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
- It must be in writing.
- It must be signed by drawer.
- The drawee, drawer, & payee must be definite.
- The sum payable must also be definite.
- It should be appropriately stamped.
- It must enclose an express order to pay money & money alone.
- The order must be unconditional.
Classification of Bills
Bills can be classified as:
- Inland & foreign bills
- Time & demand bills
- 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.
Following are the foreign bills:
- A bill drawn outside India & made payable in India
- A bill drawn outside India on any person dwelling outside India
- A bill drawn in India on a person residing outside India & made payable outside India
- A bill drawn outside India on a person dwelling in India
- 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”.