Section 20 NI Act: Inchoate stamped instruments

Negotiable Instruments Act, 1881

Section 20 NI Act at a Glance

Section 20 NI Act governs inchoate (incomplete or blank) stamped instruments. Signing and delivering a stamped blank or incomplete paper gives the holder prima facie authority to complete it up to the amount covered by the stamp.

Section 20 NI Act Bare Act Text

20. Inchoate stamped instruments.
Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount: provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.

Amendments to this section

Subs. by Act 3 of 1951, s. 3 and the Sch., for "the States".

Section 20 NI Act in Simple Words

Section 20 NI Act deals with inchoate (incomplete) stamped instruments and explains the authority of the holder and the liability of the signer. When one person signs and delivers to another person a paper stamped in accordance with the law relating to negotiable instruments then in force in India, and the paper is either wholly blank or has an incomplete negotiable instrument written on it, that person gives prima facie authority to the holder to make or complete a negotiable instrument upon the paper for any amount specified in it, not exceeding the amount covered by the stamp.

Under the second sentence of Section 20 NI Act, the person who signed the stamped paper is liable upon the completed instrument, in the capacity in which that person signed it, to any holder in due course for such amount.

The proviso to Section 20 NI Act sets a limit on recovery by anyone who is not a holder in due course. Under this proviso, no person other than a holder in due course can recover from the person who delivered the instrument anything in excess of the amount that the person delivering the instrument intended to be paid under it. Act 3 of 1951 put "India" in place of "the States".

When Section 20 NI Act Applies

A person signs and delivers to another person a paper stamped in accordance with the law relating to negotiable instruments then in force in India.
The stamped paper is either wholly blank or has an incomplete negotiable instrument written on it.
Signing and delivering the paper gives prima facie authority to the holder to make or complete a negotiable instrument upon it for any amount specified in it, not exceeding the amount covered by the stamp.
The person who signed is liable upon the instrument, in the capacity in which that person signed, to any holder in due course for such amount.
Under the proviso (limit on recovery), no person other than a holder in due course can recover from the person delivering the instrument anything in excess of the amount intended by the person delivering it to be paid.

Example of Section 20 NI Act

Pradeep in Thiruvananthapuram signs and delivers to Divya an incomplete promissory note on stamped paper whose stamp covers up to ₹50,000, intending Divya to fill in ₹30,000. Under Section 20 NI Act, Pradeep gives Divya prima facie authority to complete the note for any amount up to ₹50,000. Divya fills in ₹50,000 and gives the note to Divya's brother Faisal as a gift. Faisal gave no consideration, so Faisal is not a holder in due course, and under the proviso to Section 20 NI Act Faisal cannot recover more than ₹30,000 from Pradeep. If Divya had instead transferred the note for consideration, before the amount became payable, to Lalitha, who had no sufficient cause to believe that Divya's title was defective, Lalitha would be a holder in due course and Pradeep would be liable to Lalitha for ₹50,000.

When Section 20 NI Act Does Not Apply

Under the proviso to Section 20 NI Act, a person who is not a holder in due course cannot recover from the person delivering the instrument any amount in excess of the amount intended by the person delivering it to be paid.

FAQs on Section 20 NI Act

What is Section 20 NI Act?▼

Section 20 NI Act governs inchoate stamped instruments under the Negotiable Instruments Act, 1881. When a person signs and delivers a blank or incomplete paper stamped according to the law in force in India, that person gives the holder prima facie authority to make or complete a negotiable instrument on it up to the amount covered by the stamp.

What is the maximum amount for which an incomplete stamped instrument can be completed under Section 20 NI Act?▼

The amount covered by the stamp on the paper. Section 20 NI Act gives the holder prima facie authority to make or complete the negotiable instrument for any amount specified in it, not exceeding the amount covered by the stamp.

Can a person who is not a holder in due course recover more than the intended amount under Section 20 NI Act?▼

No. The proviso to Section 20 NI Act limits recovery by stating that no person other than a holder in due course can recover from the person delivering the instrument anything in excess of the amount intended by the person delivering it to be paid.

Is the signer of an inchoate stamped instrument liable to a holder in due course under Section 20 NI Act?▼

Yes. Under Section 20 NI Act, the person who signed the stamped paper is liable upon the completed instrument, in the capacity in which that person signed it, to any holder in due course for the amount specified in the instrument up to the amount covered by the stamp.

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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) ·