Negotiable Instruments Act 04 Of Negotiation

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Negotiable Instruments Act, 1881

Chapter – NIA 01 Preliminary
Chapter – NIA 02 Of Notes Bills and Cheques
Chapter – NIA 03 Parties to Notes Bills and Cheques
Chapter – NIA 04 Of Negotiation
Chapter – NIA 05 Of Presentment
Chapter – NIA 06 Of Payment and Interest
Chapter – NIA 07 Of Discharge from Liability on Notes Bills and Cheques
Chapter – NIA 08 Of Notice of Dishonour
Chapter – NIA 09 Of Noting and Protest
Chapter – NIA 10 Of Reasonable Time
Chapter – NIA 11 Of Acceptance and Payment for Honour and Reference in Case of Need
Chapter – NIA 12 Of Compensation
Chapter – NIA 13 Special Rules of Evidence
Chapter – NIA 14 Of Crossed Cheques
Chapter – NIA 15 Of Bills in Sets
Chapter – NIA 16 Of International Law
Chapter – NIA 17 Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts

Chapter IV – Of Negotiation

Section 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 authorized by him in that behalf. 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.

Section 47 – Negotiations by delivery

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof.

Exceptions

A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect 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.

Illustrations

  1. 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.
  2. 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.

Section 48 – Negotiation by indorsement

Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to order, is negotiable by the holder by indorsement and delivery thereof.

Section 49 – Conversion of indorsement in blank into indorsement in full

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.

Section 50 – Effect of indorsement

The indorsement of a 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 reeive its contents for the indorser, or for some other specified person.

Illustrations

B signs the following indorsements on different negotiable instruments payable to bearer:

  1. “Pay the contents to C only”.
  2. “Pay C for my use.”
  3. “Pay C or order for the account of B”.
  4. “The within must be credited to C”. These indorsements exclude the right of further negotiation by C.
  5. “Pay C.”
  6. “Pay C value in account with the Oriental Bank.”
  7. “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.

Section 51 – Who may negotiate

Every sole maker, drawer, payees 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.

Explanations

Nothing in this section enables a maker or drawer to indorse or negotiate an instrument, unless 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.

Illustrations

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.

Section 52 – Indorser who excludes his own liability or makes it conditional

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. Where an indorser so excludes his liability and afterwards becomes the holder of the instrument, all intermediate indorsers are liable to him.

Illustrations

  1. The indorser of a negotiable instrument signs his name, adding the words “Without recourse.” Upon this indorsement he incurs no liability.
  2. 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 rights of an indorsee against B and C.

Section 53 – Holder deriving title from holder in due course

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.

Section 54 – Instrument indorsed in blank

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.

Section 55 – Conversion of indorsement in blank into indorsement in full

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.

Section 56 – Indorsement for part of sum due

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.

Section 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.

Section 58 – Instrument obtained by unlawful means or for unlawful consideration

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.

Section 59 – Instrument acquired after dishonour or when overdue

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 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.

Illustrations

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.

Section 60 – Instrument negotiable till payment or satisfaction

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.


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Negotiable Instruments Act Chapter 04 Of Negotiation Bare Act