Ques; Define and explain the term "Promissory Notes (Pro Notes)" as per Indian Negotiable Instrument Act 1881.
Ans;
Promissory Note has been defined under section 4 of the Indian Negotiable Instrument Act as follow;
"Promissory note is an instrument in writing (not being bank note or cheque 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."
Therefore, it is a written promise committing the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest. Instruments meeting these criteria are negotiable . Often called, simply, a note or pro note .
On the basis of above definition it is clear that;
(i) A promissory note payable 'only to a particular person is valid if it satisfies requirement of the instrument However it is not negotiable As we know negotiability is necessary element for negotiable instrument, but from the above definition it appears that negotiability is not necessary for promissory note.
(ii) In the year 1934 Reserve Bank of India (RBI) Act was passed under section 31 of this Act, it is clear that in Indian except RBI or Central govt no person can make or issue a 'promissory note payable to bearer'
(iii) The person who makes the promissory note is called 'MAKER' instead of Drawer. He is the debtor and must sign the document. The peroson to whom payment is to be made is called 'Payee'
Essential Features of Promissory Note or Pro Note:
Ans;
Promissory Note has been defined under section 4 of the Indian Negotiable Instrument Act as follow;
"Promissory note is an instrument in writing (not being bank note or cheque 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."
Therefore, it is a written promise committing the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest. Instruments meeting these criteria are negotiable . Often called, simply, a note or pro note .
On the basis of above definition it is clear that;
(i) A promissory note payable 'only to a particular person is valid if it satisfies requirement of the instrument However it is not negotiable As we know negotiability is necessary element for negotiable instrument, but from the above definition it appears that negotiability is not necessary for promissory note.
(ii) In the year 1934 Reserve Bank of India (RBI) Act was passed under section 31 of this Act, it is clear that in Indian except RBI or Central govt no person can make or issue a 'promissory note payable to bearer'
(iii) The person who makes the promissory note is called 'MAKER' instead of Drawer. He is the debtor and must sign the document. The peroson to whom payment is to be made is called 'Payee'
Specimen of Promissory Note (Pro Note)
Essential Features of Promissory Note or Pro Note:
1. It must be in writing: A Promissory Note has to be in writing, an oral promise to pay does not become promissory note. The wirting may be on any paper or any book or 'Bahi'. It may be in ink or in pencil, no particular words or form of words is necessary in this regard.
2.It must contain a promise or undertaking to pay; There must be a promise or undertaking to pay a certain sum of Rupees, these words may be replaced by any similar words having same meaning.
3.It is Negotiable in some situations: If a promissory note is payable to bearer, is negotiable, however RBI Act 1934 restricts 'Payable to bearer' inn ordinary cases it may be issued or made 'payable to order'.
4.Promise to pay must be unconditional: If something is conditional, there are some terms and conditions to be fulfilled as far as Pro-Notes are concerned there must not be an condition regarding payment. Some conditional words in case of Promissory note are; I promise to Pay Mr. Shyam a sum of Rs.6000/- (Six thousand) only, if somebody claims, If somebody satisfy me etc.
5.It must be signed by the maker: It is necessary that the Promissory Notes Should be duly authenticated by the signature of the maker. Signature is made by the maker in order to show his name or a mark to present his name, the signature may be anywhere with in the promissory note, not necessary to mention it at the bottom of the Promissory Note.
6.The maker must be a certain Person: There must be a certain person to signs upon Promissory Note. It means the name of the maker must be real, an assumed name cannot make him liable, there must be an identification of the maker.
7.The Payee must be certain: In the same way Payee must be a certain person.
8.The sum must be certain: Payment must be certain means, A Promissory Note must have an amount which may be payable, as possible as it should be in Indian currency only. There must be an absolute figure too. For example Rs 5000/- (Five thousand rupees only) and 12% interest thereon.
9.Promissory note must be in Indian Currency: Promissory Note must be in Indian currency in a absolute manner,
10.Some other Formalities; Above points or features or characteristics of a promissory note states that negotiable instrument must fulfill some conditions, further sec 118 states like any other negotiable instrument some presumptions also applicable on pro notes.
