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Holder: Who is the holder of a negotiable instrument?

Holder: Who is the holder of a negotiable instrument?


Section 8 of N.I.Act 1881 defines ‘Holder’ as under.

“The holder of a promissory note, bill of exchange or cheque means, any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed its holder is the person so entitled at the time of such loss or destruction”

The above definition implies that the person who claims to be the holder should be entitled in his own name to the possession of the instrument and he has the right to receive or recover the amount thereon from the parties thereto. Another point to be noted from the definition is that physical possession is not required by section 8 of the act, it is sufficient that the holder is entitled the possession in his own name. In the other words, the holder should have acquired the instrument in the capacity of payee or endorsee in a lawful manner. The person who received the instrument through forgery or by the fraudulent method cannot be a holder.

Rights of the holder

A cheque or a negotiable instrument payable to bearer can be negotiated by simple delivery of the instrument. The person to whom the bearer instrument is delivered becomes the holder of the instrument. When an instrument is payable to order, once endorsed and delivered the same to the endorsee, the endorsee becomes the holder of that instrument.

The holder has the right to complete the blank endorsement into endorsement in full; he can cross an open cheque; he can add the word not negotiable to the crossing (Section 125 of N.I.Act 1881). The holder has the right to obtain a duplicate of a lost bill. However, the drawer may insist for an indemnity from the holder against loss or damage on account of issuing a duplicate bill and holder has to give such indemnity to the drawer. The holder can negotiate a bill/instrument to third party provided the negotiation is expressly not prohibited.

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