Negotiable Instruments Act, 1881
MCQ (21-40)
Q21. Who can file a complaint under Section 138 of the Negotiable Instruments Act, 1881?
a) The drawee bank
b) The payee or the holder in due course
c) Any person having possession of the cheque
d) The drawer of the cheque
Show Answer
Answer: b) The payee or the holder in due course
Explanation: As per Section 142, only the payee or the holder in due course of the dishonoured cheque can file a complaint. This was clarified in A.C. Narayanan v. State of Maharashtra (2014).
Q22. What is the maximum time allowed for the drawer to make payment after receiving notice under Section 138?
a) 7 days
b) 10 days
c) 15 days
d) 20 days
Show Answer
Answer: c) 15 days
Explanation: Under Section 138(c), the drawer has 15 days to pay the cheque amount after receiving the legal notice. Non-payment leads to criminal liability.
Q23. Under the Act, when is a cheque considered to be “crossed generally”?
a) When the drawer signs on the back
b) When it has two parallel lines on the face
c) When “Account Payee” is written
d) When it is endorsed to another person
Show Answer
Answer: b) When it has two parallel lines on the face
Explanation: Section 123 states that a cheque is “crossed generally” when it bears two parallel lines across its face, with or without additional words.
Q24. Which section provides for vicarious liability in cheque dishonour cases?
a) Section 139
b) Section 141
c) Section 145
d) Section 146
Show Answer
Answer: b) Section 141
Explanation: Section 141 imposes vicarious liability on directors, partners, or officers of a company if the offence is committed with their consent or connivance. This was affirmed in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005).
Q25. The period of limitation for filing a complaint under Section 142 is:
a) 15 days from the cause of action
b) 30 days from the cause of action
c) 45 days from the cause of action
d) 60 days from the cause of action
Show Answer
Answer: b) 30 days from the cause of action
Explanation: Section 142 mandates that a complaint must be filed within 30 days from the date on which the cause of action arises.
Q26. Under Section 84, the payment of an instrument on a forged endorsement is:
a) Valid
b) Invalid
c) Valid if in good faith
d) Dependent on the holder’s consent
Show Answer
Answer: b) Invalid
Explanation: Section 84 specifies that payment made on a forged endorsement is invalid, as it is not an authorized payment.
Q27. Which Supreme Court judgment clarified that mens rea is not required under Section 138?
a) M.S. Narayana Menon v. State of Kerala
b) Rangappa v. Mohan
c) Modi Cements Ltd. v. Kuchil Kumar Nandi
d) K.K. Sidharthan v. T.P. Praveena Chandran
Show Answer
Answer: b) Rangappa v. Mohan
Explanation: The Supreme Court in Rangappa v. Mohan (2010) clarified that Section 138 imposes strict liability and does not require proof of mens rea (intention).
Q28. The term “endorsement” is defined under which section of the Act?
a) Section 15
b) Section 17
c) Section 19
d) Section 21
Show Answer
Answer: a) Section 15
Explanation: Section 15 defines “endorsement” as signing on the instrument to transfer its rights to another person.
Q29. When the drawer and the drawee are the same person, the instrument is called:
a) A cheque
b) A bill of exchange
c) A promissory note
d) None of the above
Show Answer
Answer: c) A promissory note
Explanation: As per Section 4, a promissory note is an instrument in which the maker promises to pay a specific sum of money to another person or to himself.
Q30. A cheque that is not payable to the bearer is called:
a) Open cheque
b) Crossed cheque
c) Order cheque
d) Dishonoured cheque
Show Answer
Answer: c) Order cheque
Explanation: An “order cheque” is payable only to the person whose name appears on it. This is defined under Section 85(1).
Q31. Which section provides for the liability of the guarantor in case of cheque dishonour?
a) Section 138
b) Section 139
c) Section 140
d) Section 141
Show Answer
Answer: d) Section 141
Explanation: Section 141 extends liability to persons in charge of a company, including guarantors, when the offence under Section 138 is committed.
Q32. Under the Act, who is considered a “Holder”?
a) A person entitled to possession of the instrument
b) A person who transfers the instrument
c) A person who countersigns the instrument
d) A person who dishonours the instrument
Show Answer
Answer: a) A person entitled to possession of the instrument
Explanation: Section 8 defines a “Holder” as a person entitled to the possession of the instrument and to recover or receive the amount due.
Q33. What is the effect of material alteration in a cheque without the consent of all parties?
a) The cheque remains valid
b) The cheque becomes void
c) The cheque is partially valid
d) It depends on the drawer’s discretion
Show Answer
Answer: b) The cheque becomes void
Explanation: Section 87 states that any material alteration without consent renders the cheque void.
Q34. Which section deals with instruments payable on demand?
a) Section 19
b) Section 21
c) Section 31
d) Section 37
Show Answer
Answer: b) Section 21
Explanation: Section 21 defines instruments payable on demand, which are payable at sight or immediately upon presentation.
Q35. When can a cheque be considered “stale”?
a) After 1 month
b) After 3 months
c) After 6 months
d) After 12 months
Show Answer
Answer: b) After 3 months
Explanation: A cheque is considered stale if it is not presented within three months, as prescribed under Section 138.
Q36. Which section of the Act deals with the concept of “noting” for dishonour?
a) Section 92
b) Section 99
c) Section 102
d) Section 106
Show Answer
Answer: b) Section 99
Explanation: Section 99 explains the concept of “noting,” which involves recording the fact of dishonour of a negotiable instrument.
Q37. The burden of proving that a cheque was issued without liability lies on:
a) The complainant
b) The drawer
c) The bank
d) The endorser
Show Answer
Answer: b) The drawer
Explanation: Section 139 presumes that a cheque is issued for a debt or liability unless the drawer proves otherwise.
Q38. A cheque marked as “not negotiable” can:
a) Be endorsed freely
b) Not be endorsed further
c) Be transferred but not give better title
d) Be cashed without restrictions
Show Answer
Answer: c) Be transferred but not give better title
Explanation: As per Section 130, a “not negotiable” cheque can be transferred, but the transferee cannot get a better title than the transferor.
Q39. Which section explains the liability of an acceptor for honour?
a) Section 108
b) Section 115
c) Section 118
d) Section 123
Show Answer
Answer: a) Section 108
Explanation: Section 108 details the liability of an acceptor for honour, who accepts an instrument on behalf of the party dishonoured.
Q40. Under Section 9, what is presumed about a negotiable instrument when it is transferred for consideration?
a) The instrument was signed by the payee
b) The instrument is genuine and legally valid
c) The instrument was accepted by the drawee
d) The instrument was given as a gift
Show Answer
Answer: b) The instrument is genuine and legally valid
Explanation: Section 9 presumes that when a negotiable instrument is transferred for consideration, it is genuine and legally valid, unless proven otherwise.
