Section 121 NI Act: Estoppel against denying capacity of payee to indorse

Negotiable Instruments Act, 1881

Section 121 NI Act at a Glance

When sued by a holder in due course, Section 121 NI Act bars the maker of a promissory note and the acceptor of a bill payable to order from denying the payee's capacity at the instrument's date to indorse it.

Section 121 NI Act Bare Act Text

121. Estoppel against denying capacity of payee to indorse.

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.

Amendments to this section
  • Subs. by Act 8 of 1919, s. 5, for "payable to, or to the order of, a specified person".

Section 121 NI Act in Simple Words

Section 121 NI Act creates an estoppel concerning a payee's capacity to indorse an instrument. In a suit brought by a holder in due course on a promissory note or a bill of exchange payable to order, the maker of the promissory note and the acceptor of the bill of exchange are not permitted to deny the payee's capacity, at the date of the note or bill, to indorse it.

The bar in Section 121 NI Act applies specifically to the payee's capacity as of the date of the promissory note or bill of exchange, and only when the suit is brought by a holder in due course. Act 8 of 1919 put the words "payable to order" in place of "payable to, or to the order of, a specified person".

When Section 121 NI Act Applies

  • The instrument is a promissory note or a bill of exchange payable to order.
  • A holder in due course brings a suit on the promissory note or bill of exchange.
  • The maker of the promissory note or the acceptor of the bill of exchange payable to order is not permitted to deny the payee's capacity, at the date of the note or bill, to indorse the instrument.

Example of Section 121 NI Act

Tenzin in Chandigarh makes a promissory note payable to order for ₹40,000 naming Arvind as the payee. Arvind indorses the note before maturity for consideration to Divya in Kochi, who takes it as a holder in due course. When Divya sues Tenzin on the promissory note, Tenzin attempts to argue that Arvind lacked the legal capacity to indorse the note on the date the note was made. Under Section 121 NI Act, Tenzin, as the maker of the promissory note, is not permitted in Divya's suit to deny Arvind's capacity at the date of the note to indorse it.

FAQs on Section 121 NI Act

What is Section 121 NI Act?▼

Section 121 NI Act is an estoppel rule regarding a payee's capacity to indorse. It provides that in a suit by a holder in due course, no maker of a promissory note and no acceptor of a bill of exchange payable to order is permitted to deny the payee's capacity, at the date of the note or bill, to indorse it.

Which parties are bound by the estoppel in Section 121 NI Act?▼

The maker of a promissory note and the acceptor of a bill of exchange payable to order. Under Section 121 NI Act, neither of those parties is permitted to deny the payee's capacity at the date of the note or bill to indorse it when sued by a holder in due course.

At what point in time does Section 121 NI Act bar a denial of the payee's capacity to indorse?▼

At the date of the promissory note or bill of exchange. Section 121 NI Act specifically bars denying the payee's capacity, at the date of the note or bill, to indorse the instrument.

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Disclaimer: This is for informational purposes only. Always consult a qualified advocate for legal advice.

Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·