LEGAL AND REGULATORY ASPECTS OF BANKING (LRAB) 

Unit - 14: Laws Relating to Bill Finance 

​Legal & Regulatory Aspects of Banking - Law Relating to Bill Finance
Unit - 14 : Law Relating to Bill Finance
Bill Finance is one of the modes of lending by a banker. It offers bankers an easy mode of lending . From banker's point of view, it involes discounting  or purchase of commercial bills arising out of sale of goods . 

CLASS OF BILLS AND LAWS GOVERNING BILLS :
​CLASS OF BILLS :
1) Clean bills
2) Documentary bills 
3) Bills drawn under Credit 

LAWS GOVERNING BILLS :
SECTION 8, 9, 10, 14, 15, 30, 32, 35, 79, 80.

CLASSIFICATION OF BILLS :
PLACE                      
1. INLAND BILLS 
2. FOREIGN BILLS 

PERIOD               
3. DEMAND BILLS
4. USANCE BILLS

NATURE 
5. CLEAN BILLS 
6. DOCUMENTARY BILLS 

VARIOUS TYPES OF BILL FINANCE :
A. BILL PURCHASED
B. BILL DISCOUNTING 
C. ADVANCED AGAINST BILLS FOR COLLECTION

Classification of Bills
Inland Bills : Bills drawn or made in India and made payable in, or drawn upon any person resident in India. It may be made payable in a foreign country.
Foreign Bills: Bills drawn outside India and made payable in or drawn upon any person resident in any country outside India / resident in India
Demand Bills: Section 19 : It is an instrument payable on demand and no time for payment is specified therein. Demand Bill is otherwise called sight bill.
Usance Bills: Bill Payable after sight : a bill payable otherwise than on demand. It specifies normally a time for payment of the value it represents. Clean Bills: is a bill of exchange drawn as per requirements of NI Act and is not supported by documents of title of goods.
Documentary Bills: A bill of exchange accompanying documents of title of goods. These bills are drawn to claim price of goods supplied.  Bills drawn with an instruction to deliver against payment/D.P. Bills - In a transaction of supply of goods, a seller draws a bill on the buyer and sends the same to his banker along with document of title of goods like bill of lading etc. The seller instructs the banker to deliver the bill and documents of title of goods only when buyer pays the price of goods. Bills drawn with instruction to deliver against acceptance / D.A.Bills – An usuance bill supported by document of title of goods bearing an instruction that the documents can be delivered, if the buyer accept the bill of exchange
Various Categories Of Bill Finance
Bill Purchase facility is granted in the case of demand bills Bill Discount is granted in the case of usance bills Advance against Bills for Collection: When the bank advances against the bills, which are in course of collection, the facility is known as advance against bills for collection.
NI Act 1881      Section                     Description
5 Bill of exchange is defined as “ instrument in writing containing an unconditional
order signed by maker directing a certain person to pay certain sum of money only
to, or to the order of a certain person or to the bearer thereof
7 Drawer, Drawee and Payee
8 Holder of Bill of exchange means a person entitled in his name to possess the bill
and recover the amount presented by Bill.
9 Holder in Due Course means any person who for consideration become the
possessor of the bill
10 Payment in Due Course means payment in accordance with tenor of the bill of
exchange to the holder or holder in due course in good faith and without negligence
11 Inland bills
12 Foreign Bills
14 Negotiation : When a bill is transferred to any person so as to entitle him to claim
the amount represented by bill, then such transfer is called Negotiation
15 Endorsement: If the holder of instrument signs the bill of exchange for the purpose
of transferring it, such signing is called Endorsement.
19 Demand Bills
30 Liability of Drawer
32 Liability of Acceptor/Drawee of Bill
35 Liability of Endorser
79 Interest rate specified
80 Interest when no rate is specified

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