Negotiable Instruments Promissory Note Bill of Exchange Cheque Important MCQs
Negotiable Instruments According to Section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument refers to promissory note, bill of exchange, or cheque, payable either to order or to bearer. So, as per Negotiable Instruments Act, 1881 there are just three types of negotiable instruments i.e., Promissory note Bill of exchange Cheque But apart from these, many other documents are also recognized as Negotiable Instruments on the basis of custom and usage, like treasury bills, share warrants, hundis, etc. (only if they possess the features of negotiability).
Negotiable Instruments Negotiable Instruments are documents that guarantee the payment of a specific sum of money, either on demand or at a set time to a specific person. It is a transferable, signed document that can be transferred from person to person. The person who receives the payment, must be named or otherwise indicated on the instrument.
Promissory Note Section 4 of The Negotiable Instruments Act, 1881 defines Promissory Note as: A Promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. A promissory note is a financial instrument which contains a written promise by one party to pay another party a definite amount of money, either on demand or at a specified future date. It typically contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, date, maturity date and place of issuance, and issuer s signature. This document, once signed by the specified person, duly stamped and handed over to another person involved, becomes a Negotiable Instrument.
Promissory Note There are mainly two parties involved in a promissory note. 1. The Maker or Drawer: the person who makes the promissory note and promises to pay the amount stated therein. 2. The Payee: the person to whom the amount is to be paid. Features of a Promissory Note Written Instrument Duly Signed and Stamped by the maker Contain undertaking or Promise to pay Conditional Sum of money Promise to pay money only Payable on demand or after a certain date Maker must be certain Payee must be certain Sum payable must be certain, i.e. can be calculated
Bill of Exchange Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange a an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. There are three parties involved in a bill of exchange. They are 1. The Drawer: The person who makes the order for making payment. 2. The Drawee: The person to whom the order to pay is made. 3. The Payee: The person to whom the payment is to be made.
Features of Bill of Exchange Written Duly Signed by drawer Drawee Duly Stamped Order to pay In terms of Money only Parties must be Certain Sum payable must be Certain Unconditional Date
Cheque Section 6 of The Negotiable Instruments Act, 1881 defines cheque as: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Transactions through cheques are quite common these days. Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry large amounts of money. It is a document that orders a bank to pay a specific amount of money from a person s account to the person in whose name the cheque has been issued. The person writing the cheque is known as a drawer. The amount is transferred only to the person to whom a cheque is addressed.
Features of a Cheque: Written Duly Signed by the drawer Unconditional order Issued by Specified banker Amount must be Certain Amount mentioned both in figures and words Payee must be Certain Payable on Demand Must be Dated
Cheque There are various types of cheques and these are described in the following sections. Order Cheque Bearer Cheque Blank Cheque Counter cheque Stale Cheque Multilated Cheque Post Dated Cheque Open Cheque Crossed Cheque Gift Cheque Traveller s Cheque
Q1. Which section of the Negotiable Instruments Act, 1881 deals with Negotiable Instruments? 1.Section 4 2.Section 118 3.Section 6 4.Section 13 5.Section 138 Ans: Option 4 Q2. Which of these is not a Negotiable Instrument according to Negotiable Instruments Act, 1881? 1.Cheque 2.Bill of Exchange 3.Currency Note 4.Promissory Note 5.None of these Ans: Option 3
Q3. Section 4 of the Negotiable Instruments Act deals with: 1.Cheques 2.Promissory Note 3.Hundis 4.Bill of Exchange 5.Both 2 and 4 Ans: Option 2 Q4. Parties to a bill of exchange are: 1.Drawer 2.Drawee 3.Payee 4.Only 1 and 2 5.All of these Ans: Option 5
Q5. A Promissory Note is: 1.A conditional order to pay 2.An unconditional order to pay 3.A conditional promise to pay 4.An unconditional promise to pay 5.Both 1 and 3 Ans: Option 4 Q6. Which section of the Negotiable Instruments Act deals with Cheque? 1.Section 6 2.Section 5 3.Section 118 4.Section 7 5.None of these Ans: Option 1
Q7. In case of a Promissory Note, there are: 1. 3 Parties 2. 5 Parties 3. 2 Parties 4. 4 Parties 5. 6 Parties Ans: Option 3 Q8. Which of the following statements qualifies a Promissory Note? I. I Promise to pay Shyam Rs. 50,000 on demand. II. I Promise to pay Shyam Rs. 5,00,000 along with my car on demand. III. I Promise to pay Shyam Rs. 50,000 and rest of the fines on demand. 1.Only I 2.Only II 3.Only III 4.Both I and II 5.None of these. Ans: Option 1
Q9. A Cheque: 1. Is a type of bill of exchange 2. Includes electronic image of a truncated cheque 3. Payable on demand 4. All of these 5. Only 1 and 3 Ans: Option 4 Q10. A Bill of Exchange is: 1. A conditional promise to pay 2. An unconditional order to pay 3. An unconditional promise to pay 4. A conditional order to pay 5. Both 2 and 3 Ans: Option 2