Report No. 67
27.1. Article 1.-
Article 1 is as follows:
"Acknowledgment of debt exceeding twenty rupees in amount or value, written or signed by, or on behalf of a debtor to supply evidence of such debt in any book (other than a banker's pass book) or on a separate piece of paper when such book or paper is left in the creditor's possession: provided that such acknowledgment does not contain any promise to pay the debt or any stipulation to pay interest or to deliver any goods or other property. One anna1. The proviso did not occur in the Act of 1879.
1. The duty of one anna should now be read as ten naye paise.
A brief historical discussion of the article may be useful. Prior to the Act of 1869, there was no provision for charging stamp duty on an acknowledgment. The Act1 of 1869 provided for such stamp duty. The article in that Act read-
"Note or Memorandum written in any book or written on a separate paper whereby any account, debt or demand therein specified, and amounting to twenty rupees or upwards, is expressed to have been balanced or is acknowledged to be due."
1. Indian Stamp Act (18 of 1869), Schedule II, Article 5.
27.3. Thus, the article in the Act of 1869 did not contain the requirement as to the instrument having been given for the purpose of supplying evidence of the debt.
27.4. Thus, in order to fall within the scope of this article, it was necessary that document should either balance an old account or should show that the sum acknowledged was due. In 1879 the High Court of Calcutta was called upon to determine the applicability of the above noted article in the case of seven advance entries in a document called a hattachhitta having two sides: "amount advanced," and "amount received". And they rightly held that none of the entries taken singly denoted that the sum mentioned therein was due and could be hit by the provisions1 of Article 5. It was observed that in order to find whether a particular sum was or was not due at a particular date it was necessary to look to both sides of the document, since the entries on one side controlled those on the other. To quote the relevant observations:
"Now, if any one of the entries in the hattachhitta had stood alone and had been intended by the parties to form an isolated entry in the book, it might have been contended with considerable force that it prima facie fell within the description of document mentioned in Article 5, as requiring a stamp. We think however that the entries cannot be detached from the account of which they form a part. That account has two sides to it, the one headed 'amount advanced' and the other 'amount received'.
The amount due varies from time to time and depends upon the relation of the amount advanced to the amount received. In the present case, no sum is entered under the head of "amount received," but that is an accident and makes no difference in considering the question as to what is offered in evidence. The intention of the parties in requiring the signature or seal of the borrowers to each sum advanced is strictly speaking to secure under their hands an acknowledgment that the sum is advanced, whether or not that sum is due or a larger sum or a less sum, depends upon the state of account. In determining whether a document comes within the description of a document upon which a stamp is imposed by the Stamp Act, we must look at the entire document, and see whether it fairly falls within the description. The document in this case which is offered as evidence is not a note or memo, acknowledging a debt or part of a debt to be due nor a series of such entries and memos, but an account between the parties of the character above mentioned and as such did not in our opinion require a stamp."
27.5. In 1879, an Act (1 of 1879) was made "to consolidate and amend the law relating to stamps," and Article 1 (which corresponded to Article 5 of the previous Act) was recast as under:
"Acknowledgment 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 in any book (other than a Banker's Pass Book) or on a separate piece of paper when such book or paper is left in the creditors' possession." This Act, therefore, by omitting the words "amounting to Rs. 20" and "is expressed to have been balanced or is acknowledged to be due", brought about two material changes in the law, namely: (1) That the debt must exceed Rs. 20, and (2) the document need not show that it is a balance entry or that the sum mentioned therein is really due.
27.6. It appears that the original proposal in the Bill of 1878 was to have an article in the following form1:-
"46. Note or memorandum of entry made in any book, or written on a separate paper, whereby any account, debit or demand, or any part of any account, debt or demand, therein specified and exceeding twenty rupees is acknowledged to have been balanced or to be due."
Some Members of the Select Committee, however, objected to this article at the preliminary stage.2 Mr. G.H.P. Evans said that this article must be 'further altered or struck out altogether'. Whitley Stokes said, "On consideration I agree with Mr. Evans. The clause as it stands would apply to the statement of the balance in a banker's pass book not signed by the constituent".
1. Stamp Bill, 1878, Second Schedule, Article 46.
2. See Preliminary Report of the Select Committee, 28th August, 1878.
27.7. Judge Plowden's view.-
It may also be noted that Mr. Plowden, Judge of the Punjab Chief Court, in his comment1 on the Stamps and Court Fees Bill, 1878, made a suggestion relevant to acknowledgment, in the following terms:-
"In this connection, I venture to make another suggestion, not without some hesitation and doubt as to whether it is practicable to devise a remedy. The native custom of taking acknowledgments of debts coupled with a promise to pay by an entry in a bock of account is of daily or even hourly occurrence, and is eminently convenient to the persons directly concerned. Cannot any method be devised, consistent with due regard to fiscal interests, by which such promises, which cannot invariably be regarded as promissory notes (the term itself when translated is mere jargon to 99 out of 100 persons in the Punjab who make their written promises in account books), might be stamped with adhesive stamps, at least when the accounts are small, if not in all cases. The alternatives as it seems to me now are that the debtor must be induced to write a formal tamassuk on a separate paper, or the book must be taken to be stamped by the Collector and after all it may turn out (See Schedule II, 7, note (a), and section 28) that the promissory portion of a book entry is void, because it requires an additional one anna-stamp".
In its final Report,2 the Select Committee said:
"We have, with reference to the opinions expressed by many of the authorities consulted and to the dissents appended to our preliminary report, recast (in Article 1 of the first Schedule as now settled), the 46th article of the same Schedule in Bill No. II.
The Select Committee did not, however, indicate why the words "in order to supply evidence of such debt" were added.
1. Proceedings of the Legislative Department, No. 1 to 167 [February, 1879 (National Archives)].
2. Final Report of the Select Committee, 31st December, 1878. supply evidence of such debt" were added.
27.8. The article in the Act of 1879 (First Schedule, Article 1), as ultimately enacted, was as follows:-
"Acknowledgment of a debt exceeding twenty rupees in amount or value, written or signed by or on behalf of a debtor in order to supply evidence of such debt in any book (other than a banker's pass book) or on a separate piece of paper when such book or paper is left in the creditor's possession".
27.9. The proviso was added when the Act was revised in 1899. In the Report of the Select Committee1, on the 1898 Bill, the following reasons were given for adding the proviso:-
"Schedule I-No. 1 Acknowledgment.-
We have reverted to the old duty of one anna for all acknowledgment, and have added words to make it clear that the provision relates only to mere acknowledgments and does not include acknowledgments containing in addition any promise or agreement".
1. Report of the Select Committee on the Indian Stamp Bill, 1898, para. 18.
27.10. In addition of the proviso, however, did not prove to be an improvement, as will be shown later.1
1. See discussion below, relating to promise to pay.
27.11. So much as regards the history of the article-history which shows how certain difficulties were anticipated even at that time. In order to fall within the purview of Article I, a document must fulfil the following conditions:
(1) The debt must exceed Rs. 20.
(2) The document must be written or signed by or on behalf of the debtor.
(3) It must be intended to supply evidence of the debt.
(4) It must be left with the creditor.
(5) It must not contain any promise to pay the debt or any stipulation to pay interest.
27.12. English law.-
The English law may be contrasted. Under English law, a bare acknowledgment of liability is not chargeable with duty. Thus an I.O.U. or a bare acknowledgment of a loan or of indebtedness, containing no provision as to payment or other evidence of the terms of an agreement, does not require any Stamp1 in England.
1. (a) Childers v. Boulnois, (1822) 171 ER 898 (I.O.U.).
(b) Eisher Gent v. Leslie, (1795) 170 ER 407.
(c) Israel v. Israel, (1808) 170 ER 1035.
(d) Goodyear v. Simpson, (1845) 153 ER 742 (743) (Statement of account containing admission of a certain balance being due from the defendant to the plaintiff).
27.12A. Words "in order to supply evidence of such debt".-
The article in the Indian Stamp Act appears to be simple enough at first sight. But the words "in order to supply evidence of such debt" and the proviso relating to promise to pay, have been found to create difficult problems of application. Since, under proviso (a) to section 35, an unstamped acknowledgment cannot be admitted even on payment of penalty (as section 35 does not apply to documents chargeable with a duty of one anna-now ten naye paisa), hardship arises in practice.
27.12B. In competition with bonds and agreements, an acknowledgment bears a lower duty. But agreements and bonds (if unstamped) can be admitted under section 35, on payment of penalty. An acknowledgment cannot be admitted in evidence if unstamped. This causes hardship.
27.13. As Schwabe, C.J., observed in a Madras case1-
"This question is whether or not that is an acknowledgment within the definition of acknowledgment in the Stamp Act, for if it is, it has to be stamped, and if not 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 (see section 35). Perhaps, in view of the seriousness of this provision, the draftsman of the Schedule has so worded it that it has left many loopholes, and has given rise to a conflict of judicial opinion when it comes to interpretation."
1. Chandick v. Ananta Lal Damani, 1923 ILR 46 Mad 948 (per Schwabe, C.J.).
27.14. Promise to pay.-
There is another point which needs to be considered. Under the proviso to Article 1, it is necessary that an acknowledgment should not contain any promise to pay the debt or any stipulation to pay interest or to deliver any goods etc. Difficulty is created by the question how far an express promise is required in order that the proviso to this article may come into play. It is generally stated that the question whether an instrument is an acknowledgment containing a promise to pay the debt is one of construction of the document.1
1. Dauala v. Gounda, 1903 Punj Rec No. 35, pp. 111-113 (FB).
27.15. The question must be decided with reference to the language used in, and not to the legal obligation arising from, the instrument1. This is, no doubt, a sound test. But, as a study of the decided cases shows,2 the application of the test is not an easy affair. And, if some other alternative could be adopted, which would reduce this difficulty, it would be an improvement.
1. Shiv Ram Punnam Ram v. Faiz, AIR 1942 Lah 50 (54, 56) (FB).
2. See "Decided cases," infra.