Two Sentence Answers

The Reserve Bank of India Act, 1934

1. What is a “Scheduled bank” under the Reserve Bank of India (RBI) Act ? (April.10)

Ans: A “scheduled bank” is a bank whose name appears in the Second Schedule of the RBI Act.

2. Name any four scheduled banks under the RBI Act.

Ans: The Allahabad Bank, the American Express Banking Corporation, the Canara Bank and the
Central Bank of India are “scheduled banks” under the RBI Act.

3. What is the definition of a “rupee coin” under the RBI Act ? (Nov.10)

Ans: A “rupee coin” is defined by the RBI Act as “rupees which are legal tender in India under the
provisions of the Indian Coinage Act, 1906.

4. What is the capital of the RBI as mentioned in the RBI Act ? (Nov.10)

Ans: Sec.4 of the RBI Act lays down that the capital of the RBI shall be Rs.5 crores.

5. Who looks after the management of the RBI /

Ans: The general superintendence and direction of the affairs and business of the RBI are entrusted
to a Central Board of directors, which may exercise all powers and do all acts and things which may be
exercised or done by the RBI. (Sec.7)

6. What is the tenure of office of the Governor or a Deputy Governor of the RBI ?

Ans: The Governor or a Deputy Governor of the RBI holds office for such term, not exceeding five
years, as the central Government may fix when making the appointment.

7. Name any two disqualification of a director of the RBI.

Ans: A person is disqualified to be a director of the RBI (i) if he is a salaried government official of (ii)
if he is an officer or employee of any bank. (sec.10)

8. What is the minimum number of meetings in a year prescribed for the Central Board of directors
under the RBI Act ?

Ans: The Central Board of directors of the RBI must hold at least six meetings in one year and at least
one meeting in each quarter (Sec.13)
9. Name two kinds of business which the RBI cannot transact under Section.19 of the RBI Act.
(April.09)
Ans: Under Sec.19 of the RBI Act, the RBI cannot (i) purchase the shares of any banking or other
company, and (ii) draw or accept bills payable otherwise than on demand.
10. Name the note of the highest denomination which the RBI is authorized to issue under the RBI
Act ?
Ans: Under Sec.24 of the RBI Act, the note of the highest denomination which can be issued by the
RBI is of Rs.10,000/-
11. What is the procedure to be followed when RBI wishes to re-issue torn or defaced notes ?
Ans: Sec.27 of the RBI Act expressly provides that the RBI Cannot re-issue bank notes which are torn,
defaced or excessively soiled (dirty).
12. What are the assets of the issue Department of the RBI ? (April.09)
Ans: The assets of the issue Department of the RBI consist of gold coins, gold bullion, foreign
securities, rupees coins and rupee securities to such aggregate amount as are not less than the total
liabilities of the issue Department. (sec.33)
13. What are the liabilities of the issue Department of the RBI ? (April.10)
Ans: The liabilities of the issue Department of the RBI shall be an amount which is equal to the total
of the amount of the currency notes of the Government of India and bank notes for the time being in
circulation. (Sec.34)
14. How is the term “fortnight” defined in Section.42 of the RBI Act ?
Ans: Under Sec.42 of the RBI Act, the term “fortnight” means the period from Saturday to the second
following Friday, both days inclusive.
15. How is the term “repo” defined in Section.45-U of the RBI Act ?
Ans: The term “repo” is defined in Sec.45-U of the RBI Act as “an instrument for borrowing funds by
selling securities with an agreement to repurchase the securities on a mutually agreed date at an agreed
price, which includes interest for the funds borrowed”.
16. How is the term “reverse repo” defined in Section.45-U of the RBI Act ?
Ans: The term “reverse repo” is defined in Sec.45-U of the RBI Act as “an instrument for lending
funds by purchasing securities with an agreement to repurchase the securities on a mutually agreed
date at an agreed price, which includes interest for the funds lent”.
17. What is “bank rate”?
Ans: “Bank rate” means the standard rate at which the RBI is prepared to buy or re-discount bills of
exchange or other commercial paper eligible for purchase under the RBI Act. (Sec.49)
18. Who appoints the auditors of the RBI and is there a minimum number of auditors to be
appointed for the RBI under the RBI Act ?
Ans: the Central Government appoints auditors for the RBI and their number should not be less than
two (Sec.50)
19. What is contained in the Second Schedule of the RBI Act ?
Ans: The Second Schedule of the RBI Ac contains a long list of banks which are referred to as
“scheduled banks”.
20. What is contained in the Third Schedule of the RBI Act ?
Ans: The RBI Act has only two Schedules. The Third Schedule was repealed in 1955.
The Banking Regulation Act, 1949

21. What is meant by “approved securities” under the Banking Regulation Act ?
Ans: Under the Banking Regulation Act, “approved securities” means (i) securities in which a trustee
may invest money under clause (a), (b) (bb), (c) or (d) of Sec.20 of the Indian trusts Act, 1882 and (ii)
such of the securities authorized by the Central Government under clause (f) of Sec.20 of the said Act.
22. What is the definition of “banking” under the Banking Regulation Act.
Ans: Under the Banking Regulation Act, “banking” means the accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal
by cheque, draft, order or otherwise.
23. What is the definition of “banking policy” under the Banking Regulation Act?
Ans: “Banking policy”, under the Banking Regulation Act, means any policy which is specified from
time to time by the RBI in the interest of the banking system or in the interest of monetary stability or
sound economic growth, having due regard to the interest of the depositors, the volume of deposits and
other resources of the bank and the need for equitable allocation and efficient use of these deposits and
resources.
24. How is a “banking company” defined under the Banking Regulation Act ?
Ans: Under the Banking Regulation Act, a “banking company” means any company which transacts
the business of banking in India. However, a company which is engaged in the manufacturing of goods
or carries on any trade and which accepts deposits of money from the public merely for the purpose of
financing its business as such manufacturer or trader is not deemed to transact the business of
“banking” under the said Act.
25. What is a “Secured loan or advance” under the Banking Regulation Act ?
Ans: A “secured loan or advance” under the Banking Regulation Act is a loan or advance made on the
security of assets, the market value of which is not at any time less than the amount of such loan or
advance.
26. How are “demand liabilities” and “time liabilities” defined under the Banking Regulation Act?
Ans: Under the Banking Regulations Act, “demand liabilities” means liabilities which must be met on
demand. “Time liabilities” are those liabilities which are not demand liabilities.
27. What is the definition of a “branch” and a “branch office” in relation to a banking company?
Ans: A “branch” or “Branch office” in relation to a banking company means any branch or branch
office, whether called a pay office or sub-pay office or by any other name, at which deposits are
received, cheques cashed or money lent. For the purposes of Sec.35 of the Banking Regulation Act, the
term also includes any place of business where any other form of business referred to in Sec.6(1) of the
Act is transacted.
28. What is the meaning of “managing Director” in relation to a banking company ?
Ans: A “managing director”, in relation to a banking company, means a director, who, by virtue of an
agreement with the banking company or of resolution passed by a banking company in general meeting,
or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with
the management of the whole, or substantially the whole of the affairs of the company. The term
includes a director occupying the position of a managing director, by whatever named called.
29. Name any two disqualifications of a managing director of a banking company.
Ans: A person is disqualified from being a managing director of a banking company if (i) he is a
partner of any firm which carries on any trade, business or industry or (ii) he has substantial interest in
any other company or firm.
30. What is the number of qualifications of a managing director of a banking company.
Ans: A person who is appointed as a managing director of a banking company need not hold any
qualification shares in the banking company (sec.10-C)
31. Name any two forms of business which a banking company may undertake in addition to the
business of banking.
Ans: In addition to the business of banking, a banking company may (i) carry on and transact every
kind of guarantee and indemnity business or industry or (ii) he has substantial interest in any other
company or firm.
32. What is the period and the extended period for which a banking company can hold immovable
property (non-banking assets)?
Ans: Under Sec.9 of the Banking Regulation Act, a banking company cannot hold any immovable
property, except such as is required for its own use, for a period exceeding seven years from the date of
its acquisition. This period can be extended by the RBI for a further period not exceeding five years if the
RBI is satisfied that such an extension would be in the interest of the depositors of the banking
company. (Sec.9)
33. What is the maximum commission or brokerage winch a banking company can pay in respect of
shares issued by it?
Ans: The maximum commission or brokerage which a bank can pay in respect of shares issued by it is
two-and –a half percent of the paid up value of such shares. (Sec.13)
34. Can a banking company create a floating charge over its undertaking and its property?
Ans: No banking company can create a floating charge on its undertaking or property unless the
creation of such a charge is certified in writing by the RBI as not being detrimental to the interest of the
depositors of the company. (sec.14-A)
35. What are the restrictions imposed by the Banking Regulations Act on a banking company as
regards payment of dividend ?
Ans: A banking company cannot pay a dividend on its shares until all its capitalized expenses have
been completely written off. Capitalized expenses include preliminary expenses, organization expenses,
share selling commission, brokerage, amount of losses incurred and any other item of expenditure not
represented by tangible assets. (Sec.15)
36. If Mr.X is a director of a banking company, can he be appointed as a director of another banking
company ? If yes, under what provisions of the Banking Regulation Act ?
Ans: No. Sec.16 of the Banking Regulation Act provides that no banking company incorporated in
India can have as a director on its Board of directors, a person who is a director of any other banking
company.
37. What is the minimum percentage of cash reserves to be maintained by banks under the Banking
Regulations Act ?
Ans: Every banking company, not being a scheduled bank, must maintain a cash reserve with itself or
in a current account with the RBI, a sum equivalent to at least 3% of the total of its demand and time
liabilities. (Sec.18)
38. Can a court scrutinize the rate of interest charged by a banking company under the Usurious
Loans Act, 1918?
Ans: No. A court cannot scrutinize the rate of interest charged by a banking company
–notwithstanding the provisions of the usurious Loan Act, 1918, or any other law relating to
indebtedness in force in India. (Sec.21-A)
39. Name any two circumstances in which the RBI can give directions to banking companies
generally or to a banking company in particular.
Ans: The RBI can do so if it is satisfied that it is necessary to give such directions (i) in public interest
or (ii) in the interest of banking policy. (Sec.35-A)
40. What is the maximum number of additional directors which the RBI can appoint in a banking
company ? How many qualification shares is in additional director required to hold under the Banking
Regulations Act ?
Ans: There is no upper limit on the number of additional directors who can be appointed by the RBI.
Such an additional director need not hold any qualification shares of the banking company. (Sec.36-AB)

The Bankers Book Evidence Act, 1991

41. How is “company” defined in the Bankers’ Books Evidence Act ?

Ans: Under the Bankers Books Evidence Act, a “company” means any company as defined in Sec.3 of
the Companies Act, 1956; the term also includes a foreign company within the meaning of Sec.591 of
that Act. (The above references are now to be read to mean the corresponding sections of the
Companies Act, 2013)
42. What is the definition of “bankers books” in the Bankers Books Evidence Act.
Ans: The term “bankers Books” is defined to include ledgers, day-books, cash-books, account-books
and all other records used in the ordinary business of a bank, whether these records are kept in written
form or stored in a micro film, magnetic tape or in any other form of mechanical or electronic data
retrieval mechanism, either onsite or at any offsite location, including a back-up or disaster recovery sit
or both.
43. How is a “judge” defined in the Bankers Books Evidence Act ?
Ans: Under the Bankers Books Evidence Act, a ‘Judge” means a Judge of a High court.
44. What is the mode of proof of entries in the Bankers Books Evidence Act ?
Ans: Under Sec.4 of the Bankers Books Evidence Act, a certified copy of an entry in a bankers book is
to be received in all legal proceedings, as prima facie evidence of the existence of such an entry.
45. When can an officer of a bank not be compelled to produce books in a court of law?
Ans: Sec.5 of the Bankers Books Evidence Act lays down that no officer of a bank shall, in any legal
proceeding, be compelled to produce any bankers book, the contents whereof can be proved under the
said Act, if the bank is not a party to such a legal proceeding.

The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
46. What is the object of the Recovery of Debts Due to Banks and “Financial Institutions Act ?
Ans: The object of the Recovery of Debt Due to Banks and Financial Institutions Act is to set up
Tribunals for the expeditious adjudication and recovery of debts due to banks and financial institutions.
Before the Act was passed, huge amounts of public money was locked up in never-ending litigation
involving banks and financial institutions, preventing proper utilization of funds for the development of
the country. The Narasimham Committee and the Tiwari Committee had also recommended setting up
of special tribunal for recovery of money by banks and financial institutions.
47. To which part of India does the Recovery of Debts Due to Banks and Financial Institutions Act
apply ?
Ans: The Recovery of Debts Due to Banks and Financial institutions Act applies to the whole of India,
except the State of Jammu and Kashmir.
48. When did the Recovery of Debts Due to Banks and Financial Institutions Act come into force ?
Ans: The Recovery of Debts Due to Banks and Financial Institutions Act is deemed to have come into
force on June 25, 1993.
49. What is the definition of “banks” under the Recovery of Debts Due to Banks and Financial
Institutions Act?
Ans: The term “bank” is defined in the Recovery of Debt Due to Banks and Financial Institutions Act
to mean (i) a banking company, (ii) a corresponding new bank, (iii) the State Bank of India, (iv) a
subsidiary bank, and (v) a Regional Rural Bank.
50. What is the definitions of “banks” under the Recovery of Debts Due to Banks and Financial
Institutions Act ?
Ans: A “debt” under the Recovery of Debts Due to Banks and Financial Institutions Act means “any
liability” (inclusive of interest) which is claimed as due from any person by a bank or a financial
institution or by a consortium of banks or financial institutions- during the course of any business
activity undertaken by the bank or the financial institutions or the consortium, under any law for the
time being in force, in case or otherwise, whether secured or unsecured or assigned, or whether payable
under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage,
and subsisting on, and legally recoverable on the date of the application”
51. Will the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act apply if a
debt owed by Mr.A to a bank is Rs.50000?
Ans: No. the Recovery of Debt Due to Banks and Financial institutions Act does not apply if the
amount of the debt owed to a bank is less than Rs.10 lakhs. (The Central Government may, however,
prescribe any lower amount in this regard, not however being less than Rs.1 lakh)
52. What is the maximum strength of a Tribunal constituted under the Recovery of Debts Due to
Banks and Financial Institutions Act?
Ans: The Tribunal under the Recovery of Debt Due to Banks and Financial Institutions Act consist of
only one person, who is referred to as the Presiding office thereof.
53. What are the Qualifications for being appointed as the Presiding Officer of a Tribunal under the
Recovery of Debts Due to Banks and Financial Institutions Act?
Ans: To be qualified for appointment as a Presiding Officer of a Tribunal under the Recovery of Debt
Due to Banks and Financial institutions Act, a person should be or should have been or should be
qualified to be, a District Judge.
54. Does a Tribunal established under the Recovery of Debts Due to Banks and Financial Institutions
Act have power to pass interim orders?
Ans: Yes, A tribunal established under the Recovery of Debts Due to Banks and Financial Institutions
Act may pass interim orders, whether by way of injunction or stay or attachment, debarring the
defendant from transferring, alienating or otherwise dealing with or disposing of any property or assets
belonging to him without the prior permission of the Tribunal.
55. What is the limitation period for suit filed under the Recovery of Debts Due to Banks and
Financial Institutions Act ?
Ans: Sec.24 of the Recovery of Debt Due to Banks and Financial Institutions Act lays down that the
provisions of the Limitation Act, 1963, shall apply, as far as may be, to all applications filed before a
Tribunal under the Recovery of Debts Due to Banks and Financial institutions Act.

Negotiable Instrument Act, 1881

56. What is a promissory note ?

Ans: A promissory note is an instrument in writing, not being a bank note or a currency note,
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 the bearer of the instrument.
57. Is a Promissory note to pay Rs.10000/- and 10 bags of rice a valid promissory note ? Why ?
Ans: No., this is not a valid promissory note. A promissory note can be for payment of money and
money only. The addition of the words, ’10 bags of rice’, invalidates the instrument.
58. Is a Promissory note “to pay Rs.20000/- and all other sums which may be due” a valid
promissory note? Why?
Ans: No. The sum of money promised to be paid in a promissory note must be certain. The words, ‘all
other sums of money which may be due’ cannot be used in a promissory note.
59. Can a promissory note make the amount payable to the maker himself ?
Ans: No. A promissory note cannot be made payable to the maker himself. However, if such a note is
endorsed by the maker, it becomes a valid instrument because it then becomes payable to bearer or
endorsee, as the case may be.
60. Do promissory notes require to be stamped ? In what circumstances can an unstamped
promissory note be admissible in evidence ?
Ans: Yes., Promissory notes are required to be stamped as per Art. 4 of the Indian Stamp Act. An
unstamped promissory note cannot be admissible in evidence at all.
61. What is a bill of Exchange ?
Ans: 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 a certain person or to the order
of a certain person or the bearer of the instrument.
62. To what extent do the provisions of the Negotiable Instruments Act relating to acceptance and
presentment for acceptance apply to promissory notes ?
Ans: The provisions of the Negotiable Instrument Act, relating to acceptance and presentment for
acceptance do not apply to promissory notes.
63. Can a bill of exchange be in an oral form ? If yes, under what circumstances ?
Ans: No. A bill of exchange, by its very definition, has to be in writing.
64. Can a bill of exchange be drawn so as to make the payment conditional on the happening of a
contingency?
Ans: No. A bill of exchange must contain an unconditional order to pay.
65. Name the three parties to a bill of exchange.
Ans: The three parties to a bill of exchange are the drawer, the drawee and the payee.
66. If, in a bill of exchange, Mr.X is both the drawer and the payee, is it a valid bill of exchange?
Ans: Yes, it is a valid bill of exchange if Mr.X is both the drawer, and the payee of the instrument.
67. If a bill of exchange is drawn payable to the bearer on demand, is it a valid bill of exchange?
Ans: No. Under the Reserve Bank of India Act, no person other than the Central Government or the
RBI can draw a bill of exchange payable to bearer on demand.
68. Give any two points of difference between a promissory note and a bill of exchange.
Ans: There are two parties in a promissory note whereas there are three parties in a bill of exchange.
A promissory note contains a promise or an undertaking to pay, whereas a bill of exchange contains an
order to pay the amount.
69. Can a bill of exchange be drawn and accepted conditionally?
Ans: A bill of exchange cannot be drawn conditionally. It can, however, be accepted conditionally.
70. What is a cheque?
Ans: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.
71. Is a cheque in an electronic form covered by the definition of ‘cheque’ as given in the Negotiable
instrument Act ?
Ans: Yes. A cheque in an electronic form is covered by the definition of a “cheque” under the
Negotiable Instruments Act.
72. Can a cheque contain a conditional order to pay the amount ?
Ans: No. It must contain an unconditional order on a specified banker to pay the amount.
73. Can a cheque be drawn on an unspecified banker?
Ans: No. A cheque has always to be drawn on a specified banker.
74. Give any two points of difference between a cheque and a bill of exchange.
Ans: In a cheque, the drawee must always be a specified banker, whereas any person can be a
drawee in a bill of exchange. A cheque does not require acceptance, whereas a bill of exchange must be
accepted by the drawee in order to make him liable.
75. What is a ‘marked cheque’?
Ans: A ‘marked cheque’ is a cheque which is marked or certified by the drawee-banker with words
indicating that it will be honoured by the bank on the day of presentment for payment.
76. What is a ‘crossed cheque’?
Ans: A crossed cheque is a cheque which bears across its face, an addition of the words ‘and
company’ between two parallel transverse lines or two parallel transverse lines simply, either with or
without the words “not negotiable”
77. If a cheque is crossed generally, can it be paid to the payee across the counter? If not, to whom
can it be paid and how?
Ans: A crossed cheque cannot be paid across the counter. The banker on whom it is drawn can pay it
only to another banker.
78. When a cheque is crossed specially, to whom is it payable?
Ans: When a cheque is crossed specially, the banker on whom it is drawn must pay it only the banker
to whom it is crossed or his agent for collection.
79. If the drawee issues an uncrossed cheque, can it be crossed later on by the holder? If yes, can
such crossing be general crossing or special crossing?
Ans: An uncrossed cheque can be crossed by the holder. Such a crossing may be a general or a special
corssing.
80. What is the effect of adding the words ‘Not negotiable’ to a crossed cheque?
Ans: A person taking a crossed cheque bearing the words “not negotiable” does not have, and is not
capable of giving, a better title to the cheque than that which the person from whom he took it has.
81. What is the protection given by the Negotiable Instruments Act to a paying banker?
Ans: If the paying banker has paid a crossed cheque in due course, he can debit the account of his
customer, that is, the drawer of the cheque, with the amount even if such amount has not reached the
true owner.
82. What is the protection given by the Negotiable Instruments Act to a collecting banker?
Ans: If the collecting banker has, in good faith and without negligence, received payment for a
customer of a crossed cheque, he does not incur any liability to the true owner of the cheque only by
reason of having received such payment if the title to the cheque proves to be defective.
83. What is the penalty for a ‘bounced cheque’ under the Negotiable Instruments Act ?
Ans: If a cheque is not honoured for insufficient funds, the drawer of the cheque is liable to be
punished with imprisonment upto two years or a fine which may be upto twice the amount of the
cheque or both.
84. Will the provisions of the Negotiable Instruments Act relating to a ‘bounced cheque’ apply to
the bouncing of a cheque given as a New Year gift?
Ans: No. The penalties for issuing a cheque which is dishonoured apply only when the cheque is given
by the drawer in discharge of a legally enforceable debt or other liability, wholly or in part.
85. Which instruments are payable on demand?
Ans: A cheque is always payable on demand. Bill of exchange and promissory notes which are
expressed to be payable “on demand” or “ on sight” or “on presentment are also payable on demand.
Moreover, bills and notes in which no time for payment has been specified are payable on demand.
86. Who are primarily liable to pay in case of a promissory note, a bill of exchange and a cheque?
Ans: In the case of promissory note, the maker is liable to pay the amount. In a bill of exchange, the
drawer is so liable until the bill is accepted; thereafter, the acceptor becomes liable to pay the amount.
In the case of a cheque, the primary liability is that of the drawer of the cheque.
87. Who can negotiate a negotiable instrument?
Ans: Every sole maker, drawer, payee or indorsee – or all of several joint maker, drawers, payee or
indorsees – of a negotiable instrument can endorse and negotiate the same, unless the negotiability of
such an instrument has been restricted or excluded under the provisions of Section.50 of the Act.
88. Define ‘payee’ under the Negotiable Instruments Act.
Ans: The person named in a negotiable instrument to whom or to whose order the money is, by the
instrument, directed to be paid, is called the “payee”.
89. Who is a ‘holder’ under the Negotiable Instruments Act ?
Ans: The “holder” of a negotiable instrument means the person entitled in his own name, to the
possession thereof, and to receive or recover the amount due thereon from the parties thereto. If an
instrument is lost or destroyed, its holder is the person so entitled at the time of such loss or
destruction.
90. Who is a ‘holder in due course’ under the Negotiable Instrument Act ?
Ans: A “holder in due course” means any person who, for consideration, became the possessor of a
promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee thereof, if
payable to order – before the amount mentioned therein became payable and without having sufficient
cause to believe that any defect existed in the title of the person from whom he derived his title.
91. Name any two benefits/privileges conferred by the Negotiable Instruments Act on a holder in
due course.
Ans: If a bill of exchange or a promissory note is negotiated to a holder in due course, the other
parties to the bill or note cannot avoid liability on the ground that the delivery of the instrument was
conditional or for a special purpose only. Secondly, a holder in due course can get a better title than that
of his transferor.
92. What is an ‘inland instrument’?
Ans: A promissory note, bill of exchange or cheque drawn or made in India and payable in or drawn
upon any person resident in India is deemed to be an “inland instrument”.
93. Which law governs the liability of the drawer of a foreign bill of exchange?
Ans: In the absence of a contract to the contrary, the liability of the drawer of a foreign bill of
exchange is regulated, in all the essential matter, by the law of the place where he made the instrument.
94. What is an ‘ambiguous instrument’?
Ans: An “ ambiguous instrument” is a negotiable instrument which can be construed either as a
promissory note or a bill of exchange.
95. Can a cheque be made payable otherwise on demand ?
Ans: No. A cheque is always payable on demand.
96. Who is a ‘drawer’ and ‘drawee’ in a bill of exchange?
Ans: The drawer of a bill of exchange is the person who draws or makes the bill; the drawee is the
person who is ordered to pay the amount mentioned in the bill of exchange.
97. Who is a ‘drawee’ is in case of need’?
Ans: If, 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 a person is called a “drawee in case of need”.
98. What is meant by ‘payment in due course’?
Ans: “Payment in due course” means payment in accordance with the apparent tenor of the
instrument, in good faith and without negligence, to any person in possession thereof, under
circumstances which do not afford a reasonable ground for believing that he is not entitled to receive
payment of the amount mentioned in the instrument.
99. What is an ‘inchoate stamped instrument’ under the Negotiable Instrument Act?
Ans: An “inchoate stamped instrument” is a paper which is stamped in accordance with the law
relating to negotiable instruments and which is either wholly blank or has an incomplete negotiable
instrument written on it.
100. What is meant by ‘negotiation’ under the Negotiable Instrument Act ?
Ans: When a promissory note, bill of exchange or cheque is transferred to any person, so as to
constitute that person the holder thereof, the instrument is said to be negotiated.
101. What is meant by ‘maturity and days of grace’?
Ans: The maturity of a promissory note or bill of exchange is the date on which it falls due. If such an
instrument is not expressed to be payable on demand or at sight or on presentment, it is at maturity on
the third day after the day on which it is expressed to be payable. These three days are known as “days
of grace”
102. Can a minor draw or indorse a negotiable instrument?
Ans: A minor can draw or indorse a negotiable instrument so as to bind all parties except himself.
103. Name any four kinds of indorsement.
Ans: Four kinds of indorsement are: Indorsement in full, indorsement in blank, conditional
indorsement and restrictive indorsement.
104. What is a ‘restrictive indorsement.
Ans: A “restrictive indorsement “ is an indorsement which prohibits or restricts further negotiation of
the negotiable instrument, as for instance, an indorsement which say “Pay the contents to A only”
105. What is an indorsement ‘sans recourse? Is it a valid indorsement?
Ans: An indorsement “ sans recourse” is conditional or qualified indorsement wherein the indorser,
by express words, exclude his own liability on the instrument or makes such liability depend upon the
happening of a specified event, although such an event may never happen.
106. What is meant by ‘negotiation back’?
Ans: “Negotiation back” refers to a situation where one of the prior parties to a negotiable
instrument gets the instrument back in his hands as holder by negotiation before it has become mature.
107. When no rate of interest is specified in a negotiable instrument, at what rate is interest to be
calculated under the Negotiable instruments Act?
Ans: If no rate of interest is specified in a negotiable instrument, interest is to be calculated at the
rate of 18% per annum from the date on which it ought to have been paid until tender or realization of
such amount or until such date as the court directs in case a suit is filed to recover the amount.
108. What is ‘material alteration’ under the Negotiable Instruments Act ?
Ans: A “material alteration” under the Negotiable Instrument Act is an alteration which, in any way,
alters the operation of the instrument and the liabilities of the parties, it being immaterial whether such
a change is beneficial or prejudicial. In Aldous v. Cornwall, the term was described as “ any alteration
which alters the business effect of the instrument if used for any such business purpose”.
109. Name two ways in which a negotiable instrument can be said to be dishonoured.
Ans: A negotiable instrument can be dishonoured by non-acceptance or by non-payment.
110. Name two cases in which a notice of dishonor is not necessary.
Ans: A notice of dishonor is not necessary when it is dispensed with by the party entitled to such
notice or when the party charged could not suffer damage for want of such notice.
111. What is ‘reasonable time’ for giving a notice of dishonor?
Ans: When determining what is “reasonable time” for notice of dishonor, regard is to be had to the
nature of the instrument and usual course of dealing with respect to similar instruments. In calculating
such time, public holidays are to be execluded.
112. What is ‘noting’ under the Negotiable Instruments Act?
Ans: When a promissory note or a bill of exchange has been dishonoured by non-acceptance or non-
payment, the holder approaches a Notary Public who presents the instrument for a second time to the
person by whom it is to be accepted or paid. If again the instrument is not accepted or paid (as the case
may be), he ‘notes’ this fact on the instrument or upon a paper attached to it. This is known as “noting”.
113. What is a ‘protest’ under the Negotiable Instruments Act ?
Ans: When a promissory note or a bill of exchange has been dishonoured by non-acceptance or non-
payment, the holder may cause such dishonor to be noted and certified by a Notary Public. The
certificate of the Notary Public is known as the “Protest”
114. Is protest of foreign bills of exchange compulsory?
Ans: A foreign bill of exchange must be protested for dishonor when such protest is required by the
law of the place where it was drawn.
115. What is meant by ‘acceptance for honour’?
Ans: When a bill of exchange been noted or protested for non-acceptance or for better security, any
person who is not a party already liable on the instrument may, with the consent of the holder, by
writing on the bill, accept the same for the honour of any party thereto. This is called “acceptance for
honour”.
116. What is meant by ‘payment for honour’?
Ans: When a bill of exchange has been noted or protested for non-payment, any person may pay the
amount due thereon, for the honour of any party liable to pay the same, provided such a person or his
agent declares, prior to the payment, before a Notary Public, the party for whose honour he pays and
such a declaration has been recorded by the Notary.
117. Name any two presumption as to negotiable instruments.
Ans: There is a presumption that every negotiable instrument was made or drawn for consideration.
When a negotiable instrument bears a date, there is a presumption that it was made or drawn on that
date. Both these presumptions are rebuttable presumptions that is, the court will allow the contrary to
be proved.
118. What is the presumption as to foreign law relating to negotiable instruments?
Ans: The law of any foreign country regarding negotiable instruments is to be presumed to be the
same as that of India- unless the contrary is proved.
119. What is a ‘hundi’ ? Give the names of two hundis commonly used in India.
Ans: A “hundi” is a bill of exchange drawn in a vernacular or oriental language according to the Indian
mercantile custome or usage. Two types of hundies are the “shah Job Hundi” and the “Nam Jog Hundi”.
120. How many Schedules are appended to the Negotiable Instrument Act?
Ans: There are no Schedules appended to the Negotiable Instruments Act.