Negotiable Instruments Act, 1881
MCQ (141-160)
Q141. Which section provides that no party to a negotiable instrument shall be liable beyond the terms of the instrument?
a) Section 28
b) Section 37
c) Section 38
d) Section 41
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Answer: b) Section 37
Explanation: Section 37 of the Act ensures that no party is liable on a negotiable instrument for any amount or condition beyond what is expressly stated in the instrument.
Q142. Under Section 20, what is the liability of a person who delivers a blank or incomplete negotiable instrument?
a) Not liable
b) Liable only if it is used fraudulently
c) Liable as if it were complete
d) Depends on court interpretation
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Answer: c) Liable as if it were complete
Explanation: Section 20 states that if a person delivers a blank or incomplete negotiable instrument, they are liable as if it were completed in accordance with the authority given.
Q143. What is the effect of crossing a cheque?
a) It becomes invalid
b) It can be paid only through a bank
c) It is payable to the bearer only
d) It becomes non-negotiable
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Answer: b) It can be paid only through a bank
Explanation: A crossed cheque is payable only through a bank, ensuring additional security and avoiding direct encashment over the counter.
Q144. Which section describes the consequences of dishonour by non-acceptance?
a) Section 91
b) Section 92
c) Section 94
d) Section 96
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Answer: a) Section 91
Explanation: Section 91 specifies that dishonour by non-acceptance occurs when a bill of exchange is presented for acceptance and the drawee refuses to accept it.
Q145. A cheque is a:
a) Promissory note
b) Bill of exchange
c) Fixed deposit
d) None of the above
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Answer: b) Bill of exchange
Explanation: A cheque is a specific type of bill of exchange drawn on a banker and payable on demand, as per Section 6 of the Act.
Q146. Under Section 138, what is the time limit for the drawer to pay the cheque amount after receiving the notice of dishonour?
a) 7 days
b) 15 days
c) 30 days
d) 45 days
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Answer: b) 15 days
Explanation: Section 138 mandates that the drawer must pay the cheque amount within 15 days of receiving the legal notice to avoid prosecution.
Q147. Which Supreme Court case held that Section 138 applies even if the cheque is dishonoured due to “stop payment” instructions?
a) Laxmi Dyechem v. State of Gujarat
b) Kusum Ingots v. Pennar Peterson Securities
c) Rangappa v. Sri Mohan
d) Modi Cements Ltd. v. Kuchil Kumar Nandi
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Answer: a) Laxmi Dyechem v. State of Gujarat
Explanation: The Supreme Court in Laxmi Dyechem v. State of Gujarat clarified that cheque dishonour due to “stop payment” instructions is covered under Section 138, provided the cheque was issued for a liability.
Q148. Under which section does the term “noting” apply in the event of dishonour of a negotiable instrument?
a) Section 92
b) Section 99
c) Section 101
d) Section 106
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Answer: b) Section 99
Explanation: Section 99 provides for “noting,” a formal recording of the fact of dishonour by a notary public, to preserve evidence of dishonour.
Q149. What is the primary feature of a negotiable instrument?
a) It is payable only to the bearer
b) It is freely transferable
c) It is valid only for three months
d) It is drawn only on banks
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Answer: b) It is freely transferable
Explanation: A key feature of negotiable instruments is their free transferability by delivery or indorsement and delivery, allowing the holder to take ownership.
Q150. Under Section 138, who is liable if a company issues a cheque that is dishonoured?
a) The company
b) The managing director or officer in charge
c) The shareholder
d) Both a and b
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Answer: d) Both a and b
Explanation: As per Section 141, when a company commits an offence under Section 138, the company and every officer in charge of its conduct are held liable.
Q151. What happens if the indorsement on a cheque is forged?
a) It becomes void
b) It is treated as valid
c) The holder gets the right to sue
d) The bank is liable
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Answer: a) It becomes void
Explanation: A forged indorsement renders the negotiable instrument void, and no title passes to the holder.
Q152. Which section provides that a negotiable instrument payable to order can be transferred only by indorsement and delivery?
a) Section 9
b) Section 13
c) Section 47
d) Section 49
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Answer: c) Section 47
Explanation: Section 47 specifies that an order instrument can only be transferred by the indorser’s signature followed by delivery to the transferee.
Q153. What is the purpose of crossing a cheque?
a) To cancel it
b) To restrict its negotiability
c) To ensure it is encashed only through a bank
d) None of the above
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Answer: c) To ensure it is encashed only through a bank
Explanation: Crossing a cheque ensures that it is not encashed over the counter but only through a banker, providing an additional layer of security.
Q154. In which case did the Supreme Court rule that Section 138 is a civil wrong with criminal consequences?
a) Rangappa v. Sri Mohan
b) Kusum Ingots v. Pennar Peterson Securities
c) Modi Cements Ltd. v. Kuchil Kumar Nandi
d) MSR Leathers v. Palaniappan
Show Answer
Answer: a) Rangappa v. Sri Mohan
Explanation: The Supreme Court in Rangappa v. Sri Mohan observed that Section 138 constitutes a civil wrong with criminal consequences due to the penal provisions attached.
Q155. A “holder” as defined in the Act is:
a) Any person in possession of a negotiable instrument
b) A person entitled to the possession of the instrument
c) The indorsee or transferee
d) Both b and c
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Answer: d) Both b and c
Explanation: Section 8 defines a holder as a person entitled to the possession of the instrument and to recover or receive the amount due thereon.
Q156. What does Section 138 aim to address?
a) Banking procedures
b) Cheque dishonour due to fraud
c) Cheque dishonour due to insufficiency of funds
d) None of the above
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Answer: c) Cheque dishonour due to insufficiency of funds
Explanation: Section 138 was introduced to ensure the reliability of cheques by penalizing dishonour due to insufficient funds.
Q157. Which section provides the drawee’s liability in case of dishonour of a bill?
a) Section 30
b) Section 32
c) Section 33
d) Section 34
Show Answer
Answer: b) Section 32
Explanation: Section 32 states that the acceptor of a bill is liable to the holder for payment when it is dishonoured.
Q158. Under Section 85, the banker is discharged of liability if:
a) The cheque is crossed
b) The cheque is paid in due course
c) The cheque is dishonoured
d) The cheque is post-dated
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Answer: b) The cheque is paid in due course
Explanation: Section 85 discharges a banker from liability when a cheque is paid in good faith and in accordance with its apparent tenor.
Q159. Which section governs compensation in cases of dishonour?
a) Section 117
b) Section 119
c) Section 138
d) Section 101
Show Answer
Answer: a) Section 117
Explanation: Section 117 outlines the rules for determining compensation for parties involved in cases of dishonour of negotiable instruments.
Q160. Which Supreme Court decision held that a notice under Section 138 must be served within the statutory time limit?
a) Dalmia Cement v. Galaxy Traders
b) MSR Leathers v. Palaniappan
c) K. Bhaskaran v. Sankaran Vaidhyan Balan
d) Kusum Ingots v. Pennar Peterson Securities
Show Answer
Answer: c) K. Bhaskaran v. Sankaran Vaidhyan Balan
Explanation: In K. Bhaskaran v. Sankaran Vaidhyan Balan, the Supreme Court emphasized that the statutory notice under Section 138 must be issued within the prescribed time limit to maintain its validity.
