Promissory Note in India – Meaning, Format, Legal Validity & Examples
Promissory Note in India – Meaning, Format, Legal Validity & Examples
A Promissory Note is one of the simplest and most widely used legal instruments in India for recording financial transactions. Whether it is a loan between friends, business partners, or a formal credit arrangement, a properly drafted promissory note ensures security, enforceability, and clarity.
This guide explains the meaning, features, essential elements, legal provisions, format, stamp duty, and enforceability of a promissory note in India.
What is a Promissory Note?
A Promissory Note is a written, signed document in which one party (the maker) promises to pay a definite sum of money to another party (the payee or holder) either on demand or at a fixed future date.
It acts as written evidence of debt and is legally recognized under Section 4 of the Negotiable Instruments Act, 1881.
In simple terms, it is a written promise to repay money borrowed.
Essential Features of a Promissory Note
To be legally valid, a promissory note must include the following features:
Written Document – It must always be in writing. Oral promises are not valid.
Unconditional Undertaking – The promise to pay should not be conditional.
Definite Amount – The sum of money must be specific and certain.
Payee Must Be Certain – The person receiving payment must be clearly mentioned.
Payment in Money Only – It cannot be in goods or services.
Signature of the Maker – Without the maker’s signature, it is invalid.
Stamped Document – Must be duly stamped as per Indian Stamp Act.
Legal Provisions Governing Promissory Notes in India
Negotiable Instruments Act, 1881 – Section 4 defines promissory notes.
Indian Stamp Act, 1899 – Stamping is mandatory; unstamped or insufficiently stamped promissory notes are not admissible in court.
Indian Contract Act, 1872 – The promissory note is treated as a contract and must follow general principles of contract law.
Difference Between Promissory Note, Bill of Exchange, and Cheque
Basis Promissory Note Bill of Exchange Cheque
Parties Involved 2 (Maker & Payee) 3 (Drawer, Drawee, Payee) 3 (Drawer, Drawee Bank,
Payee)
Nature Promise to Pay Order to Pay Order to Bank
Payable To Specific Payee Drawee/Holder Always Payable on Demand
Legal Act Sec. 4 NI Act Sec. 5 NI Act Sec. 6 NI Act
Format of a Promissory Note in India
Here’s a simple promissory note format:
PROMISSORY NOTE
I, [Name of Borrower], S/o [Father’s Name], R/o [Address], hereby promise to pay
to [Name of Lender], S/o [Father’s Name], R/o [Address], the sum of
Rs. [Amount in Figures] (Rupees [Amount in Words]) only, together with interest
at the rate of [X]% per annum, on or before [Date].
Place: __________
Date: ___________
Signature of Borrower (Maker)
Stamp Duty on Promissory Notes
As per Indian Stamp Act, stamp duty varies from state to state.
An unstamped or insufficiently stamped promissory note cannot be enforced in court.
Enforceability of a Promissory Note
A duly executed promissory note is a legally enforceable instrument.
If the borrower defaults:
The lender can file a civil recovery suit.
It serves as written evidence of debt in court.
In case of fraud or cheating, criminal proceedings may also apply.
Advantages of Using a Promissory Note
Simple and cost-effective
Legally recognized evidence of debt
Helps avoid disputes over repayment terms
Useful for both personal and business loans
Common Mistakes to Avoid
Not putting it in writing
Missing signatures or dates
Using vague or conditional language
Not affixing proper stamp duty
Not specifying repayment date or interest rate
Conclusion
A promissory note is a powerful legal tool for documenting loans and credit transactions. It is simple, legally binding, and provides both parties with clarity and security.
Before signing or drafting a promissory note, ensure:
? It is in writing, clear, and unconditional
? It contains exact details of the amount, date, and parties involved
? It is properly stamped as per state law
If drafted correctly, it becomes a solid piece of evidence in case of disputes.
