- What is a Bill of Exchange?
A bill of exchange is a written, signed order from one party (the drawer) directing another party (the drawee) to pay a specified sum of money to a third party (the payee), either on demand or at a fixed future date. - Which statute governs Bills of Exchange in India?
All provisions for bills of exchange in India are contained in the Negotiable Instruments Act, 1881—see especially Section 5 (definition) and Sections 6–18 (form, acceptance, negotiation, discharge). - Who are the core parties to a Bill of Exchange?
- Drawer: Creates and signs the bill, ordering payment.
- Drawee: Ordered to pay the amount; upon acceptance, becomes liable.
- Payee: Entitled to receive payment.
- Can a bill of exchange be transferred?
Yes. By endorsement (the endorser signs the back) the holder can negotiate the bill to an endorsee, who then becomes entitled to payment. - What is an “Acceptance”?
When the drawee signs the face of the bill (usually marked “Accepted”), they acknowledge the obligation and agree to pay at maturity. - What happens on “Dishonor” of a bill?
If the drawee refuses to accept or pay when due, the holder can formally “protest” the bill to preserve legal rights for recourse against prior parties (drawer or endorsers). - What is a “Time Bill” versus a “Demand Bill”?
- Time Bill: Payable at a specified period after date or sight (e.g., “Three months after date”).
- Demand Bill: Payable on presentation or “at sight.”
- Who is a “Holder in Due Course”?
A person who acquires the bill for value, in good faith, and without notice of defects. They have stronger rights to enforce payment against all prior parties. - How is a Bill of Exchange discharged?
Discharge can occur by:- Payment in full on or before maturity
- Written cancellation (stamping “paid” and signature)
- Waiver by holder
- Lapse of time without acceptance or payment
- What are the advantages of using a Bill of Exchange?
- Provides clear, negotiable proof of debt.
- Facilitates trade credit without immediate cash outlay.
- Can be discounted or sold to raise funds.
- Offers legal remedies in case of dishonor.
- How does a Bill of Exchange differ from a Promissory Note?
- Bill of Exchange: Involves three parties (drawer → drawee → payee).
- Promissory Note: A two-party instrument; one party (maker) promises to pay another directly.
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