Facts of the Case
- A draws a cheque for Rs. 100 and gifts it to B.
- The cheque is not given for any consideration.
- B is the holder of the cheque, and the question arises whether he is a holder in due course and what rights he has.
Issues in the Case
- Can a person who receives a cheque as a gift, without consideration, be treated as a holder in due course?
- What is the legal status of B as the holder of the cheque?
- Does B have the right to recover the cheque amount?
Principles Associated With It
- Under Section 9 of the Negotiable Instruments Act, a holder in due course is a person who receives the instrument for consideration, in good faith, and before it is overdue.
- Since B received the cheque by way of gift, he is not a holder in due course as there is no consideration.
- However, under Section 8, B is still a holder, as he is entitled to the possession of the cheque and can claim payment in his own name.
- A holder, though not a holder in due course, may have rights subject to prior defects in title, unlike a holder in due course who takes the instrument free from defects.
Judgement
- B is not a holder in due course because he did not provide any consideration.
- B is still a holder and has the right to receive payment, but his title is not immune to prior defects.
- If there is no defect in the title, B can recover the cheque amount.
- Thus, B’s rights are limited compared to a holder in due course.