Negotiable Instruments MCQ Quiz - Objective Question with Answer for Negotiable Instruments - Download Free PDF

A negotiable instrument is a signed document that promises a sum of payment to the assignee or a specified person. As they are assignable and transferable, some negotiable instruments may trade in a secondary market. Some common examples of negotiable instruments are money orders, checks, and promissory notes. The Negotiable Instruments topic is significant for all Indian competitive exams, including UPSC, SSC, PSC, Railway, and Banking. We should look at the question carefully before deciding which of the available options best describes the Negotiable Instruments. Once we've narrowed down our choice, it will become easy to choose the correct answer. To boost our performance, we must prepare by referring to some standard textbooks. We should make our own handwritten notes from the NCERT book, Daily newspaper, Business Standard, and AIR news along with that regular and cyclic revision of the topics are compulsory.

Latest Negotiable Instruments MCQ Objective Questions

Negotiable Instruments Question 1:

Which section of the Negotiable Instruments Act 1881 , provides for Protest?

1. Section 99
2. Section 100
3. Section 101
4. Section 102

Answer (Detailed Solution Below)

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Negotiable Instruments Question 1 Detailed Solution

The correct answer is Section 100.

Key Points

• Section 100 of the Negotiable Instruments Act 1881 provides for Protest.
• It states that —When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonour to be noted and certified by a notary public. Such certificate is called a protest.
• Protest for better security.—When the acceptor of a bill of exchange has become insolvent, or his credit has been publicly impeached, before the maturity of the bill, the holder may, within a reasonable time, cause a notary public to demand better security of the acceptor, and on its being 23 refused may, within a reasonable time, cause such facts to be noted and certified as aforesaid. Such certificate is called a protest for better security.

Negotiable Instruments Question 2:

1. Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, indorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.
2. A minor may draw, indorse, deliver and negotiate such instrument.
3. An authority to draw bills of exchange does not of itself import an authority to indorse.
4. none of the above

Answer (Detailed Solution Below)

Negotiable Instruments Question 2 Detailed Solution

The correct answer is none of the above.

Key Points

• Section 26 of the Negotiable Instruments Act 1881 provides for the capacity to make, promissory notes, etc.
• It states that —Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, indorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.
• Minor—A minor may draw, indorse, deliver and negotiate such instrument so as to bind all parties except himself. Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered.
• Section 27 provides for Agency.
• It states that— Every person capable of binding himself or of being bound, as mentioned in section 26, may so bind himself or be bound by a duly authorized agent acting in his name.
• A general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind his principal.
• An authority to draw bills of exchange does not of itself import an authority to indorse.

Negotiable Instruments Question 3:

1. The instrument is at maturity on the 30th November, 1878.
2. The instrument is at maturity on the 1st December, 1878.
3. The instrument is at maturity on the 3rd December, 1878.
4. none of the above

Answer (Detailed Solution Below)

Negotiable Instruments Question 3 Detailed Solution

The correct answer is the instrument is at maturity on the 3rd December, 1878.

Key Points

• The above question is taken from illustration (b) of Section 23 of the Negotiable Instruments Act 1881.
• Section 23 provides for Calculating maturity of bill or note payable so many months after date or sight.
• It states that—In calculating the date at which a promissary note or bill of exchange, made payable a stated number of months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non-acceptance, or protested for non-acceptance, or the event happens, or, where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honour, with the day on which it was so accepted. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month.

Additional Information

• Section 22 - “Maturity”—The maturity of a promissory note or bill of exchange is the date at which it falls due.
• Days of grace—Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.

Negotiable Instruments Question 4:

Which instruments are not part of Negotiable instrument Act, 1881? A) Treasury Bill B) Currency Notes C) Demand draft D) Pay Orders E) Banker's Cheques

1. Only A, B
2. Only A, B, C
3. Only C, D, E
4. All of the above

Answer (Detailed Solution Below)

Negotiable Instruments Question 4 Detailed Solution

The correct answer is Only A, B.

Key Points ​

• Treasury Bill, Currency Notes are not defined in the Negotiable instrument Act, 1881 but Demand draft, Pay Orders, and Banker's Cheques are defined in Section 6 of the Negotiable instrument Act, 1881.
• Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year.
• They are thus useful in managing short-term liquidity.

Important Points

• At present, the Government of India issues four types of treasury bills-
  • 14-day
  • 91-day
  • 182-day
  • 364-day
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  Negotiable Instruments Question 5:

  An instrument is to be called ‘Negotiable’ as per Negotiable Instruments Act, 1881, if it possesses which of the following characteristics? a. Can be transferred infinitum. b. Having minimum lock-in period. c. Freely transferable. d. The holder cannot sue in his own name. e. Holder’s title free from defects. Choose the correct answer from the options given below:

  1. a, c and e only
  2. a, b and e only
  3. b, d and e only
  4. a, b, c and e only

  Answer (Detailed Solution Below)

  Option 1 : a, c and e only

  Negotiable Instruments Question 5 Detailed Solution

  The correct answer is a, c and e only.

  

  Key Points The following characteristics determine if an instrument is considered "Negotiable" as per the Negotiable Instruments Act, 1881:

  a. Can be transferred infinitum: This characteristic refers to the instrument's ability to be transferred from one person to another in a continuous manner, without any limitation on the number of transfers.

  c. Freely transferable: This characteristic implies that the instrument can be transferred without any restrictions or hindrances. It allows for the easy and unrestricted transfer of ownership rights from one party to another.

  e. Holder's title free from defects: This characteristic ensures that the person who holds the instrument has a clear and unencumbered title to it. The holder's ownership rights are free from any defects or claims that could impede their ability to transfer or enforce the instrument.

  The other options mentioned in the question, b and d, are not characteristics of negotiable instruments:

  b. Having a minimum lock-in period: Lock-in periods are not applicable to negotiable instruments. The concept of a lock-in period typically relates to financial instruments or investment schemes, where there are restrictions on the withdrawal or transfer of funds for a specific period.

  d. The holder cannot sue in his own name: This statement is incorrect. The holder of a negotiable instrument has the right to sue in their own name to enforce the instrument and seek remedies for any breaches or non-payment.

  Therefore, the correct answer is a, c, and e only.

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  Top Negotiable Instruments MCQ Objective Questions

  Negotiable Instruments Question 6

  In 2012, Reserve Bank of India (RBI), Reduced the validity period of Cheques, Demand Drafts, Pay Orders and Banker's Cheques from 6 months to 3 months, from the date of issue of the instrument. Which section in the Negotiable Instruments Act, 1881, deals with Cheques?

  1. Section 6
  2. Section 5
  3. Section 4
  4. Section 7
  5. None of the above

  Answer (Detailed Solution Below)

  Option 1 : Section 6

  Negotiable Instruments Question 6 Detailed Solution

  The correct answer is Section 6.

  

  Key Points

  • In 2012, the Reserve Bank of India (RBI), Reduced the validity period of Cheques, Demand Drafts, Pay Orders, and Banker's Cheques from 6 months to 3 months, from the date of issue of the instrument.
  • The Negotiable Instrument Act, 1881 was enacted on 9 December 1881 and came into force on 1 March 1882.
  • ​Section 6 of The Negotiable Instruments Act, 1881 defines cheque as-
    • "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."

    

    Additional Information

    • Cheque-
      • 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.

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      Negotiable Instruments Question 7

      Which of the following is NOT a presumption about a negotiable instrument? 1. Date 2. Consideration 3. Stamp 4. Absolute and good title to the transferee

      Answer (Detailed Solution Below)

      Option 4 : 4

      Negotiable Instruments Question 7 Detailed Solution

      The Negotiable Instruments Act, 1881 provides for various kinds of presumptions and estoppel ( Estoppel is a legal principle that prevents someone from arguing something or asserting a right that contradicts what they previously said or agreed to by law) . A presumption is a rule of law that is used by courts or juries from where they obtain a particular inference from a particular fact or evidence, unless and until the truth of such an inference is disproved.

      

      Presumptions as to negotiable instruments (sec. 118) :

      Until the contrary is proved, the following presumptions shall be made:--

      1. of consideration: -- that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;
      2. as to date: -- that every negotiable instrument bearing a date was made or drawn on such date;
      3. as to the time of acceptance: that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;
      4. as to the time of transfer: -- that every transfer of a negotiable instrument was made before its maturity;
      5. as to order of indorsements: -- that the indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;
      6. as to stamp: -- that a lost promissory note, bill of exchange or cheque was duly stamped;
      7. that holder is a holder in due course: -- that the holder of a negotiable instrument is a holder in due course: provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.

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      Negotiable Instruments Question 8

      Which among the following is NOT included in negotiable instrument?
      1. Cheque
      2. Demand Draft
      3. Promissiory Note
      4. Mutual Fund

      Answer (Detailed Solution Below)

      Option 4 : Mutual Fund

      Negotiable Instruments Question 8 Detailed Solution

      Negotiable instruments

      1. Negotiable instruments are freely transferable commercial documents, and each type of negotiable instrument has unique functions and features.
      2. Negotiable instruments are is a commercial document that satisfies certain conditions and transferable either by the application of law as by the custom of bleed concerned.
      3. This instrument can be transferred freely from hand to hand and has a legal life that can be transferred by more delivery or endorsement.

      

      Most Common Types of Negotiable Instruments are;

      • Promissory notes.
      • Bill of exchange.
      • Cheque
      • Demand Draft
      • Government promissory notes.
      • Delivery orders.
      • Customs Receipts.

      Most negotiable instruments fall under the following two categories; the Negotiable instrument by statute and Negotiable instruments by custom or usages.

      

      Non - negotiable securities and products are those that cannot be transferred from one party to the next. An example of a non - negotiable instrument also referred to as a non -marketable instrument , would be a Mutual Fund.

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      Negotiable Instruments Question 9

      Who are the parties to a cheque? a) Drawer b) Payee c) Acceptor d) Holder Choose the correct answer from the following options:

      1. a) and b) only
      2. a), b) and d) only
      3. a) and c) only
      4. All of these - a), b), c) and d)

      Answer (Detailed Solution Below)

      Option 2 : a), b) and d) only

      Negotiable Instruments Question 9 Detailed Solution

      Cheque: Cheque refers to a negotiable instrument that contains an unconditional order to the bank to pay a certain sum mentioned in the instrument, from the drawer’s account, to the person to whom it is issued, or to the order of the specified person or the bearer.

      

      Parties to Cheque:

      Basically, there are three parties to a cheque:

      1. Drawer: The person who draws the cheque, i.e. signs and orders the bank to pay the sum.
      2. Drawee: The bank on which the cheque is drawn or who is directed to pay the specified sum written on the cheque.
      3. Payee: The beneficiary, i.e. to whom the amount is to be paid.

      Apart from these three, there are two more parties to a cheque:

      1. Endorser: When a party transfers his right to take the payment to another party, he/she is called an endorser.
      2. Endorsee: The party in whose favor, the right is transferred, is called endorsee.

      

      1. Sometimes, the drawer and payee can be the same person, when the drawer writes a self-cheque.
      2. If it is a bearer cheque, the person in whose name it is made is a holder. If it is damaged the payee or the last endorsee is the holder.

      Therefore, Option 2 is the correct option.

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      Negotiable Instruments Question 10

      An instrument is to be called ‘Negotiable’ as per Negotiable Instruments Act, 1881, if it possesses which of the following characteristics? a. Can be transferred infinitum. b. Having minimum lock-in period. c. Freely transferable. d. The holder cannot sue in his own name. e. Holder’s title free from defects. Choose the correct answer from the options given below:

      1. a, c and e only
      2. a, b and e only
      3. b, d and e only
      4. a, b, c and e only

      Answer (Detailed Solution Below)

      Option 1 : a, c and e only

      Negotiable Instruments Question 10 Detailed Solution

      The correct answer is a, c and e only.

      

      Key Points The following characteristics determine if an instrument is considered "Negotiable" as per the Negotiable Instruments Act, 1881:

      a. Can be transferred infinitum: This characteristic refers to the instrument's ability to be transferred from one person to another in a continuous manner, without any limitation on the number of transfers.

      c. Freely transferable: This characteristic implies that the instrument can be transferred without any restrictions or hindrances. It allows for the easy and unrestricted transfer of ownership rights from one party to another.

      e. Holder's title free from defects: This characteristic ensures that the person who holds the instrument has a clear and unencumbered title to it. The holder's ownership rights are free from any defects or claims that could impede their ability to transfer or enforce the instrument.

      The other options mentioned in the question, b and d, are not characteristics of negotiable instruments:

      b. Having a minimum lock-in period: Lock-in periods are not applicable to negotiable instruments. The concept of a lock-in period typically relates to financial instruments or investment schemes, where there are restrictions on the withdrawal or transfer of funds for a specific period.

      d. The holder cannot sue in his own name: This statement is incorrect. The holder of a negotiable instrument has the right to sue in their own name to enforce the instrument and seek remedies for any breaches or non-payment.

      Therefore, the correct answer is a, c, and e only.