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

Neha draws a cheque payable to 'Sundaram Pvt Ltd' without words prohibiting transfer. Sundaram Pvt Ltd endorses it in blank to Vikram. Under the Act, how is the cheque now payable?

The cheque is now payable to bearer. Under Section 13, Explanation (ii), an instrument whose only or last endorsement is in blank is payable to bearer, even if it was originally payable to the order of a named payee such as Sundaram Pvt Ltd.

  1. ATo order, since it was originally payable to a named person
  2. BTo bearer, since the only or last endorsement is in blankCorrect
  3. CNon-negotiable, since it has been endorsed once
  4. DPayable only to Sundaram Pvt Ltd

Explanation

Section 13, Explanation (ii), states that an instrument is payable to bearer if expressed so or if the only or last endorsement is an endorsement in blank. The blank endorsement by Sundaram makes it bearer. Its original order character is displaced by this last endorsement.

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