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The Negotiable Instrument, 1881 MCQs SET-1
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1. The Negotiable Instruments Act is primarily enacted to:
a. Regulate banking companies
b. Define and amend the law relating to promissory notes, bills of exchange and cheques
c. Control currency circulation
d. Regulate insurance contracts
2. The Negotiable Instruments Act is officially known as:
a. Act No. 24 of 1881
b. Act No. 25 of 1881
c. Act No. 26 of 1881
d. Act No. 27 of 1881
3. The Negotiable Instruments Act received assent on:
a. 1 March 1882
b. 9 December 1881
c. 26 January 1881
d. 15 August 1882
4. The object of the Negotiable Instruments Act is to define and amend the law relating to:
a. Contracts and agency
b. Promissory notes, bills of exchange and cheques
c. Banking regulation
d. Currency notes only
5. Section 1 of the Negotiable Instruments Act deals with:
a. Definitions
b. Short title, extent, saving of usages relating to hundis and commencement
c. Repeal of enactments
d. Promissory notes
6. The short title of the Act is:
a. Negotiable Instruments Act, 1881
b. Banking Instruments Act, 1881
c. Commercial Instruments Act, 1881
d. Financial Instruments Act, 1881
7. The Negotiable Instruments Act extends to:
a. Only metropolitan cities
b. Only banking institutions
c. Whole of India
d. Only notified states
8. The provisions of this Act do not affect which of the following Acts?
a. Companies Act, 1956
b. Indian Paper Currency Act, 1871
c. Banking Regulation Act, 1949
d. Indian Contract Act, 1872
9. Section 21 of which Act is specifically saved under the Negotiable Instruments Act?
a. Companies Act, 1956
b. Indian Contract Act, 1872
c. Indian Paper Currency Act, 1871
d. Reserve Bank of India Act, 1934
10. The Act does not affect any local usage relating to instruments written in:
a. Oriental language
b. English language
c. Latin language
d. Official language
11. Local usages relating to instruments may be excluded if:
a. The instrument is registered
b. The government notifies it
c. The instrument is notarized
d. The instrument contains words indicating intention to be governed by this Act
12. The Negotiable Instruments Act came into force on:
a. 9 December 1881
b. 26 January 1882
c. 1 January 1882
d. 1 March 1882
13. Section 2 of the Negotiable Instruments Act deals with:
a. Definitions
b. Repeal of enactments
c. Jurisdiction
d. Liability
14. Section 2 of the Negotiable Instruments Act has been:
a. Amended
b. Replaced
c. Repealed
d. Modified
15. Section 2 was repealed by:
a. Negotiable Instruments Amendment Act, 1882
b. Repealing and Amending Act, 1891, sec. 2 and schedule -1
c. Banking Regulation Act, 1949
d. Companies Act, 1913
16. Section 3 of the Negotiable Instruments Act deals with:
a. Interpretation Clause
b. Liability of parties
c. Dishonour of cheque
d. Endorsement
17. The interpretation clause of the Act is provided under:
a. Section 1
b. Section 2
c. Section 3
d. Section 4
18. According to Section 3, the term “banker” includes:
a. Only scheduled banks
b. Any person acting as a banker
c. Only nationalized banks
d. Only cooperative banks
19. Under Section 3, the term “banker” also includes:
a. Insurance companies
b. Cooperative societies
c. Post Office Savings Bank
d. Reserve Bank of India only
20. Section 4 of the Negotiable Instruments Act deals with:
a. Promissory Note
b. Bill of Exchange
c. Cheque
d. Holder
21. A promissory note must be:
a. Oral
b. Written
c. Implied
d. Verbal
22. A promissory note must contain:
a. Conditional undertaking to pay
b. Promise dependent on an event
c. Mere acknowledgment of debt
d. Unconditional undertaking to pay
23. A promissory note must be signed by:
a. The payee
b. The holder
c. The maker
d. The drawee
24. A promissory note must contain an undertaking to pay:
a. Goods
b. Services
c. Money only
d. Money or goods
25. The amount payable in a promissory note must be:
a. Uncertain
b. Certain
c. Determined later
d. At the discretion of the maker
26. A promissory note may be payable to:
a. A certain person
b. Order of a certain person
c. Bearer of the instrument
d. All of the above
27. Which of the following instruments cannot be treated as a promissory note?
a. Bank-note
b. Currency-note
c. Both A and B
d. Demand draft
28. Section 5 of the Negotiable Instruments Act deals with:
a. Promissory Note
b. Bill of Exchange
c. Cheque
d. Holder
29. A bill of exchange must be:
a. Written
b. Oral
c. Implied
d. Verbal
30. A bill of exchange contains:
a. Conditional promise
b. Conditional order
c. Unconditional order
d. Mere acknowledgement
31. A bill of exchange must be signed by:
a. The payee
b. The holder
c. The maker (drawer)
d. The drawee
32. A bill of exchange directs:
a. The maker to pay
b. A certain person to pay
c. The government to pay
d. A bank only to pay
33. A bill of exchange must direct payment of:
a. Goods
b. Services
c. Money only
d. Money or goods
34. A bill of exchange may be payable to:
a. A certain person
b. The order of a certain person
c. The bearer of the instrument
d. All of the above
35. A promise or order to pay is not conditional merely because payment is expressed to be made after:
a. Demand by the payee
b. A specified event certain to happen though the time is uncertain
c. Approval of the bank
d. Consent of the drawer
36. The sum payable in a bill of exchange is considered certain even if it includes:
a. Future interest
b. Payment at indicated rate of exchange
c. Balance becoming due on default of instalment
d. All of the above
37. Section 6 of the Negotiable Instruments Act deals with:
a. Promissory Note
b. Bill of Exchange
c. Cheque
d. Holder
38. A cheque is:
a. A promissory note drawn on a bank
b. A bill of exchange drawn on a specified banker
c. A government instrument
d. A demand draft
39. A cheque must be payable:
a. On demands only
b. After Three months
c. After acceptance
d. After endorsement
40. A cheque must be drawn on:
a. Any person
b. A specified banker
c. A government authority
d. A company
41. A cheque includes:
a. Electronic image of a truncated cheque
b. Cheque in electronic form
c. Both A and B
d. Demand draft
42. A “cheque in electronic form” means a cheque:
a. Written by hand
b. Printed by bank
c. Drawn electronically using a computer resource and signed with digital/electronic signature
d. Sent through email without authentication
43. A “truncated cheque” means a cheque:
a. Torn cheque
b. Cancelled cheque
c. Converted into electronic image during clearing cycle
d. Returned cheque
44. Truncation of cheque occurs during:
a. Issue of cheque
b. Clearing cycle
c. Endorsement
d. Payment by drawer
45. The clearing house for the purpose of cheque clearing means a clearing house:
a. Managed or recognised by the Reserve Bank of India
b. Managed by commercial banks only
c. Managed by the Central Government
d. Managed by private banks
46. The expressions “asymmetric crypto system”, “computer resource”, “digital signature”, “electronic form”, and “electronic signature” have the meanings assigned in:
a. Banking Regulation Act, 1949
b. Information Technology Act, 2000
c. Reserve Bank of India Act, 1934
d. Companies Act, 2013
47. Section 7 of the Negotiable Instruments Act deals with:
a. Drawer, Drawee, Drawee in case of need, Acceptor, Acceptor for honour and Payee
b. Holder
c. Holder in due course
d. Inland instruments
48. The maker of a bill of exchange or cheque is called the:
a. Drawee
b. Drawer
c. Holder
d. Payee
49. The person directed to pay in a bill of exchange or cheque is called the:
a. Drawer
b. Payee
c. Drawee
d. Holder
50. A person named in addition to the drawee to be resorted to in case of need is called:
a. Secondary drawee
b. Drawee in case of need
c. Substitute drawee
d. Payee
51. When the drawee of a bill signs his assent upon the bill and delivers it or gives notice of such signing, he becomes the:
a. Drawer
b. Holder
c. Acceptor
d. Indorser
52. Acceptance of a bill may be made by signing:
a. Any document
b. The bill itself or one of its parts
c. Only the first part
d. Only the reverse side
53. When a bill is noted or protested for non-acceptance or better security and a person accepts it for the honour of the drawer or indorser, he is called:
a. Substitute acceptor
b. Acceptor for honour
c. Drawee in need
d. Holder in due course
54. The person named in the instrument to whom the money is directed to be paid is called:
a. Holder
b. Drawer
c. Payee
d. Indorser
55. Section 8 of the Negotiable Instruments Act deals with:
a. Holder
b. Holder in due course
c. Payee
d. Drawee
56. The holder of a promissory note, bill of exchange or cheque is a person who:
a. Merely possesses the instrument
b. Is entitled in his own name to possession and to receive the amount due
c. Holds it as a witness
d. Is the bank collecting it
57. A holder must be entitled to receive or recover the amount due from:
a. Government
b. Parties to the instrument
c. Only the drawer
d. Only the bank
58. When a negotiable instrument is lost or destroyed, the holder is:
a. The bank
b. The last indorser
c. The person entitled to possession at the time of loss or destruction
d. The drawer
59. Which of the following is essential to become a holder?
a. Ownership of the instrument
b. Entitlement in own name to possession
c. Right to recover the amount
d. Both B and C
60. Section 9 of the Negotiable Instruments Act deals with:
a. Holder
b. Holder in due course
c. Payee
d. Acceptor
61. A holder in due course must obtain the instrument:
a. As a gift
b. Without consideration
c. For consideration
d. By inheritance
62. A holder in due course must become possessor of the instrument:
a. After payment is due
b. After maturity only
c. At any time
d. Before the amount becomes payable after maturity only
63. A holder in due course must take the instrument:
a. With knowledge of defects
b. Without sufficient cause to believe there is defect in title
c. With negligence
d. Without signature
64. In case of a bearer instrument, holder in due course is:
a. Payee only
b. Drawee
c. Possessor of the Instrument
d. Bank
65. In case of an order instrument, holder in due course is:
a. Drawer
b. Payee or indorsee
c. Drawee
d. Bank officer
66. Section 10 of the Negotiable Instruments Act deals with:
a. Holder
b. Payment in due course
c. Inland instrument
d. Foreign instrument
67. Payment in due course means payment made:
a. According to the apparent tenor of the instrument
b. According to bank rules
c. According to court order
d. According to drawer’s instruction
68. Payment in due course must be made:
a. In good faith
b. Without negligence
c. Both A and B
d. Under court supervision
69. Payment in due course must be made to:
a. Any person
b. Drawer only
c. Person in possession of the instrument under circumstances showing entitlement
d. Government authority
70. Section 11 of the Negotiable Instruments Act deals with:
a. Foreign instruments
b. Inland instruments
c. Payment in due course
d. Holder
71. An inland instrument includes:
a. Promissory note
b. Bill of exchange
c. Cheque
d. All of the above
72. An instrument is an inland instrument when it is:
a. Drawn or made in India
b. Payable in India
c. Drawn upon a person resident in India
d. All of the above
73. If a negotiable instrument is drawn in India and payable in India, it is:
a. Foreign instrument
b. Inland instrument
c. Invalid instrument
d. Government instrument
74. Section 12 of the Negotiable Instruments Act deals with:
a. Inland instrument
b. Foreign instrument
c. Holder in due course
d. Payment in due course
75. A foreign instrument is:
a. An instrument not drawn, made or payable in the manner specified for inland instruments
b. An instrument drawn in India
c. A government currency note
d. A bank draft
76. A negotiable instrument drawn outside India and payable outside India is considered:
a. Inland instrument
b. Currency instrument
c. Invalid instrument
d. Foreign instrument
77. Section 13 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Negotiable Instrument
c. Indorsement
d. Ambiguous instruments
78. A negotiable instrument means:
a. Promissory note only
b. Bill of exchange only
c. Cheque only
d. Promissory note, bill of exchange or cheque payable to order or bearer
79. A negotiable instrument must be payable:
a. Only to bearer
b. Only to order
c. Either to order or to bearer
d. Only to a bank
80. A negotiable instrument is payable to order when it is:
a. Expressed to be payable to order
b. Expressed to be payable to a particular person without prohibiting transfer
c. Both A and B
d. Expressed to bearer only
81. A negotiable instrument is payable to bearer when:
a. Both A and B
b. The last or only indorsement is in blank
c. It is expressed to be payable to bearer
d. It is payable to bank
82. Where an instrument is expressed payable to a specified person and not to him or his order:
a. It becomes void
b. It is still payable to him or his order at his option
c. It cannot be negotiated
d. It becomes bearer instrument
83. A negotiable instrument may be payable:
a. To two or more payees jointly
b. In the alternative to one of two payees
c. To one or some of several payees
d. All of the above
84. Section 14 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Indorsement
c. Holder
d. Payment
85. A negotiable instrument is said to be negotiated when:
a. It is signed
b. It is transferred to any person so as to make that person the holder
c. It is presented to bank
d. It is stamped
86. Negotiation of an instrument results in:
a. Cancellation of instrument
b. Transfer of possession only
c. Transfer so that the transferee becomes holder
d. Payment of instrument
87. Section 15 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Holder
c. Indorsement
d. Payment
88. Indorsement occurs when:
a. Drawer signs the instrument
b. Maker or holder signs for the purpose of negotiation
c. Bank signs the instrument
d. Payee receives payment
89. Indorsement may be made:
a. On the back of the instrument
b. On the face of the instrument
c. On a slip of paper attached to it
d. All of the above
90. The person who makes the indorsement is called:
a. Indorsee
b. Indorser
c. Holder
d. Drawee
91. Section 16 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Holder
c. Indorsement in blank and in full
d. Ambiguous instrument
92. If the indorser signs his name only, the indorsement is called:
a. Conditional indorsement
b. Restrictive indorsement
c. Special indorsement
d. Blank indorsement
93. If the indorser adds a direction to pay to a specified person, the indorsement is:
a. In full
b. Conditional
c. In blank
d. Forged
94. The person specified in an indorsement in full is called:
a. Drawee
b. Drawer
c. Holder
d. Indorsee
95. The provisions relating to payee apply to an indorsee:
a. Only partially
b. With necessary modifications
c. Without change
d. Not at all
96. Section 17 of the Negotiable Instruments Act deals with:
a. Ambiguous instruments
b. Holder
c. Negotiation
d. Payment
97. When an instrument may be construed either as a promissory note or bill of exchange:
a. Court decides automatically
b. Drawer decides
c. Holder may elect to treat it as either
d. Bank decides
98. Once the holder elects to treat it as one instrument:
a. It remains ambiguous
b. It becomes void
c. It shall thereafter be treated accordingly
d. It must be cancelled
99. Section 18 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Amount stated differently in figures and words
c. Holder
d. Payment
100. When the amount in figures and words differs in a negotiable instrument:
a. Amount in words prevails
b. Amount in figures prevails
c. Average amount prevails
d. Instrument becomes void
101. Section 19 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Instruments payable on demand
c. Holder
d. Payment
102. A promissory note or bill of exchange with no time specified for payment is:
a. Invalid
b. Payable after notice
c. Payable on demand
d. Payable after endorsement
103. A cheque is always:
a. Payable after acceptance
b. Payable on demand
c. Payable after three months
d. Payable after notice
104. Section 20 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Holder
c. Inchoate stamped instruments
d. Indorsement
105. An inchoate stamped instrument is:
a. A blank or incomplete stamped instrument signed and delivered
b. A fully completed instrument
c. A dishonoured instrument
d. A cancelled instrument
106. The holder of such instrument has authority to:
a. Destroy it
b. Complete it as a negotiable instrument
c. Cancel it
d. Endorse it only
107. The amount filled in such instrument must:
a. Be decided by bank
b. Be unlimited
c. Be decided by court
d. Not exceed the amount covered by the stamp
108. The person signing such instrument is liable to:
a. Any person
b. Drawer only
c. Holder in due course
d. Bank only
109. A person other than a holder in due course cannot recover:
a. More than the amount intended by the signer
b. Any interest
c. Any amount
d. Any stamp duty
110. Section 21 of the Negotiable Instruments Act deals with:
a. At sight, on presentment and after sight
b. Maturity
c. Days of grace
d. Holder in due course
111. In a promissory note or bill of exchange, the expression “at sight” means:
a. After three days
b. On demand
c. After acceptance
d. After maturity
112. The expression “on presentment” in a promissory note or bill of exchange means:
a. After notice
b. On demand
c. After endorsement
d. After maturity
113. The expression “after sight” in a promissory note means:
a. After acceptance
b. After presentment for sight
c. After endorsement
d. After maturity
114. The expression “after sight” in a bill of exchange means after:
a. Acceptance
b. Noting for non-acceptance
c. Protest for non-acceptance
d. All of the above
115. Section 22 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Maturity and days of grace
c. Inland instrument
d. Holder
116. The maturity of a promissory note or bill of exchange is:
a. The date on which it is drawn
b. The date on which it falls due
c. The date of acceptance
d. The date of endorsement
117. Days of grace are allowed for:
a. Promissory notes
b. Bills of exchange
c. Instruments not payable on demand, at sight or on presentment
d. All of the above
118. The number of days of grace allowed is:
a. Two days
b. One days
c. Three days
d. Seven days
119. Section 23 of the Negotiable Instruments Act deals with:
a. Calculation of maturity when instrument is payable months after date or sight
b. Payment in due course
c. Negotiation
d. Holder
120. When a bill or note is payable a stated number of months after date, maturity is calculated from:
a. The date of endorsement
b. The date of the instrument
c. The date of payment
d. The date of bank clearance
121. When payable a stated number of months after sight, maturity is calculated from:
a. The date of acceptance or presentment for sight
b. The date of endorsement
c. The date of payment
d. The date of issue
122. If the month of maturity has no corresponding day:
a. The first day of the month is taken
b. The second day is taken
c. The last day of that month is taken
d. The instrument becomes void
123. Section 24 of the Negotiable Instruments Act deals with:
a. Calculation of maturity when instrument is payable days after date or sight
b. Holder in due course
c. Negotiation
d. Payment
124. When calculating maturity for instruments payable a certain number of days after date or sight:
a. The starting day is included
b. The starting day is excluded
c. Only Sundays are excluded
d. Holidays are excluded
125. The day excluded in calculation of maturity includes:
a. Day of date
b. Day of presentment for acceptance
c. Day of protest for non-acceptance
d. All of the above
126. Section 25 of the Negotiable Instruments Act deals with:
a. Holidays affecting maturity
b. Negotiation
c. Holder
d. Acceptance
127. When the day of maturity of a promissory note or bill of exchange is a public holiday:
a. Payment is made on next day
b. Payment is made on same day
c. Instrument is deemed due on the next preceding business day
d. Instrument becomes void
128. The expression “public holiday” includes:
a. Sundays
b. Days declared by the Central Government
c. Both A and B
d. Bank holidays only
129. Public holidays under this section may be declared by:
a. State Government
b. Central Government through Official Gazette notification
c. RBI only
d. Supreme Court
130. Section 26 of the Negotiable Instruments Act deals with:
a. Capacity to make, draw, accept, indorse, deliver and negotiate negotiable instruments
b. Agency
c. Liability of agent
d. Liability of drawer
131. Who may bind himself by making, drawing, accepting, indorsing, delivering or negotiating a negotiable instrument?
a. Every person capable of contracting
b. Only bankers
c. Only companies
d. Only government officers
132. The capacity to enter into negotiable instruments depends on:
a. Banking law
b. Contract law applicable to the person
c. RBI rules
d. Company law
133. A minor who draws or indorses a negotiable instrument:
a. Binds himself and others
b. Binds only himself
c. Binds all parties except himself
d. Makes the instrument void
134. Under Section 26, a corporation may make, indorse or accept negotiable instruments:
a. In all cases
b. Only when authorized by law in force
c. Never
d. Only with court permission
135. Section 27 of the Negotiable Instruments Act deals with:
a. Capacity
b. Agency
c. Liability of agent
d. Liability of drawer
136. A person capable of binding himself under Section 26 may bind himself through:
a. A bank officer
b. A duly authorized agent
c. A government officer
d. A witness
137. A general authority to transact business and receive and discharge debts:
a. Includes authority to accept bills
b. Includes authority to indorse bills
c. Does not include authority to accept or indorse bills
d. Automatically includes authority to negotiate bills
138. Authority to draw bills of exchange:
a. Includes authority to indorse automatically
b. Does not itself include authority to indorse
c. Requires bank approval
d. Requires court approval
139. Section 28 of the Negotiable Instruments Act deals with:
a. Liability of agent signing
b. Liability of drawer
c. Capacity
d. Holder in due course
140. An agent signing a negotiable instrument without indicating he is signing as an agent:
a. Is not liable
b. Is liable personally
c. Is liable only to bank
d. Is liable jointly with bank
141. An agent can avoid personal liability if he:
a. Mentions that he signs as agent or does not intend personal liability
b. Signs secretly
c. Gets witness signature
d. Gets court approval
142. An agent will not be personally liable against persons who:
a. Did not see the instrument
b. Induced him to sign believing only the principal would be liable
c. Are bankers
d. Are government officers
143. Section 29 of the Negotiable Instruments Act deals with:
a. Liability of legal representative signing
b. Liability of agent
c. Negotiation
d. Holder
144. A legal representative signing a negotiable instrument for a deceased person:
a. Is not liable
b. Is personally liable
c. Is liable only if court orders
d. Is liable jointly with bank
145. A legal representative can avoid personal liability if he:
a. Refuses to sign
b. Limits liability expressly to the assets received
c. Signs in presence of witness
d. Gets bank approval
146. Section 30 of the Negotiable Instruments Act deals with:
a. Liability of drawer
b. Liability of agent
c. Negotiation
d. Holder
147. The drawer of a bill of exchange or cheque is liable when:
a. The instrument is issued
b. The instrument is dishonoured by the drawee or acceptor
c. The instrument is accepted
d. The instrument is endorsed
148. The drawer must compensate:
a. The bank
b. The drawee
c. The holder
d. The government
149. Liability of the drawer arises only when:
a. Payment is delayed
b. Notice of dishonour is given to or received by the drawer
c. Bank refuses payment
d. Court orders payment
150. Section 31 of the Negotiable Instruments Act deals with:
a. Liability of drawee of cheque
b. Liability of maker
c. Liability of indorser
d. Liability of drawer
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