Promissory Note & Loan Agreement : Details & Sample Templates

A friend in need is a friend indeed. We generally approach our friends or close family members when we are in need of any financial help. We lend (or) borrow money based on mutual trust. Usually these types of loans (hand loans) are unsecured. In most cases, the terms and conditions of a loan are undefined. If the payback (repayment of loan) does not happen, the relationship between the two parties gets strained.

Is there any way to protect the interest of the two parties? Is there any legal document so that you can clearly define the terms and conditions of the loan?

There are two ways of doing this :

  1. You can write a PROMISSORY NOTE (or)
  2. You can enter into a LOAN AGREEMENT

Let us understand more about – What are the things to keep in mind before lending money to a family member or a friend? , Why a Promissory Note is important? What is the difference between Promissory Note and Loan Agreement?

What is a Promissory Note?

Promissory note is a written promise to pay a debt. It is a financial instrument, in which one party (maker or issuer) promises in writing to pay a determinate sum of money to the other (the lender), either at a fixed, determinable future time or on demand of the payee subject to specific terms and conditions.

It is of different types-single/joint borrowers, payable on demand, payable in installments or as lump sum, interest-bearing and interest-free.

Things to keep in mind while writing a Promissory Note:

  • It is governed by Section 4 of the Negotiable Instruments Act, 1881
  • Promissory Note executed in one State may be presented in another State in India with the stamp bearing on the promissory note. No additional stamp duty need to be paid
  • It should always be in hand written. The agreement must state, in writing, the terms of instrument, extent of liability (amount), maker’s and payee’s name and the amount to be paid, among other things.
  • The promise to re-pay money and no other conditions should be mentioned in PN.
  • When a person issues a promissory note, he/ she would have to stamp it as per the Indian Stamp Act and normally a revenue stamp is affixed on the PN signed by the promissory. You can use Re 1/- revenue stamp and get it cross signed by the borrower.
  • You may also execute the PN note on a Stamp paper if revenue stamps are not available.
  • Try to lend the money by cross A/c cheques. You can mention the cheque details in PN note.
  • PN has a TIME validity. The Pro Note is valid for only 3 years from the date of execution.
  • There is no limitation or ceiling with respect to the AMOUNT.
  • If the borrower pays a part repayment then limitation of 3 years can be from either the date of execution or the last date of payment/acknowledgement whichever is later. The repayments are generally hand written on the back side of PN document (signed by both the parties).
  • PN is generally held by the Lender (Issuer). Once the loan is discharged or fully paid off, it should be canceled and marked as “PAID IN FULL”. And can be returned to the payee (borrower).
  • Witness signature is not required. But it is advisable to get it signed by a witness (a person who is not a party of the note. You may consider getting it notarized as well but it is not mandatory)

Sample Promissory Note Template :Sample Promissory Note

Download Sample Promissory Note Templates for ” Sample Promissory Note where no time for payment is mentioned”, ” Template for Pro Note made by Joint Promisors”, “Draft P N where repayments are made in installments.”

What is a Loan Agreement?

A Promissory Note lies somewhere between the informality of an IOU (I Owe You) document and the rigidity of a Loan Agreement. An IOU document merely acknowledges that a LOAN exists. A Promissory Note not only acknowledges that there is a Loan but also includes a specific promise to pay.

A Loan Agreement ( Loan Contract) acknowledges that there is a loan, specific promise to pay and also states that the lender has a right to recourse (the legal right to demand compensation or payment). Example can be a FORECLOSURE. If you want to have a right to recourse then go for Loan Agreement instead of a Promissory Note.

A simple Loan Agreement should include the following :

  • The letter must clearly state “loan agreement” so that it can have legal significance.
  • A Promissory Note only requires the signature of a borrower, whereas the Loan Agreement should include signatures from both parties.
  • It should clearly state how borrower will make the payments. Like at the end of the term, regular periodic payment, regular payments towards interest only (or interest & principal).
  • Terms of payments should be mentioned. How the interest is calculated (Simple/compounding).
  • Loan documents, however, have to be drawn on a stamp paper and notarized. They let you put as many clauses as you want, such as on collateral, default, termination and inclusion of legal heirs.
  • Use full names (as they appear in identity proofs such as PAN/voter I-cards) and mention the date and place clearly.
  • A Loan Agreement can be modified. But a Promissory Note can not be modified. This is the major difference between a Loan Agreement and Promissory Note. Amendments can be carried out either through written confirmation or a supplementary agreement.
  • There is no legal requirement but it is advisable to get the LA document signed by a witness

Loan Agreements are also popular with the financial institutions like Banks, Finance Companies, Gold Loan companies, Home loan (Mortgage) Lenders etc., You may have to generally submit Promissory Note and Loan Agreement to Financial institutions when you acquire loans from them. These loan agreements are very exhaustive and my run into tens of pages.

Simple Loan Agreement Sample / Template:

A Loan Agreement (LA) is like a Promissory Note (PN). A simple LA between two friends can be like a PN Note. But you can include Terms & Conditions especially regarding on the ‘event of default’ and ‘consequences of default.’ But the heading of the document should be clearly mentioned as “Loan Agreement.”

Tax Implications on Loans between Friends/relatives:

Interest free loans are not taxable in the hands of lender or borrower. But if you charge interest rate then interest earned on loan has to be treated as “Income from other sources.” This income should be shown in your (lender) Income Tax Return.

If you borrow money from your friend/relative (non-financial institutions) to construct a house, the repayments (installments) are not eligible for tax deductions. Tax deduction under Section 80c with respect to principal repayment is not allowed.

But Tax benefit under Section 24 of the Income Tax Act can be claimed as Tax deduction with respect to Interest paid on loan. The main criteria is ‘the loan should not be for personal use.’

My opinion on Lending money to Friends or relatives:

As Shakespeare wrote, “For loan oft loses both itself and friend.” If you lend money to a friend or family member, beware that you may not get your money back and your relationship may never go back to normal.Think twice before lending money to a friend. Sometimes its better not to lend money to a friend keeping their best interests in mind.

If you decide to lend money, it is better to have an open and frank discussion about any potential problems or consequences with the loan. If you do not want to lend money, gently refuse the loan and identify the best alternate to help your friend or loved ones. (Read : ‘5 Personal Financial Mistakes that I have committed..!‘)

Would you like to add any suggestions or views on this topic? Please share your comments.

(FYI – RBI has issued a notification on 9th,Sep-2014 regarding ‘Guidelines on willful defaulters.‘ As per this, a guarantor of a willful defaulter can also be treated as a ‘Defaulter. So, think twice before accepting and signing as a guarantor for a loan)

( Image courtesy of anankkml at FreeDigitalPhotos.net)

  • Srinivas says:

    Hi, I have lent 3 lacs to my close relative 3 years ago.
    As their repayment time is unsure. now we both want to enter into a promissory note.
    Can we write the pronote dated as today? and mention the previous 3 years back bank tfr date and amount(3 lacs) on the back side of the note?
    And till Yesterday, we are ok and can settle the past interest in the background.
    thank you, SRinivas

    • Sreekanth Reddy says:

      Dear Srinivas,
      If both the parties agree, the PN can be backdated.
      Clearly mention the terms in the note and get it signed by two witnesses.

  • Vikky says:

    Hi ..I given 4.5lakhs to my brother in law , without interest, and he signed in a empty 100rs bond (attached stamp) , it’s almost 1year done ,while he taken money he said that he will return it in 6months , but it’s 1year completed .. can I have a chance to file a case on him legally ..???

  • Venukumar S says:

    Hi Sreekanth, i want to borrow 5Lakh rupees from my friend, which one is better to make a note of it either promissory note or bond paper as it is more than 1 lakh amount, please suggest me..

  • Surya says:

    Dear Mr.Reddy,

    I paid chit to one of my distance relative and he has to settle me around 20 Lakhs. I paid 75% of the money through Online and balance through Cash. All the conversations happened through whatsapp chat and i have that as proof. He was supposed to settle that money one year back itself but still he is dragging that. Finally signed a bond for paying that money in four installments through cheque payments and the cheque numbers along with amount and dates are mentioned in that bond. I am planning to deposit those cheques on the mentioned dates, incase if the cheques are bounced, if i go for any legal action can i get my money back?

  • Sharad Vitthal Amdekar says:

    Sir today I want urgent Rs.100000. I will pay Rs.5000 as interest per month. In September 2021 I will pay Rs.100000 guaranteed. I can give a blank cheque. Please guide.

  • Vipul Shinde says:

    Hi Shreemanth Sir,

    I have paid some amount to one of the immigration companies to get me a job abroad but it’s taking too long and I have just wanted to be on the safer side by making a written agreement. So request you advise me with the same.

    Regards,
    Vipul

  • srinivas says:

    dear sreekanth..
    thanks a lot for the useful information.
    i have a question. i have an agreement with my sister regarding a property settlement that she will pay me 70 lakhs and we will make an agreement for this. both she and myself are residing out of india but are indian citizens. can you suggest if we can still do the promisory note and have it notarized in our country. also is it better for a loan agreement or a promissory note?

    thanks a lot in advance
    sinu

    • Sreekanth Reddy says:

      Dear srinivas,
      Yes, you can go ahead!
      I believe loan agreement is a better option. You may kindly take help of a civil lawyer!

  • Dharmik J Parmar says:

    my mother wants borrow loan on agriculture land as every year she borrows, but right now i am unable to go there and sign loan agreement as a land nominee dur to COVID-19, i talked to bank manager and asked about it, he told me to provide him accepetence latter on stamp paper, how can i do it and what shall i write on stamp paper? do i need to notary it? please guide.

    • Sreekanth Reddy says:

      Dear Dharmik,
      Advisable to request your banker itself to provide the required details.

      • Dharmik J Parmar says:

        Dear Shreekanth

        As you know how bankers behaves with their customers, they just told my mom to do it on stamp paper… That’s all… Even refused to talk to me.

        • Sreekanth Reddy says:

          Dear Dharmik,
          Best way to get this done is through a local civil lawyer or use any online legal writing service provider.

          Is n’t possible for the banker/your mother to post the agreement copy, you sign it and let them complete the remaining formality?? Just asking!

  • Siddu says:

    Hi,
    Thank you for voluble article..
    Pl tell me How much amount of Bond paper require for taking loan agreement for 6 lakh..

  • shweta says:

    Revenue Stamp signed and pasted upside down in dpn. what will be the result of the above issue.

  • vikas says:

    can i still ask for interest after the completion on tenure mention in stamp paper contract even of no conditions are mentioned incase capital amount is not returned in a private lending case to a known person

    • Sreekanth Reddy says:

      Dear vikas,
      Generally Pro note is valid for 3 years and advisable to get it renewed.
      Yes, you can still go ahead with Legal procedure, but can be a long-drawn battle.
      Try settling the issue amicable at beneficial terms.
      Else, you may take a civil lawyer help and take a legal route.

  • vikas says:

    Dear Mr Reddy,
    I want to ask about a personal lending case where i have given 10lakh rupees as a loan to a known person in interest, i took check from him for the same amount a got a stam paper signed mentioning interest rate and tenure od one year for the contract . there are no cluases mentioned as what will happen after completion on contarct period or about any penalties or clauses for non repayment on principal and interest amount . the person had paid regular interest to me in 1st year and also in 2nd year with returning of 5 lakh pricipal . but now from last two years he has not paid any interest and principal amount stating his finacial situation is bad. the cheque he gave is staled and since no conditions of repayment defail and penaties are mention on stamp paper ..can i stil go ahead and ask him for interest and if he denies can i legally do anothing about it.

  • Sameer says:

    Hello thanks for this nice article. I have a query
    My friend along with his brother in law is in need of money urgently and my friends brother in law do have a own house but unfortunately no bank is ready to give them mortgage loan since they don’t have payslip or income tax return filed. I want to help him by giving loan of 15 lakhs by taking a personal loan from my account as I have full documents.
    However I don’t want to take any risk in future so my queries are :
    1. Can I give them a loan with their assets documents as a surety.
    2. What all the agreements that I should go with them.
    3. Please let me know the documents to collect or signed from them.

    Thanks in Advance

    • Sreekanth Reddy says:

      Dear Sameer,
      You can get the Property documents as surety.
      But, unfortunately if something wrong happens and if they are genuinely not able to pay back the amount then are you ready to take legal route? Are you ready to spend your time on this?

      Suggest you to take help of a civil lawyer and get the agreement done.

  • rk says:

    Sir, i want to know that how much money can be given as loan in cash using this Pro Note? further how can we amend the repayment conditions?

    • Sreekanth Reddy says:

      Dear RK,
      Suggest you not to lend money in Cash mode.
      If it is must then up to Rs 2 lakh in a FY should be ok.

      May I know, what do you mean by – amend the repayment conditions??

  • Sharad Kubsad says:

    Hello Sir, Very nice article.

    I have taken loan from my wife (4Lakhs) in 2017 and we agreed that for next five year she will be getting my rental income from my old house(I am the solo owner).
    There is no written loan agreement for this.

    From 2017, all the rental agreement are in her name and she is showing in her Income tax as income from let out house. Is this correct way? Else not please advise.

  • Vijay_S says:

    Dear Sir, Can you please send Loan Agreement document(Sample format) to my mail id. it would be great. Thanks

    • Sreekanth Reddy says:

      Dear Vijay,
      A simple sample template has been provided in the above article. For an exhaustive one, suggest you to get one from a local civil lawyer.

  • Jignesh Pujara says:

    hi sreekanth sir,
    I require loan agreement format for my client.please send me by mail.

  • Santosh says:

    I have lent 14 lakhs to a very close friend over the period of 3 years as he wanted to buy some lands, 3 lakhs via NEFT but the rest 11 lakhs by cash (5 lakhs once, then 2 lakhs, 2 lakhs and again 2 lakhs) . He has given post-dated cheques, which he only has filled the amount and signed. Is this legally binding?

    • Sreekanth Reddy says:

      Dear Santosh,
      Suggest you to get the Promissory Note done in this regard. You may also take help of a civil lawyer..

  • Karthick says:

    Hi,
    6years back my father given 200000 & Signed bond paper.For 6 years he has paid interest by cash.now for some reason he cannot able to repay the interest.can we can take any legal action.is that bond paper valid for only 3 years?

    • Sreekanth Reddy says:

      Dear Karthick,
      It depends on the Terms & conditions mentioned in the Note as well..
      Has the bond been renewed?

  • NAGARAJAN V says:

    Hi sreekanth i paid 6 Lakh to one of my friend , but he is delaying to repay , but i have signed blank cheques of that guy, please help me.

    • Sreekanth Reddy says:

      Dear NAGARAJAN,
      You may let him know formally that you are depositing the cheques and if they are not honored, you may take legal action.
      Do you have any written Document? Was the credit given through non-cash mode??

  • D. Gonthina says:

    Hello Sreekanth,
    Good article and knowledge one ,
    My query is one of my frnd had took 15 lakhs for his personal issues with the security of blank cheques of 4 and a50 rs bond and a blank white paper signed without revenue stamp . Can I fight in courts and the documents are eligible to file a complaint.
    Thank you

  • Raja says:

    Hi Srikanth,

    I have seen your comments which are really helpful. My father as taken a hand loan for 1 lakh 60 thousand in 2016. he has signed on blank documents which actually created the problem.
    Lender has written that he has given 4 lakhs and rate of interest he specified it as 2 rupees, but he is collecting 10 rupees interest. We want to file a case against him regarding the misusage of the 100 rupees stamp paper where my father signed, please let me know what is the action to be taken, we are ready to pay 1 lakh 60 thousand. please provide your thoughts. thanks for your support

    • Sreekanth Reddy says:

      Dear Raja,
      Has your father signed on blank paper or Stamp (Bond) paper?
      Are you paying back the amount in cash or non-cash? Are there are any proofs that you are paying @ Rs 10 as interest (rate)??

      • Raja says:

        Hi Sreedhar,

        First of all thanks a lot for your response

        My father signed on 100 rupees Stamp (Bond) paper, howvere now the lender filled with the details , stating my father should pay 4 lakhs. we are planning to pay back in cash. there are no specific proofs that we are paying 10 ruppess interest rate. howvere when we went for settlement we relized that he is calculating 10 rupees interest rate and he misused the empty bond paper whihc my father signed

        • Sreekanth Reddy says:

          Dear Raja,
          Your father has done a mistake by signing on a blank stamp paper. It is surprising that without calculating the interest rate you have been repaying the debt!
          As, you do not have any proofs, suggest you to kindly settle the issue with the Creditor (Lender) amicably.

          • Raja says:

            Hi Sridhar,

            Thanks for your suggestion, may be that is the only alternative. However if the Lender doesn’t agree, In worst case if we go to court how much we are supposed to pay. (Stamp paper says 4 lakhs with 2 rupee interest from 2016). Please provide your thoughts

          • Sreekanth Reddy says:

            Dear Raja,
            You may have to re-pay the debt as per the terms written in the Stamp paper.

  • Sreekanth says:

    Hiii sir,
    What happends if we failed to pay the full borrowed amount taken on promisory note as a proof. If the lender filed a case but still we are in a bad situation that we cant able pay and Validity of promisory note is one month remaining
    Borrowed on 4/08/2015 and case filed on 28/062018

    • Sreekanth Reddy says:

      Dear Sreekanth .. It all depends on the facts of the case..The concerned court will take the decision. They may consider the available assets (if any) for repayment of the debts..

  • mmp says:

    hi sir,
    I want to lend to 2 lacs on interest to my friends newly formed partnership business. what terms and conditions should i mention in loan agreement. in case of default do the partners liability be unlimited?

  • Jay says:

    Hi there Shreekant. Its a very good article. I have a doubt so if you able just to help me out it will be great. I know someone through my cousin that would take a sum of 1lack and pay per month for 1 year 5000 and after 1 year he will give 1lack back. So frankly speaking My profit would be 60000 inr for lending 1lack. He calls it as an investment. He says that he will give a bond paper saying that he has received 1lack from me and that after 12months 1 lack will be paid back to me. But he does not mention anything about 5000 monthly payment. What I want to know is if he includes the monthly payments in the agreement bond paper and if he fails to pay those payments to me, could i proceed legally angainst him in court in order to get my money back? Will the bond paper be valid to fight it in court.?

    • Dear Jay,
      Greed can be the route cause of may financial mistakes.
      In case, you trust this person and the purpose of borrowing is genuine, you may go for it.
      Advisable to take post dated cheques for monthly payment as well as Principal payment and keep it with you. Yes, bond paper can be valid, but are you ready to fight a legal case, incase something goes wrong??

  • Sreejith says:

    Dear Sreekanth,

    A great blog you have, such a precious source of information for many of us.
    Hope you would kindly clarify the following concern of mine. I have borrowed 5 lakhs to a relative in 2014. Since there was no repayment, I made him to issue a hand-written PN in 2016 (with 2 witness) though it was drafted with the 2014 date. Now I am warned him that I am going to sue him, but he challenges me saying that he would argue he paid it back already and the PN I have is a fake one . My concerns are;
    1) Is it safe for me to vouch in court that the PN is written in 2014 itself ? Is there any way that he can prove it otherwise?
    2) Does it stand in court if he claims he had paid it back already? He certainly will have no proof to support his lie.
    thank you so much, best regards, sreejith

    • Dear Sreejith,
      1 – I believe that it is ok to write a PN on the loan already taken from you. Also, you can take help of the witnesses.
      2 – Anything and everything can be challenged in our court of law. But he needs to prove/justify his stand.
      Suggest you to consult a civil lawyer and take advice.

      • Raghu K says:

        I have same case like sreejith that i have PN signed in 2013. I came to know that PN validity is only 3 years? so after 3 years the PN is not valid anymore? but i have mail conversation with the borrower till last week that where he acknowledges that he has taken the money, so can i use that mail conversation as proof in court if required?

        • Dear Raghu,
          Yes, you can use them. Kindly try to first settle the issue amicably with your friend.
          If this is not possible then consult a civil lawyer and take legal action.

  • Rmahesh says:

    Hi, nice blog. Got some good idea on PN and Loan Agreement.
    My question is I have lend 38lacs to my friend last year which I got from Bank as loan (Home loan). I got written PN in document sheet of Rs 3 and franked for Rs100.
    This is non interest since he helped me in when I was studying.

    So, he is returning that amount directly into my bank where my loan is present. Do I need to pay any TAX or any legal issues from Income Tax team?

    Appreciate you guideline for this

    Thanks in advance,

    • Dear Rmahesh,
      How will you justify this to the IT department?
      You have taken home loan but not using the amount for the said purpose. If you have taken it for construction, your banker may check the status of home construction, am I right? May I know how are you going to manage this?
      Also, the income returned to you can be treated as ‘income from other sources’.
      Suggest you to kindly take help of a CA.

  • Swetha says:

    I have lended 10L to my relative in cash 3 years back that I got by selling some property. I have never showed that money in IT. Now they have to return the money, How can I take the money without getting into IT troubles and they are from agricultural background.

  • pradeep.gour@gmx.us says:

    An Excellent Article regarding Loans of Various kinds.Your personal touch makes it more human and is better than a terse,Professional and cold Info.Cheers!!!Keep on writing…..

  • sumith says:

    Dear Sreekanth,

    Thanks for the article and appreciate the work you have done.

    I work in a small private company and get income around 23k by hand. Now I need some amount for my expenses. So if I provide a postdated cheque and a promissory note against a hand loan, can I get a loan of around 35k which is very urgent.

    If you have any contacts kindly provide me. Even Iam ready to pay a interest which is quoted as per the lender.

  • ijk says:

    dear sreekanth greetings. i have a unique clarification. i have been married for the last 25 years and it was not a happy wedded life. we have two daughters, one aged 22 and the other 16. i faced lot of problems. my clarification regarding financial matters is that my husband has 3 properties (2 independent and 1 flat) which are in his name. i have been earning most part of my married life and i have not saved a single rupee in my name. all 3 properties were bought on loan from LIC and 2 loans have been closed, except the flat loan. i want to know the following.
    1. do i have any holding on his properties.
    2. do i have a share if he plans to sell any of his properties for our children’s education. education cost will only be partial when compared to the whole sale consideration. what percentage will be my share.
    3. what is the course of action, if he refuses to give my share.
    thanks

    • Sreekanth Reddy says:

      Dear ijk,
      1 – Are the 3 home loans in joint-name? Any of these properties are ancestral ones?
      2 – As the properties are in his name, he has the right to sell the properties without legal heirs’ consent.
      “self acquired property is any property purchased by an individual from his resources or any property he acquired as a part of the division of any Ancestral/Coparcenary property or acquired as a legal heir or by any Testamentary document such as ‘Will’ etc.”

      So, you may have to prove legally that he has not acquired the properties through his income/earnings. You may have to consult a civil lawyer in this regard.

      • isabel says:

        all 3 properties are in my husband’s name. they have been acquired through his and my earnings only and not ancestral. though, my earning was also instrumental in this purchase of property (but i do not have any proof that my earning was directly put in this purchase, but i have bank proof that i have earned viz. salary bank transfer), all i want to know is do i have a share when he sells any or all of the property as his wife. thanks a lot for your prompt reply. have a great year ahead.

  • Jay says:

    Hello, Sir, first of all thank you so much for this post. I see that you are replying to the comments quickly and I want to comment one thing hoping to clear my doubt.

    I live in a metro city and I want to lend 1 lac rupees (with int.) of my grandma on behalf of her to her acquaintance in my village. I want to lend him(granny’s acquaintance, a doctor) through NEFT and by getting signed the promissory note. I want to know what are the risks involved here. The acquaintance said he will bring 2 witnesses also to sign. If he did not return the amount, will it be a long-drawn battle through court to get justice(remember I live in a metro city and he in a district of another state)? He assures the timely payment of monthly interest and my grandma trusts him a lot. I do not trust people on this very big amount. And also, like you told to note write cheque number on PN, what should be written in case of neft? I will be collecting his ID photocopy and his house details. Pls lemme know if any additional steps to be taken while lending the money.

    • Jay says:

      I also want to know what if the person(the above person is a senior citizen) dies without paying the amount after signing PN?

      • Sreekanth Reddy says:

        Dear Jay,
        The prospective borrower (Dr) might be an honest person who may repay you the money in time. But remember, its you who has to fight for the money if something goes wrong.
        I know, if you do not give money, your granny might get upset. So, you are the best person to take a decision.
        If you decide to give money, get PN done, get it signed by the borrower and witnesses, mention the NEFT transaction details in the PN (date, bank , amount), mention the rate of interest and due dates clearly.
        You may mention the person (legal heir of Dr) who is liable to repay the money in case of any unfortunate event happening to Dr. Request that concerned person to be one of the witnesses.

  • Sukesh Kumar says:

    One person has forcibly collected promissory note and cheques , forged signature of me and placed same date on Promissory note and cheque , Now legally how to proceed to prove my innocence….? Kindly reply me sir.

  • Bala says:

    Hi Sreekanth,
    First I would like to thank you for your nice blog to help people like me. I have given about 10 Lacs Loan at 18% interest to my uncle 2.9 years back and he gave me promissory note. This PN is going to expire in 3 months. As of today the pending loan balance with interest is approx 16.5 Lacs. So far he has paid just 50k.

    My uncle is an agriculturist and he owns a new house(ground and first floor) and agricultural land (1.67 acre) worth 33 Lacs. With my money he has paid bank loan, loan he has taken from others for higher interest. He refuses to pay me interest and plans to pay the principal in several installments provided he gets profit in farming.

    1. My uncle asks me that you are an individual, how can you lend money to me without money lending licence

    2. My uncle threatens me that if I go to court he will declare pauper by either selling the land or transfer land to his wife or daughter-in-law.

    3. I approached a civil lawyer, he says that your uncle is an agriculturist, so it is NOT possible to get an injunction court order, restricting the sale of his house and agricultural land till the case ends. Also, even after getting the decree, his house and his agricultural land (1.67 acre) cannot be attached during EP-execution petition for auction sale. So, it is not possible to recover the money through court.

    I consulted another lawyer, he is not a knowledgable person, if I ask any question, he simply says, don’t worry just file the case.

    Please give your comments. Now I’m in need of money badly, and I’m financial condition has worsened in the recent years.

    • Sreekanth Reddy says:

      Dear Bala,
      If you are holding a valid PNote and if you think your uncle is trying to cheat you, kindly go ahead and serve him a legal notice through a lawyer.
      Whether he is an agriculturist or salaried person, that’s a different issue.
      Take help of a good lawyer and try to get back your money through court.
      But this can be a lengthy process, but looks like there is no other option.
      Does your uncle has any dependents? Did you take help of other family members to settle this issue amicably?

  • Prasad says:

    Hello Sir,
    I am taking a loan (Interest free loan) of Rs 5 Lakhs from my sister for purchasing home. Is it advisable to make loan agreement to avoid any tax implication to me or my sister?
    Please advise

  • Venkatesh says:

    Hello Sir,

    My wife want to borrow money (8 LAKHS interest free) form her mother, mother in law and from me through cheque , to settle the amount to is family members for releasing one part of their legal heirs property (vacant plot).

    She is also a tax payer. Please advise me how to borrow money
    (through demand promissory note) to avoid any income tax problem. And also she agree to repay the amount in future.

    regards

    venkatesh

  • Bharat says:

    Dear Sreekanth, i am opening a finance company in Andamans, kindly let me know what kind of securities, Agreements, i should take from the parties to secure myself?

  • Venkat says:

    Hi Srikanth,
    First I would like to thank you for your nice blog to help people like me.
    I have given about 1 lac 10 thousand to my friend 2.5 years back and he gave me promissory note with 1 rupee stamp for that amount. He paid only 80,000. Now the 30,000 principle and about 1 lac 80 thousand interest is due. He is keep delaying I am not sure he will return or not.
    Please answer my below questions.
    1) I have cheque for 1 lac 28 thousand without putting any date. Can I inform him about cheque presence, but he may stop the cheque payment.
    2) If he will put stop payment, my cheque will bounce, whether still I can bounce and file cheque bounce case?
    3) Based on promissory note also I can file case right even though if it takes time. If they come for out of court settlement, I can withdraw my civil case right?

    Regards,
    Venkat.

  • swammi says:

    Hi myself and two of my brothers and few investors lent money to one of my ex colleagues on handloan agreement basis. Initially for few years he paid interest and for the last two years he is not paying anything and it appears he has invested the amount in land. He is unable to repay either the principal or interest. What reourse we can take in this case to recover the money. Please advise.

    • Dear swammi,
      Suggest you to negotiate with your friend and check with him if he can repay at-least the principal amount.
      Else, take help of a civil lawyer and issue a notice but this can be a long and tedious process.

  • Vishal says:

    I have lend 3 lac rupees to a friend and in turn h has given me a surety to return money by writing it on a 500 stamp and a post dated cheque which I can use it after a time limit. Kindly advise, have I made the repayment of my money secured?

  • dev says:

    i bought some property by boroughing money from relatives and friends 3years ago….no written work was done now i recieved incometax letter… all my friends and relatives agree to confirm amount they gave what should i do? should i get PN from them to show the amount and file it to income tax?? is d prof l b valid in court of law

  • Sreekumar says:

    Dear Sreekanth,

    First of all, thank you so much for having this informative site.
    In 2014, I had borrowed 2 lakhs to a family friend believing his assurance of paying it back “soon”. 2 years has since been passed and he is casually making excuses whenever I ask him for my money. I have managed to make him write a PN (on white paper, signed over 2 rupee revenue stamp, 2 witnesses also signed the PN) backdated to 2014. My question is, is this PN enough (i also have the electronic receipt for the bank transfer I made and also recorded conversations with him) to legally enforce him to return my money? I would hesitate to take it to court if success is not guaranteed. How long these kind of litigation take on an average for verdict. Thank you again and waiting for your comments.

  • Kamleshwar Bajpai says:

    If we write the word ” LIMIT- PRONOTE” on the top of prescribed printed proforma of Demand Promissory Note i.e pronote or DPN and the same is handedover to a CREDITOR duly signed/executed in favour of the CREDITOR promissing to pay/repay credit availed in a CASH CREDIT -LIMIT A/C. Similarily in a “TERM LOAN A/C” the loan taken is repayable either on demand or in instalments with or without interest the word ” LIMIT- PRONOTE” is not used . What are the conceptual & legal defferences in both type of “PRONONTs”.
    Are there some special legal uses of Demand Promissory Note i.e pronote with a quote ” LIMIT- PRONOTE” in a CASH CREDIT -LIMIT A/C.

  • SATYANARAYANA says:

    VERY GOOD INFORMATION SIR
    PLEASE CLARIFY MY DOUBT
    ON 2007 MY CLOSE FRIEND NEED AMOUNT FOR HIS DAUGHTERS EDUCATION PURPOSE.THAT TIME I M HELPED TO HIM WITH INTREST HE IS ISSUED PROMISSARY NOTE.HE IS ALSO RENWAL THE SAME AMOUNT ON 2010 WITH IN 3 YEARS .BUT THAT IS ISSUE IS GOING ON CIVIL COURT FROM 2012.I M NOT A MONEY LENDING BUSINESS MAN.JUST HELP TO FRIENDS OR CLOSED RELATIVES ONLY.NOW HE IS TRY TO ESCAPING . HE IS ASKING TO ME HOW TO GIVING MONEY TO FRIEND WITHOUT MONEY LENDING LICENCE.
    SO PLEASE GIVE CLARIFICATION TO ME. HOW TO COLLECT THE MONEY FROM FRIEND WITHOUT LICENCE

  • Manoj says:

    Dear Sir,
    My mother had given hand loans to known person in cash. The loans were given in good faith and on assurance that it will be returned whenever asked for and also with interest. However the assurances turned out to be a big lie and the person started avoiding all our calls. We got blank cheques signed from her and also we got him sign on promissory notes. We have photocopy of their property document as well. These are the only documents we have. Now, even after repeated requests this person is dodging the payments and there is no sign of the money being returned. This is causing huge mental agony for us in our family and has forced us to have a strained relationship with my mother who is aged 65 years and has affected both her mental and physical health. I am worried of losing my mother due to this tension. Also, I came to know that he has threatened to declare himself as a PAUPER if we approach the court. This statement by him has dampened our hopes of recovering the money from him. Please help and advise.

    • Dear Manoj,
      Did you try to encash your Cheques?
      Suggest you to consult a civil lawyer.

      • Akram says:

        Dear Sir, I have deposited Rs.25,000/- for the period of 5.6 years in 2005. But the company was lost. I met him several times. But he is simply saying my property is under court..
        I will give you after the court settlement.
        What step should I take..

  • Ankur says:

    Hi Sreekanth,

    I am happy to see the blogs from your end as they deal with the day to day complications.
    I am here to get advised on my problem which i am encountering as of now.

    One of my friend borrowed 70000 from me not directly but by doing payments on his behalf mentioning his financial issues.
    I paid his full rent 2 times and also transacted 30000+20000+20000 from my bank to him including other cash.

    I know i am a fool which i am feeling right now after reading the blog and also after understanding i am stuck.

    I wish to know how i can have the repayment from him as there is no proof for cash payments except the transactions.
    Is there any way where i can approach legally and get the full amount refunded.
    I also have saved his call recordings where i mentioned the amount and date to give the money and his reply also confirming to give.But in actual he is just delaying and i am afraid i may end up losing the amount.

    Please suggest it would be really helpful.

    Regards
    Ankur

    • Dear Ankur,
      If you take legal route, I am sure it may costs you more time, efforts and money to get back the money.
      If your friend is a genuine person, atleast ask him to execute a Promissory note (if he can’t payback now).
      Else, consider this as a LESSON and do not repeat these kind of things again in future. Sorry to say like this, but nothing else can be done!

  • sampath Kumar yeneti says:

    naku money kavali interest akuva iena parle kani nenu note rasse akuva interest pay chesthanu naku chala urgent I am in vizag

    • To sampath Kumar yeneti says:

      sampath Kumar yeneti,

      neku money kavali interest akuva iena parle kani nevu note rasse akuva interest pay chesthavu neku chala urgent You are in vizag. so many banks are in vizag.

  • daya says:

    Hi Srikanth,

    I need some info from you. We borrowed some amount from our family friends four years back. The total amount was
    6 lakhs And at the time of borrowing the money we gave more than 2 promissory notes to them. So recently we got to know that they missed one of our promissory note.This month we are going to pay the total amount to them and i would like to take a amount received letter from them. Please let me know the format of no dues latter from them and also let me know do i need to take any other papers from them for future purpose.

    looking forward to hearing form you.

    Thanks,
    Daya

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