What is Payment in Due Course?
Payment in due course is a defined expression under the Negotiable Instruments Act, 1881. The definition sets out the conditions under which payment of a negotiable instrument is treated as payment made in due course.
Section 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 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.
Essential Requirements under Section 10
Payment according to apparent tenor
The payment must conform to the apparent tenor of the instrument. The instrument as presented must therefore be considered in determining whether payment has been made in the manner contemplated by Section 10.
Payment in good faith
The statutory definition expressly requires good faith. Payment that does not satisfy this requirement cannot qualify merely because the instrument was presented by a person in possession.
Payment without negligence
Good faith alone is not enough. Section 10 separately requires absence of negligence, making reasonable care relevant to whether a payment is payment in due course.
Payment to a person in possession
The payment contemplated by Section 10 is made to a person in possession of the negotiable instrument.
No reasonable ground to doubt entitlement
The surrounding circumstances must not provide a reasonable ground for believing that the person in possession is not entitled to receive payment of the amount stated in the instrument.
Why the Definition Matters
The expression "payment in due course" is used in several provisions of the Act. For example, the statutory rules concerning payment of instruments, discharge and the protection available in particular payment situations may depend on whether the requirements of Section 10 are satisfied.
Payment in Due Course and Holder in Due Course
"Payment in due course" under Section 10 and "holder in due course" under Section 9 are different concepts. Section 9 concerns the status of a person who acquires an instrument subject to its statutory conditions, while Section 10 concerns the legal characteristics of the payment itself.
Related Provisions
Section 8 - Holder
Defines the person entitled in his own name to possession of the instrument and to receive or recover the amount due thereon.
Section 9 - Holder in Due Course
Defines a holder in due course by reference to consideration, the manner and timing of acquisition and the absence of sufficient cause to believe that the transferor's title was defective.
Section 13 - Negotiable Instrument
Defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer.
Section 14 - Negotiation
Explains negotiation where an instrument is transferred so as to constitute the transferee its holder.
Official Source
The current text of the Negotiable Instruments Act, 1881 may be verified through India Code, the Government of India legislative database.
Negotiable Instruments Act 1881 - India Code