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Report No. 11

66. Section 20.-

Substantial changes had to be made in section 20 relating to inchoate instruments:

(a) The section has been split up into several sub-sections for convenience of reference.

(b) In a recent Bombay case1 it was pointed out that the word 'holder' in this section was creating some difficulty inasmuch as, in this context, the word only means the person who receives the paper and not a "holder" as defined in the Act. We have made this clear by verbal changes.

1. Tarachand v. Sikri Bros,. AIR 1953 Bom 920.

(c) Both in the Bills of Exchange Act (section 20) and the uniform Negotiable Instruments Law (section 14) certain additional conditions are mentioned for inferring an authority to complete such instruments. These should be inserted in our Act in order to clarify the position. These are-

(i) That the delivery of the inchoate instrument must be made "in order that it may be converted into a negotiable instrument". (In the absence of such words, a person to whom an inchoate instrument is delivered for some other purpose, e.g., safe custody, may be in a position to utilise the section to his advantage.)

(ii) That it must be filled up "within a reasonable time and strictly in accordance with the authority given", but that in case of negotiation to a holder in due course after completion of the instrument, no such objection should lie against the holder in due course.

We have inserted these conditions into the section.1

1. See section 20, App 1.

67. There is another material difference between the provision in section 20 of our Act and the corresponding provision in section 20 of the Bills of Exchange Act. The first paragraph of sub-section (1) of section 20 of the English Act is confined to the completion of an instrument where there was a blank paper delivered by the signer so that it might be converted into a bill. The delivery of such a paper under the circumstances is treated as a prima facie authority to fill it up as a complete bill for any amount the stamp will cover. The provision in section 20 of our Act substantially corresponds to the said sub-section of the English section.

But the provision in the English Act has a second limb under which, if a bill is wanting in any material particular, the person in possession of it has a prima facie authority to fill up the omission. It has been suggested to us that this part of the English provision should also be incorporated into our Act, but we are unable to accept that suggestion for the following reasons. Our Act speaks of the paper being either wholly blank or "having written thereon an incomplete negotiable instrument", that is, partly blank. The definition of indorsement in section 15 of our Act refers to signature on a stamped paper intended to be completed as a negotiable instrument and the person so signing is treated as an indorser. Both these provisions under the Indian law deal with an incomplete instrument and not an instrument which is otherwise complete except for a material particular.

In England, in a case where a bill payable to a drawer's order contained the signature of a person who intended to become answerable if the acceptor defaulted in payment and thereafter the drawer indorsed the instrument, the question arose whether the first indorser would be liable to the second or not. It was decided by the House of Lords1 that it was an instance of a material particular not being filled in though the instrument was otherwise complete, and, therefore, under section 20 of the English Act the drawer had authority to indorse and as the indorsement by the drawer in point of time was later to the earlier indorsement, it should prevail.

This was followed in another case.2 A situation in this form may not directly arise in India under the existing law. The only question under the Act will be whether it was a wholly blank or partly blank instrument bearing stamp. If the person had signed intending to be an indorser, he will be an indorser; if he signed intending to make himself liable in any other capacity, he will be liable in that capacity.

1. MacDonald & Co. v. Nash & Co., 1924 AC 625.

2. National Sates Corpn. v. Bernard, (1931) 2 KB 188.

Even under the English and the American law, the person who receives the paper and fills it in is not treated as a holder in due course. It is only a person who takes an instrument which is regular and complete on its face who can be a holder in due course.1

1. Chalmers Bill of Exchange, 12th Edn., p. 48.

We do not, therefore, see any reason to alter the law on this point.

Negotiable Instruments Act, 1881 Back

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