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

Ramesh Traders draws a cheque in favour of 'Sunil Kapoor', without adding any words that prohibit transfer. Under Section 13, how is this instrument regarded?

The cheque is payable to order. Under Section 13, an instrument payable to a particular person, with no words prohibiting transfer or showing an intention that it is not transferable, is payable to order, even without the words 'or order'.

  1. APayable to bearer, because no indorsement is needed
  2. BPayable to order, because it names a particular person and has no words prohibiting transferCorrect
  3. CNot negotiable, because the words 'or order' are missing
  4. DPayable to bearer only after the payee signs on the back in blank

Explanation

Explanation (i) to Section 13 says an instrument expressed to be payable to a particular person, and not containing words prohibiting transfer or indicating an intention that it shall not be transferable, is payable to order. The absence of 'or order' therefore does not destroy negotiability. Option C is wrong for this reason.

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