Report No. 67
Definitions In Sections 2(5) to 2(10)
4.1. Section 2(5)-"bond".-
The definition of "bond" in section 2(5) is as follows:
"(5) "bond" includes-
(a) any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;
(b) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and
(c) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another."
4.2. Three parts of the definition.-
This definition consists of three parts, which may appear somewhat heterogeneous. The common element in the three clauses of the definition appears to be that of an "obligation", because the word "obliges" appears in each of the clauses. It can also be said that the obligation should be either to pay money or to deliver grain or other agricultural produce. Clauses (b) and (c) also require attestation, which is not required in clause (a). At this stage, we are mentioning these salient features in order to bring out the general idea of the definition and such characteristics as can be usefully emphasised.
4.3. Bonds and agreements.-
It can be stated that a bond is a kind of agreement, and but for the specific provision charging duty on a bond,1 such instruments would have been chargeable under the generic article relating to agreements.2 It is only because of the specific provision charging a higher duty on bonds that a bond has to be distinguished from an agreement, and it is from that point of view that the definition of "bond" assumes considerable practical importance. It may be convenient to mention here that clause (a) of the definition refers to what are known in England as double or conditional bonds. Clause (b) of the definition refers to simple money bonds. Clause (c) refers to simple commodity bonds. So much by way of introduction. We shall now proceed to deal with specific points concerning each of the clauses.
1. Article 15.
2. Article 5.
4.4. Section 2(5)(a).-
As regards clause (a) of the definition, questions arise as to in what circumstances agreements with penalty clause can be regarded as "bonds", particularly because of the provisions of section 74, Contract Act, which give relief against penalty. Some decisions1 take the view that a covenant with a penal clause cannot be a "bond" under clause (a) .
Against this view, it can be argued that Illustrations (d) and (g) to section 74 of the Indian Contract Act do use the word "bond", thus indicating that a "bond" in the general sense can have a penal clause. The true test under the Stamp Act, however, is, whether the obligation to pay money is the primary and immediate aim, or whether that is only a sanction to enforce another obligation which does not relate to the payment of money. Apart from cases which turn on their special facts,2 this seems to be the general position. In any case, the practical importance of clause (a) is small, having regard to the comparatively infrequent use of such fora' ofbonds in Indian conveyancing practice.
1. (a) Gisborne & Co. v. Subal Bowrl, 1882 ILR 8 Cal 284 (286).
(b)Collector of Rangoon v. Haung Aung Ba, AIR 1916 LB 100 (101).
2. e.g., Nand Lal v. Karam Chand, AIR 1920 Lab 481.
4.5. Whether attestation should be added in clause (a).-
It has been suggested to us that in clause (a) also, attestation should be required as in clauses (b) and (c). The common elements of a bond, it was stated, would be-(i) an obligation, and (ii) a formal element of attestation, and it was stated that there was no reason why, in clause (a) also, the formal element should not appear. In this connection, reference was also made to a Lahore judgment1 and the observations made therein while considering the question whether a certain document was a "bond" within the Limitation Act. The Limitation Act2 defines a "bond" as follows:
"(d) 'bond' includes any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be."
Shadi Lal, C.J., examined the definition in the Stamp Act also, and made the following comments:-
"From the foregoing, it is clear that the definition of the term "bond" even in the present Stamp Act is not exhaustive, and that the term in the course of years has been extended so as to include instruments which might not have fallen under the earlier definition. Indeed, it is difficult to understand why in the instruments described in clauses (b) and (c), attestation should be regarded as essential and not so in the instruments described in clause (a)."3
1. Hdhawa Mal v. Karim Baksh, AIR 1925 Lah 415 (Shadi Lal, C.J.).
2. Section 2(d), Limitation Act, 1963.
3. Emphasis added.
4.6. Change not suggested.-
We have carefully considered the suggestion. But, as no practical difficulty has been caused by the present position, we do not think it necessary to accept the suggestion.
4.7. Section 2(5), clause (b).-
This takes us to clause (b) of the definition of "bond". That clause includes "any instrument attested by a witness and not payable to order1 or bearer, whereby a person obliges himself to pay money to another." This clause requires two positive conditions, and one negative condition. The positive conditions are that the instrument
(i) must be one whereby a person obliges himself to pay money to another; and
(ii) must be attested.
The negative condition is that it must not be payable to order or bearer. We shall first discuss the positive conditions.
1. Hiralal v. Queen Empress, 1895 ILR Cal 757.
4.8. Importance of the word 'obligation'.-
The crucial word in clause (b) of the definition is the word "obliges" and, therefore, no document can be a "bond" unless it is one which, by itself, creates the obligation to pay the money. The obligation, it is generally held, should not, therefore, be a pre-existing one. Where the liability already exists, a subsequent document merely reproducing the nature of the obligation does not itself create a fresh obligation and therefore, for the purposes of the law of stamp, it remains an "agreement"; and does not come within the definition of "bond".1
1. (a) Mal Dhan Gupta v. Board of Revenue, 1969 All p 333;
(b) West Coast Electroplating Company Ltd. v. Sreedharan, 1971 Ker Law Times 383.
4.9. On the same principle, that is to say, in the absence of words expressly creating an obligation, courts generally take the view that an entry in the books of account of the plaintiff, which acknowledges a debt and is signed by the debtor, is not necessarily a bond. If it is a mere balance struck, it is an acknowledgment; if it is followed by words like "baki dena". It amounts to an agreement; and if it embodies a promise to pay, it is chargeable as a bond1-2-3 if the other formalities required by the definition of bond are present. The other positive condition is of attestation-a solemn formality.
1. Daula v. Ganda, 35 Punj Records 1903 (FB).
2. Gulab Chand v. Bhama Naik, 1972 MP 14 63.
3. Dulabh v. Rahman, ILR 14 Born 511.
4.10. Comparison with promissory note.-
So much as regards the two positive conditions in clause (b). The negative condition requires that the instrument should not be payable to order or bearer, the object of this requirement being that if the instrument is payable to order or bearer, it could fall under the definition of "promissory note", which is governed by special charging provisions and other special provisions. A comparison with the definition of "promissory note" would be useful at this stage. Under the Stamp Act,1 a promissory note means a promissory note as defined by the Negotiable Instruments Act, 1881. The definition also contains an inclusive portion, but that portion is not relevant for the present purpose.
Under the Negotiable Instruments Act,2 a promissory note is an instrument in writing, containing an unconditional undertaking to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. No doubt, there are some instruments which do not amount to bonds within the Stamp Act, because they are not attested as required by clause (b). There are, on the other hand, some documents which do not amount to 'promissory notes' under the Negotiable Instruments Act, because the sum is not certain or the undertaking not unconditional.
1. Section 2(22).
2. Section 4, Negotiable Instruments Act, 1881.