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Bill of exchange
Corporate & Other Laws
Why bill of exchange cannot be made payable to bearer on demand?
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Section 31 in The Reserve Bank of India Act, 1934 31. Issue of demand bills and notes.—1[ (1) ] No person in 2[India] other than the Bank, or, as expressly authorized by this Act the 3[Central Government] shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to bearer on demand of any such person: Provided that cheques or drafts, including hundis, payable to bearer on demand or otherwise may be drawn on a person’s account with a banker, shroff or agent. 4[(2) Notwithstanding anything contained in the Negotiable Instruments Act, 1881, (26 of 1881) no person in 2[India] other than the Bank or, as expressly authorised by this Act, the Central Government shall make or issue any promissory note expressed to be payable to the bearer of the instrument.]
The Reserve Bank of India (RBI) prohibits the issuance of bills of exchange that are payable to bearer on demand, as it can be misused for illegal activities like money laundering and terrorism financing. RBI has laid down strict guidelines and regulations for the issuance and handling of bills of exchange to prevent such illegal activities. Bills of exchange that are payable to bearer on demand are equivalent to cash, and they can be easily transferred from one person to another without any record of the transfer. This makes it difficult to trace the ownership of the bill and to prevent fraud, including money laundering and terrorism financing.
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