NEGOTIABLE INSTRUMENTS ACT 1881 : NEGOTIABLE INSTRUMENTS ACT 1881 C S PASRICHA
Principal,
Punjab National Bank,regional Staff College,
Belapur,navi Mumbai.
cspasricha@gmail.com
Slide 2 : Which of the following is not considered as negotiable instrument under the Negotiable Instruments Act, 1881?
(a) Bill of exchange
(b) Promissory note
(c) Share certificate
(d) Cheque payable to bearer
(e) Cheque with ‘not negotiable’ crossing.
Slide 3 : The Negotiable Instruments Act, 1881 recognizes only three kinds of instruments under Section 13 – promissory notes, bills of exchange and cheques that are considered negotiable by statute.
Certain instruments have acquired the character of negotiability by the usage or custom of trade. In India, Government promissory notes, banker’s drafts and pay orders, hundies, delivery orders and railway receipts for goods have been held to be negotiable by usage or custom. Share certificates are not considered as negotiable instruments. Hence, option ‘C’ is correct answer.
Slide 4 : Which of the following is not considered as an instrument negotiable by custom or usage?
(a) Delivery orders for goods
(b) Railway receipts for goods
(c) Hundi
(d) Government Promissory notes
(e) Cheques.
Slide 5 : The Negotiable Instruments Act, 1881 recognizes only three kinds of instruments under Section 13 – promissory notes, bills of exchange and cheques that are considered negotiable by statute.
Certain instruments have acquired the character of negotiability by the usage or custom of trade. In India, Government promissory notes, banker’s drafts and pay orders, hundies, delivery orders and railway receipts for goods have been held to be negotiable by usage or custom.
Hence, option ‘E’ is correct answer.
Negotiable Instruments Act : Which of the following statements is false in respect of bills and cheques under the Negotiableinstruments Act, 1881?(a) A bill of exchange drawn ”payable to bearer on demand‘ is void(b) The payment of a cheque cannot be countermanded(c) The drawer of a bill of exchange is discharged from liability if the bill is not presented to theacceptor for payment(d) A cheque can be drawn on a banker
(e) A cheque includes electronic image of truncated cheque and cheque in electronic form. Negotiable Instruments Act
Slide 7 : B- Under the Negotiable Instruments Act, 1881, payment of a cheque can be Countermanded any time before actual payment by the banker.
Hence, (b) is correct answer.
Slide 8 : Under the Negotiable Instruments Act,1881, an instrument which is incomplete in some respects, is called a/an(a) Foreign instrument(b) Inland instrument(c) Inchoate instrument(d) Ambiguous instrument(e) Fictitious instrument.
Slide 9 : C An instrument, which is incomplete in some respects, is called Inchoate instrument. When oneperson signs and delivers to another, a stamped instrument which is either wholly blank orincomplete, he thereby gives a prima facie authority to the holder thereof to make or complete, asthe case may be, upon it a negotiable instrument, for any amount not exceeding the amount,covered by the stamp. Such instrument is called an inchoate instrument.
Slide 10 : Ananth signed as maker of a promissory note, a blank stamped paper and gave it to Bhushan and authorized him to fill it as a promissory note for Rs.500. Bhushan fraudulently filled it up as a promissory note for Rs.1,000 and endorsed it in favour of Chinmay, who in good faith advanced Rs.1,000. Can Chinmay, as a holder in due course recover Rs.1,000 from Ananth under the Negotiable Instruments Act, 1881?
(a) Chinmay cannot recover the amount from Ananth
(b) Chinmay can recover the amount from Ananth
(c) Chinmay cannot recover from Ananth but can recover from Bhushan
(d) Chinmay does not get valid title to the instrument, hence he cannot collect from either of them
(e) Chinmay cannot recover the amount of Rs.1,000 from Ananth, but can recover damages from Ananth.
Slide 11 : When one person signs and delivers to another, a stamped instrument which is either wholly blank or incomplete, he thereby gives a prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein, and not exceeding the amount, covered by the stamp.
Therefore, Chinmay can recover the amount from Ananth as Chinmay being the holder in due course but the stamp affixed must permit the amount. Hence, option ‘B’ is correct answer.
Slide 12 : Under the Negotiable Instruments Act, 1881, when a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not for the purpose of transferring absolutely property therein, it is called an
(a) Inchoate instrument
(b) Escrow
(c) Accommodation bill
(d) Trade bill
(e) Ambiguous instrument.
Slide 13 : Under the Negotiable Instruments Act, 1881, when a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not for the purpose of transferring absolutely property therein, it is called an escrow.
Slide 14 : Which of the following is not a foreign bill under the Negotiable Instruments Act, 1881?(a) A bill drawn in Singapore upon a resident of India, payable in Kuala Lumpur(b) A bill drawn in Kuala Lumpur upon a resident of Singapore, payable in India(c) A bill drawn in India upon a resident of Kuala Lumpur, payable in Singapore(d) A bill drawn in India upon a resident of India, payable in Kuala Lumpur(e) A bill drawn in Singapore upon a resident of Singapore, payable in Kuala Lumpur.
Slide 15 : D An inland instrument is one which is drawn or made in India upon any person resident therein,even though it is made payable in a foreign country. Hence, a bill drawn upon a resident of Indiaeven though it is made payable in a foreign country. Hence, a bill drawn upon a resident of Indiain India, payable in Kuala Lumpur is an inland bill. All the other options are examples of foreignbills. Hence option (d) is correct answer.
Slide 16 : Which of the following is considered as an inland bill under the Negotiable Instruments Act, 1881?
(a) A bill drawn in Lucknow upon a resident of Paris, made payable in London
(b) A bill drawn in Muscat upon a resident of Delhi, payable in Singapore
(c) A bill drawn in Beijing upon a resident of Chennai, payable in Kolkata
(d) A bill drawn in Mumbai upon a resident of Bangalore, payable in Paris
(e) A bill drawn in London upon a resident of Paris, made payable in Singapore.
Slide 17 : D
According to Section 11 of the Negotiable Instruments Act, a promissory note, bill of
exchange or cheque which is both drawn or made in India and made payable in India, is deemed to be an inland instrument.
Therefore, in the given instance, a bill drawn in Mumbai upon a resident of Bangalore, payable in Paris is an inland bill. Hence, option ‘D’ is correct answer.
Slide 18 : Which of the following is considered as a foreign bill under the Negotiable Instruments Act, 1881?
(a) A bill drawn in Mumbai upon a resident of New Delhi, endorsed in New York and payable in London
(b) A bill drawn in Chennai upon a resident of Bangalore, payable in Kuala Lumpur
(c) A bill drawn in Mumbai upon a resident of Lucknow, payable in Kolkata
(d) A bill drawn in Lucknow upon a resident of Bhopal, payable in Agra
(e) A bill drawn in Paris upon a resident of Kanpur, payable in Hyderabad.
Slide 19 : According to Section 11 of the Negotiable Instruments Act, a promissory note, bill of exchange or cheque which is both drawn or made in India and made payable in India, is deemed to be an inland instrument.
A foreign instrument is one, which is not an inland instrument. A foreign instrument must be drawn outside India and made payable outside or inside India or it must be drawn in India and made payable outside India and drawn on a person resident outside India.
Therefore, in the given instance, a bill drawn in Paris upon a resident of Kanpur, payable in Hyderabad is considered as a foreign bill. Hence, option ‘E’ is correct answer.
Slide 20 : Which of the following is an example of ”restrictive crossing‘ under the Negotiable Instruments Act,1881?(a) Not Negotiable(b) State Bank of India(c) A/c payee(d) & Company(e) Two transverse parallel lines simply drawn across the face of the cheque.
Slide 21 : C A/c payee is an example of restrictive crossing. Not Negotiable, & Company and two transverseparallel lines simply drawn across the face of the cheque are examples of general crossing. StateBank of India is an example of special crossing. Hence, (c) is correct answer.
Slide 22 : Which of the following is not a payment in due course under Negotiable Instruments Act, 1881? (a) Payment should be made in accordance with the apparent tenor of the instrument (b) A payment is made on an instrument before the date of maturity(c) Payment is made to a person who is in possession of the instrument either as a holderor a person authorized to receive payment on beh alf of holder(d) Payment made in good faith and without negligence(e) Payment made to a person in possession of an instrument payable to bearer or one thatis endorsed in blank.
Slide 23 : Answer : (b)Reason: An instrument should be payable either at maturity or after the date of maturity.An instrument paid before the date of maturity is not a payment in due course. Itwas held in Burbridge vs Manners that a bill paid before maturity andsubsequently endorsed is valid in the hands of a bona fide endorsee.
Slide 24 : Under the Negotiable Instruments Act, 1881, when a bill is drawn, accepted or indorsed for consideration, it is called a/an
(a) Accommodation bill
(b) Genuine trade bill
(c) Escrow
(d) Ambiguous instrument
(e) Inchoate instrument.
Slide 25 : Under the Negotiable Instruments Act, 1881, when a bill is drawn, accepted
or indorsed for consideration, it is called a ‘genuine trade bill’.
A bill, which is drawn, accepted or indorsed without consideration, is called
an accommodation bill.
When a negotiable instrument is delivered conditionally or for a special
purpose as a collateral security or for safe custody only, and not for the
purpose of transferring absolutely property therein, it is called an escrow.
An instrument which in form is such that it may either be treated by its
holder as a bill or as a promissory note is known as an ambiguous
instrument.
An instrument, which is incomplete in some respects, is called Inchoate
instrument. When one person signs and delivers to another, a stamped
instrument which is either wholly blank or incomplete, he thereby gives a
prima facie authority to the holder thereof to make or complete, as the case
may be, upon it a negotiable instrument, for any amount not exceeding the
amount, covered by the stamp. Such instrument is called an inchoate
instrument.
Slide 26 : Akriti drew a bill upon Akansha and sent it for Akansha’s acceptance. In which of the following instances there is a valid acceptance of the bill by Akansha under the Negotiable Instruments Act, 1881?
(a) When she merely puts her signature on the bill and keeps it with her
(b) When she writes `accepted’ on the back of the instrument but does not put her signature on the bill
(c) When she puts her signature on the face of the bill and delivers it back to the Akriti
(d) When she puts her signature on a copy of the bill
(e) When she does not put her signature on the bill but only writes `accepted’ on the face of the bill.
Slide 27 : C When the drawee of a bill of exchange signifies his consent in writing to the drawer’s order in the bill, by signing across the face of the bill with or without the word “accepted “ and delivers back the bill to the holder, the bill is said to have been accepted.
Therefore, in the given instance, there is a valid acceptance of the bill by Akansha under the Negotiable Instruments Act, 1881, when she puts her signature on the face of the bill and delivers it back to the Akriti. Hence, option ‘C’ is correct
Slide 28 : Which of the following is not a privilege of a holder in due course under the Negotiable Instruments Act, 1881?
(a) If the negotiable instrument is lost, the defenses on the part of a person liable on a negotiable instrument cannot be set up against a holder in due course
(b) Once negotiable instrument passes through the hands of a holder in due course, it gets cleansed of all the defects even though the holder in due course is party to the fraud
(c) Until the instrument is duly satisfied, every prior party to a negotiable instrument is liable to a holder in due course
(d) The law presumes every holder as a holder in due course, although the presumption is rebuttable
(e) The validity of the instrument as originally made or drawn cannot be denied by the maker/drawer/acceptor for honor in a suit initiated by a holder in due course.
Slide 29 : B Privileges of a holder in due course under the Negotiable Instruments Act, 1881include:
If the negotiable instrument is lost, the defenses on the part of a person liable
on a negotiable instrument cannot be set up against a holder in due course.
Once negotiable instrument passes through the hands of a holder in due
course, it gets cleansed of all the defects provided the holder in due course is
not party to the fraud.
Until the instrument is duly satisfied, every prior party to a negotiable
instrument is liable to a holder in due course.
The law presumes every holder as a holder in due course, although the
presumption is rebuttable.
The validity of the instrument as originally made or drawn cannot be denied
by the maker/drawer/acceptor for honor in a suit initiated by a holder in due
course.
Hence, option ‘B’ is correct answer.
Slide 30 : Which of the following is a prerequisite for transfer of a negotiable instrument under the Negotiable Instruments Act, 1881?
(a) Crossing
(b) Acceptance
(c) Noting with a Notary
(d) Blank indorsement only
(e) Mere delivery or indorsement and delivery.
Slide 31 : A negotiable instrument is freely transferable. It can be transferred by mere delivery or by indorsement and delivery. The former is known as “payable to bearer” and the latter is known as “payable to order”. Hence, option ‘E; is correct answer.
Slide 32 : Days of grace” under the Negotiable Instruments Act, 1881 is available in the case of a
(a) Bill payable 30 days after sight
(b) Bearer demand draft
(c) Crossed demand draft
(d) Crossed cheque
(e) Bearer cheque.
Slide 33 : A bill payable after sight (also known as usance bill) is entitled to three days of grace under the Negotiable Instruments Act, 1881.
Slide 34 : Arvind is the holder of a bill for Rs.5,000. He makes an indorsement stating that, ‘pay Rs.3,000 to Bandhan or order and pay Rs.2,000 to Chinmay or order’. Which of the following statements is true with respect to the indorsement under the Negotiable Instruments Act, 1881?
(a) The indorsement is invalid being a partial indorsement prohibited by the Act
(b) The indorsement to Bandhan is not valid as in case of partial indorsement only the subsequent indorsement is valid
(c) The indorsement to Chinmay is not valid as only Bandhan can indorse the balance in favour of Arvind
(d) The indorsement is valid as partial indorsement is valid under the law
(e) For a partial indorsement to be valid, it must be in equal proportions.
Slide 35 : A According to section 56 of the Negotiable Instruments Act, 1881, no writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid, a note to that to that effect may be endorsed on the instrument, which may then be negotiated for the balance.
According to the later part of Section 56, a bill which has been endorsed ‘pay or order Rs.500 being unpaid residue of the bill’ is a valid endorsement.
Therefore, in the given instance, even though the total amount of the bill has been negotiated Bandhan and Chinmay are endorsees for only a part of the amount, the indorsement is invalid as it is a partial indorsement prohibited by the Negotiable Instruments Act, 1881. Hence, option ‘A’ is correct answer.
Slide 36 : Which of the following statements is true in respect of the essentials of a promissory note under the Negotiable Instruments Act, 1881?
(a) It need not be in writing
(b) An implied promise is enough to constitute a valid promissory note
(c) The promise to pay must be definite and unconditional
(d) The name of the payee need not be mentioned
(e) The payment can be in kind.
Slide 37 : C Following are the essentials of a valid promissory note :
It must be in writing.
It must contain an express promise to pay. An implied promise is not enough to constitute a promissory note.
The promise or undertaking to pay must be definite and unconditional.
The maker must sign the promissory note without which it is taken as incomplete and ineffective.
It must clearly point out the maker.
It may be made either jointly or jointly and severally.
The sum payable must be certain without any scope of contingent additions or subtractions.
The payment must be in money and not in kind.
It should clearly point out the person who is to receive payment on the note.
Hence, option ‘C’ is correct answer.
Slide 38 : Madhuri Technologies Ltd., has an account in City Bank. Rohit, an executive of the company, had committed forgeries for over two years and withdrew some amounts from the company account.However, the company did not raise any objection to the entries made by the banker in the account during that period. The banker provided statement of account to the company regularly, mentioning by way of note that any discrepancies noticed should be immediately brought to the notice of the bank, failing which the transactions are assumed to be final. There was no ratification of the entries by the company. After some time, on knowing the facts, Madhuri Technologies Ltd., wants to sue the City Bank for loss caused to the company. Which of the following statements is true in respect of the course of action available to Madhuri Technologies Ltd., under the Negotiable Instruments Act, 1881?
(a) City Bank cannot escape its liability even though the company did not raise any objection to the entries in the statement of accounts
(b) Madhuri Technologies Ltd., cannot sue the City Bank as it had not raised any objections to the entries made by the bank in its account
(c) Madhuri Technologies Ltd., cannot sue City Bank as the bank is absolved of its liabilities by virtue of the note in it’s statements
(d) Madhuri Technologies Ltd., cannot recover the amount from City Bank as the bank had been regular in sending the statement of account
(e) Madhuri Technologies Ltd., cannot recover the amount from City Bank as the bank had made payment in good faith without negligence.
Slide 39 : A The facts in the given instance are similar to the decided case of Canara Bank vs.Canara Sales Corporation, wherein one of the officials of the company had committed forgeries for over a decade. However, the company did not raise any objection to the entries made in the pass-sheets during that period. It was observed that the bank cannot escape its liability keeping in view the fact that the contract between the banker and the customer did not specify that discrepancies should be brought to the notice of the banker. Also, there was no ratification of the same by the customer.
Therefore, in the given instance, Madhuri Technologies Ltd can sue the bank to recover the amount from the City Bank which cannot escape its liability even though the company did not raise any objection to the entries in the statement of accounts. Hence, option ‘A’ is correct answer.
Slide 40 : Under the Negotiable Instruments Act, 1881, a banker cannot refuse to honour the customer’s cheques when
(a) A post dated cheque is presented for payment prior to the date it bears
(b) The customer does not have sufficient funds to his credit
(c) The funds of the customer are subject to a lien by the banker
(d) A bearer cheque containing restrictive indorsement is presented for payment
(e) The customer has countermanded the payment of the cheque.
Slide 41 : D Following are some of the instances, where a banker may refuse to honour the
customer’s cheques:
Where a post dated cheque is presented for payment prior to the date it bears,
then the banker will be justified in refusing to honour the cheque.
Where a customer does not have sufficient funds to his credit (i.e. there are no funds or funds available are not enough to cover the amount of the cheque), then the banker may dishonour the cheque.
If the funds of the customer are subject to a lien by the banker, the customer’s cheque is likely to be dishonoured.
A banker will also be justified in dishonouring a cheque that is ambiguous, unclear or contains a material alteration.
The cheques of a customer who has been declared insolvent are also liable to be dishonoured.
Similarly, where the customer has countermanded the payment, the banker is
justified in refusing payment of the customer’s cheques.
Where the banker receives notice of either the customer’s death or insanity, he may refuse payment. However, any payment made before notice of death will be valid.
According to Section 85 of the Negotiable Instruments Act, 1881, when a cheque
is originally drawn payable to bearer, the drawee bank is discharged by making
payment of that cheque in due course to the bearer of that instrument irrespective
of the nature of indorsement that appears on it whether it may be in full, or in
blank, or even if the indorsement purports to restrict or exclude further negotiation. Hence, option ‘D’ is correct answer.
Slide 42 : Which of the following statements is false under the Negotiable Instruments Act, 1881?
(a) Every holder of the instrument is presumed to be the owner of the property contained therein
(b) Every holder in due course is entitled to sue for recovery of the sum in his own name
(c) Every negotiable instrument is transferable till maturity
(d) Every holder is not a holder in due course
(e) Every negotiable instrument is presumed to have been drawn for consideration irrespective of consideration mentioned in the document.
Slide 43 : The law presumes every holder is a holder in due course, although the presumption is
rebuttable. All other statements are true under the Negotiable Instruments Act, 1881.
Hence, ‘D’ is correct answer.
Slide 44 : Which of the following instances is treated as a restrictive crossing under the Negotiable Instruments Act, 1881?
(a) The word ‘not negotiable’ is added to the general crossing
(b) The word ‘not negotiable’ is added to the special crossing
(c) The word ‘account payee’ is added to special crossing
(d) The name of the banker is added across the face of a cheque within transverse lines
(e) The name of the banker is added across the face of a cheque without the transverse lines.
Slide 45 : In Restrictive Crossing the words “Account Payee” are added to the general or special crossing. The words “Account Payee” on a cheque are direction to the collecting banker that the amount collected on the cheque is to be credited to the account of the payee. “Account Payee” cheques are not negotiable.
According to Section 124, where a cheque bears across its face an addition of the name of a banker, either with or without the words “not negotiable” that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.
According to Section 130 of the Act, the effect of the words “not negotiable” on a crossed cheque is that the title of the transferee of such a cheque cannot be better than that of its transferor. The addition of the words “not negotiable” does not restrict the further transferability of the cheque. The object of crossing a cheque “not negotiable” is to afford protection to the drawer or holder of the cheque against miscarriage or dishonesty in the course of transit by making it difficult to get the cheque so crossed cashed, until it reaches its destination. Hence, ‘C’ is the correct answer.
Slide 46 : Which of the following instruments payable to ‘bearer of the instrument on demand’ can be drawn and accepted by any citizen of India under the Negotiable Instruments Act, 1881?
(a) A hundi
(b) A cheque
(c) A demand draft
(d) A promissory note
(e) A bill of exchange.
Slide 47 : The provisions of Section 31 of the Reserve Bank of India Act, 1934 states that no other person other than the Reserve Bank of India or the Central Government, can draw, accept, make or issue any bill of exchange, hundi or promissory note payable to bearer on demand nor make or issue any promissory note payable to the bearer of the instrument. Section 32 provides that a person is punishable with fine if he issues a bill or note payable to bearer on demand or a note payable to bearer. Hence, ‘B’ is correct answer.
Slide 48 : A bill was drawn by Pramod upon Satish. Later, Pramod indorsed the bill by signing his name and adding a direction to pay the amount mentioned in the instrument to the order of Mukesh. Such an indorsement under the Negotiable Instruments Act, 1881 is known as
(a) Restrictive indorsement
(b) Conditional indorsement
(c) Special indorsement
(d) Blank indorsement
(e) General indorsement.
Slide 49 : An indorsement can be blank or general, special or full, restrictive, partial and conditional or qualified.
If the endorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of a specified person, the indorsement is said to be special or in full.
An indorsement is said to be blank or general if the endorser signs his name only on the face or back of the instrument.
An indorsement is restrictive which prohibits or restricts the further negotiation of the instrument.
An indorsement is partial which purports to transfer to the endorsee only a part of the amount payable on the instrument.
An indorsement is conditional or qualified which limits or negatives the liability of the endorser.
Hence, option ‘C’ is correct answer.
Slide 50 : Mukesh stole a cheque that was payable to bearer and crossed generally with the words ‘not negotiable’ and indorsed the cheque in favour of Manohar, who took it in good faith and for valuable consideration. Manohar deposited the cheque into his bank account and the cheque was duly collected by his bank. Which of the following statements is true in respect of the recovery of money by the true owner of the cheque under the Negotiable Instruments Act, 1881?
(a) As Manohar does not acquire a good title to the cheque, he shall be liable to refund the money to the true owner
(b) As Manohar is a holder in due course who has obtained the cheque in good faith and for valuable consideration, he shall not liable to refund anything to any person
(c) The banker of Manohar, being the collecting banker shall be liable to refund the money to the true owner
(d) The paying banker shall be liable to refund the money to the true owner as the payment made by him does not amount to payment in due course
(e) As Mukesh had stolen the cheque he only shall be liable to refund the money and the owner has to file a police complaint.
Slide 51 : A person who takes a cheque that bears the words “not negotiable” acquires no better title than that of his immediate transferor. The true owner of the instrument can claim the instrument or the money from the said person. However, under Sections 128 and 131, the paying and collecting bank will be exonerated from any liability if it can be proved that the payment and collection were made in good faith and without negligence.
For example, a cheque that is payable to bearer and crossed generally with the words “not negotiable” is stolen and subsequently comes into the hands of ‘B’ who takes the instrument in good faith and gives value for it. ‘B’ pays the cheque into his own account and his bank collects the payment from the drawee bank. By virtue of Sections 128 and 131, the drawee bank and the collecting bank are exonerated from liability on the cheque. However, as ‘B’ does not acquire a good title to the cheque, he is liable to refund the money to the true owner. The cheque in the given case is not negotiable and therefore as regards the true owner, ‘B’ is in no better position than his immediate transferor.
Hence, in the given instance, as Manohar does not acquire a good title to the cheque, he is liable to refund the money to the true owner.
Slide 52 : Under which of the following circumstances, notice of dishonour is considered necessary under
the Negotiable Instruments Act, 1881?
(a) The party is likely to suffer damage for want of notice
(b) The drawer countermands payment
(c) One of the drawers is also the acceptor
(d) When the note is not negotiable
(e) The notice of dishonour is waived impliedly.
Slide 53 : Under the Negotiable Instruments Act, 1881, notice of dishonour is unnecessary when
When notice is expressly waived
Where the drawer countermands payment
When the party is not likely to suffer any damage for want of notice
When the party entitled to notice cannot after due search be found
Where the party required to give notice, is unable to do so, without any fault of his
When one of the drawers is also an acceptor
When the note is not negotiable
When notice of dishonor is waived impliedly.
Therefore, when the party is not likely to suffer any damage for want of notice, notice of dishonour is not required but where the party is likely to suffer any damage for want of notice, notice of dishonour is required. Hence, ‘A’ is correct answer.
Slide 54 : Amrita issued a cheque for Rs.10,000 to her creditor, Bindu. The cheque was wrongfully dishonoured by the bank, even as Amrita had more than Rs.25,000 in her account. Which of the following statements is true in respect of the wrongful dishonour of a cheque by the bank under the Negotiable Instruments Act, 1881?
(a) As Amrita had sufficient balance in her account, the bank is liable to pay Rs.10,000 to Bindu upon presentation of the cheque for the second time
(b) Bindu being the holder in due course can file a suit for damages against the bank
(c) The bank is liable only to pay Rs.10,000 upon a new cheque issued by Amrita in favour of Bindu
(d) The bank is liable only to compensate the monetary loss of Rs.10,000 suffered by Bindu
(e) The bank is liable not only to compensate for the monetary loss suffered by Amrita but also to pay damages for the loss of Amrita’s reputation.
Slide 55 : A drawee bank is liable to make payment only if the cheque is presented to it during the usual banking hours. Where the bank holds sufficient funds of the customer but wrongfully dishonors the customer’s cheque, then it is liable not only for any monetary loss suffered by the customer but also for loss or injury to the reputation of the customer.
It should be noted that a drawee bank is liable only to the drawer in case of wrongful dishonor of a cheque. Thus, the holder of a cheque cannot enforce payment upon the same from the bank as there is no privity of contract between the two. This is the case, even when the bank has sufficient funds of the customer. The remedy of the holder of a cheque lies against the drawer of the cheque and not against the bank.
Hence, in the given instance, the bank is liable not only to compensate for the monetary loss suffered by Amrita but also to pay compensation for the loss to Amrita’s reputation. The bank has no liability towards Bindu.
Slide 56 : Rajesh issued a cheque for Rs.11,116 to a voluntary organization as donation. But the cheque wasreturned unpaid with reason “Insufficient funds”. The remedy available to the payee, under theNegotiable Instruments Act, 1881 is that(a) The payee can recover the amount from Rajesh by filing a written complaint under section 138of the Act(b) The payee should issue a notice within 30 days of dishonour of cheque demanding the paymentfrom Rajesh(c) The payee can compel Rajesh to issue a fresh cheque(d) The payee cannot recover the amount as the cheque was not issued in partial or full discharge ofa legally enforceable debt(e) The payee can recover the amount only from the estate of Rajesh.
Slide 57 : D According to Section 138 of the negotiable Instruments Act 1881, in order to issue a notice to thedrawer under this section for dishonour of cheques, the cheques should have been issued in partialor full discharge of a legally enforceable debt, but not issued as a gift or to discharge a moralobligation. Hence, (d) is correct answer.
Slide 58 : Lakshmi, aged 17 years, and her father Sekhar jointly executed a promissory note forRs.1,00,000 together with interest @ 12% per annum in favour of a money lender. Which of thefollowing statements is true in respect of the above mentioned circumstances under the NegotiableInstruments Act, 1881?(a) Lakshmi can be held liable only for Rs.1,00,000(b) Both Lakshmi and Sekhar can be held liable for Rs.1,00,000 together with interest(c) Both Lakshmi and Sekhar cannot be held liable for Rs.1,00,000 or the interest(d) Sekhar only can be held liable for both Rs.1,00,000 and interest(e) Lakshmi can be held liable only for the interest amount.
Slide 59 : D The facts are similar to the decided case of Sulochana vs. Pandyan Bank Limited, where apromissory note was jointly executed by a minor and her father, it was held that the father wasliable on the note. A minor cannot bind himself by accepting a bill or making a note. However, allthe other competent parties to the instrument are liable. Hence, Lakshmi is not liable; her fatherSekhar only is liable. Hence, (d) is correct answer
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