Bills of Exchange
A bill of exchange as, "an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a sum of money only to or to the order of a certain person or to the bearer of the instrument." A bill of exchange is also called a draft.
There are three parties to a bill of exchange namely:
a)      Drawer
b)      Drawee and
c)       Payee
Drawer is the maker of the bill of exchange. A seller/creditor that is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor.
Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn.
A payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment.
Features of bills of exchange:
a.       A bill of exchange must be in writing.
b.      It is an order to make payment.
c.       The order to make payment is unconditional.
d.      The maker of the bill of exchange must sign it.
e.      The payment to be made must be certain.
f.        The date on which payment is made must also be certain.
g.       The bill of exchange must be payable to a certain person.
h.      The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.
i.         It must be stamped as per the requirement of law.
Advantages of bill of exchange:
a)      Framework for relationship: A bill of exchange represents a device, which provides a framework for enabling the credit transaction between the seller/creditor and buyer/debtor on an agreed basis.
b)      Certainty of terms and conditions: The creditor knows the time when he would receive the money so also debtor is fully aware of the date by which he has to pay the money.
c)       Convenient means of credit: A bill of exchange enables the buyer to buy the goods on credit and pay after the period of credit.
d)      Conclusive proof: The bill of exchange is a legal evidence of a credit transaction implying thereby that during the course of trade buyer has obtained credit from the seller of the goods; therefore, he is liable to pay to the seller.
e)      Easy transferability: A debt can be settled by transferring a bill of exchange through endorsement and delivery.

Promissory Note
A Promissory note is defined as an instrument in writing, containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument.
Features of Promissory note are
a)      It must be in writing.
b)      It must contain an unconditional promise to pay.
c)       The sum payable must be certain.
d)      It must be signed by the maker.
e)      The maker must sign it.
f)       It must be payable to a certain person.
g)      It should be properly stamped.

Specimen of bill of exchange and promissory note
a) Bill of Exchange
Mr. X
April 01,2010
Three months after date pay to me or my order, the sum of rupees Fifty Thousand only, for value received.
Mr. Y
Dibrugarh, Assam
Mr. X
Tinsukia, Assam

Mr. Y
Dibrugarh, Assam

b) Promissory Note
Mr. X
April 01,2010
Three months after date I promise to pay Mr. Y or order a sum of Rupees Fifty Thousand only for value received.

Mr. Y
Dibrugarh, Assam
Mr. X
Tinsukia, Assam
Difference between bills of exchange and Promissory Note
Bill of Exchange
Promissory Note
It is drawn by the creditor
It is drawn by the debtor
Order or Promise
It contains an order to make payment. There can be three parties to it, viz. the drawer, the Drawee and the payee.
It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.
It requires acceptance by the Drawee or someone else on his behalf.
It does not require any acceptance.
Drawer and payee can be the same party
Drawer cannot be the payee of it
A bill of exchange can be drawn in sets.
Promissory note cannot be drawn in sets.
In case of its dishonour due notice of dishonour is to be given by the holder to the drawer
No notice needs to be given in case of its dishonour

Difference between Trade Bill and Accommodation Bill
Trade Bill
Accommodation Bill
There are drawn for trade purposes.
These are drawn and accepted for financial assistance.
These are drawn against proper consideration.
These are drawn in the absence of any consideration.
These bills are proof of debt.
These bills are not a proof of debt.
Legal action
For obtaining the debt from Drawee, Drawee can resort to legal action.
Legal action cannot be resorted the recovery of amount against these bills by the immediate parties.

Difference between cheque and bill of exchange
Bills of Exchange
A cheque is always drawn on a bank or banker.
A bill of exchange can be drawn on any person including a banker.
A cheque does not require any acceptance.
A bill must be accepted before the Drawee can be made liable upon it.
A cheque is payable immediately on demand without any days of grace.
A bill of exchange is normally entitled to three days of grace unless it is payable on demand.

A cheque does not require any stamp.

A bill of exchange must be stamped.
A banker is given statutory protection with regard to payment of cheques in certain circumstances.
No such protection is available to the Drawee or acceptor of a bill of exchange.

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Difference between discounting and retiring of bill of exchange
There are some difference between Discounting and Retiring as given below:
a)      It is the process of selling the bill to the bank or anyone else before the due date.
b)      The reduction made by the bank is called discount.
c)       Discount is a loss to the person who discounts the bill and a gain to the bank.
a)      It is the process of paying the amount of the bill before due date.
b)      The concession allowed to the acceptor is called rebate.
c)       Rebate is a loss to the payee and a gain to the acceptor.

Dishonour of a Cheque
Cheque is ordinarily paid by the drawee bank if it is in perfect order. But sometimes a cheque is not paid. When a cheque is paid by the drawee bank, it is said to be honoured. When it is not paid it is said to be dishonoured.
In the Following cases the bank may dishonour a cheque
a)      When the customer has died and the bank has notice of his death.
b)      Where the customer has become insolvent or an order of adjudication has been passed against him.
c)       When the bank has received an order from the court prohibiting payment out of the funds belonging to the customer.
d)      When a customer becomes a lunatic and the banker has got notice of his insanity.
e)      Where the drawer countermands payment.
f)       When the customer has not got sufficient funds with the bank and there is no overdraft arrangement.
g)      Where there are material alterations or signatures of the drawer or endorses are irregular.
h)      When the drawer has closed his account prior to the presentation of cheque.
i)        When a cheque is mutilated.

Endorsement is the act of signing a cheque for the purpose of transferring it to somebody else. Under Negotiable Instruments Act it means the writing of one’s name on the back of the instrument or any paper attached to it with the intention of transferring the rights therein.
 A bearer cheque can be transferred by mere delivery but an order cheque is transferred by endorsement and delivery. Endorsements are usually made on the back of the cheque, though they can be made on its face as well. If, however, no space is left on the instrument, it may be made on a separate paper attached to it.
Endorsements are of various kinds, the most important being as follow:
a)      Blank or general endorsement: A blank or general endorsement is one in which the endorser simply puts down his signature. The name of the endorsee, it should be noticed is not put down. The effect of such an endorsement is to make the cheque a bearer cheque. The property in the cheque can now be transferred by mere delivery, no endorsement being required. Thus an order cheque can be made a bearer cheque by putting down a blank endorsement.
b)      Special endorsement: Special or full endorsement is that which contains not only the name of the endorser but also the name of the endorsee. The effect of special endorsement is that the endorsee must endorse it again if he wants to transfer the property in the cheque to somebody else.
c)       Restrictive endorsement: When an endorsement restricts the negotiability or transferability of proprietorship of a cheque, it is known as restrictive endorsement.
d)      Partial endorsement: A partial endorsement is one which means to transfer the cheque only for a part of its value. For instance a cheque for Rs. 500 may be endorsed only for Rs.300. Legally such an endorsement is invalid.

Maturity of Bill
The term maturity refers the date on which a bill of exchange or a promissory note becomes due for payment. In arriving at the maturity date three days, known as day of grace, must be added to the date on which the period of credit expires instrument is payable.
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