The document provides an overview of key concepts related to negotiable instruments under the Negotiable Instruments Act, 1881 in India. It defines negotiable instruments and discusses promissory notes, bills of exchange, and cheques. It covers characteristics of negotiable instruments, types of instruments, parties and their liabilities, negotiation and assignment, holders including holders in due course, crossing of cheques, and discharge of parties. Examples are provided to illustrate concepts like inchoate instruments, conditional instruments, and liability of acceptor of bills drawn in fictitious names.

1. The Negotiable Instruments Act, 1881
IPCC Paper-2: Business Laws, Ethics &Communications Chapter 2
CA. Chiranjiv Sodhi
1

2. Learning Objectives
1 • What is a Negotiable Instrument?
2 • Promissory Note
3 • Bills of Exchange
4 • Cheques
5 • Types of Instruments
6 • Liabilities of Parties
7 • Accommodation Bills
8 • Negotiation & Assignment
9 • Discharge of Parties
2

3. Abbreviations Used
• Negotiable Instrument
NI
• Promissory Note
PN
• Bill of Exchange
BE
• Holder in Due Course
HDC
3

4. What is a Negotiable Instrument?
It is an instrument- which is transferable by delivery, like cash, and
is also capable of being sued upon by the person holding for the
time being.
Section 13 of NI Act 1881 mentions only three kinds of NI viz: Bills,
Notes & Cheques.
4

5. Characteristics of Negotiable Instrument
Easy Negotiability ,
Transferee can sue in his own name without giving notice to debtor
Better title to a transferee for value,
Written & Signed
5

6. Presumption as to NI
Consideration
Date
Acceptance within reasonable time
Transfer before maturity
Sequence/order of endorsements
A lost NI was duly stamped
Holder of NI
6

7. In nutshell
either by delivery or by an endorsement & delivery.
which is transferable from one person to another
specified in it -and-
entitling a person to a sum of money
a written & signed document
A Negotiable Instrument is
7

8. As per Section 31 of Reserve Bank of India Act:
No person in India
other than the RBI or
the Central Govt. can
make or issue a
promissory note
payable to bearer.
No person India
other than the RBI or
the Central Govt. can
draw or accept a bill
of exchange and a
promissory note
payable to bearer on
demand.
A cheque payable to
bearer on demand
can be drawn.
8

9. Promissory Note
An Intro.
9

10. Promissory Note - Section 4
a certain person or to the bearer of the instrument.
to pay a certain sum of money only to or to the order
of
signed by the maker
containing an unconditional undertaking
A promissory note is an instrument in writing (not
being a bank note or a currency note)
10

11. Essentials of a Promissory Note
• It must be in writing
1
• Promise to pay
2
• Unconditional Promise
3
• It must be signed
4
• Certainty about maker & amount
5
• Payee must be certain.
6
11

12. Points to be noted
An antedated or post dated instrument is not
invalid.
An undated instrument will be treated as
having been made on the date of its delivery.
Place and date of making it need not to be
mentioned.
Consideration need not to be mentioned.
12

13. Bills of Exchange
An Intro.
13

14. Bills of Exchange
First of all, we must know how a bill of exchange ordinarily comes into existence.
Suppose “A” sells goods worth Rs 1000/ to “B” on credit and allows him three months
time to pay the price.
“A” will draw a bill on “B”.
After signing the bill A will present it to B for acceptance.
Now A is the drawer and B is the drawee.
After acceptance…… A is the drawer and B is the acceptor.
14

15. Bills of Exchange
Bill is an unconditional written order
signed by the drawer,
directing a certain person to pay
a certain sum of money
to the specified person or to his order or to the bearer of the bill.
15

16. Essentials of a Bill of Exchange
Money only
Certainty regarding amount
Certainty regarding parties
Duly signed
Unconditional
Order to pay
In writing
16

17. Promissory Note Vs. Bill of Exchange
Notice of dishonour
Payable to bearer
Maker’s position
Nature of liability
Acceptance
Promise & Order
Number of parties
17
It should be noted
that neither a PN
nor a BE can be
made payable to
bearer on demand

18. Cheque
An Intro.
18

19. Cheque - Section 6
A cheque is a bill of exchange
drawn on a specified banker and
not expressed to be payable
otherwise than on demand and it
includes the electronic image of a
truncate cheque and a cheque in
the electronic form.
All cheques are biils of exchange,
but all bills of exchange are not
cheque.
19

20. Similarities Between Bill & Cheque
1 • Regarding Nature
2 • Regarding Parties
3 • Drawer & Payee
4 • Written & Signed
5 • Unconditional Order
6 • Endorsement
20

21. Cheque Vs. Bill Of Exchange
Differences
A Cheque is always drawn on a banker- while a bill may be drawn on any person including
a banker.
A cheque can only be drawn payable on demand- whereas a bill may be drawn
payable on demand or on the expiry of certain period.
A cheque drawn payable to bearer is valid- but a bill drawn payable to bearer is
absolutely void
A cheque does not require any acceptance- whereas a bill requires acceptance.
A cheque does not require any stamp- whereas a bill of exchange must be properly
stamped.
Three days of grace are allowed while calculating the maturity date in case of time bills-
Since a cheque is always payable on demand, there is no any days of grace.
21

22. Cheque Vs Bill of Exchange - 2
Unlike cheque, bills can not be crossed.
Unlike bills, there is no system of noting or protest in case of a
cheque.
The drawer of a bill is discharge from liability if it is not presented, but
the drawer of cheque will not be discharge by delay of the holder in
presenting it for payment unless failure of the bank.
22

23. Crossing of Cheques
General
Crossing
(Sec 123)
Special
Crossing
(Sec 124)
Not
Negotiable
Crossing
(Sec 130)
23

24. Crossing of Cheques - 2
Account
Payee
Crossing
Not
Negotiable
A/C Payee
Crossing
Opening Of
Crossing
24

25. Holder
25

26. Holder (Section 8)
The holder of a N.I. means any person entitle to the
possession of the instrument in his own name and to receive
the amount due thereon from the parties liable thereto.
26

27. Holder In Value
Holder in value means as regards all parties
prior to himself, a holder of an instrument for
which value has at any time been given.
27

28. Holder In Due Course (Section 9)
A Holder in Due Course means a holder- who takes the
instrument bona fide- for value -before it is overdue, and
without any notice of defects in the title of the person, who
transferred it to him.
28

29. Privileges of a Holder in Due Course
He gets a better title
than that of the
transferor
Privilege in case of
inchoate stamped
instruments
(Sec. 20)
Liability of prior
parties
Privilege in case of
Fictitious bills
(Sec. 42),
Privilege when an
instrument delivered
conditionally is
negotiated
Estoppel against
denying original
validity of instrument
(Sec. 120)
Estoppel against
denying capacity of
payee to indorse
29

30. Example of Inchoate Stamped Instrument
A signs his name
on a blank but
stamped
instrument and
gives to B with an
authority to fill up
as a note for a sum
of Rs 4000 only.
But B fills it for Rs
5000 and then
transfers it to C for
a consideration of
Rs 5000 who takes
it in good faith.
Here C is entiled to
recover full
amount of the
instrument
because he is
HDC. But B, being
a holder, can not
recover the
amount because
he filled in the
amount in excess
of his authority
30

31. Example of Conditional Instrument
If I give a cheque to a
shopkeeper with the
condition that he
should not encash the
cheque till he supplies
me the goods,
anybody encashing
the cheque prior to
fulfilling the condition
is liable to return the
money except the
holder in due course.
31

32. Example of better title to HDC
If P obtains an instrument payable to bearer by theft or fraud, or
for an unlawful consideration, he cannot sue on it.
But if P transfers the instrument (being a bearer one) to R under
circumstances (for value in good faith) which make R a holder
in due course, R can sue on the instrument.
The party liable to pay can take, as against P, the defence of
theft or fraud, but as against R he will not be allowed to take
such a defence.
32

33. Types of Instruments
An Intro.
33

34. Time Instruments
An instrument payable after happening of a
certain event is also called as time instrument.
An instrument payable after a fixed time or on
specified date is termed as time instrument.
34

35. Demand (at sight) Instruments
When no time of payment
is specified, it is payable
on demand.
When it is expressed to
be payable on demand or
at a sight or presentation,
it is demand instrument
35

36. Bearer Instruments
When the only or last endorsement is in blank.
An NI is said to be a bearer instrument if it is
expressed to be so payable; or
36

37. Order Instrument
When it is expressed to
be payable to the order;
or
When it is expressed to
be payable to a particular
person and does not
contain the words
prohibiting or restricting
its transfer.
37

38. Ambiguous Instrument - Sec 17
In such a case the holder may either treat it as a bill or a
promissory note. But once he has made his choice the
instrument shall henceforth be treated accordingly
Ambiguous instrument means an instrument which may
be treated as a bill or as a promissory note
38

39. Ambiguous Instrument - 2
In the following cases, instrument is an ambiguous
instrument:
39
when the drawer and drawee of a bill are the same person
where the drawee of a bill is a fictitious person
where the drawee of a bill is a person not having capacity to contract.

40. Inchoate Instrument
It is an instrument that is signed and duly stamped but
otherwise wholly or partially blank.
Where one person sign and deliver properly stamped
by wholly or partly blanked instrument, such
incomplete instrument is called inchoate instrument
40

41. ESCROW
When a NI is endorsed and
delivered conditionally or as
collateral security, it is called
escrow.
In this case, property in the
instrument does not passes to
the endorsee, he is merely a
bailee with limited title and power
of negotiating it. However, it does
not affect the rights of a HDC.
41

42. Forged Instruments
The holder of a
forged
instrument
cannot enforce
payment
therefore.
The true owner
can compel
debtor to pay it
again to him.
Even a holder in
due course can
not claim
payment on
forged
instrument.
42

43. Accommodation Bill
An Intro.
43

44. Accommodation Bill
X draws a bill (payable to himself) on Y, Y accepts the bill without
consideration just to accommodate X to enable X to raise money from
market by negotiating the bill in the market. This is accommodation bill.
Though Y accepts the bill, X is primary liable to the bill. He can not
demand amount from Y.
However If X transfer the bill, after maturity to Z for good consideration,
and Z becomes the holder in good faith- Z is entitle to recover the amount.
44

45. Accommodation Bill - 2
No presentation for payment does not discharge the drawer
All benefits of holder in due course
Liability for subsequent holder for value
No obligation for payment
No creditor-debtor relation
No consideration
45

46. Maturity of Negotiable Instruments
An Intro.
46

47. Maturity of Negotiable Instruments:
Exclude the day on which instrument is presented for
acceptance or sight or on which the event happens.
If the month has no corresponding date, on the last day of such
month.
Payable after a stated number of months, 3 days after the
corresponding date of the month of payment.
Rules for calculating maturity:-
47

48. Rules for calculating Maturity …..
If maturity day is a public holiday/ Sunday, immediate
preceding business day shall be deemed as maturity day.
If it is an emergency holiday, then on subsequent date..
If instrument is payable on installments, 3 days grace will be
allowed on each installment
48

49. Negotiating
An Intro.
49

50. Negotiating of Negotiable Instruments
• Negotiation means transfer of a NI by one
person to another in order to make the
transferee the holder of the instrument.
NEGOTIATION
• Assignment of a NI means transfer of
ownership of the instrument from one
person to another (assignor to assignee).
ASSIGNMENT
50

51. Negotiation Vs. Assignment
• Consideration
1
• Title
2
• Notice of transfer
3
• Mode
4
51

52. Negotiable Back
An instrument is said to have been negotiable back, when
a person who has been a party to NI takes it again.
52

53. Example
Here B is the person who is the prior party to the instrument .
53
A  B
B  C
C  D
D  B

54. Example – Cont.
Every subsequent party may sue every prior party. Hence
B can sue D, D can sue C and C can sue B.
• To prevent this, section 52 of NI enacts an exception to the general rule
to provide that HDC may sue all the prior parties thereto.
Hence B can not sue C or D, he can sue A.
54

55. Liabilities
An Intro.
55

56. Liability of Legal Representative -
Section 29
The Legal Representative of a deceased person, who signs his own
name on the instrument, is personally liable to the entire amount.
But he can expressly limit his liability to the extent of the assets
received by him as Legal Representative .
56

57. Liability of a Drawer (Section 30)
It may be noted that the drawer may, by an expressed
stipulation in the instrument, limit or exclude his liability.
The drawer’s liability is conditional and secondary. It arises
only in the event of dishonour by drawee or acceptor.
57

58. Liability of Drawee of Cheque
(Section 31)
The drawee of
a cheque is
always a
banker.
It is the duty of the banker to pay
the cheque provided he has
sufficient funds of drawer in his
hands and the funds are properly
applicable to such payment.
If the banker refuses payment
without any sufficient cause
being shown, he must
compensate the drawer any loss
caused by such improper refusal
58

59. A Banker is Justified to Dishonour
the Cheque in following cases:
If the cheque is undated;
If it is stale, that is if it has been not presented within prescribed time;
If it is inchoate and not free from reasonable doubt;
If the cheque is post dated and it is presented before that date;
If the drawer’s funds are not properly applicable to the payment of cheque;
59

60. A Banker is Justified to Dishonour the
cheque in following cases…………
If the banker receives the notice of customer’s insolvency or lunacy;
If there is any order by court for attachment of the account;
If the banker has received the notice of death of the drawer;
If notice of closure of account has been served by either parties;
If it contains material alternations, irregular signature or irregular endorsement.
60

61. Liability of Maker of Note and
Acceptor of Bill (Sec 32)
The maker of a
note is bound to
pay the amount on
maturity
Under section 32 of
the Act, the liability
of an acceptor
arises only when
he accepts the bill.
61

62. Liability of an Endorser (Sec.35)
Every endorser who
endorsed an instrument
before its maturity is
liable to the parties that
are subsequent to him.
And his liability arises
only if there is a default
by the party who is
primary liable to pay the
instrument on maturity.
62

63. Liability of Parties to Holder in Due
Course (Sec 36)
Every prior party to an instrument is liable to a
holder in due course until the instrument is satisfied
63

64. Effect of Forged Endorsement on
Acceptor’s Liability (Sec 41):
The acceptor can not be relieved from the liability
knowing that the endorsement is forged
64

65. Liability of Acceptor of a Bill Drawn
in a Fictitious Name (Sec 42)
Suppose: X uses a fictitious name in drawing a bill upon
Z. Then he endorses the bill in the same fictitious name
to Y, who presents the bill to Z for acceptance.
Now if Z accepts the bill, he will be liable for payment in
spite of fact that the name of drawer is fictitious.
65

66. Liability on an Instrument Drawn,
etc. without Consideration: Sec 43:
Such an instrument creates
no obligation of payment
between the parties to the
transaction.
Example: If a PN is delivered
by the maker to the payee as
a gift, it can not be endorsed
against the maker by the
payee.
66

67. Bouncing of Cheque
Dishonour of cheque due to
insufficient funds is an
offence.
The drawer, u/s 138, will be
punishable with an
imprisonment up to 2 years
or with a fine twice the
cheque amount or with both
67

68. However, in order to attract the penalties,
following conditions must be satisfied
Complaint within 1 month
Notice- demanding payment within 15 days;
Cheque must be present within validity period;
Payment should be for discharge of liability;
Dishonour due to Insufficient funds;
68

69. Question
A drawer of a cheque after
issuing the cheque, informs the
drawee not to present cheque as
well as informs bank to stop
payment. Does it constitute an
offence under the Act?
Once a cheque is issued by the
drawer, a presumption u/s 139
follows. Merely because the
drawer issues a notice thereafter
to drawee or to the bank for
stoppage of payment does not
discharge the drawer from his
liability.
Hence he shall be deemed to
have committed an offence.
69

70. Rights & Obligations
An Intro.
70

71. Rights & Obligations - Finder of Lost Instrument
Endorsee of HDC can also recover the amount.
Holder in due course can recover the amount;
True owner can recover the amount;
Finder will not get good title;
71

72. Rights & Obligations of Person who had
obtained the instrument by Unlawful Means
The possessor will not
get good title
Holder in due course can
get good title
X steels a bill from
acceptor; X does not get
any good title of it. – If X
collected the proceeds of
bill, the acceptor can
recover it from X–
If X endorses the bill to Y
against value and If Y is
HDC, Y can recover the
money from X but no
from other party
72

73. Forged Instruments
73

74. Forged Instruments
As a general rule, a forged signature is worthless, having no legal impact.
The holder of a forged instrument cannot enforce payment therefore.
The true owner can compel debtor to pay it again to him.
Even a HDC can not claim payment on forged instrument
74

75. Forged Instruments – Imp. Points
Person who forges an
instrument, gets no title
on the instruments, even
holder in due course can
not claim.
The holder of instrument,
who has acquired it after
dishonour, has as against
the other parties, only
rights thereon of his
transferor
75

76. Forged Instruments…….
If the instrument is acquired after maturity, the
holder of an overdue instrument is affected by
the defect in the title of his transferor .
76

77. Example
P is a drawer and Q
is the drawee and
acceptor. Q deposits
some goods with P
as collateral security.
The bill, not having
been paid on
maturity, P sells the
goods and retained
the money.
Now P endorses the
bill (after maturity) to
R. R having rights of
P can not recover
money from Q.
But if R was a bona
fide endorsee before
maturity, then he
could realize money
from Q
77

78. Forged Instruments…….
In an accommodation bill or note, a defect in
the title of the transferor does not affect the
title of the holder acquiring after maturity.
78

79. Hundi
Darshani
hundi
Miadi hundi
or Muddati
hundi
Shah Jog
hundi
Nam Jog
hundi
Jokhmi
hundi
Dhani Jog
Hundi
79

80. Presentation of Instruments
80

81. Presentation of Instruments
Presentation means showing a NI to
the drawee, acceptor or maker for:
acceptance,
sight, or
payment
81

82. Presentation for Acceptance
A bill payable on demand or at a sight, or on certain fixed date
need not to be presented for acceptance unless it is specifically
agreed that such a bill is to be presented for acceptance.
But presentation of acceptance is obligatory in case of a bill
payable some period after sight or after presentation or when
there is an express stipulation in the bill that it shall be
presented for acceptance.
82

83. Modes of acceptance:
• When the drawee, while accepting the bill,
does not attach any condition or
qualification to it, it is called general
acceptance.
General
Acceptance:
• The acceptance is qualified when it is given
subject to some conditions or qualifications
Qualified
Acceptance :
83

84. Presentation for Acceptance to Whom
The drawee or his duly authorized agent;
His legal representative, if the drawee has died;
His assignee, if the drawee has been declared insolvent;
- All the drawees, if there are several drawees unless they are
partners or agents of one another.
84

85. Presentation for Acceptance Excused
The drawee is a fictitious or incompetent person;
He cannot be found after reasonable search
Although the presentation has been irregular,
acceptance has been refused on some other ground.
85

86. Acceptance for Honour
Acceptance for honour means the acceptance given by some stranger when the
original drawee refuses to accept or to give better security when demanded by a
notary. The stranger may accept the bill of the honour of any party already liable
thereto. Such stranger is called an acceptor for honour or acceptor supra protest
86

87. Conditions - Valid Acceptance for
Honour
That the bill has been noted or protested for non acceptance or better security,
Acceptance has been made with the consent of holder,
The acceptor for honour is not already liable on the bill,
that the acceptance is for the honour of any party already liable on the bill, and
that the acceptance is by writing on the bill.
87

88. Presentation for Sight
A Promissory Note payable after
sight- must be presented to the maker
for sight- to determine the maturity.
It should be present during office
hours, and on a business day.
88

89. Presentment for Payment
PN, BE and Cheques must
be presented for payment to
the maker, acceptor or
drawee thereof respectively,
by or on behalf of the holder.
If default is made, the
parties other than parties
primarily liable are
discharged of their liability
(Sec 64)
89

90. Presentation for payment-
When & Where?
Presentation for payment must be made
during usual business hours. It must be
made :
at the place of
payment
specified in the
instrument;
if no place is
specified, at a
place of business
or residence;
in any other case,
wherever the
party liable to pay
can found.
90

91. Presentation for Payment to Whom?
To the drawee, maker or acceptor, as the
case may be or to their duly authorized agent;
To legal representative, if drawee, maker or
acceptor has died;
To the assignee, where drawee, maker or
acceptor was declared insolvent.
91

92. Presentation for Payment is not
necessary in the following cases:
Where it is intentionally prevented by the maker, drawee or
acceptor; or
Where the business of the maker, drawee or acceptor is
closed or he can not be found after a reasonable search,
or there is no person at the place of payment; or
Where there is a promise to pay, notwithstanding non
presentation; or
92

93. Presentation for Payment is not
necessary in the following cases: - 2
Where payment is expressly or impliedly waived; or
Where the bill is dishonoured by non acceptance; or
Where the drawee is a fictitious person; or
Where the presentation becomes impossible.
93

94. Payment for Honour
Just as a bill may be accepted for the honour of a party
to bill, it may also be paid for the honour of a party
liable to pay the bill.
After payments he can recover from that person or any
party prior to him.
94

95. Dis-honour by Non-Acceptance(Sec
91)
Not accepted by drawee within 48 hours of presentation;
Default in acceptance;
Qualified acceptance;
Presentment is excused and the bill remains unaccepted;
Drawee is incompetent to contract.
95

96. Dis-honour by Non Payment (Sec 92)
When the party primarily liable makes default in payment.
When presentment for payment excused and the instrument
when overdue, remains unpaid, under section 76 of the Act.
96

97. Distinction between dishonour by
non acceptance and non payment:
If a bill is dishonoured for non acceptance, there is no right of action
against the drawee as he is not a party to the bill. The holder of bill
can proceed only against the drawer or endorser, if any.
On dishonoured by non payment, the drawee can be sued.
97

98. Effects of Dis-honour:
As soon as a NI is dishonoured, the holder
becomes entitle to sue the parties liable to pay
thereon.
The drawer of cheque, maker of note, acceptor &
drawer of bills and all the endorsers are liable
severally and jointly to a holder in due course.
98

99. Notice of Dishonour
By the holder to any of the parties to
the instrument (Sec 93)
Any party receiving notice must also
transmit the same to all prior parties.
He can not sue any prior party, if notice
has not transmitted.
99

100. Notice to Whom
To all parties (other than the maker of a note, acceptor of
a bill, or drawee of a cheque) to whom the holder seeks
to make liable or to their duly authorized agents
Where there are two or more persons jointly liable as
drawer or endorsers, notice to any one of them is
sufficient.
To legal representative, in case of death of person, and
to official assignee in case of insolvency (Sec 97).
100

101. What is Reasonable Time?
If business and living place are same- to be receive on day
of dishonour or day after dishonour.
If business and living places are different, it is to be
dispatched by the next post or on the day next after the
day of dishonour.
101

102. When Notice of Dishonour Is
Unnecessary?
Dispensed with by an express waiver,
Party charged would not suffer damage
Party not found after due search,
When drawer is accepter,
Accidental omission,
In the case of a PN which is not negotiable,
Party promises to pay unconditionally.
102

103. Noting:
Noting is the process of recording the fact and
reasons of dishonour of a NI by the notary public.
Noting must be made within reasonable time after
dishonour
103

104. PROTESTING:
Protest is a formal certificate of dishonour issued by the
notary public to the holder of a bill or note on his demand.
Sec 100.
Important difference between Noting & Protesting is that
noting consists of recording the fact and reasons of dishonor
of NI upon the instrument; whereas Protest is the certificate
as to the fact that instrument has been dishonoured.
104

105. Discharge of An Instrument:
When it becomes completely useless,
When the party makes the payment in due course at or after maturity (u/s78)
,
When the party becomes insolvent ,
When the holder cancels the instrument with intention to release the party.
105

106. Discharge of One Or More Parties
By cancellation
By release
By allowing drawee more than 48 hours to accept (Sec 83)
By taking qualified acceptance (Sec 86)
By not giving notice of dishonour
106

107. Discharge of One Or More Parties - 2
By not presentment for acceptance of bill (Sec 61)
By delay in presenting cheque (Sec 84)
By negotiating back of a bill
107

108. Multiple Choice Questions:
Read the questions carefully….
Answer the questions honestly……
Do your Self Assessment…..
All the best !!!
108

109. #1: The undertaking contained in a promissory
note, to pay a certain sum of money is----
(a) Conditional
(b) Unconditional
(c) May be conditional or unconditional depending upon the
circumstances
(d) None of the above.
Answer : (b) Unconditional
109

110. # 2: Which of these is not a negotiable
Instrument as per the Negotiable Instrument
Act,1881
(a) Bill of exchange
(b) Delivery note
(c) Bearer Cheque
(d) Share certificate
Answer: (d) Share Certificate
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111. # 3: Which of the following is not a payment in
due course under NI Act 1881?
a) Payment should be made in accordance with the apparent tenor of the
instrument
b) A payment is made on instrument before the date of maturity
c) Payment is made to the possessor of the instrument
d) Payment made in good faith & without negligence
Answer: b) A payment is made on instrument before the date of maturity
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112. #4 : X drew a bill on Y and sent it to Y for
acceptance. In which of the following
instances, it is a valid acceptance?
a) Y signs on bill and keeps it with him
b) He writes “accepted” on the back of bill but does not put his signature on bill
c) He puts his signature on face of bill and returns it to X
d) He write ‘accepted on the face of bill but does not put his signature
Answer: c) He puts his signature on face of bill and returns it to X
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113. # 5: In which of the following situations could a
bill of exchange not be negotiated?
a) The time to pay is not determinable.
b) The promise to pay is conditional.
c) The amount to be paid is “the amount owing on account."
d) All of the above.
Answer: d) All of the above
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114. #6: X made a note payable to the order of his son Y as a birthday gift
payable after one month. Y presented the note after 3 months and X
refused to pay. Can Y sue for payment?
a) Yes, because a note, unlike a cheque, cannot become stale dated
b) Yes, because the note is a negotiable instrument that is required to pay
c) No, because a note, like a cheque, can become stale dated.
d) No, because the note was gratuitous so it is not binding for a lack of consideration.
Answer: d) No, because the note was gratuitous so it is not binding for a lack of consideration
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115. # 7: Which of the following is NOT a part of the
criteria for a holder in due course?
a) The instrument is held by a party immediate to the promisor.
b) The instrument is taken by someone, or through someone, who
has given consideration for it.
c) The instrument is taken complete and regular on its face.
d) The instrument is taken before it is overdue and without notice of
any dishonour.
Answer: a) The instrument is held by a party immediate to the promisor.
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116. # 8: B issued a cheque for Rs 10,000/ in favour of S. B had sufficient
funds in his account. The cheque was not presented within
reasonable time. In the meantime, bank became insolvent.
a) S can recover money from B
b) B is discharged from his liability.
c) S can recover from official assignee of the bank
d) S can sue B and Bank jointly
Answer: b) B is discharged from his liability
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117. #9: P draws a bill of Rs 10,000 on Q. Q accepts it. On maturity, the
bill was dishonoured. P filed a suit against Q. Q proved that the bill
was accepted for value of Rs 7000/ and balance Rs 3000/ as an
accommodation bill.
a) P can recover Rs 10,000/ from Q.
b) P can recover Rs 7,000/ from Q.
c) P can not recover anything because bill is confusing.
d) Bill is void ab initio
Answer: b) P can recover Rs 7000/ from Q
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118. Lesson Summary
Negotiable Instrument
Types of Negotiable Instruments
Dishonour of Negotiable Instruments
Different parties of Negotiable Instruments & their Liabilities
Discharge of Negotiable Instruments and Discharge of Parties
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119. Thank you very much.
Wishing you best of luck !
CA. Chiranjiv Sodhi
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