, the banker cannot transfer funds from one account to the other
without the customer’s consent.110 A cheque leaf issued for use on one account cannot be used to draw on
another account of the customer.111 So, too, a customer having a balance at one branch, cannot withdraw it
on demand at another branch though at his own cost he may apply to have it transferred.112 The bank’s
promise to repay its customer is a promise to repay him at the branch where his account is kept, and the bank
cannot be called upon to repay him until repayment has been demanded at such branch.113 However, banks
allow cheques drawn by some valued customers to be encashed at par at all or specified branches of the bank.
Where the account is maintained at a foreign branch of a bank and the customer asks for transfer of funds to
India but the banker’s obligation to transfer is frustrated by local legislation or governmental action in the foreign
country, the banker’s obligations to pay at the foreign branch cannot automatically be replaced by an
unconditional obligation to pay at any other office of the bank.114
The banker is bound to make payment to the proper person, i.e., the holder, his servant or agent. Thus, where
the payee of a certain cheque sent his servant for receiving payment of the cheque, the officials of the bank
took the cheque from the servant, made him wait for some time, and ultimately informed him that the cheque
was paid. In fact, the amount was not paid but by mistake or negligence must have been paid to a wrong
person. It was held that the bank was not discharged and was liable to pay over again.115
A banker is justified or bound to dishonour cheques in the following cases.
(a) A banker is justified in refusing payment of a post-dated cheque, if presented for payment prior to the
date it bears. Where a bank manager had, without authority certified a post-dated cheque, the bank
was not liable on the cheque to a holder in due course, when on presentation on due date there were
no funds in the drawer’s account to meet the cheque. Further, the holder in due course could not claim
either in contract nor on the actual words used in the certification, there being no privity of contract
between him and the drawee-bank and no consideration passing, or on an estoppel.116
(b) Under the section, the banker is bound to pay a cheque only when he has sufficient funds of the
drawer in his hands. Therefore, if the customer has no funds to his credit, or if the amount standing to
his credit is insufficient to cover the whole amount of the cheque, the banker is justified in refusing
payment, but need not necessarily do so. The bank may pay the cheque by extending an overdraft to
the customer. In State Bank of India v Vathi Samba Murty,117 the court remarked:
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If there was no money available, the bank should have dishonoured the cheque unless specifically requested by the
defendant for permitting overdrawal. If the banker of his own permitted overdrawal, he has no right to claim interest.
It is submitted that every cheque, the payment of which would result in an overdraft, even if not expressly
requested or agreed upon, contains an implied request from the customer to grant the overdraft. If the banker
has agreed to honour cheques even without sufficient funds, a dishonour of the customer’s cheques would
render the banker liable to an action by the customer for breach of the contract.118
A bank dishonoured certain cheques despite sufficient funds being available on the customer’s account. The
bank contended that the funds should have been utilised by the customer for repaying a loan borrowed from
another bank, which had requested the drawee-bank to take steps to protect that bank’s interests. The drawee-
bank’s action was held to be unfair and arbitrary.119
There is an unequivocal obligation on the banker to honour cheques and pay amounts. A bank cannot withhold
payments to any customer simply on the ground that it suspects money held by such customer is for and on
behalf of person who owes amount to it.120
An exception to the general rule arises in the case of the cheque issued under a cheque card or credit card
plan. The production of the card by the customer and issue of a cheque in accordance with the conditions noted
thereon would bind the bank to honour the cheque even if the customer has exceeded the credit limit set by the
bank.121
(1) Under the section, the banker is bound to honour his customer’s cheques only when the funds of the
customers in his hands are properly applicable to the payment of such cheques. Therefore, if the funds
in the hands of the banker are subject to a lien or set-off by the banker, the funds are not properly
applicable to the payment of the customer’s cheque, and the banker is justified in refusing payment.
(2) A banker is justified in refusing to honour a cheque that is irregular, or ambiguous, or drawn in a form
of doubtful legality.122 Thus, a banker should refuse to pay a cheque containing an apparent material
alteration, not properly authenticated by the drawer.
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(3) A banker is justified in refusing payment of a cheque drawn by a customer having credit with one
branch of the bank, where the cheque is drawn upon another branch in which he has no account or in
which his account is overdrawn.123 If a customer has an account with a bank, which has several
branches, the branches at whichhe has no account are justified in refusing to honour his cheques.124
An exception is where cheques are expressly, and with the drawee-bank’s consent, payable at par at
all or specified branches of the bank.
(4) When a customer becomes insolvent, or an order of adjudication has been made against him, all his
assets vest in the official assignee, and the banker should thereafter refuse to pay his customer’s
cheques.125
(5) The duty and authority of a banker to pay a cheque drawn on him by his customer is determined by the
customer countermanding payment.126
(6) Notice of the death of the customer determines the authority of the banker to honour his cheque, but
payment before receiving notice of death is valid.127
(7) By notice that the customer has become mentally unsound, all operations on his account are to be
suspended.128
(8) By service of a garnishee or other legal order attaching or otherwise dealing with the money in the
banker’s hands.129
(9) Where the banker is prevented, by any government or exchange control restriction, from honouring the
cheques of a particular customer, or of a class of persons of which the customer is one.
(10) By notice given by either party to close the account and the notice takes immediate effect.130
When someone claiming to be the payee or holder of a cheque informs the drawee-bank that the cheque has
been lost, the bank may ask him to get in touch with the drawer, so that he may countermand the cheque if he
so wishes. If the cheque is presented for payment before payment is stopped, the bank should exercise great
care and caution in dealing with it. The bank may pay it, or, if the circumstances so warrant, postpone payment.
In Jagjivan Mavji Vithlani v Ranchhoddas Meghji,131itwas held by Supreme Court that the drawee of a
negotiable instrument is not liable on it to the payee, unless he has accepted it. Under section 32 of the Act, the
liability of the drawee arises only when he accepts the bill. There is no provision in the Act that the drawee is as
such liable on the instrument, the only exception being under section 31 in the case of a drawee of a cheque
having sufficient funds of the customer in his hands; and even then, the liability is only towards the drawer and
not the payee. This is elementary law, and was laid down by West, J in Seth Khandas Narandas v Dahibai132
in the following terms:
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Where there is no acceptance, no cause of action can have arisen to the payee against the drawee.
The banker has to be careful in dealing with accounts operated by agents or authorised officials. In such cases,
the banker’s duty of care is owed to the customer and not to the authorised signatories. The banker should,
therefore, make reasonable inquiries if he has, or a reasonable banker would have, grounds for believing that
the authorised signatories are misusing their authority to defraud the principal or to defeat his true intentions.
The banker should pay strictly in accordance with the direction given about the disposal of the moneys payable
under the cheques presented. A banker’s actual knowledge of a company’s rules for signing cheques may
affect him with notice of irregularity when apparently instructed as to the disposal of the company’s moneys.133
A banker is justified in refusing to honour a cheque drawn in breach of trust where he has notice of the breach.
He must not knowingly be a party to the application of trust moneys to any purpose inconsistent with the trust
affecting them, even at the mandate of his customer, who has to his knowledge become the owner of the funds
in a fiduciary character.134 Thus, a bank would be advised not to honour a cheque on a company account
even if it appears to be drawn in accordance with the company’s mandate to the bank, if the bank knows or has
reason to believe that it represents financial assistance for the acquisition of the company’s own shares where
it is legally prohibited.135
death of the drawer and was returned unpaid for the death of the drawer. On a suit having been filed under OX
XXVII of CPC on the basis of said cheque, when the defendant moved an Application seeking leave to defend
the suit, it was held by the Delhi High Court that since the cheque was not presented during the lifetime of the
It was observed by the Delhi High Court137 that under section 31, the liability of the bank as drawee of the
Page 7 of 16
cheque is, subject to having sufficient funds of the drawer in its hands properly applicable to the payment of
such cheque, to pay the cheque when duly required so to do. It is only when the bank defaults in such payment
that it becomes personally liable to compensate the drawer for any loss or damage caused by such default.
Else, bank as a drawee of the cheque is not liable personally for default in payment thereof. Upon death of the
drawer, the title to the balance in the account of the drawer vests in his legal representative and his own order
is not competent to withdraw any part of that which is no longer his property. Upon death of a customer, the
order of the customer comes to an end and only if the banker pays the cheque before notice of death, is it valid.
It would thus appear that the death of customer terminates his authority to order payment and operates as a
countermand of the outstanding cheque.
[s 31.2] Liability of Drawee-bank for Wrongful Dishonour
A drawee-bank’s liability presupposes due presentment of the cheque. A bank is not bound to pay, if the
cheque is not presented for payment within the usual banking hours. However, when a cheque is presented to
a banker, who having sufficient assets of his customer in his hands, dishonours it, he is liable to pay
compensation to his customer for any loss or damage caused by such dishonour, not only any pecuniary loss
or damage, but also loss of credit or injury to reputation.138 The customer may recover substantial damages, if
he can show that the dishonour of the cheque caused loss of credit.139 As held by Lord Tenterden in Marzetti v
Williams:140
It is a discredit to a person and therefore injurious in fact to have payment refused of a draft, for so small a sum, for it
shows that the banker had very little confidence in the customer; it is an act particularly injurious to a person in trade.
However, where the drawer has not sustained any actual damage, he is entitled to recover only nominal
damages.141 There is a general presumption that a trader customer suffers injury owing to wrongful dishonour
of his cheques. Hence, he is entitled to substantial damages without pleading and proving actual damage. A
bank wrongfully dishonoured 11 cheques issued by the plaintiff for an aggregate sum of Rs 4,000 to 11 different
payees. The plaintiff claimed damages to the extent of Rs 50,000. The plaintiff, being a trader, was awarded
substantial damages of Rs 6,000.142 A non-trader customer is not entitled to substantial damages, unless
actual damage is alleged and proved. A non-trader customer, whose cheque for Rs 294.40 was erroneously
dishonoured by a bank, proved that the dishonour led to the termination of his employment. The court found
that the bank’s conduct was negligent and far from reasonable, and awarded damages of Rs 14,000 to the
customer.143 In the event of wrongful dishonour of a cheque, the customer may also claim damages from the
drawee-banker on the ground that the answer on the unpaid cheque constituted libel. Courts have expressed
Page 8 of 16
differing views on the question whether the answer ‘refer to drawer’ on a cheque wrongly dishonoured is, as a
matter of law, reasonably capable of conveying a defamatory meaning.144 A firm, unaware of a reduction in the
limit on an overdraft facility extended to it, issued cheques beyond the reduced limit. The cheques were marked
‘refer to drawer’ and returned unpaid by the drawee-bank. The firm succeeded in its claim against the bank for
damages for defamation.145
Though a banker is liable to pay compensation to the drawer for wrongful dishonour of his cheque, there is no
privity of contract between the holder of the cheque and the banker. Therefore, the holder has no remedy
against the banker, but only against the drawer. The banker is not liable to the holder even though he has got
sufficient funds of the drawer in his hands.146
In Bank of Maharashtra v Automotive Engineering Co,147 the High Court had concluded that ultraviolet ray
lamp was not provided in the Thana Branch and such ultraviolet ray lamp was provided to other branches of the
said bank. The High Court was of the view that the appellant-Bank did not act with proper care and caution in
not providing necessary device for detecting forged cheques. Absence of the ultraviolet ray lamp, according to
the High Court, amounted to negligence on the part of the bank. Accordingly, the High Court was of the view
that the payment was not made in due course and the appellant-Bank was not entitled to claim relief under
section 89 of the Act. Setting aside this conclusion of the High Court, it was noticed by Supreme Court that the
court of appeal had categorically come to the finding that on visual examination no sign of forgery or tampering
with the writings on the cheque could be detected. It was observed by GN Ray, J, speaking for the Court as
under:
11. …Under section 31 of the Negotiable Instruments Act, the appellant-Bank had a liability to honour the said cheque
and make payment if the cheque was otherwise in order. ‘Payment in due course’ under section 10 of the Negotiable
Instruments Act means payment in accordance with the apparent tenor of the instrument in good faith and without
negligence. In the facts of the case, there was no occasion to doubt about the genuineness of the cheque from the
apparent tenor of the instrument. There is nothing on record from which it can be held that the payment of the said
cheque has not been made in good faith. Although no strait-jacket formula can be laid down to cover each case of
negligence of a banker and the question of negligence requires to be decided in the facts and circumstances in each
case, it does not appear to us that the appellant-Bank can be held to be guilty of negligence simply because an
ultraviolet ray lamp was not kept in the branch and the cheque in question was not subjected under the ultraviolet ray
lamp. It has not been established in evidence that invariably the other branches of the appellant-Bank or the other
commercial banks had been following a practice of scrutinising each and every cheque under the ultraviolet ray lamp
or there was any prevalent practice to scrutinise cheques involving a particular amount under such lamp by way of
extra precaution. In such circumstances, it cannot be contended as a correct legal proposition that the bank, in order to
get absolved from the liability of negligence, was under an obligation to verify the cheque for further scrutiny under
advanced technology or for that matter under ultraviolet ray lamp apart from visual scrutiny. The cost of the ultraviolet
Page 9 of 16
ray lamp was only nominal and it might have been desirable to keep such lamp in the branch in question to take aid in
appropriate case. But even then, it cannot be contended that although no forgery could be detected on visual scrutiny
on the apparent tenor of the cheque in question and the reasonable care by way of scrutiny of the cheque with
reference to its serial number, verification of the specimen signature of the signatory of the cheque had been made, the
bank officials should have resorted to scrutiny of the cheque under ultraviolet ray lamp by way of additional precaution
and by not taking such extra precaution the bank may be held guilty of negligence. We do not think that there was any
justification for the courts below to proceed on the footing that the Bank had failed to take reasonable care in passing
the cheque for payment without subjecting it for further scrutiny under ultraviolet ray lamp because the branch was on
the outskirts of the metropolitan city of Bombay and in an industrial area where such forgery was rampant, particularly
when other branches of the appellant-Bank were provided with such lamp.148
[s 31.3] Forgery of Drawer’s Signature
The drawee-bank has no statutory protection when it pays, even if in the normal course and in good faith, a
cheque on which the drawer’s signature is forged. It is the duty of a banker to be acquainted with his customer’s
signature. If a banker pays a cheque which bears a forged signature of his customer, the banker will generally
suffer a loss. The banker cannot debit the customer with the amount so paid. The reason for the rule is obvious.
If a customer can be debited for money paid under a forged signature, his bank balance may decline in an
extraordinary manner. In fact, any person who knew that the customer had a banking account could forge his
signature and obtain his money. It is the banker’s business to prevent this.
Thus, a document in cheque form to which the customer’s name as drawer is forged is not a cheque but a mere
nullity, and a banker making payment thereon cannot make the customer liable, except on the ground of
negligence imputable to the customer, which negligence was intimately connected with the transaction and was
the proximate cause of the loss to the banker. Where the only negligence imputable to the customer was that
he allowed his cheque book to remain in an unlocked box, it was held that the customer was not liable to be
debited with the loss though one of the rules of business of the bank said that ‘constituents should keep all
blank cheque forms under lock and key, otherwise the bank is not responsible for any loss in this
connection.’149 In Bank of Ireland v Trustees of Evan’s Charities,150Baron Parke observed:
If a man should lose his cheque book, or neglect to lock the desk in which it is kept and a servant or stranger should
take it up, it is impossible in our opinion to contend that a banker paying his forged cheque would be entitled to charge
his customer with the payment.
Page 10 of 16
Section 85 provides some protection to a banker paying a cheque carrying a forged indorsement. Such
protection is not available to a bank that pays a cheque on which the customer’s signature as a drawer has
been forged, even where the forgery cannot be distinguished from the customer’s genuine signature, such as
the specimen on the bank’s records. In such a case, it is simply not a cheque issued by the customer and the
bank has no mandate from the customer to pay the instrument.151
The Supreme Court has held that a bank paying a cheque with the forged signature of its customer cannot
resist his claim with the defence of negligence on his part, such as his leaving the cheque book carelessly so
that third parties could easily get hold of it.152 Interpreting the Supreme Court ruling, AN Ray J, expressed the
opinion in a later case153 that though a bank cannot take a simple defence of customer’s negligence in a case
where a cheque not signed by the customer has been paid, yet the bank would be permitted in an appropriately
framed action in tort to claim for loss or damage suffered by it by reason of the customer’s negligence. On the
principles of apportionment of liability and of contributory negligence, the bank may be entitled to damages
amounting to a certain percentage of the loss suffered by the bank. In the case before the learned judge, there
was, however, no such plea.
Payment made on forged cheque cannot be regarded as payment in due course under section 10 of the Act. It
may be that the bank is an innocent victim of the fraud, but so is the customer. If there are two innocent parties,
the one whose negligence led to the ultimate loss is primarily responsible.154
However, it is the duty of the customer of a bank in issuing mandates to the bank to take reasonable care so as
not to mislead the bank. Beyond the care which must be taken in the transaction itself, the customer is not to
take precautions in the general course of carrying out business to prevent forgeries on the part of his
servant.155 A bill of GBP 500 was presented for acceptance with a stamp of much larger amount than was
necessary and with spaces left. The acceptor wrote his acceptance and handed the bill to the drawer, who
fraudulently filled up the spaces and turned it into a bill for GBP 3,500. Being sued on the bill by a bona fide
holder for value, the acceptor paid GBP 500 into court. It was held that the acceptor owed no duty of precaution
to the plaintiff, and was guilty of no negligence, and was entitled to judgment.156 The acceptor of a bill of
exchange is not under a duty to take precautions against fraudulent alterations in the bill after acceptance.157
Where, however, the customer misleads the bank by want of proper care in the mode of drawing the cheque,
so as to admit of interpolation of an additional word or figure, he cannot complain of a bona fide payment of a
cheque so altered. Also, if the customer has, by his negligence or default, induced the banker to make the
payment, it is the customer and not the banker who must bear the loss.158 If a cheque be drawn so negligently
Page 11 of 16
as to facilitate alteration of the amount payable, any loss caused by such an alteration will fall on the customer
who draws the cheque, and not on his banker.159 For example:
(a) A draws a cheque on his bankers for Rs 50, carelessly leaving a blank space before the words and
figures ‘fifty’. The holder fills it up as a cheque for Rs 550, and obtains payment. The banker can
charge A with the amount so paid.160
(b) A draws a cheque payable to bearer, filling up the space for figures with Rs 20, but leaving blank the
space for showing the amount in words. A confidential clerk of the drawer fills in the space for words
with ‘rupees five hundred and twenty’ and alters Rs 20 into Rs 520. The clerk cashes the cheque and
misappropriates the proceeds. The banker can debit A’s account with Rs 520.161
The defendant’s cheque was encashed by bank B; but the cash was entrusted by B to its servant who
accompanied the defendant to the place where the payment was to be made according to the agreement
between the defendant and B. B’s servant absconded before making the payment. B could not debit
defendant’s account with the amount of the cheque as B was held not to have paid the defendant, and section
85 of the Act was held to be inapplicable.162
In Canara Bank v Canara Sales Corpn,163 the Supreme Court noted that a bank paying a forged cheque can
successfully defend itself in an action by the customer only if the bank proves that, he had adopted the payment
or was estopped from denying it. Whether such adoption or estoppel has been established would depend upon
the particular facts of the case and the evidence adduced.
Unless the banker-customer contract expressly provides otherwise, the customer is under no duty to check the
entries in his pass book or statements of his account, and bring any discrepancies to the notice of the banker
within a reasonable period after their receipt. Therefore, in an action by a customer against his banker for
recovery of amounts paid away on forged cheques, the latter cannot plead that the customer had not carefully
checked the entries in the pass book or statements of account. The customer is not estopped merely on the
basis that he could have known of the forgeries had he been diligent.164
In the Canara Bank case, forgeries had been committed by an official of the company over a decade or so, and
during the period the company did not raise any objection to the entries in the pass-sheets. Yet, the bank could
not succeed. The Supreme Court observed that, in the absence of an express condition in the banker-customer
Page 12 of 16
contract or an unequivocal ratification by the customer, the bank would not be able to avoid liability on the
forged cheques. The court pointed out that the American law on the subject was different from the Indian law,
and chose to adopt the reasoning of the Privy Council in Tai Hing Cotton Mills Ltd v Liu Chong Hing Bank
Ltd,165 a case from Hong Kong with somewhat similar facts. In an earlier English case,166 a plea to bring the
English law in line with the American law on this subject had proved unsuccessful. Where, however, the
customer has signed balance confirmation letters, he may be held bound by the entries relating to the
forgeries.167 However, in Allahabad Bank Ltd v Kul Bhushan,168 the customer’s confirmation was held to be of
no value since he had informed the police and the bank immediately after he discovered the forgeries.
Section 72 of the Indian Contract Act 1872, requires that a person to whom money has been paid by mistake
must repay it. As a general rule, therefore, a banker can recover money paid away on a forged cheque from the
recipient. It seems immaterial that the recipient has spent the money or has altered his position in reliance of
the payment. Where there is no negligence on the part of the banker, the mere payment of a forged cheque
does not operate as an estoppel against him.169 It was held by the Calcutta High Court in United Bank of India
v AT Ali Hussain & Co170 that the paying bank was estopped from recovering from either the collecting bank or
the payee firm, the amount of a forged cheque paid to the bank as the firm’s agent. This decision does not
appear to be in line with the Supreme Court’s earlier judgment in Sales Tax Officer, Benares v Kanhaiya
Lal.171
A police investigation was proceeding on a complaint by a company that a sum of Rs 95,000 had been
withdrawn from its bank account through a cheque bearing the forged signature of the company’s managing
director. Meanwhile, the company filed a writ petition with the Bombay High Court seeking refund of the amount
from the bank. After a preliminary hearing, the High Court issued an interim order directing the refund. On an
appeal by the bank, the Supreme Court set aside the order and deprecated the practice of granting such interim
orders on the ground that a prima facie case had been made out, without being concerned about the balance of
convenience, public interest, and a host of other considerations.172
103 Lacave & Co v Credit Lyonnais, [1897] 1 QB 148 , p 155.
104 Great Western Railway Co v London & County Banking Co Ltd, [1970] AC 414 , p 420.
Page 13 of 16
105 Pott v Clegg, (1847) 16 M&W 321; Official Assignee, Madras v Ramchandra, (1910) ILR 33 Mad 134, p 141.
106 Foley v Hill, (1848) HL Cas 28, it has been held later that a bank acts as the customer’s agent in paying his cheques.
107 Cumming v Shand, (1860) 29 LJ Ex 129 ; Md. Hussain v Chartered Bank, (1965) 2 Comp LJ 37 .
108 London Joint Stock Bank Ltd v Macmillan and Arthur, [1918] AC 777 .
109 Bradley v Agra Bank, 101 PR 1885.
110 Greenhalgh v Union Bank of Manchester, [1924] 2 KB 153 .
111 State Bank of India v Vathi Samba Murty, AIR 1988 Ori 50 .
112 Clare v Dresdner Bank, [1915] 2 KB 576 .
113 Joachimson v Swiss Bank Corp., [1921] KB 110 , p 127 (CA); Issac v Barclays Bank Ltd, [1943] 2 All ER 682 .
114 Indo-Allied Industries Ltd v Punjab National Bank Ltd, (1968) 2 Comp LJ 352 .
115 Lall Chand v Agra Bank, (1891) 18 IA 111 .
116 Bank of Baroda Ltd v Punjab National Bank Ltd, (1944) 71 IA 124 .
117 State Bank of India v Vathi Samba Murty, AIR 1988 Ori 50 .
118 Flemming v Bank of New Zealand, [1900] AC 577 .
119 Gupta Biscuits Pvt Ltd v United Commercial Bank, AIR 1988 Cal 265 .
120 N Santosh v Indian Overseas Bank, (2003) II BC 637 (AP).
121 Metropolitan Police Commr v Charles, [1976] 3 All ER 112 .
122 Emanuel v Roberts, (1868) 9 B&S 121.
123 Woodland v Fear, [1857] 26 LJQB 202 ; Union Bank of Australia Ltd v Murrary-Aynsley, [1898] AC 693 .
124 Bank of India Ltd v Official Liquidator, (1950) Bom 375.
125 Mathew v Sherwell, (1810) 2 Taunt 439.
126 Mowji Shamji v National Bank of India, (1901) ILR 25 Bom 499, p 515.
Page 14 of 16
127 Tate v Hibert, 2 Ves 11; Re Beaumout, 1 Ch 889, p 894.
128 Drew v Nunn, [1879] 4 QBD 661 .
129 Rogers v Whitely, [1889] 23 QBD 236 , affirmed [1892] AC 118 .
130 Buckingham & Co v London & Midland Bank, (1895) 12 TLR 70 .
131 Jagjivan Mavji Vithlani v Ranchhoddas Meghji, (1955) 1 SCR 503 .
132 Seth Khandas Narandas v Dahibai, ILR 3 Bom. 182 at p 183.
133 Bank of Montreal v Dominion Greshamn Co, [1930] AC 659 .
134 Union Bank of Australia Ltd v Murray Aynsley, [1898] AC 693 .
135 Selangor United Rubber Estates Ltd v Craddock, [1968] 2 All ER 1073 ; Karak Rubber Co Ltd v Burden, [1972] 1 All
ER 1210 ; Barclay’s Bank plc v Quincecare Ltd, [1992] 4 All ER 363 ; Lipkin Gorman v Karpnale Ltd, [1992] 4 All ER
409 ; Royal Brunei Airlines v Tan, [1995] 3 All ER 97 (PC).
137 Vijay Singh v Manali Malik (supra).
138 Rolin v Steward, (1854) 14 CB 595 .
139 Marzetti v Williams, (1830) 1 B & Ad 415; Hopkinson v Forster, (1874) LR 19 Eq 74.
140 Marzetti v Williams, (1830) 1 B & Ad 415.
141 Prehn v Royal Bank of Liverpool, (1870) LR 5 Ee 92; Rae v Yorkshire Bank plc, (1988, unreported).
142 New Central Hall v United Commercial Bank Ltd, AIR 1959 Mad 153 .
143 Canara Bank v IV Rajagopal, (1975) 1 Mad LJ 420.
144 Plunkett v Barclays Bank Ltd, [1936] 2 KB 107 ; Flach v London & South Western Bank Ltd, (1915)31 TLR 334 ;
Jayson v Midland Bank Ltd, (1968) 2 Lloyd’s Rep 409.
145 Hill v National Bank of New Zealand Ltd, (1985) 1 NZLR 736.
146 Hopkinson v Forster, (1894) LR 19 Eq 74; Meghji Malsee v PC Oommen, AIR 1963 Ker 306 .
147 Bank of Maharashtra v Automotive Engineering Co, (1993) 2 SCC 97 : 1992 (3) SCALE 351 .
148 Bank of Maharashtra v Automotive Engineering Co (supra).

Page 15 of 16
149 Prabhu Dayal v Jwala Bank, AIR 1938 All 634 .
150 Bank of Ireland v Trustees of Evan’s Charities, (1855) SHLC 389, p 410.
151 Babulal Agarwala v State Bank of Bikaner and Jaipur, AIR 1989 Cal 92 , relying on Canara Bank v Canara Sales
Corpn., AIR 1987 SC 1603 , distinguishing Pranendra Mohan Das v Central Bank of India, AIR 1978 Cal 55 .
152 Canara Bank v Canara Sales Corpn. AIR 1987 SC 1603 .
153 Mahavir Prasad Bubna v United Bank of India, AIR 1992 Cal 270 .
154 Allahabad Bank Ltd v Kul Bhushan, AIR 1961 Punj 571 , relying on A Abbu Chettiar v Hyderabad State Bank, 1954
IRT Mad 1001; Canara Bank v Canara Sales Corpn., AIR 1987 SC 1603 .
155 Bank of England v Vagliano Bros, [1891] AC 107 .
156 Scholfield v Earl of Londesborough, [1896] AC 514 .
157 Scholfield v Earl of Londesborough, [1896] AC 514 .
158 Young v Grote, (1827) 4 Bing 253.
159 London Joint Stock Bank v Macmillan and Arthur, [1918] AC 777 .
160 Young v Grote, (1827) 4 Bing 253.
161 London Joint Stock Bank v Macmillan and Arthur, [1918] AC 777 .
162 Bank of Bihar v Mahabir Lal, AIR 1964 SC 377 .
163 Canara Bank v Canara Sales Corpn, AIR 1987 SC 1603 .
164 Keptigalla Rubber Estates Ltd v National Bank of India Ltd, [1909] 2 KB 1010 .
165 Tai Hing Cotton Mills Ltd v Liu Chong Hing Bank Ltd, [1985] 2 All ER 947 .
166 Wealden Woodlands (Kent) Ltd v National Westminister Bank Ltd, (1983) 133 New LJ 719.
167 Essa Ismail v Indian Bank Ltd, (1963) Comp LJ 194 .
168 Allahabad Bank Ltd v Kul Bhushan, AIR 1961 Punj 571 .
169 National Westminister Bank Ltd v Barclays Bank International Ltd, [1974] 3 All ER 834 .
170 United Bank of India v AT Ali Hussain & Co, AIR 1978 Cal 169 .
171 Sales Tax Officer, Benares v Kanhaiya Lal, AIR 1959 SC 135 .
172 Bank of Maharashtra v Race Shipping and Transport Company (P) Ltd, (1995) 83 Comp Cas 478 .
Page 16 of 16
End of Document
[s 32] Liability of maker of note and acceptor of bill—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of
a bill of exchange are bound to pay the amount thereof at maturity according to the apparent tenor of the note
or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to pay the
amount thereof to the holder on demand.
Page 2 of 9
In default of such payment as aforesaid, such maker or acceptor is bound to compensate any party to the note
or bill for any loss or damage sustained by him and caused by such default.
This section corresponds to sections 54(1) and 88(1) of the Bills of Exchange Act, 1882.
[s 32.2] ‘Acceptance’ – Meaning of
‘Acceptance’ in regard to a bill of exchange is a technical term. It does not mean ‘taking’ or ‘receiving’.
Acceptance of a bill of exchange is the signification by the drawee of his assent to the order of the drawer. It is
the act by which the drawee evinces his consent to comply with, and be bound by, the request contained in a
bill of exchange directed to him, and is the drawee’s agreement to pay the bill when it falls due. In commercial
parlance acceptance of a bill of exchange is the drawee’s signed engagement to honour the draft as presented.
The contract of the acceptor is a new and independent one. It comes within the rules as to consideration for a
contract on a negotiable instrument, and, like every contract on a negotiable instrument, is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto.173
Acceptance, generally speaking, is therefore, necessary to render a drawee liable upon a bill of exchange and
until he accepts it the drawee is not liable on the bill. As between a drawer and a drawee, the latter is to be
under an obligation to accept a bill of exchange drawn by the former. Thus, it is a well-settled rule of
commercial law that no one but the person upon whom it is drawn, or his duly authorised agent, can accept a
bill except for need or honour. Therefore, no person except a drawee of a bill of exchange can bind himself by
acceptance. The drawee of the bill of exchange, in the absence of any contract to the contrary, on acceptance
is the acceptor before maturity by the bill of exchange and is bound to pay the amount thereof at maturity to the
holder on demand. When the drawee does accept he undertakes that he will pay the bill according to the tenor
of the acceptance and he remains primarily liable on the bill of exchange as acceptor.174
As held by Supreme Court,175 whether a bill is payable after sight or at sight or on demand, acceptance by the
drawee is necessary before he can be fixed with liability on it. It is acceptance that establishes privity on the
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instrument between the payee and the drawee, and unless there is such acceptance, no action on the bill is
maintainable by the payee against the drawees.
The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. Thereafter,
the drawee is called the acceptor. But the drawee, in the absence of any special agreement, is under no
obligation to accept a bill.176 A drawee who does not accept is not, therefore, liable on a bill.177
What is requisite for fixing the drawees with liability under section 32 is the acceptance by them of the
instrument and not an acknowledgment of liability.178
In Jagjivan Mavji Vithlani v Ranchhoddas Meghji,179 the main contention on behalf of appellant was that
acceptance must be implied when the respondents receive the bill and make payment thereof since the very
act of the payment of hundi was an acknowledgment that the defendants were liable on the hundi to whosoever
might be the lawful holder thereof. However, the Supreme Court held that, firstly, there was no valid
presentment of the hundi for acceptance; and secondly, there was no acceptance of the same as required by
law. This was explained by Venkatarama Ayyar, J, speaking on behalf of the 5-Judges Bench in the following
words:
9. On the question of the presentment of the hundi for acceptance, the position stands thus: The person who presented
it to the defendants was Vrajlal; and if he had no authority to act in the matter, it is difficult to see how he could be held
to have acted on behalf of the plaintiff in presenting the hundi. There was only one single act, and that was the
presentment of the hundi by Vrajlal and the receipt of the amount due thereunder. If he had no authority to receive the
payment, he had no authority to present the bill for acceptance. It was argued that there was no provision in the Act
requiring that bills payable at sight should be presented for acceptance by the holder or on his behalf, as there was, for
bills payable after sight, in section 61. But, as already pointed out, in the case of a bill payable at sight, both the stages
for presentment for acceptance and for payment are rolled up into one, and, therefore, the person who is entitled to
receive the payment under section 78 of the Act is the person, who is entitled to present it for acceptance. Under
section 78, the payment must be to the holder of the instrument; and if Vrajlal had no, authority to receive the amount
on behalf of the plaintiff, there was no valid presentment of the hundi by him for acceptance either.
10. It has next to be considered whether, assuming that there was a proper presentment of the hundi for acceptance,
there was a valid acceptance thereof. The argument of the appellant was that as the hundi had got into the hands of
the defendants and was produced by them, the very fact of its possession would be sufficient to constitute acceptance.
Under the common law of England, even a verbal acceptance was valid. Vide the observations of Baron Parke in Bank
of England v Archer. It was accordingly held that such acceptance could be implied when there was undue retention of
the bill by the drawee. (Vide Note to Harvey v Martin. But the law was altered in England by section 17(2) of the Bills of
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Exchange Act, 1882, which enacted that an acceptance was invalid, unless it was written on the bill and signed by the
drawee. Section 7 of the Negotiable Instruments Act, following the English law, provides that the drawee becomes an
acceptor, when he has signed his assent upon the bill. In view of these provisions, there cannot be, apart from any
mercantile usage, an oral acceptance of the hundi, much less an acceptance by conduct, where at least no question of
estoppel arises.
11. But then, it was argued that the possession of the hundi was not the only circumstance from which acceptance
could be inferred; that there was the plea of the defendants that they had discharged the hundi; and that that clearly
imported an acknowledgment of liability on the bill, and was sufficient to clothe the plaintiff with a right of action
thereon. Assume that the plea of discharge of a hundi implies an acknowledgment of liability thereunder—an
assumption which we find it difficult to accept. The question still remains whether that is sufficient in law to fasten a
liability on the defendants on the hundi. What is requisite for fixing the drawees with liability under section 32 is the
acceptance by them of the instrument and not an acknowledgment of liability. As the law prescribes no particular form
for acceptance, there should be no difficulty in construing an acknowledgment as an acceptance; but then, it must
satisfy the requirements of section 7, and must appear on the bill and be signed by the drawees. In the present case,
the acknowledgment is neither in writing; nor is it signed by the defendants. It is a matter of implication arising from the
discharge of the instrument. That is not sufficient to fix a liability on the defendants under section 32. In conclusion, we
must hold that there was neither a valid presentment of the hundi for acceptance, nor a valid acceptance thereof.180
[s 32.3] Liability of Maker upon Delivery and Acceptance of Payment
The maker of a promissory note is primarily liable upon the instrument, and his engagement is absolute and
unconditional. The maker of a note, by making it engages that he will pay it according to its tenor. As the maker
of a note is the party primarily liable upon the instrument, his liability is absolute, and no notice of dishonour is
necessary to charge him, but the maker is not liable until he signs the note and delivers it to the payee or the
bearer. Further, the primary and absolute liability of the maker of a note must be distinguished from the
secondary and conditional liability of the drawer of a bill of exchange. In general, the maker of a note
corresponds to the acceptor of a bill of exchange, and they are both governed by the same rules. The moment
it is proved that the maker of note has made thenote or the acceptor of a billhas accepted the bill, the onus is
upon him to show that he is not liable upon the instrument.181 A Division Bench of the Madras High Court held
that the maker of a note, which contained an unconditional undertakingto pay, was not entitled to prove by oral
evidence that the parties intended that he was to be liable only as a surety.182 The court observed that the
Indian law differs from the English law in this regard, and that section 92 of the Indian Evidence Act, 1872
permits no equitable exception. There is an essential antithesis between the legal position of a surety and that
of the executant of a promissory note, and so a person who executes a promissory note cannot be held in law
to have the position of a surety.183 In the absence of a contract to the contrary, the joint executants of a
promissory note are jointly and severally liable thereon.184 Where a person offers to guarantee a bank loan, he
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may be asked by the bank to join the borrower in the execution of a promissory note against the loan. The
bank, however, may not be able to hold the surety liable as a co-obligant, if there are other documents
indicating a different intention of the parties. In such a case, all the documents form part of a single
transaction.185
The drawee of a bill is not liable upon the bill till acceptance, and till then no privity exists between the drawee
and the payee or any other holder.186 The holder cannot sue the drawee for refusing to accept. In case of
dishonour, the holder’s remedy is against the drawer.187
Where the plaintiff was the payee of a hundi which was sent by post to him and the hundi got into the hands of
a third person who obtained payment of the hundi from the drawee, it was held by the Supreme Court that as
there was no acceptance of the hundi, the drawee was not liable under section 32 of the Act. There is no
provision in the Act that the drawee as such is liable on the instrument, the only exception being in the case of a
drawee of a cheque, having sufficient funds of the customer in his hands (section 31) and even then, the liability
is towards the drawer and not the payee.188
Whenever a bill is accepted, the acceptor is and remains the party primarily liable on the bill, whatever may
happen to the other parties, and whether any of the other parties are discharged or not. Should an indorser
have to pay the bill, the acceptor by the fact of his acceptance is liable to indemnify him.189
The acceptor is the person primarily liable upon a bill of exchange, and is liable by reason of his acceptance.
His signature is considered as prima facie acknowledgement that he has, in his hands, funds that the drawer is
entitled to call upon him to pay in the manner ordered by him. The liability of the acceptor of a bill is, like that of
the maker of a note, absolute and unconditional. By accepting a bill, the acceptor engages that he will pay it,
according to the tenor of his acceptance. The liability of the acceptor, however, does not attach merely because
he signs his acceptance on the bill; it is necessary that he should either deliver the accepted bill or give notice
of such acceptance to the holder.
In Sudhir Shantilal Mehta v Central Bureau of Investigation,190 the bills of exchange in question, being usance
bills of exchange191 in terms of section 32 of the Act, on their maturity, only the acceptors were responsible for
clearance thereof.
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Under the section, the liability of a maker of a note or the acceptor of a bill of exchange is subject to any
contract to the contrary. The expression ‘contract to the contrary’ is used to cover the case of accommodation
bills and notes. Under the section, the liability of the maker of a promissory note or the acceptor of a bill of
exchange may be excluded or modified by a collateral agreement. As noted in Steele v Mc Kinley:192
It is undoubtedly competent for parties to a bill to contract inter se expressly or impliedly, to alter or even invert the
positions and liabilities assigned to them by the law merchant. The drawer and acceptor of a bill may agree that, as
between themselves, the acceptor shall have the rights of a drawer, and that the drawer shall be subject to the
liabilities of an acceptor, and that agreement when proved will be binding upon them both, although it can have no
effect upon the obligations to third parties interested in the bill, imposed upon them by the law merchant.
[s 32.4] Payment must be According to the Tenor of the Note or Acceptance
According to the section, the maker of a note must pay it according to the apparent tenor of the note, and the
acceptor of a bill must pay it according to the apparent tenorof his acceptance. The distinction between the
maker of a note and the acceptor of a bill in the mode of a payment arises from this.
The maker of a note is the originator of the instrument and after making it, he can, in no way, alter it without the
consent of the other parties, while the acceptor of a bill is not the creator of the bill. The bill originates from the
drawer, but when it is presented to the drawee, he may give a qualified acceptance. Accordingly, when the
acceptance is general, the acceptor is bound to pay the bill as it stands; if the acceptance is qualified, he is
bound to pay only according to the tenor of his acceptance, and not according to the tenor of the bill as
originally drawn.193 In order that a maker or an acceptor may pay an instrument according to the tenor of the
note or acceptance as the case may be, it is necessary that:
(a) The payment must be made to the holder of the note or bill; a payment to any other person does not
operate as a discharge, except where the instrument is payable to bearer and payment is made in due
course.194
(b) Payment by the acceptor to the drawer of a bill of exchange would not absolve the acceptor of his
liability to a third party who qualifies as a holder in due course.195
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(c) The payment must be made at maturity. The liability on the note or bill is not discharged by payment
before maturity.
[s 32.5] Compensation for Default
In case, of default of such payment, the maker of a note or the acceptor of a bill is bound to compensate not
only the holder of the instrument, but any party to the note or bill for loss or damage sustained by him and
caused by such default.196 Any other party is entitled to recover compensation, as the loss or damage to such
party arises on his paying to the holder, the amount due on the bill or note.
The expression ‘compensation’ in section 32 would include interest paid by way of damages or compensation
for delayed payment of bills.197
In consideration of certain advances received from the State Trading Corporation (STC), an export firm
indorsed and delivered to it, certain documentary bills drawn on a foreign importer. STC delivered the
documents to the importer against its acceptance of the bills. The bills were later dishonoured by non-payment.
In legal proceedings by STC, which was holding the dishonoured bills, against the export firm for recovery of
advances to the firm, STC pleaded that the firm, as drawer, could have initiated appropriate proceeding against
the acceptor for recovery of the amounts due on the bills. The Bombay High Court rejected the plea on the
ground that the drawer-firm, not being the holder, could sue the acceptor for compensation only after making
payment to the payee (or holder) and getting the bills indorsed back to it.198
In the case of accommodation bills and notes, the person for whose accommodation such instruments are
made or accepted, cannot claim compensation for loss or damage, unless he has put the maker or acceptor in
funds to honour the instrument at maturity.199
The acceptor of a bill is bound to make compensation under this section, and this liability cannot cease by
reason of the fact that the acceptor cannot obtain delivery of goods in respect of his acceptance.200The facts in
that case were as follows: On 24 June 1914, a German residing at Hamburg, drew a bill of exchange upon the
defendant in favour of the plaintiff for GBP 65-6-6 payable at 30 days’ sight to the order of the plaintiffs for value
received. The bill purported to be drawn upon the defendant against 50 bales of goods per SS Lichtenfels, a
German steamer. It was presented to the defendant for acceptance with the shipping documents relating to the
Page 8 of 9
goods mentioned in the bill; and was accepted on 20 July 1914, payable at the office of the plaintiff in Bombay.
The ship reached Bombay just before the outbreak of war between Great Britain and Germany and in order to
evade capture left Bombay and took shelter at the neutral port of Marmagoa. The bill was presented for
payment on the due date with the shipping documents, but was dishonoured by non-payment. Meanwhile, the
British Government issued a proclamation authorising British subjects to make payments for the purpose of
obtaining their cargoes in neutral ports to the agents of shopowners in an enemy country. The plaintiff averred
its readiness and willingness to hand over the documents against payment of the amount due under the bill.
Eventually, the plaintiff filed a suit to recover the amount of the bill, alleging that the acceptance being
unqualified and absolute, the defendant was bound to pay. The defendant denied liability, contending that the
acceptance was qualified, the bill having been drawn on it against goods, and it need not pay till it was put in a
position to receive the goods. It was held that the plaintiff was entitled to succeed from either point of view, for if
the acceptance was unqualified, the defendant was bound to pay on due date, and if the acceptance was
qualified, it was still bound to pay at or after maturity when money was demanded after the proclamation,
whereunder consignees were permitted to take delivery of goods from enemy ships in neutral ports; and that
the consideration for the acceptance did not fail, for the proclamation permitted performance of the alleged
condition before it was too late.
173 American Express Bank Ltd v Calcutta Steel Co, (1993) 2 SCC 199 .
174 American Express Bank Ltd v Calcutta Steel Co, (1993) 2 SCC 199 .
175 Jagjivan Mavji Vithlani v Ranchhoddas Meghji, (1955) 1 SCR 503 : AIR 1954 SC 554 .
176 Halsbury’s Laws of England, 4th edn., vol 4, para 352 at p 153.
177 Ibid.
178 Rabo Bank, Singapore v State Bank of Hyderabad, Mumbai, Summons No. 238 of 2008 in Summary Suit No. 1586 of
2001, decided on 15 October 2013.
180 Jagjivan Mavji Vithlani v Ranchhoddas Meghji, (1955) 1 SCR 503..
181 Nazir Ali v Kherchand, (1916) 36 IC 996 ; Union Bank of India v Swastika Motors, AIR 1983 Del 240 .
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182 TR Narasimma Murthi Sastri v ATV Ramasami Chettiar, (1913) 24 Mad LJ 91.
183 Behari Lal v Allahabad Bank Ltd, AIR 1929 All 664 .
184 Appukuttan Panicker v Anthappa, AIR 1966 Ker 303 .
185 Chattanatha Karayalar v Central Bank of India Ltd, (1965) SC 1856 .
186 State of Orissa v Punjab National Bank, (1991) 71 Comp Cas 220 .
187 See section 30.
188 Jagjivian v Ranchhoddas, AIR 1954 SC 544 , relied on in Manickchand v Chartered Bank, AIR 1961 Cal 653 .
189 Halsbury’s Laws of England, 4th edn., vol 4, para 357 at p 154.
190 Sudhir Shantilal Mehta v Central Bureau of Investigation, (2009) 8 SCC 1 .
191 For‘usances’, please see the description given in [s 23.2] (ante).
192 Steele v Mc Kinley, (1880) 5 App Cas 754 , p 778.
193 See section 86.
194 See sections 78 and 82(c).
195 Banque Indosuez v Pawan & Co, AIR 1991 Bom 47 .
196 See section 117.
197 State Bank of Mysore v CIT, 1988 Tax LR 1555 (DB) : (1988) 2 KarLJ 187 . Also see State Bank of Patiala v CIT,
Patiala, (2015) 15 SCC 483 .
198 M Ramnarain (P) Ltd v State Trading Corpn of India Ltd, AIR 1988 Bom 45 .
199 Pogose v Bank of Bengal, (1877-78) 3 Cal 174 , p 175.
200 Motishaw v Mercantile Bank of India, (1914) 41 Bom 566.
End of Document
[s 33] Only drawee can be acceptor except in need or for honour—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

No person except the drawee of a bill of exchange, or all or some of several drawees, or a person named
therein as a drawee in case of need, or an acceptor for honour, can bind himself by an acceptance.
Page 2 of 5
This section corresponds to sections 17(1) and 53 of the Bills of Exchange Act, 1882..
[s 33.2] Who can Accept
The persons who can accept a bill of exchange under the section are:
(a) the drawee of a bill, that is, the person directed to pay;
(b) all or some of several drawees, where the bill is addressed to more than one drawee;
(c) a drawee in case of need who is mentioned in the bill;
(d) an acceptor for honour.
A bill of exchange, as a general rule, can only be accepted by the person or persons to whom it is addressed,
and who is or are directed to pay it according to the order of the drawer. No person except the drawee of the bill
of exchange, in case of numerical drawees one or all drawees or the person named thereon as a drawee in
case of need or for honour can bind himself by an acceptance.201
A stranger, therefore, cannot accept a bill except as an acceptor for honour. The drawee, to whom it is
addressed, cannot, of his own motion, substitute another person for him as drawee. A bill drawn on one person
cannot be accepted by another, nor can a bill drawn on one person be accepted by two persons, one named in
the instrument and another, a stranger except as an acceptor for honour. A bill may be addressed to two or
more drawees but it cannot be addressed to two or more drawees in the alternative or in succession. Explaining
this succinctly, it was observed by K Ramaswamy, J, as under:
9. Law Merchant always insists that a negotiable instrument must bear no veil but reveal its true character on its face.
A party that takes a negotiable instrument makes his contract with all the parties who appear on its face to be bound
for its payment. Therefore, the Act insists that a bill of exchange makes the acceptor personally liable unless the
acceptor states on the face of the bill that he subscribes for a disclosed principal. The usual mode of accepting bills of
exchange is for the drawee to write, ‘accepted’ across the face of the bill and then to sign his or its name underneath.
Page 3 of 5
The acceptance need not necessarily be on the face of the bill and an acceptance on its back is also sufficient. In all
cases it is essential that the acceptance should be on the bill itself otherwise it is a mere nullity.202
Where a bill is addressed to two or more drawees, the bill should be accepted by all, but if only some of them
accept it, the acceptance is a qualified one and the holder may treat the bill as dishonoured.203 However, if the
holder does not treat the bill as dishonoured, the acceptance of the drawees accepting it will be good and
binding on them, for the section provides that all or some of several drawees can accept.
A draft was drawn under a letter of credit by the overseas beneficiary on ‘MMTC, Account CSC’. MMTC acted
as a canalising agent for the import. Upon signification of CSC’s acceptance on the draft, the shipping
documents were delivered to CSC under trust receipt in favour of its banker. The draft was not paid, and in an
action by the bank against CSC on the draft, the Supreme Court held that CSC was the drawee, and its
acceptance was valid and the statutory liability of an acceptor was fastened on it.204
Where a bill of exchange is drawn on a named person, who accepts it, not for himself, but for and on behalf of a
corporation of which he is a member, there is no valid acceptance of the bill.205 If a bill is addressed to several
drawees who are partners in a trading firm, each partner has prima facie authority to bind the firm by an
acceptance in the name of the firm and if accepted by a partner, in order that the acceptance may bind the firm,
it should be in the name of the firm.
However, if a partner accepts such a bill in his own name, he makes himself personally liable on the
acceptance, but not the firm. On the other hand, if a bill is addressed to a partner personally, and is accepted
by him in the name of the firm, the partner is personally liable as acceptor.
A & Co, in London, opened a letter of credit for Rs 5,000 for one year in favour of their commission agents B &
Co, to be available through drafts on A & Co, against produce bought and paid for by B & Co. The goods were
to be shipped in two months, and under lien to A & Co, until the documents of title were handed over by B & Co
to bankers for transmission to A & Co. It was held that the credit was not an open credit and that A & Co was
entitled to refuse acceptance; if the goods had not been bought according to the contract, a bank which had
negotiated such bills for B & Co could not make A & Co liable.206 It has also been held that the Bank of
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England was under no obligation to accept a bill drawn on it, by a person who owned government securities on
which large sums as dividends were due and were in the hands of the bank.207
The following examples may be noted:
(a) A bill is addressed to William Smith. John Brown writes an acceptance on it. John Brown is not liable
as acceptor.208
(b) A bill is addressed to William Smith. William Smith and John Brown write their acceptance on it. John
Brown is not liable as acceptor.209
(c) A bill is addressed to the Director of the Hudson Steamship Co Ltd. Three directors and the manager
sign their acceptance. The manager is not liable as acceptor.210
(d) A bill is addressed to ‘William Smith, general agent of the Hudson Steamship Co Ltd’. William Smith
accepts it thus: ‘Accepted on behalf of the Company— William Smith’. William Smith is personally
liable as acceptor.211
(e) A bill is addressed to Harris and Co. William Smith who is a partner in the firm, accepts it in his own
name. William Smith is liable as acceptor.212
(f) A bill is addressed to William Smith who is a partner in the firm of Harris and Co. William Smith accepts
it in the firm’s name. William Smith is personally liable as acceptor.213
As an exception to the general rule, a stranger to a bill can accept it for the honour of any party already liable
on the bill. Such a person is mentioned in the section as an acceptor for honour.
201 American Express Bank Ltd v Calcutta Steel Co, (1993) 2 SCC 199 : (1993) 76 Comp Cas 768 , in para 7 (in SCC).
202 American Express Bank Ltd v Calcutta Steel Co, (supra).

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203 See section 86.
204 American Express Bank Ltd v Calcutta Steel Co, (supra).
205 Ibrahim v International Banking Corp, (1925) 27 Bom LR 283 .
206 Chartered Bank of India, Australia & China v Macfayden & Co, (1895) 64 LJQB 367 .
207 Re Boyse Crofton, 33 Ch D 612.
208 Re New Fleming Spinning & Weaving Co Ltd, (1901) 3 Bom 439; Davis v Clarke, (1844) 13 LJQB 305 ; Fielder v
Marshall, (1861) 30 LJCP 158.
209 Jackson v Hudson, (1810) 2 Camp 447.
210 Bull v Morell, (1840) 12 A&E 745.
211 Herald v Connah, 34 LT 885.
212 Owen v Van Uster, (1850) 10 CB 318 .
213 Nicholls v Diamond, (1853) 9 Ex 154 .
End of Document
[s 34] Acceptance by several drawees not partners—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Where there are several drawees of a bill of exchange who are not partners, each of them can accept it for
himself, but none of them can accept it for another without his authority.214
Page 2 of 2
This section corresponds to section 19(2)(e) of the Bills of Exchange Act, 1882.
[s 34.2] Acceptance by Several Drawees
If a bill is addressed to several drawees, under the section, each can bind himself personally by his acceptance,
but he cannot accept so as to bind the others except in two cases:
(i) Where one partner accepts on behalf of the firm, so as to bind the firm.
(ii) Where one drawee accepts as agent for another, with the authority of the latter.
In case of numerical drawees one or all drawees or the person named thereon as a drawee in case of need or
for honour can bind himself by an acceptance.215
214 See section 19(2)(e) of the Bills of Exchange Act, 1882.
215 American Express Bank Ltd v Calcutta Steel Co, (1993) 2 SCC 199 : (1993) 76 Comp Cas 768 , in para 7 (in SCC).
End of Document
[s 35] Liability of indorser—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before
maturity, without, in such indorsement, expressly excluding or making conditional his own liability, is bound
thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate
such holder for any loss or damage caused to him by such dishonour, provided due notice of dishonour has
been given to, or received by, such indorser as hereinafter provided.
Every indorser after dishonour is liable as upon an instrument payable on demand.

Page 2 of 4
This section corresponds to sections 10(2)(a) and 55(2)(a) of the Bills of Exchange Act, 1882.
[s 35.2] Applicability
Section 35 is inapplicable to promissory note payable on demand.216
[s 35.3] Indorser’s Liability
Every indorser of a bill is in the nature of a new drawer, that is to say, his contractual relations with the holder
resemble those of a drawer, and his contract, like that of the drawer is only a conditional one.217 The
engagement of the indorser of a bill is that on due presentment, it shall be accepted and paid according to its
tenor, and that in case of dishonour, he will compensate the holder or a subsequent indorser who is compelled
to pay it, provided that notice of dishonour has been duly given to him.218
The engagement of the indorser of a note is similar to that of the indorser of a bill, subject to the proviso that
there is no engagement on his part as to acceptance, for a note is incapable of acceptance. The indorsement of
a negotiable promissory note operates, in contemplation of law, between the parties thereto, as the drawing of
a bill of exchange in favour of the indorsee, such indorsement being only a request of the indorser that the
maker of the promissory note would pay the amount to the indorser or to any holder in due course.219
The liability of the indorser, however, does not arise under the section unless he indorses and delivers the
instrument to the transferee, for no contract on a negotiable instrument is complete without delivery. Where the
cheque is discounted from the bank, the person who gets the same discounted though is a party to the cheque
since he delivers the cheque to the bank but he cannot be fastened with liability since he did not endorse the
cheque.220
Where a person indorses a bill or note for the accommodation of another, the party accommodated has no right
to maintain a suit upon the instrument against the indorser. Likewise, a person who is merely an indorsee for
collection cannot maintain a suit against the indorser.221However, in such cases, the indorser cannot escape
liability to a holder in due course.222 As in the case of a drawer, so also in the case of an indorser, reasonable
notice of dishonour should be given or received by him before he can be rendered liable on the instrument. The
fact that the instrument has been dishonoured, and that intimation of dishonour has been given to the indorser
are conditions precedent to the indorser being made liable on the instrument.223
Page 3 of 4
Since the nature of the liability of an indorser of a cheque is different from that of its drawer, notice of dishonour
to the indorser is necessary to preserve the indorser’s liability even if the cheque is returned unpaid by the
drawee-bank with the reason ‘refer to drawer’.224
In case of dishonour, the indorser is bound to pay, in addition to the amount of the bill, note or cheque,
compensation to the holder for loss or damage caused to him by reason of such dishonour. All liability,
however, may be negatived or made conditional by an indorser by adding words to his signature, which show
that he is not to be held responsible. Thus, the indorser may express in his indorsement that it is made with this
qualification that he shall not be liable on default of acceptance or payment by the drawee. A qualified
indorsement may be made by such words as ‘sans recours’ or ‘without recourse to me’ or any equivalent
expression.225
When a party signs a negotiable instrument and it is not clear in what capacity he signed it, the whole
circumstances relating thereto may be taken into consideration to define his liability.226
It has been held that the word ‘dishonour’ has been used in the general and commercial sense in sections 30
and 35 of the Act and is not confined to the limited definition under sections 91 and 92 of the Act. Dishonour, as
understood, commercially involves a proper demand within a reasonable time for wrongful refusal. It is the duty
of the holder in due course to give notice to the parties and unless this is done, the prior party is discharged and
he may be left without any remedy.227
216 Official Receiver, Lahore v Amritsar National Bank, AIR 1935 Lah 825 (DB); Jagannadha Reddiyar v
Lakshmana Reddiyar, AIR 1925 Mad 132 ; Ramaswami Ayyangar v Rangachariar, AIR 1932 Mad 113 .
217 Gills v Freemont, (1853) 9 Ex 25 ; Label v Tucker, [1867] LR 3 QB 81.
218 See sections 91 and 92 of the Negotiable Instruments Act, as to what constitutes dishonour.
219 Muhammad v Ranga Rao, (1901) ILR 24 Mad 654.
220 Gaddam Venkataraju v Andhra Bank, AIR 2000 AP 379 : (2001) 2 BC 543 : (2000) 3 Comp Cas 212 .
221 Lloyd v Howard, [1850] 15 QB 995 .
222 Smith v Knox, (1800) 2 Esp 46.

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223 Sanehi Lal v Onkar Mal, (1920) 18 All LJ 281.
224 Commerical Finances v Thressia, (1990) 68 Comp Cas 704 .
225 Wakefield v Alexander, (1901) 17 TLR 217 .
226 Macdonald v Whitefield, (1883) 8 App Cas 78 (PC) relied on in Radhakrishnan v Narainibai, AIR 1963 MP
191 .
227 Bhoovarha Kounder v Bhoovarahamurthy Rao, (2000) 100 Comp Cas 250 ; Nanakchand v Lalachand, AIR
1958 Punj 222 .
End of Document
[s 36] Liability of prior parties to holder in due course—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is
duly satisfied.
[s 36.1] Liability of Prior Parties
The holder in due course of an instrument is entitled to maintain an action thereon in his own name against all
Page 2 of 2
the prior parties to the instrument. However, in the event of dishonour, the holder is not bound to sue all the
prior parties liable to him under the instrument and he may, at his option, select the parties he wants to recover
his amount from.
The expression ‘prior party’ in the section means the maker or drawer, the acceptor, and all the intervening
indorsees. Every prior party continues to remain liable on the instrument to every subsequent party, and to a
holder in due course, until the instrument is duly satisfied.228 An instrument is deemed to be duly satisfied if
the liability of all the parties is extinguished, and the instrument is discharged by payment or satisfaction thereof
by the maker or acceptor at or after maturity. An instrument is not discharged by payment by the maker or the
acceptor before its maturity. Where an acceptor of a bill pays and takes up the instrument before maturity, he
can re-issue and further negotiate it, though he has no right to enforce payment on it against any intervening
party to whom he was previously liable.229
The comparison of section 35 and section 36 would show that while section 35 subjects the liability to any
contract to the contrary, section 36 has no such qualifying phrase and a holder in due course of a bill or note
may recover the amount due on the instrument notwithstanding the existence of facts and circumstances
attacking the validity of the transaction between the prior parties even including want of consideration.230
228 Radha Rukmini Ammal v M/s Swaminatha Mudaliar Sons Co, (2003) 2 Bank CLR 552 (Mad).
229 Burbridge v Manners, (1812) 5 Camp 184; Hubbard v Jackson, (1827) 4 Bing 390.
230 Radha Rukmini Ammal v M/s Swaminatha Mudaliar Sons Co, (2003) 2 Bank CLR 552 (Mad).
End of Document
[s 37] Maker, drawer and acceptor principals—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor
are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other
parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.
[s 37.1] Nature of the Liability of Parties to Notes, Bills and Cheques

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The contracts of the acceptor, the drawer, and the indorser of a bill are distinct from each other, and the liability
of each arises solely out of his respective contract. Though each contracts to pay the same sum of money on
the instrument, yet they all contract severally and in different ways, and subject to certain conditions.231 A
party to a note, bill or cheque is liable thereon either as a principal debtor or as a surety. The section, along with
section 38 mentions the cases in which parties to notes, bills or cheques are liable as principal debtors and
those in which they are liable as sureties. Section 37 lays down that the maker of a note and the drawer of a
cheque are the principal debtors thereon and all the other parties are liable as sureties.232 Section 38
mentions the cases in which parties to notes, bills or cheques are liable as principal debtors and those in which
they are liable as sureties. In the case of a bill, until acceptance, the drawer is the principal debtor and the other
parties are liable as sureties, but after acceptance, the acceptor is the principal debtor and all other parties are
sureties. The provisions of the Indian Contract Act, 1872 which regulate the rights and liabilities of principal
debtor and surety are, subject to the provisions of the Negotiable Instruments Act, 1881, applicable to parties to
bills, notes and cheques. Where a promissory note is executed by two or more persons jointly, unless there is a
contract to the contrary, they are jointly and severally liable to the holder and the release of one of them will not
discharge the other(s).233
[s 37.2] Alteration of Liability of Parties by Special Contract
Though the general rule is that the maker, drawer, and acceptor are liable as principal debtors, and the other
parties are liable as sureties, the section provides that a contract to the contrary may be entered into, whereby
the parties may invert their liabilities. Thus, a drawer of a bill may make himself, the principal debtor and the
acceptor, a surety for the drawer. Similarly, by a contract, the payee of a promissory note may make himself the
principal debtor and the maker a surety for the payee. Similar contracts may be entered into between indorsers
and indorsees. In the case of accommodation bills, there is always a presumption that there is a contract to the
contrary.234 Thus, where the drawee of a bill accepts the bill for the accommodation of the drawer, the drawer
is the principal debtor and the acceptor is the surety, so that if the drawer pays the bill, he cannot proceed
against the acceptor, but if the acceptor pays the bill then the drawer is bound to indemnify him. In the absence
of a contract to the contrary, the liabilities of successive indorsers inter se are determined according to the
ordinary principle of the law merchant, which makes a prior indorser indemnify a subsequent one.235
By reason of section 37 of the Act, the maker, even in the case of an accommodation note, remains liable as
principal and the payee as surety only, from the point of view of the holder’s right in the absence of a contract to
the contrary. The words ‘a contract to the contrary in the section’ refers to a contract, which displaces the
normal right which the holder possesses in law.236
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231 Pogose v Bank of Bengal, (1877-78) ILR 3 Cal 174, p 184; Doolarchand v Mohabeer, 19 WR 304.
232 Fentum v Pocock, (1813) 5 Taunt 192; Heylyn v Adamson, (1758) 2 Burr 674, p 676.
233 Appukuttan Panicker v Anthappa, AIR 1966 Ker 303 .
234 Nanda Ram v Sitla Prasad, (1883) ILR 5 All 484.
235 Macdonald v Whitefield, (1883) 8 App Cas 733 .
236 Bank of Hindustan Ltd v Govindarajulu Naidu, (1934) ILR 57 Mad 482.
End of Document
[s 38] Prior party a principal in respect of each subsequent party—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

As between the parties so liable as sureties, each prior party is, in the absence of a contract to the contrary,
also liable thereon as a principal debtor in respect of each subsequent party.
Illustration
A draws a bill payable to his own order on B, who accepts, A afterwards indorses the bill to C, C to D, and D to
E. As between E and B, B is the principal debtor, and A, C and D are his sureties. As between E and A, A is the
principal debtor, and C and D are his sureties. As between E and C, C is the principal debtor and D is his
surety.
Page 2 of 3
[s 38.1] Liability of Parties Inter Se
The section provides that as between the parties liable under section 37 as sureties for the maker, drawer, or
acceptor, each prior party is a principal debtor in respect of each succeeding party. The parties are not mere
co-sureties with rights of contribution under section 146 of the Indian Contract Act, 1872. Byles explains the
relationship of the parties thus:
Suppose a bill to have been accepted and indorsed for value. The acceptor is the principal debtor, and all the other
parties are sureties for him, liable only on his default. But though all the other parties are in respect of the acceptor
sureties only, they are not as between themselves merely co-sureties, but each prior party is a principal in respect of
each subsequent party. For example, suppose a bill to have been accepted by the drawee, and afterwards indorsed by
the drawer and by two subsequent indorsers to the holder. As between the holder and the acceptor, the acceptor is the
principal debtor, and the drawer and the indorsers are his sureties. But as between the holder and the drawer, the
drawer is the principal debtor and the subsequent indorsers are his sureties. As between the holder and the second
indorsers, the second indorser is the principal, and the subsequent or the third indorser is his surety.237
Where, after dishonour of an accepted bill, the acceptor tendered the amount, less the amount due to himself
from the payee, and the payee refused to accept the tender, claiming the amount from the drawer-company,
which had gone into liquidation, it was held that the liability of the drawer continued only as a surety, and he
was entitled to the benefit of the set-off in favour of the principal debtor.238 The relationship of the parties on
the bill to the holder does not determine the liabilities as between themselves. Thus, where one co-surety was a
drawer and the other an indorser, it was held that in spite of their position in the bill, there can be contribution as
between themselves.239
237 Byles, Bills of Exchange, 21st edn., p 284; Horne v Rouquette, [1878] 3 QBD 514.
238 Indian Bank v Nagindas, (1916) 18 Bom LR 689 .
239 Reynolds v Wheeler, (1861) 10 CBNS 561 .

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End of Document
[s 39] Suretyship.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When the holder of an accepted bill of exchange enters into any contract with the acceptor which, under section
134 or 135 of the Indian Contract Act 1872, (9 of 1872), would discharge the other parties, the holder may
expressly reserve his right to charge the other parties, and in such case they are not discharged.
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[s 39.1] Effect of Suretyship
Section 39 must be read subject to the provisions of the next section. Sections 134 and 135 of the Indian
Contract Act, 1872 lay down cases in which a surety is under certain circumstances, discharged from his
liability to the creditor.
Section 134 of the Indian Contract Act, 1872 provides that the surety is discharged by any contract between the
creditor and the principal debtor by which the principal debtor is released, or by any act or omission of the
creditor. Under section 135, a contract between a creditor and a principal debtor by which the creditor makes
composition with, or promises to give time to, or not to sue, the principal debtor discharges the surety unless
the surety assents to such contract.
Section 39 of the Negotiable Instruments Act, 1882, however, enables the holder of a bill of exchange to enter
into any contract with the acceptor, without thereby losing his rights against the other parties, provided he
expressly reserves his rights against those other parties. The reason for the rule is that such a reservation
rebuts the implication that the surety was meant to be discharged, and also prevents the rights of the surety
against the principal debtor being impaired, the injury to such rights being a cause for the discharge of the
surety.240 For example:
(1) The holder of a bill for Rs 5,000 takes from the acceptor Rs 3,000 in full satisfaction of his claim
against him. All the other parties are discharged.
(2) The holder of a bill enters into a contract with the acceptor to give him time for payment. The drawer
and the indorsers are discharged.
(3) The holder of a bill agrees with the acceptor, not to sue him upon the bill or not to sue him for certain
time. The drawer and the indorsers are discharged.
(4) The holder of a bill takes a new bill from the acceptor payable on a future day. The drawer and
indorsers are discharged.241However, where a new bill is taken by way of collateral security, the
indorsers are not discharged.242
In all the above cases, however, the prior parties, namely, the drawer and all the indorsers, are not discharged
Page 3 of 4
from their liabilities to the holder, if the latter expressly reserves his right to charge them. But the scope of the
section is limited to a holder’s contract with the acceptor of a bill, and it does not enable the holder of a bill or
note to effectually reserve his rights against the indorsers, when he enters into any such contracts with the
drawer or maker. Also, the section has no application where the acceptor is discharged, not by reason of a
contract between himself and the holder, but by some act or omission, the legal consequence of which is the
discharge of the acceptor. Likewise, the surety is not discharged, if the principal debtor is discharged not by the
creditor’s act but by operation of law. Thus, when the acceptor of a bill became insolvent, the holder’s right to
proceed against the other parties was not lost by reason of his proving in the insolvency and receiving a
dividend, for the acceptor was discharged not by the act of the holder but by operation of law.243 Mere
forbearance on the part of the creditor to sue or enforce his remedy against the principal debtor does not
discharge the surety. The surety is also not discharged when the contract to give time to or not to sue the
principal debtor is made by the creditor, not with the principal debtor but with some third person.244 Section 39
of the Act applies where a person signs a promissory note without adding anything to show that he is acting as
executor or administrator of another. It has no application to the case where a person deals with another on the
footing that the latter is an executor or administrator.245
In the case of accommodation bills and notes, if the holder, with knowledge of the relation of the parties, gives
time to, or agrees not to sue, the accommodated party, the accommodation acceptor is discharged.246 The
doctrine extends even to cases where persons, having contracted originally as principals, afterwards become
sureties by arrangement, and that fact is made known to the creditor before time is given or other indulgence is
shown. A partner retiring under a deed of dissolution having a covenant that the continuing partners should pay
the debt and indemnify him, thus becomes a surety to such of the creditors of the partnership as have notice of
the covenant.247
240 Kearsely v Cole, (1864) 16 MW 128.
241 Gould v Robson, (1807) 8 East 576; English v Darley, (1880) 2 B&P 61.
242 Pring v Clarkson, (1822) 1 B&C 14.

Page 4 of 4
243 Re Jacobs, (1875) LR 10 Ch App 211, p 213.
244 Indian Contract Act, 1872, sections 136 and 138.
245 Pestonji v Meherbai, (1928) 30 Bom LR 1407 .
246 Davies v Stainbank, (1854) 6 De GM & G 679; Overend Gurney & Co v Oriental Financial Corpn, (1874) LR 7 HL 348;
Pogose v Bank of Bengal, (1877-78) ILR 3 Cal 174; Ramakrishnayya v Kassim, (1890) ILR 13 Mad 17; Mulchand v
Madho Ram, (1888) ILR 10 All 421.
247 Rouse v Bradford Banking Co Ltd, [1894] AC 584 .
End of Document
[s 40] Discharge of indorser’s liability—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Where the holder of a negotiable instrument, without the consent of the indorser, destroys or impairs the
indorser’s remedy against a prior party, the indorser is discharged from liability to the holder to the same extent
as if the instrument had been paid at maturity.
Illustrations
A is the holder of a bill of exchange made payable to the order of B, which contains the following indorsements
in blank:–
Page 2 of 3
First indorsement, ‘B’.
Second indorsement, ‘Peter Williams’.
Third indorsement, ‘Wright and Co’.
Fourth indorsement, ‘John Rozario’.
This bill A puts in suit against John Rozario and strikes out, without John Rozario’s consent, the indorsements
by Peter Williams and Wright and Co. A is not entitled to recover anything from John Rozario.
[s 40.2] Discharge of Indorser’s Liability to the Holder
This section comes into operation only when the holder of a negotiable instrument destroys the endorser’s
remedy without the consent of the endorser.248
A similar provision is found in section 139 of the Indian Contract Act, 1872. The reason for this rule as to the
discharge of the surety is that the latter enters into his contract on the express understanding that he will, on
performance of his engagement, be subrogated to the rights of the creditor. The section only applies to
indorsers and not to drawers, whose rights and liabilities have to be determined by the provisions of the Indian
Contract Act, 1872. The illustration under the section gives an instance of the discharge of an indorser by the
act of a holder who, without the indorser’s consent, destroys an indorser’s remedy against a prior party.
Similarly, an indorser will be discharged from his liability to the holder, where the latter destroys the securities
given by the acceptor and which he had in his hands. The reason for the rule is that an indorser of a negotiable
instrument, being in the position of a surety, is entitled to the benefit of those securities to which the holder can
have no claim except for the instrument itself.249 The rule as to the discharge of an indorser or indorsers is
best illustrated by the following passage:250
The contracts of the several indorsers are so many links of a pendant chain; if the holder dissolves the first, every link
falls with it. If the holder dissolves an intermediate link, all after it are likewise dissolved. But the last link supports
nothing, and its dissolution injures no one.
Page 3 of 3
The striking out must be intentional and if the same is by mistake then it does not destroy the right of the holder
to recover on the instrument against the indorser whose name is so cancelled.251 The mere omission of a
creditor-bank to enforce its claim against the maker of a hundi pledged with it by the indorser-customer would
not release the customer where the bank had not undertaken to enforce the claim.252
The distinction between sections 39 and 40 may be noted. Firstly, section 39 applies only to bills of exchange
whereas section 40 applies to all negotiable instruments. Secondly, under section 39, express reservation by
the holder of his rights against an indorser does not discharge him; whereas under section 40, if the holder of
an instrument destroys or impairs the indorser’s remedy against a prior party, the indorser is discharged from
his liability to the holder, despite an express reservation of the holder’s rights against the indorser.
248 Punjab Co-operative Bank Ltd v Muhammad Yusaf, AIR 1939 Lah. 225 (DB).
249 Aga Ahmed v Judith, (1892) ILR 19 Cal 242 (PC); Duncan Fox & Co v North & South Wales Bank, (1880) 6
App Cas 1 .
250 Daniel on Negotiable Instruments, p 1307.
251 Wilkinson v Johnson, (1824) 3 B&C 428.
252 Shambumal Gangaram v State Bank of Mysore, AIR 1971 Mys 156 .
End of Document
[s 41] Acceptor bound, although indorsement forged—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

An acceptor of a bill of exchange already indorsed is not relieved from liability by reason that such indorsement
is forged, if he knew or had reason to believe the indorsement to be forged when he accepted the bill.

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[s 41.2] Acceptor’s Liability on A Forged Indorsement
As a general rule, a forged indorsement can convey no title even to a bona fide holder for value, and such an
indorsement cannot affect the title of the person whose indorsement had been forged. Thus, an acceptor of a
bill of exchange is not precluded by his acceptance from showing that the indorsement is forged.253 The
section, however, lays down that if a person accepts a bill already indorsed, he is precluded from setting up the
forgery of the indorsement, if he knew or had reason to believe the indorsement to be a forgery. The reason for
the rule is clear. If an acceptor knows or has reason to believe that an indorsement is a forgery, he ought not to
accept the bill at all, but having accepted it with knowledge of the forgery, he cannot be allowed to take
advantage of his own wrong by showing that he is not liable on the plea of forgery. An acceptor cannot
challenge a holder’s title even through a forged indorsement, when he himself accepted the instrument with
knowledge of the forgery. The result of such an acceptance is that the acceptor is not relieved from liability and
has to pay the amount twice, once to the holder, and again to the real owner of the bill or note. The section,
however, has no application if the acceptor has no knowledge or reasonable ground for believing that the
indorsement is a forgery.
253 Robinson v Yarrow, (1817) 1 Taunt 455.
End of Document
[s 42] Acceptance of bill drawn in fictitious name—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer’s order is not, by reason
that such name is fictitious, relieved from liability to any holder in due course claiming under an indorsement by
the same hand as the drawer’s signature, and purporting to be made by the drawer.
Page 2 of 3
[s 42.1] Acceptor’s Liability for Bill Drawn in A Fictitious Name
The section reproduces the rule of English Common Law on the subject that:
[w]here a bill is drawn in the name of a fictitious person payable to the order of the drawer, the acceptor is considered
as undertaking to pay to the order of the person who signed as the drawer; and therefore, an indorsee may bring
evidence to show that the signature of the supposed drawer to the bill and to the first indorsement, are in the same
handwriting.254
When a bill is drawn payable to the order of the drawer, the drawer is also the payee of the bill. The expression,
a bill of exchange drawn in a fictitious name and payable to the drawer’s order, therefore, means that both the
drawer and the payee are fictitious persons. Who is a ‘fictitious’ payee? According to Lord Herschell:
Whenever, the name inserted as that of the payee is so inserted by way of pretence merely, without any intention that
payment shall only be made in conformity therewith, the payee is a fictitious person... whether the name be that of an
existing person, or of one who has no existence.255
For example:
(1) A bill purporting to be drawn by D to the order of C &Co, and indorsed by them, is accepted by A, the drawee,
payable at his bankers. The bankers discharge the bill at maturity. Afterwards it turns out that the signatures
of D & Co—the drawer and the payee-were forged by A’s clerk, who obtained the money. C &Co are fictitious
payees and the bankers can debit A’s account with the amount so paid.256
(2) The drawer, D, is induced by A to draw a cheque in favour of P, who is an existing person. A, instead of
sending the cheque to P, forges his name and pays the cheque into his own bank. P is not a fictitious payee,
and D, the drawer, can recover the amount of the cheque from A’s bankers.257
(3) A, a clerk of B & Co, draws up, according to usual practice, several cheques payable to customers of B & Co,
and gets one of the partners of B & Co, to sign them. Instead of forwarding the cheque to the payees, A
forges their signatures, and cashes them with D, a tradesman. The cheques are collected by D’s bankers.
The payees are not fictitious persons, and B &Co, can recover the amounts of the cheque from D.258
(4) A, a clerk of D, by fraudulently representing to D that work has been done on his account by P, induces D to
draw cheques in favour of P, for the pretended work. A then forges the indorsement of P and negotiates the
Page 3 of 3
cheques to H, a bona fide holder for value. The cheques are duly honoured by D’s bankers. P is a fictitious
payee, and D cannot recover the amount of the cheques from H.259
The section says that where the drawer is also the payee and is a fictitious person, the acceptor is liable on the
bill to a holder in due course, if the latter can show that the signature of the supposed drawer and the first
indorsement are in the same hand, for the bill being payable to the drawer’s order, the fictitious drawer must
indorse the bill before he can negotiate it. However, the liability of the acceptor in such a case is only to a
holder in due course, and not to a person who knew or had reason to believe that the drawer was a fictitious
person.
254 Cooper v Meyer, (1820) 10 B&C 468.
255 Bank of England v Vagliano Bros., [1891] AC 107, p 153.
256 Bank of England v Vagliano Bros., [1891] AC 107 .
257 North & South Wales Bank v Macbeth, [1908] AC 137 ; Town & County Advance Co v Provincial Bank, [1917] 2 IR 421
.
258 Vinden v Hughes, [1905] 1 KB 795 .
259 Clutton & Co v Attenborough, [1897] AC 90 .
End of Document
[s 43] Negotiable instrument made, etc., without consideration—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A negotiable instrument made, drawn, accepted, indorsed, or transferred without consideration, or for a
consideration which fails, creates no obligation of payment between the parties to the transaction. But if any
such party has transferred the instrument with or without indorsement to a holder for consideration, such holder,
and every subsequent holder deriving title from him, may recover the amount due on such instrument from the
transferor for consideration or any prior party thereto.
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Exception I.—No party for whose accommodation a negotiable instrument has been made, drawn, accepted or
indorsed can, if he has paid the amount thereof, recover thereon such amount from any person who became a
party to such instrument for his accommodation.
Exception II.—No party to the instrument who has induced any other party to make, draw, accept, indorse or
transfer the same to him for a consideration which he has failed to pay or perform in full shall recover therein an
amount exceeding the value of the consideration (if any) which he has actually paid or performed.
This section corresponds to sections 27(2), 28 and 59(3) of the Bills of Exchange Act, 1882.
[s 43.2] Total Absence or Total Failure of Consideration
Sections 43 to 45 deal with the effect of total or partial absence or failure of consideration for a negotiable
instrument. Section 43 deals with total absence or failure of consideration. Every contract, except those
mentioned in section 25 of the Indian Contract Act, 1872, requires consideration to support it, and bills of
exchange, promissory notes, and cheques are no exception to this general rule.
As regards negotiable instruments, the presumption of law is that every negotiable instrument was made or
drawn for a consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or
transferred, is accepted, indorsed, negotiated or transferred for a consideration.260 The difference, however,
between ordinary contracts and negotiable instruments is noticeable when a suit is brought on these contracts
in a court of law. In the case of an ordinary contract, the onus of proof lies on the plaintiff to prove the existence
of consideration; whereas in the case of negotiable instruments, it is for the defendant to prove absence of
consideration, if that is his defence.
Section 43 lays down two rules in general:
(a) A negotiable instrument made, drawn, accepted, indorsed or transferred without consideration, or for a
consideration which subsequently fails, creates no obligation of payment between the parties to the
Page 3 of 12
transaction. Therefore, as between immediate parties (i.e., parties in direct relation with each other,
e.g. between the drawer and acceptor, between the payee and the maker of a note, between an
indorsee and his immediate indorser) a negotiable instrument made, drawn, accepted, indorsed or
transferred without consideration or for a consideration which fails, creates no obligation of payment,
and on such an instrument, the defendant can successfully plead that no consideration moved from the
plaintiff to the defendant. If consideration for a negotiable instrument is paid at the time of making,
drawing, accepting or indorsing and it were to fail subsequently, such subsequent failure has the same
effect as original total absence of consideration.261
In National Bank of Upper India Ltd v Bansidhar,262 the facts were unusual. Prior to an impending
audit of the bank, with a view to covering up an unauthorised credit allowed by an official of the
bank to one of its directors, a businessman was persuaded by the official and the director to
execute a promissory note in favour of the bank, upon which the debt was transferred in his name
in the bank’s books. As between the director and the businessman, the former undertook to
discharge the debt to the bank. In an action by the bank on the note, the Privy Council held that the
businessman was liable on the note, which was an effective contract between him and the bank,
the credit to the director’s account being sufficient consideration. The businessman had lent
himself to the tripartite arrangement fully understanding that its object was the deception of the
bank, and that he was not induced by the bank to believe that he would not be held liable on the
contract.
In Revathi CP Equipments Ltd v Sangeetha Tubewell Corporation263 a single judge of the Madras
High Court applied the rationale of the Supreme Court ruling to a set of bills of exchange on a
performance guarantee in UP Cooperative Federation Ltd v Singh Consultants and Engineers (P)
Ltd264and held that there was no lack of consideration for the bills in question. The bills had been
drawn by the seller of a water-well rig on the buyer and its bank, for 90% of the purchase price to
be paid in a series of installments with interest. The buyer had taken delivery of the rig and used it
for some time, but claimed that the seller had sold the rig, which was only a prototype, by making
false representations. The buyer also claimed that the seller, contrary to its agreement, had not got
the rig registered under the Motor Vehicles Act 1988, within 15 days of delivery, resulting in
considerable loss to the buyer. The buyer sought an injunction restraining its bank from paying the
bills on their due dates to the seller. Justice Venkataswamy held that the bills formed a contract
separate and independent from the sale contract, and that the injunction could not be granted on
the ground of dispute with regard to the performance of the sale contract; the bills operated as
absolute payment irrespective of the sale contract, subject to the one and only exception, viz
seller’s fraud, which had not been established.
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With due defence, it is submitted that the obligation of the acceptor would be subject to the
provisions of sections 44 and 45 of the Act. Partial absence or failure of consideration such as
would fall within the ambit of these two sections, apart from established fraud, would provide a
valid defence to the acceptor against the drawer of a bill of exchange. Whether there has been
such partial absence or failure of consideration depends upon the facts of each case.
(b) The plea of want or failure of consideration between immediate prior parties cannot be set up against a
holder, who has given consideration for the instrument or against any subsequent holder deriving title
from him.265 If any such party has transferred the instrument with or without endorsement to a holder
for consideration, such holder and every subsequent holder deriving title from him, may recover the
amount due on the instrument from the transferor for consideration or any prior party thereto.266
Therefore, as between remote parties (i.e., parties who are not in direct relation, e.g., the payee and
the acceptor, the indorsee and the acceptor, an indorsee and a remote indorser) it is not sufficient for
the defendant to show that he received no consideration for the instrument, but the plaintiff can only
succeed if he can show that he or some intermediate holder had given value for the instrument, though
the defendant might have received none. The failure of consideration, even if it were a total one, is no
defence against a holder for value, or any per person deriving title under him. Where a party, who has
become the holder of a negotiable instrument without consideration, transfers the instrument to a
holder for consideration, such holder and every subsequent holder deriving title from him, may recover
the amount due on such instrument from the transferor for consideration or from any prior party
thereto. For example:
(i) A is the holder of a bill for consideration. A indorses it away to B without consideration. The
property in the bill passes to B. The bill is dishonoured at maturity. B cannot sue A on the bill.
(ii) A owes B Rs 500. In order to pay B, A asks C to draw a bill on A for Rs 500, in favour of B, as
payee. A accepts the bill, the existing debt being the consideration. B is a holder for value and can
sue C, though C has received no value. But C cannot sue A on the bill since there was no
consideration between them.
(iii) A draws a bill on B, who accepts it without any consideration. The bill is transferred to C without
consideration. C transfers it to D for value. D can sue any of the parties, A, B or C, though as
between themselves there would be no right of action.
(iv) A, the holder of a bill, transfers it to B without consideration. B transfers it to C without

consideration. C transfers it to D for value. D transfers it without consideration to E.E can recover
the amount of the bill from A, B, C, in the same manner as D would have been entitled to do,
though E gave no value for the bill and A received none. But E has got no right as against D.
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(v) A promissory note, payable to order, was transferred by the payee for consideration, by means of
a sale deed, but without any indorsement. In a suit by the transferee on the promissory note, it was
found that the note was made without consideration and thereupon, the plaintiff claimed a decree
by virtue of section 43 of the Act. It was held that the transfer by means of a sale deed, and without
any indorsement of a promissory note payable to order is not negotiation thereof, nor is the
transferee a ‘holder’ thereof within the meaning of section 8 of the Act, and therefore, such
transferee is not entitled to the rights conferred on a holder for consideration by section 43 of the
Act. Sections 14, 15 and 48 show that the holder as defined in section 8 is a person to whom there
has been negotiation by indorsement and delivery in the case of an instrument payable to order,
and not a person who has merely acquired rights under a sale deed.267
(vi) A drew a cheque in favour of B, who indorsed it to C for consideration. The cheque was
dishonoured on the strength of instruction from A issued on the ground that there was failure of
consideration undertaken by B. It was held that the instrument having been transferred, the rights
of the parties were governed by section 43 of the Act. C, being a holder in due course, was entitled
to recover the amount of the cheque from A.268
(vii) A company issued a cheque to one of its employees towards payment of wages to certain
workmen. The employee discounted the cheque with a bank but did not pay the wages. The
company, therefore, stopped payment of the cheque, which was later dishonoured on
presentation. The bank sued the company for recovery of the amount. It was held that the bank,
being a holder in due course, was not affected by any failure of consideration as between the
company and its employee.269
(viii) The manager of a bank steals negotiable securities from the bank, and pledges them with A.
Afterwards he obtains them back from A by a fraud, and replaces them in the bank. The bank is
ignorant of the transactions. The bank is the holder in due course of these securities, and entitled
to retain them against A.270
(ix) The payment of a bill of exchange, promissory note, or cheque, given by the acceptor, maker or
drawer to the payee, as a gift inter vivos, cannot be enforced at the suit of the donee against the
donor.271
(x) Where A agreed with B, on behalf of the Navy League, to supply refreshments to members at a
Naval Review and it had been agreed that in the event of cancellation of the review there should
be no liability, it was held in a suit on a cheque by B in advance, that B was not liable when the
Review did not come off owing to the King’s illness.272
(xi) At an auction, the successful bidder signed, along with the auctioneer acting as the vendor’s agent,
a memorandum of sale and gave the auctioneer a cheque for 10 percent of the purchase price.
Later, he stopped its payment, without any justifiable reason. The vendor treated the drawer’s
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conduct as repudiation of the contract and resold the property at a lower price. The auctioneer
sued the drawer for recovery of the amount of the dishonoured cheque. It was held that when the
cheque was given to and received by the auctioneer, he warranted to the drawer his authority to
sign the memorandum of sale on behalf of the vendor and to receive the cheque in diminution of
the drawer’s obligation to pay the full purchase price. This was the true consideration for the
cheque and it never failed. The auctioneer could, therefore, succeed.273
The consideration given for a negotiable instrument must be lawful. Otherwise, the instrument cannot be
enforced, either between the original or even between theremote parties, unless the holder is a holder in due
course, or a person deriving title from suchholder without himself being a party to any fraud or illegality affecting
the instrument.274 Where the drawer of a bill transfers it to a holder for an unlawful consideration, any
subsequent holder, who is not aware of the taint affecting theinstrument, can become a holder in due course
and can sue the drawer upon it.275 The position is, however, different in the case of a cheque crossed ‘not
negotiable’. The holder of such a cheque does not derive any better title than what the transferor had.276
A promissory note is enforceable against all the executants thereof, for consideration paid to one of several
joint executants is legally sufficient to support the promise of all the joint executants and it is not necessary that
consideration should move to each executant separately to make the note binding upon that executant.277
Without evidence of a contract limiting the right of recourse of the holder against himself, or breach of contract
or of duty on his part which will have that effect, the drawer is liable; and the right to recover is not affected by
the loss of any collateral security that may have been given.278 A distinction has been made between want of
consideration and consideration that becomes of no value through no fault of the parties. Thus, where a bank
obtained a firm’s acceptance of bills which contained a memorandum or reference to bills of lading for specified
quantity of cotton, and it was later found that the bills of lading were forgeries and that both the parties were
misled in the matter, it was held that the bank did not, by presenting the bills of exchange for acceptance,
warrant or represent that the bills of lading were genuine, and that the bank was entitled to recover the amounts
due under the acceptance. It was held that the acceptance was full and unconditional, and was not dependent
upon the nature of the bills of lading.279
In a Lahore case, a car was purchased by the hirer on a hire purchase agreement and issued cheques for the
payments of installments. As the vehicle was not of good condition as agreed the hirer informed this fact to the
creditor and issued a stop payment of the cheque to the bank. Later the vehicle was repossessed by the
Page 7 of 12
creditor. Regarding the liability the High Court held that section 43 applies to this case as the consideration was
failed.280
[s 43.3] Accommodation Bills
An accommodation party to a bill is a person who has signed a bill as drawer, acceptor, or indorser, without
receiving value therefore, and for the purpose of lending his name to some other person.281 Such bills are
called accommodation bills. An accommodation party stands in the position of a surety for the party
accommodated, notwithstanding the fact that his ostensible position on the instrument is that of a principal
debtor.282 The party accommodated, by asking another to lend his name, thereby engages either himselfto
take up the bill, or to provide the accommodation party with funds for so doing, or lastly, to indemnify the
accommodation party against the consequences of non-acceptance.283 Exception I to the section provides that
where an accommodated party pays the amount due under an instrument, he cannot recover that amount from
the person who lent his name to the instrument for his accommodation. However, Exception I does not in any
way affect the rule laid down in the section. An accommodation party, for instance, is liable on the bill to a
holder for value in the same way as any ordinary party who has put his signature on the bill, and it is immaterial
whether, when such holder took the bill, he knew such party to be an accommodation party or not.284 The
defence of want of consideration between accommodating and accommodated parties will not avail against a
holder for value. Though the plea of accommodation can be set up against the party accommodated, yet the
parties are liable to a holder for value in the character in which their names appear on the instrument. However,
where the holder himself is the party accommodated, he may not, by merely giving value to a prior party, claim
the benefit of the rule stated in the section as against the party who accommodated him. Where the rights of
bona fide holders are not involved, the section allows the defendant to raise the plea that he did not receive any
consideration.285For example:
(i) H is the payee and holder of a bill drawn by B. The bill is accepted by A for the accommodation of H. H
cannot, by merely giving value to B, the drawer, claim the benefit of the rule mentioned in the section
as against A, the acceptor. The case falls under Exception I, and H cannot sue A.
(ii) A bill is drawn and accepted for the accommodation of P, the payee. P indorses it away. The bill is
dishonoured and P pays the amount of the bill. P cannot sue the drawer or acceptor.286
[s 43.4] Partial Failure of Consideration
Under this exception, a partial failure of consideration has been recognised as a defense. However, the said
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defense is only available between immediate parties. The exception can be said to apply against a person who
offered the inducement and cover cases where the failure of consideration is intentional.287
[s 43.5] Allegation of ‘No Consideration’ Due to Fraud
The elements of a contract are the necessary ingredients which differentiate between a negotiable instrument
and a mere receipt. Therefore, the necessary ingredients of a valid contract are intrinsically to be read into a
negotiable instrument and absence thereof, such as existence of fraud or lack of free will, if sufficiently
established, puts a question mark on the validity of a negotiable instrument.
In Tatipamula Naga Raju v Pattem Padmavathi,288 the case of plaintiff was that a sum of Rs 1,25,000 was
borrowed by defendant after executing a promissory note for Rs 1,25,000. In spite of demand, as the amount
was not repaid, the plaintiff was constrained to file a suit for recovery of the said amount along with interest
thereon. The case of defendant was that though the promissory note had been executed by him, no amount
was payable by defendant to plaintiff. According to defendant, he had borrowed Rs 1,25,000 from the son of
plaintiff and four promissory notes had been executed by him. One promissory note was for Rs 50,000 and
three promissory notes were for Rs 25,000 each. The defendant was having financial difficulties and, therefore,
he could not pay the said amount to plaintiff’s son but with the help of certain mediators, he had settled the
dues with plaintiff’s son for Rs 90,000 and paid the same to him. Upon payment of Rs 90,000 by defendant in
full settlement of his dues, plaintiff’s son ought to have returned the aforestated four promissory notes to
defendant but he returned only three promissory notes and did not return one promissory note for Rs 25,000,
as he had misplaced the same and he promised that he would return the said promissory note for Rs 25,000 as
and when he would find it. According to defendant, by adding a figure ‘1’ before ‘Rs. 25,000’ the plaintiff had
made an amount of Rs 1,25,000 from Rs 25,000. The plaintiff had taken undue advantage by interpolating
figure ‘1’ before ‘Rs 25,000’ because Rs 25,000 had not been written in words. Thus, according to the case of
the defendant, no amount was payable by him to the plaintiff but the plaintiff had misused the promissory note
given by him to Nanaji by interpolating figure ‘1’ before figure ‘25,000’.
During trial, a handwriting expert was examined, who stated that figure ‘1’ had been interpolated in the
promissory note whereby figure ‘25,000’ was made ‘1,25,000’ by adding ‘1’, and not in the same line of Rs
25,000. This report was accepted by trial court and after considering the evidence of mediators in whose
presence the defendant had settled his dues with plaintiff’s son, the suit was dismissed.
Page 9 of 12
The plaintiff filed an appeal which was allowed and the suit was decreed. Defendant preferred Second Appeal
before High Court which was dismissed due to the absence of any substantial question of law.
The defendant approached Supreme Court289 wherein it was concluded that the evidence of the mediators
and the handwriting expert was duly considered and appreciated by the trial court and the trial court had come
to a right conclusion. There was absolutely no reason for the lower appellate court to arrive at a different
conclusion than the one arrived at by the trial court. It was opined that the findings arrived at by trial court were
absolutely correct and no justifiable reasons were given by lower appellate court for arriving at a different
conclusion. The Supreme Court held that, simply because the defendant had fairly admitted his signature, the
court should not have come to the conclusion that the amount was payable by defendant especially when there
was an expert’s evidence that figure ‘1’ was added so as to make the figure 1,25,000 from figure 25,000 and
when the mediators had deposed to the effect that there were transactions between defendant and the son of
plaintiff and in pursuance of the said transaction, promissory notes were executed by defendant and one of the
promissory notes was not returned to defendant. The Supreme Court further concluded that the explanation
given by defendant, which was supported by ample evidence, ought to have been considered by lower
appellate court and the lower appellate court should not have been guided by a mere fact that defendant had
admitted execution of promissory note. The Supreme Court was of the further view that the defendant ought not
to have been saddled with a liability to pay the amount in pursuance of the tampered promissory note for which
no consideration had ever passed from the plaintiff to the defendant. Accordingly, the Supreme Court restored
the order passed by trial Court whereby the suit was dismissed.
In Sudhir Kumar Bhalla v Jagdish Chand,290 it was held by the Supreme Court that the Single Judge of High
Court had not addressed himself on the legal question raised before him by appellant that the criminal liability of
appellant under section 138 of the Act are attracted only on account of the dishonour of the cheques issued in
discharge of liability or debt, but not on account of issuance of security cheques. The Single Judge had also not
given cogent, satisfactory and convincing reasons for disbelieving and discarding the pre-charge evidence of
appellant corroborated by the evidence of the expert opinion in regard to the interpolation in and fabrication of
the cheques by adding one more figure ‘0’ to make Rs 30,000 to Rs 3,00,000 and similarly adding one more
figure ‘0’ to make Rs 40,000 to Rs 4,00,000. Accordingly, the matter was remitted back to High Court for
consideration afresh.
In Sunil Enterprises v SBI Commercial & International Bank Ltd,291 the appellants sought leave to defend
themselves contending that the bills of exchange were executed without consideration as neither the goods
were sold nor supplied in the transaction in question. The appellants alleged fraud, collusion and connivance
Page 10 of 12
between the officers of the respondent-Bank and M/s Khanna Sales Corporation. The trial Judge refused the
leave to defend the suit. On appeal, the Division Bench considered the matter and held that the undisputed
position is that the appellants are the acceptors of the bills of exchange in question and that no goods were
supplied or actually sold by M/s Khanna Sales Corporation to the appellants and, therefore, the bills of
exchange were not supported by consideration. If any fraud has been alleged that could be reflective on their
conduct and, therefore, it would be too much for the respondent-Bank or their officers to be instrumental in
perpetration of such a fraud by appellants and M/s Khanna Sales Corporation and, therefore, appellants cannot
escape their liability and responsibility under the bills of exchange in question. On that basis it was held that the
pleas raised by appellants were frivolous and had no substance and merits in their defence.
However, referring to section 43 of the Act, which saves the right of the holder in due course, it was held by
Supreme Court292 that the view taken by High Court that appellants have absolutely no prima facie case, may
not be correct. Accordingly, the appeals were allowed, setting aside the order of the Division Bench and the
Judge on the original side of Bombay High Court and dismissing the summons for judgment, and unconditional
leave was granted to defendant to defend the suit.
Therefore, there is no obligation to pay on a negotiable instrument, if it is accepted or endorsed without

consideration. Where the defendant alleges that the plaintiff gave no consideration for the draft, it is a matter
which can be either proved or disproved by evidence in trial. Proviso to section 118 (g) must be kept in mind but
if fraud can be established, then no such presumption arises.293
260 See section 118(a); Indian Evidence Act, 1872, section 114(c).
261 Motishaw v Mercantile Bank of India, (1917) ILR 41 Bom 566; Marshall & Co v Naginchand, (1918) ILR 42 Bom 473.
262 National Bank of Upper India Ltd v Bansidhar, AIR 1929 PC 297 .
263 Revathi CP Equipments Ltd v Sangeetha Tubewell Corporation, AIR 1989 Mad 302 : [1989] 1 MLJ 329 .
Page 11 of 12
264 UP Cooperative Federation Ltd v Singh Consultants and Engineers (P) Ltd, (1987) 5 JT 406 .
265 Canara Bank v Sanjeev Enterprises, AIR 1988 Del 372 .
266 Arumugham Pillai v State of Kerala, (2006) 1 Bank CLR 482 , para 7 (Ker).
267 Jung Bahadur Singh v Chander Bali Singh, (1939) All 419.
268 Jethamal v Haridas, AIR 1949 Assam 6.
269 Federal Bank Ltd v PSP Panicker, AIR 1976 Ker 5.
270 London and County Bank v River Plate Bank, [1888] 21 QBD 535 (CA).
271 Holiday v Atkinson, (1826) 5 B&C 503.
272 Elliott v Crutchley, [1906] AC 7.
273 Pollway Ltd v Abdullah, [1974] 2 All ER 381.
274 Perosha v Maneckji, (1898) 22 Bom 89, p 92.
275 Doulatram v Nagindas, (1913) 15 Bom LR 333 .
276 Ladup Ltd v Shaikh and Ritz Casino Ltd, [1982] 3 WLR 172 . A cheque crossed ‘not negotiable’ and given in a gaming
transaction could not be enforced by the holder who took it from the payee.
277 Anant v Saraswatibai, (1928) 30 Bom LR 709 ; Sornalinga Mudali v Pachai Naicken, (1920) 38 Mad 680; Fanindra v
Kacheman Bibi, (1918) 45 Cal 774 ; Andhra Bank v Amarnath Goel, AIR 1991 Andh Pra 245 .
278 Sassoon & Sons v International Banking Corpn, [1927] AC 711 .
279 Leather v Simpson, (1871) LR 11 Eq 398.
280 Commercial Credit Corporation Ltd v Mohammad Idris, AIR 1933 Lah 470 .
Page 12 of 12
281 Parr v Jewell, (1855) 16 CB 684 ; Smith v Knox, (1800) 3 Esp 46.
282 See sections 32, 37 and 38.
283 Reynolds v Doyle, (1840) 1 M & Gr 753; Nanda Ram v Sitla Prasad, (1883) 5 All 484 .
284 See section 28 of the Bills of Exchange Act, 1882. Mills v Barber, (1836) 1 M&W 425; Bank of Ireland v Beresford,
(1818) 6 Dowl 233.
285 Sesha Aiyer v Mangal Doss, (1915) 29 Mad LJ 20.
286 Mills v Barber, (1856) 1 M&W 435.
287 See section 44 also.
288 Tatipamula Naga Raju v Pattem Padmavathi, (2011) 4 SCC 726 .
289 Tatipamula Naga Raju v Pattem Padmavathi (supra).
290 Sudhir Kumar Bhalla v Jagdish Chand, (2008) 7 SCC 137 .
291 Sunil Enterprises v SBI Commercial & International Bank Ltd, (1998) 5 SCC 354 .
292 Sunil Enterprises v SBI Commercial & International Bank Ltd (supra).
293 Jwala Bank Ltd v Habib Ahmed, AIR 1952 Pun 296 (DB).
End of Document
[s 44] Partial absence or failure of money-consideration—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of
money, and was originally absent in part or has subsequently failed in part, the sum which a holder standing in
immediate relation with such signer is entitled to receive from him is proportionally reduced.
Explanation.—The drawer of a bill of exchange stands in immediate relation with the acceptor. The maker of a
Page 2 of 4
promissory note, bill of exchange or cheque stands in immediate relation with the payee, and the indorser with
his indorsee. Other signers may by agreement stand in immediate relation with a holder.
Illustration
A draws a bill on B for Rs. 500 payable to the order of A. B accepts the bill, but subsequently dishonours it by
non-payment. A sues B on the bill, B proves that it was accepted for value as to Rs. 400, and as an
accommodation to the plaintiff as to the residue. A can only recover Rs. 400.
[s 44.1] Effect of Partial Absence on Rights of Parties
The section deals with the effect of partial absence or partial failure of money consideration for a negotiable
instrument on the rights of the parties thereto. Where the consideration for which a negotiable instrument is
signed consists of: (i) money, and (ii) the consideration is absent in part or subsequently fails in part, the
amount which a holder standing in immediate relation with the signer is entitled to recover from him is the
amount actually paid and not the consideration for which the instrument was signed.
Accordingly, where the consideration for a negotiable instrument consists of money, its partial failure or
absence is a defence pro tanto against an immediate party. However, in order to succeed on such a defence, it
is necessary that the consideration should consist of money, and that this defence could be urged only against
an immediate party, or a party who has agreed to stand in immediate relation with the signer. Partial absence or
partial failure of consideration affects neither a holder for value nor a holder in due course where the signer
transfers the instrument to such a holder.
Where a lesser amount than shown in the promissory note was advanced by the payee, it was held that the
liability of the maker is proportionately reduced, in the light of section 44.294
However, where the consideration for the promissory note was a set of obligations, and the extent to which the
consideration for the said promissory note could not be ascertained, it was held that neither section 44 would
apply as the consideration does not consist merely of money, nor section 45 would apply because the extent to
which the consideration failed cannot be ascertained without a collateral inquiry.295
Page 3 of 4
The illustration is based on the decision in Darnell v Williams.296
Where a promissory note is executed for an amount in excess of what was due on the basis of the Madras
Agriculturist Relief Act, there is failure of consideration in so far as the excess amount is concerned and the
plaintiff would not be entitled to more than what would be due to him after applying the provisions of that Act to
the original debt and its renewals.297 For example:
(i) C accepts a bill for Rs 500 for the accommodation of the drawer. B advances Rs 250 on the bill. B can
only recover Rs 250.
(ii) A owes B Rs 500. B draws a bill on A for Rs 1,000. A, to accommodate B, and at his request, accepts
it. If B sues A on the bill, he can only recover Rs 500.
[s 44.2] Immediate Parties
The explanation gives examples of parties standing in immediate relation. Immediate parties are parties in
direct relation with each other. All other parties are said to be remote. Prima facie, the drawer and the acceptor,
the drawer of a bill and the payee, the indorser and his indorsee, the maker of a promissory note and the
payee, and the drawer of a cheque and the payee, are in indirect relation. In addition to these, the explanation
points out that other signers may let the agreement stand in immediate relation with the holder. Thus, if a bill is
drawn and accepted for the accommodation of the payee, the acceptor would then stand in direct relation to the
payee.
294 Nasir Ali v Kher Chand, AIR 1916 All 310 (DB).
295 Tirupagari Tayaramma v Sri Ramanjaneya Merchantile Co, AIR 1977 AP 205 .
296 Darnell v Williams, (1817) 2 Stark 166 : 171 ER 608.
297 Garimella v Mangipudi, AIR 1953 Mad 975 .

Page 4 of 4
End of Document
[s 45] Partial failure of consideration not consisting of money—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Where a part of the consideration for which a person signed a promissory note, bill of exchange or cheque,
though not consisting of money, is ascertainable in money without collateral enquiry, and there has been a
failure of that party, the sum which a holder standing in immediate relation with such signer is entitled to receive
from him is proportionally reduced.
Page 2 of 5
[s 45.1] Effect of Partial Failure
The section deals with partial failure of consideration where the consideration does not consist of money. The
section lays down the rule that partial failure of consideration is a good pro tanto defence against an immediate
party provided that the part of the consideration which has failed, though it does consist of money, can be
ascertained in terms of a liquidated sum of money.298 Further, the part of the consideration, which has failed,
must be ascertainable without any collateral inquiry.299A partial failure of consideration for a negotiable
instrument constitutes no ground of defence against an immediate party, if the quantum to be deducted on that
account is a matter not of definite computation, but of unliquidated damages. If, in order to ascertain the value
of the consideration that has failed, it is necessary to go into a collateral inquiry, the section does not apply, and
the holder will be entitled to recover the whole amount of the instrument, leaving the aggrieved party to a claim
for damages. Again, as in section 44, the operation of the rule contained in section 45 is strictly confined to
immediate parties only, and does not affect the rights of a holder for value or of a holder in due course. The
following examples may be noted:
(i) A accepts a bill for Rs 1,000. This is the agreed price of two bales of cotton to be supplied by B to A. B
only delivers one bale to A. B sues A on the bill. A can set up the defence of partial failure of
consideration, and B can only recover Rs 500.300
(ii) A accepts a bill for Rs 1,000. This is the agreed price of two bales of cotton to be supplied by B to A. B
only delivers one bale. B indorses this bill to C for value. C indorses it to D for value. If D sues A on the
bill he is entitled to recover Rs 1,000.
(iii) A agrees to supply a quantity of paper to B. B accepts a bill for Rs 1,000 drawn by A, being the price of
the paper. The paper is delivered to B, but turns out to be not of the quality stipulated for and is worth
Rs 500 only. B retains the paper. If A sues B on the bill, B cannot set up as a pro tanto defence that the
paper is only worth Rs 500. As the failure of consideration cannot be ascertained without a collateral
inquiry, B will have to pay Rs 1,000 to A.
(iv) A joined a chit fund and agreed to make an aggregate subscription of Rs 2,500 in daily instalments of
Rs 3.12 each. Within a month, she bid successfully at the chit auction and received Rs 1,750 from the
chit company, the balance of Rs 750 representing the commission (Rs 125) payable to the company
and the bonus (Rs 625) to be distributed among all the chit subscribers. She then executed, in favour
of the company, a promissory note for Rs 2,409.37 representing the daily instalments remaining to be
paid by her. Payments were subsequently made by her only to the extent of Rs 1,344.38 and the chit
company sued her on the note for the balance together with interest thereon. A contended that there
Page 3 of 5
was a failure of consideration to the extent of Rs 750 as the chit company was not paying her shares of
the bonus arising from the chit auctions; the company pleaded that the bonus payments were withheld
because of her default in the payment of the daily subscriptions. It was held that sections 44 and 45 did
not apply to the case as the consideration for the promissory note was the undertaking of certain rights
and obligations by each party in accordance with the terms and conditions of the chit fund. A undertook
the obligation of paying the amount of the note in daily installments of Rs 3.12 each; the chit
company’s obligation was to pay her from time to time the proper share of the bonus to be distributed
to the chit subscribers on each auction, which was a not ascertainable without collateral enquiry.301
In Jaipal Singh Rana v Swaraj Pal Singh,302 the Delhi High Court was required to look into the scope of the
powers of a Metropolitan Magistrate, trying a complaint case under section 138 of the Act, to suo moto ask for
the opinion of Central Forensic Science Laboratory (‘CFSL’) on the handwriting on cheques in question, despite
an application filed by accused for the same relief having been dismissed earlier. In this case a complaint was
filed by the petitioner against the respondent under section 138 of the Act with regard to the dishonour of two
cheques for a sum of Rs 20 lakhs and Rs 32 lakhs each. The allegation in the complaint was that the
respondent had issued the aforementioned cheques in favour of complainant towards discharge of an admitted
liability. Both cheques were, on presentation to the bank for payment, dishonoured with the remarks ‘insufficient
funds.’ After issuing notices demanding payment, the petitioner filed the aforementioned complaint.
After issuance of summons, the application by respondent for recalling the summoning order was dismissed by
Metropolitan Magistrate. One of the contentions raised by respondent in support of prayer for recalling the
summoning order was that the cheques in question were entrusted to the complainant as a part of business
transactions between the parties and were not meant to be encashed. It was stated that the cheques had been
tampered with, filled by complainant or his associates by making alteration in the amount and the dates without
the consent of drawer, i.e., respondent. The said application was rejected by Metropolitan Magistrate by
observing that the accused has admitted that the cheques were signed by him and were issued in favour of the
complainant. The Metropolitan Magistrate further observed that the allegations of the accused/applicant that the
cheques were not issued in discharge of liability require evidence which the parties have yet to lead. The other
allegation as mentioned in the application that the complainant has misused the said cheques after tampering
the same was also not to be decided without evidence which the parties have yet to lead.
After the conclusion of cross-examination of DW-1, an application was moved by the accused for sending the
cheques in question for the opinion of a handwriting expert. This application was dismissed by a detailed order
while the final arguments were being heard. A Criminal Revision challenging the said rejection was dismissed
Page 4 of 5
as withdrawn from the Sessions Court. Some other applications filed by the accused were also rejected. During
the course of hearing in the matter, after about one year of the dismissal of application referring to theopinion of
the handwriting expert, the Metropolitan Magistrate passed an order stating therein that to properly adjudicate
the matter and to appreciate the evidence whether the cheques were given as security to the complainant as
claimed by accused, he was of the view that opinion of an expert regarding the handwritings upon the cheques
was necessary. Aggrieved by aforementioned order, a petition was filed before the High Court under section
482 of CrPC. After going through the various decisions of Supreme Court and High Courts, the issue was
decided by Dr S Muralidhar, J. as follows:
16.3. It is clear that in the above case the request for sending the cheques in question to the handwriting expert only
made once by the accused and not as in this case on two occasions. Further in Kalyani Baskar, the decision of the
learned MM rejecting the request was carried in revision to the High Court and thereafter to the Supreme Court.
However, in the present case, the order dated 8th March 2006 was not challenged by the accused further after the
dismissal of the revision petition. There is nothing in Kalyani Baskar which indicates that despite a Magistrate by a
judicial order having rejected the request for referring the cheques in question to a handwriting expert, it can thereafter
suo motu refer those very cheques to a handwriting expert. Indeed, if such a proposition were to be accepted, it would
virtually amount to permitting the learned MM to either review his own order or the order of the predecessor. That is
clearly impermissible in the scheme of the CrPC.
17. Viewed it from any angle, the order of the learned MM passed by 14th September, 2006 deciding to refer the
cheques for the opinion of the CFSL is unsustainable in law.
Not stopping at this, the court further went ahead into the larger issue of ‘should the cheques have been
referred at all for opinion of the handwriting expert?’ However, after referring to the decision of a Division Bench
of the Kerala High Court303 relying on earlier judgment of the Division Bench,304 the Delhi High Court agreed
with it and following the same, opined that the earlier order passed by Metropolitan Magistrate declining to refer
the cheques in question for the opinion of handwriting expert was valid and did not call for any review. It further
opined that the subsequent order passed by Metropolitan Magistrate seeking opinion of the handwriting expert
was in the circumstances not sustainable in law.
Page 5 of 5
298 Barber v Backhouse, (1791) 1 Peake 86; Day v Nix, (1824) 9 Moore CP 159; Forman v Wright, (1851) 11 CB 481 .
299 Aiyya Pillai v Shenbaga Nadar, AIR 1964 Mad 45 .
300 Agra & Masteman Bank v Leighton, (1866) LR 2 Ex 56, pp 64, 66.
301 T Tayaramma v Sri Ramanjaneya Mercantile Co, AIR 1977 AP 205 .
302 Jaipal Singh Rana v Swaraj Pal Singh, 149 (2008) DLT 682 : 2008 CrLJ 805 NOC Del : AIR 2008 [NOC] 1512 (Del).
303 Lillykutty v Lawrance, 2003 (2) DCR 610.
304 Gandgadhara Panicker v Haridasan, 1989(2) KLT 730 .
End of Document
[[s 45A] Holder’s right to duplicate of lost bill.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

305[[s 45A] Holder’s right to duplicate of lost bill.—
Where a bill of exchange has been lost before it is over-due, the person who was the holder of it may apply to
the drawer to give him another bill of the same tenor, giving security to the drawer, if required, to indemnify him
against all persons whatever in case the bill alleged to have been lost shall be found again.
If the drawer on request as aforesaid refuses to give such duplicate bill, he may be compelled to do so.]
Page 2 of 6
[s 45A.1] Corresponding Provision
[s 45A.2] Title to Lost Bills and Notes
In the matter of rights and duties of the owner of a lost bill or note when a bill or note is lost, the finder acquires
no title to it as against the rightful owner nor is he entitled to sue the acceptor or maker in order to enforce
payments on it. The title of the true owner is not affected by the loss of the instrument, and he is entitled to
recover it from the finder.306
If the finder obtains payments on a lost bill or note, the person who pays it in due course may be able to get a
valid discharge for it. However, the true owner can recover the money due on the instrument as damages from
the finder.307
If the finder of a lost bill or note, which is payable to bearer or which is indorsed in blank and is therefore
transferable by mere delivery, negotiates it to a bona fide transferee for value, the latter acquires a valid title to
it, and is entitled both to retain the instrument as against the rightful owner, and to compel payment from the
parties liable thereon.
During World War I, and as a temporary measure, the Indian Bills of Exchange Act, 1916 (XIV of 1916), section
3 enacted as follows:
Where in any suit or other proceeding founded upon a bill of exchange payable outside British India, there is reason to
believe that the bill has been lost, and that the loss can reasonably be presumed to be due either directly or indirectly
to circumstances arising out of the present war, the Court may allow proof of the bill to be given by means of a copy
thereof certified by a notary public, or by means of such other evidence as the Court thinks reasonable under the
circumstances, and may pass a decree thereon, notwithstanding any rule of law of the place where the bill is made
payable:
Provided that such indemnity be given against the claims of other persons as the Court may require.
Page 3 of 6
If the finder of a lost bill or note, which is payable to order and therefore transferable by indorsement and
delivery, forges the indorsement of the loser and negotiates it to a bona fide transferee for value, the latter
acquires no legal title to it, for a forgery can confer no title; and a payment by the acceptor or other party liable
to a person claiming under a forged indorsement, even though made in good faith, will not exonerate him.
It is advisable that the owner of a lost bill should give notice of the loss to the parties liable on the bill for they
will thereby be prevented from taking it up without proper inquiry. Public advertisement of the loss may also be
given if the amount is large.
The party, who has lost a bill must make an application to the drawee for payment at the time it is due, and give
notice of dishonour to all the parties liable, otherwise he will lose his remedy against the drawer and indorsers.
Under the section, the loser can apply for a duplicate of a lost bill.
[s 45A.3] Holder’s Right to Duplicate of Lost Bill
The power to obtain a duplicate of a lost bill is part of the mercantile laws of countries. Ample scope is given to
this power by courts of equity in England, both on bills lost before and after maturity and on notes as well; and
against the acceptors or indorsers as well as against the drawer, on a satisfactory indemnity being given. The
obligation of the drawer of the lost bill to issue a duplicate one is dependent on the guarantee been given by the
holder of such instrument against any future demand.
In a case where the payee of a bank draft lost it and the bank refused to issue a duplicate without an indemnity
bond from the purchaser, who was, however, not willing to execute such a bond, it was held that the draft was a
bill of exchange, or could be treated as one in terms of section 17, and hence the payee was entitled to get a
duplicate.308
In State Bank of India and others v Soya Udyog Ltd,309a party lost two demand drafts and as such required the
Page 4 of 6
bank to issue duplicate demand drafts and the bank, in turn, required the party to deposit margin money for the
issue of duplicate demand drafts apart from indemnity bond. The question arose as to whether under section
45A, furnishing of security by way of indemnity bond is sufficient compliance or not. The Supreme Court held
that a perusal of section 45A shows that where a bill of exchange has been lost before it is overdue, the person
who is the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the
drawer, to indemnify him against all persons in case the bill alleged to have been lost shall be found again. The
said provision requires furnishing of security in addition to indemnity bond to indemnify in case of any loss and
since the respondent failed to furnish the security money to indemnify any loss, the appellants cannot be said to
be negligent or deficient in service.
[s 45A.4] Destroyed or Lost Instruments
As to the case of an instrument destroyed, there is Common Law authority that an action lies, and secondary
evidence is admissible of the contents of the bill, on its destruction being proved.310 Accordingly, a bill in equity
was dismissed in one such case, on the ground that the plaintiff had a remedy at law.311
The section gives a statutory remedy to the owner of a lost bill. It says, that the owner of a lost bill may, if the
bill is lost before maturity, apply to the drawer to give him a duplicate bill, giving him security, if required, to
indemnify him against any future demand, and the holder of a lost bill cannot claim payment on it, if the original
has been duly paid.312 If the drawer on tender of indemnity declines to give a new bill, an action would lie to
compel him to do so, and damages might be claimed in the alternative.313
The following points may be noted:
(i) The section is confined in its operation to bills only; it does not apply to notes.
(ii) The section applies to bills before they are overdue.
(iii) The remedy given to the owner of the lost bill is against the drawer alone. The loser may compel the
drawer to give him a duplicate bill upon an undertaking of indemnity, but no provision is made as to
obtaining a fresh acceptance of fresh indorsements.
Under this section, it is only the holder of a lost bill who is eligible to apply for a duplicate. Therefore, if a bill is
payable to order and is transferred for value but without indorsement, the transferee, if he loses the bill, cannot
Page 5 of 6
apply for a duplicate in his own name, for he is not a holder, i.e., a person entitled in his own name to the
possession of the bill.314
In State Bank of India, Jalgaon v Ananda Shamrao Mahajan,315 the respondent received a cheque of Rs
1,50,000 from a party which owed him the said amount. He deposited this cheque in his account with the
appellant bank. The appellant bank was expected to send the cheque with due care and caution to the drawer’s
bank at Bhopal for collection. The cheque, however got lost in the transit. Within one month from the depositing
of the cheque, the respondent no. 1 made complaint to the appellant bank about their failure to deposit the
cheque amount in his account. The appellant bank made no reply to his complaint. Ultimately, the respondent
no. 1 sent a legal notice to the appellant to which they for the first time, disclosed that they had sent the cheque
by R.P.A.D. and had not received any reply so far from the concerned bank at Bhopal. The appellant, then
made enquiry about the delivery of the cheque at Bhopal with postal authorities who informed them that they
had delivered the registered envelope containing the cheque sent by R.P.A.D. at Bhopal Bank. But to the
enquiry of the respondent no. 1, the Bhopal Bank informed him that they had not received the cheque in
question. By this time, it was very clear that the cheque in question was lost in transit. The respondent no. 1,
then filed his suit for recovery of the cheque amount and compensation. In the meantime, the party which owed
the amount to appellant went into winding up and liquidation. Even the payment of cheque in question was
stopped. So, by the time the suit was filed, respondent no. 1 was certain that the cheque would not have
fetched him the amount. The trial court decreed the suit but the appellate court reversed the finding mainly
placing reliance on section 45A of the Act.
It was held by the Bombay High Court that the answer to respondent’s predicament lied way back in March,
1991 or earlier to it in the alternative relief suggested in section 45A of the Act. The lower appellate court rightly
held that the respondent no. 1 also neglected his right to sue the drawer of the cheque within time as suggested
by the provisions of section 45A of the Act. It was further observed that for the loss that respondent no. 1
suffered, he too was responsible. The only lapse on the part of appellant bank was that they did not intimate to
the respondent no. 1 about the loss of cheque in transit. The appellant bank, within a month or so, should have
realised that the cheque in question was lost in transit and should have immediately intimated this fact to the
respondent no. 1, suggesting him to get a duplicate cheque. They waited till December, 1990 for giving proper
response to the respondent no. 1. It was however opined by the High Court that this lapse on their part was
comparatively less injurious than the loss of remedy against the drawer of the cheque.
The High Court accordingly, observed that the respondent No. 1 ought to have realised in time that the cheque
was lost in transit and that he had the alternate remedy. He unnecessarily depended on the appellant bank. In
comparison, the negligence of appellant was rather negligible. In view of this matter the compensation awarded
Page 6 of 6
by lower appellate court almost to the tune of 1/3rd of the amount represented by the cheque looks exorbitant.
Accordingly, the impugned judgment and decree was corrected to that extent that an amount of Rs 10,000
along with interest at 9% p.a. from 2 March 1990 was considered by High Court to be adequate remedy and the
Second Appeal was partly allowed.
306 Lowell v Martine, (1813) 4 Taunt 799.
307 Burn v Morris, (1834) 2 Cr & W 579.
308 State Bank of India v Jyoti Ranjan Mazumdar, AIR 1970 Cal 503 .
309 State Bank of India v Soya Udyog Ltd, (2003) 1 Bank CLR 431 (SC).
310 Pierson v Hutchinson, (1809) 2 Camp 211, p 212.
311 Wright v Maidstone, (1855) 24 LJ Ch 623 .
312 Indur Chandra v Lachmi Bibi, 15 WR 501.
313 King v Zimmerman, (1871) LR 6 CP 466.
314 Good v Walker, [1892] 61 LJ QB 736; Kaminee Debia v Radha Sham, 18 WR 58.
315 State Bank of India, Jalgaon v Ananda Shamrao Mahajan, AIR 2010 Bom 71 .
End of Document
[s 46] Delivery—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 4 OF NEGOTIATION
[s 46] Delivery—
The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed by
delivery, actual or constructive.
As between parties standing in immediate relation, delivery to be effectual must be made by the party making,
accepting or indorsing the instrument, or by a person authorised by him in that behalf.
Page 2 of 10
[s 46] Delivery—
As between such parties and any holder of the instrument other than a holder in due course, it may be shown
that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of
transferring absolutely the property therein.
A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof.
A promissory note, bill of exchange or cheque payable to order, is negotiable by the holder by indorsement and
delivery thereof.
This section corresponds to section 2, 21 and 31 of the Bills of Exchange Act, 1882.
[s 46.2] Delivery Necessary to Complete Contracts on Negotiable Instrument
Just as a deed is of no legal effect until it has been delivered, so too, a negotiable instrument does not
effectively bind any of the parties to it till delivered. Every contract on a bill, whether the drawer’s, acceptor’s or
an indorser’s, is incomplete and revocable until delivery of the instrument in order to give effect thereto. Till
delivery, the instrument is not clothed with the essential characteristics of a negotiable instrument.1 As was
stated by Bovill CJ in Abrey v Crux:2
To constitute a contract, there must be a delivery over of the instrument by the drawer or the indorser for a good
consideration, and as soon as these circumstances take place, the contract is complete, and it becomes a contract in
writing.
The rights and liabilities under a negotiable instrument arise only if what is delivered under section 46 is
complete negotiable instrument.3
In Ramakrishnan v Gangadharan Nair,4 the cheque was issued for the discharge of a time-barred debt. Upon
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[s 46] Delivery—
dishonour, it was held to be still falling within the purview of section 138 in view of section 25(3) of Contract Act
and section 46 of the Negotiable Instruments Act.5
In order to make the property in an instrument pass, it is not sufficient to indorse it, because mere signature
does not make a contract. It must, further, be delivered to the indorsee or the agent of the indorsee. There is a
clear distinction between the act of signing a negotiable instrument and the act of delivering it to the payee.
Under section 46 of the Act, the making of a cheque is complete as soon as the drawer delivers it, actually or
constructively, to the payee. The delivery need not be to the person whose name is written on the cheque or
even to any agent authorised by the person named as payee. So long as the person drawing the cheque
delivers it with the intention to pay, the property of the drawer in the cheque passes to the payee.6 As stated by
Kania J in Damji Hirji v Mahomedali:7
A person may sign a promissory note or a negotiable instrument in his own house and keep it there without incurring
any obligation to anyone at all. When such a document is tendered to the payee and accepted by him, there arises a
contract between the parties. The signature on a negotiable instrument becomes necessary because of the provisions
of section 4 of the Negotiable Instruments Act. It is only a preparation. It does not amount to an offer, and, therefore,
does not become any part of the contract.
The English law on the matter was stated by Mellish LJ in Ex P Cote8 as follows:
In order to make property in bills pass, it is not sufficient to indorse them. They must be delivered to the indorsee or to
the agent of the indorsee. If the indorser delivers them to his own agent, he can recover them, if to the agent of the
indorsee, he cannot recover them.
Further, it is essential to delivery that it should be made with the intention of passing the property in the
instrument to the person to whom it is delivered. The contract on a negotiable instrument until delivery remains
incomplete and revocable.9
Under the Act, delivery is essential to complete the acceptance of a bill, as it is necessary to complete the
Page 4 of 10
[s 46] Delivery—
making or indorsement of a bill, note or cheque. However, by section 7 of the Act, the drawee is given the
option to complete the contract of acceptance on a bill by giving notice of his having signed the bill to the holder
or any person on his behalf. However, such communication of acceptance may be made either to the holder of
the instrument at the time or to some party liable on the instrument, for it inures for the benefit of all parties.10
Where the instrument is sent through post on the request of the creditor, either expressed or implied, the post
office would be constituted as the agent of the addressee for the purpose of receiving such payment and the
property in instrument passes to the creditor as soon as it is posted.11
Where the drawee, after writing the acceptance gives notice to, or retains the bill according to the direction of,
the person entitled to the instrument, there is a constructive delivery thereof, and the contract of acceptance
becomes complete and irrevocable.12 For example:
(1) A owes B Rs 1,000. A, makes a promissory note for the amount payable to B. A dies, and the note is
afterwards found among his papers. B has no right to this note, and cannot sue on it, if delivered to
him.13
(2) A, a drawee, receives a bill from B, the holder, and writes his acceptance on it. Afterwards, A hears
that the drawer has become bankrupt. A cancels his acceptance and returns the dishonoured bill to B.
This is no acceptance, as A never delivered the bill so as to make himself liable upon it.14
(3) A owes money to B. A, makes a promissory note for the amount in favour of B. For safety of
transmission, he cuts the note in two halves and posts one half to B. Before posting the other half he
changes his mind, and writes to B demanding back the half he has sent. He is entitled to do so, for a
partial and inchoate delivery is ineffectual to pass property in the entire note.15
(4) H, the holder of a bill, specially indorses it to A, and puts it in a letter addressed to A. The letter is put in
the office letter-box from whence it is stolen. A’s indorsement on the bill is forged, and is negotiated.
The property in the bill remains in H.16
(5) A makes a promissory note in favour of B, and places it in the hands of his agent for delivery. This
does not invest B with any right to the note. A may subsequently revoke the note before it is
delivered.17
(6) A makes a note in favour of B and delivers it to a stockholder. B acquires no property in the note.18
In Thorappa v Umedmalji,19 A held a hundi which was drawn on defendant B. A indorsed it in favour of C in
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[s 46] Delivery—
satisfaction of A’s debt and forwarded it to C by post. The hundi failed to reach C, but got into the hands of a
stranger from whom it passed to D. It bore two forged indorsements, one purporting to be from C to one L and
the other from L to D. D presented the hundi to B, and obtained payment from him. C apprised A of the loss of
the hundi and obtained its duplicate, which was presented to B, who refused to pay twice over. C sued A and
got payment. A then sued B, C and D to recover the amount due on the hundi. The court held that A, having
paid the amount of the hundi to a wrong person, who held it under a forged indorsement, remained liable to the
true owner for the amount of the hundi. It also held that D was also similarly liable for having come into
possession of the hundi through forged indorsement but took no property in it, and the proceeds of the hundi
received by him were the monies of the true owner and that the true owner of the hundi at the date of the suit
was A and not C, since to pass property in a hundi it should not only be indorsed, but also delivered to the
indorsee. There was no delivery of the hundi in this case to C.
In Mitchell-Henry v Norwich Union Life Insurance Society Ltd,20 the defendants sent a written notice to the
plaintiff, stating that a sum of GBP 48, 5s 8d, which would shortly become due to them from the plaintiff, should
be paid at their office, and asking the plaintiff when remitting to return the notice. The plaintiff sent to the
defendants, by registered post, a packet containing GBP 48 in treasury notes, and a postal order for stamps for
5s 8d. The packet was not insured. It was stolen before it reached the defendants and they never received the
money. The Court of Appeal held that it was not usual to send so large a sum as GBP 48 in treasury notes by
post, and that the plaintiff failed to prove that he had discharged his debt to the defendants.
In the case of a note given for capital supplied to a partnership, of which the plaintiff and defendant were
partners, it was held that the note should be paid irrespective of the state of assets of the partnership.21
In absence of delivery of the cheque, making of the cheque would not be complete and there would be no
question of a person being ‘holder’, ‘payee’ or ‘holder in due course’ before making of the cheque i.e. before
delivery of the cheque to the person concerned. Therefore when it comes to exercise of rights by ‘holder’ under
section 8 of the Negotiable Instrument Act, physical or constructive possession of the cheque with him shall
have to be presupposed.22
[s 46.3] Delivery, Actual or Constructive
Delivery means transfer of possession, actual or constructive, from one person to another. According to the
section, delivery may be actual or constructive. Actual delivery consists in the physical act of handing over the
instrument by one person to another or to his agent on his behalf.23 A change of actual possession is
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[s 46] Delivery—
necessary to actual delivery [see illustration (a) under section 47]. However, in the case of constructive delivery,
delivery takes place without change of actual or physical possession. A person is said to have constructive
possession of a thing when it is in the actual possession of his agent, clerk or servant on his behalf [see
illustration (b) under section 47]. A bill or note may, therefore, be delivered without change of actual or physical
possession. The following are examples of constructive delivery of an instrument:
(1) A holds a bill on his own account. A subsequently indorses it in favour of B, and holds it as B’s agent.
(2) A holds a bill as B’s agent. A subsequently attorns to C, and holds it as C’s agent.
(3) A holds a bill as B’s agent. A subsequently holds it on his own account.
[s 46.4] Delivery Conditional or for Special Purpose
Where an instrument is delivered conditionally, or for a special purpose, the section allows oral evidence to be
adduced between immediate parties and a holder other than a holder in due course, to show that the delivery
was not made, and not for the purpose of transferring the property in it. Oral evidence is allowed in such cases,
not for the purpose of varying the terms of the written contract, but to show that the writing does not really
represent the contract between the parties. Where a bill is delivered conditionally or for a special purpose, the
relations between the person who so delivers it and the person to whom it is delivered are substantially those of
principal and agent.24
Delivery of an instrument for a specified purpose, and on condition that it shall be returned if not applied for that
purpose, constitutes the holder a mere bailee, trustee or agent with a limited title and power of negotiating it.
Any subsequent holder with notice of the specific purpose or condition must apply the instrument
accordingly.25
When a bill or note is delivered conditionally or for a special purpose, the liability of the person delivering it does
not commence till the condition has been fulfilled or the purpose has been satisfied.
If the condition is not fulfilled, or the purpose is not satisfied, the true owner is entitled to get back the
instrument from the person to whom it was so delivered or from anyone who has taken it with notice of the fact.
The section stresses that the pleas of conditional delivery or delivery for special purpose are available against
immediate parties, and also against remote parties, who take it with notice of the condition or special purpose
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[s 46] Delivery—
or other defect in the title. However, these pleas may not be set up against a holder in due course, for if a bill is
delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it
is conclusively presumed, and he acquires a good title to it.
For example:
(1) A makes a note in favour of B, his servant, and hands it to his wife to deliver it to B if B continues in A’s
service till A’s death. A dies and his wife delivers the note to B. B remained in A’s service till A’s death.
B can recover the amount of the note from A’s estate.26
(2) A, the holder of a bill, indorses it in blank and hands it to B, on condition that he should forthwith
restore certain bills. B does not do so. B cannot sue A on the bill and if he sues, A can set up the
breach of condition.
(3) A, the holder of a bill, indorses it ‘B or order’ for the express purpose that B may get it discounted. B
does not do so and negotiates the bill to C. If C takes the bill bona fide and for value, i.e., if C is a
holder in due course, C acquires a good title to the bill and can sue all the parties on it.
[s 46.5] Delivery of Bearer and Order Instruments
A promissory note, bill of exchange or cheque payable to bearer is negotiated by mere delivery thereof,
however a promissory note, bill of exchange or cheque payable to order is not negotiated by mere delivery
thereof and has to be endorsed as well. Sections 47 and 48 specifically provide for negotiation of both these
kinds of instruments.
In Anil Kumar S v N Ramakrishna Kartha,27 the question before the High Court of Kerala was that whether a
person who was neither the payee nor the indorsee be entitled to file a complaint under section 138 of the Act.
In that case, the Revision petitioner issued a cheque for Rs 1,00,000 in favour of Krishnadas. First respondent,
claiming that for a consideration he received the cheque from the brother of the payee as the payee was out of
India, presented the cheque for encashment and as it was dishonoured for want of sufficient funds, sent notice
demanding the amount and on failure, lodged the complaint, of which cognizance was taken by the Magistrate.
Revision petitioner pleaded not guilty. The Magistrate found the revision petitioner guilty and convicted and
sentenced him for the offence under section 138 of the Act. Revision petitioner challenged the conviction before
Sessions Court which rejected the case of revision petitioner that first respondent was not a holder in due
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[s 46] Delivery—
course and therefore is not entitled to file a complaint under section 142 of the Act, dismissed the appeal.
Thereafter, a revision petition was filed before High Court.
After discussing the various provisions of Negotiable Instruments Act, it was held by the High Court that in order
to make a person other than a payee, a holder in due course of a cheque payable to order, there must be
indorsement in his favour and a delivery of the cheque as provided under section 48 of the Act. Delivery alone
was not sufficient to make him a holder in due course, and indorsement was mandatory. In the instant case, the
High Court observed the cheque showed that it was payable to Krishnadas. There was no indorsement by
Krishnadas in favour of first respondent. Even if, there was delivery of cheque by the brother of the payee in
favour of first respondent as alleged in complaint and that too for consideration as claimed by first respondent,
he could not be a holder in due course as defined under section 9 of the Act so long as there is no indorsement
in his favour. Hence, first respondent was held to be not a holder in due course. When he was not the holder in
due course, the Magistrate could not have taken cognizance of the offence punishable under section 138 of the
Act, except upon a complaint in writing by the payee or the holder in due course of the cheque. The Magistrate
could not have taken cognizance of the offence as first respondent was not the holder in due course. Therefore,
the conviction was held to be bad in law.
1 Chapman v Cottrell, 34 LJ Ex 186.
2 Abrey v Crux, (1869) LR 5 CP 42.
3 Krishnankutty v Velayudhan, (2006) 1 Bank CLR 814 (Ker).
4 Ramakrishnan v Gangadharan Nair, 2007 CrLJ 1486 Ker. : AIR 2007 [NOC] 2033 (Ker.).
5 Ramakrishnan v Parthasaradhy, 2003 (2) KerLT 613 followed; CIT v M/s Ogale Glass Works Ltd, AIR 1954 SC 429 ;
Chacko Varkey v Thommen Thomas, AIR 1958 Ker. 31 (FB); Ramachandran v Velayudhan, 1986 Ker LT 647 and
Food Corporation of India v Assam State Co-op. Marketing & Consumer Federation Ltd, (2004) 12 SCC 360
Distinguished.
6 Thakursi v King Emperor, (1948) Nag 620.
7 Damji Hirji v Mahomedali, (1941) 41 Bom LR 959 , p 963.
8 Ex P Cote, (1873) LR Ch 27.

Page 9 of 10
[s 46] Delivery—
9 Bhawanji v Devji, (1895) ILR 19 Bom 635.
10 Pragdas v Daulatram, (1887) ILR 11 Bom 257, p 270.
11 MRF Ltd v EMCO Goa Pvt Ltd, (2001) 2 BC 403 , following CIT v M/s Patney & Co, AIR 1959 SC 1070 and Jagdish
Mills Ltd v CIT, AIR 1959 SC 1160 .
12 Cox v Troy, (1882) 4 B & Ald 474.
13 Bromage v Lloyd, (1847) 1 Exch 32.
14 Bank of Van Diemen’s Land v Bank of Victoria, (1871) LR 3 PC 526.
15 Smith v Mundy, (1860) 29 LJQB 172 .
16 Arnold v Cheque Bank, (1876) 1 CPD 578 , 584, p. 592.
17 Brind v Hampshire, (1836) 1 M&W 365.
18 Latter v White, (1872) LR 5 HL 578.
19 Thorappa v Umedmalji, (1923) 25 Bom LR 604 .
20 Mitchell-Henry v Norwich Union Life Insurance Society Ltd, [1918] 2 KB 67 .
21 Uthira v Muthu, (1927) ILR Mad 68.
22 J Chitranjan and Company Proprietor - CD Shah v State of Gujarat, Criminal Revision Application No. 231 of 2009,
decided on 13 October 2016 (Guj HC).
23 Adams v Jones, (1840) 12 A&E 455.
24 Marguire v Dodds, (1859) 9 Ir Ch 452.
25 Rajroopram v Buddoo, 1 Hyd 155.
26 Re Richards, (1887) 36 Ch D 541 .
27 Anil Kumar S v N Ramakrishna Kartha, 2009 CrLJ 816 NOC Ker : AIR 2009 [NOC] 1541 (Ker) : 2009 All MR (Cri.) J
252.
Page 10 of 10
[s 46] Delivery—
End of Document
[s 47] Negotiation by delivery—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer is
negotiable by delivery thereof.
Exception.—A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect
Page 2 of 4
except in a certain event is not negotiable (except in the hands of a holder for value without notice of the
condition) unless such event happens.
Illustration
(a) A, the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to keep for B. The
instrument has been negotiated.
(b) A, the holder of a negotiable instrument payable to bearer, which is in the hands of A’s banker, who is
at the time, the banker of B, directs the banker to transfer the instrument to B’s credit in the banker’s
account with B. The banker does so, and accordingly now possesses the instrument as B’s agent. The
instrument has been negotiated, and B has become the holder of it.
[s 47.2] Negotiation by Delivery
The main part of the section is an exact reproduction of para 4 of section 46 except for reference to section 58.
The section deals with negotiation of bearer instruments. The expression, ‘an instrument payable to bearer’,
means an instrument which is expressed to be so payable or one on which the only or last indorsement is an
indorsement in blank.28 Where an instrument so payable to bearer is to be transferred to any person so as to
constitute that person as the holder thereof, the only thing the section requires to be done is mere delivery to
such person. In the case of an instrument payable to bearer, transfer by delivery without indorsement is
sufficient to constitute the transferee as the holder of the instrument.
Where an instrument is negotiated by mere delivery, the transferor does not put his signature on the instrument,
and therefore there is no privity of contract between the transferor and any subsequent transferee, and the
transferor is not liable on the instrument either to an immediate party or to any subsequent holder, in case the
instrument is dishonoured at maturity. A transferor, by not indorsing the instrument, exonerates himself from the
liability thereon as an indorser. When a transfer of an instrument takes place without an indorsement, the
transaction is deemed to be in the nature of a sale of the instrument.
Page 3 of 4
Where the transfer is by delivery, the transferee has no right of recovery against the transfer upon the
instrument, nor can he get back the amount paid by him to the transferor on the failure of consideration. For:
‘…it is extremely clear that if the holder of a bill sent it to market without indorsing his name upon it, neither
morality nor the law of this country will compel him to refund the money for which he sold it, if he did not know
at the time he sold it that it was not a good bill’.29 Thus, where the payee of a cheque got the same discounted
from the bank but did not endorse the same he is not liable, if the cheque is dishonoured.30
However, if a person sells a bill for a valuable consideration, being fully aware that it was of no value, and the
purchaser is not aware of this fact, the seller will be bound to refund the price he received for it. For, if he knew
the bill to be bad, it would be like sending a counterfeit coin for circulation to impose upon the world instead of
the current coin.31
[s 47.3] Exception
Section 46 deals with the making, accepting and indorsement of a negotiable instrument completed by delivery
thereof, and provides for the case of conditional delivery or delivery for a special purpose. The general
provision, however, as to conditional delivery or delivery for special purpose contained in section 46 cannot
apply to the section. Under the section, the negotiation is by mere delivery and there is no question of
indorsement. Hence, the necessity of a separate exception to the section. The exception provides that where a
negotiable instrument payable to bearer is delivered on condition that it is not to take effect except in a certain
event, then such an instrument is not negotiable, and no person, taking it with a knowledge of the condition can
acquire a title to it, nor can he sue on it any prior parties until the event has happened.
However, this exception does not apply to a holder for value without notice of the condition, who acquires a
good title to the instrument and can enforce payment on it against any party thereto.
Page 4 of 4
28 Fydell v Clark, (1796) 1 Esp 447, per Lord Kenyon; see also Fenn v Harrison, 3 TR 757. This is the position in English
law and it appears that, in the opinion of the learned author (Khergamvala), the same position obtained in India and a
transferor by delivery is not covered by section 43.
29 See section 13, Explanation II.
30 Gaddam Venkataraju v Andhra Bank, (2001) 2 BC 543 : (2000) 3 Comp Cas 212 .
31 Read v Hutchinson, (1813) 3 Camp 352, per Lord Kenyon.
End of Document
[s 48] Negotiation by indorsement—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque 32[payable to order], is
negotiable by the holder by indorsement and delivery thereof.
Page 2 of 3
[s 48.2] Negotiation by Indorsement and Delivery
The section is an exact reproduction of para 5 of section 46 except for reference to section 58. It deals with the
negotiation of instruments payable to order, and declares that such instruments are negotiable by an
indorsement of the holder completed by delivery. In order that a transferee of an instrument payable to order
may acquire the rights of a holder in due course, it is necessary that the instrument must be negotiated in the
manner prescribed by the section. However, the section leaves untouched, the rules of general law regulating
the transmission of instruments by operation of law or by devolution. A bill or a note is a chose in action as well
and it can be transferred as an ordinary chose in action. Thus, if the holder transfers an instrument payable to
order by simple delivery without indorsing it, the transferee merely acquires the rights of an assignee of an
ordinary chose in action, and does not get any of the advantage of negotiability, for the instrument not being
indorsed, is merely assigned and not negotiated.
Where a promissory note is indorsed and delivered by only one of the payees, there is valid indorsement and
delivery of the note, and is not effectual to operate as negotiation of the note. It is therefore open to the other
payees at any time thereafter to make a fresh and valid indorsement and negotiation.33 For example:
(1) A, is the holder of a bill payable to ‘A or order’. A writes his indorsement and transfers the bill for value
to B. B can become a holder in due course.
(2) A is the holder of bill payable to ‘A or order’. A, by simple delivery, transfers the bill without indorsing it
to B. B is not a holder in due course, but is a mere assignee of a chose in action and takes the bill
subject to all defects.
In Anil Kumar S v N Ramakrishna Kartha,34 the question before the High Court of Kerala was that whether a
person who was neither the payee nor the indorsee be entitled to file a complaint under section 138 of the Act
and it was held therein that such a person is not entitled to file a complaint for offence punishable under section
138 of the Negotiable Instrument Act. Indorsement and delivery were held to be necessary.
Page 3 of 3
[s 48.3] Territorial Jurisdiction qua Indorsement
The High Court of Andhra Pradesh, in MR Venu v Smt Veluchuri Lakshmis35 examined whether the court
within whose jurisdiction the indorsement has taken place will get jurisdiction to entertain a suit, and it was held
that jurisdiction of the Court to entertain the suit at place where the transfer for consideration of the promissory
note occurred cannot be doubted.
32 Subs. by Act 8 of 1919 section 4, for ‘payable to the order of a specified person, or to a specified person or order’.
33 Voruganti v Vanka Venkata, AIR 1953 Mad 840 .
34 Anil Kumar S v N Ramakrishna Kartha, 2009 CrLJ 816 NOC Ker : AIR 2009 [NOC] 1541 (Ker) : 2009 All MR (Cri.) J
252.
35 MR Venu v Smt Veluchuri Lakshmis, AIR 2013 AP 76 : 2012(6) ALD 772 .
End of Document
[s 49] Conversion of indorsement in blank into indorsement in full—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The holder of a negotiable instrument indorsed in blank may, without signing his own name, by writing above
the indorser’s signature a direction to pay to any other person as indorsee, convert the indorsement in blank
into an indorsement in full; and the holder does not thereby incur the responsibility of an indorser.

Page 2 of 2
[s 49.2] Effect of Conversion of Indorsement
The section provides that any holder of a bill indorsed in blank may convert the indorsement in blank into an
indorsement in full,36 by writing above the indorser’s signature a direction to pay the instrument to another
person or his order. The advantage of such a course is that the holder, though he transfers the instrument,
does not incur the responsibility of an indorser.37
For example, A is the holder of a bill indorsed by B in blank. A, writes over B’s signature the word ‘pay to C or
order.’ A, is not liable as an indorser, but the writing operates as an indorsement in full from B to C.38
The appellant Nos 2 and 4 converted the endorsement in the blank into an ‘endorsement in full’, and presented
it for passing. The court held that even assuming that the petitioner had a role to play in passing of the cheque,
it cannot be said that he had committed any offence by passing the cheque without caring to verify the
signature of payee on the reverse of the cheque inasmuch admittedly the signature on the reverse of the
cheque drawn in favour of the first respondent was genuine. Only in cases where signatures are forged, the
petitioner may be required to explain as to how he passed the cheque without taking proper care to see if the
signature on the reverse of the cheque were of the payee or not.39
36 M Venkateswara Rao v Bollisetty Bapanaiah, I (2005) BC 167 AP.
37 Hirschfield v Smith, (1866) LR 1 CP 340.
38 Vincent v Horlock, (1808) 1 Camp 442.
39 M Venkateswara Rao v Bollisetty Bapanaiah, (2005) I BC 167 AP.
End of Document
[s 50] Effect of indorsement—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The indorsement of negotiable instrument followed by delivery transfers to the indorsee the property therein
with the right of further negotiation; but the indorsement may, by express words, restrict or exclude such right,
or may merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the
indorser, or for some other specified person.
Page 2 of 7
Illustrations
B signs the following indorsements on different negotiable instruments payable to bearer—
(a) ‘Pay the contents to C only.’
(b) ‘Pay C for my use.’
(c) ‘Pay C or order for the account of B.’
(d) ‘The within must be credited to C.’
These indorsements exclude the right of further negotiation by C.
(e) ‘Pay C.’
(f) ‘Pay C value in account with the Oriental Bank.’
(g) ‘Pay the contents to C, being part of the consideration in a certain deed of assignment executed by C
to the indorser and others.’
These indorsements do not exclude the right of further negotiation by C.
[s 50.2] Indorsement and its Effect
The section must be read subject to the provisions of section 46, as to conditional delivery, and must be
supplemented by section 52, which recognises conditional indorsement. The first part of the section explains
the effect of an indorsement which may be thus stated:
An unconditional indorsement of a negotiable instrument, followed by an unconditional delivery thereof, transfers to the
indorsee the property therein, vests in him the right of action against all parties whose names appear on the
instrument, and gives him a right of further negotiating the instrument to anyone he pleases. However, such a transfer
Page 3 of 7
by an indorsement vests in the indorsee a right to sue only the parties whose names appear on the bill, and the
indorsement does not entitle him to sue third parties on the original consideration.40
The remedy of an indorsee of a promissory note, executed by the managing member of a joint Hindu family, is
limited to that on the note, unless the indorsement is so worded as to transfer the debt as well, and the stamp
law is complied with; and, therefore, in the case of an ordinary indorsement, the indorsee cannot sue the non-
executant coparceners on the ground of their liability under the Hindu law.41
An indorsee of a promissory note can sue the prior parties thereto only on the promissory note itself and he
cannot sue them (except his immediate transferor) on the original consideration, unless the indorsee is also the
assignee of the original debt. A suit on a promissory note can only be filed against the maker of a promissory
note or his legal representative. The manager of a Hindu joint family executed a promissory note in respect of a
debt contracted by him, as the manager, for a family necessity. The note was indorsed by the creditor in favour
of the plaintiff. Meanwhile, the manager died, leaving behind his son and widow. The plaintiff filed a suit against
them on the original debt and asked for a decree to be recovered from the joint family estate. It was held that
the suit was not maintainable, as it was not by an indorsee on the promissory note but on the original debt.
Even if the suit was based on the promissory note, it would still not be maintainable since it was not against the
maker of the promissory note or his legal representative.42
The payee of a promissory note, sometime before his death, indorsed it in favour of one of his four sons. Under
his Will, all his assets and properties not mentioned therein were bequeathed to all the sons. The indorsee-son
indorsed the note in favour of himself and his three brothers and subsequently filed a suit against the maker,
who had meanwhile become insolvent and his minor sons represented by their mother, for recovery of the
amount of the note. The court held that the payee’s indorsement in favour of his son amounted only to a
transfer for collection (it would have amounted to an assignment of the debt had the note been properly
stamped) and as such, the property in the note continued to be that of the payee and on his death, passed on
to all his sons according to the Will. Hence, as the residuary legatees, the sons, could hold the insolvent
maker’s sons also liable though they had not joined their father in executing the note. This was so because the
payee himself could have sued them.43 It is submitted that any liability of the non-executant sons would be
based, not on the note, but on the underlying debt of their father.
In Chandrasekhara Gowda v Canara Bank,44 it was held that the bank could not hold a borrower liable as an
Page 4 of 7
indorser of a promissory note which is lodged with the bank as collateral security. This was on the ground that
the bank could not proceed on the principal security itself, namely, a vehicle hire-purchase agreement between
the borrower and the maker of the note, since the receivables under the agreement had not been assigned to
the bank and the agreement stood cancelled upon purchase of the vehicle by the hirer. The Karnataka High
Court sought support for its verdict from S Chattanatha Karayalar v Central Bank of India Ltd,45 but in that
case, the issue was whether a surety attracted primary liability on a promissory note, which he had signed
along with the principal debtor of the plaintiff bank. In the case before the Karnataka High Court, as a holder in
due course of the note, the bank’s right against the indorser could not be defeated by the non-availability of the
primary security; a collateral security is taken to protect the lender’s interests when the principal security fails or
is inadequate.
The section has also been held to apply to an instrument which is made payable in the first instance to bearer,
and which are, by subsequent indorsements made payable to order. Thus, where a hundi was drawn in favour
of a payee or bearer and was indorsed by the payee to a person named therein, it was held that it ceased to be
a bearer hundi and was payable only to the person whose name was mentioned.46
[s 50.3] Restrictive Indorsement and Right of Indorsee
The second part of the section deals with the subject of restrictive indorsement. A restrictive indorsement is one
which prohibits further negotiation of the bill, or which expresses that it is a mere authority to deal with the bill
as directed thereby and not a transfer of the ownership thereof. No negotiation of a bill can take place if it
contains words prohibiting its transfer. This restriction may be imposed after the bill has been put into circulation
by an indorser, who indorses it restrictively. However, when an indorsement is made with an intention of
restricting or excluding the right of further negotiation, the section requires that the indorsement must contain
express words to that effect. The mere omission to add words of negotiability to a special indorsement does not
make it restrictive. Under the section, the effect of a restrictive indorsement is:
(i) to prohibit or exclude further negotiation, or
(ii) to constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser,
or
(iii) to constitute the indorsee and agent to receive its contents for some other specified person.
Where a bill is indorsed restrictively, the relation between the indorser and the indorsee is substantially that of
Page 5 of 7
principal and agent. A restrictive indorsement gives the indorsee the right to receive payment of the bill, and to
sue any party thereto that his indorser could have sued, but he has no power to transfer his rights to any other
person, unless he is expressly authorised to do so. The bill has, in fact, come to the end of its negotiability, and
the last indorsee is the person who can sue upon it. In Rahmath Bi v Angappa Raja,47 a promissory note was
indorsed for collection. The court held that, though the indorsement was not supported by consideration, the
indorsee had the locus standi to file an insolvency petition against the maker of the note, on the basis of non-
payment of the note and the indorser could join as an additional petitioner. The death of the indorser does not
affect the right of an indorsee for collection to claim payment.48
Where a restrictive indorsement authorises further transfer, all subsequent indorsees take the bill with same
rights and subject to the same liabilities, as the first indorsee under the restrictive indorsement.
The section deals with restrictive indorsement which in express words restricts or excludes the right of the
indorsee and cannot be made applicable to cases where the indorsee wishes to satisfy the court by oral
evidence that he was indorsee for a particular purpose only.49
For example:
(1) A indorses a bill ‘Pay B or order for my use’. B indorses it on his own account and discounts it with C.
C receives the amount of the bill at maturity. A can recover the amount of the bill from C.50
(2) A indorses a bill ‘Pay B or order for account of C’. B is C’s agent. B indorses the bill to D. D collects the
bill at maturity. C can sue D for the amount so recovered.51
A cheque made payable to ‘A only’ is not negotiable. A crossed cheque marked account payee does not restrict
its negotiability; it was held that any words other than not negotiable were not sufficient to make such a cheque
not negotiable.52 However, banks are generally unwilling to collect such a cheque for someone other than the
payee, for fear of losing the statutory protection under section 131, in case the customer has no good title to the
cheque. Thus, in practice, such a marking virtually restricts negotiability. As a result of the Cheque Act 1992, in
England, cheques crossed as account payee are not transferable, and thus are not negotiable.
In Jayaram Finance, Kancheepuram (M/s) v Jayaprakash,53 the cheques were drawn by the accused in favour
Page 6 of 7
of one Gnanavel towards debt liability, who in turn endorsed those cheques in favour of complainant. Thus, the
complainant was the holder in due course of those cheques. On the cheques being presented for encashment
with his bankers, those cheques were dishonoured on the ground that it exceeded arrangement. Statutory
notice was issued by the complainant and the accused also sent a reply. Since, the accused failed to pay the
cheque amount, the complaint was filed before Magistrate. The trial court found the accused guilty and
convicted and sentenced him upon which the accused preferred appeals before the Session Court, which set
aside the conviction and sentence imposed by trial court and allowed the appeals. Against that, the complainant
approached the Madras High Court.
The High Court noticed that there was no endorsement as contemplated under section 50 of the Act. It was
held that in order to make a person other than the payee, holder in due course of a cheque payable to order,
there should be an endorsement in favour of proposed holder and delivery of cheque concerned. Mere delivery
was not sufficient. In the instant case, the instrument in question was given in favour of one Gnanavel but
necessary endorsement had not been made on the cheque for transferring the same. As such, the High Court
opined that there was no privity of contract between the complainant and the accused, who was the drawer of
cheque. The High Court further noticed that the accused had sent a reply to statutory notice issued by
complainant, wherein he had clearly disputed the very liability and privity of contract between the complainant
and the accused. The High Court further noticed that the complainant did not choose to examine the payee
namely Gnanavel to prove that consideration had passed to the payee at the time of transfer and it was given in
lieu of debt. Accordingly, the High Court held that as no endorsement had been made on the overleaf of
cheques thereby enabling the complainant to possess the same in his own name, so as to receive or recover
the contents thereof from the accused thereto, the complainant could not be considered to be ‘holder in due
course’ within the meaning of section 9 of the Act. As such, the High Court upheld the acquittal of accused.
40 Shanmuganatha v Srinivasa, (1916) 31 Mad LJ 138, pp 145, 146.
41 Maruthamuthu v Kadir Badsha, (1938) ILR 61 Mad 568.
42 Narayan v Prabhakar, (1950) 52 Bom LR 830 .
43 C Kameswaria Sarma v M Rajaratnam, AIR 1977 Andh Pra 60 .

Page 7 of 7
44 Chandrasekhara Gowda v Canara Bank, AIR 1983 Kant 233 .
45 S Chattanatha Karayalar v Central Bank of India Ltd, AIR 1967 SC 1956 .
46 Forbes, Forbes, Campbell & Co v Official Assignee, Bombay, (1925) 27 Bom LR 34 .
47 Rahmath Bi v Angappa Raja, (1969) 2 Mad LJ 518.
48 Mothi Reddi v Pothi Reddi, AIR 1963 Andh Pra 343 ; Karupiah Palukki v Periasami, AIR 1968 Mad 260 ;
Periakaruppan v Mayalagan, (1969) 1 Mad LJ 171.
49 Vasudev v National Savings Bank Ltd, (1952) 54 Bom LR 765 .
50 Lloyd v Sigourney, (1829) 5 Bing 525.
51 Truetel v Barandon, (1817) 8 Taunt 100.
52 National Bank v Silke, (1891) 1 DB 435.
53 Jayaram Finance, Kancheepuram (M/s) v Jayaprakash, 2010 CrLJ 3323 (Mad.) : AIR 2011 [NOC] 275 (Mad.).
End of Document
[s 51] Who may negotiate—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Every sole maker, drawer, payee or indorsee, or all of several joint makers, drawers, payees or indorsees, of a
negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded as
mentioned in section 50, indorse and negotiate the same.
Explanation.—Nothing in this section enables a maker or drawer to indorse or negotiate an instrument, unless
Page 2 of 4
he is in lawful possession or is holder thereof; or enables a payee or indorsee to indorse or negotiate an

instrument, unless he is holder thereof.
Illustration
A bill is drawn payable to A or order. A indorses it to B, the indorsement not containing the words ‘or order’ or
any equivalent words. B may negotiate the instrument.
[s 51.2] General Rules as to who may Negotiate
Section 51 lists the category of persons who may indorse a negotiable instrument. These are the sole maker,
drawer, payee or indorsee, or all of several joint makers, drawers, payee or indorsees. A case inevitably arises
when a maker or a drawer has to indorse an instrument made or drawn payable to his own order, e.g., ‘pay to
myself or order’, or ‘pay to my order’. Where the right to indorse is vested in several persons jointly, all of them
must join in the endorsement. Again, where a bill or note is payable to the order of payees or indorsees who are
not partners, all must indorse, unless the one indorsing has been authorised to indorse for the others. It is
generally presumed that a partner of a trading firm has power to indorse a negotiable instrument on behalf of
the firm. There is no such presumption in the case of a partner of a non-trading firm.
For example:
(1) A bill is ‘payable to the order of A and B. A alone indorses it to C. This is not sufficient. C cannot sue
the acceptor.54
(2) A bill is payable to the order of A and B. A with B’s previous authority indorses it to C thus; ‘for self and
B’. This is sufficient. C can sue the acceptor.
(3) A bill is payable to A and B, or the order of either of them. A alone indorses it. This is sufficient.55
Page 3 of 4
The section enumerates those persons who may indorse. Therefore, if a stranger indorses an instrument, he
cannot be called an indorser, neither is he liable thereon as such. He may be held liable as a guarantor to the
person in immediate relationship with him. Under section 56 of the BE Act, a stranger signing a bill otherwise
than as a drawer of acceptor incurs the liabilities of an indorser to a holder in due course.
Section 51 does not require that all the payees should indorse at the same time; indorsement on different dates
is valid.56
Where an instrument is drawn in the form ‘Pay AB per X’, the correct indorsement is AB per X and an
indorsement by the agent in his own name is irregular.57 A negotiable instrument was executed in favour of A
as agent of B. It was indorsed to C by A, without describing himself as B’s agent. It was held that in the
absence of any evidence to show that A was intended to be the beneficial owner of the instrument the
indorsement could not convey in this capacity any title to C so as to enable him to sue any party liable on the
instrument.58
The Explanation to section 51 requires that though a maker or a drawer may indorse or negotiate an
instrument, he cannot do so unless he has come into possession of the instrument in a lawful manner, or is a
holder thereof. Further, the Explanation requires that as regards a payee or an indorsee of an instrument,
before he can indorse or negotiate it, he must be a holder thereof. Therefore, a person, who steals or finds a
lost instrument, cannot indorse and negotiate it, as he is not a holder within the meaning of the Act.
54 Carvick v Vickery, (1781) 2 Doug 652.
55 Watson v Evans, (1863) 32 LJ Ex 137 .
56 Voruganti v Vanka Venkata, AIR 1953 Mad 840 .

Page 4 of 4
57 Slingsby v District Bank, [1931] 2 KB 588 , p 595.
58 Veeraiyan v Ponnuswami, (1913) 36 Mad 362.
End of Document
[s 52] Indorser who excludes his own liability or makes it conditional—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The indorser of a negotiable instrument may, by express words in the indorsement, exclude his own liability
thereon, or make such liability or the right of the indorsee to receive the amount due thereon depend upon the
happening of a specified event, although such event may never happen.
Page 2 of 5
Where an indorser so excludes his liability and afterwards becomes the holder of the instrument, all the
intermediate indorsers are liable to him.
Illustrations
(a) The indorser of a negotiable instrument signs his name, adding the words ‘Without recourse’.
Upon this indorsement he incurs no liability.
(b) A is the payee and holder of a negotiable instrument. Excluding personal liability by an indorsement
‘without recourse,’ he transfers the instrument to B, and B indorses it to C, who indorses it to A. A is not
only reinstated in his former rights, but has the right of an indorsee against B and C.
[s 52.2] Conditional Indorsement
According to section 5, a drawer may not draw a bill conditionally however, section 30 states that he may
exclude his liability; and at the most, an acceptor can make his acceptance conditional in accordance with
section 86; but an indorser stands in this favourable position that he can either entirely exclude his liability as an
indorser or make his liability conditional. The section gives power to an indorser to insert in the indorsement by
express words, a stipulation negating or limiting his own liability to the holder. This can be achieved in any of
the three ways:
(a) By excluding his liability, e.g., the holder of a bill may indorse it thus: ‘Pay A or order without recourse
to me, or Pay A or order sans recours, or Pay A or order at his own risk’. In all these cases, the holder
does not incur any liability on the bill as an indorser.
(b) By making his liability dependent upon the happening of a specified event which may never happen, in
such a case, the liability of the holder as an indorser, arises only upon the happening of the event
specified, and is extinguished if the event becomes impossible, or the conditions specified are not
Page 3 of 5
fulfilled. In the latter case, the indorsee gets no right to sue the indorser. However, the indorsee can
sue the prior parties before the happening of the event.
(c) By making the right of an indorsee to receive the amount of the instrument, depending upon the
happening of a specified event, which may never happen. The difference between (b) and (c) is that, in
(c) the indorsee’s right, being dependent upon the happening of an event, he cannot sue prior parties
before the happening of such event, whereas in (c) he can do so even before the happening of the
event.
[s 52.3] Negotiation Back and ‘Taking Up’ of a Bill
The general rule is that the holder in due course of a negotiable instrument may sue all prior parties to the
instrument. This rule is, however, subject to an exception, the object of which is to prevent circuity of action.
When a bill or note is negotiated back to a prior party, the prior party is remitted to his former position and
comes within the definition of a holder. However, it is not necessary that the bill or note should be re-indorsed to
him. He may cancel the indorsements in full, subsequent to that which constituted him the holder, and may
further negotiate the bill or maintain a suit against parties antecedent to him. Such a transaction is called taking
up of the bill.
However, if the bill or note is negotiated back to a prior party by a proper indorsement, the prior party in addition
to his rights as a former holder also acquires the rights of a holder by virtue of the last indorsement. However,
he cannot enforce, by a suit, payment of the instrument against an intermediate party to whom he was
previously liable by reason of his prior indorsement, for the law does not permit circuity of action.
For example, A, the holder of a bill indorses it to B. B indorses it to C. C indorses it to D. D indorses it to A. A by

his first indorsement is liable to B, C and D; and B, C and D are liable to A under the second indorsement. A,
therefore, cannot sue B, C and D but A may, by striking off the indorsement of B, C and D, again negotiate the
bill.
However, where an instrument is negotiated back to a prior party, the holder can enforce payment against all
intermediate parties to whom the holder was not liable as prior party, as for example, where the prior
indorsement was without recourse. This is the rule mentioned in the second clause of the section and
illustration (b) to the section is to the same effect.
Page 4 of 5
In Mangati Ganta Avadhani v Kopuri Sreenivasa Rao,59 a complaint was filed by the complainant for the
offence punishable under section 138 of the Act on the allegations that the accused borrowed some money
from the complainant for the purpose of business and discharge of sundry debts and executed three different
promissory notes agreeing to pay the said amount with interest. Upon several demands having been made, the
accused ultimately issued cheques towards part payment of the debt due under the promissory notes, but the
cheque bounced on the ground that there are no funds in the account. The accused was sent notice to which
he replied with false allegations, but failed to repay.
During trial, after the examination of complainant, the accused filed a Criminal Petition under section 482 of
CrPC contending that the cheque is materially altered and it was endorsed on the cheque ‘sans recourse’ i.e.,
without recourse and the cheque was obtained by the complainant in due course with a specific understanding
that the complainant will not have the recourse. Therefore, it was urged by accused that the complainant is not
entitled to file a complaint and the trial Court ought to have rejected the same. It is further contended that as the
cheque itself speaks that the payee will not have recourse to file the complaint, taking cognizance of the
complaint is barred and the proceedings against the accused are liable to be quashed.
The Andhra Pradesh High Court held that from a reading of section 52 in the light of sections 15 and 123, it can
be said that by making some endorsement by the accused himself on the cheque does not exonerate him from
the penal provision under the statute which is further clear from illustration (b) of section 52 of the Act. An
endorsement on cheque made by accused without knowledge of complainant, which has also not been
mentioned in reply notice given by accused to complainant, cannot be taken as basis for quashing of criminal
proceedings to exonerate the accused from liability under section 138 of the Act. The High Court further held
that the object of the Act is to prevent debtors from issuing of cheques without sufficient money to their
accounts and making the creditors to believe that they have money in the accounts. In such a case, the
accused having given the cheque in favour of the complainant for discharge of the part of the debt cannot
escape from the liability under section 138 of the Act. Whether there is any enforceable debt, whether the
accused gave the cheque for discharge of such debt and whether there was any material alteration in the
cheque are the question to be considered during the course of trial of the case. Accordingly, it was held that
there are no grounds to quash the impugned proceedings and the Criminal Petition was dismissed.
Page 5 of 5
59 Mangati Ganta Avadhani v Kopuri Sreenivasa Rao, 2007 CrLJ 2901 AP.
End of Document
[s 53] Holder deriving title from holder in due course—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that
holder in due course.
Page 2 of 3
[s 53.2] Deriving Title from another Holder
The section says that a title that has been cleared from defects by passing through the hands of a holder in due
course remains immune from those defects, notwithstanding that a subsequent holder may have notice that
defects once existed, provided he was not a party to them.60 The rule mentioned in the section, however, is
subject to a qualification in England, and though the Act is silent on the point that qualification would
undoubtedly be applied in India. The rule is that the holder of an instrument, deriving title from a holder in due
course must not himself have been a party to any fraud or illegality affecting the instrument. If he were a party
to such fraud or illegality, he does not acquire the rights of a holder in due course. For example:
(1) A bill originally obtained by fraud from the drawer, gets into the hands of A, a holder in due course. A
indorses the bill to B by way of gift. B can sue the acceptor for he stands on A’s title.
(2) A, by fraud, induces B to make a promissory note in his favour. A indorses the note to C, who takes it
as a holder in due course. C subsequently indorses the note to A for value. A cannot sue B on the
note.
(3) A partner in a firm fraudulently indorses a firm bill to D in payment of a private debt. F is cognizant of
the fraud, but is not a party to it. D indorses the bill to E, who takes it for value and without notice. E
indorses it to F. F acquires E’s rights. If he gave value to E, he can sue all the parties to the bill; if he
did not give value, he can sue all the parties except E.61
A holder deriving title from a holder in due course, stands in his shoes and can sue the acceptor, drawer, and
all prior parties whom the holder in due course himself could have sued. However, it is not necessary that the
holder with a derivative title should have given consideration for the instrument.62 Thus, a person to whom a
holder in due course has transferred a bill for collection can maintain a suit upon the bill in his own name as he
is a holder deriving title from the holder in due course and is competent to sue under the section.63
Page 3 of 3
60 Guildford Trust v Goss, (1926) 43 TLR 167 ; Kredit Bank v Schenkers, [1927] WN 39 .
61 May v Chapman, (1847) 16 M&W 355.
62 Subrao v Sitaram, (1900) Bom LR 891 .
63 Ardeshir v Khushaldas, (1908) 10 Bom LR 268 .
End of Document
[s 54] Instrument indorsed in blank—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Subject to the provisions hereinafter contained as to crossed cheques, a negotiable instrument indorsed in
blank is payable to the bearer thereof even although originally payable to order.
Page 2 of 3
[s 54.2] Effect of Indorsement in Blank
A negotiable instrument, though originally made or drawn payable to order, may be indorsed in blank and
delivered to any person, and the effect of such an indorsement and delivery is to convert the instrument into
one payable to bearer and transferable by mere delivery in the same manner as if the instrument were originally
made or drawn payable to bearer.64
An indorsement in blank specifies no indorsee, and a bill so indorsed becomes payable to bearer.65
A bill is payable to the order of John Smith. He signs on the back, ‘John Smith’. This act is interpreted by the
law merchant as an indorsement in blank by John Smith, and operates as if he had written:
(i) I hereby assign the bill to bearer.
(ii) I hereby undertake that if this bill is dishonoured, I will indemnify the bearer, on receiving due notice
thereof.66
Where an order cheque indorsed in blank is also crossed, the drawee-banker will have to make payment in
accordance with the crossing.
64 Peacock v Rhodes, (1781) 2 Doug 633, p 636.

Page 3 of 3
65 See section 34(1) of the Bills of Exchange Act, 1882.
66 Chalmer’s Bills of Exchange Act, 12th edn, pp 111–12.
End of Document
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

If a negotiable instrument, after having been indorsed in blank, is indorsed in full, the amount of it cannot be
claimed from the indorser in full, except by the person to whom it has been indorsed in full, or by one who
derives title through such person.

Page 2 of 2
This section corresponds to sections 8(3) and 34(4) of the Bills of Exchange Act, 1882.
[s 55.2] Effect of an Indorsement in Blank followed by an Indorsement in Full
The short title to the section, viz, ‘conversion of indorsement in blank into indorsement in full’, is incorrect. The
short title is same as that of section 49, however the section does not, unlike section 49, deal with the
conversion of a blank indorsement into an indorsement in full but only with the effect of an indorsement in blank
followed by an indorsement in full. The rule stated in the section can be summarised as follows:
If an indorsement in blank is followed by an indorsement in full, the instrument still remains payable to bearer and is
negotiable by delivery as against all parties prior to the indorser in full, though the indorser in full is only liable to the
holder who acquired title directly through the indorsement, and person deriving title through such holder.67
For example, A, the payee-holder of a bill, indorses it in blank and delivers it to B, who indorses it in full to C or
order. C without indorsement transfers the bill to D. D as the bearer is entitled to receive payment or to sue the
drawer, acceptor, or A, who indorsed the bill in blank, but they cannot sue B or C.
67 Smith v Clark, (1794) 1 Peake 295; Walker v Macdonald, (1848) 2 Ex 527 .
End of Document
[s 56] Indorsement for part of sum due—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

No writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer
only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid a
note to that effect may be indorsed on the instrument, which may then be negotiated for the balance.
Page 2 of 5
[s 56.2] Partial Indorsement
The object of the section is to prevent an instrument being transferred for a portion only of the sum at the time
due under it.68 The indorsement must be an indorsement of the entire instrument. A partial indorsement, i.e.,
an indorsement that purports to transfer to the indorsee a part, only of the amount payable, does not operate as
a negotiation of the instrument. According to Byles:
Such an indorsement is not warranted by the custom of merchants and would be attended with this inconvenience to
the prior parties, that it would subject them to a plurality of action.69
In the same manner, an indorsement that purports to transfer the instrument to two or more indorsees
severally, and not jointly, would come within the prohibition against partial indorsement though not expressly
forbidden by the section. For example:
(1) A is the holder of a bill for Rs 1,000. A indorses it thus; ‘Pay B or order Rs 500.’ This is partial
indorsement and invalid for the purpose of negotiation.
(2) A is the holder of a bill of Rs 1,000. A indorses it thus; ‘Pay Rs 500 to B or order, and Rs 500 to C or
order.’ Though the whole amount of the bill is transferred to B and C, as each of them is an indorsee of
only a part of the amount, the indorsement is partial and invalid for the purpose of negotiation.70
(3) C, the holder of a bill for GBP 100, indorses it ‘Pay D or order GBP 30’. This is invalid unless C also
acknowledges the receipt of GBP 70.71
The last part of the section states that, if a bill has been paid in part, the fact of the part payment may be
Page 3 of 5
indorsed on the instrument and it may then be negotiated for the residue. For example, a bill may be indorsed
thus: ‘Pay A or order Rs 500 being the unpaid residue of the bill’. Such an indorsement would be valid.
Where the maker of a note makes a part payment, but the payment is not indorsed thereon and the note is
fraudulently negotiated by the payee to a third party, the payee has an equitable duty to indemnify the maker to
the extent of the part payment in the event of the latter being held liable to pay the full amount of the note to the
holder.72
In Joseph Sartho v G Gopinathan,73 the accused had issued a cheque for an amount of Rs 4,61,400, in favour
of the appellant, towards discharge in full of a debt due to him. Thereafter, the 1st respondent paid an amount
of Rs 2,26,400, as part payment towards the amount due under the aforementioned cheque. The balance
amount due to the appellant was only Rs 2,35,000. Since the said balance amount was not paid, the appellant,
without making any endorsement regarding receipt of the said amount on the cheque, presented the cheque for
collection, claiming the entire amount shown in it. But, the cheque was returned dishonoured for insufficiency of
funds in the account of the accused. After the notice period, the appellant preferred a complaint under section
138 of the Act. On summons, the accused appeared and pleaded not guilty. After trial, the Trial Court
concluded that since the cheque presented was not for the amount due from accused, no offence was made
out under section 138 of the Act and hence, the accused was acquitted.
At the time of hearing of the appeal before Single Judge, the appellant relied on the decision of Single Judge of
the same High Court.74 In that case, part payment was made towards the amount due under the cheque.
When the cheque was dishonoured, it was held that the offence under section 138 of the Act was made out.75
On the other hand, the defence relied on another decision of a Single Judge of the same High Court,76 in
which, where the amount represented by the cheque was larger than the amount due from the drawer, a
contrary view was taken. In view of the apparent conflict of opinion, the Single Judge referred this case for
decision by Division Bench.
The Division Bench held that in view of section 56 of the Act, the appellant could have claimed only the balance
amount due under the cheque. The above Section envisages any number of endorsements on the reverse of
the cheque and if there is not sufficient space for further endorsements, a slip of paper can be annexed to it,
recognised under section 15 of the Act, to get over the said difficulty, which is called ‘allonge’ in banking circles,
which is thus described by Couch, CJ as:
Page 4 of 5
an allonge is a slip of paper annexed to a bill upon which, there being no legal limit to the number of indorsements,
when there is no room to write them all distinctly on the back of the bill, the supernumerary indorsements may be
written. It is annexed by the holder in order that he may write the indorsement and they do not require fresh stamps.
Allonges are found in countries where the Geneva Convention No. 3313 of 7th June, 1930 has been adopted.
Speaking for the Bench, K Balakrishnan Nair, J observed as follows:
8. …, a cheque must be for payment of any amount of money to another person for discharging in whole or in part of
any debt or other liability. In this case, once part payment was received, the cheque no longer was one for payment of
money for discharging in whole or in part of any debt or other liability. In fact, the amount covered by the cheque was
admittedly larger than the amount of debt or liability. The whole amount of debt or liability was lesser than the amount
represented by the cheque. So, if the cheque for such an amount was dishonoured, the same will not be an offence
under section 138 of the Act.
The Judge then referred to the Apex Court’s decisions in NEPC Micon Ltd v Magma Leasing Ltd77 and Dalmia
Cement (Bharat) Ltd (M/s) v M/s Galaxy Traders and Agencies Ltd,78 to outline the position of law regarding
strict interpretation of penal laws. In those cases, it was held that even though section 138 is a penal statute, it
should be interpreted taking into account the legislative intent and purpose, so as to suppress the mischief and
advance the remedy. However, the Supreme Court, in its decision in ‘Rahul Builders’,79 re-established the
principle that section 138, being a penal provision, ought to be interpreted strictly.
Based on this, the Bench interpreted the provision strictly. The section says that a cheque should be for
payment, in full or part, of a debt due. The law contemplates that the ‘drawee’ would make an endorsement on
the cheque for part payment received. In the absence of this, the amount in the cheque would be greater than
the actual amount due, as has been admitted in this case. Hence, the respondent cannot be found guilty of
dishonouring the cheque, as the amount on it is greater than the amount of his debt. In conclusion, the Judge
clarified that endorsements on the back of the cheque do not invalidate them. Claiming a higher amount than is
due cannot be grounds for an action under section 138 of the Act. Hence, the appeal was set aside.
Page 5 of 5
68 A personal contract cannot be apportioned; Hawkins v Cardy, (1699) 1 LD Raym 360.
69 Byles on Bills of Exchange, 21st edn., p 166.
70 Heilbut v Nevill, (1869) LR 4 CP 358.
71 Hawkins v Cardy, (1699) 1 Ld Raym 360.
72 Arjuna Gownder v Pillaiyar Gownder, (1972) 2 Mad LJ 462.
73 Joseph Sartho v G Gopinathan, 2008 CrLJ [NOC] 367 (Ker.).
74 R Gopikuttan Pillai v Sankara Narayanan Nair, I (2004) BC 34 : IV (2003) CCR 162 (Ker.).
75 Same view was also taken in Thekkan & Co v Anitha, 2003 (3) KLT 870 .
76 Supply House v Ullas, 2006 (3) KLT 921 .
77 NEPC Micon Ltd v Magma Leasing Ltd, (1999) SCC (Cri) 524 : AIR 1999 SC 1952 .
78 Dalmia Cement (Bharat) Ltd (M/s) v M/s Galaxy Traders and Agencies Ltd, AIR 2001 SC 676 : (2001) 6 SCC 463 .
79 Rahul Builders v Arihant Fertilizers and Chemical, 2007 (4) KLT 977 : (2008) 2 SCC 321 .
End of Document
[s 57] Legal representative cannot by delivery only negotiate instrument indorsed
by deceased—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 57] Legal representative cannot by delivery only negotiate instrument indorsed

by deceased—
The legal representative of a deceased person cannot negotiate by delivery only a promissory note, bill of
exchange or cheque payable to order and indorsed by the deceased but not delivered.
Page 2 of 3
[s 57] Legal representative cannot by delivery only negotiate instrument indorsed by deceased—
[s 57.1] Indorsement by Legal Representative
A legal representative cannot complete an indorsement made by the deceased by merely delivering the
instrument, for, a legal representative is not the agent of the deceased. For example:
A is the holder of a bill. A specially indorses it to B, but dies before delivering it. A’s executor subsequently
hands the bill to B. The indorsement in invalid and B cannot sue on the bill.
The instrument, as described in this section, can be negotiated by the legal representative only by re-
indorsement and delivery.80 However, in re-indorsing the instrument, the legal representative should be careful
to exclude his personal liability thereon.
In Vijay Singh v Manali Malik,81 the cheque in question was presented for payment to the Bank after the death
of the drawer and was returned unpaid for the death of the drawer. On a suit having been filed under O XXXVII
of CPC on the basis of said cheque, when the defendant moved an Application seeking leave to defend the
suit, it was held by the Delhi High Court that since the cheque was not presented during the lifetime of the
It was held by Rajiv Sahai Endlaw, J, as under:
13. It is to be noted that the drawing of a cheque does not by itself operate as an assignment of the monies in the
hands of the banker in favour of the payee. The holder of a cheque has no right to enforce payment from the bank
unless the banker has contracted with the holder to honour. The banker is only liable to the order of the drawer and
thus if there is no order of the drawer on the banker, on the date of the presentment owing to the death of the drawer,
the bank is not liable to pay. Section 57 provides that the legal representatives of a deceased person cannot negotiate
by delivery only a cheque payable to order and endorsed by the deceased but not delivered. This is on the ground that
the legal representative is not the agent of deceased. Upon demise, the estate including the amounts with the bank
vest in the legal representatives or nominee and it requires a fresh act on the part of the legal representative or
nominee to transfer the money, if any. Only if the cheque had been signed by the legal representative, at the instance
of holder thereof does the legal representative becomes personally liable thereunder, under section 29 of the Act.
Page 3 of 3
[s 57] Legal representative cannot by delivery only negotiate instrument indorsed by deceased—
80 Bromage v Lloyd, (1847) 1 Ex 32 .
End of Document
[s 58] Instrument obtained by unlawful means or for unlawful consideration—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When a negotiable instrument has been lost, or has been obtained from any maker, acceptor or holder thereof
by means of an offence or fraud, or for an unlawful consideration, no possessor, or indorsee who claims
through the person who found or so obtained the instrument is entitled to receive the amount due thereon from
such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee is, or
some person through whom he claims was, a holder thereof in due course.
Page 2 of 12
This section corresponds to sections 29(2), 38(2) and (3) of the Bills of Exchange Act, 1882.
[s 58.2] Scope of Section
The section deals with the rights acquired by negotiation, i.e., transfer according to the rules of the law
merchant. It recognises the paramount rights of a holder in due course, and thus constitutes the main difference
between the negotiation of a bill or note and the transfer of any other chose in action. The section deals with
two sets of circumstances. First, it deals with the legal status of a possessor or an indorsee of a negotiable
instrument which has been lost, or which has been obtained from any maker, acceptor or holder by means of
an offence, or fraud, or for an unlawful consideration. Secondly, the section deals with the status of a holder in
due course under similar circumstances.
[s 58.3] Lost Instrument
The finder of a lost instrument acquires no rights to it against the true owner. However, if the instrument which
is transferable by mere delivery gets into the hands of a holder in due course, he is entitled to retain the
instrument against the true owner and to compel payment upon it.
[s 58.4] Instruments Obtained by Means of an Offence
Examples of such instruments are discussed below.
[s 58.4.1] Stolen Instrument
A person who has obtained a negotiable instrument by theft cannot enforce payment of it against any party
thereto nor retain it against the party from whom he has stolen it. If he negotiates the instrument to a purchaser,
who gives value for it, but has notice of the fact that the instrument has been stolen, the transferee cannot
acquire a better title than the thief, and cannot enforce payment or retain the instrument as against the party
Page 3 of 12
from whom the thief obtained it. However, if a person who has stolen a bill or note payable to bearer transfers it
to a holder in due course, he confers a good title on him or any person deriving title from such holder.
In the case of a stolen instrument, the thief does not acquire any title to it and the proceeds of the bill may be
followed in the hands of the thief or any volunteer from him.82 However, if a stolen instrument is negotiated by
delivery to a transferee for value without notice of the theft, the transferee acquires a good title to it not only
against the thief, but also against any party prior to him.83
[s 58.4.2] Instruments Obtained by Fraud
Fraud vitiates all agreements and transactions. The law sets itself against fraud to the extent of breaking
through almost every rule, sacrificing every maxim, getting rid of every ground of opposition which may be
presented, so as to prevent it from succeeding.
It is the essence of all contracts, including those on negotiable instruments that they must have been brought
about by the free consent of parties competent to contract. Thus, if a person obtains an advance of money on a
hundi by making false representations, knowing them to be false and knowing also that without them, he could
not have got the money, the lender is entitled to rescind the contract on the hundi and to sue for the recovery of
the amounts advanced.84 Therefore, if a negotiable instrument was executed under coercion, or made or
obtained by fraud, proof of such coercion or fraud is a good defence against an action on the instrument. So, if
the maker or acceptor, when sued on an instrument proves that it was obtained from him by fraud, the impostor
is not entitled to recover anything. Similarly, any subsequent negotiation or transfer may be vitiated by fraud,
which may be set up as a defence. An instrument given by defrauding a third person is as bad as one given by
defrauding a party to the transaction.85 Under the section, the possessor or an indorsee, who claims through
the person who obtained the instrument by means of fraud, cannot recover payment on it from any party
thereto.
The defence of fraud cannot generally be set up against a holder in due course or a holder deriving title from
such holder. If, however, it could be shown that a person who was not negligent was induced to sign an
instrument, being represented to him to be a document of a different kind, he would not be liable even to a
holder in due course. Thus, where, owing to the fraud of a third person, the nature of the instrument is
misrepresented in such a way that the person affixing his signature does not know that as he is signing a
negotiable instrument, but believes that as he is signing a document of a different character, he is not bound by
the instrument, particularly so since his mind did not accompany his signature. He never intended to sign a
Page 4 of 12
negotiable instrument, and therefore, in contemplation of law, did not sign it at all. This defence is known as non
est factum and was successfully pleaded in Carlisle and Cumberland Banking Co v Bragg.86
However, the person signing must not be guilty of negligence, otherwise, he would be estopped from denying
the validity of his signature as against a holder in due course. The decision in the Carlisle case was overruled
by the House of Lords in Saunders v Anglia Building Society,87 where an aged widow, who, having broken her
spectacles could not read, signed an assignment of her house to a third party, having been made to believe
that it was a deed of gift to her nephew. The assignee mortgaged the house to a building society, which
ultimately sought to obtain possession of the house consequent on default in the repayment of the mortgage
installments. The lady pleaded non est factum but did not succeed. In the House of Lords, the correct rule was
stated to be that a person who signs a document and parts with it so that it may come into other hands, has the
responsibility of a normal man of prudence, to take care of what he signs and if he neglects the responsibility,
then he cannot deny his liability under the document according to its tenor. The onus of proof rests upon him.
Special rules might apply to negotiable instruments.
Where the defendant insists on fraud as a defence, he must repudiate the contract altogether, and retain no
benefit under it.88
Every holder is presumed, until the contrary is proved, to be a holder in due course. However, if in a suit by a
holder, it is proved that the instrument was given under undue influence, the burden is shifted to the holder to
prove himself to be a holder in due course, or a transferee from one.89
[s 58.4.3] Instruments Obtained for an Unlawful Consideration
If the consideration for a note, bill or cheque is unlawful, the instrument is void. Every agreement for which the
object of consideration is unlawful is void. The general rules as to the legality of object or consideration of a
contract apply to contracts on negotiable instruments, and a negotiable instrument given for a consideration,
which is illegal or opposed to public policy or immoral or specially prohibited by statute, is void and creates no
obligation between the parties thereto.90 For the application of this provision, the knowledge that the amount is
to be utilised for such purpose is essential. Merely because the amount under the instrument is utilised for such
purpose does not make the instrument bad. Thus, there has to be a consensus ad idem or meeting of minds for
the utilisation of the amount.
Page 5 of 12
A promissory note executed in payment of a debt arising out of share speculation was held void.91 A bill or
note given in consideration of future illicit cohabitation,92 for persuading a woman to marry the promisor,93 to a
witness for giving evidence,94 are void, being opposed to morality and public policy. However, a holder in due
course obtains a good title to an instrument though it was originally made or drawn or subsequently negotiated
for an unlawful consideration.
[s 58.4.4] Forged Instrument
Forgery is the fraudulent making or alteration of writing to the prejudice of another man’s right. The most
common species of forgery is signing the name of an existing person. It is also forgery to sign the name of a
fictitious or a non-existing person, intending it to be believed that a real person signed the instrument, if the
signature were placed with a fraudulent or dishonest intention.
A man’s signature of his own name may amount to forgery, if it is put with the intention that the signature should
pass for the signature of another person, having the same name.
Forgery is a subject covered by criminal law, and here it is intended to deal with the fraudulent placing of a
signature on a bill, whether of a drawer, acceptor or indorser, and the consequences arising thereunder. It has
been pointed out as a general rule that all persons whose names appear on an instrument are primarily liable
thereon. It is, therefore, of utmost importance, that the greatest possible protection should be afforded when a
man’s name has been forged. The liability for loss through forgery should render the holder extremely cautious
as to the identity for the transferor and the genuineness of his signature. As a general rule, a forged signature
cannot convey title.
Where a signature on a negotiable instrument has been forged, the forged signature is wholly inoperative, and
the property in the instrument remains in the person, who was the holder at the time when the signature was
forged.
The holder of a forged instrument cannot enforce payment thereon nor can he give a valid discharge thereof.
However, if, a holder does manage, in spite of the forgery, to obtain payment of the amount of the bill, he
cannot retain the money. The true owner may compel the person who has paid the bill to deliver it to him, and
the debtor will be obliged to pay all over again to the rightful holder. The true owner may sue, in tort, the person
Page 6 of 12
who is in receipt of the money on the ground of conversion of his bill or for money had and received for his use.
A person who has paid money by mistake on a forged signature, may recover it from the person to whom he
has paid it.95 This principle has universal application, and a holder in due course is not exempt from it, for there
is a great difference between a defect in title (in which case, a holder in due course is protected) and an entire
absence of title as in the case of forgery (in which case, he derives to title). However, in order that this rule may
operate, it is essential that the holder must have taken the instrument through or under the signature, i.e., the
signature must have been a necessary part of the instrument so as to pass the instrument from its last
possessor to the holder. Therefore, if the signature of the drawer or acceptor of a bill has been forged, no title
passes and in either case, the bill is entirely valueless. For example:
(1) On a note for Rs 1,000, A forges B’s signature so as to make him the maker. C, a holder, who takes it
bona fide and for value, acquires no title to the note.
(2) On a bill for Rs 1,000, A’s acceptance to the bill is forged. The bill comes into the hands of B, a bona
fide holder for value. B acquires no title to the bill.
Forgery cannot be ratified, for a forger does not act, and does not purport to act, on behalf of the person whose
signature he forges. However, a person whose signature has been forged may, by his conduct, be estopped
from denying its genuineness to an innocent holder.96
For example, A’s acceptance to a bill is forged. B, a bona fide holder for value, is informed that the signature is
not A’s. B writes to inquire and is informed by A that the signature is his. A is liable on the acceptance.
In Tatipamula Naga Raju v Pattem Padmavathi,97 the case of plaintiff was that a sum of Rs 1,25,000 was
borrowed by defendant after executing a promissory note for Rs 1,25,000. In spite of demand, as the amount
was not repaid, the plaintiff was constrained to file a suit for recovery of the said amount along with interest
thereon. The case of defendant was that though the promissory note had been executed by him, no amount
was payable by defendant to plaintiff. According to defendant, he had borrowed Rs 1,25,000 from the son of
plaintiff and four promissory notes had been executed by him. One promissory note was for Rs 50,000 and
three promissory notes were for Rs 25,000 each. The defendant was having financial difficulties and, therefore,
he could not pay the said amount to plaintiff’s son but with the help of certain mediators, he had settled the
dues with plaintiff’s son for Rs 90,000 and paid the same to him. Upon payment of Rs 90,000 by defendant in
full settlement of his dues, plaintiff’s son ought to have returned the aforestated four promissory notes to
Page 7 of 12
defendant but he returned only three promissory notes and did not return one promissory note for Rs 25,000,
as he had misplaced the same and he promised that he would return the said promissory note for Rs 25,000 as
and when he would find it. According to defendant, by adding a figure ‘1’ before ‘Rs. 25,000’ the plaintiff had
made an amount of Rs 1,25,000 from Rs 25,000. The plaintiff had taken undue advantage by interpolating
figure ‘1’ before ‘Rs 25,000’ because Rs 25,000 had not been written in words. Thus, according to the case of
the defendant, no amount was payable by him to the plaintiff but the plaintiff had misused the promissory note
given by him to Nanaji by interpolating figure ‘1’ before figure ‘25,000’.
During trial, a handwriting expert was examined, who stated that figure ‘1’ had been interpolated in the
promissory note whereby figure ‘25,000’ was made ‘1,25,000’ by adding ‘1’, was not in the same line of Rs
25,000. This report was accepted by trial court and after considering the evidence of mediators in whose
presence the defendant had settled his dues with plaintiff’s son, the suit was dismissed.
The plaintiff filed an appeal which was allowed and the suit was decreed. Defendant preferred Second Appeal
before High Court which was dismissed because of absence of any substantial question of law.
The defendant approached Supreme Court98 wherein it was concluded that the evidence of the mediators and
the handwriting expert was duly considered and appreciated by the trial court and the trial court had come to a
right conclusion. There was absolutely no reason for the lower appellate court to arrive at a different conclusion
than the one arrived at by the trial court. It was opined that the findings arrived at by trial court were absolutely
correct and no justifiable reasons were given by lower appellate court for arriving at a different conclusion. The
Supreme Court held that, simply because the defendant had fairly admitted his signature, the court should not
have come to the conclusion that the amount was payable by defendant especially when there was an expert’s
evidence that figure ‘1’ was added so as to make the figure 1,25,000 from figure 25,000 and when the
mediators had deposed to the effect that there were transactions between defendant and the son of plaintiff and
in pursuance of the said transaction, promissory notes were executed by defendant and one of the promissory
notes was not returned to defendant. The Supreme Court further concluded that the explanation given by
defendant, which was supported by ample evidence, ought to have been considered by lower appellate court
and the lower appellate court should not have been guided by a mere fact that defendant had admitted
execution of promissory note. The Supreme Court was of the further view that the defendant ought not to have
been saddled with a liability to pay the amount in pursuance of the tampered promissory note for which no
consideration had ever passed from the plaintiff to the defendant. Accordingly, the Supreme Court restored the
order passed by trial court whereby the suit was dismissed.
Page 8 of 12
[s 58.4.5] Forged Indorsements
The case is, however, different where an indorsement is forged. The answer depends entirely upon the
question whether the instrument is indorsed in full or in blank. If an instrument is indorsed in full, the signature
of the person to whom or to whose order the instrument is negotiated must be a genuine one, for a title to the
instrument can only be established through his indorsement. Therefore, if a bill or note is negotiated by means
of a forged indorsement, a person claiming under that indorsement, though he is a purchaser for value and in
good faith, cannot acquire the rights of a holder in due course. He acquires no title to the bill or note.99
For example:
(1) A bill is indorsed, ‘Pay John Brown or order’. John Brown must indorse the bill, and if his signature is
forged, the bill is worthless.
(2) A bill is payable to: A or order. It is stolen from A and the thief forges A’s indorsement and indorses it to
B who takes it in good faith and for value. B acquires no title to the bill, nor can he recover upon it or
give a valid discharge for it.
Section 58, which protects a holder in due course where a negotiable instrument has been obtained by means
of an offence, does not apply to a case of forgery. Where a party, primarily liable on a negotiable instrument
pays the amount thereof, to a wrong person, who holds it under a forged indorsement, he remains liable to the
true owner. This is subject to an exception in the case of cheques and bank drafts. No holder can acquire a
good title to an instrument through a forged indorsement.100
However, different considerations arise where an indorsement is forged on an instrument that is already
indorsed in blank. In such a case, when the instrument gets into the hands of any person, a transfer can be
made by simply delivery, and it is immaterial as far as the holder is concerned that the transferor indorsed the
bill in any name whatsoever. Where an instrument is indorsed in blank and it bears a further forged
indorsement, the holder does not derive his title through the forged indorsement, and he can sue any of the
parties to the bill without being affected by the forgery.
Page 9 of 12
For example, a bill is indorsed; Pay John Brown or order. John Brown indorses the bill in blank. It comes into
the hands of A. A passes it by simple delivery to B. B forges A’s indorsement and transfers it to C. As C, the
holder, does not derive his title through the forged indorsement of A, but through the indorsement of John
Brown which is genuine, he can sue any of the parties to the bill irrespective of A’s forged indorsement. A
similar result would follow where the forged indorsement is made on an instrument originally drawn or made
payable to bearer.
[s 58.4.6] Banker’s Liability on a Forged Indorsement
Where a bill is accepted as payable (or domiciled) at a banker’s, the banker cannot debit his customer’s
account with a payment made on a forged indorsement. Bankers, who undertake the duty of paying their
customer’s acceptances cannot do anything other than pay off-hand. In paying their customers’ acceptances in
the usual way, bankers incur a risk. They have no recourse against their customer, if they pay on a genuine bill
to a person appearing to be the holder, but claiming through or under a forged indorsement. The bill is not
discharged, the acceptor remains liable and the banker has simply thrown his money away if he cannot recover
from the person to whom he has paid it.101 By virtue of section 85, a banker who pays a cheque or a demand
draft with a forged indorsement is protected, provided the payment is one in due course.102
[s 58.5] Privileges of a Holder in Due Course
The title of the holder in due course of a negotiable instrument as defined in section 9 is free from equities and
other defences which could be urged against prior parties. This special privilege is secured to him by means of
certain rules and estoppels contained in the Act. These may be briefly summarised as follows.
(1) According to section 20, a person who has signed and delivered to another, a stamped but otherwise
inchoate instrument, is precluded from asserting, as against a holder in due course, that the instrument
has not been filed in accordance with the authority given by him, the stamp being sufficient to cover the
amount.
(2) According to section 42, where a bill of exchange is accepted payable to the order of the drawer in a
fictitious name, and is indorsed in the same hand as the drawer’s signature, the acceptor is not
permitted to allege, as against a holder in due course, that such name is fictitious.
(3) According to sections 46 and 47, if a bill or note is negotiated to a holder in due course, the other
parties to the bill or note cannot avoid liability on the ground that the delivery of the instrument was
conditional or for a special purpose only.
Page 10 of 12
(4) According to section 58, the defences on the part of the person liable on a negotiable instrument that
the instrument had been lost or obtained from him by means of an offence or fraud or for an unlawful
consideration, cannot be set up against a holder in due course.
(5) According to section 120, no maker of a promissory note and no drawer of a bill of exchange or cheque
and no acceptor of a bill of exchange for the honour of the drawer shall, in a suit thereon by a holder in
due course, be permitted to deny the validity of the instrument as originally made or drawn.
(6) According to section 121, no maker of a promissory note and no acceptor of a bill of exchange payable
to order shall, in a suit thereon by a holder in due course, be permitted to deny the payee’s capacity at
the date of the note or bill to indorse the same.
82 Banque Belge v Hambrouck, [1921] 1 KB 321.
83 Raphael v Bank of England, (1855) 17 CB 161; Chichester v Hill, (1882) 52 LJQB 160.
84 Baboo Lall v Joy Lall, (1916) ILR 24 Cal 533.
85 Cockshott v Bennett, (1788) 2 TR 733; Byrant v Christie, (1816) 1 Stark 329.
86 Carlisle and Cumberland Banking Co v Bragg, [1911] 1 KB 489.
87 Saunders v Anglia Building Society, [1970] 3 WLR 1078; Foster v Mackinnon, (1869) KR 4 CP 704; Lewis v Clay,
(1898) 67 LJQB 224; Chimanram v Diwanchand, (1932) ILR 56 Bom 180.
88 Davis v Harness, (1875) LRCP 166.

Page 11 of 12
89 Talbot v Von Baris, [1911] 1 KB 854.
90 Indian Contract Act, 1872, section 25.
91 Badridas Kothari v Megraj Kothari, AIR 1967 Cal 25.
92 Manika Gounder v Muniammal, AIR 1968 Mad 392.
93 Lowe v Peers, (1770) 4 Bur 225.
94 Sashannah v Ramaswamy, (1868–69) 4 MHCR 7.
96 Also see [s 43.5] ante, Allegation of ‘No Consideration’ Due to Fraud.
97 Tatipamula Naga Raju v Pattem Padmavathi, (2011) 4 SCC 726.
98 Tatipamula Naga Raju v Pattem Padmavathi (supra).
99 Mascarenhas v Mercantile Bank of India, (1932) 34 Bom LR 1; Mercantile Bank v Caeiro, (1928) 30 Bom LR 1222;
Mercantile Bank v D’Silva, (1928) 30 Bom LR 1225; Mercantile Bank of India v Mascarenhas, (1930) 32 Bom LR 1210;
Vasudeo v National Savings Bank Ltd, (1952) 54 Bom LR 765.
100 Thorappa v Umedmalji, (1923) 25 Bom LR 604.
101 Bank of England v Vagliano Bros, [1891] AC 107.
102 See notes to section 85.

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End of Document
[s 59] Instrument acquired after dishonour or when overdue—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The holder of a negotiable instrument, who has acquired it after dishonour, whether by non-acceptance or non-
payment, with notice thereof, or after maturity, has only, as against the other parties, the rights thereon of his
transferor:
Accommodation note or bill.—Provided that any person who, in good faith and for consideration, becomes the
Page 2 of 5
holder, after maturity, of a promissory note or bill of exchange made, drawn or accepted without consideration,
for the purpose of enabling some party thereto to raise money thereon, may recover the amount of the note or
bill from any prior party.
Illustration
The acceptor of a bill of exchange, when he accepted it, deposited with the drawer certain goods as a collateral
security for the payment of the bill, with power to the drawer to sell the goods and apply the proceeds in
discharge of the bill if it were not paid at maturity. The bill not having been paid at maturity, the drawer sold the
goods and retained the proceeds, but indorsed the bill to A. A’s title is subject to the same objection as the
drawer’s title.
[s 59.2] Negotiation of Dishonoured Instruments
As a general rule, a bona fide holder for value of a negotiable instrument is not affected by any defects in the
title of his transferor. This rule is, however, subject to two exceptions:
(i) when a holder acquires it with notice of dishonour, and
(ii) when he acquires it after maturity. The section lays down the consequences which follows the
negotiation of dishonoured instrument and overdue instruments.
Where a negotiable instrument has been dishonoured, any person who takes it with notice of dishonour takes it
subject to any defect in title, attaching thereto at the time of dishonour. The transferee of a dishonoured
instrument, who takes it with notice of dishonour, cannot acquire the instrument before 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. In the case of a dishonoured instrument, the holder, when he knows that fact appearing on the bill, is
put on inquiry about the title of his transferor.
Page 3 of 5
For example, a bill is dishonoured by non-acceptance. The bill is indorsed to A. A indorses it to B. As between
A and B the bill is subject to an agreement as to the discharge of A. The bill is afterwards indorsed to C, who
takes it with notice of dishonour. C takes the bill subject to the agreement between A and B.
[s 59.3] Negotiation of Overdue Instrument
A bill or note is not deemed to be overdue until the expiry of the day on which it falls due, and, where days of
grace are allowed, it is only after the termination of the last day of grace that the instrument becomes overdue.
There is nothing to prevent the transfer of an overdue instrument. The transferee, however, does not get the
advantages of negotiability, for an instrument which is overdue can only be negotiated subject to any defect in
title affecting it at maturity, and no person to whom it is transferred can acquire or give a better title than that
which the person from whom he took it, had. A person who takes on overdue instrument cannot be a holder in
due course, because section 9 of the Act requires that a holder in due course should acquire the instrument
‘before the amount mentioned in it became payable’. ‘After a bill or note is due, it comes disgraced to the
indorsee, and it is his duty to make inquiries concerning it. If he takes it, though he gave full consideration for it,
he takes it on the credit of the indorser, and subject to all the equities with which it may be encumbered.’103
The fact that maturity has passed is patent on the face of the instrument, and that fact gives notice to the holder
that the instrument has either been paid or dishonoured. In fact, after maturity, the contract on the bill is
assignable though simply by indorsement, and the bill has ceased to be negotiable in the full sense of the term.
A person, who takes an overdue instrument, must not take it blindly and expect to be treated as an innocent
holder. If the transferee takes an overdue instrument, without making satisfactory inquiries, he takes it at his
own risk, and gets no better title than his transferor.
Where a negotiable instrument has been dishonoured or has become overdue, it can only be negotiated
subject to the equities which attach to that instrument. However, the equities are those which exist at the time of
transfer, and not those arising subsequently or even collaterally.104 The transferee takes such an instrument,
subject to all the inherent vices and defeats with which it was tainted at the time of the transfer, e.g., fraud,
coercion and illegal consideration. In a similar manner, it might be shown that such an instrument was given for
a special purpose, or on a certain condition. For example:
(1) A, for a illegal consideration, makes a promissory note in favour of B. B indorses it, when overdue, to
C. C gives full value for the note. C cannot sue A for C has no better title than B’s.105
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(2) A bill is payable to the drawer’s order. B accepts it for an illegal consideration. The drawer, before its
maturity, indorses it to C, who takes it for value and bona fide. C indorses the bill, when overdue, to D.
D acquires a good title and can sue all parties to the bill, for C had a good title and D acquired C’s.106
(3) A bill is obtained from the drawer for a special purpose. A, in fraud of that purpose, indorses the bill
when overdue to B. B cannot recover from the acceptor.107
(4) B made three notes payable to C or order, and subsequently gave C two more notes replacing the first
three, and to cover further advances. All the notes were payable on demand, and given on the
understanding that they should not be negotiated. C indorsed all the notes to D. Thereafter, B paid C
the amount due on the last two notes without being aware that C had parted with the notes and did not
ask for or receive any of them from him. Afterwards, C obtained the five notes from D by fraud, and
handed them over to B, the maker. The court held that D could recover from B on these five notes as B
did not become a holder for value, the previous satisfaction of the notes not being a consideration
given by him when he received back the notes; and as they were then overdue, he acquired no better
title than the payee had, while they were in his hands.108
[s 59.4] Negotiation after Complete or Partial Discharge
Where the indorsee of a promissory note payable on demand is not aware that the note has been discharged
by the maker, or that any demand was made on the maker, he can claim as a holder in due course, even if the
note was negotiated to him after such discharge or demand.109 Similarly, where payments by the maker were
not noted on the note and the indorsee was not aware of the payments, the court held that he could claim as a
holder in due course.110
[s 59.5] Accommodation Notes and Bill
The proviso lays down an exception to the rule contained in the section as to the negotiation of an overdue bill.
The law regarding overdue bills mentioned in the section, i.e., the taking of an overdue instrument amounts to
notice to the holder of the equities attaching to it, does not apply to the case of accommodation notes and bills,
and the holder of such notes and bills may recover the amount from any prior party, even after maturity. The
case of accommodation notes and bills is an exception to the general rule that the title of a person, who takes
an instrument after maturity is subject to all defences which could be set up against the transferor. Where an
accommodation note or bill is negotiated after maturity, the proviso says that a holder for consideration may
recover thereon. The holder of an accommodation instrument after maturity is in the same position as of a
holder before maturity, provided he takes it in good faith and for value. For example, a bill is payable three
Page 5 of 5
months after date. It is accepted for the accommodation of the drawer. After maturity, the drawer indorses it to
A for value. A can recover from the acceptor.
103 Tinson v Francis, (1807) 1 Camp 19.
104 Harry v Dhumam Lall, (1882) 5 Mad 108.
105 Amory v Merewether, (1824) 2 B&C 573.
106 Chalmers v Lanton, (1808) 1 Camp 383.
107 Lloyd v Howard, [1850] 15 QB 905 .
108 Nash v De Freville, (1909) 2 DB 72 CA.
109 A Venkataratnam v A Kanakasundra Rao, AIR 1936 Mad 89 .
110 Annamalai Chetti v Maung Saing, AIR 1927 Rang 161 ; Asirvatham v Palaniraju, AIR 1973 Mad 439 .
End of Document
[s 60] Instrument negotiable till payment or satisfaction—
OF NEGOTIATION
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A negotiable instrument may be negotiated (except by the maker, drawee or acceptor after maturity) until
payment or satisfaction thereof by the maker, drawee or acceptor at or after maturity, but not after such
payment or satisfaction.

Page 2 of 2
[s 60.2] Duration of Negotiability
In the words of Lord Ellenborough:
[a] bill of exchange is negotiable ad infinitum until it has been paid by, or discharged on behalf of, the acceptor.111
An instrument negotiable during its origin continues to be negotiable until payment or satisfaction thereof, by or
on behalf of the acceptor or maker at or after maturity. However, if an instrument is paid before maturity, the
payment is not a payment in due course, and the instrument continues to be negotiable and is not discharged
by such payment. If the acceptor or maker pays and takes up an instrument before maturity, he is not precluded
from reissuing it before maturity.112 Under the section, it is, however, necessary that the payment or
satisfaction must have been made by or on behalf of the maker, drawee or acceptor at or after maturity, and not
by any other person. In order to stop the negotiability of the instrument, the party ultimately liable thereon must
pay it.
111 Callow v Lawrence, (1814) 3 M&C 97.
112 Morley v Culverwell, (1840) 7 M&W 74, p 182.
End of Document
[s 61] Presentment for acceptance—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 5 OF PRESENTMENT
A bill of exchange payable after sight must, if no time or place is specified therein for presentment, be
presented to the drawee thereof for acceptance, if he can, after reasonable search, be found, by a person
entitled to demand acceptance, within a reasonable time after it is drawn, and in business hours on a business
day. In default of such presentment, no party thereto is liable thereon to the person making such default.
Page 2 of 7
If the drawee cannot, after reasonable search, be found, the bill is dishonoured.
If the bill is directed to the drawee at a particular place, it must be presented at that place; and if at the due date
for presentment he cannot, after reasonable search, be found there, the bill is dishonoured.
1[Where authorised by agreement or usage, a presentment through the post-office by means of a registered
letter is sufficient.]
This section corresponds to sections 39 and 41 of the Bills of Exchange Act 1882.
[s 61.2] Advantages of Presentment for Acceptance
There are two kinds of presentment, namely presentment for acceptance and presentment for payment.
In Jagjivan Mavji Vithlani v Ranchhoddas Meghji,2 a contention was made that section 61 of the Act provides
for presentment for acceptance only when the bill is payable after sight, and not when it is payable on demand,
as is the suit. However, it was held that in a bill payable after sight, there are two distinct stages, firstly when it
is presented for acceptance, and later when it is presented for payment. Section 61 deals with the former, and
section 64 with the latter. The Supreme Court referred with acceptance, the observations made in Ram Ravji
Jambhekar v Pralhaddas Subakaran3 that ‘presentment for acceptance must always and in every case precede
presentment for payment.’
It was further held by Supreme Court in the above case4 that when the bill is payable on demand, both the
stages synchronise, and there is only one presentment, which is both for acceptance and for payment. When
the bill is paid, it involves an acceptance; but when it is not paid, it is really dishonoured for non-acceptance.
But whether, the bill is payable after sight or at sight or on demand, acceptance by the drawee is necessary
before he can be fixed with liability on it. It is acceptance that establishes privity on the instrument between the
payee and the drawee, and unless there is such acceptance, no action on the bill is maintainable by the payee
against the drawees.
Page 3 of 7
It is not necessary to always present a bill of exchange for acceptance before presenting it for payment, e.g.,
bills payable on demand, bills payable on certain number of days after date, and bills payable on a day certain,
need not be presented for acceptance before presenting them for payment. It is a common practice to obtain
the acceptance of the drawee as soon as possible after the bill is drawn, where it is not payable immediately
but on a future date. However, even without such acceptance, the bill is a negotiable instrument, as all parties
competent to contract, who have put their signatures on the bill, are liable on it even before such acceptance. A
person to whom the bill has been negotiated before acceptance may sue upon it as a holder in due course.5
There are, however, two cases in which presentment for acceptance is necessary:
(i) Where a bill is payable after sight, presentment for acceptance is necessary in order to fix the maturity
of the instrument.
(ii) Where a bill expressly stipulates that it shall be presented for acceptance, it must be presented for
acceptance before it is presented for payment.
However, even in cases where presentment is optional, as for instance where a bill is payable on certain period
after date, it is always desirable to get the bill accepted as soon as possible in order to:
(i) obtain the additional security of the acceptor’s name on the bill;
or
(ii) obtain an immediate right of recourse against the drawer and the other parties, in case the bill is
dishonoured by non-acceptance. It is also advantageous to the drawer, that upon non-acceptance, he
may be receiving early notice of dishonour and be equipped to remove his assets from the drawer’s
reach.
Section 61 provides for presentment for acceptance only when the bill is payable after sight, and not when it is
payable on demand. In a bill payable after sight, there are two distinct stages, first when it is presented for
acceptance and later, when it is presented for payment. Section 61 deals with the former, and section 64 deals
with the latter. When, however, the bill is payable on demand, both the stages synchronise, and there is only
Page 4 of 7
one presentment which is both for acceptance and payment. When the bill is paid, it involves an acceptance;
but when it is not paid, it is really dishonoured for non-acceptance. It is acceptance that establishes privity on
the instrument between the payee and the drawee.6 Whether the bill is payable after sight, at sight, or on
demand, acceptance by the drawee is necessary before he can be fixed with liability on it. For example:
(i) A, draws on B a bill payable three months after date in favour of C. The bill is negotiated by A to C, and
passes through several hands before it is presented to B for acceptance. Whether B accepts it or not,
A, C and all other indorsers remain liable on it if B fails to pay it on the due date. If at any time before
the expiry of the three months, the bill is presented to B and he refuses to accept, the holder gets an
immediate right of action against all antecedent parties.
(ii) A draws on B a bill payable three months after sight. The bill must be presented to B for acceptance,
for until he has seen it the maturity of the bill cannot be fixed. If B refuses to accept, the holder gets a
right of action against all antecedent parties owing to the fact of dishonour.
There is no prohibition under the Negotiable Instruments Act against post-dating cheques. The mere fact that
the date of payment of cheque is postponed to a future date, by post-dating it does not make the cheque
payable otherwise then on demand. It remains a negotiable instrument payable on demand on presentment on
or after the date it is made to the bearer.7
[s 61.3] Presentment to whom
Presentment for acceptance must be made to the drawee or to his duly authorised agent. The holder must,
however, make the demand for acceptance in clear and unequivocal terms.8 Proof must be given to show that
the person to whom presentment was made was the drawee.9 Presentment for acceptance consists in actually
exhibiting the bill by the holder to the drawee, and not in merely giving notice to him that a bill is in the
possession of the holder. The drawee is also entitled to insist upon the production of the bill for acceptance so
that he may see it and decide whether he should accept it or not, and, in case of its non-production, may
decline to accept it.
Where there are several drawees who are not partners, presentment must be made to all of them, unless one
drawee has authority to accept for all, in which case, presentment may be made to him only. The holder is
entitled to have the acceptance of all the drawees, and if one of them refuses to accept, he is entitled to treat
the bill as dishonoured.
Page 5 of 7
If the drawee be dead, presentment may be made to his legal representative. If the legal representative accepts
the bill, he should take care to expressly limit his liability to the extent of the assets which come into his hands
otherwise he would make himself personally liable.
If the drawee is bankrupt, presentment may be made to his assignee.
[s 61.4] Presentment by whom
Under the section, presentment for acceptance should be made by some person entitled to demand
acceptance. He is usually the holder, but the drawee may accept a bill even though the person presenting it is
not the lawful holder thereof. By presenting the bill for acceptance, the holder does not give a guarantee as to
the genuineness of the instrument or any document attached thereto.10 If the person who presents a bill
subsequently turns out not to be the legal holder thereof, the drawee’s acceptance will inure for the benefit of
the rightful owner. A person duly authorised by the holder may also make presentment.
[s 61.5] Time for Presenting
All bills must be presented before maturity. The following rules may be stated:
(i) In the case of a bill, which specifies the period for presentment, it must be presented within that period.
(ii) In the case of a bill for which presentment for acceptance is optional, it must, if presented for
acceptance, be presented at any time before payment.
(iii) A bill payable after sight, must, if no time is specified therein for presentment, be presented within a
reasonable time after it is drawn. Such a bill ought to be presented without unreasonable delay, for the
longer the delay, the greater the risk that the drawer runs of the insolvency of the drawee. In
determining the reasonable time for presentment for acceptance, focus shall be on the nature of the
bill, the usage of trade with regard to similar instruments, and the distance between the place where
the bill is drawn and the place where it is to be presented for acceptance, and the particular facts of the
case.11
Page 6 of 7
In all cases where presentment for acceptance is made, it must be made during business hours and on a
business day.
[s 61.6] Effect of Non-Presentment
Where presentment for acceptance is necessary, the section says that in default of such presentment by the
holder, the drawer and all the indorsers are discharged from liability to the holder making such default, and no
action is maintainable even in respect of the debt or other consideration for which the bill was given.12
[s 61.7] Presentment for Acceptance when Excused
Where presentment for acceptance is necessary, presentment is excused and the bill may be treated as
dishonoured in the following cases:
(i) Where the drawee is a fictitious person or one incapable of contracting.
(ii) Where the drawee cannot, after reasonable search, be found.
(iii) Where, though the presentment is irregular, acceptance has been refused on some other ground.
(iv) Where the drawee becomes bankrupt or is dead.
3 Ram Ravji Jambhekar v Pralhaddas Subakaran, ILR 20 Bom 141.
4 Jagjivan Mavji Vithlani v Ranchhoddas Meghji (supra).
5 National Park Bank of New York v Berggren & Co, (1914) 110 LT 907 .
Page 7 of 7
6 Jagjivan v Ranchhoddas, AIR 1954 SC 554 , relied on in Manickchand v Chartered Bank, AIR 1961 Cal 653 .
7 C Ponnusamy v Chinnamman Constructions, 2015 ALLMR (Cri) 260 : 2014 (4) MLJ (Crl) 225 .
8 Cheek v Roper, (1804) 5 Esp 175.
9 Bateman v Joseph, (1810) 12 East 433; Smith v Bank of New South Wales, (1872) LR 4 PC 194, p 208.
10 Guaranty Trust Co of New York v Hannay & Co, [1918] 2 KB 623 .
11 Mellish v Rawdon, (1832) 9 Bing 416, pp 424, 425.
12 Soward v Palmer, (1818) 8 Taunt 277.
End of Document
[s 62] Presentment of promissory note for sight—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note, payable at a certain period after sight must be presented to the maker thereof for sight (if he
can after reasonable search be found) by a person entitled to demand payment, within a reasonable time after
it is made and in business hours on a business day. In default of such presentment, no party thereto is liable
thereon to the person making such default.

Page 2 of 2
This section corresponds to sections 39 and 89 of the Bills of Exchange Act, 1882.
[s 62.2] Presentment for Sight
The section deals with the necessity of presentment for sight of notes payable a certain period after sight and
the effect of non-presentment. The expression ‘after sight’, in a promissory note, means after presentment for
sight. It means that payment is not to be demanded till the note has been exhibited to the maker.
A promissory note payable on certain period after sight is payable on expiry of that period after presentment for
sight.13 When a promissory note is made payable on certain period after sight, it is necessary to present it for
sight in order to fix the maturity of the instrument. The section says that if default is made in such presentment,
all the antecedent parties are discharged from liability to the person making such default.
13 Sturdy v Henderson, (1821) 4 B & Ald 592.
End of Document
[s 63] Drawee’s time for deliberation—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

The holder must, if so required by the drawee of a bill of exchange presented to him for acceptance, allow the
drawee 14[forty-eight] hours (exclusive of public holidays) to consider whether he will accept it.

Page 2 of 2
[s 63.2] Deliberation Time for Drawer
The principle laid down in the section seems to be of universal application. The drawee is entitled to demand 48
hours to consider whether he will accept the bill, and the holder who presents the bill for acceptance must allow
him that time. At the expiration of the 48 hours, the drawee must return the bill accepted or dishonoured. After
forty-eight hours, the holder should demand the re-delivery of the bill, and if the drawee does not return the bill
duly accepted, the holder must treat the instrument as dishonoured. In counting the period of 48 hours, public
holidays are to be excluded.15
If the drawee with whom the bill is left for acceptance destroys it, or does not return it to the holder, the latter
may sue for recovery of the bill or for damages. However, if through the negligence of the holder, the bill is
returned to a wrong person, the drawee is not liable to the holder.16
14 Subs. by section 2 of Act 12 of 1921 for ‘twenty-four’.
15 Bank of Van Diemen’s Land v Bank of Victoria, (1871) LR 8 PC 526.
16 Morrison v Buchanan, (1833) 6 C & 18.
End of Document
[s 64] Presentment for payment—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

17[(1)] Promissory notes, bills of exchange and cheques must be presented for payment to the maker,
acceptor or drawee thereof respectively, by or on behalf of the holder as hereinafter provided. In
default of such presentment, the other parties thereto are not liable thereon to such holder.
Page 2 of 8
18[Where authorised by agreement or usage, a presentment through the post office by means of a
registered letter is sufficient.]
Exception.—Where a promissory note is payable on demand and is not payable at a specified

place, no presentment is necessary in order to charge the maker thereof.
19[(2) Notwithstanding anything contained in section 6, where an electronic image of a truncated cheque
is presented for payment, the drawee bank is entitled to demand any further information regarding the
truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion
about the genuineness of the apparent tenor of instrument, and if the suspicion is that of any fraud,
forgery, tampering or destruction of the instrument, it is entitled to further demand the presentment of
the truncated cheque itself for verification:
Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if the
payment is made accordingly.]
[s 64.2] Broader Scope for Definition of ‘Cheque’
The definition of cheque20 has been broadened to include the electronic image of a truncated cheque and a
cheque in the electronic form. Thus, the section has also been suitably amended to provide rules as to
presentment of a truncated cheque. The amendment, despite recognising electronic image of a truncated
cheque, has made provision for the drawee bank to call for the truncated cheque in original if it is not satisfied
about the instrument.
[s 64.2.1] Presentment of Cheque Drawn by Company after the Death of the Signatory
The High Court of Bombay rejected the submission of the defendant that there was no valid presentment for
payment as the signatory of the cheque had expired before such presentment. The signatory of the cheque was
Page 3 of 8
the Managing Director of the defendant (a public limited company) and his death has nothing to do with the
validity of the presentment of the cheques for payment.21
[s 64.3] Presented for Acceptance and Presented for Payment
In Jagjivan Mavji Vithlani v Ranchhoddas Meghji,22 a contention was made that section 61 of the Act provides
for presentment for acceptance only when the bill is payable after sight, and not when it is payable on demand,
as is the suit. However, it was held by the Supreme Court that in a bill payable after sight, there are two distinct
stages, firstly when it is presented for acceptance, and later when it is presented for payment. Section 61 deals
with the former, and section 64 with the latter.
[s 64.4] Effect of Presentment for Payment
The section lays down the general rule as to presentment of negotiable instruments for payment. In the
absence of an express stipulation requiring presentment, presentment for payment is not necessary to charge
the maker of a note or the acceptor of a bill, for they are the principal debtors on these instruments. The reason
for this rule is that by the Common Law, a debtor is bound to seek out his creditor and pay him.23 Presentment
of a promissory note or a bill of exchange contemplated by section 64 is necessary only if the payment is to be
made at the place of the debtor, not if it is to be made at the place of the creditor.24 Presentment of a note or a
bill for payment is not a condition precedent to the liability of the maker or acceptor, and therefore presentment
for payment is not necessary to render him liable. However, no one would be likely to sue the maker of a note
or the acceptor of a bill without having first demanded payment from him. If he did, he would probably be
compelled to pay the costs of the action but in order to charge the other parties, presentment is necessary,
except in the case mentioned in section 76. In default of such presentment the parties other than the maker of a
note, the acceptor of a bill and the drawee of a cheque, i.e., the drawers and the indorsers in the case of bills
and cheques, and the indorsers in the case of promissory notes, are discharged from liability on the instrument
to the holder making default.
[s 64.4.1] Non-Presentment of Hundis
Under section 64, the result of non-presentment of hundis for payment is not an exemption of the acceptor from
liability but the exemption of only other parties to the hundi. The word ‘other’ has been used to show that there
is a difference between section 64 and sections 61 and 62 where the words used are no party. The section
therefore, means that the parties who are mentioned in the section may be liable but other parties to the
instruments are not liable. The acceptor of the hundi, therefore, remains liable on it even if it was not presented
Page 4 of 8
for payment.25 Where a promissory note payable three months after date was not presented for payment, the
parties other than the maker were held discharged from their liability. The maker is nevertheless liable except
when the note is payable at a specified place.26 The liability of the drawer and the indorsers being conditional
upon due presentment for payment, such liability is extinguished if that condition is not fulfilled. If the holder
neglects to present the instrument, he cannot sue the drawer and the indorsers on the instrument. It has
however, been held that, in the case of a cheque, the expression other parties thereto used in the section does
not include the drawer. Otherwise, it would lead to the incongruous situation where the drawer would escape
liability even if he had not provided adequate funds to the drawee-banker to meet the cheque.27
If the holder fails to present the instrument for payment according to the provisions of the Act, he cannot sue his
transferor on the original consideration or for failure of consideration.28
The statutory requirement of presentation for payment is mandatory and the legislative intent is expressed by
the words ‘must be’. The consequences of non-presentment have also been made clear namely, a non-
presentment will absolve the liability of any of the other parties thereto.29 When a party to a bill is discharged
from his liability thereon, by reason of the holder’s omission to perform his duties as to presentment for
acceptance or payment, protest, or notice of dishonour, such party, it seems, is also discharged from liability on
the debt or other consideration for which the bill was given.30
A debtor issued certain cheques to his creditor in repayment of the debt. The creditor never presented the
cheques for payment but sued the debtor on the basis of the original debt. The court held that the suit was
maintainable, as the cheques were not accepted as unconditional payment of the debt and that the non-
presentment of the cheques did not affect the debtor’s liability to the creditor.31 It would appear that the debtor
in this case did not prove that he suffered any damage by non-presentment of the cheques. Even so, the
decision is debatable, since, on acceptance of the cheques by the creditor, the cause of action based on the
debt was suspended.
In presenting an instrument for payment, the holder should exhibit it to the person from whom he demands
payment, and when the instrument is paid, the holder must forthwith deliver it up to the person, who pays it.32
The presentment for payment must be such as would be sufficient to charge the indorsers and other persons
collaterally liable on the bill, and the document itself must be so presented, as to enable the person presenting
it to give it up, if paid.33
Page 5 of 8
Due presentment is insisted upon for the benefit of the maker, drawee or acceptor. He is entitled to ask for the
production of the instrument for cancellation on payment. In Srinivasa Gownder v Kannu Gownder,34 the
maker of a promissory note made payment to the payee, without asking for the note. In fact, one year earlier,
the payee had indorsed it away to a third party. In a suit by the indorsee, who was a holder in due course, it
was held that the maker was liable to him. The maker was negligent and could not plead absence of notice of
the indorsement.
An agent employed to make presentment for payment and entrusted with a bill, is bound to use due diligence in
presenting it for acceptance, even when presentment is optional, and is liable to his principal for damage due to
his negligence.35
[s 64.5] Presentment by and to whom
When presentment for payment is to be made, it must be made by the holder or some person authorised to
receive payment on behalf of the holder. Presentment for payment must be made to the principal debtor,
namely, the maker of a promissory note, the acceptor of a bill of exchange and the drawee of a cheque, or to
their duly authorised agents. Where the maker, the acceptor, or the drawee has died, presentment may be
made to his legal representative, or where he had been declared as insolvent, then to his assignee.
The exception to section 64 is not a real exception to the rule contained in the section, for the section requires
presentment for payment to charge the drawers and the indorsers, and does not deal with the case in which
presentment is necessary to charge the maker of a note. The proper place of this exception would have been
section 74, which deals with the presentment of instruments payable on demand. The effect of this exception is
that where a promissory note is payable on demand and at a specified place, presentment of the note is
necessary in order to charge the maker thereof.36 The practical result of the principle stated in the exception is
that the maker cannot take advantage of any informality in presentment to him, and in the case of a demand
promissory note not payable at a specified place, presentment for payment is not necessary to charge the
maker thereof.
Where a promissory note is expressed to be payable on demand, but no place of payment is specified in it, the
expression on demand is a mere technical expression meaning that payment ought to be made immediately or
at once. It does not import a condition that a demand should be made before action is brought. The action itself
is a demand.37 In such cases as well as cases where alternative places of payment are specified, the Common
Page 6 of 8
Law rule, namely, that the debtor should find the creditor and pay the debt, applies. In LN Gupta v Tara Mani,38
a promissory note made and delivered in Bangalore was expressed to be payable on demand at Bangalore or
any part of India. The payee, a resident of Delhi, sent a notice from there to the maker demanding payment. It
was held that a suit on the note would lie in Delhi. However, in Jivatlal v Lalbhai,39 where demand was made
by a notice sent from Bombay to the maker in Ahmedabad, it had been held that the suit would not lie in
Bombay. The money was payable where the demand was communicated to and received by the debtor.
In Manek Devji v Ratanbai,40 it was held that a Kutch Court could not entertain a suit on a note executed in
Bombay by a resident there, although it was expressed to be payable anywhere.
In JN Sahni v State of Madhya Bharat,41 it was held that the above-mentioned Common Law rule does not
apply to promissory notes payable on demand and not expressed to be payable at a specified place.
In Arunachalam Chettiar v Murugappa Chettiar,42 it was held that if a note is made at one place, delivered at
another place, and expressed to be payable at some other place, a suit on the note could be filed at any of
these places at the plaintiff’s option.
17 Section 64 renumbered as sub-section (1) thereof by Act 55 of 2002, section 3 (w.e.f. 6-2-2003).
19 Ins. by Amendment Act, 2002 (55 of 2002), section 3 (w.e.f. 6-2-2003).
20 See section 6 of the Act.
21 Ashok Commercial Enterprises v Parekh Aluminex Ltd, III (2014) BC 361(Bom.).

Page 7 of 8
23 Walton v Mascall, (1844) 13 M&W 452.
24 Baldeo Prasad v Ram Kali, AIR 1962 All 123 .
25 Benares Bank Ltd v Hormusji, AIR 1930 All 648, dissenting from Oudh Commercial Bank v Gur Din, AIR 1920 Oudh
191; Manik Ratan v Prakash Chandra, AIR 1955 Cal 338 and Canara Bank v Sanjeev Enterprises, AIR 1988 Del 372.
26 Ghania Lal v Karam Chand, AIR 1929 Lah 240.
27 Harish Chander v Ganga Singh & Sons, AIR 1974 P&H 156.
28 Camidge v Allenby, (1827) 6 B&C 373.
30 Peacock v Purssell, (1863) LJPC 266.
31 Harish Chander v Ganga Singh & Sons, AIR 1974 P&H 156.
32 Hansard v Robinson, (1827) 7 B&C 90.
33 Lallubhai v Ratanchand, (1940) Bom 82.
34 Srinivasa Gownder v Kannu Gownder, AIR 1966 Mad 176.
35 Bank of Van Diemen’s Land v Bank of Victoria, (1871) LR 3 PC 526, p 542.
36 People’s Instalment & Savings Bank Ltd v Ram Nath, AIR 1933 Lah 133 .
37 Ramchandar v Juggotmonmohiney, (1879) 4 Cal 283 ; Perumal v Alagirisami, (1897) 20 Mad 245.
38 LN Gupta v Tara Mani, AIR 1984 Del 49 .

Page 8 of 8
39 Jivatlal v Lalbhai, (1942) 44 Bom LR 495 .
40 Manek Devji v Ratanbai, AIR 1950 Kutch 66 .
41 JN Sahni v State of Madhya Bharat, AIR 1954 MB 184 (FB).
42 Arunachalam Chettiar v Murugappa Chettiar, AIR 1956 Mad 629 .
End of Document
[s 65] Hours for presentment—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Presentment for payment must be made during the usual hours of business, and, if at a banker’s, within
banking hours.
Page 2 of 2
[s 65.2] Time for the Presentment
Presentment should be made during the usual hours of business of the maker or acceptor. By virtue of sections
70 and 71 of the Act, the presentment may be made at the residence of the party, or wherever he may be
found, within the usual hours of business.
As to bankers, it is laid down that a presentment made outside the hours of banking business is not a good
presentment. If a bill is payable at a bank, it must be presented within banking hours.43 What constitutes
banking hours must be proved in each particular case, and will depend on what have been notified by the
drawee-bank (branch) as its business hours, and, otherwise, on the known banking custom in the town or city
where the instrument is made payable.
In downtown Mumbai, the usual banking hours are from 11 am to 3 pm on week days, and from 11 am to 1 pm
on Saturdays. Sub-urban branches may operate on different time-schedules. The consequences of non-
presentment in accordance with the provisions of the section are laid down in section 64. If presentment is not
made within the usual hours of business at a bank, the presentment will be deemed a mere nullity and of no
legal effect, and the holder must bear the consequences of his negligence, i.e., the indorsers and other parties
to the bill are discharged from all liability to such holder.
43 Parker v Gordon, (1806) 7 East 385; Whitaker v Bank of England, (1835) 1 CM&R 750.
End of Document
[s 66] Presentment for payment of instrument payable after date or sight.—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note or bill of exchange, made payable at a specified period after date or sight thereof, must be
presented for payment at maturity.
Page 2 of 2
[s 66.2] Presentment of Instrument Payable after date or after Sight
The rule stated in the section should be declared more generally, and should provide that bill or note payable
otherwise than on demand must be presented for payment at maturity. Only two kinds of instruments, viz.,
those payable at a specified period after date, and those payable at a specified period after sight, are
mentioned in the section. However, these are not the only instruments that are not payable on demand. For
example, a bill may be payable on the expiry of a certain period after the occurrence of a specified event. The
general rule, therefore, is that all instruments payable otherwise than on demand must be presented for
payment at maturity.
A bill of exchange made payable at a specified period after date must be presented for payment at maturity and
want of presentment relieves the indorser from liability.44
Bills and notes must be presented for payment on the day they fall due, and where days of grace are allowed,
they must be presented on the last day of grace. An earlier presentment is premature and ineffectual.45 Thus,
where a bill was presented after the period specified for payment but before the expiry of the period of grace, it
was held it was not a valid presentment.46
44 Benares Bank v Priya Das, (1930) All 106 .
45 Wiffen v Roberts, (1795) 1 Esp 262.
46 Jhandu Lal v Wilayati Begum, (1925) ILR 47 All 572.
End of Document
[s 67] Presentment for payment of promissory note payable by instalments—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note payable by instalments must be presented for payment on the third day after the date fixed
for payment of each instalment; and non-payment on such presentment has the same effect as non-payment of
a note at maturity.
[s 67.1] Payment of Presented Promissory Notes in Installment

Page 2 of 2
When a promissory note is payable in installments (e.g., notes executed in respect of term loans or deferred
buyers’ credits that are repayable in installments over agreed periods) the presentment of such a note is to be
made as each installment falls due, allowing three days of grace for each installment. If there is default in
making presentment of a note payable in installments, when an installment falls due, only the indorsers would
be discharged from liability to the holder for that installment. However, as such notes usually contain a
stipulation that in default of payment of any installment, the whole amount shall become due, non-presentment
of such a note may discharge the indorsers altogether on the note.
The due dates of the installments, however, must be clear from the instrument itself; otherwise the instrument is
not valid as a note.47
47 Moffat v Edwards, (1841) Car & M 16, 174 ER.
End of Document
[s 68] Presentment for payment of instrument payable at specified place and not
elsewhere—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 68] Presentment for payment of instrument payable at specified place and not
elsewhere—
A promissory note, bill of exchange or cheque made, drawn or accepted payable at a specified place and not
elsewhere must, in order to charge any party thereto, be presented for payment at that place.
Page 2 of 4
[s 68] Presentment for payment of instrument payable at specified place and not elsewhere—
[s 68.2] Place of Presentment
Sections 68, 69, 70 and 71, indicate the proper place at which the presentment must be made. The gist of the
sections may be stated thus:
(a) Where the place of payment is indicated in an instrument by the maker, drawer or acceptor, it must be
presented at that place for payment.
(b) If no such place is stated, the note or the bill must be presented at the place of business, if any, or at
the usual residence, of the maker, drawer or acceptor, as the case may be.
(c) If he has no known place of business or fixed residence, presentment may be made to him wherever
he can be found.48
A bill was accepted ‘payable at 1, Duke Street, London’. Presentment, after the acceptor’s death, at 1, Duke
Street was held sufficient without making search for the acceptor’s executor.49
The acceptor of a bill accepts it payable at his banker’s. The bill must be presented at the bank. A presentment
to the acceptor personally is insufficient.50
Where a bill is drawn or accepted payable at a particular place, want of presentment at the specified place will
not discharge the acceptor. In order to compel presentment at that place, the acceptor must accept the bill
payable ‘at a specified place and not elsewhere’. For example:
(i) A bill is accepted payable at the Bank of Baroda. This is a general acceptance, and want of
presentment at the Bank of Baroda will not discharge the acceptor.
Page 3 of 4
(ii) A bill is accepted payable at the Bank of Baroda and not elsewhere. The holder must present it at the
Bank of Baroda before he can sue the acceptor.
A default in presentment at the specified place, if required under section 68, has the effect of discharging all the
parties thereto, including the acceptor of a bill and the maker of a note; whereas under section 64, only other
parties are discharged by non-presentment.
The place of presentation also assumes importance in the procedural law. It has been held that the holder in
due course of a negotiable instrument, can present a suit to recover amount covered by it, only in a court within
whose territorial jurisdiction defendants therein reside, or carry on business; or in a court within whose territorial
jurisdiction, the place at which such negotiable instrument, can be presented, under ss 68 to 70 of the Act, is
situated.51
[s 68.3] Cheque Clearing Systems
In metropolitan cities as well as bigger towns and cities, cheques received for collection are not presented
directly to the respective drawee-banks (unless for special reasons, the collecting bank makes direct
presentment) but are presented through clearing houses, generally run under the auspices of the Reserve Bank
of India, State Bank of India or some other leading bank in the town, and claims are settled between banks at
the end of the day through accounts, with the institution running the clearing system. Cheques, which are to be
returned unpaid, are also routed through the clearing house.
In Royal Bank of Ireland Ltd v O’ Rourke,52 the Supreme Court of Ireland held that in a clearing system,
presentment to the drawee-bank took place when a cheque was delivered to the bank’s employee or agent at
the clearing house. Dissenting from this view, Bingham J (as arbitrator) held in Barclay’s Bank plc v Bank of
England,53 that the presenting bank’s responsibility to its customer in respect of the collection of a cheque is
discharged only when the cheque is physically delivered to the drawee-branch for a decision whether to pay it
or not.
Technological developments have revolutionised the methods adopted for processing and presenting of
cheques received for collection. Modern cheque leaves are encoded in magnetic ink characters, in machine-
readable form, with numbers denoting the drawee-bank and the branch, the drawer’s account and the particular
Page 4 of 4
cheque. To these, the collecting bank adds the amount of the cheque and numbers denoting the collecting
bank and branch and the account of the customer for whom the cheque is collected. When presented to and
received by the drawee-bank, normally through a clearing system, the cheques are further processed
electronically and the drawer’s account is debited and the collecting bank given credit.
With the enormous growth in the volume of cheques handled by banks, a system known as cheque truncation
has come to be adopted in Britain and elsewhere in other developed countries under which, cheques are not
physically presented to the drawee-banks but are retained with the collecting banks, which convey essential
particulars or digital images of the cheques to the drawee-banks.
In Britain, the Bills of Exchange Act was amended towards the end of 1996 to allow such electronic
presentment of cheques. Such a presentment, which is treated as equivalent to physical presentment, does not
require to be made at the proper place or during business hours on a working day. However, the drawee-bank
has an option to request, before the close of business on the next business day following electronic
presentment, for physical presentment of the cheque. The amended Bills of Exchange Act also now allows
banks to specify places other than the drawee-branches for presentment of cheques drawn on them.
48 Benares Bank v Hormusji, (1930) 52 All 696 .
49 Philpot v Briani, (1827) 3 C&P 244, 172 ER.
50 Gibb v Mather, (1832) 2 CrLJ 254 , 149 ER.
51 SSV Prasad v Y Suresh Kumar, (2005) 1 Bank CLR 557 AP : (2006) 2 Bank CLR AP 569 : (2005) I BC 330 AP.
52 Royal Bank of Ireland Ltd v O’ Rourke, 1962 IR 159 .
53 Barclay’s Bank plc v Bank of England, [1985] 1 All ER 385 .
End of Document
[s 69] Instrument payable at specified place.—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note or bill of exchange made, drawn or accepted payable at a specified place must, in order to
charge the maker or drawer thereof, be presented for payment at that place.
This section corresponds to sections 45(4)(a) and 87 of the Bills of Exchange Act, 1882.
Page 2 of 3
[s 69.2] The Instrument to be Presented at a Specified Place
In order to meet the requirements of the section, the place of payment must be sufficiently particularised and it
should be evident in the body of the instrument. If presentment for payment is not made at that place, the
maker or the drawer will be discharged.54 Though the section only mentions the maker and the drawer, an
indorser also stands on the same footing and presentment for payment at the specified place is necessary to
charge the indorser, who otherwise, would be discharged from his liability to the holder by section 64.
However, a mandate to present a negotiable instrument at a particular place cannot be watered down through a
process of treating endorsement, or transfer of Negotiable Instruments Act.55 What constitutes a specified
place depends upon the circumstances of each case.56 A promissory note made payable at Poona, Bombay or
elsewhere is not payable at a specified place within the meaning of the section, and does not require
presentment for payment.57 In the case of a similar promissory note, it was held that payment could be
demanded and enforced at any place the creditor chose; he did so in Bombay.58 It has been held that a city or
town at large may be taken to be a specified place, but presentment of the promissory note would be necessary
only if the maker has a residence or place of business in that city or town and in the absence of such residence
or place of business, mere possession of the note by the payee in the city or town would be sufficient.59
However, in Dungarmul v Shambu Charan,60 it was held that a promissory note made payable at Calcutta
could not be said to be payable at a specified place. The payee’s knowledge of the maker’s address was not
considered to be of decisive significance. This decision was followed in Sivaram v Jayaram Mudaliar,61 where
the note was made payable at Madras and it was held that presentment was not necessary. The Madras High
Court held that if a town or city at large is mentioned as the only place of payment, there can be no
responsibility on the payee to search for the maker’s address in the town or city and thus, no presentment
would be necessary. It does not mean that in every conceivable instance, oral evidence would be automatically
excluded. Where there is no apparent ambiguity, no oral evidence will be permitted. Where the name of a small
village is mentioned in a note as the place of payment and the maker resides there, the note should be
presented at his residence.62 In D Sethuramalingeswara Rao v P Pichatah,63 it was held that a promissory
note made payable at Gudalur must be presented for payment there.
Where a note is made payable at either of two places, it is sufficient to present it at any one of the places.64 If
the place of payment is mentioned as the acceptor’s residence, a presentment to any inmate of the house will
suffice.65
Page 3 of 3
54 Spindler v Grellett, (1847) 1 Ex 348 .
55 SSV Prasad v Y Suresh Kumar, (2005) 1 Bank CLR 557 AP : (2006) 2 Bank CLR AP 569 : (2005) I BC 330 AP.
56 Mehr Baksh v Hari Chand, AIR 1935 Lah 623 .
57 Dorabji Naoroji v Jamshedji Pestonji, (1936) 38 Bom LR 395 .
58 Chunilal Mayachand v EE Millard, AIR 1938 Bom 278 .
59 Mohammed Ismail Maula Baksh v Abdul Majid Khan, AIR 1937 Lah 259 .
60 Dungarmul v Shambu Charan, AIR 1951 Cal 55 .
61 Sivaram v Jayaram Mudaliar, AIR 1966 Mad 297 .
62 Mohan Singh v Thakur Singh, 1971 RLR 699 .
63 D Sethuramalingeswara Rao v P Pichatah, (1993) 78 Comp Cas 616 .
64 Beeching v Gower, (1816) Holt’s NPC 313; Pollard v Herries, (1803) 3 B&P 335.
65 Buxton v Jones, (1840) 1 M&G 83.
End of Document
[s 70] Presentment where no exclusive place specified—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note or bill of exchange not made payable as mentioned in sections 68 and 69, must be
presented for payment at the place of business (if any), or at the usual residence, of the maker, drawee or
acceptor thereof, as the case may be.

Page 2 of 2
This section corresponds to section 45(4)(c) of the Bills of Exchange Act, 1882.
[s 70.2] Presentment at Place of Business or Residence
According to sections 68 and 69, when presentment for payment is to be made, it must, be at the place of
payment specified in the instrument by the maker, drawer or acceptor. If no such place is stated, the instrument
must be presented at the place of business (if any) or at the usual residence of the maker, drawee or acceptor
as the case may be under the provisions of the section.66 The section does not say whether the holder has any
option to choose between the place of business and residence of the maker or acceptor. Presumably, the
section does not give the holder any such option, for it would be absurd to present a bill to a trader at his private
residence instead of his place of business. Where no place of payment is mentioned in the instrument, but the
address of the drawee is given, the instrument may be presented at that address.67
66 Gouri v Narayana, AIR 1963 Ker 246 ; D Sethuramalingeswara Rao v Perla Pichaiah, (1993) 78 Comp Cas 616 .
67 Buxton v Jones, (1840) 9 LJ CP 257.
End of Document
[s 71] Presentment when maker, etc., has no known place of business or
residence.—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 71] Presentment when maker, etc., has no known place of business or

residence.—
If the maker, drawee or acceptor of a negotiable instrument has no known place of business or fixed residence,
and no place is specified in the instrument for presentment for acceptance or payment, such presentment may
be made to him in person wherever he can be found.
Page 2 of 2
[s 71] Presentment when maker, etc., has no known place of business or residence.—
This section corresponds to section 45(4) (b) and (d) of the Bills of Exchange Act, 1882.
[s 71.2] Presentment in Person
If a maker, drawee or acceptor has no known place of business or fixed residence as mentioned in section 70,
presentment may be made to him personally, wherever he may be found. Therefore, a presentment to the party
in person on the street or at any other place where he can be found may be made under the authority of the
section.68
68 Cross v Smith, (1813) 1 M & 545.
End of Document
[s 72] Presentment of cheque to charge drawer—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

69[Subject to the provisions of section 84] a cheque must, in order to charge the drawer, be presented at the
bank upon which it is drawn before the relation between the drawer and his banker has been altered to the
prejudice of the drawer.
Page 2 of 8
[s 72.2] Presentment of Cheque so as to Effect Charge on a Drawer
The section must be read with section 84. According to section 6, a cheque is a bill of exchange drawn on a
banker and payable on demand. A cheque, therefore, like other bills of exchange, must be presented for
payment to the bank on which it is drawn, and only upon presentment and dishonour of the cheque, is the
holder entitled to sue the drawer. Presentment need not be at the drawee-bank; it may be made through a
clearing house also. The combined effect of sections 72 and 84 is that if a cheque is not presented within a
reasonable time, and in consequence of non-presentation, the drawer suffers damage, the drawer is
discharged to the extent of the damage suffered.70 In a controversial decision, the Madras High Court held that
the drawer of certain cheques could not be held liable thereon to the holder, who, presumably at the instance of
the payee, did not present the cheques for six months to the drawee-bank. There was no evidence, however,
that the drawer suffered any damage because of the delay.71
[s 72.3] ‘Presented at the Bank’ – Meaning of
In Shroff Publisher and Distributors Pvt Ltd v M/s Springer India Pvt Ltd,72 it has been held by the Delhi High
Court that a cheque can be presented any number of times during the period of its validity. The expression ‘the
Bank’ occurring in section 138(a) of the Act means the payee of the cheque has an option to present the
cheque to any Bank including the collecting Bank where he has his account. But in order to attract the criminal
liability of the drawer of cheque, such collecting Bank is obliged to present the cheque at the Bank upon which it
is drawn, i.e. the drawer’s Bank, in terms of section 72 of the Act, within a period of 6 months from the date on
which the cheque is shown to have been issued.
Explaining the meaning of ‘Bank’, the Supreme Court made a comparative analysis of the phraseology used in
sections 3, 72 and 138 and summed it up succinctly in the case of Shri Ishar Alloy Steels Ltd v Jayaswals Neco
Ltd73:
9. The use of the words ‘a bank’ and ‘the bank’ in the section is an indicator of the intention of the legislature. The
former is an indirect (sic indefinite) article and the latter is prefixed by a direct (sic definite) article. If the legislature
intended to have the same meanings for ‘a bank’ and ‘the bank’, there was no cause or occasion for mentioning it
distinctly and differently by using two different articles. It is worth noticing that the word ‘banker’ in section 3 of the Act
Page 3 of 8
is prefixed by the indefinite article ‘a’ and the word ‘bank’ where the cheque is intended to be presented under section
138 is prefixed by the definite article ‘the’. The same section permits a person to issue a cheque on an account
maintained by him with ‘a bank’ and makes him liable for criminal prosecution if it is returned by ‘the bank’ unpaid. The
payment of the cheque is contemplated by ‘the bank’ meaning thereby where the person issuing the cheque has an
account…. ‘The bank’ referred to in clause (a) to the proviso to section 138 of the Act would mean the drawee bank on
which the cheque is drawn and not all banks where the cheque is presented for collection including the bank of the
payee, in whose favour the cheque is issued.
For instance, if a party A issues a cheque to another party B, drawn on a bank named C, then the payee B can
present the cheque to any bank including the collecting bank (bank in which the payee has an account).
However, to draw criminal liability on the drawer A, it is essential that the cheque be presented to the drawer’s
bank C, either by the payee B or any bank he has presented the cheque to, within a period of six months from
the date of issue of the cheque. If the cheque is not presented to the drawer’s bank within this time, no offence
under section 138 can be made out.74
In this case,75 the Supreme Court made it clear that the presentation has to be made to the bank with which
the drawer has an account and against which account the cheque had been issued. The Supreme Court made
it clear that ‘the bank’ referred to in proviso (a) to section 138 of the Act would mean the drawee bank on which
the cheque is drawn and not any bank where the cheque is presented for collection. This position has been
made clear by this Court in number of cases.
In Ahuja N Dongre v State of Maharashtra,76 the proposition laid down was that the payee may deposit the
cheque with its banker for presentation to the drawee bank but depositing the cheque by the payee with his
own banker does not amount to presentation for encashment. The payee bankers may be acting only as an
agent on behalf of the payee for the purpose of presentation and encashment of the cheque, but the cheque
has to be always presented to the drawee Bank with whom the account is maintained and against which
account the drawer has issued the cheque.
In Rajeev Chakraborty v Golaghat Truck Owner Association,77 the complainant was President of Golaghat
Truck Owners Association, an association of carrying and handling contractors of the Food Corporation of
India. The accused was hiring trucks from the complainant association from time to time. The accused had
handed over to the complainant association a cheque for Rs 1,20,000.00 drawn on Punjab and Sind Bank,
Jorhat Branch. The complainant deposited the said cheque with Indian Bank, Golaghat Branch, in the account
of complainant association, for collection. The drawee bank returned the cheque for reasons of insufficiency of
Page 4 of 8
fund. The then President of complainant association issued a notice but no payment was made and the
complaint was lodged. Having taken cognizance of an offence under section 138 read with section 142 of the
Act, when summons were issued to the accused, the same was impugned by way of revision inter alia on the
grounds that cheque in question was not presented to the drawee bank within the period of six months from the
date on which the cheque was drawn and, hence, the complaint was, in terms of the provisions of section
138(a), not maintainable.
While deciding the said question, the Gauhati High Court examined the expression ‘Banker’ occurring in section
138 of the Act, read with sections 3 and 72 in the light of the decision of Supreme Court78 and observed that:
8. … Section 3 of the NI Act defines the term ‘banker’ to include any person acting as a banker and any post office
savings bank. Section 72 of the NI Act provides that a cheque must, in order to charge the ‘drawer’, be presented at
‘the bank’ upon which it is drawn before the relation between the drawer and his banker has been altered to the
prejudice of the drawer. Clauses (a) (b) and (c) of the proviso to Section 138 are conditions, which must be satisfied
before a person is held to have committed an offence under Section 138. Clause (a) provides that the cheque has to
be presented to the bank within a period of six months from the date on which it is drawn or within the period of its
validity, whichever is earlier. The expression ‘bank’ would obviously mean ‘the bank’ with which the drawer of the
cheque maintained his account at the time, when the cheque was drawn. Hence, a cheque, issued by a drawer, shall
have to be presented to the bank with which the drawer of the cheque maintains the account. It does not, however,
mean that a cheque must always be presented to the drawer’s bank on which the cheque is issued. In fact, the payee
of the cheque has the option to present the cheque in any bank including the bank, where he has his account; but to
attract the criminal liability of the drawer of the cheque, the payee of [sic] the payee’s banker shall present the cheque
with the drawee bank within a period of six months from the date on which the cheque is shown to have been drawn by
the drawer.
[s 72.4] Effect on Jurisdiction
The meaning and identity of the Bank upon which a cheque is drawn also becomes important for the purposes
of deciding question of jurisdiction.
Explaining the ingredients of the offence under section 138 of the Act, it was laid down in K Bhaskaran v
Sankaran Vaidhyan Balan,79 as under:
Page 5 of 8
14. The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. The
following are the acts which are components of the said offence:
(1) drawing of the cheque,
(2) presentation of the cheque to the bank,
(3) returning the cheque unpaid by the drawee bank,
(4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
(5) failure of the drawer to make payment within 15 days of the receipt of the notice.
15. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that
each of those five acts could be done at five different localities. But a concatenation of all the above five is a sine qua
non for the completion of the offence under Section 138 of the Code. …
In Nutan Damodhar Prabhu v Ravindra Vassant Kenkre,80 the question for consideration before the Bombay
High Court was as to whether the Judicial Magistrate, First Class, Margao has territorial jurisdiction to try the
Complainant’s complaint filed under section 138 of the Act. In that case, the accused had only disputed the
Complainant’s allegation that the Complainant had advanced loan in cash of Rs 63 lakhs at Margao. There was
no dispute that the Complainant as well as the accused resided within the territorial jurisdiction of Judicial
Magistrate, First Class, Panaji. Two cheques for Rs. 30 lakhs each were given by accused to the Complainant
drawn on Bank of Goa, Ltd, Santa Cruz Branch, which was also situated within the jurisdiction of Judicial
Magistrate, First Class, Panaji. The said two cheques were crossed and the Complainant deposited the same
for payment in his account with State Bank of India, at Margao but they were returned dishonoured by the Bank
to the accused with the endorsement that funds were insufficient. The Complainant sent a notice through his
Advocate, having his office at Margao within the jurisdiction of Judicial Magistrate, First Class, but at the same
time making it clear that it was being sent on behalf of the Complainant who was the resident of Ribander,
within the jurisdiction of Judicial Magistrate, First Class, Panaji.
Upon a criminal proceeding having been instituted, the accused filed an application stating that the Judicial
Magistrate, First Class, Margao before whom Complainant had filed the complaint case had no jurisdiction to
entertain the same in the light of the previous judgment81 and therefore appropriate orders may be passed in
the said case. The said application came to be rejected by the Judicial Magistrate, First Class, Margao. In
rejecting the said application, the Judicial Magistrate, First Class, referred to the case of K Bhaskaran82 and
Page 6 of 8
observed that the Apex Court had stated that if five acts were done in five different localities any one of the
Courts exercising jurisdiction in one of the five local areas can become the place of trial for the accused under
section 138 of the Act. It was also noted in the order that the subject cheques were account payee cheques and
therefore they were intended to be paid at the place where the accused had an account and since the
complainant had presented the subject cheques for payment in the State Bank of India, Margao Branch, the
Judicial Magistrate, First Class, Margao had jurisdiction to try the case. It was further noted in the order that the
demand notice was issued from Margao and therefore the case was covered by the principles stated in K
Bhaskaran.83
On an application filed before High Court under section 482 of CrPC, it was held that the Judicial Magistrate,
First Class, Margao could not have taken cognizance of the complaint filed by Complainant. After noticing the
provisions of section 177 of CrPC and section 72 of the Act, it was held that after the judgment of Supreme
Court in K Bhaskaran84 was explained by Bombay High Court in Ahuja Nandkishore Dongre85 the Judicial
Magistrate, First Class, Margao ought not to have proceeded with the trial as it had no territorial jurisdiction to
try the same. Accordingly, the Judicial Magistrate, First Class, Margao was directed to transfer the complaint
filed by Complainant to the Chief Judicial Magistrate, Panaji, for allotting the same to any of the Judicial
Magistrate, First Class, Margao at Panaji for trial.
Similarly, in Prabhu Dayal Modi v M/s Euro Developers Pvt Ltd,86 the question of territorial jurisdiction of the
court competent to entertain a complaint under section 138 of the Act was raised. In this case, the entire
transaction between parties had taken place at Jaipur where complainant was having his Branch Office. Upon
the cheque issued by accused having been dishonoured, the complainant issued the statutory notice from
Mumbai and not from Jaipur, thereby seeking to create the jurisdiction of Mumbai Court to entertain the
complaint. It was held by the Bombay High Court that although giving of notice is an important ingredient, it
does not in itself create jurisdiction and the jurisdiction is conferred by communication of notice which happened
in Jaipur. In this context, it was further held that for the purposes of section 72 of the Act, the act of presentation
of cheque means its presentation to the drawee Bank and nowhere else. It was further held that the act of
returning the cheque unpaid is completed at the place where the drawee Bank is situated and therefore, in the
instant case, only the court at Jaipur will be competent to entertain the complaint.
In Harman Electronics (P) Ltd v M/s National Panasonic India Ltd,87 the question was that if the company has
it’s head office at one place and branches at different places, and the whole transaction had taken place within
the area where its branch and not the head office is situated, whether the notice could be issued from the place
where its head office is situated. In that case, accused/appellant was resident at Chandigarh and was carrying
on business at Chandigarh. Complainant had its head office at Delhi but also had branch office at Chandigarh.
Transaction between parties had taken place at Chandigarh and the accused had issued a cheque in favour of
Page 7 of 8
the complainant at Chandigarh against its banker situated at Chandigarh and thus, the bank at Chandigarh was
drawee bank. However, the complainant deposited the cheque with its banker at Delhi, which in turn presented
the same to the drawee bank at Chandigarh. Cheque was dishonoured and the complainant issued a notice for
payment from Delhi. As the payment was not made, the complainant filed a complaint under section 138 of the
Act before the Magistrate at Delhi. The Supreme Court held that a company or financial institution having
several branches has to file the complaint at the place where the transaction had taken place; in this case,
where the cheque was drawn, presented and dishonoured. Merely because company issued a notice from the
place where its head office is situated and where no part of the transaction had taken place, it could not file the
complaint before the Magistrate having jurisdiction over the area where the head office is situated.
This was also followed by Bombay High Court in the case of Jambu Kumar Jain v TATA Capital Ltd.88
70 Wheeler v Young, (1897) 13 TLR 468 .
71 G Balakrishnan v Official Assignee, (1981) 1 Mad LJ 417.
72 Shroff Publisher and Distributors Pvt Ltd v M/s Springer India Pvt Ltd, 2008 CrLJ 1217 Del. : AIR 2008 [NOC] 423
(Del).
73 Shri Ishar Alloy Steels Ltd v Jayaswals Neco Ltd, (2001) 3 SCC 609 : 2001 SCC (Cri.) 582 : AIR 2001 SC 1161 : 2001
CrLJ 1250 [3 Judges].
74 Ibid: at para 9.
75 Shri Ishar Alloy Steels Ltd v Jayaswals Neco Ltd (supra).
76 Ahuja N Dongre v State of Maharashtra, 2007 (1) BomCR (Criminal) 1031.
77 Rajeev Chakraborty v Golaghat Truck Owner Association, 2008 (1) GLT 897 : AIR 2008 [NOC] 1000 (Gau).
78 Shri Ishar Alloy Steels Ltd v Jayaswals Neco Ltd, (supra).
79 K Bhaskaran v Sankaran Vaidhyan Balan, (1999) 7 SCC 510 : 1999 SCC (Cri) 1284 : AIR 1999 SC 3762 .
80 Nutan Damodhar Prabhu v Ravindra Vassant Kenkre, AIR 2008 [NOC] 1753 (Bom) : 2008 (3) AIR BomR 132 : 2007
(109) BomLR 2779 : 2008 (1) MhLJ 889 .
81 Ahuja Nandkishore Dongre v State of Maharashtra, 2006 (6) AIR Bom R 201 : 2007 CrLJ 115.
82 K Bhaskaran v Sankaran Vaidhyan Balan (Supra).

Page 8 of 8
85 Ahuja Nandkishore Dongre v State of Maharashtra (Supra).
86 Prabhu Dayal Modi v M/s Euro Developers Pvt Ltd, 2011 CrLJ 110 (Bom) : AIR 2011 [NOC] 117 (Bom) : 2010 (3)
BomCR (Cri) 801 .
87 Harman Electronics (P) Ltd v M/s National Panasonic India Ltd, (2009) 1 SCC 720 : (2009) 1 SCC (Cri) 610 : AIR 2009
SC 1168 : (2009) 156 DLT 160 : 2009 CrLJ 1109 (SC) : (2009) 2 ECrN 918 (SC) : (2009) 3 MahLJ 792 : (2009) 2 KLT
113 : (2009) 2 GujLR 1467 : 2009 ALL MR (Cri) 280 (SC).
88 Jambu Kumar Jain v TATA Capital Ltd, AIR 2012 [NOC] 10 (Bom).
End of Document
[s 73] Presentment of cheque to charge any other person.—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A cheque must, in order to charge any person except the drawer, be presented within a reasonable time after
delivery thereof by such person.
This section corresponds to sections 45, 73 and 74 of the Bills of Exchange Act, 1882.
Page 2 of 2
[s 73.2] Presentment of Cheques to Charge Indorser
A cheque is generally intended for immediate payment and not for circulation. The drawer’s liability on
presentment of a cheque is fixed by section 72. The present section deals with the liability of any person except
the drawer, which means the indorsers. In order to charge an indorser, it is necessary that the cheque must be
presented within a reasonable time from the delivery of the cheque by such indorser and from the time when
the holder receives it from any prior indorser. For instance, A indorses and delivers a cheque to B, and B keeps
it for an unreasonable length of time and then indorses and delivers it to C. C presents the cheque for payment
within a reasonable time after its receipt by him and it is dishonoured. C can enforce payment against B, but not
against A.
End of Document
[s 74] Presentment of instrument payable on demand.—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Subject to the provisions of section 31, a negotiable instrument payable on demand must be presented for
payment within a reasonable time after it is received by the holder.
Page 2 of 2
[s 74.2] Presentment of Negotiable Instruments Payable on Demand
Section 31 deals with the liability of the drawee of a cheque to the drawer, and therefore, its connection with the
present section, which speaks of presentment of an instrument for payment, is not easy to discover. Sections
72 and 73 relate to the presentment for payment of a cheque in order to charge the drawer and the indorsers.
The scope of the present section, therefore, seems to be confined to the presentment of negotiable instruments
payable on demand other than cheques, i.e., bills and notes payable on demand. Such instruments being
payable immediately, the section requires that they must be presented within a reasonable time after they are
received by the holder. Therefore, the presentment of an on-demand note or bill by the last holder, within a
reasonable time after he receives the instrument, the liability of his immediate indorser as well as of all parties
whose names appear on it are secured to him.
[s 74.3] Consequence of Non-Presentment within Reasonable Time
It has been held by the Madras High Court89 that where note payable on demand has been indorsed, it should
be presented for payment within reasonable time of indorsement, failing which the endorser is discharged.
Loss caused by delay in presenting a draft should be suffered by the person to whom draft is given and not the
drawer.90
89 Jagannadha Reddiyar v Lakshmana Reddiyar, AIR 1925 Mad 132 .
90 SM Ramzan and Co v Sharife Mohamed Hasson Ayab, AIR 1924 Bom 520 .
End of Document
[s 75] Presentment by or to agent, representative of deceased, or assignee of
insolvent—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

[s 75] Presentment by or to agent, representative of deceased, or assignee of

insolvent—
Presentment for acceptance or payment may be made to the duly authorised agent of the drawee, maker or
acceptor, as the case may be, or, where the drawee, maker or acceptor has died, to his legal representative, or,
where he has been declared an insolvent, to his assignee.91
Page 2 of 2
[s 75] Presentment by or to agent, representative of deceased, or assignee of insolvent—
[s 75.2] Presentment to whom
The marginal note to the section is wider than the section, since the section only refers to persons to whom,
and not by whom, presentment for acceptance or payment may be made. According to section 64, presentment
for payment must be made to the maker of a note, acceptor of a bill, and the drawee of a cheque. Under
section 75, presentment may be made to:
(i) the duly authorised agent of the drawee, maker or acceptor;
(ii) the representative of a deceased drawee, maker or acceptor;
(iii) the assignee, of an insolvent drawee, maker or acceptor.
91 See section 45(3) and (7) of the Bills of Exchange Act, 1882.
End of Document
[[s 75A] Excuse for delay in presentment for acceptance or payment.—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

92[[s 75A] Excuse for delay in presentment for acceptance or payment.—
Delay in presentment 93[for acceptance or payment] is excused if the delay is caused by circumstances
beyond the control of the holder, and not imputable to his default, misconduct or negligence. When the cause of
delay ceases to operate, presentment must be made within a reasonable time.]

Page 2 of 3
[s 75A.2] Excusable Delay
The section was introduced by Amending Act of 1920 before which, there was no provision under the Act,
providing for delay in presentment for payment, due to reasons beyond the control of holder. The section, in
effect, reproduced section 46(1) of the Bills of Exchange Act. In 1962, the section was amended to provide for
delay in presentment for acceptance as well.
A bill drawn in England was made payable in Paris. By a French moratory law passed in consequence of war,
the maturity of bills payable in Paris was postponed by three months. The delay in making presentment was
excused.94
In Rajagopal v M Thiagarajan,95 the delay caused due to a raid by the IT Department wherein the cheque was
seized and the holder also lost his father in between, it was held that the action of not presenting the cheque
within time was excusable.
[s 75A.3] Meaning of ‘The Bank’ under Section 138
In Alok Sharma v State of Rajasthan96, the High Court of Rajasthan held that section 75A of the Act would not
rush to the rescue of the complainant, where the cheque dated 19 May 2007 was presented before the
collection bank on 15 November 2007, for encashment which was sent to the drawer bank for encashment on
21 November 2007 i.e. after the period of the cheque’s validity, as the complainant cannot claim that things
were beyond his control. The court also held that the bank referred to in proviso (a) of section 138 of the Act
would mean the drawer bank on which the cheque is drawn, and not all the banks where the bank cheque is
presented for collection, including the bank of the payee, in whose favour the cheque is issued.
93 Subs. by Act 12 of 1921, section 3 for the words ‘for payment’.
94 Rouquette v Overmann, [1875] LRQB 525; Re Francke and Rasch, [1918] 1 Ch 470 .
Page 3 of 3
95 Rajagopal v M Thiagarajan, (1999) 95 Comp Cas 286 .
96 Alok Sharma v State of Rajasthan, 2013 (4) RCR (Criminal) 67.
End of Document
[s 76] When presentment unnecessary—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

No presentment for payment is necessary, and the instrument is dishonoured at the due date for presentment,
in any of the following cases:
(a) if the maker, drawee or acceptor intentionally prevents the presentment of the instrument, or,
Page 2 of 6
if the instrument being payable at his place of bussines, he closes such place on a business day
during the usual business hours, or
if the instrument being payable at some other specified place, neither he nor any person is
authorised to pay it attends at such place during the usual business hours, or,
if the instrument not being payable at any specified place, he cannot after due search be found;
(b) as against any party sought to be charged therewith, if he has engaged to pay notwithstanding non-
presentment;
(c) as against any party if, after maturity, with knowledge that the instrument has not been presented—
he makes a part payment on account of the amount due on the instrument,
or promises to pay the amount due thereon in whole or in part,
or otherwise waives his right to take advantage of any default in presentment for payment;
(d) as against the drawer, if the drawer could not suffer damage from the want of such presentment.
This section corresponds to section 46(2)(c) of the Bills of Exchange Act, 1882.
[s 76.2] Dispensing with Presentment for Payment in Certain Circumstances
The present section specifies the circumstances in which presentment for payment is dispensed with, and thus
contains exceptions to the rule stated in section 64. The following are cases in which presentment for payment
is dispensed with under the section:
[s 76.2.1] Presentment Intentionally Prevented

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If the maker, acceptor or drawee of a note, bill or cheque actively does something whereby he intentionally
prevents presentment, or deprives the holder of the instrument and sits over it till after maturity, or misleads the
holder so as to make it impossible for him to present, in all these cases, he intentionally prevents the holder
from presenting the instrument and thereby excuses the holder from making the presentment.
[s 76.2.2] Business Place Closed
Where an instrument is payable at the place of business of the maker, acceptor or drawee of a note, bill or
cheque, and he closes such place on a business day during the usual business hours, presentment for
payment is not necessary, for, when a person intentionally closes his place of business, the presumption is that
he wishes to avoid payment.
[s 76.2.3] No Person at the Place of Payment
Where an instrument is payable at a specified place, and neither the maker, acceptor or drawee, nor any
person authorised to pay it, is present at such place to pay or refuse payment during the usual business hours,
presentment for payment is dispensed with.97 It can also be dispensed with in cases where there is no actual
refusal, but the house, where the bill is payable is shut and no one is there.98
It is not sufficient to prove that the acceptor’s or maker’s was closed, but it is also necessary for the holder to go
further and show that he had inquired after the acceptor or maker or attempted to find him.99
[s 76.2.4] Payer Cannot be Found
If the instrument is not payable at a specified place, it is the duty of the holder to make inquiries and use due
diligence to find the maker, acceptor or drawee for presenting him with the note, bill or cheque for payment. If
after search, the maker, acceptor or drawee cannot be found, presentment for payment is not necessary. What
constitutes due diligence is a question of fact.100
[s 76.2.5] Waiver, Express or Implied
Clauses (b) and (c) deal with cases in which presentment for payment is waived. Presentment of a note or bill
Page 4 of 6
at maturity is not necessary, if the party entitled to require presentment waives it, and promises to pay it
notwithstanding non-presentment. A waiver of presentment may be embodied in the instrument itself by words
such as ‘presentment waived’ or other words to that effect. A waiver of presentment may be express or implied,
and may be made at any time before or after maturity.101 A waiver is implied when any act or conduct of the
party is likely to produce in the mind of the holder the impression that the instrument need not be presented for
payment. Only a party who is liable on the instrument can waive presentment.102 Clause (c) refers to waiver
after maturity, and the cases referred to therein are instances of implied waiver. Clause (c) states that such
implied waiver may be inferred when, after maturity of the instrument, any party:
(1) makes a party payment on account of the amount due thereon; or
(2) promises to pay the amount due thereon in whole or in part; or
(3) waives his right to take advantage of any default in presentment for payment.
Due presentment is insisted upon solely for the benefit of the maker, who is prepared to honour his obligation.
The requirement can have no application to a maker, who repudiates his obligation. When a maker refuses to
pay or puts forward certain defences even before presentment, presentment is not necessary and is deemed to
have been waived by the maker.103
Where the maker of a promissory note (payable on demand) declines to accept the holder’s registered notice
calling upon him to pay, there is an implied waiver of presentment of the note by the maker; the non-
presentment of the note will not be an impediment to the application of the rule of dishonour and the
consequences thereof.104
[s 76.2.6] When Drawer Could Not Suffer Damage
If want of presentment is not likely to cause the drawee any injury or loss, presentment for payment by the
holder is excused. Where the drawer has no funds belonging to him in the hands of the drawer, and the drawer
has no reason to expect that the bill would be paid if presented, this is a case in which no possible prejudice
can result to the drawer, and presentment is dispensed with.105 However, if the drawer has reason to believe
that on presentment the bill will be honoured, the holder is bound to present the bill in order to charge the
drawer, even though the latter may not have provided the drawee with sufficient funds to meet it.106 The onus
Page 5 of 6
of showing that the drawer could not have suffered any damage is on the person, who wants to excuse himself
for non-presentment.107 Clause (d) mainly deals with accommodation bills when they are drawn for the
accommodation of the drawer.108
Section 76(d) does not apply to the case of promissory notes, as the Act throughout makes a distinction
between drawer and maker and does not use them as synonymous terms.109
97 Howe v Bowes, (1812) 16 East 112.
98 Hine v Alley, (1833) 4 B & Ad 624.
99 Sands v Clarke, (1849) 19 LJCP 84.
100 Hardy v Woodroffe, (1818) 2 Stark 319.
101 Jhandu Lal v Wilayati Begum, (1925) 47 All 572.
103 CM Sivaram v S Jayaram Mudaliar, AIR 1966 Mad 297, relied on in Mateshwar Dayal v Amar Singh, AIR 1983 P&H
197, where the maker denied having executed the note.
104 K Venkatasubbayya v P Ranga Rao Tobacco Co, AIR 1972 AP 72.
105 Wirth v Austin, (1875) 10 LRCP 689.

Page 6 of 6
106 Prideax v Callier, (1817) 2 Stark 57.
107 Madho Ram v Durga Prasad, (1911) 33 All 4; Gaya Din v Sri Ram, (1917) 39 All 364.
108 Saul v Jones, [1858] 28 LJQB 37.
109 Mahommad v Abdul, (1937) Lah 580.
End of Document
[s 77] Liability of banker for negligently dealing with bill presented for payment—
OF PRESENTMENT
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When a bill of exchange, accepted payable at a specified bank, has been duly presented there for payment and
dishonoured, if the banker so negligently or improperly keeps, deals with or delivers back such bill as to cause
loss to the holder, he must compensate the holder for such loss.
[s 77.1] Banker Receiving Bill for Payment

Page 2 of 3
If a banker receives a bill of exchange for payment and dishonours it, it is his duty to keep the bill in his
possession properly and with caution, so as not to cause any loss to the holder, and to return it to him, in the
same state as it was, when it was left with him. If he keeps the bill and refuses improperly to deliver it, or
negligently delivers it to the wrong person, or negligently deals with it so as to cause loss to the holder, he must
compensate the holder for such loss. The effect of the section is to constitute the banker to whom presentment
is made a bailee for the holder.
In State Bank of India, Jalgaon v Ananda Shamrao Mahajan,110 the respondent received a cheque of Rs
1,50,000 from a party which owed him the said amount. He deposited this cheque in his account with the
appellant Bank. The appellant Bank was expected to send the cheque with due care and caution to the
drawer’s bank at Bhopal for collection. The cheque however got lost in the transit. Within one month from the
depositing of the cheque, the respondent no. 1 made complaint to the appellant bank about their failure to
deposit the cheque amount in his account. The appellant bank made no reply to his complaint. Ultimately, the
respondent no. 1 sent a legal notice to the appellant to which they for the first time, disclosed that they had sent
the cheque by R.P.A.D. and had not received any reply so far from the concerned Bank at Bhopal. The
appellant, then made enquiry about the delivery of the cheque at Bhopal with Postal authorities who surprisingly
informed them that they had delivered the registered envelope containing the cheque sent by R.P.A.D. at
Bhopal Bank. But to the enquiry of the respondent no. 1, the Bhopal bank informed him that they had not
received the cheque in question. By this time, it was very clear that the cheque in question was lost in transit.
The respondent no. 1, then filed his suit for recovery of the cheque amount and compensation. In the
meantime, the party which owed the amount to the appellant went into winding up and liquidation. Even the
payment of the cheque in question was stopped. So, by the time the suit was filed, the respondent no. 1 was
certain that the cheque would not have fetched him the amount.
It was held by the Bombay High Court that the only lapse on the part of appellant Bank was that they did not
intimate to the respondent no. 1 about the loss of cheque in transit. The appellant Bank, within a month or so,
should have realised that the cheque in question was lost in transit and should have immediately intimated this
fact to the respondent no. 1, suggesting him to get a duplicate cheque. They waited till December, 1990 for
giving proper response to the respondent no. 1. It was, however, opined by the High Court that this lapse on
their part was comparatively less injurious than the loss of remedy against the drawer of the cheque.
The High Court accordingly, observed that the respondent No. 1 ought to have realised in time that the cheque
was lost in transit and that he had the alternate remedy. He unnecessarily depended on the appellant bank. In
comparison the negligence of the appellant was rather negligible. In view of this matter the compensation
awarded by the lower appellate Court almost to the tune of 1/3rd of the amount represented by the cheque was
considered to be exorbitant.
Page 3 of 3
Accordingly, the impugned judgment and decree was corrected to that extent that an amount of Rs 10,000
along with interest @ 9% p.a. from 2 March 1990 was considered by High Court to be adequate remedy and
the Second Appeal was partly allowed.
110 State Bank of India, Jalgaon v Ananda Shamrao Mahajan, AIR 2010 Bom 71 .
End of Document
[s 78] To whom payment should be made—
OF PAYMENT AND INTEREST
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 6 OF PAYMENT AND INTEREST
Subject to the provisions of section 82, clause (c), payment of the amount due on a promissory note, bill of
exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the
instrument.
Page 2 of 7
[s 78.2] Payment to whom
The section deals with the question of discharge of a negotiable instrument by payment. Under the section,
payment, in order to operate as a discharge, must be made to the person, who is the holder of the instrument,
or to some person duly authorised by him. The words of the section are imperative and a payment, therefore, to
any other person will not operate as a discharge, unless the holder elects to treat the payment as payment to
him.1 Thus, a bank holding a bill for collection with a lien upon it, is a holder in due course and any payment
made to the original indorser for collection in respect of the bill cannot be taken to discharge the liability of the
acceptor.2 The maker of a promissory note cannot claim to be discharged of his liability to the holder by making
payment to another person on whose behalf he had executed the note.3
Section 78 is subject to section 82(c), which provides that the maker, acceptor or indorser respectively of a
negotiable instrument is discharged from liability thereon by payment to all parties thereto, if the instrument is
payable to bearer or has been indorsed in blank and such maker, acceptor or indorser makes payment in due
course of the amount due thereon. Thus, where a petition for winding up is filed by a holder of bill of exchange
based upon dishonour by the company as acceptor and the bills were indorsed by the company in blank, it was
held that the payment to drawer is discharged.4
A valid discharge can be given to the maker or to the acceptor of the instrument only as the holder thereof.
There is no such thing as a benami promissory note taken in the name of one person yet really meant for
another. Thus, where a hand note is executed in favour of the benamidar, it is not open to the promisor to
assert that the holder of the note is not the beneficial owner. Such a plea failed in Dal Chand v Satish
Chandra.5 Conversely, if a suit is to be based upon the note, it must be instituted by the holder and not by any
person, who alleges that the original holder is his benamidar and that he is the beneficial owner.
There are conflicting judicial opinions on the question whether the beneficial owner of a negotiable instrument
can bring a suit thereon in his own name, although he is not the holder thereof. It has been held that section 78
does not focus on the right of suit and hence, the real owner of the note can sue on the note, provided he is in a
Page 3 of 7
position to obtain a good discharge of the liability of the maker of the note. Thus, where a promissory note was
executed in favour of a person, who was described as the owner and manager of a certain religious institution
which later became a registered society, and a suit on the note was instituted in the name of the society
through its secretary, but the payee of the promissory note was not made a party to the suit, it was held that it
could not be said that the society was in a position to secure a discharge of the maker of the note from all
liability under the note and hence, the suit as brought was not maintainable.6
In Rishab Kumar v Singhai Motilal,7 it was held that a suit by an undisclosed principal to which the benamidar
holder of the instrument is a party is maintainable, and the claim may be decreed provided that the suit by the
benamidar is otherwise competent, and he gives a valid discharge.
It has also been held that the maker of a promissory note can obtain the discharge of his debt by making
payment to the holder of the instrument alone and to no one else.8 It makes no difference whether the holder is
a benamidar or a true owner.9
A suit by the true owner, who is not the holder, is not maintainable.10 As stated by the court, “the entire scheme
of the Negotiable Instruments Act is to clothe the person named in the instrument with rights and it is not open
to the parties to an instrument, and a fortiori to strangers, to show that a person named therein is not the
principal but another, not so named”.
A promissory note was made payable to R, who was also the karta of a Hindu joint family. The court held that
payment by the maker to R would discharge his liability since R was the holder. R could sue on the note;
irrespective of whether he had advanced the money in his personal capacity or as the karta of the Hindu joint
family.11
In repayment of a debt owed to a partnership, the debtor executed a promissory note in favour of a partner in
his name. The court held that the payee could bring a suit on the note in his own name.12 The court relied on
the decision in Subba Narayana v Ramaswami,13 where it was held that in a suit on a negotiable instrument by
the payee or indorsee thereof, it cannot be pleaded that he is only a benamidar, not entitled to payment. If the
note is in favour of a partner of a firm in his capacity as a partner, he cannot sue thereon in his personal
capacity.14
Page 4 of 7
Possession of the bill is prima facie evidence of the identity of the holder, and where a holder presents a bill for
payment to the acceptor, the latter must pay or refuse payment at his own peril. If it turns out that he has paid
the wrong person, he may be called upon to pay a second time. If he refuses to pay, he runs the risk of an
action being brought against him for dishonour. The maker of an instrument is entitled to pay to the holder,
even though he may receive notice that the debt for which the instrument was given had been assigned.15
However, where the note itself is assigned and the maker received notice of the assignment, he cannot make
payment to the original holder.16
According to the Bills of Exchange Act, 1882 (BE Act), if a negotiable instrument has been paid in good faith
and without any notice of defect of title, the payment is valid and the instrument is discharged. If a negotiable
instrument is made payable to bearer, or is indorsed in blank, so that title to it passes by mere delivery, a finder
or a thief can receive payment and give a valid discharge. A payment in due course to that person discharges
the maker or the acceptor. Though the definition of holder in section 8 of the Act is not wide enough to include a
finder or a thief, and though under the present section, payment is to be made to a holder, practically the same
result as under the BE Act is achieved under this Act also, as the section is to be read subject to section 82(c).
Under section 82(c), payment in due course of an instrument payable to bearer or indorsed in blank discharges
the maker, acceptor or indorser, and the definition of payment in due course under section 10 is wide enough to
include payment to a thief or a finder of the instrument. On the other hand, if an instrument is specially indorsed
and the instrument is forged, the maker or acceptor cannot discharge the bill by payment to the holder,
however, innocently he acts. A person claiming under a forged indorsement, though he may be a bona fide
transferee for value, is not a holder, and payment to such person would not, except in cases coming under
section 85 or 85A, operate as a discharge as against the true owner. For example:
(i) A bill is indorsed to John Brown or order. At maturity the holder is another person by the name John
Brown, who indorses the bill and presents it for payment. The acceptor pays him. The bill is not
discharged and the acceptor must pay again to the real John Brown.
(ii) A bill indorsed in blank is stolen. The thief presents it to the acceptor for payment who pays it in due
course. The bill is discharged.
(iii) A bill has been obtained by the indorsee by fraud. The indorsee presents it at maturity to the acceptor
who pays it in due course. Under English law, the bill is discharged.17 The position may not be the
same under Indian law since a person who obtains a bill or note by fraud, even if he is the indorsee,
cannot be considered a holder under section 8.
Page 5 of 7
[s 78.3] Payment by whom
Payment will not operate as discharge of an instrument, unless it is made by or on behalf of the maker or
acceptor. The maker or acceptor would not be discharged by a payment made by the drawer or an indorser or
by a stranger on his own account. If a stranger pays the amount of the instrument to the holder, he would be
regarded as a mere purchaser of the instrument.18 However, a payment by the stranger on behalf of a party to
the instrument produces the same legal effect, as if it were authorised by that party. The payment by the
stranger, however, must be for and on account of the debt. If the drawer or an indorser pays the amount due
under an instrument, the instrument is not discharged and may be further negotiated by the drawer or indorser
paying it, though the acceptor is liable to the drawer or indorser so paying. However, in the case of an
accommodation instrument, payment by the party accommodated would discharge the instrument.19
[s 78.4] Time of Payment
If a negotiable instrument is paid by the acceptor at or after maturity, the bill is discharged, and no action can
then be brought upon it. However, if the payment is made before maturity, the maker or acceptor can reissue it,
since, payment before maturity operates as a purchase of the instrument. The instrument, under such
circumstances, is not discharged, and the acceptor will be liable to pay again on the instrument in the hands of
a bona fide transferee for value.20 Where the maker or acceptor makes a payment before maturity, he must get
possession of the instrument, in which case, he can re-issue the instrument so as to make himself and all
subsequent parties liable.21 The re-issue may take place any number of times before the maturity of the
instrument. However, the above observations regarding premature payment can only apply to instruments,
which are payable at a determinable future time and not to those which are payable on demand, since they
cannot be prematurely paid, being due the moment they are presented.
[s 78.5] Medium of Payment
A negotiable instrument is always expressed to be payable in money, and a holder is entitled to insist upon
being paid in money, i.e., coins, currency or other legal tender, and cannot be compelled to accept payment in
any other medium or form. However, if the holder agrees to accept satisfaction of his debt in any other mode,
instead of receiving payment in money, payment by such mode is good. Thus, the holder may, if he so
chooses, receives goods or a fresh bill or note in lieu of money, and satisfaction thus obtained will operate as a
discharge.22
Page 6 of 7
Payment is deemed to be complete as soon as the money is received by or on behalf of the holder. In the case
of a payment by a banker, payment is complete as soon as the money is laid upon the counter to be taken by
the receiver.23 If the whole of the amount of a bill is not paid, but a part only, such part payment does not
discharge the whole debt. The right of the holder is reduced by the amount paid, and he may sue for the
balance.
1 Field v Carr, (1828) 5 Bing 13.
2 Royal Bank of Scotland v Rahim, (1925) ILR 49 Bom 270.
3 Joseph Zacharia v Joseph Kuriakose, AIR 1992 Ker 103 .
4 Tolani Shipping Co Ltd v Saw Pipes Ltd, (1999) 97 Comp Cas 394 .
5 Dal Chand v Satish Chandra, AIR 1983 Raj 23 .
6 Lachmichand v Madanlal, AIR 1947 All 52 .
7 Rishab Kumar v Singhai Motilal, (1948) ILR Nag 299.
8 Sangeshwar Mandal v Gita Devi, AIR 1975 Pat 81 .
9 Dal Chand v Satish Chandra, AIR 1983 Raj 23 ; VK Velappu v MJ Varu, (1987) 61 Comp Cas 368 .
10 Sarajoo v MT Rampayari, (1950) ILR Pat 688.
11 Rai Ranjeet Singh v Bind Bahadur Singh, AIR 1973 All 547 .
12 M Kasi Viswanadham v C Radhakrishna Rao, AIR 1973 AP 99 .
13 Subba Narayana v Ramaswami, (1907) 30 Mad 88 (FB).
14 D Jayarama Reddy v Revathi Mica Co, (1972) 1 Andh WR 7.
15 Spencer v Shearman, [1898] 2 Ch 582 .
16 Haricharan v Jamuna, AIR 1961 Pat 312 .
17 Robarts v Tucker, [1851] 6 QB 576 .
18 Jones v Broadhurst, (1850) 9 CB 173 .

Page 7 of 7
19 Jameson & Co v Scott, (1909) 36 Cal 291 .
20 Burbridge v Manners, (1812) 3 Camp 193.
21 Morley v Culverwell, (1840) 7 M&W 174; Attenborough v Mackenzie, (1856) 25 LJ Ex 244 .
22 Sibree v Tipp, (1846) 15 M&W 23.
23 Chambers v Miller, (1862) 32 LJCP 30.
End of Document
[s 79] Interest when rate specified.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When interest at a specified rate is expressly made payable on a promissory note or bill of exchange, interest
shall be calculated at the rate specified, on the amount of the principal money due thereon, from the date of the
instrument, until tender or realisation of such amount, or until such date after the institution of a suit to recover
such amount as the court directs.
Page 2 of 8
[s 79.2] Specified Rate of Interest
Section 79 lays down that when interest at a specified rate is expressly made payable, then interest shall be
calculated at the rate of specified.24 A stipulation for payment of interest may be incorporated in a bill or note in
any form. The section deals with the rate of interest and the time from which it begins to run, and the time, up to
which it is to be calculated. If the rate of interest is stated in the instrument, no evidence is admissible to pay
interest at a different rate.25
[s 79.3] Usurious Loans Act, 1918
Where a bill stated inclusive of interest at nil, a zero rate was deemed to have been specified. It was not a case
falling under section 80, where no interest rate is specified.26 As to the rate of interest, the terms of the section
are imperative, and prior to the passing of the Usurious Loans Act, 1918, where the rate of interest was
specified in the instrument, however, high it might have been, the court had no discretion to alter it, but was
bound to grant interest at that rate.27 The court had no power to refuse to allow interest at the rate specified in
the instrument, unless there were circumstances that excluded the contract. So long as the parties dealt fairly
and openly with one another, they were at liberty to fix any rate of interest they pleased and the court was
bound to see that the contract was performed. However, now section 79 has to be read subject to the Usurious
Loans Act, 1918. Under that Act, the court has power to grant relief against excessive interest. However, in
Harish Chander v Ganga Singh28 and Utsav Lal Gupta v Mohan Bros,29 the court felt that the provisions of the
section were mandatory.
The object of the Usurious Loans Act, 1918 is to prevent courts of law from being used for the purpose of
enforcing harsh and unconscionable loans carrying interest at usurious rates. When a suit is brought by a
creditor:
(a) for a recovery of a loan; or

Page 3 of 8
(b) for the enforcement of any security or agreement in respect of a loan, and in such a suit the court has
reason to believe:
(i) that the interest is excessive; and
(ii) that the transaction was, as between the parties thereto, substantially unfair, then the court, acting
under the Usurious Loans Act, 1918, may re-open the transaction, and relieve the debtor of liability
in respect of excessive interest, or re-open any account already taken between them, and order
the creditor to refund any sum paid to him in excess of what was reasonably due, or set aside or
alter any security or agreement in respect of the loan.
However, where the agreement purporting to close previous dealings has been entered into by the parties or
any persons, from whom they claim, at a date more than six years from the date of the transaction which is the
subject of the suit, it cannot be re-opened by the court. In the same manner, a court acting under this Act, has
no power to do anything which affects any decree of a court.
The court’s powers to grant relief under this Act do not in any way prejudice the rights of any transferee for
value, who satisfies the courts that the transfer to him was made bona fide and that at the time of such transfer,
he had no notice of any fact which would have entitled the debtor as against the original lender to relief under
this Act.
The Usurious Loans Act, 1918 does not apply to a debtor’s suit. The court can grant relief only when the suit is
brought by a creditor. The cases in which the court can grant relief to the debtor against excessive interest are:
(a) where undue influence has been exercised by the creditor and the transaction amounts to an
unconscionable bargain; and
(b) where the stipulation for payment of interest is by way of penalty.
Section 21A of the Banking Regulation Act, 1949, introduced in 1983, states:
Page 4 of 8
21A. Rate of interest charged by banking companies not to be subject to scrutiny by courts.—Notwithstanding anything
contained in the Usurious Loans Act, 1918 (X of 1918), or any other law relating to indebtedness in force in any State,
a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that the
rate of interest charged by the banking company in respect of such transaction is excessive.
It would, therefore, appear that this provision would also apply to promissory notes executed by debtors in
favour of banking companies and in which, as is normal, the rate of interest is specified.
[s 79.4] Time from and up to which Interest is Calculated
The interest, when the rate is specified in the instrument, is to be calculated from the date of instrument up to
the time of tender or realisation of the amount of the principal money. When the instrument is undated, oral
evidence may be given to show the date on which the instrument came into existence. If the holder files a suit
to recover the amount of the principal money and interest, interest shall be calculated from the date of the
instrument till a date to be fixed by the court. The section gives the court discretion as to the time up to which it
shall allow interest.
Different views have been expressed by courts on whether the section overrides section 34(1) of the Code of
Civil Procedure, 1908 which states:
34. Interest.—Where and in so far as a decree is for the payment of money, the Court may, in the decree, order
interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit
to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the
institution of the suit, with further interest at such rate not exceeding six per cent per annum as the court deems
reasonable on such principal sum from the date of the decree to the date of payment, or to such earlier date as the
Court thinks fit:
Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate
of such further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or,
where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to
commercial transactions.30
Page 5 of 8
In Utsav Lal Gupta v Mohan Bros,31 it was held that the discretion given to the courts under section 34 of the
Code of Civil Procedure, 1908, (to order payment of interest at a rate, not exceeding 6% per annum on the
principal amount adjudged from the date of the suit to the date of the decree) is not available in respect of a
loan advanced against a promissory note. In such a case, the interest pendente lite is governed by section 79
of this Act and the court cannot allow any rate, other than that specified in the note, even though it may be
higher than 6% per annum.32
Dissenting from the decision in the Utsav Lal Gupta case, and agreeing with the ratio in Piara Lal Khanna v S
Herchand Singh Jaiji,33 the Andhra Pradesh High Court held in Union Bank of India v P Krishnaiah,34 that
section 34(1) of the Code of Civil Procedure, 1908, prevailed over section 79 of the Act and applied to claims
on negotiable instruments as well. A harmonious construction of the two sections would, in the court’s view,
give discretion to courts to fix the rate, not exceeding the contracted rate, from the date of institution of the suit
pendente lite. In that case, the High Court did not interfere with a rate of 12% per annum fixed by the trial court
although the promissory note specified a rate of 16.5% per annum.
In Deo Nandan v Ram Prasad,35 a Full Bench of the Patna High Court had held that section 79 of the Act is not
absolute and is subject to sections 7 and 8 of the Moneylenders Act.
A Division Bench of the J&K High Court held in Jammu & Kashmir Bank Ltd v Bashir Ahmed Quazi,36 that the
grant or refusal to grant interest pendente lite is governed by section 34 of the Civil Procedure Code, 1908,
while interest payable up to the date of the suit is outside the scope of that section. Following this ruling, it was
held by another Division Bench of the court in United Commercial Bank v Hans Raj Saraf,37 that the court was
under no obligation to award the contractual rate after institution of the suit in all cases. In that case, a rate of
4% per annum fixed by a Single Judge of the court was considered appropriate in the circumstances of the
case.
In Sukhchain Singh v Punjab & Sind Bank,38 it was held that the court had discretion to allow interest up to 6%
per annum from the date of suit till realisation, although the contracted rate was 12% per annum.
In PK Thankachan v Catholic Syrian Bank,39 it has been held that as far as pendente lite interest and post
Page 6 of 8
decree interest is concerned, the court has discretion with respect to the awarding the same. However, this
discretion has to be judiciously exercised and when a particular amount is awarded, reason for that has to be
given, so that one comes to know as to which were those principles which guided the discretion exercised by
the court. In the said case, no reason was assigned by the tribunal as to what were those circumstances or
situations which guided the discretion of the court to come to the conclusion that pendente lite interest was to
be charged at 14% per annum whereas the post decree interest had to be at 12% per annum.
The appellate tribunal further held that after going through the records, it can certainly be stated that the
appellants had intention to repay the money and were displaying that intention by showing colour of their
money to the bank. They, therefore, cannot be branded as outright defaulters having no intention to repay the
money and if this was the situation, then some leniency had to be shown to the appellants by reducing the
pendente lite and post decree rate of interest. Taking an overall view of the matter, the court held that the ends
of justice would be met if the appellants were ordered to pay pendente lite and post decree interest uniformly at
the rate of 10% per annum.
In City Theatres Pvt Ltd represented by its MD S Subramaniam Kartikeyan v Suresh Kumar G Nichani,40 the
Madras High Court exercised its discretion under section 34 of CPC to allow interest pendente lite on a debt
incurred on the basis of pronote despite the mandate of section 79 of the Act that court shall allow the interest
on the principal amount advanced against a promissory note at the rate specified in that note.
In Mariam George v S Jeswina,41 the Karnataka High Court held that the defendant had neither proved nor
established the probabilities of the circumstances under which the documents had been executed as a
collateral security as contended by defendant and as such the presumption which had arisen in favour of the
plaintiff was not rebutted by the defendant so as to shift the burden back to the plaintiff. Hence, the plaintiff was
held to be entitled to the benefit of presumption arising in her favour. Having held so, the court noticed that in a
normal circumstance, the rate of interest indicated in the promissory note could have been granted from the
date of the instrument to the date of suit in terms of section 79 of the Act. The discretion could have been
exercised for the pendente lite and post decree period. In an ideal situation, the oral evidence should not
dislodge the contents of a proved document. The case on hand, however, admits of peculiar circumstance
inasmuch as the promissory note which was a printed form contained interest at 1.5% per month. However, the
plaintiff who was the beneficiary of interest payable under the said promissory note in her examination-in-chief
stated that the defendant executed a promissory note after receiving the amount and agreed to pay interest at
the rate of 1.5% per year. Though, she attempted to correct herself, she did not emphasize that it was per
month but appeared to be in doubt. Therefore, the court looked into the intention. The loan advanced in the
instant case was not a commercial transaction and on the other hand, the very case put forth by plaintiff was
Page 7 of 8
that it was a help rendered to defendant who was her friend since a long time, to over come her domestic
problems. Considering the surrounding circumstance that it was a domestic loan to tide over immediate
necessity and on the deposition of the plaintiff herself it was concluded that the understanding was to pay
nominal interest at 1.5% per year but the necessary alteration was not made in printed form. Hence, the plaintiff
was held to be entitled only to the principal amount and the notice charges quantified in plaint. In place of
quantified interest, the plaintiff was held to be entitled to interest at 1.5% per year. Such entitlement to interest
was held to be from the date of instrument, i.e., 21 March 1993 till the date of realisation.
24 Rambilas Dinaram Shivlal v Shantadevi Sitaram Agrawal, (2004) II BC 285 (Bom).
25 Gopal v Achut, AIR 1941 Nag 271 .
27 Govindjee v Ko Poyce, 4 Bur LT 203.
28 Harish Chander v Ganga Singh, AIR 1974 P&H 156.
29 Utsav Lal Gupta v Mohan Bros, AIR 1975 Raj 236 .
30 Those connected with the industry, trade or business of the party incurring the liability.
31 Utsav Lal Gupta v Mohan Bros, AIR 1975 Raj 236 .
32 Mt. Bhagwati v Atma Singh, AIR 1934 Lah 32 , dissenting from the decision in Ram Singh Narain Singh v F Dewan
Chand Nand Kishore, AIR 1960 Punj 287 and Piara Lal Khanna v S Herchand Singh Jaiji, AIR 1961 Punj 442 .
33 Piara Lal Khanna v S Herchand Singh Jaiji, AIR 1961 Punj 442 .
34 Union Bank of India v P Krishnaiah, AIR 1989 AP 211 .
35 Deo Nandan v Ram Prasad, AIR 1944 Pat 303 .
36 Jammu & Kashmir Bank Ltd v Bashir Ahmed Quazi, (1987) Srinagar LJ 249.
37 United Commercial Bank v Hans Raj Saraf, AIR 1989 J&K 28.
38 Sukhchain Singh v Punjab & Sind Bank, (1990) 68 Comp Cas 491 , following Ram Singh Narain Singh v F Dewan
Chand Nand Kishore, AIR 1960 Punj 287 and Piara Lal Khanna v S Herchand Singh Jaiji, AIR 1961 Punj 442 .
Page 8 of 8
39 PK Thankachan v Catholic Syrian Bank, (2005) II BC 165 (DRT/DRAT) (DRAT Chennai).
40 City Theatres Pvt Ltd represented by its MD S Subramaniam Kartikeyan v Suresh Kumar G Nichani, AIR 2008 [NOC]
2752 (Mad) : LNIND 2008 Mad 1995 .
41 Mariam George v S Jeswina, 2008 (1) KarLJ 383 : ILR 2008 KAR 672 : AIR 2008 [NOC] 698 (Kar) : 2008 (1) AIR Kar
R 381.
End of Document
[s 80] Interest when no rate specified—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When no rate of interest is specified in the instrument, interest on the amount due thereon shall,
42[notwithstanding any agreement relating to interest between any parties to the instrument], be calculated at
the rate of 43[eighteen per centum] per annum, from the date at which the same ought to have been paid by
the party charged, until tender or realisation of the amount due thereon, or until such date after the institution of
a suit to recover such amount as the Court directs.
Explanation.—When the party charged is the indorser of an instrument dishonoured by non-payment, he is

liable to pay interest only from the time that he receives notices of the dishonour.
Page 2 of 7
[s 80.2] Effect of Interest when no Rate is Specified
The section governs cases in which interest is mentioned in the instrument but no rate of interest is specified,44
as well as cases in which interest is not mentioned.45 The section did not abrogate the mercantile usage that
prevailed before the Act, though the rate was limited to 6% per annum.
Section 79 lays down that when interest at a specified rate is expressly made payable, then interest shall be
calculated at the rate of specified. But where interest is not specified, section 79 is not attracted and it is section
80 which deals with such cases. In such circumstances, the rate shall be calculated at the rate of 6%46 per
annum from the date at which the sum ought to have paid by the party charged till realisation of the amount due
or until such date after the institution of a suit to recover such amount as the court directs.47
By an amendment through the Banking, Public Financial Institutions and Negotiable Instruments (Amendment)
Act 1988, the rate of interest specified in the section was raised from 6% to 18% per annum. The amendment
was intended to discourage the withholding of payments on negotiable instruments on due dates. Where the
transaction was effected before 30 December 1988, when the amended rate was brought into effect, the
previous rate applies.48
In MP State Electricity Board v Anand Transformers Pvt Ltd,49 the promissory note did not specify any rate of
interest on the amount due under it. It was held by MP High Court that interest @ 18% per annum on the
amount of promissory notes is liable to be paid.
Similarly, in Foreshore Cooperative Housing Society Ltd, Bombay v Praveen D Desai,50 where the plaintiff had
filed a suit for recovery of loan amount which was secured by promissory note, the Bombay High Court allowed
interest under section 80 of the Act to the plaintiff @ 18% per annum from the date of execution of pronote till
the date of filing of suit.
Where a bill or note is silent as to interest, the silence is, under the section, tantamount to an agreement to pay
interest at the rate prescribed in the section. Such interest is payable only from the date of maturity till actual
Page 3 of 7
payment and not for any earlier period.51 If an instrument is silent as to interest, no oral contemporaneous
agreement will be admissible in evidence to prove that the parties agreed upon a different rate of interest, other
than the rate provided for by the section. Where no rate of interest is specified in the instrument then, the
section applies and any subsequent agreement about the rate of interest cannot be enforced.52
In Sathyan Ayyappa Sathyan v Yousu,53 it was held by Kerala High Court that the amount due upon the
instrument would also include the interest payable under section 80 by way of awarding compensation. Court
can ascertain the loss which complainant would suffer on account of delay in payment and direct appropriate
rate of interest. Accordingly, the Kerala High Court was of the view that direction can be given for payment of
interest thereupon.
In a suit on a negotiable instrument, under the summary procedure, the court has power to award the statutory
rate of interest, when there is no term in the instrument for the payment of interest. The operation of the section
is not excluded by O XXXVII, rule 2 of the Code of Civil Procedure, 1908.54 Where a bill of exchange
expressed the amount payable as Rs 20,000 including interest at nil, it was held that no interest was payable
from the due date of the suit; interest at 6% per annum, was payable thereafter.55 The liability on a promissory
note payable on demand arises from the date of the note and not from the date on which a demand is made for
payment. The interest on the amount, therefore, runs from the date of the demand promissory note.56
As per section 80, interest is to be charged not from the date of transaction but from the date when the amount
became due.57 The explanation of the section further lays down that the indorser of the instrument
dishonoured by non-payment is liable to pay interest only from time when he receives notice of the
dishonour.58
In Thankachan v Catholic Syrian Bank Ltd,59 it was held by Kerala High Court that interest pendente lite is
subject to the discretion of the court as provided under section 34 of the Code of Civil Procedure. Hence, a
creditor can claim interest at the rate provided under section 80 of Negotiable Instruments Act only upto the
date of filing of suit.
Where, after making a demand, a suit is brought against the maker of a promissory note payable on demand,
but the note is silent as to interest and specifies no place for payment, interest at the specified rate is
recoverable under the section on the amount of the note from its date.60 However, in Anantacharan v
Daitari,61 the court held that where no demand is made prior to the institution of the suit, the date of service of
the summons on the defendant will be deemed to be the date of demand and interest will be payable from that
date. In Syndicate Bank v NC Kalyani Raghavan,62 where a promissory note contained a blank as to the rate
of interest, it was held that interest at the rate of 6% per annum was payable not from the date of the note
Page 4 of 7
(which presumably was payable on demand) but from the date of institution of the suit. It was also held that the
maker’s acknowledgement of interest charged by the bank at 18% per annum did not cast a liability on the
maker to pay interest at that rate.
A plaintiff brought a suit upon six hundis drawn by the defendant upon himself in favour of the plaintiff. The
hundis were silent as to interest but there was, in accordance with the custom prevailing in the district, a
collateral agreement embodied in written documents that the hundis should bear interest at a rate equivalent to
30% per annum. The defendant contended that, notwithstanding the agreement of the parties, the plaintiff’s
right to interest was restricted to 6% by the section. It was held that the section presented no bar to the
recovery of the stipulated amount of interest. The section does not purport to deprive those dealing with such
instruments of the freedom of contract possessed by other contracting parties. It purports to confer a right to
interest, not to take away such a right otherwise existing. When a plaintiff has to rely upon the section as the
ground for his claim to interest, no doubt, the terms of the section must be followed but to read the section as
depriving him of a contractual right of interest would be to read into it something which it does not say.63
However, it is submitted that this decision may not hold good now.
In CB Joseph v MP Chandran,64 the court held that section 80 excludes collateral agreements on interest. It
was held in Banque Indosuez v Pawan & Co,65 that the rate of 18% per annum would apply even though the
hundi in question had been drawn, and fell due for payment, prior to the 1988 amendment. In the former case, it
had been held that interest of 6% per annum was only payable upto 31 March 1989, and at 18% per annum
from 1 April 1989, on which date the amendment to section 80 came into effect. In I Arumugam v CN
Govindaraj Shetty,66 it was held that the 1988 amendment did not apply to transactions effected prior to 30
December 1988, and hence, the rate of 6% per annum would be payable from the date the amount ought to
have been paid until its tender or realisation in such transaction. In Mangubhai Mansukhram Pandya v
Pranjivan Tribhovandas Purohit,67 the promissory notes in question, executed in 1969, and on which a suit
was filed in 1972, did not specify the rate of interest. The plaintiff claimed 15% per annum, but the court allowed
9% per annum from the date of suit till realisation.
In Sineximco Pvt Ltd v Dinesh International Pvt Ltd,68 a suit for recovery of Rs 84,15,000 was filed on the
allegation that as per the terms of the sale contract, the plaintiff drew Bill of Exchange for the invoiced amount.
The Bill of Exchange envisaged payment by defendant to Standard Chartered Bank, Singapore or any banker
or trust nominated by it, within 90 days of sight. Bank of Punjab Ltd, Connaught Circus Branch, accordingly
presented the Bill of Exchange for acceptance and payment by the defendant. The Bill was accepted by the
defendant and the defendant paid a total sum of US$ 150,820 from time to time. The last payment of US$
10970 was paid by the defendant company on 4 February 1999. It was further alleged that as per the terms of
Bill of Exchange, the unpaid amount was payable by the defendant on or before 5 May 1999. Since the balance
payment was not paid, the Bank of Punjab, vide its letter dated 21 April 1999 returned the Bill of Exchange
Page 5 of 7
which was returned to the plaintiff by its banker Standard Chartered Bank, Singapore vide its letter dated 10
May 1999. The defendant company failed to make payment of the balance amount despite notice of demand.
The plaintiff accordingly claimed the principal amount of US$ 84790.25 along with interest amounting to US$
84790 for the period 29 October 1997 to 4 May 1997 at the rate of 18% per annum and bank charges
amounting to US$ 305. The plaintiff also claimed pendente lite and future interest at the rate of 24% per annum.
Admittedly, there was no agreement between the parties for payment of interest. No custom or usage of trade
for payment of interest was pleaded by plaintiff company.
Noticing the provision of section 80 of the Act, the Delhi High Court held69 that there was no justification for
restricting the scope of section 80 to only those cases, where the instrument provides for payment of interest,
but the rate of interest is not specified and thereby allows unjust enrichment to a person who has defaulted in
honouring his contractual obligation with respect to repayment of principal sum. According to the High Court,
the provisions of s 80 equally applied to those cases where no term regarding payment of interest is contained
in the instrument. Since, the aforesaid provision, as amended, carried interest at the rate of 18% per annum,
consequently, the plaintiff was held to be entitled to interest at the rate of 18% per annum under section 80 of
the Act and the interest was made payable from the date on which the principal amount ought to have been
paid by the defendant to the plaintiff.
Admittedly, no document, whatsoever, was forthcoming to prove the agreed rate of interest between the
parties. When there is no specific rate mentioned in the instrument, interest at the rate of 18% has to be
calculated. Therefore, this court is of the view that if 18% interest is calculated, the same will meet the ends of
justice.70
[s 80.3] Cheque is an Instrument
In Vijay Baburao Malankar v Indian Oil Corporation Ltd,71 the question arose whether the cheque is an
instrument within the meaning of section 80. The contention was that section 80 is controlled by section 79 and
therefore, cheque cannot be an instrument as per section 80. Rejecting the contention of the defendant, the
High Court of Bombay (DB) held that a cheque undoubtedly falls within the ambit of section 80.
42 Subs. by Act 30 of 1926, section 2, for the words “except in cases provided for by the Code of Civil Procedure, 1908
section 532”.
Page 6 of 7
43 Subs. by Act 66 of 1988, section 2 for ‘six per centum’.
45 Best v Haji Mahammad, (1900) ILR 23 Mad 18.
46 After the amendment of 1988, it is 18%. See also UIC Finance Pvt Ltd v Carews Pharmaceuticals Pvt Ltd, (2005) 2
Bank CLR 679 (Cal).
47 Rambilas Dinaram Shivlal v Shantadevi Sitaram Agrawal, (2004) II BC 285 (Bom); see also PK Thankachan v Catholic
Syrian Bank, (2005) II BC 165 (DRT/DRAT) (DRAT Chennai); UIC Finance Pvt Ltd v Carews Pharmaceuticals Pvt Ltd,
(2004) IV BC 471 (Cal).
48 K Rajagopal v M Thiagarajan, (1999) 95 Comp Cas 286 .
49 MP State Electricity Board v Anand Transformers Pvt Ltd, AIR 2008 [NOC] 1279 (MP) : 2008 ILR (MP) 28 : 2008 (1)
MPLJ 193 .
50 Foreshore Cooperative Housing Society Ltd, Bombay v Praveen D Desai, AIR 2009 [NOC] 902 (Bom).
51 Rabiram Bhoi v Harish Chandra Joshi, (1972) 2 CWR 1194.
52 K Rajagopal v M Thiagarajan, (1999) 95 Comp Cas 286 .
53 Sathyan Ayyappa Sathyan v Yousu, 2007 CrLJ 2590 Ker.
54 Venkatchalapathi v Nanjapa, (1882) ILR 5 Mad 398.
56 Framroz v Mohammed, (1926) 28 Bom LR 141 .
57 PK Thankachan v Catholic Syrian Bank, (2005) II BC 165 (DRT/DRAT) (DRAT Chennai).
58 Rambilas Dinaram Shivlal v Shantadevi Sitaram Agrawal, (2004) II BC 285 (Bom); UIC Finance Pvt Ltd v Carews
Pharmaceuticals Pvt Ltd, (2004) IV BC 471 (Cal).
59 Thankachan v Catholic Syrian Bank Ltd, AIR 2007 (DOC) 6 (Ker) : 2006 (3) Bankers’ Journal 212.
60 Ganpat v Sopana, (1928) 30 Bom LR 1 . This was relied on in Ghasi Patra v Brahma Thati, AIR 1962 Ori 35 .
61 Anantacharan v Daitari, (1969) ILR Cut 796.
62 Syndicate Bank v NC Kalyani Raghavan, AIR 1983 Mad 254 .
63 Goswami v Ram Narain, (1907) 9 Bom LR 1 .
64 CB Joseph v MP Chandran, (1990) 67 Comp Cas 31 .
65 Banque Indosuez v Pawan & Co, AIR 1991 Bom 47 .
66 I Arumugam v CN Govindaraj Shetty, AIR 1992 Kant 347 .
67 Mangubhai Mansukhram Pandya v Pranjivan Tribhovandas Purohit, AIR 1992 Guj 1 .
68 Sineximco Pvt Ltd v Dinesh International Pvt Ltd, (174) 2010 DLT 422 : 2010 Indlaw DEL 2950. However, in the final
analysis, in this case the suit was held to be barred by limitation.
69 Sineximco Pvt Ltd v Dinesh International Pvt Ltd (supra).

Page 7 of 7
70 Rama Home Need (P) Ltd v Sarath Chandran, CS No. 395 of 2007, decided on 2 June 2014 (Mad. HC).
71 Vijay Baburao Malankar v Indian Oil Corporation Ltd, Appeal No. 666 of 2004 in Summons for Judgment No. 595 of
2001 in Summary Suit No. 223 of 2001, decided on 11 June 2014 (Bom. HC).
End of Document
[s 81] Delivery of instrument on payment or indemnity in case of loss—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

72[(1)] Any person liable to pay, and called upon by the holder thereof to pay, the amount due on a
promissory note, bill of exchange or cheque is before payment entitled to have it shown, and is on
payment entitled to have it delivered up, to him, or, if the instrument is lost or cannot be produced, to
be indemnified against any further claim thereon against him.
Page 2 of 3
73[(2) Where the cheque is an electronic image of a truncated cheque, even after the payment the banker
who received the payment shall be entitled to retain the truncated cheque.
(3) A certificate issued on the foot of the printout of the electronic image of a truncated cheque by the
banker who paid the instrument, shall be prima facie proof of such payment.]
This section corresponds to sections 52(4), 69 and 70 of the Bills of Exchange Act, 1882.
[s 81.2] Payer to be shown the Instrument
The definition of cheque under section 6 of the Act has been broadened to include the electronic image of a
truncated cheque and a cheque in the electronic form. Section 64 has also been amended to provide for rules
as to presentment of a truncated cheque. Despite the amendment recognising electronic image of a truncated
cheque, provision has been made for the drawee bank to call for the truncated cheque in original, if it is not
satisfied about the instrument. The present section has also been amended to provide that even after the
payment on an electronic image of a truncated cheque, the banker who received the payment shall be entitled
to retain the truncated cheque. It has further been provided that a certificate issued on the foot of the printout of
the electronic image of a truncated cheque by the banker who paid the instrument, shall be prima facie proof of
such payment.
When the holder of a negotiable instrument presents it for payment, he must exhibit it to the person from whom
he demands payment, and when the instrument has been paid, the holder must deliver it to the party paying
him. This provision is added for the protection of the payer, for: (i) the production of the instrument is a means
of identifying the person paid, and (ii) the paid instrument, when delivered to the payer is kept by him as a
voucher for his paying the amount.74
The section further provides that any person liable to pay and paying the amount on an instrument which is lost
or cannot be produced shall be indemnified against any further claim against him on the instrument. Under O
VII, rule 16 of the Code of Civil Procedure, 1908, a suit may be maintained on a lost negotiable instrument, and
the court may grant relief upon indemnity being given by the plaintiff to the satisfaction of the court.
Page 3 of 3
Insistence of presentment of a promissory note is a privilege or an option given to the maker. He can decline to
honour his obligation unless the note is presented. The maker may, however, waive this option and such waiver
may be express or implied.75
When the maker of a note makes payment thereof, he should get the note back, preferably with an indorsement
thereon of the payment by the recipient; if the note is not shown or is not found, he should at least ask for an
indemnity from the recipient against any later claim on the note against the maker. If payment is made without
any such safeguard, the maker may be held liable on the note by a subsequent holder in due course, despite
the payment.76
In a suit on a promissory note against the maker, his defence that he had discharged his liability by payment
could not succeed since, there was no indorsement of the payment on the note, which was produced by the
plaintiff in evidence.77
72 Renumbered as sub-section (1) by the Amendment Act of 2002 (55 of 2002), section 4 (w.e.f. 6-2-2003).
73 Ins. by the Amendment Act of 2002 (55 of 2002), section 4 (w.e.f. 6-2-2003).
74 Hansard v Robinson, (1827) 7 B&C 90.
75 K Venkatasubbayya v P Ranga Rao Tobacco Co, AIR 1972 AP 72 .
76 Venkatakrishnaiah v Manikyaraw, AIR 1948 Mad 171 .
77 Sudhakar Syndicate v HM Chandrashekaraiah, AIR 1981 Kant 245 .
End of Document
[s 82] Discharge from liability—
OF DISCHARGE FROM LIABILITY ON NOTES, BILLS AND CHEQUES
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 7 OF DISCHARGE FROM LIABILITY ON NOTES, BILLS AND CHEQUES
The maker, acceptor or indorser respectively of a negotiable instrument is discharged from liability thereon—
(a) By cancellation.—to a holder thereof who cancels such acceptor’s or indorser’s name with intent to
discharge him, and to all parties claiming under such holder;
(b) By release.—to a holder thereof who otherwise discharges such maker, acceptor or indorser, and to all
parties deriving title under such holder after notice of such discharge;
Page 2 of 4
(c) By payment.—to all parties thereto, if the instrument is payable to bearer, or has been indorsed in
blank, and such maker, acceptor or indorser makes payment in due course of the amount due thereon.
This section corresponds to sections 59, 62 and 63 of the Bills of Exchange Act, 1882.
[s 82.2] Discharge
With the exception of section 90, this chapter deals with discharge of parties from liability on a bill, note or
cheque. The term ‘discharge’ in relation to negotiable instruments is used in two senses. The discharge of an
instrument is to be distinguished from the discharge of one or more of the parties from liability thereon. So long
as a negotiable instrument is in existence and is valid, there are certain rights of action upon it, but when these
rights have been extinguished, the instrument is discharged. The instrument ceases to be negotiable and even
a holder in due course cannot then acquire any right of action upon it. An instrument is said to be discharged
only when the party who is ultimately liable thereon is discharged from liability. The discharge of one or more of
the parties to a bill or note does not discharge the instrument itself. Thus, in the case of an ordinary note or bill,
the discharge of the drawer or indorser would not discharge the instrument, but the discharge of the maker or
acceptor thereon will have such an effect. The most obvious and general method of discharging or
extinguishing the right of action upon a negotiable instrument is payment by the acceptor or maker according to
the tenor of the instrument. The section mentions the following three modes of discharge from liability.
[s 82.2.1] Cancellation
When the holder of a negotiable instrument or his agent cancels the name of any party on the instrument with
intent to discharge him, such party and all subsequent parties, who have a right to recourse against the party
whose name is cancelled, are discharged from liability to the holder.1 The subsequent parties are in the
position of sureties for the prior party whose name is cancelled and a discharge of the principal debtor
discharges the sureties. Thus, the cancellation of the drawer’s name would discharge him and all the indorsers;
the cancellation of the indorser’s name would discharge him and all the indorsers subsequent to him; and the
cancellation of the acceptor’s name would discharge him and all the parties to the instrument. Though, clause
(a) of the section makes no mention of the cancellation of the maker’s name, it is clear that as he is the party
primarily liable on the promissory note, the cancellation of his name would discharge him and all parties
Page 3 of 4
subsequent to him, i.e., it would operate as a discharge of the instrument. A cancellation to be effectual must be
intentional and one made unintentionally or by mistake or without authority of the holder will be inoperative.2
Section 83(2) of the Bills of Exchange Act requires that the cancellation should be apparent on the instrument,
and though the present section does not expressly provide for it, it seems that the same condition would also
be required in India. The proper and safe mode of cancellation is to draw a line through the name so as to leave
it legible.3 Though, by the cancellation of his name or of the name of a prior party a person may be discharged
from liability on the instrument, he may nevertheless be liable in respect of a collateral security given in respect
of the debt.4
[s 82.2.2] Release
Though, clause (b) confines its operation to discharge by release only, it is intended to apply to all cases in
which the maker, acceptor, or indorser is discharged otherwise than by cancellation. This would include a
discharge by agreement of the parties and would apply to cases of release, renunciation, and accord and
satisfaction. Such modes of discharge are provided for by section 63 of the Indian Contract Act, 1872. The case
of discharge by accord and satisfaction has been considered in section 78 of that Act.
[s 82.2.3] Payment
Section 82(c) provides that the maker, acceptor or endorser respectively of a negotiable instrument is
discharged from liability thereon, by payment to all parties thereto, if the instrument is payable to bearer or has
been endorsed in blank and such maker, acceptor or endorser makes payment in due course of the amount
due thereon.5
When the instrument is payable to bearer, whether originally or by an indorsement in blank, the instrument is
discharged by payment in due course.
In Deddappa v National Insurance Co Ltd,6 the insurance policy was to remain valid for the period 17 October
1997 to 16 October 1998. The respondent 3 issued a cheque on 15 October 1997. The said cheque was
presented for encashment before Syndicate Bank. The Bank by its letter dated 21 October 1997 issued a
‘return memo’ disclosing dishonour of the cheque with the remarks ‘fund insufficient’. The first respondent
thereupon cancelled the policy of insurance. The said information was communicated to respondent 2.
Intimation thereabout was also given to RTO concerned. It was noticed that the accident had occurred on 6
February 1998, that is, much after communication of cancellation of the policy. On these facts, it was observed
Page 4 of 4
by Supreme Court that payment made by cheque is ordinarily accepted as valid tender, subject to realisation of
cheque.
1 Sweeting v Halse, (1829) 9 B&C 365, p 569.
2 Bank of Scotland v Dominion Bank, [1891] AC 592; Prince v Oriental Bank Corpn, [1878] 3 App Cas 325 (PC).
3 Wilkinson v Johnson, (1824) 7 CBNS 82 : (1824) 3 B & C 428 : 3 LJOSKB 58 : 5 Dow & Ry KB 403 : 107 ER 792 :
[1824-34] All ER Rep 321.
4 Yglesais v Mercantile Bank of River Plate, (1877) 3 CPD 60.
5 Tolani Shipping Co Ltd v Saw Pipes Ltd, (1999) 97 Comp Cas 394.
6 Deddappa v National Insurance Co Ltd, (2008) 2 SCC 595 : (2008) 1 SCC (Cri) 517 : AIR 2008 SC 767 : (2008) 1 KLT
296 : (2008) 2 GujLR 1174.
End of Document
[s 83] Discharge by allowing drawee more than forty-eight hours to accept.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

If the holder of a bill of exchange allows the drawee more than 7[forty-eight] hours, exclusive of public holidays,
to consider whether he will accept the same, all previous parties not consenting to such allowance are thereby
discharged from liability to such holder.

Page 2 of 2
[s 83.2] Discharge by Allowing Drawee more than Forty-eight Hours
By section 63, the drawee of a bill of exchange is entitled to retain it for 48 hours to consider whether he will
accept it or not. At the expiration of that time, the holder should demand re-delivery of the bill, irrespective of
whether it is accepted or unaccepted.8 If the drawee does not return the bill duly accepted, the holder must
treat the instrument as dishonoured, and should give notice of dishonour to the drawer and all prior indorsers.
Instead of doing so, if he allows the drawee more time for deliberation, under the section, all parties will be
discharged from liability to the holder, unless they consent to the allowance of more than 48 hours. The
expression ‘all prior parties’ in the section includes the drawer.
7 Subs. by section 2 of Act 12 of 1921 for ‘twenty-four’.
8 Bank of Van Diemen’s Land v Victoria Bank, (1871) LR 3 PC 526, p 542.
End of Document
[s 84] When cheque not duly presented and drawer damaged thereby.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

9[s 84] When cheque not duly presented and drawer damaged thereby.—
(1) Where a cheque is not presented for payment within a reasonable time of its issue, and the drawer or
person on whose account it is drawn had the right, at the time when presentment ought to have been
made, as between himself and the banker, to have the cheque paid and suffers actual damage through
the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such
Page 2 of 4
drawer or person is a creditor of the banker to a larger amount than he would have been if such
cheque had been paid.
(2) In determining what is a reasonable time, regard shall be had to the nature of the instrument, the
usage of trade and of bankers, and the facts of the particular case.
(3) The holder of the cheque as to which such drawer or person is so discharged shall be a creditor, in lieu
of such drawer or person, of such banker to the extent of such discharge and entitled to recover the
amount from him.
Illustrations
(a) A draws a cheque for Rs 1,000 and when the cheque ought to be presented, has funds at the bank
to meet it. The bank fails before the cheque is presented. The drawer is discharged, but the holder
can prove against the bank for the amount of the cheque.
(b) A draws a cheque at Ambala on a bank in Calcutta. The bank fails before the cheque could be
presented in ordinary course. A is not discharged, for he has not suffered actual damage through
any delay in presenting the cheque.]
[s 84.2] Discharge by Delay in Presentment of Cheques
The section must be read with section 72, which deals with presentment of cheques. To claim the right of
resorting to the drawer in case a cheque is dishonoured, it is necessary that the cheque should be presented to
the drawee-bank within a reasonable time. Cheques are generally intended for immediate payment and not for
general circulation. Under the section, if a holder does not present a cheque within a reasonable time after its
issue, and the bank fails and the drawer suffers actual damage through the delay, he is discharged from liability
to the extent of the damage he has suffered and no more, that is to say, to the extent to which the drawer is a
creditor of such banker to a larger amount than he would have been if such cheque had been paid. Thus, if the
drawer had the full amount of the cheque deposited with his bank at the time of its failure, he will be discharged
Page 3 of 4
in full. However, if the amount of the cheque was in excess of the sum the drawer had with his bank at the date
of insolvency of the bank, he suffers damage only in that sum and is discharged to that extent.
The holder of such a cheque, however, shall be a creditor, in lieu of the drawer, of such banker to the extent of
such discharge, and is entitled to recover the amount from him by proving against the insolvent bank. If,
however, the drawer had no funds to his credit with his banker, but was authorised to overdraw, the drawer
would still be discharged, but the holder cannot prove against the banker’s estate.
Bank deposits are now insured, up to a specified limit in individual cases, by the Deposit Insurance & Credit
Guarantee Corporation. In calculating the damage suffered by the drawer as mentioned in the section, any
insurance money receivable by him from the Corporation may have to be taken into account.
The section applies only to the drawer of a cheque, and not to an indorser, the case of an indorser being
regulated by section 73. To charge an indorser, the cheque must be presented within a reasonable time after
delivery of it by him. In default of such presentment, the indorser would be discharged.
The provision in section 84(1) is limited in its application to cheques. If the legislature intended to make it
applicable to every negotiable instrument or to drafts drawn by one branch of a bank on another branch thereof,
there was nothing easier for the legislature than to use appropriate expressions.10
As to reasonable time under clause (2) it has been held in Rajagopal v M Thiagarajan,11 that reasonable time
is six months. However, where there was a raid by the IT Department, wherein the cheque was seized and
there was also some personal loss, it was held that in light of section 75A, the action of not presenting the
cheque within time was excusable.
9 Subs. by Act 6 of 1897, section 3 for the original section 84.

Page 4 of 4
10 Haji Sheikh Hasanoo v Natesa Mudaliar & Co, (1959) 61 Bom LR 1127 .
11 Rajagopal v M Thiagarajan, (1999) 95 Comp Cas 286 .
End of Document
[s 85] Cheque payable to order—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

12[(1)] Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee
is discharged by payment in due course.
13[(2) Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by
payment in due course to the bearer thereof, notwithstanding any indorsement whether in full or in
Page 2 of 5
blank appearing thereon, and notwithstanding that any such indorsement purports to restrict or exclude
further negotiation.]
This section corresponds to section 60 of the Bills of Exchange Act, 1882 and section 1 of the Cheques Act,
1957.
[s 85.2] Protection of Banks Paying Cheques
The drawee of a cheque is always a banker. By virtue of the section, banks are placed in a privileged position
as regards payment of cheques. The section provides that, if a cheque payable to order purports to be indorsed
by or on behalf of the payee, and the bank on which it is drawn pays it in due course, the bank is discharged,
and it can debit its customer with the amount so paid, though the indorsement of the payee might turn out to be
a forgery, or though the indorsement might have been placed on the cheque by the payee’s agent without his
authority. The purpose of the section is to free banks from liability in respect of either the genuineness or the
validity of the indorsement purporting to be that of the payee or his authorised agent. In view of section 16(2),
the section would also apply to an indorsement other than the payee’s.14 The section does not apply to the
payment of customers’ bills of exchange and promissory notes.
To claim protection under the section, the banker has to prove that the payment was a payment in due course,
i.e., in accordance with section 10 of the Act. Thus, good faith and absence of negligence have to be proved.
For example:
(i) A cheque is drawn payable to B or order. It is stolen, and B’s indorsement is forged. The drawee-bank
pays the cheque in due course. The bank is discharged from liability and can debit the drawer’s
account with the amount of the cheque.
(ii) A cheque is drawn payable to B or order, and delivered to B in payment of a debt. B’s agent, without
having any authority to indorse, indorses the cheque per pro for B and obtains payment of the money
and misappropriates it. The banker is discharged by payment in due course.
Page 3 of 5
Although by virtue of the section, the drawee-bank is relieved of its responsibility of verifying the genuineness or
validity of indorsements on order cheques presented for payment, the bank has to verify the regularity of the
indorsements.
A paying bank may rely on the collecting bank’s confirmation of the indorsements appearing on a cheque.15
When an unindorsed order cheque is presented across the counter for payment, it is customary for the banker
to ask the presenter to sign on the back of the cheque. It is doubtful if the presenter’s signature could be
considered as an indorsement.
If a cheque shows an irregularity on the face of it, the bank should refer it to the customer before paying it; as
where the cheque was postdated, a date subsequent to the date of the countermand and a wrong number was
specified in the countermand.16 The bank has to see whether any alterations in the cheque have been properly
authenticated. When an alteration on a cheque is not authenticated by all the drawers but only by one or some
of them, the bank will be paying the cheque at its own risk. Under section 89, protection is afforded to the bank
paying a cheque where the alteration is not apparent.17
For the purchase price of certain properties bought from a company in liquidation, a cheque was issued by the
purchaser in favour of the official liquidator. The drawee-bank paid the cheque to the official liquidator across
the counter and he misappropriated the money. In a suit by the new liquidator against the bank for the recovery
of the amount of the cheque, it was held that the bank was liable. The bank had committed a breach of a
statutory duty and was negligent in paying to the liquidator direct over the counter. The bank must be deemed
to have known that the liquidator ought to have a bank account and that he could not collect a cheque except
through that account. The negligent payment by the bank had facilitated his misappropriation. The payment
was not, therefore, made in due course within the meaning of section 10 and the bank was not entitled to claim
the protection under section 85.18
The manager of a joint stock company, using the company’s rubber seals, indorsed a cheque made payable to
the company, and presented it to the drawee-bank over its counter for payment. The cheque was paid after a
customer of the bank identified him. Subsequently, the company sued the bank for recovery of the amount; on
the grounds that the manager had fraudulently encashed the cheque and that the bank was negligent in not
making inquiries about his authority to receive payment. The court held that the bank was not negligent and that
Page 4 of 5
it was protected by section 85(1).19 It may, however, be added that it is unusual for a cheque in favour of a
company to be presented across the drawee-bank’s counter. Such cheques are generally credited to the
company’s bank account.
Sub-section (2) of the section was added by the Negotiable Instruments (Amendment) Act 17 of 1934. The
object and reasons for this amendment were stated as follows:
…to provide that cheques originally drawn to bearer shall not lose their bearer character notwithstanding any
indorsement thereon whether in full or in blank and whether such indorsement purports to restrict or exclude further
negotiation or not. The necessity for the amendment had arisen out of ruling of the Bombay High Court that under
section 50 of the Negotiable Instruments Act and the Explanation thereto, a bearer bill can legally be changed to an
order bill by indorsement. This makes it incumbent on banks to examine all indorsements upon bearer cheques and
thus considerably increases their work and responsibility without any compensatory advantage to their constituents or
to the general public.20
The amendment aimed at removing this difficulty of the banks. The ruling of the Bombay High Court referred to
above was in Forbes, Campbell & Co v Official Assignee of Bombay.21
When a payment is made under the circumstances mentioned in the section, the drawee is discharged, but the
section does not say that such a payment would discharge the drawer from his liability on the cheque to the
true owner. The drawer of a cheque is discharged if the drawee-bank makes payment in due course to the de
facto holder as authorised by the section, for, if the true owner claims payment and the bank refuses on the
ground that the cheque had already been paid, such refusal does not constitute a dishonour upon which the
drawer’s liability under section 30 can be founded. The drawee being discharged by payment in due course, the
drawer is also discharged.22
In Ajithkumar v Rejinkumar,23 it was held by Kerala High Court that in the event of an accused taking a
defence of the cheque being forged, the burden of proof lies upon the accused. If the accused fails to take
necessary steps for forensic examination of the signature on the cheque which he seeks to dispute, then mere
production of specimen signature would not be sufficient to discredit that signature on the cheque after the
complainant has proved the issuance of cheque because of the presumption that the cheque has been issued
in discharge of a legally enforceable liability.
Page 5 of 5
12 Section 85 re-numbered as sub-section (1) and sub-section (2) added by section 2, Act 17 of 1934.
14 Jagjiwandas v The Nagar Central Bank Ltd, (1926) ILR 50 Bom 118.
15 Indian Overseas Bank v Reliable Hire Purchase Co Pvt Ltd, (1976) 46 Comp Cas 403 .
16 Westminster Bank Ltd v Hilton, (1927) 136 LT 315 (HL).
17 Tanjore Permanent Bank Ltd v Rangachari, AIR 1959 Mad 119 .
18 Madras Provincial Co-operative Bank Ltd v South Indian Match Factory Ltd, (1945) ILR Mad 328.
19 Bhutoria Trading Co Ltd v Allahabad Bank, AIR 1977 Cal 363 .
20 Statement of Objects and Reasons to Negotiable Instruments (Amendment) Act 17 of 1934.
21 Forbes, Campbell & Co v Official Assignee of Bombay, (1925) 27 Bom LR 34 .
22 Sulleman v New Oriental Bank Corpn Ltd, (1891) 15 Bom 267.
23 Ajithkumar v Rejinkumar, 2010 CrLJ 1211 NOC Ker.
End of Document
[[s 85A] Drafts drawn by one branch of a bank on another payable to order.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

24[[s 85A] Drafts drawn by one branch of a bank on another payable to order.—
Where any draft, that is an order to pay money, drawn by one office of a bank upon another office of the same
bank for a sum of money payable to order on demand, purports to be indorsed by or on behalf of the payee, the
bank is discharged by payment in due course.]
Page 2 of 4
This section corresponds to section 1(2)(b) of the Cheques Act, 1957.
[s 85A.2] Scope and Object
The object of the section, which was added by Act 25 of 1930, is to afford protection to bankers in India against
forged or unauthorised indorsements on demand drafts, drawn by one branch of a bank upon another branch of
the same bank.
Branches of a bank are considered as distinct entities for many purposes. Where one branch of a bank debits
the account of its customer in a valid manner, and transfers the money to another branch of the bank or its
head office, the transaction does not amount to merely a transfer of the bank’s own money from one branch of
the bank to another branch, but involves the receipt of the money by the transferee bank, and hence it becomes
a collecting bank.25 It was held in Haji Sheikh Hasanoo v Natesa Mudaliar & Co26 that a draft drawn by one
branch of a bank upon another branch thereof is not a cheque, not being a negotiable instrument as it is not an
instrument under which there is a remedy against the drawer, since, the drawer and the drawee are the same
person. A better view, however, seems to be that a bank draft is a negotiable instrument.27 In Central Bank of
India Ltd v Gopinathan Nair,28 the bank paid a demand draft on which the payee’s indorsement had been
forged. It was held by Mathew J, that the form of the indorsement should have put the drawee branch on inquiry
and as no inquiry was made, the branch was negligent and was not protected under the section. The draft was
drawn in favour of a sole proprietary concern. The concern had maintained an account with the drawee branch
for a long time and the branch was familiar with the form in which the proprietary signed cheques and drafts on
behalf of the concern. The forged indorsement was not in that form and contrary to the usual practice of the
proprietor, the draft appeared to be indorsed to a third party and collected by another bank for that party’s
account. This decision was overruled by a Division Bench of the Kerala High Court which held that the paying
bank was not negligent. The bench observed that, in determining whether a paying bank was negligent or not,
different considerations applied to a payment over the counter and a payment to another bank through the
clearing.29
In Tukaram Bapuji Nikam v Belgaum Bank Ltd,30 after reviewing important Indian legal decisions relating to
demand drafts, Vimadalal J, summarised the main propositions to be derived from them as follows:
Page 3 of 4
(i) The relationship of the purchaser of a draft and the bank from which that draft has been purchased is
merely that of debtor and creditor;
(ii) The purchaser of the draft can, therefore, call upon the bank from which he has purchased it to cancel
the draft and pay back the money to him at any time before the draft has been delivered to the payee.
(iii) If, however, the sole object of the issue of the draft was to transmit the money to another person, a
fiduciary relationship is created between the purchaser and the bank which issued it, and the
purchaser can countermand payment, only if the bank has not actually parted with money held by its
as agent, thus, terminating the relationship of principal and agent.
(iv) Ordinarily, a bank issuing a draft cannot refuse to pay the amount thereof, unless there was some
doubt as to the identity of the person presenting it as being or properly representing the person in
whose favour it was drawn, or, in other words, unless there is reasonable ground for disputing the title
of the person presenting the draft.
(v) Once the draft has been delivered to the payee or his agent, the purchaser is not entitled to ask the
issuing bank to stop payment of the draft to the payee on other grounds such as matters relating to
consideration, and the issuing bank can thereafter pay back the amount of the draft to the purchaser
only with the payee’s consent.
In Raghavendra Singh Bhadoria v State Bank of Indore,31 two bank drafts were honoured when presented by
the payee, despite a request by the purchaser of the drafts not to pay. The purchaser brought an action against
the bank. The Madhya Pradesh High Court applied to the case the observations made by the Supreme Court in
UP Cooperative Federation Ltd v Singh Consultants and Engineers P Ltd,32 with respect to restraint of
payments under bank guarantees and letters of credit, and held that unless serious allegations of fraud with
prima facie evidence of it is shown, courts should not interfere and grant injunctions restraining banks from
paying drafts issued by them and presented by the payee or a lawful holder in due course.
In Sameer Wason v Rajinder Kumar Lamba,33 it has been held by Delhi High Court that if the draft, after
getting prepared, is retained by the person who got it prepared, for whatsoever reason, the person in whose
name the draft has been prepared does not become the owner of that draft. A person becomes owner of the
draft only when he received the draft. On the other hand, the person who got the draft prepared can get the
draft cancelled and take back his money.
Page 4 of 4
25 Sanyasalingam v The Exchange Bank of India and Africa Ltd, AIR (1948) Bom 149 .
26 Haji Sheikh Hasanoo v Natesa Mudaliar & Co, (1959) 61 Bom LR 1127 .
27 Birbhum Central Co-operative Bank Ltd v Pioneer Bank Ltd, AIR 1956 Cal 615 , relied on in Re Palai Central Bank Ltd,
AIR 1962 Ker 210 , and State Bank of India v Jyoti Ranjan Mazumdar, AIR 1970 Cal 503 .
28 Central Bank of India Ltd v Gopinathan Nair, AIR 1970 Ker 74 .
29 Central Bank of India Ltd v Gopinathan Nair, 1972 Ker LT 518 (DB).
30 Tukaram Bapuji Nikam v Belgaum Bank Ltd, AIR 1976 Bom 185 .
31 Raghavendra Singh Bhadoria v State Bank of Indore, AIR 1992 MP 148 .
32 UP Cooperative Federation Ltd v Singh Consultants and Engineers P Ltd, (1988) 1 SCC 174 .
33 Sameer Wason v Rajinder Kumar Lamba, 2010 (168) DLT 712 .
End of Document
[s 86] Parties not consenting discharged by qualified or limited acceptance—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

If the holder of a bill of exchange acquiesces in a qualified acceptance, or one limited to part of the sum
mentioned in the bill, or which substitutes a different place or time for payment, or which, where the drawees
are not partners, is not signed by the drawees, all previous parties whose consent is not obtained to such
acceptance are discharged as against the holder and those claiming under him, unless on notice given by the
holder they assent to such acceptance.
Page 2 of 5
Explanation.—An acceptance is qualified—
(a) where it is conditional, declaring the payment to be dependent on the happening of an event therein
stated;
(b) where it undertakes the payment of part only of the sum order to be paid;
(c) where, no place of payment being specified on the order, it undertakes the payment at a specified
place, and not otherwise or elsewhere; or where, a place of payment being specified in the order, it
undertakes the payment at some other place and not otherwise or elsewhere;
(d) where it undertakes the payment at a time other than that at which under the order or would be legally
due.
This section corresponds to sections 19 and 44(1) and (2) of the Bills of Exchange Act, 1882.
[s 86.2] General and Qualified Acceptance
An acceptance is general or qualified. A general acceptance assents without qualification to the order of the
drawer. A qualified acceptance, in express terms, varies the effect of the bill as drawn. The instances of
qualified acceptance given in the Explanation to the section are not exhaustive. In particular, an acceptance is
said to be qualified which is:
[s 86.2.1] Conditional
An acceptance which makes the payment by the acceptor dependent upon the happening of an event therein
stated. If the holder acquiesces in a conditional acceptance, it binds him as well as the acceptor, but not the
other parties to the bill not consenting thereto. For example:
(i) ‘Accepted, payable when in funds.’34

Page 3 of 5
(ii) ‘Accepted, payable on giving up bills of lading for clover per SS Amazon.’35
(iii) ‘Accepted, payable when a cargo consigned to me is sold.’36
[s 86.2.2] Partial
An acceptance which undertakes to pay only part of the amount for which the bill is drawn. Acceptance of part
of the sum due, if acquiesced in by the holder, discharges all prior parties not consenting to such an
arrangement. For example: ‘A bill drawn for Rs 1,000 and accepted as follows: Accepted for Rs 500 only’.
[s 86.2.3] Local
An acceptance which undertakes to pay only at a specified place and not elsewhere, or to pay at a place
different from the place mentioned in the bill and not elsewhere. An acceptance to pay at a particular place is
only a general acceptance, unless it expressly states that the bill is to be paid there only and not elsewhere, in
which case, it is qualified.
Where there is no place mentioned in the instrument itself, if the acceptance makes the money payable at a
particular place, it is treated as a general acceptance. In Bank Polski v Mulder,37 bills were drawn in Dutch
florins on a London firm, payable in Amsterdam. It was held that the acceptances were general, as it was not
specified that the bills were payable in Amsterdam only and not elsewhere. For example:
(i) ‘Accepted, payable at Blankshire Bank.’ This is a general acceptance.
(ii) ‘Accepted, payable at the Union Bank and not elsewhere.’ This is a qualified acceptance.
[s 86.2.4] Qualified as to Time
An acceptance, which makes the money payable under a bill at a time different from that mentioned in the order
of the drawer. The qualification as to time may be introduced in an acceptance by a promise to pay at a time
shorter or longer than mentioned in the order. For example:
Page 4 of 5
(i) A bill is drawn payable three months after date. The acceptance is as follows: Accepted, payable at six
months after date.
(ii) A bill was accepted in this form: accepted on the condition of its being ‘renewed’ till 22 November
1844. This was held to be an acceptance qualified as to time, on which the holder might insist against
the acceptor, and that the word ‘renewed’ might be read to mean an extension of the time when the bill
was to become payable.38
[s 86.2.5] Acceptance by Some of the Drawees and not by All
Where a bill is drawn on two or more drawees and is accepted by one or more, but not by all of them, the
acceptance is said to be qualified. However, if the drawees are partners, one or more can accept on behalf of
the other or others and the acceptance is said to be general.
For example, a bill is drawn on A, B and C who are not partners, and is accepted by A only. B and C refuse to
accept. This is a qualified acceptance.
If the acceptor of a bill desires to qualify his acceptance, he must do so on the face of the bill and in clear and
unequivocal terms, so that a person taking the bill cannot fail to notice that it is accepted subject to an express
qualification.39
[s 86.3] Effect of a Qualified Acceptance
The holder of a bill is entitled to an absolute and unqualified acceptance and is not bound to take a qualified
acceptance. If he cannot get an unqualified acceptance, he may treat the bill as dishonoured, and after giving
due notice of dishonour, pursue his remedies against prior parties. If, however, the holder elects to take a
qualified acceptance he does so at his own peril, and discharges all prior parties unless he obtains their
consent to such acceptance. The holder must give notice of the qualified acceptance to all the prior parties, and
if on receipt of such notice, the drawer and the prior indorsers notify their consent to such acceptance, they will
be liable in case the bill is dishonoured. If any of them do not assent, the holder, by taking a qualified
acceptance discharges them or any of them who do not consent.
Page 5 of 5
However, this section is confined in its application to only the bills of exchange and has no application to
cheques.40
34 Julian v Shobrooke, (1753) 2 Wills 9.
35 Smith v Virtue, (1860) LJCP 56.
36 Smith v Abbot, (1741) 2 Stra 1152.
37 Bank Polski v Mulder, [1942] 1 All ER 396.
38 Russel v Phillips, [1850] 14 QB 891 .
39 Meyer v De Croix, [1891] AC 520.
40 Silchar Bank Ltd v Pioneer Bank Ltd, AIR 1951 Gau 127 .
End of Document
[s 87] Effect of material alteration—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Any material alteration of a negotiable instrument renders the same void as against any one who is a party
thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry
out the common intention of the original parties;
Page 2 of 21
Alteration by indorsee.—And any such alteration, if made by an indorsee, discharges his indorser from all
liability to him in respect of the consideration thereof.
The provisions of this section are subject to those of sections 20, 49, 86 and 125.
[s 87.2] Scope
It is a general rule of law that any ‘material alteration’ in a written instrument, if made after its execution, and
without the privity of the party to be affected by it, is fatal to its validity.41 Similarly, any material alteration of a
negotiable instrument renders the same void against any one who is a party thereto at the time of making the
alteration and does not consent thereto, unless, it was made in order to carry out the common intention of the
original parties.42
The Negotiable Instruments Act, 1881, permits three kinds of alteration:—
(i) As per section 20 of the Act, a person to whom a signed and stamped instrument has been issued
wholly or partly in blank has the Authority to complete it and it will not be avoided even if he completes
it in excess of authority vested in him.
(ii) Section 49 of the Act enables the holder of the instrument endorsed in blank to convert it into
endorsement in full.
(iii) As per section 125 of the Act, the holder of an uncrossed cheque may cross it, or may convert
generally into special crossing or make it ‘not negotiable’. Further, the banker to whom a cheque has
been crossed specially may cross it to another banker or agent.
Over and beyond these permissible alterations under statute, all other alterations in a negotiable instrument are
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susceptible to judicial scrutiny for ascertaining whether the alteration is material or not. Therefore, alteration of
date of the instrument or of payment is material.43 Similarly, alteration of the amount of instrument is
material.44
However, an alteration made outside the body of the instrument does not fall within the purview of this
section.45
[s 87.3] ‘Material Alteration’ – Meaning of
An alteration is said to be material when, if it had been made with the consent of the party charged, it would
have affected his interest or varied his obligations in any way whatever.46
Halsbury’s Laws of England elaborates the scope, effect and applicability of material alteration:47
598. A writing proposed to be executed as a deed may be altered by erasure, or inter lineation or in any other way
before it is so executed, and any alteration so made before execution does not affect the validity of the deed. Any
alteration, erasure or interlineation appearing upon the face of a deed is presumed, in the absence of evidence to the
contrary, to have been made before the execution of the deed.
599. If an alteration (by erasure, inter lineation or otherwise) is made in a material part of a deed, after its execution by
or with the consent of the party thereto or person entitled thereunder, but without consent of the party or parties liable
thereunder, the deed is thereby made void. The avoidance, however, is not ab initio or so as to nullify any conveyance
effect which the deed has already had, but only operates as from the time of such alteration, and so as to prevent the
person, who has made or authorised the alteration, and those claiming under him, from putting the deed in suit to
enforce against any party bound thereby, who did not consent to the alteration, any obligation, covenant or promise
thereby undertaken or made.
Therefore, the essentials for the application of section 87 are:
(i) Alteration must be material;
(ii) Alteration must be made after the promissory note is executed;

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(iii) Absence of consent of a party, liable under the instrument;
(iv) Alteration does not incorporate the common intention of the original parties.
[s 87.4] Alteration of Documents
If an alteration (by erasure, interlineation or otherwise) is made in a material part of a deed, after its execution,
by or with the consent of any party to or person entitled under it, but without the consent of the party or parties
liable under it, the deed is rendered void48 from the time of the alteration so as to prevent the person who has
made or authorised the alteration, and those claiming under him, from putting the deed in a suit to enforce
against any party bound by it, who did not consent to the alteration, any obligation covenant or promise thereby
undertaken or made.49 The rule is based on sound policy and may be defended on two grounds, first, that no
man shall be permitted to take the chance of committing a fraud without running any risk of loss by the event
when it is detected, and, secondly, that by the alteration, the identity of the instrument is destroyed, and to hold
one of the parties liable under such circumstances would be to make for him a contract to which he never
agreed.50 The principle of law embodied in section 87 of the Act is essential to the integrity and sanctity of
contracts. It is intended to prevent fraud and deter men from tampering with written securities. It is repugnant to
the policy of law to permit the holder of a negotiable instrument to attempt a fraud of this kind with impunity.51
The same consequences follow where an alteration is made by a stranger while the instrument is in the custody
of a party, for a person who has the custody of an instrument is bound to preserve it in its integrity.52 In the
case of negotiable instruments, this rule has been adopted to its full extent by sections 87, 88 and 89 of the Act.
In the case of negotiable instruments, the rules as to alteration of documents in general must be taken subject
to the provisions of the Act.
A bank note issued by the appellant in Hong Kong and payable to bearer on demand was accidentally
mutilated. The bank declined to pay on presentation of a document which was proved at the trial to have been
patched together from the fragments. This document, though it did not show the number of the note, showed
clearly the other main features. The court held that as identity of the document as a note of the bank was
established and it contained all the elements necessary to render it valid and effectual as a negotiable
instrument, the bank was liable to pay the holder. An alteration to vitiate an instrument does not apply to one
accidentally made.53
[s 87.4.1] Alteration must be Material

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It is not that any and every alteration that avoids the instrument. To have that effect, the alteration must be in a
material particular.54
Generally, an alteration is material which, in any way, alters the operation of the instrument and the liabilities of
the parties thereto, whether the change be prejudicial or beneficial. Any alteration is material that alters the
business effect of the instrument if used for any business purpose.55 So, any change in an instrument which
causes it to speak a different language in legal effect from that which it originally spoke, or which changes the
legal identity or character of the instrument, either in its terms or the relation of the parties to it, is a material
alteration.56 A material alteration is one which varies the rights, liabilities, or legal position of the parties as
ascertained by the deed in its original state, or otherwise varies the legal effect of the instrument as originally
expressed, or which may otherwise prejudice the party bound by the deed as originally executed.57 It takes in,
not only a case where certain thing, which is already written, has been altered but also a new insertion that did
not form part of the document originally executed.58 The alteration should not be innocuous or superfluous, but
one that shakes the foundation of the instrument so that it cannot be said to be the one to which, the executant
was a concurring or contracting party.59 It is not necessary that it should adversely affect the party who raised
the plea of material alteration.60
In Kotipalli Nageshwar Rao v Yandrapalli Nagaiah,61 a suit for recovery was filed on the basis of pro-note.
There were alterations in the introducing signature of an attester on the pro-note. The same was held to be
falling within the meaning of ‘material alteration’ under section 87 of the Act. In the light of various discrepancies
in the evidence of witnesses relating to the place of execution, the reversal of decree by lower appellate court
was held to be proper by the Andhra Pradesh High Court. It was further held that mere failure of the defendant
to give reply to registered notice prior to institution of suit by itself cannot be a ground to believe the truthfulness
or otherwise of the plaintiff’s case.
[s 87.4.1.1] Instances of Material Alteration
It has been held that the alterations in the following particulars are material:
(i) Alteration of the date of the instrument,62 for eg, where a holder of a bill or note alters the date of the
instrument to accelerate or postpone the time of payment.63 It is wrong to assume that the date of the
promissory note is merely a description. It indicates the time when the promissory note was executed.
In most cases, the date is very material in calculating the date of the performance of the contract and
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more often fixing the period of limitation within which the plaintiff will have to institute the suit on the
foot of such promissory note.64 The insertion of the date in a promissory note without the maker’s
consent is a material alteration.65 However, in Bhaskaran Chandrasekharan v Radhakrishnan,66 the
Division Bench of Kerala High Court held that putting date on undated cheque does not amount to
material alteration as it can be presumed that there is an implied consent for putting the date as and
when required by the beneficiary and to get it encashed.
(ii) Alteration of the sum payable,67 for eg, where a bill for Rs 500 is altered into a bill for Rs 3,500.68
Even correction in the amount written in figures amounts to material alteration.69
(iii) Alteration of the time of payment,70 for eg, where a bill payable three months after date is altered into
a bill payable three months after sight.71
(iv) Alteration of the place of payment,72 for eg, where a bill is accepted payable at the Union Bank, and
the holder, without the consent of the acceptor, scores out the name of the Union Bank and inserts that
of the Hudson Bank.73
(v) Where a place for payment in added without the acceptor’s consent.74
(vi) Alteration of the rate of interest, for eg, where a note payable with ‘lawful interest’ is altered into one
payable with interest at six percent.75 The blank space in a promissory note with regard to the rate of
interest was filled by the promisee, without the promisor’s consent, as one percent per month. The
court held that it was a material alteration vitiating the note.76
(vii) Alteration by addition of a new party,77 for eg, the addition of a new maker to a joint and several
promissory note without the consent of the existing makers.78
(viii) Alteration of an order cheque to a bearer cheque, except by or with the consent of the drawer.
(ix) Alteration in the signatures79 of the drawer or the original payee.80
(x) Addition or alteration or change of the name of the payee therein without the consent of the drawer.81
(xi) Subsequent affixing of stamps,82 without the promisor’s knowledge, to a note which was executed on
an unstamped paper.83 Likewise, additional stamping of an insufficiently stamped note is a material
alteration.84
The instances given above are not exhaustive. Erasure of an ‘account payee’ crossing, though not recognised
by the Act, may be a material alteration.85
Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such
electronic image and the truncated cheque shall be a material alteration.86
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[s 87.5] Alteration Not Vitiating the Instrument
In the following cases, the alteration of a negotiable instrument shall not vitiate the instrument:
(i) An alteration, though in a material part, will not avoid the instrument, if it is made before the instrument
is issued or before the instrument has become available against any party thereto.87
(ii) Where an alteration is made for the purpose of correcting a mistake,88 for eg, where a bill was dated
1832 instead of 1823, and subsequently the agent of the drawer corrected the mistake.89
(iii) An alteration made to carry out the common intention of the original parties,90 for eg, where the drawer
of a negotiable instrument draws a bill but forgets to use the words ‘or order’, the subsequent insertion
of these words will not vitiate the instrument.91 An alteration is not material which is carried out to
incorporate intention of parties, already apparent on the face of deed.92
(iv) If the alteration is made with the consent of the parties, the instrument is binding on them.93 The issue
whether the alteration was with consent or not is a question of fact to be determined at trial by leading
evidence.94
(v) Alterations, which are not material, will not avoid the instrument. Thus, an alteration in the month of
promissory note from March to April was held not to be material since the suit was filed within the
limitation period from March itself.95
Bills of exchange, payable a specified number of days after sight, drawn on the appellants, were indorsed for
value to the respondents, who duly stamped them, and after acceptance, noted in the corner of each bill, the
date for presentation. The parties to the bills having mutually agreed that the dates of payment should be
postponed, the respondents altered the date so noted, but without making any alteration in the bills as originally
drawn. On presentation for payment on the extended dates, the appellants dishonoured the bills. The court held
that there had been no discharge of the bills by material alteration, and accordingly, the appellants remained
liable.96
The erasure of an indorsement on the back of a promissory note in respect of a payment by the maker would
not be a material alteration invalidating the note, since, such indorsement is not a part of the instrument.97
The holder of a promissory note is not affected by a material alteration in the instrument when the alteration has
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been made by a stranger; without the consent of the holder and without any fraud or laches on his part.98 In
the case of material alteration by a stranger, the pertinent question is whether or not the instrument was in the
custody of the holder at the relevant time.99
In K-7 Impex Pvt Ltd v Shailendra Garg100, the High Court of Delhi observed that the endorsement made by
the plaintiff/his employees on the reverse side of the promissory note cannot be called as a material alteration,
when it was made with a view to keep a record as to which particular cheque has been issued against which
instalment of loan.
[s 87.6] Effect of Alteration
The effect of making a material alteration without the consent of the party bound by it is exactly the same as
that of cancelling the deed.101 If there is any material alteration in the cheque which renders it void, no criminal
prosecution under section 138 can be launched based on such a cheque.102 Thus, a material alteration
discharges all the parties who are liable on the instrument at the time of the alteration, and who do not consent
to such alteration. However, an alteration does not in any way affect the liability of persons becoming parties
subsequent to the alteration. An unsubstantial alteration in an instrument which is to the benefit of the surety
does not discharge the surety from the liability.103
While considering the presumption of section 139, the Kerala High Court in Capital Syndicate v Jameela,104
has held that when the signatures in the cheque are admitted by the drawer even if the other entries in the
cheque are disputed, a presumption under section 139 would arise that the cheque was issued in discharge of
a legally enforceable debt.
As a general rule, a holder who cannot recover upon an altered instrument cannot recover upon the
consideration that he gave for it. A lender, who materially altered the debtor’s promissory note executed and
delivered at the time the loan was made, was held to have lost his right of action against the debtor, not only on
the note but also on the basis of the loan.105 The section expressly provides for the case of an alteration by an
indorsee, and state that such an alteration discharges the indorser in respect of the consideration. Even though
an alteration may be assented to by all the parties, where an instrument is materially altered, it becomes a new
instrument and requires a new stamp.
[s 87.7] Material Alteration – Suit on Original Consideration

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A question arises that, can an instrument which is materially altered be used to prove the original consideration.
The High Court of Madras opined in the negative, in Rangaswami Reddi v K Doraiswami Reddi106 holding that
a plaintiff, who is guilty of material alteration of a promissory note in his favour cannot enforce the same, nor
can he fall back on the original consideration or invoke the provisions of section 65 of the Indian Contract Act,
1872 to sustain his claim. Whereas, the High Court of Kerala in CK Antony v Mathai M Paikeday107 held that
since, the suit is also on original consideration, if the promissory note is found to be materially altered, the same
can be used for the collateral purpose to prove the original consideration and a decree can be passed on such
original consideration once the plaintiff is able to prove the same.
[s 87.8] Alteration Authorised by the Act
The last paragraph of the section subjects it to the provisions of certain other sections of the Act which are:
(i) filling blanks in inchoate instruments (section 20);
(ii) conversion of blank indorsements into indorsements in full (section 49);
(iii) qualified acceptance (section 86); and
(iv) crossing of cheques (section 125).
The above provisions form an exception to section 87. Thus, even though these alterations may be material
since, they are permitted by the Act, they do not render void the instrument.
In Anil Vyas v State of Rajasthan,108 upon a cheque having been dishonoured, the accused raised the plea of
material alteration on the cheque. However, the accused did not dispute the giving of cheque by him. The plea
of the accused was that the date on the cheque was inserted by the complainant by altering the date. However,
the Rajasthan High Court held that this in itself would not amount to material alteration so as to render the
cheque void in view of the fact that the crossing of date also bears the signature of the accused by way of
endorsement.
In Madhukar V Dessai v Shaikh Abdul Riyaz,109 there were allegations of material alteration upon the
dishonoured cheque. However, it came in evidence that the details on the body of the cheque were written by
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the complainant himself and the accused had merely signed the cheque. It was held by the Bombay High Court
that the entire body of a cheque is not required to be filled or written by the drawer of the cheque only. What is
material is the signature of the drawer which was admitted by the drawer in the instant case. Accordingly, it was
held that the complainant cannot be said to have made material alterations within the meaning of section 87 of
the Act by merely writing details upon the cheque.
In Hitenbhai Parekh, Proprietor v State of Gujarat,110 the High Court examined the correlation between
sections 87 and 20 regarding material alteration of an instrument. In this case, the complainant was issued a
blank, signed cheque as advance for the delivery of some raw material. The complainant filled in the cheque
with the amount due to him. The cheque was returned dishonoured by the bank for insufficient funds. A notice
was sent and when the accused failed to pay, the complainant filed a complaint.
One of the issues in this case was whether the act of filling in the cheque by the complainant, amounts to
material alteration under section 87. The High Court observed that any material alteration to a negotiable
instrument would render it void unless it was made to carry out the common intention of the original parties.
However, the Court explained that section 87 has to be read in harmony with section 20 which authorises the
holder of an instrument to complete the instrument for any amount that is intended by the drawer to be paid
under the instrument. Therefore, the legally permissible completion of an inchoate instrument cannot be
construed as material alteration of a negotiable instrument.
In Charminar Cooperative Urban Bank Ltd v M/s Chaitanyakala Samiti,111 the accused No. 1-M/s Chaithanya
Kala Samithi, of which accused No. 2 was the Secretary and accused No. 3 was the President, availed an
amount of Rs 99 lakhs towards loan granted by the complainant Bank. As per the terms and conditions of the
loan agreement, the amount was payable in 35 equal monthly instalments of Rs 3,75,000 each. Accused No. 1-
M/s Chaithanya Kala Samithi issued 35 post-dated cheques towards the repayment of the loan out of which
four cheques were dishonoured. Therefore, the complainant-Bank got issued a legal notice to all the three
accused. Despite notice, the accused failed to pay the amount and the complaint was filed by Bank. On
consideration of the evidence and the other material placed before it, the trial Court acquitted all the accused on
two grounds viz., that the complainant failed to prove that the cheques were presented for encashment and it
also failed to prove that the accused fell due of the payment of instalments by the date of the said cheques.
Before the Andhra Pradesh High Court in appeal, it was inter-alia contended on behalf of the accused that there
was material alteration, in the sense that blank cheques were issued and later they were filled. The High Court
held that even assuming that the column relating to the payee was filled up later, it did not amount to material
alteration. The effect of material alteration as stated in section 87 of the Act is qualified by the words, ‘unless it
was made in order to carry out the common intention of the original parties’. The High Court was of the view
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that in the case on hand, it demanded no probe to show that the common intention of the parties was to see
that the amounts mentioned in the cheques are credited to the loan account, which pertained to the accused
only. Therefore, insertions made in the cheques were held to be in furtherance of the common intention as
noted above.
In Subbaraya Gounder v Palaniyathal,112 the allegation was that the thumb impression of the appellant was
obtained on the promissory note later. It was held by Madras High Court that under section 87 of the Act, any
material alteration of negotiable instrument renders the same void as against anyone who is a party thereto at
the time of making such alteration and does not consent thereto. But at the same time every unsubstantial
alteration is not a material alteration and it is only such alterations as would adversely affect the interests of the
other side which can be called material alteration. With reference to the facts of this case, it was held by High
Court that even assuming that the thumb impression of the appellant was obtained later, that would not affect
the interests of the appellant as the appellant has already signed the document on the stamps affixed in the
promissory note. It was concluded that by affixing the thumb impression in the promissory note executed by the
appellant, no prejudice would be caused to the appellant and even in the absence of such thumb impression,
the appellant would have been liable to pay the amount due and payable to the appellant as the promissory
note was executed by him. Therefore, the presence of thumb impression on the right hand side top of the
promissory note was held to be not amounting to material alteration.
[s 87.9] Burden of Proof
In Subba Reddy v Ramana Reddy,113 it has been laid down that where an instrument appears to be materially
altered, the law naturally casts heavy burden on the plaintiff to explain the alteration and show when it was
made. Ordinarily, the party who presents a negotiable instrument which is an essential part of his case in an
apparently altered and suspicious state, must fail from the mere infirmity or doubtful complexion of the
instrument unless he can satisfactorily explain the existing state of document.114 It is true that this wholesome
rule is not without its exceptions. If there be, for eg, independently of the instrument, corroborative proof, strong
enough to rebut the presumption which arises against an apparent and presumable falsifier of evidence, there
must, however, be an explanation and such a strong proof to rebut the initial presumption. It is relevant to note
that the presumption under the English law is that in the case of deeds signed and sealed, alterations were
made before execution, but no such presumption exists in the case of negotiable instruments.
A writing which is intended to be under hand only can be altered by erasure, interlineation, or otherwise, before
it is signed, but it lies upon the party who puts the instrument in suit to explain an alteration and show when it
was made.115 The burden is on the plaintiff to show that the alteration was not improperly made.116 A person
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who is in custody of a document subsequent to its execution, should there be any alteration, has to discharge
the burden of establishing that it is not altered.117
Where signatures on promissory notes are admitted, the burden of proof shifts upon the defendant to show that
there is material alteration in the promissory note.118
In Rajesh Varma v M/s Aminex Holdings & Investments,119 the plaintiff had extended a loan to defendant 1,
against a bill of exchange for the same amount drawn upon defendants 2 and 3. The bill of exchange had an
order to pay the amount to the plaintiff, payable on demand, for the like amount received by defendant 1
through two cheques. When the bill of exchange was dishonoured, the plaintiff called upon defendant 1 to
repay the loan, with interest as laid down in the bill of exchange. After repeated demands, defendant 1 issued
two cheques towards the outstanding amount, both of which were dishonoured. Hence, this suit was filed.
The defendants first contended that they had not executed any bill of exchange, but this plea was discarded
because they did not dispute their signatures on the original document. Then, at the time of cross-examination,
they alleged that they had not filled in the bill of exchange. The plaintiff admitted to this fact, asserting that it
was filled by the staff of defendant 1 in his office. Relying on this the defendants argued that there was material
alteration under section 87 as the document was filled in by two different people. The Bombay High Court,
however, explained that the provisions of section 87 are subject to sections 20, 49, 86 and 125 of the Act. They
found that the written statement of the defendants did not spell out a case of material alteration, and at no stage
had the defendants adduced any evidence to deny the genuineness of the document. On these grounds, the
High Court decreed in favour of the plaintiff.
Therefore, the saving clause ‘unless it is made for carrying out common intention …’ is not attracted without
pleading and proof.120 But failure of parties to raise specific pleas in that respect should not deter the court in
considering how the law should be applied to proved facts.121
In Jaipal Singh Rana v Swaraj Pal Singh,122 the Delhi High Court was required to look into the scope of the
powers of a Metropolitan Magistrate, trying a complaint case under section 138 of the Act, to suo moto ask for
the opinion of the Central Forensic Science Laboratory (CFSL) on the handwriting on cheques in question,
despite an application filed by the complainant for the same relief having been dismissed earlier by the same
Magistrate.
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The complaint was against the dishonour of two cheques, which the defendant had allegedly issued towards
the discharge of an admitted liability, in favour of the complainant. When summons were issued, the respondent
filed an application to recall the summoning order. In support of this application he contended that the cheques
were issued to the complainant as a part of business transactions and were not meant to be encashed. The
respondent also claimed that the cheque had been altered, without his consent, as regards the dates and
amounts. The Metropolitan Magistrate rejected the application on the grounds that, to prove the above
allegations, evidence would have to be led; this could only be done in court proceedings.
During the proceedings, the accused filed an application to have the cheques sent to a handwriting expert for
an opinion. This application was rejected, as was the subsequent criminal revision petition before the Sessions’
Court, challenging this rejection. However, almost a year after this appeal was rejected, the Magistrate passed
an order saying that an opinion of a handwriting expert would be required to properly adjudicate this case.
Aggrieved by this order, the petitioner approached the Delhi High Court under section 482 of CrPC.
Relying on the Supreme Court judgment in Kalyani Baskar (M/s) v M/s MS Sampoornam123, Dr S Muralidhar,
J deliberated on the issue of whether the Metropolitan Magistrate could suo moto ask for the opinion of a
handwriting expert, despite having dismissed an application for the same at an earlier stage of the matter. He
said:
16.3 It is clear that in the above case the request for sending the cheques in question to the handwriting expert only
made once by the accused and not as in this case on two occasions. Further in Kalyani Baskar, the decision of the
learned MM rejecting the request was carried in revision to the High Court and thereafter to the Supreme Court.
However, in the present case, the order dated 8th March 2006 was not challenged by the accused further after the
dismissal of the revision petition. There is nothing in Kalyani Baskar which indicates that despite a Magistrate by a
judicial order having rejected the request for referring the cheques in question to a handwriting expert, it can thereafter
suo motu refer those very cheques to a handwriting expert. Indeed, if such a proposition were to be accepted, it would
virtually amount to permitting the learned MM to either review his own order or the order of the predecessor. That is
clearly impermissible in the scheme of the CrPC.
Not stopping at this, the court further went ahead into the larger issue of ‘should the cheques have been
referred at all for opinion of the handwriting expert?’ However, after referring to the decision of a Division Bench
of the Kerala High Court124 relying on earlier judgment of the Division Bench,125 the Delhi High Court agreed
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with it and following the same, opined that the earlier order passed by Metropolitan Magistrate declining to refer
the cheques in question for the opinion of the handwriting expert was valid and did not call for any review. It
further opined that the subsequent order passed by Metropolitan Magistrate was in the circumstances not
sustainable in law.
In Fragrant Leasing & Finance Company Ltd v Jagdish Katuriya,126 the cheques were in the exclusive
possession and custody of the complainant. Date was found altered on the cheques by two different persons on
different dates in different ink. The Allahabad High Court relied upon an earlier judgment of the Andhra Pradesh
High Court,127 and the settled legal position that the person who is in custody of document subsequent to its
execution has to discharge the burden of establishing that it is not altered, should there be an alteration, and
accordingly held that the only conclusion can be that the dates in the cheques were altered by the complainant
in order to make the cheques valid for their presentation within six months. The same was therefore, held to be
a material alteration in the cheques, thus making the cheques void in terms of section 87 of the Act. The court
held that every alteration is not material alteration. Only such alterations which would adversely affect the
interest of the other side could be called ‘material alteration’.
In Krishnakutty v Velayudhan,128 the Kerala High Court held that a plaintiff cannot claim a decree against
second defendant alone on the basis of the admission by the second defendant of his signatures on promissory
note which is a joint one imposing a joint liability and which contains the forged signatures of first defendant.
In MB Rajasekhar v Savithramma,129 it was the case of complainant that the accused was known to him from
before and she asked for a hand-loan of Rs 6,00,000 from the complainant and as security against the same,
she issued a post-dated cheque for of the same amount which, despite being presented with the consent of the
accused, was returned unpaid with the endorsement ‘insufficient funds’. The complainant sent a notice to the
accused to which it was alleged that the accused sent a false reply, where after the complaint was filed.
It was noticed by the High Court that not merely there were vital contradictions in the deposition of the
complainant regarding the material facts relating to the alleged offence, even the cheque in question contained
an alteration of the year of the cheque. The cheque carried the date 13 April 2004, whereas the complainant
had alleged that the accused had taken the loan in September 2004 and given this post-dated cheque. The
High Court was of the view that the cheque carrying a date prior to the purported loan cannot be a post-dated
cheque. The High Court further noticed that there was no signature of the accused at the place where the
alteration was made in the date of the cheque. As such, the High Court held it to be a material alteration within
the meaning of section 87 of the Act meant to extend the life of the cheque beyond six-months. The High Court
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further noticed that the contents of the cheque were filled in a different handwriting and the signature of the
accused did not reveal that she had filled the cheque in her own handwriting. The High Court opined it to be a
case where the accused had either given a blank cheque or some other person had filled the cheque. All this
was contradictory to the complainant’s allegation. Moreover, the complainant stated in his complaint and cross-
examination that the hand-loan was given by him in September 2004 in one go but the wife of complainant
deposed that the hand-loan was paid in various instalments. In addition, the High Court noticed that the
accused was a lady who worked as a maid-servant in the house of the complainant on a monthly salary of Rs
1,500 which was admitted by complainant. The High Court found it to be improbable and unacceptable that a
poor maid-servant would be given a hand-loan of Rs 6,00,000 for domestic needs. In the light of all these
contradictions and the factum of material alteration in the date of cheque, it was held by High Court that
complainant had failed to discharge the initial burden of proving that he had received a post dated cheque as a
security for re-payment of loan. It was further opined by the High Court that even if a presumption arises in
favour of complainant, the materials on record sufficiently rebut the presumption under section 139 of the Act.
Accordingly, the acquittal of accused by trial Court was upheld by the High Court.
41 Taylor on Evidence, 1906, edn, s 1820.
42 Jawahar Trading Corpn. v Ramadas (1989) 2 Ker LT 932 (Ker); followed in Ramachandran v Dinesan, (2005) 1 JCC
(NI) 89 (Ker) : (2005) II CCR 457 (Ker) : (2005) III CCR 491 (Ker) : (2006) I BC 526 (Ker).
43 Subba Reddy v Neelampa Reddy, AIR 1966 AP 267 : 1965 Indlaw AP 118; also see Nathu Lal v Musammat Gomti,
AIR 1940 PC 160 ; Jayantilal Goel v Zubeda Khanum, AIR 1986 AP 120 .
44 Scholfield v Earl of Londesborough, (1896) AC 514 .
45 Samanthan Karakkattitathil v Kaniyarakkal Thayikkandi, AIR 1936 Mad 616 .
46 Stephen’s Digest of the Law of Evidence, 1904 edn, Article 89.
47 Halsbury’s Laws of England, Third edn, vol. 11, p 367, paras 598 and 599.
48 State Bank of India v Kerala State Co-operative Marketing Federation, (1995) 2 KLJ 621 (DB) (Ker); Jawahar Trading
Corpn. v Ramadas, (1989) 2 Ker LT 932 (Ker); Bhaskaran Chandrasekharan v Radhakrishnan, (1999) ISJ (Banking)
109 (DB) (Ker) : (1998) 1 Ker LT 881 ; Capital Syndicate v Jameela, (2003) 2 JCC (NI) 152 (Ker).
49 Loonkara Sethia v Iran E John, AIR (1977) SC 336 ; followed in Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker)
: (2005) II CCR 457 (Ker) : (2005) III CCR 491 (Ker) : (2006) I BC 526 (Ker).
Page 16 of 21
50 Gour Chandra v Prasanna Kumar, (1906) ILR 33 Cal 812, p 816: Jawahar Trading Corpn. v Ramadas, (1989) 2 Ker LT
932 (Ker); followed in Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker) : (2005) II CCR 457 (Ker) : (2005) III CCR
491 (Ker) : (2006) I BC 526 (Ker).
51 Jawahar Trading Corpn. v Ramadas, (1989) 2 Ker LT 932 (Ker); Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker)
52 Davidson v Cooper, (1844) 13 M&W 343.
53 Hongkong & Shanghai Banking Corpn. v Lo lee Shi, [1928] AC 181 .
54 Subba Reddy v Ramana Reddy, AIR 1966 AP 26 : (1966) APLT 114.
55 Aldous v Cornwall, [1888] LR 3 QB 513; Suffell v Bank of England, [1882] 9 QBD 555.
56 Gour Chandra v Prasanna Kumar, (1906) ILR 33 Cal 812; Kalianna Gownder v Palani Gownder, AIR 1970 SC 1942.
57 Loonkaran Sethiya v Ivan E John, AIR 1977 SC 336; Jawahar Trading Corpn v Ramadas, (1989) 2 Ker LT 932 (Ker);
Bhaskaran Chandrasekharan v Radhakrishnan, (1999) ISJ (Banking) 109 (DB) Ker : (1998) 1 Ker LT 881; T Kalavqthy
v Veera Export, (2002) 1 BC 247; Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker) : (2005) II CCR 457 (Ker) :
(2005) III CCR 491 (Ker) : (2006) I BC 526 (Ker).
58 T Kalavqthy v Veera Export, (2002) 1 BC 247.
59 Seth Dhanoomal Parsram v P Kuppuraj, AIR 1977 Mad 274.
60 Jawahar Trading Corpn v Ramadas, (1989) 2 Ker LT 932 (Ker); followed in Ramachandran v Dinesan, (2005) 1 JCC
61 Kotipalli Nageshwar Rao v Yandrapalli Nagaiah, AIR 2007 [NOC] 500 (AP).
62 State Bank of India v Kerala State Co-operative Marketing Federation, (1995) 2 Ker LJ 621 (DB) (Ker); Bhaskaran
Chandrasekharan v Radhakrishnan, (1999) ISJ (Banking) 109 (DB) (Ker) : (1998) 1 Ker LT 881; Capital Syndicate v
Jameela, (2003) 2 JCC (NI) 152 (Ker).
63 Outhwaite v Luntly, (1815) 4 Camp 179; A Subba Reddy v N Ramana Reddy, AIR 1966 AP 67 : (1966) APLT 114.
Page 17 of 21
64 Subba Reddy v Ramana Reddy, (1966) APLT 114 : AIR 1966 AP 26.
65 Jayantilal Goel v Zubeda Khanum, AIR 1986 AP 120 and Sesharal Bajna v VC Subramanian, AIR 1983 Mad 368;
BPDL Investments (Pvt) Ltd v Maple Leaf Trading International (Pvt) Ltd, (2006) III BC 482 (Del).
66 Bhaskaran Chandrasekharan v V Radhakrishnan, (2000) 101 Comp Cas 115 (DB) : (1999) ISJ (Banking) 109 (DB)
(Ker) : (1998) 1 Ker LT 881; Capital Syndicate v Jameela, (2003) 2 JCC (NI) 152 (Ker).
68 Scholfield v Earl of Londesborough, [1896] AC 514.
69 Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker) : (2005) II CCR 457 (Ker) : (2005) III CCR 491 (Ker) : (2006) I
BC 526 (Ker).
71 Long v Moore, (1790) 3 Esp 155.
73 Tidmarsh v Grover, (1813) 1 M&S 735.
74 Burchfield v Moorse, [1854] 23 LJ QB 261.

Page 18 of 21
75 Warrington v Early [1853] 23 LJQB 47.
77 Jawahar Trading Corpn. v Ramadas, (1989) 2 Ker LT 932 (Ker); Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker)
78 Garner v Walsh, (1855) 5 E&B 83; Flanagan v The National Bank Ltd, (1938) Ir LT LXXII 63. However, for a different
view see Ex p Yates, (1858) 2 De G&J 191.
79 Jawahar Trading Corpn v Ramadas, (1989) 2 Ker LT 932 (Ker); Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker)
82 Jawahar Trading Corpn v Ramadas, (1989) 2 Ker LT 932 (Ker); Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker)
: (2005) II CCR 457 Kerala : (2005) III CCR 491 (Ker) : (2006) I BC 526 (Ker).
83 Thommen Thommen v Usmiakhan, (1967) Ker LJ 80; Chellamma v Padmanabhan Nair, (1970) Ker LR 682.
84 Nanjunda Gowda v Bommaraya Gowda, (1968) 1 Mys LJ 591.
85 J Ladies Beauty v State Bank of India, AIR 1984 Guj 33 .
86 Clause (2) to section 89, inserted by Amendment Act 2002.

Page 19 of 21
87 Downes v Richardson, (1822) 5 B & Ald 674; Subba Reddy v Ramana Reddy, (1966) Andh Pra LT 114 : AIR 1966 AP
26 .
88 Subba Reddy v Ramana Reddy, (1966) Andh Pra LT 114 : AIR 1966 AP 26 .
89 Brutt v Pickard, (1824) Ry & M 37.
90 BPDL Investments (Pvt) Ltd v Maple Leaf Trading International (Pvt) Ltd, (2006) III BC 482 (Del).
91 Byrom v Thompson, (1839) 11 A&E 31; Subba Reddy v Ramana Reddy, (1966) Andh Pra LT 114 : AIR 1966 AP 26 .
92 Official Assignee v H Basavanna, AIR (1963) SC 754 ; N Rengasamy v S Ganesan, (2005) 3 Bank CLR 352 (Mad).
93 BPDL Investments (Pvt) Ltd v Maple Leaf Trading International (Pvt) Ltd, (2006) III BC 482 Delhi.
94 Veera Export v T Kalavqthy, (2002) 1 BC 278 SC.
95 Subramanian v K Prakash, (2002) 1 BC 110 .
96 Pestonji & Co v Cox & Co, (1928) ILR 52 Bom 589.
97 Shivalingappa v Puttapa, AIR 1971 Mys 273 .
98 Gourochandro v Krushnacharana, AIR 1941 Mad 383 .
99 Anirudhan v Thomco’s Bank Ltd, (1963) 33 Comp Cas 185 .
100 K-7 Impex Pvt Ltd v Shailendra Garg, 2016 VIAD (Delhi) 486 : 230 (2016) DLT 59 : 2016 (155) DRJ 378 .
101 Loonkara Sethia v Iran E John, AIR (1977) SC 336 ; relied in Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker) :
(2005) II CCR 457 (Ker) : (2005) III CCR 491 (Ker) : (2006) I BC 526 (Ker).
102 Ramachandran v Dinesan, (2005) 1 JCC (NI) 89 (Ker) : (2005) II CCR 457 (Ker) : (2005) III CCR 491 (Ker) : (2006) I
BC 526 (Ker).
103 Official Assignee v H Basavanna, AIR 1963 SC 754 ; N Rengasamy v S Ganesan, (2005) 3 Bank CLR 352 (Mad).
Page 20 of 21
104 Capital Syndicate v Jameela, (2003) 2 JCC (NI) 152 (Ker).
105 Suresh Chandra v Satish Chandra, AIR 1983 All 81 ; Laduram Marwari v Bansidhar Marwari, AIR 1937 Pat 572 .
106 Rangaswami Reddi v K Doraiswami Reddi, AIR 1957 Mad 715 : (1957) ILR Madras 987.
107 CK Antony v Mathai M Paikeday, ILR 2014(4) Kerala 297 .
108 Anil Vyas v State of Rajasthan, AIR 2007 [NOC] 201 (Raj) : 2007 (1) NIJ 155 (Raj).
109 Madhukar V Dessai v Shaikh Abdul Riyaz, AIR 2007 [NOC] 1082 (Bom).
110 Hitenbhai Parekh, Proprietor v State of Gujarat, 2010 CrLJ [NOC] 455 Guj : 2009 GLH (3) 742.
111 Charminar Cooperative Urban Bank Ltd v M/s Chaitanyakala Samiti, AIR 2008 [NOC] 132 (AP).
112 Subbaraya Gounder v Palaniyathal, 2011 Indlaw MAD 660; referred to Krushnacharana Padhi v Gourochandro Dyano
Sumamta, AIR (1940) Mad 62 and PR Subramania Pattar v Porathana Andi, (1942) 2 MLJ 303 .
113 Subba Reddy v Ramana Reddy, (1966) Andh Pra LT 114 : AIR 1966 AP 26 .
114 See Mussamut Khoob Conwar v Baboo Moodnarain Singh, (1836-37) 1 Moo Ind App 1 , p 17.
115 Halsbury’s Laws of England, 3rd edn, vol 11, para 622, p 379.
117 Jayantilala Goel v Zubeda Khanum, AIR 1986 120 (AP); A Subba Reddy v Neelapa Reddi, AIR 1966 AP 267 ;
Tummala Tirumala Rao v Pemmasani Laxmaiah, (2005) I BC 125 (AP), para 20.
118 K Mani v Elumalai, (2004) 3 Bank CLR 760 (Mad); see also Naicker v Sigamani, (2002) 1 Mad LJ 830 (Mad);
Chidambaram v PT Ponnusamy, (1997) 1 LW 843 (Madras); P Talamali Chetty v Rathinasamy, (1977) 2 Mad LJ 147
(Mad).
119 Rajesh Varma v M/s Aminex Holdings & Investments, AIR 2008 [NOC] 1385 (Bom).
120 PLS Chettiar v PLU Chettiar, AIR 1974 Mad 4 ; Tummala Tirumala Rao v Pemmasani Laxmaiah, (2005) I BC 125
(AP), para 20.
122 Jaipal Singh Rana v Swaraj Pal Singh, 149 (2008) Delhi Law Times 682 : 2008 CrLJ 805 NOC Del : AIR 2008 [NOC]
1512 (Del).
123 Kalyani Baskar (M/s) v M/s MS Sampoornam, (2007) 2 SCC 258 .
124 Lillykutty v Lawrance, 2003 (2) DCR 610.
125 Gandgadhara Panicker v Haridasan, 1989 (2) KLT 730 .
126 Fragrant Leasing & Finance Company Ltd v Jagdish Katuriya, 2007 CrLJ 3880 All. : AIR 2007 [NOC] 2280 (All) : 2007
(5) ALJ 184 .
Page 21 of 21
127 Jayantilal Goel v Smt. Zubeda Khanum, AIR 1986 AP 120 .
128 Krishnakutty v Velayudhan, (2005) III BC 430 (Ker); the decision reported in Madan Pillai v Adhinarayana Pillai, AIR
192 Mad 929 (which held otherwise) was refused to be followed in Santhu Mohideen Piallai v Jamaludin Labbai, AIR
1928 Madras 1092 which was in turn approved in Kumaraswami Desikar v Dhiraviam Pillai, AIR 1935 Mad 40 .
129 MB Rajasekhar v Savithramma, 2012 CrLJ 1463 Kar.
End of Document
[s 88] Acceptor or indorser bound notwithstanding previous alteration—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

An acceptor or indorser of a negotiable instrument is bound by his acceptance or indorsement notwithstanding

any previous alteration of the instrument.
Page 2 of 2
[s 88.2] No Effect on Subsequent Parties
The section was not necessary as the alteration affects only the liability of persons who are parties to the bill
previous to the alteration, and not that of subsequent parties.130
130 Hamelin v Bruck, [1846] 9 QB 306 : 115 ER 1290.
End of Document
[s 89] Payment of instrument on which alteration is not apparent—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

131[(1)] Where a promissory note, bill of exchange or cheque has been materially altered but does not
appear to have been so altered, or where a cheque is presented for payment which does not at the
time of presentation appear to be crossed or to have had a crossing which has been obliterated,
payment thereof by a person or banker liable to pay and paying the same according to the apparent
tenor thereof at the time of payment and otherwise in due course, shall discharge such person or
Page 2 of 4
banker from all liability thereon; and such payment shall not be questioned by reason of the instrument
having been altered, or the cheque crossed.
132[(2) Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of
such electronic image and the truncated cheque shall be a material alteration and it shall be the duty of
the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of
electronic image of the truncated cheque while truncating and transmitting the image.
(3) Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque,
shall verify from the party, who transmitted the image to it, that the image so transmitted to it and
received by it, is exactly the same.]
[s 89.2] Payment of Altered Instruments
The section affords protection to a person who pays an altered note, bill or cheque. However, in order to be
able to claim the protection, the following conditions must be fulfilled:
(i) the alteration should not be apparent;
(ii) the payment must be made in due course; and
(iii) the payment must be by a person or banker liable to pay.
The Bank has to see whether there are any alterations in the cheque and whether they have been properly
authenticated. The protection under this section is afforded to a Bank paying a cheque in which the alteration is
not apparent.133
The section has been amended to provide for the amendment in the definition of cheque so as to provide for
electronic image of a truncated cheque. The section provides that any bank or a clearing house which receives
Page 3 of 4
a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it,
that the image so transmitted to it and received by it, is exactly the same. Where there is any difference in
apparent tenor of such electronic image and the truncated cheque, it shall be a material alteration. In such a
case, it shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the
apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image. If the
Bank fails to discharge this duty, the payment made by it shall not be regarded as good and it shall not be
afforded protection.
If the alteration is apparent, i.e. noticeable on reasonable scrutiny, and when it is such as would be noticed by
an intending holder, who scrutinises the document with reasonable care, then the person paying cannot be said
to make the payment in due course, so as to enable him to set up such payment to relieve himself of any
liability to the other parties on the instrument.134 It is for the holder to show that the alteration is not apparent.
Similarly, where the ‘account payee’ endorsement on the cheque was tampered with and the order cheque was
converted into bearer cheque by erasing the word ‘order’ and these alterations were visible and apparent even
10 years after the presentation of the cheque, it was held that the Bank was negligent in its duty in making the
payment without making any inquiry about the tampering in the cheque.135
In Bank of Maharashtra v Automotive Engineering Co,136 the material alterations on the cheque in question
could not be detected by visual scrutiny, and the drawee-branch paid it according to its apparent tenor. The
Supreme Court held that the bank was under no obligation to subject the cheque to a further scrutiny under an
ultraviolet-ray lamp, which would have disclosed the forgery. Though, the branch was located just outside
Mumbai city in an industrial area, where such forgery was rampant, it was not equipped with the lamp, which
was inexpensive. The court pointed out that it had not been established that invariably the other branches of the
bank or other banks had been following a practice of scrutinising all cheques, or those exceeding a particular
amount, under ultraviolet-ray lamps by way of extra precaution.
If the aforesaid conditions are satisfied, the effect of such payment is that the person or banker who pays the
note, bill or cheque is not only discharged from all liability on the instrument, but can also debit the person on
whose account, the payment was made with the amount so paid.
The provisions of the BE Act in this regard do not exactly correspond with this section. Under English law, in
Page 4 of 4
determining whether a banker is liable to his customer for having paid a materially altered cheque, it is to be
seen whether there was any contributory negligence on the part of the customers.137
131 Section 89 renumbered as sub-section (1) thereof by Act 55 of 2002, section 5 (w.e.f. 6-2-2003).
132 Ins. by Amendment Act, 2002 (55 of 2002), section 5 (w.e.f. 6-2-2003).
133 Tanjore Permanent Bank Ltd v SR Rangachari, AIR 1959 Mad 119 .
134 Wollatt v Stanley, (1928) 138 LT 620 ; J Ladies Beauty v State Bank of India, AIR 1984 Guj 33 .
135 1983 Guj LH 880.
136 Bank of Maharashtra v Automotive Engineering Co, (1990) 77 Comp Cas 87 .
137 Young v Grote, (1847) 4 Bing 253; London Joint Stock Bank v Macmillan and Arthur, [1918] AC 777 (see notes to
section 85).
End of Document
[s 90] Extinguishment of rights of action on bill in acceptor’s hand.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

If a bill of exchange which has been negotiated is, at or after maturity, held by the acceptor in his own right, all
rights of action thereon are extinguished.
Page 2 of 3
[s 90.2] Acceptor as Holder
The rule stated in the section is a deduction from the general principle that a present right and liability united in
the same person cancel each other.138 Though payment may be made by any party liable on a bill, in order to
obtain a complete discharge of the instrument, payment must be made by the acceptor, for he is the person
ultimately liable on it.139 By virtue of the section, a bill of exchange is discharged and all rights of action are
extinguished if:
(i) the acceptor takes up the bill by paying the holder;
(ii) the acceptor becomes the holder of the bill at or after its maturity; for a bill negotiated back to its
acceptor before maturity may be re-issued by him though he cannot enforce payment against any
intervening party to whom he was himself liable. To extinguish all rights of action on the bill, it is
necessary that the acceptor should be the holder of it at or after maturity. Release of a drawee before
acceptance is inoperative.
(iii) the acceptor becomes the holder of the bill in his own right; for if a bill it negotiated back to its acceptor
as executor, administrator or trustee of the holder the bill is not discharged.140
Though the provisions of the section are not extended to promissory notes, precisely the same considerations
apply to the maker of a note as to the acceptor of a bill. The maker of a note, like the acceptor of a bill, is the
principal debtor, and if he becomes the holder of the note at or after its maturity in his own right, the note would
be discharged and all rights of action would be extinguished.141
Page 3 of 3
138 Neale v Turton, (1827) 4 Bing 149, p 151.
139 Thomas v Fenton, [1847] 16 LJQB 362 .
140 Nash v De Freville, [1900] 2 QB 72 .
141 Beaumont v Greathoad, (1846) 2 CB 494 .
End of Document
[s 91] Dishonour by non-acceptance—
OF NOTICE OF DISHONOUR
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

CHAPTER 8 OF NOTICE OF DISHONOUR
A bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of several drawees
not being partners, makes default in acceptance upon being duly required to accept the bill, or where
presentment is excused and the bill is not accepted.
Page 2 of 3
Where the drawee is incompetent to contract, or the acceptance is qualified, the bill may be treated as
dishonoured.
This section corresponds to section 43(1)(a) of the Bills of Exchange Act, 1882.
[s 91.2] What Constitutes Dishonour by Non-acceptance
The section deals with the dishonour of bills of exchange by non-acceptance. Such a dishonour may take place
in any one of the following ways:
(i) When a bill is duly presented for acceptance, and the drawee, or one of several drawees not being
partners, does not accept within 48 hours from the time of presentment, the bill is dishonoured.
(ii) Where the drawee is incompetent to contract, the bill may be treated as dishonoured.
(iii) When the drawee gives a qualified acceptance, the holder may treat the instrument as dishonoured
(section 86).
(iv) When presentment for acceptance is excused, and the bill is not accepted, it is said to be dishonoured.
Dishonour by non-acceptance of a bill gives the holder an immediate right of recourse against the drawer and
the indorsers. Dishonour by non-acceptance constitutes a material part of the cause of action against the
drawer, and therefore, there is no need to wait till the maturity of the bill or to present if for payment.1
Page 3 of 3
1 Ram Ravji v Pralhaddas, (1896) ILR 20 Bom 133.
End of Document
[s 92] Dishonour by non-payment—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the
note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the
same.

Page 2 of 2
[s 92.2] Dishonour by Non-payment
The section deals with the dishonour of bills, notes and cheques by nonpayment. A bill, note or cheque is
dishonoured by non-payment when it is duly presented for payment and payment is refused or cannot be
obtained. Again, a negotiable instrument is dishonoured by non-payment when presentment for payment is
excused and the instrument, when overdue, remains unpaid.
When a cheque was presented to the drawee-bank for payment and the bank returned it unpaid with an
endorsement stating that it would be honoured after a certain supply bill of the drawer was realised, it was held
that this did not amount to dishonour of the cheque.2 However, the ratio of this decision is not easy to
understand.
Where the maker of a promissory note presumably payable on demand avoided a registered postal notice from
the holder calling upon him to make payment, it was held that there was a dishonour of the note. It cannot be
said that there was no dishonour because the note itself was not presented to the maker. There is dishonour
where the maker refuses to meet his liability under the note. If such a refusal is proved, the fact that the note
has not been presented to the maker when he declined to honour his obligation is immaterial where the refusal
was not based on the plea of non-presentment of the note. The expression ‘dishonour’ is to be interpreted to
mean not merely dishonour as contemplated by the section but dishonour in other contingencies as well.3
2 Silchar Bank Ltd v Pioneer Bank Ltd, (1951) 21 Comp Cas 347 .
3 K Venkatasubbayya v P Ranga Rao Tobacco Co, AIR 1972 AP 72 .
End of Document
[s 93] By and to whom notice should be given—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When a promissory note, bill of exchange or cheque is dishonoured by non-acceptance or non-payment, the
holder thereof, or some party thereto who remains liable thereon, must give notice that the instrument has been
so dishonoured to all other parties whom the holder seeks to make severally liable thereon, and to some one of
several parties whom he seeks to make jointly liable thereon.
Nothing in this section renders it necessary to give notice to the maker of the dishonoured promissory note, or
the drawee or acceptor of the dishonoured bill of exchange or cheque.
Page 2 of 8
[s 93.2] Notice of Dishonour
The section prescribes that the holder of a negotiable instrument must first give notice of dishonour, i.e., a
formal notice that the instrument has been refused acceptance or payment, before he can enforce his rights
against other parties. The reason why the law requires prompt notice of dishonour is apparent. The object of
giving notice is not to demand payment for the party giving notice, but to warn the party notified of his liability,
and in the case of the drawer, to enable him to protect himself as against the drawee or acceptor who has
dishonoured his draft. A party to a negotiable instrument is aware that he may be called upon to liquidate his
liability. It would be a great hardship if he were compelled to lock up his money indefinitely. If the due date of
payment passes by, the law allows him to assume that the instrument has been met in the ordinary course, and
his liability is at an end unless, he has, in the meantime, received information that the instrument has been
dishonoured. The necessity for such notice becomes apparent from the nature of the obligations undertaken by
the several parties to a negotiable instrument. Thus, it was held:
All the contracts raised upon the bill, it is seen, except those with the acceptor, are contracts of suretyship, that is to
say, are contracts of indemnity. Probably from this, though perhaps from other more strictly mercantile circumstances
as for the purpose of making other preparations or modifications in business, notice of dishonour is by the law
merchant made a condition of the liability of the surety. The contracts of indorsements then, between the immediate
parties to them, are conditional and by way of indemnity. It follows from this that there could be no valid claim in
respect of the indorsement, where there is no liability in respect of it. And the two together are the reasons why a
failure by an indorsee to give due notice of dishonour not only disables him from recovering against the immediate
indorser, but disables a prior indorser to him from recovering against his indorser or a prior indorser to him. The
indorsee who has failed to give notice cannot recover because he has not fulfilled the conditions of his contract. The
others cannot recover because they do not require to be indemnified as they cannot be made liable. For example, the
indorser to him who has failed to give notice is not liable to him, and therefore cannot claim against his indorser, and so
on.4
Explaining the ingredients of the offence under section 138 of the Act, it has been laid down in K Bhaskaran v
Sankaran Vaidhyan Balan5 as under:
Page 3 of 8
14. The offence under section 138 of the Act can be completed only with the concatenation of a number of acts. The
following are the acts which are components of the said offence:
(1) drawing of the cheque,
(2) presentation of the cheque to the bank,
(3) returning the cheque unpaid by the drawee bank,
(4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
(5) failure of the drawer to make payment within 15 days of the receipt of the notice.
In Sineximco Pvt Ltd v Dinesh International Pvt Ltd,6 a suit for recovery of Rs 84,15,000 was filed on the
allegation that as per the terms of the sale contract, the plaintiff drew Bill of Exchange for the invoiced amount.
The Bill of Exchange envisaged payment by defendant to Standard Chartered Bank, Singapore or any banker
or trust nominated by it, within 90 days of sight. Bank of Punjab Ltd Connaught Circus Branch, accordingly
presented the Bill of Exchange for acceptance and payment by the defendant. The Bill was accepted by the
defendant and the defendant paid a total sum of US$ 150,820 from time to time. The last payment of US$
10970 was paid by the defendant company on 4 February 1999. It was further alleged that as per the terms of
Bill of Exchange, the unpaid amount was payable by the defendant on or before 5 May 1999. Since, the
balance payment was not paid, the Bank of Punjab, vide its letter dated 21 April 1999 returned the Bill of
Exchange which was returned to the plaintiff by its banker Standard Chartered Bank, Singapore vide its letter
dated 10 May 1999. The defendant company failed to make payment of the balance amount despite notice of
demand. The plaintiff accordingly claimed the principal amount of US$ 84790.25 along with interest amounting
to US$ 84790 for the period 29 October 1997 to 4 May 1997 at the rate of 18% per annum and bank charges
amounting to US$ 305. The plaintiff also claimed pendente lite and future interest at the rate of 24% per annum.
Admittedly, there was no agreement between the parties for payment of interest. No custom or usage of trade
for payment of interest was pleaded by the plaintiff company.
The Delhi High Court noticed that section 93 of the Act provided that when a promissory note, Bill of Exchange
or cheque is dishonoured by non-acceptance or non-payment, the holder thereof, or some party thereto who
remained liable thereon, must give notice that the instrument has been so dishonoured to all other parties
whom the holder seeks to make severally liable thereon, and to some one of several parties whom he seeks to
make jointly liable thereon. Nothing in this section rendered it necessary to give notice to the maker of the
Page 4 of 8
dishonoured promissory note, or the drawee or acceptor of the dishonoured bill of exchange or cheque. It was
observed that the object of a notice of dishonour which is to be given to the endorser is to indicate to the party
notified that the contract arising on the instrument has been broken by the principal debtor and the former being
a surety will now be liable for the payment. Thus, the object of Notice contemplated under section 93 of the Act
is not to demand payment, but to warn the party of liability and in case of drawer to enable him to protect him as
against drawee or acceptor who has dishonoured the instrument. The notice under section 93 is to be given by
the holder or by or on behalf of endorser, who, at the time of giving the notice, is himself liable on the Bill of
Exchange.
However, in the final analysis, in this case the suit was held to be barred by limitation.
[s 93.3] Notice by whom
Notice of dishonour must be given by the holder, or by a person liable on the instrument. However, it is not
necessary that the notice should always emanate from the holder, for he is entitled to avail himself of a notice
given by any party liable on the instrument.7 Thus, the holder of a bill may, in a suit against the drawer, take
advantage of a proper notice of dishonour given by an indorser of the bill, who, at the time of giving such notice,
was liable to him on the bill.8 Likewise, notice of dishonour may be given by an agent of the holder or of some
party liable on the instrument. In order that a party may give a valid notice of dishonour under the section, it is
necessary that he should himself be liable on the instrument at the time of giving such notice. A notice
therefore, given by a stranger is a mere nullity, for a stranger by his officious intermeddling can neither establish
any right of the holder nor defeat any discharge or defence of the indorsers.9 Even a notice given by a party to
the instrument is invalid, if at the time of giving such notice, he is not liable thereon. Thus, a notice given by an
indorser is invalid if he had been discharged from liability on the instrument for want of due notice. The acceptor
of a bill can give a valid notice of dishonour for he is a party liable on the bill.
[s 93.4] Notice to whom
Notice of dishonour to the acceptor of a bill or to the maker of a note or the drawee of a cheque is not
necessary in order to render them or any other party liable. They are the parties primarily liable upon the
instrument, and it is their duty to provide for the payment of the instrument on the due date and at the proper
place. It is they, who dishonour the instrument by non-acceptance or non-payment, and notice to them will
merely be notice of a fact that they are aware of.10 Notice of dishonour must be given to all parties, other than
the maker or the acceptor or the drawee whom the holder seeks to make liable.
Page 5 of 8
Under section 94, notice of dishonour may be given to a duly authorised agent of the person to whom it is
required to be given. Notice may be given to his legal personal representative when the drawer or the indorser
is dead. Notice may be given to the assignee when the party to whom notice is required to be given has been
declared an insolvent. Where there are two or more parties jointly liable as drawers or indorsers, notice to one
of them is sufficient to bind all. It is a matter of importance to make as many persons as possible liable when an
instrument is dishonoured. The holder must be alert, and select the persons to whom he wishes to give notice
of dishonour. If he gives notice to his immediate transferor, the latter is liable to him, though the transferor can,
in turn, give notice to any previous party. However, if the holder notifies the drawer direct by the notice of
dishonour, it is good as though given by any of the prior indorsers. If an indorser gives notice, it serves as
notice given by the holder, and inures for the benefit of all indorsers prior to himself and subsequent to the party
to whom notice is given.
In Garhwal Mandal Vikas Nigam Ltd v M/s Mata Garg & Co,11 the respondent no. 1 was appointed as Auditors
for the year 1993-94 for Garhwal Mandal Vikas Nigam Ltd and the respondent no. 1 submitted its bill to the
applicant no. 1 for the amount of Rs 1,36,115, out of which amount of Rs 32,315 was in lieu of travelling and
out of pocket expenses. No vouchers/documents were submitted by respondent no. 1 in support of travelling
and out of pocket expenses at the time of submission of bill and the same were even not submitted thereafter.
A cheque for an amount of Rs 34,393 was issued in favour of respondent no. 1 against part payment of the said
bill in lieu of travelling and out of pocket expenses and service tax. In a covering letter along with the cheque,
respondent no. 1 was asked to submit the bills of expenditures to the applicants and then to tender the cheque
for encashment to the bank. A copy of covering letter was also endorsed to the bank concerned with stop
payment remark. However, respondent no. 1 presented the cheque to the bank for encashment, which was
returned to the respondent no. 1 with the remark ‘payment stopped’. The respondent no. 1 issued a registered
notice to Garhwal Mandal Vikas Nigam Ltd, Dehradun asking the applicant no. 1 to send demand draft for the
aforesaid amount within a period of fifteen days from the date of receipt of the notice. The applicants sent reply
of the registered notice to the respondent no. 1 alleging therein that respondent no. 1 was required to submit
the vouchers of expenses before tendering the cheque to the bank for encashment. Thereafter, a complaint
was filed by respondent no. 1 under section 138 of the Act. The Magistrate, after satisfying himself that there is
sufficient ground for proceeding with the complaint, passed an order summoning the accused-applicant nos. 1
to 3 to answer the complaint. The accused-applicants filed objection before Magistrate. However, the
Magistrate after hearing both the parties did not find favour with the applicants’ objection and rejected the
same. Aggrieved by that order, the applicants preferred a revision before revisional court which was of the view
that the applicant no. 2 was not protected under section 197 of CrPC or under the second proviso to section
141 (1) of the Act and dismissed the revision. Thereafter, the applicants approached the High Court under
section 482 of CrPC for quashing the proceedings.
Page 6 of 8
The High Court was of the view that from a conjoint reading of the bill in question as well as the registered A/D
notice sent by the respondent no. 1 that the debt or liability for payment, if any, was upon the applicant no. 1-
Garhwal Mandal Vikas Nigam Ltd and the applicant nos. 2 and 3 were the Managing Director and General
Manager of accused no. 1. The bill was sent to accused-applicant no. 1 for payment of amount of Rs
1,36,115.00 and the cheque was issued by accused-applicant no. 1. The notice sent by respondent no. 1 was
addressed only to accused no. 1-Garhwal Mandal Vikas Nigam. The High Court held that Notice had to be
examined in this case to decide whether compliance of mandatory provisions section 138 read with section 93
of the Act was made against applicants or not. The High Court held that when an offence under section 138 of
the Act is committed by a company, every person in charge of and responsible to the company for the conduct
of business of the company as well as the company shall be liable to be proceeded against and punished,
provided the ingredients of section 138 of the Act are fulfilled.
The High Court was of the view that at this stage, it cannot be said that the applicant no. 1 was not under legal
obligation to pay the amount of the cheque in question to the respondent no. 1 and that the complaint under
section 138 of the Act was, therefore, not maintainable. However, whenever any person is sought to be made
liable for an offence under section 138 read with section 141 of the Act, service of statutory notice on the
person sought to be made liable was essential amongst other essential ingredients but the notice was issued
only to applicant no. 1-Garhwal Mandal Vikas Nigam Ltd, a statutory body, and service upon the applicant no. 1
had been affected through the MD. The alleged notice was simply addressed to applicant no. 1 and from no
stretch of imagination, it could be said that notice was ever issued or served on applicant nos. 2 and 3 in their
individual capacity. Therefore, respondent no. 1 had not issued statutory notice under section 93 of the Act to
applicant no. 2, the Managing Director and the applicant no. 3, the General Manager of applicant no. 1.
Accordingly, the High Court held that for want of statutory notice to the applicants no. 2 and 3, the complaint
under section 138 of the Act cannot be proceeded with against them. The summoning order as against
applicant nos. 2 and 3 was, therefore, not tenable in the eye of law. The proceedings of criminal case under
section 138 of the Act against applicant nos. 2 and 3 were quashed and the Magistrate was ordered to proceed
with complaint under section 138 against applicant no. 1 only.
[s 93.5] Effect of Omission to give Notice of Dishonour
The consequences of omission to give notice of dishonour required by the section, except in cases in which
notice is dispensed with under section 98, is to discharge all parties who are entitled to such notice. Unless the
holder gives notice of dishonour, he cannot enforce his rights against the other parties. It is a condition
precedent to the liability of the drawer under section 30, and of the indorser under section 35, that notice of
dishonour should be duly given to them.
Page 7 of 8
In a suit by the payee of a dishonoured hundi against the drawer, the latter contended that he did not receive
notice of dishonour, but did not challenge the payee’s assertion that the dishonour was to the knowledge of the
drawer. It was held that the drawer could not escape liability on this ground since, the purpose of notice is to
make a person aware of a fact.12 It is submitted that omission to give notice of dishonour would be fatal to the
payee’s claim unless he establishes that the case falls within an exempted category under section 98 as where
the drawer could not suffer damage for want of notice, or, knowing the facts, he promises unconditionally to pay
the amount due on the instrument. In another case, a customer of the plaintiff-bank deposited an outstation
cheque into his overdrawn account. The bank sent the cheque to another bank for collection. It was
dishonoured and was thereafter reportedly lost in transit from the collecting bank to the plaintiff-bank, which
failed to notify the customer of the non-payment for over three years by when an action by him against the
drawer on the cheque was time-barred. It was held that the bank’s negligence prevented it from recovering the
amount of the cheque from the customer.13
When a party to a bill is discharged from his liability thereon, by reason of the holder’s omission to perform his
duties as to presentment for acceptance or payment, protest, or notice of dishonour, such party, it seems, is
also discharged for liability on the debt or other consideration for which the bill was given.14
The provisions of this Act relating to notice of dishonour are applicable to hundis in the absence of any local
usage to the contrary.15
4 Horne v Rouquette, (1878) 3 QBD 514, p 518.
5 K Bhaskaran v Sankaran Vaidhyan Balan, (1999) 7 SCC 510 : 1999 SCC (Cri) 1284 : AIR 1999 SC 3762 .
6 Sineximco Pvt Ltd v Dinesh International Pvt Ltd, (174) 2010 DLT 422 : 2010 Indlaw DEL 2950.
7 Chapman v Keane, (1835) 3 A&E 193; Harrison v Ruscoe, (1846) M&W 231.
8 Lysaght v Bryant, (1850) 9 CB 46 ; Jameson v Swinton, (1809) 2 Camp 373.
9 Stewart v Kennett, (1809) 2 Camp 177; East v Smith, [1847] 16 LJQB 292 .
10 Edwards v Dick, [1821] 4 B & Ald 242.

Page 8 of 8
11 Garhwal Mandal Vikas Nigam Ltd v M/s Mata Garg & Co, 2010 CrLJ [NOC] 1132 (Utr).
12 Baijnath Agarwal v RK Agarwalla, AIR 1975 Cal 286 .
13 Syndicate Bank v Swaika Chemical Works, (1987) 61 Comp Cas 752 .
14 Bridges v Berry, (1810) 3 Taunt 130; Kuttayan v Palaniappa, (1904) 27 Mad 540; Krishnaji v Rajmal, (1900) ILR 24
Bom 360; John Chandy v State Bank of Travancore, 1973 KLR 361 .
15 Krishna v Hari Valji, (1896) ILR 20 Bom 488.
End of Document
[s 94] Mode in which notice may be given—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Notice of dishonour may be given to a duly authorised agent of the person to whom it is required to be given,
or, where he has died, to his legal representative, or, where he has been declared an insolvent, to his assignee;
may be oral or written; may, if written, be sent by post; and may be in any form; but it must inform the party to
whom it is given, either in express terms or by reasonable intendment, that the instrument has been
dishonoured, and in what way, and that he will be held liable thereon; and it must be given within a reasonable
Page 2 of 7
time after dishonour, at the place of business or (in case such party has no place of business) at the residence
of the party for whom it is intended.
If the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice
invalid.
This section corresponds to section 49(5) to (12) and (15) of the Bills of Exchange Act, 1882.
[s 94.2] Form and Mode of Notice
Notice may be oral or written, or partly written and partly oral. However, written notice is advisable since, oral
notice is difficult to prove.16 Notice does not mean knowledge, but actual formal notification. Notice of
dishonour may be given in person, or through a messenger, or by post. Where posted, the notice of dishonour
should be put in the postbox, after affixing thereon the last known address of the person to whom it is to be
sent. A mere delivery of the notice to the post-office peon or runner in order to post the notice will not suffice.
Delay or miscarriage of the notice does not render the notice invalid, and the party giving it is exonerated from
liability for omission to give notice.
No special form of words is necessary for a notice of dishonour, and so long as the particulars required by the
section are set out in the notice, it is improbable that any exception would be taken to the same on the ground
of irregularity, provided it was not likely to mislead the recipient.17
The notice, either by express terms or by reasonable intendment, must inform the party to whom it is given:
(i) that the instrument has been dishonoured (the instrument should be identified in the notice, otherwise
the notice will be invalid);
(ii) in what way the instrument has been dishonoured (the notice should state whether the instrument has
been dishonoured by non-acceptance or non-payment); and
(iii) that he will be held liable on the dishonoured instrument.

Page 3 of 7
A mere demand for payment is not a sufficient notice that the instrument, in respect of which the demand is
made, has been dishonoured. A refusal to honour on the last day, which is not positive, but indicates an
expectation that the acceptor may have funds later in the day, does not justify a notice of dishonour.18 Mere
knowledge that the instrument has been dishonoured is not notice. A prior dispensation with notice, as absence
of effects, must be specially alleged.19
In KK Ravi v D Kuttappan,20 the Kerala High Court dealt with the issue of mode of giving notice in terms of
section 94 for the purposes of section 138 of the Act. It was held that giving of demand notice by post is a
perfectly legal method and a notice in writing put into post before expiry of 30 days or even immediately prior to
midnight on the 30th day is sufficient compliance of the statutory mandate of section 138(b) since, the
expression ‘giving’ is not synonymous with the expression ‘taking’ or ‘receipt’.
In HDFC Bank Ltd v Amit Kumar Singh,21 the question which arose for consideration by the Delhi High Court
was whether the Metropolitan Magistrate, while entertaining a complaint under section 138 of the Act, at the
pre-summoning stage, can insist upon the complainant producing some proof of dispatch of notice sent to the
drawer of the dishonoured cheque. It was claimed by the complainant that ‘thus the said notice has been duly
served upon the accused. But, in spite of the service of the said notice on the accused as aforesaid, the
accused intentionally failed to show the positive response and also failed to make the payment of the aforesaid
dishonoured cheques to the complainant within the stipulated time’. It was urged before the Metropolitan
Magistrate by the complainant that since the notice was sent by registered post, section 27 of the General
Clauses Act, 1897 can be invoked and a presumption drawn that service has been affected.
Reliance was placed on various decisions of Supreme Court and section 94 of the Act to contend that once the
notice of dishonour has been given by post then it would satisfy the requirement even of section 138(b) read
with section 138(c) of the Act. Deciding this issue, it was observed by Dr S Muralidhar, J, as under:
15. There can be no doubt that section 138 has been introduced into the NI Act as a penal provision. The NI Act was
otherwise not a criminal law statute. Chapter XVII NI Act was introduced to make the dishonor of the cheque for
insufficiency of funds a punishable offence. The object of the introduction of Chapter XVII was no doubt to have a
deterrent effect on unscrupulous drawers of cheques who were issuing cheques thus without any intention of making
payment. Sections 138 to 147 NI Act are criminal law provisions and have, therefore, to be strictly construed. At the
Page 4 of 7
outset, this Court therefore, rejects the plea that the principles informing section 94 NI Act regarding notice of
dishonour of a cheque should be incorporated pro tanto into sections 138 to 147 NI Act.
The judge then referred to section 144 of the Act which talks about modes of service of summons to either a
witness or an accused. In his opinion, the same standard could be applied to the service of legal notice on the
accused by the complainant, before actually filing a complaint. This is because when summons are sent to the
accused, they are sent to the same address as that in the legal notice. He explained the chain of events as
follows:
• First, there is dishonour of a cheque;
• When the payee receives intimation from the Bank of this dishonour, he must send a legal notice to the
drawer within 30 days;
• This notice would be addressed to the drawer, at the address that is available to the complainant;
• When the drawer receives this notice and fails to pay within 15 days, then the complainant will
approach the criminal court;
• His complaint would implead the drawer as the accused, with the same address;
• Hence, summons would also be sent to this address.
However, without any proof of delivery of the legal notice, to show that it has been received by the accused, a
problem arises. Even on presumption, if cognizance of the offence is taken and summons are sent to the same
address, there is possibility that they might not be returned at all or returned with remarks as to the
unavailability of the accused at the address.22
While deciding the issue, it was accordingly held by the High Court that by merely filing an affidavit stating that
the drawer resides at the address given in the legal notice, the complainant cannot claim to have fulfilled the
requirement of having satisfied the Court that notice was in fact delivered to the drawer. It was opined by High
Court that such an affidavit can be accepted only if the deponent states that he either went personally and
found that the accused was residing at the address or is able to produce some postal certificate or an
endorsement by a courier service agency that the accused is in fact residing at the address and yet refusing to
accept the notice. If the affidavit merely states that the accused is residing at the address without giving any
Page 5 of 7
further documentary proof in support thereof such an affidavit cannot be accepted as satisfying the requirement
of section 138 (b) read with section 138 (c) of the Act.
[s 94.3] Time and Place of Notice
Notice should be given within a reasonable time after dishonour.23 When the person to whom notice is to be
given has a place of business, the notice must be addressed to him at his place of business, but if he has no
place of business, then it should be sent to his residence. Where the party has a place of business, it is not
necessary to send the notice to his residence as well as to his place of business.24 It is competent to the
parties entitled to notice to fix, by previous agreement, a place to which notice of dishonour may be forwarded,
and a notice sent to the place specified is valid though it may take a longer time to reach that place than his
place of business or residence.25 If the holder does not know of the place of business or residence of the
person entitled to notice, he must exercise due diligence to ascertain the place.
In AM Perumal v M/s Star Tours & Travels (India) Ltd,26 there was a change in the residential address of the
accused, which was neither communicated by him to complainant nor to postal authorities. Upon a cheque
issued by the accused having been dishonoured, the legal notice contemplated under section 138 of the Act
was sent by complainant to the accused through registered post. However, the same was returned by the
postman with endorsement – ‘house of addressee found locked’. The Kerala High Court held it to be a case
where constructive notice has to be deemed and the accused cannot escape the prosecution with the plea of
want to notice.
In V Satyanarayana Raju v GB Gangadhara Reddy,27 upon dishonour of cheque, the notice was sent to
accused by registered post with acknowledgment but the cover was returned undelivered. Relying upon section
27 of the General Clauses Act, it was held by Andhra Pradesh High Court that notices sent by registered post
and under certificate of posting shall be deemed to be valid service and hence, notice was held to be duly
served upon the accused.
In Jakthi Finance Ltd v K Selvaraj,28 upon dishonour of three cheques purportedly issued by accused in
discharge of his liabilities under a hire purchase agreement, statutory notice on behalf of complainant/Finance
Company was sent on a wrong address. The postal acknowledgement card was not produced before the court.
It was held that a presumption can be raised against complainant for failing to produce the best evidence
available, namely the original register maintained by postal authorities. As such, the accused was acquitted for
want of a valid legal notice in terms of section 138 of the Act.
Page 6 of 7
In Ashish C Shah v M/s Sheth Developers Pvt Ltd,29 upon dishonour of cheque when the complainant issued
statutory notice to the accused, the accused replied to that notice. After institution of complaint and during the
course of trial, an objection was raised on behalf of accused about the admissibility of a copy of the said
statutory notice on the ground that the same was secondary evidence. However, it was held that the factum of
accused having replied to the said statutory notice established that the notice was in fact issued and the original
thereof was received by accused and was in his custody and possession. As such, it was held that it was not
necessary for complainant to give any notice to the accused to produce the original notice before court. The
copy of original notice was held to be admissible as a secondary evidence.
16 The Law Commission in its Eleventh Report has sought to dispense with oral notice.
17 Tindal v Brown, (1786) 1 TR 167.
18 Hartley v Case, (1825) 4 B&C 339.
19 Cory v Scott, (1820) 3 B & Ald 619.
20 KK Ravi v D Kuttappan, AIR 2007 [NOC] 1955 (Ker).
21 HDFC Bank Ltd v Amit Kumar Singh, AIR 2010 [NOC] 407 (Del) : 2010 AIR (Del) 407 (NOC).
22 Ibid; at paras 16-17.
23 See chapter 10.
24 Berridge v Fitzgerald, [1869] LR 4 QB 639.
25 Shelton v Braithwaite, (1841) 8 M&W 252.
26 AM Perumal v M/s Star Tours & Travels (India) Ltd, 2010 CrLJ 3732 (Ker).
27 V Satyanarayana Raju v GB Gangadhara Reddy, 2008 CrLJ [NOC] 559 (AP).
28 Jakthi Finance Ltd v K Selvaraj, 2011 CrLJ 3680 (Mad).
29 Ashish C Shah v M/s Sheth Developers Pvt Ltd, 2011 CrLJ 3565 (Bom).
Page 7 of 7
End of Document
[s 95] Party receiving must transmit notice of dishonour—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

Any party receiving notice of dishonour must, in order to render any prior party liable to himself, give notice of
dishonour to such party within a reasonable time, unless such party otherwise receives due notice as provided
by section 93.

Page 2 of 2
[s 95.2] Notice by Parties other than the Holder
Section 93 provides for notice being given by the holder or some party liable on the bill, and such notice is good
and inures for the benefit of every other party, who stands between the person giving the notice and the person
to whom it is given. However, since a holder may have omitted to give notice to some prior parties, it is prudent
for a person receiving notice to give immediate notice to all prior parties whom he wishes to hold liable. The
section requires such notice to be given within a reasonable time. When a party receives a notice of dishonour,
he has, after the receipt of such notice, the same period of time for giving notice to prior parties that the holder
has after dishonour. If a party had given a day’s notice earlier than necessary, it would not enable the recipient
to take an extra day to give notice to a party whom he wants to hold liable.30
30 Yeoman Credit Ltd v Gregory, [1963] 1 All ER 245 .
End of Document
[s 96] Agent for presentment—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When the instrument is deposited with an agent for presentment, the agent is entitled to the same time to give
notice to his principal as if he were the holder giving notice of dishonour, and the principal is entitled to a further
like period to give notice of dishonour.
Page 2 of 3
[s 96.2] Effect of Agent for Presentment
Where a bill, when dishonoured, is in the hands of an agent, he may either give notice of dishonour to the
parties liable on the bill, himself or give notice to his principal. He must do so within the same times as if he
were the holder, and the principal, upon receipt of such notice, himself has the same time for giving notice, as if
the agent were an independent holder. Where different branches of the same bank indorse a bill, each branch
is deemed, for the purposes of giving and receiving notice of dishonour, a distinct honour.31 For example:
(i) A bill payable in Mumbai is indorsed in blank by the holder, and deposited with a bank in Ahmedabad
for collection. The Mumbai agent of the Ahmedabad bank presents it for payment, and on its
dishonour, gives due notice thereof to the Ahmedabad bank. The Ahmedabad bank, on the day after
the receipt of this notice, gives notice to its customer, who in turn gives similar notice to his indorser.
The indorser has received due notice.
(ii) C indorses a bill to the Liverpool branch of D bank. The Liverpool branch sends it to the Manchester
branch, and the Manchester branch indorses it to the head office in London, who presents it for
payment. The head office sends notice of dishonour to the Manchester branch, the Manchester branch
sends notice to the Liverpool branch, which gives notice to C. As regards time is each branch to be
considered a distinct party.32
(iii) X pays a bill supra protest for the honour of C, an indorser, who resides at Burgse and on the same
day posts the bill to C. C by return of post sends the bill back to X who at once gives notice of
dishonour to the drawer. Although six days have elapsed since the dishonour, the notice is in time, and
X can sue the drawer.33
Page 3 of 3
31 Clode v Bayley, (1843) 12 M&W 51.
32 Ibid.
33 Goodhall v Polhill, (1845) 14 LJCP 146.
End of Document
[s 97] When party to whom notice given is dead.—
PART I GENERAL
(Act XXVI of 1881)
[9th December 1881]
PREAMBLE

When the party to whom notice of dishonour is dispatched is dead, but the party dispatching the notice is
ignorant of his death, the notice is sufficient.
Page 2 of 2
[s 97.2] Notice of Dishonour to a Dead Person
If the person to whom the notice is to be given is dead, the notice is to be given to his legal representatives.
Section 94 makes provision for notice of dishonour to the legal representatives. However, where the party
sending the notice is not aware of the death of the person and sends a notice in the name of such person, such
a notice is sufficient. The section applies where the person is ignorant of the death and cannot be extended to a
case where a person aware of the death, sends a notice in the name of the deceased person. In such a case
as per terms of section 94, the notice has to be sent to the legal representatives.
However, in Vijay Singh v Manali Malik,34 the cheque in question was presented for payment to the Bank after
the death of the drawer and was returned unpaid for the death of the drawer. On a suit having been filed under
O XXXVII of CPC on the basis of said cheque, when the defendant moved an Application seeking leave to
defend the suit, it was held by the Delhi High Court that since the cheque was not presented during the lifetime
of the drawer, it ceased to be a cheque after demise of the drawer since it ceased to be an order of a person
entitled to make an order to the Bank to pay the money.
It was held by Delhi High Court that upon death of a customer, the order of the customer comes to an end and
only if the banker pays the cheque before notice of death, is it valid. While holding so, Rajiv Sahai Endlaw, J,
observed as under:
12. … Thus, the dishonour of the cheque is actionable under Order 37 of the CPC only if notice of dishonour has been
given to the drawer. If the drawer is dead on the date of dishonour or even on the date of presentment, no notice can
possibly be given to him. That also leads to the inevitable conclusion that in such a eventuality no suit under Order 37
of the CPC is maintainable on the basis of a cheque.
End of Document

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20. [s 20] Inchoate stamped instruments—

Khergamvala P Krishna Kumar & S Abdul Khader Kunju

THE NEGOTIABLE INSTRUMENTS ACT, 1881

THE NEGOTIABLE INSTRUMENTS ACT 1881

(Act XXVI of 1881)

[9th December 1881]

It is hereby enacted as follows:

This Act may be called the Negotiable Instruments Act, 1881.

[s 1.1] Historical Background of the Legislation

[s 1.2] Legislative Competence

[s 1.3] Subsequent Amendments

The amendments carried out are as follows:

(i) The Negotiable Instruments Act, 1885 (II of 1885)

(ii) The Amending Act, 1891 (XII of 1891)

(iii) The Negotiable Instruments (Amendment) Act, 1897 (VI of 1897)

(iv) The Decentralization Act, 1914 (IV of 1914)

(v) The Negotiable Instruments (Amendment) Act, 1914 (V of 1914)

(vi) The Negotiable Instruments (Amendment) Act, 1919 (VIII of 1919)

(vii) The Negotiable Instruments (Amendment) Act, 1920 (XXV of 1920)

(viii) The Negotiable Instruments (Amendment) Act, 1921 (XII of 1921)

(ix) The Negotiable Instruments (Amendment) Act, 1922 (XVIII of 1922)

(x) The Negotiable Instruments (Interest) Act, 1926 (XXX of 1926)

(xi) The Negotiable Instruments (Amendment) Act, 1930 (XXV of 1930)

(xii) The Negotiable Instruments (Amendment) Act, 1934 (XVII of 1934)

(xiii) The Government of India (Adaptation of Indian Laws) Order, 1937

(xiv) The Negotiable Instruments (Amendment) Act, 1947 (XXXIII of 1947)

(xvi) The Merged States (Laws) Act, 1949 (LIX of 1949)

(xvii) The Adaptation of Laws Order, 1950

(xviii) The Part B States (Laws) Act, 1951 (III of 1951)

(xix) The Notaries Act, 1952 (LIII of 1952)

(xx) The French Establishments (Application of Laws) Order, 1954

(xxi) The Negotiable Instruments (Amendment) Act, 1955 (XXXVII of 1955)

(xxiii) The Repealing and Amending Act, 1957 (XXXVI of 1957)

(xxiv) The Repealing and Amending Act, 1960 (LVIII of 1960)

(xxvii) The Negotiable Instruments (Amendment) Act, 2015 (XXVI of 2015)11

(xxviii) The Negotiable Instruments (Amendment) Act, 2018 (XX of 2018)12

(vii) to make the offences under the Act compoundable;

6. The Bill seeks to achieve the above objects.

[s 1.4] The Amendment of 2015

[s 1.5] The Amendment of 2018

[s 1.7] Rules of Construction

[s 1.7.2] Construction of Penal Statutes

[s 1.7.3] Harmonious Construction

[s 1.7.4] Mandatory and Directory Provisions

In State of Rajasthan v Leela Jain61 it was held as follows:

In Hiralal Ratan Lal v State of UP62 it has been observed as follows:

In S. Sundaram Pillai v VR Pattabhiraman,64Fazl Ali, J, observed as follows:

[s 1.7.6] Doctrine of Pith and Substance

[s 1.7.7] Presumptions and Doctrine of ‘Reverse Onus’ Clause

[s 1.8] ‘Extends to the Whole of India’ - Meaning

Section 18(3) of the Independence Act, 1947 provided:

(3) The territory of India shall comprise—

(a) the territories of the States;

(b) the Union territories specified in the First schedule; and

(c) such other territories as may be acquired.

13. Madhya Pradesh

23. Tamil Nadu

27. Uttar Pradesh and

28. West Bengal

2. The Andaman and Nicobar Islands

4. Dadra and Nagar Haveli81 and Daman and Diu82

8. Jammu & Kashmir84

India shall mean: