Sections 46, 47 and 48 of Negotiable Instruments Act 1881: Delivery and Negotiation
Sections 46, 47 and 48 of the Negotiable Instruments Act, 1881 form part of Chapter IV, "Of Negotiation." They explain when the making, acceptance or indorsement of an instrument is completed by delivery and how instruments payable to bearer or payable to order are negotiated.
- Section 46: making, acceptance or indorsement is completed by actual or constructive delivery and the section also regulates conditional or special-purpose delivery.
- Section 47: subject to Section 58, a bearer instrument is negotiable by delivery.
- Section 48: subject to Section 58, an order instrument is negotiable by the holder through indorsement and delivery.
Section 46 - Delivery
The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive.
As between parties standing in immediate relation, delivery to be effectual must be made by the party making, accepting or indorsing the instrument, or by a person authorized by him in that behalf.
As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of transferring absolutely the property therein.
A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof.
A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement and delivery thereof.
Meaning of delivery under Section 46
Delivery is essential to complete the making, acceptance or indorsement of a negotiable instrument. Delivery may be actual, where possession is physically handed over, or constructive, where the circumstances legally amount to delivery even without a direct physical handover.
Delivery between parties in immediate relation
Where the parties stand in immediate relation, effective delivery must be made by the person making, accepting or indorsing the instrument, or by someone authorized by that person. The provision therefore connects the effectiveness of delivery with the act or authority of the relevant party.
Conditional or special-purpose delivery
Between parties in immediate relation, and against a holder other than a holder in due course, evidence may be given that delivery was conditional or made only for a special purpose rather than to transfer the property in the instrument absolutely. This qualification is important where possession of an instrument was intended to become effective only on stated conditions.
Section 47 - Negotiation by delivery
Subject to the provisions of Section 58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof.
Exception: A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable, except in the hands of a holder for value without notice of the condition, unless such event happens.
Meaning of negotiation by delivery
Section 47 applies to instruments payable to bearer. Subject to Section 58, negotiation takes place through delivery. The statutory exception deals with delivery subject to a condition that the instrument is not to take effect unless a specified event occurs.
Statutory illustrations
Illustration (a): A, holder of a negotiable instrument payable to bearer, delivers it to B's agent to keep for B. The instrument has been negotiated.
Illustration (b): A holds a bearer instrument that is with A's banker, who is also B's banker. A directs the banker to transfer the instrument to B's credit. Once the banker does so and holds the instrument as B's agent, the instrument has been negotiated and B becomes its holder.
Section 48 - Negotiation by indorsement
Subject to the provisions of Section 58, a promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement and delivery thereof.
Meaning of negotiation by indorsement
Section 48 governs instruments payable to order. Unlike a bearer instrument, which can ordinarily be negotiated by delivery under Section 47, an order instrument requires both indorsement by the holder and delivery, subject to Section 58.
Bearer instrument and order instrument
Section 13 of the Act defines a "negotiable instrument" as a promissory note, bill of exchange or cheque payable either to order or to bearer. Whether the instrument is payable to bearer or order determines the normal method of negotiation under Sections 47 and 48.
Meaning of negotiation and indorsement
Under Section 14, when a promissory note, bill of exchange or cheque is transferred to a person so as to constitute that person the holder, the instrument is said to be negotiated. Section 15 deals with indorsement and, broadly, covers the signing of the instrument for the purpose of negotiation by the maker or holder otherwise than as maker.
Why Sections 47 and 48 are subject to Section 58
Both Sections 47 and 48 expressly operate subject to Section 58. Section 58 addresses instruments obtained from a maker, acceptor or holder by means of an offence or fraud, or for unlawful consideration, and restricts possession or recovery unless the claimant, or a person through whom the claimant claims, is a holder in due course. This qualification prevents the mechanical rules of negotiation from being read independently of defects in the manner in which the instrument was obtained.
Difference between Sections 46, 47 and 48
Section 46 lays down the broader rule concerning delivery and completion of making, acceptance or indorsement. Section 47 then provides the mode of negotiation for bearer instruments, while Section 48 provides the mode for order instruments. Read together, the provisions distinguish delivery as a foundational requirement from the specific modes by which bearer and order instruments are negotiated.
Official statutory source
The Negotiable Instruments Act, 1881, including Sections 46, 47 and 48, is published on the Government of India's India Code portal. The applicable statutory text and amendments should be verified when relied upon in a legal proceeding.