Bill of Exchange :
A bill of exchange, popularly known as a bill, as defined under section 5 of Negotiable instruments Act 1881.
A Bill of exchange means 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 the certain person, or to the bearer of the instrument.
Thus, a bill of exchange is a written acknowledgment of the debt written by the creditor and accepted by the debtor.
Features of Bill of Exchange :
The following essential features :
A) It must be in writing. A oral or verbal order is not a Bill of exchange.
B) It must be contain an order to pay. A mere request by one person to another person to pay some money is not a Bill.
C) The order to pay must be unconditional. If any condition is laid , it will not be a bill of exchange.
D) It must be signed by the maker.
E) It must be accepted by the drawee without which the bill has no value.
F) There are three parties to a bill -Drawer, drawee And the payee.
G) The drawer, drawee and payee must be certain.
H) The sum of money payable must be certain.
Parties to a Bill of Exchange :
There are three parties :
- Drawer: The drawer is the creditor who draws or makes the bill.
- Drawee: The Drawee is the debtor on whom the bill is drawn.
- Payee: The payee is the person to whom or to whose order the money is ordered to be paid.
It may be noted that in some cases they drawer and the payee may be the same person.
Types Of Bill of Exchange :
There are four types :
1. Inland And Foreign Bill :
Inland Bill: An inland Bill or instrument is defined as a promissory note, bill of exchange or cheque drawn or made in India and payable in OR drawn upon any person resident in India.
Foreign Bill: According to sec 12 of the Act, a foreign bill is a negotiable instrument that is not an inland instrument. Foreign bill is a bill which is drawn in India but is payable outside India.
2. Time Bill And Demand Bill :
Time Bill: Time bill is also known as usance bills. Usance denotes the time fixed by custom within which bills are to be paid. A bill of exchange drawn payable at a fixed period after its date or after sight or after an event which is certain to happen is a time or usance bill.
Demand Bill: A bill of exchange which is expressed to be payable on demand or at sight or on presentment is termed as demand bill. Thus, it is a bill where no time for payment is specified on the bill.
3. Trade Bill And Accommodation Bill:
Trade Bill: A trade bill is a bill of exchange which arise out of genuine trade transaction. Such a bill is drawn by the seller (creditor) on the buyer (debtor) in respect of payment of the price of the goods sold and purchased. Trade Bill is drawn and accepted for consideration.
Accommodation Bill: An accommodation bill is a bill which is drawn, accepted or endorsed without consideration to provide financial assistance to party. Thus bill doesn’t arise out of commercial transactions.
The acceptor or Drawee of such a bill just lends out his name to the other so that the latter may obtain credit. The language and form of an accommodation bill are the same as that of the trade bill.
4. Clean Bill and Documentary Bill:
Clean Bill: Clean Bill is that Bill which is not accompanied by any documents.
Documentary Bill: the Documentary bill is that Bill to which certain documents of title to goods or any other documents are attached. Documentary bills are mostly used in foreign trade.
Advantages Of Bill Of Exchange :
The advantages of Bill of exchange are the following:
A) This bill is a written acknowledgment of the indebtedness and fixes beyond dispute the amount owing and the exact date of payment.
B) This bill is being transferable from one person to another person facilitate transfer of value without actual transmission of money.
C) This bill may be discounted and hence the payee needs not to wait till the maturity of the bill and can obtain immediate cash by discounting the bills.
D) These bills promote the rapid growth of trade and commerce by facilitating credit transactions.
E) The accommodation bill of exchange so helps a person to obtain funds at cheaper rates.
F) The foreign bill facilitates the settlement of international obligations and helps in promoting foreign trade.
What is the Acceptance of the Bill of exchange?
The acceptance of the Bill of exchange is the indication of the assent of the Drawee to the order of the drawer. The liability of the Drawee to pay the amount of the bill arises only when he accepted the bill.
A bill without acceptance of the Drawee is simply a draft and has no value in the eyes of law. An acceptance to be valid must be in writing, signed by the Drawee or his agent, on the bill and completed by delivery to the drawer or by notice of acceptance to him.
Types of Acceptance Of Bill Of Exchange :
- General acceptance: When the bill is accepted by the Drawee without any condition with or without the word Accepted it is known as general acceptance.
- Qualified Acceptance: When the Drawee accepts the bill by adding any conditions it is known as qualified acceptance.
Differences between Bill of exchange And Promissory note :
1. Nature: A promissory note contains an unconditional promise by the maker to pay a certain sum of money.
A Bill of exchange contains an unconditional order to the drawee to pay a certain sum of money.
2. Parties: There are two parties to a promissory note – the maker and the payee.
There are three parties to a bill of exchange the drawer, drawer & payee.
3. Acceptance: A promissory note doesn’t need any acceptance.
It may require acceptance of the drawee to be a valid document.
4. Liability: The liability of the drawer of a promissory note is primary and absolute.
The liability of the drawer of the bill of exchange is secondary and conditional upon nonpayment by the drawee.
5. Payee: The maker of a promissory note cannot be the payee.
The maker of this bill can be the payee.
6. Drawing in sets: Promissory note is not drawn in sets.
It may be drawn in sets.
What is Bill in Sets?
Foreign bills are generally drawn in sets of three. Each part is called a Via and they are sent separately to the Drawee. This sometimes avoids miscarriage and delays in transit.
Frequently Questions And Answers :
1. Who is the drawer of the Bill of exchange?
Ans: The maker of Bill is known as a drawer.
2. Who can issue a bill of exchange?
Ans: The maker or drawer can issue a bill of exchange.
3. Is a cheque is a bill of exchange?
Ans: A cheque is not a Bill of exchange.
4. Is DD a bill of exchange?
Ans: Yes, DD is a bill of exchange.
5. Who is a payee?
Ans: A payee is that person to whom the bill is written out.