Chapter 8 Bills of Exchange Solutions
Question - 1 : - Name any two types of commonly used negotiable instruments.
Answer - 1 : -
1. Promissory Notes
2. Cheques
Question - 2 : - Write two points of distinction between bills of exchange and promissory note.
Answer - 2 : -
| Basis of Distinction | Bills of Exchange | Promissory Note |
| Drawn by | Creditor | Debtor |
| Parties Involved | Three parties are involved which are drawer, payee and drawee. | It involves two parties which are payee and drawer/maker. |
Question - 3 : - State any four essential features of bill of exchange.
Answer - 3 : -
The following four features are considered essential for a bill of exchange:
1. The bill of exchange must be in writing
2. A bill of exchange should contain an unconditional order to pay.
3. Drawer of the bill must sign the bill.
4. The amount and the expiry date should be mentioned specifically in the bill of exchange.
Question - 4 : - State the three parties involved in a bill of exchange.
Answer - 4 : -
A bill of exchange involves three parties and they are:
1. Drawer/Maker/Holder- Responsible for issuing the bill
2. Payee/Holder- The person who will receive the payment
3. Drawee/Acceptor- One who has to accept the bill
Question - 5 : - What is meant by maturity of a bill of exchange?
Answer - 5 : -
The date where the bill is ready for payment is called as maturity of a bill. The date of maturity is arrived after adding 3 days of grace to the due date as per terms of the bill. The concept of due date will further help you in understanding maturity of a bill. It consists of following terms
1. Bill at Sight: This type of bill is due as and when it is presented.
2. Bill after Sight: In this type of bill the due date is calculated from the date the debtor accepts the bill plus the period as per terms of the bill. Maturity date is calculated by adding 3 days to the due date.
3. Bill after Date: In this type of bill, the due date is calculated from the date on which bill is drawn plus the period as per terms of bill. Maturity date is calculated adding 3 days to the due date.
Exceptions to maturity of bill: If the due date of the bill falls on a national holiday (like Independence Day) or on a Sunday, at that time the bill due date is counted one day prior to the original date and if the due date fall on a emergency holiday (like nationwide strike) at that time the bill due date is counted one day later.
Question - 6 : - What is meant by dishonour of a bill of exchange?
Answer - 6 : -
The situation where the drawee of the bill of exchange is unable to process the payment as per the maturity date of the bill, it is known as dishonour of bill of exchange. With this liability of the acceptor is re-established and he/she becomes a debtor again. To reflect the changes, the receipt of bill of exchange should be reversed.
Question - 7 : - Name the parties to a promissory note
Answer - 7 : -
Two parties are involved in promissory note:
1. Maker/Drawer, Also known as promisor, is the one who is the maker of the note and is the one responsible to pay the sum as mentioned on promissory note.
2. Promisee or Payee is the one who will be receiving the payment.
Question - 8 : - What is meant by acceptance of a bill of exchange?
Answer - 8 : -
A bill of exchange drawn by a creditor upon debtor involves an unconditional order to pay in writing, but the same must be accepted by the debtor or someone on his/her behalf in order to make the debtor liable to pay. It is a draft before acceptance by debtor. So once the debtor has written the term “accepted” and signed the document, it is then known as bill of exchange and this process is called acceptance of bill of exchange.
Question - 9 : - What is Noting of a bill of exchange.
Answer - 9 : -
A bill of exchange is said to be dishonoured when the drawee is unable to make the payment upon presenting of the bill by drawer. To retain a legal evidence of the dishonoured bill, notary public needs to record it. The charges levied by notary public for recording the failed transaction is called noting charges and the process of recording is referred to as noting.
Question - 10 : - What is meant by renewal of a bill of exchange?
Answer - 10 : -
A bill of exchange is said to be renewed when the debtor/acceptor have insufficient funds to pay the drawer and hence requests for time extension in order to make payment. A new bill of exchange is drawn on being agreed by the drawer of the bill. This process is called renewal of bill of exchange. The bill gets renewal only if the drawee agrees to pay a certain rate of interest as decided for the period of extension.