Negotiable Instruments Act Section 43 — Negotiable instrument made, etc., without consideration
CHAPTER III PARTIES TO NOTES, BILLS AND CHEQUES.
General
Summary
If a negotiable instrument like a cheque or promissory note is created or transferred without any payment or value given for it, or if the promised payment or value fails, then the people involved in that transaction have no legal duty to pay each other. However, if such a person later transfers the instrument to someone else who gives real payment or value for it, that new holder and anyone they pass it to can recover the amount from the person who transferred it for value or from any earlier party. There are two exceptions: first, someone for whose benefit the instrument was created as an accommodation cannot recover the amount from the accommodating party if they have already paid it; second, a party who got the instrument by promising payment or performance that they did not fully deliver can only recover up to the value they actually paid or performed.
Official Text
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.