State whether the following instruments are valid promissory notes:
(i) Mr. X issues a promissory note to pay Rs. 500 to the bearer on demand.
(ii) Mr. X issues a promissory note to pay Rs. 500 to the bearer after sight.
In case (i) , the promissory note is not a valid negotiable instrument, while in case (ii), the promissory note is a valid negotiable instrument. Section 31 of the RBI Act, 1934 restricts any person other than a Bank or a Central Government Authority to issue a negotiable instrument payable to bearer on demand. The reason being, a promissory note payable to a bearer on demand is like a currency note, which can be issued only by Central Government. However, RBI Act does not restrict for the issue of a negotiable instrument payable to a bearer after sight. The After sight promissory notes need to be accepted by the drawer and do not amount to be a currency note.
Section 31 of the RBI Act, 1934 reads as:
(1) No person in India other than the Bank, or, as expressly authorised by this Act the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to bearer on demand of any such person:
PROVIDED that cheques or drafts, including hundis, payable to bearer on demand or otherwise may be drawn on a person's account with a banker, shroff or agent.
(2) Notwithstanding anything contained in the Negotiable Instrument Act, 1881 (26 of 1881), no person in India other than the Bank or, as expressly authorised by this Act, the Central Government shall make or issue any promissory note expressed to be payable to the bearer of the instrument.
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