Chapter III - Parties to Notes, Bills and Cheques
Section 43
Section 43: Absence or failure of consideration
Section 43 explains absence or failure of consideration between transaction parties and the different position of a holder for consideration and later holders deriving title through that holder.
On this page
Need advice on Section 43?
This article is for general information. Refer to the Negotiable Instruments Act, 1881 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
A negotiable instrument made, drawn, accepted, indorsed or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without indorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.
Exception I.—No party for whose accommodation a negotiable instrument has been made, drawn, accepted or indorsed can, if he have paid the amount thereof, recover thereon such amount from any person who became a party to such instrument for his accommodation.
Exception II.—No party to the instrument who has induced any other party to make, draw, accept, indorse or transfer the same to him for a consideration which he has failed to pay or perform in full shall recover thereon an amount exceeding the value of the consideration (if any) which he has actually paid or performed.
Key rule and applicability
The opening rule denies a payment obligation between the relevant transaction parties where consideration is absent or fails. The following rule protects the stated holder for consideration and subsequent title chain. The two exceptions address accommodation recovery and a party who has failed to provide promised consideration in full.
Limits and related provisions
Do not say that every downstream holder loses because consideration failed earlier, or that every possessor can ignore that failure. The protected holder and transfer chain, accommodation facts and value actually paid or performed must be identified.
Hypothetical business example
Hypothetical: an instrument originally arises without consideration but is later transferred for value. The reviewing business identifies the claimant’s position in that chain and checks both statutory exceptions before treating the initial absence of consideration as decisive.
Practical decision flow
Map which transaction lacked consideration or where it failed.
Identify any holder for consideration and subsequent claimant deriving title through that holder.
Check accommodation and unpaid-consideration facts against both exceptions.
Practical checklist
Do
- Map which transaction lacked consideration or where it failed.
- Identify any holder for consideration and subsequent claimant deriving title through that holder.
- Check accommodation and unpaid-consideration facts against both exceptions.
Avoid
- Do not say that every downstream holder loses because consideration failed earlier, or that every possessor can ignore that failure. The protected holder and transfer chain, accommodation facts and value actually paid or performed must be identified.
Glossary
- Consideration
- The value or performance involved in the relevant transaction.
- Accommodation
- The arrangement in which a person becomes a party to assist another to raise money, relevant to the stated exception.
Frequently asked questions
Does initial lack of consideration always defeat every later holder?
No. The section expressly addresses a holder for consideration and subsequent holders deriving title from that holder.
Can the accommodated party recover its own payment from the party accommodating it under Exception I?
The exception states that it cannot recover that amount on the instrument in the described setting.
Can a party recover more than consideration it actually paid or performed after failing to provide it in full?
Exception II limits recovery in its stated circumstances to the value actually paid or performed.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026