Bill of Exchange

What is Bill of Exchange?

A bill of exchange is defined as 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. – Negotiable Instruments Act, 1881

Bill of exchange is an instrument ordering the debtor to pay a certain amount within a stipulated period of time. Bill of exchange needs to be accepted in order to call it valid or applicable. And the bill of exchange is issued by the creditor.

Promissory Note, on the other hand, is a promise to pay a certain amount of money within a stipulated period of time. And the promissory note is issued by the debtor.

Example of Bill of Exchange

  1. ‘A’ wrote and signed an instrument ordering ‘B’ to pay Rs 500 to ‘C’ this is a bill of exchange.

  2. ‘On-demand pay to ‘A’ or order the sum of Rs. 500 for value received’.

Features of Bill of Exchange

The following are the features of bill of exchange:

  1. It is an order to make payment.

  2. The order to make payment is unconditional.

  3. The maker of the bill of exchange must sign it.

  4. The payment to be made must be certain.

  5. The date on which payment is made must also be certain.

  6. The bill of exchange must be payable to a certain person.

  7. The amount mentioned in the bill of exchange is payable either on-demand or on the expiry of a fixed period of time.

  8. It must be stamped as per the requirement of law.

Bill of Exchange Parties

  • Drawer: The person who draws or makes the bill.

  • Drawee: The person on whom the bill is drawn or person who accepts the bill of exchange.

  • Payee: The person to whom the money is to be paid or a person receiving payment.

Business Law Notes

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Business Law Book References

  1. Goel, P. K. (2006). “Business Law for Managers” Wiley
  2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
  3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

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