Report No. 67
Chapter 17
Action upon Instruments not Duly Stamped-Sections 35 to 37
17.1. Introductory.-
With reference to "Instruments not duly stamped" we have discussed one set of provisions. With section 35 begins another important group of provisions also concerned with such instruments. They regulate the use of such instruments in evidence or "acting upon" them by public officers.
17.2. Section 35.-
The principal provision is contained in section 35, prohibiting the admission in evidence of an unstamped document, as also "acting" on such document or its authentication or registration, where the document is required by law to be stamped and is not stamped or is not sufficiently stamped. This rigid provision is subject to certain exceptions, contained in the proviso to the section.
17.2A. Proviso (a).-
The proviso has several clauses but the most important is clause (a), which reads-
"(a) 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 on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion."
17.3. Thus, while the payment of penalty under the proviso relieves a document from the prohibition imposed by the main paragraph, the relaxation under the proviso is not applicable to certain instruments. The basic question to be considered is whether, in the case of those instruments, there is need to continue the present rigid provision. The instruments in question are
(i) any instrument chargeable with a duty not exceeding ten naya paise only (but not including a receipt);1
(ii) bill of exchange or promissory note.
1. As to receipts, see section 35, Proviso (b).
17.4. Exception in regard to instruments chargeable with duty not exceeding 10 paise.-
Taking up, first, the instruments chargeable with duty not exceeding 10 paise, the possible reason for the rigid attitude adopted by the legislature in respect of these instruments could be that the duty is so negligible that an infraction of the law is considered as deserving of no s'mpathy. While there may be some force in this reasoning, we must also note that in practice the rigid provision leads to hardship. It excludes from evidence documents relevant to the case, or even material to the case, merely on considerations of revenue. The executant of the document might have failed to affix the stamp because of ignorance of law, misconstruction of the relevant provision of the Stamp Act, difficulty in purchasing stamp, and so on-all factors which do not show an intent to evade the law. Moreover, it is one thing to levy a penalty, and another to exclude a document from evidence by a categorical provision admitting of no relaxation.
17.5. It should also be pointed out that the legislature has already recognised the hardship in the case of receipts, and allowed them to be admitted in evidence,1 in certain limited circumstances, even though they were chargeable2 with a duty of ten paise.
1. Section 35, Proviso (b).
2. Article 53 (before amendment of 1976).
17.6. Views expressed on Questionnaire.-
In our view, it is desirable that the exception in regard to documents chargeable with a duty not exceeding 10 naya paise should be removed from section 35, proviso, clause (a). We had included a specific question on the subject, and we may add that most replies to our Questionnaire favour such an amendment.1
1. Q. 44.
17.7. Earlier suggestions.-
In fact, long before we issued our Questionnaire, several suggestions were made for reducing the stringency of section 35. It was, for example, stated in one suggestion that the prohibition as regards instruments chargeable with a duty of one anna or half an anna only or a bill of exchange or a promissory note had resulted in great hardship to people in India, who are totally unacquainted with the technicalities of the Law Merchant in England. It was stated that the stamp duty payable on other documents, which are made admissible on payment of penalty under this Act, is many times greater than the stamp duty on the promissory notes and other documents referred to in section 35. Also, the number of documents of the former class is on a par with, if not greater than, that of pronotes. Yet, when the former class of documents is made admissible on payment of penalty, the latter are totally prohibited from admission in evidence even on payment of any amount as penalty.
The argument that it is an effective check on evasion of stamp duty equally applies to the latter class of documents as well. Thus, this distinction does not appear to be fair. Whatever might be the state of circumstances in the commercial world at the time of passing of the Act, it can confidently be said that, with the advent of banking facilities, pronotes, as means of negotiation, have become otiose and scarce in the commercial circles while they have become the common instrument of transaction amongst ignorant villagers. It was, therefore, suggested that proviso (a) to section 35 should be amended by deleting the words "not being an instrument chargeable with a duty of one anna or half an anna only, or a bill of exchange or promissory note."1
It was stated in another suggestion2 thal the proviso (a) to section 35 should be suitably amended for admitting promissory notes in evidence on payment of the proper stamp duty and penalty, since experience had shown that in several genuine cases in which there was not the least intention to evade duty, the unstamped promissory notes had been excluded from evidence much to the hardship of the party. There was yet another suggestion to the effect that the exception for bills and pronotes should be deleted3. A similar suggestion4 was made by a judicial officer that section 35, which affects negotiable instruments, should be amended in such a way that a suit on an unstamped promissory note can also lie on payment of due penalty.
1. File No. F. 3(4)/57-L.C. I (regarding Revision of Stamp Act), pp. 78-79 (Law Department, Government of Andhra Pradesh).
2. File No. F, 3(4)/57-L.C. I, Vol. I, S. No. 37, (Law Department, Government of Orissa).
3. Sub-Registrar, P.O. Sikandra Road, Aligarh District (File No. F. 3(4)/57-L.C. I, Vol. I, p. 22).
4. Shri H.B. Vaishnav, Asstt. Judge, Porbandar (File No. F. 3(4) /57 L.C. I, Vol. I, p. 45).
17.8. Recommendation as to proviso (a) regarding instruments chargeable upto 10 paise.-
In view of what is stated above, we recommend that the exception regarding instruments chargeable upto 10 paise should be deleted from section 35, proviso (a).
17.8A. Section 35 and promissory notes and bills of exchange.-
We now discuss that part of proviso (a) to section 35 which excludes promissory notes and bills of exchange. This had a counterpart in section 34 of the Stamp Act, 1879 (but not in the earlier laws relating to stamp duties). The provision seems to have been borrowed from the English Act. In England,1 a promissory note or bill of exchange cannot be sued upon, if unstamped. In 1961, the Stamp duty on these instruments was simplified in England,2 but the above position remains unaltered.
1. Section 33(1), Stamp Act, 1891 (English), which overrides section 14(4) of the same Act.
2. See discussion relating to Articles 13 and 49.
17.9. English text books do not give any guidance as to why promissory-notes and bills of exchange have been selected for this harsh treatment. One can think of a possible reason, namely, that these instruments are negotiable and pass quickly from hand to hand, thereby facilitating a successively large number of transactions. Assuming that this argument is sound, should the law go to the extent of totally barring the reception in evidence of the instruments? After all, the law relating to stamp duties is concerned with revenue. The object of section 35 is to ensure effective realisation of the duty. The sanction need not be made drastic than is necessary. The object of realising the duty can be equally effectively achieved by levying a penalty. The hardship caused to the citizen by non-reception of the instrument is entirely unnecessary.
17.10. Recommendation.-
There is sufficient justification for modifying this part of section 35 also. There have been suggestions also to modify the rigour of section 35, in relation to bills and pronotes, and the matter requires to be considered.
17.11. Even if pronotes and bills can be justifiably picked out for a specially rigid provision, one should also weigh the inconvenience caused to small traders as well as to nationalised banks who advance money against pro-notes. Another aspect of the matter, which may be relevant in this connection, is that total exclusion from evidence encourages dishonest defences. With the main security for the debt rendered useless, the debtor is induced to deny the debt itself.
