Skip to content

CMA Intermediate · Business Laws and Ethics · Negotiable Instruments Act, 1881

A cheque was originally drawn payable to bearer. Anil indorsed it "Pay Kavita only" and delivered it to her. It was later lost and found by Deepak, who presented it at the drawee bank. The bank paid Deepak in due course. Which statement is correct under the Act?

The bank is discharged. Where a cheque is originally payable to bearer, the drawee is discharged by payment in due course to the bearer, notwithstanding any endorsement, including one purporting to restrict or exclude further negotiation, so the words "Pay Kavita only" do not prevent discharge.

  1. AThe drawee bank is discharged by payment in due course to the bearer, despite the restrictive indorsementCorrect
  2. BThe bank is not discharged because the indorsement restricted payment to Kavita alone
  3. CThe bank is discharged only if Deepak proves he is the holder in due course
  4. DThe bank is discharged only if Anil confirms the payment in writing

Explanation

Section 85(2) says where a cheque is originally payable to bearer, the drawee is discharged by payment in due course to the bearer, notwithstanding any endorsement, in full or blank, even if it purports to restrict or exclude further negotiation. The restrictive words therefore do not protect against the bank's discharge.

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