Cheque
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A cheque is a type of instrument used for making payment to any individual.
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It is an absolute order which addresses the drawee to pay on behalf of the drawer to the payee.
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For payment of the cheque, an issuer and payee must have a bank account.
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The validity of cheque payment is 3 months and after the expiry of validity, a cheque will be dishonoured.
Parties involved in the payment:
1) Drawer: the issuer of the cheque
2) Drawee: The bank
3) Payee: a party who gets payment
Bill of exchange
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A bill of exchange is an unconditional negotiable instrument of payment which directs a drawee to make payment for a certain amount of money to the payee.
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A bill of exchange is approved by the drawer and affirmed by the drawee which has a predetermined date on which the payment is to be done to the payee.
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Bill of exchange is an order to pay to the payee, not a promise or request which must be signed by the drawer.
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In a bill of exchange, there is a grace period of 3 days when it becomes due.
Parties involved in bill of exchange
1) Drawer: A maker of the bill of exchange.
2) Drawee: An individual on whom the bill is drawn means a person who accepts to make payment to the payee.
3) Payee: A Person who gets the payment.
Difference between cheque and bill of exchange
Cheque
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Bill of Exchange
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Meaning
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The Cheque is a document which contains an order to a bank to pay fixed amount of money from the account of the client
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A bill of exchange is a negotiable instrument which orders to drawee to pay a fixed amount of money to payee on demand
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Existence
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A cheque exists in section 6 of the Negotiable Instruments Act, 1881.
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A bill of exchange exists in section 5 of the negotiable instruments act, 1881.
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Grace period
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A cheque has no grace period once it is presented for the payment.
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A bill of exchange has three days of grace period.
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Approved
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A Cheque does not need any approval from the parties before presented for payment.
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A bill of exchange needs an approval from the drawee for the payment.
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Validity
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A cheque has a validity of 3 months.
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A bill of exchange has no validity for the payment.
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Liability
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Parties remain liable to pay also in case notice of dishonour is not given.
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In the bill of exchange, the parties who do not get notice of dishonour are free from the liability of paying.
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Notice of Dishonour
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In cheque, notice of dishonour is not compulsory.
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In a bill of exchange, notice of dishonour is mandatory.
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