Key differences between Ordinary Bill and Money Bill

Ordinary Bill

An ordinary bill, also known as a trade or commercial bill, is a financial instrument used in business transactions, typically representing a short-term debt. It is an unconditional promise or order, drawn by the seller (drawer) on the buyer (drawee), demanding payment of a specified sum at a future date. The bill may be either a promissory note (if the buyer promises to pay) or a bill of exchange (if the buyer agrees to pay upon demand). Ordinary bills are widely used in commercial transactions to facilitate trade credit.

Characteristics of Ordinary Bill:

• Short-Term Nature:

Ordinary bills are short-term financial instruments typically used for a few weeks to a few months. They are often issued for the payment of goods or services, and the time frame for repayment is usually between 30 to 90 days. This short-term nature makes them useful for businesses to manage their working capital.

• Unconditional Promise or Order:

An ordinary bill is an unconditional promise or order to pay a specified amount at a predetermined future date. If it is a promissory note, the buyer promises to pay. If it is a bill of exchange, the buyer agrees to pay the seller on demand or at a future date. There are no conditions attached to the payment, making it a straightforward financial instrument.

• Negotiability:

Ordinary bills are negotiable instruments, meaning they can be transferred to a third party. The billholder (the person in possession of the bill) can endorse the bill to another party, which then assumes the right to collect payment on the due date. This feature allows businesses to use the bills as a form of trade credit or as collateral for loans.

• Parties Involved:

An ordinary bill involves three key parties: the drawer (the seller or creditor who creates the bill), the drawee (the buyer or debtor who is required to pay the amount specified in the bill), and the payee (the person who will receive the payment). The drawee may either sign the bill or accept it, agreeing to make the payment.

• Involvement of a Third Party:

In many cases, an ordinary bill may be accepted or endorsed by a third party, such as a bank, acting as a guarantor for payment. This provides additional security to the payee and makes the instrument more reliable. The third party guarantees payment in case the drawee defaults.

• Marketability:

As a negotiable instrument, the ordinary bill can be easily traded or sold in financial markets. It may be discounted by financial institutions if the holder needs immediate cash before the maturity date. This enhances the liquidity of businesses holding these bills, making it a useful tool for managing cash flow.

• Legal Framework:

Ordinary bills are governed by laws that regulate negotiable instruments, such as the Negotiable Instruments Act (in countries like India). These laws ensure that the rights and obligations of the parties involved in the transaction are clearly defined and protected, and they establish procedures for dishonoring or disputing the bill.

• Purpose and Usage:

Ordinary bills are commonly used in commercial transactions to settle short-term credit. They are particularly useful in trade between suppliers and retailers, as they allow buyers to pay for goods at a later date, while giving sellers a secure means of receiving payment. Additionally, businesses may use them to finance working capital or secure short-term loans.

Money Bill

Money Bill is a type of bill in a country’s legislature that exclusively deals with matters related to national taxation, government spending, and borrowing. In India, for instance, it is introduced only in the Lok Sabha (the lower house of Parliament) and can only be introduced by the government. The Rajya Sabha (upper house) can suggest amendments but cannot reject it. Money Bills include provisions on taxation, public expenditure, and loans, and they require approval from both houses, with the Lok Sabha having the final say.

Characteristics of Money Bill:

• Scope of Content:

Money Bill exclusively deals with financial matters like taxation, government spending, borrowing, and other aspects related to the finances of the state. It cannot include provisions unrelated to fiscal policies, such as matters regarding constitutional amendments or the governance structure.

• Introduction in Lower House:

In countries like India, a Money Bill can only be introduced in the lower house of Parliament (Lok Sabha in India). It is a reflection of the principle that the government must be accountable to the people, who are represented in the lower house, especially concerning financial matters. The bill cannot be introduced in the upper house (Rajya Sabha in India).

• Presidential Assent:

In India, once the Money Bill is passed by the Lok Sabha, it must receive the President’s assent before becoming law. The President’s role is to formally approve the bill, and they cannot withhold assent or return the bill for reconsideration, unlike other types of bills.

• Time Bound for Approval:

Money Bills are subject to specific time limits for passage through the houses of Parliament. In India, once introduced in the Lok Sabha, the Rajya Sabha (the upper house) must return the bill within 14 days, either with amendments or recommendations. If the Rajya Sabha does not act within this time, the bill is deemed to have been passed by both houses.

• No Amendments in Upper House:

While the Rajya Sabha can review a Money Bill, it cannot amend the bill. The upper house can only suggest changes, but the final decision lies with the Lok Sabha. This limitation ensures that the government’s financial policies are not delayed or obstructed by the upper house.

• Taxation and Public Expenditure:

The key areas that Money Bills cover are taxation, public expenditure, and the management of public funds. Any bill that seeks to impose new taxes, revise existing taxes, or change public expenditure must be classified as a Money Bill.

• Government-initiated:

Money Bills are usually introduced by the government, as they pertain to the state’s financial matters. They are seen as the government’s way of presenting its fiscal policies to the Parliament. Unlike other bills, which can be introduced by any member of Parliament, only the government can introduce a Money Bill.

• Role in National Budget:

Money Bills are crucial for the budgetary process in a country. The national budget, which outlines the government’s financial plan for the upcoming year, is typically presented as a Money Bill. Through this bill, the government seeks approval from Parliament to raise revenue (taxes) and allocate funds for various sectors, making it a cornerstone of fiscal governance.

Key differences between Ordinary Bill and Money Bill