Bill of exchange
Also called: Bill, Draft
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 (Section 5, NI Act).
Explained
Section 5 of the Negotiable Instruments 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. The section adds that an order is not conditional merely because payment is fixed for a period after an event which, in the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.
The essentials are writing, an order (not a promise), an unconditional order, the maker's signature, a certain drawee, a certain sum of money only, and a certain payee or bearer. Under Section 7, the maker is the drawer and the person directed to pay is the drawee. A person named to be resorted to in case of need is the drawee in case of need, and a drawee who signs his assent and delivers it, or gives notice of it, becomes the acceptor.
A bill differs from a promissory note under Section 4, which contains an unconditional undertaking to pay and has only two original parties, maker and payee. A cheque under Section 6 is a species of bill: one drawn on a specified banker and not expressed to be payable otherwise than on demand, and it includes the electronic image of a truncated cheque and a cheque in electronic form. Under Section 13, a bill payable to order or to bearer is a negotiable instrument. Under Section 61, a bill payable after sight must be presented to the drawee for acceptance within a reasonable time.
Under Sections 11 and 12, a bill drawn in India and either made payable in India or drawn upon a person resident in India is an inland instrument; any other bill is a foreign instrument. For limitation purposes, Section 2(c) of the Limitation Act, 1963 says bill of exchange includes a hundi and a cheque. Examiners test the order versus promise distinction, the three parties, acceptance, and the inland and foreign classification.
What the law says
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.
Defines bill of exchange
The maker of a bill of exchange or cheque is called the “drawer”; the person thereby directed to pay is called the “drawee”.
“Drawee in case of need”.— When in the Bill or in any indorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in case of need.”
“Acceptor”.—After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the “acceptor”.
Drawer, drawee, drawee in case of need and acceptor
[A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Explanation I.—For the purposes of this section, the expressions—
[(a) “a cheque in the electronic form” means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be;]
Cheque as a bill drawn on a specified banker
A promissory note, bill of exchange or cheque drawn or made in [India] and made payable in, or drawn upon any person resident in, [India] shall be deemed to be an inland instrument.
Inland instrument
A bill of exchange payable after sight must, if no time or place is specified therein for presentment, be presented to the drawee thereof for acceptance, if he can, after reasonable search, be found, by a person entitled to demand acceptance, within a reasonable time after it is drawn, and in business hours on a business day. In default of such presentment, no party thereto is liable thereon to the person making such default.
If the drawee cannot, after reasonable search, be found, the bill is dishonoured.
If the bill is directed to the drawee at a particular place, it must be presented at that place; and if at the due date for presentment he cannot, after reasonable search, be found there, the till is dishonoured.
Presentment of a bill for acceptance
(c) “bill of exchange” includes a hundi and a cheque;
Clause (c): bill of exchange includes a hundi and a cheque
Example
For example, a bill drawn in Kolkata on a merchant resident in Dubai and payable in Dubai is a foreign instrument, because it is neither payable in India nor drawn on a person resident in India.
For the exam
- Section 5 NI Act: unconditional written order, signed by maker, to pay a certain sum to a certain person or bearer.
- Parties: drawer, drawee (acceptor after acceptance) and payee; drawee in case of need under Section 7.
- A promissory note is a promise to pay; a bill is an order to pay.
- A cheque is a bill drawn on a specified banker payable on demand (Section 6).
- Inland if drawn in India and payable in India or drawn on a person resident in India (Section 11).
1,025 questions in the Law Maker question bank use this term. Practise Negotiable Instruments Act, 1881 questions
Related terms
- Negotiable instrumentA promissory note, bill of exchange or cheque payable either to order or to bearer (Section 13(1) of the Negotiable Instruments Act, 1881).
- Promissory noteA written instrument, not a bank-note or currency-note, containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of, a certain person or the bearer.
- ChequeA bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form. Section 6 of the NI Act.
- Holder in due courseOne who for consideration becomes possessor of a bearer instrument, or payee or indorsee of an order instrument, before maturity and without cause to believe the transferor's title defective. Section 9, NI Act.
- Payment in due coursePayment according to the apparent tenor of a negotiable instrument, in good faith and without negligence, to the person in possession, where nothing gives reasonable ground to believe he is not entitled to it (Section 10, NI Act).
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.