Class 12 Banking Chapter 5 Negotiable Instrument Question answer to each chapter is provided in the list so that you can easily browse through different chapters HS 2nd Year Banking Chapter 5 Negotiable Instrument Notes and select needs one.
SCERT Class 12 Banking Chapter 5 Negotiable Instrument
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 Class 12 Banking Chapter 5 Negotiable Instrument Solutions for All Subjects, You can practice these here.
Negotiable Instrument
Chapter: 5
Answer Questions
Q.1. Give an example of Negotiable Instrument.
Ans :- Cheque, Bill & Exchange, Promissory Note.
Q.2. Give an example of Special Endorsement.
Ans :- If the endorsement includes the words “Pay to Ram” after signature of the endorser it is on special or full endorsement.
B. Short answer questions: Type- I
Q.1. Write the meaning of Negotiable Instrument.
Ans :- Negotiable means transferable and the word instrument means a written documents.Thus the word Negotiable Instrument means ‘A written documents which is transferable’. The Negotiable instrument are governed by Negotiable Instrument Act.1881.The Negotiable instruments are cheque, bill of Exchange, Promissory Notes etc.
Q.2. Define Cheque.
Ans:- According to Negotiable Instrument Act 1881, “A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise then on demand.”
From the above mention definition we get the following characteristics of a cheque.
(a) A cheque is a Bill of Exchange.
(b) It is always drawn on a bank.
(c) A Cheque is payable always in demand.
(d) A Cheque is always a written document.
(e) There are three parties in a cheque. Drawer, Drawee and payee.
Q.3. Define Promissory Notes.
Ans :- A promissory Notes is an instrument in writing (not being a bank note or currency Note ) Containing on 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 ( section -4 ).
The features of Promissory Notes are :
(a) It is a promise to pay.
(b) It is a document in writing.
(c) It is a promise to pay specified amount.
(d) Payment may be made on demand or other the expiry of certain period.
(e) The promise to make payment is unconditional.
Q.4. Give the meaning of Hundi.
Ans :- The word Hundi is borrowed from the Sanskrit word Hund which means to collect. A Hundi is a traditional bill of exchange . All indigenous negotiable instrument written in a oriental language are known as Hundi. Hundis are very popular among Indian merchant and are use to finance internal trade and commerce. Hundies are drawn as per the custom and usage of the locality in which they are to be used.
Hundies are not covered by the provision of the Negotiable Instrument Act .
Q.5. Explain the term ‘Holder’ of Negotiable Instrument.
Ans:- According to section 8 of the Negotiable Instrument Act 1881 “Holder of a promissory note, Bill of Exchange or cheque means any person entitled in his own name to the procession thereof and to receive or recover the amount due thereon from the parties thereto.
A person is called the holder of a negotiable instrument if the fulfil the two conditions :
(a) He must be entitled to the possession of the instrument in his own name.
(b) He must be entitled to receive or recover the amount from the parties concerned in his own name.
Q.6.What is Endorsement in Full or Special Endorsement ?
Ans :- If an endorser signs his name and adds a direction to pay the amount mention in the instrument to or to the order of a specified person, such an endorsement is said to be a full or special endorsement.
As for example, if the endorsement includes the word ‘Pay to Ram’ after the signature of the endorser, it is an endorsement in special or full.
Q.7. What is Conditional Endorsement ?
Ans :- An endorsement is conditional or qualified if it limits or neglects the liabilities of the endorser. There is a difference between a restrictive endorsement and a conditional endorsement. A restrictive endorsement places restriction on the negotiability of the instruments while a conditional endorsement limits or neglects the liabilities of the endorser.
Q.8. What is Blank Endorsement ?
Ans :- An endorsement is said to be Black or General if the endorser signs on the back or on the face of the instrument without specifying the name of any endorsee. The effect of this endorsement makes the instrument payable to bearer even through originally it was payable to order.
Q.9. What is Restrictive Endorsement ?
Ans :- An endorsement is said to be restrictive when it is prohibits or restricts the further negotiability of the instrument. It is merely entitles the holder of the instrument or receive the amount on the instrument for a specified purpose.
Q.10. What is partial Endorsement ?
Ans :- When the endorser intends to transfer to the endorsee only a part of the amount of the instrument by endorsement, the same type of the endorsement is said to be a partial one. A partial endorsement does not operate as a negotiation of the instrument.
Q.11. What is Open Cheque ?
Ans :- A Cheque which is not crossing such as general crossing or special crossing to called open cheque. When an open cheque is lost or stolen the finder or any person or thief may get it encashed at the drawees bank. In case of a Bearer cheques, this bank may make the payment to the person who present it for the payment. An open cheque is liable to the risk in the course of circulation.
Q.12. Define ‘Holder in due course’.
Ans :- According to section 9 ” Holder in Due Course means any person who for consideration become the possessor of a promissory notes, cheque or Bill of Exchange, if payable to bearer or the payee or endorsee there off if payable to order before the amount mentioned in it become payable and without having sufficient cause to believe that defects existed in the title of the person from whom he derived his title.
In holder in due course he gets a perfectly good title to the instrument. He is entitled to the recovery of amount from all previous parties. His right to recover money is not affected in case of an inchoate instrument. These is no effects on the holder in due course.
Q.13. Who can cross a Cheque ?
Ans :- The answer will be the customer or holder. Generally a holder or owner of the cheque can cross the cheque. By the order of the owner of the cheque may a person whose ever bears it or the cheque can cross the cheque.
Q.14. Define Hundi.
Ans :- The word Hundi is borrowed from the Sanskrit word ‘HUND’ which means to collect. A Hundi is a traditional Bill of Exchange. All indigenous negotiable instrument written in an oriental language are known as Hundis. Hundis are very much popular among Indian merchant and are used to finance internal trade and commerce. Hundis are drawn as per the custom and usage of the locality in which they are to be used.
Hundies are not covered by the provisions of the Negotiable Instrument Act.
Q.15. Name any two types of hundies.
Ans :- (a) DARSHANI HUNDI :- It is a type of hundi which is payable at sight.
(b) MUDDATI HUNDI :- It is a similar to a time bill of exchange. It is payable after specified period of time.
C. Short answer questions : Type-II
Q.17. Draw a specimen copy of Cheque.
Ans :- A cheque is a bill of exchange drawn on a specified banker and not express to be payable otherwise then on demand.
Specimen of a Cheque
Q.18. Draw a specimen Copy of a Blank Cheque.
Ans :-
Specimen of a Blank Cheque
Q.19. Draw a specimen copy of Promissory Note.
Ans :- A promissory Notes is an instrument in Writing containing an unconditional undertaking signed by the maker or pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
Specimen of Promissory Notes
Q.20. Draw a specimen copy of Bill of Exchange.
Ans :- According to sec 5 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 order of a certain person or to the bearer of the instrument.
Specimen of Bill of Exchange
Q.21. What are the different types of Negotiable Instrument ?
Ans :- The different types of Negotiable Instrument are as follows :
(a) Bill of Exchange.
(b) Promissory Notes.
(c) Cheque.
(d) Dividend Warrant.
(e) Bearer Debentures etc.
Q.22. Explain the term ‘Holder in due course’.
Ans :- According to section (9) ‘Holder in due course’ means any person who, for consideration became the possessor of a promissory notes, 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’.
Q.23. Explain the term ‘Payment in due course’.
Ans :- Section 10 of the Indian Negotiable Instrument Act 1881, provides for payment in due course. According to this section.
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 there of under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned there in.
The payment of a negotiable instrument should be made to the right person by paying banker or the acceptor of the bill, otherwise the latter shall be responsible for the drawee of a bill, provided the payment is made as require and the Act.
Q.24. Explain the significance of any three types of endorsement.
Ans :- (1) Blank Endorsement :- An endorsement is said to be blank if the endorser sign on the back or on the face of the instrument without specifying the name of the endorsee.
(2) Full Endorsement :- If an endorser signs his name and adds a direction to pay the amount mentioned in the instrument to or to the order of a specified person.
(3) Restrictive Endorsement :- An endorsement is said to be restrictive when it prohibits or restricts the further negotiability of the instrument.
Q.25. Write a short note on ‘Not Negotiable Crossing’.
Ans :- Section 130 of Indian Negotiable instrument Act 1881 lays down that a person taking a cheque crossed generally or specially bearing in either case the word. Not Negotiable shall not have and shall not be capable of giving a better title to the cheque than which the person from whom he took it in the first instance had such a cheque can be negotiated as usual by endorsement and delivery. Mentioning of the words not negotiable on the face of the cheque makes the cheque lose the basic criterion of negotiability. Once the cheque is crossed in such a fashion its holder will not get a better title than that of the immediate endorser and in addition is not capable of giving a better title to the parties in whose favour he is likely to endorse. The title of all future or subsequent endorser become defective.
Q.26. What are the essentials of valid endorsement ?
Ans :- Following are the essentials of a valid Endorsement :
1. It should be in ink-not in pencil and also not by means of a rubber stamp.
2. It should be on the back of the instrument.
3. The endorser should endorse the instrument in full and not in part.
4. The endorsement should be made by a person who is the holder of the instrument.
5. The spelling of the endorsement should be agree with the name of the person appearing on the endorsement.
Q.27. Draw different specimen of different types of crossing.
Ans :-
Q.28. State any three differences between bill of exchange and cheque.
Ans :- The differences between bill of exchange and cheque are as follows :
1. A Bill of Exchange can be drawn on any person including a banker. But a cheque can be drawn only upon a banker.
2. A bill of exchange requires the acceptors of the drawee. But a cheque does not require any acceptance.
3. A Bill of Exchange can not be crossing. But a cheque can be crossing.
Q.29. State any three differences between Cheque and Promissory Notes.
Ans :- The three differences between Cheque and Promissory Note are as follows :
1. A Cheque can be crossed but a promissory notes can not be crossed.
2. A Cheque does not require a stamp but in a promissory notes stamp is legal necessity.
3. A cheque is an unconditional order to the bank to pay certain sum of money but a promissory notes is an unconditional promise by the maker to pay the money..
D. Long answer questions : Type-I
Q.30. State the important differences between Promissory Note and Cheque.
Ans :- The important difference between Promissory Note and Cheque are as follows :
1. Promissory Note is an unconditional promise by the maker to pay the money. But a cheque is an unconditional order to the bank to pay certain sum of money.
2. Three days of grace are allowed for Payment of Promissory Note unless it is payable at sight or on demand. But no days of grace are allowed for payment of cheque.
3. A promissory note can not be crossed. But a cheque can be crossed.
4. The maker of a promissory note is one who pays the money. But the drawer of a cheque is one who withdraws the money from the drawee.
Q.31. Discuss the essential characteristics of a Negotiable Instrument.
Ans :- Following are the important characteristics of a Negotiable Instrument :
(1) Negotiability :- The property in a negotiable instrument is freely transferable. In case of other instrument it is transferable by endorsement and delivery. In case of bearer instrument it is transferable by mere delivery.
(2) Title :- The holder in due course is not in any way effected by the defective title of the transferor or any party. The term holder in due course means a holder who has accepted a negotiable instrument for value, in good faith and before maturity.
(3) Recovery :- The holder in due course is entitled to sue on the instrument in his own name. He need not give any notice of transfer to the person liable for payment on the instrument.
(4) Presumptions :- A Negotiable instrument is always subject to certain presumptions. They will be applicable unless contrary is proved.
Q.32. Explain the meaning of the term ‘ Negotiable Instrument’ and its different forms.
Ans :- A negotiable instrument is a written documents which possess three main characteristics
(a) Transferability.
(b) Negotiability. and
(c) Right of Action.
According to Negotiable instrument Act 1881, A negotiable instrument means a promissory note, Bill of Exchange or cheque payable either to order or to bearer.
A Negotiable instrument means a promissory Notes, Bill of Exchange or a cheque payable either to order or to bearer.
In India the following are treated as negotiable instrument :
(a) Bill of Exchange
(b) Promissory Notes
(c) Cheques
(d) Government promissory notes
(e) Dividend warrants
(f) Share warrants
(g) Bearer debentures.
Negotiable Instrument Act 1881 Provides for the following presumptions to a negotiable instrument :
(1) Every negotiable instrument was drawn, acceptance and endorsed, made for consideration.
(2) The date is bears the date on which it was make.
(3) That it was accepted within a reasonable time after being made and before maturity.
(4) Every transaction was made before maturity.
(5) The endorsement were made in the same order in which that they appear.
(6) The last instrument was duly signed and stamped.
Q.33. State the important differences between Promissory Note and Bill of Exchange.
Ans :- Following are the main important differences between promissory Notes and Bill of Exchange.
(1) Bill of Exchange contains on unconditional order to pay. But promissory Notes contains on unconditional promise to pay.
(2) A bill of exchange has three parties, Drawer, Drawee and Payee. But a promissory note has two parties i.e. Maker and Payee.
(3) A Bill of Exchange require an acceptance of the drawee before it has presented for payment. But a promissory note does not require any acceptance because it is signed by the person who promises to pay.
(4) The drawer of a bill of exchange is a creditor. But the maker of a promissory notes is a debtor.
(5) A bill of exchange is paid by the acceptor. But a promissory note is paid by the maker.
(6) A foreign bill is drawn in three set in bill of exchange but A Promissory not can note be drawn in set.
(7) The acceptor or a bill of exchange may accepts the bill generally. But the maker of a promissory note can not undertake to pay conditionally.
Q.34. State the important differences between Bill of Exchange and cheque.
Ans :- Following are the main important differences between Bill of Exchange and cheque.
1. A Bill of Exchange can be drawn on any person including a banker. But promissory note can be drawn only upon a banker.
2. A bill of exchange requires the acceptance of the drawee. But cheque does not require any acceptance.
3. A bill of exchange is payable on demand or after the expiry of a period. But A Cheque is always payable on demand.
4. A bill of Exchange can not be crossed. But a cheque can be crossed.
5. A bill of Exchange requires proper stamp. But a cheque does not require any stamp.
6. The payment of a bill of Exchange can not the countermanded. But the payment to a cheque can be countermanded.
Q.35. Differentiate Holder in due course and “payment in due course.”
Ans :- According to sec(9) holder in due course means any person who for consideration become the possessor of a promissory note, bill of Exchange or cheque, if payable to bearer or the payee or endorse 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.
But According to sec(10) of the Indian Negotiable Instrument 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 mentioned therein.
The payment of a negotiable instrument should be made to the right person by the paying banker or the acceptor of the bill otherwise the latter should be responsible for the drawee of a bill provided the payment is made as require in the Act, such payment is called ‘payment in due course.’
Q.36. State the Important differences between promissory Notes and cheque.
Ans :- Following are the most important differences between promissory notes and cheque.
1. Promissory note is an unconditional promise by the maker to pay the money, But
Cheque is an unconditional order to the bank to pay certain sum of money.
2. Three days of grace are allowed for payment unless it is payable at on demanded.
But, No days of grace are allowed for payment in a cheque.
3. A promissory notes can not be crossing But, a cheque can be crossed.
4. Stamp is a legal necessity in a promissory notes
But A Cheque does not require any stamp
5. The maker of a promissory notes is one who pays the many But
The drawer of a cheque is one who withdraws the money from the drawee.
Q.37. State the conditions for dishonour of cheque.
Ans :- Following are the condition for dishonour of a cheque.
1. When under some legal case the money deposited by the customer can not be withdrawn.
2. When there is insufficient amount in account of the customer to meet the cheque.
3. When the cheque has not been properly drawn like improper endorsement.
4. When there arise the difference between the amount written in words and figures.
5. When the account is in joint names and the cheque has not been signed by all authorised signatories.
6. When the cheque is a stale cheque.
7. When the customer close the account.
8. When the banker is served with Garnishee order.
E. Long answer questions : Type-II
Q.38. What is Negotiable Instrument ? What are the essential characteristics of Negotiable Instrument ?
Ans :- Negotiable Instrument is a written document which possess three main characteristics.
(a) Transferability.
(b) Negotiability. and
(c) Right of Action.
According to Negotiable instrument Act 1881, A negotiable instrument means promissory Notes Bill of Exchange and cheque payable either to order or to bearer.
A Negotiable instrument means a promissory Note or a cheque or a bill of exchange which is easily transferable.
Negotiable means transferable and the word instrument means a written documents. It means that a written documents which can be easily transferable.
Following are the main characteristics of a Negotiable instrument.
(1) Negotiability :- The property in a negotiable instrument is freely transferable. In case of other instrument it is transferable by endorsement and delivery. In case of bearer instrument it is transferrable by mere delivery.
(2) Title :- The holder in due course is not in any way effected by the defective title of the transferor or any party. The term holder in due course means a holder who has accepted a negotiable instrument for value, in good faith and before maturity.
(3) Recovery :- The holder in due course is entitled to sue on the instrument in his own name. He need not give any notice of transfer to the person liable for payment on the instruments.
(4) Presumption :- A Negotiable instrument is always subject to certain presumption. They will be applicable unless contrary is proved.
(5) Negotiable instrument are always transferable.
(6) Negotiable instrument are always is written documents.
Q.39. What is Bill of Exchange ? What are its essential characteristics ?
Ans :- According to section 5, a Bill & 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 order of a certain person or to the bearer of the instrument.
The essential characteristics of Bill of Exchange are as follows :
(i) It must be in writing.
(ii) It must contain on unconditional order to pay money only.
(iii) It must be signed by the drawer.
(iv) It requires three parties.
(a) Drawer.
(b) Drawee.
(c) Payee.
(v) The sum payable must be certain.
(vi) The sum must be payable to a certain person or to his order or to the bearer.
(vii) It must be properly stamped and signed by the drawer.
(viii) The name of the drawee must be mentioned in the documents.
(ix) The sum of the money must be paid within a stipulated period or on demand.
Q.40. Define endorsement. Discuss the significance of different types of endorsements.
Ans :- An endorsement literally means that the holder has put his signature on the back of the instrument with an intention to negotiate the instrument. The person who puts his signatures is called the endorser and the person in whose favour it is being endorsed is call the endorsee.
● Significance of Endorsement :
1. It should be in ink-not in pencil and also not by means of a rubber stamp.
2. It should be on the back of the instrument. If the back of the instrument is fully covered with endorsement. Endorsement is made on a separate piece of paper attached there to which is known as on ‘allonge’.
3. The endorser should endorse the instrument in full and not in a part.
4. The endorsement should be made by a person who is the holder of the instrument or the maker of the instrument.
5. In case the instrument is made payable to more than one payees, the endorsement should be made in favour of all payees whose names appear on the instrument.
6. The spelling of the instrument should agree with the name of the person appearing on the instrument.
7. While making endorsement the endorser should not add either prefixes or suffixes.
Q.41. What is endorsement ? What are the rules regarding endorsement.
Ans :- The most important characteristics of negotiable instrument is that they are transferable i.e. negotiable. The term endorsement of a Negotiable instrument means writing documents of a persons name on the back of the instrument for the purpose of negotiation.
According to sec 15 of Negotiable instrument Act 1881 when the holder or maker of Negotiable instrument signs his name otherwise then such make for the purpose of negotiation on the back or face there off or on the slip of paper annexed there to he is said have endorsed the instrument.
● Rules regarding endorsement :
1. The payee must signed his name in the exact spelling as appearing on the face of the negotiable instrument.
2. Endorsement by pencil or by rubber stamp are not allowed.
3. Endorsement does not require any particular from of words.
4. An illiterate person can make a valid endorsement by putting his left hand thumb impression in the presence of a certain other person as witness.
5. Endorsement must be completed by only delivery.
6. Endorsement shall be presume to have been made in the order in which they appear on the instrument unless proved to the contrary.
Q.42. What are the different forms of crossing ? Explain the significance of general crossing and special crossing.
Ans :- A Cheque is said to be crossings when two parallel transverse line are drawn with or without the word “& Co.’ and ‘Not Negotiable on the left hand top corner of the cheque. A crossing of a cheque does not affect its negotiability. Crossing of a cheque refers to the instrument to the banker relating to the payment of the cheque. A crossing is the direction to the paying banker that the cheque should be paid only to the banker.
The different forms of crossing are :
a) General Crossing.
b) Special Crossing.
c) Restrictive Crossing.
● SIGNIFICANCE OF GENERAL CROSSING :
When a cheque bears across its face two parallel transverse lines with or without any words is called as general crossing. Words like ‘& CO”, ‘Not Negotiable” may or may not be written between two transverse lines. In the case of general crossing the holder may get the cheque collected through some bank, because when the cheque is crossed generally the banker on whom it is drawn shall not pay it. Otherwise then to a banker.
EXAMPLES OF GENERAL CROSSING
● Significance of Special Crossing :
When a cheque bears across its face two transverse parallel lines with the name of the banker with or without the words ‘not
Negotiable” is a special crossing. When a cheque is crossed specially the banker on whom it is drawn shall not pay it otherwise then to the banker to whom it is crossed.
● Where a cheque is uncrossed, the holder may cross it generally or specially.
● Where a cheque is crossed generally the holder may crossed it specially.
● Where the cheque crossed especially the banker to whom it is crossed may again cross it specially to another banker.
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Class 12 Banking Chapter 5 Negotiable Instrument Question answer to each chapter is provided in the list so that you can easily browse through different chapters HS 2nd Year Banking Chapter 5 Negotiable Instrument Notes and select needs one.
SCERT Class 12 Banking Chapter 5 Negotiable Instrument
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 Class 12 Banking Chapter 5 Negotiable Instrument Solutions for All Subjects, You can practice these here.
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