What is bill of exchange?

According to Section – 5 of the Negotiable Instruments Act a bill of exchange is, “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a sum of money only to or to the order of a certain person or to the bearer of the instrument.”


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A bill of exchange is also called a draft. There are three parties to a bill of exchange namely drawer, drawee and payee. The maker of the bill is called the drawer; the person who is ordered to pay is called the drawee and the person to whom or to who to whose order the money is directed to be paid is called the payee.

In some cases, drawer and payee may be one person. To be of real case, the bill of exchange must be accepted. The mere fact that a bill is drawn by one person upon another does not make the drawee liable for its value. The drawee must accepts the bill by writings the word ‘accepted’ across the face of the bill, together with his signature. A bill of exchange after acceptance is known as acceptance.

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