AHSEC Class 11 Finance Chapter 5 Negotiable Instruments Solutions in English Medium to each chapter is provided in the list so that you can easily browse throughout different chapters AHSEC Class 11 Finance Chapter 5 Negotiable Instruments Question Answer and select needs one.
Class 11 Finance Chapter 5 Negotiable Instruments
Also, you can read the SCERT book online in these sections Solutions by Expert Teachers as per SCERT (CBSE) Book guidelines. These solutions are part of SCERT All Subject Solutions. Here we have given AHSEC Board Class 11 Finance Chapter 5 Negotiable Instruments Notes for All Subject, You can practice these here.
Negotiable Instruments
Chapter : 5
| QUESTIONS |
A. Choose the correct answer:
1. In which year was the Negotiable Instruments Act enacted?
(a) 1880
(b) 1881
(c) 1882
(d) 1883
Ans: (b) 1881
2. Which of the following is considered a negotiable instrument according to tradition and practice?
(a) Promissory Note.
(b) Bill of Exchange.
(c) Cheque.
(d) Share Certificate.
Ans: (c) Cheque.
3. In the context of negotiable instruments, who usually acquires a good title?
(a) Holder in due course.
(b) Holder of a forged instrument.
(c) Holder of a lost instrument.
(d) Person who finds a lost instrument.
Ans: (a) Holder in due course.
4. Which of the following endorsements is not valid?
(a) Conditional Endorsement.
(b) Qualitative Endorsement.
(c) Partial Endorsement.
(d) Restrictive Endorsement.
Ans: (c) Partial Endorsement.
(ii) Fill in the blanks:
1. A promissory note involves ____________ parties.
Ans: Two.
2. A cheque involves ____________ parties.
Ans: Three.
3. A bill of exchange involves ____________ parties.
Ans: Three.
4. A bearer cheque can be transferred by ____________.
Ans: Delivery.
5. An order cheque can be transferred by endorsement and ____________.
Ans: Delivery.
(iii) Write whether true or false:
1. Negotiable instruments are freely transferable.
Ans: True.
2. A holder of a cheque can cross it.
Ans: True.
3. Two parallel lines are not necessary for special crossing.
Ans: False.
4. Acceptance is required in a cheque.
Ans: False.
5. A promissory note can be crossed.
Ans: False.
B. Short Answers Type Questions:
1. What is a negotiable instrument?
Ans: Various types of documents are used in modern business world. But, certain documents are commonly used in commercial transactions to transfer money from one person to another person which are called Negotiable Instruments.
2. What is a promissory note?
Ans: According to Sec 4 of the Negotiable Instruments Act, 1881, a promissory note is a written promise by the debtor to the creditor to pay a certain sum of money after a certain period of time. A promissory note is always drawn by the debtor. He is called the ‘maker’ of the instrument
3. What is a bill of exchange?
Ans: According to Sec-5 of the negotiable instruments Act, 1881, “A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.”
4. What is a cheque?
Ans: According to Section 6 of the Negotiable Instruments Act, 1881, as amended by the Negotiable Instruments (Amendment) Act, 2002, “A cheque is a written document that authorizes a bank to pay a specific amount of money from the account holder’s bank account to the person or entity named on the cheque (the payee).
5. Who are the parties to a promissory note?
Ans: The parties to a promissory note are maker and payee.
6. Who are the parties in a bill of exchange?
Ans: Drawer, Drawee, Payee are the parties in a bill of exchange.
7. Who are the parties in a cheque?
Ans: Drawer, Drawee, Payee are the parties in a cheque.
8. Write two features of a negotiable instrument.
Ans: The essential features of a negotiable instrument are:
(i) It can be transferred from one person to another, allowing the holder to claim payment or ownership rights.
(ii) It is payable to bearer than it is transferred just by delivery. And it is payable to the orderer than it is transferred by delivery and endorsement.
9. Write two features of a promissory note.
Ans: Following are the features of a promissory note:
(i) Instrument in writing and Promise to pay.
(ii) Amount should be certain and Properly stamped.
10. Write two features of a bill of exchange.
Ans: Following are the two features of a bill of exchange:
(i) Unconditional Order: It is a written, unconditional order from the drawer to the drawee to pay a specified sum to the payee.
(ii) Transferable: A bill of exchange can be transferred through endorsement, allowing the payee to transfer the right to receive payment to another party.
11. Write two features of a cheque.
Ans: Following are the two features of a bill of exchange:
(i) It is an Instrument in writing.
(i) Contains an unconditional order.
12. Draw a sample of a promissory note.
Ans:
13. Draw a sample of a bill of exchange.
Ans:
14. Draw a sample of a cheque.
Ans:
15. Write two differences between a promissory note and a bill of exchange.
Ans: Following are the two differences between a promissory note and a bill of exchange:
| Basis | Promissory Note | Bill of Exchange |
| Promise and order | A promissory note contains an unconditional promise to pay. | A bill of exchange contains an unconditional order to pay. |
| Parties | In a promissory note, there are only two parties- maker and payee. | In a bill of exchange, there are three parties drawer, drawee and payee. |
16. Write two differences between a promissory note and a cheque.
Ans: Following are the two differences between a promissory note and a cheque:
| Basis | Promissory Note | Cheque |
| Payment | A promissory note may be payable on demand or after a certain period of time | A cheque is always payable on demand |
| Payee | In case of promissory note, the maker cannot be the payee | The drawer of a cheque can be the payee |
17. Write two differences between a bill of exchange and a cheque.
Ans: Following are the two differences between a bill of exchange and a cheque:
| Basis | Bill of Exchange | Cheque |
| Drawee | A bill of exchange may be drawn on any person including a bank. | A cheque is always drawn on a bank. |
| Payment | A bill may be drawn on demand or the expiry of a certain period of time. | A cheque can only be drawn payable on demand. |
18. Who is called a bearer cheque?
Ans: Bearer cheque is a cheque which is payable to any person who holds it. It is a cheque which is payable to any person who holds it.
19. Who is called an order cheque?
Ans: An order cheque is a type of cheque that is payable to a specific person or entity named on the cheque. The printed words ‘OR ORDER’ must be mentioned at the end of the payee’s name.
20. Who is called an open cheque?
Ans: A cheque is called ‘open’ or ‘bearer’ when it is not crossed and can be encashed over the counter at the bank. It can be used to make direct payment to the payee without any reservation.
21. What is a crossed cheque called?
Ans: A crossed cheque is a type of cheque that has two parallel lines drawn across its face, usually on the top-left corner. These lines serve to restrict the cheque’s use to being deposited into a bank account, rather than being cashed directly over the counter.
22. Write two differences between a bearer cheque and an order cheque.
Ans: Following are the differences between a bearer cheque and an order cheque:
| Basis | Bearer cheque | Order cheque |
| Meaning | It is a cheque which is payable to any person who holds it. | It is a cheque which is payable to a particular person or to his order. |
| Identity | The printed words ‘OR BEARER’ must be mentioned at the end of the payee’s name. | The printed words ‘OR ORDER’ must be mentioned at the end of the payee’s name. |
23. Write two differences between a bearer cheque and a crossed cheque.
Ans: Following are the differences between a bearer cheque and an crossed cheque:
| Basis | Bearer cheque | Crossed cheque. |
| Meaning | It is a cheque which is payable to any person who holds it. | An order cheque is a cheque that is payable to a specific person or entity. |
| Risk: | There is a higher risk of theft or fraud, as it can be encashed by anyone who holds the cheque.misuse. | It offers more security because the cheque can only be deposited into a bank account, reducing the risk of fraud or unauthorized encashment. |
24. What is the crossing of a cheque called?
Ans: The crossing of a cheque is when two parallel lines are drawn across the cheque to indicate how the funds can be handled. The lines can be drawn across the entire cheque or in the top left-hand corner.
25. What is a general crossing called?
Ans: When a cheque simply bears two parallel transverse lines with or without any word is known as general crossing.
26. What is a special crossing called?
Ans: Where a cheque bears across its face the name of a bank, then, it is known as special crossing.
27. What is the crossing of a cheque in favour of a payee called?
Ans: The crossing of a cheque in favor of a payee is called a “special crossing”. It specifies a particular bank, directing the cheque to be deposited into the payee’s account at that bank.
28. What is Not Negotiable crossing?
Ans: According to section 130 of the Negotiable Instruments Act, 1881, A not negotiable crossing on a cheque means that the words “Not Negotiable” are written between two parallel lines on the cheque. This crossing protects the owner of a cheque if it is lost or stolen.
29. Write two essentials of a general crossing.
Ans: The two essentials of a general crossing are:
(i) Two lines are of a paramount importance in crossing.
(ii) The lines must be drawing parallel and transverse. Transverse means, that, they should be arranged in a crosswise direction.
30. Write two essentials of a special crossing.
Ans: The two essentials of a special crossing are:
(i) For a special crossing, two parallel transverse lines are not at all essential.
(ii) The name of a banker must be necessarily stated across the face of the cheque. The name of the banker itself constitutes special crossing.
31. Write two significances of a general crossing.
Ans: The two significances of a general crossing are:
(i) The words ‘And Company’ or its abbreviation may be written in between the lines. They themselves are not essential and so, they do not constitute crossing, without two parallel transverse lines.
(ii) The words ‘Not Negotiable’ may be added to a crossing. But they themselves do not constitute a crossing.
32. Write two significances of a special crossing.
Ans: The two significances of a special crossing are:
(i) It must appear on the left hand side, preferably on the top corner, so as not to obliterate the printed number of the cheque.
(ii) The two parallel transverse lines and the words ‘Not Negotiable’ may be added to a special crossing
33. What is endorsement?
Ans: An endorsement refers to a signature or an equivalent stamp that authorizes payment or a transfer of funds, as when an individual signs a check.
34. Write two significances of endorsement.
Ans: The two significances of endorsement are:
(i) It was genuine in all its particulars at the time of his endorsement.
(ii) All the previous endorsements were genuine.
35. Mention any two kinds of endorsements.
Ans: There are two kinds of endorsements:
(i) The Holder of a negotiable instrument.
(ii) The Drawer or Maker of the instrument.
36. What is payment in due course?
Ans: According to Section 10 of the Negotiable Instruments Act, 1881, “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 therein mentioned”.
37. Write two features of payment in due course.
Ans: The essential features of payment in due course are as follows:
(i) Apparent tenor of the instrument: The payment must be in accordance with the apparent tenor of the instrument. His own name and under a legal title.
(ii) He must be entitled to receive or recover the amount from the parties concerned in his own name.
38. Who is a holder?
Ans: According to Sec 9 of the Negotiable Instruments Act, 1881, “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 in it became payable, and without having sufficient cause to believe that defect existed in the title of the person from whom he derived his title.”
39. Who is a holder in due course?
Ans: 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.
40. Who can make an endorsement?
Ans: An endorsement can be made by the payee, holder, or authorized signatory of a negotiable instrument to transfer ownership or rights. In other contexts, endorsements are given by celebrities, experts, employers, colleagues, or organizations, depending on the purpose, such as promotions, recommendations, or legal and financial changes.
41. Who can cross a cheque?
Ans: A cheque can be crossed by the drawer, holder, or an authorized person. This crossing ensures payment is made only through a bank, enhancing security and reducing fraud risks.
C. Long Answers Questions (Type-1):
1. What are the essential features of a negotiable instrument?
Ans: The essential features of a negotiable instrument are:
(i) It is always a written document.
(ii) It can be transferred from one person to another, allowing the holder to claim payment or ownership rights.
(iii) It is payable to bearer than it is transferred just by delivery. And it is payable to the orderer than it is transferred by delivery and endorsement.
(iv) The amount to be paid is clearly mentioned on the instrument.
(v) The person who holds the negotiable document can sue based on this document.
2. What are the various kinds of negotiable instruments?
Ans: The various kinds of negotiable instruments are:
(i) Promissory notes: 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 to the bearer of the instrument.
(ii) Bills of exchange: A bill of exchange is a written order from the drawer to the drawee to pay a specified amount to the payee, either on demand or at a future date.
(iii) Cheques: A cheque is a bill of exchange in which one party
orders the bank to transfer the money to the bank account of another party.
3. Distinguish between promissory note and bill of exchange.
Ans: Differences between Promissory Note and Bill of Exchange are:
| Basis | Promissory Note | Bill of Exchange |
| Promise and order | A promissory note contains an unconditional promise to pay. | A bill of exchange contains an unconditional order to pay. |
| Parties | In a promissory note, there are only two parties-maker and payee. | In a bill of exchange, there are three parties drawer, drawee and payee. |
| Acceptance | In case of promissory note, acceptance is not required | In case of bill of exchange, acceptance by the drawee is required. |
4. Distinguish between promissory note and cheque.
Ans: Distinguish between promissory note and cheque are:
| Basis | Promissory Note | Cheque |
| Payment | A promissory note may be payable on demand or after a certain period of time | A cheque is always payable on demand. |
| Payee | In case of promissory note, the maker cannot be the payee | The drawer of a cheque can be the payee |
| Stamping | A promissory note requires stamping. | A cheque does not require stamping |
| Crossing | A promissory note cannot be crossed. | A cheque can be crossed |
5. Distinguish between bill of exchange and cheque.
Ans: Distinguish between bill of exchange and cheque are:
| Basis | Bill of Exchange | Cheque |
| Drawee | A bill of exchange may be drawn on any person including a bank. | A cheque is always drawn on a bank. |
| Payment | A bill may be drawn on demand or the expiry of a certain period of time. | A cheque can only be drawn payable on demand. |
| Printed Form | A bill is not usually drawn on a printed form. | A cheque is always drawn on a printed form. |
| Acceptance | In case of bill of exchange, acceptance by the drawee is essential. | In case of cheque, acceptance by the drawee (bank) is not essential. |
| Crossing | A bill of exchange cannot be crossed. | A cheque can be crossed generally or specially. |
6. What are the various types of cheque?
Ans: The various types of cheque is open cheque–bearer cheque and order cheque; crossed cheque:
(i) Open cheque: A cheque is called ‘open’ or ‘bearer’ when it is not crossed and can be encashed over the counter at the bank. It can be used to make direct payment to the payee without any reservation.
(ii) Bearer cheque: A bearer cheque is the one in which the payment is made to the person bearing or carrying the cheque.
(iii) Order cheque: An order cheque is a type of cheque that is payable to a specific person or entity named on the cheque. The printed words ‘OR ORDER’ must be mentioned at the end of the payee’s name.
(iv) Crossed cheque: A crossed cheque is a cheque with two parallel lines drawn across the top-left corner, indicating that it can only be deposited into a bank account, not encashed over the counter.
7. What are the significances of general crossing?
Ans: Here are the significances of general crossing:
(i) Two lines are of a paramount importance in crossing.
(ii) The lines must be drawing parallel and transverse. Transverse means, that, they should be arranged in a crosswise direction.
(iii) The lines are generally drawn on the left hand side so as not to obliterate or alter the printed number of the cheque.
(iv) The words ‘And Company’ or its abbreviation may be written in between the lines. They themselves are not essential and so, they do not constitute crossing, without two parallel transverse lines.
(v) The words ‘Not Negotiable’ may be added to a crossing. But they themselves do not constitute a crossing.
8. What are the significances of special crossing?
Ans: Here are the significances of special crossing:
(i) For a special crossing, two parallel transverse lines are not at all essential.
(ii) The name of a banker must be necessarily stated across the face of the cheque. The name of the banker itself constitutes special crossing.
(ii) It must appear on the left hand side, preferably on the top corner, so as not to obliterate the printed number of the cheque.
(iv) The two parallel transverse lines and the words ‘Not Negotiable’ may be added to a special crossing.
