Business Laws Solved Question Papers' 2021 | Gauhati University Solved Question Papers | B.Com 1st Sem CBCS Pattern

 Gauhati University Business Laws Solved Papers
4 (Sem–1/CBCS) BUSL
2020 (Held in 2021)
Paper: COM–HC–1026
Full Marks: 80
Time: Three hours

The figures in the margin indicate full marks for the questions.

Answer either in English or in Assamese

1. (a) Choose the correct option from the following:      1×5=5

(i) The Indian Contract Act, 1872 came into force on

a) 1st January, 1872.

b) 1st April, 1872.

c) 1st July, 1872.

d) 1st September, 1872.

Ans: d) 1st September, 1872.

(ii) In a sale there is an implied condition on the part of the seller that he

a) is in possession of the goods.

b) will have the right to sell.

c) will possess the goods.

d) has a right to sell the goods.

Ans: d) has a right to sell the goods.

(iii) The provisions regarding maximum number of members in a partnership are given in

a) The Companies Act.

b) The Partnership Act.

c) The Contract Act.

d) The Societies Registration Act.

Ans: a) The Companies Act.

(iv) The Right to Information Act, 2005 came into force on

a) 12th January, 2005.

b) 12th April, 2005.

c) 12th October, 2005.

d) 12th December, 2005.

Ans: c) 12th October, 2005.

(v) A contract of indemnity is a

a) contingent contract.

b) wagering contract.

c) quasi contract.

d) future contract.

Ans: a) contingent contract.

(b) State whether the following statements are correct or incorrect:      1×5=5

a) A bill of exchange needs acceptance.

Ans: True

b) The Sale of Goods Act, 1930 came into force from 1st July, 1930.

Ans: True

c) A contract with or by a minor is a valid contract.

Ans: False

d) An agent cannot work for more than one principal.

Ans: False

e) Registration of limited liability partnership shall be with the Registrar of Companies.

Ans: True

2. Answer the following questions in brief:   2×5=10

a) What is void agreement?

Ans: An agreement not enforceable at law is a void agreement. Originally it is a valid agreement but due to certain reasons it becomes void after its formation. A void agreement cannot be enforced by either party.

b) Write two elements of a contract of indemnity.

Ans: Essentials of Indemnity:

1. Parties: There are two parties in a contract of Indemnity – Indemnifier and Indemnified. The person who gives the indemnity is called the indemnifier and the person to whom indemnity is given is called indemnified.

2. Promise: There must be expressed or implied promise by one party to other party in respect of indemnity.

c) Write two differences between sale and hire-purchase.

Ans: Difference between Hire Purchase system and Sale

Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between Hire Purchase and Sale.

Hire Purchase


Hire purchase is governed by the Hire Purchase Act, 1972.

A ‘sale’ is governed by the sale of Goods Act, 1930.

In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.

In case of sale, the ownership of the goods is transferred to the buyer immediately.

In case of hire purchase, the payment is made in installments.

In case of sale, the buyer makes payment in lump sum.

d) Who are the parties to a cheque?

Ans: Parties of a cheque:

1. Drawer: A drawer is a person, who draws a cheque.

2. Drawee: A drawee is a bank on whom a cheque is drawn.

3. Payee : A payee is a person in whose favour a cheque is drawn

e) Write two differences between partnership and co-ownership.

Ans: Difference between Partnership and Co-ownership




1. Basis of creation

Partnership is arises from contract not from status.

Co-ownership may be arises from contract or from status.

2. Covered by

Partnership is covered under the Indian Partnership Act’ 1932.

Co-ownership is not covered under the Indian Partnership Act’ 1932.

3. Answer any four of the following questions: 5×4=20

a) Briefly explain various kinds of contract on the basis of formation and performance.

Types of Contracts

On the basis of performance

On the basis of formation

1. Executed contract

2. Executory contract

1. Expressed contract

2. Implied contract

3. Quasi contract

4. Standard Form

The above various types of contract are mentioned below:

a) Executed Contract: An executed contract is that contract in which both the parties to the contract have performed their respective promises.

b) Executory Contract: An Executory contract is that contract in which both the parties to it have yet to perform their promises.

c) Express Contract: In express contracts, the terms are stated in writing expressly.

d) Implied Contract: An implied contract is one which is the result of the conduct of the parties. For example when a person boards a public bus or drinks a cup of tea in a restaurant there is an implied contract and he has to pay the charges for it.

e) Quasi contract: In quasi contract, all the essentials of a contract are absent but the law imposes a contract on the basis of doctrine of unjust enrichment.

f) Standard form contract: Those contracts, in which one party proposes to other party with pre-determined fixed conditions or terms for contract and other party has to accept or refuse but cannot alter any term or condition, are called standard form contract.

b) Briefly state different types of partners.

Ans: Different Types of Partners: The different types of Partners are:

(i) Active Partner: A person who is actively, actually or effectively engaged in the conduct of business of the partnership firm is known as an Active Partner. He is the agent of the other partners and has authority to bind the firm and the other partners in the ordinary course of business.

(ii) Sleeping or Dormant Partner: A sleeping partner is one who does not take an active part in the conduct of business of the firm. He invests capital and shares the profits of the firm and is also equally liable along with other partners for all the liabilities of the firm.

(iii) Nominal Partner: A person who lends his name to the firm, without having any real interest in it is called a Nominal Partner. He does not invest any capital in the business nor does he takes any active part in the business nor does he share any profit of the firm. However he is liable along with other partners for all the liabilities of the firm.

(iv) Partner in Profit only: Where a partner agrees with the other partners that he shall share only profits and shall not be liable for any losses of the firm he is called Partner in Profit only. However he remains liable to the creditors for the debts of the firm since under the Partnership Act the liabilities of the partners is joint, several and unlimited.

(v) Sub-Partner: Where a partner agrees to share his profits earned form the firm with a third person then that third person is known as the sub-partner. A sub-partner has no rights against the firm and cannot represent himself as a partner of the firm. He is in no way connected with the firm and is thus not liable for the liabilities of the firm.

(vi) Partner by Estoppel or by Holding Out: Sometimes strangers represent themselves to be partners in a firm and thereby induce third parties to give credits to the firm such strangers are called as partners by Estoppel or Partners by Holding Out.

c) State the rights of bailee.

Ans: Rights of a Bailee

a) Right to necessary expenses (Section 158): As per Section 158 says that whereby conditions of the bailment, the goods are to be kept or to be carried or to have work done upon them by the bailee for the bailer and the bailee is to receive no remuneration, the bailer shall repay to the bailee the necessary expenses incurred by him for the purpose of bailment. Thus, a bailee is entitled to recover the charges as agreed upon, or if there is no such agreement, the bailee is entitled to all lawful expenses according to this section.

b) Right to compensation (Section 164): As per section 164, the bailer is responsible to the bailee for any loss which the bailee may sustain by reason that the bailer was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them. This means that if the bailer had no right to bail the goods and if still bails them, he will be responsible for any loss that the bailee may incur because of this. 

c) Right of Lien (Section 170-171): In general, Lien means the right to keep the possession of the property of a person until that person clear the debts. In case of bailment, the bailee has the right to keep the possession of the property of the bailer until the bailer pays lawful charges to the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it gives the bailee the power to get paid for his services. 

d) Right to Sue (Section 180-181): Section 180 enables a bailee to sue any person who has wrongfully deprived him of the use or possession of the goods bailed or has done them any injury. The bailee's rights and remedies against the wrong doer are same as those of the owner. An action may be brought either by the bailer or the bailee.

d) Briefly explain the quasi-contracts dealt with under the Indian Contract Act.

Ans: Quasi Contract: It means a contract which lacks one or more of the essentials of a contract. In a contract, a promisor voluntarily undertakes an obligation in favour of the promisee. When a similar obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. Such contracts are the quasi-contracts. Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e. no person shall be allowed to enrich himself at the expense of another the legal obligations of parties remains same.

Nature of Quasi contracts:

a) A quasi contract does not arise from any formal agreement but is imposed by law.

b) Every quasi contract based upon the principle of equity and good conscience.

c) A quasi contract is always a right to money and generally though not always to a liquidated sum of money.

d) A suit for its breach may be filed in the same way as in case of a complete contract.

e) The right grouted to a party under a quasi-contract is not available to him against the whole world but against particular person(s) only.

e) Distinguish between promissory note and cheque.

Ans: Difference between Promissory Note and Cheque:             


Promissory Note



It is an unconditional promise by the maker to pay the money.

It is an unconditional order to the bank to pay certain sum of money.

Days of Grace

Three days of grace are allowed for payment.

No days of grace are allowed for payment.


A promissory note cannot be crossed.

A cheque can be crossed.


A promissory note must be stamped.

A cheque does not require a stamp.


The maker of a promissory note is one who pays the money.

The drawer of a cheque is one who withdraws the money from the drawee.


The maker of promissory note cannot be payee.

The drawer of a cheque can be the payee.

f) Explain different types of goods under the Sale of Goods Act, 1930.

Ans: Goods may be classified into various types as under:

1. Existing goods: These are goods which are owned and possessed by the seller at the time of sale. Only existing goods can be the subject-matter of a sale. The existing goods may be –

Specific goods: These are goods which are identified and agreed upon at the time of contract of sale is made. For e.g. a person visits a Titan showroom and identifies a watch for purchase.

Ascertained goods: Though commonly used as similar in meaning to specific goods, these are the goods which become ascertained subsequent to the formation of contract of sale. For e.g. from say 10 Sony T.V. a person identifies the particular T.V.

Unascertained goods: These are the goods which are not identified and agreed upon at the time of the contract of sale. They are defined only by description and may form part of a lot. For e.g. a shopkeeper has a bag containing 50 kg of sugar. He agrees to sell 10 kg sugar to X out of that bag The 10 kg of sugar is unascertained goods as they are yet to be identified from the bag containing 50 kg.

2. Future Goods: These are goods which a seller does not possess at the time of the contract but which will be manufactured, or produced, or acquired by him after the making of the contract of sale. [Section 2(6)]. A contract of present sale of future goods, though expresses as an actual sale, purports to operate as an agreement to sell the goods and not a sale. This is because the ownership of a thing cannot be transferred before that thing comes into existence.

3. Contingent Goods: It is a type of future goods but these are goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

4. What is consideration in a contract? Discuss the rules relating to consideration.  2+8=10

Ans: Consideration and Its Essentials

Section 2 (d) of Indian Contract Act, 1872, defines consideration as “When at the desire of the promisor the promise or any other person has done or abstained from doing or does or abstains from doing something, such act abstinence or promise is called a consideration for the promisor.”

Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.

Consideration is an advantage or benefit which moves from one party to another. It is the essence of bargain. It is the reciprocal promise i.e. to do something or abstain from doing something in return of a promise. It is necessary for an agreement to be enforceable by law. In consideration both the parties give something & get something in return. It may be in cash or kind.

The following are the rules related to the consideration

(i) Consideration must move at the desire of promisor. If it is done at the instance of a third party without the desire of the promisor, it is not consideration. Act done at the desire of a third party is not a consideration. Act must be done voluntarily at the desire of the promisor.

(ii) It may move from the Promisee or any other person in the Indian Law so that a stranger to the consideration may maintain a suit. A consideration may move from the promise or any other person. Consideration from a third party is a valid consideration. Under English Law, however, consideration must move from the Promisee only.

(iii) Consideration may be past, present or future. The words used in Section 2(d) are “has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future) something” This means consideration may be past, present or future.

(iv) It must be real & not illusory, infinite or vague. Although consideration need not be adequate, it must be real, competent and of some value in the eye of law. Physical impossibility, legal impossibility, uncertain consideration & illusory consideration.

(v)  Consideration must not be unlawful, illegal, immoral or opposed to public policy. The consideration given for an agreement must not be unlawful. Where it is unlawful, the courts do not allow an action on the agreement.

(vi) Consideration need not be adequate. Consideration as already explained means “something in return”. This “something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the courts are not concerned as to its adequacy, provided it is of some value. “The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced.”


Discuss the essential elements of a valid contract.  10

Ans: Essential Elements of a contract:

Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”

An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts. In order to become a valid contract an agreement must possess the following essential elements:

a)      Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.

b)      Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.

c)       Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.

d)      Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to.  An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.

e)      Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.

f)       Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.

g)      Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.

h)      Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law. 

5. (a) Discuss the rights of surety against the creditor and the principal debtor.                 6

Ans: Right of surety:

1. Right of surety against creditor:

A) Right to securities: On default of principal debtor, when the surety issued by the creditor to compensate the surety has the right to the benefit of all securities which the creditor has against the principal debtor at the time of contract of guarantee.

b) Right of set-off: If the surety issued by the creditor, he is entitled to use all the defenses against the creditor principal debtor.

2. Right against principal debtor:

a) Right to indemnity: (Sec. 145 of the Indian Contract Act,1872) In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.

b) Right to Subrogation: (Sec. 140 of the Indian Contract Act, 1872) According to Section 140 of the Indian Contract Act 1872, where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.

(b) Explain the duties of an agent.           4

Ans: Duties of Agents

a)      Duty to follow instructions given by the principal: Agent should follow the instructions given by the principal while conducting business and in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the same place.

b)      Duty of reasonable care: Agent must take due care and skill while performing his duties. If agent comes across any complicated situation, he has to communicate that situation to principal and his advice is to be obtained.

c)       Be honest: Agent should behave in his capacity as agent; he should not run the transaction in his own name.

d)      Duty not to make secret profit: Agent should not make secret profits by utilizing reputation of the principal.

e)      Duty to protect the property of principal: Agent should safe guard property of principal particularly upon happening of events like death of principal, insolvency of principal, etc.


State the essential elements of a contract of sale. Also distinguish between sale and agreement to sell.             5+5=10

Ans: The essentials of a contract of sale are:-

1. Numbers of parties: Since a contract of sale involves a change of ownership, it follows that the buyer and the seller must be different persons. A sale is a bilateral contract. A man cannot buy from or sell goods to himself. To this rule there is one exception provided for in section 4(1) of the Sale of Goods Act. A part-owner can sell goods to another part-owner. Therefore a partner may sell goods to his firm and the firm may sell goods to a partner.

2. Goods: The subject-matter of the contract of sale must be ‘goods’. According to Section 2(7) “goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.” Goodwill, trademarks, copyrights, patents right, water, gas, electricity,, decree of a court of law, are all regarded as goods. In the case of land the grass which forms part of land have to be separated from the land. Thus where trees sold so that they could be cut out and separated from the land and then taken away by the buyer, it was held that there was a contract for sale of movable property or goods (Kursell vs Timber Operators & Contractors Ltd.). But contracts for sale of things ‘forming part of the land itself’ are not contracts for sale of goods. 

3. Price: The consideration for a contract of sale is price. Price means money consideration. If it is anything other than money, it will not be sale. But if the exchange is made partly for goods and partly for price, it will still amount to sale. However, the price may be paid or promises to be paid.

4. Transfer of property: 'Property' here means ownership. Transfer of property in the goods is another essential of a contract of sale of goods. A mere transfer of possession of the goods cannot be termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer the property in the goods to the buyer. Further, the term 'property', as used in the Sale of Goods Act, means 'general property' in goods as distinguished from 'special property' [Sec. 2(11)]. If P, who owns certain goods, pledges them to R, he has general property in the goods, whereas R (the Pawnee) has special property or interest in the goods to the extent of the amount of advance he has made to the Pawnor. Similarly, in the case of bailment of goods for the purpose of repair, the bailee has special interest in goods bailed to the extent of his labour charges.

5. No formalities to be observed (Sec. 5): The sale of Goods Act does not prescribe any particular form to constitute a valid contract of sale. A contract of sale of goods can be made by mere offer and acceptance. The offer may be made either by the seller or the buyer and the same must be accepted by the other. Neither payment nor delivery is necessary at the time of making the contract of sale. Further, such a contract may be made either orally or in writing or partly orally and partly in writing or may be even implied from the conduct of the parties. Where articles are exhibited for sale and a customer picks up one and the sales assistant packs the same for him, there has resulted a contract of sale of goods by the conduct of the parties.

Difference between ‘Sale’ and ‘agreement to sell’.



Agreement to Sell


Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once); the contract is called a ‘sale’.

where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’

Transfer of ownership

Transfer of ownership of goods takes place immediately.

Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some condition.

Executed contract or Executory contract

It is an executed contract.

It is an Executory contract.

Conveyance of property

Buyer gets a right to enjoy the goods against the whole world including seller.

Buyer does not get such right.

Transfer of risk

Transfer of risk of loss of goods takes place immediately because ownership is transferred.

Transfer of risk of loss of goods does not take place because ownership is not transferred.

6. (a) Distinguish between Partnership and Limited Liability Partnership.                            6

Ans: Difference between Partnership and Limited Liability Partnership




1. Law

It is created under Indian Partnership Act, 1932.

It is created under LLP Act, 2008.

2. Name

There is no guideline about the name of the partnership.

The term “LLP” is added with the name of an LLP.

3. Separate legal entity

Partnership does not have separate legal entity distinct from its members.

It has a separate legal entity distinct from its members.

4. Liability

Liability of partners is unlimited.

Liability of partners is limited.

5. Charter document

Partnership deed is a charter of a partnership firm which denotes it scope of operation and rights and duties of the partners.

LLP agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners.

6. Number of members

Minimum number of partners is 2 and maximum 100 for a partnership firm.

Minimum number of partners is 2 but in case of limited liability partnership there is no maximum limit.

(b) State various documents required for registration of limited liability partnership.   4

Ans: LLP is simply a combination of Partnership and Company form of business organisation. It is a corporate business vehicle that enables profession expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner. It provides an alternative to the traditional partnership firm with unlimited liability.

LLP is required to be registered with registrar of companies (ROC). Both documents relating to partners and LLP are required for registration of an LLP.

Documents of Partners:

a) ID proofs the partners such as PAN card.

b) Address proof of the partners such as electricity bill, telephone bill, mobile bill, passport, driving license etc.

c) Photographs of the partners.

d) In case of foreign nationals and NRIs, passport of the foreign nationals.

Documents of LLP:

a) Registered office proof of the LLP.

b) Digital signature certificate duly signed by the authorised signatory.


Explain the procedures of registration of partnership firm. Also state the benefits of registration of partnership firm. 6+4=10

Ans: Procedure of Registration of partnership firms:

The registration of a partnership is not compulsory but to avoid future problems it is necessary for a firm to get itself registered under the Indian Partnership Act, 1932. Sec. 58 of the Indian Partnership Act lays down the provisions relating to the registration of a firm. If partners want to get their firm registered, they have to file statement in the prescribed form. The statement can be send by post or delivered to the registrar of the area in which the place of business is situated. The following points must be stated in the statement of registration:

a)      The firm’s name

b)      The principal place of business of the firm

c)       The names of any other places of business

d)      The date when each partner joined the firm

e)      The name and address of the firm

f)       The duration of the firm

The statement of registration shall be signed by the partners or their authorised agents. When the registrar is satisfied that the provisions of Sec. 58 have been duly complied with, he shall record an entry of this statement in the register of firms and shall file the statement.

Consequences of Non-registration of firms

The Indian Partnership Act does not make registration of a firm compulsory nor does it impose any penalty for non-registration. It is optional for the firm to get itself registered or not. However, Section 69 puts down certain disabilities to a non-registered firm which normally forces the partners the partners to get the firm registered. The effects of non-registration are as follows:

(a) No suit by a partner against other partners or firm: A partner of an unregistered firm cannot sue the firm or any partner of the firm to enforce a right arising from the contract or conferred by the Partnership Act. He can do so only if the firm is registered and the person suing is shown as a partner in the register of firms.

(b) No suit against any third party: An unregistered firm cannot sue a third party to enforce a right arising from a contract. The firm can only do so if the firm is registered and the person suing is shown as a partner in the register of firms.

(c) No right to counter claim or to claim setoff: An unregistered firm or any partner thereof cannot claim setoff in the proceedings instituted against a firm by a third party to enforce a right arising from a contract. Setoff means a claim by the firm which would reduce the amount of money payable to the claimant.

(d) Arbitration proceedings: In Jagdish Chandra Gupta vs. Kajaria Traders (India) Limited it was held that arbitration proceedings were barred if the firm was unregistered.

So in order to avoid such consequences, it is necessary for every firm is to get registration.

7. (a) State the privileges enjoyed by a holder in due course.  5

Ans: Holder in Due Course enjoys the following rights and privileges:

a)      He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.

b)      All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.

c)       No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.

d)      Right in case of fictitious bills: Where both drawer and payee of a bill are fictitious persons, the acceptor is liable on the bill to a holder in due course.

e)      Right of the holder in due course in case of inchoate instrument: If a negotiable instrument was originally an inchoate (incomplete) instrument and subsequent transferor completed the instrument for a sum greater than what was the intention of the market, the right of a holder in due course to recover the money of the instrument is not at all affected.

(b) Explain various types of crossing of a cheque.            5

Ans: Types of crossing:

1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “and company” or any abbreviations thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, In case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.

A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, it means only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identifies and suitable action taken against him.

2. Special crossing: Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”

Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.

3. Account payee crossing: This type of crossing is done by adding the words ‘Account Payee’. This can be made both in general crossing and special crossing. The implication of this type of crossing is that the collecting banker has to collect the amount of the cheque only for the payee. If he wrongly credits the amount of the cheque to another account, he will be held responsible for the same. 

4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing. A cheque bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not negotiable crossing’ is transferred, care must be taken regarding the ownership of title of both the transferor and transferee.


Discuss the obligations of public authorities under the Right to Information Act, 2005. 10

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