Banking and Insurance - Laws and Practice · Payment and Collection of Cheques and Other Negotiable Instruments

Discharge and Payment of Negotiable Instruments under the NI Act

Updated 11 October 2026 · Fact-checked

Under Section 60 of the Negotiable Instruments Act, 1881, an instrument stays negotiable until the maker, drawee or acceptor pays or satisfies it, at or after maturity. After that it cannot be negotiated. Parties are discharged by cancellation, release or payment (Section 82), or by other acts such as impairing remedies (Section 40).

Understand Discharge and Payment of Negotiable Instruments

A negotiable instrument is a promissory note, bill of exchange or cheque payable to order or to bearer (Section 13). Its special feature is that it can be passed from hand to hand and a holder in due course can get a good title. The question this topic answers is: until when does that power last?

Section 60 gives the answer. The instrument may be negotiated until payment or satisfaction by the maker, drawee or acceptor, made at or after maturity. Maturity alone does not end negotiability. An overdue instrument can still be transferred, but the transferee takes it subject to the defects of the earlier parties. Once payment or satisfaction is made by the person primarily liable, the life of the instrument ends and no further negotiation is possible.

There is one carve-out. The maker, drawee or acceptor cannot negotiate the instrument after maturity. If the company that issued a note buys it back after the due date, it cannot pass it on again.

Discharge is the other half. Discharge means a party is freed from liability on the instrument. Section 82 lists three ways for the maker, acceptor or indorser: cancellation (a holder cancels the name with intent to discharge), release (a holder otherwise discharges the party) and payment (if the instrument is payable to bearer or indorsed in blank, and payment is made in due course, all parties are discharged). Other sections discharge parties in other situations, such as Section 40 (holder impairs an indorser's remedy against a prior party) and Section 83 (holder allows the drawee more than forty-eight hours, exclusive of public holidays, to decide on acceptance).

To discharge the maker or acceptor, payment must be made to the holder of the instrument (Section 78), subject to Section 82(c). Paying someone who is not the holder does not discharge the payer.

Key rules to remember

Section 60 - negotiable till payment: Negotiable until payment or satisfaction by maker, drawee or acceptor, at or after maturity; Exception: the maker, drawee or acceptor cannot negotiate after maturity. No negotiation after payment or satisfaction.
Section 82 - discharge of maker, acceptor or indorser: (a) cancellation; (b) release; (c) payment; Cancellation needs intent to discharge. Under (c), payment in due course discharges all parties only if the instrument is payable to bearer or indorsed in blank.
Section 78 - to whom payment is made: Payment must be made to the holder to discharge maker or acceptor; Subject to Section 82(c).
Section 40 - indorser's discharge: Holder destroys or impairs indorser's remedy against prior party without consent = indorser discharged as if paid at maturity; Illustration: striking out prior indorsements discharges the last indorser.
Section 83 - time to accept: Drawee given more than 48 hours (excluding public holidays) to accept = non-consenting previous parties discharged; Applies to a bill of exchange.
Section 89 - payment where alteration not apparent: Payment per apparent tenor, in due course = payer or banker discharged; Covers material alteration not apparent, and a crossing not apparent at presentation.

How to solve Discharge and Payment of Negotiable Instruments questions

Use this order for any case question on payment or discharge. It keeps the answer in the provision, analysis, conclusion format.

1Identify the instrument and the parties: maker, drawee, acceptor, payee, indorsers, holder.
2Fix the timeline: has the instrument matured, and has it been paid or satisfied yet?
3State Section 60 first: negotiable until payment or satisfaction by the maker, drawee or acceptor, at or after maturity.
4Ask who paid and to whom. Payment by a stranger or to a non-holder does not discharge (Section 78).
5Check for other discharge events: cancellation or release (Section 82), impairing an indorser's remedy (Section 40), over-long time to accept (Section 83), payment of an unaltered-looking instrument (Section 89).
6Decide whose liability ended and whose continues. Say which parties are discharged and which are not.
7Give a clear conclusion in one line and mention any presumption that helps, such as Section 118.

Quickest way: Three-question discharge check

When to use it: Use when time is short and the facts are a short scenario asking whether someone is still liable or the instrument can still be transferred.

Was it paid or satisfied by the maker, drawee or acceptor? If yes, no further negotiation (Section 60).
Who is asking to be discharged: maker, acceptor or indorser? Match to cancellation, release or payment (Section 82).
Did the holder do something to a party's rights, such as striking out names or delaying acceptance? Then check Sections 40 and 83.

Common mistakes in Discharge and Payment of Negotiable Instruments

Writing that an instrument stops being negotiable at maturity.
Students confuse maturity with payment.
Fix: Section 60 ends negotiability only on payment or satisfaction. An overdue instrument can still be negotiated, but the transferee cannot be a holder in due course of it.
Saying any payment discharges all parties.
Section 82(c) is remembered without its conditions.
Fix: All parties are discharged only if the instrument is payable to bearer or indorsed in blank, and the maker, acceptor or indorser pays in due course.
Forgetting the exception for the maker, drawee or acceptor.
The bracketed words in Section 60 are skipped.
Fix: These parties cannot negotiate the instrument after maturity. Quote the exception whenever they are the transferor.
Treating payment to anyone in possession as valid discharge.
Students ignore the word holder.
Fix: Under Section 78, the maker or acceptor is discharged only by payment to the holder, subject to Section 82(c).
Mixing up Section 40 and Section 82 cancellation.
Both involve striking out names.
Fix: Section 82(a) frees a party whose name is cancelled with intent to discharge. Section 40 frees an indorser whose remedy against a prior party the holder impaired without his consent.
Quoting 24 hours in Section 83.
Older textbooks use the earlier figure.
Fix: The current text says forty-eight hours, exclusive of public holidays.

Worked examples

Example 1

Sharma Traders issued a promissory note to Mehta & Co. payable on 1 March. On 10 March Sharma Traders itself bought the note back from a holder and tried to transfer it to Gupta. Can Gupta treat it as negotiable?

Show the solution

Provision: Section 60 says an instrument may be negotiated until payment or satisfaction, except by the maker, drawee or acceptor after maturity.
Facts: Sharma Traders is the maker. The note matured on 1 March, and the transfer was attempted on 10 March, after maturity.
Analysis: The exception applies, so the maker cannot negotiate the note after maturity.
Conclusion: The transfer to Gupta is not a valid negotiation under Section 60.

Answer: No. The maker cannot negotiate the note after maturity, so Gupta does not acquire it by negotiation.

Example 2

A bill of exchange payable to the order of Ravi is indorsed in turn by Ravi, Sunil, Tara and Uday. The holder Vikram sues Uday and, without Uday's consent, strikes out the indorsements of Sunil and Tara. Can Vikram recover from Uday?

Show the solution

Provision: Section 40 discharges an indorser if the holder, without the indorser's consent, destroys or impairs the indorser's remedy against a prior party.
Facts: Uday is the last indorser. His remedy lies against Tara, Sunil and Ravi. Vikram struck out Sunil and Tara without his consent.
Analysis: Uday's remedy against these prior parties is impaired. This matches the illustration to Section 40.
Conclusion: Uday is discharged as if the bill had been paid at maturity.

Answer: No. Vikram cannot recover anything from Uday, because Section 40 discharges him.

Exam tips

Open every answer with Section 60 in your own words, including the exception for the maker, drawee or acceptor.
Name the exact mode of discharge from Section 82: cancellation, release or payment. Examiners look for the label.
In case questions, apply the provision to the facts in a separate paragraph before concluding.
Link payment to Sections 78 and 89, and to banker protection under Section 131, when the facts involve a bank.
Do not give a section number unless you are sure. Explain the rule in plain words if unsure.

Practice questions from Payment and Collection of Cheques and Other Negotiable Instruments

Discharge and Payment of Negotiable Instruments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Discharge and Payment of Negotiable Instruments: frequently asked questions

Until when is a negotiable instrument negotiable under Section 60?

It is negotiable until the maker, drawee or acceptor pays or satisfies it, at or after maturity. After that payment or satisfaction it cannot be negotiated. Maturity alone does not end negotiability.

Can an overdue instrument be negotiated?

Yes, if it has not yet been paid or satisfied. The maker, drawee or acceptor cannot negotiate it after maturity, but other holders can transfer it.

How is a party discharged under Section 82?

A maker, acceptor or indorser is discharged by cancellation, release or payment. Cancellation needs the holder's intent to discharge. Payment discharges all parties only if the instrument is payable to bearer or indorsed in blank.

To whom must payment be made to discharge the maker or acceptor?

To the holder of the instrument, under Section 78. This is subject to Section 82(c). Payment to someone who is not the holder does not discharge the payer.