Sections 85 and 85A of Negotiable Instruments Act 1881: Cheques and Bank Drafts Payable to Order
Sections 85 and 85A are part of Chapter VII, "Of Discharge from Liability on Notes, Bills and Cheques", of the Negotiable Instruments Act, 1881. They protect the drawee or bank when qualifying cheques and inter-branch bank drafts are paid in due course in the circumstances specified by the Act.
- Section 85(1): concerns a cheque payable to order that purports to be indorsed by or on behalf of the payee.
- Section 85(2): concerns a cheque originally expressed to be payable to bearer.
- Section 85A: applies to a draft drawn by one office of a bank on another office of the same bank, payable to order on demand.
Section 85 - Cheque payable to order
Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
A cheque payable to order is payable according to its tenor to the named payee or order. Under sub-section (1), the statutory protection operates where the cheque purports to carry the payee's indorsement, or an indorsement on the payee's behalf, and the drawee makes payment in due course.
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 indorsement whether in full or in blank appearing thereon, and notwithstanding that any such indorsement purports to restrict or exclude further negotiation.
Sub-section (2) preserves the effect of a cheque that was originally expressed to be payable to bearer. Payment in due course to the bearer discharges the drawee despite later indorsements of the kinds described in the provision.
Meaning of payment in due course
Section 10 of the Negotiable Instruments Act defines "payment in due course" as payment in accordance with the apparent tenor of the instrument, in good faith and without negligence, to a person in possession of it under circumstances that do not afford a reasonable ground for believing that the person is not entitled to receive payment of the amount mentioned in it. This definition is central to the statutory protection under Sections 85 and 85A.
Section 85A - Drafts drawn by one branch of a bank on another payable to order
Where any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be indorsed by or on behalf of the payee, the bank is discharged by payment in due course.
Scope of Section 85A
Section 85A specifically addresses an inter-office bank draft: one office of a bank draws the draft on another office of the same bank, the amount is payable to order on demand, and the draft purports to be indorsed by or on behalf of the payee. When those statutory conditions are met, payment in due course discharges the bank.