Negotiable Instruments Act, 1881: types, negotiation, dishonour, discharge - Question Bank

1. Which of the following is a requirement for an instrument to be a valid Promissory Note?
A) It must be signed by the payee.
B) It must be made payable to a specific person only.
C) It must contain an unconditional undertaking to pay a certain sum of money.
D) It must be stamped.
2. What is the effect of an unqualified endorsement?
A) It makes the endorser liable.
B) It does not make the endorser liable.
C) It makes the instrument non-negotiable.
D) It discharges the instrument.
3. The concept of 'Holder' in the Negotiable Instruments Act, 1881 refers to:
A) Any person who possesses the instrument.
B) A person entitled in his own name to the possession of the instrument and to receive or recover the amount due thereon.
C) The person to whom the instrument is originally made payable.
D) The person who presents the instrument for payment.
4. A 'Drawer' in a bill of exchange is liable:
A) Primarily, if the drawee fails to accept or pay.
B) Secondarily, if the drawee fails to accept or pay.
C) Only if the bill is protested.
D) Never liable.
5. When a negotiable instrument is paid by the principal debtor in due course, it is:
A) Negotiated
B) Dishonoured
C) Discharged
D) Protested
6. Which of the following is a mode of discharging liability on a negotiable instrument?
A) Endorsement
B) Negotiation
C) Payment
D) Presentation
7. The time allowed for giving notice of dishonour is:
A) 24 hours
B) 30 days
C) A reasonable time
D) 15 days
8. Notice of dishonour must be given within a reasonable time after dishonour, and must be given to:
A) The bank where the account is held.
B) The drawer and endorsers who may be liable.
C) The payee only.
D) The acceptor of the bill.
9. Which section of the Negotiable Instruments Act, 1881 defines 'Cheque'?
A) Section 4
B) Section 5
C) Section 6
D) Section 7
10. Which section of the Negotiable Instruments Act, 1881 defines 'Bill of Exchange'?
A) Section 4
B) Section 5
C) Section 6
D) Section 7
11. Which section of the Negotiable Instruments Act, 1881 defines 'Promissory Note'?
A) Section 4
B) Section 5
C) Section 6
D) Section 7
12. What does 'Payable on Demand' mean for a negotiable instrument?
A) It is payable at a future specified date.
B) It is payable immediately upon presentation.
C) It is payable after a grace period.
D) It is payable only after notice.
13. A 'Restrictive Endorsement' makes the instrument:
A) Negotiable as usual.
B) Non-negotiable.
C) Payable only to the endorsee.
D) Payable to bearer.
14. Crossing a cheque is a protection against:
A) Dishonour
B) Forgery
C) Theft or loss of the cheque
D) Non-payment
15. Which of the following is an example of a 'crossed cheque'?
A) A cheque with 'Pay Cash' written on it.
B) A cheque with two parallel transverse lines drawn across its face.
C) A cheque marked 'Not Negotiable'.
D) A bearer cheque.
16. Who is primarily liable on a cheque?
A) The drawer
B) The payee
C) The bank
D) The endorser
17. The liability of the maker of a promissory note is:
A) Secondary and conditional.
B) Primary and absolute.
C) Conditional only.
D) Non-existent.
18. The liability of the acceptor of a bill of exchange is:
A) Secondary and conditional.
B) Primary and absolute.
C) Conditional and not primary.
D) Non-existent.
19. The liability of the drawer of a bill of exchange is:
A) Primary and absolute.
B) Secondary and conditional.
C) Non-existent.
D) Absolute but not primary.
20. Release of the principal debtor by the holder discharges:
A) Only the principal debtor.
B) The principal debtor and all endorsers.
C) All parties to the instrument.
D) Only the endorsers.
21. When is a negotiable instrument discharged by cancellation?
A) When the holder intentionally cancels the signature of any party liable.
B) When the instrument is destroyed.
C) When the holder loses the instrument.
D) When the instrument is not paid on the due date.
22. A negotiable instrument is discharged by:
A) Payment by the maker, acceptor, or drawee in due course.
B) Cancellation of the instrument by the holder.
C) Release of the instrument by the holder.
D) All of the above.
23. Discharge of a negotiable instrument means:
A) The instrument has been transferred to a new holder.
B) The liability of all parties on the instrument ceases.
C) The instrument has been lost.
D) The instrument has been presented for payment.
24. Protest is generally required for dishonour of:
A) Cheques
B) Promissory Notes
C) Bills of Exchange (foreign and inland, if required)
D) All negotiable instruments
25. What is 'Protest' in the context of dishonour of a negotiable instrument?
A) A formal notice given by the holder to the drawer.
B) A formal declaration by a notary public that the instrument has been dishonoured.
C) A legal action taken by the holder.
D) A request for re-payment.
26. For dishonour of a negotiable instrument, the holder must give notice of dishonour to:
A) The drawee only.
B) The drawer and endorsers who are liable.
C) The acceptor only.
D) The bank only.
27. What is the consequence of dishonour by non-payment of a bill of exchange or cheque?
A) The holder can sue the drawer and endorsers.
B) The instrument is automatically cancelled.
C) The drawee is discharged from liability.
D) The holder loses all rights to the amount.
28. What is the consequence of dishonour by non-acceptance of a bill of exchange?
A) The bill is immediately due for payment.
B) The bill is cancelled.
C) The drawer needs to re-issue the bill.
D) The drawee is discharged from liability.
29. Dishonour of a cheque can occur by:
A) Non-acceptance
B) Non-payment
C) Non-delivery
D) Non-endorsement
30. Dishonour of a bill of exchange can occur by:
A) Non-acceptance
B) Non-payment
C) Both non-acceptance and non-payment
D) Only by non-payment
31. Dishonour of a negotiable instrument means:
A) The instrument has been paid on the due date.
B) The instrument has been accepted by the drawee.
C) The instrument has not been paid or accepted as per its terms.
D) The instrument has been lost.
32. A 'Holder in Due Course' has the right to receive payment:
A) Subject to all the equities to which the maker was subject.
B) Free from all equities to which the maker was subject.
C) Only if the original payee agrees.
D) Only after legal proceedings.
33. A 'Holder in Due Course' is a person who acquires a negotiable instrument:
A) For good consideration, before the amount is due, and without notice of any defect.
B) After the amount is due.
C) Without any consideration.
D) With full knowledge of defects.
34. Endorsement in full requires:
A) Only the signature of the endorser.
B) The signature of the endorser and the name of the endorsee.
C) A specific statement of transfer.
D) The signature of the payee.
35. When a negotiable instrument is endorsed in blank, it becomes payable to:
A) The specific endorsee named.
B) The holder of the instrument.
C) The drawer of the instrument.
D) The acceptor of the instrument.
36. Negotiation of a promissory note or bill of exchange can be done by:
A) Delivery only, if it is payable to bearer.
B) Endorsement and delivery, if it is payable to order.
C) Either delivery or endorsement and delivery.
D) All of the above.
37. The act of transferring a negotiable instrument from one person to another is called:
A) Dishonour
B) Acceptance
C) Negotiation
D) Discharge
38. What is the primary difference between a Bill of Exchange and a Cheque?
A) A Bill of Exchange requires acceptance, while a Cheque does not.
B) A Bill of Exchange is always payable on demand, while a Cheque is not.
C) A Bill of Exchange is drawn on a banker, while a Cheque can be drawn on anyone.
D) A Cheque is a type of Bill of Exchange, but a Bill of Exchange is not necessarily a Cheque.
39. A cheque is a bill of exchange drawn on:
A) Any person
B) The government
C) A banker and payable on demand
D) A company
40. A 'Cheque' is a specific type of:
A) Promissory Note
B) Bill of Exchange
C) IOU
D) Bond
41. When the Drawee of a Bill of Exchange signs it in token of assent to the order of the Drawer, he is called the:
A) Maker
B) Payee
C) Drawer
D) Acceptor
42. In a Bill of Exchange, who is the person directed to pay?
A) Drawer
B) Payee
C) Drawee
D) Endorsee
43. In a Bill of Exchange, who is the person who makes the order to pay?
A) Drawee
B) Payee
C) Drawer
D) Acceptor
44. A 'Bill of Exchange' is a written order made by:
A) One party to another to pay a specified sum of money to a third party.
B) The payee to the maker to pay.
C) The holder to the bank to stop payment.
D) The debtor to the creditor for goods.
45. In a Promissory Note, who is the person who makes the promise to pay?
A) Payee
B) Holder in Due Course
C) Maker
D) Drawee
46. A 'Promissory Note' is a written promise made by:
A) One party to another to pay a specified sum of money.
B) One party to another to deliver goods.
C) The payee to the maker to accept a bill.
D) The bank to the customer for withdrawal.
47. Which of the following is NOT a type of negotiable instrument recognized under the Act?
A) Promissory Note
B) Bill of Exchange
C) Cheque
D) Share Certificate
48. What is the primary characteristic of a negotiable instrument?
A) It must be registered with a government authority.
B) It is transferable by endorsement or delivery, conferring a good title to the holder.
C) It requires a witness for its validity.
D) It is only valid for a period of one year.
49. Which Act governs negotiable instruments in India?
A) Indian Contract Act, 1872
B) Sale of Goods Act, 1930
C) Negotiable Instruments Act, 1881
D) Companies Act, 2013
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