Facts of the Case
- Mr. Srinu draws a cheque for Rs. 2,000 and gives it as a gift to Balu.
- There is no consideration exchanged between Srinu and Balu for the cheque.
- Balu presents the cheque for encashment to receive the proceeds.
Issues in the Case
- Can Balu be considered a holder in due course under the Negotiable Instruments Act, 1881, when he receives the cheque without consideration?
- What is the legal status and entitlement of Balu to claim the proceeds of the cheque?
- Does the nature of the gift transfer affect the enforceability of the cheque?
Principles Associated with It
- Under Section 9 of the Negotiable Instruments Act, 1881, a Holder in Due Course is one who receives the instrument:
- For consideration
- Before it becomes overdue
- In good faith
- Since Balu received the cheque without any consideration, he cannot be considered a holder in due course.
- However, Balu qualifies as a holder under Section 8, which includes any person entitled in his own name to the possession of the instrument and to receive or recover the amount due thereon.
- A gift does not invalidate the cheque, but it affects the priority and protection available under the law.
Judgement
- Balu is not a holder in due course, as he did not receive the cheque for consideration.
- However, Balu is a holder, and hence he has the right to present the cheque and receive its proceeds, provided there is no defect in the title or objections from the drawer’s side.
- His interest is limited as he lacks the enhanced legal protection provided to a holder in due course.
- If there is any dispute or defect in the transaction, Balu’s right to enforce the cheque may be weaker than that of a holder in due course.