Law · Negotiable Instruments Act, 1881
A person acquires a cheque for consideration, in good faith, and before it becomes overdue. The cheque was originally obtained via fraud by the transferor, but the current holder has no knowledge of this defect. What is the status and right of this holder under Section 9 of the Negotiable Instruments Act, 1881?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The holder is a mere holder and cannot recover the money because the title was tainted by fraud at a previous stage.
- 2The holder is a 'Holder in Due Course' and acquires a valid, defect-free title despite the previous fraud.✓
- 3The holder must return the cheque to the original drawer as the principle of 'Nemo dat quod non habet' applies strictly.
- 4The holder can only recover the money if the cheque was explicitly crossed with the words 'Not Negotiable'.
Correct answer
The holder is a 'Holder in Due Course' and acquires a valid, defect-free title despite the previous fraud.
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