Negotiable Instruments Act, 1881
MCQ (41-60)
Q41. Which section of the Negotiable Instruments Act, 1881, defines a “cheque”?
a) Section 6
b) Section 4
c) Section 5
d) Section 7
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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.
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
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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.
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
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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.
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
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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.
Q45. Under which section is the concept of “inchoate instrument” explained?
a) Section 20
b) Section 15
c) Section 12
d) Section 25
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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.
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
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Answer: c) Fixed deposit receipt
Explanation: Fixed deposit receipts are not negotiable instruments because they are not transferable or payable to order or bearer.
Q47. Under which section can a cheque dishonour case be tried summarily?
a) Section 138
b) Section 143
c) Section 145
d) Section 146
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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.
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
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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.
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
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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.
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
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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.
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
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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.
Q52. Which section governs the liability of the drawer of a cheque?
a) Section 30
b) Section 32
c) Section 36
d) Section 40
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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.
Q53. Under which section is the procedure for service of notice described?
a) Section 138
b) Section 141
c) Section 144
d) Section 145
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Answer: c) Section 144
Explanation: Section 144 lays down the methods and requirements for serving notices under the Act.
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
Show Answer
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.
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
Show Answer
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.
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
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Answer: b) Section 141
Explanation: Section 141 extends liability to individuals such as directors, partners, and guarantors associated with the offence under Section 138.
Q57. Which section describes the effect of a material alteration?
a) Section 85
b) Section 87
c) Section 92
d) Section 95
Show Answer
Answer: b) Section 87
Explanation: Section 87 states that a material alteration without the consent of all parties renders the instrument void.
Q58. Which type of cheque cannot be negotiated?
a) Open cheque
b) Bearer cheque
c) Crossed cheque
d) Not negotiable cheque
Show Answer
Answer: d) Not negotiable cheque
Explanation: Section 130 states that a “not negotiable” cheque cannot transfer a better title than the transferor.
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
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Answer: b) Criminal in nature
Explanation: Section 138 creates a criminal offence for dishonour of cheques, though it arises out of a civil liability.
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
Show Answer
Answer:
c) Both civil and criminal liabilityExplanation: 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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