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

Meera draws a bill on Kiran for Rs. 20,000, payable to "Anil" with no words prohibiting transfer. Another instrument is payable to "Anil only, not transferable". Applying Section 13, which statement is correct?

The first instrument is payable to order because it is payable to a named person and has no words prohibiting transfer. The second is not, because the words 'only, not transferable' prohibit transfer and so defeat negotiability under Section 13.

  1. ABoth instruments are payable to order and therefore negotiable
  2. BNeither is negotiable because a named payee is mentioned
  3. CThe first is payable to order because it names a particular person and has no words prohibiting transfer; the second is notCorrect
  4. DThe first is payable to bearer because no indorsement is shown

Explanation

Explanation (i) to Section 13 says an instrument expressed payable to a particular person is payable to order if it contains no words prohibiting transfer or showing intention that it is not transferable. The second instrument contains such words, so it is not negotiable. Bearer status needs express words or a blank indorsement as the only or last indorsement.

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