Discharge of Parties of a Negotiable Instrument and Cheque - Negotiable Instruments Act, 1881

Parties of a Negotiable Instrument may be discharged may be discharged in the following ways:

Discharge by Cancellation
If the holder of a Negotiable instrument cancels the name of the party to a Negotiable Instrument with intent to discharge him from liability, such party whose name has been so cancelled and those parts who had a right to recourse against the party whose name has been cancelled are discharged from their liability to the holder who had thus cancelled the name.

Discharge by Release
The holder of a negotiable instrument can discharge the maker, acceptor or endorser otherwise than by cancellation of names. Section 63 of Negotiable Instruments Act, 1881 contains provision related to discharge by release. As per this section every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

Discharge by Release of Payment
The most common mode of discharge is by making payment. Payment is an effective discharge only if it is "Payment in due course" as defined in Section 10. Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. Section 78 of the Negotiable Instruments Act 1881 provides that payment should be made to the holder otherwise it shall not be a good discharge to the party liable to pay.

By allowing more than 48 hours to accept
Section 83 of the Negotiable Instruments Act provides that when the holder presents the bill of exchange to the drawee for acceptance, the drawee should be allowed only 48 hours to consider whether he will accept or not. If the holder allows the drawee more than 48 house excluding public holidays, all previous parties who do not consent such allowance are discharged from liability to the holder. The 48 hours rule specified in the section does not apply to all bills of exchange or hundies, but only to bills in which the acceptance by the drawee is obligatory.

By Qualified Acceptance - Section 86 of the Negotiable Instruments Act, 1881
If the holder of a bill of exchange who presents the same for acceptance, acquiesces in a qualified acceptance of the bill, all previous parties whose consent is not obtained to such an acceptance are discharged as against the holder and those claiming under him, unless on notice given by holder they assent to such acceptance.

Acceptance of bill is deemed to be qualified in the following circumstances:
(a) When the acceptance is conditional, declaring the payment to be dependent on the happening of an event therein stated.

(b) Where the acceptor undertakes the payment of part only of the sum ordered to be paid.

(c) When the acceptor accept to pay at a specified place only and not elsewhere, or accepts to pay at a place different from that mentioned in the order and not elsewhere.

(d) Where the acceptor undertakes the payment at a time other than that at which under it would legally due.

(e) When acceptance is made by some of the drawee only and not by all of them, unless the drawee of the bill are partners. When there is several drawee who are partners any one of them may accept. In other cases the acceptance must be made by them all.

Discharge by delay in Presenting Cheque - Section 84 of Negotiable Instruments Act 1881
Section 84 of the Negotiable Instruments Act deals exclusively with cheque and must therefore be confined to such instruments. Under Section 84 of Negotiable Instruments Act, it is the duty of the holder of a cheque to present it for payment within reasonable time of its issue. If he fails to do so and before he actually presents the cheque which prevents the banker from paying the cheque, the drawer of the cheque is discharged as against the holder provided that he had sufficient balance to meet the cheque when it ought to have been presented.

Discharge by the drawer bank making the payment in due course Section 85 of Negotiable Instruments Act 1881

As per section 85 there are two cases when the drawee bank makes the payment to a wrong person, but otherwise in due course, the bank is discharged, and it can debit the customer's account by such payment.

When in an order cheque the payee's endorsement is forged
When the payment of a bearer cheque is made to a bearer, ignoring the endorsement at back of the cheque, as the rule is "Once a bearer cheque always a bearer cheque".

Discharge when in an order cheque the payee's endorsement is forged - Section 85(1) of Negotiable Instruments Act, 1881

As per section 85(1) when a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is dischared by payment in due course. The term "Payee" does not include and endorsee.

Discharge by material Alteration
At common law it has been held that a deed, bill of exchange, promissory note, guarantee, is avoided by an alteration in a material part, made while it is in the custody of the plaintiff although that alteration is by a stranger. Section 87 of the Negotiable Instruments Act incorporates this rule.

Discharge by Negotiable Back - Section 90 of the Negotiable Instruments Act 1881

If a bill of exchange comes back to the acceptor by process of negotiation and he becomes its holder, which is known as negotiation back. If it happens at or after maturity, all liability on the instrument comes to an end.