Section 118 NI Act: Presumptions as to negotiable instruments
Negotiable Instruments Act, 1881
Section 118 NI Act at a Glance
Section 118 NI Act sets out seven presumptions for negotiable instruments covering consideration, date, time of acceptance, time of transfer, order of indorsements, stamping of lost instruments, and holder in due course status, each holding until the contrary is proved.
Section 118 NI Act Bare Act Text
118. Presumptions as to negotiable instruments.
Until the contrary is proved, the following presumptions shall be made:—
(a) of consideration:—that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;
(b) as to date:—that every negotiable instrument bearing a date was made or drawn on such date;
(c) as to time of acceptance:—that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;
(d) as to time of transfer:—that every transfer of a negotiable instrument was made before its naturity;
(e) as to order of indorsements:—that the indorsements appearing upon a negotiable instrument were made in the order in which they appear then on;
(f) as to stamp:—that a lost promissory note, bill of exchange or cheque was duly stamped;
(g) that holder is a holder in due course:—that the holder of a negotiable instrument is a holder in due course: provided that, where the instrutment 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 an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.
Section 118 NI Act in Simple Words
Section 118 NI Act establishes seven presumptions for negotiable instruments that apply until the contrary is proved. Under clause (a), the law presumes that every negotiable instrument was made or drawn for consideration, and that when it has been accepted, indorsed, negotiated, or transferred, that act was also done for consideration. Under clause (b), every negotiable instrument bearing a date is presumed to have been made or drawn on that date.
Under Section 118(c) NI Act, every accepted bill of exchange is presumed to have been accepted within a reasonable time after its date and before its maturity. Under Section 118(d) NI Act, every transfer of a negotiable instrument is presumed to have been made before its maturity. Under Section 118(e) NI Act, indorsements appearing on a negotiable instrument are presumed to have been made in the order in which they appear on the instrument. Under Section 118(f) NI Act, a lost promissory note, bill of exchange, or cheque is presumed to have been duly stamped.
Under Section 118(g) NI Act, the holder of a negotiable instrument is presumed to be a holder in due course.
The proviso to Section 118(g) NI Act sets a limit on the presumption in clause (g). Where the instrument has been obtained from its lawful owner, or from any person in lawful custody of it, by means of an offence or fraud, or has been 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 holder in due course lies upon the holder. The official text prints "naturity" in clause (d), "then on" in clause (e) and "instrutment" in the proviso; the sense is "maturity", "thereon" and "instrument".
When Section 118 NI Act Applies
- All presumptions under Section 118 NI Act apply until the contrary is proved.
- Clause (a) presumes that every negotiable instrument was made, drawn, accepted, indorsed, negotiated, or transferred for consideration.
- Clauses (b), (c), and (d) presume that a dated instrument was made or drawn on that date, an accepted bill was accepted within a reasonable time after its date and before maturity, and every transfer was made before maturity.
- Clauses (e) and (f) presume that indorsements were made in the order in which they appear on the instrument, and that a lost promissory note, bill of exchange, or cheque was duly stamped.
- Clause (g) presumes that the holder of a negotiable instrument is a holder in due course.
- Under the proviso to clause (g), if the instrument was obtained from its lawful owner or lawful custodian by an offence or fraud, or from the maker or acceptor by an offence, fraud, or unlawful consideration, the burden of proving holder in due course status lies on the holder.
Example of Section 118 NI Act
FAQs on Section 118 NI Act
What is Section 118 NI Act?▼
Section 118 NI Act sets out seven legal presumptions regarding negotiable instruments. These presumptions cover consideration, date, time of acceptance, time of transfer, order of indorsements, stamping of lost instruments, and holder in due course status, and they apply until the contrary is proved.
Are the presumptions under Section 118 NI Act conclusive?▼
No. Every presumption under Section 118 NI Act applies only until the contrary is proved.
When does the holder have the burden of proving holder in due course status under Section 118(g) NI Act?▼
When the instrument was obtained through an offence, fraud, or unlawful consideration as specified in the proviso to Section 118(g) NI Act. Specifically, if the instrument was obtained from its lawful owner or lawful custodian by an offence or fraud, or from the maker or acceptor by an offence, fraud, or unlawful consideration, the burden of proving holder in due course status lies on the holder.
What does Section 118(f) NI Act presume when a cheque or promissory note is lost?▼
That the lost instrument was duly stamped. Under Section 118(f) NI Act, until the contrary is proved, a lost promissory note, bill of exchange, or cheque is presumed to have been duly stamped.
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Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·