Holder In Due Course - Definition - Law Dictionary Home Dictionary Definition holder-in-due-course

Definition :

Holder in due course is 'a holder who has taken a bill of exchange [cheque or note], complete and regular on the face of it,' under the following conditions, namely:-

(a) That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact.

(b) That he took the bill [cheque or note] in good faith and for value, and that at the time it was negotiated to him he had no notice of any defect in the title of the person who negotiated it, Bills of Exchange Act, 1882 (45 & 46 Vict. c. 61), s. 29.

A person who in good faith has given value for a negotiable instrument that is complete and regular on its face, is not overdue, and, to the possessor's knowledge has not been dishonoured, Black's Law Dictionary, 7th Edn.

In R. E. Jones Ltd. v. Warning and Gillow Ltd., 1926 AC 670, it was held that the original payee of a cheque is not a holder in due course within the meaning of the Bill of Exchange Act, 1882.

Means any person who for consideration became the possessor of 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. [Negotiable Instruments Act, 1881 (26 of 1881), s. 9]

Under the Indian law, a holder, to be a holder in due course, must not only have acquired the bill, note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. This condition requires that he should act in good faith and with reasonable caution. However, mere failure to prove bona fide or absence of negligence on his part would not negative his claim, U. Ponnappa Moothan Sons v. Catholic Syrian Bank Ltd., (1991) 1 SCC 113: AIR 1991 SC 441 (451). (Negotiable Instruments Act, 1881 s. 9)