features and types of 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?
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
Parties of promissory note;-
There are two parties to a promissory notes ;
Promisor;-
The person (maker of PN) who promise to pay the money is called the promisor (debtor).
Promisee;-
person who is entitled to receive the money is called promisee (creditor).
Types of Promissory Note
Demand Promissory Note :-
Promissory Notes which are payable immediately on demand are called Demand Promissory Notes. There is no specification of a fixed period for repayment. It must be paid when demanded.
Demand promissory note is governed by the Negotiable Instruments Act, 1881 and attracts stamp duty as per the Stamps Act.
If a demand promissory note is unstamped or is under stamped it cannot be rectified even by paying a penalty. It even cannot be admitted as evidence in a court of law. Hence it must be ensured that the demand promissory note is duly filled in and sufficiently stamped before the borrower signs it.
Usance Promissory Note :
Promissory Notes which are payable after a predecided definite period are called Usance Promissory Note. Usance PN also need be stamped.
Is Bank Note / Currency Notes a Promissory Note ?
No, Currency Note or Bank Note is not a promissory note. Because they itself are money and don’t fulfill the conditions of the Promissory Note.
