Holder in due course
Also called: HDC, Bona fide holder for value
One who for consideration becomes possessor of a bearer instrument, or payee or indorsee of an order instrument, before maturity and without cause to believe the transferor's title defective. Section 9, NI Act.
Explained
Section 9 of the Negotiable Instruments Act, 1881 defines a holder in due course as any person who for consideration became the possessor of a 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.
The elements are: (i) he must be a holder, that is, entitled in his own name to possession and to recover the amount (Section 8); (ii) he must have taken the instrument for consideration; (iii) he must have taken it before maturity; and (iv) he must have taken it without sufficient cause to believe that there was a defect in his transferor's title. The Indian test is 'sufficient cause to believe', which is stricter than mere honesty.
A holder in due course has a privileged position. Every prior party is liable to him until the instrument is duly satisfied (Section 36). Under Section 58, a person who claims through one who obtained an instrument by offence, fraud or unlawful consideration cannot recover unless he, or someone through whom he claims, is a holder in due course. Section 53 gives a later holder who derives title from a holder in due course the same rights. In a suit by a holder in due course, Section 120 bars the maker of a note, the drawer of a bill or cheque and an acceptor for the honour of the drawer from denying the original validity of the instrument, and Section 121 bars the maker of a note and the acceptor of an order bill from denying the payee's capacity to indorse.
Section 118(g) presumes every holder to be a holder in due course, but the proviso shifts the burden to the holder where the instrument was obtained from its lawful owner or the maker by offence or fraud, or for unlawful consideration. The holder in due course of a cheque can also make the statutory demand and complaint under Sections 138 and 142. Examiners test the four elements, the Section 118(g) proviso and the difference from a mere holder.
What the law says
“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer,
Defines holder in due course
The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.
Defines holder
Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.
Liability of prior parties to a holder in due course
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 thereof in due course.
Instrument obtained by unlawful means; protection of HDC
(g) that holder is a holder in due course:—that the holder of a negotiable instrument is a holder in due course: provided that, where the instrutment has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.
Presumption that holder is a holder in due course
A holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that holder in due course.
Holder deriving title from a holder in due course
Example
For example, A makes a promissory note payable to bearer three months after date. B steals it and, before it falls due, delivers it to C for value. C has no reason to suspect the theft. C is a holder in due course and can recover from A despite the defect in B's title (Sections 9 and 58).
For the exam
- Four elements: holder, for consideration, before maturity, without sufficient cause to believe in a defect of title (Section 9).
- Every prior party is liable to a holder in due course (Section 36).
- Presumption of HDC status (Section 118(g)); burden shifts where the instrument was obtained by offence, fraud or unlawful consideration.
- A holder deriving title from an HDC gets his rights (Section 53).
- Payee or holder in due course may file the Section 138 complaint (Section 142).
50 questions in the Law Maker question bank use this term. Practise Negotiable Instruments Act, 1881 questions
Related terms
- Negotiable instrumentA promissory note, bill of exchange or cheque payable either to order or to bearer (Section 13(1) of the Negotiable Instruments Act, 1881).
- Payment in due coursePayment according to the apparent tenor of a negotiable instrument, in good faith and without negligence, to the person in possession, where nothing gives reasonable ground to believe he is not entitled to it (Section 10, NI Act).
- ChequeA bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form. Section 6 of the NI Act.
- Bill of exchangeAn instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer (Section 5, NI Act).
- Nemo dat quod non habetA person cannot transfer a better title than he himself has. In Indian law it is embodied in Section 27 of the Sale of Goods Act, 1930, subject to listed exceptions protecting good faith buyers.
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.