What is the difference between holder and holder in due course?

Section 8 of NI act provides that holder is any person who is entitled in his own name to the possession of negotiable instrument and has right to receive or recover the amount from the parties thereto.The word ‘entitled’ means that the person who claims to be holder should acquire the instrument in a lawful manner.

Except in the following cases (i)     Cheque was not received by holder for discharge of existing debt; (ii)    Person in possession of cheque is not the real holder;    (iii) Cheque represent for payment was a gift or donation, the holder has the right to caim his amount due in case or dishonour of the cheque. Cheque bounce is a criminal offence in India under section 138 of the Negotiable Instruments Act.

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. Holder has the right to obtain a duplicate of lost instrument. The holder can cross a cheque if it is not already crossed. If the payee or endorsee dies then the legal heir of that payee or endorsee becomes the holder.

Holder in due course : Section 9 of NI act states that any person who  for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or payee or endorsee thereof. If payable to order he has received a negotiable instrument in good faith and without notice that there is a defect existed in the title of the person who negotiated it.

A person is not considered as holder in due course in the following cases.
(a) He obtains the instrument by way of gift or donation .(b) He obtained the instrument by some illegal method such as forgery, theft, deceit etc.(c) He does not obtain it bonfide. (d) He obtains it after the date of maturity of the instrument. (e) If the instrument bears not negotiable crossing or account payee crossing or restricted endorsement, one cannot claim that he/she is a holder in due course.

Unlike the holder the holder in due course MUST HAVE THE POSSESION OF THE INSTRUMENT to claim the title over the instrument.

Related article:

What is ‘better title to Holder in due course’?