Nirma University

Institue of Law
Final Draft of the Project Work
Effect of Material Alternation in Negotiable Instrument

undertaken in the partial fulfillment of B.Com. LL.B. (Hons.)

5 Years Integrated Course at Institute of Law, NIRMA
University.
Submitted By:

Mohit Mittal
Roll No. 11BBL059
IV - Semester, Section C
Under The Guidance Of:

Mr. Nizam Khan

Project Coordinator: Contract -II
Asst. Professor, Institute of Law
Nirma University

Introduction
A material alteration, though not defined in the Indian Contract Act or in the Negotiable
Instrument Act, 1881 or does receive any definition from legislature, it would be appropriate to
refer to judgment or legal precedents for defining the term material alternation. In Nathu Lal v.
Gomti Kaur, the privy council cited the following definition the material alternation is one
which varies the rights, liabilities, or legal position of the parties ascertained by the deed in its
original state or otherwise varies the legal effect of the instrument as originally expressed, or
reduces to certainty some provision which was originally unascertained and as such void, or may
otherwise prejudice the party bound by the deed as originally executed,"
As per section 88 of the Negotiable Instrument Act, 1881 the effect of material alternation of a
negotiable instrument renders the contract void as against anyone who is party thereto at the time
of making such alteration and does not consent thereto, unless it was made in order to carry out
the common intention of the original parties.
Two other Sections of the Negotiable Instruments Act, 1881 which deal with material alterations,
are as under:
As per Section 88, Acceptor or endorsers are bound notwithstanding previous alteration. An acceptor or endorser of a negotiable instrument is bound by his acceptance or endorsement
notwithstanding any previous alteration of the instrument.
Again as per the Section 89, Payment of instrument on which alteration is not apparent.
(1) Where a promissory note, bill of exchange or cheque has been materially altered but does not
appear to have been so altered, or where a cheque is presented for payment which does not at the
time of presentation appear to be crossed or to have had a crossing which has been obliterated,
payment thereof by a tenor thereof at the time of payment and otherwise in due course, shall
discharge such person or banker from all liability thereon; and such payment shall not be
questioned by reasons of the instrument having been altered, or the cheque crossed.
(2) Where the cheque is an electronic image of and the truncated cheque shall be a material
alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure
the exactness of the apparent tenor of electronic image of the truncated cheque while truncating
and transmitting the image.

(3) Any bank or a clearing house which receives a transmitted electronic image of a truncated
cheque, shall verify from the party who transmitted the image to it, that the image so transmitted
to it and received by it, is exactly the same.

Chapter I

Introduction
Negotiable Instrument Act was enacted, in India, in 1881. Before this, the English Negotiable
Instrument Act was applicable in India. Though, the present act is also based on the English Act
with Indian modifications. It extends to the whole of India except the State of Jammu and
Kashmir. It was enacted with the aim to define and amend the law relating to promissory notes,
bills of exchange and cheque. It is a document guaranteeing the payment of a specific amount
of money, either on demand, or at a set time. Negotiable instrument are often defined in
legislation. A negotiable instrument is one, therefore, which when transferred by delivery or by
endorsement and delivery, passes to the transferee a good title to payment according to its tenor
and irrespective of the title of the transferor, provided he is bonafide holder for value without
notice of any defect attaching to the instrument or in the title of the transferor; in other words the
principle nemo dat quod non habit does not apply1. The negotiable instrument includes a
promissory note, bill of exchange and cheque2.
According to Section 13 (a) of the Act, Negotiable instrument means a promissory note, bill of
exchange or cheque payable either to order or to bearer, whether the word order or bearer
appear on the instrument or not. In the words of Justice Willis, A negotiable instrument is one,
the property in which is acquired by anyone who takes it bonafide and for value notwithstanding
any defects of the title in the person from whom he took it.
Thus, the term, negotiable instrument means a written document which creates a right in favor of
some person and which is freely transferable. Although the Act mentions only these three
instruments (such as a promissory note, a bill of exchange and cheque), it does not exclude the
possibility of adding any other instrument which satisfies the following two conditions of
negotiability:
1

The instrument should be freely transferable (by delivery or by endorsement. and delivery) by
the custom of the trade; and

1 Bhashyam & Adigas, The Negotiable Instruments Act, 18th Edition, Bharat Law House New Delhi
2 Section 4, 5 and 6 of Indian Negotiable Instrument Act, 1881

The person who obtains it in good faith and for value should get it free from all defects, and be
entitled to recover the money of the instrument in his own name.
CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT
The Negotiable Instruments has the following characteristics

Property: - the possession holder of the negotiable instrument is presumed to be the owner of
the property contained therein. A negotiable instrument can be transferred from one person to
another without any complex formalities.

Title: - The transferee of a negotiable instrument is known as holder in due course. A bona fide
transferee for value is not affected by any defect of title on the part of the transferor or of any of
the previous holders of the instrument.

Rights: - The holder in due course can sue in his own name, in case of dishonor. A negotiable
instrument can be transferred any number of times till it is at maturity. The holder of the
instrument need not give notice of transfer to the party liable on the instruments to pay.

Presumptions: - Certain presumptions apply to all negotiable instruments, e.g. the consideration
has been paid under it and it is not necessary to write every time that for value received.

Prompt Payments: - A negotiable instrument enables the holder to expect prompt

payment because a dishonor means the ruin of the credit of all persons who are
parties to the instrument

TYPES OF NEGOTIABLE INSTRUMENT

Section 13 of the Negotiable Instruments Act, 1881 states, that a, negotiable instrument means a
promissory note, bill of exchange or cheque payable either to order or to bearer. But these are not
the end. The customary practices recognizes more than what is laid down in the Act. It also
includes Hundis, Share Warrants, Dividend Warrants, Bankers Draft, Circular Notes, Bearer
Debentrues, Debentures of Bombay Port Trust, Railway Receipts, Delivery Orders, etc. Thus, as
per the Explanation (i) to Section 13, A promissory note, bill of exchange or cheque is payable to
order which is expressed to be so payable or which is expressed to be payable to a particular
person, and does not contain words prohibiting transfer or indicating an intention that it shall not
be transferable.

Explanation (ii) - A promissory note, bill of exchange or cheque is payable to bearer which is
expressed to be so payable or on which the only or last endorsement is an endorsement in blank.
Explanation (iii) - Where a promissory note, bill of exchange or cheque, either originally or by
endorsement, is expressed to be payable to the order of a specified person, and not to him or his
order, it is nevertheless payable to him or his order at his option.]
1

Promissory Note: - Section 4 of the Act defines, A promissory note is an instrument in writing
(note being a bank-note or a currency note) containing an unconditional undertaking, signed by
the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of
the instruments.
Thus, if any instruments that satisfy the following conditions can be regarded as the
promissory note

It must be in Writing

It must certainly an expressed promise or clear understanding to pay

Promise to pay must be unconditional

It should be signed by the maker

The maker must be certain.

The payee must be certain

The promise should be to pay money and money only

The amount should be certain

Other formalities

Bill of Exchange: - Section 5 of the Act defines, A bill of exchange is an instrument in writing
containing an unconditional order, signed by the maker, directing a certain person to pay a
certain sum of money only to, or to the order of a certain person or to the bearer of the
instrument. A bill of exchange, therefore, is a written acknowledgement of the debt, written by
the creditor and accepted by the debtor. There are usually three parties to a bill of exchange
drawer, acceptor or drawee and payee. Drawer himself may be the payee.
Essentials Characteristics of a bill of exchange are as follows

It must be in writing and should be signed by the drawer.

The drawer, drawee and payee must be certain.

The sum payable must also be certain.

It should be properly stamped.

It must contain an express order to pay money and money alone.

Cheque: - Section 6 of the Act defines A cheque is a bill of exchange drawn on a specified
banker, and not expressed to be payable otherwise than on demand.
A cheque is bill of exchange with two more qualifications, namely,

it is always drawn on a specified banker, and

ii

it is always payable on demand.

Consequently, all cheques are bill of exchange, but all bills are not cheque. A cheque must satisfy
all the requirements of a bill of exchange; that is, it must be signed by the drawer, and must
contain an unconditional order on a specified banker to pay a certain sum of money to or to the
order of a certain person or to the bearer of the cheque. It does not require acceptance.

Chapter II
Development of Negotiable Instruments in India
Negotiable instruments are those special writings (commercial specialties) used in commerce
as a means of transferring money or the right to it. The most familiar is the check, but it is merely
a special type of a general instrument, the draft or bill of exchange. Thus, Negotiable instrument,
is essentially a document embodying a right to the payment of money and which may be
transferred from person to person, developed historically from efforts to make credit instruments
transferable; that is, documents proving that somebody was in their debt were used by creditors
to meet their own liabilities. This negotiability of credit was facilitated by the development of
a variety of negotiable instruments including promissory notes, checks, and drafts (bills of
exchange). These are in fact the most common negotiable instruments in use, and the following
discussion will be confined to them.3
In India, Negotiable Instruments has a long history much before the act was enacted in the
country. In India, there is reason to believe that instrument to exchange were in use from early
times and there are evidences and researched papers representing that paper money were
introduced in the country by one of the Mohammedan sovereigns of Delhi in the early part of the
fourteenth century. The word 'hundi', a generic term used to denote instruments of exchange in
vernacular is derived from the Sanskrit root 'hund' meaning 'to collect' and well expresses the
purpose to which instruments were utilised in their origin. With the advent of British rule in India
commercial activities increased to a great extent. The growing demands for money could not be
met be mere supply of coins and hard money; and thus, the instrument of credit took the function
of money which they represented.4

3 http://www.britannica.com/EBchecked/topic/127986/commercial-transaction/21729/Negotiable-instruments last
assessed on 8th March 2013

4
2013

Vakil No.1 <http://www.vakilno1.com/bareacts/negoinstruact/introduction.htm> last assessed on 9Th March

With the Britishers, starting to colonize more and more parts of India by increasing the
commercial activities, the need for the credit transactions arises which cannot be met with the
oral terms as before. Thus, a need for the separate instruments for handling credit transaction
started taking place and therefore the negotiable instruments finds the way for its origin. To
overcome the applicability all over the country, a separate act was enacted named as Negotiable
Instruments Act, 1881
Before the enactment of the Negotiable Instrument Act, 1881, in India, the law of negotiable
instruments as prevalent in England was applied by the Courts in India when any question
relating to such instruments arose between Europeans. When then parties were Hindu or
Mohammedans, their personal law was held to apply. Though neither the law books of Hindu nor
those of Mohammedans contain any reference to negotiable instruments as such, the customs
prevailing among the merchants of the respective community were recognized by the courts and
applied to the transactions among them. During the course of time there had developed in the
country a strong body of usage relating to hundis, which even the Legislature could not without
hardship to Indian bankers and merchants ignore. In fact, the Legislature felt the strength of such
local usages and though fit to exempt them from the operation of the Act with a proviso that such
usage may be excluded altogether by appropriate words. In the absence of any such customary
law, the principles derived from English law were applied to the Indians as rules of equity justice
and good conscience.

Chapter - III
Material Alteration and its Constituents
Material alteration is undefined in the Indian Contract Act, 1872 or in the Negotiable Instrument
Act, 1881 or does receive any definition from legislature, it would be appropriate to refer to
judgment or legal precedents for defining the term material alternation. In Nathu Lal v. Gomti
Kaur5, the privy council cited the following definition the material alternation is one which
varies the rights, liabilities, or legal position of the parties ascertained by the deed in its original
state or otherwise varies the legal effect of the instrument as originally expressed, or reduces to
certainty some provision which was originally unascertained and as such void, or may otherwise
prejudice the party bound by the deed as originally executed,".
Thus, material alteration in the negotiable instrumetns can be defined as any change in the
instruments which causes the instruments to speak a different language in legal effect from that
which it originally spoke, or which changes the legal identity of the instruments either in terms
of the relations of the parties to it or any other relevant changes due to which there is a change in
the legal position of the parties without the consent of the other is regarded as a material
alteration.
It is not necessary that all the changes made in the negotiable instruments with or without the
consent of the parties shall be considered as the material alteration on the assumption that it is
carried out without the consent of the other party. It is not the case. Some alterations are material
while some are immaterial.
It is immaterial whether the alteration is advantageous or disadvantageous. Alteration must be
intentional. An accidental alteration is not bad. It need not be made by the holder. It is sufficient
if it was made when the instrument was in the possession of the holder. The holder must take
every care to protect it from such alteration; otherwise he will be liable for the consequence of
the alteration.

5 AIR 1940 PC 160

Some alteration is material and some are immaterial. An alteration is material if it alters
materially or substantially the operation of the instrument and thereby the rights and liabilities of
the parties. It can also be said that An alteration which alters the business effect if the
instrument if used for any business purpose. Any change made in the instrument that causes it to
speak a different language from what it originally intended, or which changes the legal identity
of the instrument in its terms or in relation to parties thereto is a material alteration. Though it
differs from fact to fact, but some alterations are considered as the material in all the
circumstances irrelevant of the nature of the negotiable instruments. Some of these can be
classified as
1. Date of instrument is altered
2. Sum payable is altered
3. Time and place of payment are altered or adding a specific place, where no place of
4.
5.
6.
7.

payment is specified,
Rate of interest is altered;
Tearing an instrument in material part;
Change of dates of endorsement etc.
Medium or currency in which payment is to be made is altered

The list is not an exhaustive but only a suggestive and can be varied according to the
circumstances of each and every case6.
Thus, if any alteration affects the very or said purpose of the original instrument, that is, if it goes
to the root of the instrument, it is considered to be a material alteration.

Alterations Authorized by the Act

There are some alterations already provided by the Negotiable Instruments Act, which if made
does not amount to material alteration. These are
1. Filling an inchoate but stamped instrument (Sec. 20): - the holder has the authority to
fill in the blanks in such an instrument. Even where the holder fills an amount larger than
intended (but is covered by the stamp) the instrument is not void against a holder in due
course.
6<http://www.batasnatin.com/law-library/mercantile-law/negotiable-instruments/969-materialalteration-in-a-negotiable-instrument.html last assessed on 14th March 2013

2. Conversion of an endorsement in blank into an endorsement in full (Sec. 49): - The

holder has the authority to convert an indorsement in blank into an indorsement in full.
3. Conditional or Qualified Acceptance (Sec. 86): - A holder has a option to take a
qualified acceptance
4. Crossing of Cheques after it has been issued (Sec. 125): - . A holder and banker are
empowered to cross the cheques after it has been issued, the alteration being provided by
the Act.

Alterations not vitiating the Instrument

Again, the following alteration does amount to material alteration in the instruments and does not
vitiate the instruments or declared it as void
1.
2.
3.
4.

Conversion of an instrument payable to bearer into an instrument payable to order.

Alteration to rectify mistakes,
Addition of the words on demand in an instrument, where no time of payment is stated.
Alteration made before the issue, delivery or negotiation, that is, with the completion of

the instrument,
5. Alterations made at any time with the consent of the parties;
6. Alterations resulting from an accident;
7. Alteration of any note on the margin of an instrument which is neither a part to it, nor is
covered by the signature on it, that is, an alteration which is not material.
Since, there is no predefined definition of material alteration in the Negotiable Instruments Act, it
varies from the fact to fact of the case but there are certain basic objectives which are certainly
common in the different instruments which if altered would constitute the material change. Thus,
if any alteration which affects the very purpose of the original instruments, that is, if it goes to
the root of the instruments, it is considered as the material alteration

Chapter - IV
Legitimacy of the Material Alteration
The material alterations certainly have a certain effect on the contract under which such
negotiable instruments was made or issued.
As per section 87 of the Negotiable Instrument Act, 1881, the effect of material alternation of a
negotiable instrument renders the contract void as against anyone who is party thereto at the time
of making such alteration and does not consent thereto, unless it was made in order to carry out
the common intention of the original parties.
If such alteration is made by the endorsee, it discharges his endorsers from all liability to him in
respect of the consideration thereof. It is based on the sound justice that
1. Nobody should be permitted to take chance of committing a fraud without running any
risk of loss by the event when it is detected
2. By the alteration, the identity of the instruments is lost, and to hold one of the parties
liable under such circumstances would make him liable for something, for which he
would never agree.7
Thus, when a material alteration has been made a negotiable instruments, as well as the parties
to the instruments are discharged. If the alteration is made by an endorser, then his endorsee is
discharged from all liabilities to him. 8 It should be noted that if a material alteration is agreed to
by all the parties, it becomes a new instrument which requires a new stamp.

Again Section 88 states the acceptor or endorser of a negotiable instrument is bound by his
acceptance or endorsement notwithstanding any previous alteration of the instrument.
Also, Section 89 talks about the payment of instrument on which alteration is not apparent. it
states that
7

http://www.informationbible.com/article-material-alteration-in-a-negotiable-instrument-

182417.html last assessed on 14th March 2013

8
http://www.preservearticles.com/2012012621619/short-notes-on-discharge-in-relation-to-negotiableinstruments.html last assessed on 13th March 2013

(1) Where a promissory note, bill of exchange or cheque has been materially altered but does not
appear to have been so altered, or where a cheque is presented for payment which does not at the
time of presentation appear to be crossed or to have had a crossing which has been obliterated,
payment thereof by a tenor thereof at the time of payment and otherwise in due course, shall
discharge such person or banker from all liability thereon; and such payment shall not be
questioned by reasons of the instrument having been altered, or the cheque crossed.
(2) Where the cheque is an electronic image of and the truncated cheque shall be a material
alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure
the exactness of the apparent tenor of electronic image of the truncated cheque while truncating
and transmitting the image.
(3) Any bank or a clearing house which receives a transmitted electronic image of a truncated
cheque, shall verify from the party who transmitted the image to it, that the image so transmitted
to it and received by it, is exactly the same.
From the above definitions it can be seen that the basic concept as regards the effect of material
alteration in a negotiable instrument is that material alteration avoids the instrument and if done
unilaterally without the consent of the other party in a deceitful manner for ones own vested
interests nothing but amounts to an offence.9
In this regard the following has been stated in Halsburys Law of England, The effect of making
such an alteration, without consent of the party bound, is exactly the same as that of canceling
the deed. So the instrument becomes void and the party basing its claim upon it, cannot claim
anything. This result follows irrespective of the fact whether the party concerned was responsible
for the alteration or whether it was made by someone else without his consent or knowledge.
In the cases of Firm Sri Chand v. Lajja Ram and Jayantilal Lal Goel v. Zubeda Khanum, it is
held that a material alteration of the instrument discharges all parties who are liable on the
instrument at the time of alteration and who do not consent to such alteration.
In the case of Arumugam v. M.S Narasaich, it is held that if an alteration is made by erasure,
9 Shreysi Singh, Negotiable Instruments: Material alteration and its Fall-Outs, <
http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7443>
last assessed on 14th March, 2013

interlineations or otherwise in a material part of a deed after its execution by or with the consent
of any party thereto or person entitled thereunder, but without the consent of the party or person
liable thereunder, the deed is thereby void.
Thus the instrument stands invalidated as a result of material alteration as against the party
whose consent was not taken for alteration. But what is the status of the document subjected to
material alteration as against the person who became a party subsequent to material alterations?
This question was answered in the case of Ramachandran v. Dinesan. It is held in this case that
As regards the effect of material alteration, the basic principle of law is that such a change
invalidates the instrument against the person not consenting to the change. By alteration, the
identity of the instrument is destroyed. So, the effect of making a material alteration on a
negotiable instrument without the consent of the party bound under it is exactly the same as that
cancelling the instrument. The instrument is rendered void only as against any one who is a party
thereto and not against anyone becoming a party subsequent to the alteration. If a person indorses
an altered instrument without the knowledge of the alteration he may be liable to the indorsee. A
person, who accepts an altered instrument, cannot absolve his liability on the acceptance on
account of the previous alteration.
Whether the alteration was fraudulent or innocent also makes a difference. In the case of Rajiv
Bhai Nathabhai Patel v. Ranchhod Ragunath Patel, it is held that where there has been a material
alteration in the instrument, the further questions for consideration of the court are whether the
alteration is fraudulent or innocent. Where the alteration is fraudulent, the courts will not allow
the plaint to be amended and the plaintiff to fall back on the original cause of action. But where
the alteration, though material, is innocent and the plaint is based on the original cause of action
as well as on the document altered, the claim if properly proved can be allowed on the original
cause of action. Or if the original plaint is not on the original cause of action, it is open to the
plaintiff to apply and the court to consider whether the plaintiff should be allowed to amend it.
It has been held in a no of cases that if alteration is made in a document when it was in the
custody of a party, that party is bound to suffer because a party who has the custody of an
instrument made for his benefit, is bound to preserve it in its original state. It has also been held
that a material alteration made with the consent of the other party would operate as a new
agreement and as such the consequences of material alteration made with the consent of the other
party are different from those when material alteration is made without such consent.

Chapter - V
Judicial Trends
1. Nathu Lal v. Mussamat Gomti Kuar (1940) 42 BOMLR 1156
FACTS: The suit was brought on September 8, 1928 by the appellants. Plaintiff executed a sale deed (A)
in favour of defendants who in turn executed a deed (B) for conditional transfer of the properties
sold to them both on 25th March 1844, condition being paying the stipulated consideration
amount for transfer of sold properties anytime after expiry of period of 25 years from date of
deed B. By both deeds A and B, parties intended to create mortgage by conditional sale and
hence, were to be regarded as single deed of mortgage. Plaintiffs while pleading specific
performance of obligations under the mortgage submitted certified copy of deed B bearing date
26th March 1844. Hence, before filing the original deed B, they made holes near to the date of
agreement so that it could be read as 26th instead of original 25th. Second, plaintiffs also made
hole after the words has sold in deed B, though word shartia (conditional) was visible.
ISSUE:
Whether the unilateral alterations as mentioned above were material enough to render the
mortgage void?
HELD:
A material alteration is one which varies the rights, liabilities or legal position of parties as
ascertained by deed in its original state, or otherwise varies the legal effect of the deed as
originally it had. When such material alteration is made unilaterally by one party without the
consent of other party, it operates to make the deed void from the date such alteration is made
and both the parties will be discharged from their respective future obligations under the deed.

The document A, sale deed and document B, agreement to release, being part of the same
transaction created the relationship of mortgagor and mortgagee between defendant and plaintiff
respectively as soon as they were executed in 1844.
If these unilateral alterations were to be held material then they would have the effect of
making the agreement void. However, such alterations which effected just before the
pleadings, will not make the whole mortgage void-ab initio so as to nullify its conveyancing
effect (under deed A, plaintiffs conveyed property to defendant, this sale deed will be subsisting
and valid), however, they will relieve the parties of their future obligations as under the
mortgage, i.e. covenant by the defendants to release the property in event of depositing the
amount mentioned in deed B, would be unenforceable by law. Though the suit for redemption of
mortgage will lie (since not whole of mortgage has become void) but the action would be barred
by limitation period of 60 years and will not be stipulated by deed B (which had given whimsical
period as to when plaintiff would give the consideration anytime after 25 years of deed).
However, as regards the first alteration as to date of the agreement, same date could be inferred
from vernacular date mentioned in the agreement as 25 th March 1844. As regards the second
alteration, since the word shartia meaning conditional was visible hence, it could be clearly
implied that it was intended to be conditional sale agreement and consequently agreement was of
nature of mortgage and not of sale agreement. Therefore these alterations were not material and
hence, did not operate to make the mortgage void.

1. http://books.google.co.in/books?
id=mgruQIq3wQ4C&pg=PA388&lpg=PA388&dq=material+alteration+of+a+negoti
able+instrument&source=bl&ots=UC58LlLfkk&sig=r2VuLKJJFQVkT4mkry72TyN
odz0&hl=en&sa=X&ei=P_5BUbHoDMXyrQfvxoCoDg&ved=0CDQQ6AEwATgK#
v=onepage&q=material%20alteration%20of%20a%20negotiable
%20instrument&f=false
2.
3. http://www.taxindiaonline.com/RC2/inside2.php3?
filename=bnews_detail.php3&newsid=7443

Chapter - VI

Conclusion