Business Laws · The Negotiable Instruments Act, 1881

Presumptions, Liability and Miscellaneous Provisions under the Negotiable Instruments Act, 1881

Updated 4 October 2026 · Fact-checked

These are the rules that decide who must prove what and who pays on a negotiable instrument. Section 118 gives presumptions (consideration, date, holder in due course). Section 37 fixes principal and surety liability. Sections 20 and 87 cover blank signed instruments and alteration. Solve by stating the section, applying facts, then concluding.

Understand Presumptions, Liability and Miscellaneous Provisions

A negotiable instrument moves from hand to hand, so the law makes trading in it easy. It does this by presuming certain things in the holder's favour. You do not need to prove every fact. The other side must disprove it.

Section 118 lists these presumptions, which hold until the contrary is proved. They cover consideration, date, time of acceptance, time of transfer, order of indorsements, stamp on a lost instrument, and that the holder is a holder in due course. The holder-in-due-course presumption has a proviso. If the instrument was obtained by an offence or fraud, or for unlawful consideration, the holder must prove he is a holder in due course.

Liability comes next. Under Section 37, the maker of a note or cheque, the drawer of a bill until acceptance, and the acceptor are principal debtors, unless there is a contract to the contrary. Other parties are liable as sureties. Section 36 adds that every prior party is liable to a holder in due course until the instrument is duly satisfied.

The Act also covers special situations. Section 17 lets the holder choose whether an ambiguous instrument is a note or a bill. Section 20 deals with a signed, stamped, blank or incomplete paper. Section 87 says a material alteration makes the instrument void against a party who did not consent. Sections 88 and 89 protect the acceptor, indorser and paying banker in certain cases. Section 117 fixes compensation on dishonour, and Section 143A allows interim compensation in cheque cases.

Key rules to remember

Section 118 presumptions: Consideration, date, time of acceptance, time of transfer, order of indorsements, stamp (lost instrument), holder in due course; All are rebuttable. They apply until the contrary is proved. Memory aid: C-D-A-T-O-S-H.
Section 118(g) proviso: Instrument obtained by offence, fraud or unlawful consideration → burden of proving holder in due course lies on the holder; This reverses the usual presumption.
Section 37 principal and surety: Maker, drawer (until acceptance), acceptor = principal debtors; other parties = sureties; Applies in the absence of a contract to the contrary.
Section 36: Every prior party is liable to a holder in due course until the instrument is duly satisfied; Protects the holder in due course against all prior parties.
Section 17 ambiguous instrument: Holder may elect to treat it as a promissory note or a bill of exchange; Once chosen, it is treated that way from then on.
Section 20 inchoate instrument: Signed and delivered stamped paper (blank or incomplete) → prima facie authority to complete for any amount not exceeding the amount covered by the stamp; Signer is liable to a holder in due course for that amount. Others cannot recover more than the amount intended.
Section 87 material alteration: Material alteration → instrument void against a party who did not consent, unless made to carry out the common intention of the original parties; An alteration by an indorsee discharges his indorser from liability to him. Subject to Sections 20, 49, 86 and 125.
Section 88: Acceptor or indorser is bound by his acceptance or indorsement despite any previous alteration; Alteration made before he signed does not free him.
Section 89(1): Payment per the apparent tenor, in due course, of an instrument with a non-apparent alteration discharges the payer or banker; Also covers a cheque with crossing that does not appear on presentation.
Section 117 compensation: Amount due + expenses of presenting, noting and protesting; indorser who pays gets the amount with interest at 18% per annum plus expenses; Exchange-rate difference applies when parties reside at different places.
Section 143A interim compensation: Not more than 20% of the cheque amount; payable within 60 days, extendable by up to 30 days; Ordered by the court trying a Section 138 offence. If the drawer is acquitted, the complainant repays with interest at the bank rate.
Section 134 foreign instrument: Maker or drawer: law of the place where made. Acceptor and indorser: law of the place where payable; Applies in the absence of a contract to the contrary.
Section 82 discharge: Discharge by cancellation, by release, or by payment in due course (bearer or blank-indorsed instrument); Payment discharges all parties only when the instrument is payable to bearer or indorsed in blank.

How to solve Presumptions, Liability and Miscellaneous Provisions questions

Use this order for any case-based or theory question on this topic. It matches the provision-facts-conclusion structure that earns marks.

1Identify the issue in one line: burden of proof, who is liable, blank instrument, alteration, or compensation.
2Name the provision. Write the section number only if you are sure of it. Otherwise state the rule in words.
3State the rule with its conditions, such as 'until the contrary is proved' or 'in the absence of a contract to the contrary'.
4Mark each party's role: maker, drawer, acceptor, indorser, holder, holder in due course.
5Apply the rule to the facts. Use names and amounts from the question.
6Check for exceptions: the proviso to Section 118(g), the common-intention exception in Section 87, or the stamp limit in Section 20.
7Write a clear conclusion in one line, with the amount or the party liable.
8For compensation, compute the amount due plus expenses, then add interest only where the Act allows it.

Quickest way: Trigger-word method for NI Act miscellaneous provisions

When to use it: Use this when time is short and the question mixes several provisions.

Spot the trigger. 'Who must prove' points to Section 118. 'Blank signed' points to Section 20. 'Changed amount or date' points to Section 87. 'Who pays first' points to Section 37.
Write the rule in one sentence, then the facts in one or two sentences.
Check the holder's status. A holder in due course is protected more than an ordinary holder.
Check consent. For alteration, ask whether the party consented or the change carried out the common intention.
Close with a one-line conclusion starting 'Hence'.

Common mistakes in Presumptions, Liability and Miscellaneous Provisions

Saying the Section 118 presumptions can never be challenged.
Students remember the word 'presume' and forget the opening words.
Fix: Write 'until the contrary is proved'. The presumptions are rebuttable.
Treating every holder as a holder in due course without exception.
The presumption in clause (g) is learnt without its proviso.
Fix: Add that if the instrument was obtained by offence, fraud or unlawful consideration, the holder must prove he is a holder in due course.
Saying all parties are principal debtors.
Students mix up liability to the holder with the order of liability.
Fix: Only the maker, the acceptor and the drawer (until acceptance) are principal debtors. The others are sureties.
Saying any alteration voids the instrument against everyone.
The rule is shortened to 'alteration makes it void'.
Fix: State that the alteration must be material. It voids the instrument only against a party who did not consent. An alteration made to carry out the common intention of the original parties does not.
Letting the holder of a signed blank stamped paper fill in any amount.
Students overlook the stamp ceiling.
Fix: The authority extends only to an amount not exceeding that covered by the stamp. A person who is not a holder in due course cannot recover more than the signer intended.
Quoting a wrong interest rate in indorser compensation.
Older books state the earlier rate of six per cent.
Fix: The text of Section 117(c) gives eighteen per cent per annum for an indorser who has paid, from the date of payment until tender or realisation.

Worked examples

Example 1

Ravi signs a stamped blank paper, with a stamp covering ₹50,000, and hands it to Sunil to complete as a promissory note for ₹20,000. Sunil writes ₹40,000 and transfers it to Tara, who takes it in good faith for value. Can Tara recover ₹40,000 from Ravi? Would your answer change if Sunil sued Ravi himself?

Show the solution

Issue: the authority of a holder to complete a signed, stamped, blank instrument (Section 20).
Rule: the signer gives prima facie authority to complete it for any amount not exceeding the stamp. He is liable to a holder in due course for such amount.
Application: ₹40,000 is within the ₹50,000 stamp, and Tara is a holder in due course.
Therefore Ravi is liable to Tara for ₹40,000.
If Sunil sues, he is not a holder in due course. By the proviso he cannot recover from the person delivering the instrument anything in excess of the amount intended, which is ₹20,000.

Answer: Tara can recover ₹40,000 from Ravi. Sunil can recover only ₹20,000, the amount Ravi intended.

Example 2

A cheque for ₹10,000 was issued by Meera to Naman. Naman indorsed it to Om. In a suit, Meera says no consideration was given and that Om is not a holder in due course. Who must prove what?

Show the solution

Issue: burden of proof on consideration and on holder in due course status (Section 118).
Rule: until the contrary is proved, it is presumed that every negotiable instrument was made or drawn for consideration, and that the holder is a holder in due course.
Application: Meera has to rebut these presumptions. Mere denial is not enough.
Exception: if Meera shows the cheque was obtained from her by an offence or fraud, or for unlawful consideration, the burden shifts. Om must then prove he is a holder in due course.
Conclusion: unless Meera proves one of these facts, Om is presumed to hold for consideration and as a holder in due course.

Answer: Meera bears the burden of disproving consideration and holder in due course status. If she proves fraud, an offence or unlawful consideration in obtaining the cheque, Om must prove he is a holder in due course.

Exam tips

Learn the seven Section 118 presumptions as a list. Questions often ask you to 'state the presumptions'.
In case studies, name each party's role before applying the rule. Marks are given for the correct role and the correct liability.
Write conditions such as 'until the contrary is proved' and 'in the absence of a contract to the contrary'. Missing them costs marks.
For alteration questions, check three things: is it material, did the party consent, and was it made to carry out the common intention?
Keep every answer in three parts: provision, facts, conclusion.

Practice questions from The Negotiable Instruments Act, 1881

Presumptions, Liability and Miscellaneous Provisions: frequently asked questions

What are the presumptions under Section 118 of the Negotiable Instruments Act?

There are presumptions of consideration, date, time of acceptance, time of transfer, order of indorsements, stamp on a lost instrument, and that the holder is a holder in due course. All apply until the contrary is proved. The holder-in-due-course presumption has a proviso for instruments obtained by offence, fraud or unlawful consideration.

Who is primarily liable on a negotiable instrument?

Under Section 37, the maker of a note or cheque, the drawer of a bill until acceptance, and the acceptor are principal debtors. The other parties are liable as sureties. This holds in the absence of a contract to the contrary.

What is the effect of material alteration of a negotiable instrument?

It makes the instrument void against a party who was a party at the time and did not consent. The exception is an alteration made to carry out the common intention of the original parties. If an indorsee makes the alteration, his indorser is discharged from liability to him.

What does Section 20 say about inchoate stamped instruments?

If a person signs and delivers a stamped paper that is blank or incomplete, the holder has prima facie authority to complete it for any amount up to the amount covered by the stamp. The signer is liable to a holder in due course for that amount. Anyone else cannot recover more than the signer intended.