Bank of Bihar v. Mahabir Lal

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.