What is the Difference Between Cheque and Promissory Note?

A cheque and a promissory note are both negotiable instruments used in financial transactions, but they have distinct differences:

1. Nature: A cheque is an unconditional order by the account holder of a bank, directing the bank to pay a certain sum of money to a specified person or the bearer of the instrument on demand. On the other hand, a promissory note is an unconditional promise by the maker to pay a certain sum of money to a specified person or the bearer of the instrument.
2. Drawer and Payee: In a cheque, the drawer is the person who withdraws the money from the drawee, and the payee is the person to whom the money is paid. In a promissory note, the maker is the person who pays the money, and the payee is the person to whom the money is paid. The maker of a promissory note cannot be the payee.
3. Acceptance: A cheque requires acceptance from the drawee before the payment can be demanded, while no acceptance is required for a promissory note.
4. Stamping: A promissory note must be stamped according to the Stamp Act, while a cheque does not require a stamp.
5. Days of Grace: Three days of grace are allowed for payment in the case of a promissory note, while no days of grace are allowed for payment in the case of a cheque.
6. Crossing: A promissory note cannot be crossed, while a cheque can be crossed.
7. Conditional: A cheque may be made conditional, while a promissory note can never be conditional.
8. Parties Involved: A cheque involves three parties: the drawer, the drawee, and the payee. In contrast, a promissory note involves two parties: the maker and the payee.
9. Limited Time: A promissory note is valid only for a period of 3 years from the date of its execution after which it becomes invalid. A cheque does not have such a limited time restriction.
10. Payment Mode: In a cheque, the payment is made on demand or on the expiry of a certain period. In a promissory note, the payment can be made at one time or in installments on a future decided date.

Comparative Table: Cheque vs Promissory Note

Here is a table summarizing the differences between a cheque and a promissory note:

In summary, a cheque is an order to a bank to pay a specified sum from the drawer's account, while a promissory note is a written promise to pay a certain amount to a payee on demand or at a fixed future date. Cheques can be conditional and are payable on-demand or after a specified period, while promissory notes are unconditional and have a limited validity period of 3 years from the date of execution.