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Negotiable instruments & banker

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Dr. Nandimath Omprakash V.,
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Professor in Law,
National Law School of India University,
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Bangalore-560 072
Email – ovnandimath@nls.ac.in
Presentation – content sequence
1. Negotiable instruments – nature & basic understanding
2. Negotiable instruments in India – an introduction to scheme of
law in India

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1. Definitions
2. ‘Holder’ and ‘Holder-in-due-course’
3. Validity of instruments
3. Negotiation & liability arising out of instruments

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4. Liability of the parties to an instrument
1. ‘Drawer’ of the promissory note
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2. ‘Acceptor’ of the Bill of Exchange
3. ‘Drawer’ of the Cheque
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5. Banker & negotiable instruments
1. Protection to the ‘paying banker’
2. Protection to the ‘collecting banker’
6. Discharge from liability
Understanding the background

• Negotiable instruments are one among the basic

instruments for ‘securitization’
– Meaning they bring greater translatability to economic

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activities
• They enshrine the convenience of ‘cash’ sans ‘risk’
(i.e., the risk attached with money generally)

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Negotiable instruments – an introduction

• Might have originated from ‘negoce’ (French word)

meaning business, trade or management of affairs
• “negotiable is something which is legally capable of

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being transferred by endorsement or delivery, and
negotiability is the legal character of being negotiable”
– Black’s Law Dictionary

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Special indicators
• It gives certain rights to the person in lawful
possession of such an instrument – which no other
instruments can ever give

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• It represents money to a great extent; and
– Does not get tainted by any defect in title at the source
so long as its acquisition is lawful –

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• Ex: if the maker of the instrument commits fraud or
forgery – the bona fide payee of the instrument is not
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affected
– It passes by delivery like cash
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– Person in lawful possession of it can sue in his own
name
Negotiable instrument – Indian definition

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• “A ‘negotiable instrument’ means a promissory note,
bill of exchange or cheque payable either to order or to
bearer” – S. 13 of NIAct, 1882

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Kinds of negotiable instruments
• The Act deals in three kinds of instruments
1. Promissory Note;
2. Bill of Exchange; and

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3. Cheque.
• Application

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– Doesn't affect the Paper Currency Act, 1871;
– Any local usage relating any instrument in an oriental
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language
• Hundis;
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• Rukka
Hundi
• The saving clause does not render the act altogether
inapplicable to hundis
• local custom overrides the statute – provided

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– It is established by the party relying on it; and
– Such local usage is not specifically nullified by the
instrument specifically (indicating the intent of the

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parties)
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“By excluding the applicability of the Act to instruments in
oriental languages, necessary confusion in the state of
law has been established. The law of negotiable

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instruments being closely related to the commercial
world should be, by and large, uniform in its
application”

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– Khergamvala on Negotiable Instruments Act
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• Eleventh Report of the Law Commission of India
(1958)
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“the Negotiable Instruments Act, 1881 has been framed in
order to assimilate and record the mercantile trade
practices, prevailing as the law merchant in England and

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therefore any usage contrary to the provisions of the
said Act may not be upheld by a court. It is presumed
that the Act has taken into account, all the prevailing
mercantile usages and any usage, contrary to the

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provisions of the Act cannot be given effect to”
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- Punjab National Bank v Britannia India Ltd., [(2001)
106 Comp Cas 293 DB]
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Promissory notes
“an instrument in writing containing an unconditional
undertaking, signed by the maker, to pay a certain
sum of money only to, or to the order of a certain

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person or to the bearer of the instrument” – Sec. 4

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‘two parties’

DRAWER DRAWEE

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THE PERSON TO WHOSE
PERSON WHO DRAWS THE
FAVOUR THE PROMISSORY

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PROMISSORY NOTE
NOTE IS DRAWN
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Bill of Exchange

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• “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”

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- Sec. 5 of NI Act
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‘Three parties’

DRAWER DRAWEE/
ACCEPTOR

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ONE WHO IS DIRECTED TO
PERSON WHO MAKES AND
PAY – AFTER SIGNING

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GIVES THE ORDER TO PAY
BECOMES ‘ACCEPTOR’
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PAYEE

WHO OR TO WHOSE ORDER

THE AMOUNT OF THE
INSTRUMENT IS PAYABLE
cheque
• “Cheque is a bill of exchange drawn on a specified
banker and not expressed to be payable otherwise on
demand and it includes the electronic image of the

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truncated cheque and a cheque in the electronic form”
- Sec. 6 of NI Act
• There are two explanations

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– Explaining – ‘a cheque in the electronic form’ and ‘a
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truncated cheque’; and
– Clearing house for the purpose of this section
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2015 Amendment

• (a) "a cheque in the electronic form" means a cheque

drawn in electronic form by using any computer
resource and signed in a secure system with digital

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signature (with or without biometrics signature) and
asymmetric crypto system or with electronic signature,
as the case may be;’ [Explanation I Clause (a)]

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• Explanation III.—For the purposes of this section, the
expressions "asymmetric crypto system", "computer
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resource", "digital signature", "electronic form" and
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"electronic signature" shall have the same meanings
respectively assigned to them in the Information
Technology Act, 2000.'.
Broadening the definition of ‘cheque’ in 2002 & 2015

• The definition was broadened to include

– electronic image of a truncated cheque; and
– cheque in the electronic form

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• The Information Technology Act, 2002 recognizes
– electronic transfers; and

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– digital signatures
• The present amendment was intended to tune the NI
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Act with Information Technology law
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‘Three parties’

DRAWER BANKER

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PERSON WHO MAKES AND ORDER IS TO A ‘BANKER’

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GIVES THE ORDER TO PAY NO NEED OF ACCEPTANCE
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PAYEE

WHO OR TO WHOSE ORDER

THE AMOUNT OF THE
INSTRUMENT IS PAYABLE
Some other considerations
• No condition attached
– Bevins v London & South Western Bank Ltd., (1900) 1
KB 270

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– A company issued a cheque to its bankers along with a
receipt appended thereto and with a note
– ‘provided the receipt form at foot hereof is duly signed,

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stamped and dated’
– The cheque was held to be invalid because its payment
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was made conditional
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• Cheque must be drawn upon the ‘banker’
– R. Pillai v S. Ayyar, (1920) 43 Mad. 816
– A dist. Board had its funds in a Government Treasury

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and used to withdraw money by issuing orders in the
form of a cheque;
– Ayyar J, held that “Treasury is not a bank” and therefore,
the order was not a cheque under Sec. 6 but a BOE u/s

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5.
– The learned Judge cited the definition by Hart that, “a
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banker is one who in the ordinary course of his business
honours cheques drawn upon him by persons form and
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for whom he receives money on current accounts”
• Cheque must be payable on ‘demand’
– Therefore, a post-dated cheque is only a Bill of
Exchange and no cheque

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– But does become cheque on the date from which it
becomes payable on demand
– A cheque may bear date of Sunday or a holiday

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• Cheque is ‘peculiar’ BoE
– “Cheque is a peculiar sort of instrument, in many
respects resembling a BOE, but in some entirely

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different. A cheque does not require acceptance, in
ordinary course it is never accepted; it is not intended
for circulation, it is given for immediate payment; it is not

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entitled to days of grace…”
- Parke B in Ramchurn Mullick v Luchmeechund
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Radhakissen [(1854) 9 Moore PC 46]
• Cheque may be ‘crossed’
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‘Holder’ and

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‘Holder in Due
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Course’
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Meaning
• ‘Holder’ is one who is
– Entitled in his own name to the possession of the
instrument; and

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– Have the right to receive or recover the amount due
thereon from the parties thereto.

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Sec. 8
“Holder – The ‘holder of a promissory note, bill of
exchange or cheque means any person entitled in his
own name to the possession thereof and to receive or

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recover the amount due thereon from the parties
thereto.
Where the note, bill or cheque is lost or destroyed, its

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holder is the person so entitled at the time of such loss
or destruction”
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Holder in due course
• Holder in due course is a person – who takes an
instrument in “good-faith and for value”
• And he becomes the true owner of the instrument and

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is known technically as ‘holder in due course’

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Sec. 9
“Holder in due course means any person who for
consideration became the possessor of a promissory
note, bill of exchange or cheque, if payable to bearer,

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or the payee or indorsee thereof, if payable to order,
before the amount mentioned in it became payable,
and without having sufficient cause to believe that any

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defect existed in the title of the person from whom he
derived his title”
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Ingredients of s. 9
1. Holder must have taken the instrument for value
[consideration]
2. Must have obtained the instrument before its

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maturity
3. Instrument must be complete and regular on its face;
and

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4. Must have taken the instrument in good faith and
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without notice of any defect either in the instrument
of the title of the person negotiating it to him
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Before maturity
• Once an instrument reaches its maturity, it has
exhausted its life and is no more negotiable –No one
can become its holder in due course [Sec. 59]

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– “negotiation after that maturity is out of the usual and
ordinary course of dealing, that circumstance is
sufficient of itself, to excite so much suspicion… that the

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indorsee… can stand in no better position than that of
the indorser”
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• An instrument payable on demand is current at least
as long as no demand for payment is made
• S. 19 – states that a note or bill or cheque where no

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time for payment is specified are payable on demand
• “a promissory note payable on demand is current
for any length of time”

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The Indian position
• Sec. 9 of the Indian act does not use the words
‘good faith’

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• It provides that
– “without having sufficient cause to believe that any
defect existed in the title of the person from whom he
derived his title”

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• In other words, to defeat the title of a holder for
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value it must be shown that when he took the
instrument he had some ‘cause to believe’ that
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there was something wrong
• The court has to see the holder’s own mind
• Whitley Stokes [the first great commentator on the Act]
– “Mere negligence in taking a bill seems immaterial… if a
man takes honestly an instrument made or become

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payable to the bearer he has a good title, with whatever
degree of negligence he may have acted, unless his
gross negligence induce the jury to find fraud”

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Khergamwala’s view point
“However, under the Act, the words used in sec. 9
are ‘without having sufficient cause to believe’
therefore, the legislature seems to have intended

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to make due care and caution on the part of the
holder, a test of his bona fides and that mere good
faith on his part would not suffice. Accordingly, it
seems negligence on the part of a holder at the

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time of taking a negotiable instrument, would
disentitle him to the rights of a holder in due
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course. There will be sufficient cause to believe in
the existence of defects if the holder was in fact
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negligent or careless, though he was acting
honestly and in good faith….”
Negotiation and

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Liability

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Assignment v negotiation

• The transfer of an instrument by one party to another

so as to constitute the transferee as holder is called
‘negotiation’

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• When a person transfers his right to receive the
payment of a debt is called ‘assignment of a debt’.
– The holder of a life insurance policy transfers the right to

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receive the payment to another person that is an
assignment
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• The rights which the ‘transferee’ of an instrument by
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negotiation acquires are substantially superior to those
of an ‘assignee’
Notice of Assignment
• An assignment does not bind the debtor unless a
notice of the assignment has been given to him and he
has, expressly or impliedly, assented to it

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• But no information of the transfer of a negotiable
instrument has to be given to the debtor
– The acceptor of a bill and the maker of a promissory
note are liable on maturity to the person who is at the

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time the holder in due course of the instrument
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Presumptions
• Consideration is presumed in case of negotiation
• The burden lies upon the opposite party to show that
there is no consideration

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• But there are no such presumptions in favor of an
assignee -- He has to prove that, he has given
consideration for the assignment.

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Negotiation by delivery
• Sec. 47
• An instrument payable to bearer can be negotiated by
simple delivery

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• The person to whom the instrument is delivered
becomes the holder
• Delivery, though simple, is an important formality, for

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without it no possessor is constituted as the holder of
the instrument
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• A person who steals or finds a bearer instrument is not
the holder
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Negotiation by endorsements
• Sec. 48
• An instrument payable to order is negotiated by
indorsement and delivery

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• Indorsement is made by signing the name of the
indorser, usually on the back of the instrument
– But when the back is already full - indorsements may be

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signed on a slip of paper annexed to the instrument
– Such a slip is called ‘allonge’ and becomes part of the
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instrument
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Endorsement & ‘delivery’
• An indorsement is completed by the delivery of the
instrument to the indorsee
• “An indorsement means an indorsement

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completed by delivery”
– Thus when a person indorses an instrument to another
and keeps it in his papers where it is found after his
death and then delivered to the indorsee, the latter gets

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no rights on the instrument
– Similarly, where a person finds or takes away an
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instrument duly indorsed to him he gets no rights on the
instrument
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– A note cut in into two pieces and posted one-half to a
person whom he wanted to remit money, was held
entitled to withhold delivery of the other half, because a
partial delivery does not make a complete endorsement
• Tukaram Bapuji v Belgaum Bank, AIR 1976 Bom. 185
– after sending a bank draft to the payee by post, the
sender issued instruction to the bank not to pay the draft

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– The court held that a draft cannot be cancelled by the
sender after it has been delivered to the payee and
– The delivery in this case became effective from the date

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of posting
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Liability of parties

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Liability of acceptor or maker
• Sec. 32
• The liability of the ‘acceptor’ of a bill of exchange and
of the ‘maker’ of a promissory note is the same

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• They are liable to pay the instrument on its maturity
• However… in case of cheque the liability is slightly
different than what is being stated above

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Drawer of a cheque
• The drawer of a cheque gives a guarantee to the
holder that, it shall be paid by the banker when it
is duly presented for payment

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• If the cheque is dishonored, the drawer is liable to
compensate the holder provided that he has
received notice of dishonor
• however

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– The liability of the drawer of a cheque is primary and not
secondary
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– This is so because the holder of a bill can sue the
acceptor, but the holder of a cheque has no remedy
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against the banker
– His remedy is only against the drawer
Criminal liability (drawer of a cheque)
• Ss. 138 to 147
• The amendment of 1988 added a new chapter to
the Act

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• Vide Sec. 4 of Banking, Public Financial Institutions
and Negotiable Instruments Laws (Amendment)
Act,1988 [Act 66 of 1988]

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– Came into effect on 01.04.1989
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– First edition Ss. 138 to 142
– Latest addition Ss. 143 to 147 [vide Amendment Act
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of 2002]
• ‘to enhance the acceptability of cheques in
settlement of liabilities by making the drawer liable
for penalties, in case of bouncing of cheques due

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to insufficiency of funds in the accounts or for the
reason that it exceeds the arrangement made by
the drawer, with adequate safeguards to prevent

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harassment of honest drawers’
• The object is to
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– inculcate faith in the efficacy of banking operations and
– credibility in transacting business on the basis of
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negotiable instruments
Ingredients (sec. 138)
1. The cheque should have been issued in
discharge of a legally enforceable debt or
liability;

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2. The cheque should have been dishonored within
the period of its validity;
3. The cheque should have been dishonored for
want of funds in the account of the drawer;

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4. The payee or holder of the cheque should have
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issued, within a specified time limit, a notice in
writing to the drawer demanding the amount of
cheque; and
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5. The drawer must have failed to make payment

within 15 days of receipt of the notice.
 Dishonor of the cheque for want of funds

Notice of dishonor within 30 days to the drawer

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Drawer fails to fulfill his obligation within 15 days

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CAUSE OF ACTION HAS ARISEN
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Whether mens rea is necessary?
• ‘…such person shall be deemed to have committed an
offence’
• Thus, if the conditions stated therein are satisfied, the

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court has to deem that the offence has been
committed, regardless of the state of mind of the
drawer

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• Sec. 140 excludes the defence of the belief of the
person about the sufficiency of funds
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• For offences by companies as envisaged in Sec. 141,
also show the exclusion of mens rea
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Civil remedies after Chapter XVII
• As earlier the civil remedy is always available
• Both civil and criminal proceedings against the drawer
can continue simultaneously

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Legally enforceable debt
• A cheque should presumably have been issued for
payment in discharge, wholly or partly, of a legally
enforceable debt or liability

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‘legally enforceable debt’
• Is a liquidated amount of money owed and payable to
another whether in present or in future
• It is pecuniary liability recoverable by action in respect

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of money demand
• The provision includes not only debt but other liability
as well

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• The world ‘liability’ denotes the state of being liable
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• Hence…the following are outside the purview of s. 138
– A cheque given as gift or donation
– Discharge of mere moral obligation

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– For an unlawful or illegal consideration

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• The ‘debt’ or ‘liability’ shall be legally enforceable
– Time barred debt
• A V Murthy v B S Nagabasavamma, (2002)

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– A cheque drawn from a loan given four year prior to the
date of cheque does not cease to be legally enforceable
for the purpose of prosecution

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Presumption of legally enforceable debit
• Sec. 139
• The legal presumption – that the holder received it for
the discharge of debt or liability

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• The initial burden (very light one) is on the
complainant
• Then the burden shifts upon the drawer

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Rebuttal of presumption (by drawer)
• He may rely upon (generally) circumstantial evidence
• The rebuttal has to be by proof and cogent evidence
and not by mere explanation

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Liability of the
‘drawee’ (i.e.

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banker) of a
cheque
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Liability of the drawee of the cheque
• The banker’s duty is only owed to the customer – and
not to the payee
• Therefore, if the cheque is dishonored – the holder has

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no remedy against banker [even if the cheque is
been marked good for payment]

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Liability of ‘unjustified dishonour’
“The drawee of a cheque having sufficient funds of the
drawer in his hands properly applicable to the payment
of such cheque must pay the cheque when duly

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required so to do, and in default of such payment,
must compensate the drawer for any loss or damage
by such default” – Sec. 31

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ingredients
• Sufficient funds
– There should be sufficient credit balance in the
customer’s account

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• Funds properly available
– & the funds are not ‘properly available’ if
• The banker has exercised his right of set off for

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amounts due from the customer;
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• There is an order passed by a court; restraining the
bank from making payment
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Protection to the

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‘paying banker’

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Three important provisions
Payment in due
Sec. 10 course (generic)

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Altered
PROTECTION
Protection to the
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TO THE making payment
paying banker
PAYING
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(specific) (generic)
BANKER

Sec. 85 Sec. 89
S. 10 – payment in due course
“payment in due course means payment in accordance
with the apparent tenor of the instrument in good faith
and without negligence to any person in possession

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thereof under circumstances which does not afford a
reasonable ground from believing that he is not
entitled to receive payment of the amount therein

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mentioned”
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Ingredients
• The payment shall be
– In accordance with the apparent tenor of the instrument
– Payment made in good faith

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– Payment made without negligence
– To the person in possession of the instrument; and
– No belief that the person in possession of the instrument

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is not entitled to receive payment of the amount in the
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instrument
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s. 85 – specific protection to the banker
1. where the cheque is payable to ‘order’ purports to be
endorsed by or on behalf of the payee – the drawee
is discharged by payment in due course

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2. Where the cheque is originally expressed to be
payable to ‘bearer’ – the drawee is discharged by
payment in due course to the bearer thereof

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• Bhutoria Trading Company v Allahabad Bank, AIR
1977 Cal. 363

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– BTC sold some jute to WFD (another limited Company)
in payment of which WFD issued an uncrossed cheque
payable to BTC or order
– The same was delivered to one of the officials of the

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BTC
– That official used the official seal and endorsed the
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cheque as ‘manager’ and en-cashed over the counter
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– BTC later sued the bank for recovery of the money
“the cheque is an uncrossed cheque payable to the
plaintiff or order. The cheque was endorsed by the
plaintiff through its Manager. The fact that Jethmall is

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the Manager is borne out of the seal of the Company
which is unquestionably an authentic seal. The seal of
the Manager is also equally authentic. That the
payment was made in good faith has not been disputed

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for all practical purposes. There is not a grain of
evidence before the court from which it remotely
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appears that the payment was not made in good faith…”
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“… there was no circumstances which afforded any
reasonable ground for believing that he was not entitled
to receive payment of the cheque. It must be held that

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the bank made the payment in due course. The learned
judge, in our opinion has rightly pointed out that
payment in due course is necessarily payment in the
ordinary course…”

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• Madras Provincial Cooperative Bank Ltd., v Official
Liquidator, South Indian Match Factory Ltd., AIR 1945
Mad. 30

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– The Official Liquidator of the Company had sold certain
properties of the company -- payment was made by the
purchaser by giving a cheque in favor of the liquidator

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– The liquidator collected cash over the counter and
misappropriated the same
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– Held it is no payment in due course
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“…they knew or must have deemed to have known that
this money could only be collected by the payee
through his own bank and therefore it was most

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improper on his part to ask for payment over the
drawee’s counter. In our judgment there was a clear
breach of a statutory duty placed upon the bank and

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the learned judge was right in holding the bank
liable…”
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• Bank of Maharashtra v M/s Automotive Engineering
Co., (1993) 2 SCC 97
– The respondent – a partnership firm, opened a current

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account with the appellant bank
– The said bank’s branch was in the outskirts of Bombay
(where forgery of cheques were rampant)

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– although other banks were provided with ultraviolet ray
lamps; the said branch was not provided with such lamp
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– A Cheque was presented for collection (through Union
Bank of India) by one Mr. Shah on 29 May 1967 for
Rs.6,500

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– The appellant bank passed the cheque and debited the
amount to the Respondent
– Upon objection the cheque was examined through
ultraviolet ray-lamp then found out that it was originally

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issued to one Mr. G R Pardawala for Rs.95.98
– The writing of the cheque was chemically altered with
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regard to date, the name of the payee and also the
amount
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– All subordinate courts & High Court found the bank
guilty of negligence (as they did not use the ultraviolet
lamp)

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– Then an appeal was preferred to the SC, which was
allowed

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“simply because the ultraviolet ray lamp was not kept
in the branch and the said cheque was not subjected
to such lamp, would not be sufficient to hold the

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appellant bank guilty of negligence more so when it
has not been established on evidence that the other
branches of the appellant bank or the other
commercial banks had been following a practice of

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scrutinizing each and every cheque or cheques
involving a particular amount under such lamp by way
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of extra precaution”
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• Bareilly Bank Ltd., v Naval Kishore, AIR 1964 All.
78

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– ‘N’ opened an account and made a cash deposit of
Rs.19,900; he was also issued a cheque book of 25
leaves
– After 17 months of operation ‘N’ drew a cheque for the

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first time for Rs.5,900 which was dishonoured by the
bank
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– ‘N’ was informed that, 11 months back 3 cheques
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aggregating to Rs.19,500 were pad by the bank, which
‘N’ denied (about their issuance)
– And he also sued the bank for recovery of the money
– In evidence it came out that 3 cheques used to
withdraw, were not from the cheque book issued to ‘N’
– There was some difference between the ‘specimen

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signature’ and the signature on the cheques
– Held that banker’s are responsible

.S
.L
N
S. 89 – altered instrument and payment

I.U
.S
.L
N
Forged cheque &

I.U
banker’s liability

.S
.L
N
Proposition
• When the cheque is forged – there is no mandate to
the bank to pay
• Hence, banker is not entitled to debit the customer’s

I.U
account (on the basis of that forged cheque)

.S
.L
N
• Canara Bank v Canara Sales Corporation and Others
[(1987) 2 SCC 666]
– The current account of the company was to be operated

I.U
by the MD
– The accountant of the company had the custody of the
cheque book, who forged the signature on 42 cheque

.S
leaves and took out Rs.3,26,047.92 over a period of
time
.L
– Upon detection – demanded the amount back from the
bank, which was denied
N
– Company filed the suit for recovery; this attempt was
successful at the initial level
– The bank appealed to the Supreme Court, which

I.U
dismissed the same

.S
.L
N
“since the relationship between the customer and the bank
is that of creditor and debtor, the bank had no authority
to make payment of a cheque containing a forged

I.U
signature. The bank would be acting against the law in
debiting the customer with the amount of the forged
cheque as there would be no mandate on the bank to
pay….”

.S
.L
N
Crossing of

I.U
cheques

.S
.L
N
Introduction
• ‘Crossing’ is a feature which is unique to cheques
and distinguishes cheques from other negotiable
instruments

I.U
• Crossing is a usage born of commercial practice
• The objective – give direction to the banker that, he is
not to pay the cheque across the counter but to pay it

.S
only to another banker
.L
N
• Crossing of a cheque accords a protection or
safeguards the interest of the drawer
• If wrongful person seeks payment – it can be traced

I.U
back (as he has acted through another banker)

.S
.L
N
Kinds of crossing
• General crossing
• Special crossing

I.U
.S
.L
N
General crossing
• Sec. 123
• “where a cheque bears across its face an addition the
words ‘and company’ or any abbreviation thereof,

I.U
between two parallel transverse lines or of two parallel
transverse lines simply, either with or without word ‘not
negotiable’, that addition shall be deemed a crossing,

.S
and the cheque shall be deemed to be crossed
generally”
.L
N
Special crossing
• Sec. 124
• “where a cheque bears across its face an addition of
the name of banker, either with or without the words

I.U
‘not negotiable’, that addition shall be deemed a
crossing and the cheque shall be deemed to be
crossed specially, and to be crossed to that banker”

.S
.L
N
Classification of ‘crossing’
crossing

General crossing

I.U
Special crossing

.S
A/C payee crossing
.L
N
Not negotiable crossing
General crossing – ingredients
• Two parallel transverse lines on the face
• Either with or no writing between them

I.U
• The words ‘and company’, ‘& Co.’, or ‘not negotiable’
between them
• As law mandates – drawing of parallel transverse
lines is important

.S
.L
N
Specimens

I.U
.S
.L
N
Special crossing
• Two transverse parallel lines may or may not be drawn
• Name of the banker should be written across the
cheque

I.U
• The words ‘not negotiable’ may also be included

.S
.L
N
specimens

I.U
.S
.L
N
Account payee crossing
• ‘account payee’ crossing does not restrict the
negotiability of the cheque
• It is only an indicating to the banker to pay the monies

I.U
in to the bank account of the holder or payee
• If the banker receives payment of such cheque on
behalf of third person (any one other than

.S
payee/holder or one who does not have account) he
.L
will be guilty of negligence
N
Not negotiable
• Sec. 130 decals with the concept of ‘not negotiable’
• Earlier notion (of both English and India law)

I.U
– That by striking ‘order or bearer’ the cheque is made
non transferable
– But now Sec. 13 – states the mere absence of the word
does not mean that it is non transferable

.S
• Hence, only way is crossing it with ‘not negotiable’
.L
marking
N
Who can cross the cheque?
• Crossing can be done
– By the drawer
– By the payee

I.U
– By the holder; or
– By the banker
• Sec. 125

.S
.L
N
Proposition of law
• ‘crossing’ by itself does not amount to material
alteration
• However

I.U
– Intensity of the crossing can not be reduced by
subsequent holder
– The banker crossing the cheque should do so only in

.S
favour of another banker
.L
N
Can the crossing be cancelled?
• The answer (by analogy) of law is – NO
• However the practice is different

I.U
– Whereby the crossing is cancelled by writing with initials
‘please pay cash’
– However the banker is probably to take some risk in
such situations

.S
.L
N
London Clearing House Bankers – resolution

“That no opening of cheques be recognized unless the

full signature be appended to the alteration and then
only when presented for payment by the drawer or by

I.U
his known agent”

.S
.L
N
Protection of the

I.U
collecting banker

.S
.L
N
Collecting banker
• Collecting banker is one who collects money on behalf
of the holder
• This is essential as a crossed cheque can be paid only

I.U
by bankers and to another banker
• Sec. 131

.S
.L
N
“A banker who has in good faith and without negligence
received payment for a customer of a cheque crossed
generally or specially to himself shall not, in case the

I.U
title to the cheque proves defective, incur any liability
to the true owner of the cheque by reason only of
having received such payment”

.S
.L
N
Discharge from

I.U
liability

.S
.L
N
introduction

• ‘Discharge’ in legal sense means ‘release from liability’

• In our context ‘discharge’ means ‘release of liability on
the instrument’

I.U
• Discharge of parties and discharge of instrument
– The former is releasing one party; and

.S
– The other is extinguishment of all rights over the
instrument
.L
N
Classification for easier understanding

DISCHARGE

I.U
.S
BY ACT OF OTHER
BY OPERATION
PARTIES CIRCUMSTANCES
OF LAW
SEC. 82 SEC. 83-90
.L
N

LAPSE OF ONE OF THE

CANCELLATION RELEASE PAYMENT INSOLVENCY MERGER DISCHARGE JOINT DRAWERS
OF TIME ETC.
By act of the parties
• By cancellation
– When the holder or his agent deliberately cancel the bill
and make such cancellation apparent on the face of it

I.U
– The bill is discharged and the parties to the bill are
released from their liability
– If the cancellation is not apparent – then the instrument

.S
remains valid in the hands of holder in due course
.L
N
• Ingham v Primorse
– A accepted a bill and gave it to B for the purpose of
getting it discounted (and hand over the proceeds to A)

I.U
– The bill could not be discounted, hence A upon return of
bill tore it in half to indicate cancellation and threw it into
the street

.S
– The said bill was collected and pasted carefully in such
a manner that, the bill seemed to have been folded for
.L
safe custody rather than cancelled
N
– Then B put back the bill into circulation
– The Plaintiff (holder in due course subsequently) sued A,
on the basis of the bill

I.U
– Held, A is liable

.S
.L
N
“…because the tearing of the bill into two pieces was
not so clearly manifested on the face of the bill as to
indicate to a reasonably careful person that it had

I.U
been cancelled. Tearing of the instrument must be
such that a man of ordinary intelligence and caution
should at once come to know that it has been

.S
cancelled..”
.L
N
• release
– Holder of the instrument can release the acceptor or
endorser from liability

I.U
– This can be done
• By separate agreement; or
• By an act which has the effect of discharging them

.S
.L
N
• By payment
– Most obvious method (i.e. by payment)
– But the payment should be in ‘due course’

I.U
.S
.L
N
By operation of law
• Due to insolvency
– In the insolvency proceedings the maker, acceptor or
endorser is discharged by the court

I.U
– Then he will be discharged of his liability on the bill

.S
.L
N
• By merger
– Merger is simply ‘joining’
– When the acceptor of the bill becomes the holder of it in

I.U
due course (of course in his own right) then the bill is
discharged

.S
.L
N
• Lapse of time
– If the holder does not file a suit for recovery of the bill
amount till the lapse of time prescribed by the Limitation

I.U
law
– His remedy to enforce his right is extinguished
– Hence, in effect the acceptor is discharged unless he

.S
wants to pay the time barred debt
.L
N
• Discharge of one party
– It operates only in few cases where circumstances
exists so

I.U
– Discharge of one of the several joint drawers would
release the remaining also from their liability

.S
.L
N
Other circumstances
• Qualified acceptance
– Sec. 84
• Delay in presenting the cheque

I.U
• Material alteration
– Ss. 87, 88 & 89

.S
.L
N