Report No. 67
3.31. Section 2(3)-Bill of Exchange payable on demand.-
While section 2(2) defines a bill of exchange, section 2(3) defines "a bill of exchange payable on demand". The first is generic; the second is specific. The distinction between a bill of exchange payable on demand and a bill of exchange not so payable is material for the purposes of stamp duty.1 As from 1st July, 1927, bills of exchange payable on demand are not chargeable with any stamp duty, the relevant portion of Article 13 having been deleted in 1927. Bill of exchange payable otherwise than on demand are chargeable with the duty specified in Article 13.
1. See Article 13.
3.32. Meaning of the expression "on demand" in the Negotiable Instruments Act.-
The definition of "bill of exchange" in section 2(2) refers to the Negotiable Instruments Act. But section 2(3) does not refer to that Ad. Under the Negotiable Instruments Act, a bill of exchange payable on demand is one1 which is expressed to be so payable, or in which no time is fixed for payment. This is not provided in the definition section, but in section 19 of that Act. Further, the expressions "at sight" and "on presentment" in a bill of exchange mean "on demand".2
1. Section 19, Negotiable Instruments Act, 1881.
2. Section 21, Negotiable Instruments Act, 1881.
3.33. Need to insert reference to Negotiable Instruments Act, section 19-Recommendation.-
It is to be borne in mind that section 2(3) does not expressly provide in what cases a bill of exchange, as defined in sub-section (2), becomes payable on demand. Apparently, in seeking the answer to this question, one has to draw up the concept of "on demand" in the Negotiable Instruments Act, mentioned above. This is because the definition in the Stamp Act, section 2(3), is merely intended to include certain other documents which may or may not fall under the generic concept of "bill of exchange" as defined in sub-section (2). In a sense, this is a defect in the Stamp Act, inasmuch as one is driven to consulting the Negotiable Instruments Act without any express direction to that effect. This defect should be removed by suitably referring to section 19 of the Negotiable Instruments Act.
3.33A. Definition in England.-
It may be stated that in England, the definition of bill of exchange1 in the Stamp Act is a self-contained definition which, whatever its other peculiarities, does not suffer from the anomalous situation of the generic definition in the Stamp Act referring to the Negotiable Instruments Act and the specific definition in the Stamp Act not referring to the Negotiable instruments Act.
1. Section 32, Stamp Act, 1891, as amended by the Finance Act, 1961.
3.34. Limited effect of section 2(3).-
Section 2, sub-section (3), provides that "bill of exchange payable on demand" includes the documents specified in clauses (a), (b) and (c) of that sub-section. This does not, of course, mean that the enumerated documents fall within the general definition of bill of exchange. All that sub-section (3) achieves is the limited result of bringing them within the definition of "bill of exchange payable on demand".
3.35. Section 2(3), clause (a)-conditional order for payment.-
As regards the documents specifically mentioned in the section, it is to be noted that clause (a) extends the concept of "bill of exchange" "payable on demand" in respect of a document or may not be available upon an uncertain condition or contingency. The definition of "bill of exchange" in the Negotiable Instruments Act1 is, on the other hand, confined to documents which are payable in all events-see the words "unconditional order" used in that definition. This shows the contrast between section 2(3), clause (a), on the one hand, and the Negotiable Instruments Act on the other hand.
1. Section 5, Negotiable Instruments Act, 1881.
3.36. Section 2(3), clause (b)-payment period.-
Then, section 2(3), clause (b), includes an order for the payment of a sum of money at weekly, monthly or any other stated period. The expression "bill of exchange", as defined in the Negotiable Instruments Act, may not cover such documents, - though that Act has been incorporated to cover an order for payment in instalments1
1. Lakshmi Dass v. Lekha Ram, AIR 1935 All 410.
3.37. Section 2(3), clause (c)-letters of credit.-
Lastly, clause (c) of sub-section (3) includes a letter of credit-"that is to say, any instrument by which one person authorises another to give credit to the person in whose favour it is drawn". As regards stamp duty on letters of credit of credit, the matter is governed not by the article prescribing the duty for a bill of exchange,1 but by a separate and specific provision2-3.
According to Story,4 a letter of credit "is a letter of request, whereby one person (usually a banker) requests some other person to advance moneys or give credit to a third person, named therein, for a certain amount and promises that he will repay such sum to the person advancing the same or accept bills drawn upon himself for the like amount. It is called a 'general (or open) letter of credit', when it is addressed to all merchants or other persons in general; and it is called a 'special letter of credit' when addressed to a particular person, requesting him to make such advance to a third person".
1. Article 13.
2. Article 37.
3. See infra.
4. Story on Bills of Exchange, section 479.
3.37A. Duty on letters of credit.-
For the purposes of stamp duty, letters of credit were, prior to Act 5 of 1927, by Article 13(a) which specified a charge of one anna on them. But there is now a separate and specific provision in Article 37, under Which the duty payable on a letter of credit is one rupee.1 The inclusion of such letters in the definition of "Bill of Exchange payable on demand" is, thus, of no effect as regards the rate of stamp duty. The higher duty under Arfitle 37 is payable on such letters. In this connection, section 6 is quite clear.
1. Article 37 as amended by Act 36 of 1976.
3.38. Effect of section 35, proviso (a).-
But a letter of credit has to be treated as a bill of exchange for the purposes of section 35, with the result that it is rendered inadmissible in evidence even on payment of penalty, because of the bar under that section.1 Thus, the result of its being included in the definition of bill of exchange payable on demand-section 2, sub-section (3)-is that it attracts the prohibition contained elsewhere in the Act, under which an instrument which is a bill of exchange cannot be admitted even on payment of penalty, if it is originally unstamped.
1. Section 35, Proviso (a).
3.39. Recommendation as to letters of credit.-
The present position as regards letters of credit is not satisfactory. It is likely to mislead, as it creates the impression that the duty thereon, is the same as on a bill of exchange, unless one bears in mind a number of provisions referred to above. If at all the definition of "bill of exchange payable on demand" is to be retained, then-
(i) "letter of credit" should be excluded from that definition; and
(ii) in section 35, Proviso (a), "letter of credit" should be expressly mentioned.1
This will simplify the law. The replies to our Questionnaire also generally favour it.2
It should be pointed out that our recommendation in relation to letters of credit is confined to the Stamp Act, and we do not express any opinion on the question whether, for the purposes of the Law of Negotiable Instruments or for the purposes of any other branch of the law, letters of credit should or should not be regarded as bills of exchange.
1. To be carried out under section 35, proviso (a).
2. Question 4.
3.39A. Recommendations.-
To sum up our recommendations concerning matters arising out of the definition of "bill of exchange payable on demand"-
(a) the definition1 should refer to section 19, Negotiable Instruments Act, 1881, as to the meaning of "on demand";
(b) letters of credit2 should be excluded from the definition, and should be included in section 35, proviso (a), Exception, if the Exception is to be retained.
1. Para. 3.33, supra.
2. Para 3.39, supra.
3.40. Section 2(4)-"Bill of lading".-
Section 3(4) defines a "bill of lading" as including a through bill of lading, but as not including a mate's receipt. A bill of lading is a document acknowledging the shipment of goods, signed by or on behalf of the carrier.1 It serves three functions2-
(i) it is a receipt for goods delivered to the carrier;
(ii) it normally embolies the terms of the contract of carriage;
(iii) it acts as a document of title to the goods.
A through bill of lading denotes a bill of lading issued in cases where goods are to be carried for a portion of the journey by land, upon conveyance belonging to some person other than the ship-owner. Subject to certain exceptions, a bill of lading is conclusive evidence of the shipment of goods as against the master. A mate's receipt is a less formal document than a bill of lading. When the goods are shipped, the acknowledgment first3 given is a less formal receipt, known as the mate's receipt. It is afterwards exchanged for a bill of lading. It is not a document of title, while a bill of lading is a document of title.4
1. Gladwell v. Vall, 1786 ITL 216, cited in Stevens Mercantile Law, (1969), p. 340.
2. Smith & Keenan Mercantile Law, (1965), p. 284.
3. Stevens Mercantile Law, (1969), p. 341.
4. Stevens Mercantile Law, (1969), p. 344.
Back
