Page 115 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes The drawer can date a cheque with the date earlier or later than the date on which it is
drawn. A cheque bearing an earlier date is antedated and the one bearing the later date is
called post-dated. A post-dated cheque cannot be honoured, except at the personal risk of
the bank’s manager, till the date mentioned. A post-dated cheque is as much negotiable
as a cheque for which payment is due, i.e., the transferee of a post-dated cheque, like that
of the cheque on which payment is due, acquires a better title than its transferor, if he is a
holder in due course. A cheque that bears a date earlier than six months is a stale cheque
and cannot be claimed for.

Task Analyze the parties involved in bill of exchange.

6.5 Holder and Holder in due Course

According to Sec.8, a holder of negotiable instruments is “a 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.

A ‘holder in due course’, on the other hand, is “a 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 becomes payable and
without having sufficient cause to believe that any defect existed in the title of the person from

whom he derived his title (Sec.9). Thus, where a person receives a negotiable instrument without
consideration, he may be a holder but will not be called a holder in due course. Besides, the
title of holder of a negotiable instrument is always subject to the title of its transferor whereas a
holder in due course acquires a better title than that of its transferor. So where a lost negotiable
instrument is transferred to a person who takes it, say, without consideration and thus becomes
the holder, he will not be entitled to enforce his claim against its real owner. But, if he is a holder
in due course as per Sec.9, he will be able to establish his claim even against the real owner of
that instrument.
Privileges of a Holder in due Course

A holder in due course is given certain additional privileges under the Act, which are not
available to a holder.
1. Privilege against inchoate stamped instruments. According to Sec.20, a person, who signed
and delivered to another a stamped but otherwise inchoate (incomplete) instrument, is
stopped from asserting, as against a holder in due course, that the instrument has not been
filled in accordance with the authority given by him provided the amount filled is covered

by the stamp affi xed.
2. As per Sec.3, every prior party to a negotiable instrument, i.e., the maker or drawer, the
acceptor and all the intermediate endorsers continue to remain liable to the holder in due
course until the instrument is duly satisfi ed.
3. Fictitious drawer or payee. Where a bill of exchange is drawn by a fictitious person and is

payable to his order, the acceptor cannot be relieved from his liability to the holder in due
course. The holder in due course shall, however, have to prove that the instrument was
endorsed by the same hand as drawer’s signature (Sec.42).

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