Section 131 of NIA : Section 131: Non-Liability Of Banker Receiving Payment Of Cheque

Explanation using Example

Imagine Jane writes a cheque to Bob, and Bob deposits this cheque into his account at XYZ Bank. The cheque is crossed, meaning it can't be cashed out directly but must be deposited into an account. XYZ Bank processes the cheque in good faith and credits the amount to Bob's account. Later, it turns out that Jane had stolen the cheque from Alice, the true owner, and forged Alice's signature.

Under Section 131 of The Negotiable Instruments Act, 1881, XYZ Bank would not be held liable to Alice for the amount of the cheque, since the bank received the payment for Bob, their customer, in good faith and without negligence. The bank had no way of knowing that Bob was not the rightful payee, and it performed its due diligence in processing the crossed cheque.