27 extra multiple-choice questions for The Negotiable Instruments Act, 1881 (12th Standard Commerce, Samacheer Kalvi), beyond the ones printed in the textbook — each with the correct option highlighted and a clear, worked explanation. Free to read in English and Tamil.
Q1
In the term negotiable instrument, the word 'negotiable' means
- A. registered with a court of law
- B. transferable from one person to another in return for considerationCorrect
- C. payable only to the original payee
- D. stamped and attested by a banker
Explanation. The lesson explains that 'negotiable' means transferable from one person to another in return for consideration, and 'instrument' means a written document creating a right in favour of a person.
Q2
Who described a negotiable instrument as one, the property in which is acquired by anyone who takes it bonafide and for value, notwithstanding any defect of title in the person from whom he took it?
- A. N.D. Kapoor
- B. P.C. Tulsian
- C. Justice K.C. WillsCorrect
- D. Bharat Tulsian
Explanation. This definition is given in the words of Justice K.C. Wills. It stresses that a bonafide holder for value gets good title even if the transferor's title was defective.
Q3
A person who takes a negotiable instrument in good faith and for value is known as
- A. an assignee
- B. a holder in due courseCorrect
- C. a drawee
- D. an endorser
Explanation. A person taking the instrument in good faith and for value is a holder in due course. His title is free from defects in the transferor's title, and he need not return the instrument to the true owner.
Q4
Consider the following presumptions about a negotiable instrument:
1. It is presumed to have been drawn or accepted for consideration.
2. Its transfer is presumed to have been made after maturity.
3. A lost instrument is presumed to have been duly stamped.
4. Its holder is presumed to be a holder in due course.
Which of these are correct?
- A. 1, 2 and 3 only
- B. 1, 3 and 4 onlyCorrect
- C. 2, 3 and 4 only
- D. 1, 2 and 4 only
Explanation. The lesson presumes consideration, due stamping of a lost instrument and that the holder is a holder in due course. Transfer is presumed to have been made before maturity, not after, so statement 2 is wrong.
Q5
Assertion (A): A holder in due course of a negotiable instrument may get a better title than the transferor had.
Reason (R): In negotiability, the defects in the title of the transferor pass on to the transferee.
- A. Both A and R are true and R is the correct explanation of A
- B. Both A and R are true but R is not the correct explanation of A
- C. A is true but R is falseCorrect
- D. A is false but R is true
Explanation. A is true: a holder in due course gets the instrument free from defects in the transferor's title. R is false: defects passing on to the transferee is a feature of assignability, not negotiability.
Q6
In which of the following must the transferee give notice of the transfer of the debt to the debtor?
- A. Negotiation of a cheque by endorsement and delivery
- B. Transfer of a bearer instrument by mere delivery
- C. Assignment of a debt (actionable claim)Correct
- D. Transfer of a bill to a holder in due course
Explanation. In assignability, the transferee must give notice of the transfer of the debt to the debtor. In negotiability, notice is not necessary for the holder to claim payment from the debtor.
Q7
A bill of exchange cannot be made payable
- A. on demand
- B. after a specified period
- C. to bearer on demandCorrect
- D. to the order of a certain person
Explanation. A bill of exchange may be made payable on demand or after a specified period, but it cannot be made payable to bearer on demand. Such a bill is void under section 31 of the RBI Act.
Q8
A customer writes 'Please pay Rs. 5,000 to Kumar' on a cheque form drawn on his bank. Which statement is correct?
- A. It is not a cheque because the word 'order' is missing
- B. It is not a cheque because the word 'please' makes the order conditional
- C. It remains a cheque because using 'please' before 'pay' does not destroy the orderCorrect
- D. It becomes a promissory note
Explanation. A cheque must contain an unconditional order to pay, but the word 'order' need not be used. It does not cease to be a cheque just because 'please' is used before the word pay.
Q9
How many days of grace are allowed while calculating the maturity date of a time bill?
- A. One day
- B. Two days
- C. Three daysCorrect
- D. No days
Explanation. Three days of grace are allowed while calculating the maturity date of a time bill, and also of a promissory note. No days of grace are allowed for a cheque, which is always payable on demand.
Q10
Which of the following is NOT true of a cheque?
- A. It is payable on demand only
- B. It does not require acceptance
- C. It can be crossed
- D. Three days of grace are allowed for its paymentCorrect
Explanation. A cheque is always payable on demand, needs no acceptance and can be crossed. No days of grace are allowed for a cheque; days of grace apply to time bills and promissory notes.
Q11
Consider the following statements on a bill of exchange and a cheque:
1. Foreign bills of exchange are drawn in sets of three.
2. A cheque can be drawn and made payable in any currency.
3. A bill of exchange cannot be crossed.
4. Notice of dishonour is necessary for a cheque.
Which of these are correct?
- A. 1 and 2 only
- B. 1 and 3 onlyCorrect
- C. 2 and 4 only
- D. 3 and 4 only
Explanation. Foreign bills are drawn in sets of three and a bill cannot be crossed. A cheque is payable only in home currency, and notice of dishonour is necessary for a bill but not for a cheque.
Q12
Whose liability on the instrument is primary?
- A. The drawer of a bill of exchange
- B. The maker of a promissory noteCorrect
- C. The payee of a bill of exchange
- D. The holder of a cheque
Explanation. The liability of the maker of a promissory note is primary. The liability of the drawer of a bill is secondary: it arises, like that of a surety, only when the acceptor dishonours the bill.
Q13
The maker of a promissory note is a
- A. creditor
- B. debtorCorrect
- C. banker
- D. endorsee
Explanation. A debtor executes a promissory note in favour of a creditor, so the maker of a note is a debtor. In contrast, the drawer of a cheque is a creditor of the bank.
Q14
In which of the following instruments can the drawer and the payee be one and the same person?
- A. Promissory note
- B. Bill of exchangeCorrect
- C. Currency note
- D. Bank note
Explanation. In a bill of exchange the drawer and the payee can be the same person. In a promissory note the maker cannot be the payee, because one person cannot be both promisor and promisee.
Q15
Consider the following statements about a promissory note:
1. It must be in writing.
2. It cannot be made payable to bearer.
3. It may be made payable in foreign money.
4. A bank note or a currency note is a promissory note.
Which of these are correct?
- A. 1 and 2 onlyCorrect
- B. 1 and 3 only
- C. 2 and 4 only
- D. 1, 2 and 3 only
Explanation. A promissory note must be in writing and cannot be made payable to bearer. The amount must be in legal tender money of India, and a bank note or currency note is not a promissory note.
Q16
Match the sections of the Negotiable Instruments Act, 1881 with what they deal with:
(a) Section 4 - 1. Special crossing
(b) Section 5 - 2. Endorsement
(c) Section 15 - 3. Promissory note
(d) Section 124 - 4. Bill of exchange
- A. a-3, b-4, c-2, d-1Correct
- B. a-4, b-3, c-1, d-2
- C. a-3, b-4, c-1, d-2
- D. a-4, b-3, c-2, d-1
Explanation. Section 4 defines a promissory note, Section 5 a bill of exchange, Section 15 endorsement and Section 124 special crossing. Section 6 defines a cheque and Section 123 general crossing.
Q17
Which of the following does NOT constitute a crossing of a cheque?
- A. Two parallel transverse lines across its face
- B. Two parallel transverse lines with the words '& Co.' between them
- C. A cross mark such as 'X' on its faceCorrect
- D. Two parallel transverse lines with the words 'not negotiable'
Explanation. A general crossing needs two parallel transverse lines across the face of the cheque, with or without words such as 'and Co.' or 'not negotiable'. Cross marks such as 'X' do not constitute a crossing.
Q18
General crossing of a cheque is defined in which section of the Negotiable Instruments Act, 1881?
- A. Section 6
- B. Section 15
- C. Section 123Correct
- D. Section 124
Explanation. Section 123 defines general crossing: two parallel transverse lines, with or without 'and company' or 'not negotiable'. Section 124 defines special crossing, Section 15 endorsement and Section 6 a cheque.
Q19
The essential part of a special crossing is
- A. two parallel transverse lines
- B. the words 'and company'
- C. the name of a banker written on the face of the chequeCorrect
- D. the signature of the payee on the back
Explanation. In a special crossing the parallel transverse lines are not essential, but the name of the banker to whom payment is to be made must be written on the face of the cheque. Payment is made only to that banker.
Q20
The effect of a general crossing on a cheque is that the paying banker
- A. pays the amount across the counter to anyone
- B. pays the amount only through another bankerCorrect
- C. refuses to pay until the cheque is stamped
- D. pays only after three days of grace
Explanation. A crossed cheque should not be paid across the counter; the paying banker pays only through another banker. So a crossed cheque that is stolen and collected can be traced, making payment safe.
Q21
When there is no space on a negotiable instrument for further endorsements, a piece of paper attached to it for the purpose is called
- A. a rider
- B. an allongeCorrect
- C. a counterfoil
- D. a protest note
Explanation. If space for endorsements is insufficient, a piece of paper can be attached to the instrument for this purpose. This piece of paper is called an allonge.
Q22
Consider the following statements on the requisites of a valid endorsement:
1. Endorsement of only a part of the amount of the instrument is invalid.
2. Signing in block letters constitutes a regular endorsement.
3. An illiterate payee may endorse by affixing his thumb impression, duly attested.
4. Endorsements are presumed to have been made in the order in which they appear.
Which of these are correct?
- A. 1, 2 and 3 only
- B. 1, 3 and 4 onlyCorrect
- C. 2, 3 and 4 only
- D. 1, 2 and 4 only
Explanation. Endorsement must be for the entire amount, an illiterate payee may use an attested thumb impression, and endorsements are presumed to be in the order they appear. Signing in block letters is not a regular endorsement.
Q23
Match the endorsements with their kinds:
(a) Pay X only - 1. Sans recourse endorsement
(b) Pay X or order without recourse to me - 2. Blank endorsement
(c) Pay X or order, notice of dishonour waived - 3. Restrictive endorsement
(d) The endorser's mere signature - 4. Facultative endorsement
- A. a-3, b-1, c-4, d-2Correct
- B. a-1, b-3, c-2, d-4
- C. a-3, b-4, c-1, d-2
- D. a-2, b-1, c-4, d-3
Explanation. 'Pay X only' restricts further negotiation (restrictive). 'Without recourse to me' excludes the endorser's liability (sans recourse). Waiving notice of dishonour is facultative, and a mere signature is a blank endorsement.
Q24
'Pay Paari, if he returns from Delhi within three months' signed by Pallavan is an example of
- A. blank endorsement
- B. conditional endorsementCorrect
- C. partial endorsement
- D. facultative endorsement
Explanation. When the endorsee's right to receive the amount depends on an event that may or may not happen, the endorsement is conditional or qualified. Here Paari gets payment only if he returns from Delhi within three months.
Q25
The MICR code, found at the bottom of a cheque, stands for
- A. Magnetic Ink Character RecognitionCorrect
- B. Money Instrument Clearing Register
- C. Machine Index Code Reader
- D. Monetary Ink Cheque Record
Explanation. MICR means Magnetic Ink Character Recognition. Printed at the bottom of the cheque in ink sensitive to magnetic fields, it eases cheque processing and clearance and helps detect counterfeit cheques.
Q26
Which statement about the IFSC code is correct?
- A. It is a 9-digit numeric code printed at the bottom of a cheque
- B. It is an 11-character code whose fifth character is 0Correct
- C. Its first four characters represent the branch
- D. It is used only for clearing cheques by MICR
Explanation. IFSC is an 11-character alphanumeric code used for RTGS and NEFT transfers. The first four letters represent the bank, the fifth character is 0, and the last six characters represent the branch.
Q27
A negotiable instrument matures on a day declared an emergency holiday because of a natural calamity. When should it be paid?
- A. On the preceding working day
- B. On the same day at the bank's discretion
- C. On the next working dayCorrect
- D. After three days of grace from the holiday
Explanation. An instrument maturing on a notified public holiday is paid on the preceding working day. But when an emergency holiday is declared under the Act, instruments maturing that day are paid on the next working day.
