Section 50 NI Act: Effect of indorsement

Negotiable Instruments Act, 1881

Section 50 NI Act at a Glance

Section 50 NI Act states that indorsement followed by delivery transfers property in a negotiable instrument and the right of further negotiation to the indorsee. Express words in the indorsement may restrict or exclude that right, or make the indorsee an agent.

Section 50 NI Act Bare Act Text

50. Effect of indorsement.
The indorsement of a negotiable instrument followed by delivery transfers to the indorsee the property therein with the right of further negotiation; but the indorsement may, by express words, restrict or exclude such right, or may merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser, or for some other specified person.
Illustrations
B signs the following indorsements on different negotiable instruments payable to bearer.—
(a) “Pay the contents to C only”.
(b) “Pay C for my use.”
(c) “Pay C or order for the account of B.”
(d) “the within must be credited to C.”
These indorsements exclude the right of further negotiation by C.
(e) “Pay C.”
(f) “Pay C value in account with the Oriental Bank.”
(g) “Pay the contents to C, being part of the consideration in a certain deed of assignment executed by C to the indorser and others.”
These indorsements do not exclude the right of further negotiation by C.

Section 50 NI Act in Simple Words

Section 50 NI Act explains the legal effect of indorsing and delivering a negotiable instrument. When a negotiable instrument is indorsed and followed by delivery, the property in the instrument transfers to the indorsee together with the right of further negotiation.

Section 50 NI Act also allows an indorsement to limit this effect through express words. By express words, the indorsement may restrict or exclude the indorsee's right of further negotiation, or it may merely constitute the indorsee an agent to indorse the instrument, or to receive the contents of the instrument for the indorser or for some other specified person.

The illustrations to Section 50 NI Act show where B signs indorsements on different negotiable instruments payable to bearer. In Illustration (a) "Pay the contents to C only", Illustration (b) "Pay C for my use.", Illustration (c) "Pay C or order for the account of B.", and Illustration (d) "the within must be credited to C.", the result is that these indorsements exclude the right of further negotiation by C. In Illustration (e) "Pay C.", Illustration (f) "Pay C value in account with the Oriental Bank.", and Illustration (g) "Pay the contents to C, being part of the consideration in a certain deed of assignment executed by C to the indorser and others.", the result is that these indorsements do not exclude the right of further negotiation by C.

When Section 50 NI Act Applies

A negotiable instrument is indorsed and followed by delivery.
The indorsement and delivery transfer to the indorsee the property in the instrument with the right of further negotiation.
By express words, the indorsement may restrict or exclude the right of further negotiation.
By express words, the indorsement may merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser or for some other specified person.

Example of Section 50 NI Act

Nisha in Mysuru holds a negotiable instrument for ₹60,000 payable to bearer and indorses it by writing "Pay Raghav" before delivering it to Raghav. Under Section 50 NI Act and Illustration (e), this indorsement followed by delivery transfers the property in the instrument to Raghav and does not exclude Raghav's right of further negotiation. If Nisha instead writes "Pay the contents to Raghav only" and delivers the instrument to Raghav, then under Section 50 NI Act and Illustration (a), those express words exclude the right of further negotiation by Raghav.

FAQs on Section 50 NI Act

What is Section 50 NI Act?▼

Section 50 NI Act states that the indorsement of a negotiable instrument followed by delivery transfers the property in the instrument to the indorsee along with the right of further negotiation. It also provides that an indorsement may, by express words, restrict or exclude that right or merely make the indorsee an agent.

Can an indorsement under Section 50 NI Act stop the indorsee from negotiating the instrument further?▼

Yes. Under Section 50 NI Act, an indorsement may by express words restrict or exclude the indorsee's right of further negotiation.

Can an indorsement under Section 50 NI Act make the indorsee an agent instead of transferring full property?▼

Yes. Section 50 NI Act provides that an indorsement may by express words merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser or for some other specified person.

Which indorsements in the illustrations to Section 50 NI Act exclude further negotiation by C?▼

Illustrations (a), (b), (c), and (d) to Section 50 NI Act exclude the right of further negotiation by C. Those indorsements are "Pay the contents to C only", "Pay C for my use.", "Pay C or order for the account of B.", and "the within must be credited to C."

Does an indorsement stating 'Pay C.' exclude C's right of further negotiation under Section 50 NI Act?▼

No. Under Illustration (e) to Section 50 NI Act, the indorsement "Pay C." does not exclude the right of further negotiation by C, and Illustrations (f) and (g) also do not exclude that right.

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