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PART I (1–20)
Basic Concepts of NI Act
1. Chapter XVII was inserted into the NI Act, 1881 by amendment in the year:
A. 1888
B. 1988
C. 1998
D. None of the above
Answer: B
Explanation: Chapter XVII containing Sections 138-142 was inserted by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, effective from April 1, 1989. This chapter criminalised cheque dishonour.
2. In the absence of a contract to the contrary, the liability of the maker or drawer of a foreign negotiable instrument is regulated by:
A. The law of the place where the instrument is made payable (Section 134)
B. The law of the place where the instrument is indorsed (Section 134)
C. The law of the place where the instrument is MADE (Section 134)
D. None of the above
Answer: C
Explanation: As per Section 134, the liability of the maker or drawer of a foreign negotiable instrument is regulated by the law of the place WHERE THE INSTRUMENT IS MADE (lex loci contractus), not where it is payable.
3. The term "negotiation" in Section 14 of the NI Act, 1881 refers to:
A. The transfer of a bill of exchange, promissory note or cheque to any person so as to constitute the person the holder thereof
B. The payment by a bank on a negotiable instrument after due verification
C. The bargaining between the parties to a negotiable instrument
D. All of the above
Answer: A
Explanation: Section 14 defines negotiation as the transfer of a negotiable instrument to any person so as to constitute that person the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, by endorsement and delivery.
4. In determining reasonable time for payment of a negotiable instrument:
A. Public holidays are included
B. Public holidays are excluded
C. Only holidays observed by banks are excluded
D. None of the above
Answer: B
Explanation: Under Section 105 of the NI Act, PUBLIC HOLIDAYS are excluded when determining reasonable time for presentment or payment. The Act ensures fairness by not counting days when courts or banks are closed.
5. Can the holder of a negotiable instrument indorsed in blank convert it into an indorsement in full?
A. No, such conversion is not possible under NI Act, 1881 (Section 49)
B. Yes, the holder can, WITHOUT signing his own name, by writing above the indorser's signature a direction to pay to any other person as indorsee, convert blank to full indorsement (Section 49)
C. Yes, the holder can BY SIGNING his own name and writing above the indorser's signature a direction to pay to convert blank to full indorsement
D. None of the above
Answer: B
Explanation: Section 49 allows the holder to convert a blank indorsement into a full indorsement by writing above the indorser's signature a direction to pay to a specified person — WITHOUT signing his own name.
6. When a cheque has become invalid because of expiry of the stipulated period, can it be re-validated by the drawer by alteration of dates?
A. Yes, the drawer can re-validate by alteration of dates
B. No, the drawer cannot re-validate by alteration of dates
C. Although the drawer cannot revalidate, the drawee can at his discretion revalidate it
D. None of the above
Answer: A
Explanation: YES, the drawer CAN re-validate a stale cheque by altering the date and signing the alteration. Note: Cheque validity is now 3 MONTHS (reduced from 6 months effective April 1, 2012).
7. If a minor draws, indorses, delivers or negotiates an instrument, such instrument binds:
A. All parties to the instrument including the minor
B. Only the minor and not other parties
C. All parties to the instrument EXCEPT the minor
D. None of the above
Answer: C
Explanation: Section 26 provides that a minor may draw, indorse, deliver and negotiate any negotiable instrument so as to bind ALL PARTIES EXCEPT HIMSELF. A minor's contract is voidable at his option.
8. A notice of protest under Section 102 of the NI Act, 1881:
A. MAY be given by the notary public who makes the protest
B. MUST always be given by the notary public who makes the protest
C. Must be given by the holder
D. None of the above
Answer: A
Explanation: Section 102 provides that the notice of protest MAY be given by the notary public who makes the protest. It is not mandatory — the holder or his agent can also give notice of protest.
9. Can a drawer escape from his liability?
A. No, a drawer can never escape from his liability
B. Yes, a drawer can limit or exclude his liability by inserting an express stipulation to that effect in the bill
C. In certain cases he can escape liability but not always
D. None of the above
Answer: B
Explanation: Under Section 44, a drawer CAN limit or exclude his own liability by inserting an express stipulation to that effect in the bill. However, he cannot exclude the liability of the acceptor or indorser.
10. Chapter XVII of the NI Act contains Sections:
A. 138 to 142
B. 136 to 142
C. 112 to 124
D. None of the above
Answer: A
Explanation: Chapter XVII of the NI Act contains Sections 138 to 142, all dealing with the offence of dishonour of cheques for insufficiency of funds. The 2002 Amendment added Section 143 onwards for procedural aspects.
11. An authority to draw bills of exchange:
A. Itself imports an authority to indorse
B. Does NOT itself import an authority to indorse
C. Sometimes imports an authority to indorse
D. None of the above
Answer: B
Explanation: Section 27 provides that an authority to draw bills of exchange does NOT itself import an authority to indorse. These are two separate authorities.
12. Under Section 97 of the NI Act, when the party to whom notice of dishonour is dispatched is dead but the despatching party is ignorant of his death, the notice is:
A. Sufficient
B. Not sufficient
C. Null and void
D. None of the above
Answer: A
Explanation: Section 97 provides that where the party to whom notice is dispatched is dead but the dispatching party is ignorant of his death, the notice is SUFFICIENT. Ignorance of death protects the sender.
13. Dishonour by non-acceptance takes place when:
A. The bill is properly presented for acceptance but the drawee makes default in ACCEPTING it
B. The bill is properly presented for acceptance but the drawee makes default in PAYING it
C. The bill is properly presented for payment but the drawee fails to accept it
D. None of the above
Answer: A
Explanation: Dishonour by Non-Acceptance (Section 91) occurs when a bill is properly presented for acceptance but the DRAWEE REFUSES TO ACCEPT it. Dishonour by non-payment is a separate concept under Section 92.
14. Which of the following instruments CANNOT be made payable otherwise than on demand?
A. Bill of exchange
B. None of these
C. Cheque
D. Promissory note
Answer: C
Explanation: A CHEQUE is always payable on demand and cannot be made payable at a future date. A post-dated cheque is technically a bill of exchange until the date written on it arrives.
15. With effect from which date was the term of imprisonment under Section 138 increased to two years from one year?
A. From 6-2-2002
B. From 6-2-2003
C. From 1-4-1989
D. None of the above
Answer: A
Explanation: The NI (Amendment) Act, 2002 (effective February 6, 2002) increased the punishment under Section 138 from imprisonment up to ONE YEAR to imprisonment up to TWO YEARS, with fine up to twice the cheque amount, or both.
16. For attracting provisions of Section 138, a cheque has to be presented to the bank:
A. Within a period of six months
B. Within a period of THREE MONTHS from the date on which it is drawn or within the period of its validity, whichever is earlier
C. Within a period of 15 days from the date on which it is drawn
D. None of the above
Answer: B
Explanation: IMPORTANT UPDATE: The cheque validity period was REDUCED FROM 6 MONTHS TO 3 MONTHS by RBI effective April 1, 2012. For Section 138 to apply, the cheque must be presented within 3 months from the date of drawing or within the period of its validity, whichever is earlier.
17. In a promissory note, the amount of money payable:
A. Must be certain
B. May be certain or uncertain
C. Is usually uncertain
D. None of the above
Answer: A
Explanation: Section 4 defines a promissory note as containing an unconditional undertaking to pay a CERTAIN SUM OF MONEY. The amount MUST BE CERTAIN — an uncertain amount would make it an invalid promissory note.
18. Under Section 118, the onus of proving ABSENCE of consideration is on the:
A. Indorser
B. Executant (drawer/maker)
C. Drawee
D. None of the above
Answer: B
Explanation: Section 118 creates a presumption that every negotiable instrument was made for consideration. The burden of proving ABSENCE of consideration lies on the EXECUTANT (drawer/maker), not the holder.
19. The liability under Section 138 of the NI Act, 1881 is:
A. Strict liability
B. Vicarious liability
C. Both A and B
D. None of the above
Answer: B
Explanation: The liability under Section 138 is primarily VICARIOUS LIABILITY. Section 141 extends vicarious liability to company directors/managers in charge of the company's affairs at the time of the offence.
20. Under the Limitation Act, 1963, the period of limitation for filing a suit by the payee against the drawer of a dishonoured bill of exchange (dishonoured by non-acceptance) is:
A. 3 years from the date of the refusal to accept
B. 2 years from the date of the refusal to accept
C. 3 years from the date of signing by the drawer
D. 3 years from the date of presentment
Answer: A
Explanation: Under Article 30 of the Limitation Act, 1963, the limitation period for a suit on a dishonoured bill of exchange is 3 YEARS from the date of dishonour — i.e., the date of refusal to accept.
PART II (21–40)
Section 138, Cheque Bounce & Legal Provisions
21. Cheque is a:
A. Promissory note
B. Bill of exchange
C. Both A and B
D. None of the above
Answer: B
Explanation: A cheque is a BILL OF EXCHANGE drawn on a specified banker and payable on demand (Section 6, NI Act). It is a species of bill of exchange with two specific characteristics: drawn on a banker and always payable on demand.
22. The provisions of Section 87 of the NI Act are subject to the provisions of:
A. Sections 20, 48, 68 and 125 of the Act
B. Sections 20, 49, 68 and 122 of the Act
C. Sections 20, 49, 86 and 125 of the Act
D. Sections 20, 49, 66 and 125 of the Act
Answer: C
Explanation: Section 87 (material alteration) is subject to Sections 20 (inchoate instruments), 49 (conversion of blank to full indorsement), 86 (payment of altered instrument) and 125 (crossing of cheques after issue).
23. If the words "not negotiable" are used with special crossing in a cheque, the cheque is:
A. Not transferable
B. Transferable
C. Negotiable under certain circumstances
D. None of the above
Answer: C (Transferable but with restricted title)
Explanation: A cheque with "not negotiable" crossing remains TRANSFERABLE but the transferee cannot get a better title than the transferor. The words "not negotiable" do NOT make the cheque non-transferable — they only restrict the quality of title obtainable.
24. Under Section 143 of the NI Act, all offences under the Act are to be tried by:
A. Any Judicial Magistrate
B. Judicial Magistrate of the First Class or by a Metropolitan Magistrate
C. Only a District Judge
D. None of the above
Answer: B
Explanation: Section 143 provides that offences under the NI Act shall be tried by a JUDICIAL MAGISTRATE OF THE FIRST CLASS or a METROPOLITAN MAGISTRATE. Summary trials were introduced by the 2002 Amendment to speed up disposal.
25. Under Section 16 of the NI Act, indorsement in blank means:
A. Where the indorser does not write anything on the instrument
B. Where the indorser SIGNS HIS NAME ONLY on the instrument
C. Where the indorser writes the name of the person directed to pay
D. None of the above
Answer: B
Explanation: Section 16 defines indorsement in blank as one where the indorser SIGNS HIS NAME ONLY, without specifying any indorsee. Such an instrument becomes payable to bearer and can be negotiated by mere delivery.
26. Crossing of a cheque affects the:
A. Negotiability of the cheque
B. Mode of payment on the cheque
C. Both A and B
D. None of the above
Answer: C
Explanation: Crossing affects BOTH: (1) MODE OF PAYMENT — a crossed cheque can only be paid through a bank account, not in cash; and (2) NEGOTIABILITY — "not negotiable" crossing restricts quality of title transferable.
27. A bill of exchange contains a/an:
A. Unconditional undertaking
B. Unconditional order
C. Conditional undertaking
D. Conditional order
Answer: B
Explanation: Section 5 defines a bill of exchange as containing an UNCONDITIONAL ORDER in writing. A promissory note contains an unconditional undertaking. This is the key distinguishing feature between the two instruments.
28. A note under Section 99 of the NI Act should contain among other things:
A. Place of the notary
B. Charges of notary
C. Both A and B
D. None of the above
Answer: B
Explanation: Section 99 specifies that a noting should contain: the fact of dishonour, the date of dishonour, the reason for dishonour, and the NOTARY'S CHARGES. The place of notary is not specifically required under Section 99.
29. What is the presumption under Section 137 of the NI Act, 1881?
A. A negotiable instrument drawn in a foreign country is genuine
B. The law of any foreign country regarding negotiable instruments is same as that of India
C. Both A and B
Answer: B
Explanation: Section 137 creates a presumption that the law of a FOREIGN COUNTRY regarding negotiable instruments is the same as that of India. This is a rebuttable presumption — it holds until the contrary is proved.
30. For what term of imprisonment can an offender under Section 138 be punished?
A. For a term which may extend to TWO YEARS
B. For a term which may extend to one year
C. For a term not exceeding three years
D. None of the above
Answer: A
Explanation: As per Section 138 (after 2002 Amendment), punishment is imprisonment for a term which may extend to TWO YEARS, or fine up to twice the cheque amount, or both.
31. A protest is made by:
A. The drawer
B. The indorser
C. A notary
D. None of the above
Answer: C
Explanation: A protest under Section 100 is made by a NOTARY PUBLIC. When a bill or promissory note is dishonoured, the notary public attests the dishonour through the process of noting and protest.
32. Who among the following cannot cross a cheque?
A. Drawer
B. Holder
C. Banker
D. Foreigner
Answer: D
Explanation: Under Sections 123-131 of the NI Act, a DRAWER, HOLDER, and BANKER can cross a cheque. A foreigner who is not a party to the cheque (drawer/holder/banker) cannot cross a cheque.
33. Payment must be made to whom to discharge the maker or acceptor?
A. Holder of the instrument
B. Indorser of the instrument
C. Indorsee of the instrument
D. None of the above
Answer: A
Explanation: Payment must be made to the HOLDER of the instrument to discharge the maker or acceptor. The holder is the person entitled in his own name to possess the instrument and receive the amount.
34. As per Section 147 of the NI Act, every offence punishable under the Act is:
A. Compoundable
B. Non-compoundable
C. Cognizable
D. Both B and C
Answer: A
Explanation: Section 147 provides that every offence punishable under the NI Act shall be COMPOUNDABLE. The Supreme Court in Damodar S. Prabhu v. Sayed Babalal H. (2010) encouraged early compounding in cheque bounce cases.
35. Under Section 143 of the NI Act, an endeavour shall be made to conclude the trial within _____ months from the date of filing of the complaint:
A. 9
B. 3
C. 6
D. 12
Answer: C
Explanation: Section 143 provides that the court shall endeavour to conclude the trial within SIX MONTHS from the date of filing of the complaint. This was inserted by the 2002 Amendment to ensure speedy disposal.
36. Can the legal representative of a deceased person negotiate a promissory note indorsed by the deceased but not delivered?
A. Yes, the legal representative can negotiate the instrument by delivery only
B. No, the legal representative MUST RE-INDORSE AND DELIVER the instrument
C. An instrument indorsed by a deceased person is void
D. None of the above
Answer: B
Explanation: Section 57 provides that the legal representative CANNOT negotiate an instrument by mere delivery where the deceased had indorsed but not delivered it. The legal representative must RE-INDORSE AND DELIVER the instrument.
37. Where an indorser excludes his liability and afterwards becomes the holder, who are liable to him?
A. No one is liable to him
B. All intermediate indorsers are liable to him
C. Only the immediate prior indorser is liable
D. None of the above
Answer: B
Explanation: Section 52 provides that when a person who indorsed with exclusion of liability subsequently becomes the holder, ALL INTERMEDIATE INDORSERS are liable to him.
38. A bill is drawn payable to A or order. A indorses it to B without the words "or order." Can B negotiate the instrument?
A. Yes
B. No
C. Not always
D. None of the above
Answer: A
Explanation: YES, B can negotiate the instrument. Under Section 50, an indorsement without the words "or order" still makes the instrument negotiable. An instrument payable to order can be further negotiated without requiring such words in each subsequent indorsement.
39. The term Negotiable Instrument is defined in the NI Act, 1881 under Section:
A. 12
B. 13
C. 13A
D. 2D
Answer: B
Explanation: Section 13 of the NI Act defines a Negotiable Instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer.
40. Cognizance of an offence under Section 138 can be taken by a court only on a/an:
A. Police report
B. Complaint
C. Application to the District Judge
D. None of the above
Answer: B
Explanation: Section 142 provides that a court shall take cognizance of an offence under Section 138 ONLY upon a COMPLAINT made in writing by the payee or holder in due course. The court cannot take suo motu cognizance or act on a police report.
PART III (41–60)
Endorsements, Crossing & Instruments
41. "At sight" under Section 21 of the NI Act means:
A. On presentation
B. On demand
C. On coming into vision
D. None of the above
Answer: B
Explanation: Section 21 defines "at sight" as meaning ON DEMAND. A bill or note payable "at sight" is payable immediately when presented for payment. It is equivalent to "on demand" or "on presentation."
42. When must presentment for payment be made under Section 65?
A. At any reasonable time
B. During the usual hours of business and, if at a banker's, within banking hours
C. There is no stipulation on time for presentment
D. None of the above
Answer: B
Explanation: Section 65 provides that presentment must be made DURING THE USUAL HOURS OF BUSINESS, and if at a banker's, within banking hours. Presentment outside business hours is not valid.
43. A complaint against an offence under Section 138:
A. Must be in writing (Section 142)
B. May be oral or in writing (Section 142)
C. Must be in writing containing a declaration by the drawee (Section 142)
D. None of the above
Answer: A
Explanation: Section 142 mandates that a complaint under Section 138 MUST BE IN WRITING by the payee or holder in due course. An oral complaint is not sufficient.
44. The presumption as to the date of a negotiable instrument under Section 118 is that every instrument bearing a date was made or drawn:
A. Prior to that date
B. ON SUCH DATE
C. May be on or prior to that date
D. None of the above
Answer: B
Explanation: Section 118(a) creates a presumption that every negotiable instrument bearing a date was made or drawn ON SUCH DATE. This is a rebuttable presumption.
45. The provision of Section 147 (compoundable offences) was inserted by the:
A. Amending Act of 1988
B. Amending Act of 1980
C. Amending Act of 2002
D. None of the above
Answer: C
Explanation: Section 147 making all NI Act offences compoundable was inserted by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.
46. Under Section 118, it is presumed that every transfer of a negotiable instrument was made:
A. After its maturity
B. BEFORE its maturity
C. At its maturity
D. None of the above
Answer: B
Explanation: Section 118(g) creates a presumption that every transfer of a negotiable instrument was made BEFORE its maturity. This protects holders who receive instruments before due date.
47. Who should make a complaint under Section 138?
A. The payee or, as the case may be, the holder in due course of the cheque
B. Any person who is affected can make a complaint
C. The payee with the written permission of the drawee
D. None of the above
Answer: A
Explanation: Section 142 provides that only the PAYEE or the HOLDER IN DUE COURSE of the cheque can make a complaint under Section 138.
48. After J&K Reorganization Act 2019, the NI Act, 1881 applies to:
A. The whole of India excluding Jammu and Kashmir
B. The whole of India including Jammu and Kashmir
C. Those states as notified by Union Government
D. The whole of India except J&K and North-Eastern States
Answer: B
Explanation: After the abrogation of Article 370 and the J&K Reorganization Act, 2019, the NI Act NOW applies to THE WHOLE OF INDIA including the Union Territories of J&K and Ladakh.
49. The undertaking contained in a promissory note to pay a certain sum of money is:
A. Conditional
B. Unconditional
C. May be conditional or unconditional
D. None of the above
Answer: B
Explanation: Section 4 defines a promissory note as containing an UNCONDITIONAL undertaking to pay. A conditional undertaking would make it invalid as a promissory note.
50. If an instrument may be construed either as a promissory note or bill of exchange, it is:
A. A valid instrument
B. An ambiguous instrument
C. A returnable instrument
D. None of the above
Answer: B
Explanation: Section 17 provides that if an instrument may be construed either as a promissory note or a bill of exchange, it is called an AMBIGUOUS INSTRUMENT. The holder may treat it as either.
51. The NI Act, 1881 came into force on:
A. 9th December, 1881
B. 19th December, 1881
C. 1st March, 1882
D. None of the above
Answer: C
Explanation: The NI Act was passed on December 9, 1881 but came into FORCE on 1st MARCH, 1882. The date of passing and the date of commencement are different.
52. A Magistrate issuing a summons to an accused or witness can send it:
A. By speed post
B. By courier services
C. By courier services approved by a court of session
D. Both A and C
Answer: D
Explanation: Section 144 provides that summons may be sent by SPEED POST (A) or by COURIER SERVICES APPROVED BY A COURT OF SESSION (C). This was introduced to speed up service of summons in cheque bounce cases.
53. When the acceptor of an instrument is also the drawer, notice of dishonour is:
A. Necessary
B. NOT NECESSARY (Section 98(e))
C. Not always necessary
D. None of the above
Answer: B
Explanation: Section 98(e) provides that notice of dishonour is NOT NECESSARY when the acceptor is also the drawer. The drawer already knows of the dishonour as he is the same person.
54. A promissory note or bill of exchange not expressed to be payable on demand is at maturity:
A. On the 30th day after the day it is expressed to be payable
B. On the 3RD DAY after the day it is expressed to be payable (days of grace)
C. On the 5th day after the day it is expressed to be payable
D. On the 4th day after the day it is expressed to be payable
Answer: B
Explanation: Section 22 provides that every usance instrument is entitled to THREE DAYS OF GRACE added to the due date. The instrument matures on the 3rd day of grace.
55. A Bill of Exchange is defined by:
A. Sec 10 of NI Act
B. Sec 12 of BR Act
C. None of these
D. Sec 5 of NI Act
E. Sec 13 of NI Act
Answer: D
Explanation: Section 5 of the NI Act defines a Bill of Exchange as "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."
56. A cheque dated 31st November 2010 is presented on 30th November 2010. The bank should:
A. None of these
B. Will be paid on 1st December
C. Returned with the remark "Impossible date"
D. Returned as "Irregularly drawn"
Answer: C
Explanation: November has only 30 days — there is no November 31st. The cheque bears an IMPOSSIBLE DATE. The bank should return such a cheque with the memo "Impossible date."
57. A cheque is presented where the amount in words and figures differ. According to NI Act, the bank should:
A. Pay the amount whichever is less
B. PAY THE CHEQUE FOR THE AMOUNT EXPRESSED IN WORDS
C. Pay the amount expressed in figures
D. It will be invalid cheque
Answer: B
Explanation: Section 18 provides that if the amount expressed in words and figures differ, the amount expressed in WORDS shall be paid. This rule protects against fraudulent alteration of figures.
58. A minor is incompetent to be a:
A. Payee
B. None of these
C. Drawer
D. Endorser without being bound himself
E. Drawee
Answer: E
Explanation: A minor CANNOT be a DRAWEE because the drawee must have capacity to enter into a contract to accept and pay. A minor can be payee, drawer, endorser (without being bound) but NOT drawee.
59. A person cannot claim to be a holder in due course but may at most be a holder if he takes:
A. All of these
B. An instrument which is irregular on the face of it
C. None of these
D. An inchoate instrument
E. An instrument which is overdue
Answer: A
Explanation: A person cannot be holder in due course if he takes: (B) An instrument irregular on face; (D) An inchoate instrument; or (E) An overdue instrument. ALL of these disqualify one from being holder in due course.
60. A person can sue on the basis of a negotiable instrument if:
A. He becomes bearer of an instrument payable to bearer
B. All of these
C. Unless he is named therein as the payee only
D. He becomes entitled to it as endorsee
E. None of these
Answer: B
Explanation: A person can sue on a negotiable instrument if he is: (A) Bearer of a bearer instrument; (C) Named as payee; OR (D) Entitled to it as endorsee. ALL of these confer the right to sue.
PART IV (61–80)
Holder, Holder in Due Course & Banking Practice
61. A promissory note can be drawn for a maximum period of:
A. Ten years
B. Seven years
C. Five years
D. 12 years
E. No such limit
Answer: E
Explanation: There is NO MAXIMUM PERIOD prescribed under the NI Act for a promissory note. However, the Limitation Act prescribes the time within which a suit can be filed for recovery — 3 years for demand notes.
62. A promissory note may be made:
A. Only by one person
B. By two or more but not more than six
C. By two or more but not exceeding five
D. By one or more persons — no limit
Answer: D
Explanation: A promissory note can be made by ONE OR MORE persons with no maximum number prescribed. Two or more persons may execute a joint promissory note — all makers are jointly and severally liable.
63. A restrictive endorsement:
A. Prohibits further negotiation
B. All of these
C. Constitutes the endorsee the agent of the endorser for a special purpose
D. None of these
E. Vests the title in the endorsee in trust for or to use of some other person
Answer: B
Explanation: Section 50 defines restrictive endorsement as one which: (A) Prohibits further negotiation; OR (C) Constitutes endorsee as agent; OR (E) Vests title in endorsee in trust. ALL three describe valid forms of restrictive endorsement.
64. An ante-dated cheque is one which contains:
A. The date of issue
B. A date falling on a holiday
C. The date BEFORE the date of issue
D. An impossible date
E. None of these
Answer: C
Explanation: An ANTE-DATED cheque bears a date EARLIER than the actual date of issue. Ante-dated cheques are valid instruments — they become payable from the date mentioned on them.
65. An endorsement made by pencil is:
A. Illegal
B. Undesirable
C. Permissible under Sec 15 of NI Act
D. None of these
E. Invalid
Answer: B
Explanation: An endorsement by pencil is not illegal or invalid under the NI Act but is UNDESIRABLE in banking practice because pencil can be erased and forged. Banks generally refuse pencil endorsements as a matter of practice.
66. Having regard to Section 118 NI Act, consideration in the case of a negotiable instrument is:
A. Presumed
B. Waived
C. Immaterial
D. To be proved by the plaintiff
Answer: A
Explanation: Section 118(a) creates a presumption that every negotiable instrument was made for consideration. Consideration is PRESUMED — the holder need not prove it.
67. If no time is specified in a promissory note or bill of exchange, such instrument is considered as:
A. Payable on demand
B. Invalid instrument
C. Inchoate instrument
D. Not a negotiable instrument
Answer: A
Explanation: Section 19 provides that a promissory note or bill of exchange in which no time for payment is specified is payable ON DEMAND.
68. In case of post-dated cheques:
A. The holder will have a defective title
B. None of these
C. There MAY be a holder in due course
D. There can never be a holder in due course
Answer: C
Explanation: In case of post-dated cheques, THERE MAY BE a holder in due course. A post-dated cheque is technically a bill of exchange when issued, so a person who takes it before the date mentioned can be a holder in due course.
69. In order to operate as a valid bill of exchange, the instrument must satisfy:
A. The drawee, the drawer and the money ordered to be paid must be certain
B. The payee must be a certain person or bearer of the instrument
C. It must be in writing and signed by the drawer
D. All of these
Answer: D
Explanation: A valid bill of exchange requires ALL of these conditions simultaneously. It must also contain an unconditional order and be directed to a certain person.
70. Which section of NI Act, 1881 excludes public holidays for determining time for presentation or acceptance?
A. Section 89
B. Section 100
C. Section 105
D. Section 138
Answer: C
Explanation: Section 105 of the NI Act excludes PUBLIC HOLIDAYS when computing the reasonable time for presentment or payment. Public holidays are declared under Section 25 of the NI Act.
71. Maximum punishment for bouncing of cheques for want of funds is:
A. Imprisonment up to 2 years or fine of twice the cheque amount or both
B. Imprisonment up to one year
C. Fine of twice the amount of the cheque
D. Imprisonment up to 2 years
E. B or C or both
Answer: A
Explanation: Section 138 (after 2002 Amendment) provides punishment of imprisonment up to TWO YEARS, OR fine which may extend to TWICE THE AMOUNT OF THE CHEQUE, OR BOTH.
72. An assignee of a negotiable instrument is:
A. Illegal Holder
B. None of these
C. Only assignee of a chose in action and takes bill subject to all defects
D. Holder in due course
E. Holder for value
Answer: C
Explanation: An assignee is merely an assignee of a chose in action who TAKES THE BILL SUBJECT TO ALL DEFECTS in title. Unlike a holder in due course, an assignee cannot take free from equities and defects of prior parties.
73. Negotiable instruments are defined under:
A. Section 52 of Banking Regulation Act
B. None of these
C. Sec 25 of RBI Act
D. Sec 13 of NI Act
Answer: D
Explanation: Negotiable Instruments are defined under SECTION 13 of the Negotiable Instruments Act, 1881 as a promissory note, bill of exchange or cheque payable either to order or to bearer.
74. Protection to collecting banker under Section 131 is NOT available for:
A. Cheques
B. Bills of Exchange
C. Dividend warrants
D. Bank orders/demand drafts
E. None of these
Answer: B
Explanation: Section 131 protection is NOT available for BILLS OF EXCHANGE. It applies to cheques, dividend warrants, interest warrants, and similar instruments — not bills of exchange.
75. Public holiday under NI Act can be declared by:
A. Central Government or State Government
B. Central Government, State Government or RBI
C. State Governments only
D. RBI only
E. Central Government only
Answer: A
Explanation: Section 25 provides that PUBLIC HOLIDAYS can be declared by the CENTRAL GOVERNMENT or STATE GOVERNMENTS by notification in the Official Gazette. RBI does not have power to declare public holidays under the NI Act.
76. Public holidays are declared under Section _____ of NI Act:
A. 21
B. 22
C. 25
D. None of these
E. 13
Answer: C
Explanation: Section 25 of the NI Act deals with HOLIDAYS. It empowers the Central and State Governments to declare public holidays.
77. Section 127 of NI Act prohibits payment of a cheque:
A. Crossed specially to more than one bank except where the second banker acts as agent for collection of the first banker
B. Bearing forged signature
C. Bearing general crossing
D. Which is presented after business hours
Answer: A
Explanation: Section 127 prohibits payment of a cheque CROSSED SPECIALLY TO MORE THAN ONE BANK (double special crossing), except where the second banker acts as agent for collection of the first banker.
78. Section 15 of NI Act defines endorsement as:
A. Signing the negotiable instrument otherwise than as maker, on the back or face of it or on a slip of paper annexed to the instrument for purpose of negotiation
B. None of these
C. Signing the negotiable instrument by the true owner for transferring rights
D. Signing a Negotiable instrument otherwise than as maker, on the back or face to negotiate
Answer: A
Explanation: Section 15 defines endorsement as signing the instrument otherwise than as maker, on the back OR face of it, OR on a slip of paper annexed (allonge) to the instrument, for the purpose of negotiation. Option A is the most complete definition.
79. Stop payment instruction remains valid for a period of:
A. 12 years
B. Three months unless revoked by customer
C. Three years
D. As long as the account is alive
E. None of these
Answer: D
Explanation: A stop payment instruction remains valid AS LONG AS THE ACCOUNT IS ALIVE, unless it is revoked by the customer. There is no automatic expiry of stop payment instructions.
80. The bank that collects the payment of a cheque for its customer is called:
A. Paying Banker
B. Drawee bank
C. Collecting Banker
D. None of these
E. Payee
Answer: C
Explanation: The bank that collects the proceeds of a cheque on behalf of its customer (the payee) is called the COLLECTING BANKER. Section 131 provides statutory protection to the collecting banker acting in good faith.
PART V (81–99)
Latest Amendments & Case Laws 2024-2026
81. The assignee of the promissory note will acquire the status of a:
A. Drawee
B. Payee
C. Holder in due course
D. Holder
E. None of these
Answer: D
Explanation: An assignee of a promissory note acquires the status of a HOLDER (not holder in due course). An assignee takes the instrument subject to all defects in title and equities.
82. The NI Act 1881 came into effect from:
A. 1st March 1882
B. 1st January 1881
C. 1st July 1881
D. 1st March 1881
Answer: A
Explanation: The NI Act came into effect (commenced) from 1st MARCH, 1882, although it was passed on December 9, 1881.
83. After J&K Reorganization Act 2019, the NI Act 1881 is applicable in:
A. The whole India excluding Jammu & Kashmir
B. The whole India including Jammu & Kashmir
C. The whole India excluding Sikkim & Bengal
D. All states comprising erstwhile British India
Answer: B
Explanation: After the J&K Reorganization Act, 2019, THE WHOLE OF INDIA including the Union Territories of Jammu & Kashmir and Ladakh is covered by the NI Act.
84. The term 'Negotiable Instrument' is defined in the NI Act, 1881 under Section:
A. 12
B. 13
C. 13A
D. 2(d)
Answer: B
Explanation: Section 13 of the NI Act defines a Negotiable Instrument as a promissory note, bill of exchange or cheque payable either to order or to bearer.
85. Who is a holder in due course?
A. Who is entitled to possess the instrument in his own name, to receive the amount, and who acquired it for consideration before maturity without notice of defects
B. Who is in possession of the instrument either legally or illegally
C. None of these
D. Who has acquired the instrument for consideration (only)
Answer: A
Explanation: Section 9 defines Holder in Due Course as one who: (1) Acquires the instrument for consideration; (2) Acquires it before maturity; (3) Without notice of any defect in title of transferor; and (4) Is entitled to possess in his own name. ALL conditions must be satisfied.
86. The undertaking contained in a promissory note to pay a certain sum of money is:
A. Conditional
B. Unconditional
C. May be conditional or unconditional
D. None of the above
Answer: B
Explanation: The undertaking in a promissory note MUST BE UNCONDITIONAL as per Section 4. A conditional undertaking would render the instrument invalid as a promissory note.
87. What did the NI (Amendment) Act, 2018 (effective September 1, 2018) introduce?
A. Section 143A providing for interim compensation and Section 148 providing for deposit pending appeal
B. Only increased punishment for cheque bounce
C. Introduced electronic cheque system
D. Reduced validity of cheques to 3 months
Answer: A
Explanation: The NI (Amendment) Act, 2018 introduced: (1) Section 143A — courts can direct drawer to pay INTERIM COMPENSATION up to 20% of cheque amount to complainant; and (2) Section 148 — accused/appellant must deposit minimum 20% of fine/compensation when filing appeal.
88. To fix the liability of the drawer under Section 138, which conditions should be fulfilled?
A. The cheque should have been issued against valid consideration
B. The drawer should be given 15 days time from date of receipt of the notice to make payment
C. The payee gives notice in writing to the drawer within 30 days of receiving information of dishonour from the bank
D. The cheque should have been presented to the paying bank within its validity time
E. All of these
Answer: E
Explanation: ALL conditions must be satisfied for Section 138 to apply: (A) Cheque issued for valid consideration; (B) 15 days given to drawer after notice; (C) Notice given within 30 days of dishonour information; (D) Cheque presented within validity period (now 3 months).
89. What is an inchoate instrument?
A. Post-dated or ante-dated instrument
B. None of these
C. An instrument which is reported lost or torn
D. An instrument whose payment is stopped
E. A negotiable instrument which is INCOMPLETE as to its date, amount or name of payee
Answer: E
Explanation: An INCHOATE instrument (Section 20) is a negotiable instrument which is INCOMPLETE — it may be missing the date, amount, name of payee, or other essential particulars. The holder has authority to fill in the blanks within the authority given.
90. In a facultative endorsement, the endorser is liable in the event of dishonour even though notice of dishonour is not served. This type of endorsement is called:
A. None of these
B. Facultative endorsement
C. Restrictive endorsement
D. Conditional Endorsement
E. Irregular endorsement
Answer: B
Explanation: A FACULTATIVE ENDORSEMENT is one where the endorser expressly waives his right to receive notice of dishonour. By this endorsement, the endorser remains liable even if notice of dishonour is not given to him.
91. Where there are many endorsements, until the contrary is proved, it will be presumed that they have been made:
A. In the order in which they appear on the instrument
B. Within a reasonable time
C. Simultaneously
D. None of these
Answer: A
Explanation: Section 118(f) creates a presumption that endorsements appearing on a negotiable instrument were made IN THE ORDER IN WHICH THEY APPEAR on the instrument.
92. Which of the following about post-dated cheques is correct?
A. Both of these
B. A post-dated cheque becomes a cheque on the date written on it
C. A post-dated cheque is only a bill of exchange when drawn and becomes a cheque when payable on demand
D. None of these
Answer: A
Explanation: BOTH statements are correct: (B) A post-dated cheque becomes a cheque proper on the date written on it; (C) Before that date, it is technically a bill of exchange. This distinction is important for determining when Section 138 applies.
93. Which of the following are the requisites of a promissory note?
A. All of these
B. Must be signed by the maker and parties designated with reasonable certainty
C. Medium of payment must be money only and the sum must be certain
D. Must be in writing and contain an unconditional undertaking to pay
Answer: A
Explanation: A PROMISSORY NOTE requires ALL of these: (B) Signed by maker, parties certain; (C) Payable in money only, sum certain; (D) In writing, unconditional undertaking. Additionally, it must be duly stamped.
94. Which of the following are the rights of the holder?
A. A holder has the right to sue in his own name on the instrument
B. None of these
C. All of these
D. A holder can convert the blank endorsement to an endorsement in full
E. A holder can obtain a duplicate of the lost bill giving an indemnity
Answer: C
Explanation: ALL three options are rights of the holder: (A) Right to sue in his own name; (D) Right to convert blank endorsement to full (Section 49); (E) Right to obtain duplicate of lost bill from drawer on giving indemnity (Section 45A).
95. Which condition is NOT necessary to qualify as a holder in due course?
A. None of these — all conditions are necessary
B. The holder must have taken instrument in good faith without negligence
C. All of these conditions are necessary
D. The holder must have taken instrument under lawful consideration
E. The holder must have taken instrument before maturity
Answer: C
Explanation: ALL conditions listed are NECESSARY to qualify as holder in due course: good faith, valuable consideration, before maturity, and no notice of defect. Since ALL conditions are necessary, option C is the correct answer.
96. Which instrument cannot be made payable otherwise than on demand?
A. Bill of exchange
B. None of these
C. Cheque
D. Promissory note
Answer: C
Explanation: A CHEQUE cannot be made payable otherwise than ON DEMAND. Section 6 defines a cheque as a bill of exchange drawn on a specified banker and NOT expressed to be payable otherwise than on demand.
97. Which presumption about negotiable instruments is WRONG?
A. It was accepted before maturity if acceptance was necessary
B. None of these
C. The holder is ALWAYS holder in due course
D. It was drawn and made on the date it bears
E. It is endorsed before the date of maturity
Answer: C
Explanation: The presumption that "the holder is ALWAYS holder in due course" is WRONG. A holder may have acquired the instrument after maturity, or with notice of defects, or without consideration — in which case he is merely a holder, not a holder in due course.
98. Which statement is wrong as per Section 22 of NI Act regarding days of grace?
A. No grace period is given if specifically mentioned in the bill
B. Days of grace are available to ALL bills whether usance or demand
C. Every usance bill is entitled to 3 days grace period
D. Days of grace are applicable ONLY to usance bills
Answer: B
Explanation: Option B is WRONG. Days of grace are applicable ONLY TO USANCE BILLS (bills payable at a fixed future date), NOT to demand bills. Section 22 provides 3 days of grace to usance instruments only.
99. Withdrawal slips used in Savings Bank accounts are:
A. Special bearer instruments
B. Negotiable instruments
C. None of these
D. Non-negotiable instruments
E. Quasi Negotiable Instruments
Answer: D
Explanation: Withdrawal slips used in Savings Bank accounts are NON-NEGOTIABLE INSTRUMENTS. They are merely authorization documents that cannot be transferred or negotiated. They do not satisfy the definition of negotiable instruments under Section 13 of the NI Act.
Disclaimer: This article is for educational purposes only. Always refer to official legal resources and the latest Supreme Court judgments for current legal positions.