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Report No. 67

3.22. Second alternative-deletion of the extended part.-

The other alternative would be to delete the extended part of the definition. Its vagueness may be illustrated:

In an English case1, a firm of bankers, having an account at the Bank of England for the purpose of enabling a customer to pay customs duties on goods otherwise than in cash, issued a document addressed to the cashiers of the Bank of England, directing them to transfer from the account of the bankers to the account of the Commissioners of Customs a sum named therein. When such a document was issued, the practRe was to deal with it in one of the following two ways:

(1) It was handed by the bankers to their customer, in exchange for his cheque for the same amount, and given by him to the Commissioners of Custom, who handed it to the Bank of England; or

(2) It was handed direct by the bankers to a Custom Officer in exchange for that customer's cheque, and subsequently handed by the Commissioners of Customs to the Bank of England. It was held that the document was a bill of exchange payable on demand within the meaning of section 32 of the Stamp Act, 1891, and that it was not exempt from duty as being a "bill drawn in the United Kingdom for the sole purpose of remitting money to be placed to any account of public revenue" within the meaning of the 10th Exemption under the head "Bill of Exchange" in the First Schedule to the Act. The Courts were, moreover, of the opinion that, having regard to the history of the exemption clause, the word "remit" only applied to the placing to its proper account money which was already public money.2

1. Committee of London Clearing Bankers v. Commissioners of Inland Revenue, (1896) 1 QB 542.

2. See also Buck v. Robson, (1878) 3 QBD 686; Brice v. Banninster, (1878) 3 QBD 569.

3.22A. Whether drawer and drawee should be same person.-

The wide scope is illustrated by the uncertainty as to whether the drawer and the drawee to a bill must be different persons in order that the bill may be a "bill of exchange" within the definition in the Stamp Act. In a Calcutta case,1 it was held that a demand draft by one branch of a Bank on another branch of the same Bank payable on demand to a third party, is a bill of exchange within the Stamp Act. In this case, Rankin, C.J. expressed the view that even under the definition of a bill of exchange in section 5, Negotiable Instruments Act, different persons are not required. But, in any case, such a demand draft fell within the inclusive portion of the definition of bill of exchange in the Stamp Act. As it was held to be a bill of exchange payable on demand, no duty was leviable under Article 13, Stamp Act (as amended in 1927).

1. Bibi Kazmi Begum v. Lachman La! Sao, AIR 1930 Pat 239.

3.23. In a Patna case,1 it was held that the drawer and the drawee need not necessarily be different persons. This specific aspect will be dealt with later. But the more important defect is the uncertainty discussed in the judgment of Rankin, C.J.2 The present definition, if taken literally, is unduly wide. It was, therefore, suggested to us that the definition should be confined to a Bill of Exchange as defined in the Negotiable Instruments Act, as there is no great consideration of revenue necessitating a charge of tax on other documents. The law, it was stated, will gain in simplicity of form by the suggested amendment. Mention of 'hundi' should, no doubt, be retained. It was also suggested that it would be convenient if, as regards each of the ingredients of a bill of exchange, as defined in the Negotiable Instruments Act, a decision is taken as to which of them should be dispensed with in the Stamp Act.

1. Stamp Act (in re:), AIR 1928 Cal 566 (SB) (Reference under section 57, Stamp Act) (Rankin C.J.).

2. Stamp Act (in re:), AIR 1928 Cal 566, supra.

3.24. Recommendation concerning section 35, Proviso (a) in regard to bills of exchange.-

While we have carefully considered the suggestion, we have come to the conclusion that instead of amending the definition, it is better to mitigate the consequences of its vagueness by amending section 35. By narrowing down the definition, one might exclude documents intended to be covered by the extended part. While we do not recommend any amendment in the definition of 'bill of exchange', we do recommend that in section 35, Proviso (a), the exception should be confined to bill of exchange or promissory note as defined in the Negotiable Instruments Act or 'hundi1 -even if the exemption is retained at all.

1. For action under section 35, proviso (a).

3.25. Ambiguous Instruments.-

There is another question to be considered in connection with bills of exchange. A document can fall both under bill of exchange and under a promissory note, as defined in the Negotiable Instruments Act.1

Where an instrument may be construed, either as a promissory note or bill of exchange, the holder may at his election treat it as either, and the instrument shall be thence-forward treated accordingly.

The relevant section in the Negotiable Act reads -

"17. Ambiguous instrument.-Where an instrument may be construed either as a promissory note or bill of exchange, the holder may at his election treat it as either, and the instrument shall be thence-forward treated accordingly."

1. Section 17, Negotiable Instruments Act.

3.26. Recommendations to clarify the position with reference to section 17, Negotiable Instruments Act.-

This privilege is not taken away by section 6 of the Stamp Act; and if the holder treats the documents as a bill of exchange, then that election governs the position for the purposes of the Stamp Act also. This should be made clear, and we recommend accordingly.

3.27. Demand Drafts.-

We may now discuss the question of demand drafts. It appears that with reference to the Negotiable Instruments Act (which defines the expression "cheque"), there is some controversy as to whether a demand draft drawn by a banker on his own branch is or is not a bill of exchange and a cheque. This controversy has arisen because, while sections 85A and 131A of that Act make limited provisions in regard to demand drafts for the protection of bankers, the Act does not contain any comprehensive provision as to drafts. This has led to a controversy. The High Court of Bombay1 has, for example, taken the view that a demand draft issued by a bank on its branch or vice versa is not a cheque or a bill of exchange. Some other High Courts2 have, however, held that it is a bill of exchange, and is very nearly allied to a cheque.

1. (a) Sanyasalingam v. The Exchange Bank of India, AIR 1948 Born 1 (Coyajee, J.). (b)Hasanoo v. Natesa Mudaliar, AIR 1959 Born 267 (Mudholhar, J.).

2. (a) Suganchand v. Arahmayya, AIR 1951 Mad 910 (DB).

(b) Sidha Nath v. Punjab National Bank, AIR 1960 All 238.

(c) State Bank of India v. Mazumdar, AIR 1970 Cal 503.

3.28. English case.-

It would appear that, in England, the House of Lords1 held, in 1903, that since the bank is both drawer and drawee, the draft drawn by a country branch of the Bank on the head office cannot be treated as a bill of exchange, as defined to section 3 of the Bills of Exchange Act, 1882, as it then stood. This judgment of the House of Lords dealt with other points also, and led to the enactment of the Bills of Exchange (Crossed Cheques) Act, 1906.2 It is because of this aspect of the case that the Bombay High Court made a distinction between a bank draft on another bank and a bank draft on another branch of the same bank.

In this connection, it would be of interest to note that in the English Stamp Act,3 a bill of exchange is defined as including a draft, order, cheque and letter of credit and certain other documents. This suggests a useful improvement in the definition of "bill of exchange" in the stamp Act, namely, that it should include a draft. We recommend that the definition should include drafts.

1. Capital and Counties Bank v. Gordon, 1900 All ER (Reprints) 1017 (1024) (HL).

2. See Underwood Limited v. Bank of Liverpool, (1904) All ER (Reprints) 203 (241): 131 Law Times 271: 68 Solicitor's Journal 716.

3. Section 32, Stamp Act, 1891.

3.29. Recommendation to include drafts.-

In the light of the above discussion, we recommend that the definition of "bill of exchange" should be revised

(i) by including drafts, and

(ii) by adding the following Explanation-

"Explanation:

The provisions of section 17 of the Negotiable Instruments Act, 1881, apply for the purposes of this Act as they apply for the purposes of that Act.

We may add that these two changes have been mostly favoured1 in the replies to the relevant question in our Questionnaire.

1. Question 3 of the Questionnaire.

3.30. Recommendation regarding section 35, proviso (a).-

We are further of the view, for reasons already stated,1 that in section 35, proviso (a), the exception should be confined to bill of exchange or promissory note as defined in the Negotiable Instruments Act or a hundi2-if at all the exception is retained. This recommendation also bears the support of the majority of the replies to our Questionnaire.3

1. See supra.

2. For action under section 35, proviso (a).

3. Question 3 of the Questionnaire.



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