Sections 88 and 89 of Negotiable Instruments Act 1881: Previous Alteration and Payment Where Alteration Is Not Apparent
Sections 88 and 89 form part of Chapter VII, "Of Discharge from Liability on Notes, Bills and Cheques", of the Negotiable Instruments Act, 1881. Section 88 binds an acceptor or indorser by the acceptance or indorsement despite a previous alteration. Section 89 protects payment made according to the apparent tenor and otherwise in due course where an alteration or crossing is not apparent, and also regulates electronic images of truncated cheques.
- Section 88: an acceptor or indorser remains bound by that acceptance or indorsement notwithstanding a previous alteration of the instrument.
- Section 89(1): protects a person or banker paying an apparently unaltered instrument, or a cheque whose crossing or obliterated crossing is not apparent, where payment satisfies the statutory conditions.
- Section 89(2) and (3): impose accuracy and verification duties in relation to electronic images of truncated cheques.
Section 88 - Acceptor or indorser bound notwithstanding previous alteration
An acceptor or indorser of a negotiable instrument is bound by his acceptance or indorsement notwithstanding any previous alteration of the instrument.
Meaning of Section 88
An acceptor is the drawee who has signed assent upon a bill of exchange and delivered it or given notice of the signing as required by the Act. An indorser is a person who indorses a negotiable instrument for the purpose of negotiation. Section 88 provides that an alteration which occurred before the acceptance or indorsement does not, by itself, free that acceptor or indorser from the obligation created by the later acceptance or indorsement.
Section 89 - Payment of instrument on which alteration is not apparent
Where a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been so altered, or where a cheque is presented for payment which does not at the time of presentation appear to be crossed or to have had a crossing which has been obliterated, payment thereof by a person or banker liable to pay, and paying the same according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such person or banker from all liability thereon; and such payment shall not be questioned by reason of the instrument having been altered or the cheque crossed.
Protection where alteration is not apparent
Sub-section (1) protects the payer where the material alteration is not apparent on the face of the instrument at the time of payment, provided payment is made according to its apparent tenor and otherwise in due course. It also addresses a cheque that does not appear to be crossed, or to have had a crossing that was obliterated, when presented for payment.
Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image.
This provision treats a difference between the apparent tenor of the electronic image and the truncated cheque as a material alteration. It places a statutory duty on the bank or clearing house involved in truncation and transmission to ensure exactness of the electronic image.
Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.
Sub-section (3) complements the transmission duty by requiring a receiving bank or clearing house to verify with the transmitting party that the received image is exactly the same as the image transmitted.
Meaning of material alteration and payment in due course
Section 87 deals with the effect of a material alteration and should be read with Section 89. Section 10 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 under circumstances that do not afford reasonable ground for believing that the person is not entitled to receive payment.