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

Meena signs and hands over to Karan a properly stamped paper that is wholly blank. Which statement best reflects the position under Section 20 of the Negotiable Instruments Act, 1881?

Meena gives Karan prima facie authority to complete a negotiable instrument on the stamped blank paper for any amount that does not exceed the amount covered by the stamp. The authority is limited by the stamp cover and does not depend on Karan being a holder in due course.

  1. AMeena gives Karan no authority, because a blank paper cannot become an instrument
  2. BMeena gives Karan prima facie authority to complete a negotiable instrument for any amount not exceeding the amount covered by the stampCorrect
  3. CMeena gives Karan authority to complete it for any amount, even above the stamp cover
  4. DMeena gives authority only if Karan is a holder in due course

Explanation

Section 20 says that signing and delivering a stamped paper, wholly blank or incomplete, gives the holder prima facie authority to make or complete a negotiable instrument for any amount specified, not exceeding the amount covered by the stamp. Authority is not unlimited, so the option allowing any amount is wrong.

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