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Ills of Xchange: Bill of Exchange, Also Called Draft or Draught, Is A Short-Term Negotiable Financial

The document discusses bills of exchange, which originated as a method for settling international trade accounts. A bill of exchange is a financial instrument containing an order to pay a specified sum of money to a designated person. It requires three parties: a drawer who issues the order, a drawee who is ordered to pay, and a payee to whom payment is due. The UN Convention on International Bills of Exchange and International Promissory Notes established uniform rules to facilitate international commerce using these instruments.

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112 views

Ills of Xchange: Bill of Exchange, Also Called Draft or Draught, Is A Short-Term Negotiable Financial

The document discusses bills of exchange, which originated as a method for settling international trade accounts. A bill of exchange is a financial instrument containing an order to pay a specified sum of money to a designated person. It requires three parties: a drawer who issues the order, a drawee who is ordered to pay, and a payee to whom payment is due. The UN Convention on International Bills of Exchange and International Promissory Notes established uniform rules to facilitate international commerce using these instruments.

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yashovardhan singh
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BILLS OF EXCHANGE

INTRODUCTION

Bill of Exchange, also called draft or draught, is a short-term negotiable financial


instrument consisting of an order in writing addressed by one person (the seller of
goods) to another (the buyer) requiring the latter to pay on demand or at a fixed or
determinable future time, a certain sum of money to a specified person or to the
bearer of the bill.
The bill of exchange originated as a method of settling accounts in international trade.
Arab merchants used a similar instrument as early as the 8th century AD, and the bill
in its present form attained wide use during the 13th century among the Lombards of
northern Italy, who carried on considerable foreign commerce. Because merchants
(the buyers) usually retained their assets in banks in a number of trading cities, a
shipper of goods (the seller) could obtain immediate payment from a banker by
presenting a bill of exchange signed by the buyer (who, in doing so, had accepted
liability for payment when due).
The Negotiable Instruments Act, 1881, in Section 5 defines a bill of exchange as “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.” A bill of exchange is essentially an
order made by one person to another to pay money to a third person. A bill of
exchange requires in its inception three parties – the drawer, the drawee, and the
payee. The person who draws the bill is called the drawer. He gives the order to pay
money to a third party. The party upon whom the bill is drawn is called the drawee.
He is the person to whom the bill is addressed and who is ordered to pay. He becomes
an acceptor when he indicates his willingness to pay the bill. The party in whose
favour the bill is drawn or is payable is called the payee.
Meaning of Bill of Exchange, according to the Dictionary of International Trade
(Global Negotiator): An unconditional order in writing, signed by a creditor (drawer)
such as a buyer, and addressed to another person (drawee), typically a bank, ordering
the drawee to pay a stated sum of money to yet another person (payee), often a seller,
on demand or at a fixed or determinable future time. The most common version of
bills of exchange are: A draft, wherein the drawer instructs the drawee to pay a certain
amount to a named person, usually in payment for the transfer of goods or services.
Sight drafts are payable when presented, and time drafts are payable at future fixed
date or determinable time.
Exporting often involves a unique set of risks that may be unfamiliar to business who
are used to trading domestically. Separate laws and customs between states, combines
with longer and more complex transport routes and methods, can make exporting a lot
more difficult than trading within a country. A bill of exchange helps to counter some
of the risks involved with exporting. To facilitate international trade and have uniform
international law on bills of exchange, the United Nations Commission on
International Trade Law (UNCITRAL) has enacted the United Nations Convention on
International Bills of Exchange and International Promissory Notes for optional use in
international transactions.

2
RESEARCH QUESTIONS

Q1. How the Bills of Exchange came into being and how they evolved to their
modern form?
Q2. What are the laws governing Bills of Exchange in India?
Q3. How are Bills of Exchange distinct from other negotiable instruments?
Q4. What is the importance of Bills of Exchange in the international world of
commerce?
Q5. What are the rules and regulations governing Bills of Exchange in the
international community of commerce?

3
RESEARCH OBJECTIVES
1. To have a thorough understanding of the concept of Bills of Exchange and
trace its evolution.
2. To understand Indian laws regarding Bills of exchange.
3. To understand the international importance of Bills of Exchange and find out
about the efforts made by different organisations to frame and implement
uniform rules governing Bills of Exchange throughout the world.

4
TENTATIVE CHAPTERISATION

1. Acknowledgement
2. Introduction
3. History and evolution of Bills of Exchange
4. Bills of Exchange in Indian law
5. Distinction between Bills of Exchange and other Negotiable Instruments
6. United Nations Convention on International Bills of Exchange and
International Promissory Notes
7. Conclusion
8. Bibliography

5
LITERATURE SURVEY

 Halsbury’s Laws of India, Volume 4, Butterworths India.


The book deals with the Indian law governing Bills of Exchange and other
negotiable instruments. Relevant case laws regarding clarification of points of
dispute have also been dealt with.

 Bhashyam & Adiga’s, The Negotiable Instruments Act, Bharat Law


House.
Bills of Exchange have been thoroughly dealt with in this book at Page 105,
with all the essential elements discussed separately with case laws.

 The United Nations Convention on International Bills of Exchange and


International Promissory Notes.
It was adopted by the General Assembly of the United Nations under the
recommendation of the Sixth (Legal) Committee on 9 December 1988. The
Convention presents, for optional use in international transactions, a modern,
comprehensive set of rules for international bills of exchange and international
promissory notes that satisfy its requisites of form.

 Bills of Exchange by A. M. Keiley, the Virginia Law Register, Vol. 2, No.


6 (Jun 1900) pp. 73-76, Virginia Law Review.
The article traces the history of bills of exchange from clay tablets recovered
by archaeologists to its modern form established in Europe, which became a
mighty pillar of commerce of nations.

 The UN Convention on International Bills of Exchange and International


Notes with Some Comparisons with the Former and Revised Article
Three of the UCC by D. E. Murray, The University of Miami Inter-
American Law Review, Vol. 25, No. 2 (Winter, 1993/1994) pp. 189-225,
University of Miami Inter-American Law Review
The article analyses the provisions and essentials of bills of exchange
according to the UN Convention on International Bills of Exchange and
International Promissory Notes.

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