Basics of Promissory Note
Basics of Promissory Note (ProNote)
Promissory note or ProNote is a legal document by which a monetary liability is created on the promisor in favour of a promisee. Promissory notes are mostly used by businessmen while lending unsecured loans. In this article, we look a the basics of pronote in India.
Promissory note is a negotiable instrument and the Negotiable Instruments Act defines promissory note as “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”. All pronote have the following elements:
- An unconditional undertaking to pay;
- The sum should be a specified sum of money and should be certain;
- The repayment should be to or to the order of a person who is certain or to the bearer of the instrument;
- The promisor should sign the promissory note;
- The promissory note must be in writing;
- The promissory note should be payable on demand or it should be payable on demand at some fixed future time;
- Promissory note does not require attestation.
Pronotes are executed for loan, time-barred debt, balance of consideration in execution of sale or lease deed, salary arrears, for a right, for a profit or benefit, for forbearance, for loss suffered or for an interest. Hence, pronote can be executed for a variety of transaction, wherein there is a promise by the promissor to pay a certain sum or money or consideration to the promisee.
Promisor – Promisee Relationship
The parties to the pronote are the promisor and promisee. The person who promises to pay the money is called the promissor (usually the debtor). The person who is entitled to the money is the promisee (usually the creditor). Any person capable of contracting can execute a valid pronote. A minor cannot execute a promissory note and a promissory note executed by a minor is not enforceable. However, a minor can be a promisee and be entitled to receive the money on demand of a pronote.
Creating a ProNote
All pronote must be in writing, and it may be in white paper or any other paper. There is not requirement for a pronote to be in non-judicial stamp paper. Pronote should contain the date, place of execution, money payable, details of the promissor and promisee and the signature of the promissor across the stamp. Attesting witness or registration is not required.
Stamp Duty for Promissory Note
Pronote must be stamped with revenue stamps that are available from the post offices. In case of a pronote executed for a large sum of money, a non-judicial stamp paper can also be used. It is important for all pronote to be stamped with the proper revenue stamp or non-judicial stamp paper as per the Indian Stamp Act. Pronote that is improperly stamped or insufficient stamped becomes an invalid document not admissible in Court.
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