ill of Exchange is one of the important negotiable instruments in the mercantile world and used as a vital document facilitating

settlement of payments between buyer/importer and seller/exporter at home and abroad. A bill when accepted by the drawee, gives evidence of the claim as made by the drawer as well as testimony to the acceptance of the debt by the drawee. The payment is done either in accordance with the terms of sale -contract or under a letter of credit opened by the buyer/importer in favour of the seller exporter.

Definition of Bill of Exchange

Simply speaking, a bill of exchange is a written order for the payment of a certain sum of money unconditionally. The Negotiable Instruments Act. 1881 governs the rights and obligations of different parties in a contract arising out of bill of exchange. Section 5 of the N.I. Act (hereinafter termed as Act) defines: A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at a fixed determinable future time a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument. On analysis of the definition, the essential elements/requisites of a bill of exchange may be observed as follows:1. 2. 3. 4. 5. 6. 7. 8. It must be in writing. It must contain an order to pay on demand or at fixed or determinable future time. The order must be an unconditional one It must be signed by the drawer The drawee must be certain. The sum payable must be certain The instrument must contain an order to pay a certain sum. The payee must be certain

Parties in Bill of Exchange

1) The Drawer: The drawer is the person to whom debt is due. He is the maker of the bill.

2)

The Drawee: The drawee is the person who is directed to pay the amount of the bill. He is to accept the bill of exchange to make it a legal one and he is not liable until and unless he has accepted it.

3)

The payee: The payee is the person to whom or to whose order the amount of the instrument is payable.

But the number of involved parties may some time rise to five: drawer, drawee, payee, acceptor and endorser(s).

Important types of Bill of Exchange 1) As to Tenor of payment:

i) ii) Demand/Sight Bill Time/Usance Bill

i)

Demand/Sight Bill: A bill is said to be demand bill which is payable on demand or at sight or on presentation (Section 21 of N.I. Act, 1881) and when no time for payment is specified in it (section 19). The word at sight or on presentment mean that the bill is payable on demand. It may be presented to the drawee at any time. Demand bill is also called D.P. Bill i.e., Document against payment.
Time/Usance Bill: A bill is said to be time bill which is payable at a determinable future time. It is also termed as D.A Bill i.e. Document against acceptance. In D.A. Bill, the documents of the bill are delivered to the drawee of the bill on acceptance and payment is made afterwards as per terms of the bill by the drawee. Usance bill must be diarised.

ii)

2)

As to Origin: i) ii) Inland Bill Foreign Bill

i)

An Inland Bill or instrument is defined as a promissory note, bill of exchange or cheque drawn or made in Bangladesh and made payable in or drawn upon any person resident in Bangladesh shall be deemed to be an inland instrument (Section 11 of N.I. Act as adopted in Bangladesh). Thus, it appears that an inland bill is one which is both drawn and payable within the same country. Foreign Bill: Any such bill/instrument not so drawn (Section 12 of N.I. Act) or made payable shall be deemed to be foreign bill. For example, a bill drawn in Bangladesh but accepted in England or vice versa is a foreign bill.

ii)

3)

Domiciled Bill Where a certain place for payment is mentioned in a bill other than abode of acceptor.

Nature of Foreign Bill of Exchange:

According to Section 12 of the Act, foreign bills are those which are not inland bills of exchange. Inland bill of exchange is drawn or made in Bangladesh. Therefore, Foreign Bill of Exchange may be of the following categories:1)
2)

Bills drawn in foreign country on a Bangladeshi Importer and made payable in Bangladesh (Import Bill).
Bills drawn in Bangladesh on an overseas buyer and made payable in a foreign country (Export Bill)

3)

Bills drawn as well as made payable in the foreign country. Bills of this type may be found usually in the multilateral trade.

Drawing of Foreign Bill of Exchange:

While drawing a foreign bill of exchange, the following points should be carefully followed:1)
2) 3) 4) 5) 6) 7)

It should be drawn by the party specified in the letter of credit.

It should be drawn with order of exporters bank. Its tenor must be in conformity with that stipulated in the L/C It should be drawn within the amount for which the credit has been opened. Its amount must be identical with that of invoice. The amount in figures must correspond with that in words. It should be superscribed with the words Drawn under L/C. No . dated .. of bank. It must be dated and signed. All corrections should be signed in full and not initialled. A foreign bill is generally drawn in sets of three. Any of three sets, if paid for, the rest become inoperative.

8) 9) 10)

Maturity/Due date of a bill and grace period (for usance bills): Due date of a bill is one on which the same becomes payable. 3 (three) days are added to the period of payment in case of bill payable in future, unless otherwise provided in the bill. These three days are

known as days of grace and the bill becomes payable on the last day of grace. No days of grace are allowed in case of a bill payable on demand at a certain fixed date.

The maturity in case of after sight bill will be counted from the date of presentation or sighting of the bill by the drawee while this will be from the date of drawing in case after date bill.

Presentation of Bills:

1)

A bill of exchange payable after sight. The presenting bank must make presentation for payment without delay. In the case of documents payable at a tenor other than sight, the presenting bank must, where acceptance is called for, make presentation for acceptance without delay, and where payment is called for, make presentation for payment not later than the appropriate maturity date.
For payment: It means that a bill is presented for payment to the maker, acceptor or drawee by or on behalf of the holder of bill on due date. In default of such presentation, the drawee and other parties there to will not be liable to the holder. Here, of course, the acceptor is not discharged if the bill is not presented to him for payment.

2)

Dishonour of a Bills:

A bill may be dishonoured either by

a) b) Non acceptance or Non payment

In case of above dishonour by non acceptance the holder gets an immediate right of recource against the drawer or endorser provided the fact of dishonour has been duly notified to them.

But in case of dishonour by non payment, the drawee is liable, as by his acceptance, he has already become a party to the bill.

Noting and Protest: When a bill or negotiable instrument is dishonoured, the holder presents the bill to Notary Public for noting, which is nothing but the fact of dishonour of the bill etc. as recorded by Notary Public who usually presents the same bill/instrument to the drawee/acceptor for acceptance/payment. If it is again dishonoured, the N/p notes down in the register the date of such dishonour and reason thereof, if any, given by drawee/acceptor for doing so. The holder may get such dishonour noted by N/P on the bill or upon a paper attached to it.

The Notary Public (N/P) after noting the fact of dishonour in his register, issues a formal certificate in this matter to the holder and this certificate is known as Protest which acts as an evidence of dishonour of a bill in the Court of Law.
In the case of inland bill, noting alone is enough whereas both noting and protest are required in case of dishonour of a foreign bill of exchange. Protest is made only when it is required by law of the place where it is drawn.

Discounting and Purchasing of Bills (usance bill/documentary bill)

Discounting and Purchasing of bill is one of the profitable investment of a bankers fund. By discounting, a banker not only earns discount and collection charge, but
5

also interest so long as the bill remains unpaid. Banks usually finance the exporters by purchasing documentary bill (demand/sight bill) and pay the proceeds of the bill to the exporters and discount bill if the same is an usance bill. Bankers should see while discounting:
1) 2) 3) 4) 5) 6) Solvency of the parties Total number of bills accepted by the present acceptor, discounted by holders in the banks. Whether the bill for discounting is a genuine one. Whether the bill is capable of being endorsed. Whether the bill is complete relating to dating, stamping, signing etc. and free from any defects. Whether any bill has been dishonoured by the present acceptor.

First copy reads: Specimen of a Foreign Bill of Exchange

Stamp

4,000.00

4000.00

15, Agrabad Chittagong, Bangladesh The 1st January, 2000.

Sixty days after sight of this First of Exchange (second and third of the same tenor and date unpaid) pay M/s. Alfred & Bros. of London or order the sum of four thousand pound Sterling only for value received.
To John Taylor 60, Grand Road London. R. Kaiser