Report No. 67
Definitions-Sections 2(1) To 2(4)
Section 2 of the Act contains, in all, 28 definitions, of which the definitions in sub-sections (13A), (16A) and (19A) were inserted by later amendments. The expressions defined in the section-which need not be enumerated at the present stage-fall into the following broad categories. In the first place, there are definitions which define particular kinds of instruments for the purposes of the Act in a self-contained manner. The definitions of "bond", "conveyance", "instrument of partition", "lease", "mortgage deed", "policy of insurance", "power-of-attorney"; "receipt" and "settlement" fall in this category.
Secondly, there are definitions which, while also relating to certain kinds of instrument, adopt, with or without additions, the definitions given in other Acts. They are, thus, not self-contained. The definitions of "bill of exchange", and "bill of exchange payable on demand" and "cheque" fall in this category, because the basic concept of bill of exchange relies heavily on the Negotiable Instruments Act, 1881, though some of the definitions do include certain other documents also.
Thirdly, there are definitions of expressions which do not relate to classes of instruments, but are, at the same time, of importance for the purposes of the Act, since the expressions defined occur frequently in the Act; (that is to say, in the body of the Act as distinguished from the Schedule). The definitions of the expressions "chargeable", "duly stamped", "executed", "execution", "impressed stamp" and "instrument" fall in this category. Finally, there are other definitions which are of a minor importance. The definitions in the first category are of the highest importance, and are those which have led to the largest volume of case-law. With these introductory observations, we proceed to deal with each definition.
3.2. Section 2(1)-"Banker".-
Section 2(1) defines "banker", as including a bank and any person acting as a banker. The expression "banker" is used in the following sections1 of the Act:-
(a) Section 2, clause (7), "cheque";
(b) Section 51, allowance in case of printed forms no longer used by a banker.
The importance of the definition of "banker" has diminished, in view of the decrease in the importance of the definition of "cheque"2. The latter has lost its importance after the removal of the stamp duty on cheques in 1927. It should be pointed out that the definition of 'banker' tells us nothing about the attributes of a banker. In England, bankers are given special exemption from stamp duty when giving drafts or orders for payment from one banker to another. The definition given of a "banker" in the English Stamp Act, says that it means "any person carrying on the business of banking in the United Kingdom3.
1. See Article 13, as amended in 1927.
2. Section 2(7).
3. Section 29, and Schedule 1-Exemption 2, "Bill of Exchange", Stamp Act, 1891 (English).
3.3. Inaccuracy and defect.-
Strictly speaking, the mention of bank as including a "banker" would not be accurate because a bank is really a place where money is deposited for certain purposes. In defence of the present definition, it could be said that it is useful as covering cases where an impersonal banker is involved (such as, a corporation). On this reasoning, a distinction could be made between a bank and a banker, so that the former is confined to impersonal bankers and the latter to individual bankers. A bank could then be regarded as an establishment for the custody of money received from or on behalf of its customers, a banker as a person who is in charge of an establishment.
Whether any such subtle distinction forms the basis of the present definition is, however, extremely doubtful. Apart from this, however, the major defect in the present definition is that it begs the question, as it does not tell us what the concept of "banking" implies. Not much help can be derived in this respect from the Negotiable Instruments Act1. A banker,,as defined in that Act, includes also persons or a corporation or company acting as bankers. Under the General Clauses Act2, the expression "person" includes any company or association or body of individuals, whether incorporated or not. Obviously, these definitions are not helpful for the present purpose.
1. Section 3, Negotiable Instruments Act, 1881.
2. Section 3(39), General Clauses Act, 1897.
3.4. There are several characteristics usually found in bankers today1: (i) They accept money from, and collect cheques for, their customers and place them to their credit; (ii) They honour cheques or orders drawn on them by their customers accordingly. These two characteristics carry with them also a third, namely: (iii) They keep current accounts or something of that nature, in their books in which the credits and debits are entered. These three characteristics are much the same as those stated in Paget's Law of Banking2:
"No one and nobody, corporate or otherwise, can be a 'banker' who does not (i) take current accounts; (ii) pay cheques drawn on himself; (iii) collect cheques for his customers."
1. See U.D. Trust Ltd. v. Kirkwood, (1966) 2 WLR 108.
2. Paget (HL) Law of Banking, (1961), p. 8.
3.5. Definition of "Banking".-
It has been stated1 that it is notoriously difficult to define the business of banking, and no statute has attempted it. Perhaps, a very good definition is that stated in by the Privy Council in Bank of Chettinad Ltd. of Colombo v. Commissioners of Income Tax, Colombo, 1948 AC 378 (383) (PC). The definition is as follows:
"A company which carries on as its principal business the accepting of deposits of money on current account or otherwise, subject to withdrawal by cheque, draft or order."
It may also be stated that the concept of banking has changed2in the course of history. In the eighteenth century, before cheques came into common use, the principal characteristics were that the banker accepted the money of others on the terms that the persons who deposited it could have it back again from the banker when they asked for it, sometimes on demand, at other times on notice, according to the stipulation made at the time of deposit; and meanwhile the banker was at liberty to make use of the money by lending it out at interest or investing it on mortgage or otherwise. Thus, Dr. Johnson3 in 1755 in his dictionary defined a "bank" as a "place where money is laid up to be called for occasionally" and a "banker" as "one that traffics in money, one that keeps or manages a bank."
1. United Dominion Trust Ltd. v. Kirkwood, (1966) 2 WLR 1083 (1090).
2. U.D. Trust Ltd. v. Kirkwood, (1966) 2 WLR 1083 (1090).
3. United Dominion Trust Ltd. v. Kirkwood, (1966) 2 WLR 1083.
3.6. Case Law.-
Some controversy seems to have arisen with reference to the question whether the word "bank" in the Negotiable Instruments Act connotes the business of utilising money for purposes of profit, and whether the business must have a commercial side to it. The Madras High Court answered this question in the affirmative1, and held that the mere fact that the Government Treasury received money from the District Board and respected orders issued to it for payment would not constitute the Treasury into a bank. This controversy, however, has not much practical importance now, because the stamp duty on cheques2 was abolished in 1927.
1. Rangaswami v. Sankaralingam, AIR 1920 Mad 1011.
2. Article 13.
3.7. Recommendation to delete the definition of 'banker'.-
The above discussion shows that the definition of 'banker' in the Stamp Act is not very expressive in itself, and serves no useful purpose, as it affords no guidance whatever. We may note that under the Banking Regulation Act1, "banking" means the accepting for the purposes of lending or investment of deposits of money from the public repayable on demand or otherwise, and withdrawable by cheques, draft or order or otherwise. We are of the view that for the purposes of the Stamp Act, it would be convenient to adopt the definition in the Banking Regulation Act, 1949. We may add that on this point2 a specific question was included in our Questionnaire, and opinion generally supports this course.
1. Section 5(b), Banking Regulation Act, 1949.
2. Question 2 of the Questionnaire.
Accordingly, we recommend that section 2(1) should be revised as follows:
"banker" means a person who accepts, for the purposes of lending or investment, deposits of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft or order or otherwise.
3.9. Section 2(2)-Bill of Exchange.-
The second definition relates to "Bill of Exchange" defined as follows1:-
"Bill of Exchange" means a bill of exchange as defined by the Negotiable Instruments Act, 1881, and includes also a hundi, and (i) any other document, (ii) entitling or purporting to entitle, (iii) any person, whether named therein or not, to payment by (iv) any other person of, or to be drawn upon any other person for, (v) any sum of money.
The definition of "Bill of Exchange" in the Negotiable Instruments Act2 is as follows3:
"5. A "bill of exchange' is an instrument in writing containing (i) an unconditional order, (ii) signed by the maker, directing (iii) a certain person to pay (iv) a certain sum of money only to, or to the order of, (v) a certain person or to the bearer of the instrument."
"A promise or order to pay is not 'conditional' within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen although the time of its happening may be uncertain.
"The sum payable may be 'certain' within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.
"The person to whom it is clear that the direction is given or that payment is to be made may be a 'certain person', within the meaning of this section and section 4, although, he is misnamed or designated by description only".
In the Law Commission's Report4 on the Negotiable Instruments Act, the following revised definition of 'bill of exchange' has been suggested:-
"A 'bill of exchange' is an instrument in writing containing an unconditional order, signed by the drawer, directing a certain person to pay on demand or at a fixed or determinable future time a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument."
1. Numbers indicating items have been added.
2. Section 5, Negotiable Instruments Act.
3. Numbers indicating items have been added.
4. 11th Report (Negotiable Instruments Act).
3.10. The definition in the English Stamp Act1 is in similar, though not identical, terms. It is quoted below:
"32. For the purposes of this Act the expression 'bill of exchange' includes draft, order, cheque, and letter of credit, and any document or writing (except a bank note) entitling or purporting to entitle any person, whether named therein or not, to payment by any other person of, or to draw upon any other person for, any sum of money; and [..........] includes-
(a) an order for the payment of any sum of money by a bill of exchange or promissory note, or for the delivery of any bill of exchange or promissory note in satisfaction of any sum of money, or for the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen; and
(b) an order for the payment of any sum of money weekly, monthly, or at any other stated periods, and also an order for the payment by any person at any time after the date thereof any sum of money,[........]
1. Section 32, Stamp Duties etc. Act, 1891.
3.11. The judgment in a Calcutta ease1 does point out that the words entitling or purporting to entitle any person, whether named therein or not, to payment by any other person of any sum of money" (in the extended portion of the definition in the Stamp Act), cannot be taken literally, because the language is so wide that it might include all sorts of instruments not capable of being classed as a bill of exchange. Even a mortgage or lease may be a document "entitling any person to payment."
1. Stamp Act (in re:), AIR 1928 Cal 566 (FB).