Bill of exchange is a type of an agreement or a document where one party needs to pay a definite amount to another party on a fixed date or on demand by the parties. It is a type of binding agreement upon the parties. It is mainly used in international trade by the exporters and importers for the international transactions. According to the Negotiable Instrument Act 1881 “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”.
CLASSIFICATION OF BILLS OF EXCHANGE:
The bill of exchange is divided into various types. The classifications as stated are as follows:
- Documentary Bill: It is a type of bill of exchange which is assisted by the important documents which proves the genuineness of the transactions.
- Demand Bill: This type of bill of exchange is payable on demand. There is no definite time to pay demand bill.
- Usance Bill: This bill of exchange is payable in a fixed period of time. It is a type of time-bound bill.
- Inland Bill: This type of bill of exchange is payable only in one country.
- Clean Bill: This bill of exchange is not supported by any type of documents.
- Foreign Bill: It is a type of bill of exchange which is payable outside India.
- Accommodation Bill: It is a type of bill where no conditions are imposed on it during its acceptance.
- Trade Bill: A bill which is related to trade.
- Supply Bill: A bill which is taken back by the supplier from the government.
PARTIES TO BILL OF EXCHANGE:
The three main parties involved in bill of exchange are as stated below;
- Drawee: The party which pays the amount as stated in the bill of exchange is known as drawee.
- Drawer: The party which issues the instrument for bill of exchange is known as drawer.
- Payee: The party to whom the drawee pays the amount as stated in the bill of exchange is known as payee.
PROVISION OF BILL OF EXCHANGE:
Section 22 of the Companies Act, 2013 deals with the execution of bills of exchange.
Section 22 of the Companies Act, 2013 states that:
- A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a company if made, accepted, drawn, or endorsed in the name of, or on behalf of or on account of, the company by any person acting under its authority, express or implied.
- A company may, by writing 1[under its common seal, if any,] authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.
Provided that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.
- A deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it were made under its common seal.
In other words we can say that a bill of exchange, hundi etc have been made or accepted by the person who is authorized to do so, on behalf of the company. A company can authorize in writing to any person to execute the deeds on behalf of it either in India or outside India. When an authorized person signs the deed, it becomes binding on the company.
- F. Nanak Chand Ramkishan Das And vs. Lal Chand Ganeshi Lal And Ors. on 8 January, 1958: In this case, it was held that where the holder of the bill does not present the instrument acceptance when it was payable on demand but presents the same for payment to the drawee and if the drawee makes the default in payment, then section 93 of Negotiable Instrument Act will not be applied as the bill of exchange will be considered as dishonoured by non-payment under section 92 when the default is made by its acceptor.
- Palaniappa Chetty vs. Arunachellam Chetty And Ors on 7th March, 1911: In this case, it was held that the hundi or bill of exchange given for debt will be considered for conditional discharge rather than unconditional discharge.
- Virgo Steels vs Bank Of Rajasthan Ltd. & Others on 29 July, 1997: In this case that the drawer of bill of exchange under Negotiable Instrument Actwill be liable to compensate the holder in case of dishonour or default by the drawee. Here, the drawer and drawee were jointly liable to the bank of rajasthan ltd.
A bill of exchange is an instrument or a tool of debt. It is a type of negotiable instrument which must be in writing and must be duly signed and stamped. Here one party needs to pay a fixed amount as stated in the agreement to the other party on a fixed date or on demand by the parties. It can be endorsed, withdrawn or discounted but subsequently the liability will be on the drawee. It acts as an assurance for the seller in case of future transactions. It helps in giving exporters the protection that they need for the risks involved in exporting. The exporters are protected from exchange rate fluctuations as they are paid the fixed amount as stated in the bill of exchange. So it is an important tool given in case of a debt by the parties and ensures the security of payment for the other party.
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