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Introduction to Bills of Exchange 📜

Scenario:

  • Seller (Raj) sells goods to Buyer (Simran) for ₹10,000.
  • Simran says: "I will pay after 3 months."
  • Raj says: "Okay, but sign this paper promising to pay."
  • That paper is a Bill of Exchange.

Definition: According to the Negotiable Instruments Act, 1881: "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."

Features 🌟

  1. In Writing: It cannot be oral.
  2. Unconditional Order: It is an ORDER ("Pay ₹10,000"), not a request ("Please pay").
  3. Three Parties:
    • Drawer: The Seller (Who makes the bill).
    • Drawee: The Buyer (Who accepts to pay).
    • Payee: The person who receives the money (Usually the Drawer, but can be a Bank).
  4. Fixed Date: The payment date (Maturity) is fixed.
1. Drawer (Seller)"Draws the Bill & Signs it."
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2. Drawee (Buyer)"Accepts the Bill (Signs 'Accepted')."
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3. Payee"Receives the Money on Due Date."
Acceptance is Key

A bill is worthless until the Drawee signs it and writes "Accepted". Before acceptance, it is just a "Draft". After acceptance, it becomes a "Bill".

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. A Bill of Exchange is defined under which Act?

Companies Act 2013
Negotiable Instruments Act 1881
Partnership Act 1932
Income Tax Act 1961

💡 Final Wisdom: "A Bill of Exchange turns 'Trust' into a 'Tradable Asset'. You can even sell this bill to a bank to get cash immediately!" 💰

Next up: Bill of Exchange vs Promissory Note - What's the difference? 🤔

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