Bill of Exchange

Bill of Exchange a negotiable instrument that contains an unconditional written instruction by the drawer (maker) to a certain person (drawee) to pay a certain amount of money either to the bearer of the bill, or to the order of the payee (a specified and stated person) on demand or at a specified future date. Negotiable instruments like bills of exchange, promissory notes, and cheques in Bangladesh are governed by the Negotiable Instruments Act 1881, which came into force in India on 1 March 1882.

The parties to a bill of exchange are the drawer, drawee, acceptor, payee, holder, endorser, endorsee, drawee in case of need, and acceptor for honour. The name of a person as a 'drawee in case of need' may be inserted either by the drawer or by any endorser to ensure resort for him if the bill is dishonoured either by non-acceptance or non-payment. Bills of exchange were originally instruments by which a trader used to pay intra-country and inter-country debts without physical transmission/transfer of money-currency or coins. The foreign bill of exchange, unlike the inland bill, is drawn in a set of three, known respectively as the first, second, and third bill of exchange. If the payment is made on any one of the three, the others become invalid upon the payment. A foreign bill of exchange must be protested for dishonour when such protest is required to be made by the law of the country where it is drawn.

On the event of dishonour of a bill of exchange in the ordinary course, due notice of dishonour is to be given by the holder to the drawer and to the immediate endorsers. The circumstances under which a bill of exchange may be dishonoured and the effects of such an event are stated in sections from 61 to 82 of the Negotiable Instruments Act 1881. The period for which a foreign bill is drawn runs from the date of its acceptance. When a bill of exchange is drawn as a convenient mode of accommodating a friend, it is called an 'accommodation bill'. A demand draft drawn by a bank on another bank or by itself on its own branch is a bill of exchange but a cheque is not, as it does not contain an unconditional order for payment, and does not need to be accepted by signing.

Bills of exchange are now used also for raising funds for financing trade and investment activities. When a borrower draws a bill on a bank and the bank accepts it, the borrower can sell it to an investor. At maturity, the borrower repays the investor. Institutions engaged in the bills market include acceptance houses, brokers, and discount houses. Bills of exchanges have to be presented to the drawee for acceptance and the presentment is deemed to be completed if the bill is exhibited to the drawee, who accepts it by putting his signature on its face. In case of death of the maker, acceptor, or drawee, presentment may be made to his legal representative. Bills of exchange are drawn usually for three months after date and fall due for payment three months and three days after date. The three extra days comprise a grace period.

Hundi is a kind of local bill of exchange put in circulation in British India long before the Negotiable Instrument Act 1881. Hundis were usually written in only oriental native language and were regulated by the customs and usage of trade and commerce of that period. But the parties concerned in this indigenous form of bill of exchange confronted various problems in their operations. During the British period, hundis were widely used for the purpose of paying trading debts and transferring/remitting to the British Exchequer the revenue collected from different provinces of India. Various types of hundis such as, darshani hundi, muddati or meyadi hundi, shah jog hundi, nam jog hundi, dhani jog hundi, jakhami hundi, jawabi hundi, zikri chit, purja and farman jog hundi were in use in the sub-continent.

Nowadays, the operations of bills of exchange follow the Uniform Customs and Practice of Documentary Credits (UCPDC) issued by the International Chamber of Commerce in Paris. [Abul Kalam Azad]