Cheques and bills of exchange are important tools in the worlds of banking and business because they make it easier for people to pay each other and do business. Here are some ways in which a cheque is different from a bill of exchange:
Meaning and definition
A cheque is a written document that can be used to pay for things on demand. It can be sent by delivery. It’s drawn on a certain lender and should be paid to the bearer or a certain person. The Negotiable Instruments Act of 1881 says that a cheque is a document drawn on a banker that says it will be paid on demand. This includes electronic forms and shortened cheques.
However, a bill of exchange is also a written record that shows that someone owes money to someone else. It has a written order, signed by the person who made it (the drawer), telling someone to pay a certain amount of money. The Negotiable Instruments Act of 1881 says what a bill of exchange is and how it works.
Sections That Control
The Negotiable Instruments Act 1881 explains what a cheque and a bill of exchange are and how they work legally. The rules and laws for these financial products are set out in the Act.
- As Drawn
There is only one account named on a cheque, and it says that it must be paid when asked for. It’s meant to be paid right away.
A bill of exchange, on the other hand, can be drawn on anyone, even lenders. It might have a set date when it needs to be paid back. This date is called the repayment date.
- Valid
A cheque is valid and can be cashed by the person who has it. As soon as it is offered for payment, the drawee has to honor it.
Section 31 of the Reserve Bank of India Act, 1934 says that a bill of exchange is not valid if it says “payable on demand.”
- Rates of Pay
A cheque is only paid when asked for, and the money is sent right away when the cheque is presented.
There is a certain date or time after which a bill of exchange is due and payable. It’s not paid right away when it’s presented; it needs to be paid off over time until the due date.
- Acceptance
A cheque doesn’t need to be officially accepted by either the seller or the drawee. When the drawee pays the amount when it is shown, it is considered accepted.
A bill of exchange, on the other hand, needs to be officially accepted by the drawee before it can be paid. When someone accepts a bill, they agree to pay it according to its rules.
- Time of Grace
People who pay with cheques never get a grace time because the cheque is always due and payable as soon as it is presented.
But when figuring out when a bill of exchange matures, there is an extra three days. This is not the case with time bills.
- Costing less (Discounting)
A bank or any other business cannot discount a cheque. It is mostly used as a way to pay right away.
On the other hand, a bank can discount a bill of exchange, which lets the user get cash right away from the bank after paying the discount fees.
- Stamping
Cheques don’t need to be stamped before they can be cashed because they are legal right away and can be paid on demand.
But a bill of exchange needs to be properly stamped according to the stamp tax rules before it can be used to pay for something.
- Take note
When a cheque is returned for any reason, like not having enough money in the account, the drawer does not need to be formally notified.
If, on the other hand, a bill of exchange is not honored, formal notice of dishonor must be made to all parties involved to make things clear and settle any problems that may have arisen because of the dishonor.
- Crossing
You can cross a cheque to add extra security and make sure the correct owner gets paid. Drawing two straight lines on the front of the cheque is what it means to “cross.”
On the other hand, you can’t cross a bill of exchange. This doesn’t happen very often in bills.
- Dishonor
If a cheque is returned, there is no need for a written protest or note.
When a bill of exchange is not honored, on the other hand, the practice of noting and protesting is followed. This makes an official record of the dishonor.
- Freedom from Liability
If the holder of a cheque takes too long to give it for payment, the person who wrote it is still responsible. Even if the payment is late, the person who wrote the cheque is still responsible for paying the amount written on it.
On the other hand, the person who draws a bill of exchange is not responsible if it is not properly given for payment on the due date or within the grace period, if there is one.
Here’s a table summarising the key differences between a cheque and a bill of exchange:
| Basis of Difference | Cheque | Bill of Exchange |
| Meaning | A document used for immediate payments on demand, transferable through delivery. | A written document indicating a debtor’s indebtedness to a creditor. |
| Definition | A bill of exchange drawn on a specified banker and payable on demand. Includes electronic forms and truncated cheques. | An instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money. |
| Governing Section | Section 6 of the Negotiable Instruments Act, 1881. | Section 5 of the Negotiable Instruments Act, 1881. |
| Drawn | Only on a particular banker. | On any person, including bankers. |
| Validity | Payable on demand to the bearer. | If payable on demand, considered void as per Section 31 of the Reserve Bank of India Act, 1934. |
| Payability | On-demand only. | On the expiry of a certain date or period. |
| Acceptance | No formal acceptance required. | Requires formal acceptance from the drawee. |
| Grace Period | Not applicable, payable on demand. | A grace period of three days allowed for time bills. |
| Discounting | Cannot be discounted. | Can be discounted with a bank. |
| Stamping | No stamping required before payment. | Must be sufficiently stamped before payment. |
| Notice | Notice not necessary for dishonour. | Notice of dishonour necessary for resolution. |
| Crossing | Can be crossed for added security. | Not allowed. |
| Dishonour | No formal protest or noting required. | Requires noting and protesting for dishonour. |
| Discharge from Liability | Drawer not discharged if payment delayed. | Drawer discharged if not presented for payment. |
