Page 90 - DMGT407Corporate and Business Laws

Unit 4: Law of Negotiable Instruments

Notes
Here Y is the drawer, A is the payee and X is the drawee. X will express his willingness to
pay ‘accepting’ the bill by writing words somewhat as below across the face of the bill:
ACCEPTED
Sd-X
Jan. 16, 2006.
The specimen given above is of a usance bill, payable after a specified period of time. A
bill of exchange may be drawn payable ‘at sight’, i.e., on demand or payable ‘after certain
time after sight’ also.

Stamp Duty, Attestation and Registration of a Promissory Note and a Bill of Exchange

A promissory note as well as a bill of exchange are liable to stamp duty. However, an indorsement
of a negotiable instrument is exempt from any stamp duty. Neither, a promissory note nor a bill
of exchange are to be attested or registered.
Distinction between a Promissory Note and a Bill of Exchange

Table 4.1: Differences between Promissory Note and a Bill of Exchange

Promissory Note Bill of Exchange
1. There are only two parties – the maker There are three parties – the drawer, the drawee and
(debtor) and the payee (creditor). the payee although drawer and payee may be the
same person.
2. A note contains an unconditional It contains an unconditional order to the drawee to
promise by the maker to pay the payee. pay according to the drawer’s directions.
3. No prior acceptance is needed. A bill payable ‘after sight’ must be accepted by the
drawee or his agent before it is presented for payment.
4. The liability of the maker or drawer is The liability of the drawer is secondary and
primary and absolute. conditional upon non-payment by the drawee.
5. No notice of dishonour need be given. Notice of dishonour must be given by the holder to
the drawer and the intermediate endorsers to hold
them liable thereon.
6. The maker of the note stands in The maker or drawer does not stand in immediate
immediate relation with the payee. relation with the acceptor or drawee.

Kinds of Bills

Bills are of different kinds. Some of these are: (1) Inland Bills (2) Foreign Bills (3) Trade and
accommodation bills (4) Time Bills (5) Demand Bills (6) Clean Bills (7) Documentary Bills.

1. Inland bill: An Inland bill or instrument is defined as ‘a promissory note, bill of exchange
or cheque drawn or made in India and payable in or drawn upon any person resident in
India’ (s.11). On analysis of the above definition it follows that an inland bill: (a) must be
drawn or made in India and made payable in India, or (b) must be drawn in India upon a
person resident in India although it may be payable outside India.

Examples:
(a) A of Delhi draws a bill on B of Mumbai payable at Kolkata.
(b) A of Mumbai draws a bill on B of Delhi payable at Yorkshire (U.K.).

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