Sections 78-80 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 78 says to whom payment must be made to discharge the maker or acceptor. Section 79 says how interest runs when a rate is expressly made payable on a note or bill. Section 80 sets the interest when no rate is specified: eighteen per centum per annum, as printed. This article reads all three as per the consolidated text consulted.
To discharge the maker or acceptor, payment must be made to the holder of the instrument, subject to section 82, clause (c) (section 78). Where a rate is expressly made payable, interest is at the specified rate on the principal from the date of the instrument (section 79). Where no rate is specified, interest is at eighteen per centum per annum, notwithstanding any agreement relating to interest between any parties, from the date the amount ought to have been paid (section 80).
Section 78: to whom payment should be made
Section 78 reads: "Subject to the provisions of section 82, clause (c), payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the instrument."
Key points:
- The instruments covered: promissory note, bill of exchange or cheque.
- The persons to be discharged: the maker or acceptor.
- To get that discharge, the payment must be made to the holder.
- It is subject to section 82, clause (c), which deals with discharge by payment to all parties if the instrument is payable to bearer or indorsed in blank and the payment is made in due course; see discharge from liability by cancellation, release or payment.
Who is a "holder" is defined in section 8; see holder, holder in due course and payment in due course. The practical point for an accounts team is simple: do not pay a person merely because he calls himself the payee or presents a photocopy. Pay the holder. If you are preparing a claim on an unpaid note or bill and want to plead the amount and the interest correctly, a recovery suit can be considered once the dates and the face of the instrument have been checked.
Example. Narang Industries accepts a bill. Before maturity the bill is indorsed to Oberoi Bank. At maturity a clerk from the original payee's office asks Narang Industries for payment. Under section 78, payment to the holder discharges the acceptor, and the holder is the person with the instrument entitled to receive it.
Section 79: interest when a rate is specified
Section 79 states: "When interest at a specified rate is expressly made payable on a promissory note or bill of exchange, interest shall be calculated at the rate specified, on the amount of the principal money due thereon, from the date of the instrument, until tender or realization of such amount, or until such date after the institution of a suit to recover such amount as the court directs."
Take it apart:
| Element | What the text says |
|---|---|
| Trigger | Interest at a specified rate is expressly made payable on a promissory note or bill of exchange |
| Rate | The rate specified |
| Base | The principal money due on the instrument |
| Start | The date of the instrument |
| End | Tender or realisation of the amount, or such date after the institution of a suit as the court directs |
Two things are worth noticing. First, the section speaks of a note or bill, not a cheque. Second, interest is calculated on the principal money due and runs from the date of the instrument, not from the due date. The text does not say whether the interest is simple or compound, so this article does not assume either.
Section 80: interest when no rate is specified
Section 80 provides: "When no rate of interest is specified in the instrument, interest on the amount due thereon shall, notwithstanding any agreement relating to interest between any parties to the instrument, be calculated at the rate of eighteen per centum per annum, from the date at which the same ought to have been paid by the party charged, until tender or realization of the amount due thereon, or until such date after the institution of a suit to recover such amount as the Court directs."
Four features:
- Trigger. No rate of interest is specified in the instrument.
- Rate. Eighteen per centum per annum, exactly as printed.
- Effect on side agreements. "Notwithstanding any agreement relating to interest between any parties to the instrument." A separate agreement about interest does not change the rate that this section prescribes when the instrument is silent.
- Period. From the date at which the amount ought to have been paid by the party charged, until tender or realisation, or until such date after the institution of a suit as the Court directs.
Section 80 speaks of "the instrument" and does not limit itself to notes and bills in terms. The text consulted does not discuss cheques in this section and this article draws no conclusion about them.
The Explanation
"When the party charged is the indorser of an instrument dishonoured by non-payment, he is liable to pay interest only from the time that he receives notice of the dishonour." So an indorser's interest does not run from the original due date. It runs from the time he receives notice of dishonour. For how notice is given, see notice of dishonour: who gives it and how.
A simple illustration of the rate
The figures below are invented to show the arithmetic of the printed rate for a single year, and are not a statement of how any court calculates interest.
| Item | Amount |
|---|---|
| Principal due on a note with no rate specified | Rs. 1,00,000 |
| Rate under section 80 | Eighteen per centum per annum |
| Interest for one year at that rate | Rs. 18,000 |
For periods other than a year, the figure scales with the period. The text does not describe rounding or day counts, so none are assumed.
Example. Pandey Brothers hold a promissory note for Rs. 1,00,000 made by Quraishi Stores. The note says nothing about interest. Payment was due on a stated date and was not made. Under section 80, interest at eighteen per centum per annum runs from the date the amount ought to have been paid until tender or realisation, or until the date the Court directs after a suit is filed. Pandey Brothers also have a side letter promising a different rate. Section 80 says the rate is calculated notwithstanding any agreement relating to interest between any parties to the instrument.
Practical points
- Read the instrument for a rate. Whether a rate is specified decides whether section 79 or section 80 applies.
- Fix the start date. Under section 79 the start is the date of the instrument. Under section 80 it is the date the amount ought to have been paid.
- For indorsers, find the notice date. The Explanation to section 80 runs interest against an indorser only from receipt of notice of dishonour.
- Keep payment records. Tender is one of the end points in both sections.
- Do not borrow rates from other statutes. For other routes to interest on delayed payment, see the separate guides on MSMED Act compound interest on delayed payment; they are different laws with different rules.
Need help recovering an instrument amount with interest?
If you are owed money on a note or bill and want the claim and interest worked out from the instrument itself, our team can discuss a recovery suit with you. Bring the instrument, any interest correspondence and the dates of demand.
Key takeaways
- Section 78: payment must be made to the holder to discharge the maker or acceptor, subject to section 82(c).
- Section 79: where a rate is expressly made payable on a note or bill, interest runs at that rate on the principal from the date of the instrument.
- Section 80: where no rate is specified, interest is eighteen per centum per annum from the date the amount ought to have been paid, notwithstanding any agreement about interest.
- Interest ends at tender or realisation, or at the date the Court directs after a suit is filed.
- An indorser is liable for interest only from the time he receives notice of dishonour.
Read next
- Liability of maker and acceptor and who can accept a bill (sections 32-34)
- Delivery of instrument on payment and indemnity if lost (section 81)
- Discharge from liability by cancellation, release or payment (sections 82-83)
- Limitation period for contract suits
Disclaimer: Based on a consolidated text of the Negotiable Instruments Act, 1881 stating the position as of 26 December 2015 and on the Negotiable Instruments (Amendment) Act, 2018, as consulted on 2 October 2026. Later amendments and current criminal procedure law should be checked. This article is general information, not legal advice; check the official text before acting.