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

Payment of Cheques and Statutory Protection of the Paying Banker

Updated 11 October 2026 · Fact-checked

A paying banker must honour a customer's cheque according to its apparent tenor. If it pays in due course, meaning in good faith, without negligence and to a person who seems entitled, sections 10 and 128 protect it. Paying a crossed cheque out of due course makes it liable to the true owner (section 129).

Understand Payment of Cheques and Statutory Protection

A cheque is a bill of exchange drawn on a specified banker and payable on demand (section 6). The banker on whom it is drawn is the paying banker. Its basic duty is to pay the customer's properly drawn cheque when it is presented, if the account has funds and no valid reason stops payment. Wrongful refusal harms the customer. Wrongful payment harms the customer or the true owner.

The law protects a banker who pays correctly. Payment in due course (section 10) has three parts: payment in accordance with the apparent tenor of the instrument; in good faith and without negligence; and to a person in possession in circumstances that give no reasonable ground to believe he is not entitled to receive payment. Miss any one and the protection is at risk.

Crossing adds a layer of safety. A cheque crossed generally must be paid only to a banker. A cheque crossed specially must be paid only to the banker named in the crossing or his agent for collection (section 126). A special crossing is an addition of a banker's name across the face, with or without the words "not negotiable" (section 124).

If the banker pays a crossed cheque in due course, the banker and the drawer (where the cheque has reached the payee) are placed as if the true owner had been paid (section 128). If it pays out of due course, it is liable to the true owner for the loss (section 129). If a cheque is crossed specially to more than one banker, except where the second is an agent for collection, the paying banker must refuse payment (section 127).

Two more protections matter. Under section 89, if a cheque does not appear to be crossed, or to have been altered, at presentation, payment according to its apparent tenor and otherwise in due course discharges the banker. Under section 131, the collecting banker is protected too, if it acts in good faith and without negligence. Keep the two bankers separate in your answers.

Key rules to remember

Payment in due course (s. 10): Apparent tenor + good faith + no negligence + to a person apparently entitled; All elements must be present. Quote them in this order in the answer.
Cheque crossed generally (s. 126): Pay only to a banker; Paying a non-banker presenter is payment out of due course.
Cheque crossed specially (s. 126): Pay only to the banker named, or his agent for collection; Special crossing is the addition of a banker's name (s. 124).
Special crossing to more than one banker (s. 127): Refuse payment, unless the second is an agent for collection; The exception is the case of s. 125, where the named banker crosses again to his agent.
Payment in due course of crossed cheque (s. 128): Banker and drawer treated as if the true owner was paid; The drawer's protection applies where the cheque has come to the payee's hands.
Payment out of due course (s. 129): Banker liable to the true owner for loss sustained; Liability is to the true owner, not to the drawer by this section.
Unapparent crossing or alteration (s. 89(1)): Payment per apparent tenor at the time of payment, in due course, discharges the banker; Applies if the crossing or alteration is not apparent at presentation.

How to solve Payment of Cheques and Statutory Protection questions

Use this order for any problem on a paying banker's duty or protection. Case-based answers should show provision, analysis of facts and conclusion.

1Identify the banker's role: paying banker (drawee) or collecting banker. Sections 126-129 and 89 concern the paying banker. Section 131 concerns the collecting banker.
2Check the cheque: is it uncrossed, crossed generally, crossed specially, or crossed specially to more than one banker?
3If crossed to more than one banker, apply s. 127 first: refuse payment unless the second banker is an agent for collection.
4State the rule on who may receive payment: s. 126 for general or special crossing.
5Test payment in due course under s. 10: apparent tenor, good faith, no negligence, and no reasonable ground to doubt the presenter's entitlement.
6If paid in due course, apply s. 128 and conclude who is protected. If paid out of due course, apply s. 129 and name the true owner as claimant.
7Check if s. 89 helps: was the crossing or alteration not apparent at presentation?
8Conclude clearly in one line: liable or protected, and to whom.

Quickest way: Cross, Channel, Care

When to use it: Use for short case questions where you must decide quickly whether the paying banker is liable.

Cross: read the crossing and name it (none, general, special, multiple special).
Channel: did the money go to a banker (general) or the named banker or his agent (special)? If not, s. 129 liability.
Care: if the channel was right, check good faith and no negligence under s. 10. Protected under s. 128 if satisfied.
Multiple special crossings: refuse under s. 127 unless one is an agent for collection.
Write one line each for rule, facts, conclusion.

Common mistakes in Payment of Cheques and Statutory Protection

Applying s. 131 to the paying banker.
Both sections talk of protection of a banker, so students merge them.
Fix: Section 131 protects a banker who receives payment for a customer, the collecting banker. Paying banker protection comes from ss. 10, 89 and 128.
Saying a banker must refuse every cheque crossed specially twice.
Students remember s. 127 but forget its exception.
Fix: State the exception: crossing to a second banker as an agent for collection does not require refusal.
Leaving out an element of payment in due course.
Students remember only "good faith".
Fix: List all parts of s. 10: apparent tenor, good faith, without negligence, and a presenter who gives no reasonable ground for doubt.
Saying s. 129 makes the banker liable to the drawer.
The drawer is the customer, so it feels natural.
Fix: Section 129 says liability is to the true owner of the cheque for any loss sustained owing to the wrong payment.
Treating a general crossing as allowing payment over the counter to anyone.
Students confuse crossing with account payee restrictions.
Fix: Under s. 126 a generally crossed cheque must be paid only to a banker.
Ignoring s. 89 when the crossing was not visible.
Students jump straight to s. 129.
Fix: Ask whether the crossing or alteration appeared at presentation. If not, and payment was in due course, the banker is discharged.

Worked examples

Example 1

Meera draws a cheque for ₹80,000 in favour of Rohan, crossed generally. Rohan's cheque is stolen. The thief presents it at the drawee bank's counter and the bank pays him cash. Rohan, the true owner, sues the bank. Advise.

Show the solution

Provision: under s. 126, a cheque crossed generally must not be paid otherwise than to a banker.
Facts: the bank paid cash to a thief, who is not a banker.
Analysis: this is not payment in due course for a crossed cheque. Section 129 makes a banker who pays a generally crossed cheque otherwise than to a banker liable to the true owner for the loss.
Section 128 is not available, since it applies only where the payment was in due course.

Answer: The bank is liable to Rohan, the true owner, for the loss he sustained (here ₹80,000) under s. 129.

Example 2

A cheque for ₹50,000 drawn by Anil is crossed specially to Bank X. Bank X crosses it specially to Bank Y for collection. Bank Y presents it to the drawee bank, which pays Bank Y. Later a dispute arises whether the drawee bank should have refused payment under s. 127. Advise.

Show the solution

Provision: s. 127 requires refusal where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection.
Section 125 allows the banker to whom a cheque is crossed specially to cross it again specially to another banker, his agent, for collection.
Facts: Bank Y is Bank X's agent for collection, so the exception applies.
Payment went to a banker named in the crossing, Bank Y, as agent, which satisfies s. 126.
If the drawee bank also paid in good faith and without negligence, s. 10 is met and s. 128 applies.

Answer: The drawee bank was not bound to refuse payment. Having paid in due course, it and Anil (once the cheque reached the payee) are placed as if the true owner had been paid, under s. 128.

Exam tips

Write the section number beside each rule you state, but only for sections you are sure of: 10, 89, 124-129 and 131 are safe here.
In case questions, follow the three-part pattern: provision, facts applied, conclusion. One-line conclusions score.
Always separate paying banker (ss. 126-129) from collecting banker (s. 131).
Learn the s. 127 exception word for word: agent for the purpose of collection.
Practise short notes on payment in due course. List all its elements.

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

Payment of Cheques and Statutory Protection: frequently asked questions

What is payment in due course under the NI Act?

Section 10 defines it as payment in accordance with the apparent tenor of the instrument, in good faith and without negligence, to a person in possession in circumstances that give no reasonable ground for believing he is not entitled to receive payment.

When must a banker refuse a cheque crossed specially more than once?

Under s. 127, the drawee banker must refuse payment when a cheque is crossed specially to more than one banker. The exception is where it is crossed to an agent for the purpose of collection.

What happens if a banker pays a crossed cheque wrongly?

Under s. 129, the banker is liable to the true owner for any loss he sustains because the cheque was paid to the wrong person. The wrong payment is one made otherwise than to a banker, or otherwise than to the banker named or his collecting agent.

Does s. 89 protect a banker who pays a cheque whose crossing was not visible?

Yes, if the cheque did not appear crossed at presentation, and the banker paid according to its apparent tenor and otherwise in due course. Such payment discharges the banker and cannot be questioned because the cheque was crossed.