Section 43 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 43 says that 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. A holder who took it for consideration, and later holders deriving title from him, can still recover from the transferor for consideration or any prior party. Two Exceptions deal with accommodation and with partial payment. This article reads the section as per the consolidated text consulted. If you have received a notice on an instrument you say had no consideration, a reply to a legal notice should be prepared with the wording of this section in view.
An 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 a holder who took it for consideration and every later holder deriving title from him may recover from the transferor for consideration or any prior party. Exception I: an accommodation party who has paid cannot recover from those who became parties for his accommodation. Exception II: a party who induced another to act for a consideration he failed to pay or perform in full cannot recover more than he actually paid or performed.
The main rule
The text says: 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.
Three phrases deserve attention.
- "Made, drawn, accepted, indorsed, or transferred." The rule covers every stage at which a person signs or hands over the instrument.
- "Without consideration, or for a consideration which fails." Two situations: there was never any consideration, or there was consideration that later failed.
- "Between the parties to the transaction." The rule operates between the parties to that dealing. It does not say that nobody can ever recover on the instrument; the next sentence shows why.
For the idea of consideration in the general law of contract, see our article on section 25 of the Indian Contract Act, 1872. This Act does not define consideration, and this article does not either.
Example with invented names
Rohit draws a cheque in favour of Sanjana as a gift of a sum of money, receiving nothing in return. Between Rohit and Sanjana, under section 43, the instrument creates no obligation of payment, because it was made without consideration. The text consulted does not say what happens to the cheque in a criminal complaint on dishonour, and this article does not say; see our post on section 139 for the presumption in that setting.
The protection of later holders
The text then says: 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.
| Element | Text |
|---|---|
| Start | A party to a no-consideration transaction has transferred the instrument, with or without indorsement |
| To whom | A holder for consideration |
| Who may recover | That holder, and every subsequent holder deriving title from him |
| From whom | The transferor for consideration, or any prior party |
So the absence of consideration between the first parties does not wipe out the instrument for everyone. A person who gave value for it can recover. The section uses "holder for consideration", not "holder in due course"; the two are defined differently (see our article on sections 8 to 10 for the latter). This article does not say that one equals the other.
Continuing the example: if Sanjana transferred Rohit's cheque to Tarun Suppliers in payment for goods supplied, Tarun is a holder for consideration. Tarun, and anyone who later gets title from Tarun, may recover from Sanjana (the transferor for consideration) or any prior party. Rohit, as the drawer, is a prior party on the text.
Exception I: accommodation
The text says: no party for whose accommodation a negotiable instrument has been made, drawn, accepted or indorsed can, if he has paid the amount thereof, recover thereon such amount from any person who became a party to such instrument for his accommodation.
"Accommodation" is the word used in the text. It describes a party who signs an instrument to oblige another, so that the other can use it. The Exception covers the situation where the person who was accommodated pays the amount himself.
| Person | Role | Rule |
|---|---|---|
| The accommodated party | The party for whose accommodation the instrument was made, drawn, accepted or indorsed | If he has paid the amount, cannot recover it on the instrument from the person who became a party for his accommodation |
| The accommodating party | A person who became a party for that accommodation | Cannot be made to repay under this Exception |
Example: Uma Packers asks its friend Vivek to indorse a bill so that Uma can raise money against it. Vivek signs for Uma's accommodation. If Uma later pays the bill, she cannot recover that amount on the instrument from Vivek, who became a party only for her accommodation.
The text does not say what the position is between the accommodating party and other parties. This article leaves that point as the text leaves it.
Exception II: consideration not paid or performed in full
The text says: 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 therein an amount exceeding the value of the consideration (if any) which he has actually paid or performed.
| Element | Text |
|---|---|
| Who | A party who induced another party to make, draw, accept, indorse or transfer the instrument to him |
| Basis | For a consideration he promised but failed to pay or perform in full |
| Limit | He cannot recover more than the value of the consideration (if any) he actually paid or performed |
The idea is proportion. If a party promised to pay or do something in return for the instrument and did only part of it, he can recover on the instrument only up to what he actually paid or performed.
Example: Wasim Industries induces Yamini to indorse a note to it in return for a promise to pay a stated sum. Wasim pays only part of the promised sum. Under Exception II, Wasim cannot recover on the note more than the value of what it has actually paid. The amounts are not stated in the text and this example uses no figures.
For partial failure of consideration in money, see our next article on sections 44 and 45A, which cover the proportional reduction rule.
Reading section 43 as a whole
| Question | Section 43 answer |
|---|---|
| Does a no-consideration instrument bind the parties to that transaction? | No; it creates no obligation of payment between them |
| Can a person who gave value later recover? | Yes; a holder for consideration, and later holders deriving title from him, may recover from the transferor for consideration or any prior party |
| Can an accommodated party who has paid recover from the accommodating party? | No (Exception I) |
| Can a party who did not pay or perform in full recover the whole amount? | No; only up to the value actually paid or performed (Exception II) |
What the text leaves out
Section 43 says nothing about proof of consideration, about presumptions, or about criminal liability on dishonour. For presumptions as to consideration, see our later article on section 118 in this series. For the cheque dishonour offence, see our post on section 138.
Need help replying to a demand on an instrument?
If you have been asked to pay on an instrument you say was made without consideration or for a consideration that failed, the reply should address the wording of section 43 and the position of the holder. We can prepare or review it; see our reply to legal notice service.
Key takeaways
- An 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.
- A holder for consideration, and every later holder deriving title from him, may recover from the transferor for consideration or any prior party.
- Exception I: a party accommodated who has paid cannot recover from the person who became a party for his accommodation.
- Exception II: a party who failed to pay or perform in full cannot recover more than the value he actually paid or performed.
Read next
- Sections 40-42: discharge of indorser, forged indorsement and fictitious drawer
- Sections 44-45A: partial failure of consideration and duplicate of lost bill
- Section 139: presumption of legally enforceable debt
- Section 138: cheque bounce
Disclaimer: Based on a consolidated text of the Negotiable Instruments Act, 1881 stating the position as of 26 December 2015 and on the Negotiable Instruments (Amendment) Act, 2018, as consulted on 2 October 2026. Later amendments and current criminal procedure law should be checked. This article is general information, not legal advice; check the official text before acting.