Bill of Exchange

Normally, bills of exchange or promissory notes are drawn to finance the actual transactions in goods, i.e., an acceptance is made to settle a trade debt owing to the drawer by the drawee in case of a bill of exchange and the bill is called a trade bill . As it originates from genuine trade transaction it is for value received and is enforceable. For example, Ankit buys goods from Bishan, he may postpone the payment by accepting a draft drawn by Bindu upon him. Bindu can if he wants, get the money immediately by getting Ankit’s acceptance discounted with his bank.

But, apart from financing transaction in goods, bills of exchange promissory notes may also be used for raising funds temporarily. Such a bill is called an ‘ accommodation bill’ as it is accepted by the drawee to accommodate the drawer. Hence, the drawee is called the ‘accommodating party’ and the drawer is called the ‘ accommodation party’ . For example , Raj draws upon Pal a bill for Rs.

, on April , for three months and the latter accepts the same to accommodate Raj. Raj discounts it with his bank at % per annum on the same date. Raj remitted the amount one day before the maturity of the bill to Pal. Pal met the bill on the date of its maturity.