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CMA Intermediate · Business Laws and Ethics · Negotiable Instruments Act, 1881

Meera signs and delivers a stamped paper with an incomplete negotiable instrument to Arun, intending it to be for ₹20,000. Arun completes it for ₹50,000, within the stamp value, and negotiates it to Bhavya, a holder in due course. What is Meera's liability to Bhavya under the Act?

Meera is liable to Bhavya for ₹50,000, in the capacity in which she signed. The holder in due course can enforce the instrument for the amount filled in within the stamp. Only holders who are not in due course are limited to the amount the signer intended.

  1. ALiable to Bhavya for ₹50,000 in the capacity in which she signedCorrect
  2. BNot liable at all, because Arun exceeded authority
  3. CLiable only for ₹20,000, the amount she intended
  4. DLiable only if Bhavya first proves that Meera knew of the alteration

Explanation

Section 20 makes the signer liable in the capacity in which she signed to any holder in due course for the amount specified, within the stamp. The proviso restricting recovery to the intended amount applies to persons other than holders in due course. So Bhavya can recover ₹50,000; the ₹20,000 option applies only against a non-HDC.

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