The Negotiable Instruments Act, 1881 ​

Question 1.
Define a Bill of Exchange. In what respect does ¡t differ from a cheque. (May 1998, 6 marks)
OR
Point out the differences between a Cheque” and a “Bill of Exchange” under the Negotiable Instruments Act, 1881. (May 2011, 8 marks)
Apswer:
According to Section 5 of the Negotiable Instruments Act, 1881, a “bill of exchange” is an instrument in writing containing an unconditional order, sign by the maker, directing a certain person to pay a certain sum of money only to, or to the order or a certain person or to the bearer of the instrument.”

Distinction between a Cheque and a Bill of Exchange

Basis	Cheque	Bill of Exchange
1. On whom the instrument must be drawn?	It must be drawn only on a banker.	It can be drawn on any person including a banker.
2. Acceptance.	Acceptance is not needed.	A bill payable after sight must be accepted.
3. Payable on	The amount is always payable on demand.	The amount may be payable on demand or after a specified period.
4. Crossing.	A cheque may be crossed.	Crossing of a bill of exchange is not possible.
5. Days of grace.	Cheques are not entitled to days of grace.	Bills are entitled to three days of grace.
6. Notice of dishonour.	No notice of dishonour is required.	Notice of dishonour is needed to hold the parties liable thereon.
7. Noting or Protesting.	In case of dishonor no noting or protesting is to be done.	To establish dishonour a bill is to be noted or protested.

Question 2.
What is meant by an acceptance in respect of a negotiable Instrument? State the essentials of a valid acceptance. Also state whether the following shall amount to a valid acceptance;
(i) An oral acceptance;
(ii) Acceptance by mere signature of the drawee without the addition of the word Accepted’ on the negotiable instrument. (Nov 1998, 8 marks)
OR
What do you mean by an acceptance ola negotiable instrument? Examine validity of the following in the light of the provisions of the Negotiable Instrument Act, 1881:
(i) An oral acceptance
(ii) An acceptance by mere signature without writing the word accepted (May 2003,6 marks)
Answer:
Meaning of ‘Acceptance’: The acceptance ola bill is the signification by the drawee of his assent to the order of the drawer. This acceptance of the drawee may be in the third person; a writing on the back has agreed etc., with the signature of X on a bHl drawn on him Is a good acceptance. Essentials of a valid acceptance: The essentials of a valid acceptance are as follows:
(i) Acceptance must be written: The drawee may use any appropriate word to convey his assent. It may be sufficient acceptance even if just a bare signature is put without additional words. Acceptance shall not be oral. Oral acceptance may be sufficient only in case of hundreds and that too only it a special Custom is proved to exist.

(ii) Acceptance must be signed: A mere signature would be sufficient for the purpose. Alternatively, the words ‘accepted’ may be written across the tace of the bill with a signature underneath; if it is not so signed, it would not be an acceptance.

(iii) Acceptance must be on the bill: It is not necessary that the acceptance should be on the face of the bill. If an acceptance is written on the back of a bill It also a sufficient acceptance in law. What is essential is that it must be written on the bill; else it eates no liability as acceptor on the part of the person who signs it. If the acceptance is signed upon a copy of the bill and the copy is not one of the part of it or if acceptance is made on a paper attached to the bill the acceptance would not be sufficient.

(iv) Acceptance must be complete by delivery: It would not be complete and the drawee would not be bound until the drawee has either actually delivered the accepted bill to the holder or tendered notice of such acceptance to the holder of the bill or some person on his behalf.

(v) Where a bill Is drawn In sets, the acceptance should be put on one part only: Where the drawee signs his acceptance on two or more parts, he may became liable on each of them separately.

(vi) Acceptance may either general or qualified: The acceptor is qualified when the drawer does not accept It according to the apparent tenure of the bill but attached some conditions or qualifications which have the effect of either reducing his (acceptor’s) liability or acceptance of his liability subject to certain conditions, A general acceptance ¡s the acceptance where the acceptor assents without qualification to the order of the drawer.

Validity of acceptance:
Problem (1): It s one of the essential elements of a valid acceptance that the acceptance must be written on the bill and signed by the drawee. An oral acceptance is not sufficient in law. Therefore, an oral acceptance does not stand to be a valid acceptance.

Problem (2): The usual form in which the drawee accepts the instrument is by writing the word “accepted” across the face of the bill and signing his name under death. The mere signature of the drawee without the addition of the words ‘accepted’ is a valid acceptance.

As the law prescribes no particular form for acceptance, there can be no difficulty in construing an acknowledgment as an acceptance but It must satisfy the requirements of Section 7 of Negotiable Instrument Act i.e. it must appear on the bill and must be signed by the drawee (Manackchand v.Chartered Bank. AIR 1961 and 653.

Question 3.
Under the Negotiable Instruments Act, 1881, define a ‘Promissory Note’ and distinguish it with a ‘Bill of Exchange’. (Nov 1998, 6 marks)
OR
Explain clearly the meaning of the term ‘Promissory Note as provided In, the Negotiable instruments Act, 1881. In what way does a ‘Promissory Note’ differ from a ‘Bill of Exchange’? (Nov 2001, 8 marks)
OR
Examining the provisions of the Negotiable Instruments Act, 1881, distinguish between a ‘Bill of Exchange’ and a ‘Promissory Note’, (May 2012, 8 marks)
Answer:
In the words of Section 4 of the Negotiable Instruments Act, 1881, “A promissory note is an instrument ¡n writing, containing an unconditional undertaking signed by the maker to pay a certain sum of money to, or the order of, a certain person or to the bearer of the instrument.
Distinction between Promissory Note and Bill of Exchange

Basis	Promissory Note	Bill of Exchange
1. Parties	In promissory note there are two parties to the instrument maker and the payee.	There are three parties, the drawer, the drawee and the payee.
2. Payment	Promissory Note contains a promise to pay.	Bill of Exchange contains an order to pay.
3. Liability	The liability of the maker of a note is primary and absolute. (Sec. 32)	The liability of the drawer of a bill is secondary and conditional (Sec. 30)
4. Notice	There is no need of notice of dishonour.	Notice of dishonour is must in case of bill of exchange.
5. Relationship	The maker of a promissory note stands In immediate relationship with the payee.	The maker or drawer of an accepted bill stands in immediate relationship with the acceptor as well as the payee.
6. Drawing	A promissory note cannot be drawn.	The bill, specially the foreign bill can be drawn in sets of three.
7. Payable to bearer	A promissory note cannot be made payable to bearer by any person other than RBI and Central Government.	A bill of exchange can be made payable to bearer through it cannot be made payable to bearer on demand.

Question 4.
State briefly the rulos laid down under the Negotiable Instruments Act for determining the date of maturity of a bill of exchange. Ascertain the date of maturity of a bill payable hundred days after sight and which is presented for sight on 4th May, 2000. (May 2000, 8 marks)
OR
State the rules laid down by the Negotiable Instruments Act, 1881 for ascertaining the date of maturity of a bill of exchange. (May 2018, 5 marks)
Answer:
The maturity of a bill of exchange or promissory note is the date on which it falls due. The question of maturity becomes important where a bill or note is payable at fixed period after sight. A note or bill not payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is payable. Three day are allowed as days of graco (Sec. 22). In case of a note or bills payable on demand at sight on presentment. no. days of grace are allowed.

Calculation of maturity : In the cases where a bill is payable at a fixed period after sight, the time is to be calculated from the date of the acceptance it it is accepted and from the date of noting or protost if the bill is noted or protested for non-acceptance.

Instrument payable so many months after date or sight (Section 23):
If the instwrrwnt is made payable at stated number of months after date or after sight or after a certain event, it becomes payable three days after the corresponding date of the month. It the month in which the period would change has no corresponding day, the period shall be liable to change on the last day of such month. Three days of grace must be added to it.

Instrument payable after certain days (Section 24): In calculating the date at which promissory note or bill of exchange made payable a certain number of days after sight or after a certain event is at maturity, the day of the date of presentment for acceptance or sight or of protest for non-acceptance or on which the event happen shall be excluded.

When day of maturity is a holiday (Section 25): When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument will be deemed to be due on the next preceding business day. In case it is an emergency holiday, than on the next succeeding day, December 19, 2007.

Question 5.
Distinguish between inland and foreign bills. (May 2000, 7 marks)
Answer:
Distinction between Inland bills and Foreign bills

Basis	Inland Bills (Sec. 11)	Foreign Bills (Sec. 12)
1. Bills drawn	Inland bills are drawn in India on a person living in India, payable any where or drawn in India on a  person residing outside India payable in India.	Foreign bills are drawn and payable outside India or drawn in India and payable outside India.
2. Copy of the bill	Inland bills are drawn in a single copy.	Foreign bills are drawn in triplicate.
3. Noting or protesting	In Inland bills, dishonor requires noting, protest is optional.	Foreign bills dishonor requires protesting.

Question 6.
Who is a holder in due course of a Negotiable Instrument? In what respects does he differ from a holder? (Nov 2000, 6 marks)
Answer:
Holder In due course (Sec. 9): A holder in due course means a holder who takes the instrument in good faith for value before it is overdue and without any knowledge of defect in the title of the person who transferred it to him.

In case of the bearer instrument, a holder in due course means any person who for consideration become its possessor before the amount given it become payable. In case of an instrument payable to order, a holder in due course means any person who become the payee or endorsee, before the amount mentioned in it become payable.

The distinction between the Holder and the Holder In due course

Basis	A Holder	Holder In due course
1. Consideration	A holder can acquire a negotiable instrument without consideration.	The holder in due course is one who acquires the instrument for consideration.
2. Meaning	Holder means any person entitled in his own name to the possession of the negotiable instrument recover or receive the amount due there on from the parties there to.	A holder in due course means a holder who takes the instrument in good faith for consideration before it is overdue and without any notice of defect in the title of the person who transfered it to him.
3. Title	Holder of a negotiable instrument does not acquire of good title.	Holder in due course acquire a good title.
4. Maturity	A holder may acquire the instrument even after it has become due for payment.	A person will be a holder in due course only if he acquires the instrument before the amount mentioned in it becomes payable.
5. Liability	A holder of the instrument can enforce it against the person who has signed it and also against the transferor from whom he obtained it.	A holder in due course can sue all prior parties to a negotiable instrument until the instrument is duly satisfied.

Question 6.
Explain dearly the meaning of ‘Cheque’. What are its essentials? In what the ‘cheque’ differs from a ‘Bill of Exchange’? (May 2001,8 marks)
Answer:
Definition of a Cheque: According to Section 6, of the Negotiable instruments Act, as amended by the Negotiable Instruments (Amendment) Act, 2002 (w.e.f. 6.2.2003) defines a cheque as, a bill of exchange drawn on a specified banker and not expressed to be payable otherwise that on demand. The expressiòn includes the electronic image of a truncated cheque and a cheque in the electronic form.”

Essential of a cheque:
The two essential features of a cheque are:

1. It is always drawn on a bank.
2. It is always payable on demand.

Distinction between a Cheque and a Bill of Exchange

Basis	Cheque	Bill of Exchange
1. On whom the instrument must be drawn?	It must be drawn only on a banker.	It can be drawn on any person including a banker.
2. Acceptance.	Acceptance is not needed.	A bill payable after sight must be accepted.
3. Payable on	The amount is always payable on demand.	The amount may be payable on demand or after a specified period.
4. Crossing.	A cheque may be crossed.	Crossing of a bill of exchange is not possible.
5. Days of grace.	Cheques are not entitled to days of grace.	Bills are entitled to three days of grace.
6. Notice of dishonour.	No notice of dishonour is required.	Notice of dishonour is needed to hold the parties liable thereon.
7. Noting or Protesting.	In case of dishonour no noting or protesting is to be done.	To establish dishonour a bill is to be noted or protested.

Question 7.
Explain the meaning of the term ‘Holder’ under Negotiable Instruments Act, 1881. State the privileges of a ‘Holder in due course’. (7 marks)
Answer:
Meaning of ‘Holder’ as per the Act: According to Section 8, holder means any person entitled in his own name to the possession of the negotiable instruments and to recover or receive the amount due thereon from the parties thereto.

Privileges of a Hoiderin due course:

1. Every holder in due course is a holder.
2. An inchoate instrument, if properly stamped, is valid, if it subsequently comes in the hands of a holder in due course. (Sec. 20)
3. Every prior party to a negotiable instrument is liable to holder in due course untill the instrument is duly satisfied. (Sec. 36)
4. The acceptor of a bill of exchange cannot plead against a holder in due course that the bill is drawn on a fictitious name. (Sec 42)
5. No effect of conditional delivery. (Sec. 46)
6. Once a negotiable instrument passes through the hands of a holder in due course it is purged of all the defects. (Sec. 53)
7. The persons liable on an instrument cannot plead against the holder in due course that the instrument had been lost or was obtained by means of fraud or unlawful means. (Sec. 58)
8. No one can deny the original validity of the instrument. (Sec 120)
9. No one can deny against a holder in due course the capacity of the payee to endorse. (Sec. 121) .
10. The drawer is estoppel from denying the signature or capacity of the prior party, (Sec. 122)

Question 8.
Define a Bill of Exchange as per the Negotiable instruments Act. 1881 and explain its salient features. (May 2002, 8 marks)
Answer:
Bills of Exchange: Section 5 of the Negotiable Instruments Act defines Bills of Exchange as, an instrument is writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of certain person or to the bearer of an instrument.” It ¡s also called a draft.

Characteristics of the bills of exchanges:

1. It must be in writing.
2. It must contain an unconditional order to pay.
3. It must be signed by the drawer.
4. It is an order to pay certain sum of money.
5. The order must be to pay money and money only.
6. It must comply with the formalities as regard date, consideration, stamp etc.

Question 9.
Explain the meaning of ‘Holder’ and ‘Holder in due course’ of a negotiable instrument.
The drawer, ‘D’ is induced by A to draw a cheque ri favour of P, who is an existing person. A instead of sending the cheque to ‘P’, for goes his name and pays the cheque into his own bank Whether ‘D’ can recover the amount of the cheque from ‘A’s baker. Decide. (Nov 2002, 4 marks)
Answer:
Meaning of ‘Holder’:
A holder is a person who is entitled in his own name, the possession of the negotiable instrument and the right to recover or receive the amount due thereon from the parties thereto. (Sec. 8).

Meaning of Holder in due course: In case of a bearer instrument, a holder in due course means any person who for consideration became its possess or before the amount mentioned in it became due.

In case of an instrument payable to order, a holder in due course means any person who became the payee or endorsee before the amount mentioned in it became due. The problem is based on the ‘priviledges of a holder in due course’.

Section 42 of the Act states that an acceptor of a bill of exchange drawn in a fictitious name and payable to the drawers order is not, by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an endorsement by the same hand as the drawee’s signature and thinking to be made by the drawer.

In this Problem P is not a fictitious payee and ‘D’ the drawer can recover the amount of the cheque from A’s banker [North & South Wales Bank B Macks (1908)].

Question 10.
Which are the essential elements of a valid acceptance of a Bill of Exchange? An acceptor accepts a “Bill of Exchange” but writes on it ‘Accepted but payment will be made when goods delivered to me is sold. Decide the validity. (May 2003, 4 marks)
Answer:
Essentials of a Valid Acceptance of a bill of Exchange:

1. Acceptance must be written. An appropriate word must be used by the drawee to give his acceptance.
2. Acceptance must be signed by the drawee as his agent.
3. Acceptance must appear on the bill that is it is not important that the acceptance not be on the face of the bill. It the assent of acceptance is written on the back of a bill, it is also a sufficient acceptance in law.
4. Acceptance must be completed by delivery to the holder or by notice of acceptance to him or some person on his behalf.
5. A bill, it no time is given therein for presentment be presented for acceptance within a reasonable time after it is drawn.
6. The bill should be presented for acceptance at the placed mentioned therein. If no place of or presentment is given the bill should be presented at the drawee’s place of business.
7. Where a bill is drawn in sets, the acceptance should be put on one part only.
8. Acceptance may be absolute or conditional. In the given case, the acceptance is qualified acceptance, since a condition has been attached stating that the payment will depend upon the happening as an event.

As a rule, acceptance will be a general acceptance and thus, the holder is at liberty to refuse to take a qualified acceptance. The bill will be dishonoured by non-acceptance, if he refuses to take it But il he accepts it, then he binds himself and the acceptor and not the other parties.

Question 11.
What do you understand by “crossing of cheques”? What is the object of crossing? State the implications of the following crossings:
(i) Restrictive crossing
(ii) Not-negotiable crossing. (Nov 2003, 6 marks)
Answer:
Meaning: Crossing of cheque means putting on the cheque two parallel transverse lines with or without the words (& Co.) Written between the lines. Crossing is a direction to the banker not to pay the cheque across the counter but to pay to a bank only or to a particular bank in an account with the bank.

Object: Crossing provides a protection and safeguards to the owner of the cheque as by securing payment through a banker, it can easily be detected to whose use the money is received.

Implication of:
(i) Restrictive Crossing: Restrictive crossing has the effect of restricting the payment in certain ways. In these crossing the words Account Payee Only or Payees. Account Only are added. The addition of these words makes the cheque non-transferable. The word. account payee only conveys an intimation to the collecting banker that the proceeds of the cheque are to be credited only to the account of the payee.

(ii) Not Negotiable Crossing (Sec. 130): A cheque may be crossed with the word not negotiable on it. The effect of these words are that the cheque cannot be further negotiated. The crossing of a cheque not-negotiable does not render the instrument non-transferable.

A person holding a crossed cheque bearing the word, not negotiable gets no better title than that of his transferor and cannot convey a better title to his own transferee. The position gets changed by adding the word snot negotiable to a crossed cheque. In such a crossing, the holder in due course does no get any better title than what the transferor had.

Question 12.
Define the term ‘Cheque’ as given in the Negotiable Instruments Act, 1881 and amended by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002. ( – Nov 2004, 4 marks)
Answer:
Section 6 of the Negotiable Instruments Act, as amended by the Negotiable Instruments (Amendment) Act, 2002 (W.e.f. 6.2.2003) defines a cheque as. a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Further, the expression includes the electronic image of a truncated cheque and a cheque in the electronic form.”

Question 13.
In what way does the Negotiable Instruments Act. 1881 regulate the determination of the ‘Date of maturity’ of a Bill of exchange. Ascertain the ‘Date of maturity’ of a bill payable 120 after the date. The Bill of exchange was drawn on 1st June, 2005. (Nov 2005, 6 marks)
Answer:
The maturity of a bill of exchange or promissory note is the date on which it falls due. The question of maturity becomes important where a bill or note is payable at fixed period after sight. A note or bill not payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is payable. Three day are allowed as days of grace (Sec. 22). In case of a note or bills payable on demand at sight on presentment, no. days of grace are allowed.

Calculation of maturity: In the cases where a bill is payable at a fixed period after sight, the time is to be calculated from the date of the acceptance if it is accepted and from the date of noting or protest if the bill is noted or protested for non-acceptance.

Instrument payable so many months after date or sight (Section 23):
If the instrument is made payable at stated number of months after date or after sight or after a certain event, it becomes payable three days after the corresponding date of the month. If the month in which the period would change has no corresponding day, the period shall be liable to change on the last day of such month. Three days of grace must be added to it.

Instrument payable after certain days (Section 24): In calculating the date at which promissory note or bill of exchange made payable a certain number of days after sight or after a certain event is at maturity, the day of the date of presentment for acceptance or sight or of protest for non-acceptance or on which the event happen shall be excluded.

When day of maturity is a holiday (Section 25): When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument will be deemed to be due on the next preceding business day. In case it is an emergency holiday, than on the next succeeding day.

Answer to Problem: In this case, the day of presentment for sight is to be excluded i.e. 1st June 2005. The period of 120 clays ends on 29th September 2005 (June, 29 days + July, 31 days + August, 31 days + 31 days + September, 29 days = 120 days). Three days of grace are to be added. Therefore, it falls due on 2nd October 2005, which is a public holiday. As such, it falls due on 1st October 2005.

Question 14.
Examine when shall a holder of a negotiable instrument be considered as a holder in due course under the provisions of the Negotiable Instruments Act, 1881. (Nov 2005, 6 marks)
Answer:
In the words of Section 8 of the Negotiable Instruments Act, 1881, ‘Holder in due course’ means any person who for consideration became the possessor of the negotiable instrument, if payable to bearer, or the payee or indorsee there of, if payable to order, before the amount mentioned in it becomes payable and without having sufficient cause to believe that defect existed in the title of the person from whom he delivered his title.

The consideration to be fulfilled by the person named holder in due course are as follows:

1. He must be a holder
2. He must have become the holder of the instrument before its maturity.
3. The instrument must be received by the holder in good faith.
4. He must have become the holder for valuable consideration.
5. The instrument must be complete and regular on the face of it.

Question 15.
(b) Each subdivision carries one mark. Pick-up the correct answer from the following:
(iii) Which of the following is not applicable to negotiable Instrument?
(a) It must be In writing
(b) It must be transferable
(c) It must be registered
(d) It must be signed.
Answer:
‘Yes’ or ‘No to the following: (May 2007, 1 mark)
Answer:
(c) It must be registered

Question 16.
Pick-up the correct answer from the following :
A’ signs the instrument in the following manner. State the instrument which cannot be considered as Promissory note:
(1) I promise to pay B or order ₹ 500
(2) I acknowledge myself to be indebted to B ₹ 1,000 to be paid on demand, for value received
(3)1 promise to pay B ₹ 10,000 after three months
(4) I promise to pay B ₹ 500 seven days alter my marnage with C. (Nov 2007, 1 mark)
Answer:
(4) I promise to pay B ₹ 500 seven days after my marriage with C.

Question 17.
explain as to why shall the combination of ‘not negotiable’ with ‘Account payee’ crossing be considered as the safest form of crossing a cheque. (Nov 2007, 5 marks)
Answer:
A cheque without crossing ¡s called an open cheque. Any one can encash it without being traced. To prevent this type of risk cheques are crossed. Payments of crossed cheques can only be obtained through a bank account. When a cheque is crossed with the words ‘A/c Payee’, the proceeds of the cheque are to be credited only to the account of the payee.

When the word ‘Not Negotiable is written on a cheque a holder with a do effective title can give a good title to a subsequent holder of the cheque. It thus protects the drawer or the holder against dishonesty In course of transit of the cheque.

As per the instructions issued by the Reserve Bank of India (9-9-1992) it would be safer for the drawer to cross a cheque Thot negotiable with the words “account payed added to it. The courts of law have held- that “an account payee’ crossing is a direction to the collecting banker as to how the proceeds are to be applied after receipt.

The banker can disregard the direction only at his own risk and responsibility. In other words, an ‘account payee’ cheque can be collected only for the account of the payee named in the cheque and not for anyone else. A banker collecting an ‘account payee’ cheque for a person other than the payee named in the cheque may be held liable for conversion.

In other words, if the bank collects an account payee cheque for a person other than the payee it does so at its own risk. It is imperative on the part of collecting bank, therefore to take utmost care to enquire into the title of its customer and satisfy itself that there is no defect in the title of the customer presenting such cheque for collection.

Question 17.
Explain as to why shall the combination of ‘not negotiable’ with ‘Account payee’ crossing be considered as the safest form of crossing a cheque. (Nov 2007, 5 marks)
Answer:
A cheque without crossing is called an open cheque; Anyone can encash it without being traced. To prevent this type of risk cheques are crossed. Payments of crossed cheques can only be obtained through a bank account.

When a cheque is crossed with the words A/c Payee’, the proceeds of the ‘cheque are to be credited only to the account of the payee. When the word Not Negotiable is written on a cheque a holder with a defective title can give a good title to a subsequent holder of the cheque. It thus protects the drawer or the holder against dishonesty in course of transit
of the cheque.

As per the instructions issued by the Reserve Bank of India (9-9-1992), it would be safer for the drawer to cross a cheque Thot negotiable” with the words account payee” added to it. The courts of law have held that an account payee” crossing is a direction to the collecting banker as to how the proceeds are to be applied after receipt.

The banker can disregard the direction only at his own risk and responsibility. In other words. an ‘account payee’ cheque can be collected only for the account of the payee named in the cheque and not for anyone else. A banker collecting an ‘account paye& cheque for a person other than the payee named in the cheque may be held liable for conversion.

ln other words, if the bank collects an account payee cheque for a person other than the payee it does so at its own risk. it is imperative on the part of collecting bank, therefore to take utmost care to enquire into the title of its customer and satisfy itself that there is no defect in the title of the customer presenting such cheque for collection.

Question 18.
Describe in brief the advantages and protections available to a holder in due course under the provisions of the Negotiable Instruments. Act, 1881. (Nov 2008, 5 marks)
Answer:
Meaning of Holder as per the Act: According to Sec. 8. holder means any person entitled in his own name to the possession of the negotiable instruments and to recover or receive the amount due thereon from the parties thereto.

Privileges of a Holder In due course:

1. Every holder is a holder in due course.
2. An inchoate instrument, if properly stamped, is valid, it it subsequently comes in the hands of a holder in due course. (Sec. 20)
3. Every prior party to a negotiable instrument is liable to holder in due course until the instrument is duly satisfied. (Sec. 36)
4. The acceptor of a bill of exchange cannot plead against a holder in due course that the bill is drawn on a fictitious name. (Sec. 42)
5. No effect of conditional delivery. (Sec. 46)
6. Once a negotiable Instrument passes through the hands of a holder in due course it is purged of all the defects (Sec. 53)
7. The persons liable on an instrument cannot plead against the holder in due course that the instrument had been lost or was obtained by means of fraud or unlawful means. (Sec. 58)
8. No one can deny the original validity of the instrument. (Sec. 120)
9. No one can deny against a holder in due course the capacity of the payee to endorse. (Sec. 121)
10. The drawer is estopped from denying the signature or capacity of the prior party. (Sec. 122)

Question 19.
Pick out the correct answer from the following and give reasons:
(iii) In legal terms, person who takes the instrument bonafide for value before ¡t is overdue. in good faith, is known as
(1) Holder in due course
(2) Holder
(3) Holder for value
(4) None of the above. (May 2009, 1 mark)
Answer:
1. Holder in due course: As per Sec. 9 of Negotiable Instruments Act, 1881, a person who takes the instrument bona (ide for value before it is overdue, in good faith, ¡s known as holder in due course.

Question 20.
Pick out the correct answer from the following and give reasons:
(iii) P, obtains a cheque drawn by M by way of gift. Here P is a:
1. holder in due course
2. holder for value
3. holder
4. None of the above. (May 2010, 1 mark)
Answer:
3. Holder: Yes. P can be termed as a holder because he has a right to possession and to receive the amount due in his own name.

Question 21.
A draws and B accepts the bill payable to C on order, C endorses the bill to D and D to E, who is a holder-in-due course. From whom E can recover the amount? Examining the right of E, state the privileges of the holder. In. due course provided under the Negotiable Instruments Act, 1881. (Nov 2012, 8 marks)
Answer:
According to Sec. 36 of Negotiable Instruments Act, 1881, every prior party to a negotiable instrument is liable to holder in due course until the instrument is duly satisfied. E being a holder in due course, can recover the amount from all the prior parties.
Privileges of the Holder-In-due course:
Please refer 2008- Nov(7) on page no. 601

Question 22.
State whether the following statement is correct or incorrect:
(iii) The validity period of a cheque is three months. (Nov 2012, 1 mark)
Answer:
Correct: The validity period of a cheque which was earlier six months has now been reduced to three months vide Amendment Act.

Question 23.
Explain the terms ‘Acceptance for Honour’ and ‘Drawee in case of need as used in the Negotiable Instrument Act. 1881. (Nov 2014, 4 marks)
Answer:
Acceptance For Honour: The person who accepts the bill for the honour of any other person s called as an acceptance for honour’. The bill must have been noted for non’.acceptance. The acceptance is given for the honour of any party already liable under the bill, by any person who is already not liable under the bill, with the consent of the holder of the bill. The acceptance must be in writing on the bill. He is liable to pay the amount of the bill, if the drawee does not pay on
maturity.

Drawee in case of Need: As per the Sec.7 of the Negotiable Instrument Act, 1881, the name of any person may be given in a bill as ‘drawee in case of need’. His liabilities arising on the bill are not accepted by the drawee In the bill. The bill is not dishonoured until it has been dishonoured by drawee in case of need.

Question 24.
State, giving reasons, whether the following statements &r’ correct or
incorrect:
(i) In a Promissory Note, the promise to pay must be conditional.
(ii) A Bill of Exchange may not be in writing. (May 2016, 3 marks)
Answer:
(i) Incorrect: The promise to pay must be definite but unconditional Exception: A promise to pay is not conditional of it depends upon of even which is certain to happen but the time of its occurrence may be uncertain.
(ii) Incorrect: The Bill of Exchange is an instrument in writing containing or unconditional order signed by the make directing a certain person to pay certain sum of money only to the order of certain person or to the bearer of instrument.

Question 25.
State whether the following alteration is alert alteration under the provisions of the Negotiable Instruments Act, 1881. A promissory note was made without mentioning any time for payment. The holder added the words on demand’ on the face of the instrument.
(Nov 2019, 4 marks)
Answer:
Provision:
An alternation is material which in any way alters the operation of the instrument and affects the liability of parties thereto. Any alteration is material
(a) which alters the business effect of the instrument if used for any business purpose; (b) which causes it to speak a different language n legal effect form that which it originally spoke or which changes the legal identity or character of the instrument.

Present Case:
A Promissor note was made without mentioning any time for payment. The holder added the words on demand” on the tace of the instrument. As per Section 87 of the Negotiable Instruments Act, 1881 this is iot a material alteration as a promissory note where no date of payment is specified will be treated as payable on demand. Hence, adding the words “on demand” does not alter the business effect of the document.

Question 26.
Explain the provisions of the aw relating to ‘ambiguous’ and ‘inchoate’ instruments under the Negotiable Instruments Act, 1881. A’ signs, as maker, a blank stamped paper and gives it to ‘B’, and authorises him to fill it as a note for ₹ 500, to secure an advance which ‘C’ is to make to ‘B’. ‘B’ fraudulently fIls it up as a note for ₹ 2,000. payable to ‘C’, who has in good faith advanced ₹ 2,000. DecIde, with reasons, whether ‘C’ is entitled lo recover the amount, and it so, up to what extent? (Nov 1999, 8 marks)
Answer:
Ambiguous Instrument: An instrument which can be formed either as a promissory note or bill of exchange is called an ambiguous instrument (Section 17). The cases were the instruments will be treated as ambiguous are, “Where in a bill the drawer and the drawee are the same persons or where the drawee is a fictitious person, or a person not competent to contract, the holder may treat the instrument, at his option, either as a bill of excharge or as a promissory note The nature of the instrument will be determined by the holder.

Inchoate Instruments (Section 20):

1. An inchoate instrument is one which is an incomplete instrument, for example, one not specifying the amount payable or leaving blank the name of the payee or one without date.
2. When a person gives to another person a blank signed and stamped paper, the latter may change it into a negotiable instrument by filling the blanks
3. When the instruments is so filled up, the signor becomes liable in the capacity in which he signs.
4. The liability of the signer is restricted to the amount stated therein but no exceeding the amount covered by the stamp.
5. No person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid there under.

The following must be considered In connection with an Inchoate Instruments:

• The liability of a person who signs and delivery a blank or incomplete instrument arises only when the blanks are tilled in and the instrument is completed. Before it the instrument will not bo valid negotiable instrument.
• Delivery is must to fix up the liability, a signer does not incur any liability as maker, drawer a acceptor until the instruments are delivered to another.
• The incomplete instrument must be filled up strictly in reference with the authority given.
• The blanks must be filled up within a reasonable time.
• Instruments which do no require stamp duty are not covered by the above provisions.

Problem: According to Section 20, when are person signs and delivers to another a paper stamped. In accordance with the law relating to the instrument then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby permits prima-facie authority to the holder to complete the instrument of: any amount mentioned therein and not exceeding the amount covered by the stamps. The person who signed the instrument will be liable for it. A person other than holder in due course is not authorised to recover anything in excess of the amount intended by him o be paid.

The principle followed by Section 20 is that a person who gives another possession of his signature on a blank stamped paper allows his agent to fill it up and give to the world the instrument as accepted by him Principle of estoppel is followed.

In the given problem, A is estopped from setting up B is fraud and V is entitled to recover ₹ 2000/- from A’ because C has obtained it as a holder in due course. This liability does no stand of a person other than the holder in due course C as a holder in due course is entitled to enforce payment of the full amount even though the authority has been exceeded put it is necessary that the sum ought not to exceed the amount covered by the stamp.

Question 27.
Explain the essential elements of a Promissory note. State, giving reasons, whether the following instruments are valid Promissory notes:
(i) X promises to pay Y, by a Promissory note, a sum of ₹ 5,000, fifteen days after the death of B.
(ii) X promises to pay Y, by a Promissory note, ₹ 500 and all other sums, which shall be due. (Nov 2000, 8 marks)
Answer:
Essential Elements of a Promissory Note:

1. It must always, take the form of written document.
2. The instrument must contain an express promise to pay.
3. It must certain an unconditional promise to pay. The promise to pay must not depend upon the happening of a contingency.
4. The signature of the maker must be their on the face of the promissory note.
5. The instrument must point out with certainty as to who the maker is and who the payee is. The maker is taken as certain if from the description of the maker, sufficient indication follows about his identity.
6. The amount promised to be paid must be certain and definite.

Therefore:

• In the first case, the payment to be made as 15 days after the death of B. Though the date of death is uncertain, It is certain that is B shall die. Hence, the instrument is valid.
• In the second case, the sum to be paid is not certain within the meaning of Sec. 4 of the Act. Thus, it is not a valid promissary note.

Question 28.
Promissory note dated 1st February, 2001 payable two months alter date was presented to the maker for payment 10 days after maturity. What is the date of Maturity? Explain with reference to the relevant provisions of the Negotiable Instruments Act, 1881 whether the endorser and the maker will be discharged by reason of such delay. (May 2001, 7 marks)
Answer:
Delay in presentment for payment of a promissory note: If a promissory note is made payable a stated number of months, it becomes payable three days after the corresponding date of month after the given number of month (Sec. 23). Therefore in the given case the date of maturity of the promissory note is 4th April, 2001.

In this case the promissory note was presented for payment 10 days after maturity. According to Sec. 64 of the Act read with Sec. 66 a promissory note must be presented for payment at maturity on behalf of the holder. In default of such presentment, the other parties of the instrument are not liable to such holder. The endorser get discharged by the delayed presentment for payment. But the maker being the primary partly continues to be liable.

Question 29.
Referring to the provisions of the Negotiable Instruments Act, 1881, examine the validity of the following Promissory Notes:
(i) I owe you a sum of ₹ 1,000. ‘A’ tells ‘B’.
(ii) ‘X’ promises to pay ‘Y’ a sum of ₹ 10,000, six months after ‘V’s marriage with ‘Z’. (Nov 2002, 6 marks)
Answer:
1. In the first case, it is not a promissory note, because there Is no promise to pay.
2. In the second case also, it is not a promissory note because it is probable that Y may not marry.

Question 30.
What is a Promissory Note and what are its elements? S writes ”I promise to pay’B’ a sum of ₹ 500, seven days aller my marnage with ‘C’.’ Is this a promissory note? (May 2004, 6 marks)
Answer:
Meaning: Sec. 4 defines Promissory note as, ‘an instruments in writing containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of, a certain person, or to the bearer of the instrument.

Essential of a promissory note are:
1. Itmustbejnwifting
2. It must contain an express promise to pay.
3. The promise to pay must be unconditional.
4. It must be signed by the maker.
5. The parties must be certain.
6. The sum payable must also be certain.
7. It must contain a promise to pay money or moneys worth i.e. the current money.

Problem: In the given case S promises to pay ₹ 500. It is possible that ‘S’ may never marry ‘C’ and the sum may never become payable. Hence the promise to pay is conditional as it depends. upon an event which may not happen. Hence, it is not a promissory note.

Question 31.
State the privileges of a “Holder in due course” under the Negotiable Instruments Act, 1881. A induced B by fraud to draw a cheque payable to C or order. A obtained the cheque, forged C’s endorsement and collected proceeds to the cheque through his Bankers. B the drawer wants to recover the amount from C’s Bankers. Decide in the light of the provisions of Negotiable Instruments Act, 1881-
(i) Whether B the drawer, can recover the amount of the cheque from C’s Bankers?
(ii) Whether C s the Fictitious Payee?
(iii) Would your .nswer be still the same in case C is a fictitious person? (Nov 2004, 6 marks)
Answer:
Priviledges of a “Holder in due Course”:

1. Every holder is a holder in due course.
2. An inchoate instrument, if property stamped. is valid, if it subsequently comes in the hands of a holder in due course. (Sec. 20)
3. Every prior party to a negotiable instrument is liable to holder in due course untill the instrument is duly satisfied. (Sec. 6)
4. The acceptor of a bill of exchange cannot plead against a holder in due course that the bill is drawn on a fictitious name. (Sec 42)
5. No effect of conditional delivery. (Sec. 46)
6. Once a negotiable instrument passes through the hands of a holder in due course it Is purged of all the detects. (Sec. 53).
7. The persons liable on an instrument cannot plead against the holder in due course that the instrument had been lost or was obtained by means of fraud or unlawful means. (Sec. 58)
8. No one can deny the original validity of the instrument. (Sec 120)
9. No one can deny against a holder in due course the capacity of the payee to endorse. (Sec. 121)
10. The drawer is estopped from denying the signature or capacity of the prior party. (Sec. 122)

Section 42 of the Negotiable Instrument Act, 1881, an acceptor of a bill of exchange drawn In a fictitious name and payable to the drawers order is not by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an instrument by the same hand as the drawer’s signature and pretends to be made by drawer.

The word fictitious payee mean a person who is not in existence or being in existence was never intended by the drawer to have the payment. Where the drawer intend payee to have the payment then be is not a fictitious payee and the forgery of his signature will affect the validity of the cheque.

The answers to the question asked are:

• In this case 8 the drawer can recover the amount of the cheque from C’s bankers because C’s title was derived through foraged endorsement.
• Here, C is not a fictitious payee because the drawer intends him to receive the payment.
• The result would differ if C is not a real person or Is a fictitious person or was not intended to have the payment.

Question 32.
Answer the following:
A cheque payable to bearer is crossed generally and marked not negotiable. The cheque is lost or stolen and comes into possession of B who takes It in good faith and gives value for it. B deposits the cheque into his own bank and his banker presents it and obtains payment for his customer from the bank upon which it s drawn. The true owner of the cheque claims refund of the amount of the cheque from B. Discuss the liability of the banker collecting the cheque and the banker paying the cheque and B to the true owner of the cheque referring to the provisions of the Negotiable Instruments Act, 1881. (May 2005, 4 marks)
Answer:

1. The cheque in the stated case was crossed generally and marked ‘No’ Negotiable’. Thereafter, the cheque was lost and stolen and came into the possession of B, who takes it in good faith and gives value for it.
2. According to Sec. 130 of the Negotiable Instrument Act. 1881. provides that a person taking a cheque crossed generally or especially, bearing in any case the words ‘not negotiable’ shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it.
3. In view of these provisions B, even though he was a holder In due course, did not had any title to the cheque as against its true owner.
4. The addition of the words ‘not negotiable’ actually takes away the main elements of negotiability, which Is that a holder with a defective title can give a good title to a subsequent holder in due course.
5. B did not obtain any better title than his immediate transferor, who had either stolen or found the cheque and was not the true owner of the cheque.
6. Therefore, as per the true owner, B was in no better position than the transferor. B is also liable to repay the amount of the cheque to the true owner.
7. He can, however, proceed against the person Rani whom he took the cheque.

In the stated case above, both the collecting banker and the paying banker will be exonerated. Since the collecting banker, in good faith and without negligence, had received payment from B, who was its customer of the cheque which was crossed generally, the banker would not be liable, in case the title proved to be defective, to the true owner by reason only of having received the payment of the cheque for his customer (Sec. 131). According to Sec. 128. the paying banker on whom the crossed cheque was drawn, had paid the same in due course, the banker would also not be liable to the true owner.

Question 33.
B obtains A’s acceptance to a bill of exchange by fraud. B endorses it to C who is a holder in due course. C endorses the bill to D who knows of the fraud. Referring to the provisions of the Negotiable Instruments Act, 1882, decide whether D can recover the money from A in the given case. (Nov 2006, 5 marks)
Answer:
According to Sec. 5301 the Negotiable Instruments Act, 1881. A holder of an instrument deriving title from a holder in due course has rights thereon of the holder in due course. A holder in due course serves as a channel to protect all subsequent holders.

Once a negotiable instrument passes through the hands of a holder in due course it is purged of defects. An instrument once free from detects is always tree. Therefore, a holder deriving title from a holder in due course can claim the amount of a bill drawn and accepted without consideration. It has been held that a title, which has been cleansed of defects by passing through the hands of a holder in due course remains immune from those defects inspite of the fact that a subsequent holder may have noticed that the defects once existed provided he was not a party to them [Guideford Trust Vs. Goss, Credit Bank Vs. Schenkess]. Hence, in the present case D derives title from C who is holder in due course and D is not party to fraud,
∴ D gets a good title to the bill and can recover the money from A in the given case.

Question 34.
What is meant by maturity of a Bill of Exchange or Promissory Note? Calculate the date of maturity of the folLowing bills of exchange explaining the relevant rules relating to determination of the date of maturity as Provided in the Negotiable Instruments Act, 1881:
(i) A Bill of Exchange dated 31st August, 2007 is made payable three months after date.
(ii) A Bill of Exchange drawn on 1st October, 2007 is payable twenty days after sight and the bill is presented to acceptance on 31st October 2007. (Nov 2007, 5 marks)
Answer:
Provisions:
Maturity of BOE or PN:
Date of maturity: The maturity of a bill of exchange or promissory note is the date on which it tails due. The question of maturity becomes important where a bill or note is payable at fixed period after sight. A note or bill not payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is payable. Three days are allowed as days of grace (Sec. 22). In case of a note or bills payable on demand at sight on presentment, number days of grace are allowed.

Calculation of maturity: In the cases where a bill is payable at a fixed period after sight, the time is to be calculated from the date of the acceptance it is accepted and from the date of noting or protest if the bill is noted or protested for non-acceptance.

Instrument payable so many months after date or sight (Sec. 23): If the instrument is made payable at stated number of months after date or after sight or aller a certain event, it becomes payable three days after the corresponding date of the month. If the month in which the period would change has no corresponding day, the period shall be hable to change on the last day of such month. Three days of grace must be added to it.

An instrument payable alter certain days (Sec. 24): In calculating the date at which promissory note or bill of exchange made payable a certain number of days after sight or after a certain event is at maturity, the day of the date of presentment for aptanœ ci sight or of protest br non-acceptance or on which the event happened shall be excluded.

When day of maturity Is a holiday (Sec. 25): When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument will be deemed to be due on the next preceding business day. In case it is an emergency holiday, then on the next succeeding day.

Present Case: In this case the day of presentment for sight is to be excluded i.e. 1st June, 2005. The period of 120 days ends on 29th September. 2005 (June, 29 days + July, 31 days + August, 31 days + September, 29 days = 120 days). Three days of grace are to be added. Therefore, it fall due on 2’ October, 2005, which is a public holiday. As such, it falls due on 1st October, 2005.

Answer to given problem
(i) 30th Nov 2007 +3 days of grace i.e. 3rd Dec 2007
(ii) 20 days after 31st Oct = 20th November 2007
Add: 3 days of grace i.e. – 23rd Nov 2007.

Question 35.
Mr. A is the payee of an order cheque. Mr. B steals the cheque and forges Mr. A signatures and endorses the cheque in his own favour. Mr. B then further endorses the cheque to Mr. C, who takes the cheque in good faith and for valuable consideration. Examine the validity of the cheque as per the provisions of the Negotiable Instruments Act, 1881 and also state whether Mr. C can claim the privileges of a Holder-in-Due course? (Nov 2015, 4 marks)
Answer:
Provisions: A forged NI is a nullity. Forgery confers no title. A holder of forged instrument acquires no title. Thus m case of forged endorsement, the person claiming under forged endorsement even if he Is a holder in due course cannot acquire rights of holder in due course.
Present Case: Therefore, Mr. C acquires no title on the cheque.

Question 36.
(i) Discuss with reasons, in the following given conditions, whether ‘M’ can be called as a holder” under the Negotiable Instruments Act, 1881:
(1). ‘M’, the payee of the cheque, who is prohibited by a court order from receiving the amount of the cheque.
(2) ‘M’ the agent of ‘Q’, is entrusted with an instrument without endorsement by ‘Q’ who is the payee. (Nov 2016, 4 marks)
Answer:
(i) Person to be called as a holder: As per section 8 of the Negotiable Instruments Act,1881, ‘holder’ of a Negotiable Instrument means any person entitled in his own name to the possession of it and to receive or recover the amount due thereon from the parties thereto. On applying the above provision in the given cases-
1. ‘M’ is not a ‘holder because to be called as a ‘holder’ he must be entitled not only to the possession of the instrument but also to receive the amount mentioned therein.

2. No, ‘M’ is not a holder. While the agent may receive payment of the amount mentioned in the cheque, yet he cannot be called the holder thereof because he has no right to sue on the instrument in his own name.

Question 37.
Mr. V draws a cheque of ₹ 11,000 and gives to Mr. B by way of gift. State with reason whether:
(1) Mr. B is a holder in due course as per the Negotiable Instrument Act, 1881?
(2) Mr. B is entitled to receive the amount of ₹ 11,000 from the bank? (May 2018, 4 marks)
Answer:
Holder In due course:
In the words of Section 8 of the Negotiable Instruments Act, 1881, ‘Holder in due course’ means any person who for consideration became the possessor of the negotiable instrument, if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in It becomes payable and without having sufficient cause to believe that defect existed in the title of the person from whom he delivered his title.

The Consideration to be fulfilled by the person named holder In due course are as follows:

1. he must be a holder
2. He must have become the holder of the instrument before its maturity.
3. The instrument must be received by the holder in good faith.
4. He must have become the holder for valuable consideration.
5. The instrument must be complete and regular on the face of it.

Present Case:
1. Mr. B is not a holder in due course as he does not get the cheque for value and consideration.
2. Although not a holder in due course yet Mr. B is a holder. This title is good and bonafide. Thus, as a holder he is entitled to receive ₹ 11,000 from the bank on whom the cheque is drawn.

Question 38.
‘A’ draws a bill amounting ₹ 5,000 of 3 month’s maturity period on ‘B’ but signs it in the fictitious name of ‘C’. Bill is payable to the order of ‘C’ and it is duly accepted by ‘B’. ‘D’ obtains the bill from ‘A’ and thus becomes its ‘Holder-in-Due course. On maturity ‘D’ presents bill to ‘B’ for payment. Is ‘B’ bound to make the payment of the bill? Examine ¡t referring to the provisions of the Negotiable Instruments Act, 1881. (Nov 2019, 3 marks)
Answer:
This problem is based on the provision of Section 42 of the Negotiable Instruments Act. 1881. In case a bill of exchange is drawn payable to the drawer’s order in a fictitious name and is endorsed by the same hand as the drawer’s signature, it is not permissible for the acceptor to allege as against the holder in due course that such name is fictitious. Accordingly, B cannot avoid payment by raising the plea that the drawer C is fictitious. The only condition is that signature of C as drawer and as endorser must be in the same hand writing.

Question 39.
Mr. X is the payee of an order cheque. Mr. Y steals the cheque and forges Mr. X signature and endorses the cheque in his own favour. Mr, Y then further endorses the cheque to Mr. Z, who takes the cheque in good faith and for valuable consideration. Examine the validity of the cheque as per provisions of the Negotiable Instruments Act. 1881 and also state whether Mr. Z can claim the privileges of holden-in-due-course. (Nov 2019, 3 marks)
Answer:
As per Section 8 of the Negotiable Instruments Act, 1881 holder of a Negotiable Instrument means any person entitled in his own name to the possession of t and to receive or recover the amount due thereon from the parties thereto.

According to Sec.9 of Negotiable Instruments Act, 1881 holder in due course means any person who for oonsideration becomes the processor of a promissory note, bill of exchange or cheque if payable to bearer or the payee or endorsee there of. if payable to order, before the amount in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derives his title.

Present Case:
As Z in this case prima fade became a pracessor of the bill for value and in good faith before the bill became payable, he can be considered as a holder in due course.

But where a signature on the negotiable instrument is forged. it becomes a nullity. The holder of a forged instrument cannot enforce payment thereon. In the event of the holder (z) being able to obtain payment in spite of forgery, he cannot retain the money. A holder in due course is protected when there is defect In the title. But he derives no title when there is entire absense of title as in the case of forgery, Hence, Z cannot receive the amount on the bill.

Question 40.
State with reasons whether each of the following instruments is an Inland Instrument or a Foreign Instruments per The Negotiable Instruments Act, 1851:
(i) Ram draws a Bill of Exchange in Delhi upon Shyam a resident of Jaipur ani accepted to be payable in Thailand after 90 days of accepance.
(ii) Ramesh draws a Bill of Exchange in Mumbai upon Suresh a resident of Australia and accepted to be payable in Chennai after 30 days of sight.
(iii) Aay draws a Bill of Exchange in California upon Vijay a resident of Jodhpur and accepted to be payable in Kanpur after 6 months of acceptance.
(iv) Mukesh draws a Bill of Exchange in Lucknow upon Dinesh a resident of China and accepted to be payable in China after 45 days of acceptance. (Nov 2020, 4 marks)

Question 41.
(i) Are the following instruments signed by Mr. Honest is valid promissory Notes? Give the reasons.
(a) I promise to pay D’s son ₹ 10000 for value received (D has two sons)
(b) I promise to pay ₹ 5000/- on demand at my convenience
(ii) Who is the competent authority to issue a promissory note payable to bearer’?
Your answers shall be in a accordance with the provisions of the Negotiabte Instruments Act, 1881. (Nov 2020, 3 marks)

Question 42.
Under the Negotiable Instruments Act, explain the rights and obligations of a person:
(i) who is finder of a lost instrument; (Nov 1998, 3.5 marks)
Answer:
Rights and obligations of the finder of a lost instrument:
(a) When a negotiable instrument is lost, the finder acquires no title to it as against the rightful owner. He has no right to sue the acceptor or maker in order to enforce payment on it.
(b) It the finder of the lost instrument gets the payment than the person who pays it in due course may be able to get a valid discharge for it. But the real owner can get back the money due on the instrument as damages from the finder.
(c) It the instrument lost by one and it passes by delivery to the third party acquiring it bonafide and for valuable consideration and before maturity has the right to retain the instrument against the actual owner and to compel payment from prior parties.
(d) The loser of the instrument has the right to apply to the drawer a duplicate of the lost bill. If the drawer does not grant the application the loser may force him to provide with a duplicate bill (Sec. 45A).

Question 43.
Pick Out the correct answer from the following and give reasons:
A negotiable instrument drawn in favour of a minor is
(1) void
(2) void but not enforceable
(3) valid
(4) None of the above. (Nov 2009, 1 mark)
Answer:
Option 3: ‘Valid” A minor can be a drawee. Therefore, the negotiable instrument drawn in favour of a minor is valid.

Question 44.
State, with reasons whether the following statement is correct or incorrect.
(i) A promissory note duly executed In favour of minor is void. (Nov 2010, 1 mark)
Answer:
Incorrect: Promissory Note duly executed in favour of minor is not void. As per the Indian Contract Act,l 872, minor is not competent to contract, but he can be a beneficiary. In this case, the minor is a beneficiary. Hence, the Promissory Note ¡s not void and the minor at his Option can enforce it as a beneftciary.

Question 45.
State whether the following statement is correct or incorrect:
A promissory note duly executed in favour of a minor, is valid. (Nov 2015, 1 mark)
Answer:
Correct: As a minor’s agreement is void, he cannot bind himself by becoming a party to a negotiable instrument. But he may draw, endorse, deliver and negotiate such instruments so as to bind all parties except himself.

Question 46.
P. the holder of a Bill of Exchange. transfers it to0 without consideration. O also transfers it to R without consideration. R transfers it to X for consideration. X transfers it toY without consideration. State giving reasons whether Y can recover the amount on such instrument from X or P. (May 1998, 6 marks)
Answer:
Negotiable Instrument transferred without consideration (Sec. 43) :
Section 43 of the Negotiable Instruments Act, states down the following two rules regarding the absence of consideration in negotiable instruments:
(1) As between the Immediate parties:
A negotiable instrument made, drawn, accepted, endorsed or transferred without consideration or for a consideration which fails, creates no obligation of payment between the parties to the transactions.

(2) As between the remote parties:
if any such party has transferred the instrument with or without Endorsement to a holder for consideration, such holder and every subsequent holder deriving title from him may recover the amount due on such instrument from the transferor for consideration or any prior party there to.

Partial absence or failure of money consideration:
Where there is a partial absence or failure of money consideration for which a person signed a negotiable instrument, the same rule will apply as to total absence or failure of consideration. Hence, the parties standing in continuous relation to each other cannot recover more tie real consideration, but this rule is not applicable in case of a holder in due xurse (Section 44).

In the problem asked above X and Y are immediate parties, so no consideration passes from Y to X. Hence, the first rule is applicable and Y has no rights against X. X is the holder for value. Hence, X and every subsequent holder deriving title from him may recover the amount due on such instrument from the transferor for consideration on any prior party thereto. The second rule is applicable. Thus, Y can recover the amount from P.

Question 47.
Explain the meaning of Endorsement. State the essentials of a valid endorsement.
A is the holder of a bill of exchange made payable to the order of ‘B’. The bill of exchange contains the following endorsements in blank:
First endorsement ‘B’
Second endorsement G’
Third endorsement D
Fourth endorsement E’
‘A strikes out, without ‘Es consent, the endorsement by ‘C’ and ‘D’.
Decide with reasons whether ‘A’ is entitled to recover anything from ‘E’. (May 1999, 8 marks)
OR
Mr. Clever obtains fraudulently from J a cheque crossed ‘Not Negotiable’. He later transfers the cheque to D, who gets the cheque encashed from ABC Bank, which is not the Drawee Bank. J, on coming to know about the fraudulent act of Clever, sues ABC Bank for the recovery of money. Examine with reference to the relevant provisions of the Negotiable Instruments Act, 1881, whether J will be successful in his claim. Would
your answer be still the same in case Clever does not transfer the cheque and gets the cheque encashed from ABC Bank himself? (Nov 2000, 6 marks)
OR
‘N’ is the holder of a bill of exchange made payable to the order of V’. The bill of exchange contains the following endorsements in blank:
First endorsement ‘P’
Second endorsement ‘Q’
Third endorsement ‘R’
Fourth endorsement ‘S’
‘N’ strikes out, without S’s consent, the endorsement by ‘Q’ and ‘R’. Decide with reasons whether ‘N’ is entitled to recover anything from ‘S’ under the provisions of Negotiable Instruments Act, 1881. (Nov 2009, 5 marks)
OR
‘E’ is the holder of a bill of exchange made payable to the order of ‘F’. The bill of exchange contains the following endorsements in blank:
First endorsement ‘F’,
Second endorsement ‘G’,
Third endorsement ‘H’ and
Fourth endorsement ‘I’
E’ strikes out, without is consent, the endorsements by ‘G’ and ‘H’. Decide with reasons whether ‘E’ is entitled to recover anything from under the provisions of Negotiable Instruments Act, 1881. (Nov 2017, 4 marks)
Answer:
Provisions:
The question asked above Is based on the provision of Sec. 40 of the Negotiable Instruments Act, 1881. Accordingly, where the holder of a Negotiable Instrument without the consent of the endorser destroys or impairs the endorser’s remedy against a prior party the endorser is discharged from liability to the holder to the same extent as If the instrument had been paid at maturity.

Present Case:
‘E’ is the holder of a bill of exchange made payable to the order of ‘F’. The bill of exchange contains the following endorsements in blank:
First endorsement ‘F’
Second endorsement ‘G’
Third endorsement ‘H’
Fourth endorsement ‘I’
‘E’ strikes out, without l’s consent, the endorsement by ‘G’ and ‘H’. Thus if the endorsements of ‘H’ and ‘G’ ara struck out without the consent of ‘I’. ‘E’ will not be entitled to recover anything from ‘I’, the reason being that as between ‘H’ and ‘I’ ‘H’ is the principal debtor and ‘I’ s the surety. If ‘H’ is released by the holder under Sec. 39 of the Act, ‘I’ being surety will be discharged. In this given problem, the rule may be stated thus that when the holder without the consent of the endorser impairs the endorser’s remedy against a prior party. the endorser is discharged from liability to the holder.

Question 48.
X, a major, and M, a minor, executed a promissory note in favour of P. Examine with reference to the provisions of the Negotiable Instruments Act, the validity of the promissory note and whether it is binding on X and M (May 2000, 6 marks)
OR
A, a major, and B, a minor, executed a Promissory Note in favour of C. Examine with reference to the provisions of the Negotiable Instruments Act, 1881 the validity of the Promissory Note and state whether it is binding on A and B. (Nov 2005, 4 marks)
Answer:
Minor being a party to a negotiable instrument:
Every person who is competent to enter into a contract has the right to incure liability by making, drawing, endorsing, accepting, delivering and negotiating the negotiable instruments (Sec. 26). An agreement with a minor is void, so he cannot bind himself by becoming a party to a negotiable instrument. But the instrument can be drawn or endorsed as to bind all other parties.

Thus, by view Section 26, the promissory note executed by X and M is valid even though a minor is a party to it M being minor is not liable, but his immunity from liability does not absolve the other joint promisor, namely X from liability.

Question 49.
A draws a bill on B. B accepts the bill without any consideration, The bill Is transferred to C without consideration. C transferred it to D for value, Decide –
(i) Whether D can sue the prior parties of the bill, and
(ii) Whether the prior parties other than D have any right of action intense?
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881. (Nov 2004, 6 marks)
Answer:
Section 43 of the Act, provides that a negotiable instrument made, drawn, accepted endorsed or transferred without consideration a for a consideration which tails, creates no obligation of payment among the parties to the transaction. But, it any such party, has transferred the instrument with or without endorsement 10 a holder for consideration, then the holder and subsequent holder may recover the amount due on such instrument from the transferor for consideration or any prior party:
(i) In first question, A has drawn a bill on B and B accepted the bill without consideration and transferred it to C. without consideration after that it is transferred from C to D for valve. Thus on the basis of above Section, the bill actually has been transferred to D without consideration. Thus D can sue any of the parties i.e. A, B or C as D arrived a good title on it being taken with consideration.

(ii) In second case, the prior parties that is A, B and C have no right of action intersc. because a instrument made, drawn, accepted. endorsed or transferred without consideration or for a consideration which tails creates no obligation of payment among the parties to the transaction.

Question 50.
P draws a bill on Q for ₹ 10,000. Q accepts the bill. On maturity the bill was dis honoured by non-payment. P files a suit against Q for payment of ₹ 10,000.0 proved that the bill was accepted for value of ₹ 7,000 and as an accommodation to the plaintiff for the balance amount i.e. ₹ 3,000. Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether P would succeed in recovering the whole amount of the bill.
(Nov 2010, 8 marks)
Answer:
Provision:
According to Sec. 44 of the Negotiable Instruments Act, 1881 ,when the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of money, and was originally absent in part or has subsequently failed in part, the sum which a holder standing in immediate relation with such signer is entitled to receive from him is proportionally reduced.

On the basis of above provision, P would succeed to recover ₹ 7,000 only from Q and not the whole amount of the bill because it was accepted for value as to ₹ 7,000 only and an accommodation to P for ₹ 3,000.

Question 51.
‘P’. a major and ‘Q’, a minor executed a promissory note in favour of ‘R’. Examine with reference to the provisions of the Negotiable Instruments Act, 1881, the validity of the promissory note and whether it is binding on ‘P’ and ‘Q’. (May 2015, 4 marks)
Answer:
Provision:
Minor being a party to a negotiable instrument: Every person who is competent to enter in to a contract has the right to incur liability by making. drawing, endorsing, accepting, delivAring and negotiating the negotiable instruments (Sec. 26). An agreement with a minor is void, so he cannot bind himself by becoming a party to a negotiable instrument. But the instrument can be drawn or endorsed as to bind all other parties.

Present Case:
‘P’, a major and Q’, a minor executed a promissory note in favour of ‘R’. Examine with reference to the provisions of the Negotiatle Instruments Act, 1881, the validity of the promissory note and whether it is binding on ‘P’ and Thus, by view Sec. 26, the promissory note executed by P and G is valid even though a minor is a party to it. Q being minor is not liable, but his immunity from liability does not absolve the other joint promisor, namely P from liability.

Question 52.
‘M’ draws bill on ‘N’. ‘N’ accepts the bill without any consideration. The bill is transferred to ‘O’ without consideration. O’ transferred it to ‘P’ for ₹ 10,000. On dishonor of the bill, ‘P’ sued ‘O’ for recovery of the value of ₹ 10,000. Examine whether ‘0’ has any right to action against M and N? (May 2019, 2 marks)
Answer:
Section 43 of the Negotiable Instruments Act, 1881 provides that a negotiable instruments made, drawn, accepted, endorsed or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction.

But if any such party has transferred the instrument with or without endorsement to a holder for a consideration, such holder, and every subsequent holder deriving title from him. may recover the amount on due on such Instrument from the transferor for consideration or any prior party thereto.

Present Case:
In the problem, M has drawn a bill on N and N accepted the bill without consideration and transferred it to O without consideration. Later on in the next transfer by O to P is for ₹ 10,000. According to provisions of the aforesaid Section 43, the bill ultimately has been transferred to P with consideration. Therefore, P can sue any of the parties i.e. M, N and O, as P arrived a good title on it being taken with consideration. So P can sue on O. for recovery of ₹ 10,000. Further, the prior parties before P i.e. M, N an’above no right of action interse because first part of Section 43 has clearly lays down that a negotiable instrument, made, drawn, accepted, endorsed or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction prior to the parties who receive it on consideration. So O has no right to action against M and N.

Question 53.
Vikram accepts a Bill of Exchange for ₹ 50,000 which is an accommodation bill drawn by A on 1st January 2020 to be payable at Mumbai on 1st July 2020. A transfers the bill to B on 1st February 2020 without any consideration. B further transfers it to C on 1st March 2020 for value. Then C transfers it again to D on 1st April 2020 without consideration. D holds the bill till maturity and on the due date of payment he presented the bill for payment but the bill is dishonoured by Vikram. Discuss the rights of A.B,C and D to recover the amount of this bill as per the provisions of The Negotiable Instruments Act, 1881. (2020 Nov 3 marks)

Question 54.
Ram draws a cheque of 1 lakh. It was a bearer cheque. Ram kept the cheque with himself. After some time Ram gives this cheque to Shyam as a gift on his birthday. Decide whether Shyan, is having a valid title over the cheque and whether Shyam is a holder in due course or not in relation to this cheque as per the Section 9 of the Negotiable Instruments Act 1881. (Nov 2020, 3 marks)

Question 55.
Referring to the provisions of the Negotiable Instruments Act, 1881, examine the validity of the following:
A Bill of Exchange originally drawn by R for a sum of ₹ 10,000 but accepted by S only for ₹ 7,000. (Jan 2021, 3 marks)

Question 56.
Under the Negotiable Instruments Act, explain the rights and obligations of a person:
(i) who has obtained an instrument by unlawful means or by unlawful consideration. (Nov 1998, 3.5 marks)
Answer:
Instruments obtained by unlawful means : (Sec. 58)

• A person who gots an instrument by unlawful means is not entitled to claim money there upon, the consent of the party not being free.
• If the instrument obtained through fraud is negotiated the transferee, if aware of the fraud will also not be entitled to claim any payment.
• The defence of fraud cannot in general, be set up against a holder in due course or a holder deriving title from such holder.

Instrument obtained by unlawful consideration:

1. The instrument will be void, if the consideration for a negotiable instrument s unlawful.
2. A holder in due course however gets a good title to an instrument which was originally made or drawn or subsequently negotiated for an unlawful consideration.

Question 57.
Comment on the following statement with reference to the provisions of the Negotiable Instruments Act, 1881:
Once a bearer instrument always a bearer instrument. (May 2001, 6 marks)
Answer:
A bearer instrument is one, which can change hands by simple delivery of the instrument. The instrument may be. a promissory note or a bill of exchange or a cheque. It must be expressed to be so payable or on which the last endorsement is bearer.

According to Section 46, where an instrument is made payable to bearer it is transferred without any further endorsement. But this feature of the negotiable instrument can be changed. Section 49 states that a holder of negotiable instrument endorsed in blank, may without signing his own name, by writing above the endorser’s signature, instructs that the payment must be made to another person. Thus, the feature of the instrument is charged and the instruments cannot be transferred by simple delivery.

The law followod In the case of the cheque is bit different. As por Section 85(2) where a cheque is actually expressed to be payable to bearer, the drawee gets discharged by payment in clue course to the bearer thereof, inspite of any endorsement whether in blank or full. Appearing thereon not withstanding that any such instrument purported to restrict or exclude further negotiation. Thus, the statement is correct that, ‘once a bearer instrument always a bearer instrument.”

Question 58.
What is meant by ‘Negotiation’? Distinguish between ‘Negotiability’ v/s ‘Assignability’ of an instrument. (May 2000, 7 marks)
OR
What are the differences between “negotiability’ and “assignability’? (Nov 2003, 4 marks)
OR
Distinguish between “Negotiability” and Assignability”. (May 2013, 4 marks)
Answer:
Distinction between Transfer by Negotiation and Transfer by Assignment

Basis	Transfer by Negotiation	Transfer by Assignment
1. Rights of a holder in due course	In negotiation, the transferee acquires all the rights of a holder in due course.	In transfer by assignment, the assignee does not acquire the right of a holder in due course.
2. Notice	In negotiation, notice of transfer is not needed.	In assignment, notice must be served by the assignee on his debtor.
3. Consideration	In negotiation, consideration is presumed.	In assignment, consideration must be proved.
4. Payment of stamp duty	Negotiation requires payment of stamp duty.	Assignment does not require payment of stamp duty.
5. Delivery	Negotiation requires delivery only in the case of ‘bearer instrument or endorsement & delivery only in the case of order instrument”.	In case of assignment, Sec. 130, of the Transfer of Property Act requires a document to be reduced into writing and signed by the transferor.

Question 59.
Pick-up the correct answer from the following and give reasons:
(iii) A negotiable instrument is payable to order can be transferred by:
(1) Simple delivery
(2) Endorsement and delivery
(3) Endorsement
(4) Registered Post. (Nov 2008, 1 mark)
Answer:
2. Endorsement and delivery: According to Sec. 48 of the Negotiable Instwments Act, 1881, in order to negotiate i.e. to transfer title to an instrument payable to order, it is at first to be endorsed and then delivered by the holder. Thus, negotiation of an order instrument shall be valid only if both the following conditions are satisfied:
1. The order instrument is endorsed by the holder.
2. After endorsement, the negotiable instrument is delivered to the transferee (i.e. endorsee).

Question 60.
State whether the following statement is correct or incorrect:
(ii) A cheque marked Not-Negotiabl& is not transferable. (May 2011, 1 mark)
Answer:
Incorrect

Question 61.
What is meant by Sans Recourse Endorsement of a bill of exchange? How does it differ from Sans Frais Endorsement’? (May 2015, 4 marks)
Answer:
Meaning of Sans Recourse Endorsement:
Sans Recourse Endorsement is the situation in which an endorser may by express words in the endorsement exclude his own liability thereon. That is in the event of dishonour, he cannot be liable. Where the endorser who excludes his liability, later becomes the holder of the N/I, all intermediate endorsers are liable to him. The endorser signs the endorsement putting his signature along with the words “SANS RECOURSE”. e.g.
(a) Pay D or order without recourse to me
(b) Pay D or order sans recourse
(c) Pay D or order at his own risk.
In Sans Frais Endorsement an endorser does not want the endorsee. or any subsequent holder of the instrument to incur any expense on his account on the Instrument, it is called endorsement Sans Frais’, i.e. without expense.

The main difference between the Sans Recourse Endorsement and Sans Frais Endorsement is that in Sans Recourse Endorsement endorser excludes his liability thereon i.e. he is not liable for dishonour of bill. Whereas in Sans Frais recourse endorser does not want endorsee or any other subsequent holder of the instrument to incur any expense on his account on the instrument.

Question 62.
Explain the concept and different forms of Restrictive and Qualified endorsement. (Nov 2015, 4 marks)
Answer:
Restrictive endorsement prohibits for further negotiation. So that the amount of such instrument is payable to only that person in which favour of such bill has been endorsed. So that restrictive endorsement restricts the other person to become payee of the bill.
Types of Conditional Endorsements:

• Sans Recourse: Endorser relieves himself from the liability to all subsequent endorsees.
• Facultative: Endorser waives any of his rights.
• Contingent: Endorser makes his liability dependent upon happening of some event.

Question 63.
State whether the following statement is correct or incorrect:
(iii) A cheque marked “Not negotiable” is not transferable. (Nov 2015, 1 mark)
Answer:
Incorrect: A cheque marked “not negotiable” is a transferable instrument. The inclusion of the words not negotiable’ however makes a significant difference in the transferability of the cheques. The holder of such a cheque cannot acquire title better than that of the transferor.

Question 64.
A is a payee holder of a bill of exchange. He endorses it in blank arid delivers it to B. B endorses it ¡n full to C or order. C without endorsement transfers the bill to D. State giving reasons whether D as bearer of the bill of exchange is entitled to recover the payment from A or B or C. (Nov 1998, 6 marks)
Answer:
According to Section 55 of the Act, if an instrument after having been endorsed in blank is endorsed in full, the endorsee in full does not incur the liability of an endorser, so the amount of it cannot be claimed from him. It means that if an endorsement ¡ri blank is followed by an endorsement in full, the instrument still remains payable to bear and negotiable by delivery as against all parties prior to endorse in full, though the endorser in full is only responsible to a holder who made title directly through his endorsement and the person deriving title through such holder. With the view of Section 55, D as the bearer of the instrument can receive payment or sue the drawer or the acceptor or A who has endorsed the bill in blank, but he cannot sue B and C.

Question 65.
A bill is dishonoured by non-acceptance. The bill is endorsed to ‘A’. ‘A’ endorses it to ‘B’. As between ‘A’ and ‘B’. the bill is subject to an agreement as to the discharge of ‘A’. The bill Is afterwards endorsed to ‘C’, who takes it with notice of dishonour. Dedde, with reasons, whether ‘C’ is entitled to accept the bill in the capacity of a holder in due course. (Nov 1999, 6 marks)
Answer:
According to Section 59 of the Negotiable Instrument Act. 1881, the holder of negotiable instrument who has acquired it after dishonour, whether by non-acceptance or non-payment, with notice thereof or after maturity has only, as against the other parties, the rights there,n of his transferor.

Where the instrument has been dishonoured any person who takes it with notice of dishonour. takes it subject to any defect of title attaching thereto at the time of dishonour. The transferee of a dishonoured instrument takes it subject to any defect of title existing at the time of dishonour.

The transferee cannot have a better title to it than that which his transferor had. In the question above the transferor ‘A’ has acquired the bill which has already been dishonoured by non-acceptance Mr ‘A’ has endorsed it to B subject to the agreement as to the discharge of ‘A’. After endorsement ‘C’ takes it with notice of dishonour ‘C’ cannot have a good title to it than that which his transferor ‘B’ had.’C’ takes the bill subject to the agreement between ‘A’ and ‘B’ and not a better title than this.

‘C’ is also not a holder in due course because he has not acquired the instrument before it became payable. Thus, ‘C’ is not entitled to accept the. bill in the capacity of a holder in due course.

Question 66.
What is a ‘Sans Recours’ Endorsement? A bill of exchange is drawn payable to X or order. X endorses into Y, Y to Z, Z to A, A to B and B to X. State with reasons whether X can recover the amount of the bill from Y, Z, A and B, if he has originally endorsed the hill to Y by adding the words ‘Sans Recours’. (Nov 2001, 6 marks)
Answer:
Meaning of Sans Recours Endorsement: An endorser may by express words exclude his own liability thereon to the endorser or any subsequent holder in case of dishonour of the instrument. Such an endorsement is called an Sans Recours Endorsement.

In the problem X. the endorser becomes the holder after it is negotiated to several parties. Normally in such a case, none of the intermediate parties are liable to X. This is done to prevent ‘circuitry of action’. But in this case X’s original endorsement is without recourse and thus he is not liable to Y,Z. A and B. But the tlI is negotiated back to X, all of them are liable to him and he can recover the amount from all or any of them (Sec. 52).

Question 67.
‘A’ draws a bill of exchanging payable to himself on ‘X’. Who accepts the bill without consideration just to accommodate ‘A’. ‘A’ transfers the bill to ‘P’ for good consideration. State the rights of ‘A’ and ‘P’. Would your answer be different if A’ transferred the bill to ‘P’ after maturity? (May 2008, 5 marks)
Answer:
Provision:
This is the case of accommodation bill. In an accommodation, bill drawer does not give any consideration to the drawee. Thus relationship between the drawer and the drawee is not that of a creditor and a debtor. It is drawn with an object to provide financial help either to the drawer or to both the drawer and the drawee.

The party accommodating is called the “accommodation party” and the party accommodated IS called “accommodated party.

Following are the salient features of an Accommodation Bill:

1. No obligation of drawee towards the drawer.
2. Drawee s liable to the ‘holder in value’ even if he knows that it is accommodation bill.
3. It can be negotiated oven after its maturity and the holder can become ‘holder in due course’.
4. Non-presentment for payment does not discharge the drawer.
5. Failure to give notice of dishonour does not discharge the liability of prior parties.

Present Case: Looking at the above provisions we can conclude that X is not liable to A because A is an accommodated party. But he s liable to P because p s holder for value. Even if A transferred the instrument to P after maturity of bill, P will have right against X. Because accommodation bill is an exception to the rule that the transferee cannot become holder in due course if the transfer is made after maturity of the instrument.

Question 68.
S by inducing T obtains a Bill of Exchange from him fraudulently in his (S) favour. Later, he enters into a commercial deal and endorses the bill to U towards consideration to him (U) for the deal. U takes the bill as a Holder in due course. all subsequently endorses the bill to S for value, as consideration to S for some other deal. On maturity (he bill is dishonoured. S sues T for the recovery of the money. With reference to the provisions of the Negotiable instruments Act, 1881 decide whether S would succeed in the case or not. (Nov 2014, 4 marks)
Answer:
Provision:
The problem stated in the question Is based on the provisions of the Negotiable Instrument Ac., 1881 as contained in Sec. 53. The section provides once a negotiable instrument passes through the hands of a holder in due courses, it gets clearer of Its defects provided the holder was himself not a party l the fraud or illegality which affected the instrument in some stage of its journey. Thus any defect in the title to the transferor will not affect the rights of the holder in due course even if he had knowledge of the prior defect provided he is himself not a party to the fraud. (Sec. 53)

Thus applying above provisions it is quite clear that S who originally induced T in obtaining the bill of exchange in question fraudulently cannot succeed in the case. The reason is obvious as S himself was a party to the fraud.

Question 69.
‘F by inducing ‘G’ to obtain a Bill of Exchange from him fraudulently In his (F) favour. Later, he enters into a commercial deal with ‘H’ and endorses the Bill to him (H) towards consideration for the deal. ‘H’ takes the bill as a holder-in-due-course. ‘H’ subsequently endorses the bill to F’ for value as consideration to ‘F’ for some other deal. On maturity the bill is dishonoured. ‘F’ sues G for the recovery of the money, With reference to the provisions of the Negotiable Instruments Act, 1881, explain whether ‘F will succeed in this case. (Nov 2016, 4 marks)
Answer
The problem stated In the question is based on the provisions of the Negotiable Instrument Act, 1881 as contained in Sec. 53. The section provides once a negotiable instrument passes through the hands of a holder in due course, it gets cleared of its defects provided the holder was himself not a party to the fraud or illegality which affected the instrument in some stage of its journey.

Thus any defect in the title to the transferor will not affect the rights of the holder in due course even if he had knowledge of the prior defect provided he is himself not a party to the fraud. (Sec. 53) Thus, applying above provisions it is quite clear that F who originally induced G in obtaining the bill of exchange in question fraudulently, cannot succeed in the case. The reason is obvious as F himself was a party to the fraud.

Question 70.
State the circumstances under which a banker will be justified or bound to dishonour a cheque. (May 1999, 6, 6 marks).
OR
State the grounds on the basis of which a cheque may be dishonoured b a banker, inspite of the fact that there is sufficient amount in the account of the drawer. (Nov 2003, 6 marks)
OR
State the cases in which a banker is justified or bound to dishonour cheques. (May 2005, 6 marks)
OR
State, in brief, the grounds on the basis of which a banker can dishonour a cheque under the provisions of the Negotiable Instruments Act, 1881. (Nov 2011, 8 marks)
OR
State the circumstances on the basis of wthich a banker can dishonour a cheque under the provisions of Negotiable Instruments Act. 1881. (Nov 2013, 8 marks)
Answer:
Cases in which a banker is justified or bound to dishonour cheques:

1.  If a cheque is not dated (Grift vs Deiton (1940)).
2.  If the banker gets notice about the insolvency or lunacy of customer.
3. If it contains a material alteration, – that is Irregular signature or endorsement.
4. A banker is justified in refusing payment of a post-dated cheque presented for payment before its extensible date [Morley is Cut vowel! 7M W 174, 178].
5. If the instrument is incomplete and not free from reasonable doubt.
6. If notice in respect of closure of the account is served by either party on the other.
7. If It is stated, that is it has not been presented within reasonable period.
8. If the customer has credit with one branch of a bank and he draws a cheque upon another branch of the same bank in which either he has account or his account is overdrawn [Wood Land vs. Fear (1857)].
9. By notice of loss of cheque and a banker should not pay a cheque after receiving from the holder notice of its loss.
10. If the customer countermands the payment of cheque, the bankers duty ceases for payment.
11. If the authority of the banker to honour a cheque of his customer is determined by the notice of the laters death. Any payment made prior to the receipt of the notice of death is valid.
12. If the garnishee or other legal order from the court attaching or otherwise dealing with the money in the hand of the banker is served on the banker [Rogers V. Whitely 1892].

Question 71.
When s presentment of an instrument not necessary under the Negotiable Instruments Act? (May 2002,6 marks)
Answer:
When Presentment for Payment Unnecessary (Sec. 76) : The presentment for payment is dispensed under the following circumstances. The placement otan instrument for its payment is known as Presentment for payment. Such a presentment must be made:
1. To the maker.
2. To the drawee or acceptor

Time of Presentment for Payment:

1. It should be made during the usual hours of business.
2. A bill made payable at a specific period after date or sight must be presented for payment only at maturity.
3. An instrument payable on demand must be presented for payment within a reasonable time.
4. An instrument payable by instalment must be presented on third day after the date of payment of each instalment.

Place of Presentment for Payment:
1. If place is specified, the presentment is to be made at that specified place.
2. If place is not specified then:

• (a) at the place of business; or
• (b) if there is no place of business at the residence.

3. If no place is specified, and no fixed place of business or residence exists then the presentment may be made wherever found.

Presentment for payment when excused:

1. Where the maker, drawee or acceptor intentionally prevents the presentment f the instrument.
2. Where the instrument is payable at his place of business and the place is closed during the usual business hours on the due date.
3. Where though the place is open but there is no person to make the payment.
4. Where he has profni3d to pay not with standing non-presentment.
5. Where the presentment is expressly or impliedly waived by the party entitled to presentment. For example, it he makes a part payment of the amount due to the instrument or promises to pay the amount thereon in whole or in part.
6. As against the drawer, where he could not have suffered any damage by non-presentment.
7. Where the drawee is a fictitious person or one incompetent to contract, e.g., minor.
8. Where drawer and the drawee are the same person, e.g., in the case of a promissory note or an accommodation bill.
9. Where the bill is dishonoured by non-acceptance.
10. Where presentment has become impossible.

Question 72.
Under what circumstances shall a Negotiable Instrument be called to have been materially altered? What is the effect of such an alteration? State with reasons, whether the following shall amount to material alteration and invalidate the instrument-
(i) D in possession of an inchoate instrument where the amount has not been written on the instrument, writes himself the amount
(ii) K, in possession of an uncrossed cheque received from A. writes Payee’s Account only on the face of the instrument. (May 1998,8 marks)
OR
Under the provisions of Negotiable Instruments Act, 1881 state as to when shall an alteration made in a negotiable instrument be called Material Alteration’. What alterations in such an instrument are permitted under the Act? What is the effect of such alteration? (Nov 2001, 7 marks)
OR
When is an alteration of an instrument treated as a material alteration under the Negotiable Instruments Act, 1881? What ¡s the effect of such an alteration? (May 2002, 6 marks)
OR
When is an alteration in a negotiable instrument is deemed to be a material alteration” under the Negotiable Instruments Act, 1881? What are the consequences of material alteration in a negotiable instrument? (May 2006, 5 marks)
Answer:
Material Alteration: In Aidons y. Cornwall, a material alteration was defined as “an alteration which changes the business effect of the instrument if used for any business purpose. Arty alteration made in the instrument which causes it to speak different languages from what ¡s originally intended, or which changes the legal identity of the instrument in its terms or in relation or parties thereto is a material alteration.
Examples of material alteration are: Change
(i) in the time of payment;
(ii) date;
(iii) place of payment;
(iv) sum payable:
(v) rate of interest;
(vi) relation between the parties etc.

Effect of Material Alteration (Section 87) : The material alteration of a negotiable instrument becomes void as against Party one who is a party there to at the time of making such alteration- and does not consent thereto. A material alteration will be valid, if the same was made in order to carry out the common interest of the original parties. An alteration to be valid, must be under the full signature of the drawer. Any material alteration made by an indorsee shall have the effect of discharging his iridorsers from all liability to him in respect of the consideration thereof.

Question 73.
In what way ‘Discharge of a party’ to a negotiable instrument differ from the ‘Discharge of instrument’. Explain the different modes of discharge of a negotiable instrument under the Negotiable Instruments Act, 1881. (Nov 2000, 7 marks)
Answer:
Discharge of a party to a Negotiable Instrument etc.:
An instrumeni gets discharged only when the party who is actually liable there on is discharged from liability. Thus, the instrument it self cannot be discharged on a discharged of a party to an instrument. The effect of this is that, the holder in due course may proceed against the other parties liable for the instrument. For example, the endorser of a bill may be discharged from his liability, but even then acceptor may be proceeded against.

Whereas when a bill gets discharge by payment, all rights related to it comes to an end, even a holder in due course cannot claim any amount under the bill Discharge of an instrument: The different modes of discharging a negotiable instrument under the Negotiable Instrument Act are as follows:
1. By express waiver: When the holder of a negotiable instrument at or after its maturity absolutely and unconditionally gives up formally in writing or gives up his rights against all the parties to the instrument, the instrument is discharged. The renouncing must be in writing unless the instrument is delivered upto the party actually liable.

2. By discharge as a simple contract: A negotiable instrument can also be discharged like any other contract for the payment of money. For example: discharge of an instrument by novation, or recession or by completion of limitation.

3. By payment In due course : The Instrument also gets discharged by payment made in due course by the party who is primarily liable to pay or by a person. who is accommodated in case the instrument was made or acceptod for his accommodation. The payment, must be made at or after the maturity to the holder of the instrument.

4. By Cancellation: The instrument gets discharged if it is knowingly cancelled by the holder or his agent and the cancellation is apparent.

5. By party primarily liable by becoming holder: If the maker of a note or the acceptor of a bill becomes its holder at or after its maturity in his own right, the instrument is discharged.

Question 74.
A Bill of Exchange was made without mentioning any time for Payment. The holder added the words on demand” on the face of the instrument. [Does this amount to any material alteration? Explain]. (May 2019,2 marks)
Answer:
As per the provisions of the Negotiable Instruments Act, 1881, material alteration means the alterations in the material part of the instrument resulting in the alteration in the basic parts of the nature and legal effects of the instruments and the liabilities of the parties.

A bill of Exchange was made without mentioning any time for payment. The holder added the words on demand’ on the face of the instrument. As per the provisions of the Negotiable Instruments Act, 1881, this is not a material alteration as a bill of exchange where no date of payment is specified will be treated as payable on demand. Hence, adding the words “on demand does not alter the business effect of the instrument.

Question 75.
A issues a cheque for ₹ 25,000/- in favour of B. A has sufficient amount in his account with the Bank. The cheque was not presented within reasonable time to the Bank for payment and the Bank. in the meantime, became bankrupt. Decide under the provisions of the Negotiable Instruments Act, 1881. whether B can recover the money from A? (May 2003, 6 marks)
OR
A draws a cheque for 50,000. When the cheque ought to be presented to the drawee bank, the drawer has sufficient funds to make payment of the cheque. The bank fails before the cheque is presented. The payee demands payment from the drawer. What is the liability of the drawer? (May 2005, 6 marks)
Answer:
According to Section 840f the Negotiable Instruments Act, 1881., where a cheque is not presented for payment with-in a reasonable time of its issue and the drawer suffers actual damage through the delay because of the failure of the bank, he is discharged to the extent of such damage. If at any time the bank fails, the drawer had the full amount of the cheque with the banker for the payment of the cheque, he will be discharged in full. In knowing what is a reasonable time regard shall be paid to the nature of the
instrument the usage of trade and of banker and the facts of the particular case.

Thus by using the above provision to the given problem as the payee has not presented the cheque to the drawers oank within a reasonable time when the drawer had funds to clear the cheque, and the drawer has suffered actual damage, than the drawer is discharged from the liability.

Question 76.
A issues an open ‘bearer’ cheque for 10,000 in favour of B who stakes out the word ‘bearer’ and put crossing across the cheque. The cheque is thereafter negotiated to C and D. When it is finally presented by D’s banker, it is returned with remarks “Payment countermanded” by drawer. In response to this legal notice from D, A pleads that the cheque was altered after it had been issued and therefore he is not bound to pay the cheque. Referring to the provisions of the Negotiable Instruments Act, 1881 decide, whether A’s argument is valid or not? (May 2009, 5 marks)
Answer:
Provisions:
Sometimes, cheques may be altered between drawing and presentation period without authority from the drawer. Some alterations are material and some are not. In Aidons y. Cornwall, a material alteration was defined as “an alteration which changes the business effect of the instrument if used for any business purpose. Any alteration made in the instrument which causes it to speak a different languages from what is originally intended, or which changes the legal identity of the instrument in its terms orín relation or parties thereto is a material alteration.

Examples of material alteration are: Change

• in the time of payment;
• date:
• place of payment;
• sum payable;
• rate of interest;
• relation
• between the parties, etc.

Effect of Material Alteration (Sec. 87): The material alteration of a negotiable instrument becomes void as against any one who is a party there to at the time of making such alteration and does not consent there to. A material alteration will be valid, if the same was made in order to carry out the common interest of the original parties. An alteration to be valid, must be under the full signature of the drawer.

Any material alteration made by an Endorsee shall have the effect of discharging his endorsers from all liability to him in respect of the consideration thereof.

Present Case: In this problem, the cheque bears two alterations when it is presented to the paying banker (i) the word ‘bearer’ has been struck off and
(ii) the cheque has been crossed. Both of these altorations do not amount to material alteration under the provisions of the Act and hence the liability of any including the drawer is not at all affected. ‘A’ is liable to pay the amount of the cheque to the holder.

Question 77.
A’ issued a cheque for ₹ 5,000/- to ‘B’, ‘B’ did not present the cheque for payment within reasonable period. The Back fails. However, when the cheque was ought to be presented to the bank, there was sufficient fund to make payment of the cheque. Now, ‘B’ demands payment from ‘A. Decide the liability of A’ under the Negotiable Instruments Act, 1881. (May 2014, 4 marks)
Answer:
Provision:
According to Sec. 84 of the Negotiable Instruments Act, 1881, where a cheque is not presented for payment with-in a reasonable time of its issue and the drawer suffers actual damage through the delay because of the failure of the bank, he is discharged to the extent of such damage.

If at any time the bank fails, the drawer had the full amount of the cheque with the banker for the payment of the cheque, he will be discharged in full. In knowing what s a reasonable time regard shall be paid to the nature of the instrument the usage of trade and of banker and the facts of the particular case.

Thus by using the above provision to the given problem as the payee has not presented the cheque to th drawer’s bank within a reasonable time when the drawer had funds to clear the cheque and the drawer has sutfered actual damage, then the drawer is discharged from the liability.

Present case:
As per the provisions mentioned above since B has not presented the cheque on time (when he had funds to clear the cheque) A stands discharged. Thus. B cannot demand payment from A. A is not liable.

Question 78.
Mr. Muralidharan drew a cheque payable to Mr. Vyas or order. Mr. Vyas lost the cheque and was not aware of the loss of the cheque. The person who found the cheque forged the signature of Mr. Vyas and endorsed it to Mr. Parshwanath as the consideration for goods bought by him from Mr. Parshwanath. Mr. Parshwanathencasheci the cheque, on the very same day from the drawee bank. Mr. Vyas intimated the drawee bank about the theft of the cheque after three days. Examine the liability of the drawee bank. (Nov 2018, 4 marks)
Answer:
Provision: As per Sec. 8501 the N.l. Act, 1881;
1. Where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
2. Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment ¡n due course to the bearer there of, not with standing any indorsement whether in full or in blank appearing there on, and notwithstanding that any such inciorsement purports to restrict or exclude further negotiation.

Present Case:
According to Sec. 850f the Negotiable Instruments Act, 1881 the drawee banker ¡s discharged when he pays a cheque payable to order when it is purported to be endorsed by or on behalf of the payee. Even though the endorsement of Mr. Vyas is forged, the banker is protected and he is discharged. The true owner, Mr. Vyas cannot recover the money from the drawee bank. So there is no liability of the drawee bank.

Question 79.
A promissory note specifies that three months after, A will pay ₹ 10,000 to B or his order for value received. It is to be noted that no rate of interest has been stipulated in the promissory note. The promissory note falls due for payment on 01.09.2019 and paid on 31.10.2019 without any interest. Explaining the relevant provisions under the Negotiable Instruments Act, 1881, state whether B shall be entitled to claim interest on the overdue amount? (Jan 2021, 3 marks)
OR
Gireesh, a legal successor of Ripun, the deceased person, signs a Bill of Exchange in his own name admitting a liability of 50.000 i.e. the extent to which he inherits the assets from the deceased payable to Mukund after 3 months from 1st January. 2019. On maturity, when Mukund presents the bill to Gireesh, he (Gireesh) refuses to pay for the bill on the ground that since the original liability was that of Ripun. the deceased, therefore, he is not liable to pay for the bill.

Referring to the provisions of the Negotiable Instruments Act. 1881 decide whether Mukund can succeed in recovering 50.000 from Gireesh. Would your answer be still the same in case Gireesh specified the limit of his liability in the bill and the value of his inheritance is more than the liability? (Jan 2021, 4 marks)
OR
When is Notice of dishonour not necessary under the Negotiable Instruments Act, 1881. (May 1999, 6 marks)
OR
Describe the circumstances whero under notice of dishonour is excused under the Negotiable Instruments Act, 1881. (May 2004, 6 marks)
Answer:
According to Sec. 98 of the Negotiable Instruments Act, 1881. following are the cases where notice of dishonour is not necessary;

1. When the party charged could not suffer damages for want of notice.
2. Where the promissory not is not negotiable.
3. In order to charge the drawer when countermand, payment, notice of dishoniour is unnecessary because the instrument is dishonoured by the express mandate of the drawer himself.
4. In case the drawer himself is acceptor, no notice Is necessary to charge the drawer.
5. When it is dispensed with by the party entitled thereto.
6. When the party entitled to notice cannot after reasonable search be found.
7. When the party entitled to notice, knowing the facts, promises unconditionally by to pay the ami due on the instrument.
8. Where the party liable to give notice is unable, without any fault of its own, to give it. –

Question 80.
When a bill of exchange may be dishonoured by ‘non-acceptance’ and ‘non-payment’ under the provisions of Negotiable Instruments Act, 1881? (Nov 2002,6 marks)
Answer:
A bill of exchange may be dishonoured either by non-acceptance or by non-payment.
Dishonour by Non-acceptance (Sec. 91):
The circumstances under the bill shall be considered as dishonoured by non-acceptance are as follows:
1. When presentment for acceptance is excused and it remains unaccepted.
2. When the drawee could not be found after a reasonable research.
3. When the drawee or one of the several drawees makes default in acceptance upon being duly required to accept the bill.
4. Where the acceptance is qualified.
5. Where the drawee is a person incompetent to contract.

Dishonour by Non-payment (Sec. 92): A negotiable instrument is said to be dishonoured by non-payment, when the maker, acceptor or drawee, as the case may be, makes default in payment upon being duly required to pay the same. Also a negntiable instrument is dishonoured by non-payment when presentment for payment is excused and the instrument remains unpaid after maturity (Sec.76).

Question 81.
What are the circumstances under which a bill of exchange can be dishonoured by non-acceptance? Also, explain the consequences if a’ cheque gets dishonoured for insufficiency of funds in the account. (Nov 2018, 5 marks)
Answer:
Dishonour by non-acceptance (Section 91, the Negotiable Instrument Act, 1881):
A bill may be dishonoured either by non-acceptance or by non-payment. A dishonoure by non-acceptance may take place in any of the following circumstances:
(i) When the drawee either does not accept the bill within forty-eight hours of presentment or refuse to accept it;
(ii) When one of several drawees, not being partners, makes default in acceptance;
(iii) When the drawee gives a qualified acceptance;
(iv) When presentment for acceptance is excused and the bill remains unaccepted; and
(v) When the drawee ¡s incompetent to contract.

An instrument is dishonoured by non-payment when the party primarily liable i.e. the acceptor of a bill, the maker of a note or the drawee of a cheque, make default in payment. An instrument isaiso dishonoured for non-payment when presentment for payment excused and the instrument, when overdue, remains unpaid, under Section 76 of the Act.

Dishonour of cheque for insufficiency, etc. of funds in the account:
Where any cheque drawn by a person on an account maintained by him with a banker for payment is dishonoured due to insufficiency of funds, he shall be punished with imprisonment for a term which may extend to one year or with fine which may be extended to twice the amount of the cheque or with both [Section 138 of the Negotiable Instrument Act, 1881] Provided that nothing in this section shall apply to unless:

• Such cheque should have been presented to the bank within a period of 3 months of the date of drawn or within the period of its validity, whichever is earlier.
• The payee or holder in due course of such cheque had made a demand in writing for the payment of the said amount of money from the drawer 30 days of the receipt of information by him from the bank regarding the return of the cheque unpaid; and
• The drawer of the cheque had failed to pay the money to the payee or holder in due course of the cheque within 15 days for the written demand for payment.

Question 82.
Explain the concept of ‘Noting’, ‘Protest’ and ‘Protest for better security’ as per the Negotiable Instruments Act, 1881. (May 2019, 3 marks)
Answer:
Noting:
As per Sec. 99 of the Negotiable Instruments Act, 1881, when a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment the holder may cause such dishonour to be noted by a notary public upon the instrument, or upon a paper attached thereto, or partly upon each.

Such note must be read within a reasonable time after dishonour, and must specify the date of dishonour, the reason, if any assigned for such dishonour, or if the instrument has not been expressly dishonoured, the reason why the holder treats ¡t as dishonoured, and the notary’s charges.

Protest:
As per Sec. 100 of the Negotiable Instrument Act, 1881, when a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment the holder may within a reasonable time, cause such dishonour to be noted and certified by a notary public. Such certificate is called a protest.

Protest for better Security:
When the acceptor of a bill of exchange has become insolvent, or his credit has been publicly impeached, before the maturity of the bill, the holder may within a reasonable time, cause a notary public to demand better security of the acceptor, and on its being refused may. within a reasonable time cause such facts to be noted and certified as aforesaid. Such certificate is called a protest for better security.

Question 83.
A bill of exchange has been dishonoured by non-payment. Now, Mr. Sandip, the holder wants a certificate of protest for such a dishonoured bill. Advise, Mr. Sandip whether he can get the certificate of protest. Also. advise him regarding the provisions of Protest for better security.
Answer:
Protest: According to section 100 of the Negotiable Instruments Act.1 881, when a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may. within a reasonable time, cause such dishonour to be noted and certified by a notary public. Such a certificate is called a protest.

Protest for better security: When the acceptor of a bill of exchange has become insolvent, or his credit has been publicly impeached, before the maturity of the bill, the holder may, within a reasonable time, cause a notary public to demand better security of the acceptor, and on its being refused may, with a reasonable time, cause such facts to be noted and certified as aforesaid. Such a certificate is called a protest for better security. Thus, Mr. Sandip can get the certificate of protest by following the above provisions.

Question 84.
What are the penalties prescribed In the Negotiable Instruments Act, 1881 in case of dishonour of a Cheque for insufficiency of funds in the account of the person issuing the Cheque? What steps the payee should take for making the drawer liable for this offence? (1998 – May, 7 marks)
Answer:
Section 138 of the Negotiable Instruments [added by the (Amendment) Act, 1988 and now amended by Negotiable Instruments [Amendment; Act, 2002] states the criminal penalties in the event of dishonour of cheques for insufficiency of funds. The drawer under Section 138, may be punished with imprisonment upto 2 years or with a fine upto twice the amount of the cheque or with both. To constitute, the said offence, certain conditions are to be fulfilled. These are:

1. The cheque should have been presented within 6 months from the date on which it is drawn or within the period of validity, which ever is earlier.
2. The drawer is liable only if he fails to make the payment within 15 days of such notice period.
3. The payee or holder In due course of the cheque should have been given notice demanding payment within 30 days from the drawer on receipt of information of dishonour of cheque from the bank.

complaint within one month: The payee or the holder in due course of the cheques dishonoured should have made a complaint within one month of cause of action arising out. If the cheques is drawn as a gift no offence will be committed, it the said cheque is returned by the bank unpaid.

Question 85.
A finance company after having issued a cheque in favour of a depositor informs the depositor not to present the cheque as well as informs the bank to stop payment. Examine with reference to the provisions of the Negotiable Instruments Act whether it is an offence under the Act. (May 2000, 6 marks)
OR
Bholenath drew a cheque in favour of Sureridar. After having issued the cheque, Bholenath requested Surendar not to present the cheque for payment and gave a stop payment request to the bank in respect of the cheque issued to Surendar. Decide, under the provisions of The Negotiable Instruments Act, 1681 whether the said acts of Bholenath constitute an offence. (May 2018, 4 marks)
Answer:
(d) Dishonour of cheque: The tacts of the case are some what similar to Modi Cements Ltd vs. Kuchil Kumar Nandi. In This csse, the Supreme Court held that once a cheque is issued by the drawer, a presumption, under Section 139 of the Act, follows and merely because the drawer issues a notice thereafter to the drawer or to the bank for stoppage of payment, it will not preclude on action under Section 138. This Section is a penal provision in the sense that once a cheque is drawn on an account kept by the drawer with his banker for payment of any amount of money to some other person from out of that account for the discharge of in whole or in part of any debt or other liability.

The cheque is returned by the bank unpaid due to insufficiency of amount to honour cheques or the amount exceeding the arrangement made with the bank. These types of persons are deemed to have committed an offence.

In view of this Supreme Court decision, the finance company may be said to have committed an offence under Sec.1 38 of the Negotiable Instruments Act, 1881.

Question 86.
State the circumstances under which the drawer of a cheque will be liable for an offence relating to dishonour of the cheque under the Negotiable Instrument Act, 1881. Examine, whether there is an offence under the Negotiable Instrument
Act, 1881, if a Drawer of a cheque after having issued the cheque, informs the Drawee not to present the cheque as well as informs the Bank to stop the payment. (May 2007, 5 marks)
Answer:
According to Sec. 138-142 of the Negotiable Instruments Act (added by the Amendment Act 1988 and now amended by Negotiable instruments Act, 2002, the Bouncing of Cheque is a Criminal Offence. In case of Bouncing of Cheque the drawer may be punished with an imprisonment upto 2 years or with a fine up to twice the amount of the cheque or with both.

The following conditions must be satisfied for aforesaid punishments:

1. The cheque should have been dishonoured, due to insufficiency of funds in the account maintained in the bank.
2. The payment ror which the cheque was issued should have been in discharge of a legally enforceable debt or liability in whole or part of it.
3. The cheque should have been presented within 6 months of its period of validity.
4. The holder in due course of the cheque should have been given notice demanding payment within 30 days.
5. The drawer is liable only if he tails to make the payment within 18 days of such notice period.
6. The payee or holder in due course of the cheque dishonoured. should have made a complaint within one month of cause of action arising out of Sec. 138.

Problem: Once a cheque is issued by the drawer, he is bound by it to discharge and merely because he issued a notice for stoppage of payment, will not prelude an action under sec 138. Hence, the drawer of cheque will be liable for offence u/s 138 for dishonour of cheque. Modi Cements Ltd. Vs Kuchil Kumar Nandi.

Question 87.
A drawer of a cheque after having issued the cheque, informs the drawee not to present the cheque as well as inform the bank to stop the payment. Decide whether it constitutes an offence against the drawer under the Negotiable Instruments Act 1881? (May 2017, 4 marks)
Answer:
As per the provision of Sec. 139 of the N. I. Act, 1881, it shall be presumed unless the contrary is proved that the holder of a cheque received the cheque of the nature referred to in Sec. 138 for the discharge in whole or in part or any debt or other liability.

Once a cheque is issued by the drawer, he is bound by it to discharge and merely because he issued a notice for stoppage of payment, it will not preclude an action under sec 138. Hence, the drawer of cheque will be liable for offence u/s 138 for dishonour of cheque. Leading Cases: Modi Cements Ltd. Vs Kuchil Kumar Nandi.

Question 88.
J. a shareholder of a Company purchased for his personal use certain goods from a Mall (Departmental Store) on credit. He sent a cheque drawn on the Company’s account to the Mall (Departmental Store) towards the full payment of the bills. The cheque was dishonoured by the Company’s Bank J, the shareholder of the company was neither a Director nor a person in-charge of the company. Examining the provisions of the Negotiable Instruments Act, 1881 state whether has committed an offence under Sec. 138 of the Act and decide whether he (J) can be held liable for the payment, for the goods purchased from the Mall (Departmental Store). (Nov 2006, 5 marks)
Answer:
According to Sec. 138 of the Act, when a cheque is dishonoured duo to insufficiency of funds in the drawer’s account such person shalt be deemed to be have committed an offence, and be punished with imprisonment for a term which may extend to two year or with fine which may extend to twice the amount of the cheque or with both.

Furthermore, if the person committing an offence is a company or a person incharge of and responsible to the company for the conduct of the business of the company as well as the company shall be deemed guilty of offence and shall be liable to be proceeded against and punished accordingly. In he present case, J, a shareholder of company has drawn a cheque on the company’s account towards full payment of goods purchased from a Mall (Departmental Store).

Although cheque was drawn on company’s account but company is not guilty of offence as it was committed without his knowledge. Moreover, J is neither a Director nor a person in charge of company. Therefore he is not liable for the goods purchad from ‘he Mall.

Question 89.
PQR Limited received a cheque for ₹ 50,000 from its customer Mr. LML after a week company came to know that the proceeds were not credited to the account of PQR Limited due to some defects’, as informed by the Banker. What according to you are the possible effects? (May 2007, 5 marks)
Answer:
According to Sec. 138-142 of the Negotiable Instruments Act (added by the Amendment Act 1988 and now amended by Negotiable Instruments Act, 2002, Bouncing of Cheque Is a Criminal Offence. In case of Bouncing of Cheque, the drawer may be punished with an imprisonment upto 2 years or with a fine upto twice the amount of the cheque or with both.

The following conditions must be satisfied for aforesaid punishments:

1. The cheque should have been dishonoured, due to insufficiency of funds in the account maintained in the bank.
2. The payment for which the cheque was issued should have been in discharge of a legally enforceable debt o? liability in whole or part of It.
3. The cheque should have been presented within 6 months of its period of validity.
4. The holder in due course of the cheque should have been given notice demanding payment within 30 days.
5. The drawer is liable only if he fails to make the payment within 18 days of such notice period.
6. The payee or holder in due course of the cheque dishonoured, should have made a complaint within one month of cause of action arising out of Sec. 138.

Question 90.
Mr. S Venkatesh drew a cheque in favour of M who was sixteen years old. M settled his rental due by endorsing the cheque in favour of Mrs. A the owner of the house in which he stayed. The cheque was dishonoured when Mrs. A presented it for payment on grounds of inadequacy of funds. Advise Mrs. A how she can proceed to collect her dues. (Nov 2018, 4 marks)
Answer:
Provision:
As per Section 26 of the Negotiable Instruments Act, 1881, Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. However, a minor may draw, endorse, dliver and negotiate Such instruments so as to bind all parties except himself.

Present Case:
Mr. S Venkatesh draws a cheque in favour of M, a minor. M endorses the same in favour of Mrs. A to settle his rental dues. The cheque was dishonoured when it was presented by Mrs. A to the bank on the ground of inadequacy of funds. A minor may draw, endorse, deliver and negotiable the Instrument so as to bind all parties except himself. Therefore. M is not liable. Mrs. A can thus, proceed against Mr. S Venkatesh to collect her dues.

Question 91.
Ram purchases some goods on credit from Slngh, payable within 3 months. After 2 months, Ram makes out a blank cheque in favour of Singh, signs and delivers it to Singh with a request to fill up the amount due, as Ram does not know the exact amount payable by him. Singh falls up fraudulently the amount larger than the amount payable by Ram and endorses the cheque to Chandra in full payment of Singh’s own due. Ram’s cheque is dishonoured. Ref&rring to the provisions of the Negotiable Instruments Act, 1881, discuss the rights of Singh and Chandra. (May 2019, 3 marks)
Answer:
Sec. 44 of the Negotiable Instruments Act, 1881 is applicable in this case. According to Section 49 of this Act, Singh who is a party in immediate relation with the drawer of the cheque is entitled to recover from Ram only the exact amount due from Ram and not the amount entered in the cheque. However, the right of Chancira, who is a holder for value, is not adversely affected and he can claim the full amount of the cheque from Singh.

Multiple Choice Question

Question 1.
The Negotiable Instruments Act, came into force on the …………………….. .
(a) 1.1.18.81
(b) 1.2.1881
(c) 1.3.1882
(d) 1.12.1981
Answer:
(c) 1.3.1882

Question 2.
The Negotiable Instruments Act,1881 extends to the ………………….. .
(a) Whole of India excluding State of Jammu
(b) Whole of India excluding State of Jammu and Kashmir
(c) Whole of India
(d) Whole of India excluding State of Goa?
Answer:
(c) Whole of India

Question 3.
The Negotiable Instruments Act, 1881 relate to the law relating to ……………….. .
(a) Promissory notes
(b) Bills of exchange
(c) Cheques
(d) All of above
Answer:
(d) All of above

Question 4.
Chapter XVII was inserted into the Negotiable instruments Act, 1881, by amendment of the Act, in the year
(a) 1888
(b) 1988
(c) 1998
(d) None of the above
Answer:
(b) 1988

Question 5.
Chapter XVII contains sections
(a) 138 to 142
(b) 136 to 142
(c) 112 to 124
(d) None of the above.
Answer:
(d) None of the above.

Question 6.
With effect from which date, the term of imprisonment under Section 138 was increased to two years from one year?
(a) from 6-2-2002
(b) from 6-2-2003
(c) from 1-4-1989
(d) none of the above
Answer:
(b) from 6-2-2003

Question 7.
The term Negotiable instrument’ is defined in the Negotiable Instruments Act,t 881, under section
(a) 12
(b) 13
(c) 13A
(d) 13B.
Answer:
(b) 13

Question 8.
Section 13 of ‘Negotiable Instruments Act, 1881’ mentions which kind of instrument
(a) bill of exchange
(b) promissory note
(c) cheque
(d) all of above.
Answer:
(d) all of above.

Question 9.
The term ‘negotiation in section 14 of the Negotiable Instruments Act, 1881 refers to
(a) the transfer of a bill of exchange, promissory note or cheque to any person, so as to constitute the person the holder thereof
(b) the payment by a bank on a negotiable instrument after due verification of the instrument
(c) the bargaining between the parties to a negotiable instrument
(d) all of the above
Answer:
(a) the transfer of a bill of exchange, promissory note or cheque to any person, so as to constitute the person the holder thereof

Question 10.
Cheque is a
(a) promissory note
(b) bill of exchange
(c) both (a) and (b) above
(d) none of the above.
Answer:
(b) bill of exchange

Question 11.
If an instrument may be construed either as a promissory note or bill of exchange, it is
(a) a valid instruments
(b) an ambiguous instrument
(c) a returnable instrument
(d) none of the above.
Answer:
(b) an ambiguous instrument

Question 12.
Which of the following can be considered as characteristics of Negotiable Instruments?
(a) The holder of the instruments is presumed to he the owner.
(b) They are not freely transferable.
(c) They are transferable subject to restriction.
(d) Both (b) or (c)
Answer:
(a) The holder of the instruments is presumed to be the owner.

Question 13.
If in an instrument the amount undertaken or ordered to be paid is stated differently in figures and in words
(a) the instrument ¡s void due to uncertainty
(b) the amount of stated in figure should be the amount undertaken or ordered to be paid
(c) the amount stated in words shall be the amount undertaken or ordered to be paid
(d) none of the above.
Answer:
(c) the amount stated in words shall be the amount undertaken or ordered to be paid

Question 14.
Which of the following can be considered as characteristics of Negotiable Instruments?
(a) The holder in due course is entitled to sue on the instrument in his own name.
(b) The instrument is transferable till maturity and in case of cheques till it becomes stale.
(c) Both (a) and (b)
(d) None of the above.
Answer:
(c) Both (a) and (b)

Question 15.
Under Section 16 of the Negotiable Instrument Act, indorsement in blank’ of an instrument means
(a) whore the indorser does not write anything on the instrument
(b) where the indorser signs his name only on the instrument
(c) where the inclosure writes the name of the person who is directed to pay
(d) none of the above
Answer:
(b) where the indorser signs his name only on the instrument

Question 16.
Which of the following can NOT be considered as characteristics of Negotiable Instruments?
(a) The holder of the instrument is not presumed to be the owner.
(h) They are conditionally transferable
(c) A holder in due course is entitled to sue on the instrument in his own name.
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 17.
‘At sight’ under Section 21 of the Negotiable Instrument Act, 1881, means
(a) on presentation,
(b) on demand
(c) on coming into vision
(d) none of the above.
Answer:
(b) on demand

Question 18.
Which of the following can NOT be considered as characteristics of Negotiable Instruments?
(a) A holder do not gets the instrument free from all defects of title of any previous holder.
(b) The instruments is transferable till maturity
(c) They are freely trasferabe.
(d) All of above
Answer:
(a) A holder do not gets the instrument free from all defects of title of any previous holder.

Question 19.
The undertaking contained in a promissory note, to pay a citin sum of money is
(a) conditional
(b) unconditional
(c) may be conditional or unconditional depending upon the circumstances
(d) none of the above.
Answer:
(b) unconditional

Question 20.
A negotiable instrument is freely transferable.
(a) No
(b) Yes
(c) Partly yes
(d) None of the above
Answer:
(b) Yes

Question 21.
A bill of exchange contains alan
(a) unconditional undertaking
(b) unconditional order
(c) conditional undertaking
(d) conditional order.
Answer:
(b) unconditional order

Question 22.
A promissory note or bill exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity
(a) on the 30th day after the day on which it is expressed to be payable
(b) on the 3rd day after the day on which it is expressed to be payable
(c) on th 5th day after the day on which it is expressed to be payable
(d) on the 4th day after the day on which it is expressed to be payable.
Answer:
(b) on the 3rd day after the day on which it is expressed to be payable

Question 23.
Which of the following is a valid promissory note
(i) I promise to pay B or order ₹ 500”
(ii) Mr. B.I owe your ₹ 500.00”
(iii) I promise to pay B ₹ 500.00 when he is twenty-one years old’
(iv) I promise to pay B ₹ 500 and all other sums which shall be due to him”
(v) I acknowledge myself to be indebted to B in ₹ 1,000 to be paid on demand for value received.
(a) I,II and V
(b) I,III and V only
(c) I and V only
(d) all of the above statements are valid.
Answer:
(c) I and V only

Question 24.
‘Promissory Note is defined under
(a) Section 2 of Nl Act
(b) Section 3 of NI Act
(c) Section 4 of NI Act
(d) Section 5 of NI Act
Answer:
(c) Section 4 of NI Act

Question 25.
A ‘bill of exchange’ is defined under
(a) Section 4 of NI Act
(b) Section 5 of NI Act
(c) Section 6 of NI Act
(d) Section 2 of Nl Act
Answer:
(b) Section 5 of NI Act

Question 26.
The undertaking contained in a promissory note, to pay a certain sum of money is
(a) conditional
(b) unconditional
(c) either (a) or (b), depends upon the circumstances
(d) none of the above
Answer:
(b) unconditional

Question 27.
A promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity
(a) on the 30th day after the day on which it s expressed to be payable
(b) on 6th day after the day on which it is expressed to be payable
(c) on 15th day after the day on which il is expressed to be payable
(d) on 3rd day after the day on which it is expressed to be payable.
Answer:
(d) on 3rd day after the day on which it is expressed to be payable.

Question 28.
In a promissory note the amount of money payable
(a) is usually uncertain
(b) must be certain
(c) may be certain or uncertain
(d) both (a) and (c) aove are true
Answer:
(b) must be certain

Question 29.
An authority to draw bill of exchange
(a) it self imports an authority to indorse
(b) does not itself import an authority to indorse
(c) sometimes import an authority to indorse
(d) none of the above
Answer:
(b) does not itself import an authority to indorse

Question 30.
In a promissory note, the promise to pay
(a) must be express
(b) may be implied also
(c) may be Implied or express
(d) both (b) and (c)
Answer:
(a) must be express

Question 31.
Cheque’ is defined under
(a) Section 2 of NI Act
(b) Section 4 of NI Act
(c) Section 5 0f NI Act
(d) Section 6 of NI Act
Answer:
(d) Section 6 of NI Act

Question 32.
Promise to pay in a Promissory Note must be in respect of
(a) money consideration only
(b) other than money
(c) both money and some other consideration
(d) none of the above.
Answer:
(a) money consideration only

Question 33.
In a negotiable instrument, where amount is stated differently in words and ligures
(a) amount stated in figures shall be the amount undertaken
(b) amount slated in words shall be the amount undertaken
(c) amount which is larger shall ta the amount undertaker
(d) instrument is void due to uncertainty
Answer:
(b) amount slated in words shall be the amount undertaken

Question 34.
The term a cheque in the electronic form is defined in the Negotiable Instruments Act, 1881 under
(a) Section 6(a)
(b) Section 6(2)(a)
(c) Explanation 1(a) of Section 6
(d) Section 6A.
Answer:
(c) Explanation 1(a) of Section 6

Question 35.
A cheque is a
(a) promissory note
(b) bill of exchange
(c) both (a) and (b) above
(d) none of the above.
Answer:
(b) bill of exchange

Question 36.
If a minor draws, indorses, deliver or negotiates an instrument, such instrument binds
(a) all parties to the instrument induding the minor
(b) only the minor and not other parties to the instrument
(c) all parties to the instrument except the minor
(d) none of the above.
Answer:
(c) all parties to the instrument except the minor

Question 37.
Dishonour by non-acceptance takes place
(a) when the bill is properly presented for acceptance, except where presentment is excused, but the drawee makes the default in accepting it
(b) when the bill is properly’ presented for acceptance, except where presentment is excused, but the drawee makes the default in paying it
(c) when the bill is properly presented for payment, except where presentment is excused, but the drawee fails to accept it
(d) none of the above
Answer:
(a) when the bill is properly presented for acceptance, except where presentment is excused, but the drawee makes the default in accepting it

Question 38.
An authority to draw bills of exchange
(a) itself import an authority to indorse
(b) does not itself import an authority to indorse
(c) sometime import an authority to inclorse
(d) none of the above.
Answer:
(b) does not itself import an authority to indorse

Question 39.
Where a cheque is crossed generally the banker on whom it is drawn
(a) shall not pay it otherwise than to a banker
(b) shall not pay it otherwise than to the holder
(c) shall not pay it to a banker
(d) none of the above.
Answer:
(a) shall not pay it otherwise than to a banker

Question 40.
The term ‘legal representative’ in Section 29 of the Negotiable Instruments Act, 1881
(a) does not include executors or administrators (Rama y. Pravin, AIR 1926 Mad 389)
(b) includes executors or administrators (K. Subbanna v.K. Subbarayudu, AIR 1926 Mad 390)
(c) includes executors but does not include administrators (P. Nayar V.T. Ramann. a AIR 1929 Mad 389)
(d) includes only administrators but does not include executors (P,K. Party. Damoclar Sahu, AIR 1953 Ori 179).
Answer:
(b) includes executors or administrators (K. Subbanna v.K. Subbarayudu, AIR 1926 Mad 390)

Question 41.
Under Negotiable Instrument Act, 1881. an instrument writing containing an unconditional order signed by the maker, to pay a certain sum of money only to. or to the order of, a certain person or to the bearer of the instruments is a
(a) Promissory Note
(b) Bill of Exchange
(c) Currency Note
(d) Truncated Cheque.
Answer:
(a) Promissory Note

Question 42.
Can a drawer escape from his liability?
(a) no, a drawer can never escape from his liability
(b) yes, a drawer can limit or exclude his liability by inserting in the bill an express stipulation to that effect
(c) in certain cases although he can escape from his liability but always he cannot so escape
(d) none of the above.
Answer:
(b) yes, a drawer can limit or exclude his liability by inserting in the bill an express stipulation to that effect

Question 43.
If the words ‘not negotiable” are used with special crossing in a cheque. the cheque is
(a) not transferable
(b) transferable
(c) negotiable under certain circumstances
(d) none of the above.
Answer:
(b) transferable

Question 44.
Crossing or a cheque effects the
(a) negotiability of the cheque
(b) mode of payment on the cheque
(c) both (a) and (b)
(d) none of the above.
Answer:
(b) mode of payment on the cheque

Question 45.
Who among the following cannot cross a cheque?
(a) drawer
(b) holder
(c) banker
(d) All of the above

Question 46.
A bill is drawn payable to A’ or order. ‘A’ indorses it to ‘B the indorsement not containing the words or order” or any equivalent words. Can B negotiate the instrument?
(a) yes
(b) no
(c) not always
(d) none of the above.
Answer:
(a) yes

Question 47.
Where an indorser of an instrument excludes his liability and afterwards becomes the holder of the instrument, who are liable to him?
(a) no one is liable to h,m
(b) all intermediate indorsers are liable to him
(c) only the immediate prior indorser is liable to him
(d) none of the above.
Answer:
(b) all intermediate indorsers are liable to him

Question 48.
Can the legal representative of a deceased person negotiate a promissory note, bill of exchange or cheques payable to order by delivery only which was endorsed by the deceased but not delivered by him?
(a) yes, the legal representative can negotiate the instrument by delivery by only
(b) no, the legal representative can rt negotiable an instrument by delivery only. He must re-indorse and delivery the instrument for negotiating it.
(c) an instrument indorsed by a deceased person has no legal variety and is void
(d) none of the above.
Answer:
(b) no, the legal representative can rt negotiable an instrument by delivery only. He must re-indorse and delivery the instrument for negotiating it.

Question 49.
Can the holder of a negotiable instrument indorsed in blank convert the indorsement into an indorsement in full?
(a) no, such a conversion is not possible under the Negotiabte Instruments Act, 1881
(b) yes. the holder can, without singing his own name, and by writing above the indorser’s signature a direction to pay to any other person as inciorsee, convert the indorsement in blank into an indorsement in full (Section 49)
(c) yes the holders can by signing his own name and by writing above the indorser’s signature a direction to pay to any other person as indorsee, convert the indorsement in blank to an indorsement in full (Section 49)
(d) none of the above.
Answer:
(b) yes. the holder can, without singing his own name, and by writing above the indorser’s signature a direction to pay to any other person as incisors, convert the indorsement in blank into an indorsement in full (Section 49)

Question 50.
The endorsement of a negotiable instrument followed by delivery
(a) transfers to the indorsee the property in the bill, provided the indorsement must be an indorsement in full
(b) does not Transfer the property in the bill to anyone
(c) transfers t the indorsee the property in full ……………… ?
(d) None of the above
Answer:
(c) transfers t the indorsee the property in full ……………… ?

Question 51.
A negotiable instrument may be transferred by
(a) Negotiation
(b) Assignment
(c) Negotiation or assignment
(d) Delivery
Answer:
(c) Negotiation or assignment

Question 52.
………………………… is the transfer of an instrument a note, bill or cheque for one
person to another in such a manner as to convey title and to constitute the transferee the holder thereof.
(a) Negotiation
(b) Assignment
(c) Delivery
(d) Sale
Answer:
(b) Assignment

Question 53.
In case of assignment, there is a transfer of ownership by means of a ……………………. document.
(a), Written
(b) Registered
(c) Written and registered
(d) Stamped
Answer:
(c) Written and registered

Question 54.
When presentment for payment is to be made under Section 65 of the Act?
(a) Presentment for payment can be made at any reasonable time.
(b) Presentment for payment must be made during the usual hours of business and, if at a banker’s within banking house.
(c) There is no such stipulation on the time for presentment.
(d) none of the above.
Answer:
(b) Presentment for payment must be made during the usual hours of business and, if at a banker’s within banking house.

Question 55.
In determining reasonable time for the purpose of payment of a negotiable instrument
(a) public holidays are included
(b) public holidays are excluded
(c) only the holidays observed by the banks are excluded
(d) none of the above.
Answer:
(b) public holidays are excluded

Question 56.
The question of the reasonableness of the time for presenting a bill of exchange for payment is a
(a) question of law
(b) question of fact
(c) mixed question of law and fact
(d) none of the above.
Answer:
(c) mixed question of law and fact

Question 57.
When the acceptor of an Instrument is also a drawer, notice of dishonour is
(a) necessary [Section 98A]
(b) not necessary [Section 98 (c)]
(c) not always necessary but under certain circumstances mentioned in Section 98k of the Act, it is a must
(d) none of the above.
Answer:
(b) not necessary [Section 98 (c)]

Question 58.
Under Section 97. of the Negotiable Instruments Act, when the party to whom notice of dishonour is dispatched is dead, but the party dispatching the notice is ignorant of his death, the notice is
(a) sufficient
(b) not sufficient
(c) null and void and has no effect
(d) none of the above.
Answer:
(a) sufficient

Question 59.
As per the provision of Section 93, when a cheque is dishonoured by non-acceptance or non-payment the holder
(a) may or may not give notice to the parties whom the holder seeks to make liable thereon
(b) must given notice to the parties whom the holder sees to made
(c) must give notice to the parties whom the holder such to make liable, but after noting
(d) must not give any notice to anyone.
Answer:
(b) must given notice to the parties whom the holder sees to made

Question 60.
A note under Section 99 of the Negotiable Instruments Act, should contain among other things
(a) place of the notary
(b) charges of notary
(c) both (a) and (b)
(d) none of the above.
Answer:
(b) charges of notary

Question 61.
A notice of protest under Section 102 of the Negotiable Instruments Act, 1881
(a) maybe given by the notary public who makes the protest
(b) must always be given by the notary public who makes the protest
(c) must be given by the holder
(d) none of the above.
Answer:
(a) maybe given by the notary public who makes the protest

Question 62.
A protest must contain
(a) the dance of the person for whom the instrument has been protested
(b) the name of the person against whom the instrument has been protested
(c) the instrument itself or its literal transcript
(d) all of the above.
Answer:
(d) all of the above.

Question 63.
A protest is made by
(a) by drawer
(b) the indorser
(c) a notary
(d) none of the above.
Answer:
(c) a notary

Question 64.
Under Section 118 of the Negotiable Instruments Act, 1881, it is presumed, until the contrary is proved, that every transfer of a negotiable instrument was made
(a) after its maturity
(b) before is maturity
(c) at its maturity
(d) none of the above.
Answer:
(b) before is maturity

Question 65.
To whom of the following, payment of the amount due on a promissory note, bill of exchange or cheque must be made in order to discharge the maker or acceptor
(a) holder of the instrument
(b) indorser of the instrument
(c) indorsee of the instrument
(d) none of the above.
Answer:
(a) holder of the instrument

Question 66.
Under Section 118 of the Negotiable Instruments Act, the onus of proving absence of consideration in the execution of a negotiable instrument is on the
(a) indorser (Zohra Jan y. Rajan Bibi, 28 IC 402)
(b) executant (Zohra Jan y. Rajan Bibi, 28 IC 402)
(c) drawee (R.S. Rajoswara Seth upathi y. Chidambaram Chettaiar, AIR 1938 PC 123)
(d) none cl the above.
Answer:
(b) executant (Zohra Jan y. Rajan Bibi, 28 IC 402)

Question 67.
What Is the presumption under Section 137 of the Negotiable Instruments Act. 1881?
(a) a negotiable instrument drawn in a foreign country is genuine
(b) the law of any foreign country regarding promissory notes, bills of exchange and cheques is same as that of India
(c) both (a) and (b)
(d) none of the above.
Answer:
(b) the law of any foreign country regarding promissory notes, bills of exchange and cheques is same as that of India

Question 68.
The presumption as to the date ola negotiable instrument under Section 118 is that, every negotiable instrument bearing a date was made or drawn
(a) prior to that date
(b) on such date
(c) maybe on or prior to that date
(d) none of the above.
Answer:
(b) on such date

Question 69.
As per Section 147 of the Negotiable Instruments Act. 1881. every of lence punishable under The Act, are
(a) compoundable
(b) uncompoundable
(c) cognizable
(d) both (b) and (c) above,
Answer:
(c) cognizable

Question 70.
Under the provisions of Section 143 of the Negotiable Instruments Act, 1881. aIl of offences under the Act are to be tried by
(a) any judicial Magistrate
(b) judicial Magistrate of the First Class or by Metropolitan Magistrate
(c) only a District Judge
(d) none of the above.
Answer:
(b) judicial Magistrate of the First Class or by Metropolitan Magistrate

Question 71.
For what term of imprisonment an offender under Section 138 of the Negobable Instruments Act, can be punished?
(a) tot a terni which may extend to two years
(b) lot a term which may extend to one year
(c) for a terni not exceeding three years
(d) none of the above.
Answer:
(a) tot a terni which may extend to two years

Question 72.
Section 138 of the Negotiable Instruments Act, 1881, …………………. mens rea
(a) partially excludes
(b) includes
(c) sometime includes
(d) none of the above.
Answer:
(a) partially excludes

Question 73.
For the purpose of attracting the provisions of Section 138 of the Negotiable Instruments Act. 1881, a cheque has to be presented to the bank
(a) within a period of six months
(b) within a period of six months from the state on which it is drawn or within the period of its validity, whichever is earlier
(c) within a period of 15 days from the date on which It iS drawn
(d) none of the above.
Answer:
(b) within a period of six months from the state on which it is drawn or within the period of its validity, whichever is earlier

Question 74.
Cognizance of an offence under Section 138 can be taken by a court only on a/an
(a) police report (Section 142)
(b) complaint (Section 142)
(c) application to the District Judge (Section 142)
(d) none of the above.
Answer:
(b) complaint (Section 142)

Question 75.
Who should make a complaint to a court for the purpose of taking cognizance et an offence under Section 138?
(a) the payer or as the case may be the holder in due course of the cheque
(b) any person who is effected can make a complaint
(c) the payee with the wntten permission of the drawee
(d) none of the above.
Answer:
(a) the payer or as the case may be the holder in due course of the cheque

Question 76.
A complaint against an offence under Section 138 of the Negotiable Instrument Act, 1881
(a) must be in writing (Section 142)
(b) may be oral or in writing (Section 142)
(c) must be in writing containing a declaration by the drawee that he consents to such filing of the complaint (Section 142)
(d) none of the above.
Answer:
(a) must be in writing (Section 142)

Question 77.
In the trial of an offence under Section 138 of the Negotiable Instruments Act, the provisions of Sections 262 to 265 of the Code of Criminal Procedure
(a) shall apply (Section 143)
(b) shall not apply (Section 143)
(c) sometimes shall apply (Section 143)
(d) none of the above.
Answer:
(a) shall apply (Section 143)

Question 78.
Under Section 143 of the Negotiable Instruments Act, an endeavour shall be made to conclude that trial within …………………….. months from the date of filing of the complaint.
(a) 9
(b) 3
(c) 6
(d) 12
Answer:
(c) 6

Question 79.
Can a ‘notice in writing envisaged in Section 138(b) of the Negotiable Instruments Act, 1881, be sent by telegraph?
(a) no (V Raju . P. Subbararna Naidu, AIR 1931 Mad 301)
(b) yes [M. V. Muthuramlingam y. O. Narayanswamy, (1995) 3 Comp Cas 77. Mad)]
(c) yes [A.B. Steels y. Krishna Finance, (1996) 86 Comp Cas 295 (Mad)].
(d) none of the above.
Answer:
(b) yes [M. V. Muthuramlingam y. O. Narayanswamy, (1995) 3 Comp Cas 77. Mad)]

Question 80.
The provision of Section 147 of the Negotiable Instruments Act, 1881, that every offence punishable under this Act shall be compoundable was inserted by the
(a) amending Act of 1988
(b) amending Act of 1980
(c) amending Act of 2002
(d) none of the above
Answer:
(c) amending Act of 2002

Question 81.
The liability under Section 138 of the Negotiable Instruments Act, 1881
(a) strict liability
(b) vicarious liability
(c) both (a) and (b)
(d) none of the above.
Answer:
(a) strict liability

Question 82.
A Magistrate issuing a summons to an aoctised or a witness can send it
(a) by speed post
(b) by courier services
(c) by a courier service as are approved by a court of session
(d) both (a) and (c).
Answer:
(d) both (a) and (c).

Question 83.
Under Section 143 of the Nl Act the trial shall be liable to conclude after filing of complaint within ……………. period.
(a) 2 months
(b) 4 months
(c) 6 months
(d) 5 months.
Answer:
(b) 4 months

Question 84.
Offences under the Negotiable Instruments Act, are triable by
(a) Session Judge
(b) Judicial Magistrate Ist Class
(c) Judicial Magistrate IInd Class
(d) High Court.
Answer:
(b) Judicial Magistrate Ist Class

Question 85.
Which of the following is not a Negotiable Instrument
(a) Bill of Exchange
(b) Cheque
(c) Bond
(d) None of the above.
Answer:
(c) Bond

Question 86.
In Order to rebut the presumption under Section 138 of the NI Act, Accused.
(a) must prove the absence of consideration by direct evidence
(b) must prove absence of consideration beyond reasonable doubt give evidence in defence
(d) may rebut the principle of preponderance of probability.
Answer:
(d) may rebut the principle of preponderance of probability.