Payment in due course
Payment according to the apparent tenor of a negotiable instrument, in good faith and without negligence, to the person in possession, where nothing gives reasonable ground to believe he is not entitled to it (Section 10, NI Act).
Explained
Section 10 of the Negotiable Instruments Act, 1881 defines payment in due course as payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. The concept matters because several provisions of the Act make payment in due course the condition on which the payer is discharged.
Four elements are drawn from the definition. First, the payment must follow the apparent tenor of the instrument, that is, what the instrument shows on its face; payment of a bill before its maturity, for instance, is not in accordance with its tenor. Second, it must be made in good faith. Third, it must be made without negligence. Fourth, it must be made to a person in possession of the instrument in circumstances that raise no reasonable suspicion about his entitlement. The payer need not prove the payee's actual title; he must only meet this standard of conduct.
The Act attaches protection to such payment in several places. Under Section 78, payment must be made to the holder in order to discharge the maker or acceptor, subject to Section 82(c), which discharges the maker, acceptor or indorser of an instrument payable to bearer or indorsed in blank on payment in due course. Under Section 85(1) a drawee bank is discharged by payment in due course of an order cheque that purports to be indorsed by or on behalf of the payee, and under Section 85(2) a cheque originally payable to bearer remains so, and the drawee is discharged by payment in due course to the bearer notwithstanding any indorsement. Section 128 gives the paying banker of a crossed cheque, paid in due course, the same position as if payment had been made to the true owner.
Payment in due course protects the paying side and must not be confused with a holder in due course under Section 9, which protects the person who acquires the instrument. Examiners test the four elements, and the protection of the paying banker under Sections 85 and 128.
What the law says
“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 thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.
Definition of payment in due course
Subject to the provisions of section 82, clause (c), payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the instrument.
Payment to holder required for discharge
(c) by payment.—to all parties thereto, if the instrument is payable to bearer, or has been indorsed in blank, and such maker, acceptor or indorser makes payment in due course of the amount due thereon.
Section 82(c): discharge by payment in due course
[(1)] Where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
[(2) Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict or exclude further negotiation.]
Protection of drawee paying order and bearer cheques
Where the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof.
Payment in due course of crossed cheque
Example
For example, a bank that pays a bearer cheque across the counter to the person presenting it, with no suspicious features, is discharged even if that person had stolen the cheque.
For the exam
- Section 10: apparent tenor, good faith, no negligence, payment to the person in possession.
- Payment before maturity is not payment in due course.
- Drawee discharged by payment in due course of an order cheque purportedly indorsed (Section 85(1)).
- Once a bearer cheque, always a bearer cheque for the drawee (Section 85(2)).
- Contrast holder in due course (Section 9), which protects the transferee, not the payer.
20 questions in the Law Maker question bank use this term. Practise Negotiable Instruments Act, 1881 questions
Related terms
- Holder in due courseOne who for consideration becomes possessor of a bearer instrument, or payee or indorsee of an order instrument, before maturity and without cause to believe the transferor's title defective. Section 9, NI Act.
- ChequeA bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form. Section 6 of the NI Act.
- Negotiable instrumentA promissory note, bill of exchange or cheque payable either to order or to bearer (Section 13(1) of the Negotiable Instruments Act, 1881).
- Bill of exchangeAn 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 (Section 5, NI Act).
- Good faithUnder Section 2(11) of the BNS, nothing is done or believed in good faith if it is done or believed without due care and attention. Civil laws accept honesty alone.
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.