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CS Professional · Banking and Insurance - Laws and Practice · Payment and Collection of Cheques and Other Negotiable Instruments

Anjali Exports receives an uncrossed cheque from Rao Textiles. Before depositing it, she writes "not negotiable" between two parallel lines after crossing it generally. Which statement about her action is correct under the Negotiable Instruments Act, 1881?

Her action is valid. Under Section 125, the holder of an uncrossed cheque may cross it generally, and where a cheque is crossed, the holder may add the words not negotiable. No consent from the drawee bank or the drawer is required.

  1. AIt is invalid, because the words "not negotiable" may be added only by the drawer
  2. BIt is valid, because the holder of an uncrossed cheque may cross it generally and may add the words "not negotiable" to a crossed chequeCorrect
  3. CIt is valid only if the drawee bank gives written consent
  4. DIt is invalid, because a cheque once issued cannot be crossed by the holder

Explanation

Section 125 lets the holder of an uncrossed cheque cross it generally or specially, and lets the holder of a crossed cheque add the words "not negotiable". No bank consent is needed. The distractor limiting this to the drawer ignores the holder's power after issue.

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