BILL OF EXCHANGE: A non-interest-bearing written order used primarily in international trade that binds one party

to pay a fixed sum of money to another party at a predetermined future date. A bill of exchange is also called a draft.
Bills of exchange are similar to checks and promissory notes. They can be drawn by individuals or banks and are
generally transferable by endorsements.
The difference between a promissory note and a bill of exchange is that this product is transferable and can bind one
party to pay a third party that was not involved in its creation.
If these bills are issued by a bank, they can be referred to as bank drafts. If they are issued by individuals, they can
be referred to as trade drafts.
Following are the various parties related to a Bill of Exchange:
a. The Drawer: The person who draws the bill and puts his signature on it is known as the drawer of the bill. He is
also called the maker of the bill.
b. The Drawee: The person on whom the bill is drawn is called as the drawee of the bill.
c. The Acceptor: The person who accepts the bill is known as the acceptor of the bill. Usually, the drawee accepts
the bill. But sometimes, a third party may also accept a bill on behalf of the drawee. The acceptor puts down his
signature across the bill showing his acceptance.
d. The Payee: The person to whom the amount of bill is to be paid is known as payee of the bill. The drawer may
make the bill payable to himself or to any other person he likes.
e. The Endorsee: The holder of the bill may endorse the bill in favour of someone else known as endorsee. The
person who endorses the bill is called endorser.
f. The Holder: The person who holds the bill and is entitled to realise the amount of the bill from the drawee is known
as holder of the bill.
Essentials of a bill of exchange:
In order that an instrument may be called a bill of exchange it should satisfy the following conditions:
1. The order to pay a bill must be unconditional one.
2. The order to pay must be made in writing on the bill.
3. The bill must be signed by the drawer of the bill. Without signature of the drawer the bill will not be genuine one.
4. The order to pay under a bill must be addressed to a certain person which, of course, includes individuals, firm,
company, corporation etc.
5. The amount to be paid under a bill must be certain one.
6. The money under a bill must be paid in legal tender currency.
7. The amount should be payable to or to the order of a specified person or to the bearer of the instrument.
8. The amount should be payable either on demand or at a fixed determinable future time.
9. The bill must be duly stamped.
10. The other formalities like dating, stating the names of the parties concerned etc. must be observed.
11. A bill of exchange like a promissory note may be written in any language. It may be written in any form of words
provided the requirements of the section are complied with.
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