How many parties are there to a bill of exchange?
- A.Two
- B.Three
- C.Four
- D.Five
Correct answer
Explanation
The correct answer is B, three. A bill of exchange, defined in Section 5 of the Negotiable Instruments Act, 1881, is an unconditional order in writing by which the drawer directs another person, the drawee, to pay a certain sum to or to the order of the payee. The drawer, the drawee and the payee are therefore the three parties, and the bill must be accepted by the drawee before it binds them.
Option A, two, is the number of parties to a promissory note, where only the maker and the payee exist, and that is the trap in this question. Option C, four, and option D, five, describe no instrument under the Act, though in practice the same person can hold two roles, as when a drawer draws a bill in their own favour. A cheque, being a species of bill of exchange, also has three parties, with the bank always as the drawee.
Read the full article: Negotiable Instruments and Cheques: Act, Sections and PYQs
Practice Questions
View allA paper instructing the bank to pay a specific amount from a person's account to another person in whose name it has been issued is known as:
- A.cash
- B.cheque
- C.passbook
- D.currency
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Section 6 of the Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
Read the full explanation →A cheque returned by bank marked NSF means that
- A.Bank cannot verify your identity
- B.There are not sufficient funds in your account
- C.Cheque has been forged
- D.Cheque cannot be cashed being illegal
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NSF stands for not sufficient funds, and a bank writes it on the return memo when the balance in the drawer's account is less than the amount of the cheque.
Read the full explanation →Negotiable Instrument Act was introduced in
- A.1972
- B.1881
- C.1957
- D.1950
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The Negotiable Instruments Act was enacted in 1881 and came into force on 1 March 1882.
Read the full explanation →The payment of a negotiable instrument becomes due
- A.at maturity
- B.after maturity
- C.before maturity
- D.on third day of maturity
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Section 22 of the Negotiable Instruments Act, 1881 says that the maturity of a promissory note or bill of exchange payable otherwise than on demand is the date on which it falls due, and the three days of grace are already counted in arriving at that date.
Read the full explanation →Which section of the Negotiable Instruments Act, 1881 defines a cheque?
- A.Section 4
- B.Section 5
- C.Section 6
- D.Section 13
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Section 6 says a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, and it goes on to include the electronic image of a truncated cheque and a cheque in the electronic form, both added by the amendment…
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