Section 78 NI Act: To whom payment should be made

Negotiable Instruments Act, 1881

Section 78 NI Act at a Glance

Section 78 NI Act states that payment of the amount due on a promissory note, bill of exchange, or cheque must be made to the holder to discharge the maker or acceptor, subject to Section 82(c) NI Act.

Section 78 NI Act Bare Act Text

78. To whom payment should be made.

Subject to the provisions of section 82, clause (c), payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the instrument.

Section 78 NI Act in Simple Words

Section 78 NI Act identifies the person to whom payment must be made on a negotiable instrument in order to discharge the maker or acceptor.

Under Section 78 NI Act, payment of the amount due on a promissory note, bill of exchange, or cheque must be made to the holder of the instrument to discharge the maker or acceptor from liability. Paying a person who is not the holder does not discharge the maker or acceptor under Section 78 NI Act unless the exception in Section 82, clause (c) NI Act applies.

When Section 78 NI Act Applies

  • An amount is due on a promissory note, bill of exchange, or cheque.
  • The maker or acceptor seeks to be discharged from liability by payment.
  • Payment of the amount due must be made to the holder of the instrument.
  • The rule is subject to Section 82, clause (c) NI Act regarding payment in due course on an instrument payable to bearer or indorsed in blank.

Example of Section 78 NI Act

Usha is the maker of a promissory note payable to the order of Rukhsana for ₹50,000. Rukhsana remains the holder of the promissory note, and the note is neither payable to bearer nor indorsed in blank. Usha pays the ₹50,000 to Rukhsana's brother Pradeep in Belagavi instead of paying Rukhsana. Under Section 78 NI Act, because payment was not made to the holder Rukhsana and Section 82(c) NI Act does not apply, Usha is not discharged from liability on the promissory note.

FAQs on Section 78 NI Act

What is Section 78 NI Act?▼

Section 78 NI Act states to whom payment must be made on a promissory note, bill of exchange, or cheque to discharge the maker or acceptor. Subject to Section 82, clause (c) NI Act, payment of the amount due on the instrument must be made to the holder.

Which instruments are covered by Section 78 NI Act?▼

Promissory notes, bills of exchange, and cheques. For all three instruments, Section 78 NI Act requires payment of the amount due to be made to the holder in order to discharge the maker or acceptor, subject to Section 82(c) NI Act.

What is the exception in Section 82, clause (c) NI Act mentioned in Section 78 NI Act?▼

Payment in due course on an instrument payable to bearer or indorsed in blank. Under Section 82(c) NI Act, the maker, acceptor, or indorser is discharged from liability to all parties if the instrument is payable to bearer or indorsed in blank and that party makes payment in due course of the amount due.

Which parties does Section 78 NI Act mention as being discharged by payment to the holder?▼

The maker or the acceptor of the instrument. Section 78 NI Act states that payment must be made to the holder in order to discharge the maker or acceptor.

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Disclaimer: This is for informational purposes only. Always consult a qualified advocate for legal advice.

Sources: Bare Act Text, Negotiable Instruments Act, 1881 (India Code) ·