Section 59 NI Act: Instrument acquired after dishonour or when overdue

Negotiable Instruments Act, 1881

Section 59 NI Act at a Glance

Section 59 NI Act gives a holder acquiring a negotiable instrument after maturity, or after dishonour with notice, only the transferor's rights against other parties. A proviso protects good faith holders for consideration who take an accommodation note or bill after maturity.

Section 59 NI Act Bare Act Text

59. Instrument acquired after dishonour or when overdue.
The holder of a negotiable instrument, who has acquired it after dishonour, whether by non-acceptance or non-payment, with notice thereof, or after maturity, has only, as against the other parties, the rights thereon of his transferor:
Accommodation note or bill.—Provided that any person who, in good faith and for consideration, becomes the holder, after maturity, of a promissory note or bill of exchange made, drawn or accepted without consideration, for the purpose of enabling some party thereto to raise money thereon, may recover the amount of the note or bill from any prior party.
Illustration
The acceptor of a bill of exchange, when he accepted it, deposited with the drawer certain goods as a collateral security for the payment of the bill, with power to the drawer to sell the goods and apply the proceeds in discharge of the bill if it were not paid at maturity. The bill not having been paid at maturity, the drawer sold the goods and retained the proceeds, but indorsed the bill to A. A's title is subject to the same objection as the drawer's title.

Section 59 NI Act in Simple Words

Section 59 NI Act defines the rights of a holder who acquires a negotiable instrument late or with knowledge of dishonour. When a holder acquires a negotiable instrument after dishonour, whether by non-acceptance or non-payment, with notice of that dishonour, or when the holder acquires the instrument after maturity, the holder has, as against the other parties, only the rights on the instrument of the holder's transferor.

The proviso to Section 59 NI Act, printed with the heading "Accommodation note or bill.", creates an exception to that limitation. Under this proviso, if a promissory note or bill of exchange was made, drawn, or accepted without consideration for the purpose of enabling some party to the instrument to raise money on the instrument, any person who becomes the holder of that note or bill after maturity, in good faith and for consideration, may recover the amount of the note or bill from any prior party.

The Illustration to Section 59 NI Act shows the main rule applied to a bill of exchange. When the acceptor of a bill of exchange accepted the bill, the acceptor deposited certain goods with the drawer as a collateral security for the payment of the bill, with power to the drawer to sell the goods and apply the proceeds in discharge of the bill if the bill were not paid at maturity. The bill not having been paid at maturity, the drawer sold the goods and retained the proceeds, but indorsed the bill to A, and the Illustration states that A's title is subject to the same objection as the drawer's title.

When Section 59 NI Act Applies

A holder acquires a negotiable instrument either after dishonour (whether by non-acceptance or non-payment) with notice of that dishonour, or after maturity.
As against the other parties, that holder has only the rights on the instrument of the holder's transferor.
Under the proviso for an accommodation note or bill, a promissory note or bill of exchange is made, drawn, or accepted without consideration to enable some party to the instrument to raise money on the instrument.
Any person who, in good faith and for consideration, becomes the holder of such a promissory note or bill of exchange after maturity may recover the amount from any prior party.

Example of Section 59 NI Act

Mahesh in Udaipur accepts a bill of exchange for ₹60,000 drawn by Deepak. After the bill reaches maturity and remains unpaid, Deepak indorses the overdue bill to Fatima in Madurai. Under Section 59 NI Act, because Fatima acquired the bill of exchange after maturity, Fatima has only the rights on the bill that Deepak, as Fatima's transferor, had against Mahesh and the other parties. By contrast, if Mahesh had accepted the bill without consideration for the purpose of enabling Deepak to raise money on the bill, and Fatima became the holder after maturity in good faith and for consideration, the proviso to Section 59 NI Act allows Fatima to recover the ₹60,000 from Mahesh or any prior party.

When Section 59 NI Act Does Not Apply

Under the proviso to Section 59 NI Act, any person who, in good faith and for consideration, becomes the holder after maturity of a promissory note or bill of exchange made, drawn, or accepted without consideration to enable a party to raise money on the instrument may recover the amount from any prior party.

FAQs on Section 59 NI Act

What is Section 59 NI Act?▼

Section 59 NI Act provides that a holder who acquires a negotiable instrument after dishonour (with notice of the dishonour) or after maturity has only the rights of the transferor against the other parties. A proviso allows a person who, in good faith and for consideration, becomes the holder after maturity of an accommodation promissory note or bill of exchange to recover the amount from any prior party.

What rights does a holder get when acquiring a negotiable instrument after maturity under Section 59 NI Act?▼

Only the rights of the transferor. Under Section 59 NI Act, a holder who acquires a negotiable instrument after maturity has, as against the other parties, only the rights on the instrument of the holder's transferor.

Is a holder who took the instrument after dishonour, without notice of the dishonour, limited to the transferor's rights under Section 59 NI Act?▼

Not on that ground. For an instrument acquired after dishonour, Section 59 NI Act limits the holder to the transferor's rights only where the holder acquired it with notice of the dishonour. The limit also applies to any holder who acquired the instrument after maturity.

Can a holder who takes an accommodation note or bill after maturity recover the amount from a prior party under Section 59 NI Act?▼

Yes. Under the proviso to Section 59 NI Act, a person who, in good faith and for consideration, becomes the holder after maturity of a promissory note or bill of exchange made, drawn, or accepted without consideration to enable a party to raise money on the instrument may recover the amount from any prior party.

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