DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : P. Samba Murthy
Designation : Head of Department
Branch : D.C.C.P
Institute : SRRS Govt. Polytechnic,
Sircilla, Karimnagar District
Year/Semester : V Semester
Subject : BANKING – I
Subject Code : CCP504(B)
Topic : Negotiable Instrument Act
Duration : 50 Mts
Sub Topic : Promissory Note, Bill of Exchange
and Cheque
Teaching aids : PPT, ANIMATIONS
CCP504(B).54 1
Objectives :

On completion of this period, you would be able

to:

 Explain the meaning of a bill of exchange,

 List the features of Bills of exchange,
 Explain the meaning of a cheque and its
features.

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Recap :

In previous class we have discussed about:

 Meaning of Promissory Note

 Its features
 Parties to the Promissory Note etc.,

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Known to Unknown :

 What is a Promissory Note?

 What is Bill of exchange ?
 What are its features?

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Definition of Bill of Exchange :

 Sec. 5 of the Negotiable Instrument Act, 1881

defines a bill of Exchange as “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”

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Specimen of Bill of Exchange :
Rs.30,000/- Hyderabad,
Dated : 13-04-2008.

Pay to Sri Srinivas on his order, three months after date

Rupees thirty thousand for value received.

Sd/-

Vijay Kumar
To
Sri V.G.Krishna,
147 Ashoknagar,
Secunderabad

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Bill of Exchange

 In the specimen bill of exchange, we see that

the amount in figures is written on the left
hand side at the top.
 The place and the date of instrument is written
on the right hand side at the top.
 The period of the instrument, payee’s name
and the amount in words is written in the body
of the instrument.

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 Bill of Exchange

 At the bottom, on the left hand side, the name

and address of the drawee is written.
 At the right hand side, after affixing the necessary
court-fee stamps, the drawer of the bill puts his
signature above his name.
 In the above specimen bill of exchange, Vijay
Kumar is the drawer, V.G. Krishna is the drawee
and acceptor and Srinivas is the payee.

CCP504(B).54 8
Parties to Bill of Exchange :
There are three parties to a bill of exchange namely,
Drawer:
 The person who gives the order to pay or the
maker of the bill,
Drawee or acceptor:
 The person on whom the obligation to pay rests
and
Payee:
 The person to whom the bill is payable.
Generally, the drawer himself is the payee in
most of the cases, but a person other than the
drawer can also be a payee
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Features of Bill of Exchange :
 There following are the essential features of a
bill of Exchange:
It must be in writing:
 Like a promissory note, a bill of exchange must
also be in writing.
It must contain an order to pay:
 If the language of the draft does not show any
order to pay, the draft will not be considered as
a bill of exchange.
 The order must be unconditional.
 It must be signed by the drawer and accepted
by the drawee.
CCP504(B).54 10
Features of Bill of Exchange :
It must contain an order to pay money only:
 The sum payable must be written clearly and
unambiguously.
The parties must be certain:
 In the case of a bill of exchange, the drawer, the
drawee (and acceptor when he accepts the bill) and
the payee must be indicated with reasonable
certainty.
 Sometimes, the drawer and the payee are the
same persons for e.g., when a bill is drawn pay to
me or my order .
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BILLS OF EXCHANGE

Formalities:
 The formalities relating to number, date, place
and consideration, though usually found in bills
of exchange, are not essential.
 The bill of exchange may be made payable on
demand.

CCP504(B).54 12
BILLS OF EXCHANGE

Maturity of a Bill:
 Maturity of a bill of exchange or promissory note,
according to sec. 22 of negotiable instrument
Act, means the date on which it falls due.
 A bill, which is not payable on demand, matures
on expire on the stipulated period but falls due
and is payable three days thereafter.

CCP504(B).54 13
BILLS OF EXCHANGE

 These additional days are called grace days.

 If the due date is a public holiday, sec. 25 of the
above Act specifies that, the instrument is
deemed to be due on the next preceding
business day.
 Public holiday includes Sunday and any other
day declared by the Central Government by
notification in the official gazette to be a public
holiday.

CCP504(B).54 14
Definition of Cheque :

 Sec. 6 of the Negotiable instrument Act, defines

‘a cheque as a bill of exchange drawn upon a
specified banker and not expressed to be
payable otherwise than on demand’.

CCP504(B).54 15
Features of A Cheque :

 A cheque is always drawn on specified banker

and it is always payable on demand
 It is to be noted that all cheques are bill of
exchange but all bills of exchange are not
cheques

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Features of A Cheque :

 Cheque may be payable to bearer on demand.

 But no bill of exchange can be payable to bearer
on demand because of the restrictions of RBI Act,
1934 which prohibits any person to draw a bill or
make a promissory note payable to bearer on
demand.

CCP504(B).54 17
Features of A Cheque :
 A cheque can be crossed and payment of cheque
may be countermanded (Cancel/stop) by the
drawer.
 But payment of a bill cannot be countermanded
by the drawer.
 When a bill is not duly presented for payment the
drawer is discharged from liability.
 The drawer of a cheque is not usually discharged
by delay of the holder in presenting the cheque
for payment.

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CHEQUE

 Bankers provide cheque books to their

customers to draw cheques on their accounts
for withdrawals or for payment to third parties

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Specimen of Cheque :
Date …………
Pay ………………………………………………………. or
Bearer Rupees …………………………………………………
………… only

Rs. ________

Account No.12345678
Andhra Bank
Ashoknagar
Hyderabad
765432 500600700 654321 10
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ESSENTIALS OF CHEQUE

Drawer’s signature:
 A cheque must be signed by the drawer or his
authorized agent.
 The drawer should sign the cheque in accordance
with his specimen signatures supplied to bank at
the opening of account.

CCP504(B).54 21
ESSENTIALS OF CHEQUE

 In case of illiterate drawers, cheques can be

signed or endorsed by means of thumb mark
witnessed by some one preferably known to the
bank and not in the employment of the bank.
 Signature in pencil or rubber stamp or typewritten
are not accepted by the banker.

CCP504(B).54 22
ESSENTIALS OF CHEQUE

 Apart from fulfilling the essential conditions of a bill of

exchange, a cheque must satisfy the following additional
conditions as per sec. 6.
 First, a cheque must be drawn on a banker.
 As was already discussed, a banker is one who in the
ordinary course of his business, honours cheques drawn
upon him by persons from and for whom the banker
receives money on current accounts.
 Second, the cheque must be payable on demand.

CCP504(B).54 23
Material Alteration:
 If there is any material alteration i.e., alternations
on the date of the instrument or place of payment
or the sum payable or the party to whom the
money is payable, all such material alterations
should generally be evidenced by the full signature
of the drawer

CCP504(B).54 24
Summary :

 A bill of exchange contains an order from the

creditor to the debtor to pay a specified amount to
a person mentioned therein.
 The maker of a bill is called the ‘drawer’, person
who is directed to pay is called the ‘drawee’.

CCP504(B).54 25
Summary :
 A cheque is a bill of exchange drawn on a
specified banker and not expressed to be payable
otherwise tan on demand.
 A cheque is always drawn on a specified banker.
 Thus, the drawee in case of a cheque is the
banker.
 A cheque is always payable on demand.
 Thus, all cheques are bills of exchange but all bills
of exchange are not cheques.

CCP504(B).54 26
Quiz :

1. A Bill of exchange is an
a) Unconditional promise
b) Unconditional order
c) Demand draft
d) None

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Quiz :

2. A cheque is a bill of exchange drawn on a

a) Specified banker
b) Person
c) Industry
d) None

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Frequently Asked Questions :

1. What do you understand by a Bill of

Exchange?
2. Enumerate the features of a Bill of Exchange.
3. What is a cheque ?
4. When does a cheque mature ?
5. What are the features of a cheque?

CCP504(B).54 29
Assignment :

1. Prepare answers for the above questions.

2. Fill – up cheque form.

CCP504(B).54 30