Differences between a Cheque and Promissory Note
What is negotiable instrument;-
The word 'negotiable' means, "transferable from one person to another in return for consideration". The word 'instrument' means, "a written document by which a right is created in favour of some person". Hence, the term Negotiable Instrument means "a document in writing which creates a right in favour of some person", and which is freely transferable by delivery.
According to Section 13(1) of the Negotiable Instrument Act, "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer".
Types of Negotiable Instrument;-
Three major types of Negotiable Instruments
The three major forms of a negotiable instrument discussed under the Negotiable Instruments Act of 1881 are:
l Promissory Note,
l Bill of Exchange and
l Cheque.
What is Promissory Note?
A "promissory note" is in an instrument in writing, containing an unconditional undertaking signed by the maker, to pay on demand or at a fixed or determinable future time] a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument.
For example;-
A signed instrument in the following terms: "I promise to pay B or order Rs. 500." This will form a promissory note.
Feature of promissory note;-
A Promissory note should have the following features :-
l An unconditional undertaking to pay
l Must be in writing
l Amount to be paid should be specified or certain
l Promissory Note must be payable to or order of a certain person or to bearer
l Must be signed by the maker
l Must be stamped as per Indian Stamp Act
What is Cheque?
Under the Section-6 of the Negotiable Instruments Act, 'a cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise on demand.'
Cheque is a type of negotiable instrument.
Features of Cheque;-
l Cheque should be writing and signed by the drawer.
l It contains an unconditional order.
l It can be paid to bearer on demand.
l The amount should be specified and should be clearly mentioned both in figures and words.
l It is drawn on a specified bank.
l Unlike Bill of Exchange, it does not require acceptance
Differences between a Cheque and Promissory Note.
l A Promissory Note is an unconditional promise to make payment either in installment or in one go at a future date or on demand. While cheque in an order to make payment in one time.
l Promissory note can never be conditional while cheque can be conditional.
l There are two parties to a Promissory note – Maker and Payee. In Case of Cheque, three parties – Drawer, Drawee and Payee.
l Cheque is drawn on a bank while Promissory Note can be made by any individual in favour of his creditor.
l Cheque can be drawn in favour of self mean drawee can be payee but promissory note is always drawn in favour of another person.
l Acceptance is not necessary in case of promissory note but in case of cheque, acceptance is required of the payee before it written.
