Negotiable Instruments Act, 1881 and Interplay of S.58 and S.11 of the Act in Cases of Fraud

Negotiable Instruments Act, 1881 and Interplay of S.58 and S.11 of the Act in Cases of Fraud

Section 58 - Negotiable Instruments Obtained by Fraud - It was argued that no title would pass on if a negotiable instrument has been obtained by playing fraud as per Section 58 - Further argued that if the document is payable in India or if the beneficiary is in India, then as per Sections 11 and 12, it is to be treated as Inland transaction and therefore, it was contended that there was error in holding that the Negotiable Instruments Act, cannot be made applicable to a foreign Instruments - Held, in case of an instrument is construed to be an Inland instrument, then proceedings under the N.I.Act, 1881 can be initiated in India - However, proceedings for such purpose has to be initiated under Code of Criminal Procedure, 1973 and not under the Companies Act  - In the case on hand, the consideration for accepting demand draft by the official liquidator is the permission to participate in the auction and in case of successful bidding and payment, the promise is to handover possession of the property- In such factual background, the official liquidator, who received the drafts is deemed to be ‘holder in due course’ as contemplated under Section 9 of the Negotiable Instruments Act and therefore, Section 58 cannot be pressed into service. - M/s.Al Rostamani International Exchange v Official Liquidator [2016] GCtR 6480 (Madras)