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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Nisha draws a cheque for Rs 25,000 on her account with a bank in Pune in favour of Omkar. Before presenting it, Omkar cancels the cheque by tearing off Nisha's signature intentionally, intending to release her. What is the legal effect?

Nisha is discharged. When the holder intentionally cancels a party's signature with the intention of releasing that party, the party is discharged from liability to the holder. Payment is not the only way to discharge a party, and no extra notice is required.

  1. ANisha is discharged from liability on the cheque, as cancellation by the holder discharges the partyCorrect
  2. BNisha stays liable because only payment can discharge a cheque
  3. CNisha stays liable unless Omkar also gives her written notice
  4. DThe cheque becomes valid again after three months

Explanation

If the holder intentionally cancels the name of a party with intent to discharge that party, that party and those deriving title through her are discharged from liability to the holder. Option B wrongly says only payment discharges an instrument. Written notice is not needed.

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