Define Credit Instruments & different kinds of Credit Instruments
Credit Instruments are the documents describing details of credit and debit. Credit Instruments provide a written means from future reference describing terms and conditions of any debt and loan. Credit Instruments may be an order for payment of money to a specified person or it may be a promise to pay the loan. Credit Instruments generally in use are cheques, bills of exchanges, bank overdraft etc.
KINDS OF CREDIT INSTRUMENTS:
There are two broad kinds of Credit Instruments.
- Negotiable Instruments:
According to the negotiable instruments Act under Section 13-A, A negotiable instrument means a cheque promissory note and a bill of exchange which are payable to the bearer of the instrument or the person to be ordered.
Features of Negotiable Instruments:
- It must be unconditional
- It must be in writing
- It is payable on demand or the period for the payment which is determined.
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- Non-Negotiable Instruments:
Non-Negotiable Instruments cannot be transferred or the documents which are restricted to transfer by the issuer e.g. Money Order, Postal Order, Shares Certificate etc. Such documents appears at the name of the beneficiary and the payments are made only to those persons to whom the instruments are made payable.
Section B of the Act defines a cheque as, ‘’A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.’’ A cheque is a bill of exchange but a bill of exchange often is not a cheque. A cheque is always payable on demand. The person drawing or making the cheque must be a customer of the bank and must be having the required find as deposit with the bank.
PARTIES TO A CHEQUE
The parties to a cheque are
He is the maker of the cheque. He must be the holder of the account at the bank and must sign the cheque as per specimen signature.
He is the banker with whom the A/C is maintained by the drawer of the cheque.
He is a person named in the cheque to whom or to whose order the payment is to be made.
A bill of exchange is a written acknowledgment of a debt. It is written by the credit and accepted by the debtor. Section 5 of the Act define a bill of exchange as ‘’An instrument in writing containing an unconditional order, signed by the makers 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.