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Complete resources on Negotiable Instruments Act
Complete resources on Presentment of Negotiable Instrument – MCQ
Complete resources on Dishonour of Negotiable Instrument
1. Under which of the following situations, is a negotiable instrument said to be dishonored by non-payment?
(a) When the party liable to pay the instrument fails to pay it on maturity
(b) When presentment for payment is excused
(c) When overdue remains unpaid
(d) All (a), (b) and (c) above.
Intent of the Question: To test the understanding of different scenarios under which a negotiable instrument is dishonored by non-payment.
Deliberation on Options:
(a) Correct – When a party fails to pay on maturity, the instrument is dishonored.
(b) Correct – If presentment is excused, it does not prevent dishonor from happening.
(c) Correct – If the instrument remains unpaid after being overdue, it is dishonored.
(d) Correct – Since all three situations are valid, this is the right choice.
Explanation: As per the law, non-payment due to failure, excuse of presentment, or overdue non-payment qualifies as dishonor. Hence, option (d) is the correct answer.
Ans. Under the following situations an instrument is dishonored by non-payment:-
a. When the party liable to pay the instrument fails to pay it on maturity.
b. When presentment for payment is execused.
c. When overdue remains unpaid.
Hence, option (d) is the correct answer.
2. When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time cause such dishonour to be noted and certified by a notary public. Such certificate is called
(a) Protest
(b) Noting
(c) Endorsement
(d) Estoppel.
Intent of the Question: To test knowledge of the official documentation related to dishonor.
Deliberation on Options:
(a) Correct – A protest is a formal certificate stating dishonor, as per Section 100.
(b) Incorrect – Noting is an informal step taken before protest but is not a certificate.
(c) Incorrect – Endorsement refers to transferring rights, not certifying dishonor.
(d) Incorrect – Estoppel is a legal principle preventing contradiction, not related to dishonor.
Explanation: A protest is a formal declaration by a notary public about the dishonor of an instrument. Hence, option (a) is correct.
Ans. A formal certificate issued by the Notary Public stating the fact of dishonour is called as ‘protest’ (Sec. 100). It must be made within a reasonable time of maturity of an instrument. Hence, option (a) is the correct answer.
3. Which of the following Negotiable Instruments can be only dishonoured by non-payment:
(a) Bills of Exchange
(b) Promissory Note
(c) Cheque
(d) both (b) and (c).
Intent of the Question: To differentiate between types of dishonor of negotiable instruments.
Deliberation on Options:
(a) Incorrect – Bills of Exchange can be dishonored by both non-acceptance and non-payment.
(b) Correct – Promissory Notes are dishonored only by non-payment.
(c) Correct – Cheques are dishonored only by non-payment.
(d) Correct – Since (b) and (c) are correct, this is the right choice.
Explanation: Bills of Exchange can be dishonored by both non-acceptance and non-payment, while Promissory Notes and Cheques can only be dishonored by non-payment. Hence, option (d) is correct.
Ans. Promissory Note and Cheque can be dishonoured only by non-payment. Hence, option (d) is the correct answer.
4. Noting and protesting is not applicable in case of –
(a) Bills of Exchange
(b) Promissory Notes
(c) Cheques
(d) both (b) and (c).
Intent of the Question: To clarify which instruments require formal documentation for dishonor.
Deliberation on Options:
(a) Incorrect – Bills of Exchange require noting and protesting.
(b) Incorrect – Promissory Notes require noting and protesting.
(c) Correct – Cheques do not require noting and protesting.
(d) Incorrect – Since (b) is incorrect, this option is also incorrect.
Explanation: Noting and protesting is a legal requirement for Bills of Exchange and Promissory Notes but not for cheques. Hence, option (c) is correct.
Ans. Noting and protesting is not applicable in case of cheques. Hence, option (c) is the correct answer.
5. After passing through many hands a bill payable (two months after sight) falls in the hands of K. On presentment of the bill, K was refused payment. In this case, K can
(a) recover the money from the drawer only
(b) recover the money both from drawer and all the prior parties
(c) do nothing
(d) Both (a) and (b).
Intent of the Question: To test knowledge of the rights of a holder in case of dishonor.
Deliberation on Options:
(a) Incorrect – The holder can recover from more than just the drawer.
(b) Correct – The holder can claim from both the drawer and prior parties.
(c) Incorrect – The holder has legal rights to recover.
(d) Incorrect – Only (b) is the most comprehensive answer.
Explanation: In case of dishonor, the holder can claim from all parties liable under the instrument. Hence, option (b) is correct.
Ans. Dishonour renders the drawer and the indorsers liable to the holder. So, in this case, K can recover the money both from drawer and all the prior parties. Hence, option (b) is the correct answer.
6. P draws a bill payable to Q or order, Q endorses it R, R to S and like this after passing through many hands it ultimately falls in the hands of Z, Z presented the bill to P for payment, but P refuses the payment.
(a) Z can recover the money payable on the bill from P
(b) Z can recover the money payable on the bill from Q
(c) Both (a) & (b)
(d) None of the above.
Intent of the Question: This question tests the understanding of the liability of parties in a negotiable instrument, particularly in cases of dishonour.
Analysis of Options:
(a) Z can recover the money payable on the bill from P – Correct (The drawer is primarily liable unless discharged by payment or other legal reasons.)
(b) Z can recover the money payable on the bill from Q – Correct (All prior indorsers are liable to the holder upon dishonour.)
(c) Both (a) & (b) – Correct (Since both P and Q are liable, this option correctly consolidates both statements.)
(d) None of the above – Incorrect (Dishonour imposes liability on prior parties; hence, this statement is incorrect.)
Logical Explanation: Dishonour of the bill makes both the drawer (P) and all prior endorsers (Q and others) liable to the holder (Z). As per the Negotiable Instruments Act, the holder has the right to recover the amount from the drawer and endorsers. Hence, option (c) is the correct answer.
Ans. Dishonour renders the drawer and all the indorsers liable to the holder. So, Z can recover the money payable on the bill from P as well as from Q. Hence, option (c) is the correct answer.
7. X draws a cheque to Y.Y indorses the same to Z after keeping it for an unreasonable length of time. Z presents it for payment within the stipulated time, after its receipt by him and dishonoured. On whom Z impose payment?
(a) X
(b) Y
(c) Both on X and Y
(d) he cannot impose payment.
Intent of the Question: This question assesses the impact of an unreasonable delay in presenting a cheque and how it affects the liabilities of the drawer and indorsers.
Analysis of Options:
(a) X – Incorrect (If a cheque is not presented in a reasonable time, the drawer (X) may be discharged from liability as per Section 84 of the Act.)
(b) Y – Correct (Since Y kept the cheque for an unreasonable time before endorsement, liability shifts to Y.)
(c) Both on X and Y – Incorrect (Only Y remains liable, as X is discharged.)
(d) He cannot impose payment – Incorrect (Z can impose payment on Y.)
Logical Explanation: As per Section 84 of the Negotiable Instruments Act, if the holder of a cheque defaults in presenting it for payment within a reasonable time, the drawer (X) is discharged from liability. Here, Y held the cheque for an unreasonable time before endorsing it to Z. As a result, Z can impose payment only on Y, but not on X. Hence, option (b) is the correct answer.
Ans. Dishonour renders the drawer and the indorsers liable to the holder. According to sec.84, if holder defaults to present the cheque within a reasonable time, the drawer shall be discharged from liability. As, Y have kept the cheque for an unreasonable time before the indorsement, Z can impose payment only on Y and X (the drawer) shall be discharged from liability. Hence, option (b) is the correct answer.
8. Choose the correct alternatives among the following
(a) Notice is not essential to be given to maker in case of dishonour of Promissory Note
(b) Notice is not essential to be given to drawer in case of dishonour of Bill of Exchange
(c) Notice is to be given only to drawer but not to prior indorser in case of dishonour of Bill of Exchange
(d) Notice is to be given only to the Payee in case of dishonour of Bill of Exchange.
Intent of the Question: This question tests the knowledge of the necessity of providing notice upon dishonour of different types of negotiable instruments.
Analysis of Options:
(a) Notice is not essential to be given to the maker in case of dishonour of Promissory Note – Correct (As per Section 93, the maker of a promissory note is already aware of the dishonour.)
(b) Notice is not essential to be given to the drawer in case of dishonour of Bill of Exchange – Incorrect (Notice to the drawer is mandatory under Section 93.)
(c) Notice is to be given only to the drawer but not to the prior indorser in case of dishonour of Bill of Exchange – Incorrect (Notice must be given to all prior parties.)
(d) Notice is to be given only to the payee in case of dishonour of Bill of Exchange – Incorrect (Notice should be given to all prior parties, not just the payee.)
Logical Explanation: According to Section 93 of the Negotiable Instruments Act, when an instrument is dishonoured, notice must be given to all prior parties, except the maker of a promissory note, as they are already aware of the dishonour. Hence, option (a) is the correct answer.
Ans. When an instrument is dishonoured (by non-acceptance or by non-payment), the holder must give notice to all the prior parties to inform them about their liability for the dishonour (s.93). So, notice is not essential to be given to maker in case of dishonour of Promissory Note. Hence, option (a) is the correct answer.
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