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

Anil signs a cheque payable to "Bharat Traders" without adding words that prohibit transfer or show that it is not transferable. How is the cheque classified under Section 13 of the Negotiable Instruments Act, 1881?

The cheque is payable to order. Under Section 13, an instrument expressed to be payable to a particular person, without words prohibiting transfer or showing it is not transferable, is payable to order, even if the words "or order" are absent.

  1. APayable to bearer, because no indorsement has been made
  2. BPayable to order, because it is expressed to be payable to a particular person and has no words prohibiting transferCorrect
  3. CNot a negotiable instrument, because the payee is a firm
  4. DPayable to bearer, because the words "or order" are missing

Explanation

Under Section 13 Explanation (i), an instrument expressed to be payable to a particular person, without words prohibiting transfer or indicating intention that it not be transferable, is payable to order. Explanation (iii) adds that even without "or his order" it is payable to him or his order at his option. Bearer status needs express words or a last indorsement in blank.

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