Section 58 NI Act: Instrument obtained by unlawful means or for unlawful consideration

Negotiable Instruments Act, 1881

Section 58 NI Act at a Glance

Section 58 NI Act bars a possessor or indorsee claiming through someone who found a lost negotiable instrument, or obtained it by offence, fraud, or unlawful consideration, from recovering the amount, unless that claimant or a prior transferor is a holder in due course.

Section 58 NI Act Bare Act Text

58. Instrument obtained by unlawful means or for unlawful consideration.

When a negotiable instrument has been lost, or has been obtained from any maker, acceptor or holder thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or indorsee who claims through the person who found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee is, or some person through whom he claims was, a holder thereof in due course.

Section 58 NI Act in Simple Words

Section 58 NI Act governs the right to recover payment on a negotiable instrument that was lost or tainted by unlawful acquisition. The rule applies when a negotiable instrument has been lost, or when the instrument has been obtained from any maker, acceptor, or holder of the instrument by means of an offence or fraud, or for an unlawful consideration.

In any of those situations, no possessor or indorsee who claims through the person who found the instrument or so obtained the instrument is entitled to receive the amount due on the instrument from that maker, acceptor, or holder, or from any party prior to that holder.

Section 58 NI Act sets out an exception protecting a holder in due course and those claiming through a holder in due course. Under the exception in Section 58 NI Act, the possessor or indorsee is entitled to receive the amount if the possessor or indorsee is a holder in due course, or if some person through whom the possessor or indorsee claims was a holder in due course.

When Section 58 NI Act Applies

  • A negotiable instrument has been lost, or has been obtained from any maker, acceptor, or holder by means of an offence or fraud, or for an unlawful consideration.
  • A possessor or indorsee claims the instrument through the person who found or so obtained the instrument.
  • That possessor or indorsee is not entitled to receive the amount due on the instrument from that maker, acceptor, or holder, or from any party prior to that holder.
  • The possessor or indorsee is entitled to receive the amount if the possessor or indorsee is a holder in due course, or claims through a person who was a holder in due course.

Example of Section 58 NI Act

Rahul in Jodhpur is the holder of a negotiable instrument for ₹75,000 made by Bilal. Kunal obtains the instrument from Rahul by fraud and indorses the instrument to Sneha in Lucknow, who is not a holder in due course. Under Section 58 NI Act, Sneha is not entitled to receive the ₹75,000 from Rahul or from Bilal, because Sneha claims through Kunal, who obtained the instrument by fraud, and neither Sneha nor any person through whom Sneha claims after Kunal was a holder in due course. However, if Kunal instead indorses the instrument to Revathi for consideration, before the amount becomes payable, and Revathi has no sufficient cause to believe that Kunal's title is defective, Revathi is a holder in due course and is entitled to receive the ₹75,000 under the exception in Section 58 NI Act.

When Section 58 NI Act Does Not Apply

  • The bar on receiving the amount due does not apply if the possessor or indorsee is a holder in due course of the negotiable instrument.
  • The bar on receiving the amount due does not apply if some person through whom the possessor or indorsee claims was a holder in due course of the negotiable instrument.

FAQs on Section 58 NI Act

What is Section 58 NI Act?▼

Section 58 NI Act states that when a negotiable instrument is lost or obtained from any maker, acceptor, or holder by an offence, fraud, or unlawful consideration, no possessor or indorsee claiming through the finder or wrongdoer can receive the amount due from that maker, acceptor, holder, or any prior party. This bar does not apply if the possessor or indorsee is a holder in due course, or claims through a person who was a holder in due course.

Can a holder in due course recover the amount of a lost or fraudulently obtained instrument under Section 58 NI Act?▼

Yes. Under the exception in Section 58 NI Act, a possessor or indorsee who is a holder in due course, or who claims through a person who was a holder in due course, is entitled to receive the amount due on the instrument.

What kinds of loss or defective acquisition are covered by Section 58 NI Act?▼

Section 58 NI Act covers a negotiable instrument that has been lost, or obtained from any maker, acceptor, or holder by means of an offence, by fraud, or for an unlawful consideration.

Which parties are protected from paying a claimant who is not a holder in due course under Section 58 NI Act?▼

The maker, acceptor, or holder from whom the instrument was lost or unlawfully obtained, as well as any party prior to that holder, are protected from paying such a claimant.

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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) ·