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CMA Foundation · Fundamentals of Business Laws and Business Communication · Negotiable Instruments Act, 1881

Meena draws a cheque payable to 'Anil' without adding words prohibiting transfer. Under the Act, how is this cheque treated?

The cheque is payable to order. Under Section 13, an instrument payable to a particular person that lacks words prohibiting transfer or showing it is not transferable is treated as payable to order, so Anil can transfer it by endorsement.

  1. APayable to order, since it is payable to a particular person and has no words prohibiting transferCorrect
  2. BPayable to bearer, since no endorsement is shown
  3. CNot a negotiable instrument, as it names a specific person
  4. DPayable only to Anil and non-transferable

Explanation

Explanation (i) to Section 13 says an instrument expressed to be payable to a particular person, without words prohibiting transfer or indicating an intention that it shall not be transferable, is payable to order. Treating it as a bearer cheque is wrong because bearer status needs express words or a blank endorsement.

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