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

Kavita Textiles holds a cheque payable 'to Ramesh Gupta' with no words prohibiting transfer. It is dishonoured on presentment and later prosecuted under section 138. For deciding whether the instrument is a cheque payable to order, which statement matches the Act?

The cheque is payable to order. Under section 13, a cheque expressed 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. AIt is payable to order, since it is expressed payable to a particular person without words prohibiting transferCorrect
  2. BIt is payable to bearer, since no indorsement appears on it
  3. CIt is not negotiable, because only bearer cheques are negotiable
  4. DIt is payable to order only if the words 'or order' are written

Explanation

Under section 13(1), Explanation (i), a cheque is payable to order if it is expressed to be so payable, or is payable to a particular person and contains no words prohibiting transfer or showing intention that it is not transferable. Ramesh Gupta's cheque meets this, so the words 'or order' are not needed. The bearer option is wrong because bearer status needs express words or a last blank indorsement.

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