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

Ramesh Traders issues a cheque "Pay to Suresh Iyer" without adding any words that prohibit transfer. As per the Act, how is this instrument treated?

The cheque is payable to order. Under Section 13, an instrument expressed to be payable to a particular person is payable to order unless it contains words prohibiting transfer or showing that it should not be transferable. Omitting the words 'or order' does not change this.

  1. APayable to order, because it is payable to a particular person and has no words prohibiting transferCorrect
  2. BPayable to bearer, because no indorsement appears on it
  3. CNot negotiable, because the words 'or order' are missing
  4. DPayable only to Suresh Iyer and not transferable

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. The absence of 'or order' does not make it non-negotiable, so the third option is wrong.

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