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CMA Foundation · Fundamentals of Business Laws and Business Communication · Negotiable Instruments Act, 1881

Kiran, a drawer, issued a bill to Lata purely for Lata's accommodation, with no consideration passing. Lata later transferred it for value to Mohan, who is a holder for consideration. Lata did not pay the bill. Which statement is correct under Section 43?

Mohan can recover from Kiran. Although lack of consideration creates no obligation between Kiran and Lata, a holder who took the instrument for consideration may recover from the transferor or any prior party, and Kiran is a prior party.

  1. AMohan may recover the amount from Kiran, a prior party, even though no consideration existed between Kiran and LataCorrect
  2. BMohan cannot recover from Kiran because Kiran got no consideration
  3. CMohan can recover only from Lata and never from any prior party
  4. DThe bill is void against all parties, including Mohan

Explanation

Section 43 says an instrument made without consideration creates no obligation between the parties to that transaction. But if a party transferred it to a holder for consideration, that holder and subsequent holders deriving title may recover from the transferor for consideration or any prior party. Kiran is a prior party, so Mohan may recover from him.

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