Bill of exchange is an important type of negotiable instruments, and has been defined in section 5 of the Negotiable Instruments Act, 1881

Bill of exchange is an important type of negotiable instruments, and has been defined in section 5 of the Negotiable Instruments Act, 1881 the said definition is reproduced below

“A bill of exchange is an instrument in writing containing an unconditional order, signed by maker, directing a certain person, to pay on demand or at 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”.

Ingredients of a bill of exchange

Some of the ingredients of bill of exchange are outlined below:

1. It must in writing
2. It must contain an order to pay and addressed to some person
3. The order must be unconditional
4. The order must be signed by the maker
5. The order must direct to pay on demand or at a fixed or determinable future time.
6. The sum ordered to be paid must be certain.
7. The payment should be ordered to be paid to a certain person, or to his order, or to the bearer.

 Features of a bill of exchange

Features of bill of exchange are discussed below:

A promise or order to pay is not conditional by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

The sum payable must be “certain” within the meaning of this section and section 4, although it includes future interest or return in any other form or is payable at an indicated rate of exchange, or is payable at the current rate of exchange and although it is to be paid in stated installments and contains a provision that on default of payment of one or more installments or interest or return in any other form the whole or the unpaid balance shall become due.

A promise to pay or order to pay is not ‘conditional’ nor is the sum payable uncertain within the meaning of this section or section 4 by reason of the sum payable being subject to adjustment for profit or loss, as the case may be of the business of the maker.

Where the person intended can reasonably be ascertained from the promissory note or the bill of exchange; he is a ‘certain person’ within the meaning of this section and section 4, although he is misnamed or designated by description only.

An order to pay out of a particular fund is not unconditional within the meaning of this section; but an unqualified order to pay, coupled with,

(a)   an indication of a particular fund out of which the drawer is to reimburse himself or a particular account to be debited to the amount, or \

(b)   a statement of the transaction which gives rise to the note of bill, in unconditional

An essential character of a bill of exchange is that it shall contain an order to accept or to pay and that acceptor should accept it, in the absence of such a direction to pay the document will not be a bill of exchange or a hundi.

Besides the forms discussed above following forms of business may also be carried out by a banking company. 

o   Dealing in (participation term certificates, term finance certificates, musharika certificates; modaraba certificates and such other instruments as may be approved by the State Bank) and other instruments. The State Bank of Pakistan issues securities on behalf of government of Pakistan. Concept and scope of government securities is explained below:

Government Securities shall include such types of Pak. Rupee obligations of the Federal Government or a Provincial Government or of a Corporation wholly owned or controlled, directly or indirectly, by the Federal Government or a Provincial Government and guaranteed by the Federal Government as the Federal Government may, by notification in the Official Gazette, declare, to the extent determined from time to time, to be Government Securities.]

o   The granting and issuing of letters of credit. Under the provisions of this Ordinance, banking companies may engage in non funded facilities particularly letter of credit besides funded facilities.

Letter of Credit in general terms is defined as under

A letter of credit can be defined as an instrument issued  by a bank in which the bank furnishes its credit which  is both good and well known, in place of the buyer’s  credit, which may be good but is not so well known. A bank issues a letter of credit on behalf of one of its customers authorizing an individual or firm to draw draft (bill of exchange) on the bank or one of its correspondents for the bank’s account under certain conditions stipulated in the credit.