NI Act MCQ Quiz - Objective Question with Answer for NI Act - Download Free PDF

The correct answer is Section 85(A)

Key Points

• Section 85 A applies to drafts drawn by one office (branch) of a bank upon another office (branch) of the same bank.
• The draft must be:
  • An order to pay money.
  • Payable to order on demand (i.e., payment is made when demanded by the payee or holder).
• If such a draft appears to be endorsed by or on behalf of the payee, it is treated as properly endorsed.
• When the bank makes payment in due course on such a draft, the bank is discharged from further liability.
• This means that once the bank pays the amount as per the endorsement, it is not responsible even if later it turns out that the endorsement was defective or forged, provided payment was made in due course.
• The aim of this provision is to protect banks when dealing with inter-branch drafts and endorsements.

The correct answer is An Unconditional order to pay.

Key Points

• As per Section 5 of the Negotiable Instruments Act, 1881, a Bill of Exchange is defined as:
  • “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.”
    • It is an order, not a promise.
    • The order is unconditional.
• It involves three parties: Drawer (gives the order), Drawee (to whom the order is given), and Payee (who receives the money).

The correct answer is Option 3.

Key Points

• This provision applies when a person draws a cheque on his bank account to pay any amount of money to another person for discharging a debt or liability.
• If the cheque is returned unpaid by the bank due to either of the following reasons:
  • Insufficient funds in the account.
  • The amount exceeds the arrangement made with the bank (i.e., overdraft limit or agreed payment limit),
  • then the person issuing the cheque is deemed to have committed an offence.
• The punishment for this offence is:
  • Imprisonment which may extend up to two years,
  • Or fine which may extend up to twice the amount of the cheque,
  • Or both.
• This punishment is in addition to any other legal consequences under the Act.
• However, this offence is complete only if the following conditions are fulfilled:
  • (a) The cheque must be presented to the bank within six months from its date of issue or within its validity period, whichever is earlier.
  • (b) The payee or the holder in due course must issue a written demand notice to the drawer of the cheque within thirty days of receiving information from the bank about the dishonour.
  • (c) The drawer fails to pay the cheque amount to the payee or holder in due course within fifteen days of receiving the demand notice.
• Explanation: The term "debt or other liability" used in this section means a legally enforceable debt or liability.

Additional Information

• Imprisonment up to One year and fine up to the amount of cheque – Outdated provision (before the 2002 amendment).
• Imprisonment up to Two years and fine up to the amount of cheque – Incorrect, as the fine can go up to twice the cheque amount.
• None of the above – Incorrect, as one option (third) is accurate.

The correct answer is Explanation 1(a) of Section 6

Key Points

• The term "a cheque in the electronic form" is defined in the Negotiable Instruments Act, 1881 under Explanation 1(a) to Section 6.
• Explanation 1(a) states:
  • "A cheque in the electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system."
• This definition was added to accommodate the digital evolution in banking and enable the legality of e-cheques and digital transactions under Indian law.

Additional Information

• Section 6(a) – No such clause; definitions begin in the Explanation, not under clause (a).
• Section 6(b) – Incorrect, doesn't define electronic cheques.
• None of the above – Incorrect, as Explanation 1(a) of Section 6 is the correct source.

The correct answer is Cheque for any amount

Key Points

• An offence under Section 138 of the Negotiable Instruments Act, 1881 (dishonour of cheque for insufficiency of funds) is compoundable, irrespective of the amount of the cheque.
• An offense under Section 138 of the Negotiable Instruments Act, 1881, is compoundable at any stage, regardless of the cheque amount, if both parties agree to settle the matter. This means that even if a complaint has been filed, the accused can still negotiate a settlement with the complainant and have the case withdrawn. 
• Compounding refers to the process where the complainant agrees to withdraw the criminal complaint against the accused upon reaching a settlement. 

The correct answer is option 1.Key Points

• In Bridgestone India Pvt.Ltd. Vs. Inderpal Singh (2016) SCC 75 Hon'ble Supreme Court decide the issue of territorial jurisdiction of the court to entertain a complaint under the Negotiable Instruments Act in reference to the Amending Ordinance of 2015.
•  The Court took note of Section 142 of NI Act (notwithstanding anything contained in CrPC, 1973, no Court shall take cognizance of an offence punishable under Section 138 NI Act except on a complaint in writing made by the payee or, as the case may be, the holder in due course of the cheque…) and the Negotiable Instruments (Amendment) Act, 2015 , and said that the newly inserted Section 142(2) states that the offence under Section 138 shall be inquired into and tried only by a Court within whose local jurisdiction 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.
• The Court after examining the statement of objects and reasons in NI Amendment Act, 2015, it said that the insertion of Sections 142(2) and 142-A in the NI Act was a direct consequence of the judgment in Dashrath Rupsingh Rathod (supra).

Additional Information

•  In Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129, wherein it was held that the place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank is located, i.e., where the cheque is dishonoured upon presentation and not where the complainant’s bank is situated.

The correct answer is option 1.Key Points

• In MSR Leathers vs. S. Palaniappan (2013) 1 SCC 177 Supreme Court held that there is nothing in the provisions of Section 138 of the Act that forbids the holder of the Cheque to make successive presentation of the cheque and institute the criminal complaint based on the second or successive dishonour of the cheque on its presentation.
• The court had observed: "We have no hesitation in holding that a prosecution based on a second or successive default in payment of the cheque amount should not be impermissible simply because no prosecution based on the first default which was followed by statutory notice and a failure to pay had not been launched."

The correct answer is option 4.Key Points

•  In India, the holder can file a complaint under Section 138 of the Negotiable Instruments Act, 1881, which deals with dishonour of cheques due to insufficient funds. The holder needs to issue a legal notice to the drawer of the bounced cheque, demanding payment within a specified period, typically 15 days. If the drawer fails to make the payment within the stipulated time, the holder can proceed to file a complaint in the appropriate court.
• The holder would need to provide evidence that the cheque was issued for a debt or liability owed, that it was presented to the bank within the validity period (usually within three months from the date of the cheque), and that it was dishonoured due to insufficient funds or other reasons specified under the law.
• Upon successful prosecution, the drawer of the bounced cheque could face penalties, including fines and imprisonment, depending on the seriousness of the offense and the discretion of the court.
• It's worth noting that laws and procedures related to cheque bouncing may vary depending on the jurisdiction, so it's essential to consult legal experts or relevant authorities for specific guidance in a particular context.

The correct answer is option 4.Key Points

•  The Supreme Court in Shyam Pal vs. Dayawati Besoya, (2016) 10 SCC 761 has Hon'ble Supreme Court held that in a case arising from Negotiable Instruments Act, successive sentences may be directed to run concurrently if both transactions are part of single transaction.
• Court reiterated that courts can exercise discretion under Section 427 of the Criminal Procedure Code 1973 to the benefit of prisoners in cases where the prosecution is based on a single transaction, no matter even if different complaints in relation thereto might have been filed.
• According to section 427 of Criminal Procedure Code 1973 says Sentence on offender already sentenced for another offence.  
• (1) When a person already undergoing a sentence of imprisonment is sentenced on a subsequent conviction to imprisonment or imprisonment for life, such imprisonment or imprisonment for life shall commence at the expiration of the imprisonment to which he has been previously sentenced, unless the Court directs that the subsequent sentence shall run concurrently with such previous sentence.

The correct answer is option 2Key Points

•  The case of Dashrath Rupsingh Rathood v. State of Maharashtra and Another (2014) 9 SCC 129 pertains to the jurisdiction of courts to try cases under Section 138 of the Negotiable Instruments Act, 1881.
• The Supreme Court held that only those courts within whose territorial limits the drawee bank is situated would have jurisdiction over such cases.

The correct answer is option 3Key Points

• Section 142 of Negotiable Instrument Act 1881 deals with Cognizance of offences.
• (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—
  • (a) 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;
  • (b) Such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:
  • Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;
  • (c) No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.
• (2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,—
  • (a) 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; or
  • (b) 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.
• Explanation.—For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.

The correct answer is option 4.Key Points

• Section 138 of Negotiable Instruments Act, 1881 deals with dishonour of cheque for insufficiency, etc., of funds in the account.
• 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 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:
  • 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;
  • 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 a notice; in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
  • 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.
• Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

The correct answer is option 1. Key Points

• The statement that "mens rea has no place while determining penal liability under Section 138 of the Negotiable Instruments Act, 1881" is correct. This is because Section 138 of the Act deals with the dishonour of a cheque due to insufficient funds in the account or exceeding the arranged limit.
• It imposes penal liability on the drawer of the cheque regardless of their intention or knowledge at the time of issuing the cheque.
• Section 138 of Negotiable Instruments Act, 1881 deals with dishonour of cheque for insufficiency, etc., of funds in the account.
• 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 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:
  • 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;
  • 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 a notice; in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
  • 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.
• Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

The correct answer is option 1.Key Points

• In the legal context, "compoundable" refers to an offense or a legal dispute that can be settled or compromised between the parties involved, usually with the consent of the court.
• When an offense is compoundable, it means that the victim or the complainant can agree to withdraw the charges or settle the matter with the accused outside of court.
• This typically involves reaching a mutual agreement or understanding, often with some form of compensation or resolution.
• Section 147 of Negotiable Instrument Act 1881 deals with Offences to be compoundable.
• Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),every offence punishable under this Act shall be compoundable.

Additional Information

• Section​ 320 of criminal Procedure Code 1973 also deals with compounding of offences.

The correct answer is Option 2.

Note - According to Official Answer Key, this Question was deleted. 

Key PointsSection 87: Effect of material alteration.

• Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties;
• Alteration by indorsee.-- And any such alteration, if made by an indorsee, discharges his indorser from all liability to him in respect of the consideration thereof.
• The provisions of this section are subject to those of sections 20, 49, 86 and 125.