Case Analysis on Bill of Exchange and Promissory Note

Submitted to:
Md. Nazmul Hasan
Associate Professor
Department of Banking and Insurance
University of Dhaka

Submitted by:
Group -09: The Bloombunch
Name ID
Saymoon Islam Evan (Leader) 099(MP-813)
Nancy Ghosh 033(MP-663)
Md. Ismail Hossain Siam 021(MP-639)
Zarin Mahzabin Mafee 102(MP-69,D)
Nafis Hossen Chowdhury 096(MP-773)
Adiba Mehrin 003(MP-347)

Batch-28th
Section: B
Department of Banking and Insurance
University of Dhaka
 Table of content

Introduction………………………………………………………………………03
Problem-01……………………………………………………………………….05
Problem-02………………………………………………………………………..07
Problem-03………………………………………………………………………..09
Problem-04………………………………………………………………………..10
Problem-05………………………………………………………………………..11
Problem-06………………………………………………………………………..11
Problem-07………………………………………………………………………..12
Problem-08………………………………………………………………………..13
Problem-09………………………………………………………………………..14
Problem-10………………………………………………………………………..15
Problem-11………………………………………………………………………..16
Problem-12………………………………………………………………………..17
Examination Question-01……………………………………………………..20
Examination Question-02……………………………………………………….22
Examination Question-03……………………………………………………….23
Examination Question-04……………………………………………………….24
Examination Question-05……………………………………………………….25
Examination Question-06……………………………………………………….26
Examination Question-07……………………………………………………….27
Examination Question-08……………………………………………………….27
Examination Question-09……………………………………………………….28
Examination Question-10……………………………………………………….29
Examination Question-11……………………………………………………….30
Examination Question-12……………………………………………………….31
Conclusion………………………………………………………………………32

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 Letter of Transmittal

25th February 2023

Md. Nazmul Hasan
Associate Professor
Department of Banking and Insurance
Faculty of Business Studies
University of Dhaka.
Subject: Submission of report on case analysis of “Bill of Exchange and Promissory
Notes”.

Dear sir,
We are very delighted to submit the enclosed report on case analysis of the
chapter "Bill of Exchange and Promissory Note" as part of our coursework in B-
101: Principles and Practices of Banking. The report has been completed by the
information we gathered from the chapter & from some other outside sources.
As a requirement of preparing a report, we have tried our level best to complete
this report meaningfully and correctly, as much as possible. We hope that this
report will meet your expectations. We will be delighted to receiving feedback and
suggestions for improvement our skills and knowledge.

Thank you for your guidance and support throughout the course, and we look
forward to hearing your feedback on the report.

Sincerely yours,
Saymoon Islam Evan
ID: 130-099
Section: B
On behalf of Group: 9

2
 Introduction

 Bill of Exchange: A Bill of Exchange is an important instrument widely used

in the discharge of business obligations – both in case of home trade and
foreign trade. It is generally written by a creditor on his debtor and is
presented to the latter for acceptance, if it is not payable on demand. After
signifying his acceptance, the debtor/drawee of the bill is called the acceptor,
who commits himself to make payment on the due date.

Classification of Bill of Exchange: The bills of exchange may be classified as

the following:-
(1) Inland and Foreign Bills.
(2) Time and Demand Bills.
(3) Trade Bills and Accommodation Bills.
(4) Clean Bills and Documentary Bills.

 Promissory Note: A Promissory Note is a financial instrument that contains a

written promise by one party (the debtor) to pay another party (the creditor) a
specified sum of money on demand or at a fixed future date. A promissory note
usually contains the principal amount, interest rate, maturity date, date and
place of issuance and signature of the issuer.
 Presentment of Negotiable Instruments and Acceptance: Presentment of
a negotiable instrument means that it is placed before the drawee/acceptor of
a bill or Cheque or the maker of a promissory note for acceptance, sight or
payment.
Presentment for acceptance is necessary in case of bills of exchange only. But
a bill of exchange payable on demand, or at sight, or on a fixed date does not
need acceptance and thus presentment for acceptance is unnecessary unless
such presentment is specially mentioned therein.
A bill of exchange payable after sight must be presented for acceptance within
a reasonable time after it is drawn and during business hours on a business
day.

 Dishonor of Negotiable Instruments: A negotiable instrument can be

dishonored by: (1) non-acceptance, or (2) non-payment. As acceptance by the
drawee is necessary in case of bills of exchange only, the latter are dishonored
by non-acceptance.
A bill of exchange is said to be dishonored by non-acceptance when:
1. The drawee or one of the several drawees makes default in
acceptance when the bill is duly presented to him.
2. The presentment for acceptance is excused and the bill is not
accepted. Where the drawee is not competent to contract or the
acceptance given by the drawee is qualified.

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 A promissory note, bill of exchange or Cheque is said to be dishonored
by non-payment, when the maker of the note, acceptor of the bill or the
drawee of the Cheque makes default in payment upon being duly
required to pay the same.
 Rate of Interest on Bills and Promissory Notes: The amount for which a
bill of exchange or a promissory note is drawn may be payable together with
interest due thereon. If no rate of interest is specified in the instrument,
interest on the amount due thereon shall be calculate at the rate of 18% per
annum, notwithstanding any agreement relating to interest between any
parties to the instrument.

 Acceptance for Honour: A bill of exchange is normally accepted by the

drawee but in certain circumstances any other person, who is not liable to
accept the bill, may also accept it for the honour of any party – drawer or
endorser – liable on the bill. Such acceptance is called “acceptance for
honour”.

 Payment for Honour: The payment made by a person not liable on the bill,
for the honour of a person liable is called “payment for honour”. For example,
X makes payment of a bill drawn by Y upon Z for the honour of Y. X is
entitled to recover from Y the amount of the bill, interest thereon and all
expenses properly incurred by him in making such payment.

Objectives of the Report:

The objectives of the report are following:
 To provide an in depth understanding of bills of exchange and promissory
notes, which are essential financial instruments used in banking industry.
 To explain the types and parties involved in bills of exchange and promissory
notes.
 To discuss the legal formalities of negotiability, presentment, acceptance and
honouring of bills of exchange.
 To provide insights into the legal remedies available in case of default or
dishonoured bills of exchange and promissory notes.

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 Case Analysis

Problem-01
When would the following items fall due for payment and why?
i) Bill dated 26th January, 1968 payable after one month.
Solution:
Bill dated 26th January 1968, payable after one month would fall due for payment on
29 February 1968 (as in 1968 February had 29 days).

The above bill is payable one month after date, it will mature for payment on 29
February, 1968 because the period of one month shall be held to terminate on the
day which corresponds with the day on which the bill is drawn (i.e. 26thJanuary).

The corresponding date after one month will be February 26 th and after adding 3
days of grace period, the bill will mature on:

26th January 1968

+3 days of grace
---------------------------------------------------------
Maturity date= 29th January 1968

ii) Bill dated 7th March, 1967 payable 20 days after sight and accepted
on 10th March, 1967.
Solution:
Bill dated 7th March, 1967 payable 20 days after site and accepted on 10th March,
1967 would fall due for payment on 2nd April 1967.

Section 23 and section 24 of the negotiable instruments act defines “in case a bill or
note is payable a certain number of days after date or after sight or after certain
event, the day of the date or of presentment for acceptance or sight shall be excluded
in calculating the day of maturity.”
That’s why I won’t count 10 th March in calculating the maturity date of the bill.

So after 20 days, the bill will mature on 30th March 1967 and after adding 3 days of
grace period the maturity date of the bill will be:

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 30th March 1967
+ 3 days of grace (31st March, 1st April, 2nd April)
-----------------------------------------------------------
Maturity date= 2nd April 1967.

iii) A promissory note dated 16th January, 1968 payable 45 days after
date without grace.
Solution:
A promissory note dated 16th January, 1968 payable 45 days after date (without
grace) would fall due for payment on 1st March 1968.

As revising the previous law (section 23 and section 24) I won’t count 16th January
in calculating the maturity date of the bill.
So 45 days of the maturity period would complete as follows:

15 days of January (excluding 16 January)

29 days of February (as in 1968 February had 29 days)
1 day of March (1st March, 1968)
----------------------------------------------------------
Total=45 days.

That’s how the 1st March 1968, maturity date of the bill, has found.

iv) Bill dated 28th November, 1967, payable 90 days after date.
Solution:
Bill dated 28th November, 1967, payable 90 days after date would fall due for
payment on 29th February 1968 (as in 1968 February had 29 days).

As I follow section 23 and 24 of the Negotiable Instruments Act, I won’t count 28th
November 1967 in calculating the maturity date of the bill.
So 90 days of the maturity period would complete as follows:

2 days of November 1967

31 days of December 1967
31 days of January 1968
26 days of February 1968
----------------------------------------------
Total=90 days

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In addition to these 90 days there are also 3 days of grace period.
So the Maturity date of the bill will be:

26 February 1968
+ 3 days of grace (27th, 28th, 29th February)
--------------------------------------------------------------------
Maturity date=29th February 1968
.
That’s how the 29th February 1968, the maturity date of the bill, has found.

Problem-02
Calculate the dates of the following bills:
i) A bill drawn in London on 15th January, 1964 payable in Delhi at 90
days after sight and accepted on 3rd February, 1964.
Solution:
A bill drawn in London on 15 th January, 1964 in Delhi at 90 days after sight and
accepted on 3rd February, 1964 would fall due for payment on 6 th may 1964.

As I follow section 23 and 24 of the Negotiable Instruments Act, I won’t count 3 rd

February in calculating the maturity date of the bill.

So the 90 days of the maturity period would complete as follows:

26 days of February (as in 1964 February had 29 days)

31 days of March
30 days of April
3 days of May (1st May, 2nd May, 3rd May)
-------------------------------------------------
Total=90 days.

In addition to this 90 days there are also 3 days of grace period.

So the maturity date of the bill will be:
3rd May 1964
+ 3 days of grace (4th, 5th, 6th May)
-------------------------------------------------------------
Maturity date= 6th of May 1964.

That’s how the 6th May 1964, the maturity date of the bill, has found.

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ii) A bill drawn in Madras on 19th October, 1963 payable at 64 days
after date and accepted on 21st October, 1963.
Solution:
A bill drawn in Madras on 19 th October 1963 payable at 64 days after date and
accepted on 21 October, 1963 would fall due for payment on 27th December 1963.

As I follow section 23 and 24 of the Negotiable Instruments Act, I will not count 21 st
October 1963 in calculating the maturity date of the bill.

So the 64 days of the maturity period would complete as follows:

10 days of October 1963

30 days of November 1963
24 days of December 1963(24th December 1963)
-------------------------------------------------------------------------
Total=64 days.

In addition to these 64 days, there are also 3 days of grace period.

So the maturity date will be:

24th October 1963

+ 3 days of grace (25th, 26th, 27th October)
----------------------------------------------------------------------------
Maturity date=27th December 1963.

That’s how the 27th December 1963, the maturity date of the bill, has found.

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 Problem-03
A banker discounts a D/A bill payable 90 days after sight for Drake and
Co. drawn on Rake and Co. The bill is duly accepted by the drawee.
i. Before the bill matures, the drawee becomes insolvent. What are
the remedies open to the banker?
Solution:
When then drawer of a bill of exchange encloses with it a document of title to goods
or any other document, it is called a documentary bill. “D/A bill” or “Documents against
Acceptance bill” payable 90 days after sight is a specific type of payment arrangement
used in foreign trade. In this case, the bill of lading to be delivered to the drawee.
If the drawee becomes insolvent before the bill matures, the banker has the several
remedies which may include:
a) The banker can return the bill to the holder (Drake and Co.) and ask them to
get it noted and protested for non-payment.
b) The banker can claim the amount of the bill from the legal party of the drawee.
c) If the bill was discounted with recourse, the banker can claim the amount from
the holder (Drake and Co.).

ii. If Drake and Co. have a current account with the bank showing a
credit balance, can it exercise a set-off? If so, when?
Solution:
If Drake and Co. have a current account with the bank showing a credit balance, it can
exercise a right of set-off against the bill amount. The right of set-off is a statutory right
which means the mutual claims of debtor and creditor are adjusted and only the
reminder amount is payable by the debtor. The right of set-off allows the bank to use
the credit balance in the current account to pay off the bill amount.
However, the right of set-off can only be exercised if the following conditions are
fulfilled:
a) The current account and the bill are in the same currency.
b) The current account was opened before the bank discounted the bill.
If both the conditions are fulfilled, Drake and Co. can exercise the right of set-off as
soon as the bank discounts the bill.

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 Problem-04
A, a customer, accepts a bill of exchange payable at his bank to the order
of the drawer. Upon presentation at maturity, it is paid by the bank. A, the
customer, subsequently discovers that drawer’s signatures is a forgery.
Discuss the position of the banker. What difference would it make if the
forgery is in the acceptor’s signature and not that of the drawer?
Solution:
In the given scenario, A, the customer accepts a bill of exchange payable at his bank
to the order of the drawer. Upon presentation at maturity, the bank paid the bill. A then
discovers that the drawer’s signature is a forgery.
In such a situation the position of the banker would be depend on whether the forgery
is of the drawer’s signature or the acceptor’s signature.
Bank is bound to exercise reasonable care and diligence in verifying the signature of
the drawer. The banker takes specimen signatures of his customers’ at the time of
opening the account. He should compare the drawer’s signature on the bill with the
specimen signature of the customer. He should carefully examine the signature to find
out whether the drawer’s signature is forged or not. If there is any difference or doubt
he should not pay the bill. If there is forgery and negligence on the part of the banker
to detect the forgery he will be held liable to the customer for the amount paid on the
bill.
On the contrary, if the forgery is in the acceptor’s signature and not that of the drawer,
the position of the banker would be different. In the case of acceptor’s signature, it
may not necessarily be the banker’s responsibility to verify the signature. A, being the
customer of the bank it’s his responsibility to ensure the authenticity of the signature.
The bank will not be held responsible for making the payment of the bill in this
circumstance.
However, in cases of forgery, the position of the bank will depend on the circumstances
surrounding the forgery and the bank’s actions in response to it.

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 Problem-05
Find the due date of a Bill of Exchange drawn on 30th November, 1974
payable 3 month after date. What happens if the due date falls on a Bank
holiday?
Solution:
To find the due date of a Bill of Exchange that is drawn on 30th November, 1974
payable 3 months after date, we need to add 3 month or 90 days and 3 days of grace
to the date of the bill. So, the due date of the bill will be 3rd March, 1975 (30th Nov +
90 days = 28th Feb + 3 days of grace = 3rd March).
If a bill or note matures on a Bank holiday, it shall be deemed to be due on the next
preceding working day. The words ‘next preceding day' mean ‘the immediately
previous day'. This is because banks are closed on public holidays, so the bill cannot
be presented for payment. The next preceding business day is considered the due
date for the bill. Suppose, if a bill matures on 16th December 1981 which is a bank
holiday, it will be due for payment on 15th December 1981.

Problem-06
Give the dates on which the following bills of exchange will be due for
payment:
1. Bill of Exchange dated 30-11-1977 payable 4 months after date.
Solution:
To find the due date for the Bill of Exchange dated 30-11-1977 payable 4 months
after date, we need to add 4 months or 120 days and 3 days of grace to the date of
the bill. So, the due date of the bill will be 2nd April, 1978 (30th Nov + 120 days = 30th
March + 3 days of grace = 2nd April). Therefore, the due date for the bill dated 30-11-
1977 is 2-4-1978.

2. Bill of Exchange dated 1-3-1978 and expressed payable on 9th

May, 1979.
Solution:
The Bill of Exchange dated 1-3-1978 is expressed to be payable on 9th May, 1978.
Therefore, the bill of exchange will be due for payment on 9th May, 1978.

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 3. Bill of Exchange dated 30-01-1980 payable 45 days after sight and
accepted on 4-2-1980.
Solution:
To find the due date for the Bill of Exchange dated 30-1-1980 payable 45 days after
sight and accepted on 4-2-1980, we need to add 45 days and 3 days of grace to the
acceptance date of the bill. Therefore, the due or maturity date of the bill will be 24th
March, 1980 (4th Feb + 45 days = 21st March + 3 days of grace = 24th March). So,
the due date for the bill dated 30-1-1980 payable 45 days after sight and accepted on
4-2-1980 is 24-3-1980.

Problem-07
What will be the due dates for the following instruments?
(I) A Bill of exchange dated 20th November.1989 payable 4 months after
date.
Solution:
If a bill of exchange is dated 20th November.1982 and it is payable 4 months after the
date, then the due date can be calculated by adding 4 months to the date of the bill.
Now, how we can calculate the due date:
Add four months to the date of the bill: 20th November, 1982 + 4 months + 3 days of
grace = 23rd March, 1983
Therefore, the due date of the bill of exchange is 23rd March, 1983.

(ii) A promissory Note dated 27th November. 1982 payable 60 days after
date without grace.
Solution:
If a promissory note is dated 27th November 1982 and it is payable 60 days after the
date without grace, then the due date for payment would be:
27th November 1982 + 60 days + 3 days of grace = 30th January 1983.
So, the due date for payment of the promissory note would be 30th January 1983.

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(iii) A Bill of exchange dated 28th August, 1982 payable 180 days after
date.
Solution: If a bill of exchange is dated 28th August 1982 and it is payable 180 days
after the date, the due date for payment would be:
20th August 1982 + 180 days + 3 days of grace = 23rd February 1983.
Now, it is said that, the due date for payment of the bill of exchange would be 23rd
February 1983.

(iv) A Bill of exchange dated 28th February, 1984 payable 45 days

after sight. The bill was accepted on 6th February 1984.

Solution:
Calculation of the due date: (6th February + 45 days + 3 days of grace) = 26th March,
1984.
The due date of a Bill of exchange dated 28th February, 1984. Payable 45 days after
sight and signed or accepted on 6th February, 1984 is 26th March, 1984.

Problem-08
Fill up the Blanks:
The due date of a Bill of exchange dated 1st February, 1984. Payable 45
days after sight and signed or accepted on 6th February, 1984 is______.
Solution:
Calculation of the due date: (6th February + 45 days + 3 days of grace) = 26th March,
1984.
The due date of a Bill of exchange dated 1st February, 1984. Payable 45 days after
sight and signed or accepted on 6th February, 1984 is 26th March, 1984.

13
 Problem-09
Bring out the main difference between “After date” and “After Sight” used
in Bills of Exchange.
Solution:
In bills of exchange, "after sight" and "after date" refer to the time when payment is
due to the holder of the bill. Let’s describe some main differences between after sight
and after date:
Definition: "After sight" means that the payment will be due a certain number of days
after the recipient of the bill of exchange (the "drawee") has seen and accepted the
document. "After date" means that the payment will be due a certain number of days
after the date of the bill of exchange.
Timing of payment: With "after sight", the payment due date is determined by when
the drawee accepts the bill of exchange, which could be shortly after receiving it or
several days later. With "after date", the payment due date is predetermined and does
not depend on when the drawee accepts the bill.
Risk: When a bill of exchange is drawn "after sight", the holder of the bill assumes the
risk that the drawee may not accept the bill or may delay acceptance, which would
delay the payment due date. With "after date", the risk of non-payment is lower as the
payment due date is predetermined and agreed upon by both parties.
Payment terms: "After sight" bills of exchange are often used in situations where the
buyer and seller have an established relationship and trust each other. "After date"
bills of exchange are typically used in transactions where there is less established trust
between the parties.
Negotiability: "After sight" bills of exchange are more negotiable than "after date" bills
of exchange, as the due date is not fixed until the drawee accepts the document. "After
date" bills of exchange are less negotiable as the due date is predetermined and
cannot be changed without the consent of all parties involved.

14
 Problem-10
What are the due dates on the following instruments? (Mention the
principle of calculation involved and the method of calculation in each
case)
i. A bills of exchange dated 27th October 1995 payable 4 months after
date.
Solution:
The due date of a bill of exchange dated 27th October 1995 payable 4 months after
date would be on February 27th, 1996 (assuming a 30-day month), calculated as
follows:
Add 4 months to the date of the bill of exchange (27th, October 1995): 27th October
1995 + 4 months + 3 days of grace = 2nd March, 1996.
Since there is no mention of grace days, the payment is due on the exact due date.

ii. A bill of exchange dated 31st December 1992 payable 45 days after
sight accepted on 4th January 1993.
Solution:
The due date of a bill of exchange dated 31st December 1992 payable 45 days after
sight accepted on 4th January 1993 would depend on when the holder presents the bill
to the acceptor for payment. Assuming the holder presents the bill on the same day it
was accepted (4th January 1993), the due date would be on February 18th, 1993,
calculated as follows:
Add 45 days to the acceptance date (4th January 1993): 4th January 1993 + 45 days +
3 days of grace = 21st February 1993
Since there is no mention of grace days, the payment is due on the exact due date.

iii. A promissory note dated 31st October 1992 payable 60 days after
date without grace.
Solution:
The due date of a promissory note dated 31st October 1992 payable 60 days after
date without grace would be on December 30th, 1992 (assuming a 30-day month),
calculated as follows:
Add 60 days to the date of the promissory note (31st October 1992): 31st October 1992
+ 60 days + 3 days of grace = 2 January, 1993.

15
Since there is no mention of grace days, the payment is due on the exact due date.

iv. A fixed deposit receipt maturing on a Sunday / bank holiday.

Solution:
If a fixed deposit receipt matures on a Sunday or bank holiday, the due date would be
the next working day. For example, if the fixed deposit receipt matures on a Sunday,
the due date would be on the next working day (usually Monday). The principle of
calculation involved is that the maturity date is adjusted to the next working day to
allow for the bank to process the payment.

Problem-11
What is meant by acceptance for Honour?
What are the conditions of a valid Acceptance for Honour?
Solution:
When referring to a bill of exchange or other type of negotiable instrument, such as a
promissory note, the phrase "acceptance for honour" is used. It describes the scenario
in which the holder of such an instrument presents it to a party other than the drawee
(the person who is required to pay the amount specified in the instrument) and that
party agrees to pay the amount of the instrument, typically with the stipulation of an
additional fee known as the "Honour Charge." A bill of exchange is typically accepted
by the drawee, but under certain conditions, any other person who is not required to
take the bill may do so in order to uphold the honor of all parties, including the endorser
and drawer, who are both responsible for the bill. This kind of acceptance is known as
"Acceptance for honor." According to section 108, “When bill of exchange has been
noted or protested for non-acceptance or for better security, any person not being a
party already liable thereon, may with the consent of the holder, by writing on the bill,
accept the same for the any party thereto”. On the instrument itself, the acceptance
for honor is often expressed in writing, stating the party receiving the instrument as
well as the amount of the acceptance. The drawee is still obligated to pay, but the
acceptance for honour offers a different way to collect payment and can support the
issuer of the instrument's ability to remain creditworthy.
The conditions for a valid Acceptance for Honour are:
1. The acceptance for honour must be made after the bill has been dishonoured by
non-acceptance and has been duly noted and protested.

16
2. The holder must give his consent for such acceptance for honour because after its
acceptance for honour his right against all prior parties for recovering the money is
waived.
3. The acceptance for honour can be made by a person who is not liable on the bill in
any capacity.
4. The acceptor for honour must signify his acceptance on the bill itself under his own
name and declare the name of the party for whose honour he has accepted the bill.
It is crucial to remember that accepting an honor constitutes a legal commitment, and
that breaking the pledge could lead to legal action being taken against the acceptor of
the honor.

Problem-12
Distinguish between-
(i) Ambiguous instruments and inchoate instruments
Solution:
Ambiguous instruments and inchoate instruments:
The two sorts of legal instruments that might create confusion or uncertainty in legal
transactions are ambiguous instruments and inchoate instruments. How they differ is
as follows:
Instruments that are confused or ambiguous in their wording and open to several
interpretations or meanings are referred to as ambiguous instruments. Language use,
grammar, and ambiguous clauses in the document can all lead to ambiguity. This can
lead to issues in legal disputes since various parties may understand the document
differently, which can lead to legal disputes.
Incomplete or partially executed legal documents are referred to as inchoate
instruments. They could be incomplete or need extra steps, such a seal or signature,
to be fully enforceable. Inchoate instruments may need more steps or conditions in
order to be enforceable because they are frequently made as a part of a broader legal
transaction or agreement. An example of an inchoate instrument is a promissory note
that hasn't been signed or doesn't have the necessary funds.
In conclusion, ambiguous instruments are legal documents with hazy or ambiguous
language, whereas inchoate instruments are incomplete or require further action to be
fully enforced.

17
(ii) Acceptance for honour and payment for honour.
Solution:
Acceptance for honour and payment for honour:
When a bill of exchange is paid, the terms "acceptance for honor" and "payment for
honor" are used.
Acceptance for honour happens when a third party accepts to pay the bill of exchange
on behalf of the original drawee. This person is referred to as the "acceptor for honour."
The original drawee's acceptance is followed by the signature of the acceptor for
honor, and the bill of exchange is then given back to the holder for payment. If the
original drawee fails to perform their duties, the acceptor for honor is responsible for
paying the bill of exchange.
When a bill of exchange is dishonoured, a third party, referred to as the "payer for
honour," pays the dishonoured bill of exchange on behalf of the drawee or acceptor
for honour. The payment of the bill of exchange for honour by the payer for honour
discharges the liability of all parties other than the payer for honour, who must have
been informed in advance of their desire to do so.
In conclusion, acceptance for honour entails a third party agreeing to pay the bill of
exchange on behalf of the original drawee, whereas payment for honour entails a third
party paying the bill of exchange after it has been dishonoured on behalf of the drawee
or acceptor for honour.

(iii) Noting & protesting:

Solution:
Noting & protesting:
Both noting and protesting include expressing a response or reaction to a certain
circumstance or occurrence. The key variations between the two are as follows:
Acknowledging or taking note of a situation without necessarily doing anything to
question or change it is known as noting. It is a passive reaction that entails observing
and documenting what is taking place. Making a note can be a way to save records or
documents for examination or future use. For instance, a business might take note of
a client complaint without doing anything to resolve it.
Contrarily, protesting is a more active response that entails voicing opposition or
disapproval to a specific circumstance or occurrence. It is an approach to resistance
that looks to contest or alter the current quo. Demonstrations, marches, sit-ins, and
other types of civil disobedience are just a few examples of the various ways that
people might protest. People might, for instance, demonstrate in opposition to laws or
choices made by the government.

18
In conclusion, noting is the passive act of observing and documenting a condition,
whereas protesting is the active act of voicing disapproval and opposition to a
circumstance in an effort to effect change.

(iv) Due date and days of grace:

Solution:
Due date and days of grace:
The term "due date" describes the day that a payment or job is due or anticipated to
be finished. The due date is the time by which the payment or work must be finished
in order to avoid late fees, fines, or other repercussions. For instance, if a bill is due
on the 10th of the month, the payment is due on the same day.
Days of grace, on the other hand, refers to the time frame following the deadline during
which a payment or work may still be performed without incurring fines or
repercussions. It is a window of time given to the debtor so that they can pay their debt
or finish their assignment without being penalized. Depending on the individual
agreement or contract, different numbers of days are allowed for grace. The payment
can be made up to 10 days after the due date without incurring late fees or penalties,
for instance, if a bill has a 10-day grace period.
In conclusion, the days of grace relate to the additional time allowed beyond the due
date during which the payment or work may still be done without incurring penalties.
The due date refers to the deadline by which the payment or task must be finished.

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 Examination Questions

Examination Question-01
(a) What are accommodation bills? What tests would you as a banker
apply to distinguish an accommodation bill from a genuine trade bill?
Answer:
When bill of exchange are drawn not for consideration but to accommodate (i.e. to
provide financial assistance to) a known party, such bills are called accommodation
bills. It is drawn and accepted for mutual help.
On the other hand a trade bill is a bill of exchange drawn by the seller on the buyer in
payment for goods and services. As a Banker, the meaning of the line “what tastes
would you apply to distinguish an accommodation build and a genuine trade bill” is
asking the methods that the banker would use to differentiate between an
accommodation bill and a genuine trade bill.
Accommodation Bill:
1/ it is drawn to provide financial assistance to a known party.
2/ it might be related to personal life.
3/ the parties may not have any business relationship.
4/ In case of accommodation Bill, there is no real transaction, the bill is actually created
only for financial supports.
5/ These bills are not proof of debt.
6/ to recover the debts, the drawer of the bill can initiate legal action.
Trade Bill:
1/ it is drawn by the seller on the buyer in respect of genuine trade transaction and for
consideration.
2/ it is related to business/ business transaction.
3/ the parties involved in a genuine trade Bill have an existing business relationship.
4/ Trade Bill arises from a real business transaction involving the sale of goods and
services.

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5/ these bills are proof of debt.
6/ In case of trade bill, legal remedy for the recovery of amount is not available for the
immediate Parties.

(b) What steps would you as banker take when a documentary bill
discounted by you is dishonoured by non-payment on due date?
Answer:
When a documentary bill discounted by me is dishonoured by non-payment on due
date, I would take the following steps:
(1) Notice of Dishonour:
When a documentary bill is dishonoured by non-payment, its holder or some party
liable thereto, who remains liable thereon, must give notice of dishonour to all other
parties whom the holder seeks to make severally liable thereon and to someone of
several parties whom he seeks to make jointly liable thereon.
Example: A bill of exchange drawn by A on B and is payable to C. C endorses it to D.
D endorses it to E. On presentment the bill is dishonoured. E must give notice to all
previous parties i.e, D, C and A. if he gives notice to D only, who in turn gives notice
of dishonour to C and A, the latter notice is treated as notice given by E. Failure to
serve notice of dishonour on all prior parties liable on the dishonoured instrument
discharges such parties from their liability. In the above example if E does not give
notice to D, C and A all of them will be discharged from their liability.
(2) Noting and Protesting:
The second step to be taken by the holder of the documentary bill is to get it noted by
a notary public. The holder may cause such dishonour to be noted by notary public on
the instrument or upon a paper attached thereto or partly upon each. The notary
formally makes a demand for acceptance or payment upon the drawee or acceptor
and on his refusal to do so notes the same on the bill. Thus noting means the fact that
the bill has been dishonoured is recorded on it. It should be done within a reasonable
period of time after dishonour and the note must specify the following:
 The date of dishonor.
 The reason, if any, assigned for such dishonor.
 If the instrument has not been expressly dishonoured, the reasons why the
holder treats it as dishonoured and
 The notary charges.
Protest:
After recording a note of dishonour on the dishonoured instrument, the notary public
issues a certificate to this effect which is called protest. A protest is a certificate issued
by the notary public attesting that the bill or the note has been dishonoured.

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Notice of Protest:
In all those cases where a bill or note is required by the law to be protested. Notice
of such protest must be given by the notary public instead of notice of the dishonour
in the same manner and subject to the same conditions.

Examination Question-02
Define Acceptor for Honour. Explain his right and liabilities.
Answer:
A bill of exchange is normally accepted by the drawee but in certain circumstances
any other person who is not liable to accept the bill, may also accept it for the honour
of any party- drawer of endorser-liable on the bill. Such acceptance is called
acceptance for honor and the person who accepts the the bill is called the acceptor
for honour. Such acceptor must, by writing on the bill, declare that he accepts under
protest the protested bill for the honour of the drawer or of a particular endorser whom
he names or generally for honour. If the acceptor or does not mention the name of the
person for who’s honour he accepts it shall be deemed to be made for the honour of
the drawer.
Liability:
By accepting a bill for the honour of a certain party to the bill, the acceptor for honour
undertakes liability similar to that of the person for whose honour he accepts the bill.
The acceptor for honour binds himself to all the parties subsequent to the party for
whose honour he accept to pay the amount of the bill if the drawee does not.
The liability of the accepted for honour arises after,
1/ Thee bill has been presented to the drawee for payment at its maturity and has
been dishonoured by him and
2/ noting and protesting has been done for dishonour by non-payment.

Right:
The person for whose honour the bill has been accepted and all parties prior to him
are liable, in their respective capacities, to compensate the acceptor for honour for all
loses and damages sustained by him in consequence of such acceptance.

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 Examination Question-03
Indicate the duties and responsibilities of a banker with regard to collection
of customer’s bill.
Answer:
The term banking is defined as “accepting, for the purpose of lending or investment,
of deposits of money from the public, repayable on demand or otherwise, and
withdrawable by Cheque, draft, and order or otherwise”.
A banker has several duties and responsibilities with regard to collection of customer’s
bills. It includes:
1. Acceptation of Bill: A banker accept bills of exchange, promissory notes and other
instruments of payment on behalf of its customers.
2. Verification: Banks receive bills from customer for collection. A banker must verify
the authenticity of the bill to ensure that the bill is properly endorsed and stamped.
3. Presentation of Bill: A banker should present the bill to the drawee on the due
date as per customer’s instruction for payment.
4. Notification of Payment: A banker must inform the customer about the status of
the bill. He must inform his customer of the payment made and amount received.
5. Crediting proceeds: A banker credits the customer account with the proceeds
once the payment is received from the drawee.
6. Providing Advice: A banker should provide advice his customer how to manage
and avoid their problems regarding bills.
7. Safekeeping: A banker must keep the bills in safe custody until they are collected
or returned to the customer. He must maintain the confidentiality of his customer’s
information.
8. Ensuring Compliance with Regulations: A banker must ensure that all legal and
regulatory requirements related to the collection of bills are complied with.
From the above discussion, there is no doubt to say that the banker is acting as a
mere agent for collection. There is no legal obligation for a banker to collect the bills
of exchange of his customer. But bank gives such facility to its customer. While
collecting the bills, a banker must perform the above duties and responsibilities
properly. It’s a banker’s responsibility to ensure that customers’ bills are collected
efficiently and effectively while protecting the interest of both the bank and the
customer.

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 Examination Question-04
Describe the various parties to a bill of exchange. When a bill is
dishonoured, what steps should the holder take to protect his interest?
Answer:
Section 5 of the Negotiable Instrument Act defines ‘Bill of Exchange’ as an instrument
in writing containing an unconditional order, signed by the maker directing a certain
person to pay (on demand or at a fixed or determinable future time) a certain sum of
money only to, or to the order of a certain person, or to the bearer of the instrument.
The parties involved in a bill of exchange include:
1. Drawer: A drawer is the person who creates the bill or draws the bill for making
payment. The drawer is the seller or the creditor who is owed money.
2. Drawee: A drawee is the person on whom the bill is drawn. He is liable to pay the
amount. The drawee happens to be the buyer’s bank which is instructed to pay the
seller or the payee.
3. Payee: A payee is the person on whom the payment is to be made. It can be either
the drawer or seller himself or any third party who has been assigned the right to
receive payment.
When a bill of exchange is dishonored, it means that the payee who was supposed to
receive the payment will not receive the money owed to them. Dishonoring of bill
happens when the drawee refuse to pay.
When a bill of exchange is dishonored, the holder must take the following steps to
protect his own interest:
a) Notice of Dishonor: When a bill of exchange is dishonored, the holder must give
notice of dishonoring to all the parties including the drawer and endorsers within short
time. The notice should be given in writing.
b) Noting and Protesting: The second step to be taken by the holder of a bill of
exchange on its dishonor is to get it noted by a Notary Public. Noting means the fact
that the bill has been dishonored is recorded on it. And Protest means a certificate
issued by the Notary Public attesting that the bill or the note has been dishonored.
This document serves as proof of dishonoring.
Therefore, it is important for the holder of a dishonor bill to take necessary steps to
safeguard their interest.

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 Examination Question-05
Trace the course of a bill of exchange from the time it is drawn till it is
presented for payment. Discuss in this connection the respective rights
and liabilities of various parties to a bill of exchange.
Answer:
A bill of exchange is a financial instrument that is used in national and international
trade which orders one party (Debtor) to pay a specific sum of money to another party
(Creditor/Bank) on a certain date. The following is the general course of a bill of
exchange:
1. Creation of the bill: A bill of exchange is created when the drawer (Seller/Creditor)
writes an order to the drawee (Buyer/Debtor) to pay a specific amount of money to the
payee (Creditor/Bank) at a future date.
2. Negotiation of the bill: The payee can choose to sell or transfer the bill to a third
party in exchange for immediate payment. The drawee then becomes obligated to pay
the holder of the bill.
3. Acceptance of the bill: The drawee may choose to accept the bill, which means
he agrees to pay the sum specified on the due date. Once the drawee accepts the bill,
he becomes the acceptor and is legally bound to pay the holder the specified sum on
the due date.
4. Endorsement of the bill: The holder can choose to endorse the bill by signing it
over to another party. Endorsement can be either blank (where the bill is signed
without specifying the new payee) or special (where a new payee is specified).
5. Presentment of the bill: On the due date, the holder or holder's bank presents the
bill to the drawee or drawee's bank for payment. The bill must be presented in a timely
manner to be valid. The holder can take legal action to recover the amount owed if the
drawee fails to pay.
The respective rights and liabilities of the parties to a bill of exchange are as follows:
Drawer:
(1) The drawer has the right to receive payment from the drawee on the due date.
(2) The drawer is liable to the holder if the drawee fails to pay and must reimburse the
holder for any losses incurred.
Drawee:
(1) The drawee has the obligation to pay the sum specified on the bill to the payee or
holder on the maturity date.
(2) The drawee is liable to the holder if he fails to pay and must reimburse the holder
for any losses incurred.

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Payee/Holder:
(1) The holder has the right to receive payment from the drawee on the due date.
(2) The payee or holder is liable to the endorsee if the drawee fails to pay and must
reimburse the endorsee for incurring losses.
(3) The payee or holder can endorse the bill to another party or negotiate the bill to a
bank for collection.
Endorsee:
(1) The endorsee has the similar rights and liabilities as the holder, and can further
negotiate or transfer the bill.
Acceptor:
(1) The acceptor has the obligation to pay the amount specified on the bill to the holder
or endorsee of the bill on the due date.
(2) The acceptor is liable to the holder or endorsee if he fails to pay and must reimburse
the holder or endorsee for incurring losses.

Examination Question-06
Why are Bank Holidays notified under the Negotiable Instruments Act?
Answer:
Bank holidays are notified under the Negotiable Instruments Act to provide clarity and
uniformity in the calculation of the maturity date for negotiable instruments such as
promissory notes, bills of exchange and Cheque. The term ‘bank holiday’ includes
Sunday and any other day declared by the Government by notification in the Official
Gazette to be a public holiday.
When a negotiable instrument is due for payment on a Bank holiday, the holder of the
instrument cannot present it for payment on that day. To ensure that the postponement
is uniform across the country and for all negotiable instruments, bank holidays are
notified under the Negotiable Instruments Act. These holidays are notified in advance
because:
• In calculating reasonable time for presentment and serving of notice of dishonor and
noting bank holidays are excluded.
•If a bill or note matures on a bank holiday, it shall be deemed to be due on the next
preceding business day.

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 Examination Question-07
You hold a bill (time) for Rs.10000. It is dishonoured on the due date. What
steps should you take to protect your interests?
Answer:
I should take the following steps to protect the interest:
 Contact the drawer or drawee: should contact the drawer or drawee of the bill
to inquire about the reasons for the dishonour.
 Take legal action: if the bill remains unpaid. I can take legal action to recover
the amount due. This may involve filing a suit for recovery of the amount or
taking other legal measures.
 Preserve the bill: I should ensure that I keep the original bill safe along with any
relevant documents such as the notice of dishonour and any correspondence
related to the bill.
So, it is important to take prompt action to protect the interest of the bill and to preserve
any legal rights I may have.

Examination Question-08
In what manner is the liability of a drawer, acceptor and endorser of a
negotiable instrument discharged?
Answer:
The liability of a drawer, acceptor and endorser of a negotiable instrument can be
discharged in the following steps:
Payment: The liability of the drawer, acceptor and endorser can be discharged by
making payment of the full amount due under the negotiable instrument. Once the
payment has been made the liability of the party making the payment is discharged.
Release: The liability can also be discharged by releasing the party from its obligation
to pay. This can happen when the holder of the instrument releases the party from
liability, either by way of a written agreement or by accepting a lesser amount in full
satisfaction of the debt.
Renewal: The liability can be discharged by renewal of the instrument. This means
that a new instrument is created with a new due date and the old instrument is
cancelled.
So, it is important that any discharge of liability must be agreed upon by all parties to
the negotiable instrument. If one party disagrees with the discharge, then the liability
of that party will not be discharged.

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 Examination Question-09
What are the rules governing presentation for payment of promissory
notes, bills of exchange and Cheques? When is such presentation
unnecessary?
Answer:
The presentment for payment should be made according to the following rules laid
down in the Act:
1. A promissory note or bill of exchange which is payable at a specified period after
date or sight thereof, must be presented for payment at maturity (Section 66).
2. Presentment for payment must be made during the usual hours of business. In case
of a banker, presentment be made within banking hours (Section 65).
3. A promissory note payable by instalments must be presented for payment on the
third day after the date fixed for payment of each instalment. Non - payment on such
presentment has the same effect as non - payment of a note at maturity (Section 67).
4. A promissory note, bill of exchange or Cheque made, drawn or accepted payable
at a specified place and not elsewhere must be presented for payment at that place in
order to charge any party thereto (Section 68). A promissory note or bill of exchange
made , drawn or accepted payable at a specified place must be presented for payment
at that place in order to charge the maker or drawer thereof (Section 69 ) .
5. If no specific place is mentioned in the bill or the note ( as above ) , it must be
presented for payment at the place of business , or at the usual residence of the
drawee ( acceptor ) or the maker , as the case may be ( Section 70 ) . If the latter has
no known place of business, or fixed residence, such presentation may be made to
him in person wherever he can be found (Section 71).
6. A negotiable instrument payable on demand must be presented for payment within
a reasonable time after it is received by the holder (Section 74).
7. Presentment for payment (and acceptance also) may be made to:
(i) The duly authorized agent of the drawee, maker or acceptor. Or
( ii ) his legal representative , in case of his death , or ( iii ) his assignee , if he has
been declared insolvent ( Section 75 ) .
8. Delay in presentment for acceptance or payment is excused if the delay is caused
by circumstances beyond the control of the holder, and not imputable to his default,
misconduct or negligence. The instrument must be presented within a reasonable
period when the cause of delay ceases to operate (Section 75 - A).
9. A presentment through the post office by means of a registered letter is sufficient, if
authorized by agreement or usage (Section 64).

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Presentment is unnecessary is such cases: According to Section 76, a negotiable
instrument is dishonoured at the due date for presentment in the following cases and
hence no presentment is necessary;
(i) If the maker, drawee or acceptor intentionally prevents the presentment of the
instrument.
(ii) If the instrument is payable at his place of business, he closes such place on a
business day during the normal business hours or if the instrument is payable at some
specified place, neither he nor his duly authorized agent is present at such place during
usual business hours or if no place is specified, he cannot, after due search, be found.
(iii) If the parties to a negotiable instrument have undertaken to pay the instrument
even if it is not presented for payment. Thus presentment is waived expressly or
impliedly.
(iv) If the drawee could not suffer damage from non - presentment of such instrument,
any holder can make the drawer liable without presentment.

Examination Question-10
What do the words “at sight”, “on presentation”, “after date”, “after sight”
mean?
Answer:
At sight: At sight is a payment due on demand where the party receiving the good or
service is required to pay a certain sum immediately upon being presented with the
bill of exchange. This type of payment is also known as a "sight draft" or a "sight bill."
On presentation: "On presentation" in bills of exchange refers to the time when the
holder of the bill presents it to the drawee for payment. It is a phrase commonly used
in the context of negotiable instruments such as checks, promissory notes, and bills
of exchange. When a bill of exchange is marked "on presentation," it means that the
holder of the bill can present it for payment at any time after receiving it.
After date : Bills after date is a term used in bills of exchange, which are negotiable
financial instruments used in international trade to facilitate the exchange of goods and
services between parties in different countries. Bills after date refers to the specific
date that the bill of exchange will become due and payable. For example, if the bill is
drawn on 1st January and its maturity is 30 days after date then its due date would be
1st January + 30 days = 31st January.
After sight: A notation on a draft that indicates that the payment is due a fixed number
of days after the draft has been presented to the drawee. For example, “60 days after
sight” means that the drawee has 30 days from the date of presentation of the draft to
make payment. See acceptance date; after date; bill of exchange; drawee.

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 Examination Question-11
What do the rules prescribed in the Negotiable Instrument Act for
calculating the maturity of a promissory note or bill of exchange expressed
payable (i) so many months after date or sight and (ii) so many days after
data or sight? Illustrate your answers with examples.
Answer:
The terms for determining the maturity of a promissory note or bill of exchange
payable (i) so many months after date or sight and (ii) so many days after date or sight
are set forth in the Negotiable Instruments Act. These regulations aid in establishing
the payment's due date and the window of opportunity for the payee to get payment.
When a promissory note or bill of exchange is payable "so many months after date,"
it signifies that the payment is due a specific number of months after the date of the
instrument. Matureness is determined as follows:
Maturity date = Date of the instrument + Number of months
For example, if a bill of exchange is accepted on January 1, 2023, and is payable 60
days after acceptance, then the maturity date would be March 2, 2023 (January 1 +
60 days = March 2).
It is important to note that in the case of a bill of exchange, the number of days is
calculated from the date of acceptance, not the date of the instrument.
In conclusion, the rules prescribed in the Negotiable Instrument Act for calculating the
maturity of a promissory note or bill of exchange are essential in determining the due
date of payments. Payees must be aware of these rules to ensure timely collection of
payments.

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 Examination Question-12
How and when should a notice be served on a bill dishonoured by either
non-acceptance or non-payment? Under what circumstances is notice of
dishonour unnecessary?
Answer:
When a bill of exchange is dishonoured by either non-acceptance or non-payment, the
holder of the bill should serve notice of dishonour to the parties liable on the bill. The
purpose of the notice is to inform them that the bill has been dishonoured and that they
are liable for payment.
The notice of dishonour should be served as soon as possible after the dishonour
occurs, ideally on the same day, but in any event, within a reasonable time. The notice
can be served by any means that provides proof of delivery, such as registered mail
or courier.
Under certain circumstances, notice of dishonour may not be necessary. These
include:
1. Waiver of notice: If the parties liable on the bill have waived their right to receive
notice of dishonour, then the notice is not required.
2. Dispensation of notice: If the drawer or acceptor of the bill has explicitly stated that
notice of dishonour is not necessary, then the notice is not required.
3. Inability to give notice: If the holder of the bill is unable to give notice of dishonour
despite making reasonable efforts to do so, then notice is not required.
4. Delayed presentation: If the bill was not presented for acceptance or payment within
a reasonable time, then the parties liable on the bill may be discharged from liability,
and notice of dishonour is not required.
It is important to note that failure to give proper notice of dishonour may result in the
holder of the bill losing their right to recover the amount due on the bill from the parties
liable on the bill. Therefore, it is essential to follow the rules for giving notice of
dishonour carefully.

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 Conclusion
Bills of Exchange and promissory notes are significant financial instruments used in
banking and business operations. These serve as a mode of payment for the
exchange of goods and services between parties as well as to simplify the interchange
of goods and services between parties. It is a secured payment system. However, the
other parties may sustain financial damages if one party doesn’t make a payment by
the deadline. That’s why it is important to understand the legal and practical aspects
of these instruments, which is essential for anyone involved in banking or business.

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