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Section 78: To whom payment should be made

Negotiable Instruments Act • Official Statutory Text & Practice Guide

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Act 1881
Section 77 All 148 Sections of Negotiable Instruments Act Section 79

Legal Commentary & Landmark Judgments: Section 78

Section 78 establishes the paramount rule that payment of the amount due on a promissory note, bill of exchange, or cheque must be made to the holder of the instrument in order to obtain a valid discharge.

  • Exclusive Discharge Through Holder: Payment made to any person other than the legal holder under Section 8 does not discharge the debtor from liability on the instrument.
  • No Discharge for Third-Party / Benami Payments: Paying the real owner or financier who is not named as payee or endorsee on the paper leaves the debtor exposed to a second claim by the actual holder.
  • Duty of Debtor to Demand Possession: The debtor must verify that the person receiving money holds the physical paper and can deliver it up under Section 81.
Key Landmark Precedents:
  • Central Bank of India v. Gopinathan Nair (AIR 1970 Ker 74): Held that Section 78 enacts an unbending commercial rule: payment to a third party or benamidar does not discharge the maker; the debtor remains liable to the statutory holder.
  • Braja Kishore Dikshit v. Purna Chandra Panda (AIR 1957 Ori 153): Affirmed that an action on a negotiable instrument can only be maintained by the holder under Section 78, and discharge can only be granted by such holder.
Courtroom Practice & Strategic Litigation Guidance:

In loan repayments, clients often pay an unauthorized agent, collection agency, or partner without getting the promissory note back. Advise clients: under Section 78, paying an unauthorized party does NOT extinguish the debt. Always demand the physical return of the note.

Section 77 All 148 Sections of Negotiable Instruments Act Section 79