Section 44 NI Act: Partial absence or failure of money-consideration

Negotiable Instruments Act, 1881

Section 44 NI Act at a Glance

Section 44 NI Act proportionally reduces the sum a holder in immediate relation with the signer of a promissory note, bill of exchange or cheque can receive when the money consideration was originally absent in part or has subsequently failed in part.

Section 44 NI Act Bare Act Text

44. Partial absence or failure of money-consideration.

When the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of money, and was originally absent in part or has subsequently failed in part, the sum which a holder standing in immediate relation with such signer is entitled to receive from him is proportionally reduced.

Explanation.—The drawer of a bill of exchange stands in immediate relation with the acceptor. The maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee, and the indorser with his indorsee. Other signers may by agreement stand in immediate relation with a holder.

Illustration

A draws a bill on B for Rs. 500 payable to the order of A, B accepts the bill, but subsequently dishonours, it by non-payment. A sues B on the bill, B proves that it was accepted for value as to Rs. 400, and as an accommodation to the plaintiff as to the residue. A can only recover Rs. 400.

Section 44 NI Act in Simple Words

Section 44 NI Act applies when a person signs a promissory note, bill of exchange or cheque for a consideration consisting of money, and that money consideration was originally absent in part or has subsequently failed in part. In that case, the sum that a holder standing in immediate relation with the signer is entitled to receive from the signer is proportionally reduced.

The Explanation to Section 44 NI Act sets out which parties stand in immediate relation with each other. The drawer of a bill of exchange stands in immediate relation with the acceptor; the maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee; and the indorser stands in immediate relation with the indorsee. In addition, other signers may by agreement stand in immediate relation with a holder.

In the Illustration to Section 44 NI Act, A draws a bill on B for Rs. 500 payable to the order of A, and B accepts the bill but subsequently dishonours the bill by non-payment. When A sues B on the bill, B proves that the bill was accepted for value as to Rs. 400 and as an accommodation to A as to the residue. Under Section 44 NI Act, A can only recover Rs. 400.

When Section 44 NI Act Applies

  • A person has signed a promissory note, bill of exchange or cheque.
  • The consideration for signing the instrument consisted of money.
  • That money consideration was originally absent in part or has subsequently failed in part.
  • The holder claiming payment stands in immediate relation with the signer (as set out in the Explanation or by agreement).
  • The sum the holder is entitled to receive from the signer is proportionally reduced.

Example of Section 44 NI Act

Nikhil in Surat draws a cheque for ₹1,00,000 payable to Jyoti for a money loan of ₹1,00,000, and Jyoti advances only ₹70,000 to Nikhil. Because Nikhil is the maker of the cheque and Jyoti is the payee, Nikhil and Jyoti stand in immediate relation under the Explanation to Section 44 NI Act. Part of the money consideration (₹30,000) was originally absent. Under Section 44 NI Act, the sum that Jyoti is entitled to receive from Nikhil on the cheque is proportionally reduced to ₹70,000.

FAQs on Section 44 NI Act

What is Section 44 NI Act?▼

Section 44 NI Act provides for a proportional reduction in the amount recoverable on a promissory note, bill of exchange or cheque when the money consideration was originally absent in part or has subsequently failed in part. This reduction applies to the sum that a holder standing in immediate relation with the signer is entitled to receive from the signer.

Who stands in immediate relation under the Explanation to Section 44 NI Act?▼

The drawer of a bill of exchange stands in immediate relation with the acceptor, the maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee, and the indorser stands in immediate relation with the indorsee. Other signers may also stand in immediate relation with a holder by agreement.

How much can a drawer recover if a bill of exchange for Rs. 500 was accepted for value only as to Rs. 400?▼

Rs. 400. As shown in the Illustration to Section 44 NI Act, when B proves that a bill for Rs. 500 drawn by A was accepted for value as to Rs. 400 and as an accommodation to A as to the residue, A can only recover Rs. 400 from B.

Does Section 44 NI Act apply when the consideration is not money?▼

No. Section 44 NI Act applies only when the consideration for signing the instrument consisted of money, while Section 45 NI Act deals with partial failure of consideration not consisting of money.

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