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

Ramesh Traders signs and delivers to Kiran Enterprises a properly stamped paper that is wholly blank, and Kiran later completes it as a negotiable instrument. Under the Negotiable Instruments Act, 1881, what authority does Kiran prima facie have?

The holder has prima facie authority to complete a negotiable instrument for any amount specified, provided it does not exceed the amount covered by the stamp. This follows from the rule on inchoate stamped instruments, which expressly covers papers that are wholly blank when signed and delivered.

  1. ANo authority, because a blank paper cannot become a negotiable instrument
  2. BAuthority to complete it for any amount specified, not exceeding the amount covered by the stampCorrect
  3. CAuthority to complete it for any amount, whatever the stamp covers
  4. DAuthority only to complete it as a cheque, and for no other instrument

Explanation

Section 20 says that when a person signs and delivers a stamped paper that is wholly blank or incomplete, the holder has prima facie authority to complete a negotiable instrument for any amount specified, not exceeding the amount covered by the stamp. Option C ignores the stamp ceiling. Option A is wrong because the section expressly covers wholly blank papers.

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