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

Deepa signs and delivers to Farhan a properly stamped paper with an incomplete promissory note, intending it to be for Rs 20,000, but the stamp covers up to Rs 50,000. Farhan fills it for Rs 45,000 and negotiates it to Gopal, a holder in due course. Under Section 20, what is Deepa's liability to Gopal?

Deepa is liable to Gopal for Rs 45,000. Section 20 makes the signer of a stamped incomplete instrument liable to a holder in due course for the amount filled in, provided it does not exceed the stamp cover.

  1. ARs 20,000 only, her intended amount
  2. BRs 45,000, as the amount specified within the stamp coverCorrect
  3. CRs 50,000, the full stamp value
  4. DNil, because the instrument was incomplete when signed

Explanation

Section 20 gives the holder prima facie authority to complete the instrument for any amount not exceeding the amount covered by the stamp, and the signer is liable to a holder in due course for that amount. Rs 45,000 is within the Rs 50,000 stamp cover. The Rs 20,000 limit applies only against non-holders in due course.

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