HIMACHAL PRADESH NATIONAL LAW UNIVERSITY, SHIMLA

2022-2023

ASSIGNMENT OF BANKING & INSURANCE (INCLUDING NI ACT)

TOPIC: Comprehensive Analysis of ‘Holder’ and ‘Holder in Due Course’

under NI Act

Submitted by – Palak Singh Submitted to – Mr. Tijender Kumar Singh

B.B.A.LL.B (Hons.), (Research Associate)

9TH Semester

Roll No. - 1120181958

 DECLARATION

This is to certify, that the project submitted by me is an outcome of my independent and original
work. I have duly acknowledged all the sources from which the ideas and extracts have been taken.
The project has not been submitted elsewhere for publication.

TOPIC: Comprehensive Analysis of ‘Holder’ and ‘Holder in Due Course’

under NI Act

Author:
Palak Singh
Designation: Student, B.B.A. LL.B (HONS.), 9th Semester, 5th Year
E-mail: palakbba1858@hpnlu.ac.in
Contact no. – 8887529985

HIMACHAL PRADESH NATIONAL LAW UNIVERSITY

GHANDAL, SHIMLA, P.O. SHAKRAH, SUB-TEHSIL DHAMI
DISTRICT SHIMLA, HIMACHAL PRADESH-171014
Ph. 0177-2779802, 0177-2779803, Fax: 0177-2779802
Website: http://hpnlu.ac.in
PROBLEM PROFILE
The present paper delves into the “Comprehensive Analysis of ‘Holder’ and ‘Holder in Due
Course’ under NI Act”. The paper is a scholarly study to comprehend and compare the scope
of ‘Holder’ and ‘Holder in due course’ in different scenarios.

RESEARCH METHODOLOGY
The technique to the research is only Doctrinal Research. The nature of the studies is critical,
exploratory, and yet explanatory study. The major part of the research was done via help
from virtual assets like SCC Online, Westlaw, Hein online and Lexis Nexis, etc. Various
cases had been studied for the purpose of the research.

OBJECTIVES
The paper delves into a general overview of the “holder” and “holder in due course”, their
privileges and distinctions.

RESEARCH QUESTIONS
 What is Holder?
 What is Holder in Due Course?
 Table of Contents
DECLARATION ............................................................................................................................. 2
PROBLEM PROFILE .................................................................................................................... 3
RESEARCH METHODOLOGY .................................................................................................... 3
OBJECTIVES ................................................................................................................................. 3
RESEARCH QUESTIONS ............................................................................................................. 3
LIST OF CASES ............................................................................................................................. 5
INTRODUCTION ........................................................................................................................... 6
KINDS OF NEGOTIABLE INSTRUMENT .................................................................................. 7
HOLDER ......................................................................................................................................... 9
ANALYSIS OF THE TERM ‘HOLDER’ ...................................................................................... 9
CASE LAW ................................................................................................................................... 10
HOLDER IN DUE COURSE ........................................................................................................ 11
COMPARISON BETWEEN ENGLISH AND INDIAN LAW (HDC) ........................................ 13
RIGHTS AND PRIVILEGES OF AN HDC ................................................................................. 14
DISTINCTION BETWEEN HOLDER AND HOLDER IN DUE COURSE .............................. 17
 LIST OF CASES

S No. Case Name Citation

1 Singheswar Mandal V Gita Devi (AIR 1975 Pat 81)
2 Jones v Waring (1926) AC 670)

3 Gill v Cubitt (2005) 1 GLR 709

4 Thorappa v Umedmalji 25 Bom LR 604

5 Firm Kalka Prasad Ram Charan v Kunwar Lal AIR 1957 All. 104
Thapar
6 Arab Bank Ltd. v Ross (1952) 1 All ER 709
INTRODUCTION
The word Negotiable means transferable from one person to another in return of consideration.
‘Instrument’ means a written document by which a right is created in favor of some persons.
Every document which entitles a person to a sum of money and which is transferable by deliver,
is entitled to be called a “negotiable instrument”.

Negotiable Instrument in practice means a piece of paper containing in writing a right entitling
the holder to claim something, usually money but sometimes goods. For the purpose of
Negotiable Instrument Act, 1881, a Negotiable Instrument means a promissory note, bill of
exchange or cheque payable either to order or to bearer. However, there are other negotiable
instruments recognized by usage/ custom of trade, such as Railways bonds, bearer bonds,
government promissory notes, hundis, share certificates, scripts, postal orders, banker’s drafts,
treasury bills, etc.

The term “negotiable instrument” has not been defined in the Negotiable Instrument Act.
According to Willis, “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.”

Thus, the main difference between a Negotiable Instrument and other documents or a chattel
is that in case of Negotiable Instrument, the title of transferee in good faith and for
consideration is a good title even though the title of transferor may be defective, whereas in
case of other documents, transferee would get the same title as that of transferor.

The Negotiable Instruments Act, 1881, is based upon the English common law relating to
promissory notes, bills of exchange and cheques. The Act merely regulates the issues and
negotiation of bills, notes and cheques, and does not provide for the transmission of rights in
such instruments by operation of law or by transfer. In some places of N.I Act, it is also named
as ‘Social Security Act’.

The Act, which came into force on 1st March, 1881, extends to the whole of India. As the
preamble, itself states, the object of the Act is to define and amend the law relating to
promissory notes, bills of exchange and cheques. Apart from these three instruments, the Act
recognizes any local usage relating to any instrument in an oriental language. However, if the
parties to a hundi or any other instrument in an oriental language have agreed in writing in the
body of the instrument, then their legal relations shall be governed by this Act.

KINDS OF NEGOTIABLE INSTRUMENT

1) Promissory Note- It 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. Thus a “promissory note” contains a promise in writing by a specified
person to pay a certain sum of money to a specified person or to his order. The definition
of a promissory note in section 4 is exhaustive and excludes from the category of notes
instruments which do not fall within its terms. An instrument which satisfies the
requirements of the definition contained in Section 4, must be held to be a promissory
note, irrespective of whether it is negotiable or not.
2) Cheques- Section 6 of N.I Act, 1881 defines a cheque as “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 and a cheque in the electronic form.
Through the Amendment Act, 2002, the definition of cheque has been broadened to
include the electronic image of a truncated cheque, and a cheque in the electronic form.
The said Amendment was necessary to bring the Act in tune with the Information
Technology Act,2002 which recognizes electronic transfers and digital signatures. 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 honor cheques
drawn upon him by his customer up to the amount of the funds of his customer which
he has in 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
only; the mere dishonor of a cheque gives no right of action to anyone other than the
drawer.
According to the definition under Section 6, a cheque is a species of bill of exchange,
thus, it is implied that it must be drawn in accordance with the requirements of Section
5 of the Act. There is no particular form of words which is required and therefore, an
instrument would be a cheque if it conforms to the requisites of a bill of exchange. All
cheques are bills of exchange, but all bills are not cheques. Though cheques are bills of
exchange, being payable on demand, they do not require acceptance. The drawing of a
 cheque does not create, in favor of the payee, an assignment of the drawer’s money in
the hands of the drawer-banker so as to entitle the payee to enforce payment of cheque
as against the banker. Further, a cheque does not become invalid because of the reason
that it is ante-dated or post-dated. A post-dated cheque is only a bill of exchange till the
date shown on its face and only from that date it becomes a cheque on being payable
on demand.
3) Bill of Exchange- A bill of exchange transaction can involve up to three parties. The
drawee is the party that pays the sum specified by the bill of exchange. The payee is the
one who receives that sum. The drawer is the party that obliges the drawee to pay the
payee. The drawer and the payee are the same entity unless the drawer transfers the bill
of exchange to a third-party payee.
Unlike a check, however, a bill of exchange is a written document outlining a debtor's
indebtedness to a creditor. It's frequently used in international trade to pay for goods or
services. While a bill of exchange is not a contract itself, the involved parties can use it
to fulfill the terms of a contract. It can specify that payment is due on demand or at a
specified future date. It's often extended with credit terms, such as 90 days. As well, a
bill of exchange must be accepted by the drawee to be valid. Bills of exchange generally
do not pay interest, making them in essence post-dated checks. They may accrue
interest if not paid by a certain date, however, in which case the rate must be specified
on the instrument. They can, conversely, be transferred at a discount before the date
specified for payment. A bill of exchange must clearly detail the amount of money, the
date, and the parties involved including the drawer and drawee.
If a bill of exchange is issued by a bank, it can be referred to as a bank draft. The issuing
bank guarantees payment on the transaction. If bills of exchange are issued by
individuals, they can be referred to as trade drafts. If the funds are to be paid
immediately or on-demand, the bill of exchange is known as a sight draft. In
international trade, a sight draft allows an exporter to hold title to the exported goods
until the importer takes delivery and immediately pays for them. However, if the funds
are to be paid at a set date in the future, it is known as a time draft. A time draft gives
the importer a short amount of time to pay the exporter for the goods after receiving
them.
Bills of exchange are useful in international trade because they help buyers and sellers
deal with the risks associated with exchange rate fluctuations and differences in legal
jurisdictions.
HOLDER
Section 8 of Negotiable Instrument Act states-

“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.”

Holder means the owner of negotiable instrument. The main requirement is a ‘right to
possession’. A person in possession of an instrument without having a right to possess the same
can’t be called the holder. Thus, a thief or a person taking a negotiable instrument by forged
indorsement or a person finding an instrument on the road, although may be having a de facto
possession but he can’t be called the holder, because his possession is wrongful. Holder,
therefore, means only a “de jure” holder and not merely a “de facto” holder.

Further, even if a person loses a negotiable instrument, he still continues to be its holder i.e.,
he remains entitled to its possession. Similar is the position when a negotiable instrument is
destroyed. In England, unlike India, actual possession of the instrument is essential under the
Bill of Exchange Act, 1882. The term “holder” would include the following-

a) The payee
b) The bearer
c) The endorsee

Section 78 of Negotiable Instrument Act states-

“Subject to the provision of Sec 82(c), payment of amount due on a promissory note, bill or
cheque must, in order to discharge the maker or acceptor, be made to the holder of the
instrument.”

ANALYSIS OF THE TERM ‘HOLDER’

(i) Actual possession is immaterial- the possession of the instrument is not essential
under the N.I. Act, unlike the Bills of Exchange Act (English law). A person may
be entitled to the possession of the instrument although he does not have actual
possession. For instance, where a bill payable to order is, without endorsement
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. Thus, what is required
is a right to possession.
(ii) De jure and not de facto holder- a person claiming to be the holder of an instrument
should be the owner thereof at law, whatever be his position in equity. Holder only
means a de jure and not merely de facto. The real or beneficial owner cannot claim
to be the holder on the ground that the actual holder is only a benamidar or name-
lender. A benami instrument is one which is taken in the name of one person but
really meant for the benefit of another person. However, a person may, by operation
of law, become the holder of an instrument although he is not the bearer or the payee
or endorsee thereof. Thus, the heir or legal representative of a deceased payee can
claim as the holder.
(iii) Right of suit- the definition implies that the holder has a right of suit on the
instrument. He is one who has a right to receive or recover the amount due on the
instrument from the parties thereto. Thus, a person to qualify as a holder should
have derived title to the instrument in the lawful manner. Thus, a person who takes
an instrument under a forged endorsement or a thief or a finder of an instrument
having no claim to it, or the payee or the endorsee if he is prohibited by a court
order from receiving the amount due on the instrument, is not a holder.

CASE LAW

Singheswar Mandal V Gita Devi1-

Facts- In this case, the plaintiff’s father (holder of a hand note) made an arrangement that
the plaintiff (one of his heirs that is his daughter and not his other two wives) would be
entitled to get the amount due under the hand note. But no indorsement was made on the
hand note in the plaintiff’s favor. After the holder’s death, the plaintiff filed a money suit
against the defendant on the basis of a hand note executed by the defendant on 4/07/1959,
for a sum of Rs 1133 annas in favor of father of the plaintiff. It has been stated in the plaint
that the plaintiff’s father had expressed his desire in presence of the defendant second
party(co-widows) that the amount in respect of this loan would go to the plaintiff alone to
which the defendant second party expressly consented. The defendant(appellant) contested

1
(AIR 1975 Pat 81)
 the suit on the ground that the plaintiff being not the holder of the hand note in question
she had no right to institute the suit.

Issue- In this case, thus, the question was whether a person can become a holder of a
Negotiable Instrument executed in the name of her father, after his death.

Held- The court observed the provisions of the Negotiable Instrument Act are very specific
Section 78 provides that in order to discharge the maker or acceptor, the payment must be
made to the holder of the instrument or if the same is indorsed, then to the endorsee as
provided under Section 82(c) of the Act.

In this case the hand note in question is not endorsed in favor of plaintiff nor does the recital
in any way indicate the intention of the creditor for the payment of ultimate dues by debit
to the plaintiff. Section 8 provides that the ‘holder’ of an instrument means any person
entitled in his own name to the possession thereof and to receive the amount due thereon
from the parties thereto. The plaintiff is not the ‘holder’ of the instrument and the defendant
wasn’t bound to make the payment to her of the dues in question and as such the plaintiff
has no right to institute the suit. If she was the sole heir of the payee, or if the property in
the note had been bequeathed to her, she would have a valid claim against the maker.

HOLDER IN DUE COURSE

Section 9 of the Negotiable Instrument Act states that-

“HDC” 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 endorsee thereof, if payable to
order, before the amount mentioned in it became payable, and without having sufficient cause
to believe that any defect existed in the title of the person from whom he derived the title”

The holder in due course doctrine is a rule in commercial law that protects a purchaser of debt,
where the purchaser of debt, where the purchaser is assigned the right to receive the debt
payments. The doctrine insulates the purchaser of debt, or other obligation to pay, against
charges that either party to the original transaction might have had against the other.

A holder is a person in possession of an instrument payable to bearer or to the identified person

possessing it. But a holder’s rights are ordinary. If a person to whom an instrument is negotiated
becomes nothing more than a holder, the law of commercial instruments would not be very
significant, nor would a negotiable instrument be a particularly useful commercial device. A
mere holder is simply an assignee, who acquires the assignor’s rights but also his liabilities; an
ordinary holder must defend against claims and overcomes defenses just as his assignor would.
The holder in due course gets is an instrument free of claims or defenses by previous
possessors. A holder with such a preferred position can then treat the instrument almost as
money, free from the worry that someone might show up and prove it defective.

Thus, the holder-in-due-course doctrine is important because it allows the holder of a

negotiable instrument to take the instrument free from most claims and defenses against it.
Without the doctrine, such a holder would be a mere transferee. To be an HDC, a person must
be a holder of instrument that is not suspiciously irregular, and he must take it in good faith,
for value, and without notice of anything that a reasonable person would recognize as tainting
the instrument.

To be an HDC, the following requirements are essential-

1. He must receive the negotiable instrument as a “holder”- A HDC may be either payee,
or the possessor (if the instrument is payable to bearer), or the indorse (if the instrument
is payable to order). The payee can be an HDC, but in the usual circumstances, a payee
would have knowledge of claims or defences because the payee would be one of the
original parties to the instrument. Nevertheless, a payee may be an HDC if all the
prerequisites are met.
2. He has obtained it for consideration- The consideration must be legal and valuable (as
defined in Section 2(d), Indian Contract Act,1872). Where the consideration is
unlawful, he can’t be called an HDC. It, however, doesn’t make any difference whether
the consideration was adequate or inadequate. A debt due on a wagering agreement is
not valid consideration.
A donee (by way of gift of instrument) is not an HDC, as there is no consideration,
although he is a holder. However, a holder deriving title from a HDC need not give
consideration. Thus, if the donor is a HDC by virtue of Sec 53 of the Act), the done
ipso facto acquires all the rights of HDC. If a debtor hands over a negotiable instrument
to his creditor in discharge of a pre-existing debt, the creditor can claim to be an HDC.
If a holder holds a negotiable instrument as a pledgee, he is deemed to be holder for
value to the extent of his advance or loan. Consideration for a note or bill can operate
as such only once, and when it has so operated for once, it is spent, and it cannot operate
for another and subsequent promise.
 3. He must receive the negotiable instrument before its maturity- The person must become
the holder before the amount becomes payable. A person who takes a bill or note on
the day on which it becomes payable is not a HDC because he takes it after it becomes
payable as the instrument can be discharged at any time on that day.
Section 59 of Negotiable Instrument Act also provides that a person taking an
instrument after its maturity has the rights thereon of a transferor, thus such a person
cannot be an HDC. The reason for it is that, when the payment has become due and the
person in possession hasn’t taken the payment but tries to transfer the Negotiable
Instrument after its maturity, a suspicion is raised that there might be something wrong
with his title because of which he hasn’t taken the payment of instrument himself. There
can be, however, a holder in due course of a ‘post-dated’ cheque.
4. He must take the negotiable instrument in good faith- Though the words “good faith”
is not used in Section 9, but it requires that a person taking the Negotiable Instrument
should act in good faith and with reasonable caution. For good faith it is necessary:
a) that he must be honest in his belief that the instrument which he is taking is being
transferred by a person having a good title, and
b) that he must be acting with due care and caution (he must have used reasonable
diligence to satisfy himself that Negotiable Instrument is free from any defect in the
title of transferor)

If at the time when the holder acquires his tile 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 of something wrong combined with wilful disregard of the means of
knowledge. In its test whether there is good faith or not, Indian law is stricter than English law
on the subject. According to English law, when a person is acting honestly, he acts in good
faith even though he is negligent in taking an instrument.

Under the Indian law, to defeat the title of a holder for value there must be bad faith or
dishonestly in him. And to establish dishonestly, it must be shown that he had either knowledge
or suspicion of something wrong.

COMPARISON BETWEEN ENGLISH AND INDIAN LAW (HDC)

As noted above, in India, the payee can also be an HDC, but in England, the payee can't be an
HDC. This is so by virtue of the requirement of Bill of Exchange Act, 1882, that the HDC
means a person to whom an instrument has been negotiated, whereas a payee is the person to
whom the instrument is issued and not negotiated [Jones v Waring 2]

There is some difficulty in the application of 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 Sec. 29(1) of the (English) Bill of Exchange Act seem to
be preferable.

The Indian definition imposes a more stringent condition on the holder in due course than the
English definition. According to English law, when a person is acting honestly, he acts in good
faith even though he is negligent in taking an instrument. Under Indian law, if a person is acting
negligently, he can't be said to be acting in good faith.

The Indian Act seems to have followed the old English rule laid down by Lord Tenterden in
Gill v Cubitt3, according to which due care and caution made the test of bona fides. However,
in England, the law laid down in Gill v Cubitt is not law at present.

The stricter rule of Indian law makes it difficult for dishonest transferors to part with negotiable
instrument, and honest transferors will not suffer from it, as they have no real difficulty in
persuading the transferees to take the as their title is good. Bhashyam and Adiga on The
Negotiable Instruments Act said that the law should be framed not only for the purpose of
putting difficulties in the way of dishonest brokers, but also to protect people who acting
honestly take such instrument for value; for otherwise, the rapidity with which the commercial
business is transacted, will be seriously impeded and the very object of negotiable instruments
will be defeated.

RIGHTS AND PRIVILEGES OF AN HDC

(An HDC enjoys many privileges under the Negotiable Instruments Act. He gets a good title
even though the title of the transferor to him is defective. The title of a HDC becomes free from
all equities, and the defence which could have been pleaded against the prior parties can't be
pleaded against HDC. Once an instrument passes through the hands of an HDC, it gets cleansed
of its defects.

2
(1926) AC 670)
3
[(1824) 3 BSC 466]
Every prior party to a negotiable instrument is liable thereon to an HDC until the instrument is
duly satisfied (Sec, 36). 'Prior party' means the maker, drawer, acceptor and all the intervening
endorsers. Thus a 'holder' stands in a less advantageous position than an HDC.

(i) Presumptions (Sec. 118) - Every holder is deemed prima facie to be an HDC. The burden
of proving his title doesn't lie on him. Provided that, where the instrument obtained by means
of an offence or fraud from the lawful owner, or obtained from the maker or acceptor by means
of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a
HDC lies upon him.

ii) Privilege against inchoate stamped instrument (Sec. 20) - Sometimes a person may sign and
deliver to another person an inchoate (incomplete) stamped instrument, that implies that the
holder may fill in the amount for which authority has been given. When the holder exceeds the
authority in filling the blanks and fills more amount than what was authorised, he can't enforce
the instrument.

If such an instrument is passed on to a HDC then the HDC can claim the whole of the amount
so entered in the instrument although the amount filled is in excess of the authority provided
that the amount filled is covered by the stamp fixed thereon. Thus, the defence that the amount
filled by holder was in excess of the authority given can't be taken against an HDC.)

(iii) Fictitious drawer or payee (Sec. 42)- When a bill of exchange is payable to the drawer's
order and the drawer is a fictitious person (thereby meaning that payee is also a fictitious
person), the acceptor person of such a bill of exchange will be liable to a HDC, if the latter can
show that he got the bill under an indorsement by the same hand as the drawer's signatures, and
purporting to be made by the drawer.

(iv) Transfer of rights even when delivery was conditional or for specific purpose only (Sec.
46 and exception to Sec. 47)- An HDC will get a good title even though the original transfer of
Negotiable Instrument was for a specific purpose only and not with the object of transferring
the property therein (e.g., if the servant to whom a person delivers the instrument for safe
custody transfers the same to an HDC).

(v) Prior defects: Instrument obtained by Unlawful means or Unlawful consideration (Sec. 58)-
When a Negotiable Instrument has been lost or has been obtained by a person by means of an
offence (say, theft) or by fraud, or for an unlawful consideration, a person having such a
possession of instrument cannot claim any right in respect of any amount due on the Negotiable
Instrument. But if such an instrument is transferred to a person as an HDC, he will get a good
title 15 A transferee from HDC also gets as clean title as that of HDC himself.

But the instrument must have been acquired by HDC bona fide. Thus, if the HDC knows of the
theft or fraud, he cannot get a good title. It may be noted that a HDC will always get a good
title if the instrument is 'payable to bearer' (unless the HDC does not act bona fide). If it is
'payable to order', HDC will not get a good title if he does not act bona fide or if there is forgery.
Thus, if an instrument whether payable to bearer or payable to order, is negotiated to an HDC,
he will acquire a good title to it if he acts bona fide.

Sec. 58 which protects a HDC where a negotiable instrument has been obtained by means of
an offence, does not apply to a case of 'forgery' (Thorappa v Umedmalji 4). There is a great
difference between a defect of title - in which case a HDC is protected - and an entire absence
of title as in case of forgery in which case he derives no title. A HDC can purify a defective
title but he cannot create any title unless the instrument is payable to bearer. The indorsement
on an instrument through which a HDC claims must be genuine and, therefore, a forged
indorsement creates no title in favour of the HDC (Firm Kalka Prasad Ram Charan v Kunwar
Lal Thapar 5).

(vi) Indorsee from HDC16 (Sec. 53) The holder of a negotiable instrument who derives title
from a HDC has the rights thereon of that HDC. In other words, a holder who receives an
instrument from a HDC gets the rights of HDC, even if he had knowledge of the prior defects,
provided that he was not a party to them.

The holder deriving title from a HDC stands in the shoes of that holder and can sue the acceptor,
drawer, and all prior parties whom the holder himself could have sued. But it is not necessary
that the holder with a derivative title should have given consideration for the instrument.

(vii) Instruments acquired after dishonour or when overdue (Sec. 59) - A person taking a
Negotiable Instrument after its maturity has the rights thereon of a transferor. Thus, a person
taking an instrument after maturity will not be HDC and will not be capable of having a better
title than that of the transferor.

Provided that any person who, in good faith and for consideration, becomes the holder, after
maturity, of a promissory note or bill of exchange made, drawn on accepted without

4
25 Bom LR 604
5
AIR 1957 All. 104
consideration for the purpose of enabling some party thereto to raise money thereon may
recover the amount of note or bill from any prior party.

(viii) Estoppel (Sec. 120) The makes or drawer of a Negotiable Instrument are not permitted to
allege against a HDC, that the Negotiable Instrument as originally drawn was not valid.
Similarly, there is estoppel against denying capacity of payee to endorsee (Sec. 121), and,
estoppel against denying signatures or capacity of prior party (Sec. 122).

DISTINCTION BETWEEN HOLDER AND HOLDER IN DUE COURSE

(1) 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. A 'holder in due course' is a holder who has taken the instrument in good
faith with due care and caution for value (consideration) and before maturity.

In case of 'holder', consideration is not necessary; also, a 'holder' may A acquire the instrument
after maturity. A donee (by way of gift of instrument) is not an HDC, as there is no
consideration, although he is a holder. However, a holder deriving title from a HDC need not
give consideration.

(2) A 'holder' does not get a better title than that of his transferor; a 'holder in due course' gets
a better title than that of his transferor. Thus, where a person obtains possession of an
instrument by theft, he is not a holder, as he cannot obtain or recover the payment of the
instrument. A 'holder in due course' could recover the payment of the instrument if he acted
bona fide.

(3) A 'holder' stands in a less advantageous position than a 'holder in due course'. The title of a
HDC becomes free from all equities, and the defence which could have been pleaded against
the price parties can't be pleaded against a HDC.

When a Negotiable Instrument has been lost or has been obtained by person by means of an
offence (say, theft) or by fraud, or for an unlaw consideration, a person having such a
possession of instrument can't claim any right in respect of any amount due on the Negotiable
Instrument. B if such an instrument is transferred to a person as a HDC, he will get a good title.

(4) A 'holder' does not enjoy special privileges, but a "holder in due course' enjoys certain
special privileges (See above). For example, the defence that the amount filled by holder was
in excess of the authority given can't be taken against a HDC.
(5) Irregular endorsement - Where a bill was drawn in favour of AB & Co. but was endorsed
AB, without the addition of the words "Co.", it was held that the endorsement was irregular
and that the endorsee was not a holder in due course, though he might be a holder for value
[Arab Bank Ltd. v Ross6 ].

6
(1952) 1 All ER 709