Section 47 NI Act: Negotiation by delivery
Negotiable Instruments Act, 1881
Section 47 NI Act at a Glance
Section 47 NI Act states that, subject to Section 58 NI Act, a promissory note, bill of exchange, or cheque payable to bearer is negotiable by delivery. It also sets an exception for instruments delivered on condition of a certain event happening.
Section 47 NI Act Bare Act Text
47. Negotiation by delivery.
Subject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof.
Exception.—A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable (except in the hands of a holder for value without notice of the condition) unless such event happens.
Illustrations
(a) A, the holder of a negotiable instrument payable to bearer, delivers it to B's agent to keep for B. The instrument has been negotiated.
(b) A, the holder of a negotiable instrument payable to bearer, which is in the hands of A's banker, who is at the time the banker of B, directs the banker to transfer the instrument to B's credit in the banker's account with B. The banker does so, and accordingly now possesses the instrument as B's agent. The instrument has been negotiated, and B has become the holder of it.
Section 47 NI Act in Simple Words
Section 47 NI Act governs how a negotiable instrument payable to bearer is negotiated. Subject to Section 58 NI Act, a promissory note, bill of exchange, or cheque payable to bearer is negotiable by delivery of the instrument. Section 58 NI Act deals with an instrument that has been lost, or obtained by means of an offence, fraud or unlawful consideration.
The Exception to Section 47 NI Act sets a limit when delivery is conditional. If a promissory note, bill of exchange, or cheque is delivered on the condition that it is not to take effect except in a certain event, the instrument is not negotiable unless that event happens. However, this limit does not apply when the instrument is in the hands of a holder for value without notice of the condition.
Section 47 NI Act includes two illustrations showing how delivery negotiates a bearer instrument. In Illustration (a), A, the holder of a negotiable instrument payable to bearer, delivers it to B's agent to keep for B, and the result is that the instrument has been negotiated. In Illustration (b), A holds a bearer instrument that is in the hands of A's banker, who is at the time the banker of B, and A directs the banker to transfer the instrument to B's credit in the banker's account with B; the banker does so and now possesses the instrument as B's agent, and the result is that the instrument has been negotiated and B has become the holder of it.
When Section 47 NI Act Applies
- The instrument is a promissory note, bill of exchange, or cheque payable to bearer.
- The instrument is negotiated by delivery of the instrument, subject to Section 58 NI Act.
- Under the Exception, an instrument delivered on condition that it is not to take effect except in a certain event is not negotiable unless that event happens, except in the hands of a holder for value without notice of the condition.
Example of Section 47 NI Act
When Section 47 NI Act Does Not Apply
- Under the Exception to Section 47 NI Act, a promissory note, bill of exchange, or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable unless that event happens, except in the hands of a holder for value without notice of the condition.
FAQs on Section 47 NI Act
What is Section 47 NI Act?▼
Section 47 NI Act states that, subject to Section 58 NI Act, a promissory note, bill of exchange, or cheque payable to bearer is negotiable by delivery of the instrument. Section 47 NI Act also contains an exception for instruments delivered on the condition that they are not to take effect except in a certain event.
What happens under Section 47 NI Act if a bearer instrument is delivered on condition that it takes effect only in a certain event?▼
The instrument is not negotiable unless that event happens, with one exception. Under the Exception to Section 47 NI Act, the instrument remains negotiable in the hands of a holder for value without notice of the condition even if the event has not happened.
Does delivering a bearer instrument to the recipient's agent count as negotiation under Section 47 NI Act?▼
Yes. As shown in Illustration (a) to Section 47 NI Act, when A, the holder of a negotiable instrument payable to bearer, delivers it to B's agent to keep for B, the instrument has been negotiated.
Can a bearer instrument be negotiated under Section 47 NI Act through a banker who acts for both parties?▼
Yes. Under Illustration (b) to Section 47 NI Act, when A directs A's banker, who is at the time B's banker, to transfer a bearer instrument in the banker's hands to B's credit in the banker's account with B and the banker does so, the banker possesses the instrument as B's agent, the instrument has been negotiated, and B has become the holder of it.
How does Section 58 NI Act limit Section 47 NI Act?▼
Section 47 NI Act applies subject to Section 58 NI Act. Under Section 58 NI Act, when an instrument is lost or obtained by means of an offence, fraud, or unlawful consideration, a possessor or indorsee claiming through the finder or person who so obtained it cannot receive the amount due from the maker, acceptor, holder, or prior party unless that claimant or someone through whom the claim is made was a holder in due course.
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Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·