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Bills of Exchange

Q.7. What are the difference between cheque and bill of exchange?                                                                   

Ans: -         

Basis

Cheque

Bills of Exchange

i.         Drawee

A cheque is always drawn on a bank or banker.

A bill of exchange can be drawn on any person including a banker.

ii.       Acceptance

A cheque does not require any acceptance.

A bill must be accepted before the Drawee can be made liable upon it.

iii.      Payment

A cheque is payable immediately on demand without any days of grace.

A bill of exchange is normally entitled to three days of grace unless it is payable on demand.

iv.     Stamp

A cheque does not require any stamp.

A bill of exchange must be stamped.

v.       Protection

A banker is given statutory protection with regard to payment of cheques in certain circumstances.

No such protection is available to the Drawee or acceptor of a bill of exchange. 

 

 Q.8.What are the difference between discounting and retiring of bill of exchange?                                              

Ans: - There are some difference between Discounting and Retiring as given below:

Discounting:

          i.         It is the process of selling the bill to the bank or anyone else before the due date.

ii.        The reduction made by the bank is called discount.

iii.      Discount is a loss to the person who discounts the bill and a gain to the bank.

Retiring:

          i.         It is the process of paying the amount of the bill before due date.

ii.        The concession allowed to the acceptor is called rebate.

iii.      Rebate is a loss to the payee and a gain to the acceptor.

 

Q.9. What do you mean by dishonour of cheques? What are the various resons for it?                                

Ans: - Cheque is ordinarily paid by the drawee bank if it is in perfect order. But sometimes a cheque is not paid. When a cheque is paid by the drawee bank, it is said to be honored. When it is not paid it is said to be dishonored.

In the Following cases the bank may dishonor a cheque:

i.         When the customer has died and the bank has notice of his death.

ii.        Where the customer has become insolvent or an order of adjudication has been passed against him.

iii.      When the bank has received an order from the court prohibiting payment out of the funds belonging to the customer.

iv.      When a customer becomes a lunatic and the banker has got notice of his insanity.

v.        Where the drawer countermands payment.

vi.      When the customer has not got sufficient funds with the bank and there is no overdraft arrangement.

vii.     Where there are material alterations or signatures of the drawer or endorses are irregular.

viii.   When the drawer has closed his account prior to the presentation of cheque.

ix.      When a cheque is mutilated.

 

Q.10. What is Endorsement? What are the kinds or important of Endorsements?                                           

Ans: - Endorsement is the act of signing a cheque for the purpose of transferring it to somebody else. Under Negotiable Instruments Act it means the writing of one’s name on the back of the instrument or any paper attached to it with the intention of transferring the rights therein.

 A bearer cheque can be transferred by mere delivery but an order cheque is transferred by endorsement and delivery. Endorsements are usually made on the back of the cheque, though they can be made on its face as well. If, however, no space is left on the instrument, it may be made on a separate paper attached to it.

 

Endorsements are of various kinds, the most important being as follow:

i.      Blank or general endorsement: A blank or general endorsement is one in which the endorser simply puts down his signature. The name of the endorsee, it should be noticed is not put down. The effect of such an endorsement is to make the cheque a bearer cheque. The property in the cheque can now be transferred by mere delivery, no endorsement being required. Thus an order cheque can be made a bearer cheque by putting down a blank endorsement.

ii.     Special endorsement: Special or full endorsement is that which contains not only the name of the endorser but also the name of the endorsee. The effect of special endorsement is that the endorse must endorse it again if he wants to transfer the property in the cheque to somebody else.

iii.   Restrictive endorsement: When an endorsement restricts the negotiability or transferability of proprietorship of a cheque, it is known as restrictive endorsement.

iv.   Partial endorsement: A partial endorsement is one which means to transfer the cheque only for a part of its value. For instance a cheque for Rs. 500 may be endorsed only for Rs.300. Legally such an endorsement is invalid.

 

Q.11. What do you mean by Maturity of Bill?                                                                                                                                    

Ans: -   The term maturity refers the date on which a bill of exchange or a promissory note becomes due for payment. In arriving at the maturity date three days, known as day of grace, must be added to the date on which the period of credit expires instrument is payable.

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