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CSEET · Business Laws and Management · Elements of Law relating to Negotiable Instruments

Ravi, the holder of a bearer cheque drawn on a bank, indorses it on the back with the words "Pay Meena only" and delivers it to Meena. Under the Negotiable Instruments Act, 1881, what is the effect of this indorsement?

The indorsement "Pay Meena only" excludes Meena's right of further negotiation. Under the Act, an indorsement followed by delivery transfers the property to the indorsee, but express restrictive words such as "only" can exclude any further negotiation by the indorsee.

  1. AIt excludes Meena's right of further negotiationCorrect
  2. BIt makes the cheque invalid and not payable
  3. CIt allows Meena to negotiate it further as she wishes
  4. DIt converts the cheque into a promissory note

Explanation

Section 50 provides that an indorsement may, by express words, restrict or exclude the right of further negotiation. Its illustration (a) states that "Pay the contents to C only" excludes C's right of further negotiation. The option saying Meena may negotiate freely ignores the words "only".

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