Payment in Due Course

Payment in Due Course

‡ Payment in due course means payment in accordance with the apparent tenor of the instrument, in good faith and without negligence, to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that, he in not entitled to receive payment of the amount therein mentioned Section 10 N.I Act

‡ Payment must be in accordance with the apparent tenor of the instrument Payment in order to be payment in due course must be in all good faith The drawer must not be guilty of any negligence in making the payment .

‡ Payment in due course must be made to a person who has the actual position of the instrument Payment should not be made under circumstances which afford a reasonable ground for believing that the person was entitled to received the amount mentioned in the instrument

Three Essential Features

‡ Apparent Tenor of the Instrument ‡ Payment in good faith and without negligence ‡ Case

‡ In Madras Provincial Co-operative Bank Ltd., Vs South Indian Match Factory ltd. ( in liquidation) one Mr. Ramachandra Rao , a former employee, was appointed as a liquidator, the fact of which was known to the banker. ‡ Once, a cheque drawn in favour of Rao in his official capacity was paid into his private account. It was held that the Paying Banker was negligent

‡ Payment to a person who is entitled to receive payment ‡ The mere possession of a document does not make one holder. He must have a genuine title to it