Bill of Exchange

Section 5 of the Negotiable Instruments Act, 1881 defines, “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”.

A bill of exchange, as a result, is a written acknowledgement of debt, written by the creditor & accepted by debtor. There are generally 3 parties to a bill of exchange drawer, acceptor, or drawee & payee. Drawer himself can perhaps be the payee.

Essential conditions of bills of exchange

1. It must be in writing.
2. It must be signed by drawer.
3. The drawee, drawer, & payee must be definite.
4. The sum payable must also be definite.
5. It should be appropriately stamped.
6. It must enclose an express order to pay money & money alone.
7. The order must be unconditional.

Classification of Bills

Bills can be classified as:

1. Inland & foreign bills
2. Time & demand bills
3. Trade and accommodation bills.

(1) Inland & Foreign Bills

Inland bill: A bill is, named as an inland bill if:

(a) it is drawn in India on a person dwelling in India, whether payable outside or in India, or

(b) it is drawn in India on a person dwelling outside India but payable in India.

Foreign Bill

Following are the foreign bills:

1. A bill drawn outside India & made payable in India
2. A bill drawn outside India on any person dwelling outside India
3. A bill drawn in India on a person residing outside India & made payable outside India
4. A bill drawn outside India on a person dwelling in India
5. A bill drawn outside India & made payable outside India

(2) Time and Demand Bill

Time bill: A bill payable after a fixed time is a time bill.

Demand bill: A bill payable on demand or at sight is a demand bill.

(3) Trade & Accommodation Bill Trade bill

Trade bill: A bill drawn & accepted for an authentic trade transaction is a “trade bill”.

Accommodation bill: A bill drawn & accepted not for an authentic trade transaction but only to endow with financial help to some party is an “accommodation bill”.

Source: http://www.ddegjust.ac.in/