Negotiable Instruments Act, 1881
MCQ (1-20)
Q1. Under the Negotiable Instruments Act, 1881, a cheque must be presented to the bank for payment within:
a) 1 month
b) 2 months
c) 3 months
d) 6 months
Show Answer
Answer: c) 3 months
Explanation: As per Section 138, a cheque must be presented to the bank within three months from the date it is drawn. This was upheld in the case of K. Bhaskaran v. Sankaran Vaidhyan Balan (1999), where the Supreme Court emphasized the importance of timely presentation.
Q2. Which section of the Act presumes that a negotiable instrument was drawn for consideration?
a) Section 115
b) Section 120
c) Section 118
d) Section 130
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Answer: c) Section 118
Explanation: Section 118(a) presumes that every negotiable instrument was made or drawn for consideration unless the contrary is proved. This principle was reiterated in Hiten P. Dalal v. Bratindranath Banerjee (2001).
Q3. Who can cross a cheque under the Act?
a) The payee only
b) The drawer only
c) The drawer or the holder
d) The bank only
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Answer: c) The drawer or the holder
Explanation: Section 123 allows both the drawer and the holder to cross a cheque. In Jugalkishore v. Raw Cotton Co. Ltd. (1955), the court explained the rights of holders in crossing cheques.
Q4. What is the penalty for dishonour of a cheque due to insufficient funds under Section 138?
a) Imprisonment up to 6 months
b) Imprisonment up to 1 year
c) Imprisonment up to 2 years or fine
d) Imprisonment up to 3 years or fine
Show Answer
Answer: c) Imprisonment up to 2 years or fine
Explanation: Section 138 prescribes a penalty of imprisonment up to two years or a fine not exceeding twice the cheque amount. The Dalmia Cement Ltd. v. Galaxy Traders (2001) case discussed its implications.
Q5. A “holder in due course” is defined under:
a) Section 7
b) Section 9
c) Section 13
d) Section 17
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Answer: b) Section 9
Explanation: Section 9 defines a “holder in due course” as a person who has obtained the instrument for consideration and before maturity without notice of defects. This was emphasized in Lilykutty v. Lawrance (2003).
Q6. Notice of dishonour is mandatory under:
a) Section 91
b) Section 93
c) Section 101
d) Section 104
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Answer: b) Section 93
Explanation: Section 93 mandates notice of dishonour unless waived. The Supreme Court in K.R. Indira v. Dr. G. Adinarayana (2003) highlighted the procedural necessity of such notice.
Q7. Which section deals with the summary trial of cheque dishonour cases?
a) Section 138
b) Section 143
c) Section 144
d) Section 145
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Answer: b) Section 143
Explanation: Section 143 provides for the summary trial of cheque dishonour cases for expeditious disposal. This was examined in Damodar S. Prabhu v. Sayed Babalal H. (2010).
Q8. What is the time limit for issuing notice to the drawer after cheque dishonour?
a) 7 days
b) 10 days
c) 15 days
d) 30 days
Show Answer
Answer: c) 15 days
Explanation: Under Section 138(b), the payee must issue a legal notice to the drawer within 15 days of dishonour. The Supreme Court in C.C. Alavi Haji v. Palapetty Muhammed (2007) clarified this provision.
Q9. Under Section 87, a material alteration in a negotiable instrument renders it:
a) Valid
b) Void
c) Partially void
d) Enforceable
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Answer: b) Void
Explanation: Section 87 states that a material alteration without the consent of all parties renders the instrument void. This principle was upheld in Sundaram Finance Ltd. v. NEPC India Ltd. (1999).
Q10. A cheque must be presented to the drawee bank within how many months to avoid it being stale?
a) 1 month
b) 3 months
c) 6 months
d) 12 months
Show Answer
Answer: b) 3 months
Explanation: Under Section 138, a cheque must be presented within three months, or as per the validity period noted. In Vijay v. Laxman (2013), the Supreme Court reiterated this principle.
Q11. Which section protects a paying banker in case of payment on a crossed cheque?
a) Section 85
b) Section 87
c) Section 130
d) Section 131
Show Answer
Answer: d) Section 131
Explanation: Section 131 protects the paying banker if the cheque is crossed and paid in good faith without negligence. Canara Bank v. Canara Sales Corporation (1987) is a leading case on this.
Q12. Under Section 139, what is presumed about the issuance of a cheque?
a) It is issued for an unlawful purpose
b) It is issued without consideration
c) It is issued for a debt or liability
d) It is issued as a gift
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Answer: c) It is issued for a debt or liability
Explanation: Section 139 presumes that the cheque was issued for a legally enforceable debt or liability. The Supreme Court confirmed this in Rangappa v. Mohan (2010).
Q13. The term “negotiable instrument” is defined under which section?
a) Section 1
b) Section 13
c) Section 23
d) Section 38
Show Answer
Answer: b) Section 13
Explanation: Section 13 defines a negotiable instrument as promissory notes, bills of exchange, and cheques payable either to order or to bearer.
Q14. What does Section 146 of the Act deal with?
a) Modes of service of notice
b) Evidence of dishonour of a cheque
c) Liability of drawer
d) Penalty for non-payment
Show Answer
Answer: b) Evidence of dishonour of a cheque
Explanation: Section 146 provides that dishonour of a cheque may be proved by the bank’s slip or memo.
Q15. Which Supreme Court case laid down the principle of compensatory costs in cheque dishonour cases?
a) M.S. Narayana Menon v. State of Kerala
b) Indian Bank Association v. Union of India
c) Damodar S. Prabhu v. Sayed Babalal H.
d) K. Bhaskaran v. Sankaran Vaidhyan Balan
Show Answer
Answer: c) Damodar S. Prabhu v. Sayed Babalal H.
Explanation: The Supreme Court in this case emphasized the imposition of compensatory costs to discourage delayed payments.
Q16. Under Section 92, who is liable on a dishonoured instrument?
a) Holder only
b) Drawer only
c) Drawer and endorsers
d) Drawee only
Show Answer
Answer: c) Drawer and endorsers
Explanation: Section 92 imposes liability on the drawer and endorsers when a negotiable instrument is dishonoured.
Q17. The minimum amount for filing a case under Section 138 is:
a) ₹100
b) ₹500
c) ₹1,000
d) No minimum amount
Show Answer
Answer: d) No minimum amount
Explanation: Section 138 does not prescribe any minimum amount for initiating a case of cheque dishonour.
Q18. What is the consequence of not replying to a legal notice under Section 138?
a) Automatic conviction
b) Adverse inference in court
c) Dismissal of case
d) No consequence
Show Answer
Answer: b) Adverse inference in court
Explanation: Failure to reply may lead the court to draw an adverse inference. This was discussed in C.C. Alavi Haji v. Palapetty Muhammed.
Q19. A “bill of exchange” is defined under:
a) Section 2
b) Section 3
c) Section 5
d) Section 7
Show Answer
Answer: c) Section 5
Explanation: Section 5 defines a bill of exchange as an instrument in writing containing an unconditional order to pay a certain amount.
Q20. Which section prescribes the manner of notice service?
a) Section 138
b) Section 141
c) Section 145
d) Section 144
Show Answer
Answer: d) Section 144
Explanation: Section 144 lays down the manner in which notice must be served under the Act.
