Loan agreement and promissory note formats
A loan agreement records the amount lent, interest, repayment schedule and security. A promissory note is an unconditional written promise to pay a certain sum (Section 4, Negotiable Instruments Act, 1881). A suit to recover a loan is generally to be filed within three years (Articles 19, 21 and 35 of the Limitation Act, 1963, depending on the terms).
Key points
- Promissory note: Section 4 NI Act; it must be stamped under the stamp law.
- Mortgage of immovable property: Sections 58–60 Transfer of Property Act; most mortgages must be registered.
- Limitation: generally three years (Articles 19 and 21 of the Limitation Act, 1963); an acknowledgment of the debt in writing before expiry starts a fresh period (Section 18).
The law: old and new provisions
| Subject | Law now | Before 1 July 2024 |
|---|---|---|
| Promissory note | Section 4 Negotiable Instruments Act, 1881 | — |
| Mortgage | Section 58 Transfer of Property Act, 1882 | — |
Which court or authority
Executed between lender and borrower; mortgages registered at the Sub-Registrar.
What the document should contain
- Parties and the amount
- Interest and repayment schedule
- Security and guarantees
- Default and acceleration
- Signatures and witnesses
Documents to attach
- Proof of payment of the loan (bank transfer records)
- Security documents
- Identity proof
Procedure
- Draft and stamp
- Pay by banking channel and keep proof
- Take acknowledgments of debt to keep limitation alive
Common mistakes
- Cash loans without proof
- Unstamped promissory notes
Frequently asked questions
What is the time limit to recover a loan given to a friend?
Generally three years from when the loan was made or became payable, depending on the terms (Articles 19 and 21 of the Limitation Act); a written acknowledgment before expiry extends it.