Q.6 Describe the bill of exchange and its parties:
Ans. BILL OF EXCHANGE
According to Section 5 of the Negotiable Instruments Act, 1881
“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”.
Following are the main requirements of bill of exchange.
1. IN WRITING
A bill of exchange must be in writing. It cannot be oral. But the law prescribes no any particular language.
2. AN ORDER
A bill of exchanger should be framed in such manner that it may not be treated, as a required should be an order.
The order to pay must be unconditional. If the payment were conditional then it would be a bill.
4. SIGNATURE OF THE MAKER
The maker must sign it. A bill is not valued unless the drawer signs it.
5. NOMINATION OF THE DRAWEE
It is essential that the drawee should be named or indicated with reasonable certainty.
6. TIME PERIOD
The sum of money should be payable on demand at a fixed date or on some future date.
7. PAYEE MUST CERTAIN
The payee should be indicated on the face of the bill of exchange, if the bill is not payable to the bearer.
8. CERTAIN SUM OF MONEY
The bill must contain the direction for the payment and sum must be certain with the explanation of rate of interest.
It requires acceptance if it is not a sight bill.
PARTIES INVOLVED IN THE SILL OF EXCHANGE
(A) MAJOR OR MAIN PARTIES
Following are the main parties to a bill:
The party that draws the bill of exchange is called the drawer /maker
The party on which the bill of exchange is drawn or the party to whom the bill of exchange is addressed is called the drawee.
The party to whom the bill of exchange is to be paid is called the payee. Usually the drawer is the payee, but any other party can also receive th4e payment of the bill.
(B) COLLATERAL PARTIES
Following are the collateral parties to a bill:
The party that accepts the bill of exchange is known as acceptor. This party signs and may write the word “accepted” on the bill. Usually, the drawee is the acceptor, but any other party (no matter it is directly related to the bill or not) can also become the acceptor of the bill.
The party that transfers the hill of exchange to another party by singing the back of bill of exchange is called endorser.
The party to whom the bill of exchange is transferred is known as endorsee.
SIGHT BILL OF ENCHANGE
A bill ordering payment on demand or at sight is called sight bill.
A bill ordering payment after a period of time specified on it is called time bill.
If the bill is fully supported by documents for payments is called documentary bill or secured bill.
If no security is provided with the bill, is called Clean Bill.
INLAND BILL OF EXCHANGE
In land bills are those, which are drawn and payable within the country.
FORIGN BILL OF EXCHANGE
Foreign bills are those, which arise out o trade transactions between different parties in different countries.
IMPORTANCE OF BILL OF EXCHANGE
Bills of exchange are rendering benefits in the following issues:
(1) ECONOMIC DEVELOPMENT
National and international credit transactions can be made easy by usi8ng bills of exchange. This encourages the local and foreign trade and hence results in the economic development of the country.
Bills of exchange are considers as a very convenient way of investing liquid funds. A trader can run and expand his business even with a less capital along with using bills of exchange.
(3) TRANSFER OF MONEY
Money can be transferred from one place to another at low cost and in a safer way through bill of exchange.
When commercial banks need to come over their financial lacks they rediscount the bills of exchange with the central bank.
(5,) EXPANSION OF BANKING
Banks do not make payments of discounting of bills in the form of cash; rather they open accounts and transfer the money into these accounts then the bill-holders get their money by using cheques. In this way an increase in the number of accounts occurs, which is a strong tool for the expansion of banking business.
(6) SOURCE OF INCOME FOR BANKS
Discounting of bills of exchange is one of the important sources of income for the commercial banks, because banks discount the bills by charging interests according to the amount of the bills.
(7) INCOME FOR GOVERNMENT
A revenue stamp is needed for every bill of exchange, which is issued by the post office.
Further, discounting and rediscounting of bill is also made by paying the duty fixed by the Central Bank. In both the cases an increase in the government revenue occurs.
(8) ACCOMMODATION BILL
A person can help in financing another person by making accommodation bill of exchange.
(9) RENEWAL OF BILL
The drawer renews the bill by drawing another bill with an extended time or more than one bill allowing the acceptor to make payments in installments. In this way the acceptor feels a less burden of debt.
(10) SECURITY OF PAYMENT
Bill of exchange is a written proof of credit. If the debtor refuses to pay the amount of bill the drawer or creditor can file the cause in a court against the debtor.
The seller can sell his goods on credit an can get the amount of his time bill even before its maturity by discounting it from bank.
The buyer can get enough time for making payment by using time bill. He can arrange the payment easily even by selling the (same) goods within the defined time.
(13) PAYMENT OR RECEIPTS
Foreign and domestic payments or receipts can be made easily by using bills of exchange. It is because the transfer of money has no need to be involved in using bills. Moreover, in case of foreign hills the exporters can get their home currency at their homelands.
(14) DATE OF PAYMENT
The buyer can arrange the amount of bill within due date. Because he has a defined item thereof he can postpone his unnecessary expenditures.
(15) CERTAINTY OF PAYMENT
As the buyer accepts bill by himself, thus for the sake of maintaining reputation he arranges payment within given time, which creates certainty of payment for creditor or seller.
(16) PAYMENT OF BILL
Bill of exchange is a transferable document. Therefore, its holder can make payment through it by transferring its rights to the other person.
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