Negotiable Instruments Questions and Answers

Q: A, an 18-year-old adult of sound mind, executes a written instrument in favour of B stating, "I promise to pay B ₹ 75,000 on 1st April next year." A is fully competent, has signed the note, and the instrument contains all essential elements of a promissory note. B sues A for recovery after 1st April when A defaults. Examine the correct legal position.

The promissory note is valid and A is liable to pay B.Under Section 4 of the Negotiable Instruments Act, 1881 a promissory note is an unconditional written undertaking, signed by the maker, to pay a certain sum of money to a certain person. The note described has all those elements.A became a major on turning eighteen under the Indian Majority Act, 1875, so the note is not voidable for minority. A note need not state its consideration, because Section 118 presumes that every negotiable instrument was made for consideration. And no witness or attestation is required for a promissory note to be valid.

Q: Which of the following is not a negotiable instrument :-

The instrument that is not negotiable is the Fixed Deposit Receipt.Section 13 of the Negotiable Instruments Act, 1881 names three negotiable instruments: promissory notes, bills of exchange and cheques, payable to order or bearer. They can be transferred by delivery or endorsement so that the transferee gets a good title.A fixed deposit receipt is only an acknowledgement by the bank of money deposited for a term. It is not an unconditional promise or order to pay a holder and is not transferable by endorsement, so it is not a negotiable instrument.

Q: In which judgment, under the Negotiable Instruments Act, 1881 the Hon'ble Supreme Court held that though compounding requires consent of both the parties, but even in absence of such consent, the Court can, in the interest of justice, on being satisfied that the complainant has been duly compensated, in its discretion, close the proceedings and discharge the accused:-

The judgment is Meters and Instruments Private Limited vs. Kanchan Mehta, AIR 2017 SC 4594.In this 2017 decision on cheque dishonour cases under Section 138 of the Negotiable Instruments Act, the Supreme Court held that although compounding ordinarily requires the consent of both parties, the court may, in the interest of justice, close the proceedings and discharge the accused where it is satisfied that the complainant has been duly compensated, even without the complainant's consent.Damodar S. Prabhu (2010) laid down graded costs for compounding at different stages, and JIK Industries (2012) held that compounding under Section 147 still requires the complainant's consent. Prateek Jain (2014) also concerned the compounding of cheque cases, not discharge without the complainant's consent.

Q: In which of the following, the Hon'ble Supreme Court held that in a case arising from Negotiable Instruments Act, successive sentences may be directed to run concurrently if both transactions are part of single transaction?

The judgment is (2016) 10 SCC 761, Shyam Pal Vs. Dayawati Besoya & Ors.In Shyam Pal the Supreme Court held that where an accused is convicted in separate complaints under Section 138 of the Negotiable Instruments Act arising out of a single transaction, the court may direct the sentences to run concurrently under Section 427(1) Cr.P.C.Damodar S. Prabhu (2010) laid down the guidelines for compounding Section 138 offences at different stages, and the other cases decided different questions, so they are not the authority for concurrent sentences.

Q: A person (payee) signs a blank cheque and gives the same to another person (holder) and the holder fills up the blank space pertaining to amount and date and presents the same in his bank account and it is dishonoured. In such a situation, which of the following statement would be correct?

The correct statement is that the holder will be entitled to maintain a complaint upon the cheque being dishonoured.A person who signs a blank cheque and hands it over (the paper calls him the payee, though he is the drawer) gives the holder authority to complete it. Section 20 of the Negotiable Instruments Act, 1881 makes a signed, inchoate instrument good for the amount filled in, and in Bir Singh v. Mukesh Kumar (2019) the Supreme Court held that the presumption under Section 139 applies to a voluntarily signed blank cheque even if someone else filled in the details.Filling in an authorised blank is not forgery, the cheque is not invalid, and the bank's acceptance for collection is not in question, so the holder can prosecute under Section 138 on dishonour.

Q: In which judgment, the Hon'ble Supreme Court laid down that a complaint based on a second or successive dishonour of cheque is maintainable, if no complaint based on an earlier dishonour of cheque followed by statutory notice issued on the basis thereof had been filed;

The judgment is (2013) 1 SCC 177, M.S.R. Leathers Vs. S. Palaniappan & Anr.In MSR Leathers a three-judge bench held that there is nothing in Section 138 of the Negotiable Instruments Act that bars a prosecution based on a second or successive dishonour of the same cheque, so long as no complaint had been filed on an earlier dishonour followed by a statutory notice.It overruled Sadanandan Bhadran v. Madhavan Sunil Kumar (1998), which had held that only one cause of action arises and a second notice on re-presentation cannot found a complaint. The other two cases did not decide this point.

Q: In which of the following cases, did the Hon'ble Supreme Court decide the issue of territorial jurisdiction of the court to entertain a complaint under the Negotiable Instruments Act in reference to the Amending Ordinance of 2015?

The case is (2016) 2 SCC 75, Bridgestone India Pvt. Ltd. Vs. Inderpal Singh.After the Negotiable Instruments (Amendment) Ordinance of 2015 (later the Amendment Act of 2015) inserted Section 142(2), a complaint under Section 138 lies where the cheque is delivered for collection, at the branch of the payee's bank. In Bridgestone India the Supreme Court applied the amended provision and held that the court at the place of that branch has jurisdiction, so the effect of the earlier Dashrath Rupsingh Rathod ruling no longer governs.The other cases did not decide this question of territorial jurisdiction under the Ordinance, so 'None of the above' is also wrong.

Q: Which Section of the Negotiable Instrument Act, 1881 deals with ‘Inchohate Instrument’.

Inchoate instruments are dealt with in Section 20.Section 20 of the Negotiable Instruments Act, 1881 concerns inchoate stamped instruments. Where a person signs and delivers a stamped paper either wholly blank or with an incomplete negotiable instrument written on it, he gives the holder prima facie authority to complete it for any amount the stamp covers, and he is liable to a holder in due course for that amount.Section 18 deals with an amount stated differently in figures and words, Section 19 with instruments payable on demand, and Section 21 with the meaning of 'at sight' and 'on presentment'.

Q: The term 'Allonge' under Negotiable Act, 1881 means :

The answer is both (A) and (B).An allonge is a slip of paper attached to a negotiable instrument to carry further endorsements when there is no room left on the instrument itself. Section 15 of the Negotiable Instruments Act provides that an endorsement may be written on such a slip annexed to the instrument.Statement (A) gives the purpose, further negotiation, and statement (B) the occasion, when the instrument is already full of endorsements. Both describe the same thing, so the key accepts both rather than either alone.

Q: Which of the following is not Negotiable Instrument under Section 13 of NI Act, 1881 ?

The one not named in Section 13 is the bank draft.Section 13 of the Negotiable Instruments Act, 1881 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer. Only these three are named in the section.A bank draft is negotiable in practice and is treated under the Act much like a bill of exchange (Section 85A deals with drafts drawn by one office of a bank on another), but it is not one of the instruments the definition in Section 13 lists. The other three options are named in it.

A, an 18-year-old adult of sound mind, executes a written instrument in favour of B stating, "I promise to pay B ₹ 75,000 on 1st April next year." A is fully competent, has signed the note, and the instrument contains all essential elements of a promissory note. B sues A for recovery after 1st April when A defaults. Examine the correct legal position.

A.The promissory note is valid only if a third party signs as witness.
B.The promissory note is valid; A is liable to pay B.
C.The promissory note is void because it does not mention the consideration.
D.The promissory note is voidable at A's option since A is only 18 years of age.

Exam Year(s)

AIBE - 2026,

Answer: B

The promissory note is valid and A is liable to pay B.

Under Section 4 of the Negotiable Instruments Act, 1881 a promissory note is an unconditional written undertaking, signed by the maker, to pay a certain sum of money to a certain person. The note described has all those elements.

A became a major on turning eighteen under the Indian Majority Act, 1875, so the note is not voidable for minority. A note need not state its consideration, because Section 118 presumes that every negotiable instrument was made for consideration. And no witness or attestation is required for a promissory note to be valid.

Discuss in Forum

Which of the following is not a negotiable instrument :-

A.Promissory note.
B.Fixed Deposit Receipt.
C.Bill of Exchange.
D.A cheque.

Exam Year(s)

Rajasthan High Court Civil Judge - 2018, Rajasthan Judicial Service - 2018,

Answer: B

The instrument that is not negotiable is the Fixed Deposit Receipt.

Section 13 of the Negotiable Instruments Act, 1881 names three negotiable instruments: promissory notes, bills of exchange and cheques, payable to order or bearer. They can be transferred by delivery or endorsement so that the transferee gets a good title.

A fixed deposit receipt is only an acknowledgement by the bank of money deposited for a term. It is not an unconditional promise or order to pay a holder and is not transferable by endorsement, so it is not a negotiable instrument.

Discuss in Forum

In which judgment, under the Negotiable Instruments Act, 1881 the Hon'ble Supreme Court held that though compounding requires consent of both the parties, but even in absence of such consent, the Court can, in the interest of justice, on being satisfied that the complainant has been duly compensated, in its discretion, close the proceedings and discharge the accused:-

A.Madhya Pradesh State Legal Service Authority Vs. Prateek Jain; 2015(1) SCC (Cri) 211
B.Meters and Instruments Private Limited Vs. Kanchan Mehta; AIR 2017 SC 4594
C.JIK Industries Ltd. Vs. Amarlal V. Jumani & Anr.; AIR 2012 SC 1079
D.Damodar S.Prabhu Vs. Sayyed Bala Lal H.; AIR 2010 SC 1907

Exam Year(s)

Rajasthan High Court Civil Judge - 2018, Rajasthan Judicial Service - 2018,

Answer: B

The judgment is Meters and Instruments Private Limited vs. Kanchan Mehta, AIR 2017 SC 4594.

In this 2017 decision on cheque dishonour cases under Section 138 of the Negotiable Instruments Act, the Supreme Court held that although compounding ordinarily requires the consent of both parties, the court may, in the interest of justice, close the proceedings and discharge the accused where it is satisfied that the complainant has been duly compensated, even without the complainant's consent.

Damodar S. Prabhu (2010) laid down graded costs for compounding at different stages, and JIK Industries (2012) held that compounding under Section 147 still requires the complainant's consent. Prateek Jain (2014) also concerned the compounding of cheque cases, not discharge without the complainant's consent.

Discuss in Forum

In which of the following, the Hon'ble Supreme Court held that in a case arising from Negotiable Instruments Act, successive sentences may be directed to run concurrently if both transactions are part of single transaction?

A.(2010) 5 SCC 663, Damodar S.Prabhu Vs. Sayed Babalal H
B.(2016) 3 SCC 1, Don Ayengia Vs. State of Assam & Ors.
C.(2009) 1 SCC 706, Mahindra & Mahindra Financial Services Ltd. & Anr. Vs. Rajiv Dubey.
D.(2016) 10 SCC 761, Shyam Pal Vs. Dayawati Besoya & Ors.

Exam Year(s)

Rajasthan High Court Civil Judge - 2019, Rajasthan Judicial Service - 2019,

Answer: D

The judgment is (2016) 10 SCC 761, Shyam Pal Vs. Dayawati Besoya & Ors.

In Shyam Pal the Supreme Court held that where an accused is convicted in separate complaints under Section 138 of the Negotiable Instruments Act arising out of a single transaction, the court may direct the sentences to run concurrently under Section 427(1) Cr.P.C.

Damodar S. Prabhu (2010) laid down the guidelines for compounding Section 138 offences at different stages, and the other cases decided different questions, so they are not the authority for concurrent sentences.

Discuss in Forum

A person (payee) signs a blank cheque and gives the same to another person (holder) and the holder fills up the blank space pertaining to amount and date and presents the same in his bank account and it is dishonoured. In such a situation, which of the following statement would be correct?

A.The holder has committed forgery.
B.The cheque will have to be treated as invalid.
C.The Bank would not accept the cheque.
D.The holder will be entitled to maintain a complaint filed upon the cheque being dishonoured upon being presented in the bank.

Exam Year(s)

Rajasthan High Court Civil Judge - 2019, Rajasthan Judicial Service - 2019,

Answer: D

The correct statement is that the holder will be entitled to maintain a complaint upon the cheque being dishonoured.

A person who signs a blank cheque and hands it over (the paper calls him the payee, though he is the drawer) gives the holder authority to complete it. Section 20 of the Negotiable Instruments Act, 1881 makes a signed, inchoate instrument good for the amount filled in, and in Bir Singh v. Mukesh Kumar (2019) the Supreme Court held that the presumption under Section 139 applies to a voluntarily signed blank cheque even if someone else filled in the details.

Filling in an authorised blank is not forgery, the cheque is not invalid, and the bank's acceptance for collection is not in question, so the holder can prosecute under Section 138 on dishonour.

Discuss in Forum

In which judgment, the Hon'ble Supreme Court laid down that a complaint based on a second or successive dishonour of cheque is maintainable, if no complaint based on an earlier dishonour of cheque followed by statutory notice issued on the basis thereof had been filed;

A.(2013) 1 SCC 177, M.S.R.Leathors Vs. S.Palaniappan & Anr.
B.(1998) 6 SCC 514, Sadanandan Bhadran Vs. Madhavan Sunil Kumar.
C.(1999) 4 SCC 567, Sil Import USA Vs. Exim Aides Silk Exporters Bangalore.
D.(2004) 13 SCC 498, Krishna Exports & Ors. Vs. Raju Das.

Exam Year(s)

Rajasthan High Court Civil Judge - 2019, Rajasthan Judicial Service - 2019,

Answer: A

The judgment is (2013) 1 SCC 177, M.S.R. Leathers Vs. S. Palaniappan & Anr.

In MSR Leathers a three-judge bench held that there is nothing in Section 138 of the Negotiable Instruments Act that bars a prosecution based on a second or successive dishonour of the same cheque, so long as no complaint had been filed on an earlier dishonour followed by a statutory notice.

It overruled Sadanandan Bhadran v. Madhavan Sunil Kumar (1998), which had held that only one cause of action arises and a second notice on re-presentation cannot found a complaint. The other two cases did not decide this point.

Discuss in Forum

In which of the following cases, did the Hon'ble Supreme Court decide the issue of territorial jurisdiction of the court to entertain a complaint under the Negotiable Instruments Act in reference to the Amending Ordinance of 2015?

A.(2016) 2 SCC 75, Bridgestone India Pvt.Ltd. Vs. Inderpal Singh
B.(2016) 11 SCC 105, K.S.Joseph Vs. Philip Carbon Black Ltd. & Ors.
C.(2016) 1 SCC (Cri) 173, Ultratech Cement Ltd. Vs. Rakesh Kumar Singh & Anr.
D.None of the above.

Exam Year(s)

Rajasthan High Court Civil Judge - 2019, Rajasthan Judicial Service - 2019,

Answer: A

The case is (2016) 2 SCC 75, Bridgestone India Pvt. Ltd. Vs. Inderpal Singh.

After the Negotiable Instruments (Amendment) Ordinance of 2015 (later the Amendment Act of 2015) inserted Section 142(2), a complaint under Section 138 lies where the cheque is delivered for collection, at the branch of the payee's bank. In Bridgestone India the Supreme Court applied the amended provision and held that the court at the place of that branch has jurisdiction, so the effect of the earlier Dashrath Rupsingh Rathod ruling no longer governs.

The other cases did not decide this question of territorial jurisdiction under the Ordinance, so 'None of the above' is also wrong.

Discuss in Forum

Which Section of the Negotiable Instrument Act, 1881 deals with ‘Inchohate Instrument’.

A.Section 20
B.Section 21
C.Section 18
D.Section 19

Exam Year(s)

MH SET - 2018, SET Exam - 2018,

Answer: A

Inchoate instruments are dealt with in Section 20.

Section 20 of the Negotiable Instruments Act, 1881 concerns inchoate stamped instruments. Where a person signs and delivers a stamped paper either wholly blank or with an incomplete negotiable instrument written on it, he gives the holder prima facie authority to complete it for any amount the stamp covers, and he is liable to a holder in due course for that amount.

Section 18 deals with an amount stated differently in figures and words, Section 19 with instruments payable on demand, and Section 21 with the meaning of 'at sight' and 'on presentment'.

Discuss in Forum

The term 'Allonge' under Negotiable Act, 1881 means :

A.a piece of paper attached to the negotiable instrument for the purpose of further negotiation
B.a paper attached with negotiable instrument when it was with full negotiations
C.Both (A) and (B)
D.Either (A) or (B)

Exam Year(s)

MH SET - 2020, SET Exam - 2020,

Answer: C

The answer is both (A) and (B).

An allonge is a slip of paper attached to a negotiable instrument to carry further endorsements when there is no room left on the instrument itself. Section 15 of the Negotiable Instruments Act provides that an endorsement may be written on such a slip annexed to the instrument.

Statement (A) gives the purpose, further negotiation, and statement (B) the occasion, when the instrument is already full of endorsements. Both describe the same thing, so the key accepts both rather than either alone.

Discuss in Forum

10.

Which of the following is not Negotiable Instrument under Section 13 of NI Act, 1881 ?

A.Promissory Note
B.Cheque
C.Bank draft
D.Bill of Exchange

Exam Year(s)

MH SET - 2021, SET Exam - 2021,

Answer: C

The one not named in Section 13 is the bank draft.

Section 13 of the Negotiable Instruments Act, 1881 defines a negotiable instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer. Only these three are named in the section.

A bank draft is negotiable in practice and is treated under the Act much like a bill of exchange (Section 85A deals with drafts drawn by one office of a bank on another), but it is not one of the instruments the definition in Section 13 lists. The other three options are named in it.

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