THE NEGOTIABLE

Chapter
INSTRUMENTS ACT,
2 1881
Q.1. Discuss with reasons, whether the following persons can be called as a ‘holder’ under
the Negotiable Instruments Act, 1881:
(i) X who obtains a cheque drawn by Y by way of gift.
(ii) A, the payee of the cheque, who is prohibited by a court order from receiving the
amount of the cheque.
(iii) M, who finds a cheque payable to bearer, on the road and retains it.
(iv) B, the agent of C, is entrusted with an instrument without indorsoment by C, who
is the payee.
(v) B, who steals a blank cheque of A and forges A’s signature.
[RTP May 20] [SM May22]
Ans. 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—
(i) Yes, X can be termed as a holder because he has a right to possession and to
receive the amount due in his own name.
(ii) No, he 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.
(iii) No, M is not a holder of the Instrument though he is in possession of the cheque,
so is not entitled to the possession of it in his own name.
(iv) No, B 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.
(v) No, B is not a holder because he is in wrongful possession of the instrument.
Q.2. M drew a cheque amounting to Rs. 2 lakh payable to N and subsequently delivered to
him. After receipt of cheque N endorsed the same to C but kept it in his safe locker.
After sometime, N died, and P found the cheque in N’s safe locker. Does this amount
to Endorsment under the Negotiable Instruments Act, 1881?
[SM May22]
Ans. No, P does not become the holder of the cheque as the negotiation was not completed
by delivery of the cheque to him. (Section 48, the Negotiable Instruments Act, 1881)

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Q.3. M owes money to N. Therefore, he makes a promissory note for the amount in favour
of N, for safety of transmission he cuts the note in half and posts one half to N. He
then changes his mind and calls upon N to return the half of the note which he had
sent. N requires M to send the other half of the promissory note. Decide how rights
of the parties are to be adjusted.
[MTP MARCH 21 (4)] [SM May22]
Ans. The question arising in this problem is whether the making of promissory note is
complete when one half of the note was delivered to N. Under Section 46 of the N.I.
Act, 1881, the making of a Promissory Note (P/N) is completed by delivery, actual or
constructive. Delivery refers to the whole of the instrument and not merely a part of
it. Delivery of half instrument cannot be treated as constructive delivery of the
whole. So, the claim of N to have the other half of the P/N sent to him is not
maintainable. M is justified in demanding the return of the first half sent by him. He
can change his mind and refuse to send the other half of the P/N.
Q.4. State briefly the rules 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, 2020
[SM May22]
Ans. Calculation of maturity of a bill of exchange: The maturity of a bill, not payable on
demand, at sight, or on presentment, is at maturity on the third day after the day on
which it is expressed to be payable (Section 22, of Negotiable Instruments Act,
1881). Three days are allowed as days of grace. No days of grace are allowed in the
case of bill payable on demand, at sight, or presentment.
When a bill is made payable at stated number of months after date, the period
stated terminates on the day of the month which corresponds with the day on which
the instrument is dated. When it is made payable after a stated number of months
after sight the period terminates on the day of the month which corresponds with
the day on which it is presented for acceptance or sight or noted for non-acceptance
or protested for non-acceptance. When it is payable a stated number of months after
a certain event, the period terminates on the day of the month which corresponds
with the day on which the event happens (Section 23).
When a bill is made payable a stated number of months after sight and has been
accepted for honour, the period terminates with the day of the month which
corresponds with the day on which it was so accepted.
If the month in which the period would terminate has no corresponding day, the
period terminates on the last day of such month (Section 23).
In calculating the date a bill made payable a certain number of days after date or
after sight or after a certain event is at maturity, the day of the date, or the day of
presentment for acceptance or sight or the day of protest for non-accordance, or
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 the day on which the event happens shall be excluded (Section 24).
Three days of grace are allowed to these instruments after the day on which they
are expressed to be payable (Section 22).
When the last day of grace falls on a day which is public holiday, the instrument is
due and payable on the next preceding business day (Section 25).
Answer to Problem: In this case the day of presentment for sight is to be excluded
i.e. 4th May, 2020. The period of 100 days ends on 12th August, 2020 (May 27 days +
June 30 days + July 31 days + August 12 days). Three days of grace are to be added.
It falls due on 15th August, 2020 which happens to be a public holiday. As such it will
fall due on 14th August, 2020 i.e. the next preceding business day.
Q.5. Mr. V draws a cheque of Rs. 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 Rs. 11,000 from the bank?
[SM May22]
Or
Mr. Krishna draws a cheque of Rs. 20,000 and gives to Mr. Balram by way of gift.
State with reason whether –
1. Mr. Balram is a holder in due course as per the Negotiable Instrument Act, 1881?
2. Mr. Balram is entitled to receive the amount of Rs. 20,000 from the bank?
[MTP Nov 21 (3)] [MTP SEP 22(4)]
Ans. According to section 9 of the Negotiable Instrument Act, 1881, "Holder in due
course" means
 any person
 who for consideration
 becomes 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 his title.
In the instant case, Mr. V draws a cheque of Rs. 11,000 and gives to Mr. B by way of
gift.
(i) Mr. B is holder but not a holder in due course since he did not get the cheque for
value and consideration.
(ii) Mr. B’s title is good and bonafide. As a holder he is entitled to receive Rs. 11,000
from the bank on whom the cheque is drawn.
Q.6. Bholenath drew a cheque in favour of Surendar. 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, 1881 whether the said acts
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 of Bholenath constitute an offence?.
[RTP Nov 20][SM May22]
Ans. As per the facts stated in the question, Bholenath (drawer) after having issued the
cheque, informs Surendar (drawee) not to present the cheque for payment and as well
gave a stop payment request to the bank in respect of the cheque issued to Surendar.
Section 138 of the Negotiable Instruments Act, 1881, is a penal provision in the sense
that once a cheque is drawn on an account maintained by the drawer with his banker
for payment of any amount of money to another person out of that account for the
discharge in whole or in part of any debt or liability, is informed by the bank unpaid
either because of insufficiency of funds to honour the cheques or the amount
exceeding the arrangement made with the bank, such a person shall be deemed to
have committed an offence.
Once a cheque is issued by the drawer, a presumption under Section 139 of the
Negotiable Instruments Act, 1881 follows and merely because the drawer issues a
notice thereafter to the drawee or to the bank for stoppage of payment, it will not
preclude an action under Section 138. Also, Section 140 of the Negotiable
Instruments Act, 1881, specifies absolute liability of the drawer of the cheque for
commission of an offence under the section 138 of the Act. Section 140 states that
it shall not be a defence in a prosecution for an offence under section 138 that the
drawer had no reason to believe when he issued the cheque that the cheque may be
dishonoured on presentment for the reasons stated in that section.
Accordingly, the act of Bholenath, i.e., his request of stop payment constitutes an
offence under the provisions of the Negotiable Instruments Act, 1881.
Q.7. 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. Parshwanath
encashed 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.
[SM May22]
Ans. Cheque payable to order [Section 85 of the Negotiable Instruments 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 in due course to the bearer thereof, notwithstanding any
endorsment whether in full or in blank appearing thereon, and notwithstanding
that any such endorsment purports to restrict or exclude further negotiation
As per the given facts, cheque is drawn payable to “Mr. Vyas or order”. It was lost
and Mr. Vyas was not aware of the same. The person found the cheque and forged and
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 endorsed it to Mr. Parshwanath, who encashed the cheque from the drawee bank.
After few days, Mr. Vyas intimated about the theft of the cheque, to the drawee
bank, by which time, the drawee bank had already made the payment.
According to above stated section 85, the drawee banker is discharged when it has
made a payment against the cheque payable to order when it is purported to be
endorsed by or on behalf of the payee. Even though the signature of Mr. Vyas is
forged, the banker is protected and is discharged. The true owner, Mr. Vyas, cannot
recover the money from the drawee bank in this situation.
Q.8. What are the circumstances under which a bill of exchange can be dishonored by non-
acceptance? Also, explain the consequences if a cheque gets dishonored for
insufficiency of funds in the account.
[MTP APRIL 22 (3)] [SM May22]
Ans. As per section 91 of the Negotiable Instruments Act, 1881, a bill may be dishonoured
either by non-acceptance or by non-payment.
Dishonour by non-acceptance may take place in any one of the following
circumstances:
(a) When a bill is duly presented for acceptance, and the drawee, or one of several
drawees not being partners, refuse acceptance within forty-eight hours from the
time of presentment, the bill is dishonoured. In other words, when the drawee
makes default in acceptance upon being duly required to accept the bill.
(b) where presentment is excused and the bill is not accepted.
(c) Where the drawee is incompetent to contract, the bill may be treated as
dishonoured.
(d) Where the drawee is a fictitious person.
(e) Where the drawee could not be found even after reasonable search
(f) When a drawee gives a qualified acceptance, the holder may treat the instrument
dishonoured.
Dishonour of Cheque for insufficiency, etc. of funds in the account: As per section
138 of the Negotiable Instruments Act, 1881, 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 two years or with fine which may extend to twice the amount of the cheque
or with both.
Q.9. Rama executes a promissory note in the following form, 'I promise to pay a sum of
Rs.10,000 after three months'. Decide whether the promissory note is a valid
promissory note.
[SM May22]
Ans. The promissory note is an unconditional promise in writing. In the above question the
amount is certain but the date and name of payee is missing, thus making it a bearer
instrument. As per Reserve Bank of India Act, 1934, a promissory note cannot be
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 made payable to bearer - whether on demand or after certain days. Hence, the
instrument is illegal as per Reserve Bank of India Act, 1934 and cannot be legally
enforced
Q.10. Mr. Zahid accepted a bill of exchange and gave it to Mr. Kamil for the purpose of
getting it discounted and handing over the proceeds to Mr. Zahid. Mr. Kamil couldn’t
get the bill discounted and returned the bill to Mr. Zahid. Mr. Zahid cut the bill in
two pieces for the purpose to cancel it and he threw the pieces on the street. Mr.
Kamil picked up the pieces and joined those pieces in such manner that the bill
seemed to have been folded for safe custody, rather than cancelled. Mr. Kamil put it
into circulation and it finally reached to Mr. Salim, who took it in good faith and for
value. Explain in the light of the provisions of the Negotiable Instruments Act, 1881,
whether Mr. Zahid is liable to pay the bill to Mr. Salim?.
[[RTP Nov 22]
Ans. According to the section 9 of the Negotiable Instrument Act 1881, “Holder in due
course” means any person who for consideration became the possessor of a negotiable
instrument in good faith and without having sufficient cause to believe that any
defect existed in the title of the person from whom he derived his title. Further,
section 120 says that no maker of a promissory note and no drawer of a bill or cheque
and no acceptor of a bill for the honour of the drawer shall, in a suit thereon by a
holder in due course be permitted to deny the validity of the instrument as originally
made or drawn. Thus, a holder in due course gets a good title to the bill.
In the given question, since Mr. Salim acquired the bill in good faith and for value, he
becomes the holder in due course. Mr. Zahid cannot deny the original validity of the
bill towards Mr. Salim (he being holder in due course). Hence, Mr. Salim has right to
recover the amount of bill from Mr. Zahid.
Q.11. ‘Anjum’ drew a cheque for Rs. 20,000 payables to ‘Babloo’ and delivered it to him.
‘Babloo’ endorsed the cheque in favour of ‘Rehansh’ but kept it in his table drawer.
Subsequently, ‘Babloo’ died, and cheque was found by ‘Rehansh’ in ‘Babloo’s table
drawer. ‘Rehansh’ filed the suit for the recovery of cheque. Whether ‘Rehansh’ can
recover cheque under the provisions of the Negotiable Instrument Act 1881?.
[RTP May 22]
Ans. According to section 48 of the Negotiable Instrument Act 1881, a promissory note,
bill of exchange or cheque payable to order, is negotiable by the holder by
endorsement and delivery thereof.
The contract on a negotiable instrument until delivery remains incomplete and
revocable.
The delivery is essential not only at the time of negotiation but also at the time of
making or drawing of negotiable instrument. The rights in the instrument are not
transferred to the endorsee unless after the endorsement the same has been
delivered. If a person makes the endorsement of instrument but before the same
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 could be delivered to the endorsee the endorser dies, the legal representatives of
the deceased person cannot negotiate the same by mere delivery thereof. [Section
57].’
In the given case, cheque was endorsed properly but not delivered to endorsee i.e.
‘Rehansh’, Therefore, ‘Rehansh’ is not eligible to claim the payment of cheque
Q.12. ‘Akhil’ made a promissory note for Rs.4,500 payable to ‘Bhuvan’, and delivered the
same to ‘Bhuvan’ on the condition that he (‘Bhuvan’) will demand payment only on the
death of ‘Chaman’. Before the death of ‘Chaman’, ‘Bhuvan’ endorsed and delivered the
promissory note to ‘Deepak’, who receive the promissory note in good faith. On the
date of maturity, ‘Deepak’ presented the promissory note for payment but ‘Akhil’
denied for payment by stating that he issued this promissory note on the condition
that it can be paid only on the death of ‘Chaman’. Can ‘Deepak’ recover the amount due
on the promissory note from ‘Akhil’ under the provisions of the Negotiable
Instrument Act 1881?
[MTP OCT 22(3)] [RTP Nov 21]
Ans. By virtue of provisions of section 9 of the Negotiable Instrument Act 1881, any
person who for consideration became the possessor of a negotiable instrument in
good faith and without having sufficient cause to believe that any defect existed in
the title of the person from whom he derived his title. While Sec.47 provides if a
negotiable instrument is delivered to a person, upon condition, i.e., it will be effective
on the happening of certain event, such negotiable instrument cannot be further
negotiated unless such event happens. However, if it is transferred to a holder in due
course, his rights will not be affected by such condition.
Akhil’ issued a promissory note to ‘Bhuvan’ on the condition that he (‘Bhuvan’) will
demand payment only on the death of ‘Chaman’. Before the death of ‘Chaman’, ‘Bhuvan’
endorsed and delivered the promissory note to ‘Deepak’, who receive the promissory
note in good faith. On due date, ‘Deepak’ presented the promissory note for payment
but ‘Akhil’ denied for payment.
From the above provisions and facts of the case, it can be said that ‘Deepak’ has
received the promissory note in good faith, he is a holder in due course and his rights
will not be affected by any condition attached to the instrument by any prior party.
Therefore, ‘Deepak’ can recover the amount due on the promissory note from ‘Akhil’.
Q.13. (i) Calculate the date of maturity of bill of exchange drawn on 1.6.2019, payable 120
days after considering the relevant provisions of the Negotiable Instruments Act,
1881.
(ii) Chandra issues a cheque for Rs. 50,000/- in favour of Daye. Chandra 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 Daye can recover the money from Chandra?
Page | 2.7
 [RTP May 21]
Ans. (i) Date of maturity of the bill of exchange: In this case the day of presentment for
sight is to be excluded i.e. 1st June, 2019. The period of 120 days ends on 29th
September, 2019 (June 29 days + July 31 days + August 31 Days + September 29
days = 120 days). Three days of grace are to be added. It falls due on 2nd
October, 2019, which happens to be a public holiday. As such it will fall due on 1st
October, 2019 i.e., the next preceding Business Day.
(ii) Section 84(1) of the Negotiable Instruments Act, 1881 provides that cheque
should be presented to Bank within reasonable time. If cheque is not presented
within reasonable time, meanwhile the drawer suffers actual damage, the drawer
is discharged to the extent of such actual damage. This would be so if the cheque
would have been passed if it was presented within reasonable time. As per section
84(2), in determining what is a reasonable time, regard shall be had to (a) the
nature of the instrument (b) the usage of trade and of bankers, and (c) facts of
the particular case. The drawer will get discharge, but the holder of the cheque
will be treated as creditor of the bank, in place of drawer. He will be entitled to
recover the amount from Bank [section 84(3)].
In the above case drawer i.e. Chandra has suffered damage as cheque was not
presented by Daye within reasonable time. Hence, Chandra will be discharged but
Daye will be the creditor of bank for the amount of cheque and can recover the
amount from the bank
Q.14. Examine the following cases with respect to their validity. State your answer with
reasons.
(i) A bill of exchange is drawn, mentioning expressly as 'payable on demand'. The
bill will be at maturity for payment on 04-01-2022, if presented on 01-01-2022.
(ii) A holder gives notice of dishonor of a bill to all the parties except the
acceptor. The drawer claims that he is discharged from his liability as the
holder fails to give notice of dishonour of the bill to all the parties thereto
[MTP OCT 22(4)]
Ans. (i) The bill of exchange is drawn, mentioning expressly as ‘payable on demand’. The
bill will be at maturity for payment on 04-1-2022, if presented on 01-01-2022:
This statement is not valid as no days of grace are allowed in the case of bill
payable on demand
(ii) A holder gives notice of dishonor of a bill to all the parties except the
acceptor. The drawer claims that he is discharged form his liability as the
holder fails to give notice of dishonour of the bill to all the parties thereto:
As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor
must be given by the holder to all parties other than the maker or the acceptor
or the drawee whom the holder seeks to make liable. Accordingly, notice of
dishonour to the acceptor of a bill is not necessary. Therefore, claim of drawer
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 that he is discharged from his liability on account of holder’s failure to give
notice to all the parties thereto, is invalid.
Q.15. A sign his name on a blank cheque with ‘not negotiable crossing’ which he gives to B
with an authority to fill up a sum of Rs. 3,000 only. But B fills it for Rs. 5,000. B then
endorsed it to C for a consideration of Rs. 5,000 who takes it in good faith. Examine
whether C is entitled to recover the full amount of the instrument from B or A as per
the provisions of the Negotiable Instruments Act, 1881
[QP Jan 21 (3)] [MTP OCT 22(3)]
Ans. As per section 130 of the Negotiable Instruments Act, 1881, 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 i.e., they
cannot be negotiated. The holder of such a cheque cannot acquire title better than
that of the transferor.
In the given question, A gave to B the blank cheque with ‘not negotiable crossing’. B
had an authority to fill only a sum of Rs. 3,000 but he filled it up Rs. 5,000. This
makes B’s title defective. B then endorsed it to C for consideration of Rs. 5,000.
In the light of above stated facts and provision, C is not entitled to recover the full
amount from A or B as C cannot acquire a title better than that of the transferor (B).
Q.16. What is the meaning of ‘Acceptor for honour’ and ‘payment for honour’? Give your
answer in terms of the Negotiable Instruments Act, 1881
[MTP SEP 22(3)]
Ans. When a bill of exchange has been dishonoured by non-acceptance and any person
accepts it for honour of the drawer or of any endorsers, such person is called ‘an
Acceptor for honour’. The payment which he makes is known as ‘payment for honour.’
Q.17. Discuss with reasons, whether the following persons can be called as a ‘holder’ under
the Negotiable Instruments Act, 1881:
(i) Babita finds a cheque payable to bearer, on the road and retains it.
(ii) Biswas, the agent of Chandan, is entrusted with an instrument without
endorsment by Chandan, who is the payee.
[MTP SEP 22(3)]
Ans. 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—
(i) Babita is not a holder of the Instrument though she is in possession of the
cheque. She is not entitled to the possession of it in her own name.
(ii) No, Biswas 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.
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Q.18. Discuss with reasons, whether the following persons can be called as a ‘holder’ under
the Negotiable Instruments Act, 1881
1. Megha, who finds a cheque payable to bearer, on the road and retains it.
2. Bob, who steals a blank cheque of Alpa and forges Alpa’s signature.
[MTP Nov 21 (4)]
Ans. 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. No, Megha is not a holder of the Instrument though she is in possession of the
cheque, so is not entitled to the possession of it in his own name.
2. No, Bob is not a holder because he is in wrongful possession of the instrument.
Q.19. What are the parties to a bill of exchange.
[MTP Nov 21 (3)]
Ans. The parties to a bill of exchange are:
1. Drawer: The maker of a bill of exchange.
2. Drawee: The person directed by the drawer to pay is called the 'drawee'. He is
the person on whom the bill is drawn. On acceptance of the bill, he is called an
acceptor and is liable for the payment of the bill. His liability is primary and
unconditional.
3. Payee: The person named in the instrument, to whom or to whose order the money
is, by the instrument, directed to be paid.
Q.20. Give the answer of the following:
(i) A promissory note 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
material alteration?
(ii) Amit draws a cheque for Rs. 1000 and hands it over to Beena by way of gift. Is
Beena a holder in due course?
[MTP April 21 (4)]
Ans. (i) An alteration is material which in any way alters the operation of the instrument
and affects the liability of parties thereto. Any alteration is material which alters
the business effect of the instrument if used for any business purpose.
In the given case, a promissory note was made without mentioning any time for
payment. The holder added the words “on demand” on the face of the instrument.
As per the provision o the Negotiable Instruments Act, 1881 this is not 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 instrument.
(ii) The “holder” of a promissory note, bill of exchange or cheque means any person
Page | 2.10
 entitled in his own name to the possession thereof, and to receive or recover the
amount due thereon from the parties thereto.
“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 his title.
In the given question, Beena is a holder but not a holder in due course as she does
not get the cheque for value and consideration. Her title is good and bonafide. As
a holder she is entitled to receive Rs. 1000 from the bank on whom the cheque is
drawn.
Q.21. As per the Negotiable Instruments Act, 1881, what are the parties who may cross a
cheque?
[MTP April 21 (3)]
Ans. A cheque may be crossed by the following parties:
1. By Drawer: A drawer may cross it generally or specially.
2. By Holder: A holder may cross an uncrossed cheque generally or specially. If the
cheque is crossed generally, the holder may cross specially. If cheque crossed
generally or specially, he may add words “not negotiable”.
3. By Banker: A banker may cross an uncrossed cheque, or if a cheque is crossed
generally, he may cross it specially to himself. Where a cheque is crossed
specially, the banker to whom it is crossed may again cross it specially to another
banker, his agent, for collection.
Q.22. 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 inter se?
Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881.
[MTP April 21 (3)]
Ans. Problem on Negotiable Instrument made without consideration: Section 43 of the
Negotiable
Instruments Act, 1881 provides 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. But 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 thereto
(i) In the problem, as asked in the question, A has drawn a bill on B and B accepted
the bill without consideration and transferred it to C without consideration. Later
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 on, in the next transfer by C to D is for value. According to provisions of the
aforesaid section 43, the bill ultimately has been transferred to D with
consideration. Therefore, 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) As regards to the second part of the problem, the prior parties before D i.e., A,
B, and C have no right of action inter se because first part of Section 43 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
Q.23. What is the meaning of Not negotiable crossing as per the Negotiable Instruments
Act, 1881?
[MTP MARCH 21 (3)]
Ans. Not negotiable Crossing
This requires writing of words “not negotiable” in addition to the two parallel lines.
These words may be written inside or outside these lines. According to Section 130, a
person taking a cheque crossed generally or specially, bearing in either case the word
“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. It is a statutory crossing. A
cheque with such crossing is not negotiable, but continues to be transferable as
before. Ordinarily, in a negotiable instrument, if the title of the transferor is
defective, the transferee, if he is a Holder in Due Course, will have a good title.
When the words “not negotiable” are written, even a Holder in Due Course will get the
same title as that of transferor. Thus, if the title of the transferor is defective, the
title of transferee will also be so.
Hence, the addition of the words not negotiable does not restrict the further
transferability of the cheque, but it entirely takes away the main feature of
negotiability, which is that a holder with a defective title can give a good title to the
subsequent holder in due course.
Q.24. Mr. Manoj Malik, a major and Preet, a minor executed a promissory note in favour of
Rimpy. Examine with reference to the provisions of the Negotiable Instruments Act,
1881, the validity of the promissory note and whether it is binding on Mr. Manoj Malik
and Preet.
[MTP MARCH 21 (3)]
Ans. According to Section 26 of the Negotiable Instruments Act, 1881, every person
competent to contract (according to the law to which he is subject to) has capacity to
bind himself and be bound by making, drawing, accepting, endorsing delivering and
negotiating an instrument. A party having such capacity may himself put his signature
or authorize some other person to do so.
A minor may draw, endorse, deliver and negotiate an instrument so as to bind all the
Page | 2.12
 parties except himself. A minor may be a drawer where the instrument is drawn or
endorsed by him. In that case he does not incur any liability himself although other
parties to the instrument can be made liable and the holder can receive payment from
any other party thereto.
Therefore, in the instant case, the promissory note is valid and it is binding on Mr.
Manoj Malik but not on Preet, a minor
Q.25. A bill of exchange is drawn by ‘A’ in Berkley where the rate of interest is 15% and
accepted by ‘B’ payable in Washington where the rate of interest is 6%. The bill is
endorsed in India and is dishonoured. An action on the bill is brought against ‘B’ in
India. Advise as per the provisions of the Negotiable Instruments Act, 1881, what
rate of interest ‘B’ is liable to pay?
[MTP MARCH 22 (4)]
Ans. According to section 134 of the Negotiable Instruments Act, 1881, in the absence of
a contract to the country, the liability of the maker or drawer of a foreign
promissory note or bill of exchange or cheque is regulated in all essential matters by
the law of the place where he made the instrument, and the respective liabilities of
the acceptor and endorser by the law of the place where the instrument is made
payable. In the given case, since action on the bill is brought against B in India, he is
liable to pay interest at the rate of 6% only.
Q.26. What are the essential characteristics of Negotiable Instruments. (Write any five)
[MTP MARCH 22 (3)]
Ans. Essential Characteristics of Negotiable Instruments
1. It is necessarily in writing.
2. It should be signed.
3. It is freely transferable from one person to another.
4. Holder’s title is free from defects.
5. It can be transferred any number of times till its satisfaction.
6. Every negotiable instrument must contain an unconditional promise or order to pay
money. The promise or order to pay must consist of money only.
7. The sum payable, the time of payment, the payee, must be certain.
8. The instrument should be delivered. Mere drawing of instrument does not create
liability.
Q.27. Discuss with reasons, whether the following persons can be called as a ‘holder’ under
the Negotiable Instruments Act, 1881:
(i) Madan was going to office through metro rail. He found a cheque payable to
bearer, on the floor of coach number 6 and retains it.
(ii) Preeti, the agent of Mr. Rajesh, is entrusted with an instrument without
endorsment by Mr. Rajesh, who is the payee.
[MTP MARCH 22 (3)]
Ans. Person to be called as a holder: As per section 8 of the Negotiable Instruments Act,
Page | 2.13
 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—
(i) In the given question, though Madan is in possession of the cheque but is not
entitled to the possession of it in his own name (he got the cheque on the floor of
metro coach). Hence, Madan is not a holder of the Instrument.
(ii) In the given question though the agent (i.e. Preeti) may receive payment of the
amount mentioned in the cheque, yet she cannot be called the holder thereof
because she has no right to sue on the instrument in her own name. Hence, Preeti
is not a holder.
Q.28. Mr. Mudit is the employee in Senior Research Analyst Private Limited. He went to a
Super Mall, a departmental store, where he purchased some goods for his personal
use on credit. Mr. Mudit gave a cheque drawn on the Senior Research Analyst Private
Limited's account to Super Mall towards the full payment of the dues. The cheque
was dishonoured by the company's bank. Mr. Mudit was neither a director nor a
person in-charge of the company.
Explain under the provisions of the Negotiable Instruments Act, 1881, whether Mr.
Mudit has committed an offence under section 138.
[MTP APRIL 22 (4)]
Ans. According to section 138 of the Negotiable Instruments Act, 1881, where any cheque
drawn by a person on an account maintained by him with a banker for payment of any
amount of money to another person from/out of that account for discharging any
debt or liability, and if it is dishonoured by banker on sufficient grounds, such person
shall be deemed to have committed an offence and shall be liable.
According to section 141, if the person committing an offence under section 138 is a
company, every person who, at the time the offence was committed was in charge of,
and was responsible to the company for the conduct of the business of the company,
as well as the company, shall be deemed to be guilty of the offence and shall be liable
to be proceeded against and punished accordingly.
However, in this case, Mudit is neither a director nor a person-in-charge of the
company and is not connected with the day-to-day affairs of the company and had
neither opened nor is operating the bank account of the company. Further, the
cheque, which was dishonoured, was also not drawn on an account maintained by him
but was drawn on an account maintained by the company. Therefore, Mudit has not
committed an offence under section 138.
Q.29. Discuss with reasons, whether the following persons can be called as a ‘holder’ under
the Negotiable Instruments Act, 1881:
(i) Babita, stole a blank cheque of Aman and forged Aman’s signature.
(ii) Arvind, the payee of the cheque, who is prohibited by a court order from receiving
Page | 2.14
 the amount of the cheque.
[MTP APRIL 22 (3)]
Ans. 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—
(i) Babita is not a holder because she is in wrongful possession of the instrument (as
she stole and forged Aman’s signature).
(ii) Arvind 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.
Q.30. (i) Are the following instruments signed by Mr. Honest is valid promissory Notes?
Give the reasons.
(a) I promise to pay D's son Rs. 10000 for value received (D has two sons)
(b) I promise to pay Rs. 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 accordance with the provisions of the Negotiable
Instruments Act, 1881.
[QP NOV20(6)]
Ans. (i) Promissory Note: As per the provisions of Section 4 of the Negotiable
Instruments Act, 1881, a promissory note is an instrument in writing (not being a
bank-note or a currency note) containing an unconditional undertaking, signed by
the maker, to pay a certain sum of money to or to the order of a certain person,
or to the bearer of the instruments.
(a) This is not a valid promissory note as D has two sons and it is not specified in
the promissory note that which son of D is the payee.
(b) This is not a valid promissory note as details of the payee are not mentioned in
it and it is not an unconditional undertaking.
(ii) A promissory note cannot be made payable to the bearer (Section 31 of Reserve
Bank of India Act, 1934). Only the Reserve Bank or the Central Government can
make or issue a promissory note 'payable to bearer'.
Q.31. Ram draws a cheque of Rs. 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 Shyam 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.
[QP NOV20(3)]
Ans. “Holder in due course” [Section 9 of the Negotiable Instruments Act, 1881]— “Holder
in due course” means—
Page | 2.15
  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 his title.
In the instant case, Ram draws a cheque for Rs. 1 lakh and hands it over to Shyam by
way of gift. Here, Shyam’s title is good and bonafide. As a holder he is entitled to
receive Rs. 1 lakh from the bank on whom the cheque is drawn. However, Shyam is not
a holder in due course as he does not get the cheque for value and consideration.
Q.32. Vikram accepts a Bill of Exchange for Rs. 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.
[QP NOV20(3)]
Ans. According to section 43 of the Negotiable Instruments Act, 1881, 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. But 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 thereto.
In view of the above provisions, A and B have no right to recover the bill amount. But,
C, being a holder for consideration and the subsequent party D have right to recover
the amount of the bill.
Q.33. State with reasons whether each of the following instruments is an Inland
Instrument or a Foreign Instrument as per The Negotiable Instruments Act, 1881:
(i) Ram draws a Bill of Exchange in Delhi upon Shyam a resident of Jaipur and
accepted to be payable in Thailand after 90 days of acceptance.
(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) Ajay 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.
Page | 2.16
 [QP NOV20(4)]
Ans. “Inland instrument” and “Foreign instrument” [Sections 11 & 12 of the Negotiable
Instruments Act, 1881]
A promissory note, bill of exchange or cheque drawn or made in India and made
payable in, or drawn upon any person resident in India shall be deemed to be an inland
instrument.
Any such instrument not so drawn, made or made payable shall be deemed to be
foreign instrument.
Following are the answers as to the nature of the Instruments:
(i) In first case, Bill is drawn in Delhi by Ram on a person (Shyam), a resident of
Jaipur (though accepted to be payable in Thailand after 90 days) is an Inland
instrument.
(ii) In second case, Ramesh draws a bill in Mumbai on Suresh resident of Australia
and accepted to be payable in Chennai after 30 days of sight, is an Inland
instrument.
(iii) In third case, Ajay draws a bill in California (which is situated outside India) and
accepted to be payable in India (Kanpur), drawn upon Vijay, a person resident in
India (Jodhpur), therefore the Instrument is a Foreign instrument.
(iv) In fourth case, the said instrument is a Foreign instrument as the bill is drawn in
India by Mukesh upon Dinesh, the person resident outside India (China) and also
payable outside India (China) after 45 days of acceptance.
Q.34. Gireesh, a legal successor of Ripun, the deceased person, signs a Bill of Exchange in
his own name admitting a liability of Rs. 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 Rs. 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 ?
[QP July 21 (4)]
Ans. Liability of a legal representative (Section 29 of the Negotiable Instruments Act,
1881): A legal representative of a deceased person, who signs his name on a
promissory note, bill of exchange or cheque is liable personally thereon unless he
expressly limits his liability to the extent of the assets received by him.
Thus, in the absence of an express contract to the contrary, the liability of a legal
representative is unlimited. However, a legal representative may, by an express
agreement, limit his liability to the extent of the assets received by him.
In the light of the stated provision, Mukund can succeed in recovering Rs. 50,000
Page | 2.17
 from Gireesh as he has admitted liability of Rs. 50,000 i.e. to the extent of the
assets received by him from the Ripun, the deceased.
Yes, the limit of liability specified in the bill by Gireesh, will remain same even if
value of his inheritance is more than the liability, in case he specified the liability by
an express agreement.
Q.35. A promissory note specifies that three months after, A will pay Rs. 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?
[QP July 21 (3)]
Ans. When no rate of interest is specified in the instrument: As per the provisions of
Section 80 of the Negotiable Instruments Act, 1881, when no rate of interest is
specified in the instrument, interest on the amount due thereon shall,
notwithstanding any agreement relating to interest between any parties to the
instrument, be calculated at the rate of eighteen per centum per annum, from the
date at which the same ought to have been paid by the party charged, until tender or
realization of the amount due thereon, or until such date after the institution of a
suit to recover such amount as the Court directs.
In the given question, the promissory note falls due for payment on 1.9.2019 and was
paid on 31.10.2019. The note does not mention any rate of interest, hence interest
will be charged @ 18% p.a.
Thus, B shall be entitled to claim interest on the overdue amount for the period from
01.09.2019 to 31.10.2019, @ 18% p.a.
Q.36. 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 Rs. 10,000 but accepted by S
only for Rs. 7,000.
[QP July 21 (3)]
Ans. As per the provisions of Section 86 of the Negotiable Instruments Act, 1881, if the
holder of a bill of exchange acquiesces in a qualified acceptance, or one limited to
part of the sum mentioned in the bill, or which substitutes a different place or time
for payment, or which, where the drawees are not partners, is not signed by all the
drawees, all previous parties whose consent is not obtained to such acceptance are
discharged as against the holder and those claiming under him, unless on notice given
by the holder they assent to such acceptance.
Explanation to the above section states that an acceptance is qualified where it
undertakes the payment of part only of the sum ordered to be paid.
In view of the above provisions, the bill, which has been drawn by R for Rs. 10,000/-,
Page | 2.18
 has been accepted by S only for Rs. 7,000/-. It is a clear case of qualified
acceptance, which may either be rejected by R or he may give assent to the
acceptance of Rs. 7,000/- only.
Q.37. Radheshyam borrowed a sum of Rs. 50,000 from a Bank on the security of gold on
1.07.2019 under an agreement which contains a clause that the bank shall have a right
of particular lien on the gold pledged with it. Radheshyam thereafter took an
unsecured loan of Rs. 20,000 from the same bank on 1.08.2019 for three months. On
30.09.2019 he repaid entire secured loan of Rs. 50,000 and requested the bank to
release the gold pledged with it. The Bank decided to continue the lien on the gold
until the unsecured loan is fully repaid by Radheshyam. Decide whether the decision
of the Bank is valid within the provisions of the Indian Contract Act, 1872 ?
[QP July 21 (4)]
Ans. General lien of bankers: According to section 171 of the Indian Contract Act, 1872,
bankers, factors, wharfingers, attorneys of a High Court and policy brokers may, in
the absence of a contract to the contrary, retain, as a security for a general balance
of account any goods bailed to them; but no other persons have a right to retain, as a
security for such balance, goods bailed to them, unless there is an express contract
to the effect.
Section 171 empowers the banker with general right of lien in absence of a contract
whereby it is entitled to retain the goods belonging to another party, until all the
dues are discharged. Here, in the first instance, the banker under an agreement has a
right of particular lien on the gold pledged with it against the first secured loan of
Rs. 50,000/-, which has already been fully repaid by Radheshyam. Accordingly, Bank’s
decision to continue the lien on the gold until the unsecured loan of Rs. 20,000/-
(which is the second loan) is not valid.
Q.38. Examine the following cases with respect to their validity. State your answer with
reasons.
(i) A bill of exchange is drawn, mentioning expressly as 'payable on demand'. The bill
will be at maturity for payment on 04-01-2021, if presented on 01-01-2021.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor.
The drawer claims that he is discharged from his liability as the holder fails to
give notice of dishonour of the bill to all the parties thereto.
[QP July 21 (3)]
Ans. (i) The bill of exchange is drawn, mentioning expressly as ‘payable on demand’. The
bill will be at maturity for payment on 04-1-2021, if presented on 01-01-2021:
This statement is not valid as no days of grace are allowed in the case of bill
payable on demand.
(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor.
The drawer claims that he is discharged form his liability as the holder fails to
give notice of dishonour of the bill to all the parties thereto:
Page | 2.19
 As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor
must be given by the holder to all parties other than the maker or the acceptor
or the drawee whom the holder seeks to make liable. Accordingly, notice of
dishonour to the acceptor of a bill is not necessary. Therefore, claim of drawer
that he is discharged from his liability on account of holder’s failure to give
notice to all the parties thereto, is invalid
Q.39. Mr. Harsha donated Rs. 50,000 to an NGO by cheque for sponsoring the education of
one child for one year. Later on he found that the NGO was a fraud and did not
engage in philanthropic activities. He gave a "stop payment" instruction to his bankers
and the cheque was not honoured by the bank as per his instruction. The NGO has
sent a demand notice and threatened to file a case against Harsha. Advise Mr.
Harsha about the course of action available under the Negotiable Instruments Act,
1881.
[QP Jan 21 (3)]
Ans. In the given instance, Mr. Harsha donated Rs. 50,000 to NGO by cheque for
sponsoring child education for 1 year. On founding that NGO was fraud, Mr. Harsha
instructed bankers for stop payment. In lieu of that, NGO sent a demand notice and
threatened to file a case against him.
Section 138 of the Negotiable Instruments Act, 1881 deals with dishonor of cheque
which is issued for the discharge, in whole or in part, of any debt or other liability.
However, any cheque given as gift or donation, or as a security or in discharge of a
mere moral obligation, would be considered outside the purview of section 138.
Here the cheque is given as a donation for the sponsoring child education for 1 year
and is not legally enforceable debt or other liability on Mr. Harsha. Therefore, he is
not liable for the donated amount which is not honoured by the bank to the NGO.
Q.40. Referring the provisions of the Negotiable Instruments Act, 1881 give the answer of
the following.
(i) A promissory note was made without mentioning any time for payment. The holder
added the words ‘on demand’ on the face of the instrument. Whether this may be
treated as material alteration in the instrument?
(ii) Ankit draws a cheque for Rs. 2,000 and hands it over to Shreya by way of gift.
Whether Shreya is a holder in due course?
[QP DEC.21(4)]
Ans. (i) Material alteration: An alteration 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 in legal effect form that which it
originally spoke or which changes the legal identity or character of the
Page | 2.20
 instrument.
The following alteration are specifically declared to be material: any alteration of
(i) the date, (ii) the sum payable, (iii) the time of payment, (iv) the place of
payment, or the addition of a place of payment.
A promissory note was made without mentioning any time for payment. The holder
added the words “on demand” on the face of the instrument. As per the above
provision of the Negotiable Instruments Act, 1881 this is not 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 instrument.
(ii) 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.
Person holder in due course: 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 there of (if payable to
order) before the amount mentioned in it became payable, and without having
sufficient cause to believe that any defect existed in title of the person from
whom he derived his title.
In the given case, Ankit draws a cheque for Rs. 2,000 and hands it over to Shreya
by way of gift. Hence, Shreya can be termed as a holder because she has a right
to possession and to receive the amount due in her own name.
But she cannot be termed as a holder in due course.
Q.41. A is a payee and holder of a bill of exchange. He endorses it in blank and delivers it to
B. B endorses it in 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.
[QP DEC.21(3)]
Ans. According to section 49 of the Negotiable Instruments Act, 1881, the holder of a
negotiable instrument endorsed in blank may—
• without signing his own name, by writing above the endorser’s signature a direction
to pay to any other person as endorsee, convert the endorsement in blank into an
endorsment in full; and the holder does not thereby incur the responsibility of an
endorser.
According to section 55, if a negotiable instrument, after having been endorsed in
blank, is endorsed in full, the amount of it cannot be claimed from the endorser in
full, except by the person to whom it has been endorsed in full, or by one who derives
title through such person. As per the facts of the question and above mentioned
provisions of the Negotiable Instruments Act, 1881, D as the bearer of the Bill of
Page | 2.21
 Exchange, is entitled to receive payment or to sue drawer, acceptor, or A who
endorsed the bill in blank, but he cannot sue B or C.
Q.42. ‘M’ 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 ‘N’
Second endorsement ‘O’
Third endorsement ‘P’ and
Fourth endorsement ’Q’
‘M’ strikes out, without Q’s consent, the endorsements by ‘O’ and ‘P’. Decide, with
reasons, whether ‘M’ is entitled to recover anything from ‘Q’ under the provisions of
the Negotiable Instruments Act, 1881
[QP DEC.21(3)]
Ans. According to section 40 of the Negotiable Instruments Act, 1881, 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.
In the given question, ‘M’ strikes out, without Q’s consent, the endorsements by ‘O’
and ‘P’. In the light of the above provision of law and facts of the question, ‘M’ is not
entitled to recover anything from ‘Q’.
Q.43. A' draws a cheque for Rs. 5,000 in favour of 'B'. 'A' had sufficient funds in his bank
account to meet it, when the cheque ought to be presented in the bank. The bank
fails before the cheque is presented. 'B' wants to claim it from 'A'. Decide, whether
'A' is liable as per the Negotiable Instruments Act, 1881.
[QP MAY 22(4)]
Ans. According to section 84 of the Negotiable Instruments Act, 1881, if a holder does
not present a cheque within reasonable time after its issue, and the bank fails causing
damage to the drawer, the drawer is discharged as against the holder to the extent
of the actual damage suffered by him.
In the given situation, when the cheque ought to be presented, ‘A’ had sufficient
funds at the bank to meet it. The bank failed before the cheque was presented. Thus,
the drawer (‘A’) is discharged, but the holder (‘B’) can prove against the bank for the
amount of the cheque
Q.44. Healthcare Services Limited (the Bidder), bids the tender floated by Super Care
Hospital (the Tenderer), attaching a cheque dated 01.04.2021 for Rs. 5,00,000
towards earnest money deposit. Since the tender process was extended, the
Tenderer returned the cheque expiring on 30.06.2021 to the Bidder for its
resubmission after having revalidated by changing the date of the cheque to
01.07.2021. Accordingly, the revalidated cheque was resubmitted by the Bidder to
Page | 2.22
 the Tenderer. The cheque was presented by the Tenderer to the banker. It was
dishonoured by the bank. Examine, whether the cheque altered with a new date shall
be deemed to be a valid cheque binding the Bidder for payment as per the Negotiable
Instruments Act, 1881?
[QP MAY 22(3)]
Ans. An alteration is material which in any way alters the operation of the instrument and
affects the liability of parties thereto.
By material alteration the identity of original instrument is destroyed and those
parties who had agreed to be liable on the original instrument cannot be made liable
on the new contract contained in the altered instrument to which they never
consented (Gour Chandra vs Prasanna Kumar 33 Cal 812). It makes no difference
whether the alteration is made by a party who is in possession of the same, or by a
stranger while the instrument was in the custody of a party, because the party in
custody of instrument is bound to preserve it in its integrity. The rule is defended on
the ground that no man shall be permitted to take the chance of committing a fraud
without running any risk of loss by the event when it is detected.
The party who consents to the alteration as well as the party who makes the
alteration are disentitled to complain against such alteration.
In the given question, the tenderer (Super Care Hospital) returned the cheque to the
bidder (i.e. the drawer of cheque- Healthcare Services Limited) for its resubmission
after having revalidated by changing the date of the cheque. The drawer himself
altered the date of the cheque for re-validating the same instrument, he cannot take
advantage of it by saying that the cheque becomes void as there was a material
alteration thereto. It is always open to a drawer to voluntarily re-validate a
negotiable instrument including a cheque [Veera Exports v T. Kalavathy (2002) 1
SCC97].
In the light of the above discussion, the cheque altered with a new date shall be
deemed to be a valid cheque and thus, binding the Bidder for payment.
Q.45. Examine the validity of the following statements with reference to the Negotiable
Instruments Act, 1881.
(i) When payment on an instrument is made in due course, both the instrument and
the parties to it are discharged.
(ii) Alteration of rate of interest specified in the Promissory Note is not a
material alteration.
(iii) Conversion of the blank endorsment into an endorsment in full is not a material
alteration and it does not require authentication.
[QP MAY 22(3)]
Ans. (i) When payment on an instrument is made in due course, both the
instrument and the parties to it are discharged: Valid
Reasoning: As per section 78 of the Negotiable Instrument Act, 1881, when
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 payment on an instrument is made in due course, both the instrument and
the parties to it are discharged subject to the provision of section 82(c).
The payment on an instrument may be made by any party to the instrument.
It may even be made by a stranger provided it is made on account of the
party liable to pay
(ii) Alteration of rate of interest specified in the Promissory Note is not a
material alteration: Not valid
Reasoning: An alteration is material which in any way alters the operation of
the instrument and affects the liability of parties thereto. Hence,
Alteration of rate of interest is material alteration
(iii) Conversion of the blank endorsment into an endorsment in full is not a
material alteration and it does not require authentication: Valid
Reasoning: Conversion of a blank endorsment into an endorsment in full
[under Section 49 of the Negotiable Instruments Act, 1881] is not a
material alteration. It has been authorised by the Act and do not require
any authentication
Q.46. A bill of exchange was drawn by Mr. G and Mr. H for Rs. 50,000 towards the value of
goods purchased by Mr. H from Mr. G. Mr. H accepted the bill and returned it back to
Mr. G. After that Mr. G handed over the bill to his supplier Mr. K to settle the
amount of a transaction. On the due date, Mr. K presented the bill before Mr. H for
payment. Mr. H denied to make payment and the bill was dishonored. After five days
of the date of dishonor of the bill, Mr. K gave a written notice of dishonor by post
with acknowledgment to Mr. G without Knowing the fact that Mr. G had passed away
one day back. After one month, thereafter, Mr. K claimed the amount from Mr. L, the
only son of Mr. G, who was the only legal representative of Mr. G; Mr. L contended
that the notice of dishonor was neither served to him nor he had received the notice
of dishonor which was sent by Mr. K addressing to his father and therefore, he is not
liable for the amount of the bill. Referring to the relevant provisions of the
Negotiable Instruments Act, 1881, advise Mr. K whether the contention of Mr. L is
tenable.
Would your answer differ in case of Mr. L contended that even though he received
the notice of dishonor addressed to his father, since it was not addressed to him, he
is not liable for the amount of bill?
Ans. As per Section 93 of the Negotiable Instruments Act 1881, when a promissory note,
bill of exchange or cheque is dishonoured by non-payment or non-acceptance, a notice
of dishonour must be given by the holder or by a person liable for the instrument.
As per Section 97 of the Negotiable Instruments Act 1881, when the party to whom
the notice of dishonour is dispatched is dead, but the party dispatching his notice is
ignorant of his death, the notice is sufficient.
Facts of the case:
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 A bill of exchange was drawn by Mr. G on Mr H for ₹50,000 towards the value of
goods purchased by Mr. H from Mr. G. Mr. H accepted the bill. After that, Mr G
handed over the bill to his supplier Mr. K to settle the amount of the transaction. On
the due date, Mr K presented the bill before Mr. H for payment. Mr. H refused to
make payment, and the bill was dishonoured. After five days after the dishonour of
the bill, Mr K gave written notice of dishonour by post with acknowledgement to Mr G
without knowing the fact that Mr G had passed away one day back. After one month,
Mr K claimed the amount from Mr L, the only son of Mr G, who was the only legal
representative of Mr G. Mr L contended that the notice of dishonour was neither
served to him nor had he received the notice of dishonour which was sent by Mr K
addressing to his father and therefore, he is not liable for the amount of the bill.
Conclusion:
In the present case, the contention of Mr L is not valid as Mr K did not have
knowledge of Mr G’s death, and still, he gave a notice of dishonour addressed to Mr G.
So, the notice is valid, and Mr L is liable for the amount. In case Mr L contended that
he received the notice of dishonor addressed to his father, Mr L will still be liable
for the amount.
Q.47. Venkat executed a promissory note in favour of Raman for Rs. 45 lakhs. The amount
was payable hundred days after sight. Raman presented the promissory note for sight
on 4th May 2021.Ascertain the date of maturity of the promissory note with
reference to the relevant provisions of the Negotiable Instruments Act, 1881.
Ans. As per Section 24 of the Negotiable Instruments Act 1881, in calculating the date at
which a promissory note or bill of exchange was made payable at a certain number of
days after the date or after sight or after a certain event is at maturity, the day of
the date or of presentment for acceptance or sight or of protest for nonacceptance
or on which the event happens shall be excluded.
Also, as per Section 25 of the Negotiable Instruments Act 1881, 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 next preceding business day.
Facts of the case:
Venkat executed a promissory note in favour of Raman for ₹45 Lakhs. The amount
was payable a hundred days after sight. Raman presented the promissory note for
sight on 4th May 2021.
Conclusion:
Date of presenting promissory note for sight = 4th May 2021.
Date of maturity: 100th day after 4th May 2021 = 12th August 2021.
Adding 3 days of grace to 12th August 2021 = 15th August 2021 (Independence day –
National Holiday).
So, the date of maturity will be 14th August 2021.
Q.48. Mr. A made endorsement of a bill of exchange amounting Rs. 50,000 to Mr. B. But,
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 before the same could be delivered to Mr. B, Mr. A passed away. Mr. S, son of Mr. A,
who was the only o legal representative of Mr. A approached Mr. B and informed him
about his father’s death. Now, Mr. S is willing to complete the instrument which was
executed by his deceased father. Referring to the relevant provisions of the
Negotiable Instruments Act, 1881, decide, Whether Mr. S can Complete the
instrument in the above scenario?
Ans. As per Section 57 of the Negotiable Instruments Act 1881, if a person makes the
endorsement of an instrument, but before the same can be delivered to the
endorsee, the endorser dies, the legal representatives of the deceased person cannot
negotiate the same by mere delivery thereof.
Facts of the case:
Mr. A made an endorsement of a bill of exchange amounting to ₹50,000 to Mr. B. But,
before the same could be delivered to Mr. B, Mr. A passed away. Mr. S, the son of
Mr. A, who was the only legal representative of Mr. A, approached Mr. B and informed
him about his father’s death. Now, Mr. S is willing to complete the instrument which
was executed by his deceased father.
Conclusion:
In the present case, Mr. S cannot complete the instrument as Mr. S is the legal
representative of Mr. A and Mr. A died before delivering the instrument. A legal
representative is not an agent of the deceased.

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