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What are Bills of Exchange?

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 amount of money only to, or to the order of, a certain person or to the bearer of the instrument.

A promise or order to pay is not "conditional", by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

The sum payable can be "certain", although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due.

The person to whom the direction is given or that payment is to be made may be a “certain person”, within the meaning of this section and section 4, although he is misnamed or designated by description only.

Parties to a Bill of Exchange

There are three parties involved in a bill of exchange. Such as;

The Drawee

He in the person to whom the order to pay is made. He is generally a debtor of the drawer.

The Drawer

He is the person who makes the order for making payment

The Payee

He is the person to whom the payment is to be made. The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order. In a bill where a time period is mentioned, a bill may be made payable on demand also, it is called a Demand Bill.

Features of a bill of exchange

Following are the various features of a bill of exchange.

  • A bill should be in writing, duly signed by its drawer, accepted by its drawee and properly stamped as per Indian Stamp Act.
  • It should contain an order to pay. Words like ‘please pay Rs 5,000/- on demand and oblige’ are not used.
  • The order should be to pay money and money alone.
  • The sum payable mentioned should be certain or capable of being made certain.
  • The parties to a bill should be certain.
  • The order should be unconditional.
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