NEGOTIABLE INSTRUMENTS ACT
1. What is the Section which contains the provisions relating to bouncing of cheques? Sec 138 to
147 of NI Act
2. What is the characteristic of a negotiable instrument? It must be transferable by delivery. & b) It
must enable the holder to sue in his own name
3. Who is the holder in the context of the negotiable instruments? Holder is the person who is
entitled to the possession of the instrument and to receive the amount of the instrument in his own
name
4. A cheque dated 3rd Jan 2005 bears the striking of the pre-printed year 19., can be passed? YES.
Striking need not be authenticated and cheque can be passed.
5. Whether protection is available to the paying banker in case of a cheque where drawer‘s signature
is forged? No.
6. When a post dated cheque purchased by a bank is returned unpaid on the ostensible due date,
what the banker can do? Can sue all the prior parties
7. How will you treat the bill which has been lost before it is overdue? The holder may ask the drawer
for another bill of same tenor against indemnity.
8. With whom, liability primarily rests with in respect of a cheque? Drawer only.
9. ― Endorsement in blank means: Endorsement by the drawer of the instrument signing by the
payee or holder of the instrument without adding any words to it.
10.An order instrument can be negotiated by: Endorsement and delivery.
11. Restrictive endorsement restricts: Negotiability of the instrument
12.A promissory note cannot be issued payable to The bearer on demand. As per Section 31 of
RBI Act: Only RBI can issue Bonds/Promissory Notes payable to Bearer on Demand [Tantamounts to
Currency]
13.A promissory note must contain what? An unconditional undertaking to pay
14.A Bank draft is a cheque. False.
15. Other than cheque, whether a bill of exchange can be drawn on Bank? YES.
16. When a bill of exchange payable on demand should be paid? On presentment
17. Mr. Kamath draws a bill on Mr. Suri payable three months after date. Mr. Kamath dies in a road
accident before the bill is accepted by Suri. Under such circumstances, Suri can accept the bill even if
he is aware of Kamath’s death.
18. When a bill is payable in 3 installments, whether a grace period of 3 days will be allowed on
every installment? True.
19. The term ―Accommodation Bill refers to Which a person signs as a drawer, acceptor or endorser
without receiving value therefore & for the purpose of lending his name to some other persons
20. When the bill is payable at a specified period after sight the period begins from the date of - The
presentment for acceptance.
21. Kite Flying ― is the term used to denote To drawing/accepting of bills just to accommodate the
other party without backing of any genuine trade transactions.
22. A bill of exchange drawn on a partnership firm may be accepted by Any partner.
23. A bill is drawn in Calcutta on a trader in Travancore but accepted payable in Singapore. The bill
shall be called as Inland Bill.
24. A bill is drawn in Calcutta on a merchant in Hyderabad and endorsed in Hongkong. Such a bill is
termed as Inland Bill.
25. A bill drawn in Bangkok on a party in Coimbatore and accepted payable in Delhi is Foreign Bill.
26. Which of the following presentment is improper? Presentment at a place other than the specified
one
27. Who should accept the bill if it is addressed to two or more drawees that are not partners All the
drawees
28. When the bill of exchange does not contain specific place of payment, the bill must be presented
to whom? At the residence (place) of maker/ drawee/ acceptor
29. If the bill is not presented to the drawee within the reasonable time, The drawee is discharged
from his liability
30. In the case of dishonour of a foreign bill protest is Compulsory when required under the laws of
the place where it is drawn
31. When an inland promissory note or bill is dishonoured noting - Is not compulsory
32. The meaning of noting is Record of dishonour of bill by Notary Public
33. When the bill contains the name of a drawee in case of need the bill will be considered as
dishonoured if it is dishonoured by the drawee in case of need or dishonoured by the drawee
34. When a cheque issued by a Limited Company is returned for want of funds, the liability for the
dishonour is with Only the Company and the authorised signatories of the cheque excluding Govt
nominated directors
35. Whether the term―protest refers to a formal certificate of dishonour of bill based upon ― noting
issued by notary public? YES
36. Promissory notes are to be witnessed-For the purpose of identification of the borrower at a later
date
37. Under Section 138 of NI Act, 1881, the drawer of a cheque is liable for prosecution if the cheque
is returned for any reason? FALSE (for Inadequate funds – see question below elsewhere)
38. Punishment under Section 138 of NI Act is applicable only to an individual. FALSE
39. Criminal action against the drawer under Section 138 of NI Act can be initiated by the payee only
when the cheque is returned for the reason - Inadequate funds
40. Punishment under Section 138 of NI Act is Imprisonment upto 2 year/or fine upto twice the
amount of cheque or both
41. Who can file a criminal case against the drawer of a dishonoured cheque The payee/the holder in
due course
42. The competent court for trying offences under Section 138 of NI Act is Metropolitan Magistrate or
I class judicial Magistrate
43. Section 138 of NI Act can be activated only when The cheque should have been presented within
6 months or validity period of cheque whichever is earlier/the payee/holder should give notice
demanding payment within 30 days of notice of information about dishonor of cheque due to
insufficiency of funds and the drawer has failed to make such payment within 15 days of receipt of
such notice/the cheque should have been issued in discharge of full or part of liability/debt.
44. Whether the limit for taking action under Section 138 of NI Act is 60 days from the date of
receipt of dishonour of the cheque by the drawer? NO
45. Whether the complaint for taking action under Section 138 of NI Act can be oral. NO
46. Whether drawee bank‘s liability for damages on account of wrongful dishonour of cheque arises
only if the payee suffers any loss ? NO
47. To a paying banker protection is not available for - Payment of order cheques with irregular
endorsement
48. Whether payment after business hours is payment in due course? NO
49. In a promissory note, the words ―or order ― are Necessary to insert
50. A bearer cheque contains two endorsements. The second endorsement is irregular. The cheque
in question can be Paid in spite of irregular endorsement (once a bearer, always a bearer)
51. Whether alteration from general crossing to special crossing is a material Alteration? NO
52. A travelers cheque is valid for a period of —months from the date of issue. No such period
53. A cheque payable to A or B or order should be endorsed by - No such cheque can be issued.
54. A bearer cheque specially crossed to ― P requires - Any endorsement on such cheques can be
ignored since it is a bearer cheque.
55. The validity period of endorsement on a cheque is - No such restriction.
56. Holder of a post dated cheque will have a valid course of action against drawer - Any time after
the date mentioned
57. Inadvertently a cheque has been paid on 29 November 2003 which is dated 29, November 2004.
Subsequently the drawer stops its payment on 15 December 2003. In such a case Bank is liable for
damages due to negligence on its part.
58. In the case of wrongful dishonour of cheque by the bank due to genuine mistake whether the
bank is liable to the customer YES, the banker is liable for damages
59. Under Section 26 of N.I. Act, if date of maturity of usance bill falls on a public holiday it is
deemed to be due - On the next working day
60. While collecting the cheques for customers, the collecting banker may be held liable for
conversion. Conversion means Interfering with the rights of the true owner
61. Whether action under section 138 of N I Act bars the normal civil remedy No
62. An unstamped pronote can be set right by Payment of required stamp duty with penalty as
required by law
63. A cheque is crossed ―not negotiable; then the effect is that: Transferee will not get a better title
than the transferor
64. A cheque bearing date 30 2 04 is presented for payment on 28.2.04. As per IBA guidelines: The
cheque can be honoured
65. What kind of payments are covered under Section 138 of N I Act Payment in discharge of whole
or part of a debt.
66. A bearer cheque was paid across the counter. Later, the signature of the drawer is found to be
forged, even though signature apparently tallied with the specimen. Bank loses protection and is
liable to the drawer
67. Post dated cheques are Valid instruments
68. In case of endorsed cheque, protection is available if Payment of the cheque has been made in
due course and it is ensured that endorsements on the cheque are regular.
69. Banker should not pay a post dated cheque because
a. It is not payment in due course hence bank loses protection under N I Act. Or
b. Drawer may stop the payment of the cheque or
c. Garnishee order may be served
70. A cheque is valid if it has maximum endorsements upto -There is no stipulation, on the number
of endorsements a cheque can have.
71. A bill dated 12 5 04, payable 3 months after date, is due for payment on: 16 8 2004
72. Protection under Section 89 will be available to a banker if - The cheque has been paid in due
course and the alteration was not apparently visible, at the time of making payment.
73. A bearer cheque has been paid to the holder disregarding the endorsements on it - It is a
payment in due course and Banker is protected under Section 85(2) of the Negotiable Instrument
Act, 1881
74. Protection to a paying banker has been given by law, for Bearer cheques (Section 85)/crossed
cheques (Section 128)/endorsed cheques (Section 85)
75. It is not necessary to write consideration while endorsing an instrument because it is Presumed
under N I Act
76. Whether every cheque is a bill of exchange? YES
77. A bill payable 30 days after sight is presented for sight on 1 3 04. It fell due on: 03 04 04
78. A Negotiable instrument is rendered void by any material alteration If it is not done to carryout
common intention of the party AND as against any party who does not consent the instrument
79. Following type of crossing is not recognized under the provisions of the Negotiable Instrument
Act “ Account Payee” crossing
80. Not Negotiable crossing is considered as General crossing
81. Who can do crossing of a cheque? Any holder or drawer of the cheque
82. Account Payee crossing on a cheque is indicative that - The paying banker should pay the cheque
to the payee only
83. Crossing on a cheque can be cancelled by Drawer
84. When a cheque already crossed ― not negotiable is negotiated the transferee - Cannot be a
holder in due course
85. Payment of following cheque is prohibited under Section 127 of the NI Act 1881 A cheque
crossed specially to more than one banker except where the other bank is collecting it for the first
bank
86. The marking of a cheque signifies Paying banker’s certificate that it is good for payment
87. When the bank marks a cheque it undertakes - To set aside funds for payment of marked cheque
88. Cheques should be collected for - The customers of the bank
89. In the event of conversion of a cheque, the right to sue can be exercised by - The drawer
90. Protection to a collecting bank is afforded by the Negotiable Instrument Act, in respect of
Conversion
91. Collecting banker is not protected for collection of - Uncrossed cheques
92. Ms. Smarty opened a SB Account at your branch and gave satisfactory introduction. One day she
tendered a cheque which had ―Account Payee crossing and was drawn favouring one ―Mr. Genuine
or bearer on another local bank. You collected the cheque and the amount was credited in her
account. The very next day she withdrew the money. Subsequently, the drawer demanded refund of
the amount of cheque stating that the cheque was stolen and has been collected by you for a person
who is not payee of the cheque The bank will get statutory protection as the cheque was collected in
a properly introduced account
93. For becoming a holder in due course of a bearer cheque, the bank must be - Its possessor
94. With a view to become holder in due course of an order cheque, the bank must be It’ s payee or
endorsee
95. When a collecting banker allows the customer to draw against its cheques under collection, the
position of the collecting banker will be - He will be holder for value of cheques
96. Who bears the loss when a cheque with forged signature of drawer is paid? Paying banker
97. The cheque with forged signature of drawer has been paid by the bank Statutory protection will
not be available to the banker/payment is treated as without authority of the customer/customer’s
account can not be debited. (Forged cheque is not a mandate at all)
98. When a cheque with forged signature is paid the burden of proving that the signature was
forged, lies on the Customer
99. If the forgery occurs due to careless handling of cheque book and carelessness on the part of the
customer still Bank is liable
100. Banker‘s cheques and payment order are classified as Not negotiable instruments
101. In the case of bearer cheque Identification of the presenter is not required
102. A cheque received in clearing has been paid. The cheque has drawer‘s signatures which are
forged but the forgery was done so cleverly that it was difficult to detect it in normal course. In this
situation how will the liability of the banker be determined? The bank is liable to the customer
103. When a banker dishonours a cheque wrongfully He is liable to the drawer
104. If drawer of the cheque becomes insane or insolvent - the cheque should Not be paid
105. Payment in due course refers to Payment in accordance with the apparent tenor to the
possessor of instrument in good faith and without negligence under the conditions of no Suspicion
106. As per requirement of crossing, a banker has paid a crossed cheque in due course. If title of the
holder turns out to be defective, whether paying banker is liable or protected? Banker is protected
under Section 128 of the Negotiable Instrument Act, 1881
107. A paying banker can avail protection in respect of cheques Crossed/Without any
alteration/Drawn payable to order and purported to have been endorsed
108. The Negotiable Instrument Act provides protection to the paying banker against Forged
endorsement. (But not forged drawer’s signature)
109. Section 131 of the NI Act, collecting banker gets protection in the case of Forgery of drawer’s
signature
110. Holder of a current account has authorised a person to operate the account. A cheque drawn by
this person is wrongly dishonoured by the bank. This person claims damages on his own behalf -
Only the account holder can initiate action against the banker
111. Before introduction of Section 138, in the Negotiable Instruments Act for dishonour of cheques
due to insufficiency of funds the drawer was Subject to civil liability only
112. Mr. Raman, in settlement of a debt, received a cheque for Rs.20,000 from Mr. Krishnan. The
cheque, on presentation, was dishonoured for insufficient funds. On contacting, Mr. Krishnan
requests Mr. Raman to present the cheque again for payment. However, in the meantime, Mr.
Krishnan stops the payment of the cheque and the cheque is returned unpaid with the remark ―
payment stopped by the drawer. Can criminal prosecution against Mr. Krishnan be initiated? YES
113. Demand draft belong to the category of Negotiable instruments
114. Protection to the banker is available for Both payment and collection of drafts
