Facts of the Case
- Mr. Srinu draws a cheque for Rs. 2,000.
- He hands over the cheque to Balu as a gift, without any consideration.
- Balu is in possession of the cheque and seeks to receive its proceeds.
- The question is whether Balu is a holder in due course and what his rights are under the law.
Issues in the Case
- Can a person who receives a cheque as a gift be considered a holder in due course?
- What is the legal interest of Balu in the cheque if there is no consideration involved?
- Does Balu have the right to enforce payment of the cheque?
Principles Associated With It
- According to Section 9 of the Negotiable Instruments Act, a holder in due course must receive the instrument:
- For consideration,
- Before maturity,
- In good faith,
- Without notice of any defect in title.
- Since Balu received the cheque without consideration, he does not qualify as a holder in due course.
- However, under Section 8 of the Act, Balu can still be a holder, as he is entitled in his own name to the possession of the cheque and to receive or recover the amount due.
- A holder may sue on the instrument, even if not a holder in due course, unless the instrument is vitiated (e.g., obtained by fraud or unlawful means).
Judgement
- Balu is not a holder in due course as per Section 9, because he received the cheque without consideration.
- However, he is a holder under Section 8, and therefore has the right to receive payment, subject to the drawer’s defences, if any.
- If the drawer (Mr. Srinu) does not stop payment or raise any objection, Balu may realize the amount.
- Thus, Balu’s interest is valid, but weaker than that of a holder in due course, and subject to defences available to the drawer.