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Promissory Note & Loan Agreement : Details & Sample Templates

Last updated: August 12, 2019 | by

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)

Sreekanth Reddy:

Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging & property consultancy for the last 12 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider. The main aim of his blog is to "help investors take informed financial decisions." "Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. These should not be construed as investment advice or legal opinion."

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  • 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 ..???

  • 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..

  • 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?

  • 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.

  • 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

  • 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

  • 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.

      • 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.

        • 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!

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

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

  • 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

    • 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.

  • 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.

  • 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

    • 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.

  • 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?

    • 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??

  • 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.

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

  • 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?

  • 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?

  • 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.

  • 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

  • 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

    • 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)??

      • 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

        • 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.

          • 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

  • 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

    • 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..

  • 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?

  • 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??

  • 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.

      • 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.

  • 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.

  • 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.

  • 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…..

  • 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.

  • 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

    • 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.

      • 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.

        • Dear isabel,
          As these are self-acquired ones and as they are in your husband’s name alone, he can sell the properties without sharing the sale proceeds with you / legal heirs.

  • 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.

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

      • 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.

  • 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.

  • 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.

    • 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?

  • 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

  • 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

  • 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?

  • 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.

    • Dear Venkat,
      1 – Willful dishonoring of cheque can be challenged in court of law. Take a copy of cheque before depositing in your bank.
      2 – Yes.
      3 – Yes.

  • 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.

  • 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?

  • 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

  • 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.

    • Dear Sreekumar ..The legal way can be a long-drawn battle for justice. But I am sure you will get judgement in your favor if all the proofs are in your favor. But its wiser to go for out-of-court settlement. Else, kindly take help of a civil lawyer.

  • 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.

  • 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

  • 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 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..

  • 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!

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

    • 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.

  • 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

  • shrikanth sir, 1 and a half year back my friend was in trouble. i arranged 10 lac from my another friend for him. i took checks and promisorry note of the same amount. now my friend is asking for full amount and a person whom i gave money is not returning. my friends has given me one month to pay the full amount. considering i have both the promissory note and check along with whats app chat to prove he has my money. may i get the full amount by legal root in 1 month? sir please reply fast.

    • Dear jignesh,
      You can get full amount but it can be 1 month or can take more time if you take legal route. Suggest you to first let him know about your situation and ask him to repay the amount. Your final resort is to take legal action with the help of a Civil lawyer.

  • dear sir,
    does loan agreement need to be notarized and if yes under which law?

  • Great article. My husband and I are in the process of lending 60,000 dollars interest free to his son’s family for 3 years, who has a partner and a young baby. They want to buy a bigger house. With our help, they will borrow less from the bank and pay 20% down payment instead of 10%.This is their plan of paying back: the first two month–nothing back. Starting from the 3rd month, they plan to pay back 500 dollars each month and pay a lum sum of 42,000 at the last month. They drafted a loan agreement listed their names, our names and the above pay back method. There is no terms on defaults on borrower. Is it valid? Any suggestion on how to secure the repayment? I want to be supportive but I don’t want money ruin our relationship in the future. Thank you.

  • dear sir, 2 years back I gave 17 lac to my friend. I have promisarry note of the same amount signed by him. now he is not paying me back. what should I do. how can I get my money back earliest?

  • Hi,
    Mr.Sreekanth Reddy,

    One of my friend want to invest in my upcoming startup in india, but I and he living in abroad right now, he want to invest the money for equity also he want in contract paper before i register the company. is it possible ? any solution?

    Thanks

  • One of my friends is in USA and his wife is in India.His wife is expecting some money from his husband so that she can take a land and construct a house in Hyderabad.But she wants to keep the property on her name and she is ready to pay back in the future (interest & Principal amount) to her husband.Now what sort of loan contract should be created between wife and husband and the loan contract should be trouble free even in case there is any problem in the future like divorce/separation etc.

    • Dear pratyush..Is he (husband) agreeing to keep the property on her name? Is he ready for a loan agreement?
      I believe that they can make a normal ‘Loan Agreement’ mentioning all the possible terms & conditions as per their requirement.

      (Pratyush – Are you practicing law?)

      • Hi Sreekanth,

        Thanks for the reply.

        Yes.husband agreeing to keep the property on her name and ready for a loan agreement.

        I came across the following in one of the websites where they are talking about such contracts between wife and Husband (Signing the contract and later on going for the divorce).

        “Such contract/agreement will not remain valid in case your wife claims her right over the property and take legal option for this.
        The Hindu Marriage Act and other related acts will override the agreement signed between you and your wife. You should not go for such type of arrangements as it will complicate the matter in future.”

        Can you please throw some more light on this ?

  • Hi Srikanth,
    It is very informative article. I have a query that I have taken 23 L, home loan from a bank . now one of our friend tell that he can lend money to us for closing that loan and we have to repay same without interest. As a Muslim he don’t like earning or spending through interest.
    So if we borrowe from him what could be tax charge and how can we save tax ? as we don’t let him to get any troubles for tax and same for us. He has saving account from where he can lend UA through RTGS or Cheque.
    Regards,

    • Dear Sarfaraz,
      But you are not paying any interest amounts right, so no tax benefits u/s 24.
      You can not claim principal repayments too u/s 80c. That’s applicable only if you take up the loan from some Bank or financial institution
      Both of you can formally make an agreement, so that there won’t be any issues and can handle any tax notice (if any).

      • Dear karthik,
        Thanks for reply. We are worried about do we need to pay any tax if my friend transfer money to my account. And what kind of latter will help us PN or Loan agreement?

        Regards,

        • Dear Sarfaraz,
          While closing the loan, your banker might ask for source of funds, so it is better to have a loan agreement done between both the parties (self & your friend).

  • Dear Sreekanth,
    On 2014 one buyer came to purchase my property for 15 lacks. I ready to give. We did six months agreement by I taken 2 lacks from him. After six month he don’t want to buy my property and send me a legal notice to give his money back with interests.
    Please advise me.. What to do? And how can I get free from this case without paying anything..

    • Dear Kartika..It depends on the terms & condition written in the agreement. Has this clause been included in the agreement that you need to return the advance monies if the buyer is unable to buy the property??

      • In the agreement we mentioned that if he didn’t purchase the property within the date of agreement, ‘money will not give back and the agreement will treat as cancel’.

  • Hi my father borrowed 5 lacks from friend back in 1996 as per my fathers friend, my father denies that to be borrowed. But this guys continue to harras asking for money. He does not have any written info regarding money . can he legally put us in trouble or even if he had a written notes what are possibilities . since this was 20 years ago and now in 2016 he is asking for money.

    • Dear Sam..If he has any written notes, kindly ask him to share them with you so that you can believe that your father has borrowed monies from him. Kindly check the dates mentioned in the documents (if any). If your father has really not borrowed monies from him, kindly just ignore this issue.

  • Hello Shreekanth sir,

    My father barrowed money (90000) from one of my relative 12yrs back and that person took sign across stamp on ON DEMAND PAPER (at that time nothing was written on it). And my father paid interest of 3% /month . from last 3 yrs due to some financial issue he was not able to pay regular monthly interest (he paid partial amount). And recently my relative again took signature of my father on stamp paper and on demand paer (which was totally blank) . As my father is uneducated, he didn’t see anything and signed blindly.
    Will that be a problem for us in future??

    As he has taken signature in 3 to 5 on demand paper, is that necessary to take signature in 3 to 5 papers for amount 90000rs ??

    Please answer me as soon as possible.

    • Dear Pradeepa..Yes, it is dangerous & risky to sign on a blank paper. Your relative can write anything on it right??
      So, suggest you to get back those papers and write a formal Promissory note at mutually agreeable terms & conditions.
      You being an educated person, it is your responsibility to help your father in these matters. Kindly educated him about the negative consequences of signing on blank papers.

  • Hi Sreekanth,

    I like to confirm my understanding. Hope you don’t mind replying me. Is Promissory Note with Borrower signature on top of the revenue stamp is enough to make the borrower legally abide, in case he defaults.

    What kind of legal action possible, in case borrower defaults? Please throw some light.

    Thanks in advance.

      • Dear Jagan,
        In India, anything can be challenged in the court of law.
        But if one has a promissory note which is properly executed (as said by you), it can surely be considered as a valid & legal document in case if there are any litigation.

        • Thanks Sreekanth. Nice and cleanly explained article. And you are kind enough to reply each and every queries raised by many such folks like me. All the best. Keep going.

  • I had given money to my friend for his need, now he is telling i did not have money to return u.. i asked him to sign in 10 rupees stamp paper. is it usefull for me to put a complaint and what the matter should be in stamp paper please provide a link

  • hi,
    I have lent family member money for his house payment through neft but we dont have any bonds agreed between us.but now he refuses to pay within timeframe mentioned. how can I take it through legally.please help

  • HI sreekanth sir,

    I am living in USA my friend living in india, he wants money 60,000 INR for his friend’s father’s hospital expense.
    I am ready to help him as a loan, we have a oral agreement as he will repay me in may,june and july as 20000 each month.
    but the money which i am going to give him is from my sister’s marriage savings. i don’t want to mess up my friendship as well as my sister’s marriage. some how i want to enter in a loan agreement.. but i am physically not in india.
    give me an idea. plz

    • Dear sayeed..You may tell him clearly that you are taking out this money which is meant for sister’s marriage expenses and you would like to have Promissory Note written. If ok, you can transfer this money to your father’s a/c and let him write the Note in your father’s name. You may ask your father to transfer the money through NEFT/Cheque (no cash).

  • I was investing in Flat for last 8 years no they are ready for possession. In the mean time last year I purchased an house from Home loan. Now I want to sell my Flat any pay the portion of my loan . Will this attract Capital gain. As Flat got registered in 2015 .

  • Hi sreekant sir,my English is bit low,pls adjust,in 2010 i had a good friendship with an aged lady,she made me to love her daughter so that i will marry her,i did,and her daughter too,keeping in mind that i am going to be her son in law ,she gave me 3lakhs rupees in splitted time to manage my financial problems,she deposited into my account,later she and her daughter started to dominate me in each and everything in my life,as i realized their worst behavior day by day finally i broken their marriage proposal,then they started to torture me by calls,and threatened my parents also,insulted me by spreading wrongly abt me to my colleagues,friends and relative,everyday they will call me and scold me and ask abt money,then i almost tried for suicide ,but i couldn’t,then somehow i got loan amt 3 lakhs,i repaid to them completely by cash,now i thought everything is over,but again she went to my bank and took my bank statement by telling lie as she is my mother which is dated on 2010,now by showing that she is indicating that this amt i deposited,so give me back,but i paid her back completely,only mistake by hand,there is no agreement between us,only she showing her amt on my bank statement which is true,now she is threatening me that she will take legal action,how can i prove,and how can she prove as it hapened in 2010 and there is no agreement except my bank statement says her deposited amt,pls help me

    • Dear Sampath..Suggest you not to feel weak. They might be just trying to exploit you. I believe that they can not win this case in court-of-law. Suggest you to take help of a civil lawyer.

  • I have availed a bank loan from a PSU bank and the same has been sold as NPA to a asset reconstruction company. Now they are claiming to make either an one time settlement of 1.3l or pay it in EMI. But they are not ready to provide any proof for payment. When asked for proof they say the chellan which can be considered as a proof for payment and will process the NOC certificate after 15 days from the date of final payment. But I have heard a lot of cases of not providing the NOC and changing the cibel score. If I had to have legal documents can I get a PN or an agreement signed from them stating all the terms and conditions. Please guide on how to proceed further

    • Dear Kumar..You may make wire transfer or DD payment and take a written document (can be on the company’s letterhead) stating that the loan a/c has been settled and they will issue NOC by so and so date.

  • Dear Sreekanth,

    How powerful is a stamp agreement during buying land. I’m thinking of buying a plot in a venture on EMI basis for two years with some fixed advance payment. The plot venturer says that he writes an agreement for the same. My question of doubt is legally how much powerful is the agreement written like this.

    Is there any real estate governing bills passed in the parliament. If so plz give a reference.

    • Dear Nagesh,
      The real estate bill is approved by the Union Cabinet but not yet passed by the Parliament.
      Read : Real estate bill highlights.
      Kindly note that an agreement to sell is merely a document to obtain another document, i.e. sale deed and it does not transfer title of property. No person becomes owner of a property by mere execution of agreement to sell in his favour. But, both the parties have to adhere to the terms&conditions mentioned in the Sale agreement.

  • Dear Sreekanth Reddy Ji

    I borrowed money from my father. If we both agree for and honor a word-of-mouth agreement for this borrowing, does a PN is needed? In other words, does borrowing money by word-of-mouth agreement is legal as long as we have no dispute about this loan?

    My father is saying that the blood relation and word-of-mouth are more stronger than a PN therefore he is not willing to execute a PN.

    Yashwant

  • Hello

    I lent money to my friend 2 years ago but he could not return tit as promised and now he is willing to write a PN with postdated (that is, the PN will be prepared as if it was prepared two years ago). Is it valid?

    Whether the revenue stamps have the year of printing included on top of them?

    How much value of revenue stamp should be used for a PN for 1 crore rupees in Andhra Pradesh?

    Another question is whether the revenue stamps have the year of printing?

    Rakesh

    • Dear Rakesh,
      Why do you want to risk? Suggest you to write a fresh PN inclusive of interest amount for 2 years (if any) and then take post dated cheques for repayments.
      I don’t think revenue stamps have year imprinted on them.

      • Thank you Sreekanth and I appreciate and will follow that.
        By the way, it seems you overlooked question:

        How much value of revenue stamp should be used/affixed for a PN for 1 crore rupees in Andhra Pradesh?

  • Hello I want to write my problem and I want suggestion…. So please let me know how can I write my problem…
    Thanks….

    • Dear Sandeep,
      Regarding Stamp duty, Stamps to be affixed is based on the amounts and one has to look up the relevant Stamp Duty rates of the state where the document is executed.. Stamp duty varies depending on the tenure of the loan as also the quantum and type of the loan.

  • Your blog is very informative. I am facing a complex situation and request your feedback.

    My wife and I live in the USA. We visited India in October 2010 for few months when my father was seriously ill at that time. My wife (borrowed money from her relatives in India) lent me money (around 50 lakhs rupees) for my father’s treatment. I gave my wife a PN stating that I will pay her back either 50 lakhs Indian rupees or 100,000 US dollars. I signed this PN during October 2010 when we both were in India. We used 1 Rupee revenue stamp across which I signed the PN.

    Unfortunately my father survived only for a year after that despite providing all the medical support.

    Note that in 2010, we (me and my wife) have US green cards but we both are Indian citizens (we have Indian passports) at that time. In 2012, we both became US citizens.

    During September 2013, I just paid 5,000 dollars back to my wife (I paid it in cash). We both signed on back of the PN indicating this partial payment. This 5,000 dollars payment and signatures took place when we both were in the USA.

    During December 2015, I paid back my wife the remaining 95,000 US dollars. I made this payment by transferring money from my US bank account to her US bank account. After that, we both signed on the back of the PN stating that the loan was paid in full and the PN is void (and my wife returned back that PN to me). Luckily I still have that PN with me.

    Now I am facing a legal situation and I need to prove (to the US court or US government) why I transferred 95,000 dollars money to my wife.

    (i). Can I show the PN (which is with me now) to the US court or US government to prove that (I transferred money to her because) I borrowed money from her in 2010 when we were in India to provide medical treatment for my father? In other words, does the US courts or US government recognize the PN that was initially signed in India? If needed, my wife is ready to testify that the information in the PN is true.

    (ii). In general, is it legally valid to mention the borrowed amount in US dollars, when we are signing the PN in India? Or is it necessary to mention the amount in Indian rupees alone when we are signing the PN in India?

    Note that my wife and I have been married since 2005 and we both are from India and our marriage also took place in India.

  • Hi Sreekanth Reddy
    My name is Santhosh Bhaskar, I gave 50,000/- to my relatives on PN since 10 yrs back. They are not paid from 4 years. They are not mentioned date on PN. How to proceed legal? Plz help me sir.

    Thanks & Regards,
    Koyya. Santhosh Bhaskar.

  • I have few questions:
    Can a person borrow money from his wife and sign a PN? Is that PN still lavid?

    If I borrow money 10 years back from a friend (by writing a PN) and keep on paying the money incrementally for every two years (and writing those incremental payment details on back of the PN), does the PN still valid?

  • Is it possible to get a specimen letter of having paid a hand loan to someone for housing purpose?

  • I want to give loan of RS 4,00,000/- I am willing to take a writing on stamp paper of Rs 100/- who has to pay the stamp duty lender or borower

  • Dear Mr reddy,
    Thanks for running such an informative platform, my questions is lillte off track yet related to the subject.
    An year ago we sold our ancestral family gold to a neighbour as he paid approx 5% more than jewellers. We sold it for 10,35000. 35000 were paid in cash and remaining 10 lacks were transfered via NEFT to my dad’s account.
    Now after 1year his cunningness took a new turn and has issued a civil suit that that transferred money (10 lacks ) was interest free loan for 1year and we must return it and also pay interest from after issue of notice.
    My dad is very tensed after receiving the notice. I would be humbly thankfull if you can guide me with my options.

  • Hi Sreekanth,

    I had lent money of 2 lakhs to my friend on August 11th this year, through bank transfer for interest, He had issued a cheque dated 2016 sept and oct…. he paid interest for 2 months of 3000 monthly, But now he is not attending my calls. when i go home he is not there always,,,,,, please help me with a suggestion

      • i am trying to get a pro note sign …… but he is missing…… he is threatening me if i ask anything he will suicide and write my name….. what shd i do?

  • Dear Sreekanth,
    Many thanks for your clear guidelines. I am a from Europe and had the pleasure of spending six months in India last year. While there, I met a family who I now want to help with developping a Business. I trust them and think their Business Plan is sound. However, I do want to follow your advice and set up a loan agreement to formally agree on terms. Are there any special clauses I should add as a foreigner lending money to people from India?
    Many thanks for your response,
    Patrick

    • Dear Patrick,
      I do not have expertise on this subject. Suggest you to consult a lawyer or Chartered Accountant who specializes in aspects related to NRI / Foreign investors.
      Yes, definitely do not lend your money by just making Pnote or loan agreement.

  • Hello Sreekanth ji, Brother i was given some money to my known but not my relative..I am having 2 sets of PN, 3 Blank cheques and 1 (Blank stamp paper 100 Rs).Now the Problem is he is absconding with my money as well as many others.Few people already file a complaint against him.I am waiting to registered my complaint against him because his elder brother is in touch with me. He said that he will clear my outstanding amount but i doubt that it might be his tricks just to get some more time from me. What you say ? What should i do ?

    • Dear Dheeraj,
      Check with his brother if he can sign a new Promissory Agreement and also make some partial repayment now. You may also check some cheques form him too.

  • I have lent 3 lakhs to my friend a year back, didnt get any agreement signed, he is willing to sign an agreement now, is it advisable to have an annexure in the agreement which gives details of the loan amount given in the past (1 year back). The loan amount was by swiping the credit card in various months for small amounts of up to 10K

    • Dear Prakash,
      Advise you to get the agreement at the earliest. Lending to friends / relatives itself is turning out to be very big risk and if you do not have any agreement then just imagine the quantum of risk. You can attach the annexure and get it signed.

  • Dear Shri Sreekanth,
    I lent a sum of Rs. 3 lacs to my friend without any interest anything on the hope that he will repay it. One year is already over now. When I contacted him last, he said he was not in a position to repay it now. But, I still hope that He will return the money when it is possible for him. Now, he has become out of touch.

    How long I can wait to take any legal action against him. Will my waiting with hope, turn negative for me to take any legal action against him. I can manage still one more year for the sake of friendship. What should I do?

    If he is ready to sign any document regarding our transaction, Can the PN be prepared now, i.e. one year after the money is given?

    • Dear Gunaseelan,
      Legally, your PNote is valid for three years only. Try to find a way to get in touch with him. You may ask for ‘Post dated cheques’ too.
      But the challenge is, if you can not trace him, how can you contact him or take legal action against him?

  • SIR,
    I want my persenal fund against cheq and promisery not up to 4 yers amount Rs 500000,
    pls give more deatails

  • Sir

    My neighbour got a loan of Rs. 4 lakhs during Feb-2014, four days before his son’s marriage, saying the loan will be returned in six months with an interest of Rs. 2,00 per month. Promissory note drawn. Payment of interest were also on default.

    Several times reminded him to return the loan amount. He is dragging time and again.

    Kindly tell me the course of action to be taken.

  • hello Sreekant,
    i want to give a small loan to strangers on interest, can i do so, if yes, is their any legal government requirement to be fulfilled to provide such loan.
    what will be the best option for me whether to enter into
    a) promissory note, or
    b) Loan agreement.

      • Dear Sreekanth,
        Thank you for reply and i appreciate your reply too.
        Still will like to know if i do so, is it possible without any registratton like nbfc,etc that given by rbi and can i charge interest on the loan amount.
        Also which agreement will be beneficial for me:
        a. promissory note, or/and
        b. Loan agreement

  • I have taken Loan Against Property of Rs 62.8 lakhs by mortgaging my flat to help my friend & his wife to start their business. Full amount was paid to them by three cheques. He has promised to returned the amount in six months and till full amount is returned, he has promised the bank EMIs by depositing cheques in bank account. After depositing four cheques, he has stopped that for last four months. No Promissory Note or Loan Agreement was signed as I believed the family would stand by their verbal promise. Being a retired officer from Armed Forces drawing limited pension, I am unable to repay the bank EMIs. I have even sold my spouse jewelry to pay EMIs in last four months to avoid becoming a loan defaulter. Please advise how can I proceed to recover the amount given. I know I have dug my grave & now I don’t want to get buried in that. In the event of non-payment of EMIs, bank may proceed to dispose my flat to recover their loan amount.

    • Dear Hemant ji,
      Very sad to hear this and I can understand the situation you are in now..
      If you do not have any document done, it is very tough to approach court of law too. Suggest you to negotiate and discuss with your friend & family and settle the dispute amicably.
      As a last resort, you may approach a lawyer.

  • Hi Sreekanth,
    Would you be knowing why or under which legislation is it necessary to get a loan agreement stamped & notarised?

    Thanks,
    Vinay

  • Hi Sreekanth,

    Greetings,

    I would like your valuable suggestion on the following scenario:-

    My approached me to stand as a guarantor against the loan he is taking from a private institution. As a good friend, i have provided him the copies of my pan card, electricity bill, payslip.

    Now, though he is a good friend of mine, I would like to be on a safe corner. Therefore I want to make a mutual agreement with him stating that ” i am only standing as a guarantor and any liabilities/loan taken shall be borne only by him and it will be auto-debited from his savings account.

    So shall i make this agreement on a stamp paper or can it be executed on a plain sheet with a 1 rupee revenue stamp.

    Your response to my concern shall be highly appreciated.

    Thanks in advance.

    Prem.

  • Dear Sreekanth,

    My father has given a loan amount of 10 lacs with 2% interest to his neighbour and get signed in Pro note. Now he is not paying interest amount correctly. Can you please suggest how can we take legal action against him, whats the procedure. Pronote was signed on 2014 Sep.

    Will be very thank ful to you.

      • Mr varunya ,

        No problem you are 100% recovery from the borrower , please contact advocate and file a recovery of suit.

        • No problem you are 100% recovery from the borrower , please contact advocate and file a recovery of money suit.

        • Mr Varunya

          That is the recovery of money suit (word mistake) but that suit file within the three years of execute PN.

  • Hello Sreekanth,
    I am ashish, I gave my uncle sum of 7lakhs 50 thousand at 1.5 % interest per month. we wrote an agreement for 4 years. he didnt even gave me the interest amount (he use to give some money for my expenses when requested) I asked him to be accurate in terms of money. I requested him that every thing should be transparent and written on paper.
    As the agreement date is approaching I urged him to look in our account so that to avoid any misunderstanding regarding the money. He is denying to look into the accounts and asking me to execute another agreement as he is unable to pay the amount now. actually he is not giving me a specific date when he is going to pay me back.
    Please suggest a solution for this issue.
    (My worry is that if my uncle expires suddenly, they family members wont pay me back for sure ). Thats my worry and asked my uncle to make they family members to sign on the agreement (or surity) as well,he is denying this also. by the way our agreement will complete on 14th of this month.
    Please give a solution for my problem, I am worried abt it as I have only that money for my savings.

    • Dear Ashish,
      Suggest you to talk to your family members, get elders involved in this matter and resolve this issue amicably.
      If this is not possible, approach a lawyer at the earliest (I know this may not be the best of the best solutions but it is your hard-earned money, you have to get it back at any cost).

  • I want to lent rs 100000 for my friend Wat should I do for security reasons and legal actions documents etc

  • Hello Sreekanth Reddy,
    Very informative article. I am borrowing Rs 12 lakhs from a friend at 10 % interest P.A on monthly reducing balance and I plan to repay in monthly installments within three years. What is the value of stamp paper reqd. Is Rs 60 ok. ( Rs 1 for every 20000). I am in karnataka. Pls let me know.
    Regards Manoj.

  • In promissory note section it is said that “”””” can use Rs1/- revenue stamp crossed and ………
    Kindly verify this ….. For promissory note Revenue stamps depends on the loan amount . As per Indian stamp act one Rs1/- revenue stamp for every Rs.20,000/- is required Please verify this for correctness

  • Dear Sreekanth Reddy

    I would like to give 5 lakhs rupees to my relative on interest with 2% per month. so please suggest me how to give loan to him with my full money security. awaiting for your reply.

    thank u
    sunny

  • Dear Sreekant,
    My Aunt lent money to her neighbour amounting to Rs.4lakhs by getting her signature on a promisory note fixed with revenue stamp date 12th july 2011 with an annual interest of 60%. The neighbour wilfully signed the note and she has been defaulting her interest payment for the past 2 years. Now when my aunt asked for the principle sum she is saying do whatever you can do, i cant pay you anything. Is it possible to take any legal action against the neighbour using the promisory note. Kindly suggest me. Looking forward for your reply

  • When a Guarantor is involved in a PN, the PN is to be made by the Borrower in favour of the Guarantor who will then endorse the same to the Lender. As regards Stamp duty, Stamps to be affixed is based on the amounts and one has to look up the relevant Stamp Duty rates of the state where the document is executed. PN’s are normally used for loans upto a term of 3 years which can be further extended by way of what is called as Revival Letter which has the same wordings as the PN but refers to the first PN. While PNs are governed by Negotiable Instruments Act, Loan Agreements fall under Contracts Act. One has to be very careful with Loan Agreements with the clause and witnessing of the Agreement is very vital as there can be a dispute relating to forgery etc., Where collaterals are involved in LA, the same needs to very carefully filled by way of schedules giving the description, location. One may also have to verify the ownership of the asset that is given asw collateral. Stamp duty varies depending on the tenure of the loan as also the quantum and type of the loan.

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