Skip to content

CMA Foundation · Fundamentals of Business Laws and Business Communication · Negotiable Instruments Act, 1881

A cheque crossed generally and marked 'not negotiable' is stolen from Kavita by a thief, who transfers it to Deepak for value. Deepak acts in good faith and has no knowledge of the theft. What is Deepak's position?

Deepak gets no better title than the thief, who had none, so Kavita can recover the amount from him. The words 'not negotiable' leave the cheque transferable but remove the usual good-faith protection. The cheque can still be transferred, but the title passed on is only as good as the transferor's.

  1. AHe gets a perfect title, because he paid value in good faith
  2. BHe gets a perfect title, because the cheque is crossed generally
  3. CHe gets no better title than the thief had, so Kavita can recover the cheque's value from himCorrect
  4. DHe cannot take the cheque at all, because a 'not negotiable' cheque cannot be transferred

Explanation

The words 'not negotiable' do not stop transfer, but the transferee takes no better title than the transferor had. The thief had no title, so Deepak gets none, even though he paid in good faith. A holder in due course would ordinarily get a good title, but this protection is lost on a cheque marked 'not negotiable'.

Did you get it right without looking?

One question tells you little. A timed set on Negotiable Instruments Act, 1881 shows your real accuracy, how long you take and where you lose marks.

Practise Negotiable Instruments Act, 1881Free diagnostic mock

More Negotiable Instruments Act, 1881 questions