Negotiable Instruments Act

Important
Practical Questions
Q-1
Q-2
Q-3
Q-3 Ans
Q-3 Ans
Q-4
 Q-5

 State with reasons whether each of the following

instruments is bearer or order:
 A bill is drawn payable to X or bearer.
 A bill is drawn payable to X who endorses it in blank
in favour of Y.
 A bill is drawn payable to X.
 A bill is drawn payable to X or order.
 A bill is drawn payable to X only.
Q-5 Ans
 Q-6 State with reasons whether each of the following instruments is an
Inland Instrument or a Foreign Instrument:

 A bill drawn in Delhi upon a merchant in Agra

and accepted payable in London.
 A bill drawn in Delhi upon a merchant in
London and accepted payable in Agra.
 A bill drawn in Delhi upon a merchant in
London and accepted payable in London.
 A bill drawn in London upon a merchant in
Agra and accepted payable in Delhi.
 A bill drawn in Delhi on a merchant in Agra
but endorsed in London.
 A bill drawn in London on a merchant in Agra
and endorsed in Delhi.
Q-6 Ans
Q-7
Q-7 Ans
 Q-8 Time instrument or demand instrument??

 I promise to pay B Rs 500.

 I promise to pay B Rs 500 on Demand.
 Pay Rs 500 at sight.
 Pay Rs 500 on presentment.
 I promise to pay B Rs 500 after 3months.
 I promise to pay B Rs 500 on 1st Jan. 2027.
 I promise to pay Rs 500 after sight.
 I promise to pay B Rs 500 after C’ s Death.
 Pay B Rs 500 on or before 1st Jan. 2027.
Q-8 Ans
 Q-9 Whether following acceptances are valid?? Holder can
refuse following acceptance?

1. Accepted payable when in funds.

2. Accepted payable when a cargo consigned to me is sold.
3. A bill drawn for Rs 5,000 but accepted for the 4,000 only.
4. Accepted payable at Delhi when no place of payment is specified in
the order.
5. Accepted payable at Delhi only when no place of payment is specified
in the order.
6. Accepted payable at Delhi when place of payment specified in the
order was Bombay.
7. A bill drawn payable three months after date but accepted payable
two months after date.
8. A bill drawn on X, Y, and Z (who are not partners) but accepted by X
only.
9. A bill drawn on X, Y and Z (who are partners) but accepted by X.
Q-9 Ans
 Q-10

 P. X needs Rs.10,000 but cannot raise this

amount because his credit is not good
enough. Y whose credit is good,
accomodates X by giving him a pronote
made out in favour of X, though Y owes no
money to X. X endorses the pronote to Z for
value received. Z who is a holder in due
course, demands payment from Y. Can Y
refuse and plead the arrangement between
him and X?
 Q-10 Ans HDC & Accommodation Bill

 Sol: According to Section 120 of the

Negotiable Instruments Act, in a suit by
holder in due course, maker of a promissory
note and no drawer of a bill of exchange or
cheque are not permitted to deny the
validity of the instrument, as originally
made or drawn. Thus, Z is entitled to receive
payment on the instrument.
 Q-11 HDC & Inchoate instruments

 A signs, as the maker, a blank stamped

paper and gives it to B and authorises
him to fill it as a note for Rs. 2,000, it
being the amount of advances made by
B to A. B fraudulently fills it up as a
note for Rs. 3,000 and then, for
consideration, endorses it to C. Can C
enforce the instrument?
 Q-11 Ans

 Sol: A duly signed blank stamped instrument is called an inchoate

instrument. According to Section 20 of the Negotiable Instruments Act an
Inchoate instrument is an incomplete Instrument in some respect. When a
person signs and delivers blank or incomplete stamped paper to another,
such other is authorised to complete it for any amount not exceeding the
amount covered by the stamp. The person so signing is liable upon such
instrument, to any holder in due course for any amount. But any other
person can’t claim more than the amount intended by the drawer of the
instrument.

 Thus, for C's claim to be valid and enforceable, two things are important:
 That C is a holder in due course, i.e., there should be valid consideration
and he would have obtained it in good faith and before maturity.
 The amount filled in i.e. Rs. 3,000 is covered by stamp amount.
 Q-12 Gift & HDC

 A draws a cheque for Rs. 100 and hands it over to B by

way of gift. Is B a holder in due course?

 Ans :-
 One of the requirements of Section 9 of the Negotiable
Instruments Act to constitute a holder, as holder in due
course is that he must have received the instrument for
consideration. There are no exceptions to this condition.
Thus B can’t be treated as holder in due course. But he is
certainly a holder with good title thereto and hence he
will have every right to claim payment upon instrument.
 Q-13

 P. X accepts a bill for the accommodation of A

(drawer).
 A transfers it to B, without consideration.
 B transfers it to C without consideration.
 C transfers it to D for value.
 D transfers it to E, without consideration.
 On the due date, the bill dishonored by X. Discuss
the rights of A, B, C, D and E.
 Q-13 Ans

 E cannot recover from D, C cannot recover from B, B

cannot recover from A, and A cannot recover from X
because a negotiable instrument without
consideration creates no obligation of payment
between the parties to the transaction.
 D and E can recover from X, A, B and C
because any holder for consideration (D),
and every subsequent holder deriving title
from him (E) can recover the amount due
from the transferor for consideration or any
prior party thereto.
 Q-14 Correct or Incorrect

 (i) In a Promissory Note, the promise to pay must be

conditional.

 (ii) A Bill of Exchange may not be in writing.

 Q-15

 A Bill is drawn payable at No. A-17, CA apartments,

Mayur Vihar, New Delhi, but does not
contain drawee’s name. [Link] who resides at the
above address accepts the bill. Is it a valid Bill?

Ans
Yes, it is a valid Bill and [Link] is liable thereon. The
drawee may be named or otherwise indicated in the Bill
with reasonable certainty. In the present case, the
description of the place of residence indicates the name
of the drawee and [Link], by his acceptance,
acknowledges that he is the person to whom the bill is
directed (Gray vs. Milner 1819).
 Q-16

 Priyansh purchased some goods from Sumit. He

issued a cheque to Sumit for the sale price on 14th
June, 2023. Sumit presented the cheque in his bank
and his bank informed him on 19th June, 2023 that
cheque was returned unpaid due to insufficiency of
funds in the account of Priyansh. Sumit sued against
Priyansh under section 138 of the Negotiable
Instruments Act, 1881. State with reasons, whether
this suit is maintainable?
 Q-16 Ans

 By virtue of provisions of Section 138 of the Negotiable

Instruments Act, 1881, where cheque was issued by a person
to discharge a legally enforceable debt was dishonoured by
bank due to insufficiency of funds, such person shall be
deemed to have committed an offence and shall, without
prejudice to any other provision of this Act, 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.
 However,

 (a) the cheque has been presented to the bank within three
months or validity period of the cheque, whichever is earlier;
 Q- 16 Ans

 (b) the holder makes a demand for the payment of the said
amount of money by giving a notice in writing, to the drawer
of the cheque within 30 days of the receipt of information
from the bank regarding the return of the cheque as unpaid;
and
 (c) the drawer of such cheque fails to make the payment of
the said amount of money within fifteen days of the receipt of
the said notice.
 In the instant case, Priyansh issued a cheque to Sumit for
payment of the price of goods purchased from him. When
Sumit presented the cheque in bank, it was returned unpaid
due to insufficiency of funds in the account of Priyansh. Sumit
sued against Priyansh under section 138 of the Negotiable
Instruments Act, 1881.
 Q-16 Ans

 For filing the suit under section 138, Sumit should have to
make a demand of payment by giving a notice in writing
to Priyansh upto 18th July, 2023. In case, Priyansh failed
in making the payment within fifteen days of the receipt
of the said notice, Sumit could sue under section 138.
 Q-17

 Shankar drew a cheque in favour of Surendar. After

having issued the cheque, Shankar 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
of Shankar constitute an offence?
 Q-17 Ans

 As per the facts stated in the question, Shankar (drawer) after

having issued the cheque, informs Surendar (drawee) not to
present the cheque for payment and also 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.
 Q-17 Ans

 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 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 Shankar,
i.e., his request to stop payment constitutes an offence under the
provisions of the Negotiable Instruments Act, 1881.