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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Which of the following instruments is NOT a valid promissory note under the Negotiable Instruments Act, 1881?

The instrument promising to pay Rekha ₹10,000 only if she passes the CA Foundation exam is not a valid promissory note, because the promise is conditional. A promissory note must contain an unconditional undertaking to pay a certain sum of money.

  1. A"I promise to pay Rekha ₹10,000 if I pass the CA Foundation exam."Correct
  2. B"I promise to pay Rekha or order ₹10,000 on demand."
  3. C"I, Mahesh, promise to pay the bearer of this note ₹10,000 after 3 months."
  4. D"I, Mahesh, promise to pay Rekha ₹10,000 after 3 months for value received."

Explanation

A promissory note must contain an unconditional undertaking to pay a certain sum. Option 1 makes payment depend on passing an exam, which is uncertain, so it is conditional and invalid. Option 2 (on demand) and option 4 (fixed period) are unconditional. Option 3 is invalid for a different reason in law, as a note cannot be made payable to bearer, but option 1 is the clearly conditional one.

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