Page 91 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes In example (a) the bill is drawn in India and is payable in India and, therefore, is an Inland
bill. In example (b) the bill is drawn in India on a person resident in India, though it is
payable outside India, it is again an Inland bill.
2. Foreign bills: According to s.12, a foreign bill is a negotiable instrument which is not an
inland instrument, as defined above. Thus, a foreign bill of exchange is (a) drawn in India
upon a person resident outside India and made payable outside India, or (b) drawn outside
India and payable in India.

Examples:

(a) X of Mumbai draws a bill of exchange on Y of London payable at London.
(b) A of London draws a bill of exchange on B of Delhi payable at Mumbai.
(a) Bills in sets: Foreign bills are generally drawn in sets of three, each of which is called
a ‘via’. It is only one of these three ‘vias’ that have to be accepted and paid for. With
the acceptance and payment of any of them the others become inoperative. If,
however, any person endorses different parts of a bill in favour of different persons
he and all the subsequent endorsers of each part are liable on such part as if it were
a separate bill (s.132). However, as between holders in due course of different parts
of the same set, he who first acquired title to his part is entitled to the other parts and
the money represented by the bill (s.133).

(b) Drawee in case of need (s.7): In case of foreign bills particularly, the drawer mentions
another person, besides drawee, who may be approached for acceptance or/and
payment in case the need arises. For instance, the drawee may either refuse to accept
or pay or may not be available at the given address. Such a person whose name is
mentioned as an alternative drawee is called a ‘drawee in case of need’. In English
Law, he is called ‘reference in case of need’. He is so called because primarily the
payee is expected to approach the drawee and it is only in case there is a problem
(e.g., either the payee has refused or is not available and the like) that the ‘drawee in
case of need’ would be contacted.
3. Trade and accommodation bills. A trade bill is a bill of exchange issued in respect of a
genuine trade transaction. Such bills are drawn by the seller on the buyer in respect of
payment of the price of the goods sold and purchased. But, however, all bills are not
genuine bills, i.e., they do not represent a trade transaction but are drawn as a convenient
mode of accommodating a friend. Thus, X may be in need of money and approaches his
friend Y who instead of lending money directly, accepts a bill exchange, say for ` 5,000,
drawn by X on Y. If the credit of Y is good it lends a currency to the bill and it can be
discounted with the banker or any other person. On maturity, X remits the amount to Y
who in turn pays it in honouring the bill of exchange on presentment. Thus, it provides an
accommodation to the party and is, therefore, called an Accommodation Bill. The language
and form of an accommodation bill is, however, similar to a genuine trade bill.
Since an accommodation bill is drawn and accepted without any consideration, it creates
on obligation of payment between the parties to the transaction. But if any such party has
transferred the instrument with or without endorsement to a holder for consideration,
such holder and every subsequent holder deriving title from him, may recover the amount
due on such instrument from the transferor for consideration or any prior party thereto
(s.43).
Further, it will be pertinent to note here the provision of s.118(a) that every negotiable
instrument unless the contrary is proved, “was made or drawn for consideration and that
every such instrument, when it has been accepted, indorsed, negotiated, or transferred

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