Who May Negotiate, and Until When (Sections 51 and 57 to 60)

Not everyone whose name is on an instrument, or who has it in his hands, can negotiate it. The Act identifies who may negotiate, what happens when a holder dies before completing a negotiation, what title passes when the instrument was obtained wrongfully or is already overdue or dishonoured, and until when an instrument remains negotiable. This note covers Sections 51 and 57 to 60, together with Section 90.

1. Who May Negotiate (Section 51)

Section 51, Negotiable Instruments Act, 1881

Every sole maker, drawer, payee or indorsee, or all of several joint makers, drawers, payees or indorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded as mentioned in section 50, indorse and negotiate the same.

Explanation. Nothing in this section enables a maker or drawer to indorse or negotiate an instrument, unless he is in lawful possession or is holder thereof; or enables a payee or indorsee to indorse or negotiate an instrument, unless he is holder thereof.

Illustration. A bill is drawn payable to A or order. A indorses it to B, the indorsement not containing the words "or order" or any equivalent words. B may negotiate the instrument.

Sole parties: a sole maker, drawer, payee or indorsee may negotiate.
Joint parties: where there are several joint makers, drawers, payees or indorsees, all must join. One joint payee cannot negotiate alone, unless authorised by the others (for example, as partners).
Restricted instruments: no one may negotiate an instrument whose negotiability has been restricted or excluded under Section 50 (Topic 23), or which is drawn "Pay A only" (Section 13).
Lawful possession or holding: a maker or drawer may negotiate only if in lawful possession or the holder (for example, a drawer of a bill payable to his own order). A payee or indorsee may negotiate only if he is the holder.
Omitted "or order": an indorsement "Pay B" without "or order" does not restrict negotiation (Illustration); Section 13 already makes an instrument payable to a person payable to him or his order.
Minors: a minor may negotiate so as to bind all parties except himself (Section 26; Topic 16).

2. Death Before Delivery (Section 57)

Section 57, Negotiable Instruments Act, 1881

The legal representative of a deceased person cannot negotiate by delivery only a promissory note, bill of exchange or cheque payable to order and indorsed by the deceased but not delivered.

An indorsement is complete only on delivery (Section 46). If a holder indorses an order instrument but dies before delivering it, the indorsement is incomplete. His legal representative cannot simply hand it over; he must indorse it himself, in his capacity as legal representative, to negotiate it, and may limit his liability to the assets of the estate (Section 29).

3. Wrongfully Obtained Instruments (Section 58)

Section 58, Negotiable Instruments Act, 1881

When a negotiable instrument has been lost, or has been obtained from any maker, acceptor or holder thereof by means of an offence or fraud, or for an unlawful consideration, no possessor or indorsee who claims through the person who found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee is, or some person through whom he claims was, a holder in due course.

A person who finds, steals, or obtains an instrument by offence, fraud or for an unlawful consideration has a defective title, and so does anyone claiming through him, unless the claimant or someone in his chain was a holder in due course (Topics 13 and 15). Unlawful consideration includes consideration that is forbidden by law or opposed to public policy under Section 23 of the Contract Act.

4. Overdue or Dishonoured Instruments (Section 59)

Section 59, Negotiable Instruments Act, 1881

The holder of a negotiable instrument, who has acquired it after dishonour, whether by non-acceptance or non-payment, with notice thereof, or after maturity, has only, as against the other parties, the rights thereon of his transferor:

Provided that any person who, in good faith and for consideration, becomes the holder, after maturity, of a promissory note or bill of exchange made, drawn or accepted without consideration, for the purpose of enabling some party thereto to raise money therewith, may recover the amount of the note or bill from any prior party.

Negotiation remains possible: an overdue or dishonoured instrument can still be negotiated, but the transferee takes only his transferor's rights, with all defects and defences attaching.
Dishonour with notice: a transferee who takes after dishonour without notice of it is not caught by this part of the section.
Accommodation proviso: a good faith holder for value of an accommodation note or bill taken after maturity may recover from any prior party, because the accommodation party lent his name precisely so that the instrument could be used to raise money (Topic 14).

5. Until When an Instrument Is Negotiable (Sections 60 and 90)

Section 60, Negotiable Instruments Act, 1881

A negotiable instrument may be negotiated (except by the maker, drawee or acceptor after maturity) until payment or satisfaction thereof by the maker, drawee or acceptor at or after maturity, but not after such payment or satisfaction.

General rule: an instrument remains negotiable until it is paid or satisfied by the maker, drawee or acceptor at or after maturity. Payment by the principal debtor at that stage ends its life as a negotiable instrument.
Payment by others: payment by an indorser or the drawer of an accepted bill does not end negotiability; the instrument may be used to recover from prior parties.
Payment before maturity: payment by the maker or acceptor before maturity is not payment in due course, so the instrument may still be negotiated, and a holder in due course may enforce it (Section 10; Topic 27).
Maker, drawee or acceptor after maturity: these parties cannot re-negotiate the instrument after maturity.
Acceptor becoming holder (Section 90): if a bill that has been negotiated is, at or after maturity, held by the acceptor in his own right, all rights of action on it are extinguished (Topic 28).

⚠ Key point

A sole maker, drawer, payee or indorsee, or all of several joint parties, may negotiate an instrument whose negotiability has not been restricted, but only if in lawful possession or the holder (Section 51). A legal representative cannot negotiate by delivery alone an order instrument indorsed but not delivered by the deceased (Section 57). No one claiming through a finder or a person who obtained the instrument by offence, fraud or unlawful consideration can recover unless a holder in due course intervenes (Section 58). A holder who takes after maturity, or after dishonour with notice, gets only his transferor's rights, except for good faith holders of accommodation instruments (Section 59). An instrument is negotiable until paid or satisfied by the maker, drawee or acceptor at or after maturity (Section 60).

6. Related Topics and Provisions

Holder in due course (Topic 13)
Kinds of indorsement (Topic 23)
Payment in due course (Topic 27)
Discharge from liability (Topic 28)