PROJECT REPORT ON

PROMISORY NOTE

SUBMITTED
BY
SAGAR MOJIDRA
ROLL NO 1401
SEMESTER III, SECOND YEAR
ORIENTAL INSTITUTE OF MANAGEMENT
VASHI
SUBMITTED
TO
PROFESSOR I. R. PUNJWANI

Meaning
A promissory note is a legal instrument (more particularly, a financial instrument),
in which one party (the maker or issuer) promises in writing to pay a determinate
sum of money to the other (the payee), either at a fixed or determinable future time
or on demand of the payee, under specific terms. If the promissory note is
unconditional and readily salable, it is called a negotiable instrument.
Referred to as a note payable in accounting (as distinguished from accounts
payable), or commonly as just a "note", it is internationally defined by the
Convention providing a uniform law for bills of exchange and promissory notes,
although regional variations exist. Bank note is frequently referred to as a
promissory note: a promissory note made by a bank and payable to bearer on
demand. Mortgage notes are another prominent example.

Definition
A financial instrument that contains a written promise by one party to pay another
party a definite sum of money either on demand or at a specified future date. A
promissory note typically contains all the terms pertaining to the indebtedness by
the issuer or maker to the note's payee, such as the amount, interest rate, maturity
date, date and place of issuance, and issuer's signature. The 1930 international
convention that governs promissory notes and bills of exchange also stipulates that
the term promissory note should be inserted in the body of the instrument and
should contain an unconditional promise to pay.

History
Common prototypes of bills of exchanges and promissory notes originated in
China. Here, in the 8th century during the reign of the Tang Dynasty they used
special instruments called feitsyan for the safe transfer of money over long
distances. Later such document for money transfer used by Arab merchants, who
had used the prototypes of bills of exchange suftadja and hawala in 1013th
centuries, then such prototypes had used by Italian merchants in the 12th century.

In Italy in 1315th centuries bill of exchange and promissory note obtain their
main features and further phases of its development have been associated with
France (1618th centuries, where the endorsement had appeared) and Germany
(19th century, formalization of Exchange Law). In England (and later in the U.S.)
Exchange Law was different from continental Europe because of different legal
systems

Overview
Promissory notes are a common financial instrument in many jurisdictions,
employed principally for short time financing of companies. Often, the seller or
provider of a service is not paid upfront by the buyer (usually, another company),
but within a period of time, the length of which has been agreed upon by both the
seller and the buyer. The reasons for this may vary; historically, many companies
used to balance their books and execute payments and debts at the end of each
week or tax month; any product bought before that time would be paid only then.
Depending on the jurisdiction, this deferred payment period can be regulated by
law; in countries like France, Italy or Spain, it usually ranges between 30 to 90
days after the purchase.
When a company engages in many of such transactions, for instance by having
provided services to many customers all of whom then deferred their payment, it is
possible that the company may be owed enough money that its own liquidity
position (i.e., the amount of cash it holds) is hampered, and finds itself unable to
honour their own debts, despite the fact that by the books, the company remains
solvent. In those cases, the company has the option of asking the bank for a short
term loan, or using any other such short term financial arrangements to avoid
insolvency. However, in jurisdictions where promissory notes are commonplace,
the company (called the payee or lender) can ask one of its debtors (called the
maker, borrower or pay or) to accept a promissory note, whereby the maker signs a
legally binding agreement to honour the amount established in the promissory note
(usually, part or all its debt) within the agreed period of time. The lender can then
take the promissory note to a financial institution (usually a bank, albeit this could
also be a private person, or another company), that will exchange the promissory
note for cash; usually, the promissory note is cashed in for the amount established

in the promissory note, less a small discount. Once the promissory note reaches its
maturity date, its current holder (the bank) can execute it over the emitter of the
note (the debtor), who would have to pay the bank the amount promised in the
note. If the maker fails to pay, however, the bank retains the right to go to the
company that cashed the promissory note in, and demand payment. In the case of
unsecured promissory notes, the lender accepts the promissory note based solely
on the maker's ability to repay; if the maker fails to pay, the lender must honour the
debt to the bank. In the case of a secured promissory note, the lender accepts the
promissory note based on the maker's ability to repay, but the note is secured by a
thing of value; if the maker fails to pay and the bank reclaims payment, the lender
has the right to execute the security.
Thus, promissory notes can work as a form of private money. In the past,
particularly during the 19th century, their widespread and unregulated use was a
source of great risk for banks and private financiers, who would often face the
insolvency of both debtors, or simply be scammed by both.
The terms of a note usually include the principal amount, the interest rate if any,
the parties, the date, the terms of repayment (which could include interest) and the
maturity date. Sometimes, provisions are included concerning the payee's rights in
the event of a default, which may include foreclosure of the maker's assets.
Demand promissory notes are notes that do not carry a specific maturity date, but
are due on demand of the lender. Usually the lender will only give the borrower a
few days' notice before the payment is due. For loans between individuals, writing
and signing a promissory note are often instrumental for tax and record keeping. A
promissory note alone is typically unsecured,[5] but these may be used in
combination with security agreements such as mortgage, in which case they are
called mortgage notes.

Legal Format

International law
Definition and usage of promissory notes are internationally established by the
Convention providing a uniform law for bills of exchange and promissory notes,
signed in Geneva in 1930.[6] Article 75 of the treaty stated that a promissory note
shall contain:

the term "promissory note" inserted in the body of the instrument and
expressed in the language employed in drawing up the instrument

an unconditional promise to pay a determinate sum of money;

a statement of the time of payment;

a statement of the place where payment is to be made;

the name of the person to whom or to whose order payment is to be made;

a statement of the date and of the place where the promissory note is issued;

the signature of the person who issues the instrument (maker).

United States law

In the United States, a promissory note that meets certain conditions is a negotiable
instrument regulated by article 3 of the Uniform Commercial Code. Negotiable
promissory notes called mortgage notes are used extensively in combination with
mortgages in the financing of real estate transactions. One prominent example is
the Fannie Mae model standard form contract Multistate Fixed-Rate Note 3200,
which is publicly available. Promissory notes, or commercial papers, are also
issued to provide capital to businesses. However, Promissory Notes act as a source
of Finance to the company's creditors.
The various State law enactments of the Uniform Commercial Code define what is
and what is not a promissory note, in section 3-104(d):
S 3-104. NEGOTIABLE INSTRUMENT.
(d) A promise or order other than a check is not an instrument if, at the time it is
issued or first comes into possession of a holder, it contains a conspicuous
statement, however expressed, to the effect that the promise or order is not
negotiable or is not an instrument governed by this Article.
Thus, a writing containing such a disclaimer removes such a writing from the
definition of negotiable instrument, instead simply memorializing a contract.

British law
S 83. BILLS OF EXCHANGE ACT 1882. Part IV.

Promissory note defined

(1) A promissory note is an unconditional promise in writing made by one person
to another signed by the maker, engaging to pay, on demand or at a fixed or
determinable future time, a sum certain in money, to, or to the order of, a
specified person or to bearer.
(2)

An instrument in the form of a note payable to makers order is not a note

within the meaning of this section unless and until it is indorsed by the maker.

(3) A note is not invalid by reason only that it contains also a pledge of collateral
security with authority to sell or dispose thereof.
(4)

A note which is, or on the face of it purports to be, both made and payable
within the British Islands is an inland note. Any other note is a foreign note.

Difference from IOU

Promissory notes differ from IOUs in that they contain a specific promise to pay
along with the steps and timeline for repayment as well as consequences if
repayment fails. IOUs only acknowledging that a debt exists. In common speech,
other terms, such as "loan", "loan agreement", and "loan contract" may be used
interchangeably with "promissory note" but these terms do not have the same legal
meaning

Difference from loan contract

A promissory note is very similar to a loan - each is a legally binding contract to
unconditionally repay a specified amount within a defined time frame - but a
promissory note is generally less detailed and rigid than a loan contract. [15] For one
thing, loan agreements often require repayment in instalments, while promissory
notes typically do not. Furthermore, a loan agreement usually includes the terms
for recourse in the case of default, such as establishing the right to foreclose, while
a promissory note does not. Also, while a loan agreement requires signatures from
both the borrower and the lender, a promissory note only requires the signature of
the borrower.

Negotiability
Negotiable instruments are unconditional and impose few to no duties on the issuer
or payee other than payment. In the United States, whether a promissory note is a
negotiable instrument can have significant legal impacts, as only negotiable
instruments are subject to Article 3 of the Uniform Commercial Code and the
application of the holder in due course rule.[1] The negotiability of mortgage notes
has been debated, particularly due to the obligations and "baggage" associated with
mortgages; however, in mortgages notes are often determined to be negotiable
instruments.

Case Law
Section 118 in The Negotiable Instruments Act, 1881
118 Presumptions as to negotiable instruments. Until the contrary is proved, the
following presumptions shall be made:
(a) of consideration that every negotiable instrument was made or drawn for
consideration, and that every such instrument, when it has been accepted,
indorsed, negotiated or transferred, was accepted, indorsed, negotiated or
transferred for consideration;
(b) as to date that every negotiable instrument bearing a date was made or
drawn on such date;
(c) as to time of acceptance that every accepted bill of exchange was accepted
within a reasonable time after its date and before its maturity;
(d) as to time of transfer that every transfer of a negotiable instrument was
made before its maturity;
(e) as to order of indorsements that the indorsements appearing upon a
negotiable instrument were made in the order in which they appear thereon;
(f) as to stamps that a lost promissory note, bill of exchange or cheque was
duly stamped;
(g) that holder is a holder in due course that the holder of a negotiable
instrument is a holder in due course:
Provided that, where the instrument has been obtained from its lawful owner,
or from any person in lawful custody thereof, by means of an offence or fraud,
or has been obtained from the maker or acceptor thereof by means of an

offence or fraud, or for unlawful consideration, the burden of proving that the
holder is a holder in due course lies upon him.
Tarmahomed Haji Abdul Rehman vs Tyeb Ebrahim Bharamchari on
10 November 1948
JUDGMENT M.C. Chagla, C.J.
1. This is an appeal from a judgment of Mr. Justice Tendolkar by which he passed
a decree for Rs. 8,000 in favour of the plaintiff. The plaintiff filed a suit on three
hundis, two dated April 4, 1947, payable 90 days after the date of the hundis,
and the third hundi dated April 29, 1947, for Rs. 3,000 payable 68 days after the
date of the hundi. The defence of the defendant was that these hundis were
passed for accommodation. At the trial three issues were raised:
(1) Whether the hundis were passed for the accommodation of the plaintiff as
alleged in para. 2 of the written statement?
(2) What relief is the plaintiff entitled to ? and
(3) Whether the defendant is entitled to the return of the said three hundis as
alleged in para. 6 of the written statement and counter-claim ?
2. The learned Judge came to the conclusion that the defendant had failed to prove
that the hundis in suit were passed for accommodation. It was then argued
before him that inasmuch as the plaintiff had put forward as the consideration of
the hundis something different from what was mentioned in the hundis
themselves, the presumption which arises under Section 118 of the Negotiable
Instruments Act, 1881, was rebutted and the burden was upon the plaintiff to
prove that there was consideration for these hundis. The hundis mention the
amount as the consideration for value received in cash this day, i.e. cash
received on the day on which the hundis were -executed. But at the hearing the
defendant admitted that the consideration mentioned in the hundis was not
correct and the real consideration was something different from what was
mentioned in the hundis. Now, Section 118 of the Negotiable Instruments Act
raises a statutory presumption in favour of there being consideration for every
negotiable instrument, and the language of the section is that "Until the contrary
is proved, the following presumptions shall be made: (a) that every negotiable

instrument was made or drawn for consideration..." Those are the material
words with which we are concerned. Therefore, the statutory, presumption
continues until it is rebutted, and the only way it can be rebutted is by proving
the contrary, viz. that the negotiable instrument was without consideration.
3. Now, what was urged before Mr. Justice Tendolkar and what has been urged
before us is that as soon as it is shown that the consideration mentioned in the
negotiable instrument is not the real consideration, the presumption under
Section 118 is Tebutted and it is for the plaintiff who is suing on the negotiable
instrument to prove what the real consideration was. Looking to the plain
language of the section, it is impossible to accept that contention, because the
presumption that is raised under Section 118 is not in respect of the
consideration mentioned in the negotiable instrument; the presumption, is in
favour of there being a, consideration for the negotiable instrument, any
consideration which is a valid consideration in law. Mr. Purshottam for the
appellant wants us to read the section as if it were worded thus : That every
negotiable instrument was made or drawn for consideration mentioned in the
negotiable instrument. There is no warrant for importing into the section words
which the Legislature did not think fit to incorporate in that section. Two
judgments of the Lahore High Court have been relied upon for the purpose of
putting this interpretation upon the section. One is Mt. Zohra Jan v. Mt. Bajan
Bibi (1915) P.R. No. 48 of 1915 (Civil) and the other is Sundar Singh v. Khushi
Ram. [1927] A.I.R. Lah. 864 With very great respect to the Lahore High Court,
the learned Judges have not attached sufficient importance to the plain language
of the section and have more been carried away with the question of
appreciation of evidence and the approach to the evidence led rather than the
legal construction of the section in the statute. It is perfectly true that if a
particular consideration is mentioned in a negotiable instrument and that
consideration is found to be false and some other consideration is set up, that is a
factor which the Court would take into consideration in deciding whether the
defendant has discharged the burden cast upon him by Section 118. But its is a
very different thing to say that merely because the consideration mentioned in
the negotiable instrument turns out to be false, therefore the statutory
presumption is rebutted and the burden is thrown upon the plaintiff to prove the
consideration. Mr. Justice Pal of the Calcutta High Court, although his

observations are obiter in Ramani Mohan v. Surjya Kumar Dhar has taken a
different view as to the true construction of the section from the view taken by
the Lahore High Court. In our opinion, therefore, Mr. Justice Tendolkar was
right in coming to the conclusion that the mere fact that the consideration
mentioned in the three hundis turned out to be wrongly described did not rebut
the presumption under Section 118, and the burden still lay on the defendant to
satisfy the Court that there was no consideration for the three hundis.
4. The learned Judge on a review of the evidence came to the conclusion that the
defendant had failed to prove that the three hundis were for accommodation and
he gave his finding on the first issue accordingly. That should have been
sufficient to dispose of the suit and a decree would have followed in favour of
the plaintiff. But in view of this legal argument advanced, the learned Judge
thought it necessary, in the event of a higher Court taking a different view, to
approach the case from a different angle. If the legal view was as laid down by
the Lahore High Court, then undoubtedly the burden to prove the consideration
would have been on the plaintiff inasmuch as the consideration mentioned in
the hundis had been found to be false. He, therefore, went on to consider
whether the plaintiff had succeeded in proving that there was consideration for
the three hundis, and having considered the evidence of the plaintiff and the
witnesses examined by him he came to the conclusion that the plaintiff had
failed to prove that there was that consideration for the three hundis which he
alleged and on which he relied. Now it is argued by Mr. Purshottam that this
finding of the learned Judge is tantamount to a finding that there is no
consideration for the three hundis and that in any view of the case the defendant
has succeeded in rebutting the presumption raised by Section 118 of the
Negotiable Instruments Act. As I have already pointed out, this finding of the
learned Judge must be viewed and appreciated in its own context. The learned
Judge was considering not whether the defendant had discharged the burden,
but whether the plaintiff had discharged the burden in the event of its being held
that the burden was on the plaintiff, and all that he held was that the plaintiff
had failed to discharge the burden of proving consideration. But as I have
already pointed out earlier, the statutory presumption continued in favour of the
plaintiff and therefore it was for the defendant to establish that there was no
consideration. It is one thing to say that the plaintiff has failed to prove a

particular consideration for the three hundis; it is an entirely different thing to

say that it was proved that there was no consideration at all for the three hundis.
The mere failure to prove consideration on the part of the plaintiff did not
establish that the hundis were for accommodation as the defendant alleged, or
that the defendant had succeeded in proving that there was no consideration at
all for these hundis. Mr. Purshottam has made a grievance of the fact that the
learned Judge has considered the evidence in two water-tight compartments; He
has considered only the evidence of the defendant in coming to the conclusion
that the defendant had failed to discharge the burden. What the learned Judge
should have done was to have considered the evidence as a whole, and
according to Mr. Purshottam it is not merely from the evidence of the defendant
that it can be established that there was no consideration, but it is open to the
defendant to prove his case even from the mouth of the plaintiff himself. There
Mr. Purshottam is quite right. In order to determine whether the contrary is
proved or not, as required by Section 118, the whole volume of the evidence led
before the Court must be considered. Very often important admissions are
elicited by counsel for the defendant by cross-examining the plaintiff and those
admissions certainly can be availed of by the defendant. But in considering the
whole volume of evidence the Court must always bear in mind the statutory
presumption under Section 118 and also the fact that the burden of proof lies
upon the defendant and that-burden has got to be discharged by the defendant.
How that burden can be discharged or whether it has been discharged is a
matter of appreciation of evidence. As a matter of fact, in this case no express
issue was raised as to the consideration. The only issue, as I have pointed out,
was whether the hundis were passed for accommodation as alleged by the
defendant. But the learned Judge points outand this has been strongly relied
upon by Mr. Purshottamthat the plaintiff himself put forward his version of the
consideration, and although no issue was in terms raised by the learned Judge,
he says in his judgment that it has been tried and answered by him. But even
assuming that the learned Judge was right in considering an issue which was not
expressly raised and to which the attention of the parties was not directed, even
so the only finding on this issue is that the plaintiff has failed to prove the
consideration which he set out to prove. That does not get over the earlier
finding of the learned Judge that the defendant had failed to prove that the
hundis were passed for accommodation. We must look at both these findings in

order to try and assess what is the effect of these two findings. In our opinion, it
is clear that the learned Judge comes to the conclusion? that the defendant has
failed to prove want of consideration as required by Section 118, and then he
goes on to say that the plaintiff also has failed to prove the particular
consideration which he attempted to prove. Now. it must he borne in mind that
as soon as the learnet Judge had decided that the defendant that had failed to
prove that the hundis were passed for accommodation, it was entirely
unnecessary and irrelevant to consider whether the plaintiff had failed to prove
conisederation or not. It was not necessary for the plaintiff to prove any
conisedearation. The presumption under Section 118 continued in all its rigour.
Assuming that the plaintiff did attempt to prove consideration, the mere fact
that he failed to prove such a consideration did not in any way relieve the
defendant from his obligation in law to establish the contrary of the
presumption raised by Section 118 of the Negotiable Instruments Act.
Therefore, we do not read the finding of the learned Judge as meaning that on
the record it has been established and proved that there was no consideration for
the three hundis.
5. Certain authorities have been cited at the But and considerable emphasis has
been laid by Mr. Purshottam on a decision of the Allahabad High Court reported
in Lal Girwar Lal v. Dau Daval. (1935) I.L.R. 57 All. 895 All that that case lays
down is that where the Court, after a careful consideration of the entire
evidence, records a clear finding one way or the other, then that finding is based
not on a mere presumption but on the evidence and has to be accepted. With
great respect, that is a proposition of law which is unexceptionable. If Mr.
Justice Tendolkar had given a clear finding that there was no consideration for
the three hundis, then apart from any question of presumption that finding if
accepted would have resulted in the defendant succeeding, because the result of
that finding would be that the presumption under Section 118 had been
rebutted. Two cases were referred to in this judgment of the Allahabad High
Court by Mr. Justice Sulaiman and both those cases have also been referred to
at the Bar. One is another decision of the Allahabad High Court, Md. Shafi
Khan v. Md. Moazzam Ali [1923] A.I.R. All. 214 That case decided that in case
where consideration is denied and the plaintiff goes into the witness-box and
the result of his cross-examination is such that he failed to establish the point

which he set out to make, viz. that he gave the consideration, and the Court is
satisfied that he did not give the consideration, the defendant can avail himself
of that. It is to be noted that in that case there was only one issue as to
consideration, and on that issue the Court considering the contradictory
evidence given by the plaintiff came to the conclusion that there was no
consideration, and Mr. Justice Sulaiman in Lai Girwar Lal v. Dau Dayal (1935)
I.L.R. 57 All. 895 sounds a note of warning as to how that case should be
properly understood, and this is what he says (p. 898):
We are not satisfied that it was meant to lie laid down in that case that where the
plaintiff merely fails to prove that consideration passed and the. defendant also
fails to prove that he did not get consideration, there is no presumption in
favour of the plaintiff.
That is exactly the case here. The plaintiff has failed to prove that consideration
passed and the defendant has also failed to prove that lie did not get
consideration. Under those circumstances the presumption in favour of the
pfeiriliff continues. The other case is L. Bam Nath v. Lala Ram Chandra Mal. In
that case the plaintiff sued on a promissory note and a receipt on which he
claimed that Rs. 2,000 cash had been lent to the defendants. The defendants, on
the other hand, admitted the execution of the promissory note and the receipt,
but they denied that there was a loan of Us. 2,000 cash. The plaintiff failed to
prove consideration and the defendant also did not prove the allegations made
by him. A divisional bench of the Allahabad High Court consisting of Mr.
Justice Niamatullah and Mr. Justice Bennett held that in that state of the record
the presumption under Section 118 applied and the suit should be decreed.
6. These authorities clearly show that the presumption under Section 118 is not
rebutted till it is proved that there is no consideration for the negotiable
instrument, and the mere fact that the plaintiff fails to prove the particular
consideration on which he relies is not sufficient to rebut that presumption and
lead the Court to the conclusion that the contrary as required by Section 118 has
been proved. In this case it is clear that the defendant failed to prove that the
hundis were for accommodation, and the mere fact that the plaintiff also failed

to prove the consideration on which he relied is not sufficient to lead one to the
conclusion that the presumption under Section 118 has been rebutted.
7. The findings of fact as arrived at by the learned Judge have been accepted by
Mr. Purshottam and therefore the result is that the learned Judge was right in
coming to the conclusion that he did. The appeal therefore fails and must be
dismissed with costs. In taxing the costs of the appeal, costs of including the
notes of evidence in the record to be disallowed. As regards the crossobjections, they deal with the order for costs made by the trial Court. In the
exercise of his discretion he allowed only two-thirds costs to the plaintiff. We
see no reason why we should interfere with the discretion exercised by the
learned Judge. Cross-objections therefore must be dismissed with costs.
8. I agree and have nothing to add.
Section 4 of the Negotiable Instruments Act, 1881:
"Promissory note"
A "promissory note" is an
instrument in writing (not being a banknote or a currency - note) containing an
unconditional
undertaking
signed by the maker, to pay a certain sum of money only to, or
to the order of, a certain person, or to the bearer of the instrument.
To understand the term word promissory note clearly, it is apt to refer the
following ruling of the Honble High Court of Andhra Pradesh.
Bolisetti Bhavannarayana vs Kommuru Vullakki Cloth Merchant 1996 (1)
ALD Cri 530, 1996 (1) ALT 917; Bench: K Agarwal, V R Reddy, N S Reddy; in
this case , the following question
Whether the suit document is a Promissory Note? If not, what is its nature?
To answer this question, it was held as follows: As to the first question, we may
remind ourselves of the fact that the Indian Stamp Act, 1899, (in short, the "Stamp

Act"), levies stamp duty on various documents at varying rates and, therefore, it
becomes necessary first to determine the nature of any document before deciding
the question of proper stamp duty payable on such document. Accordingly the
definition of a 'bond' or a 'promissory note' as given in the Stamp Act alone is
material for the purpose of determination of the nature of any document. Section
2(22) of the Stamp Act defines 'promissory note' as follows:
"Promissory
by

note"
the

means
a
Negotiable

promissory
Instruments

note

as
Act,

defined
1881;

"It also
includes
a
note
promising
the
payment of
any
sum of
money
out
of
any particular
fund
which
may
or may
not
be
available, or
upon
any
condition
or
contingency which may or may not be performed or happen."
In the context of this definition of "promissory note" given in
Section 2(22) of the Stamp Act, the definition of the term as given
in Negotiable Instruments Act, 1881 assumes importance. Section 4
of
the
latter
act
defines
"promissory
note"
as
follows:
"A 'promissory note' is an instrument in writing (not being a bank-note or a
currency-note) containing an unconditional undertaking, signed by the maker, to
pay a certain sum of money only to, or to the order of, a certain person, or to the
bearer of the instrument.
Illustrations
A signs instruments in the following terms:
(a) "I promise to pay B or order Rs. 500."
(b) "I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on
demand, for value received."
(c) "Mr. B, I.O.U. Rs. 1,000".
(d ) "I promise to pay B Rs. 500, and all other sums which shall be due to him."

(e) "I promise to pay B Rs. 500, first deducting thereout any money which he may
owe me."
(f) "I promise to pay B Rs. 500 seven days after my marriage with C."
(g) "I promise to pay B Rs. 500 on D's death, provided D leaves me enough to
pay that sum."
(h) "I promise to pay B Rs. 500 and to deliver to him my black horse on 1st
January next."
The instruments respectively marked (a) and (b) are promissory notes. The
instruments respectively marked (c), (d), (e), (f), (g) and (h) are not
promissory notes.
This definition of promissory note itself indicates that there may be several types
of promissory notes. Out of these various categories of promissory notes, some
may be treated as 'negotiable instrument' within the meaning of Section 13 of the
Negotiable Instruments Act and some others may not be so treated, but by that very
fact, the nature of the document will not change, if it is otherwise a promissory
note. In other words, if a document is a 'promissory note' within the meaning of
Section 4 of the Act, it will continue to be 'promissory note', whether it comes or
does not come within the meaning of the term 'negotiable instrument' as defined in
Section 13 of the Act. For this reason, were are of the view that Section 13 of the
Negotiable Instruments Act, or the definition of the term 'negotiable instrument' is
wholly irrelevant when it comes to deciding the nature of a particular document as
a promissory note, or otherwise. Similarly and for similar reasons, it is wholly
irrelevant to refer to the provisions of Section 13 of the Act while deciding the
nature of any document as a 'bond' or otherwise. Accordingly anything to the
contrary held in any of the authorities referred to in the orders of reference is not a
good law.
Promissory note is not a compulsorily attestable document:
Genearally no attestors are necessary to execute a promissory note. In Chandabolu
Bhaskara Raos case, the Honble High Court of A.P held that Since promissory
note is not a compulsorily attestable document, even if the signatures of the

attestors are taken, after its execution it does not amount the material alteration,
and so it does not get vitiated. Therefore, whether there were attestors or not at the
time of its execution is immaterial, more so when its execution is admitted.
The Honble Full Bench Judgment of Madras High Court reported in Hariram v.
I.T. Commissioner, (F.B.). In this case the following document was under
consideration, which reads as follows:
"Promissory note executed on 14-6-1947 in favour of Arunachala Chettiar, son of
Kolakkara Chettiar residing at Palappudi Village, hamlet of Sathyamangammal,
Gingi Taluk by Kuppuswami Chettiar, son of Venkatachala Chettiar, residing at the
aforesaid village. In respect of the sum received from you at Tiruvannamalai by me
in the year 1943 and given for opening a Javuli shop by T. Arunachala Iyer the sum
found due to you is Rs. 3,000. As this sum of rupees three thousand had to be paid
to you, I shall pay the same together with interest at Rs. 0-4-0 per month per Rs.
100 in six equal instalments, and discharge the same. To this effect is the
promissory
note
executed
by
me
with
my
consent."
Their
Lordships
not a promissory
undertaking
to

held
that
the
document in
note,
because there
is
no
pay
a
certain
sum

The
distinction
hundi
or
bill
Vradachariar,

between
of
exchange
J.,
in

the
is

question
is
unconditional
of
money.

promissory
note
and
explained
by his lordship
these
words
:

"But where the borrower gives his own promissory note as part of the loan
transaction, it seems to me artificial to treat that every ' promise to pay ' obtained in
that note as amounting to a payment, and then to seek to import the theory of '
conditional ' payment. "
If Promissory Note Is In-Admissible- Remedy:

1) "1. Whether a plaintiff can bring action for recovery of the amount advanced by
him basing on the original consideration when the promissory note on foot of
which action is brought is in-admissible in evidence under Section 35 of the Stamp
Act,
and,
if
so,
under
what
circumstances
?
2. If
the
promissory
note
is
in-admissible
in
evidence,
whether action can be maintained for recovery of the amount
either on the theory
of " money had and received "
or under
the
provisions
of
Section
70
of
the
Contract
Act.
"
2) The question referred to the Honbel Bench of seven Judges by
a Division Bench to which two of their lordships Obul Reddi
and
Madhava
Reddy,
JJ.
were
members,
is
"Whether a plaintiff can lay action for recovery of the amount advanced by him
basing on the original cause of action when the negotiable instrument evidencing
the transaction is inadmissible in evidence under Section 35 of the Stamp Act. "
Promissory Note Requires Proper Stamp Duty:
Venkatasubbaiah v. Bhushayya, 1963 (1) An.WR (NRC) 31. That was a case in
which the Honble High Court of A.P considered the fact of Section 35 of the
Stamp Act. It held that the promissory executed in other State was liable for stamp
duty in the State where it was produced, and for not paying necessary stamp duty,
the document would be inadmissible. For such a contingency Section 19 of the
Indian Stamp Act would apply. According to this Section, promissory note drawn
or made out of India shall, before it is presented for acceptance or payment or
endorses, transfers or otherwise negotiate in India, affix thereto the proper stamp
and cancel the same. Prima facie the said section would not apply to the
promissory note executed in India, and any promissory note executed in one State
may be presented in any other State in India with the stamp bearing on the
promissory note, no additional stamp duty need be paid. Section 19 contemplates
that a promissory note drawn out of India and used in India or any State, it requires
proper stamp duty as per Indian Law.