Here are the next set of MCQs starting from question 201:
Negotiable Instruments Act, 1881
MCQ (201-220)
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
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
Show Answer
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.
 on the Negotiable Instruments Act, 1881. Perfect for law students and competitive exams like judiciary, UPSC, and CLAT. Boost your legal knowledge now!){kind=link}