Skip to content

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

Ramesh holds a cheque payable to the order of Ramesh. He signs on the back and hands it over to Sunita. What is the legal effect under the Act?

Indorsement followed by delivery negotiates the cheque and transfers the property in it to Sunita, together with the right to negotiate it further. This right is lost only if the indorsement contains express words restricting or excluding it.

  1. AThe cheque is negotiated, and the property in it passes to Sunita with the right of further negotiation unless expressly restrictedCorrect
  2. BThe cheque is negotiated, but Sunita cannot negotiate it further unless Ramesh adds the words 'or order'
  3. COnly the signature is made, so no negotiation takes place until the bank accepts it
  4. DThe cheque becomes payable only to Ramesh's agent

Explanation

An order instrument is negotiable by indorsement and delivery (Section 48). Under Section 50 this transfers the property with the right of further negotiation, unless express words restrict or exclude it. The 'or order' words are not needed, so the second option is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Negotiable Instruments Act, 1881 shows your real accuracy, how long you take and where you lose marks.

Practise Negotiable Instruments Act, 1881Free diagnostic mock

More Negotiable Instruments Act, 1881 questions