Section 9 NI Act: "Holder in due course"

Negotiable Instruments Act, 1881

Section 9 NI Act at a Glance

Section 9 NI Act defines a holder in due course as a person who takes a note, bill, or cheque for consideration, before the amount becomes payable, and without sufficient cause to believe that the transferor's title had any defect.

Section 9 NI Act Bare Act Text

9. "Holder in due course".

“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer,

or the payee or indorsee thereof, if payable to order,

before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

Amendments to this section
  • Subs. by Act 8 of 1919, s. 2, for "payable to, or to the order of, a payee,".

Section 9 NI Act in Simple Words

Section 9 NI Act defines who qualifies as a holder in due course of a promissory note, a bill of exchange, or a cheque. First, the person must take the instrument for consideration. Second, if the instrument is payable to bearer, the person must become its possessor; if the instrument is payable to order, the person must be the payee or indorsee of the instrument.

Third, the person must acquire the instrument before the amount mentioned in it becomes payable. Fourth, the person must take the instrument without having sufficient cause to believe that any defect existed in the title of the person from whom the title was derived.

Act 8 of 1919 put "payable to order," in place of "payable to, or to the order of, a payee,".

When Section 9 NI Act Applies

  • The person acquires the promissory note, bill of exchange, or cheque for consideration.
  • The person becomes the possessor of the instrument if it is payable to bearer, or becomes the payee or indorsee if it is payable to order.
  • The person acquires the instrument before the amount mentioned in it becomes payable.
  • The person has no sufficient cause to believe that any defect existed in the title of the person from whom the title was derived.

Example of Section 9 NI Act

Arvind in Ranchi holds a bill of exchange for ₹1,00,000 payable to order, which becomes payable 60 days later. Before the 60 days expire and before the amount becomes payable, Arvind indorses and delivers the bill to Kusum in exchange for goods worth ₹1,00,000 supplied by Kusum. Kusum has no sufficient cause to believe that any defect exists in Arvind's title to the bill. Under Section 9 NI Act, Kusum is a holder in due course because Kusum became the indorsee of an order instrument for consideration, before the amount became payable, and without sufficient cause to suspect a defect in Arvind's title.

FAQs on Section 9 NI Act

What is Section 9 NI Act?▼

Section 9 NI Act defines a holder in due course of a promissory note, bill of exchange, or cheque. It requires taking the instrument for consideration, before the amount becomes payable, as possessor (if bearer) or payee or indorsee (if order), and without sufficient cause to believe the transferor's title was defective.

Can a person become a holder in due course without consideration under Section 9 NI Act?▼

No. Section 9 NI Act requires that the person became the possessor, payee, or indorsee for consideration.

Does Section 9 NI Act distinguish between bearer instruments and order instruments?▼

Yes. For an instrument payable to bearer, the person must become its possessor, whereas for an instrument payable to order, the person must be the payee or indorsee.

Can someone who acquires an instrument after the amount becomes payable be a holder in due course under Section 9 NI Act?▼

No. Under Section 9 NI Act, the person must become the possessor, payee, or indorsee before the amount mentioned in the instrument becomes payable.

What if the recipient had sufficient cause to believe the transferor's title had a defect under Section 9 NI Act?▼

The recipient is not a holder in due course. Section 9 NI Act requires that the person took the instrument without having sufficient cause to believe that any defect existed in the title of the person from whom the title was derived.

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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) ·