Business Laws and Management · Elements of Law relating to Negotiable Instruments

Promissory Note, Bill of Exchange and Cheque: Definitions and Differences

Updated 11 October 2026 · Fact-checked

A promissory note is a written, unconditional promise by the maker to pay a certain sum. A bill of exchange is a written, unconditional order to a certain person to pay. A cheque is a bill of exchange drawn on a specified banker and payable on demand. Check the instrument, the parties and the payment time.

Understand Promissory Note, Bill of Exchange and Cheque

A negotiable instrument is a promissory note, bill of exchange or cheque payable either to order or to bearer (Section 13). So these three are the main types you must know. Each is a written paper that carries a right to money.

A promissory note (Section 4) is a promise. The maker writes: I will pay. There are two parties: the maker (who promises) and the payee (who receives). A bill of exchange (Section 5) is an order. The maker, called the drawer, orders another person, the drawee, to pay a certain person, the payee. Once the drawee accepts the bill, he is the acceptor.

A cheque (Section 6) is a special bill of exchange. It is drawn on a specified banker, and it is not expressed to be payable otherwise than on demand. It also includes the electronic image of a truncated cheque and a cheque in electronic form. Under Section 19, a cheque is always payable on demand.

The common thread is that all three are in writing, need an unconditional promise or order, a certain sum of money only, and a certain payee (or the bearer). Section 4 does not cover a bank-note or a currency-note. Section 4 also gives examples: "I promise to pay B or order Rs. 500" is a promissory note. An IOU, a promise that is conditional on a marriage, or a promise to also deliver a horse is not.

Liability follows Section 37. The maker of a note or cheque, the drawer of a bill until acceptance, and the acceptor are principal debtors, unless a contract says otherwise. The other parties are liable as sureties for them.

Key formulas to remember

Promissory note (Section 4): Writing + unconditional undertaking + signed by maker + certain sum only + certain person or order or bearer; A bank-note or currency-note is excluded. Only two parties: maker and payee.
Bill of exchange (Section 5): Writing + unconditional order + signed by drawer + directs a certain person + certain sum only + to a certain person or order or bearer; Three parties: drawer, drawee, payee. The drawee becomes the acceptor on acceptance.
Cheque (Section 6): Cheque = bill of exchange + drawn on a specified banker + payable on demand; Includes the electronic image of a truncated cheque and a cheque in electronic form.
Negotiable instrument (Section 13): Promissory note, bill of exchange or cheque payable to order or to bearer; Payable to order if expressed so, or to a named person without words prohibiting transfer.
Payable on demand (Section 19): No time for payment specified, or a cheque = payable on demand; Applies to a note or bill with no time stated, and to every cheque.
Delivery and negotiation (Section 46): Bearer: negotiable by delivery. Order: negotiable by indorsement and delivery; Making, acceptance or indorsement is complete only on delivery.
General crossing (Section 123): Two parallel transverse lines, or "and company" between two parallel lines, with or without "not negotiable"; Any such addition makes the cheque crossed generally.
Principal debtors (Section 37): Maker, drawer (until acceptance) and acceptor = principal debtors; others = sureties; Applies in the absence of a contract to the contrary.

How to solve Promissory Note, Bill of Exchange and Cheque questions

Use this method for any question on the three instruments, whether it is an MCQ or a written answer.

1Read the instrument or statement. Decide whether it contains a promise (I promise) or an order (pay).
2A promise to pay points to a promissory note. An order to a third person points to a bill of exchange.
3If the order is unconditional, drawn on a specified banker and payable on demand, and it meets the other bill of exchange essentials, it is a cheque.
4Test the conditions: writing, signature, unconditional, certain sum of money only, certain payee or bearer.
5If any condition fails (for example, 'after my marriage' or 'and deliver my horse'), it is not that instrument.
6Name the parties: maker and payee for a note; drawer, drawee and payee for a bill or cheque.
7For liability, apply Section 37: maker, drawer until acceptance, and acceptor are principal debtors.
8For written answers, state the section, the definition, the essentials and one short example.

Quickest way: Promise or order, then bank or not

When to use it: Use this for one-mark MCQs where you have about a minute per question.

Look for the verb: promise means note, order or pay means bill.
For an order, check the drawee and the time. If it is an unconditional, signed order for a certain sum to a certain payee, drawn on a specified banker and payable on demand, it is a cheque.
Scan for a condition or an extra duty. Both kill the instrument.
Count the parties: two means a note, three means a bill or cheque.
Pick the option that matches, and drop options that mix up the parties.

Common mistakes in Promissory Note, Bill of Exchange and Cheque

Saying a promissory note has three parties.
You mix it up with a bill of exchange, which has drawer, drawee and payee.
Fix: A note has only the maker and the payee. The maker promises to pay the payee, so no third person is ordered to pay and there is no drawee.
Treating a cheque as different from a bill of exchange.
Cheques feel like a separate thing in daily life.
Fix: Remember Section 6: a cheque is a bill of exchange drawn on a specified banker and payable on demand.
Calling an IOU a promissory note.
Both show a debt in writing.
Fix: Section 4 illustration (c) lists 'Mr. B, I O U Rs. 1,000' as not a promissory note, because it contains no express promise to pay. Contrast illustration (b): 'I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on demand, for value received' is a promissory note. An acknowledgment of debt that also says it is to be paid on demand is a note. A bare IOU is not.
Thinking a promise tied to a future event is always conditional.
Students ignore the rule in Section 5.
Fix: Section 5 says payment after a period from an event certain to happen, though the time of its happening is uncertain, is not conditional. So not every promise tied to an event fails. But Section 4 illustration (f), a promise to pay seven days after the maker's marriage, is listed as not a promissory note. Learn the illustration as it stands.
Believing the drawer of a bill is never liable.
You see only the acceptor as the one who pays.
Fix: Under Section 37, the drawer is a principal debtor until acceptance. After that, the acceptor is the principal debtor and the drawer is a surety.
Saying 'not negotiable' is needed for a general crossing.
The words look important in the question.
Fix: Section 123 says two parallel lines alone are enough. 'Not negotiable' may be added or left out.

Worked examples

Example 1

Ravi signs a paper: 'I promise to pay Meena or order ₹5,000.' Anil signs another: 'I promise to pay Meena ₹5,000 seven days after my marriage with Sunita.' Which is a promissory note?

Show the solution

Both are in writing, signed, and contain a promise to pay a certain sum.
Test the condition. Ravi's promise has no condition and is payable to Meena or order.
Anil's promise is payable seven days after his marriage. The Section 5 rule protects only a period running from an event certain to happen.
Section 4 illustration (f) lists a promise to pay seven days after the maker's marriage as not a promissory note. The usual reading is that marriage is not an event certain to happen, so the promise is treated as conditional.
Section 4 needs an unconditional undertaking, so Anil's paper fails.

Answer: Only Ravi's instrument is a promissory note. Anil's is not, as Section 4 illustration (f) shows.

Example 2

Seema orders her bank, 'Pay Rohit ₹10,000 on demand.' Which instrument is this and who are the parties?

Show the solution

It is an order to pay, not a promise, so it is a bill of exchange in form.
It is drawn on a specified banker and payable on demand.
Under Section 6, a bill of exchange with these two features is a cheque.
Seema signs and orders, so she is the drawer. The bank is the drawee. Rohit is the payee.

Answer: It is a cheque. Seema is the drawer, the bank is the drawee, and Rohit is the payee.

Exam tips

In MCQs, hunt for the word 'promise' or 'order'. It decides the instrument in seconds.
Learn the three-party versus two-party split, as options often swap them.
Memorise Section 123: two parallel lines alone make a general crossing.
Expect conditional-promise questions based on the Section 4 illustrations, such as the horse, the marriage or the IOU.
In written answers, give the section number, the definition, then the essentials in bullets.

Practice questions from Elements of Law relating to Negotiable Instruments

Promissory Note, Bill of Exchange and Cheque in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Promissory Note, Bill of Exchange and Cheque: frequently asked questions

What is the main difference between a promissory note and a bill of exchange?

A promissory note contains a promise by the maker to pay. A bill of exchange contains an order by the drawer to the drawee to pay. A note has two parties, and a bill has three.

Is a cheque a bill of exchange?

Yes. Section 6 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. It also covers a truncated cheque image and a cheque in electronic form.

When is a cheque crossed generally?

Under Section 123, a cheque is crossed generally when it carries two parallel transverse lines across its face, or the words 'and company' between two parallel lines. The words 'not negotiable' may be added or left out.

Can a bank-note be a promissory note?

No. Section 4 says a promissory note is not a bank-note or a currency-note. Those are excluded from the definition.