What is a Bill of Exchange under Section 5?
A bill of exchange is a written instrument containing an unconditional order, signed by its maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
Section 5 - "Bill of exchange"
A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
A promise or order to pay is not "conditional", within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment 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 may be "certain", within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.
The person to whom it is clear that the direction is given or that payment is to be made may be a "certain person", within the meaning of this section and section 4, although he is mis-named or designated by description only.
Essential requirements of a Bill of Exchange
- Instrument in writing: the order must be contained in a written instrument.
- Unconditional order: the instrument must contain an order to pay and that order must satisfy the statutory requirement of being unconditional.
- Signature of the maker: the maker of the instrument must sign it.
- Certain person directed to pay: the direction to pay must be addressed to a certain person.
- Certain sum of money: the amount payable must satisfy the statutory requirement of certainty and must be money only.
- Certain payee or bearer: payment must be directed to, or to the order of, a certain person or to the bearer of the instrument.
Meaning of "Unconditional" under Section 5
An order does not become conditional merely because payment is fixed for a certain period after an event that, according to ordinary human expectation, is certain to happen, even though the exact time of that event may be uncertain. This rule applies for the purposes of both Section 5 and Section 4.
When is the Sum Payable "Certain"?
Section 5 clarifies that certainty is not destroyed merely because the amount includes future interest, is payable at an indicated rate of exchange or according to the course of exchange, or because the instrument provides that the unpaid balance becomes due upon default in payment of an instalment.
Who is a "Certain Person"?
A person may still be a "certain person" for the purposes of Sections 4 and 5 where it is clear who is being directed to pay or who is to receive payment, even if that person has been misnamed or identified only by a description.
Bill of Exchange and Related NI Act Provisions
Section 4
Defines a promissory note, which contains an unconditional undertaking by the maker to pay.
Section 6
Defines a cheque as a bill of exchange drawn on a specified banker and payable on demand, subject to the statutory definition.
Section 7
Identifies parties including the drawer, drawee, acceptor and payee in relation to bills of exchange and cheques.
Section 13
Defines "negotiable instrument" to include a promissory note, bill of exchange or cheque payable either to order or to bearer.
Official Source
The current Central Act and statutory text can be verified through India Code, the Government of India legislative database.
India Code - Government of India