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The Negotiable Instrument, 1881 MCQs SET-2
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1. The drawee of a cheque is:
a. The holder
b. The bank on whom the cheque is drawn
c. The drawer
d. The payee
2. The drawee of a cheque must pay the cheque when:
a. There are sufficient funds of the drawer properly applicable to the cheque
b. The cheque is endorsed
c. The cheque is registered
d. The cheque is stamped
3. The drawee must pay the cheque when:
a. The drawer demands it
b. The payee requests it
c. Payment is duly required
d. The court orders it
4. If the drawee wrongfully refuses payment despite sufficient funds:
a. The drawee compensates the payee
b. The drawee compensates the drawer
c. The drawee compensates the government
d. No liability arises
5. Section 32 of the Negotiable Instruments Act deals with:
a. Liability of agent
b. Liability of drawee
c. Liability of maker of note and acceptor of bill
d. Liability of indorser
6. The maker of a promissory note is bound to:
a. Transfer the instrument
b. Pay the amount at maturity according to the apparent tenor of the note
c. Accept the instrument
d. Negotiate the instrument
7. The acceptor of a bill of exchange before maturity must:
a. Pay immediately
b. Transfer the bill
c. Accept only after maturity
d. Pay at maturity according to the apparent tenor of acceptance
8. The acceptor of a bill at or after maturity must pay:
a. The holder on demand
b. Only the bank
c. The government
d. The drawer
9. If the maker or acceptor defaults in payment:
a. Only the bank is liable
b. The holder loses the right
c. They must compensate any party suffering loss due to such default
d. No liability arises
10. Section 33 of the Negotiable Instruments Act deals with:
a. Liability of drawer
b. Acceptance of bill
c. Who can be acceptor
d. Negotiation
11. Generally, acceptance of a bill of exchange can be made only by:
a. Payee
b. Drawee
c. Holder
d. Indorser
12. Acceptance may also be made by:
a. Drawee in case of need
b. Acceptor for honour
c. Both A and B
d. Payee only
13. A person who is not the drawee can accept a bill:
a. Always
b. Never
c. Only in cases of need or for honour
d. Only with court permission
14. Section 34 of the Negotiable Instruments Act deals with:
a. Liability of drawee
b. Acceptance by several drawees not partners
c. Liability of indorser
d. Holder
15. When a bill has several drawees who are not partners:
a. Only one can accept for all
b. Each may accept for himself
c. None can accept
d. The holder accepts
16. One drawee cannot accept the bill for another drawee:
a. Even with permission
b. Under any circumstances
c. Unless authorized by him
d. Without bank approval
17. Section 35 of the Negotiable Instruments Act deals with:
a. Liability of indorser
b. Liability of holder
c. Liability of drawee
d. Liability of maker
18. An indorser who indorses and delivers a negotiable instrument before maturity:
a. Has no liability
b. Is liable to every subsequent holder
c. Is liable only to the bank
d. Is liable only to the payee
19. The liability of an indorser arises when the instrument is:
a. Negotiated
b. Accepted
c. Dishonoured by drawee, acceptor or maker
d. Registered
20. The indorser must compensate the holder if:
a. Notice of dishonour is given to or received by him
b. Court orders it
c. Bank demands it
d. Drawer refuses payment
21. An indorser may exclude or make conditional his liability:
a. By express words in the indorsement
b. By oral statement
c. By bank record
d. By court order
22. An indorser after dishonour is liable as upon:
a. A promissory note only
b. An instrument payable on demand
c. A cheque only
d. A cancelled instrument
23. Section 36 of the Negotiable Instruments Act deals with:
a. Liability of prior parties to holder in due course
b. Liability of indorser
c. Liability of drawer
d. Negotiation
24. Every prior party to a negotiable instrument is liable to:
a. Payee
b. Drawee
c. Holder in due course
d. Bank
25. The liability of prior parties continues until:
a. The instrument is accepted
b. The instrument is duly satisfied
c. The instrument is endorsed
d. The instrument is cancelled
26. Section 37 of the Negotiable Instruments Act deals with:
a. Negotiation
b. Holder
c. Maker, drawer and acceptor as principal debtors
d. Suretyship
27. The maker of a promissory note is:
a. Witness
b. Agent
c. Principal debtor
d. Surety
28. The drawer of a bill of exchange until acceptance is:
a. Principal debtor
b. Indorser
c. Holder
d. Surety
29. The acceptor of a bill of exchange is:
a. Agent
b. Surety
c. Holder
d. Principal debtor
30. Other parties to the instrument are liable as:
a. Agents
b. Sureties
c. Principals
d. Witnesses
31. Section 38 of the Negotiable Instruments Act deals with:
a. Liability between prior and subsequent parties
b. Holder in due course
c. Negotiation
d. Payment
32. As between sureties, each prior party is liable as:
a. Agent
b. Witness
c. Principal debtor in respect of each subsequent party
d. Holder
33. In a chain of endorsements, each earlier party is treated as:
a. Surety only
b. Principal debtor for subsequent parties
c. Agent of the bank
d. Witness
34. Section 39 of the Negotiable Instruments Act deals with:
a. Suretyship
b.Holder
c. Negotiation
d. Payment
35. When the holder enters into a contract with the acceptor which would discharge other parties under the Indian Contract Act:
a. All other parties are discharged automatically
b. Holder may reserve his right to charge other parties
c. The bill becomes void
d. Court decides liability
36. If the holder expressly reserves his rights:
a. Other parties remain liable
b. Other parties are discharged
c. Instrument becomes invalid
d. Bank becomes liable
37. Section 40 of the Negotiable Instruments Act deals with:
a. Discharge of indorser’s liability
b. Liability of holder
c. Negotiation
d. Payment
38. An indorser is discharged when the holder:
a. Transfers the instrument
b. Destroys or impairs the indorser’s remedy against a prior party without consent
c. Accepts payment
d. Gives notice
39. The indorser is discharged to the same extent as if:
a. The instrument was cancelled
b. The instrument had been paid at maturity
c. The instrument was dishonoured
d. The instrument was transferred
40. Section 41 of the Negotiable Instruments Act deals with:
a. Forged drawer
b. Liability of acceptor despite forged indorsement
c. Holder in due course
d. Payment in due course
41. An acceptor of a bill of exchange already indorsed is not relieved from liability if:
a. The indorsement is forged
b. He knew or had reason to believe the indorsement was forged when accepting
c. The bill is dishonoured
d. The drawer denies signature
42. If the acceptor accepts a bill knowing the indorsement is forged:
a. He remains liable
b. He can be discharged
c. The bill becomes void
d. Only the drawer becomes liable
43. Liability of the acceptor continues when:
a. The indorsement is forged and he knew it
b. The holder is negligent
c. The bill is overdue
d. The bank refuses payment
44. The knowledge of forged indorsement at the time of acceptance results in:
a. Discharge of acceptor
b. Liability of acceptor continuing
c. Cancellation of bill
d. Liability of indorser only
45. Section 41 applies specifically to:
a. Cheques only
b. Promissory notes only
c. Bills of exchange
d. Currency notes
46. Forgery of indorsement affects the acceptor’s liability when:
a. He had no knowledge
b. He knew or had reason to believe it was forged
c. The drawer informs him
d. The bank verifies it
47. The person whose liability is discussed in Section 41 is:
a. Drawer
b. Holder
c. Acceptor
d. Indorser
48. Acceptance despite suspicion of forgery leads to:
a. No liability
b. Liability of acceptor
c. Liability of drawer only
d. Cancellation of bill
49. Section 42 of the Negotiable Instruments Act deals with:
a. Holder in due course
b. Forgery
c. Acceptance of bill drawn in fictitious name
d. Fictitious drawer
50. If a bill is drawn in a fictitious name and payable to the drawer’s order:
a. The bill becomes void
b. The acceptor remains liable to holder in due course
c. Only the drawer is liable
d. The acceptor is discharged
51. The acceptor is not relieved from liability merely because:
a. The holder is unknown
b. The bill is dishonoured
c. The drawer is absent
d. The name of drawer is fictitious
52. The holder who can claim against the acceptor is:
a. Holder in due course
b. Any holder
c. Government
d. Bank manager
53. The indorsement must appear to be made:
a. By bank officer
b. By the same hand as the drawer’s signature
c. By government officer
d. By court authority
54. Liability of the acceptor continues when:
a. The claimant is holder in due course
b. The bill is accepted in fictitious name
c. The indorsement matches the drawer’s signature
d. All of the above
55. The bill discussed in Section 42 is payable:
a. To bearer
b. To bank
c. To government
d. To drawer’s order
56. The protection given in this section is mainly to:
a. Drawee
b. Holder in due course
c. Payee
d. Drawer
57. Fictitious name in a bill:
a. Makes the bill void
b. Cancels the bill
c. Transfers liability to bank
d. Does not relieve acceptor from liability
58. Section 43 of the Negotiable Instruments Act deals with:
a. Absence or failure of consideration
b. Holder in due course
c. Forgery
d. Acceptance
59. A negotiable instrument made or transferred without consideration:
a. Is automatically valid
b. Creates no obligation of payment between the parties
c. Must be cancelled
d. Is enforceable by anyone
60. If the instrument is transferred for consideration to a holder:
a. Only bank recovers
b. Government recovers
c. He may recover from transferor or prior parties
d. He cannot recover
61. Every subsequent holder deriving title from such holder:
a. Must get court permission
b. Must file suit only
c. Can recover amount due
d. Cannot recover
62. Exception I relates to:
a. Bank negligence
b. Accommodation parties
c. Court orders
d. Forged signatures
63. A party for whose accommodation an instrument is made cannot recover amount from:
a. Government
b. Drawer only
c. Bank
d. Person who became party for his accommodation
64. Exception II applies when:
a. Consideration fails completely
b. Drawer dies
c. Party induced another party but failed to pay consideration fully
d. Instrument expires
65. In such case recovery cannot exceed:
a. Court decided amount
b. Total amount
c. Value of consideration actually paid
d. Bank balance
66. Section 44 of the Negotiable Instruments Act deals with:
a. Partial absence or failure of money consideration
b. Holder in due course
c. Agency
d. Negotiation
67. If money consideration was absent partly:
a. Entire amount recoverable
b. Amount recoverable is proportionally reduced
c. Instrument becomes void
d. Drawer alone liable
68. This rule applies to:
a. Promissory notes
b. Bills of exchange
c. Cheques
d. All of the above
69. The holder affected must stand in:
a. Remote relation
b. Immediate relation
c. No relation
d. Indirect relation
70. Drawer of a bill stands in immediate relation with:
a. Holder
b. Payee
c. Acceptor
d. Bank
71. Maker of a promissory note stands in immediate relation with:
a. Drawee
b. Payee
c. Holder
d. Bank
72. Indorser stands in immediate relation with:
a. Drawer
b. Drawee
c. Indorsee
d. Bank
73. Other signers may stand in immediate relation:
a. Automatically
b. By agreement
c. By court order
d. By bank rule
74. Reduction in amount occurs due to:
a. Partial absence of money consideration
b. Partial failure of money consideration
c. Both A and B
d. Forgery
75. Section 45 of the Negotiable Instruments Act deals with:
a. Partial failure of non-money consideration
b. Money consideration
c. Agency
d. Forgery
76. This section applies where consideration:
a. Consists of money
b. Does not consist of money
c. Is foreign currency
d. Is bank deposit
77. The failed portion of consideration must be:
a. Unknown
b. Ascertainable in money
c. Non-measurable
d. Estimated by court
78. The ascertainment must be possible:
a. With collateral enquiry
b. Without collateral enquiry
c. Only by bank
d. Only by court
79. If such failure occurs:
a. Full amount recoverable
b. Recovery barred
c. Amount recoverable proportionally reduced
d. Instrument cancelled
80. The rule applies when the holder stands in:
a. Immediate relation with signer
b. Remote relation
c. No relation
d. Bank relation
81. The negotiable instruments covered include:
a. Promissory note
b. Bill of exchange
c. Cheque
d. All of the above
82. The amount recoverable depends on:
a. Bank rules
b. Proportion of consideration actually valid
c. Government order
d. Court discretion
83. Reduction of claim occurs due to:
a. Partial failure of consideration
b. Full payment
c. Forgery
d. Dishonour
84. Section 45A of the Negotiable Instruments Act deals with:
a. Duplicate cheque
b. Holder in due course
c. Holder's right to duplicate of lost bill
d. Negotiation
85. Section 45A applies when:
a. A bill of exchange is lost before it becomes overdue
b. A promissory note is destroyed
c. A cheque is dishonoured
d. A bill is forged
86. The person entitled to apply for a duplicate bill is:
a. The bank
b. The holder of the bill at the time it was lost
c. The government
d. The payee only
87. The application for a duplicate bill must be made to:
a. The acceptor
b. The drawee
c. The indorser
d. The drawer
88. The duplicate bill must be:
a. Of different value
b. Signed by bank
c. Of the same tenor
d. Of similar value
89. The holder requesting a duplicate bill may be required to:
a. Pay stamp duty again
b. Provide security
c. Obtain bank certificate
d. File court order
90. The purpose of giving security by the holder is to:
a. Guarantee payment
b. Increase the bill value
c. Transfer ownership
d. Indemnify the drawer if the lost bill is later found
91. The security protects the drawer against:
a. Government
b. The drawee only
c. Any person who might claim under the lost bill if it is found again
d. Bank officials
92. If the drawer refuses to give a duplicate bill after request:
a. Nothing can be done
b. The holder loses rights
c. The bill becomes void
d. The drawer may be compelled to issue the duplicate
93. Section 46 of the Negotiable Instruments Act deals with:
a. Delivery
b. Negotiation
c. Acceptance
d. Holder in due course
94. The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed by:
a. Registration
b. Delivery
c. Payment
d. Endorsement only
95. Delivery of a negotiable instrument may be:
a. Actual only
b. Constructive only
c. Actual or constructive
d. Conditional only
96. As between parties in immediate relation, delivery must be made by:
a. Any holder
b. The party making, accepting or indorsing the instrument or his authorized agent
c. The bank
d. The government
97. Delivery between immediate parties may be made by:
a. The person making, accepting or indorsing the instrument
b. A person authorized by him
c. Both A and B
d. Only the bank
98. As between immediate parties and a holder other than a holder in due course, it may be shown that the delivery was:
a. Absolute
b. Conditional or for special purpose
c. Illegal
d. Bank controlled
99. Conditional delivery means the instrument was delivered:
a. For absolute transfer
b. For special purpose only
c. For bank custody
d. For government approval
100. A negotiable instrument payable to bearer is negotiated by:
a. Delivery alone
b. Indorsement only
c. Registration
d. Bank approval
101. A negotiable instrument payable to order is negotiated by:
a. Delivery alone
b. Indorsement only
c. Indorsement and delivery
d. Registration
102. Delivery in the context of negotiable instruments refers to:
a. Physical possession only
b. Transfer completing making, acceptance or indorsement
c. Bank processing
d. Court confirmation
103. Section 47 of the Negotiable Instruments Act deals with:
a. Negotiation by delivery
b. Negotiation by indorsement
c. Holder in due course
d. Payment in due course
104. A promissory note, bill of exchange or cheque payable to bearer is negotiable by:
a. Indorsement only
b. Delivery only
c. Registration
d. Bank approval
105. Negotiation by delivery is subject to:
a. Section 45
b. Section 50
c. Section 58
d. Section 60
106. A negotiable instrument delivered on condition that it will take effect only on the happening of a certain event:
a. Is always negotiable
b. Is not negotiable until the event happens
c. Is void
d. Is illegal
107. Such conditionally delivered instrument becomes negotiable when:
a. Bank verifies
b. Court approves
c. The specified event happens
d. Drawer signs again
108. Even before the event occurs, the instrument may be negotiated if it comes into the hands of:
a. Holder without notice
b. Holder for value without notice of condition
c. Banker
d. Government officer
109. Delivery of bearer instrument to another person's agent for that person:
a. Does not amount to negotiation
b. Requires endorsement
c. Cancels the instrument
d. Amounts to negotiation
110. If a banker transfers a bearer instrument to another person's credit as directed by the holder:
a. Negotiation does not occur
b. Negotiation occurs and the person becomes holder
c. Instrument becomes void
d. Drawer becomes liable
111. A bearer instrument negotiated through banker becomes possessed by banker as:
a. Drawer’s agent
b. Payee’s agent
c. Holder’s agent
d. Government agent
112. Negotiation by delivery applies primarily to instruments:
a. Payable to order
b. Payable to bearer
c. Payable to bank
d. Payable to government
113. Section 48 of the Negotiable Instruments Act deals with:
a. Negotiation by indorsement
b. Negotiation by delivery
c. Holder in due course
d. Payment
114. A promissory note, bill of exchange or cheque payable to order is negotiated by:
a. Delivery only
b. Indorsement and delivery
c. Indorsement only
d. Registration
115. Negotiation by indorsement is subject to:
a. Section 60
b. Section 46
c. Section 58
d. Section 62
116. The person who negotiates an order instrument is:
a. Drawee
b. Holder
c. Payee only
d. Banker
117. Delivery must accompany indorsement because:
a. Law requires it for negotiation
b. Bank rules require it
c. Court orders it
d. Drawer decides it
118. Without delivery, indorsement:
a. Completes negotiation
b. Does not complete negotiation
c. Cancels instrument
d. Transfers ownership automatically
119. Negotiation by indorsement applies to:
a. Bearer instruments
b. Order instruments
c. Currency notes
d. Government bonds
120. The essential elements of negotiation under Section 48 are:
a. Signature and registration
b. Indorsement and delivery
c. Acceptance and payment
d. Banker approval
121. Indorsement must be made by:
a. Bank officer
b. Holder
c. Drawee
d. Government officer
122. Section 48 mainly governs transfer of:
a. Bearer instruments
b. Order instruments
c. Government securities
d. Currency notes
123. Section 49 of the Negotiable Instruments Act deals with:
a. Conversion of indorsement in blank into indorsement in full
b. Negotiation
c. Payment
d. Acceptance
124. A holder of a negotiable instrument indorsed in blank may convert it into:
a. Conditional indorsement
b. Indorsement in full
c. Forged indorsement
d. Special contract
125. Conversion is done by writing above the indorser’s signature:
a. Date
b. Amount
c. Direction to pay to a specified person
d. Bank name
126. The holder making such conversion:
a. Must sign again
b. Must re-endorse
c. Need not sign his own name
d. Must inform the bank
127. The person specified in the new direction becomes:
a. Drawer
b. Indorser
c. Drawee
d. Indorsee
128. Conversion of blank indorsement into full indorsement:
a. Transfers liability to bank
b. Makes holder liable as indorser
c. Does not make holder liable as indorser
d. Cancels the instrument
129. The power to convert blank indorsement belongs to:
a. Drawer
b. Holder
c. Banker
d. Drawee
130. Blank indorsement originally makes instrument:
a. Payable to bearer
b. Payable to order
c. Non-negotiable
d. Invalid
131. Conversion changes the instrument to payable:
a. To bearer
b. To specified person
c. To government
d. To bank
132. Section 50 of the Negotiable Instruments Act deals with:
a. Effect of indorsement
b. Negotiation
c. Acceptance
d. Payment
133. Indorsement followed by delivery transfers:
a. Only possession
b. Property in the instrument
c. Bank ownership
d. Government control
134. The indorsee obtains:
a. Possession only
b. Only payment rights
c. Property in the instrument and right of further negotiation
d. Only bank rights
135. Indorsement may restrict the right of further negotiation by:
a. Oral statement
b. Express words
c. Court order
d. Bank notice
136. An indorsement may exclude the right of further negotiation:
a. By express words
b. By silence
c. By bank order
d. By court order
137. An indorsement may constitute the indorsee as:
a. Owner
b. Agent to indorse the instrument
c. Bank officer
d. Government officer
138. The indorsee may also be authorized to:
a. Destroy instrument
b. Transfer bank account
c. Issue cheque
d. Receive the contents for indorser
139. The agent indorsee may act for:
a. Indorser
b. Some other specified person
c. Both A and B
d. Bank
140. Indorsement followed by delivery primarily affects:
a. Property rights in instrument
b. Banking regulation
c. Currency issue
d. Government bonds
141. Section 50 emphasizes that indorsement may:
a. Transfer ownership absolutely
b. Restrict negotiation
c. Create agency
d. All of the above
142. Section 51 of the Negotiable Instruments Act deals with:
a. Who may negotiate a negotiable instrument
b. Negotiation by delivery
c. Negotiation by indorsement
d. Holder in due course
143. A negotiable instrument may be negotiated by:
a. Sole maker
b. Drawer
c. Payee or indorsee
d. All of the above
144. When there are several joint makers, drawers, payees or indorsees:
a. Any one may negotiate
b. All of them must indorse and negotiate
c. Only the bank may negotiate
d. Court permission is required
145. Negotiation under Section 51 is possible only if:
a. Instrument is registered
b. Negotiability has not been restricted or excluded
c. Bank approves
d. Drawer authorizes
146. Restriction or exclusion of negotiability is mentioned under:
a. Section 48
b. Section 49
c. Section 50
d. Section 52
147. A maker or drawer can negotiate the instrument only when:
a. He is in lawful possession or is holder
b. He has bank approval
c. Court permits
d. Payee allows
148. A payee or indorsee may negotiate the instrument only when:
a. He signs it
b. He is the holder of the instrument
c. He informs bank
d. He registers it
149. The explanation to Section 51 clarifies that:
a. Only lawful holder can negotiate
b. Every drawer can negotiate any instrument
c. Only bank can negotiate
d. Only payee can negotiate
150. If the maker is not in lawful possession of the instrument:
a. He may still negotiate
b. He cannot negotiate
c. Bank negotiates
d. Government negotiates
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