Definition & Characteristics of Cheques

. Definition of a Cheque

1. Which section of the Negotiable Instruments Act, 1881 defines a cheque?

a) Section 4 b) Section 5 c) Section 6 d) Section 7
Answer: c) Section 6

2. A cheque is a: a) Promissory Note

b) Bill of Exchange
c) Money Order
d) Letter of Credit
Answer: b) Bill of Exchange

3. A cheque is always payable on:

a) Demand
b) Due Date
c) Maturity
d) At Sight
Answer: a) Demand

4. Which of the following is not an essential feature of a cheque?

a) Unconditional Order
b) Payable to bearer or order
c) Stamped
d) Signed by the drawer
Answer: c) Stamped

2. Characteristics of Cheques

5. The drawee of a cheque is always a:

a) Bank
b) Individual
c) Government
d) Non-Banking Financial Company (NBFC)
Answer: a) Bank

6. What is the maximum validity period of a cheque in India?

a) 1 month
b) 3 months
c) 6 months
d) 12 months
Answer: b) 3 months

7. Which type of cheque can only be deposited and not encashed over the counter?
a) Bearer Cheque
b) Order Cheque
c) Crossed Cheque
d) Blank Cheque
Answer: c) Crossed Cheque

8. What happens if the drawer’s signature on a cheque does not match the bank’s records?
a) Cheque is honored
b) Cheque is dishonored
c) Cheque is cashed with a penalty
 d) Cheque is returned with interest
Answer: b) Cheque is dishonored

9. What is the term for a cheque that is issued without sufficient funds in the account?
a) Crossed cheque
b) Dishonored cheque
c) Stale cheque
d) Post-dated cheque
Answer: b) Dishonored cheque

10. A cheque without a date is considered as:

a) Invalid
b) Valid
c) Payable within 3 months
d) Post-dated
Answer: a) Invalid

3. Special Types of Cheques

11. A post-dated cheque is payable on:

a) The date mentioned on it
b) The date it is presented
c) After 1 month of issue
d) On demand
Answer: a) The date mentioned on it

12. A stale cheque is one that is presented after:

a) 3 months from the issue date
b) 6 months from the issue date
c) 12 months from the issue date
d) 1 month from the issue date
Answer: a) 3 months from the issue date

13. What type of cheque is transferable to another person with endorsement and delivery?
a) Order cheque
b) Bearer cheque
c) Crossed cheque
d) Stale cheque
Answer: a) Order cheque

4. Miscellaneous

14. If the amount in figures and words differ on a cheque, the bank will consider:
a) The amount in figures
b) The amount in words
c) Either of the two
d) The cheque invalid
Answer: b) The amount in words

15. The drawer of a cheque is:

a) The person to whom payment is made
b) The person who writes and signs the cheque
c) The bank where the cheque is deposited
 d) The government agency overseeing payments
Answer: b) The person who writes and signs the cheque

Bills of Exchange& Promissory Notes

. Bills of Exchange

1. A bill of exchange is defined under which section of the Negotiable Instruments Act, 1881?
a) Section 4
b) Section 5
c) Section 6
d) Section 7
Answer: b) Section 5

2. Which of the following is NOT a party to a bill of exchange?

a) Drawer
b) Drawee
c) Payee
d) Guarantor
Answer: d) Guarantor

3. A bill of exchange must contain:

a) An unconditional order to pay
b) An unconditional promise to pay
c) A guarantee of payment
d) A condition for payment
Answer: a) An unconditional order to pay

4. A bill of exchange is required to be accepted by:

a) Drawer
b) Drawee
c) Payee
d) Endorser
Answer: b) Drawee

5. The maturity period of a bill of exchange is calculated from:

a) The date of issue
b) The date of acceptance
c) The due date
d) The date of endorsement
Answer: b) The date of acceptance

2. Promissory Notes

6. A promissory note is defined under which section of the Negotiable Instruments Act, 1881?
a) Section 3
b) Section 4
c) Section 5
d) Section 6
Answer: b) Section 4

7. A promissory note contains:

a) An order to pay
b) A promise to pay
c) A request to pay
 d) A guarantee of payment
Answer: b) A promise to pay

8. Which of the following is NOT a party to a promissory note?

a) Maker
b) Payee
c) Drawee
d) None of the above
Answer: c) Drawee

9. A promissory note is always:

a) Payable on demand
b) Payable after a specified time
c) Payable on demand or after a specified time
d) None of the above
Answer: c) Payable on demand or after a specified time

10. Which of the following is NOT a feature of a valid promissory note?

a) It must be in writing
b) It must have an unconditional promise
c) It must be signed by the payee
d) It must mention the amount payable
Answer: c) It must be signed by the payee

3. Differences between Bills of Exchange and Promissory Notes

11. In a bill of exchange, the relationship between the parties is:

a) Debtor and Creditor
b) Creditor and Guarantor
c) Banker and Customer
d) None of the above
Answer: a) Debtor and Creditor

12. Who is the maker of a promissory note?

a) The person to whom money is payable
b) The person who promises to pay the money
c) The person who accepts the note
d) The person who endorses the note
Answer: b) The person who promises to pay the money

13. A bill of exchange requires acceptance, whereas a promissory note:

a) Also requires acceptance
b) Does not require acceptance
c) Requires a guarantee
d) Is endorsed automatically
Answer: b) Does not require acceptance

14. A promissory note is signed by:

a) Drawer
b) Drawee
c) Maker
d) Payee
Answer: c) Maker
 15. Which instrument involves three parties?
a) Promissory Note
b) Bill of Exchange
c) Both Promissory Note and Bill of Exchange
d) None of the above
Answer: b) Bill of Exchange

4. Miscellaneous

16. If the amount in words and figures differ in a bill of exchange, which amount is considered?
a) Amount in figures
b) Amount in words
c) Average of the two
d) The bill is invalid
Answer: b) Amount in words

17. A foreign bill of exchange is:

a) Payable only in India
b) Drawn in one country and payable in another
c) Drawn in the local currency
d) Invalid under the Negotiable Instruments Act
Answer: b) Drawn in one country and payable in another

18. A promissory note cannot be made payable to:

a) Bearer
b) Order
c) Endorsee
d) Holder
Answer: a) Bearer

19. When a bill of exchange is dishonored by non-payment, the holder can:

a) Issue a promissory note
b) File a suit against the drawer and drawee
c) Cancel the bill
d) Endorse it to another person
Answer: b) File a suit against the drawer and drawee

20. Which of the following is NOT an essential feature of a bill of exchange?

a) A written document
b) A fixed amount
c) A fixed maturity date
d) A specific rate of interest
Answer: d) A specific rate of interest

Crossings

1. Basics of Crossing

1. What does the crossing of a cheque indicate?

a) The cheque can be encashed at the bank counter
b) The cheque must be deposited in a bank account
c) The cheque is invalid
 d) The cheque is payable to bearer
Answer: b) The cheque must be deposited in a bank account

2. Crossing of a cheque is generally done to:

a) Ensure cash payment
b) Prevent misuse of the cheque
c) Speed up processing
d) None of the above
Answer: b) Prevent misuse of the cheque

3. What is the meaning of “General Crossing” on a cheque?

a) A cheque with two parallel lines and no specific instructions
b) A cheque marked with “A/c Payee Only”
c) A cheque marked with a specific bank’s name
d) A cheque payable at any branch of the bank
Answer: a) A cheque with two parallel lines and no specific instructions

4. Which section of the Negotiable Instruments Act, 1881 governs the crossing of cheques?
a) Section 120
b) Section 123
c) Section 126
d) Section 130
Answer: c) Section 126

2. Types of Crossing

5. What is a “Special Crossing”?

a) A cheque that has “Not Negotiable” written on it
b) A cheque that specifies the name of a bank in the crossing
c) A cheque marked with two parallel lines without any instructions
d) A cheque that is payable on demand
Answer: b) A cheque that specifies the name of a bank in the crossing

6. What does the term “Not Negotiable” mean when written on a cheque?
a) The cheque cannot be endorsed further
b) The cheque cannot be encashed by the payee
c) The cheque’s holder cannot have a better title than the transferor
d) The cheque is invalid after 3 months
Answer: c) The cheque’s holder cannot have a better title than the transferor

7. Which type of crossing makes the cheque payable only to the bank named in the crossing?
a) General Crossing
b) Special Crossing
c) Restrictive Crossing
d) None of the above
Answer: b) Special Crossing

8. A cheque with "A/c Payee Only" written in the crossing is an example of:
a) General Crossing
b) Special Crossing
c) Restrictive Crossing
d) Not Negotiable Crossing
Answer: c) Restrictive Crossing
 9. If a cheque is crossed with “& Co.,” it is considered:
a) Invalid
b) Specially Crossed
c) Generally Crossed
d) A bearer cheque
Answer: c) Generally Crossed

10. A cheque crossed with two parallel lines and the name of a bank is an example of:
a) General Crossing
b) Special Crossing
c) Account Payee Only
d) Blank Cheque
Answer: b) Special Crossing

3. Rules and Implications

11. Who can cancel the crossing of a cheque?

a) Drawer
b) Payee
c) Drawee
d) Banker
Answer: a) Drawer

12. What is the effect of writing "Not Negotiable" on a crossed cheque?

a) It prevents the cheque from being endorsed
b) It transfers the cheque without better title
c) It allows cash encashment
d) It restricts deposit in bank accounts
Answer: b) It transfers the cheque without better title

13. A cheque with restrictive crossing can be deposited into:

a) Any account
b) Any bank's account
c) Only the payee’s account
d) The drawer’s account
Answer: c) Only the payee’s account

14. Who is responsible for adding a crossing to a cheque?

a) Drawer
b) Drawee
c) Banker
d) Payee
Answer: a) Drawer

15. In a cheque crossed with “A/c Payee Only,” the payment can be made to:
a) The bearer of the cheque
b) The specified account holder only
c) Any person presenting the cheque
d) Any bank customer
Answer: b) The specified account holder only

4. Miscellaneous
 16. Which of the following is NOT true about a crossed cheque?
a) It can be endorsed
b) It cannot be cashed over the counter
c) It ensures the payment is made into a bank account
d) It reduces the risk of fraud
Answer: a) It can be endorsed

17. If a cheque is crossed but does not mention any specific instructions, it is considered:
a) A bearer cheque
b) A general crossing
c) A restrictive crossing
d) A special crossing
Answer: b) A general crossing

18. The purpose of crossing a cheque is to:

a) Make it negotiable
b) Prevent cash payment
c) Allow bearer payment
d) Enable faster clearance
Answer: b) Prevent cash payment

19. A cheque with both “Not Negotiable” and "A/c Payee" is considered:
a) A bearer cheque
b) A crossed cheque with dual restrictions
c) Invalid
d) Payable over the counter
Answer: b) A crossed cheque with dual restrictions

20. Can a crossed cheque be converted into a bearer cheque?

a) Yes, with the bank’s approval
b) No, it is prohibited
c) Yes, if the payee requests it
d) No, unless the drawer cancels the crossing
Answer: d) No, unless the drawer cancels the crossing

Endorsement

1. Basics of Endorsement

1. What does the endorsement of a cheque mean?

a) Writing instructions on a cheque
b) Transferring rights to another person
c) Canceling the cheque
d) Making the cheque invalid
Answer: b) Transferring rights to another person

2. Who can endorse a cheque?

a) Drawer
b) Payee or holder of the cheque
c) Banker
d) Drawee
Answer: b) Payee or holder of the cheque

3. Under which section of the Negotiable Instruments Act, 1881 is endorsement defined?
a) Section 14
 b) Section 15
c) Section 18
d) Section 19
Answer: b) Section 15

4. What is the primary purpose of endorsing a cheque?

a) To cash it at the bank counter
b) To transfer ownership of the cheque
c) To make it invalid
d) To request the bank for payment
Answer: b) To transfer ownership of the cheque

5. An endorsement must be written:

a) On the front of the cheque
b) On the back of the cheque
c) On a separate piece of paper
d) Anywhere as long as it is signed
Answer: b) On the back of the cheque

2. Types of Endorsements

6. An endorsement without any condition is known as:

a) Restrictive endorsement
b) Blank endorsement
c) Special endorsement
d) Partial endorsement
Answer: b) Blank endorsement

7. Which endorsement specifies the name of the person to whom the cheque is being transferred?
a) Blank endorsement
b) Special endorsement
c) Restrictive endorsement
d) Conditional endorsement
Answer: b) Special endorsement

8. An endorsement that limits the use of the cheque to a particular purpose is called:
a) Blank endorsement
b) Special endorsement
c) Restrictive endorsement
d) Partial endorsement
Answer: c) Restrictive endorsement

9. What is a "Conditional Endorsement"?

a) An endorsement that transfers part of the amount
b) An endorsement that imposes a condition for payment
c) An endorsement that requires a signature
d) An endorsement without naming a transferee
Answer: b) An endorsement that imposes a condition for payment

10. An endorsement transferring only part of the cheque amount is:

a) Valid
b) Invalid under law
c) Called special endorsement
d) Called blank endorsement
Answer: b) Invalid under law
3. Rules and Legal Aspects

11. Which of the following is NOT a valid type of endorsement?

a) Blank endorsement
b) Full endorsement
c) Conditional endorsement
d) Special endorsement
Answer: b) Full endorsement

12. Who can stop further endorsement of a cheque?

a) The banker
b) The drawer
c) The payee by using a restrictive endorsement
d) The drawee bank
Answer: c) The payee by using a restrictive endorsement

13. In case of a restrictive endorsement, the cheque can be:

a) Further endorsed
b) Paid only to the account specified
c) Cashed over the counter
d) Invalid
Answer: b) Paid only to the account specified

14. An endorsement is valid if it is:

a) Written on the back of the cheque and signed
b) Written on the front of the cheque without a signature
c) Signed by the drawer
d) Written without naming a transferee
Answer: a) Written on the back of the cheque and signed

15. If a cheque is endorsed in blank, it becomes:

a) An invalid cheque
b) Payable to the bearer
c) Payable only to the endorsee
d) Restricted from further transfer
Answer: b) Payable to the bearer

4. Miscellaneous

16. An endorsement transferring the cheque to a specific person is called:

a) Blank endorsement
b) Special endorsement
c) Restrictive endorsement
d) Partial endorsement
Answer: b) Special endorsement

17. What happens when a cheque endorsed in blank is lost?

a) It can be stopped by the drawer
b) It is negotiable and payable to anyone who finds it
c) It is automatically invalid
d) It must be reissued
Answer: b) It is negotiable and payable to anyone who finds it
 18. The person to whom the cheque is endorsed is called:
a) Drawer
b) Drawee
c) Endorsee
d) Holder in due course
Answer: c) Endorsee

19. If an endorsement is made on a separate piece of paper attached to the cheque, it is called:
a) Full endorsement
b) Special endorsement
c) Endorsement in blank
d) Endorsement on an allonge
Answer: d) Endorsement on an allonge

20. Which of the following invalidates an endorsement?

a) It is made conditionally
b) It is unsigned
c) It is made on the back of the cheque
d) It specifies the endorsee
Answer: b) It is unsigned

Dishonour, Noting and Protesting of BE

1. Dishonour of a Bill of Exchange

1. What does the dishonour of a bill of exchange mean?

a) The bill has been paid before maturity
b) The bill is refused acceptance or payment
c) The bill is endorsed to another person
d) The bill is valid for cash payment
Answer: b) The bill is refused acceptance or payment

2. Dishonour by non-acceptance occurs when:

a) The drawee refuses to pay on maturity
b) The drawee refuses to accept the bill when presented
c) The bill is lost before maturity
d) The bill is paid before its due date
Answer: b) The drawee refuses to accept the bill when presented

3. Which of the following is NOT a reason for the dishonour of a bill?

a) Insufficient funds in the drawee’s account
b) Death of the drawer
c) Drawee’s refusal to accept the bill
d) Insolvency of the drawee
Answer: b) Death of the drawer

4. A bill of exchange is considered dishonoured by non-payment when:

a) The drawee refuses to pay on maturity
b) The drawee dies before acceptance
c) The bill is lost after acceptance
d) The drawer cancels the bill
Answer: a) The drawee refuses to pay on maturity

5. In case of dishonour of a bill, who is liable to the holder?

a) The acceptor
b) The drawer and all endorsers
 c) Only the drawee
d) The banker
Answer: b) The drawer and all endorsers

2. Noting

6. What does "Noting" mean in the context of a dishonoured bill?

a) Writing instructions on the bill
b) Recording the dishonour by a notary public
c) Canceling the bill
d) Approving the bill for payment
Answer: b) Recording the dishonour by a notary public

7. Who is authorized to note the dishonour of a bill?

a) The drawee
b) The banker
c) A notary public
d) The holder of the bill
Answer: c) A notary public

8. What is included in the process of noting?

a) Date and reason for dishonour
b) Signature of the drawee
c) Acceptance of the bill
d) Payment of the bill
Answer: a) Date and reason for dishonour

9. Noting is done on the bill or:

a) The drawee's letter of refusal
b) The drawer's account
c) A separate piece of paper attached to the bill
d) The drawer's instructions
Answer: c) A separate piece of paper attached to the bill

10. Noting must be done:

a) Before the bill's due date
b) Immediately after dishonour
c) Only after the drawee's consent
d) At the holder's convenience
Answer: b) Immediately after dishonour

3. Protesting

11. What is "Protesting" in relation to a dishonoured bill?

a) Demanding acceptance from the drawee
b) A formal declaration of dishonour by a notary public
c) Cancelling the bill upon dishonour
d) Writing instructions for endorsement
Answer: b) A formal declaration of dishonour by a notary public

12. Which section of the Negotiable Instruments Act, 1881, deals with protesting?
a) Section 101
b) Section 100
c) Section 108
 d) Section 102
Answer: b) Section 100

13. A protest is:

a) Mandatory in all cases of dishonour
b) Optional for inland bills
c) Compulsory for foreign bills
d) Always done by the drawee
Answer: c) Compulsory for foreign bills

14. What details are included in a protest?

a) The notary's certificate of dishonour
b) Date, reason for dishonour, and signature of the notary public
c) Payment instructions from the drawee
d) Acceptance confirmation from the drawer
Answer: b) Date, reason for dishonour, and signature of the notary public

15. Protest for better security is drawn when:

a) The bill is dishonoured
b) A party wants to ensure security of payment
c) The drawee refuses to accept the bill
d) The bill is endorsed to another person
Answer: b) A party wants to ensure security of payment

4. Legal Aspects

16. If a bill is dishonoured, who is primarily responsible to the holder?

a) The drawer
b) The drawee
c) The endorser
d) The banker
Answer: a) The drawer

17. What happens if a protest is not made for a dishonoured foreign bill?
a) The bill becomes invalid
b) The holder loses the right to recover from previous parties
c) The drawee is released from liability
d) The drawer is discharged from liability
Answer: b) The holder loses the right to recover from previous parties

18. The notice of dishonour must be sent to:

a) The drawee only
b) All prior parties, including the drawer and endorsers
c) The banker of the drawee
d) The notary public
Answer: b) All prior parties, including the drawer and endorsers

19. What is the time limit for sending a notice of dishonour?

a) Within one week of dishonour
b) Within a reasonable time after dishonour
c) Immediately upon dishonour
d) Within 30 days of dishonour
Answer: b) Within a reasonable time after dishonour
 20. Which of the following is NOT true about protesting?
a) It is mandatory for foreign bills
b) It is optional for inland bills
c) It is conducted by the drawee
d) It serves as evidence of dishonour
Answer: c) It is conducted by the drawee

Liabilities of Parties
1. General Questions on Liabilities

1. Who is primarily liable on a promissory note?

a) The drawer
b) The endorser
c) The maker
d) The payee
Answer: c) The maker

2. Who is primarily liable on a bill of exchange?

a) The drawer
b) The drawee after acceptance
c) The payee
d) The endorser
Answer: b) The drawee after acceptance

3. The liability of the drawer of a cheque is discharged if:

a) The cheque is dishonoured
b) The cheque is paid in full
c) The drawer withdraws funds from their account
d) The drawee refuses to accept the cheque
Answer: b) The cheque is paid in full

4. Who is liable if a cheque is dishonoured due to insufficient funds?

a) The drawee bank
b) The drawer of the cheque
c) The payee
d) The notary public
Answer: b) The drawer of the cheque

5. Under which section of the Negotiable Instruments Act is the drawer's liability defined?
a) Section 20
b) Section 30
c) Section 35
d) Section 50
Answer: b) Section 30

2. Liability of Drawer

6. The drawer of a bill of exchange is liable only if:

a) The drawee fails to accept or pay the bill
b) The bill is endorsed to another party
c) The bill is paid before maturity
d) The drawee refuses to issue a cheque
Answer: a) The drawee fails to accept or pay the bill
 7. The drawer of a cheque is not liable if:
a) The payee delays presenting the cheque
b) The drawee bank refuses payment due to technical issues
c) The cheque is lost in transit
d) All of the above
Answer: d) All of the above

3. Liability of Drawee

8. The drawee of a bill of exchange becomes liable when:

a) The bill is presented for payment
b) The bill is accepted by the drawee
c) The drawer instructs payment
d) The endorser refuses to pay
Answer: b) The bill is accepted by the drawee

9. The drawee bank is liable to pay a cheque when:

a) There are sufficient funds in the account
b) The drawer requests payment
c) The cheque is overdue
d) The payee is willing to accept part payment
Answer: a) There are sufficient funds in the account

10. The drawee bank is NOT liable if:

a) The cheque is forged
b) The drawer has insufficient funds
c) The cheque is post-dated and presented early
d) All of the above
Answer: d) All of the above

4. Liability of Endorsers

11. The liability of an endorser arises when:

a) The instrument is dishonoured and proper notice is given
b) The instrument is paid at maturity
c) The drawee refuses to accept the bill
d) The drawer issues a fresh instrument
Answer: a) The instrument is dishonoured and proper notice is given

12. Which of the following limits the liability of an endorser?

a) Adding "Without Recourse" to the endorsement
b) Signing the back of the instrument
c) Presenting the instrument after its due date
d) Transferring the instrument by delivery
Answer: a) Adding "Without Recourse" to the endorsement

13. An endorser’s liability ceases if:

a) The holder fails to give notice of dishonour
b) The bill is paid at maturity
c) The holder delays presenting the bill for payment
d) All of the above
Answer: d) All of the above
5. Liability of Holder

14. Who is the "holder" of a negotiable instrument?

a) The person legally entitled to the instrument
b) The drawee who accepts the instrument
c) The maker who issues the instrument
d) The banker holding the cheque for clearance
Answer: a) The person legally entitled to the instrument

15. The holder in due course is protected under which section of the Negotiable Instruments Act?
a) Section 8
b) Section 9
c) Section 10
d) Section 11
Answer: b) Section 9

16. The liability of the holder arises when:

a) The instrument is dishonoured
b) The holder delays presenting the instrument for payment
c) The holder fails to give proper notice of dishonour
d) Both b and c
Answer: d) Both b and c

6. Miscellaneous

17. The acceptor of a bill of exchange is liable to:

a) The drawer only
b) The holder only
c) The drawer and the holder
d) The payee only
Answer: c) The drawer and the holder

18. When does the liability of a surety under a negotiable instrument arise?
a) When the principal debtor defaults
b) When the drawee accepts the bill
c) When the bill is presented for payment
d) When the drawer cancels the bill
Answer: a) When the principal debtor defaults

19. The liability of parties to a negotiable instrument is determined by:

a) The type of instrument
b) The order of endorsements
c) The rules in the Negotiable Instruments Act
d) All of the above
Answer: d) All of the above

20. Which party is NOT liable if the negotiable instrument is forged?

a) The drawer
b) The drawee bank
c) The payee
d) The person who forged the signature
Answer: b) The drawee bank