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

Meera Traders issues a written instrument to Kiran Supplies stating: 'Pay to Kiran Supplies Rs 40,000'. The instrument is a cheque on a bank and contains no words prohibiting transfer. Under the Negotiable Instruments Act, 1881, how is this instrument classified as to payability?

The cheque is payable to order. An instrument made payable to a particular person, with no words prohibiting transfer or showing it is not transferable, is treated as payable to order under Section 13, even without the words 'or order'.

  1. APayable to order, because it names a particular person and has no words prohibiting transferCorrect
  2. BPayable to bearer, because no 'or order' words appear
  3. CNon-negotiable, because 'or order' is not written
  4. DPayable to bearer until the payee endorses it

Explanation

Explanation (i) to Section 13 says an instrument expressed to be payable to a particular person, without words prohibiting transfer or showing intention that it is not transferable, is payable to order. Hence the absence of 'or order' does not make it bearer or non-negotiable.

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