Classification Of Bills Of Exchange



Bills of Exchange: Classification

Bills of exchange can also be based on classification. Bills of exchange can be classified as inland bills and foreign bills, and often involve international trade. 

Inland bills : are drawn between two parties that are located or reside in the same country and thus are made payable in the same country.

Meaning of Inland Bills; A bill of exchange which is drawn or made in a country and paid in the jurisdiction of the same country is called inland bill.

The section 11 of Negotiable Instrument Act 1881 provides that the bills of exchange (including cheques/promissory notes) drawn or made in India and made payable in or drawn upon any person resident in India shall be deemed to be inland bill of exchange (or inland cheques or inland promissory notes as the case may be).

From the above definition, we understand that the following types of bills are called ‘Inland Bill’.

1.   The bill drawn in India and paid in India.

2.   The bill drawn in India and drawn upon a person resident in India, whether payable in India or outside India.

3.   The bill drawn in India on a person residing outside India but payable in India.

Illustrations of Inland bills:

·        A bill is drawn by the seller in Mumbai on a buyer in Bengaluru and bill is payable at Delhi is an inland bill.

·        A bill is drawn by the seller in Chennai on a buyer in Washington (US) but is made payable in Mumbai (India) is an inland bill.

·        The bill is drawn by a seller in Jaipur (India) on a buyer in Hyderabad (India) accepted for payment in Sydney (Australia) is an inland bill.

Foreign bills are drawn and involve parties in two different countries. For example, an international bill might involve a seller located in the United States, where the bill is drawn, and a buyer in England. In this example, the bill is made payable in England, the buyer or drawee’s location.

A bill which is not the inland bill is a foreign bill. The following types of bills are called foreign bills of exchange.

1.   A bill is drawn outside India and made payable outside India.

2.   A bill drawn outside India and made payable in India

3.   A bill drawn outside India on any person residing outside India

4.   A bill drawn outside India on a person residing in India

The foreign bills are generally drawn in 3 sets and each set is termed as a ‘via’ and dispatched to the drawee in 3 different modes of mail services to avoid the delay. As soon as one set of them is paid, the other two become inoperative.