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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Anita Textiles, Coimbatore, signs a written document stating: 'I promise to pay Rs 50,000 to Ramesh Agencies or order on demand.' Which statement best describes this instrument under the Negotiable Instruments Act, 1881?

The document is a promissory note. It is in writing, signed by the maker, and contains an unconditional promise to pay a certain sum, Rs 50,000, to a certain person or his order. It is not a bill or cheque because it has no order to a drawee or banker.

  1. AIt is a promissory note, since it contains an unconditional promise to pay a certain sum to a certain personCorrect
  2. BIt is a bill of exchange, since it is payable to order
  3. CIt is a cheque, since it is payable on demand
  4. DIt is not a negotiable instrument, since it does not mention the date of payment

Explanation

A promissory note is a written, signed, unconditional undertaking by the maker to pay a certain sum of money to a certain person or to his order. All elements are present here. A bill of exchange contains an order, not a promise, and a cheque is drawn on a banker. Payment 'on demand' is valid, so the absence of a date does not matter.

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