Paying bankerHolders agentSupreme Court of India

Bank of Bihar v Mahabir Lal

AIR 1964 Supreme Court 18719641 min read
The case in brief30-second read
Facts
A cheque was presented for payment by an agent of the holder. The paying banker honoured the cheque. It later emerged that the agent had misappropriated the proceeds.
Issue
Whether a paying banker is protected under S.85 when payment is made to the holder's agent rather than directly to the holder.
Held
The Supreme Court held that S.85 protects the paying banker when it pays a cheque in due course. Payment to a person presenting the cheque with apparent authority (as agent of the holder) constitutes payment in due course. The bank is not required to verify the internal relationship between the holder and the presenting agent.
Principle
S.85 protection extends to payment made to holder's agent presenting cheque with apparent authority
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Facts

  • A cheque was presented for payment by an agent of the holder
  • The paying banker honoured the cheque
  • It later emerged that the agent had misappropriated the proceeds
  • The holder sued the bank for making payment to the agent

Issue

  1. Whether a paying banker is protected under S.85 when payment is made to the holder's agent rather than directly to the holder.

Held

  • The Supreme Court held that S.85 protects the paying banker when it pays a cheque in due course. Payment to a person presenting the cheque with apparent authority (as agent of the holder) constitutes payment in due course. The bank is not required to verify the internal relationship between the holder and the presenting agent.

Ratio decidendi

S.85 protection covers payment made in due course to the bearer, holder, or the holder's agent presenting with apparent authority. The bank is discharged upon such payment.

Exam use

How to use it in an answer

Use for scope of S.85 protection. Key line: "Payment to holder's agent with apparent authority = payment in due course; bank discharged under S.85."

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Citation

Bank of Bihar v. Mahabir Lal AIR 1964 Supreme Court 187

Reported: AIR Supreme Court. This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.