What is Bill of Exchange
A bill of exchange is an order made by the shipper or an exporter who is called a drawer of bill to the buyer or importer who is called a drawee of the bill, asking him to make the payment of the amount specified in the Bill of exchange against the value received by way of submission of shipping documents and giving a detailed account for the drawee in the form of commercial invoice.
In the international trade, there are very few instances of drawing a clean bill of exchange as the payment is usually made against shipping documents evidencing the actual shipment made. The exporter draws a dr5aft which may be either at sight or usuance. The bills are drawn in to two sets if the goods are shipped by sea. These sets are presented to the buyer by an authorised dealer through its foreign correspondent.When any of the drafts is paid it is a sight draft and accepted by the buyer when it is a usance draft.
The bill of exchange are either negotiated/purchased or sent through collection. If there is a purchased /negotiated and the credit can immediately given to the exporter and if there is no such facility available the amount stated therein will be made available to the drawer only on receipt of the proceeds of said Bill of Exchange.
Bill of exchange is a negotiable instrument as per Section 5 of Negotiable Instrument Act,1881 and simillar Acts are also inforce in various other countries. The rights and responsibilities of the drawer, the drawee and the endorsers are as per the negotiable Instruments Acts. Though the banker is acting as an agent for collections or a holder in due course, the principal responsibility of the payment to be received is that of the drawer of the bill and incase bill of of exchange remaining unpaid or payment refused, the banker holds no responsibility except may be charged and proved with gross negligence in handling the documents.
In order to protect the interest of the banks and the financial institutions negotiating the bill of exchange under the letter of credit, Uniform Customs and Practice for Documentary Credits has laid down that though the Bill of Exchange are drawn without recource to the drawer of the bill under letter of credit, in case of bil of Exchange remaining unpaid the negotiating banker has a right to recall the funds disbursed at the time of negotiation. If the bill is dishonoured it should be got noted and protested from a Notary Public who will give his observations on the date dishonour and will charges his fee for this job.