Negotiable Instruments Act 1881

What is the main objective of the Negotiable Instruments Act 1881?

• To legalize the system by which instruments can be transferred

• To regulate the use of negotiable instruments in India

• To establish guidelines for the issuance of promissory notes

• To protect the rights of payees in financial transactions

Answer explanation

The main objective of the Negotiable Instruments Act 1881, as per the correct choice, is to legalize the system by which instruments can be transferred. This indicates that the act primarily focuses on establishing a lawful procedure for transferring negotiable instruments, rather than just regulating their use, setting issuance guidelines, or protecting payee rights.

According to the Act, what are the three types of negotiable instruments?

• Promissory note, bill of exchange, and cheque

• Hundi, promissory note, and cheque

• Bill of exchange, cheque, and banknote

• Hundi, bill of exchange, and banknote

Answer explanation

The question asks about the three types of negotiable instruments as per the Act. The correct answer is 'Promissory note, bill of exchange, and cheque'. These are the three primary types of negotiable instruments defined by law. Hundi and banknote are not considered as primary types of negotiable instruments.

What are the two features of negotiable instruments?

• Transferability and good title for the transferee

• Payable to order or bearer and freely transferable

• Presumption as to holder and consideration

• Payable to order or bearer and presumption as to holder

Answer explanation

The question asks about the two main features of negotiable instruments. The correct answer is 'Payable to order or bearer and freely transferable'. This is because these characteristics define negotiable instruments: they are payable to the person specified (order) or the person in possession (bearer), and they can be easily transferred from one person to another.

What is the characteristic of a negotiable instrument being 'payable to order'?

• It must be expressed to be so payable

• It must be expressed to be payable to a particular person

• It must contain words which prohibit transfer

• All of the above

Answer explanation

The question asks about the characteristic of a negotiable instrument being 'payable to order'. The correct answer is 'All of the above' because for a negotiable instrument to be 'payable to order', it must be expressed to be so payable, it has to be payable to a specific person, and it must contain words that prohibit its transfer.

What is the presumption as to consideration in negotiable instruments?

• The instrument is presumed to have been made for consideration

• The holder in due course is presumed to have given consideration

• The transferor is presumed to have received consideration

• All of the above

Answer explanation

In the case of negotiable instruments, it's generally assumed that the instrument was created for consideration, meaning there was an expectation of something in return. Furthermore, the holder in due course, the person who ultimately receives the instrument, is assumed to have given something in return. Also, the person who transfers the instrument is presumed to have received something. Hence, 'All of the above' is the correct answer.

What is the difference between a promissory note and a bill of exchange?

• A promissory note is payable on demand, while a bill of exchange is payable after a specified period.

• A promissory note requires acceptance, while a bill of exchange does not.

• A promissory note is a promise to pay, while a bill of exchange is an order to pay.

• A promissory note is drawn on a specified banker, while a bill of exchange is drawn on any person.

Answer explanation

The question asks about the difference between a promissory note and a bill of exchange. The correct option clarifies that a promissory note is a promise by the maker to pay a certain amount, while a bill of exchange is an order by the drawer to a third party to pay a specific amount. Therefore, the main difference lies in whether it's a promise or an order to pay.

What is the liability of the drawee on the dishonour of a cheque?

• The drawee must compensate the drawer for any loss or damage caused

• The drawee is liable to pay the amount of the cheque to the holder

• The drawee is not liable for the dishonour of a cheque

• The drawee is liable only if the cheque is presented within 6 months

Answer explanation

The correct answer is that the drawee is liable to pay the amount of the cheque to the holder. This is because, in the event of a dishonour of a cheque, the responsibility of the drawee is to pay the mentioned amount of the cheque to the holder, not to compensate for loss or damages, and irrespective of the presentation date of the cheque.

What is the difference between noting and protesting a dishonoured instrument?

• Noting is done by a notary public, while protesting is done by the holder of the instrument

• Noting is recording the fact of dishonour, while protesting is a formal certificate issued by a notary public

• Noting is done within a reasonable time, while protesting must be done immediately after dishonour

• Noting is compulsory for foreign bills, while protesting is optional for inland bills

Answer explanation

The question asks about the difference between noting and protesting a dishonoured instrument. The correct answer states that noting is done by a notary public, while protesting is done by the holder of the instrument. This differentiates the two concepts based on who performs each - the notary public notes the dishonour, while the holder of the instrument executes the protest.

How is an instrument discharged?

• By payment in due course

• By cancellation

• By release

• All of the above

Answer explanation

The question asks about the methods of discharging an instrument. The correct answer is 'All of the above' because an instrument can indeed be discharged through all the mentioned methods - 'By payment in due course', 'By cancellation', and 'By release'. Each of these options represents a valid way to discharge an instrument.

What is the difference between a promissory note and a bill of exchange?

• A promissory note is payable on demand, while a bill of exchange is payable after a specified period

• A promissory note requires acceptance, while a bill of exchange does not

• A promissory note is a promise to pay, while a bill of exchange is an order to pay

• A promissory note is drawn on a specified banker, while a bill of exchange is drawn on any person

Answer explanation

The question asks about the difference between a promissory note and a bill of exchange. The correct answer is that a promissory note requires acceptance, whereas a bill of exchange does not. This means that the person who the promissory note is made out to must accept it before it becomes valid, while this is not required for a bill of exchange.