It 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 to, or to the order of, a certain person, or to bearer of the instrument [Section 4].

Explanations of Clauses
 An i t ne per n, t (i. . nt, t r w i l e tr nsferred t not er), ll ), ri t , f

 In writing (i.e. not j st ver

 Not eing a bank note or a currency note (vide Secti ns 31 and 32 of the RBI Act),  Unconditional (except such events which are bound to happen, e.g. death of a particular person),  Undertaking (and not just an acknowledgement of a debt),

Explanations of Clauses
 Signed by the maker (i.e. it must bear the makers signature),  To pay ( and nothing else),  A certain sum of money (and money only, and nothing else, like delivery of a car),  To, or to the order of 1. A certain person (i.e. payee must be a definite and particular person, 2. Or to the bearer of the instrument.

Two Parties to Promissory Note

(a)Maker or Drawer, who makes (draws) promissory note, promising to pay the amount stated therein, and (b)Payee, to whom the amount of promissory note, is payable. After endorsement and delivery, of order instrument, and just by delivery, of a bearer instrument. The following persons also become parties to a promissory note: (i) Holder, i.e. original payee or the endorsee,

(ii) Endorser, i.e. the person who endorses the instrument to another person, and (iii) Endorsee, i.e. the person in whose favour it is endorsed.

Essential Ingredients of a Promissory Note

(i) In writing, including printed, typewritten or computerprinted. It may be written even in pencil, but it is safer to avoid it, to avoid an easy, quick and undetectable material additions/alterations. (ii) A promise to pay and not a mere acknowledgement of a debt or a receipt for money. (iii)Unconditional, not dependent upon an uncertain event taking or not taking place, or an uncertain work being accomplished or not. However, condition of a sure event, like the death of a particular person, is permitted. (iv)Signed by the maker, or by his authorised attorney (agent), to authenticate the terms of the contract.

Essential Ingredients of a Promissory Note

(Continued)

(v) Certain person, i.e. the names of maker and payee, with certainty. (vi)Certain sum of money, i.e. amount payable must be certain or capable of being made certain. (vii)Promise to pay money only and nothing else (like car or house). (viii)Date, place, number, and so on, though legally not necessary. If the date is missing, it is presumed to be made on the date it has been delivered by the maker to the payee. (ix) Payable in installments also is permitted; not necessarily in full, in one go.

Two types of Promissory Notes

(i) Payable on demand or at sight or on presentation (also known as sight notes); i.e. it must be paid immediately on demand, or at any time till it becomes time-barred; i.e. before expiry of three years from its date; or (ii) Payable after a definite period. i.e. after so many days or months, as stated therein. If made payable in two parts, i.e. the first part is payable within six months, and the second part within the next six months, any time on demand, such promissory note is treated, not as a valid demand promissory note, but as a Time Promissory Note, required to be stamped as a time Promissory Note, and not as a DP Note.

Revival of DP Note after it becomes time-barred (Expired) - As per Indian Limitation Act, a DP Note becomes time-barred after expiry of three years from date of its execution. An already expired DP Note cannot be revived thereafter. Even a duly stamped DP Note Revival Letter, in blank, - duly signed by the borrowers, in advance, cannot legally revive it. Even obtaining a DP Note revival letter in the back date, after its expiry, is again not legally valid, if so proved. But, if some other conditions are satisfied, the promise to pay the time barred debt, even without consideration - would be valid and binding, and, thus, the time-barred debt would get revalidated / revived. [Subsection 25 (3)].

But, if the DP Note has expired, the debt (which also becomes time-barred after expiry of three years) it (debt) will be valid, provided it is revived in one of the following manners: (i) By getting the confirmation of debit balance on the account, duly signed by the borrower. Thus, the debts limitation period gets extended for another three years from such date. (ii)Letter from the borrower, acknowledging debt, extends the limitation period by another three years, from the date of such letter.

(iii)Letter, signed by borrower, e en if denying debt, extends the limitation period. Therefore, the creditors, like bankers, must carefully preser e e en such letter. (i )Any deposit or wit drawal on t e loan account also extends the limitation period. A deposit by t e borrower, or by is aut orised agent (i.e. the person ho fre uently isits the banks branch, to transact business, on behalf of the borro er), has the same effect of extending the limitation period.

Creditors (like banks) must file suit, before the debt itself becomes time barred. As per Bankers Books of Evidence Act, if respective books / ledgers of the bank evidence the debt, it will be sufficient enough to establish the debt, and the lack of a valid (un-expired) DP Note will have no adverse effect. All DP Notes and TP Notes must be made payable to order, and never to the bearer. Both DP Notes and TP Notes must be properly stamped as per Indian Stamp Act.

Manner of Cancelling the Stamps

Stamps must be cancelled such that a portion of both the signature and date must appear on the revenue stamp, and remaining parts on the DP Note. Thus, if the revenue stamp, somehow gets removed from the DP Note, the blank space of the exact size of the revenue stamp, would suggest that the DP Note was actually stamped. Moreover, yet another signature, with date, must be obtained on the body of the DP Note, away from the revenue stamp, such that, if the stamp gets somehow removed, and a part of signature therewith, a separate full signature, with date, will be available on the DP Note. As per the Indian Stamp Act, DP Note attracts revenue stamp of Re 1. TP Notes are stamped, depending upon the period of their maturity.