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 10–13th centuries, then such prototypes had used by Italian merchants in the 12th century.

In Italy in 13–15th centuries bill of exchange and promissory note obtain their main features and further phases of its development have been associated with France (16–18th 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 maker’s 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, 1881118 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 cross-objections, 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 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.

To understand the term word ‘promissory note’ clearly, it is apt to refer the following ruling of the Hon’ble 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 note" means a promissory note as defined by the Negotiable Instruments Act, 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.

IllustrationsA 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 Rao’s 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 Hon’ble 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 held that the document in question is not a promissory note, because there is no unconditional undertaking to pay a certain sum of money.

The distinction between the promissory note and hundi or bill of exchange is explained by his lordship Vradachariar, J., in 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 Hon’bel 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 Hon’ble 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.