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Bill of Exchange

14-NOV-2014 11:33

    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/

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