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Loans backed by a promissory note or cheque

How Indian law treats promissory notes and cheques given for a loan, the stamping rules, summary suits, and what the Supreme Court said in 2025 about cash loans of ₹20,000 or more.

Reviewed by ZiyanaUpdated 6 min read

In short

  • A promissory note is a signed written promise to pay a fixed sum. It is covered by the Negotiable Instruments Act, 1881.
  • A promissory note must be properly stamped. Courts have generally held that an unstamped promissory note can't be used as evidence, and that paying a penalty later doesn't fix this.
  • A loan backed by a promissory note, a cheque or a written contract can be recovered through a summary suit under Order XXXVII of the Code of Civil Procedure. The borrower then needs the court's permission to defend.
  • A bounced cheque can also lead to a criminal complaint under Section 138. An unpaid promissory note can't.
  • Taking a cash loan of ₹20,000 or more breaks an income-tax rule, but the Supreme Court held in 2025 that this doesn't make the debt unenforceable.

Reviewed by

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    Practises banking and civil disputes

    Reviewed this guide for accuracy against the sources listed below.

02What the law says

Under Section 4 of the Negotiable Instruments Act, 1881, a promissory note is a signed written instrument with an unconditional promise to pay a certain sum to a named person or to their order. The law presumes that a negotiable instrument was made for consideration, unless the borrower proves otherwise (Section 118).

Promissory notes have to be stamped under the Indian Stamp Act, 1899. Under the Constitution, Parliament sets the stamp duty rates for promissory notes, not the states. Courts have generally held that an unstamped or under-stamped promissory note can't be admitted in evidence, even if the duty and a penalty are paid later. In such cases, lenders sometimes rely on other proof of the loan instead, such as bank transfers.

Order XXXVII of the Code of Civil Procedure allows a summary suit on bills of exchange, hundis and promissory notes, and for debts payable under a written contract. The defendant has to apply for "leave to defend". If leave isn't granted, the court can pass a decree quickly.

Taking or accepting a loan or deposit of ₹20,000 or more in cash is barred by income-tax law (section 269SS of the Income-tax Act, 1961, carried into the Income-tax Act, 2025). The tax penalty for breaking this rule is a separate matter. In Sanjabij Tari v. Kishore S. Borcar (25 September 2025), the Supreme Court held that a breach of this rule doesn't make the loan illegal or unenforceable, and doesn't by itself defeat a cheque-bounce case under Section 138. The same judgment issued directions to speed up cheque-bounce cases, including service of summons by email and messaging, and revised costs for settling cases late.

03Where you can go

  1. The borrower, in writing. A reminder citing the note or cheque, and any reply acknowledging the debt.
  2. Legal notice. Compulsory within 30 days if a cheque has bounced and a Section 138 complaint is to be filed. Optional otherwise.
  3. Magistrate's court, for a Section 138 complaint on a bounced cheque. See the cheque-bounce guide.
  4. Civil or commercial court, for a recovery suit or a summary suit under Order XXXVII.
  5. Mediation or Lok Adalat, if both sides agree.

04How it usually works

  1. 01

    Lenders usually check the documents: is the promissory note signed, dated and stamped? Is the cheque within its validity?

  2. 02

    Repayment is asked for in writing, or the cheque is presented.

  3. 03

    If a cheque bounces, the strict Section 138 deadlines start.

  4. 04

    For civil recovery, a summary suit is filed with the original note, cheque or contract.

  5. 05

    The borrower is served and must enter appearance. After the lender serves a "summons for judgment", the borrower must apply for leave to defend.

  6. 06

    The court grants or refuses leave to defend. If it refuses, it can pass a decree for the amount.

05Time limits

  • Three years: to sue on a promissory note payable on demand, counted from the date of the note. For a note payable at a fixed time, from when that time expires.
  • Cheque bounce: 30 days to send the demand notice, 15 days for the borrower to pay, then one month to file the complaint.
  • Order XXXVII: short deadlines apply to the defendant for entering appearance and seeking leave to defend, set out in the summons.

06Documents to gather

  • The original promissory note, and whether it is stamped
  • The original cheque and the bank's return memo, if it bounced
  • Loan agreement or receipt signed by the borrower
  • Bank or UPI records showing the loan was paid out
  • Messages or emails where the borrower acknowledges the loan
  • Any repayments received, with dates

07Common questions

Courts have generally refused to admit unstamped promissory notes as evidence. Whether the loan can still be recovered depends on other proof, like bank transfers or a signed acknowledgement. An advocate can assess this.

The Supreme Court held in 2025 that breaking the cash-loan rule doesn't make the debt unenforceable or defeat a Section 138 case by itself. The tax consequences for accepting the cash are separate.

Yes, they are separate remedies, and people often pursue both. Money recovered in one is usually taken into account in the other.

Both can support a summary suit. Each has formal requirements, such as stamping and signatures, and what matters most is whether the document is valid and proves the loan.

08Questions to ask an advocate

If you speak to an advocate, these questions can help make the conversation useful.

  • Is my promissory note properly stamped and admissible?
  • Can I file a summary suit, and in which court?
  • Are my Section 138 deadlines still open?
  • Does the cash part of my loan create tax issues for either of us?

09Sources

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This guide is general legal information for India, not legal advice. Laws and procedures change and can differ by state. For advice on your situation, speak to a qualified advocate.

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