Section 128 of NIA : Section 128: Payment In Due Course Of Crossed Cheque

Explanation using Example

Imagine John issues a crossed cheque to Emma for her freelance services. Emma deposits the cheque into her bank account, but before it clears, her purse is stolen with the cheque inside. The thief forges Emma's signature and somehow manages to deposit the cheque into a different bank account. The bank, failing to notice the fraud, processes the cheque in due course. According to Section 128 of The Negotiable Instruments Act, 1881, once the bank has paid out on the crossed cheque, both the bank and John (the drawer) are deemed to have fulfilled their obligations as if the true owner, Emma, had received the funds. If the fraud is discovered later, John would not be liable to pay Emma again, as the payment by the bank is treated as payment to Emma.