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

Anil Traders of Indore gave a cheque for Rs 60,000 to Bhavna Suppliers on 1 June in payment of an existing debt. The cheque was dishonoured for insufficient funds. Which of the following is a necessary condition for an offence under Section 138?

The cheque must have been drawn for discharge, wholly or partly, of a legally enforceable debt or liability. Section 138 punishes dishonour only in that case, so a cheque given as a gift does not qualify, and neither a prior civil suit nor account closure is a condition.

  1. AThe cheque must have been issued as a gift to the payee
  2. BThe cheque must have been drawn for discharge, wholly or partly, of a legally enforceable debt or liabilityCorrect
  3. CThe payee must have first filed a civil suit for recovery
  4. DThe drawer must have closed his bank account before presenting the cheque

Explanation

Section 138 applies when a cheque is drawn on the drawer's account for discharge of a legally enforceable debt or other liability and is returned unpaid for insufficiency of funds or because it exceeds the arrangement with the bank. A gift is not a legally enforceable debt. A civil suit is not a precondition, and closing the account is not required.

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