1) When did the Negotiable Instruments Act come into force?

A) 1 April 1882
B) 1 March 1936
C) 01 May 1989
D) 01 March 1882

Answer –D) 01 March 1882

2) Which section of the Negotiable Instruments Act,1881 deals with Partial
failure of consideration not consisting of money?
A. Section 21 of the Negotiable Instruments Act,1881
B. Section 45 of the Negotiable Instruments Act,1881
C. Section 4 of the Negotiable Instruments Act,1881
D. Section 20 of the Negotiable Instruments Act,1881

Answer B. Section 45 of the Negotiable Instruments Act,1881

3. Which section of the Negotiable Instruments Act,1881 deals
with Promissory note__ ?
A. Section 4 of the Negotiable Instruments Act,1881
B. Section 24 of the Negotiable Instruments Act,1881
C. Section 3 of the Negotiable Instruments Act,1881
D. Section 6 of the Negotiable Instruments Act,1881

Answer – A. Section 4 of the Negotiable

Instruments Act,1881
4. Section 35 of the Negotiable Instruments Act,1881 deals
with_______?
A. Liability of indorser
B. Suretyship
C.Liability of the maker of note and acceptor of a bill
D. Negotiation by delivery

Ans-A. Liability of indorser

5. . Liability of legal representative signing is provided in
section____ of the Negotiable Instruments Act,1881
A. Section 41 of the Negotiable Instruments Act,1881
B. Section 11 of the Negotiable Instruments Act,1881
C. Section 29 of the Negotiable Instruments Act,1881
D. Section 21 of the Negotiable Instruments Act,1881

Ans- C. Section 29 of the Negotiable Instruments Act,1881

6. Section 25 of the Negotiable Instruments Act,1881 provides _?
A. . When the day of maturity is a holiday
B. Liability of drawer
C. Agency
D. Liability of drawee of the cheque

Ans- A. . When the day of maturity is a holiday

MCQ on the Negotiable Instruments

Act,1881 with answers pdf
7. Which section of the Negotiable Instruments Act,1881 deals
with Rules as to compensation?
A. Section 21 of the Negotiable Instruments Act,1881
B. Section 31 of the Negotiable Instruments Act,1881
C. Section 117 of the Negotiable Instruments Act,1881
D. Section 29 of the Negotiable Instruments Act,1881

Answer – C. Section 117 of the Negotiable Instruments Act,1881

8. Section 18 of the Negotiable Instruments Act,1881 deals_______?
A. Where the amount is stated differently in figures and words
B. Presentment for acceptance.
C. Dishonour by non-acceptance
D. Payment for honour

Ans- A. Where the amount is stated differently in figures and words

9) Which section of the Negotiable Instruments Act,1881 deals with
Presumption in favour of holder. ?
A. Section 122 of the Negotiable Instruments Act,1881
B. Section 139 of the Negotiable Instruments Act,1881
C. Section 143 of the Negotiable Instruments Act,1881
D. Section 145 of the Negotiable Instruments Act,1881

Answer B. Section 139 of the Negotiable Instruments Act,1881

10) Section 123 of the Negotiable Instruments Act,1881 deals with_______?
A. Cheque crossed specially
B.. Set of bills.
C. Cheque crossed generally
D. Cognizance of offences

Answer- C. Cheque crossed generally

Expected MCQ on Negotiable Instruments Act with

Answers:
1. A promissory note, bill of exchange or cheque payable either to order or
to bearer is called – Negotiable Instrument
2. How many total sections are there in the Negotiable Instruments Act?
– 147
3. Which section of Negotiable Instruments Act deals with Promissory Note?
– Section 4
4. In which section bill of exchange is dealt with in Negotiable Instruments
Act? – Section 5
5. What does Section 6 deals within the Negotiable Instruments Act?
– Cheque
6. Which section in the Negotiable Instruments Act deals with Negotiable
Instruments? – Section 13
7. Drawee is defined in which section of the Negotiable Instruments Act?
– Section 7
8. Which section of Negotiable Instruments Act deals with Dishonour by
non-payment? – Section 92
 9. Which section of Negotiable Instruments Act deals with Cheque crossed
generally? – Section 123
10. Which section of Negotiable Instruments Act deals with Presumptions
as to Negotiable Instruments? – Section 118
11. Which section of Negotiable Instruments Act deals with Dishonouring
of Cheque? – Section 138
12. What type of negotiable instrument is a currency note? – Money is
Not a Negotiable Instrument
13. An order in writing directing a person to pay a sum of money to a
specified person is called _____. – Bill of Exchange
14. A bill of exchange drawn on a specified banker, and not expressed to
be payable otherwise than on demand is called ____. – Cheque
15. How many types of cheques are there as per the Negotiable
Instruments Act? – 4 (Open cheque, Crossed cheque, Bearer
cheque, Order cheque)

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More Important MCQ on Negotiable Instrument Act with

Answers:

Candidates can find the Negotiable Instrument Act 1881 Multiple Choice
Questions and Answers PDF, which was highly expected questions in Banking
Awareness Section.

1) Which of the following section in the Negotiable Instruments Act deals

with the Bill of Exchange?

A. Section 5
B. Section 6
C. Section 4
D. Section 13
E. Section 8
2) Which of the followings are not the Negotiable Instruments as defined
by the Statute…

A. Banker’s Note
B. Promissory Note
C. Bill of Exchange
D. Cheques
E. All of the Instruments are Negotiable Instruments

3) Which of the following is/are true about the Negotiable Instruments

Act, the Promissory Note is …

(I) Definition of Promissory Note is given in section 8 of the Negotiable Instrument

Act

(II) Containing an unconditional undertaking

(III) To pay a certain sum of money only to a specific person or the bearer

(IV) The seller is bound to accept the promissory note

(V) A document was written and signed by the payer/maker

A. (I), (II) and (III)

B. (II), (III) and (V)
C. (II), (III), and (IV)
D. (I), (III) and (IV)
E. All of the above

4) Dishonour of Negotiable Instrument by Non Payment is covered under

section in Negotiable Instrument Act 1882…

A. Section 90
 B. Section 91
C. Section 92
D. Section 93
E. Section 94

5) The Negotiable Instruments (Amendment) Bill, 2017 inserted a

provision allowing a court trying an offence related to cheque bouncing,
to direct the drawer (person who writes the cheque) to pay interim
compensation to the complainant. The interim compensation will not
exceed ___% of the cheque amount?

A. 15%
B. 25%
C. 30%
D. 33%
E. 20%

6) Which of the following is/are true about Bill of Exchange?

(I) A bill of exchange requires in its inception two parties.

(II) A bill of exchange or “draft” is a written order by the drawer to the drawee
to pay money to the payee.

(III) Bills of exchange are used primarily in international trade, and are written
orders by one person to his bank to pay the bearer a specific sum on a specific
date.

(IV) Definition of ‘ Bill of Exchange’ is mentioned in Section 6 of the Negotiable

Instrument Act.

A. (I) and (IV)

B. (I), (II) and (IV)
 C. (II) and (III)
D. (III) and (IV)
E. All of the Above

(7) If the holder of a bill of exchange allows the drawee more than ___
hours, exclusive of public holidays, to consider whether he will accept
the same, all previous parties not consenting to such allowance are
thereby discharged from liability to such holder.

A. 24
B. 12
C. 36
D. 48
E. 60

(8) Section 6 of the Negotiable Instruments Act defines ___

A. Cheque
B. Bill of Exchange
C. Promissory Notes
D. Dishonour by non-payment
E. Dishonour by non-acceptance

(9) If a Minor draw, indorse, deliver and negotiate Negotiable

Instruments, it binds __

A. All the parties except minor

B. All the parties including minor
C. Minor Only
D. Minor and Only Drawer
E. Minor and the Drawee

(10) Which of the following is/are false about Dishonour of Cheque ?

(I) Section 138 defines Dishonour of cheque for insufficiency, etc., of funds in the
account.

(II) Such cheque has been presented to the bank within a period of twelve months
from the date on which it is drawn or within the period of its validity, whichever
is earlier

(III) Imprisonment for such offence may be extended for period of five year

(IV) Section 138 apply unless – the drawer of such cheque fails to make the
payment of the said amount of money to the payee or, as the case may be, to
the holder in due course of the cheque, within fifteen days of the receipt of the
said notice.

A. (I) and (IV)

B. (II) and (III)
C. (II),(III) and (IV)
D. Only (IV)
E. Only (III)

Check Below Answer with explanation for the above questions.

The negotiable instruments act 1881 multiple choice questions

and answers pdf:

1). Answer :Section 5 of the Negotiable Instruments Act, 1881 defines bills of
exchange. According to this definition, a bill of exchange is an instrument in
writing containing an unconditional order.

2). Answer : Banker’s Note. Promissory Notes, Bill of Exchange and Cheques
are Negotiable Instruments.

3). Answer :(II), (III) and (V)

A promissory note refers to a written promise to its holder by an entity or an
individual to pay a certain sum of money by a pre-decided date. Definition is
mentioned in the section 4 of Negotiable Instrument Act. The seller isn’t bound
to accept the promissory note.

4). Answer : Section 92 : Dishonour by non-payment.—A promissory note, bill

of exchange or cheque is said to be dishonoured by non-payment when the maker
of the note, acceptor of the bill or drawee of the cheque makes default in payment
upon being duly required to pay the same.

5). Answer :The Bill inserts a provision allowing a court trying an offence related
to cheque bouncing, to direct the drawer (person who writes the cheque) to pay
interim compensation to the complainant. This interim compensation may be
paid under certain circumstances, including where the drawer pleads not guilty of
the accusation. The interim compensation will not exceed 20% of the cheque
amount, and will have to be paid by the drawer within 60 days of the trial court’s
order to pay such a compensation.

6). Answer :(II) and (III). A bill of exchange requires in its inception three
parties—the drawer, the drawee, and the payee. Definition of ‘ Bill of Exchange’
is mentioned in the Section 5 of Negotiable Instrument Act.

7). Answer :If the holder of a bill of exchange allows the drawee more than 48
hours, exclusive of public holidays, to consider whether he will accept the same,
all previous parties not consenting to such allowance are thereby discharged from
liability to such holder.

8). Answer :Section 6 of Negotiable Instruments Act 1881: “Cheque” A

“cheque” is a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand.

9). Answer :A minor may draw, indorse, deliver and negotiate such
instrument so as to bind all parties except himself.
10). Answer : (II) and (III) Section 138 : Where any cheque drawn by a
person on an account maintained by him with a banker for payment of any
amount of money to another person from out of that account for the discharge,
in whole or in part, of any debt or other liability, is returned by the bank unpaid,
either because of the amount of money standing to the credit of that account is
insufficient to honour the cheque or that it exceeds the amount arranged to be
paid from that account by an agreement made with that bank, such person shall
be deemed to have committed an offence and shall, without prejudice to any
other provision of this Act, be punished with imprisonment for 8 [a term which
may be extended to two years’], or with fine which may extend to twice the
amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from
the date on which it is drawn or within the period of its validity, whichever is
earlier;

(b) the payee or the holder in due course of the cheque, as the case may be,
makes a demand for the payment of the said amount of money by giving notice;
in writing, to the drawer of the cheque, 9 [within thirty days] of the receipt of
information by him from the bank regarding the return of the cheque as unpaid;
and

(c) the drawer of such cheque fails to make the payment of the said amount of
money to the payee or, as the case may be, to the holder in due course of the
cheque, within fifteen days of the receipt of the said notice.

MCQ on Negotiable instruments Act 1881:

1. _______ means ‘something legally transferable from one person to another

for a consideration’.
a. Instrument b. Negotiable c. Negotiable Instruments d.
all of the above

Ans. b

2. ______ means ‘ a written document by which some legal rights are created in
favor of some person’

a. Instrument b. Negotiable c. Negotiable Instruments d.

all of the above

Ans. a

3. Negotiable instrument means a promissory note, bill of exchange or

cheque, payable to ___________

a. Bearer b. order c. either to bearer or order d. neither

bearer nor order

Ans. c

4. A negotiable instrument is freely transferable, by delivery if it is a/an

______________ instrument.

a. order b. bearer c. both a & B d. None of the above

Ans. b

5. A negotiable instrument is freely transferable, by endorsement if it is a/an

____________ instrument.

a. order b. bearer c. both a & b d. None of the above

Ans. a

6. The transferee of a negotiable instrument is the one

a. who transfer the instrument b. on whose
name it is transferred

c. who en chases it d. none of the

above

Ans. b

7. The transferor of a negotiable instrument is the one

a. who transfer the instrument b. on whose name it is

transferred

c. who en chases it d. none of the above

Ans. a

8. The instrument must be taken in good faith and with a

a. Interest b. consideration c. legal

relation d. business motive

Ans. b

9. when an instrument has been lost it is presumed that it was ____________

a. expired b. duly stamped c.

stolen d. misplaced

Ans. b

10. which of the below given sentence is proper as to considered to be written

in negotiable instruments

a. I promise to pay B rs.500 b. Mr. B I.O (owe).U

Rs.1000.

c. I am liable to pay you Rs.1000. d. none of the above.

Ans. d

11. _________ an instrument in writing containing an unconditional undertaking

signed by the maker to pay a certain sum of money only to, or to the order of,
a certain person or to the bearer of the instrument

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a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. a

12. ______________ is an instrument in writing, containing an unconditional

order, signed by the maker, directing a certain person, to a pay a certain sum
of money only to, or to the order of a certain person or to the bearer of the
instrument

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. b

13. The number of parties to a bill of exchange is _______

a. 2 b. 4 c.
6 d. 3

Ans. d

14. The number of parties to a Promissory Note is _______

a. 2 b. 4 c.
6 d. 3

Ans. a
15. Sec. 4 of negotiable instruments Act 1880 deals with

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. a

16. Sec. 5 of negotiable instruments Act 1880 deals with

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. b

17. Sec. 6 of negotiable instruments Act 1880 deals with

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. c

18. The parties of a bill of exchange are

a. drawe acceptor and payee b. banker drawee

and payee

c. banker acceptor and payee d. banker drawer

and payee

Ans. a

19. __________________ cannot be a bearer instrument

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. a
20. Acceptance is _________________ in case of bill of exchange

a. compulsory b. optional c. not

compulsory d. adequate

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Ans. a

21. Acceptance is _________________ in case of bill of exchange

a. compulsory b. optional c. not

compulsory d. not necessary

Ans. d

22. Drawer is both debtor to one and creditor to another in case of

________________

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. b

23. Liability of maker is __________ in case of bill of exchange

a. primary b. unlimited c.
unconditional d. secondary

Ans. d

24. ___________ is an order to pay the third party

a. Promissory Note b. bill of exchange c.

Cheque d. none of the above

Ans. a
25. A Promissory Note or Bill of Exchange can be made payable

a. On demand b. On a specific
date

c. After a specified period – months or days. d. all of the above

Ans. d

26. To calculate the maturity date of a negotiable instrument the drawing date
to be ___for counting

a. included b. considered c.
excluded d. non of the above

Ans. c

27. If the instrument is not ‘on demand’ ___________ days of grace is granted.

a. 7 b. 5 c.
3 d. 4

Ans. c

28. when the is crossed with Two parallel lines or with word ‘& Co.’ etc. this
crossing is known as

a. general crossing b. special crossing c. restrictive

crossing d. none of the above

Ans. a

29. when the is crossed with Two parallel lines or with ‘A/c payee only.’ etc.
this crossing is known as

a. general crossing b. special crossing c. restrictive

crossing d. none of the above
Ans. c

30. In the case of Bill of Exchange drawee is the ____________.

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a. maker b. acceptor c. payee d.

none of the above

Ans. b

31. When the loss of cheque is intimated to the bank. It is advisable to get the
cheque

a. dishonored b. cancelled c.
stalled d. countermanded.

Ans. d

32. When bank has reason to believe that the title of the presenter is defective
, then the cheque will be

a. dishonored b. cancelled c.
stalled d. countermanded.

Ans. a

33. A holder in due course will get protected from earlier defect of

a. no consideration b. conditional delivery c.

unlawful means d. all of the above

Ans. d

34. _____of an instrument means a person legally entitled to possess and

receive in his own name
a. owner b. maker c. holder d.
receiver

Ans. c

35. Holder of an instrument is a person who holds the instrument

a. for a longer period b. before maturity c. after

maturity d. on behalf of the owner

Ans. b

36. Countermanding of a cheque is also known as

a. cancellation b. dishonor c. stop

payment d. payment through counter

Ans. c

37. ‘Something legally transferable from one person to another for a

consideration’ is known as

a. Endorsement b. bill of exchange c. promissory

note d. negotiation

Ans. d

38. ‘ A written document by which some legal rights are created in favour of
some person’

a. Endorsement b. Instrument c. promissory

note d. negotiation

Ans. b

39. Incase of dishonor of a bill of exchange _______________________ is

compulsory
a. noting b. protesting c. both noting &
protesting d. neither noting nor protesting

40. A cheque will become a stalled cheque after _________ months of its date

a. 6 b. 5 c.4

MCQs on The Negotiable Instruments Act, 1881 Part 2

6296 Views

Q.1:- the Court trying an offence under section 138 may order the drawer of the
cheque to pay interim compensation to the complainant, which shall:

a. Not exceed ten per cent of the amount of the cheque

b. Not exceed fifteen per cent of the amount of the cheque
c. Not exceed twenty per cent of the amount of the cheque
d. Not exceed twenty five per cent of the amount of the cheque

Correct Option: C

Q.2:- In the case of any conviction in a summary trial under section 143, it shall be
lawful for the Magistrate to pass a sentence of imprisonment for a term:

a. not exceeding two year and an amount of fine exceeding five thousand rupees.
b. not exceeding one year and an amount of fine exceeding five thousand rupees:
c. not exceeding six month and an amount of fine exceeding five thousand rupees:
d. not exceeding one month and an amount of fine exceeding five thousand rupees.

Correct Option: B

Q.3:- With respect to multicity cheque dishonor the offence under section 138 shall
be inquired into and tried only by a court within whose local jurisdiction:

a. if the cheque is presented for payment by the payee or holder in due course, otherwise
through an account, the branch of the drawee bank where the drawer maintains the
account, is situated.
b. if the cheque is delivered for collection through an account, the branch of the bank
where the payee or holder in due course, as the case may be, maintains the account, is
situated.
c. Both the options A and B are correct.
d. None of the above.
Correct Option: C

Q.4:- Notwithstanding anything contained in the Code of Criminal Procedure, 1973

no court shall take cognizance of any offence punishable under section 138 except
upon a complaint, in writing, made by the payee or, as the case may be, the holder
in due course of the cheque and such complaint is made of the date on which the
cause of action arises under clause(c) of the proviso to section 138:

a. Within three months

b. Within two months
c. Within one month
d. Within fifteen day

Correct Option: C

Q.5:- For invoking section 138 of NI Act, the payee or the holder in due course of
the cheque, as the case may be, shall have to make a demand for the payment of
the said amount of money by giving a notice, in writing, to the drawer of the
cheque, of the receipt of information by him from the bank regarding the return of
the cheque as unpaid:

a. Within five days

b. Within ten day
c. Within fifteen days
d. Within twenty days.

Correct Option: C

Q.6:- What are the conditions for availing statutory protections available to a
banker under section 131:

a. The payment is received for a customer of the Bank.

b. Cheque is crossed generally or specially before it is presented to the paying bank.
c. Banker has in good faith and without negligence received payment.
d. All of the above.

Correct Option: D

Q.7:- The protection to paying bank for crossed cheque is covered under which
section of N I Act:

a. Section 138
b. Sectionl31
 c. Section 128
d. Section 85

Correct Option: C

Q.8:- Section 118 of the N I Act deals with the presumptions as to negotiable
instruments until the contrary is proved. Which among the following is NOT such
presumption:

a. As to stamps-that a lost promissory note, bill of exchange or cheque was not duly
stamped.
b. As to date-that every negotiable instrument bearing a date was made or drawn on such
date.
c. As to time of acceptance-that every accepted bill of exchange was accepted within a
reasonable time after its date and before its maturity.
d. As to time of transfer-that every transfer of a negotiable instrument was made before
its maturity

Correct Option: A

Q.9:- When no rate of interest is specified in the instrument, interest on the amount
due thereon shall, notwithstanding any agreement relating to interest between any
parties to the instrument, be calculated from the date at which the same ought to
have been paid by the party charged, until tender or realization of the amount due
thereon, or until such date after the institution of a suit to recover such amount as
the Court directs:

a. at the rate of six per centum per annum

b. at the rate of twelve per centum per annum
c. at the rate of eighteen per centum per annum
d. at the rate of twenty four per centum per annum

Correct Option: C

Q.10:- What is the liability of a banker when a cheque has been materially altered
but does not appear to have been so altered, and payment thereof has been made
according to the apparent tenor thereof at the time of payment and otherwise in
due course:

a. The Banker shall be liable to make good the loss suffered by the customer.
b. The Banker shall discharge from all liability thereon, and such payment shall not be
questioned by reason of the instrument having been altered.
 c. The concerned official of the bank will be charge sheeted.
d. The Banker shall be liable for such wrong payment of the cheque which has been so
altered.

Correct Option: B

Q.11:- Under which section a paying banker is protected where a cheque payable to
order purports to be endorsed by or on behalf of the payee, the drawee bank is
discharged by payment in due course:

a. Section 131
b. Section 86
c. Section 85A
d. Section 85

Correct Option: D

Q.12:- Who can make negotiation of a negotiable instrument:Which is not the right
of a holder:

a. All of several joint makers, drawers, payees or indorsees.

b. Sole maker, drawer, payee or indorsee.
c. Both A and B are correct.
d. None of the above.

Correct Option: C

Q.13:- Where an endorsement by express words, restrict or exclude the right of

further negotiability of the instrument, it is called:

a. Blank endorsement
b. Partial endorsement
c. Conditional endorsement
d. Restrictive endorsement

Correct Option: D

Q.14:- The drawee of a cheque having sufficient funds of the drawer in his hands
properly applicable to the payment of such cheque must pay the cheque when duly
required so to do, and, in default of such payment, must compensate the drawer for
any loss or damage caused by such default. This is governed by which section of
the N I Act:
 a. Section 131
b. Section 85
c. Section 31
d. Section 30

Check Answer
Q.15:- A promissory note or bill of exchange, dated 31st August, 2017 is made
payable three months after date. What will be the maturity date:

a. The instrument is at maturity on the

b. The instrument is at maturity on the 1 December, 2017.
c. The instrument is at maturity on the 2 December, 2017.
d. The instrument is at maturity on the 3rd December, 2017.

Correct Option: D

Q.16:- A negotiable instrument dated 29 January, 2018, is made payable at one

month after date. What will be its maturity date:

a. The instrument is at maturity on the 28 February, 2018.

b. The instrument is at maturity on the second day after the 28th February, 2018.
c. The instrument is at maturity on the third day after the 28 February, 2018.
d. The instrument is at maturity on the fourth day after the 28 February, 2018.

Correct Option: C

Q.17:- The days of grace of maturity of promissory note or bill of exchange is:

a. A. The maturity day after the day on which it is expressed to be payable.

b. B. The second day after the day on which it is expressed to be payable.
c. C. The third day after the day on which it is expressed to be payable.
d. D. The fourth day after the day on which it is expressed to be payable.

Correct Option: C

Q.18:- Where one person signs and delivers to another a paper stamped in
accordance with the law relating to negotiable instruments then in force in India,
and either wholly blank or having written thereon an incomplete negotiable
instrument, he thereby gives prima facie authority to the holder thereof to make or
complete, as the case may be, upon it a negotiable instrument, for any amount
specified therein and not exceeding the amount covered by the stamp. What is this
called under the N.I. Act:
 a. Complete instrument
b. Indorsement
c. Inchoate stamped instrument
d. None of the above.

Correct Option: C

Q.19:- Where the amount mentioned on the cheque differs in words and figures,
which amount should be considered:

a. The amount stated in figures.

b. The amount stated in words1
c. Both A and B the options are not correct and cheque is required to be returned.
d. It depends upon the discretion of the banker.

Correct Option: B

Q.20:- When the maker or holder of a negotiable instrument signs the same,
otherwise than as such maker, for the purpose of negotiation, on the back or face
thereof or on a slip of paper annexed thereto, or so signs for the same purpose a
stamped paper intended to be completed as a negotiable instrument, he is said to
indorse the same. This activity is called as:

a. Selling of instrument
b. Endorsement
c. Transfer of instrument
d. None of the above.

Correct Option: B

Q.21:- Who is called as Drawee in case of need:

a. When the bill or in any endorsement thereon the name of any person is given in
addition to the drawee to be resorted to in case of need, such person is called a
“drawee in case of need”.
b. When the bill or in any endorsement thereon the name of any person is given is called
a “drawee in case of need”.
c. When the drawee have the need of the bills of exchange.
d. When the bill or in any endorsement thereon the names of more than one person is
given in addition to the drawee to be resorted to in case of need, such person is called a
“drawee in case of need”.

Correct Option: A
Q.22:- Define Cheque:

a. A “cheque” is a bill of exchange drawn on any banker and not expressed to be payable
otherwise than on demand and it includes the electronic image of a truncated cheque
and a cheque in the electronic form.
b. A “cheque” is a bill of exchange and expressed to be payable otherwise than on
demand and it includes the electronic image of a truncated cheque and a cheque in the
electronic form.
c. A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand and it includes the electronic image of a truncated
cheque and a cheque in the electronic form.
d. A “cheque” is a bill of exchange drawn on a specified banker and it includes the
electronic image of a truncated cheque and a cheque in the electronic form.

Correct Option: C

Q.23:- What is ‘bills of exchange’:

a. A “bill of exchange” is 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.
b. A “bill of exchange” is an instrument in writing containing an unconditional order,
signed by the maker, directing any 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.
c. A “bill of exchange” is an instrument in writing containing a conditional 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.
d. A “bill of exchange” is an instrument 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.

Correct Option: A

Q.24:- A promissory note, bill of exchange or cheque payable to bearer is

negotiable:

a. By blank indorsement
b. By indorsement
c. By delivery thereof
d. By restrictive indorsement

Correct Option: C
1. A negotiable instrument means a _______________ payable either to order or to
bearer.
1.
A. Promissory note
B. Bill of exchange
C. Cheque
D. All of the above
2. Negotiable means transferable by delivery and instrument means a written
document by which a right is created in favour of some person. Thus,
negotiable instrument may mean a written document transferable by delivery.
1.
A. The above statement is correct
B. The above statement is incorrect
3. The essential characteristics of a negotiable instrument include:
1.
A. Payable to order or bearer
B. Easy transferability
C. Transferee can sue in his own name
D. Title of holder in due course
E. All of the above
4. The presumptions in respect of negotiable instruments include:
1.
1.
I. Every negotiable instrument was made, drawn, accepted, endorsed
or transferred for consideration.
II. Every negotiable instrument bearing a date was made or drawn on
such date.
III. Every bill of exchange was accepted within a reasonable time after
its date and before its maturity.
IV. Every transfer of a negotiable instrument was made before its
maturity.
V. The endorsements appearing upon a negotiable instrument were
made in the order in which they appear.
VI. A lost negotiable instrument was duly stamped.
1.
A. All of the above
B. (I) (III) and (V) only
C. (II) (III) and (IV) only
D. None
5. A holder of negotiable instrument is a holder in due course where it is proved
that the holder has obtained the instrument from its lawful owner, or from any
person in lawful custody thereof, by means of an offence, fraud or for unlawful
consideration and in such a case the holder has to prove that he is a holder in
due course.
1.
A. The above statement is correct
B. The above statement is incorrect
6. When a bill of exchange has been noted or protested for non-acceptance or for
better security and any person accepts it supra protest or honour of the drawer
or of any one of the endorsers, such person is called:
1.
A. An acceptor for honour
B. Payment for honour
C. Both A&B
D. None
7. The conditions for a valid acceptance for honour include:
1.
A. The bill must have been noted or protested for non-acceptance or for
better security.
B. The acceptance for honour must be made with the consent of the holder.
C. It must be written on the bill and it must indicate that it is an acceptance
for honour of a party who is already liable on the bill.
D. It must be signed by the acceptor for honour who must not already be
liable on the bill
E. All of the above
8. Where the acceptance does not specify to whose honour it is made it shall be
deemed to be made for the honour of:
1.
A. The drawer
B. The drawee
C. Acceptor
D. None
9. The essential conditions for the payment for honour include:
1.
A. Bill must have been dishonoured for non- payment
B. Bill must have been noted or protested for non-payment.
C. Person paying or his agent must declare before the notary public, the party
for whose honour he accepts
D. All of the above
10. Any person making payment for honour is entitled to all the rights, in respect of
the bill, of the holder at the time of such payment. He may recover from the
party for whose honour he pays all sums so paid with interest thereon and all
expenses properly incurred in making such payment.
1.
A. The above statement is correct
B. The above statement is incorrect
11. A person is called holder of a negotiable instrument if:
1.
 A. He must be entitled to the possession of the instrument in his own name
B. He must be entitled to receive / recover the amount due on the instrument
from the parties liable under the instrument
C. Both A&B
D. None
12. When the note, bill or cheque is lost and not found or is destroyed, the person in
possession of it or the bearer at the time of loss or destruction shall deemed to
continue to be its holder.
1.
A. True
B. False
13. A person becomes holder in due course when he fulfils:
1.
A. The essentials of a holder
B. Holder for valuable consideration
C. A person should receive the instrument before its maturity
D. All of the above
14. Types of instrument include:
1.
A. Order
B. Bearer
C. Demand
D. Time
E. All of the above
15. A promissory note, bill of exchange or cheque is payable to order if:
1.
A. Which is expressed to be so payable
B. Which is expressed to be payable to a particular person
C. Does not contain words which prohibit transfer
D. All of the above
16. A promissory note of bill of exchange or cheque is payable to bearer if:
1.
A. Expressed to be so payable
B. last endorsement must be an endorsement in blank
C. Both A&B
D. None
17. Instruments payable on demand means the instrument in which no time for
payment is mentioned. A cheque is always payable on demand. A promissory
note or bill of exchange is payable on demand where:
1.
A. It is expressed to be so
B. It is expressed to be payable “at sight” or “presentment”; or “on demand”
C. No time for payment is specified
 D. The bill or note accepted or endorsed after it is overdue, as regards to
person accepting or indorsing it.
E. All of the above
18. If a negotiable instrument is made payable a stated number of months after
date or after sight, or after a certain event, it matures _________days after the
corresponding date of the month after the stated number of months.
1.
A. Three
B. Four
C. Seven
D. None
19. If an instrument is payable by instalments, three days of grace are to be allowed
on each instalment.
1.
A. True
B. False
20. Inland instrument – A promissory note, bill of exchange or cheque which is
1.
A. Made or drawn in Pakistan and also made payable in Pakistan
B. Made or drawn in Pakistan upon any person resident in Pakistan, although
it may be payable in a foreign country
C. Both A&B
D. None
21. An incomplete or blank negotiable instrument is one which is _____________ but
where the name or amount is missing.
1.
A. properly stamped
B. signed
C. Both A&B
D. None
22. Which of the following is correct in connection with inchoate instrument?
1.
A. The liability of a person who signs and delivers an inchoate instrument
arises only when the blanks are filled in and the instrument is completed.
B. To make the signer liable on an inchoate instrument, it is necessary that
the instrument should be delivered to the transferee.
C. The instrument must be stamped and the stamp affixed must be
sufficient to cover the amount filled in the instrument.
D. All of the above
23. An instrument which may be interpreted as either promissory note or bill of
exchange is called an ambiguous instrument. Its holder must elect once for all
whether he wants to treat it as a promissory note or bill of exchange.
1.
A. The above statement is correct
 B. The above statement is incorrect
24. Example of an Ambiguous instrument is:
1.
A. A bill of exchange where the drawer and the drawee are the same person
B. Where the drawee is a fictitious person
C. Bills drawn by an agent on his principal
D. All of the above
25. Essentials of valid endorsement include:
1.
A. It must be on instrument itself, if no space is left on the back of the
endorsement
B. It must be signed by the endorser for the purpose of negotiation
C. No particular form of words is necessary for an endorsement
D. All of the above
26. Kinds of endorsements are:
1.
A. Blank or general endorsement
B. Endorsement in full or special endorsement
C. Both A&B
D. None
27. Blank or general endorsement –
1.
A. If the endorser signs his name only and does not specify the name of the
endorsee, the endorsement is said to be blank.
B. If the endorser, in addition to his signature, also adds a direction to pay the
amount mentioned in the instrument to or to the order of a specified
person the endorsement is said to be full.
C. Both A&B
D. None
28. Endorsement in full or special endorsement –
1.
A. If the endorser signs his name only and does not specify the name of the
endorsee, the endorsement is said to be blank.
B. If the endorser, in addition to his signature, also adds a direction to pay
the amount mentioned in the instrument to or to the order of a specified
person the endorsement is said to be full.
C. Both A&B
D. None
29. Negotiation – “When a promissory note, bill of exchange or cheque is
transferred free from defects to any person, so as to constitute that person the
holder of it, the instrument is said to be negotiated.
1.
A. The above definition is correct
B. The above definition is incorrect
30. Modes of negotiation include:
1.
A. Negotiation by mere delivery
B. Negotiation by endorsement and delivery
C. Both A&B
D. None
31. Material alteration – An alteration is material which:
1.
A. Alters the character or identity of the instrument or which shakes the very
foundation of the instrument
B. Changes the rights and liabilities of the parties
C. Alters the operation of the instrument.
D. All of the above
32. Examples of material alteration include:
1.
A. Date, Sum payable, Time of payment,
B. Place of payment, Addition of place of payment
C. Rate of interest
D. All of the above
33. In which of the following cases the alteration of a negotiable instrument is not
material:
1.
A. A material alteration made before the instrument is issued.
B. An alteration made for the purpose of correcting a mistake.
C. An alteration made to carry out the common intention of the original
parties.
D. An alteration made with the consent of the parties.
E. All of the above
34. Which of the following alterations are permitted by the Negotiable Instrument
Act 1881, and do not invalidate the instruments?
1.
A. Filling blanks of inchoate instruments.
B. Conversion of a blank endorsement into an endorsement in full.
C. Crossing the cheques
D. All of the above
35. Payment in due course means –
1.
A. The payment must be in accordance with the apparent tenure of the
instrument.
B. The payment must be made in good faith and without negligence.
C. The payment must be made to a person in possession of the instrument
D. The payment must be made in money only
E. All of the above
36. The essential characteristics of a promissory note include:
1.
A. A promissory note has to be in writing.
B. There must be a promise or a clear undertaking to pay.
C. The promise must not depend upon the happening of some uncertain
event. i.e. a contingency or the fulfilment of a condition.
D. A promise to pay a certain amount of foreign or to deliver a certain
quantity of goods is not a promissory note.
E. All of the above
37. Parties to a bill of exchange are:
1.
A. Drawer, Drawee
B. Payee
C. Both A&B
D. None
38. Essential elements of a bill of exchange include:
1.
A. A bill of exchange is required to be in writing.
B. A bill of exchange contains an order to pay instead of a promise to pay
C. If the instrument contains an order to pay something other than money or
something in addition to money, it will not be valid bill of exchange.
D. All of the above
39. Cheque – Cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand.
1.
A. The above definition is correct
B. The above definition is incorrect
40. Essential elements of a cheque include:
1.
A. The order must be to pay money only
B. It must always be drawn upon a specified banker
C. It must always be payable on demand
D. All of the above
41. Method of crossing – A cheque is said to be crossed when it bears across its
face two parallel transverse lines which are usually drawn on the left-hand top
corner of the cheque.
1.
A. True
B. False
42. Types of crossing include:
1.
A. General crossing, Special crossing
B. Restrictive crossing
C. Not negotiable crossing
D. All of the above
 43. Circumstances in which a banker must refuse to honour a cheque include:
1.
1.
I. Where the customer has stopped the payment of the cheque.
II. When a garnishee order or any other legal order of the court
prohibits payment of cheque.
III. When the banker receives notice of customers death.
IV. When the banker has reason to believe the holder title is defective.
V. When the banker receives a notice of loss of cheque from his
customer.
VI. When the banker receives notice in respect of closure of account.
1.
A. All of the above
B. (I) (III) and (V) only
C. (II) (V) and (VI) only
D. None
44. Discharge of the negotiable instrument include:
1.
A. Payment in due course
B. Negotiation back
C. Discharge as a simple contract
D. All of the above
45. Discharge of party or parties include:
1.
A. When the holder of a negotiable instrument or his agent cancels the name
of a party on the instrument
B. Where the holder of a negotiable instrument releases any party to the
instrument by any method other than cancellation
C. Where a cheque is not presented by the holder for payment within a
reasonable time of its issue
D. All of the above
46. Discharge of party or parties by Operation of law include:
1.
A. By an order of insolvency court, discharging the insolvent.
B. By merger. When a judgement is obtained against the acceptor, maker or
endorser, the debt under the bill is merged into the judgement debt.
C. By lapse of time i.e. when the remedy becomes time barred.
D. All of the above
1. It is a ----------------- obligation of a banker to honour the cheques of the
customer drawn against
current
A. Mutual
B. Statutory
C. Unstatutory
D. All of the above
Discussion
B. Statutory

2. In India, the law regulating the Negotiable instruments are

A. Banking Regulation Act 1949
B. Reserve Bank of India Act 1934
C. Negotiable Instruments Act 1881
D. Companies Act 1956
Discussion
C. Negotiable Instruments Act 1881

3. In Negotiable Instruments Act 1881, which section defines promissory

note?
A. Section 1
B. Section 2
C. Section 3
D. Section 4
Discussion
D. Section 4

4. A drawer in the bill of exchange can also be a

A. Paymaster
B. Payee
C. Banker
D. Creditor
Discussion
B. Payee

5. The rate at which RBI discounts approved bill of exchange is

A. Bank rate
B. Interest rate
C. Exchange rate
D. Discount rate
Discussion
D. Discount rate

6. Who is primarily liable on a promissory note?

A. Holder
B. Maker
C. Drawee
D. Endorser
Discussion
B. Maker

7. How many parties are mainly involved in Promissory Note?

A. One
B. Five
C. Two
D. Three
Discussion
C. Two

8. In a bill of exchange, drawee is the person

A. who draws the bill
B. on whom the bill is drawn
C. to whom the payment of the bill is to be made
D. to whom the payment of the bill is not to be made
Discussion
B. on whom the bill is drawn

9. ------------ is a dead cheque

A. Post dated cheque
B. Stale cheque
C. Ante dated cheque
D. Pre dated cheque
Discussion
B. Stale cheque
10. Name the person to whom the amount of the cheque is payable?
A. Drawer
B. Payee
C. Drawee
D. Acceptor
Discussion
C. Drawee

11. Discounting of bills of exchange is

A. Clean advance
B. Secured advance
C. Neither clean advance nor secured advance
D. Unsecured advance
Discussion
C. Neither clean advance nor secured advance

12. Expand NEFT

A. National Electronic Fund Transfer
B. Neutral Electronic Fund Transfer
C. Nominal Electronic Fund Transfer
D. Natural Electronic Fund Transfer
Discussion
A. National Electronic Fund Transfer

13. A negotiable instrument drawn or make in India is called_______

instrument.
A. Inland
B. Foreign
C. Time
D. Clean
Discussion
A. Inland

14. The following one is a negotiable instrument, negotiable by usage or

custom
A. Bill of Exchange
B. Accommodation Bill
C. Promissory Note
D. Share warrant
Discussion
D. Share warrant

15. The most important feature of a negotiable instrument is

A. Free transfer
B. Transfer free from defects
C. Right to sue
D. Both A & B
Discussion
D. Both A & B

16. The following one is absolutely essential for a special crossing.

A. Two parallel transverse lines
B. Words "And company?
C. Words "Not negotiable"
D. Name of a banker
Discussion
D. Name of a banker

17. Cheque is payable on

A. Demand
B. Usage
C. Fixed future date
D. After sight
Discussion
A. Demand

18. The reasonable period allowed in India for the presentation of a cheque
is
A. 1 year
B. 3 months
C. 9 months
D. depending upon custom
Discussion
B. 3 months

19. Section 6 of the Negotiable Instruments Act defines ___.

A. Cheque
B. Bill of Exchange
C. Promissory Notes
D. Dishonour by non-payment
Discussion
A. Cheque

20. If a Minor draw, indorse, deliver and negotiate Negotiable Instruments,

it binds __
A. All the parties except minor
B. All the parties including minor
C. Minor Only
D. Minor and Only Drawer
Discussion
A. All the parties except minor

21. Dishonour of Negotiable Instrument by Non Payment is covered under

section in Negotiable
Instrument Act 1882…
A. Section 90
B. Section 91
C. Section 92
D. Section 93
Discussion
C. Section 92

22. Which of the following section in the Negotiable Instruments Act deals
with the Bill of Exchange?
A. Section 5
B. Section 6
C. Section 4
D. Section 13
Discussion
A. Section 5

23. Which of the followings are not the Negotiable Instruments as defined
by the Statute…
A. Banker’s Note
B. Promissory Note
C. Bill of Exchange
D. Cheques
Discussion
A. Banker’s Note

24. Which of the following is/are true about the Negotiable Instruments
Act, the Promissory Note is … A) Definition of Promissory Note is given in
section 8 of the Negotiable Instrument Act B) Containing an unconditional
undertaking C) To pay a certain sum of money only to a specific person or
the bearer D) The seller is bound to accept the promissory note E) A
document was written and signed by the payer/maker
A. (A), (B) and (C)
B. (B), (C) and (E)
C. (B), (C), and
Discussion
B. (B), (C) and (E)

25. The Negotiable Instruments (Amendment) Bill, 2017 inserted a

provision allowing a court trying an offence related to cheque bouncing, to
direct the drawer (person who writes the cheque) to pay interim
compensation to the complainant. The interim compensation will not
exceed ___% of the cheque amount?
A. 15%
B. 25%
C. 30%
D. 20%
Discussion
D. 20%
1. Person named in the instrument to whom money is directed to be paid is known as
_______________.
a) Drawer
b) Acceptor
c) Maker
d) Payee
Ans D
2. Maker of a bill of exchange is called as ____________
a) Drawer
b) Drawee
c) Acceptor
d) Payee
Ans A
3. Days of grace provided to the Instruments at maturity is _______________
a) 1 day
b) 2 days
c) 3 days
d) 5 days
Ans C
4. Parties to a negotiable instrument can be discharged from liability by ______________
a) Cancellation
b) Payment
c) Release
d) All of the above
Ans D
5. Validity period for the presentment of cheque in bank is _______________
a) 3 months
b) 6 months
c) 1 year
d) 2 years
Ans A
6. Offences committed under the Negotiable Instruments Act can be _______________
a) Compoundable
b) Non-compoundable
c) Non-compoundable and non-bailable
d) Bailable
Ans A
7. A negotiable instrument that is payable to order can be transferred by:
a) Simple delivery
b) endorsement and delivery
c) endorsement
d) registered post
Ans B
8. A negotiable instrument drawn in favour of minor is
a) Void
b) Void but enforceable
c) Valid
d) None of these
Ans C
9. Which of the following is not applicable to negotiable instruments?
a) It must be in writing
b) It must be transferable
c) It must be registered
d) It must be signed
Ans C
10. ‘A’ signs the instrument in the following manner. State the instrument which cannot be
considered as promissory note.
a) I promise to pay B or order INR 500.
b) I acknowledge myself to be indebted to B for INR 1,000 to be paid on demand for value
received.
c) I promise to pay B INR 10,000 after three months.
d) I promise to pay B INR 500 seven days after my marriage with C.
Ans D
11. A promissory note drawn jointly by X, a minor and Y, a major is:
a) Void
b) Valid but not negotiable
c) Valid but can be enforced only against Y
d) None of the above
Ans C
12. In legal terms, person who takes the instruments bonafide for value before it is overdue,
in good faith, is known
as:
a) Holder in due course
b) Holder
c) Holder for value
d) None of the above
Ans A
13. P obtains a cheque drawn by M by way of gift. Here P is a:
a) Holder in due course
b) Holder for value
c) Holder
d) None of the above
Ans C
14. As per the Negotiable Instruments Act, 1881, when the day on which a promissory note
or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be
due on the …….……..
a) said public holiday
b) 5 days succeeding public holiday
c) next succeeding business day
d) next preceding business day
Ans D
15. Person named in the instrument to whom money is directed to be paid:
a) Drawer
b) Acceptor
c) Maker
d) Payee
Ans D
16. A draws a cheque in favour of M, a minor. M endorses the same in favour of X. The
cheque is dishonoured by the bank on grounds of inadequate funds. As per the provisions
of Negotiable Instruments Act, 1881:
a) M is liable to X
b) X can proceed against A
c) No one is liable in this case
d) M can proceed against A
Ans B
17. While drawing a bill of exchange, a person whose name is given in addition to the
drawee who can be resorted in case of need, is called _____________________.
a. Acceptor
b. Acceptor for honour
c. Drawee in case of need
d. Drawer
Ans C
18. A draws a bill on B. B accepts the bill without any consideration. The bill is transferred to
C without consideration. C transferred it to D for value. Decide as per provisions of
Negotiable Instruments Act, 1881-
a. D can sue only A
b. D can sue A or B only
c. D can sue any of the parties A, B or C
d. D cannot sue any of the parties A, B or C
Ans C
19. The date of maturity of a bill payable hundred days after sight and which is presented
for sight on 4th May, 2017, is (as per the provisions of the Negotiable Instruments Act,
1881):
a. 13 August, 2017
b. 14 August, 2017
c. 15 August, 2017
d. 16 August, 2017
Ans B
20. A draws a bill on B for INR 500 payable to the order of A. B accepts the bill, but
subsequently dishonour it by non – payment. A sues B on the bill but B proves that it was
accepted for value as to INR 400, and as an accommodation to the plaintiff as to the
residue. Thus, as per the provisions of the Negotiable Instruments Act, 1881, A can only
recover the following amount:
a. 900
b. 500
c. 400
d. 100
Ans C
21. An instrument containing a promise to __________ is valid promissory note.
a. Pay Rs. 10 lakhs
b. Deliver certain goods
c. Pay Rs. 10 lakh and deliver certain goods
d. Both (a) and (c)
Ans A
22. In case on an accepted bill, the liability of drawer is __________
a. Primary and unconditional
b. Primary and conditional
c. Secondary and conditional
d. Secondary and unconditional
Ans C
23. Until the bill is accepted, the liability of drawer is __________.
a. Primary and unconditional
b. Primary and conditional
c. Secondary and conditional
d. Secondary and unconditional
Ans B
24. Until the bill is accepted, the liability of drawee is __________.
a. Primary and unconditional
b. Primary and conditional
c. Secondary and conditional
d. None of these
Ans D
25. In case of an accepted bill, the liability of drawee is __________
a. Primary and unconditional
b. Primary and conditional
c. Secondary and conditional
d. None of these
Ans A