A bill of exchange, according to Section 5 of NI Act, is an instrument that is:
  • in writing;
  • containing an unconditional order;
  • ordering a certain person called drawee;
  • to pay certain money only;
  • ordering payment to certain person or to the order of certain person or to the bearer of  the   instrument.

A bill of exchange has three parties:
  • the drawer or maker,
  • the drawee, and
  • the payee.

The drawer gives an unconditional order, directing a certain person obviously other than himself – the drawee – to pay a certain sum. The drawee becomes liable upon his accepting the bill. If the drawee refuses to accept the bill, the holder of the bill can proceed against the drawer as a surety.

1.1 Different Types of Bills

Inland Bill: Drawn in India on a person residing in India whether payable in or outside India.

·         Bill is drawn by a merchant in Delhi on a merchant in Kolkata. It is payable in Mumbai.
·         Bill is drawn by a merchant in Kolkata on a merchant residing in Delhi. It is accepted for payment in Japan.
·         Bill is drawn in India on a person residing outside India payable in India.
·         Bill is drawn by a merchant in Delhi on a person in London but is made payable in India.

Foreign Bill: A bill that is not an inland bill is a foreign bill.

Demand Bill: Payable ‘on demand’, ‘at sight’, ‘on presentment’, or ‘when no time for payment is specified in bill’. Technically, a demand bill need not be presented for payment but banks usually present them for payment as a matter of practice.

Usance Bill: Contains an expression making it payable on the expiration of a certain period ‘after date’ or ‘after sight’. Here the word ‘date’ in the ‘after date’ refers to the date of the bill. ‘After sight’ means ‘after acceptance’, ‘noting for non-acceptance’, or ‘protest for non-acceptance’. ‘After sight’ or ‘on presentment’ bills must be presented before payment can be demanded.

Trade Bill: Drawn and accepted for a genuine trade transaction.

Accommodation Bill: Drawn and accepted, but not backed by genuine trade transactions.

Documentary Bill: A bill to which documents relating to goods are attached.

Hundi: It is a bill of exchange written in Hindustani languages. Incidentally, all the provisions applicable to the Negotiable Instruments Act apply to hundis, unless there is a local usage to the contrary. The difference between a bill of exchange and hundi is that a bill of exchange may include a hundi, but a hundi does not include a bill of exchange. Hundis are not accompanied by documents of title.A bill of exchange

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