What is promissory note?
People of ancient times had barter system. Then the kings gave token bows of gold, silver, brass and leather with their seals as pledges. It was in general circulation among the people of ancient times. Traders used only undi cards for their convenience. With the passage of time, different methods have come.
A promissory note is also called a loan guarantee.
A promissory note is used to confirm in writing that one person has taken a loan from another.
This promissory note is a certificate that says I Promise to pay you. Many countries in the world follow this method of writing on a slip and getting an emergency loan.
The borrower must repay the loan unconditionally after the lender asks for repayment of the loan. This is the essence of this promissory note.
In particular, the promissory note should not contain conditions. That is, if I don’t return the money I bought from you, you can file a case in the court and take my property. It should not be written in the promissory note. A promissory note should not contain any conditions.
The Negotiable Instruments Act, 1881 deals with Promissory Note in Section IV.
What are the features of promissory note?
This bond or promissory note does not need to be written on stamp paper.
There is no need to register anywhere
Writing on plain paper and affixing a revenue stamp of one rupee is sufficient.
The lender does not have to impose conditions.
A promissory note does not require witnesses.
Through a promissory note, the lender can transfer the money to someone else to collect the money on the promissory note. This is called made-over.
What are the main provisions of promissory note?
The borrower has to repay the loan to the lender without any conditions on demand by the lender.
If the borrower signs the promissory note without affixing the revenue stamp, the promissory note is invalid.
Promissory notes may be void if conditions are imposed on the promissory note.
A promissory note becomes void after three consecutive years from the date of writing.
The borrower should write on the reverse side of the promissory note and obtain his signature while paying interest or principal to the borrower.
Once the borrower has paid the entire amount including principal and interest, the promissory note should be written to the lender and redeemed.
Do not forget to redeem the promissory note after full payment.
If the promissory note is left unclaimed, the lender has the option of rewriting it to someone else in the “made-over” mode.
When the interest and principal are paid by the borrower, receipt by the lender is void.
If the borrower does not repay the loan, no complaint can be lodged at the police station. A civil case should be filed.
If the borrower admits that the signature of the promissory note is his own, there is no need to separately prove the payment of the promissory note.
The law says that if the borrower admits that the signature on the promissory note is mine, the court must consider the payment on the promissory note.
What is the Law of Promissory Note?
A promissory note is a written slip or bond issued by one person to another person to confirm the payment.
To control this, the Act defines Bill of Exchange as per the Act. It is stated in the Act that the Bill of Exchange is a note given in exchange for an item, especially written papers given in exchange for money.
This includes check cheques. A check is al
so a bill of exchange. The bank has to pay the person who brings this check to the bank. The check has the value of the money written on it.
In the above bill of exchange slips, the person has written it in his name to the holder but it is an ordinary paper called a check to which that person is considered as the payee but it should be understood that the person who wrote it has to pay the person who holds the check (cheque). The Negotiable Instrument Act was introduced to regulate these Bills of Exchange transactions. This Act provides a mechanism to settle disputes between two persons without any problems.
The Negotiable Instruments Act 1881 as you may know from the name of this Act defines the instruments that are given in exchange for money. Provides solutions to problems caused by these documents.
Important Laws of Negotiable Instrument Law?
1) Preliminary (Sec.1 to 3)
2) Notes, Bills, Checks (Sec.4 to 25)
3) Parties to Notes, Bills, Checks (Sec.26 to 45A)
4) Negotiation (Sec.46 to 60)
5) Presentment (Sec.61 to 77)
6) Payment and Interest (Sec.78 to 81)
7) Discharge from Liability on Notes, Bills, and Checks (Sec.82 to 90)
8) Notice of Dishonor (Sec.91 to 98)
9) Noting and protest (Sec.99 to 104A)
10) Reasonable time (Sec.105 to 107)
11) Acceptance and payment (Sec.108 to 116)
12) Compensation (Sec.117)
13) Special Rules of evidence (Sec.118 to 122)
14) Crossed Checks (Sec.123 to 131A)
15) Bills in sets (Sec.132 and 133)
16) International Law (Sec.134 to 137)
17) Penalties in case of dishonor (Sec.138 to 148).
Things to consider while writing promissory note?
A promissory note is something that can be used by people to pay money for urgent needs and does not require stamp paper to write it.
A revenue stamp should be affixed while writing the promissory note.
It is sufficient to affix the revenue stamp for the value of 25 paisa only, but as the 25 paisa revenue stamp is not in circulation at present, a revenue stamp of Rs 1.00 can be affixed.
A revenue stamp of 25 paise is sufficient for any amount of money.
A promissory note is valid only after a revenue stamp is affixed on a paper and signature is placed on it.
A promissory note need not be written in the deed.
All you have to do is write and confirm that you will repay the principal and interest. There should be no other covenants or covenants.
Must be dated. The name and address of the lender, the name and address of the lender, the loan amount, the interest, these are enough.
While writing the promissory note, it should be written without mistakes. If there are any mistakes, you should also sign the page and confirm it.
A promissory note does not require witnesses. Just as we don’t require witnesses for a cheque, pro note also doesn’t require witnesses. But we also get the signatures of witnesses in a promissory note to have known witnesses. The law says it doesn’t have to.
Although the signature of a witness is not a mandatory requirement, it is advisable to have the note signed by a witness independent of the transaction.
Through a promissory note, the lender can transfer the money to someone else to collect the money on the promissory note. This is called made-over.
If the name is changed by someone else, it is enough to inform the borrower about that information. The transferee can collect the amount due on the promissory note from the borrower. This is why it is called a Negotiable Instrument.
A promissory note with a revenue stamp of less than 25 paisa is legally invalid.
A suit can be filed in court to recover the money within three years from the date of writing the promissory note. If you go beyond that, you cannot file a case.
Since the promissory note is valid for three years only from the date of writing, the promissory note is valid for another three years if the lender signs in writing that he has received the principal or interest for the money before that date. This can be extended for any number of years. But the borrower has to write it on the back of the promissory note.
The promissory note should be written as ‘On demand’ which means that the money should be returned on demand. If it is written that I will pay after 6 months or I will pay after one year, then it is considered as an agreement, it does not come as an alternative document and law.
While writing a promissory note, you should not use words other than the relevant words. Therefore, it is better to consult a lawyer before writing it.
Need to prove payment through promissory note?
The payer has to prove that the payment has been made through the promissory note. But if the borrower admits that his signature is on the promissory note, it is not necessary to prove that payment has been made.
If the person who took the loan through the promissory note says that the signature on the note is not mine, or if he says that he did not buy the money, he must prove that the person who gave the money through the promissory note has paid the money and signed it.
Will I get interest if I file a suit to collect money for promissory note?
The interest agreed to be refunded in the promissory note should be paid even after filing the suit.
But in the promissory note case the court will fix an interest during the period of litigation i.e. if the litigation is going on for two years. At present, the Civil Act has fixed the interest after the case is settled at 6% per annum and cannot ask for more than that.
Will I get interest if I file a suit to collect money for promissory note?
The interest agreed to be refunded in the promissory note should be paid even after filing the suit.
But in the promissory note case the court will fix an interest during the period of litigation i.e. if the litigation is going on for two years. At present, the CPC Act has fixed the interest after the case is settled at 6% per annum and cannot ask for more than that.
promissory note be written on stamp paper?
The promissory note should be written on the paper itself with the revenue stamp affixed. not necessary to write the promissory note on stamp paper. But still many people refuse to trust the promissory note written on mere paper. They completely believe the word written on the stamp paper which is a misconception.
If it is not allowed to write on stamp paper, even if it is written on stamp paper, it should be considered as ordinary paper and should be written on it with revenue stamp. Otherwise it will not be valid. If a promissory note is written on a stamp paper without affixing a revenue stamp, it will not be valid and no case can be filed in court.