MCQs on Negotiable Instrument Act 1881

Negotiable Instruments Act, 1881

MCQ (1-20)

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Q1. Under the Negotiable Instruments Act, 1881, a cheque must be presented to the bank for payment within:
a) 1 month
b) 2 months
c) 3 months
d) 6 months

[read more] Answer: c) 3 months Explanation: As per Section 138, a cheque must be presented to the bank within three months from the date it is drawn. This was upheld in the case of K. Bhaskaran v. Sankaran Vaidhyan Balan (1999), where the Supreme Court emphasized the importance of timely presentation. [/read]

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Q2. Which section of the Act presumes that a negotiable instrument was drawn for consideration?
a) Section 115
b) Section 120
c) Section 118
d) Section 130

[read more] Answer: c) Section 118 Explanation: Section 118(a) presumes that every negotiable instrument was made or drawn for consideration unless the contrary is proved. This principle was reiterated in Hiten P. Dalal v. Bratindranath Banerjee (2001). [/read]

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Q3. Who can cross a cheque under the Act?
a) The payee only
b) The drawer only
c) The drawer or the holder
d) The bank only

[read more] Answer: c) The drawer or the holder Explanation: Section 123 allows both the drawer and the holder to cross a cheque. In Jugalkishore v. Raw Cotton Co. Ltd. (1955), the court explained the rights of holders in crossing cheques. [/read]

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Q4. What is the penalty for dishonour of a cheque due to insufficient funds under Section 138?
a) Imprisonment up to 6 months
b) Imprisonment up to 1 year
c) Imprisonment up to 2 years or fine
d) Imprisonment up to 3 years or fine

[read more] Answer: c) Imprisonment up to 2 years or fine Explanation: Section 138 prescribes a penalty of imprisonment up to two years or a fine not exceeding twice the cheque amount. The Dalmia Cement Ltd. v. Galaxy Traders (2001) case discussed its implications. [/read]

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Q5. A "holder in due course" is defined under:
a) Section 7
b) Section 9
c) Section 13
d) Section 17

[read more] Answer: b) Section 9 Explanation: Section 9 defines a "holder in due course" as a person who has obtained the instrument for consideration and before maturity without notice of defects. This was emphasized in Lilykutty v. Lawrance (2003). [/read]

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Q6. Notice of dishonour is mandatory under:
a) Section 91
b) Section 93
c) Section 101
d) Section 104

[read more] Answer: b) Section 93 Explanation: Section 93 mandates notice of dishonour unless waived. The Supreme Court in K.R. Indira v. Dr. G. Adinarayana (2003) highlighted the procedural necessity of such notice. [/read]

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Q7. Which section deals with the summary trial of cheque dishonour cases?
a) Section 138
b) Section 143
c) Section 144
d) Section 145

[read more] Answer: b) Section 143 Explanation: Section 143 provides for the summary trial of cheque dishonour cases for expeditious disposal. This was examined in Damodar S. Prabhu v. Sayed Babalal H. (2010). [/read]

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Q8. What is the time limit for issuing notice to the drawer after cheque dishonour?
a) 7 days
b) 10 days
c) 15 days
d) 30 days

[read more] Answer: c) 15 days Explanation: Under Section 138(b), the payee must issue a legal notice to the drawer within 15 days of dishonour. The Supreme Court in C.C. Alavi Haji v. Palapetty Muhammed (2007) clarified this provision. [/read]

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Q9. Under Section 87, a material alteration in a negotiable instrument renders it:
a) Valid
b) Void
c) Partially void
d) Enforceable

[read more] Answer: b) Void Explanation: Section 87 states that a material alteration without the consent of all parties renders the instrument void. This principle was upheld in Sundaram Finance Ltd. v. NEPC India Ltd. (1999). [/read]

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Q10. A cheque must be presented to the drawee bank within how many months to avoid it being stale?
a) 1 month
b) 3 months
c) 6 months
d) 12 months

[read more] Answer: b) 3 months Explanation: Under Section 138, a cheque must be presented within three months, or as per the validity period noted. In Vijay v. Laxman (2013), the Supreme Court reiterated this principle. [/read]

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Q11. Which section protects a paying banker in case of payment on a crossed cheque?
a) Section 85
b) Section 87
c) Section 130
d) Section 131

[read more] Answer: d) Section 131 Explanation: Section 131 protects the paying banker if the cheque is crossed and paid in good faith without negligence. Canara Bank v. Canara Sales Corporation (1987) is a leading case on this. [/read]

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Q12. Under Section 139, what is presumed about the issuance of a cheque?
a) It is issued for an unlawful purpose
b) It is issued without consideration
c) It is issued for a debt or liability
d) It is issued as a gift

[read more] Answer: c) It is issued for a debt or liability Explanation: Section 139 presumes that the cheque was issued for a legally enforceable debt or liability. The Supreme Court confirmed this in Rangappa v. Mohan (2010). [/read]

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Q13. The term "negotiable instrument" is defined under which section?
a) Section 1
b) Section 13
c) Section 23
d) Section 38

[read more] Answer: b) Section 13 Explanation: Section 13 defines a negotiable instrument as promissory notes, bills of exchange, and cheques payable either to order or to bearer. [/read]

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Q14. What does Section 146 of the Act deal with?
a) Modes of service of notice
b) Evidence of dishonour of a cheque
c) Liability of drawer
d) Penalty for non-payment

[read more] Answer: b) Evidence of dishonour of a cheque Explanation: Section 146 provides that dishonour of a cheque may be proved by the bank’s slip or memo. [/read]

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Q15. Which Supreme Court case laid down the principle of compensatory costs in cheque dishonour cases?
a) M.S. Narayana Menon v. State of Kerala
b) Indian Bank Association v. Union of India
c) Damodar S. Prabhu v. Sayed Babalal H.
d) K. Bhaskaran v. Sankaran Vaidhyan Balan

[read more] Answer: c) Damodar S. Prabhu v. Sayed Babalal H. Explanation: The Supreme Court in this case emphasized the imposition of compensatory costs to discourage delayed payments. [/read]

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Q16. Under Section 92, who is liable on a dishonoured instrument?
a) Holder only
b) Drawer only
c) Drawer and endorsers
d) Drawee only

[read more] Answer: c) Drawer and endorsers Explanation: Section 92 imposes liability on the drawer and endorsers when a negotiable instrument is dishonoured. [/read]

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Q17. The minimum amount for filing a case under Section 138 is:
a) ₹100
b) ₹500
c) ₹1,000
d) No minimum amount

[read more] Answer: d) No minimum amount Explanation: Section 138 does not prescribe any minimum amount for initiating a case of cheque dishonour. [/read]

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Q18. What is the consequence of not replying to a legal notice under Section 138?
a) Automatic conviction
b) Adverse inference in court
c) Dismissal of case
d) No consequence

[read more] Answer: b) Adverse inference in court Explanation: Failure to reply may lead the court to draw an adverse inference. This was discussed in C.C. Alavi Haji v. Palapetty Muhammed. [/read]

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Q19. A "bill of exchange" is defined under:
a) Section 2
b) Section 3
c) Section 5
d) Section 7

[read more] Answer: c) Section 5 Explanation: Section 5 defines a bill of exchange as an instrument in writing containing an unconditional order to pay a certain amount. [/read]

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Q20. Which section prescribes the manner of notice service?
a) Section 138
b) Section 141
c) Section 145
d) Section 144

[read more] Answer: d) Section 144 Explanation: Section 144 lays down the manner in which notice must be served under the Act. [/read]

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Negotiable Instruments Act, 1881

MCQ (21-40)

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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

[read more] 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). [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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Q24. Which section provides for vicarious liability in cheque dishonour cases?
a) Section 139
b) Section 141
c) Section 145
d) Section 146

[read more] 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). [/read]

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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

[read more] 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. [/read]

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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

[read more] Answer: b) Invalid Explanation: Section 84 specifies that payment made on a forged endorsement is invalid, as it is not an authorized payment. [/read]

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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

[read more] 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). [/read]

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Q28. The term "endorsement" is defined under which section of the Act?
a) Section 15
b) Section 17
c) Section 19
d) Section 21

[read more] Answer: a) Section 15 Explanation: Section 15 defines "endorsement" as signing on the instrument to transfer its rights to another person. [/read]

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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

[read more] 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. [/read]

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Q30. A cheque that is not payable to the bearer is called:
a) Open cheque
b) Crossed cheque
c) Order cheque
d) Dishonoured cheque

[read more] 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). [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] Answer: b) The cheque becomes void Explanation: Section 87 states that any material alteration without consent renders the cheque void. [/read]

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Q34. Which section deals with instruments payable on demand?
a) Section 19
b) Section 21
c) Section 31
d) Section 37

[read more] Answer: b) Section 21 Explanation: Section 21 defines instruments payable on demand, which are payable at sight or immediately upon presentation. [/read]

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Q35. When can a cheque be considered "stale"?
a) After 1 month
b) After 3 months
c) After 6 months
d) After 12 months

[read more] Answer: b) After 3 months Explanation: A cheque is considered stale if it is not presented within three months, as prescribed under Section 138. [/read]

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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

[read more] Answer: b) Section 99 Explanation: Section 99 explains the concept of "noting," which involves recording the fact of dishonour of a negotiable instrument. [/read]

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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

[read more] Answer: b) The drawer Explanation: Section 139 presumes that a cheque is issued for a debt or liability unless the drawer proves otherwise. [/read]

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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

[read more] 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. [/read]

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Q39. Which section explains the liability of an acceptor for honour?
a) Section 108
b) Section 115
c) Section 118
d) Section 123
[read more]
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.
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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

[read more] 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. [/read]

Negotiable Instruments Act, 1881

MCQ (41-60)

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Q41. Which section of the Negotiable Instruments Act, 1881, defines a “cheque”?
a) Section 6
b) Section 4
c) Section 5
d) Section 7

[read more] Answer: a) Section 6 Explanation: Section 6 defines a cheque as a bill of exchange drawn on a specified banker, not expressed to be payable otherwise than on demand. [/read]

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Q42. What is the effect of crossing a cheque?
a) It can only be cashed at the issuing bank
b) It can only be cashed through a bank account
c) It can only be cashed by the drawer
d) It cannot be cashed at all

[read more] Answer: b) It can only be cashed through a bank account Explanation: Crossed cheques under Section 123 must be paid only through a bank account, ensuring additional security in transactions. [/read]

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Q43. Under Section 31, which party is primarily liable for the payment of a cheque?
a) The drawer
b) The drawee bank
c) The payee
d) The endorser

[read more] Answer: b) The drawee bank Explanation: Section 31 imposes a duty on the drawee bank to honour the cheque if sufficient funds are available and there is no defect in the instrument. [/read]

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Q44. A negotiable instrument is considered dishonoured by non-payment when:
a) It is presented late
b) It is returned unpaid on due presentation
c) It is lost before payment
d) It is endorsed improperly

[read more] Answer: b) It is returned unpaid on due presentation Explanation: Section 92 states that an instrument is dishonoured by non-payment when it is duly presented and not paid by the drawee. [/read]

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Q45. Under which section is the concept of “inchoate instrument” explained?
a) Section 20
b) Section 15
c) Section 12
d) Section 25

[read more] Answer: a) Section 20 Explanation: Section 20 refers to inchoate (incomplete) instruments, allowing the holder to fill them up in accordance with the authority given. [/read]

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Q46. Which of the following is not a negotiable instrument under the Act?
a) Cheque
b) Promissory note
c) Fixed deposit receipt
d) Bill of exchange

[read more] Answer: c) Fixed deposit receipt Explanation: Fixed deposit receipts are not negotiable instruments because they are not transferable or payable to order or bearer. [/read]

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Q47. Under which section can a cheque dishonour case be tried summarily?
a) Section 138
b) Section 143
c) Section 145
d) Section 146

[read more] Answer: b) Section 143 Explanation: Section 143 allows for summary trials of cheque dishonour cases to expedite proceedings. The Supreme Court in M/s Mandvi Co-op Bank Ltd. v. Nimesh B. Thakore (2010) emphasized the importance of this provision. [/read]

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Q48. Which section provides immunity to the banker for payment of a cheque crossed generally?
a) Section 126
b) Section 130
c) Section 131
d) Section 133

[read more] Answer: c) Section 131 Explanation: Section 131 protects the banker from liability for wrongful payment of crossed cheques, provided the bank acted in good faith and without negligence. [/read]

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Q49. The term “acceptor” is defined under which section of the Act?
a) Section 2(a)
b) Section 7
c) Section 9
d) Section 12

[read more] Answer: b) Section 7 Explanation: Section 7 defines the "acceptor" as the person who accepts a bill of exchange and is liable for its payment. [/read]

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Q50. The liability of an endorser is discharged if:
a) The holder delays presenting the cheque
b) The drawee bank refuses payment
c) The drawer refuses to honour the cheque
d) The holder loses the cheque

[read more] Answer: a) The holder delays presenting the cheque Explanation: As per Section 84, the liability of an endorser ceases if the holder unreasonably delays presenting the instrument for payment. [/read]

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Q51. When is a negotiable instrument considered dishonoured by non-acceptance?
a) When the drawer cancels it
b) When it is lost before acceptance
c) When the drawee refuses to accept it
d) When it is endorsed incorrectly

[read more] Answer: c) When the drawee refuses to accept it Explanation: Section 91 states that dishonour by non-acceptance occurs when the drawee refuses to accept the bill of exchange. [/read]

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Q52. Which section governs the liability of the drawer of a cheque?
a) Section 30
b) Section 32
c) Section 36
d) Section 40

[read more] Answer: a) Section 30 Explanation: Section 30 specifies that the drawer of a cheque is liable to compensate the holder if the cheque is dishonoured. [/read]

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Q53. Under which section is the procedure for service of notice described?
a) Section 138
b) Section 141
c) Section 144
d) Section 145

[read more] Answer: c) Section 144 Explanation: Section 144 lays down the methods and requirements for serving notices under the Act. [/read]

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Q54. Which Supreme Court case allowed the compounding of offences under Section 138?
a) M.S. Narayana Menon v. State of Kerala
b) Damodar S. Prabhu v. Sayed Babalal H.
c) K.R. Indira v. G. Adinarayana
d) Rangappa v. Mohan

[read more] Answer: b) Damodar S. Prabhu v. Sayed Babalal H. Explanation: The Supreme Court in this case encouraged compounding of cheque dishonour offences under Section 138 to reduce pendency. [/read]

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Q55. What is the maximum penalty for dishonour of a cheque under Section 138?
a) Imprisonment up to 6 months
b) Imprisonment up to 1 year
c) Imprisonment up to 2 years or fine
d) Imprisonment up to 3 years or fine

[read more] Answer: c) Imprisonment up to 2 years or fine Explanation: Section 138 provides for imprisonment up to 2 years or a fine up to twice the cheque amount. [/read]

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Q56. Which section deals with the liability of the surety for payment of a dishonoured cheque?
a) Section 120
b) Section 141
c) Section 146
d) Section 149

[read more] Answer: b) Section 141 Explanation: Section 141 extends liability to individuals such as directors, partners, and guarantors associated with the offence under Section 138. [/read]

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Q57. Which section describes the effect of a material alteration?
a) Section 85
b) Section 87
c) Section 92
d) Section 95

[read more] Answer: b) Section 87 Explanation: Section 87 states that a material alteration without the consent of all parties renders the instrument void. [/read]

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Q58. Which type of cheque cannot be negotiated?
a) Open cheque
b) Bearer cheque
c) Crossed cheque
d) Not negotiable cheque

[read more] Answer: d) Not negotiable cheque Explanation: Section 130 states that a "not negotiable" cheque cannot transfer a better title than the transferor. [/read]

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Q59. What is the nature of a complaint under Section 138?
a) Civil in nature
b) Criminal in nature
c) Both civil and criminal
d) Neither civil nor criminal

[read more] Answer: b) Criminal in nature Explanation: Section 138 creates a criminal offence for dishonour of cheques, though it arises out of a civil liability. [/read]

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Q60. A cheque issued as a security and dishonoured attracts:
a) Civil liability only
b) Criminal liability only
c) Both civil and criminal liability
d) No liability
[read more]
Answer: c) Both civil and criminal liability
Explanation: If a cheque issued as security is dishonoured, both civil and criminal liabilities can arise, as held in Sunil Todi v. State of Gujarat (2021). The Supreme Court clarified that even cheques issued as security fall under the purview of Section 138 if the debt or liability is legally enforceable at the time of presentation.

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Negotiable Instruments Act, 1881

MCQ (61-80)

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Q61. Under which section can the payee or holder demand compensation for delayed payment after dishonour?
a) Section 138
b) Section 80
c) Section 117
d) Section 145

[read more] Answer: b) Section 80 Explanation: Section 80 provides for interest compensation in case of delayed payment following dishonour, calculated at the rate of 6% per annum unless otherwise specified in the contract. [/read]

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Q62. What is the status of a cheque issued post-dated but dishonoured on presentation?
a) Not covered under Section 138
b) Covered under Section 138
c) Void instrument
d) Treated as a promissory note

[read more] Answer: b) Covered under Section 138 Explanation: The Supreme Court in PDC Financial Services v. State of Maharashtra (2008) clarified that even a post-dated cheque falls under Section 138 if it is dishonoured on presentation. [/read]

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Q63. Which section addresses the validity of a negotiable instrument written in different languages?
a) Section 13
b) Section 15
c) Section 22
d) Section 22A

[read more] Answer: a) Section 13 Explanation: Section 13 defines negotiable instruments and recognizes their validity regardless of the language, provided they meet the requirements of the Act. [/read]

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Q64. What is the maximum punishment under Section 138 for cheque dishonour?
a) 1 year imprisonment or fine
b) 2 years imprisonment or fine double the cheque amount
c) 5 years imprisonment or fine
d) No imprisonment, only fine

[read more] Answer: b) 2 years imprisonment or fine double the cheque amount Explanation: Section 138 prescribes imprisonment up to 2 years or a fine up to twice the cheque amount for the dishonour offence. [/read]

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Q65. A cheque drawn in favour of a minor:
a) Is invalid
b) Is valid and enforceable
c) Cannot be endorsed
d) Requires court approval

[read more] Answer: b) Is valid and enforceable Explanation: Section 26 states that a cheque drawn in favour of a minor is valid, as minors can be beneficiaries but not liable as drawers or endorsers. [/read]

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Q66. Under which section is the presumption of consideration for a cheque established?
a) Section 139
b) Section 142
c) Section 118
d) Section 134

[read more] Answer: a) Section 139 Explanation: Section 139 creates a statutory presumption that every cheque is issued for a debt or liability unless proven otherwise by the drawer. [/read]

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Q67. Which Supreme Court case clarified the liability of a director in cheque dishonour cases?
a) S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla
b) M.S. Narayana Menon v. State of Kerala
c) Pawan Kumar v. State of Punjab
d) Mohd. Shahabuddin v. State of Bihar

[read more] Answer: a) S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla Explanation: In this case, the Supreme Court held that directors can be held vicariously liable under Section 141 if they are responsible for the company’s conduct. [/read]

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Q68. A cheque dishonour complaint can be filed only in the court of:
a) The place of issuance
b) The place where the drawee bank is located
c) The place where the cheque was presented
d) Any of the above

[read more] Answer: c) The place where the cheque was presented Explanation: Section 142(2) specifies that jurisdiction lies in the court where the drawee bank, where the cheque was presented for payment, is located. [/read]

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Q69. If a cheque is dishonoured due to a mismatch in signature, it:
a) Does not attract Section 138
b) Attracts Section 138
c) Is void ab initio
d) Requires re-issuance by the drawer

[read more] Answer: b) Attracts Section 138 Explanation: In Laxmi Dyechem v. State of Gujarat (2012), the Supreme Court held that even a signature mismatch constitutes dishonour under Section 138. [/read]

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Q70. Under which section is the liability of a bank for wrongful dishonour explained?
a) Section 31
b) Section 32
c) Section 34
d) Section 38

[read more] Answer: a) Section 31 Explanation: Section 31 makes the bank liable to the drawer for damages if a cheque is dishonoured wrongfully despite sufficient funds in the account. [/read]

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Q71. Which section provides that no civil court has jurisdiction over certain cheque dishonour cases?
a) Section 140
b) Section 144
c) Section 147
d) Section 142(2)

[read more] Answer: d) Section 142(2) Explanation: Section 142(2) clarifies that once criminal proceedings under Section 138 are initiated, civil courts have no jurisdiction on the same issue. [/read]

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Q72. If the drawer stops payment after issuing the cheque, it:
a) Does not attract Section 138
b) Attracts Section 138 if there is debt/liability
c) Only attracts civil liability
d) Leads to cancellation of the cheque

[read more] Answer: b) Attracts Section 138 if there is debt/liability Explanation: The Supreme Court in M.M.T.C. Ltd. v. Medchl Chemicals (2002) held that even a stop-payment instruction attracts liability under Section 138 if the debt or liability exists. [/read]

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Q73. A cheque is payable to bearer when:
a) The payee’s name is endorsed
b) It is crossed
c) It does not contain any endorsement
d) It is made payable to bearer explicitly

[read more] Answer: d) It is made payable to bearer explicitly Explanation: Section 13 explains bearer cheques as payable to whoever holds them, without requiring endorsement. [/read]

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Q74. Which section allows for compounding of offences under Section 138?
a) Section 147
b) Section 145
c) Section 143
d) Section 144

[read more] Answer: a) Section 147 Explanation: Section 147 permits compounding of offences under Section 138, encouraging amicable resolution between parties. [/read]

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Q75. The term "negotiation" is defined under:
a) Section 14
b) Section 16
c) Section 18
d) Section 20

[read more] Answer: a) Section 14 Explanation: Section 14 defines "negotiation" as the transfer of an instrument to another person in a manner that entitles the transferee to sue in their own name. [/read]

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Q76. A cheque presented after its expiry date is:
a) Valid
b) Void
c) Irregular
d) Stale

[read more] Answer: d) Stale Explanation: As per banking practice and Section 138, a cheque becomes stale if not presented within three months from the date mentioned. [/read]

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Q77. Under which section does a cheque dishonour case become time-barred if not filed within the prescribed period?
a) Section 138
b) Section 142
c) Section 141
d) Section 144

[read more] Answer: b) Section 142 Explanation: Section 142 prescribes a limitation period of 30 days from the cause of action for filing a complaint under Section 138. [/read]

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Q78. The liability of the drawer ceases if:
a) The cheque is dishonoured
b) The payee endorses the cheque to another party
c) The cheque is paid in due course
d) The payee delays presenting the cheque

[read more] Answer: c) The cheque is paid in due course Explanation: As per Section 31, the drawer's liability ends when the cheque is paid in due course by the drawee bank. [/read]

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Q79. The drawer of a cheque is discharged from liability when:
a) The cheque is dishonoured
b) The cheque is accepted for payment by the drawee
c) The cheque is presented beyond the validity period
d) The cheque is endorsed to another person

[read more] Answer: c) The cheque is presented beyond the validity period Explanation: A stale cheque (presented beyond three months) discharges the drawer from liability under Section 138. [/read]

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Q80. Which section mandates that a cheque must be presented to the drawee bank within its validity period?
a) Section 64
b) Section 138
c) Section 84
d) Section 129

[read more] Answer: b) Section 138 Explanation: Section 138 mandates that a cheque must be presented to the drawee bank within its validity period, i.e., within three months from the date of issuance. Failure to do so absolves the drawer from liability. [/read]

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Negotiable Instruments Act, 1881

MCQ (81-100)

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Q81. What is the limitation period for filing a cheque bounce complaint under Section 138?
a) 15 days from the date of dishonour
b) 30 days from the cause of action
c) 3 months from the date of issue
d) 45 days from the notice date

[read more] Answer: b) 30 days from the cause of action Explanation: Under Section 142(b), a complaint under Section 138 must be filed within 30 days from the date the cause of action arises, i.e., from the expiry of the 15-day notice period issued to the drawer after dishonour. [/read]

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Q82. What is the significance of Section 6 of the Negotiable Instruments Act, 1881?
a) Defines promissory note
b) Defines cheque
c) Defines bill of exchange
d) Defines endorsement

[read more] Answer: b) Defines cheque Explanation: Section 6 of the Act defines a cheque as a bill of exchange drawn on a specified banker, payable on demand and not expressed to be payable otherwise. [/read]

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Q83. Which section deals with the dishonour of cheque for insufficiency of funds?
a) Section 130
b) Section 138
c) Section 140
d) Section 141

[read more] Answer: b) Section 138 Explanation: Section 138 lays down provisions for dishonour of cheques due to insufficiency of funds or if the payment exceeds the arrangement made with the bank. [/read]

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Q84. A cheque issued as a gift and dishonoured due to insufficiency of funds:
a) Does not attract Section 138
b) Attracts Section 138
c) Only attracts civil liability
d) Is void

[read more] Answer: a) Does not attract Section 138 Explanation: For Section 138 to apply, the cheque must be issued against a legally enforceable debt or liability. A cheque issued as a gift does not meet this criterion. [/read]

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Q85. Under which section is the liability of partners of a firm for cheque dishonour governed?
a) Section 138
b) Section 141
c) Section 142
d) Section 145

[read more] Answer: b) Section 141 Explanation: Section 141 deals with offences committed by companies or firms, including the liability of partners if they were in charge of and responsible for the conduct of the firm at the time of the offence. [/read]

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Q86. In case of cheque dishonour, the notice to the drawer must be served within:
a) 7 days of dishonour
b) 15 days of dishonour
c) 30 days of dishonour
d) 60 days of dishonour

[read more] Answer: b) 15 days of dishonour Explanation: Under Section 138(b), the payee must issue a notice to the drawer demanding payment within 15 days of receiving information about the cheque’s dishonour. [/read]

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Q87. In case of dishonour, the drawee bank returns the cheque with a memo citing:
a) Insufficient funds
b) Irregular signature
c) Stop payment instructions
d) Any of the above

[read more] Answer: d) Any of the above Explanation: A dishonour memo from the bank can cite various reasons, including insufficient funds, irregular signature, or stop payment instructions. All these reasons fall under the ambit of Section 138 if a debt or liability exists. [/read]

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Q88. Who can file a complaint under Section 138 of the Negotiable Instruments Act?
a) The payee
b) The holder in due course
c) Both a and b
d) Any person

[read more] Answer: c) Both a and b Explanation: Section 142(1)(a) states that the payee or the holder in due course of the cheque can file a complaint under Section 138 for dishonour. [/read]

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Q89. The offence under Section 138 is classified as:
a) Cognizable
b) Non-cognizable and compoundable
c) Non-bailable
d) Strict liability offence

[read more] Answer: b) Non-cognizable and compoundable Explanation: The offence under Section 138 is non-cognizable and compoundable, meaning the parties can settle it out of court as per Section 147. [/read]

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Q90. The cause of action for a cheque bounce case arises when:
a) The cheque is dishonoured
b) Notice is issued to the drawer
c) The drawer fails to pay within 15 days of notice
d) The cheque is presented for the second time

[read more] Answer: c) The drawer fails to pay within 15 days of notice Explanation: As per Section 138(c), the cause of action arises only when the drawer fails to make payment within 15 days of receiving the notice of dishonour. [/read]

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Q91. The term “holder in due course” is defined under:
a) Section 7
b) Section 9
c) Section 10
d) Section 11

[read more] Answer: b) Section 9 Explanation: Section 9 defines “holder in due course” as a person who possesses a negotiable instrument for consideration and in good faith, without notice of any defect. [/read]

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Q92. A cheque dishonoured due to a drawer’s signature mismatch:
a) Does not attract Section 138
b) Attracts Section 138
c) Is void
d) Requires re-endorsement

[read more] Answer: b) Attracts Section 138 Explanation: In Laxmi Dyechem v. State of Gujarat (2012), the Supreme Court clarified that even dishonour due to signature mismatch falls under the purview of Section 138. [/read]

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Q93. Under which section is a dishonour case filed by a company represented?
a) Section 141
b) Section 142
c) Section 138
d) Section 144

[read more] Answer: a) Section 141 Explanation: Section 141 provides for offences committed by companies and allows an authorized representative of the company to file a complaint for cheque dishonour. [/read]

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Q94. Under Section 138, a cheque must be presented:
a) Within three months from the date it is drawn
b) Within six months from the date it is drawn
c) Within 30 days from the date it is drawn
d) No specific time limit

[read more] Answer: a) Within three months from the date it is drawn Explanation: Section 138 mandates that a cheque must be presented within three months from the date of issuance to remain valid for legal enforcement. [/read]

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Q95. The presumption under Section 139 is:
a) Mandatory
b) Discretionary
c) Irrelevant in cheque cases
d) Only applicable in criminal law

[read more] Answer: a) Mandatory Explanation: Section 139 creates a mandatory presumption in favour of the holder that the cheque was issued for a debt or liability unless proven otherwise by the drawer. [/read]

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Q96. The punishment for an offence under Section 138 may include:
a) Imprisonment only
b) Fine only
c) Imprisonment and fine both
d) Civil damages only

[read more] Answer: c) Imprisonment and fine both Explanation: Section 138 prescribes punishment of imprisonment up to 2 years or fine up to twice the cheque amount, or both. [/read]

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Q97. Under Section 138, the payee must:
a) Issue a notice within 30 days of dishonour
b) File a complaint within 15 days of dishonour
c) Present the cheque again if dishonoured
d) Wait indefinitely for drawer’s response

[read more] Answer: a) Issue a notice within 30 days of dishonour Explanation: Section 138(b) mandates that the payee must issue a legal notice to the drawer within 30 days of receiving the dishonour memo from the bank. [/read]

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Q98. Which section of the Act allows for a summary trial of cheque dishonour cases?
a) Section 143
b) Section 142
c) Section 138
d) Section 144

[read more] Answer: a) Section 143 Explanation: Section 143 provides for the summary trial of cases under Section 138, ensuring expeditious disposal. [/read]

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Q99. The offence under Section 138 is complete when:
a) The cheque is dishonoured
b) The notice period expires without payment
c) The complaint is filed
d) The court issues summons

[read more] Answer: b) The notice period expires without payment Explanation: The offence under Section 138 is deemed complete when the drawer fails to pay within 15 days of receiving the notice of dishonour. [/read]

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Q100. Which section defines a promissory note?
a) Section 6
b) Section 4
c) Section 8
d) Section 7

[read more] Answer: b) Section 4 Explanation: Section 4 of the Act defines a promissory note as an unconditional promise in writing made by one person to another, signed by the maker. [/read]

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Negotiable Instruments Act, 1881

MCQ (101-120)

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Q101. Which section provides for the discharge of the maker, drawer, and acceptor from liability on a negotiable instrument?
a) Section 35
b) Section 82
c) Section 45
d) Section 50

[read more] Answer: b) Section 82 Explanation: Section 82 states that the maker, acceptor, or indorser of a negotiable instrument is discharged from liability when the conditions for discharge, as prescribed, are fulfilled. [/read]

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Q102. Under which section is an instrument considered a promissory note only if it contains an unconditional undertaking to pay?
a) Section 4
b) Section 6
c) Section 8
d) Section 7

[read more] Answer: a) Section 4 Explanation: Section 4 defines a promissory note and emphasizes that the instrument must include an unconditional undertaking to pay a certain sum of money. [/read]

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Q103. What is the maximum penalty under Section 138 for a cheque bounce?
a) Fine equal to the cheque amount
b) Twice the cheque amount or 2 years imprisonment
c) Fine of ₹50,000 or 1 year imprisonment
d) No prescribed maximum

[read more] Answer: b) Twice the cheque amount or 2 years imprisonment Explanation: Section 138 prescribes a fine up to twice the cheque amount, imprisonment up to 2 years, or both, as a penalty for cheque bounce. [/read]

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Q104. Which section prescribes the duties of a banker in case of a negotiable instrument?
a) Section 31
b) Section 33
c) Section 35
d) Section 37

[read more] Answer: a) Section 31 Explanation: Section 31 lays down the duty of the drawee banker to honour a cheque properly drawn if sufficient funds are available. [/read]

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Q105. The legal presumption regarding the negotiability of an instrument is established under:
a) Section 9
b) Section 13
c) Section 20
d) Section 18

[read more] Answer: b) Section 13 Explanation: Section 13 defines a negotiable instrument and creates a presumption in favour of its negotiability unless the contrary is proved. [/read]

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Q106. Under Section 87, material alteration of a negotiable instrument:
a) Makes it void
b) Requires maker’s consent
c) Is allowed in case of correction
d) Is permitted without consent

[read more] Answer: a) Makes it void Explanation: Section 87 states that any material alteration to a negotiable instrument without the consent of all parties renders it void. [/read]

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Q107. Section 138 applies to which type of cheque?
a) Post-dated cheque
b) Self-drawn cheque
c) Bearer cheque
d) All of the above

[read more] Answer: a) Post-dated cheque Explanation: A post-dated cheque, when dishonoured, falls under Section 138 as it is payable on demand after the date mentioned on the cheque. [/read]

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Q108. Which section defines “Payment in Due Course”?
a) Section 10
b) Section 8
c) Section 15
d) Section 12

[read more] Answer: a) Section 10 Explanation: Section 10 defines “Payment in Due Course” as payment made in good faith and without negligence, according to the tenor of the instrument. [/read]

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Q109. Which Supreme Court case clarified that Section 138 applies even if the cheque is dishonoured due to "Account Closed"?
a) Rangappa v. Sri Mohan
b) Modi Cements Ltd. v. Kuchil Kumar Nandi
c) Kusum Ingots v. Pennar Peterson Securities
d) Laxmi Dyechem v. State of Gujarat

[read more] Answer: b) Modi Cements Ltd. v. Kuchil Kumar Nandi Explanation: In Modi Cements Ltd. v. Kuchil Kumar Nandi, the Supreme Court held that Section 138 is applicable even if the account is closed by the drawer, as this indicates insufficient funds. [/read]

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Q110. Which section prescribes the liability of an acceptor of a bill of exchange?
a) Section 31
b) Section 32
c) Section 33
d) Section 34

[read more] Answer: b) Section 32 Explanation: Section 32 states that the acceptor of a bill of exchange is liable to pay the amount according to the terms of acceptance. [/read]

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Q111. A cheque with a forged drawer’s signature is:
a) Valid and enforceable
b) Void and unenforceable
c) Subject to holder’s discretion
d) Valid with court permission

[read more] Answer: b) Void and unenforceable Explanation: A cheque with a forged drawer’s signature is void ab initio as it lacks the drawer’s authorization, making it unenforceable under law. [/read]

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Q112. Which section specifies penalties for issuing a cheque without sufficient funds?
a) Section 136
b) Section 138
c) Section 140
d) Section 142

[read more] Answer: b) Section 138 Explanation: Section 138 explicitly deals with penalties for cheque dishonour due to insufficiency of funds or exceeding the arrangement. [/read]

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Q113. A holder can sue on a lost cheque if they:
a) Find the cheque
b) Provide sufficient proof of entitlement
c) Get bank permission
d) None of the above

[read more] Answer: b) Provide sufficient proof of entitlement Explanation: As per the Act, a holder of a lost cheque can sue if they prove their entitlement and present evidence of the cheque’s content. [/read]

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Q114. Under Section 139, the burden of proving the cheque was not issued for debt lies on:
a) The payee
b) The drawer
c) The bank
d) Both parties equally

[read more] Answer: b) The drawer Explanation: Section 139 creates a presumption that the cheque was issued for debt or liability, shifting the burden of proof to the drawer to rebut this presumption. [/read]

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Q115. The term “not negotiable” restricts:
a) Further endorsement
b) Payment to bearer
c) Transfer with defect in title
d) Conversion to cash

[read more] Answer: c) Transfer with defect in title Explanation: “Not negotiable” restricts the transferee from acquiring better title than the transferor, protecting against defects in the instrument’s title. [/read]

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Q116. Which section deals with the liability of an agent signing a negotiable instrument?
a) Section 25
b) Section 28
c) Section 30
d) Section 32

[read more] Answer: b) Section 28 Explanation: Section 28 specifies that an agent signing a negotiable instrument without indicating that they act as an agent will be personally liable. [/read]

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Q117. In a cheque bounce case, the appellate court’s power to review sentencing is under:
a) Section 143A
b) Section 147
c) Section 148
d) Section 150

[read more] Answer: c) Section 148 Explanation: Section 148 empowers the appellate court to direct the drawer to deposit a percentage of the cheque amount pending appeal in a cheque bounce case. [/read]

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Q118. Which section of the Act provides for summary trials for cheque bounce cases?
a) Section 141
b) Section 143
c) Section 145
d) Section 148

[read more] Answer: b) Section 143 Explanation: Section 143 allows for summary trials to ensure the expeditious disposal of cheque bounce cases under Section 138. [/read]

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Q119. The limitation period to present a cheque for payment is:
a) 2 months
b) 3 months
c) 6 months
d) No limitation

[read more] Answer: b) 3 months Explanation: Section 138 mandates that a cheque must be presented within three months from the date it is drawn for it to be valid for payment. [/read]

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Q120. The presumption of consideration under Section 118 applies to:
a) All negotiable instruments
b) Only promissory notes
c) Only cheques
d) Only bills of exchange

[read more] Answer: a) All negotiable instruments Explanation: Section 118 creates a presumption that every negotiable instrument was made or drawn for consideration unless the contrary is proved. [/read]

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Negotiable Instruments Act, 1881

MCQ (121-140)

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Q121. Under which section is a cheque defined?
a) Section 4
b) Section 5
c) Section 6
d) Section 8

[read more] Answer: c) Section 6 Explanation: Section 6 of the Negotiable Instruments Act, 1881, defines a cheque as a bill of exchange drawn on a specified banker and payable on demand. [/read]

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Q122. The dishonour of a cheque due to insufficient funds is addressed under which section?
a) Section 139
b) Section 138
c) Section 141
d) Section 142

[read more] Answer: b) Section 138 Explanation: Section 138 deals with the dishonour of cheques due to insufficient funds or if it exceeds the arrangement made with the banker. [/read]

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Q123. What is the period of limitation for filing a complaint under Section 138 after receiving a cheque bounce notice?
a) 15 days
b) 30 days
c) 45 days
d) 60 days

[read more] Answer: b) 30 days Explanation: As per Section 142(b), a complaint under Section 138 must be filed within 30 days from the date on which the cause of action arises. [/read]

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Q124. Which section of the Act provides for the presumption in favour of the holder of a cheque?
a) Section 118
b) Section 119
c) Section 139
d) Section 141

[read more] Answer: c) Section 139 Explanation: Section 139 creates a presumption that a cheque was issued for the discharge of a debt or liability unless the contrary is proved by the drawer. [/read]

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Q125. Which section provides for the protection of bankers collecting cheques?
a) Section 80
b) Section 85
c) Section 89
d) Section 131

[read more] Answer: d) Section 131 Explanation: Section 131 provides protection to bankers acting in good faith and without negligence when collecting cheques for their customers. [/read]

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Q126. When does the liability of a guarantor under a cheque arise?
a) When the principal debtor defaults
b) After notice is issued
c) After the cheque bounces
d) When the drawer refuses to pay

[read more] Answer: a) When the principal debtor defaults Explanation: As per the Supreme Court in Anita Malhotra v. Apparel Export Promotion Council, the liability of a guarantor arises only after the principal debtor defaults. [/read]

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Q127. Which section empowers the payee to recover compensation for dishonour?
a) Section 117
b) Section 138
c) Section 143A
d) Section 147

[read more] Answer: c) Section 143A Explanation: Section 143A allows the court to direct payment of interim compensation to the complainant in cases of cheque dishonour. [/read]

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Q128. The term “holder in due course” is defined under which section?
a) Section 8
b) Section 9
c) Section 11
d) Section 13

[read more] Answer: b) Section 9 Explanation: Section 9 defines a “holder in due course” as someone who has obtained the instrument for consideration and in good faith before its maturity. [/read]

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Q129. A negotiable instrument can be transferred by:
a) Delivery
b) Indorsement and delivery
c) Assignment
d) Both a and b

[read more] Answer: d) Both a and b Explanation: As per the Act, a bearer instrument is transferred by delivery, and an order instrument is transferred by indorsement and delivery. [/read]

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Q130. Which section deals with the notice of dishonour?
a) Section 91
b) Section 92
c) Section 93
d) Section 94

[read more] Answer: d) Section 94 Explanation: Section 94 specifies the requirements and methods of giving notice of dishonour to all parties liable on the instrument. [/read]

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Q131. A cheque is valid for:
a) 2 months
b) 3 months
c) 6 months
d) 12 months

[read more] Answer: b) 3 months Explanation: As per banking regulations, a cheque is valid for 3 months from the date of issuance unless otherwise stated. [/read]

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Q132. Which Supreme Court case emphasized the need for strict compliance with notice requirements under Section 138?
a) Kusum Ingots v. Pennar Peterson Securities
b) Dalmia Cement v. Galaxy Traders
c) MSR Leathers v. Palaniappan
d) Central Bank of India v. Saxena

[read more] Answer: a) Kusum Ingots v. Pennar Peterson Securities Explanation: The Supreme Court in this case highlighted that the notice issued must strictly comply with the statutory requirements of Section 138. [/read]

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Q133. Which section governs the liability of the drawer in case of dishonour?
a) Section 30
b) Section 32
c) Section 35
d) Section 38

[read more] Answer: a) Section 30 Explanation: Section 30 states that the drawer of a cheque is liable to compensate the holder in case of dishonour, provided due notice is given. [/read]

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Q134. The negotiability of an instrument ceases upon:
a) Material alteration
b) Payment in due course
c) Forgery
d) Both a and c

[read more] Answer: d) Both a and c Explanation: Material alteration or forgery destroys the negotiability of an instrument, making it unenforceable under the Act. [/read]

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Q135. Under which section can a minor act as a party to a negotiable instrument?
a) Section 22
b) Section 26
c) Section 28
d) Section 30

[read more] Answer: b) Section 26 Explanation: Section 26 permits a minor to act as a party to a negotiable instrument, but they are not personally liable. [/read]

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Q136. A cheque drawn in favour of a specific person is called:
a) Bearer cheque
b) Order cheque
c) Crossed cheque
d) Promissory cheque

[read more] Answer: b) Order cheque Explanation: An order cheque is payable to the person named in the cheque or to their order. [/read]

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Q137. The liability of an indorser ceases when:
a) The instrument is dishonoured
b) It is paid in due course
c) The holder delays presentment
d) Both b and c

[read more] Answer: d) Both b and c Explanation: The indorser’s liability ceases if the instrument is paid in due course or the holder delays presentment without a valid reason. [/read]

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Q138. A blank indorsement is:
a) Indorsement without restricting further negotiation
b) Indorsement specifying the indorsee
c) Indorsement with payment terms
d) Indorsement that cancels liability

[read more] Answer: a) Indorsement without restricting further negotiation Explanation: A blank indorsement is made by merely signing the back of the instrument, allowing further negotiation by delivery. [/read]

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Q139. The crossing of a cheque can be of the following types:
a) General and Special
b) Blank and Restrictive
c) Promissory and Conditional
d) None of the above

[read more] Answer: a) General and Special Explanation: Cheque crossing can be general, indicating payment through a bank, or special, specifying a particular bank. [/read]

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Q140. Which section governs the presentment of a cheque for payment?
a) Section 61
b) Section 63
c) Section 64
d) Section 65

[read more] Answer: c) Section 64 Explanation: Section 64 prescribes that presentment for payment must be made during the usual business hours of the banker. [/read]

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Negotiable Instruments Act, 1881

MCQ (141-160)

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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Q144. Which section describes the consequences of dishonour by non-acceptance?
a) Section 91
b) Section 92
c) Section 94
d) Section 96

[read more] 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. [/read]

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Q145. A cheque is a:
a) Promissory note
b) Bill of exchange
c) Fixed deposit
d) None of the above

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] Answer: a) It becomes void Explanation: A forged indorsement renders the negotiable instrument void, and no title passes to the holder. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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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

[read more] 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. [/read]

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Q159. Which section governs compensation in cases of dishonour?
a) Section 117
b) Section 119
c) Section 138
d) Section 101

[read more] Answer: a) Section 117 Explanation: Section 117 outlines the rules for determining compensation for parties involved in cases of dishonour of negotiable instruments. [/read]

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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

[read more] 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. [/read]

Negotiable Instruments Act, 1881

MCQ (161-180)

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Q161. Under Section 138, for a cheque to be considered dishonoured, it must be:
a) Presented within the validity period
b) Written by the payee
c) Crossed and dishonoured
d) Post-dated

[read more] Answer: a) Presented within the validity period Explanation: As per Section 138, the cheque must be presented within its validity period (three months from the date of issuance) for the dishonour provisions to apply. [/read]

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Q162. Which section deals with the liability of the acceptor of a bill of exchange?
a) Section 30
b) Section 31
c) Section 32
d) Section 33

[read more] Answer: c) Section 32 Explanation: Section 32 specifies that the acceptor of a bill of exchange is liable to pay the amount to the holder according to the tenor of their acceptance. [/read]

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Q163. What is the primary objective of Section 138 of the Negotiable Instruments Act, 1881?
a) To penalize banking institutions
b) To promote the reliability of cheques in commercial transactions
c) To restrict negotiability of instruments
d) To encourage cash transactions

[read more] Answer: b) To promote the reliability of cheques in commercial transactions Explanation: Section 138 was introduced to instill trust in the use of cheques and ensure timely payments in commercial dealings. [/read]

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Q164. Under which section can a banker refuse payment of a cheque if it exceeds the arrangement made?
a) Section 30
b) Section 31
c) Section 34
d) Section 36

[read more] Answer: b) Section 31 Explanation: Section 31 imposes a duty on bankers to honour cheques within the funds or arrangement made, failing which they may refuse payment. [/read]

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Q165. Which case clarified that the existence of a debt or liability is presumed under Section 139 unless rebutted?
a) Rangappa v. Sri Mohan
b) Laxmi Dyechem v. State of Gujarat
c) Kusum Ingots v. Pennar Peterson Securities
d) Modi Cements Ltd. v. Kuchil Kumar Nandi

[read more] Answer: a) Rangappa v. Sri Mohan Explanation: The Supreme Court in Rangappa v. Sri Mohan held that there is a statutory presumption under Section 139 regarding the existence of a debt or liability unless the accused rebuts it. [/read]

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Q166. Who is entitled to file a complaint under Section 138?
a) Any person in possession of the dishonoured cheque
b) The payee or holder in due course of the cheque
c) The banker of the payee
d) The drawer of the cheque

[read more] Answer: b) The payee or holder in due course of the cheque Explanation: Section 142 permits only the payee or holder in due course to initiate proceedings under Section 138 for dishonour of cheques. [/read]

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Q167. Which section provides protection to the paying banker acting in good faith?
a) Section 80
b) Section 85
c) Section 128
d) Section 131

[read more] Answer: b) Section 85 Explanation: Section 85 protects a paying banker who pays a cheque in due course and in good faith, provided the cheque is complete and regular on its face. [/read]

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Q168. What is the time limit for issuing a notice under Section 138 after receiving information of dishonour?
a) 7 days
b) 15 days
c) 21 days
d) 30 days

[read more] Answer: b) 15 days Explanation: Section 138 specifies that the payee must issue a notice to the drawer within 15 days of receiving information about the dishonour. [/read]

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Q169. Which section states that acceptance of a bill of exchange must be in writing?
a) Section 7
b) Section 8
c) Section 9
d) Section 10

[read more] Answer: d) Section 10 Explanation: Section 10 states that acceptance of a bill of exchange must be written on the bill itself or on a separate paper but signed by the drawee. [/read]

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Q170. Under Section 142A, a cheque issued in discharge of what kind of liability is covered under Section 138?
a) Only civil liability
b) Criminal liability
c) Legally enforceable debt or liability
d) All kinds of liabilities

[read more] Answer: c) Legally enforceable debt or liability Explanation: Section 142A clarifies that the cheque must be issued in discharge of a legally enforceable debt or liability for Section 138 to apply. [/read]

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Q171. What is the punishment for an offence under Section 138?
a) Fine or imprisonment up to 1 year
b) Imprisonment up to 2 years or fine, or both
c) Only fine up to twice the cheque amount
d) Imprisonment up to 6 months

[read more] Answer: b) Imprisonment up to 2 years or fine, or both Explanation: The punishment under Section 138 includes imprisonment up to 2 years, a fine up to twice the cheque amount, or both. [/read]

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Q172. Which case dealt with post-dated cheques under Section 138?
a) MSR Leathers v. Palaniappan
b) Modi Cements Ltd. v. Kuchil Kumar Nandi
c) Rangappa v. Sri Mohan
d) Dalmia Cement v. Galaxy Traders

[read more] Answer: a) MSR Leathers v. Palaniappan Explanation: The Supreme Court in MSR Leathers v. Palaniappan held that even post-dated cheques can attract liability under Section 138 if dishonoured. [/read]

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Q173. Under Section 87, a negotiable instrument becomes void if:
a) It is dishonoured by non-acceptance
b) It is materially altered without the consent of all parties
c) It is endorsed to a minor
d) It is presented after its validity period

[read more] Answer: b) It is materially altered without the consent of all parties Explanation: Section 87 states that a negotiable instrument becomes void if materially altered without the consent of all parties liable on it. [/read]

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Q174. Who can be prosecuted under Section 138 for dishonour of cheque issued by a company?
a) Only the company
b) The company and every officer in charge
c) Only the managing director
d) Only the employee who signed the cheque

[read more] Answer: b) The company and every officer in charge Explanation: Section 141 provides for the liability of the company and all officers in charge of its conduct when a cheque is dishonoured. [/read]

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Q175. Under which section is the term “payment in due course” defined?
a) Section 10
b) Section 13
c) Section 15
d) Section 20

[read more] Answer: a) Section 10 Explanation: Section 10 defines “payment in due course” as payment made in good faith, without negligence, and according to the apparent tenor of the instrument. [/read]

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Q176. What does Section 8 of the Negotiable Instruments Act, 1881 describe?
a) Definition of a "negotiable instrument"
b) Rules regarding dishonour of a cheque
c) The rights of the holder in due course
d) Rules for payment of the negotiable instrument

[read more] Answer: a) Definition of a "negotiable instrument" Explanation: Section 8 defines "negotiable instrument," including promissory notes, bills of exchange, and cheques, as instruments that are transferable and can be legally enforced. [/read]

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Q177. A negotiable instrument can be transferred by:
a) Endorsement and delivery
b) Only endorsement
c) Only delivery
d) Only to a holder in due course

[read more] Answer: a) Endorsement and delivery Explanation: A negotiable instrument can be transferred either by endorsement (signing the back of the instrument) or delivery to another party. [/read]

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Q178. Under Section 135, which of the following is a valid reason for dishonour of a cheque?
a) Lack of signature on the cheque
b) Insufficient funds in the drawer's account
c) A post-dated cheque
d) A cheque issued in favour of a minor

[read more] Answer: b) Insufficient funds in the drawer's account Explanation: Section 135 allows dishonour of a cheque if there are insufficient funds in the drawer's account, which is one of the most common reasons for dishonour. [/read]

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Q179. Which of the following is NOT considered a "bill of exchange" under the Negotiable Instruments Act?
a) A written order to pay a fixed sum of money
b) A promissory note
c) A cheque issued by a bank
d) A written order from one person to another to pay a third person

[read more] Answer: b) A promissory note Explanation: A promissory note is distinct from a bill of exchange. A bill of exchange is an order for payment, while a promissory note is a promise to pay. [/read]

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Q180. In which case did the Supreme Court clarify that the drawer must have knowledge of the dishonour of the cheque?
a) Rangappa v. Sri Mohan
b) MSR Leathers v. Palaniappan
c) Suman Sethi v. NCT of Delhi
d) Dalmia Cement Ltd. v. Galaxy Traders

[read more] Answer: c) Suman Sethi v. NCT of Delhi Explanation: In Suman Sethi v. NCT of Delhi, the Supreme Court emphasized that the drawer must have knowledge of the dishonour for the liability to be enforced under Section 138. [/read]

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Negotiable Instruments Act, 1881

MCQ (181-200)

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Q181. Under Section 138, who bears the burden of proving the absence of a legally enforceable debt or liability?
a) The complainant
b) The accused
c) The banker
d) The drawee

[read more] Answer: b) The accused Explanation: Section 139 presumes the existence of a legally enforceable debt or liability, and the burden to rebut this presumption lies on the accused. [/read]

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Q182. Which section allows a payee to recover interest in the event of a dishonour of a negotiable instrument?
a) Section 78
b) Section 79
c) Section 80
d) Section 82

[read more] Answer: c) Section 80 Explanation: Section 80 provides for interest at the rate of 18% per annum to be payable in case of dishonour unless otherwise agreed upon. [/read]

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Q183. A cheque marked as “Account Payee” can be:
a) Cashed over the counter
b) Endorsed further
c) Paid only to the payee’s account
d) Converted into a bearer cheque

[read more] Answer: c) Paid only to the payee’s account Explanation: Cheques crossed as "Account Payee" are restricted for payment only into the payee's bank account and cannot be encashed directly or endorsed further. [/read]

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Q184. Which section of the Negotiable Instruments Act mandates the issuance of a statutory notice for cheque dishonour?
a) Section 137
b) Section 138
c) Section 139
d) Section 142

[read more] Answer: b) Section 138 Explanation: Section 138 requires the payee to send a statutory notice to the drawer within 15 days of cheque dishonour, demanding payment. [/read]

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Q185. Which Supreme Court case clarified that the prosecution under Section 138 is maintainable even if the cheque is dishonoured for reasons other than insufficient funds?
a) Modi Cements Ltd. v. Kuchil Kumar Nandi
b) Rangappa v. Sri Mohan
c) Laxmi Dyechem v. State of Gujarat
d) Kusum Ingots v. Pennar Peterson Securities

[read more] Answer: c) Laxmi Dyechem v. State of Gujarat Explanation: In Laxmi Dyechem v. State of Gujarat, the Supreme Court held that prosecution under Section 138 applies even if the cheque is dishonoured due to "stop payment" or other instructions, provided the liability is established. [/read]

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Q186. Under Section 118, which of the following presumptions is valid?
a) Consideration was given for the instrument
b) The instrument was issued post-dated
c) The instrument was issued with conditions
d) The drawee accepted the cheque without liability

[read more] Answer: a) Consideration was given for the instrument Explanation: Section 118 presumes that every negotiable instrument was made, drawn, accepted, or endorsed for consideration unless proved otherwise. [/read]

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Q187. Under Section 139, what is presumed unless the contrary is proved?
a) The cheque was issued for a lawful purpose
b) The cheque was not signed by the drawer
c) There was a lack of sufficient funds
d) The payee forged the instrument

[read more] Answer: a) The cheque was issued for a lawful purpose Explanation: Section 139 presumes that a cheque issued is for the discharge of a legally enforceable debt or liability unless the drawer proves otherwise. [/read]

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Q188. Which of the following is NOT a negotiable instrument under the Act?
a) Promissory note
b) Cheque
c) Bill of exchange
d) Fixed deposit receipt

[read more] Answer: d) Fixed deposit receipt Explanation: Fixed deposit receipts are not negotiable instruments as they are non-transferable and meant for a specific term. [/read]

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Q189. What does Section 138 aim to curb?
a) Fraudulent bank transactions
b) Failure to pay legally enforceable debts via cheque
c) Unregulated issuance of promissory notes
d) Negotiability of instruments

[read more] Answer: b) Failure to pay legally enforceable debts via cheque Explanation: Section 138 is intended to penalize the failure to honour cheques issued for discharging debts or liabilities, thereby ensuring accountability. [/read]

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Q190. What is the limitation period for filing a complaint under Section 142?
a) 15 days from receipt of notice
b) 30 days from the expiry of notice period
c) 60 days from the dishonour of cheque
d) 90 days from issuance of cheque

[read more] Answer: b) 30 days from the expiry of notice period Explanation: Section 142 mandates that a complaint must be filed within 30 days after the expiry of the 15-day notice period given under Section 138. [/read]

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Q191. Which section provides that a holder in due course gets a better title than the transferor?
a) Section 8
b) Section 9
c) Section 10
d) Section 11

[read more] Answer: b) Section 9 Explanation: Section 9 defines a holder in due course and states that they get a better title than the transferor, ensuring protection to bona fide holders. [/read]

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Q192. Can a cheque dishonoured due to an incomplete signature of the drawer attract liability under Section 138?
a) Yes
b) No
c) Only if proven fraudulent
d) Depends on court’s discretion

[read more] Answer: b) No Explanation: Dishonour due to an incomplete signature does not attract Section 138 as it is not related to insufficient funds or enforceable liability. [/read]

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Q193. What is the effect of material alteration on a negotiable instrument?
a) It becomes void
b) It remains valid
c) The payee is liable
d) The drawee can enforce it

[read more] Answer: a) It becomes void Explanation: As per Section 87, material alteration without the consent of all parties renders the instrument void. [/read]

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Q194. Who is protected under Section 131 when a cheque is dishonoured due to insufficient funds?
a) The drawer
b) The collecting banker
c) The payee
d) The indorser

[read more] Answer: b) The collecting banker Explanation: Section 131 provides immunity to the collecting banker acting in good faith and without negligence. [/read]

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Q195. What is required for an indorsement to be valid?
a) It must be written on a separate paper
b) It must be written on the instrument itself
c) It must be done by the drawee
d) It must include the drawee’s signature

[read more] Answer: b) It must be written on the instrument itself Explanation: An indorsement is valid only when it is written on the instrument or a part of it, as per the Act. [/read]

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Q196. Under which section is a cheque defined?
a) Section 4
b) Section 5
c) Section 6
d) Section 7

[read more] Answer: c) Section 6 Explanation: Section 6 of the Act defines a cheque as a bill of exchange drawn on a specified banker and payable on demand. [/read]

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Q197. Which section defines a promissory note?
a) Section 3
b) Section 4
c) Section 5
d) Section 6

[read more] Answer: b) Section 4 Explanation: Section 4 defines a promissory note as an unconditional written promise to pay a certain sum of money to a specified person or order. [/read]

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Q198. Who is liable if a cheque is dishonoured due to a forged signature?
a) The drawer
b) The drawee bank
c) The payee
d) None of the above

[read more] Answer: b) The drawee bank Explanation: The drawee bank is liable for paying against a forged signature, as they are expected to verify the authenticity of the drawer's signature. [/read]

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Q199. Which case established that a cheque issued as a gift does not attract liability under Section 138?
a) Laxmi Dyechem v. State of Gujarat
b) Modi Cements Ltd. v. Kuchil Kumar Nandi
c) Vijayan v. Baby
d) Kusum Ingots v. Pennar Peterson Securities

[read more] Answer: c) Vijayan v. Baby Explanation: In Vijayan v. Baby, the Court held that cheques issued as gifts or without enforceable liability are not covered under Section 138. [/read]

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Q200. Under which section does the term “dishonour” due to insufficiency of funds fall?
a) Section 138
b) Section 139
c) Section 140
d) Section 141

[read more] Answer: a) Section 138 Explanation: Section 138 specifically deals with the dishonour of cheques due to insufficiency of funds in the account. [/read]

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Here are the next set of MCQs starting from question 201:

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Negotiable Instruments Act, 1881

MCQ (201-220)

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Q201. Under Section 4, a negotiable instrument must be:
a) Signed by the payee
b) Payable to a specific person
c) Payable either to bearer or order
d) Payable only in the future

[read more] Answer: c) Payable either to bearer or order Explanation: Section 4 defines a negotiable instrument, emphasizing that it must be payable to either bearer or order, making it transferable by delivery or endorsement. [/read]

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Q202. In which case did the Supreme Court hold that the drawer's signature must match the signature on the cheque for liability to arise?
a) M. S. Narayana Menon v. State of Kerala
b) K.K. Verma v. Union of India
c) State of Maharashtra v. Prakash M.
d) Modi Cements Ltd. v. Kuchil Kumar Nandi

[read more] Answer: a) M. S. Narayana Menon v. State of Kerala Explanation: In M. S. Narayana Menon v. State of Kerala, the Court held that for the drawer’s liability to arise, the signature on the cheque must match the one recorded in the bank's records. [/read]

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Q203. What is the penalty for dishonour of a cheque under Section 138?
a) Imprisonment up to 3 months
b) Imprisonment up to 1 year
c) Fine up to twice the cheque amount
d) Imprisonment up to 2 years or fine up to twice the cheque amount

[read more] Answer: d) Imprisonment up to 2 years or fine up to twice the cheque amount Explanation: Section 138 prescribes punishment for dishonour of a cheque, which may include imprisonment up to 2 years or a fine which may extend to twice the cheque amount. [/read]

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Q204. According to Section 15, a "bill of exchange" must be:
a) Signed by the drawer
b) Issued in writing
c) Payable at a specified future date
d) Payable on demand

[read more] Answer: b) Issued in writing Explanation: Section 15 requires that a bill of exchange must be written and must include an unconditional order to pay a specified sum to a third party. [/read]

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Q205. What is the status of a "crossed cheque"?
a) It can be encashed by any person
b) It can be transferred by endorsement
c) It can only be deposited into the payee's account
d) It can be cashed at any branch of the bank

[read more] Answer: c) It can only be deposited into the payee's account Explanation: A crossed cheque is restricted to being deposited into the payee's account and cannot be encashed directly over the counter. [/read]

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Q206. Which section provides for the rights of a holder in due course?
a) Section 8
b) Section 9
c) Section 10
d) Section 11

[read more] Answer: b) Section 9 Explanation: Section 9 establishes the rights of a holder in due course, ensuring that they acquire a better title than the transferor. [/read]

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Q207. A cheque drawn by a minor is:
a) Valid but voidable
b) Void ab initio
c) Valid if countersigned by a guardian
d) Enforceable under the Contract Act

[read more] Answer: b) Void ab initio Explanation: A cheque drawn by a minor is considered void ab initio (invalid from the outset) since minors cannot legally contract under the Indian Contract Act. [/read]

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Q208. Which section governs the conditions for dishonour of a cheque due to insufficient funds?
a) Section 138
b) Section 139
c) Section 140
d) Section 141

[read more] Answer: a) Section 138 Explanation: Section 138 specifically deals with dishonour of cheques due to insufficient funds in the drawer’s account, provided the cheque was issued in discharge of a liability. [/read]

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Q209. Which of the following is a defense under Section 139?
a) The cheque was issued as a gift
b) The cheque was post-dated
c) The drawer did not have an account at the bank
d) The instrument was not executed with proper authority

[read more] Answer: a) The cheque was issued as a gift Explanation: The drawer may argue that the cheque was issued as a gift, in which case no legal liability would arise under Section 139. [/read]

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Q210. Under Section 118, in the absence of any contrary evidence, which of the following is presumed?
a) The instrument is not payable on demand
b) The instrument was executed for an unlawful purpose
c) The instrument was issued for consideration
d) The instrument is fraudulent

[read more] Answer: c) The instrument was issued for consideration Explanation: Section 118 provides that in the absence of contrary evidence, it is presumed that a negotiable instrument was executed for consideration. [/read]

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Q211. If a cheque is dishonoured, the drawer must be notified by:
a) The payee’s lawyer
b) The bank issuing the cheque
c) The bank receiving the cheque
d) The payee within 30 days

[read more] Answer: d) The payee within 30 days Explanation: Under Section 138, the payee must send a notice of dishonour to the drawer within 30 days of receiving information about the dishonour. [/read]

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Q212. The drawer's liability in case of dishonour of cheque due to "stop payment" orders was discussed in which case?
a) Laxmi Dyechem v. State of Gujarat
b) Rangappa v. Sri Mohan
c) Kusum Ingots v. Pennar Peterson
d) MSR Leathers v. Palaniappan

[read more] Answer: a) Laxmi Dyechem v. State of Gujarat Explanation: In Laxmi Dyechem v. State of Gujarat, the Supreme Court held that a "stop payment" order is not a valid defense against the dishonour of a cheque, as it does not absolve the drawer from liability under Section 138. [/read]

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Q213. According to Section 13, a bill of exchange must be:
a) Payable to order or bearer
b) Payable at a specified future time
c) Signed by the payee
d) Payable only in cash

[read more] Answer: a) Payable to order or bearer Explanation: Section 13 specifies that a bill of exchange must be payable to the order of the person named or to bearer, making it transferable. [/read]

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Q214. Under Section 131, who is exempt from liability for payment of a dishonoured cheque?
a) The drawer
b) The drawee bank
c) The indorser
d) The payee

[read more] Answer: b) The drawee bank Explanation: Section 131 provides that a drawee bank is not liable for dishonour of a cheque if it acts in good faith and without negligence, even if the cheque is dishonoured. [/read]

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Q215. The liability of a person who signs a cheque as an indorser is primarily:
a) To the payee
b) To the drawee
c) To the drawer
d) To the holder in due course

[read more] Answer: a) To the payee Explanation: The indorser of a negotiable instrument is primarily liable to the payee, ensuring payment of the instrument if the drawer defaults. [/read]

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Q216. What is the maximum imprisonment for dishonour of a cheque under Section 138?
a) 1 year
b) 2 years
c) 5 years
d) 6 months

[read more] Answer: b) 2 years Explanation: Section 138 provides for imprisonment up to 2 years or a fine extending to twice the amount of the cheque, or both. [/read]

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Q217. In the case of dishonour, the drawer is entitled to:
a) A refund from the payee
b) A notice of dishonour
c) An acknowledgment of liability from the payee
d) A chance to defend the case

[read more] Answer: b) A notice of dishonour Explanation: The drawer is entitled to receive a notice of dishonour, which is a necessary step before initiating legal proceedings under Section 138. [/read]

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Q218. Which of the following is true regarding a "promissory note"?
a) It is an order to pay
b) It can be transferred by endorsement
c) It is payable on demand or at a future date
d) It cannot be made payable to a specific person

[read more] Answer: c) It is payable on demand or at a future date Explanation: A promissory note is a written promise to pay a sum of money either on demand or at a future date, and it must be unconditional. [/read]

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Q219. Which section specifically deals with the case of a dishonoured cheque being presented by a company or partnership firm?
a) Section 138
b) Section 139
c) Section 141
d) Section 142

[read more] Answer: c) Section 141 Explanation: Section 141 deals with the liability of companies, firms, and their representatives for dishonoured cheques under Section 138, particularly their directors or partners. [/read]

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Q220. In which case did the Supreme Court clarify the scope of the term "holder in due course" under the Negotiable Instruments Act?
a) Modi Cements Ltd. v. Kuchil Kumar Nandi
b) M.S. Narayana Menon v. State of Kerala
c) Kusum Ingots v. Pennar Peterson Securities
d) Rangappa v. Sri Mohan

[read more] Answer: d) Rangappa v. Sri Mohan Explanation: In Rangappa v. Sri Mohan, the Supreme Court clarified the presumption regarding the holder in due course, stating that once a person becomes a holder in due course, the validity of the instrument is presumed. [/read]

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