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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Tara Exports, Chennai, receives a bill of exchange drawn by Sundar on Tara for Rs 90,000 payable 'to Sundar or order' three months after date. Tara signs 'Accepted' across the bill and returns it. Sundar later wants to know who the parties are and their roles. Which identification is correct?

Sundar is the drawer and also the payee since the bill is payable to his order, while Tara is the drawee who becomes the acceptor on signing her acceptance. The term maker applies only to promissory notes, not to bills of exchange.

  1. ASundar is the drawer and also the payee; Tara is the drawee who becomes the acceptor on signingCorrect
  2. BSundar is the drawee; Tara is the drawer and acceptor
  3. CSundar is the maker; Tara is the payee
  4. DSundar is the drawer only, and the payee is an unknown third party until endorsement

Explanation

The person who orders payment is the drawer, here Sundar. The person directed to pay is the drawee, here Tara. Because the bill is payable to Sundar or order, Sundar is also the payee. On signing acceptance, Tara becomes the acceptor and is liable to pay at maturity. 'Maker' is the term used for promissory notes, so option 3 is wrong.

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