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State Bank of Hyderabad Vs. Kotha Papi Reddy and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil;Commercial
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Rev. Petn. Nos. 165 to 169 of 1973
Judge
Reported inAIR1975AP25
ActsStamp Act, 1899 - Sections 2(5) - Schedule - Articles 5, 48 and 48A
AppellantState Bank of Hyderabad
RespondentKotha Papi Reddy and anr.
Advocates:C. Poornaiah, Adv.
DispositionPetition allowed
Excerpt:
.....of instrument - schedule i-a of articles 48 and 5 of stamp act, 1899 - whether instrument was guarantee agreement or security bond - to come within ambit of article 48 instrument is required to be security bond -section 2 (5) (b) provide essential of security bond - same not satisfied by instrument - guarantor did not provide any security but merely guarantee to pay where borrower failed to pay - held, instrument is guarantee agreement covered by article 5 and not security bond. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it..........its accessories. on the same day, the second defendant executed another agreement in favour of the bank guaranteeing due payment of the loan. the bank filed the suit alleging that the defendants had failed to repay the amount. the deed of hypothecation passed by the first defendant was engrossed on stamp paper of the value of rs. 20-30 ps. there is no difficulty in regard to the sufficiency of the stamp on that deed. it was accepted as sufficient by the court below. the difficulty arose only in regard to the agreement of guarantee executed by the second defendant which bears a stamp of rs. 2.30 ps. the office of the trial court raised an objection saying that the agreement of guarantee falls under article 48 of schedule 1-a of the indian stamp act and so it should have been engrossed on.....
Judgment:
ORDER

Sambasiva Rao, J.

1. In these five revision petitions a common question relating to the proper stamp duty that is payable on a set of documents has to be considered.

2. The circumstances and the material recitals of the documents in all the five matters are the same. To take for instance the facts in O. S. S. R. No. 1281 of 1972, out of which C. R. P No. 165/73 arises, is a suit filed by the State Bank of Hyderabad to recover a sum of Rs. 4,408.52 Ps. from two defendants. On 8-12-1969 the first defendant borrowed a sum of Rs. 3,910.50, from the Bank for purchasing a pump set and executed an agreement hypothecating the pump set and its accessories. On the same day, the second defendant executed another agreement in favour of the Bank guaranteeing due payment of the loan. The Bank filed the suit alleging that the defendants had failed to repay the amount. The deed of Hypothecation passed by the first defendant was engrossed on stamp paper of the value of Rs. 20-30 ps. There is no difficulty in regard to the sufficiency of the stamp on that deed. It was accepted as sufficient by the court below. The difficulty arose only in regard to the agreement of guarantee executed by the second defendant which bears a stamp of Rs. 2.30 ps. The office of the trial Court raised an objection saying that the agreement of guarantee falls under Article 48 of Schedule 1-A of the Indian Stamp Act and so it should have been engrossed on stamp paper worth Rs. 22.50 ps. A deficit stamp of Rupees 20-20 ps. and a penalty of Rs. 202/- were demanded from the plaintiff Bank:

3. Learned Counsel for the plaintiff took the stand that the agreement of guarantee comes under Article 6 (2) of the Schedule 1-A and so the stamp it bears is sufficient. Consequently the matter was placed before the Court. The Court below upheld the objection raised by the office, holding that the agreement of guarantee is chargeable under Article 48. In the result, it directed the plaint to be returned for payment of deficit stamp duty and penalty as demanded by the office. The plaintiff, which is common to all the five proposed suits, has filed these revision petitions.

4. Sri C. Poornaiah, for the plaintiff-petitioner contends that what the second defendant has executed is only an agreement of guarantee and has to be stamped only as an agreement, though it is an attested one. In his submission, the agreement of guarantee comes within the purview of Article 5 and not under Article 6 as contended by his counter part in the lower court or under Article 48 as held by the Court below. On the other hand, learned Government Pleader seeks to support the view of the trial court.

5. Before considering what Article governs the deed of guarantee, it is necessary to refer to the material recitals in it. At the top of the agreement there is a direction that the agreement is to be signed by the guarantor. It has to be stamped with the higher agreement stamp duty in force in the State. It is an agreement of guarantee obtained in the case of instalment credit loans. The first paragraph refers to the fact that the borrower borrowed a particular sum by way of instalment credit to pay for moveable machinery and equipment, tools and accessories. This is by way of a preamble to the succeeding paragraphs whereunder the guarantor has guaranteed the payment of the money borrowed. Paragraph 2 states that the guarantor guarantees to the Bank the payment on demand of all moneys at any time and from time to time thereafter due to the borrower in respect of the above mentioned accommodation with interest from the date of demand and also the due performance and observance by the borrower of all the terms pertaining to the accommodation given to him and the payment of all costs and expenses incurred by the Bank in relation to the premises. Further, the guarantor agreed to pay and make good to the Bank on demand all damages, losses, costs and expenses occasioned to the Bank by reason of the nonpayment of the moneys or causing a breach or non-performance or non-observance of any of the terms by the borrower. The second paragraph shows that the guarantor has agreed that no failure in requiring or obtaining the security of the machinery given by the borrower or in the observance or performance of any of the stipulations or terms of the borrower's agreement and no default of the Bank in requiring or enforcing the observations or performance of any of the stipulations or terms shall have the effect of releasing him (guarantor) from his liability to the Bank.

6. The other provisions of the agreement of guarantee are not material for consideration of the question posed before me. That question as deduced from the contentions of the learned Counsel on both sides is whether it is Article 48 or Article 5 of Schedule 1-A that covers the guarantee agreement. Article 48 governs security bonds or mortgage deeds, executed by way of security for the due execution of an office or to account for money or other property received by virtue thereof or executed by the surety to secure due performance of a contract. Learned Government Pleader submits that the deed in question is a security bond under which the guarantor has under taken to account for money or other property received by virtue thereof or executed by the surety to secure the due performance of a contract.

7. Bond is denned in Section 2(5) of the Act and it is the contention of the learned Government Pleader that it comes under Sub-clause (b) of Clause (5). According to it, bond includes any instrument attested by a witness and not payable to order or bearer whereby a person obliges himself to pay money to another. The deed in question is certainly attested by a witness. It does not refer to whether it is payable to order or bearer; it is however, payable on demand.

8. The next important ingredient of sub-clause (b) and indeed the most important is that a person should oblige himself to pay money to another. But that is absent in the deed in question. The obligation to pay money is on the borrower. The guarantor has simply guaranteed the payment on demand all moneys due to the Bank by the borrower and also the observance by the borrower of all the terms relating to the accommodation Riven to him. It cannot, therefore, be said that the guarantor has undertaken the obligation to himself pay the money to the Bank. His obligation to pay arises only when the borrower does not comply with the terms of the agreement for instalment credit which he has executed. I am not, therefore, satisfied that the essential ingredient of Section 2(5)(b) is satisfied in this case.

9. What is more, it should be noted that it is not sufficient for an instrument to come within the ambit of Article 48 if it is merely a bond. It should be a security bond too. A security bond envisages furnishing security. In the instruments under consideration, the guarantor has not himself, given any security. The borrower has given one and the guarantor has only undertaken to guarantee the payment by the borrower and the observance of the terms and conditions of the bond which the former has executed. It is thus patent that there is no security given by the guarantor under the instrument. So the deed cannot be called a security bond. In the result, it does not come under Article 48.

10. Learned Counsel, however relies on a decision of the Madras High Court in Chief Controlling Revenue Authority Madras v. Rani Pictures, : AIR1970Mad10 . There a Special Bench was dealing with a case when the borrower himself obliged to pay amounts and in addition gave a camera as security The Special Bench held that it was a bond as well as a pledge. That was on the ground that the borrower obliged himself by an instrument to pay a particular amount in a particular manner and in addition gave a camera as security. In the present case, there is no obligation undertaken by the guarantor to himself pay the amount and there is no security given by him. The security has been given by the borrower himself. So this case does not help the contention of the learned Government Pleader.

11. On the other hand, the bond appears to come under Article 5, it is common ground that the deed contains only an agreement of guarantee. The contents of the deed also, which I have given above, would demonstrate this beyond any doubt. A contract of guarantee is defined in Section 126 of the Contract Act. It says that it is a contract to perform the promise or to discharge the liability of a third person in case of his default. According to it a guarantee may be either oral or written. When a guarantee can even be oral, there is no point in insisting on its being engrossed on a stamp of a security or a mortgage deed. If it is reduced to writing it has to be stamped as a contract or an agreement, which it really is as per the specific provisions of Section 126. I am thus satisfied that a contract of guarantee is chargeable with a stamp required for an agreement, when it is reduced to writing. A written undertaking signed by a person and attested by another to be answerable for the debt or default of another is nothing more than an agreement. Consequently. I am of the opinion that the deed which is an agreement of guarantee comes under Article 5 clause (c). Clause (c) covers all agreements which are not otherwise provided for. For such agreements increased stamp duty is Rs. 2.30 ps. The deeds in question bear that stamp.

12. I may here usefully refer to a few cases which bear on the question. In Rein v. Lane, (1867) 2 QB 144 it was held that 'a guarantee for the due performance of a charter party does not require to be stamped, as charter party or agree-ment for the charter of any ship, or any memorandum, letter or other writing between the captain or owner of any ship and any other person, for Or relating to the freight or conveyance of goods, on board such ship.'

13. In Joyman Bewa v. Easin Sar-kar, AIR 1926 Cal 877 a Division Bench held that in case where a person has contracted expressly that he will guarantee the performance of any of the obligations set out in Section 145, whether such a contract be oral or in writing, he renders himself liable to be proceeded against in execution of the decree as provided in Section 145.

14. A Special Bench of the Rangoon High Court held in re Imperial Bank of India, AIR 1933 Rang 31 (SB) that a deed of that nature is liable to stamp duty under Article 5 (c) of Schedule 1 and not under Article 6 or Article 40.

15. A Division Bench of the Madras High Court while dealing with a similar situation in Karuppan Chettiar v. Nagappa. AIR 1934 Mad 186 held that the contract they were dealing with was one of guarantee within the meaning of Section 126 of the Contract Act. It was not necessary that a contract of suretyship should be in the form of a security bond or in writing.

16. When such is the liberal construction given to a contract of guarantee it is futile to argue that it should be in the form of a security bond. Since it has been reduced to writing it has to be stamped only as an agreement under Article 5 (c) of Schedule 1-A. Since it already bears the required stamp of Rupees 2.30 Ps. it is sufficiently stamped.

17. For these reasons. I set aside the order of the lower court, allow the revision petitions and direct the court below to deal with the matters on the basis that the agreements of guarantee are duly stamped. Having regard to the circumstances of the case I direct the parties to bear their own costs of the revision petitions. Consolidated Advocate's fee is Rs. 100/-.


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