Chapter 12 THE NEGOTIABLE INSTRUMENT ACT, 1881

Chapter 12 : THE NEGOTIABLE INSTRUMENT ACT, 1881

1. A person signed a blank acceptance and kept it in his drawer and some person stole it and filled it up for 12.1
Rs. 29,000 and negotiated it to an innocent person for value, In this case whether signer of the blank
acceptance liable to the holder in due course?
a. it was held that b. It was held that the c. it was held that d. it was held that the signer to
the signer to the signer to the blank the signer to the the blank acceptance was not
blank acceptance acceptance was liable to blank acceptance liable to the holder in due course
was liable to the the holder in due course was not liable to the based on situations
holder in due course based on situations holder in due course

2. Suraj draws a cheque In favour of Shekhar, a minor. Shekhar endorses the same in favour of Anural. The
cheque Is dishonored by the bank on grounds of inadequate funds. Who is the person liable to pay here and
Can Anural Sue Shekhar?
a. Person liable to b. Person liable to Pay- c. Person liable to Pay- d. No one is liable
Pay- Suraj, Anural Shekhar, Anural Can sue Shekhar SuraJ, Anural Can sue here
Cannot sue Shekhar Shekhar

3. The main objective of the Negotiable instrument Act, 1881 is to……………….by which Instruments
contemplated by it could pass from hand to hand by negotiation like any other goods.
a. Legalize b. Penalize the person who c. To advise about process of d. to provide rules and
the system fails to follow the system transfer of negotiable regulation about validity of
instrument the instruments

4. The Negotiable Instruments Act, 1881 applies to whole of India but excludes………………….
a. Any State b. Any local c. Any Central d. Transaction as per Reserve Bank of India Act, 1934,
Government authority Govt. section 21 which provides the Bank to have the right to
Transaction Transaction Transactions transact Government business In India

5. The property in a negotiable instrument passes to a………………..transferee for value.

a. Mala fide b. Bona fide c. Both a and b d. Can be Mala fide as well as bona fide

6. A promissory note must contain…….

a. Undertaking b. Conditional c. Unconditional d. can be Conditional undertaking or
undertaking undertaking Unconditional undertaking

7. Where no rate of interest is specified in the bills of exchange or promissory notes then what is the interest
rate used for calculating the interest amount?
a. 15% P.A. b. 18% P.A. c. 12% P.A. d. 16% P.A.

8. Who is the person so entitled at the time of such loss or destruction to receive or recover the amount due
thereon from the parties where the note, bill or cheque is lost or destroyed?
a. acceptor b. Drawer c. Payer d. holder

9. If the holder of a bill of exchange allows the drawer more than…………………..hours, exclusive of public
holidays to consider whether he will accept the same, all previous parties not consenting to such allowance
are thereby discharged from liability to such holder
a. 36 b. 24 c. 72 d. 48

© CA Darshan D. Khare
 Chapter 12 THE NEGOTIABLE INSTRUMENT ACT, 1881

10. In the case of any conviction in a summary trial, it shall be lawful for the Magistrate to pass a sentence of
12.2 imprisonment for a term how many year?
a. not exceeding b. not exceeding two c. not exceeding one d. not exceeding four year
three year year year

11. A promissory note, bill of exchange or cheque…………….

a. may contain words b. does not contain c. does contain words d. does not contain words
prohibiting transfer or words prohibiting prohibiting transfer or prohibiting transfer or
indicating an intention transfer or Indicating an indicating an intention indicating an Intention that
that it shall be Intention that It shall not that it shall not be It shall be transferable
transferable be transferable transferable

12. Cheque Is also a bill of exchange but is drawn on a banker and………….

a. payable on b. Payable after a certain c. at a designated future d. All of the above
demand period date or on demand

13. Out of the below situation, Where it is called as Instruments payable on demand?
a. promissory note b. A promissory note c. A promissory note or bill d. A promissory note or bill
or bill of exchange, or bill of exchange, in of exchange, In which of exchange, in which no
in which no time which Fixed time for specified time for payment is time for payment Is specified
for payment Is payment is specified specified to specified person or fixed time Is specified
specified

14. Suraj draws a cheque for Rs.19, 000 and hands it over to Shekhar by way of gift on his marriage, Who is
the holder in due course in this case?
a. Suraj b. Shekhar c. Both a and b d. None of the above

15. When the day on which a promissory note or bill of exchange Is at maturity is a public holiday, the
instrument shall be deemed to be due on the……………………..
a. next preceding b. Previous business c. On the same date d. Any of the above mentioned
business day day date

16. Where a bill of exchange has been lost before it is overdue, the person who was the holder of it may
apply to whom to give him another bill of the same tenor?
a. Drawer b. acceptor c. Endorser d. Payer

17. Suraj executed a promissory note in favour of Shekhar for Rs. 50 lakhs. The said amount was payable
three days after sight. Bhushan, on maturity, presented the promissory note on 1st March, 2017 to Bharat.
Bharat made the payments on 4th January, 2017. What is the maturity date of the promissory note and
whether Shekhar can recover interest for delay payment?
a. Maturity Date 3rd b. Maturity Date 3rd c. Maturity Date 4th d. Maturity Date 4th March
March 2017, Yes Can March 2017, No Cannot March 2017, Yes Can 2017, No Cannot recover
recover Interest recover Interest recover Interest Interest

18. When the maker or holder of a negotiable Instrument signs the same (otherwise than as such maker) for
the purpose of negotiation is called as whom?
a. Acceptor b. Drawer c. Endorser d. holder

19. A bill of exchange is a negotiable instalment in writing containing an instruction to a third party to pay a
stated sum of money……………………..

© CA Darshan D. Khare
 Chapter 12 THE NEGOTIABLE INSTRUMENT ACT, 1881

a. Payable after a b. payable on demand at any c. at a designated future d. All of the above
certain period point of time date or on demand

20. As per section 6 of the Negotiable Instruments Act, 1881 Cheque in the electronic form means a cheque 12.3
drawn in electronic form by using any computer resource, and signed in a secure system with a digital
signature……………..
a. without biometric b. with or without biometric c. with biometric d. None of the above
signature signature signature

21. After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one,
upon one of such pans, and delivered the same, or given notice of such signing to the holder or to some
person on his behalf, he is called the………………
a. Payer in case of need b. acceptor c. drawer in case of need d. drawee In case of need

22. The maker of a bill of exchange or cheque is called the………. person thereby directed to pay is called
the…………..
a. Payer and receiver b. Drawee and drawer c. Payee and receiver d. Drawer and drawee

23. Validity period for the presentation of cheque in bank is……….

a. 3 Months b. 6 Months c. 1 Year d. 2 Years

24. Any person who for consideration became the possessor of a promissory note, bill of exchange or cheque
is called as…………….
a. Acceptor in due course b. Drawer c. Holder in due course d. Payer

25. Maker of a bill of exchange is called as—

a. Drawer b. Drawee c. Acceptor d. Payee

26. A promissory note is an instrument in…………….

a. Writing b. Photocopy c. Xerox d. All of the above

27. A promissory note Is an Instrument in writing containing an unconditional undertaking signed by the
whom?
a. Anyone b. Payer c. Receiver d. maker

28. Offences committed under the Negotiable Instruments Act can be……..
a. Compoundable b. Non compoundable c. Non compoundable and non-bailable d. Bailable

29. When in the bill the name of any person is given in addition to the drawee to be resorted to In case of
need such person is called………………….
a. Payer in case of need b. Payee in case of c. drawer In case of need d. drawee In case of need
need

30. As per Section 13 of the Negotiable Instruments Act, 1881 A "negotiable Instrument' means a promissory
note, bill of exchange or cheque payable to whom?
a. order or to payer b. order or to receiver c. order or to bearer d. order or to withdrawer

31. How many days of grace are allowed where a note or bill, which Is not expressed to be payable on
demand, at sight or on presentment?

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 Chapter 12 THE NEGOTIABLE INSTRUMENT ACT, 1881

a. 2 b. 3 c. 9 d. 7
12.4
Answer

1. c (Hint: Example, a person 2. a (Hint: Capacity to make, 3. a (Hint: The 4. d (Hint: The
signed a blank acceptance draw, accepts etc. of source of Act applies to
and kept It in his drawer and Instruments (Section 26): A Indian law the whole of
some person stole it and minor may draw, endorse, relating to India, but
fined it up for Rs. 29,000 and deliver and negotiate such such nothing herein
negotiated it to an innocent Instruments so as to bind all instruments contained
person for value, it was held parties except himself. Nothing is affects the
that the signer to the blank herein contained shall be admittedly Reserve Bank
acceptance was not liable to deemed to empower a the English of India Act,
the holder in due course corporation to make, endorse Common 1934, Section
because he never delivered or accept such instruments Law. The 21 which
the instrument intending it except in cases in which, under main provides the
to be used as a negotiable the law for the time being in objective of Bank to have
instrument. Further, as a force, they are so empowered. the Act is to the right to
condition of liability, the Example: Suraj draws a cheque legalize the transact
signer as a maker, drawer, in favour of Shekhar, a minor. system by Government
endorser or acceptor must Shekhar endorses the same in which business In
deliver the instrument to favour of Anural. The cheque is instruments India, or
another. In the absence of dishonored by the bank on contemplat affects any
delivery, the signer Is not grounds of Inadequate funds. ed by It local usage
liable. Furthermore, the Here in this case, Shekhar could pass relating to any
paper so signed and being a minor may draw, from hand instrument in
delivered must be stamped endorse, deliver and negotiate to hand by an oriental
in accordance with the law the instrument so as to bind all negotiation language.)
prevalent at the time of parties except himself. like any
signing and on delivering Therefore, Shekhar is not other
otherwise the signer is not liable. Anural can, thus, goods.)
estopped from showing that proceed against Suraj.)
the instrument was filled
without his authority.)
5. b (Hint: 6. c (Hint: According to 7. b (Hint: When no rate 8. d (Hint: "Holder
Negotiable section 4 of the of interest Is specified [Section 8]— The
Instruments is an Negotiable In the Instrument— "holder of a
instrument which Instruments Act, 1881 interest on the amount promissory note, bill
is transferable (by "A "promissory note" due thereon shall be of exchange or
customs of trade) is an instrument In calculated at the rate cheque means— any
by delivery, like writing (not being a of 18% per annum, person - entitled in his
cash, and is also bank-note or a from the date at which own name to the
capable of being currency-note) the same ought to possession thereof,
sued upon by the containing an have been paid by the and -to receive or
person holding it unconditional party charged, until recover the amount
for the time being. undertaking signed by tender or realization of due thereon from the
The property in the maker, to pay a the amount due parties thereto.
such an certain sum of money thereon, or until such Where the note, bill
instrument passes only to, or to the date after the or cheque is lost or
to a bona fide order of, a certain institution of a suit to destroyed, its holder
transferee for person, or to the recover such amount is the person so
value.) bearer of the as the court directs.) entitled at the time of

© CA Darshan D. Khare
 Chapter 12 THE NEGOTIABLE INSTRUMENT ACT, 1881

instrument.) loss or destruction.)

9. d (Hint: Discharge by 10.c (Hint: Power of 11. b (Hint: A 12. a (Hint: A combined
allowing drawer more Court to try cases promissory note, bill reading of Section 5
than forty-eight hours summarily [Section of exchange or and 6 tells us that a 12.5
to accept [Section 143]:- In case of cheque is payable bill of exchange is a
83]:- If the holder of a summary trial : order which is negotiable
bill of exchange allows Provided that in the expressed to be so instrument in writing
the drawer more than case of any conviction payable or which is containing an
forty eight hours, in a summary trial expressed to be Instruction to a third
exclusive of public under this section, it payable to a party to pay a stated
holidays, to consider shall be lawful for the particular person, sum of money at a
whether he will accept Magistrate to pass a and does not designated future
the same, all previous sentence of contain words date or on demand.
parties not consenting imprisonment for a prohibiting transfer Whereas, a cheque is
to such allowance are term not exceeding or indicating an also a bill of
thereby discharged one year and an intention that it exchange but is
from liability to such amount of fine shall not be drawn on a banker
holder.) exceeding five transferable.) and payable on
thousand rupees.) demand.)
13. a (Hint: 14.d (Hint: SuraJ draws a 15. a (Hint: When day of 16. a (Hint: Holder's
Instruments cheque for Rs.19, 000 maturity is a holiday [Section right to duplicate
payable on and hands It over to 25] When the day on which a of lost bill (Section
demand Shekhar by way of gift promissory note or bill of 454) Where a bill
(Section 19) A on his marriage. exchange is at maturity is a of exchange has
promissory Shekhar is a holder but public holiday, the been lost before it
note or bill of not a holder in due instrument shall be deemed is overdue, - the
exchange, in course as he does not to be due on the next person who was
which no time get the cheque for value preceding business day. the holder of it
for payment is and consideration. His Explanation: The expression may apply - to the
specified, and title is good and "Public Holiday' Includes drawer to give
a cheque, are bonafide. As a holder he Sundays and any other day him another bill of
payable on is entitled to receive declared by the Central the same tenor, -
demand.) Rs.19, 000 from the Government, by notification giving security to
bank on whom the in the Official Gazette, to be the drawer, if
cheque is drawn) a public holiday.) required.)
17. c (Hint: In calculating the date 18.c (Hint: 19. c (Hint: A 20. b (Hint: Cheque [Section
at which a promissory note or Endorsement combined 6]:- A cheque is a bill of
bill of exchange made payable [Section 15]: reading of exchange drawn on a
at certain number of days When the maker section 5 and specified banker and
after date or after sight or or holder of a 6 tells us that not expressed to be
after a certain event is at negotiable a bill of payable otherwise than
maturity, the day of the date, instrument signs exchange is a on demand and it
or of presentment for the same negotiable includes the electronic
acceptance or sight, or of (otherwise than instrument in image of a truncated
protest for non-acceptance, or as such maker)— writing cheque and a cheque in
on which the event happens, for the purpose of containing the electronic form.
shall be excluded. Section 24 negotiation - on an 1. Explanation I : For
of the Negotiable Instruments the back or face instruction to the purposes of this
Act 1881 states that where a thereof or on a a third party section, the
bill or note is payable after slip of paper to pay a expressions- (a)
date or after sight or after annexed thereto, stated sum Cheque In the
happening of a specified or so signs for the of money at electronic forma-
event, the time of payment is same purpose a a designated means a cheque

© CA Darshan D. Khare
 Chapter 12 THE NEGOTIABLE INSTRUMENT ACT, 1881

determined by excluding the stamped paper future date drawn in electronic

12.6 day from which the time intended to be or on form by using any
begins to run. Therefore, in completed as a demand. computer resource,
the given case, Suraj will negotiable Whereas, a and signed In a
succeed In objecting to instrument, - he cheque is secure system with
Shekhar's claim. Bharat paid (maker/holder) is also a bill of a digital signature
rightly "three days after sight". said to indorse exchange but (with/without
Since the bill was presented the same, and is is drawn on a biometric signature)
st
on 1 March, Bharat was called the banker and and asymmetric
required to pay only on the 4th "endorser".) payable on crypto system or
and not on 3rd March, as demand.) electronic signature,
contended by Suraj.) as the case may be.)
21. b (Hint: After the drawee 22. d (Hint: The 23. a 24. c (Hint: "Holder in due course"[Section
of a bill has signed his maker of a bill 9] means any person - who for
assent upon the bill, or, If of exchange or consideration - became the possessor
there are more parts cheque is of a promissory note, bill of exchange
thereof than one, upon called the or cheque (if payable to bearer), or the
one of such parts, and "drawer”. payee or endorsee thereof, (If payable
delivered the same, or The person to order), - before the amount
given notice of such thereby mentioned in it became payable, and -
signing to the holder or directed to pay without having sufficient cause to
to some person on his is called the believe that any defect existed In the
behalf, he is called the "drawee".) title of the person from whom he
"acceptor”.) derived his title.)
25. a 26. a (Hint: According to section 4 of the 27. d (Hint: According to section 4 of THE 28. a
Negotiable Instruments Act, 1881 A NEGOTIABLE INSTRUMENTS ACT, 1881
"promissory note" is an instrument in "A "promissory note" is an instrument
writing (not being a bank-note or a In writing (not being a bank-note or a
currency-note) containing an currency-note) containing an
unconditional undertaking signed by the unconditional undertaking signed by
maker, to pay a certain sum of money the maker, to pay a certain sum of
only to, or to the order of, a certain money only to, or to the order of, a
person, or to the bearer of the certain person, or to the bearer of the
instrument.) instrument.")
29. d (Hint: When in the bill or in 30. b (Hint: Section 13 says, 31. b (Hint: A note or bill, which is
any endorsement thereon the A "negotiable not expressed to be payable on
name of any person Is given in instrument" means a demand, at sight or on
addition to the drawee to be promissory note, bill of presentment, is at maturity on
resorted to in case of need exchange or cheque the third day after the day on
such person Is called a "drawee payable either to order which it is expressed to be
In case of need") or to bearer.) payable. Three days are allowed
as days of grace (Section 22).)

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