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September 27, 2013

Bill of Exchange - A Brief Introduction and Features


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Friends, in our last post we have discussed about Promissory Notes. In this post we shall learn about Bill of Exchange. A bill of exchange is an instrument in writing which contains an unconditional order to pay a certain sum of money either to himself or to the bearer. Sec. 5 of the Negotiable Instruments Act defines a bill of exchange as follows.

"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"

The bill is always drawn by a creditor on the debtor. The person who draws the bill is called the Drawer, the person on whom the bill is drawn is called Drawee and the person to whom the amount is payable is called payee.

here is the specimen of a Bill of Exchange

Characteristics of a Bill of Exchange :

The essential characteristics of bill of exchange are almost similar to that of a promissory note. The following are the essentials of a Bill of Exchange. 
  1. It must be in Writing : Like in a promissory note, a bill of exchange must also be in writing.
  2. It must contain an Order to pay : If the language of the draft does not show any order to pay, the draft will not be considered as a bill of exchange.
  3. Unconditional Order : The order must be unconditional.
  4. Signature and Acceptance : It must be signed by the drawer and accepted by drawee.
  5. Order to Pay Money : It must contain an order to pay money only. The sum payable must be written clearly and unambiguously. 
  6. Indication of the Parties : In case of a Bill of Exchange, the drawer, the drawee (and acceptor when he accepts the bill) and the payee must be indicated with reasonable certainty. Generally the drawer and the payee are the same persons.
  7. Other Formalities : The formalities relating to number, date, place and consideration, though usually found in bills are not essential. The bill may be made payable on demand.
That's all for now friends. In our next lesson we shall discuss about the differences between the Bill of Exchange and Promissory Notes. Happy reading :)

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  1. thanks for the info but i dd not understand who is Mr.Krishna he the one who has to pay the amount to Ms.Shivani?

    1. krishna- payee ( one who will get the sum)
      to shivani - drawer( one who ordered to pay)
      accepted shivani - drawee( one who hast to pay the sum )

  2. Thank you so so much. Your efforts are visible to us dear. Pls kip up the gud work. Jai Hind. Jai Bharat.

  3. Good Morning........ I request to you please post some practice sets for upcoming exams (like ibps po ,clerk ) so that we can increase our confidence level...... Thank you very much...

  4. U have drawer and payee generaly same clear this with image and arrow mark which shows drawer and drawee and payee

  5. thanxxx a lot, its very helpful


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