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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

A bill for Rs 1,00,000 is payable to the order of Charu Enterprises. Charu endorses it: 'Pay Dinesh Rs 40,000 only', and delivers it to Dinesh. What is the legal effect of this endorsement?

The endorsement is void as a negotiation. A negotiable instrument cannot be transferred for only a part of the amount due. Since Charu endorsed only Rs 40,000 of a Rs 1,00,000 bill, Dinesh does not obtain the rights of an endorsee on it.

  1. AIt is a valid partial endorsement and Dinesh holds a good title to Rs 40,000
  2. BIt is void, because an endorsement for part of the amount does not negotiate the instrumentCorrect
  3. CIt is valid, and the bill is negotiated for Rs 40,000 while Charu keeps the rest
  4. DIt is valid only if the drawee consents to the split

Explanation

An endorsement which purports to transfer only part of the amount payable, or to transfer the bill to two or more persons separately for parts, does not operate as a negotiation. The instrument cannot be split, so the endorsement is invalid and Dinesh does not become a holder entitled to the Rs 40,000 on the bill.

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