The ‘holder’ of a negotiable instrument means any person entitled to the possession of the instrument in his own name and to receive or recover the amount due thereon from the parties liable thereto (Sec. 8), Thus, in order to be called a ‘holder’ a person must satisfy the following two conditions:
1. He must be entitled to the possession of the instrument in his own name. Actual possession of the instrument is not essential. What is required is a right to possession under some legal or valid title. He should be a ‘de jure holder’ and not necessarily and facto holder.’
It means that the person must be named in the instrument as the payee or the indorsee, or he must be the bearer thereof, if it is a bearer instrument. However, the heir of a deceased holder or any other person becoming entitled by operation of law is a holder although he is not the payee or indorsee or bearer thereof.
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ADVERTISEMENTS:
If a person is in possession of a negotiable instrument without having a right to possess the same he cannot be called the holder. Thus, a thief, or a finder on the road, or an indorsee under a forged indorsement, although may be having the possession of the instrument, cannot be called its holder because he does not acquire legal title thereto and hence is not entitled in his own name to the possession thereof.
Similarly, a beneficial owner claiming through a ‘benamidar’ in whose favour the instrument had been made or drawn is not a holder because he is not entitled to the possession in his own name and cannot by himself maintain an action on the instrument (Subba Narayana vs Ramaswami’).
2. He must be entitled to receive or recover the amount due thereon from the parties liable thereto. In order to be called a holder, besides being entitled to the possession of the instrument in his own name, the person must also have the right to receive or recover the amount of the instrument and give a valid discharge to the payer.
ADVERTISEMENTS:
Thus, one may be the bearer or the payee or indorsee of an instrument but he may not be called a holder if he is prohibited by a Court order from receiving the amount due on the instrument.
It may, thus, be concluded that both the above conditions must be satisfied by a person to be called a holder. For instance, where an instrument payable to order is, without endorsement, entrusted by the payee to his agent, the agent does not become the holder of it, although he may receive its payment, because he has no right to sue on the instrument in his own name.
The holder of a negotiable instrument is a very important party to the instrument as such. It is he alone who can sue upon a negotiable instrument, can negotiate it (with certain exceptions) and can give a valid discharge for it.