Report No. 178
1. Section 35 of the Stamp Act, 1899 & 'Bills of exchange on promissory notes':
The opening part of Section 35 of the Stamp Act, 1899 provides as follows: 'No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authorized to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless the instrument is duly stamped'.
Clauses (a) to (e) of the proviso to the above Section 35 contain provisions which permit the instrument to be used as evidence upon payment of the stamp duty in full (where it is unstamped) or upon payment of the deficient stamp duty (where there is deficiency in the stamp duty) and the proviso permits the collection of penalty up to a maximum of ten times the stamp duty or the deficiency, as the case may be. Levy of penalty is of course discretionary.
However, clause (a) of Section 35 does not permit the validation of the instrument as stated above, in the case of 'a bill of exchange or promissory note'. The result is that while in regard to all other instruments there is a procedure prescribed for subsequent validation of the instrument by collection of the stamp duty or penalty, such a procedure is not available in the case of "bills of exchange and promissory notes". Even if the party who wants to use it as evidence is prepared to pay the stamp duty and penalty, he is not allowed to do so, so far as these instruments are concerned. The document become 'waste paper'. On account of this rigid procedure applied only to "bills of exchange and promissory notes", several debtors are allowed to escape liability unjustly.
The Indian courts have also not been able to render justice in such cases where one party relies upon a "bill of exchange or promissory note" which is not stamped or is deficiently stamped. In addition, the provisions of Section 91 of the Evidence Act also come in the way and preclude oral evidence being adduced in such cases. This is clear from illustration (b) below section 91 of the Evidence Act.
These disabilities have led to a large volume litigation in courts. The Privy Council, the Supreme Court and the High Court have declared their helplessness in getting over these provisions of Section 35 in so far as they disable validation of "bills of exchange and promissory notes". The result is that these instruments are not allowed to be used as evidence 'for any purpose'.
In one novel case in the Andhra Pradesh High Court during the time when our currency shifted from the old system of "rupees, annas and paise" to the present system of 'naya-paise', a promissory note which had to bear a stamp duty of 4 annas under the Stamp Act was executed on a document bearing stamp duty of 'twenty four' naya-paise on the undertaking that each anna was equal to six naya paise. But, under the new system, the correct equivalent of 4 annas was 25 paise, and the suit was dismissed on the ground of deficiency of stamp duty of one naya paisa.
The law never changed. In fact, a special bench of seven Judges of the Andhra Pradesh High Court in L. Sambasivarao v. Balakotaiah AIR 1973 AP 343 (FB) affirmed an earlier judgment of five Judges of the Madras High Court in Perumal Chettiar v. Kamakshi Ammal (AIR 1938 Mad 785 (FB)). The judgment of the Andhra Pradesh High Court is exhaustive and refers to the entire cased law on the subject. In fact it refers to 133 decisions of various courts. The question is whether this injustice which is the result of the Act of 1899 is to be remedied by enabling the deficiency to be paid, with or without penalty, as may be decided by the competent authority.
In some cases, courts invented various theories to grant relief, by holding that the 'bill of exchange or promissory note' was a collateral security or that it did not contain all the terms of the contract and therefore section 91 of the Evidence Act could not exclude oral evidence. In some other cases, Courts have stated that there could be an action on the debt. However, whenever such pleas of inadmissibility are raised, there is 12 unending litigation and uncertainty. A party would not know if any such plea would ultimately be accepted for getting over the rigid posture of Section 35 of the Stamp Act and the equally strict rule in Section 91 of the Evidence Act.
In our view, justice to those who have parted with money under a bill of exchange or a promissory note, requires that this provision in Section 35 be deleted and that the procedure for paying up the stamp duty or penalty, is made applicable to these instruments also. That will further augment the revenues of the State. Such a procedure will also eliminate unnecessary disputes as to whether the plaint can be amended by permitting the plaintiff to sue on the debt and also eliminate disputes as to admissibility of oral evidence.
The Commission, after due consideration of various aspects, namely, rendering justice to those who have parted with money, the benefit that will accrue to the State by way of collection of stamp duty or penalty, and elimination of unnecessary disputes, is of the considered view that in the proviso (a) of Section 35 of the Stamp Act, 1899, the words
"any such instrument not being an instrument chargeable with a duty not exceeding ten naya paise only, or a bill of exchange or promissory note, shall subject to all just exceptions be admitted in evidence", the words "any such instrument shall be admitted in evidence", shall be substituted.
It is also proposed to give limited retrospective operation to this amendment in all cases where proceedings before the courts or authorities referred to under Section 35 have not reached finality.