Negotiable Instruments Act, Section 89

Negotiable Instruments Act, Section 89: Payment of Instrument on Which Alteration Is Not Apparent

Section 89 of the Negotiable Instruments Act, 1881 protects persons and bankers who make payment of negotiable instruments in good faith where any material alteration or crossing is not apparent on the face of the instrument.

The section safeguards payments made according to the apparent tenor of the instrument in due course and also applies to electronic images of truncated cheques.

1. General Principle of the Section

Negotiable instruments frequently pass through several hands, and paying bankers generally rely upon the apparent tenor and appearance of the instrument in ordinary banking practice.

Section 89 therefore protects a person or banker making payment honestly and in due course where a material alteration or removal of crossing is not apparent on the face of the instrument.

2. Applicability of the Provision

Sub-section (1) applies to promissory notes, bills of exchange, and cheques involving material alterations not visibly apparent or cheques where the crossing is not apparent or appears obliterated.

3. Material Alteration Not Apparent

The section first deals with cases where a negotiable instrument has been materially altered but the alteration is not visible or detectable upon ordinary examination, and the instrument appears regular on its face.

In such circumstances, the paying banker or liable party may safely rely upon the apparent tenor of the instrument while making payment in due course.

4. Meaning of Apparent Tenor

The “apparent tenor” refers to the visible and ordinary appearance of the instrument at the time of payment, and a banker is expected to examine the instrument with reasonable care.

However, the banker is not expected to discover hidden defects or concealed alterations, and therefore payment according to the apparent tenor means payment based on what reasonably appears on the face of the instrument.

5. Payment in Due Course

Protection under Section 89 applies only where payment is made in due course, that is, according to the apparent tenor of the instrument, in good faith and without negligence to the person apparently entitled to receive payment.

6. Effect of Protection

Where payment is made in due course according to the apparent tenor of the instrument, the payer or banker is discharged from liability, and the payment cannot later be challenged merely because the instrument was in fact altered.

7. Protection Regarding Crossed Cheques

The section also protects a banker who pays a cheque appearing uncrossed or with an obliterated crossing, provided payment is made in due course even though the cheque may originally have been crossed.

8. Purpose of Protection

The provision protects banks acting honestly and carefully in order to facilitate smooth banking operations, since banks handling large volumes of instruments cannot reasonably be expected to detect every hidden alteration or removed crossing.

9. Electronic Images of Truncated Cheques

Sub-section (2) provides that in truncated cheque and electronic clearing systems, any discrepancy between the electronic image and the original cheque amounts to a material alteration, and the transmitting bank or clearing house must ensure complete accuracy of the image.

10. Verification by Receiving Bank or Clearing House

Sub-section (3) provides that a bank or clearing house receiving an electronic cheque image must verify that the image received is identical to the transmitted image, thereby ensuring integrity, accuracy, and reliability in the electronic clearing process.