DifferentBetween Bill of exchange and cheque by Presentation
The Negotiable Instruments Act, 1881 Act - Act No.26 of 1881 Enacted by - Parliament of india Date enacted - 9 December 1881 Date commenced - 1 March 1882The Act extends to the whole of India.The Act is to regulate commercial transactions
Background to development of negotiable instruments Merchants had to pay for purchases with precious metals – this was burdensome, there was always a risk of theft or destruction (eg. Shipwreck). Merchants began writing orders to each other. Legal rules impeded them, e.g. the nemo dat rule —’lit you cannot give what you do not have’, you cannot transfer better title to goods than you have. To overcome nemo dat, an exception developed for negotiable instruments—these can be transferred from one person to another and the transferee receives good title (in fact the transferee can receive better title than the transferor.)
Negotiable Instruments Definition: The word negotiable means ‘transferable by delivery,’ and the word instrument means ‘a written document by which a right is created in favour of some person.’ So negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery.
Types of Negotiable InstrumentsNegotiable instruments are of two types which are as follows:• Negotiable Instruments recognized by status: e.g. Bills of exchange, cheque and promissory notes.• Negotiable instruments recognized by usage or customs of trade: e.g. Bank notes, exchequer bills, share warrants, bearer debentures, dividend
Bill of Exchange Definition: Section 5 of the Negotiable Instruments Act defines a Bill of Exchange as follows: “A bill of exchange is 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.”
Parties to a Bill of ExchangeThere are three parties involved in a bill of exchange(i) The Drawer – The person who makes the order for making payment. In the above specimen, Rajiv is the drawer.(ii) The Drawee – The person to whom the order to pay is made. He is generally a debtor of the drawer. It is Sameer in this case.(iii) The Payee – The person to whom the payment is to be made. In this case it is Tarun.
The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order.In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill.But a bill may be made payable on demand also. This is called a Demand Bill.
Essentials of a Bill of Exchange1. It must be in writing2. It must contain an order to pay. A mere request to pay on account, will not amount to an order3. The order to pay must be unconditional4. It must be signed by the drawer5. The drawer, drawee and payee must be certain. A bill cannot be drawn on two or more drawees but may be made payable in the alternative to one of two or more payees6. The sum payable must be certain7. The bill must contain an order to pay money only8. It must comply with the formalities as regards date, consideration, stamps, etc
ChequeA cheque is the means by which a person who has fund in the hand of a bank withdraws the same or some part of it.A cheque is a kind of bill of exchange but it has additional qualification namely-1- it is always drawn on a specified banker and2-it is always payble on demand without any days of grace.
Definition A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. ‘Cheque’ includes electronic image of a truncated cheque and a cheque in electronic form. [section 6].
The definition is amended by AmendmentAct, 2002, making provision for electronicsubmission and clearance of cheque. Thecheque is one form of Bill of Exchange. It isaddressed to Banker. It cannot be madepayable after some days. It must be madepayable ‘on demand’.
Essential characteristics of a Cheque In writing Express order to pay Definite and unconditional order Signed by drawer Order to pay certain amount Order to pay money only Drawn upon a specified banker Otherwise Payable on demand
Parties involved Drawer—Person who Signe the cheque Drawee—Bank on which cheque is being drawn Payee—Person to whom cheque is being paid
Types of chequeOrder cheques One person or more is specified on the cheque as payee or endorsee Negotiated by endorsement and deliveryBearer cheque(converted to order cheque by deleting or bearer) No person is specified in the cheque as payee or endorsee, or the words to bearer appear on the cheque Negotiated by deliveryCrossed cheques Specific direction to the drawee financial institution not to pay the cheque over the counter
Differences between a bill of exchange and cheque Bill of exchange Cheque• Payable on demand, or at a • Payable on demand fixed or determinable future date• Drawn on anyone • Drawn on a financial institution• Can’t be crossed • Can be crossed (always negotiable)• Continuing security • Presented for payment within a reasonable time
•Obligation from • Ongoing relationshipacceptance of bill•Substantial trading • Day-to-day transactionstransactions• It should be stamped •Not required• Accepted before the drawee •Not require any acceptancecan be made liable upon it.•. Electronic image cannot •Electronic image can usebe use