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CSEET · Business Laws and Management · Elements of Law relating to Negotiable Instruments

A bearer cheque is indorsed by Sunil with the words "Pay Kavita." and delivered to Kavita. According to the illustrations to Section 50 of the Negotiable Instruments Act, 1881, which statement is correct?

Kavita's right of further negotiation is not excluded. A plain indorsement such as "Pay Kavita" has no words restricting transfer, so under Section 50 and its illustration the indorsement followed by delivery passes the property to her with the right to negotiate further.

  1. AKavita cannot negotiate the cheque further
  2. BKavita becomes only an agent of Sunil for collection
  3. CThe indorsement is void for want of consideration
  4. DKavita's right of further negotiation is not excludedCorrect

Explanation

Illustration (e) to Section 50 says that an indorsement "Pay C" does not exclude the right of further negotiation by C. Without express restrictive words, the indorsee keeps the right to negotiate. The option saying she cannot negotiate wrongly treats a plain indorsement as restrictive.

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