Ssbm 06ni Act 1881 Lesson 6 Boe

7/27/2019 Ssbm 06ni Act 1881 Lesson 6 Boe

1/56

BILLS OF

EXCHANGE ANDPROMISSORY

NOTES 1


2/56

Bills of Exchange: It is an important

instrument and widely used in discharge of

business obligations ---- both in case ofdomestic trade and foreign trade. Some of the

provisions of the Negotiable Instruments Act

are applicable to Promissory Notes and

Cheques also in addition to Bills of Exchange.

Kinds Of Bills Of Exchange

(1) Inland and foreign bills.

(2) Time and demand bills.( 3) Trade andaccommodation bills.

(4) Clean and Documentary Bill2


3/56

3

(1) Inland and Foreign Bills

Inland Instrument: ( Sction 11 )A

negotiable instrument i.e. Bill ofexchange, Promissory Note or a

cheque drawn or made in India and

made payable in or drawn upon any

person resident in India shall be

deemed to be an inland instrument.

Thus it must satisfy following

conditions.


4/56

(a) It is drawn or made in India i.

e. drawer must be in India and

(b) It must be payable in India not

necessarily by a person residing inIndia or,

(c) It must be drawn on a person

resident in India although it is

payable outside India. 4


5/56

The following are the examples of Inland

bills :

(i) A bill is drawn by a merchant in Delhion a merchant in Madras. It is payable in

Bombay.

(ii) A bill is drawn by a Delhi merchant ona person in London, but is made payable

in India.

(iii) A bill is drawn by a merchant in Delhion a merchant in Madras. It is accepted

for payment in Japan. The bill is an

inland bill.

5


6/56

Foreign Bill:A Negotiable Instrument which is

not drawn made or made payable as provided in

sec.11 is a foreign bill (sec12). The following are foreign bills:

1. If it is drawn in India but it is made payable

outside India or is drawn on a person residing

outside India and.

2. If it is drawn outside India and is payable in

India or is drawn on any person residing outside

India and is payable in India.

3.If it is drawn in India and made payable

outside India or drawn on a person residing

outside India and is payable outside India. 6


7/56

Bills in sets (Secs. 132 and 133):

The foreign bills are generally drawn in

sets of three, and each sets is termed asa via. As soon as anyone from the set is

paid, the others become inoperative.

These bills are drawn in different parts.They are drawn in order to avoid their

loss or miscarriage during transit. Each

part is despatched separately. To avoiddelay, all the parts are sent on the same

day by different mode of conveyance.7


8/56

Rules For Bills In Sets :

1) Each part must bear the number i.e.

first of exchange, second of exchange.

2) Each part must have a reference to

the other. If omitted it will be a separate

bill.

3) Drawer to sign all parts, and

despatch. Stamp duty to be paid on only

one part.4) Drawee should accept only one and

on payment the entire bill will get

extinguished

8


9/56

5) If a person accepts and endorses

different parts in favour of different

persons,, he and endorsers of eachparts are liable on such part as if it were

a separate bill.

6) In case each part is negotiated todifferent persons, who become holders

in due course, the person who first

acquired title to his part is considered tobe the true owner and entitle to other

parts and to claim the money9


10/56

2) Time and Demand Bill:

A) A bill of exchange may be

payable on demand when it is

expressed to be payable on

demand, or at sight or onpresentment.

B) : A bill payable after a fixed time

is termed as a time bill. In otherwords, bill payable after date is a

time bill and payable after fixed

period.

10


11/56

The expression "after sight" means,

in a promissory note, after

presentment for sight, and, in a billof exchange, after acceptance, or

noting for non- acceptance, or

protest for non acceptance. The billis payable after a fixed period.

A bill may also be drawn payable

after happening of an event which

must be certain to happen,

otherwise the bill will be invalid.

11


12/56

"Maturity"-- The maturity of a

promissory note or bill of exchange is

the date at which it falls due forpayment.(sec 22)

Days of grace -- Every promissory note

or bill of exchange which is notexpressed to be payable on demand, at

sight or on presentment is at maturity on

the third day after the day on which it isexpressed to be payable. The additional

days given for payment are called days

of grace.12


13/56

Although it is not provided in the N I Act,

some drawers may draw a BOE with the

words Without grace or No daysof grace . It means that the drawee will

not enjoy the grace days. In absence of

such words all bills are treated to bepayable with days of grace.

13


14/56

Sec 23 : Calculating maturity of bill or note payable so

many months after date or sight :

In calculating the date at which a promissory note or bill of

exchange, made payable a stated number of months after

date or after sight, or after a certain event, is at maturity,

the period stated shall be held to terminate on the day of

the month which corresponds with the day on which the

instrument is dated, or presented for acceptance or sight,

or noted for non-acceptance, or protested for non-acceptance or the event happens, or, where the

instrument is a bill of exchange made payable a stated

number of months after sight and has been accepted for

honour, with the day on which it was so accepted. If themonth in which the period would terminate has no

corresponding day, the period shall be held to terminate

on the last day of such month14


15/56

Illustrations

(a) A negotiable instrument, dated 29th

January, 1878, is made payable at one monthafter date. The instrument is at maturity on the

third day after the 28th February, 1878 i.e. on

3rd Mar 1878

(b) A negotiable instrument, dated 30th August1878, is made payable three months after

date. That instrument is at maturity on the 3rd

December, 1878.

(c) A promissory note or bill of exchange,

dated 31st August 1878, is made payable

three months after date The instrument is at

maturity on the 3rd December, 1878.

15


16/56

Sec 24 : Calculating maturity of bill or note payable so

many days after date or sight ---In calculating the date at

which a promissory note or bill of exchange made payable

a certain number of days after date or after sight or aftercertain event is at maturity, the day of the date, or of

presentment for acceptance of sight, or of protest for non-

acceptance, or on which the event happens, shall be

excluded.

Sec 25 : When day of maturity is a holiday.---When the day

on which a promissory note or bill of exchange is at

maturity is a public holiday, the instrument shall be deemed

to be due on the next preceding business day.

Explanation:- The expression "public holiday" shall meanSundays and the day or days declared by the Central

Government, by notification in the official Gazette to be

public holidays. As per Home Department order State

Governments are also empowered.16


17/56

(3) Trade and Accommodation Bill :

Trade bill:A bill drawn and accepted for a

genuine trade transaction is termed as atrade bill.

Accommodation bill:A bill drawn and

accepted not for a genuine trade transaction

but only to provide financial help to someparty is termed as an accommodation bill.

Example:A, is need of money for three

months. He induces his friend B to accept abill of exchange drawn on him for Rs. 1,000

for three months. The bill is drawn and

accepted. The bill is an accommodation bill. 17


18/56

A may get the bill discounted from his bankers

immediately, paying a small sum as discount.

Thus, he can use the funds for three monthsand then just before maturity he may remit the

money to B, who will meet the bill on maturity.

In the above example A is the accommodated

party while B is the accommodating party. It is to be noted that an accommodation bill

may be for accommodation of both the drawer

and the acceptor. In such a case, they share

the proceeds of the discounted bill.

18


19/56

Rules regarding accommodation bills are:

(i) In case the party accommodated

continues to hold the bill till maturity, theaccommodating party shall not be liable to

him for payment of the bill since the

contract between them is not based on any

consideration (Section 43).

(ii) But the accommodating party shall be

liable to any subsequent holder for value

who may be knowing the exact position thatthe bill is an accommodation bill and that

the full consideration has not been received

by the acceptor.19


20/56

The accommodating party can, in turn,

claim compensation from the

accommodated party for the amount it hasbeen asked to pay the holder for value.

(iii) An accommodation bill may be

negotiated after maturity. The holder or

such a bill after maturity is in the same

position as a holder before maturity,

provided he takes it in good faith and for

value (Sec. 59). In form and all otherrespects an accommodation bill is quite

similar to an ordinary bill of exchange.20


21/56

There is nothing on the face of the

accommodation bill to distinguish it from an

ordinary trade bill.4) Clean or DocumentaryBill :

In case of genuine trade transactions when

the drawer encloses with the bill ofexchange, documents such as Railway

Receipt or Motor Transport Receipt ( i.e.

documents of title to goods) in addition to

the regular invoice. the bill is calledDocumentary bill

21


22/56

. In case of foreign trade. bill of lading (

Shipping Document ) is enclosed. Such a

bill is known as Documentary bill. Thedocument of title to goods are delivered

either against acceptance ( D/A bill ) or

payment ( D/P bill ) by the banker to the

drawee.

When no such document is attached the bill

is known as Clean Bill.

22


23/56

Sec 61: Presentment for acceptance.A bill of

exchange payable after sight must, if no time

or place is specified therein for presentment,be presented to the drawee there of for

acceptance, if he can, after reasonable

search, be found, by a person entitled to

demand acceptance, within a reasonable timeafter it is drawn, and during business hours on

a business day. In default of such

presentment, no party thereto is liable thereon

to the person making such default. If the

drawee cannot, after reasonable search, be

found, the bill is dishonoured23


24/56

If the bill is directed to the drawee at a

particular place, it must be presented at

that place; and if at the due date forpresentment he cannot, after reasonable

search, be found there, the bill is

dishonoured.[ Where authorized by agreement or

usage, a presentment through the post

office by means of a registered letter is

sufficient.]

24


25/56

Drawees time for deliberation: The

drawee may require the holder to allow him

48 hours time (exclusive of publicholiday)for considering whether he will

accept it or not. The holder is bound to

allow such time.(sec 63)

ACCEPTANCE :

When the drawee signifies his consent by

writing his name across the face of the bill

with or without the words accepted the bill

is said to have been accepted. Drawee is

called acceptor and bears the liability to pay

the amount of bill.

25


26/56

Types of acceptance:1) General

Acceptance : The acceptance is given

without any condition or qualification.2) Qualified Acceptance : Drawee

accepts the bill with any of the following

conditions.i) Happening of a particular event.

ii) Bill may be accepted partially.

iii) Bill is accepted to pay at specifiedplace and nowhere else,(other than one

mentioned in the bill).26


27/56

iv) He accepts the bill and changes the

period of its maturity.

v) A bill is drawn on more than one person,who are not partners. If all of them do not

accept it is qualified acceptance as all must

accept the bill.Effect of qualified acceptance : In qualified

acceptance the acceptor does not agree to

the drawers order and if the drawer

refuses to take qualified acceptance the bill

is treated as dishonoured by non

acceptance. 27


28/56

If the holder acquiesces ( or keeps

silence ) in qualified acceptance, all

previous parties whose consent is notobtained to such acceptance are

discharged against the holder.

Presentment of Promissory Note forsight : Promissory Note payable at

certain period after sight must be

presented for acceptance.

28


29/56

Presentment of NI for payment :

Promissory notes, bills of exchange and

cheques must be presented for payment to the

maker, acceptor or drawee thereofrespectively, by or on behalf of the holder as

hereinafter provided. In default of such

presentment, the other parties thereto are not

liable thereon to such holder,

Exception -- Where a promissory note is

payable on demand and is not payable at a

specified place, no presentment isnecessary in order to charge the maker

thereof because the debtor is required to

find the creditor and pay him.29


30/56

Consequence of Non Presentment :

If a bill. cheque and promissory note not

presented for payment, other parties to theinstrument shall not be liable thereon to the

holder who makes such default. Other

parties must exclude the maker of a chequeas he is a principal debtor.

Rules for Presentment for payment of NI

i) Must be presented on maturity

ii)During usual hours of business

iii) Pro- note payable in instalments-

on maturity of each instalment.30


31/56

iv)Drawn payable at specified place

must be presented at specified place

and not elsewhere

v) In absence of any place, it should be

presented at usual place of business or

residence. In absence of both, thenwherever the drawer/maker is found

vi) A NI payable on demand must be

presented within a reasonable periodafter it is received

31


32/56

vii) It can be made to -- a) duly

authorised agent, b) legal representative

in case of his death, c) his assignee incase he is declared as insolvent

viii) Delay beyond the control of the

holder is excused. When the cause isover then in reasonable time

ix) Through Post Office by Reg. Post if

agreed

32


33/56


34/56

Dishonour of Negotiable Instrument :

A) By Non acceptance : ]

BOE is dishonoured by non acceptance

when (i) drawee or one of the drawees,

(not being partners) make default in

acceptance, within 48 hours. (ii)Presentment for acceptance is excused

and the bill is not accepted, drawee is

not competent to contract or theacceptance given is qualified.

34


35/56

B) By Non Payment : Sec 92:

A promissory note, bill of exchange or

cheque is said to be dishonoured bynon-payment when the maker of the

note, acceptor of the bill or drawee of

the cheque makes default in paymentupon being duly required to pay the

same. When presentment is

unnecessary if it remains unpaid ondue date, it is treated as dishonoured.

35

S f


36/56

Steps to be taken in case of Dishonour by

Non Payment :

The holder to safeguard his interest must

give notice of dishonour and get thebill/note noted and protested.

A) Notice of dishonour : The holder or

some party liable thereto or who remainsliable thereon must give notice of dishonour to

all other parties whom the holder seeks to

make liable jointly or severally thereon.No

notice is required in following cases: i) The maker of a Pro-note,ii) Acceptor or

drawee of a dishonoured BOE or cheque.36


37/56

Failure to serve notice of dishonour (

except in circumstances mentioned in

section 98 ) on all prior parties liable onthe instrument discharges such parties

from their liabilities.

When Notice of D/H is not necessary:

(a) when it is dispensed with by the

party entitled thereto;

(b) in order to charge the drawer when

he has countermanded payment,

(c) when the party charged could not

suffer damage for want of notice.37


38/56

(d) when the party entitled to notice cannot

after due search be found; or the party

bound to give notice is, for any otherreason, unable without any fault of his own

to give it;

(e) to charge the drawers when the

acceptor is also a drawer;

(f) in the case of a promissory note which

is not negotiable;

(g) when the party entitled to notice,knowing the facts, promises

unconditionally to pay the amount due on

the instrument.

38


39/56

Sec 94 : Mode of giving Notice: Notice may be

given:

i) to a duly authorized agent of the person towhom it is required to be given

ii) where he has died, to his legal representative

or where he had been declared an insolvent, to

his assignee iii) may be oral or written; if written,be sent by post

iv) may be in any form; but it must inform the

party to whom it is given, either in express terms

or by reasonable intendment, that the instrumenthas been dishonoured, and in what way, and that

he will be held liable thereon,

v) it must be given within a reasonable time after

dishonour,

39


40/56

vi) at the place of business or (in case such,

party has no place of business) at the

residence of the party for whom it is intended.vii) If the notice is duly directed and sent by

post and miscarried, such miscarriage does

not render the notice invalid.

viii) Any party receiving notice of dishonour inorder to render any prior party liable to

himself, give notice of dishonour to such party

within a reasonable time, unless such party

otherwise receives due notice as provided by

40


41/56


42/56

B) Noting and Protesting :

The second step is to get the instrument

noted and protested:

Noting : The holder of dishonoured

instrument in order to sue the parties

liable thereon, provides a mode ofauthenticating the fact of the bill having

been dishonoured by noting the

instrument. Noting means, minutesrecorded by a notary public on the

dishonoured instrument or on a paper

attached to such instrument42


43/56

When a bill is to be noted, the bill is taken

to a notary public who represents it for

acceptance or payment as the case may beand if the drawee or acceptor still refuses to

accept or to pay the bill, the bill is noted as

stated above.

Noting should specify in the instrument,

(a) the fact of dishonour, (b) the date of

dishonour, (c) the reason for such

dishonour,if any (d) the notarys charges,(e) a reference to the notarys register and

(f) the notarys initials. 43

Protest Protest is a certificate iss ed b the


44/56

Protest : Protest is a certificate issued by the

Notary Public attesting that the bill or the note

has been dishonoured.

The holder however shall have to wait tillthe date of maturity to take any action

against the acceptor.

Section 101 of the Act lays down the contentsof a regular and perfect protest which are as

follows:

(1) The instrument it self or a literal transcript

of the instrument; (2) The name of the person for whom and

against whom the instrument has been

protested.44


45/56

(3). The fact of and reasons for dishonour i.e.

a statement that payment or acceptance or

better security, as the case may be, has beendemanded of such person by the notary public

from the person concerned and he refused to

give it or did not answer or that he could not

be found. (4) The time and place of demand and

dishonour.(5) The signature of the notary

public.(6) In the case of acceptance for

honour or payment for honour the person by

whom or for whom such acceptance or

payment was offered and effected. 45

N ti f t t Wh i t


46/56

Notice of protest :-- When a promissory note

or bill of exchange is required by law to be

protested, notice of such protest must be given

instead of notice of dishonour, in the samemanner and subject to the same conditions;

but the notice may be given by the notary

public who makes the protest. The NI Act

requires that , the presentment for acceptance

and for payment, service of notice of

dishonour and noting must be done within

reasonable time. In determining what is a reasonable time,

regard shall be had to the nature of the

instrument..(contd.)46

d th l f d li ith t


47/56

and the usual course of dealing with respect

to similar instrument; and, in calculating such

time, public holidays shall be excluded.

If the holder and the party to whom notice of

dishonour is given carry on business or live

(as the case may be) in different places, such

notice is given within reasonable time if it isdespatched by the next post or on the day

next after the day of dishonour.

If the said parties carry on business or live in

the same place, such notice is given within areasonable time if it is despatched in time to

reach its destination on the day next after the

day of dishonour.47


48/56

Reasonable time for transmitting such notice :

Party receiving notice of dishonour, who seeks

to enforce his right against a prior party,transmits the notice with a reasonable time if

he transits it within the same time after its

receipt as he would have had to give notice if

he had been the holder.Public Holidays :According to Sec 5 public

holidays includes Sunday and any other day

declared by the Central Government by

notification in the official gazette to be a publicholiday. Such holidays are called bank

holidays and notified in advance.48


49/56

Rate of interest on Bill and Promissory Note

: If ROI is specified for payment, interest

shall be calculated at specified rate fromdate of instrument till realisation. It shall be

calculated @18% if not specified.

Rules Regarding Compensation for

Dishonour : (A) The holder is entitled the

amount due and relative expenses.

B) The endorser becoming liable and has

paid the amount is entitled to (i) the amountpaid, (ii) interest @18% p.a. and (iii) all

related expenses. 49


50/56

(C) The party entitled to compensation may

draw a bill upon the party liable to

compensate him, payable at sight or on

demand, for the amount due to him, together

with all expenses properly incurred by him.

Such bill must be accompanied by the

instrument dishonoured and the protestthereof (if any). If such bill is dishonoured, the

party dishonouring the same is liable to make

compensation thereof in the same manner as

in the case of the original bill. (D) In the case of currencies of two payment

would be made at the current rate of

exchange between two places.50

Drawee In Case Of Need : When in the bill or in


51/56

Drawee In Case Of Need : When in the bill or in

any endorsement thereon the name of any person

is given in addition to the drawee to be resorted

to, in case of need,(the bill remaining unpaid),

such a person is called a "drawee in case of

need". The bill is not treated as dishonoured until

it has been dishonoured by such drawee in case

of need.

Acceptance For Honour : When a bill of

exchange has been noted or protested for

non-acceptance or for better security, any

person not being a party already liable thereonmay, with the consent of the holder, by writing on

the bill, accept the same for the honour of any

party thereto. 51

S h A t b iti th bill t


52/56

Such Acceptor by writing on the bill must

declare that the bill has been accepted under

protest and for whose honour he has

accepted the bill. If he does not write it isdeemed that he has accepted for the honour

of that drawer. The following conditions are to

be fulfilled for this.

(i) It is to be made only after dishonour, noting

and protest of the bill.( ii) Holder must give

consent because his right against all prior

parties for recovering the money is waived.(iii) Acceptor for honour should not be liable on

the bill. (iv) Acceptor to signify his

acceptance in his own handwriting.52


53/56

Liability of the Acceptor for Honour :An

'acceptor' for honour binds himself to all

parties subsequent to the party for whosehonour he accepts to pay the amount of the

bill if the drawee does not; and such party

and all prior parties, are liable in their

respective capacities to compensate theacceptor for honour for all loss or damage

sustained by him in consequence of such

acceptance. For making him liable on the

bill the bill must have been presented to

him within reasonable time after noting and

protesting. 53


54/56

Payment for Honour : When a bill of

exchange has been noted or protested

for non-payment, any person may paythe same for the honour of any party

liable to pay the same, provided that the

person so paying or his agent in thatbehalf has previously declared before a

notary public the party for whose honour

he pays, and that such declaration has

been recorded by such notary public.

54


55/56

Right of payer for honour : Any person,

so paying is entitled to all the rights, in

respect of the bill, of the holder at thetime of such payment, and may recover

from the party for whose honour he pays

all sums so paid, with interest thereonand with all expenses properly incurred

in making such payment.

55


56/56

THANK YOU

56

Documents

Ssbm 06ni Act 1881 Lesson 6 Boe