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

Hari holds a cheque payable to his order. He endorses it 'Pay Imran only', and Imran, the endorsee, then wants to transfer it to Jyoti. What is the position?

Imran cannot negotiate the cheque to Jyoti. The words 'pay Imran only' make a restrictive endorsement that bars further negotiation and limits payment to Imran. The endorsement is valid, not void, and it confines the right to receive payment to him.

  1. AImran may freely negotiate it to Jyoti, because restrictive words do not bind him
  2. BImran cannot negotiate it further, because the endorsement restricts payment to Imran onlyCorrect
  3. CImran can transfer it only by delivery without signing
  4. DHari's endorsement is void because it names a single person

Explanation

An endorsement containing words such as 'pay Imran only' restricts or prohibits further negotiability and makes Imran the only person entitled to receive payment. It is a valid restrictive endorsement. Imran therefore cannot pass title to Jyoti by negotiation, though he may sue on the instrument himself.

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