Report No. 67
3.12. Section 2(2)-Bill of Exchange-Inclusive portion.-
It may be stated that the wide and vague language of the English and Indian provision in the inclusive part of the definition of "Bill of Exchange", has created considerable difficulty. It has been held in some cases that even for the purposes of the extended definition, the document should possess the essential characteristics of a bill of exchange, and it must, in effect, be in the nature of an order or direction for the payment of money1-2-3 which is the characteristic of a bill of exchange. But this amounts to adding to the section.
1. Buck v. Robson, (1878) 3 QBD 686 (691).
2. Fisher v. Calvert, (1879) 27 WR 804 (English).
3. Mend v. Young, (1790) 100 English Reports 876 (878).
3.13 Express order if required.-
In England, it has also been held1-2 that the document need not contain any express order for the payment of money. But, on this point, the Indian case law is to the contrary. It was held by the Punjab Chief Court3that whatever may be the private understanding between the banker and the customer, the court must be guided by what is expressly stated in the document.
1. Midland Bank Ltd. v. Inland Revenue Commissioners, (1927) 2 KB 465 (474).
2. Also see Rothschuld v. C.I.T., (1894) 2 QB 142.
3. Stamp Act (in re:), (1912) 13 IC 330 (FB) (Chief Court of Punjab).
3.14. Conflicting views on one and the same document.-
It would appear, that sometimes, on one and the same document, conflicting views have been taken in the same court on the question whether the document did or did not fall within the extended part of the definition.
3.15. Limitations-Vagueness of.-
It is sometimes stated that the limitations to be read should be in the nature of confining the definition to documents analogous to bills of exchange and hundis. If so, it would be better to confine the section by suitably changing the wording in that manner.
3.16. Case law as to Shahajog Hundis as illustrative of vagueness.-
By way of illustrating the vagueness of the present definition, it may be noted that the question whether attested hundis known as Shahajog hundis fall within the definition of "promissory note" or "bill of exchange", raised considerable controversy in the Calcutta High Court. In Asha Ram v. Kesri Chand, (1912) 33 IC 247 (Cal). Fletcher J., held such a document to be an attested promissory note. In a later case1 Mookerjee, J., held it to be a bond, and held that it did not fall within the wider definition of bill of exchange in the Stamp Act. However, in a later case,2 Rankin, C.J., while criticising the language of the definition of "bill of exchange", pointed out that, taken literally the definition in the Stamp Act might cover the document in question.
1. Kesri Chand v. Asha Ram, (1915) 19 CWN 1326.
2. Imperial Bank of India (in re:), (1928) 32 CWN 1015.
3.17. Jessel M.R.'s view as to section 48, English Act of 1870.-
In England, in reviewing the provisions of section 48 of the English Stamp Act of 1870, which were almost identical, Jessel, M.R., expressed the opinion1 that the section could never have been intended to include every document coming literally within the meaning of the words used. If that were so, almost every kind of written document could be included as a bill of exchange, and great injustice and confusion would arise, as they could not be stamped subsequently and would be altogether void. It was quite plain, therefore, that the draftsman must have intended that the words used should be read with some limitation. The nature of the instrument must be looked at in each case, and its precise nature ascertained.
1. Fisher v. Calvert, 27 WR 301 (English).
3.17A. Criticism of definition of "promissory note".-
We may, however, point out that the precise nature of the limitations to be read has always caused difficulty. In this connection, we may refer to the criticism of the alteration introduced by the English Act of 1870, section 49, in the definition of "Promissory note", by Pollock B, (This criticism applies to "Bill of Exchange" also):-
"It is unfortunate, I think, that in a statute dealing with revenue matters natural terms, have been enlarged so as to create a sort of legislative document, other and different to the document which is commonly known by the term used. In the section we have to construe, here the legislature have taken a term of well-known meaning, and have then said it is to mean something else1".
It has been suggested, with reference to the corresponding provision in the earlier English Stamp Act of 1870, namely, section 48, that it will not apply to documents otherwise specifically provided for by the Act2. But, with respect, this does not remove the vagueness.
1. Mortgage Insurance Corporation v. Commissioner's L.R., 20 QBD 651.
2. Adams v. Morgan, (1883) 14 LR Ir 140.
3.18. English cases.-
A few English cases may be noted. In Rothschild & Sons v. Commissioners of Inland Revenue, (1894) 2 QB 142 (146, 147): 70 LT 667., the Hungarian Government had issued certain bonds, in regard to certain loan transactions. Along with each bond were issued coupons for the payment of interest. These coupons were payable to bearer at the various places therein specified. It was held that the coupons were bills of exchange. It was pointed out that in considering the effect of a document, the Court need not confine itself to the words actually used in the document, but may go behind it and consider the purpose for which the document has been issued, so that actual words of an order or mandate to pay are not indispensable.
Hence, though the interest coupons merely stated that interest would be paid at a certain time and place and were not bills of exchange within the legal definition of that phrase, nevertheless they came within the more general language of the Stamp Act. It may incidentally be noted that such coupons were exempted by later amendment. In Committee of London Clearing Bankers v. Commissioners of Inland Revenue, (1895) 65 LJ QB 372 (376): (1896) 1 QB 542: 74 LT 209, it was held that an order to a bank to transfer a sum of money from the customer's accounts to the account of another customer of the bank was bill of exchange. Such a document entitled a person to "draw on" the bank. It was held in this case that the document was a bill of exchange payable on demand. These cases do not furnish any detailed guidance as to the exact scope of the extended part.
3.19. Possible alternatives-first alternative-limitation of the extended part.-
To make matters clearer, one alternative would be to amend the section by express words limiting the extended part to orders for the payment of money which are regarded as negotiable otherwise than under the Negotiable Instruments Act. Any instrument containing a contract to pay money,1 or any other negotiable security representing money which is in a form which renders it capable of being sued on by the holder of it pro-tempore in his own name and which is transferable, by custom of trade, by delivery like cash,2 is a negotiable instrument.3
1. See Dixon v. Boyil, (1856) 3 Maco 1.
2. Cf. (1873) LR 8 QB 374 (381); (1758) 1 Smith LC (13th Edn.) 534; 46 Cal 331 (337).
3. London and County Banking Co. v. The London River Plate Bank Ltd., affirmed in (1888) 21 QBD 536: (1887) 20 BD 232.
3.20. Thus, in England, dividend warrants,1 and share warrants2 have been held to be negotiable instruments,3 as they involve the characteristics of a negotiable instrument. The following are the characteristics of negotiable instruments:-
(1) Property passes by mere delivery;
(2) The transferee can sue in his own name;
(3) The transferee, if a holder in due course, is not affected by the defect in title of his transferor or his previous holder; and
(4) The transferee is not affected by defences that may be available against previous holders4.
1. (a) Goodwin v. Roberts, 1875 LR 10 Exch 337.
(b)Partridge v. Bank of England, (1846) 9 QB 396; Slingsby v. Westminster Bank, (1931) 1 KB 173.
2. Webb Hale & Co. v. Alexandria Water Co., (1905) 93 LT 339. See also section 114 of the Companies Act, 1956.
3. Compare section 114.
4. (1891) 1 Ch 270 (284). On appeal, 1892 AC 201 (215).
3.21. Since a promissory note is an "undertaking", while a bill of exchange is an "order", documents which merely amount to an undertaking should be excluded even from the extended part of the definition of Bill of Exchange. There should be a tripartite transaction, namely, the person who signs the document, the person to whom it is addressed and the person in whose favour it is written. A bilateral document cannot be a bill of exchange under the -Negotiable instrument1 Acts, and should not be a bill of exchange for the purposes of the Stamp Act. This is because the theory on which an order is based is that the person to whom it is addressed has in his hands moneys of the person who draws it, on terms of 'paying' such money according to the direction of the drawer2.
1. As to the Negotiable Instruments Act, see Hafiz Umaradas v. Akhar Khan, AIR 1934 Peshawar 1.
2. Cf. Cockburn C.J. in Buck v. Robson, (1878) 3 QBD 686, cited in Nundubai v. Gaur, 1903 ILR 27 Born 150 (152).