A promissory note is defined under section 4 of The Negotiable Instruments Act, 1881 [1], and it should have a) Writing b) Unconditional c) signed by the maker d) certain money, which should be specific amount e) to a certain person or the bearer of the promissory note. Section 22 explains the maturity of a promissory note is the date at which it falls due. This due date is important in filing the case. Payment of interest is as per section 79 if the interest rate is specified or section 80, if the interest rate is not specified on the promissory note.
Steps in Filing a case:
- Verification of Limitation period of Promissory note
- Sending Notice
- File a suit in Civil Court
- Paying Court Fee
- After Filing of the suit
A) Verification of Limitation period of Promissory note: One has to file a civil case within a certain time limitation, otherwise, it will be of no use, Limitation can be computed based on The Limitation Act – 1963 [2]. Period of Limitation was given in “Schedule”- FIRST DIVISION—SUITS., PART II.—SUITS RELATING TO CONTRACTS., under items no 31, 34, 35, 36, 37, 38 as below Table-1. This is very important in filing the case. Most people assume 3 years is the limitation for filing a case. But careful observation, we can see different types of due dates as below3. This will affect the validity of promissory note time limitation and sometimes extend that limit.
- Payable at a fixed time after the date in Promissory note. Eg: Actual date of writing is on 01/01/2015, but time is given, and pay only after 01/01/2017, then a time of limitation starts from 01/01/2017, not from 01/01/2015. And will expire on 01/01/2020.
- A fixed time after sight or after demand. Eg. The actual date of writing is on 01/01/2015 and said 1 Year after the presentation of the promissory note. If presented on 01/01/2017, then up to 01/01/2018, the maker of Promissory note will get time. If he did not pay the amount by that date, Limitation starts from 01/01/2018 and will expire on 01/01/2021.
- Payable on demand, which is from the date of the promissory note. Eg: This is a widely used format, and restricts limitation. Eg: The date of the promissory note is 01/01/2015. Then limitation starts from the same date as in the Promissory note. So this will expire on 01/01/2018.
- A promissory note is payable on instalments. This will be used mostly by Chit fund companies or Loan by Instalment Companies. In this case, the last defaulted month will be counted as a starting point for limitation.
- Transferred to the third person, based on a certain event. This promissory notes, after fulfilment of a condition, which is a reasonably definitive event. In that case, the date from which the third party obtained the promissory note.
Table 1: Item No. 31, 34, 35, 36, 37, 38 from “schedule” in Limitation Act – 1963.
| Item. No | Description of suit | Period of limitation | Time from which period begins to run |
| 31 | On a bill of exchange or promissory note payable at a fixed time after date | Three years | When the bill or note falls due. |
| 34 | On a bill of exchange or promissory note payable at a fixed time after sight or after demand | Three years | When the fixed time expires |
| 35 | On a bill of exchange or promissory note payable on demand and not accompanied by any writing restraining or postponing the right to sue. | Three years | The date of the bill or note. |
| 36 | On a promissory note or bond payable by instalments. | Three years | The expiration of the first term of payment as to the part then payable; and for the other parts, the expiration of the respective terms of payment |
| 37 | On a promissory note or bond payable by instalments, which provides that, if default be made in payment of one or more instalments, the whole shall be due | Three years | When the default is made, unless where the payee or obligee waives the benefit of the provision and then when fresh default is made in respect of which there is no such waiver |
| 38 | On a promissory note given by the maker to a third person to be delivered to the payee after a certain event should happen. | Three years | The date of the delivery to the payee. |
This Limitation can be further extended by 3 methods:
-
- Acknowledgment in writing of the promissory note and promised to pay later. Then the date on which he signed on the written format. u/s 18 of the Limitation act.
- Part Payment of the Maker: If Maker paid any part payment of the total amount, then it starts from, date in which he paid the part payment. The careful point here is, one has to take a sign of this transaction on the note as u/s 19 of the Limitation act.
- Acknowledgment or payment by another person. In this case, that amount shall be made by an authorized person only. Otherwise no use as u/s 20 of the Limitation act
B) Sending Notice: Notice shall be given if dishonor by non-payment or non-acceptance, holder of promissory note can send notice to the maker of the Promissory note. A very important note is, this Notice is not a mandatory u/s 93. But for filing a case, usually, the court will ask to send a notice. This notice can be oral or written if written, by post to the address of the Maker or his legal heirs if the maker has died. This also indicates, their legal heirs responsible for the debt of their parents. For all practical purposes, notice should be in a Registered post. Reasonable time shall be given for payment, usually between 15 days to 30 days.
C) File a suit in Civil Court: Plaintiff has to file a case as per Civil Procedure Code, 1908, [3] Order 7, Rule 2 for money recovery suit. Place of a promissory note, where it is executed (signed), plays a big role here as the “Cause of action” location. In General, we have to file where defendants reside or cause of action arises u/s 20 of C.P.C. Based on the amount in the promissory note, which is commonly called “Pecuniary Jurisdiction”, the court may vary to Junior Civil Court, Senior Civil Court, or District Court within local jurisdiction according to section 20. This depends on the amount claimed. This amount changes from time to time by the State administration.
D) Court fee: Plaintiff has to submit the plaintiff, and has to pay a court fee for this. Court fee varies from state to state. Mostly from 1% to 4%, but this may vary in your state. One has to pay this amount in approved SBI Bank to a specified bank account which will be given for specific court. For Example for 10,00,000 (10 Lakhs) in Telangana, the fee will be Rs.12,250, which is slightly higher than 1% of the total amount. Once the fee is paid and enclosed with necessary documents like Plaint, Promissory note, then we will get the case registration number. And one notice will be sent to defendant address, which is known as a summons
E) After Filing of the suit: after serving summons by the court, the actual case will be started, and all the proceedings will be as per C.P.C 1908, Order 37, Rule 2 as a summary proceeding. This will speed up the process. A very important note here is, this is a Civil case, not a criminal case like a cheque Bounce case. Court has the power to attach the properties of both movable and immovable properties.
Summary
A promissory note is a commonly used document for obtaining loans. Both Borrower and Lender shall take all precautions, that will be useful when filing a case and in court proceedings. Witness or attestor is not required, validity of this instrument (Promissory note) will depend on various factors and that can be extendable also, if done within the limitation period. One can file, for a breach of payment, in Civil court, where the defendant resides or the cause of action ( Place of execution of promissory note).
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