DBF – PRINCIPLES AND PRACTICES OF

BANKING
MCQs- Some selected Modules
Part 3
Compiled by R JAGANNATHAN
PAYMENTS AND COLLECTION OF CHEQUES AND
OTHER NEGOTIABLE INSTRUMENTS
1) A cheque is defined under section of NI Act 1881
a) 6
b) 4
c) 5
d) 1
2) Your branch receives a cheque for Rs.100 written in figures and
Rs.1000 in words. Under Section 18 of NI Act, the bank:
a) Is required to return the cheque as the words and figures differ
b) Is required to pay the amount written in words
c) Is required to pay the amount written in figures
d) Is required to pay the lower of the amount written in words and
figures
3) You receive a cheque for payment from the account of a customer,
but it is endorsed with pencil. The endorsement is otherwise regular.
a) Consider it void
b) Will advise the client to draw/endorse with a pen
c) Not permitted under NI Act
d) NI Act is silent but returned by practice
4) The liability of the drawee of the cheque in case of wrongful
dishonor is dealt in Section ______ of NI Act 1881.
a) 10
b) 12
c) 31
d) 46
5) Payment in due course is dealt in Section ___ of NI Act 1881.
a) 9
b) 10
c) 12
d) 13
6) Protection to a paying banker in case of payment a cheque which is
materially altered is dealt in Sec _____ of NI Act 1881
a) 89
b) 79
c) 69
d) 59
7) Section 10 of the NI Act contains the following except:
a) Apparent tenor
b) Good faith
c) Without negligence
d) Sufficient consideration
( Payment in due course .- Payment in due course means payment in
accordance with the apparent tenor of the instrument in good faith and
without negligence to any person in possession thereof under circumstances
which do not afford a reasonable ground for believing that he is not entitled
to receive payment of the amount therein mentioned.)
8) A Cheque which dated 15.10.2015 is received for payment in an
account opened on 25.10.2015. How will you handle the cheque?
a) Will etu the he ue as it is I possi le date
b) Will etu the he ue y uoti g the easo A te date
c) Will return the cheque quoting, cheque cannot be dated prior to
the date of opening of the account
d) Will pay the cheque
9) A cheque does not bear any date is presented for payment. You will
a) Fill up the date and pay
b) Ask the presenter to fill the date
c) Contact the drawer and tell him to fill the date
d) ‘etu the che ue uoti g it is u dated
10) A cheque dated as 30.02.2015 can be paid on or after:
a) 28.02.2015
b) 01.03.2015
c) The cheque cannot be paid
d) The cheque can be paid only after the drawer changes the date
11) A cheque dated 26th Jan 2015 which is a public holiday can be paid
on or after:
a) 27th Jan 2015
b) 25th Jan 2015
c) This cheque cannot be paid as it was a public holiday
d) This cheque can be paid only after the drawer changes the date
12) An order cheque is endorsed in blank:
a) It becomes payable to bearer
b) Its further endorsement becomes restricted
c) Its negotiation features has been stopped
d) It does not need further negotiation
(Instrument Endorsed in Blank: Sec 54: subject to the provisions hereinafter
contained as to crossed cheques, a negotiable instrument endorsed in blank is
payable to the bearer thereof even although originally payable to the order)
13) A cheque is payable to B who is an illiterate. Which among the
following is the desirable manner to endorse the cheque:
a) Cannot be endorsed
b) By affixing left thumb impression
c) By affixing left thumb impression witnessed by some one ( with
address)
d) By affixing the thumb impression in the presence of bank official
14) Which of the following is an essential condition for filing complaint by
the holder, in case of dishonor of cheque for insufficiency of funds:
a) To issue notice to the drawer within 30 days of date of receipt of the
information about dishonor .
b) To issue notice to the drawer within 15 days of date of receipt of the
information about dishonor.
c) Drawer should be given 15 days time period from date of receipt of the
notice by him, to make payment. If the drawer does not pay within 15
days, he is said to have committed a criminal offence
d) All the above
(Sec 138 of NI Act)
15) What is the time period during which the cheque is to be presented
u/s 138 of the NI Act 1881?
a) Before the bank is closed
b) Before the amount in the drawer of the account gets exhausted
c) During the validity period but within three months from the date
of issue
d) Before the cheque is stopped for payment
16) A cheque in favour of Lord Balaji or order is presented for payment
a) Bank can pay
b) Bank cannot pay
c) Bank can pay to the presenter
d) It can be paid only to the drawer or it can be credited to the trust
account in the name of Lord Krishna
17) The remedy under Sec 138 of NI Act to file complaint is not
available to the holder under which of the following circumstances:
a) Where the cheque has been issued without consideration
b) Where the cheque has been issued to discharge the liability
c) Where the cheque has been issued to discharge the liability but its
payment has been stopped
d) Where the cheque has been issued to discharge the liability and the
holder has been asked not to present the cheque
18) A minor can draw or endorse a cheque. This is given in
a) Indian Contract Act
b) Companies Act
c) Section 26 of NI Act 1881
d) Section 62 of NI Act 1881
(Sec 26 of NI Act: 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.
Minor: A minor may draw, endorse, deliver and negotiate such instruments so as to bind all parties except
himself.)
19) A minor is capable of doing the following:
a) Draw a bill
b) Endorse a bill
c) Accept a bill
d) NOA
20) An account holder draws a cheque in favour of a minor aged 12
years and the latter comes to bank for receiving payment of the cheque
in cash. The cheque amount:
a) Cannot be paid to the minor
b) Can be paid to the minor
c) Can be paid only to the guardian of the minor
d) Can be paid only with the two witnesses
21) When a cheque is presented for cash payment, the cashier asks for
a signature of the presenter on the reverse of the cheque: The
signature is taken as it is :
a) Required as per the provisions under NI Act
b) Treated as an endorsement
c) Evidence of having received money
d) NOA
22) The payment of a cheque need not be stopped after you receive an
information that the drawer is:
a) Dead
b) Adjudged insolvent
c) Insane
d) Arrested & imprisoned for criminal liability
23) A cheque when presented in counter is un dated and accordingly
you refused payment. The payee fills up the date in your presence and
tenders it for payment. In this case you should refuse payment as it is:
a) Not a payment in due course
b) A material alteration
c) As you do not know that the payee is an agent of the drawer
d) No. the payment should be made
24) A cheque for Rs.200000 is drawn in favour of Mr. Suresh or bearer.
It is presented by a street vendor near your branch. What will you do?
a) Pay the cheque without any enquiry
b) Refuse to pay the cheque since circumstances are such that the
presenter may not be entitled for receiving the amount
c) Make enquiries and if satisfied pay or otherwise refuse
d) Insist for identification by the drawer
25) Which of the following alteration is not a material alteration?
a) Converting order to bearer cheque
b) Crossing a cheque
c) Cha gi g a payee s a e
d) Changing the date of the cheque
(Sec 10 "Payment in due course" means payment in accordance with the apparent
tenor of the instrument in good faith and without negligence to any person in
possession thereof under circumstances which do not afford a reasonable ground
for believing that he is not entitled to receive payment of the amount therein
mentioned.)
The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment, sate the

26) Payment of a forged cheque is not a valid discharge for the bank of
its liability because:
a) It is not a mandate of the drawer
b) Forgery should have been detected by the bank at any cost
c) If forgery is allowed no one will be accountable for the loss
d) Bank has the signature of the drawer and it cannot deny his liability
(Sec 10 payment in due course and Sec 31-The drawee of a cheque having sufficient funds
of the drawer in his hands properly applicable to the payment of such cheque must pay the
cheque when duly required to do, and in default of such payment, must compensate the
drawer for any loss or damage caused by such default)
27) A cheque has been deposited by a customer with his bank for
collection. The bank allows overdraft against the security thereof. The
bank becomes:
a) Holder for value
b) Holder
c) Holder in due course
d) creditor
28) A issues cheque in favour of B and writes on the face of it that the
cheque is valid for 4 months:
a) Pay the cheque within 4 months
b) Not to pay if presented after 3 months
c) Will not pay the cheque at all
d) Tell the drawer to correct the cheque
29) Account payee crossing is defined under Section____ of NI Act
1881.
a) 123
b) 124
c) 125
d) NI act does not define Account payee crossing.
30) Where a cheque bears a special crossing it can be paid only
a) It can be paid through a bank account
b) Only through a bank account in drawee bank
c) Only through the bank named in crossing
d) Only through the bank names in crossing or to its agent for
collection
31) A crossed cheque can be opened only by:
a) Any holder
b) Payee
c) Drawer
d) Drawee bank
32) Account payee crossing is a notice to the
a) Paying banker
b) Collecting banker
c) Payee
d) Endorsee
33) When a bank puts its clearing stamp on a cheque indicating its
name it amounts to:
a) General crossing
b) Special crossing
c) Not negotiable crossing
d) None of the above
34) When a cheque bears a not negotiable crossing it means that:
a) Cheque is not transferable
b) Cheque cannot be endorsed
c) The transferee can not get a better title than the transferor
d) The t a sfe ee s title is not questioned
"Holder in due course" means any person who for consideration became the possessor of a prot mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the p

35) A bearing a not negotiable crossing can not have

a) Endorsement
b) Holder for value
c) Holder in due course
d) None of the above
(Sec.9: Holder in Due Course: means any person who for consideration became the
possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the
payee or endorsee thereof, if payable to order, before the amount mentioned in it became
payable, and without having sufficient cause to believe that any defect existed in the title
of the person from whom he derived the title)
36) An account payee cheque is presented by the payee for payment of
cash. The maximum amount for which the account payee cheque can
be paid in cash is for :
a) Rs. 50000
b) Rs.20000
c) Rs.100000
d) Cash cannot be paid
37) Protection a Collecting Banker is dealt in Section____ of NI act 1881.
a) 85
b) 89
c) 128
d) 131
131: Non liability of banker receiving payment of cheque: A banker who has in good faith
and without negligence received payment for a customer of a cheque crossed generally
or specially to himself shall not, in case the title to the cheque proves defective, incur
any liability to the true owner of the cheque by reason only of having received such
payment.
Explanation: A banker who receives payment of a crossed cheque for a customer within
the meaning of this section notwithstanding that he credits his custo e s account with
the amount of the cheque before receiving payment thereof)
38) Statutory protection available under Sec 131 is available for
collection of
a) Bill of exchange
b) Promissory note
c) Drafts
d) None of the above
39) The Managing Director of a Company, endorses a cheque payable
to the company in his favour and wants you to collect the same in his
personal account. You will:
a) Allow after verifying the genuineness of the endorsement
b) Allow after verifying the genuineness of the transaction
c) Not allow as the bank may become liable for conversion
d) Not allow as the cheque favoring a company cannot be endorsed
40) Mr. A partner of AB & Co., deposits a cheque drawn in his favour
and endorsed by him in the name of the firm for credit to the firms
account. You will
a) Not allow without verifying the genuineness of the transaction
b) Not allow as the bank may be held labile for conversion
c) Allow after getting the consent of all the partners
d) Collect the cheque if otherwise in order
41) While collecting a cheque the bank becomes holder for value in
the following cases:
a) Cheque proceeds credited before being cleared and allowed to
withdraw
b) Cheque received for credit to loan account
c) Cheques purchased
d) All the above
42) Protection under Sec 131 of NI Act is not available to a collecting
banker in the following case:
a) Endorser has signed the name in Capital Letters
b) Two endorsements are in same handwriting
c) The capacity of the agent of the holder is not verified by the banker
d) All the above
Where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.

43) A bank receives a cheque in the amount of Mr. Suresh through clearing.
It is observed that the cheque bears the name of two banks but no where in
the cheque, the capacity (whether agent or otherwise) of the presenting
bank is mentioned. The paying bank can return the cheque under section
___________ of NI Act 1881.
a) 123
b) 124
c) 125
d) 127
(Sec 127: Payment of cheque crossed specially more than once: where a cheque is crossed specially
to more than one banker, except when crossed to an agent for the purpose of collection, the banker
on whom it is drawn shall refuse payment thereof.)
44) Which among the following is the important element of general
and special crossing:
a) Both in the general crossing as well as in the special crossing the
parallel lines are important
b) Both in the general crossing and the special crossing, the words
written are important
c) Both the in the general crossing and the special crossing, the
parallel lines and the words written are important
d) In general crossing the parallel lines are important and in the
special crossing the name of the bank is important
45) What is the punishment is prescribed under NI Act for dishonoring
the cheque
a) Fine equal to the amount of the cheque
b) Fine equal to double the amount of the cheque
c) Imprisonment up to 2 years
d) Fine equal to double the amount of the cheque or imprisonment
up to two years or with both
46) Crossing is a direction
a) Of the drawer to the drawee bank
b) Of the drawer to the payee
c) Of the endorser to the endorsee
d) Holder to the banker
47) An order cheque is received by Major Kumar in consideration of
services rendered by him. He has endorsed the cheque to Mr. Suresh.
What is the correct manner to endorse this cheque by Major Kumar so
that Mr. Suresh does not face any difficulty.
a) Major Kumar
b) Kumar or Kumar (Major)
c) Kumar Major
d) None of the above
26[(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 in due course to the bearer thereof, notwithstanding any endorsement whether in full or inany such endorsemen

48) For ensuring protection under Sec 85 (1) of NI Act, a banker to ensure
the endorsement is in_____
a) Genuine
b) Regular
c) Legible
d) Correct
Section: 85: Cheque payable to order: 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 in due course to the bearer thereof, notwithstanding any endorsement
whether in full or in blank appearing thereon, and notwithstanding that any such
endorsement purports to restrict or exclude further negotiation)
49) The correct endorsement favoring Dr. Ramesh Gupta is:
a) Dr. Ramesh Gupta
b) R.Gupta
c) Ramesh Kumar Gupta
d) Ramesh Gupta
50) Which of the following cannot be endorsed?
a) A fixed deposit receipt
b) A bank draft
c) A Promissory Note
d) A Bill of Exchange
Thank You