Law Relating to Bill finance: Jaiib/DBF Paper 3 (Module B) Unit-9

Law Relating to Bill finance: Jaiib/DBF Paper 3 (Module B) Unit-9

Dear bankers,

As we all know that is Law Relating to Bill finance for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are Law Relating to Bill finance (Unit-9), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Bill Financial

Bill finance is one of the modes of lending by a banker. A compared to other modes of financing, Bill finance offers a banker an easy mode of lending. Bill finance involves discounting or purchase of commercial bills arising out of sale of goods.

Bill finance, as compared to cash credit and overdraft, has the following advantage;

  • The underlying transactions are easily identifiable
  • There is definite data of repayment
  • The bill will carry more than one signature if it on usance basis
  • It represents an easily transferable asset and in case of need the same can be rediscounted to improve the liquidity of the bank.

♦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 (Section 12 NI Act): 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.
  1. 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.
  2. 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

♦Negotiable Instrument 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
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 purposeof 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

♦Various types of Bill Finance

  • Bill Purchase: When the bank negotiate bills on demand, whether clean or documentary, the facility is known as bill purchase.
  • Bill Discount: This facility is extended by banker when the bills of exchange are payable after a particular period that is bills payable otherwise on demand.
  • Advance against Bills for Collection: When the bank advance against the bills, which are in course of collection, the facility is known as advance against bills for collection.

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