Facts of the Case
- X draws a cheque for Rs. 2,000.
- Y, the holder of the cheque, alters the amount to Rs. 20,000 without X’s consent.
- The alteration is material and unauthorized.
- The banker pays the altered cheque, treating it as a cheque for Rs. 20,000.
- The issue is whether the banker acted lawfully and whether the payment discharges the drawer (X).
Issues in the Case
- Is the banker protected under the “payment in due course” provision?
- Does a material alteration affect the negotiability or validity of the cheque?
- Can the drawer (X) be held liable for the altered amount?
Principles Associated With It
- As per Section 87 of the Negotiable Instruments Act, 1881, any material alteration of a negotiable instrument renders it void, unless made with the consent of all parties.
- Alteration of the amount payable is a material alteration.
- Under Section 10, a payment qualifies as “in due course” only if it is made in accordance with the apparent tenor of the instrument.
- If a banker pays a materially altered cheque, they are not protected under Section 85 or Section 10.
- The banker must verify alterations, especially when they affect the substance of the cheque.
Judgement
- The cheque was materially altered without the drawer’s consent, making it void.
- The banker, by paying the altered cheque, acted negligently and is not entitled to statutory protection.
- The banker is liable for the loss and cannot debit X’s account for Rs. 20,000.
- X is not bound by the altered instrument and can claim refund from the bank.