Discharge of a negotiable instrument refers to the act of releasing the parties to the instrument from their obligations under it. Once a negotiable instrument has been discharged, it cannot be enforced against any of the parties to the instrument. The Negotiable Instruments Act, 1881, lays down the rules for the discharge of negotiable instruments in India.
There are Various ways in which a negotiable instrument can be discharged:
Payment in Due Course:
The most common way in which a negotiable instrument is discharged is by payment in due course. When the person liable to pay the instrument makes the payment to the holder of the instrument, in good faith and without any fraud, the instrument is discharged. Once the payment is made, the person who paid the amount is released from any further liability under the instrument.
Another way in which a negotiable instrument can be discharged is by cancellation. If the holder of the instrument cancels it by writing the word “cancelled” on it, or by tearing or burning it, then the instrument is discharged. This method of discharge is only applicable if the cancellation is done with the intention of discharging the instrument.
A person who is liable on the negotiable instrument can be released from their liability by the holder of the instrument. If the holder of the instrument releases the person liable, then the instrument is discharged. However, the release must be given in writing and must be signed by the holder of the instrument.
Payment after Maturity:
If the holder of the negotiable instrument accepts payment after the due date or maturity date, then the instrument is discharged. However, the payment must be made voluntarily and without any coercion.
If the negotiable instrument is materially altered without the consent of all parties, then the instrument is discharged. A material alteration is any alteration that changes the rights and obligations of the parties to the instrument. For example, changing the amount of the instrument, the date, or the payee’s name would be considered a material alteration.