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BBA 1st Semester Business Low Notes


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Business Low Notes Definition

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 certain sum of money only to, or to the order of, a certain person or to the bearer of the Instrument.

The definition of Bill of Exchange is very similar to that of a promissory note and  for most purposes the rules which apply to notes are in general applicable to bills.

The fundamental ingredients are the same. The drawer like the makers must be certain, the order to pay must be unconditional, the amount of Bill and the payee and the drawer, must be certain and the contract must be in writing.

The maker of a note corresponds to the acceptor of a bill, and when a note    is endorsed it is exactly similar to a bill, for then it is an order by the endorser of the note upon the maker to pay the endorsee. The endorser is, as it were, the drawer, the maker, the acceptor and the endorsee is the payee. But a bill differs from a note in some particulars.

The usual form of a bill of Exchange is given below:

Hare Sultan Singh is the drawee and X Y Z is the drawer or maker of the bill.

Here X.Y.Z. is the drawer, Ram is the payee and Sultan Singh is the drawee.

Essentials of a Bill of Exchange

  1. It must be in writing and may be in any
  2. It must be an order to pay by the drawer to the
  3. The order to pay must be unconditional. If the order to pay is conditional, the bill of exchange becomes
  4. There are three parties in a bill of
    • Drawer: The person who makes the
    • Drawee: The person who is ordered to pay or on whom the bill is
    • Payee: The person who is to receive the
  5. The bill must be signed by the drawer otherwise it will become an inchoate instrument.
  6. The order to pay must be of a certain sum and it must be in money
  7. The payee and drawee must be
  8. It must be properly stamped under the Indian Stamp

Distinction between Bill and Note

The below given differences are enumerated from the above meanings of both the instruments—

  • In a note there are only two parties – the maker and the payee. In a bill there are three parties namely, drawer, drawee, and payee; though two out of three capacities may be filled by one and the same person. In a bill the drawer is the maker who orders the drawee to pay the bill to a person called the payee or to his When the drawee accepts the bill he is called the acceptor.
  • A note cannot be made payable to the maker himself, while in a bill the drawer and payee or drawee and payee may be the same person:
  • A note contains an unconditional promise by the maker to pay to the payee or his order; in a bill there is an unconditional order to the drawee to pay according to the drawer’s
  • A note is presented for payment without any prior acceptance to the maker. A bill payable after sight must be accepted by the drawee or some one else on his behalf before it can be presented for
  • The liability of the maker of a note is primary and absolute, but the liability of the

drawer of a bill is secondary and conditional. He will be liable only if the bill is not accepted or paid by the drawer.

  • The maker of the note stands in immediate relation with the payee, while the maker or drawer of an accepted bill stands in immediate relation with the acceptor and not  the
  • Foreign bills must be protested for dishonour when each protest is required to be made by the law of the country where they are drawn but no such protest is necessary in the case of the
  • When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the intermediate indorsers, but no such notice need be given in the case of a

Types of Bill of Exchange

Business Low Notes :-

A bill of exchange may be an Inland bill.or a Foreign bill. Originally, bill was a means by which a trader in one country paid a debt in another country without the transmission of coin.

An Inland bill is drawn and payable in India or drawn in India upon some person resident in India, even though it is made payable in a foreign country. A bill which is not Inland is a Foreign Bill (Sec. 12).

Accommodation Bill

Legitimately speaking, an accommodation bill is not a bill as such. It is simply a mode of accommodating a friend in business. For example, A may be in want of money and approach his friend B and C who, instead of lending the money directly, propose to draw an ‘Accommodation Bill’ in his favour.

A promises to reimburse C before the period of the bill is up (which is generally 3 months). If the credit of B and C is good, this device enables A to get an advance from his banker at the commercial rate of discount. The real debtor in this case is not C, the acceptor, but A the payee who has engaged to find the money for its ultimate payment, and A    is here the principal debtor and the others merely sureties.

Thus, as between the original parties to the bill the one who would prima facie be principal is in fact, the surety whether he be drawer, acceptor or indorser, that bill is an accommodation bill.

Rights to Duplicate Bill

Where the bill is not overdue but has been lost, the person who was holder of it may apply to the drawer, to give him another bill of the same tenor, giving security to the drawer if required, to indemnify him against all persons whatever in case the bill alleged to have been lost shall be found again.

If the drawer refuses to give such duplicate bill may be compelled to do so by means of a suit. Holder is the person who can ask for a duplicate.

Bank Draft

A demand draft is a bill of exchange drawn by a bank on another bank, or by itself on its own branch, and is a negotiable instrument. It is like a cheque but differs in certain respects.

First, it can be drawn only by a bank on another bank and not by a private individual as in the case of cheques. As against a cheque, it cannot be countermanded easily either by its purchaser or by the bank to which it is presented.

Finally, it cannot be made payable to bearer. These days  it is a popular mode of making payments. Banks charge a nominal amount of commission for this service.

Business Low Notes Bill  in Sets

Foreign bills are generally drawn in sets of three each. According to S. 132, bill of exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue to be payable so long as the other part remains unpaid. All the parts together make a set but the whole set constitutes one bill and is extinguished when one of the parts, if a separate bill, would be extinguished.

The bills are drawn in sets, in foreign trade in order to facilitate prompt and easy presentation for acceptance and payment. It also reduces the risk of loss in course of transit.


Business Low Notes :-

As stated earlier in this chapter, the negotiable instrument act covers only three types of instruments, viz. promissory note, bill of exchange and cheque. Hundi is not given in the definition of a negotiable instrument in the act.

Hundi is one of the oldest instrument prevalent in Indian business world. Hundis are governed by local usages or customs but where the act is contrary    to the customs, the local usages or customs will apply. But in the absence of any usages or customs, the provisions of this act will apply.

The word Hundi is derived from the Sanskrit word ‘Hund’, which means to ‘collect’. Hundi is generally drawn in a vernacular language according to Indian mercantile common law and customs. It is sometimes drawn as a promissory note.

Sometimes, a hundi is accompanied by ZIKRI CHIT. The zikri chit is written by the drawer or any other prior party and addressed to some respectable person requesting him to honour-the hundi if it is dishonoured for non-payment or for any other reason. Thus it serves as a letter of protection.

Types of hundis

  1. Darshni Hundi : It is payable at sight or on No days of grace are allowed.
  2. Nam Jog Hundi: It is payable to the person named in it or to his order. It is also called as ‘farmanjog hundi’. It can be negotiated by endorsement and delivery alone like a bill of
  3. Muddati Hundi : It is payable after the expiry of a fixed period. Days of grace are allowed as per local customs .
  4. Jawabi Hundi : The person who has to remit the money writes a letter to the payee. The payee directs him to make the payment on his Once the payee has obtained payment after the arrival of the letter, he sends his reply (jawab) for the receipt of payment. Through this method money can be passed on from one place to another place. For example, Anand in Delhi owes Rs. 10,000 to Bihari in Kanpur, Rarn in Meerut owes Rs. 10,000 to Anand in Delhi, Ram wants to make payment to Anand. Anand writes to Ram directing him to make payment to Bihari and send the ‘javvab’ intimating him the payment to Bihari. Similarly Bihari is also requested to send reply soon after he is paid by Ram.
  5. Shah Jog Hundi : The word shah means a person of repute and wealth. This hundi is an instrument payable to bearer, negotiable by delivery al.one and payable only to a shah. A shah Jog hundi passes from person to person by delivery only, sirlce no endorsement is needed. The shah after making due enquiries regarding its validity will present it to drawee for final settlement. In case of any fraud, the shah is bound to refund the amount of hundi with
  6. Dhanijog Hundi : It is payable to the holder or to the bearer but the payer must ensure that its payment is being made to the real owner of
  7. Nishanjog Hundi : Where the drawer does not write the name of the payee but simply parts a private code on the hundi which a drawee should decipher before making payment. This is payable only when the payee produces a person to the drawee who identifies the
  8. Jokhmi Hundi : It is drawn by the seller upon the buyer in lieu of the price of goods sold. The buyer accepts it for payment conditional upon the’receipt of goods bought. It is some sort of combination of bill of exchange and insurance Strictly speading it can nor be placed in the category of a negotiable instrument because it is conditional.
  9. Khoti Hundi : It is a hundi whose genuineness is in doubt or which is a forged
  10. Khoka Hundi : It is a hundi whose amount has been

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