Page 171 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes Self Assessment

Fill in the blanks:
8. Difference between a promissory note and a bill of exchange is that a bill of exchange is
.........................
9. A bill not signed by the drawer is called as a/an ......................... bill.
10. The amount to be paid must be expressed in terms of ..........................

10.3 Promissory Note

A promissory note is a term used for a legal document that declares the intention of an individual
or an entity to pay an amount on demand or at a specified time. A promissory note can be
written on the face value of a debt or for an amount that would include accumulated interest.
A promissory note is simply a “promise to pay.” It contains a maker, i.e. the payer and a lender,
i.e. the payee. An unsecured promissory note is not attached to anything; the loan is made on the
basis of the maker’s ability to repay. A secured promissory note may also be made based on the
maker’s ability to repay, but it is secured by a thing of economic value such as a car or a house.

Caselet Damodar. S. Prabhu v. Sayed Babalal-SC of India:

Impact of Section 147 of Negotiable Instruments Act

his case decided by Supreme Court on Section 147 of the Negotiable Instruments
Act speaks upon a new scheme to be adopted by the courts while dealing with
Tcheque bounce cases. As there are reportedly more than 38 lakhs of cheque cases
pending in different courts in India, this decision has laid down a simple working formula
which could be said as one safe step towards preserving the object of Section 138 and
Section 147 of the Negotiable Instruments.
Object of Section 138 explained: The decision reiterates the statutory principle and object
as a result of which the Section has come into force. The section has been inserted into the
Negotiable Instruments Act (hereinafter referred as ‘Act’) by the Banking, Public Financial
Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 with an object to
underline the faith in the banking operations and credibility in transactions using
negotiable instruments. The section has laid down certain specifications, penalties etc. in
the case of bouncing of cheques. The amendment to the section in 2002 increased the
punishment duration as two years imprisonment.

Object of Section 147 explained: Section 147 in the Act fill the element of compounding
which Section 320 left out. Thus the legislative vacuum with regard to compounding of
cheque bouncing cases has been filled by Section 147. It is interesting to note that the
statement of objects and reasons for the 2002 Amendment in the Act, it is described that the
deficiencies of Sections 138 to 142 of the Act in dealing with dishonour of cheques was one
of the reason behind insertion of Section 147.
Guidelines Lay Down

1. Modification of summons to the effect that the accused could make an application
for compounding of the offence at the first or second hearing of the case. If an
application is made, the Court can allow compounding the offence without costs.
Contd...

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