The document used by bankers, traders, industrialists and other people for the settlement of business transactions is called bills of exchange. It is an unconditional order in writing, which contains the acceptance of debtor for the payment of certain amount to the creditor at fixed future time. This bill is returned to creditor after the acceptance that asks for the payment at maturity by presenting it to the debtor.
DEFINITIONS:
- “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, on demand or at a fixed future time”.
(Sec. 5 of Negotiable Instrument Act 1881)
, (ii) In other words “Bills of exchange is a document, which contains the order of creditor or seller for debtor or buyer to pay a certain sum of money to or to a certain person “.
Main Points of Definition
- An instrument in writing.
- Contains an unconditional order.
- Given by creditor or seller to debtor or buyer.
- For the payment of a certain sum of money.
PARTIES OF BILLS OF EXCHANGE
[MAIN PARTIES]
There are three main parties of bill.
Main Parties of B/E
Drawer Drawee Payee
- Drawer:
The party who draws the bill is called “Drawer” or the “Maker”.
- Drawee:
The party tu whom the bill is addressed or on whom the bill is drawn.
- Payee:
The party to whom the bill is made payable. It may be drawer or any other party.
[OTHER PARTIES]
There may be following other parties of a B/E:
, Other Parties of B/E
Accetpor Endorser Endorsee
- Acceptor:
He is a person who accepts the bill. Often the drawee accepts the bill but if any other party accepts the bill on the behalf of drawee for the payment of bill on due date then this party is considered as ’’Acceptor”.
- Endorser:
He is a person who transfers the rights to receive the amount of bill to any other party. It may be drawer or endorsee.
- Endorsee:
He is a person to whom the rights to receive the amount of bill has been transferred.
WORKING OF BILLS OF EXCHANGE
The working of bills of exchange can be explained with the help of an example. Suppose, Imran sells goods for the value of Rs. 5,000/- to Asad. It means Asad is the debtor of Iman. So, to avoid risk, Imran will draw a bill for Rs. 5,000/- on Asad and forward the same to him together with the goods with instructions to Asad to accept the bill and return the same to Imran. Upon receipt of bill, Asad would write on the face ’’Accepted” and put his signatures below. The bill is thus completed and comes back to Imran and remains in his possession till maturity or can be endorsed and discounted by him. On due date, the holder of bill presents it before the acceptor and receives the payment of bill.