When a cheque is crossed with the words 'not negotiable', what is the effect under the Negotiable Instruments Act, 1881?
- A.The cheque cannot be transferred at all
- B.The transferee gets no better title than the transferor had
- C.The cheque can be paid in cash over the counter
- D.The cheque becomes payable only after three months
Correct answer
Explanation
The correct answer is B, the transferee gets no better title than the transferor had. Section 130 provides that a person taking a cheque crossed 'not negotiable' shall not have, and shall not be capable of giving, a better title than the person from whom they took it had. The instrument therefore remains transferable, but it loses the special quality of negotiability by which a holder in due course would otherwise get a clean title, and a defect in the title passes down the chain.
Option A is wrong because the words do not stop transfer; they only limit the title that passes. Option C is wrong because the cheque is still crossed, and a crossed cheque under Section 126 cannot be paid over the counter. Option D confuses the crossing with the three month validity of a cheque, which has nothing to do with Section 130. So B states the effect correctly.
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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