Report No. 67
17.12. Views expressed.-
We may add that most replies1 to our Questionnaire favour a change on the lines discussed above.
1. Q. 44 A.
17.13. Case law on promissory notes under section 35.-
A few reported cases illustrating the practical working of this part of the section show that-(i) the present provision has been criticised as causing undue hardship, and (ii) to avoid undue hardship, courts are sometimes driven to construing the document as not falling within the category of "pronote", and (iii) in many cases it is always a matter of difficulty to decide whether a document is or is not a pronote.
17.14. In a Madras case,1 for example, Schwabe C.J. and Ramesam J. held: "The question is whether or not (a particular document) is an acknowledgement within the definition of 'acknowledgement' in the Stamp Act, for if it is, it has to be stamped, and if it is stamped, it cannot be admitted in evidence and in such a case the legislature has thought fit to impose what to my mind is an appalling penalty of the plaintiff losing his claim altogether, because there is no penalty provided by the payment of which to Government, the document can be admitted. Perhaps, in view of this provision, the draftsman of the Schedule has so worded it that it has left many loopholes, and given rise to a conflict of judicial opinion when it comes to interpretation. The words are 'acknowledgement of a debt, exceeding Rs. 20 in amount or value, written or signed by or on behalf of a debtor in order to supply evidence of such debt'. The first question that arises is whether any particular document is given to supply evidence of the debt.
1. Surajmal Murlidhar v. Ananta Lal, AIR 1934 Mad 352 (353).
17.15. In another Madras case,1 the question was whether a person who had lost money on a promissory note can sue to recover the debt apart from the note, when the note is inadmissible in evidence, owing to a defect in the stamping. Counsel for the creditor agreed that the principle which applied in England-that the credit is a different cause of action from the promissory note-should be held applicable in India, and that section 91 of the Evidence Act was no bar to the action on the loan. As to this, the Chief Justice observed,2 "There is no statutory provision in England as section 91 of the Indian Evidence Act here. In England, they strain the common law rule of evidence to get over the stamp law in cases of hardship. You cannot do that in India".
In the judgment, he also observed:3
"The English rules of evidence are not statutory, but Judge made, and in the second place, the tendency in England has always been to ignore, as far as possible, stamp objections, as is pointed out in Taylor on Evidence4. In India, the law is statutory and the courts are given no latitude in matters of this nature".
Stodard J. in his dissenting judgment, said5:-
"To me, it appears that when a man gives another a promissory note in satisfaction of a debt or for some other consideration, he gives at the same time a warranty that the note is a good and enforceable instrument. If the note is bad for want of a proper stamp, it is difficult to see how it can operate as a discharge of the debt any more than the giving of a counterfeit currency note could so operate I am not able to subscribe to the view that because the consideration is recited in the instrument, no evidence, can be given of it except the instrument itself. The consideration, that is to say, the loan for which the promissory note is given, is the subject-matter of the contract and not a term of the contract within this meaning of section 91 of the Indian Evidence Act.
In the matter of the loan the lender consents to it only on condition that the borrower gives him a negotiable instrument in the shape of a promissory note containing or recording more, though of course they may state the consideration. Receipts and agreements generally are not intended to be negotiable, and serious embarrassment would be caused in commerce if the negotiable net were cast too wide. This document plainly is a receipt for money containing the terms on which it is to be repaid Being primarily a receipt even if coupled with a promise to pay it is not a promissory note".
1. Perumal Chettiar v. Kamakshi Ammal, ILR 1938 Mad 933: AIR 1938 Mad 785 (FB).
2. Perumal Chettiar v. Kamakshi Amma1,41t 1938 Mad 933 (937): AIR 1938 Mad 785 (FB).
3. Perumal Chettiar v. Kamakshi Ammal, ILR 1938 Mad 933 (946): AIR 1938 Mad 785 (FB).
4. Taylor on Evidence, Vol. I, p. 276 (12th Edn.).
5. Perutnal Chettiar v. Kamakshi Animal, ILR 1938 Mad 933 (965, 967): AIR 1938 Mad 785.
17.17. There is another Privy Council case1 relevant to the point. In a suit based on an agreement of sale, the meaning of which was obscure, the claim was supported by copies of two documents, which were as follows:-
"Received from you this day a cheque for Rs The amount would be repaid with interest thereon at the rate of per cent.Time ten months The principal amount will be paid with interest after ten months from this date".
The defendants pleaded that the documents were promissory notes, and, not being stamped, they were inadmissible in evidence. It was held, following an earlier Privy Council case,2 that these documents were "clearly never intended to be negotiable instruments",3 and were not promissory notes and were not, therefore, inadmissible in evidence for want of a stamp.
1. Karam Chand v. Minn Mir Ahmad (Firm), AIR 1938 PC 121 (123).
2. Md. Akhar Khan v. Atta Singh, AIR 1936 PC 171.
3. Emphasis supplied.
17.17A. It appears that the Privy Council, when referring to the 'intention' that the documents were not meant to be promissory notes, seams to be doing so in order to avoid the ban imposed by section 35.
17.18. In a Bombay case,1 Beaman J. said that "effect should be given to the maxim ut magis valeat quam pereat (it is better for a thing to have effect than to be made void),2 in any difficulty under the Stamp Act, so that where there is a reasonable doubt whether a paper is subject to stamp at all, the courts should decide strictly against the Exchequer and beneficiently in favour of the subject. The principle loses force where the question is not so whether a paper is liable to stamp, as whether it is liable to stamp in one character, or another, and it has no application at all, where the words of the statute directly cover the case".
1. Sethna v. Mirza Mahomed Shraji, (1907) 9 Born LR 1034.
2. Osborn A Concise Law Dictionary, 4th Edn., though the word "res" is also used here after 'ut' which means 'things'.
17.19. In that case, it was held that, under the Stamp Act, 1899, a promissory note, unless it is payable to order or bearer, is to be deemed to be a bond, if attested.
17.20. Defect of present law.-
The present law, in our view, encourages dishonesty, and causes hardship. Moreover, the proposed amendment will help the Government revenue, as has been pointed out by one State Government.1
1. Government of Maharashtra's reply to the Law Commission Questionnaire (S. No. 88).