IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 15591 of 2010(O)
1. S.VISWANATHAN,S/O.V.R.SHIVARAMAKRISHNAN,
... Petitioner
Vs
1. LESLIE PHILIP,PROPRIETOR,
... Respondent
For Petitioner :SRI.SHAJI P.CHALY
For Respondent : No Appearance
The Hon'ble MR. Justice THOMAS P.JOSEPH
Dated :31/05/2010
O R D E R
THOMAS P. JOSEPH, J.
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W.P.(C) No.15591 of 2010
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Dated this the 31st day of May, 2010.
JUDGMENT
Distinction between an “agreement” and a “bond” arises for a decision in
this Writ Petition.
2. Short facts necessary for a decision of the question are:
Petitioner/plaintiff and respondent/defendant describing themselves as party
Nos.2 and 1, respectively entered into Ext.P2, agreement on 14.01.2005. As
per that agreement respondent was to pay R.50,000/- per month to the
petitioner for services done by petitioner to the respondent. For recovery of the
said amount petitioner sued respondent in the court of learned Sub Judge,
North Paravur in O.S.No.275 of 2007. In the course of trial when petitioner
attempted to introduce Ext.P2 in evidence respondent raised a contention that
though, styled as an agreement it is a bond and hence liable to stamp duty and
penalty accordingly. Petitioner asserted that the document is only an agreement
in that it did not create liability on the respondent for the first time and hence
stamp duty paid as if the document is only an agreement is sufficient. Learned
Sub Judge considered the question and after referring to the relevant decisions
on the point concluded that the document is “bond” as defined under Section 2
(a)(ii) of the Kerala Stamp Act (for short, “the Act”) and is liable for stamp duty
and penalty accordingly. That order is under challenge in this Writ Petition.
Learned counsel for petitioner reiterating the contentions raised in the court
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below asserted that Ext.P2 is only an “agreement”. According to the learned
counsel as per the terms and conditions agreed between the parties liability of
respondent to pay the amount is dependant on the service done by petitioner.
It is the contention of learned counsel that in deciding whether the document is
an agreement or bond, importance has to be given to the intention of parties –
as to what they intended by the document, whether parties have created
liability for the first time as per the document. Learned counsel has placed
reliance on the decisions in West Coast Electroplating Co. Ltd . v.
Sreedharan (1971 KLT 383) and State Bank of Travancore v.
Thayikutty Amma (1988 (2) KLT 111). It is the contention of the
learned counsel that even if two interpretations are possible the one which is in
favour of the assessee so that his liability for payment of stamp duty is reduced
is to be accepted. Reliance for that proposition is made on the decision in
Mathai Mathew v. Thampi (1989 (1) KLT 138). In response, learned
counsel for respondent contend that it is by Ext.P2, agreement that liability of
respondent towards petitioner was quantified for the first time, it is Ext.P2 which
created liability on respondent to pay amount to the petitioner for the first time
and hence that document falls within the mischief of “bond” as defined under
Section 2(a)(ii) of the Act. It is the contention of learned counsel that at any rate,
Ext.P2 will come within the mischief of Section 2(a)(i) of the Act. According to
the learned counsel that document has been correctly interpreted by the learned
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Sub Judge and it requires no interference under Article 227 of the Constitution.
A “Bond” is defined in Section 2 of the Act thus,
“(a) “bond” includes-
(i) any instrument whereby a person obliges
himself to pay money to another, on condition that the
obligation shall be void if a specified act is performed,
or is not performed, as the case may be;
(ii) any instrument attested by a witness and
not payable to order or bearer, whereby a person
obliges himself to pay money to another; and
(iii) any instrument so attested, whereby a
person obliges himself to deliver grain or other
agricultural produce to another;”
“Agreement” comes from the word “agreementum” which is a word compounded
by two words, viz; “of aggregatio” and “mentium”. By contraction of those words
and by short pronounciation of them they are made one word, viz; agreementum
which is no other than a union, collection, copulation and conjunction of two or
more minds in anything done or to be done. Though the word “agreement” is not
defined in the Act, that word finds definition in the Indian Contract Act as every
promise and every set of promises forming the consideration for each other is an
agreement . Every agreement is not a contract, but every contract contains an
agreement which is enforceable under law.
3. Decisions relied on by the learned Sub Judge and referred to in the
order under challenge and the decisions relied on by the counsel for petitioner
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highlighted one thing – if liability to pay the amount is created for the first time
by the document, it is a bond while, if the document speaks about liability of
the person concerned to pay a pre-existing liability it is not a bond. In West
Coast Electroplating Co. Ltd . v. Sreedharan (supra) it was observed
as a distinguishing feature between an obligation under a bond and an
obligation under an ordinary contract that a breach of an obligation under a
bond does not sound in damages whereas damages is what are who break an
ordinary contract is subject to. It was held that in every case one has to look at
the intention of the parties and if the intention of parties is not to extinguish the
earlier obligation but to keep it alive and the document subsequently executed
only provides for the method of payment and for reduction of interest under
certain contingency such a document is merely an agreement and not a bond.
4. One of the earliest decisions on the point is Hira Lal Sircar v.
Queen Empress (ILR 22 Calcutta 757) where it was held that no
document can be a “bond” within the relevant Section unless it is one which by
itself creates an obligation to pay the amount. In Collector of Rangoon v.
Maung Aung Ba (33 Indian Cases 920) it was held that an agreement to
deliver agricultural produces for consideration and to compensate the
covenantee in default does not fall within the definition of ‘bond’. In the
matter of Hamdard Dawakhana (Wakf) Delhi (AIR 1968 Delhi 1
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(FB)), meaning of the word `bond’ was considered. It was held that in the case
of bond in the event of breach party to the instrument who had obliged to pay
money to the other is liable to pay the sum stipulated in the instrument whereas
in the case of an agreement the quantum of damages has to be fixed by the
court. To find out the character of an instrument one has to read the instrument
as a whole and find out dominant purpose. A single instrument may embody
several purposes but what is relevant for the purpose is the dominant purpose
of the instrument. Sulaiman, J. stated in Surendra Prasad Narain Singh
v. Sri Gajadhar Prasad Sahu Trust Estate and others (AIR 1940
FC 10) that the essential common feature of a bond and agreement is that as
per the bond the person obliges himself to do the act mentioned therein and that
the language of the instrument itself must expressly create the obligation.
Referring to that decision the Supreme Court in Jiwanlal Achariya v.
Ramesh Warlal Agarwalla (AIR 1967 SC 1118) has stated that the
word `bond’ (occurring in Bihar Money Lenders (Regulation of Transactions)
Act) is used in its general sense, ie. deed by which one person binds himself to
pay sum to another person. It is useful to refer to the decision of Allahabad High
Court in re Dhampur Sugar Mills Ltd. (AIR 1956 All.25) where Article
5 of the Indian Stamp Act was considered. That was an agreement between the
company and its managing agent. Question considered was whether the
document was a ‘bond’. The court held that provision in the agreement that
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company shall pay certain commission and allowances to the managing agent is
a mere term of the managing agency agreement and it is not a ‘bond’. Having
regard to the above position of law I shall consider whether Ext.P2 is a bond or
is an agreement.
5. Ext.P2 says that respondent has been doing business of imparting
training in BPO related activities and that he had authorized petitioner for
conducting training in Data conversion and other IT related activities. It is stated
that in the meantime parties agreed to make an agreement among themselves
(to carry on business as aforesaid) and by Ext.P2 they have crystallized terms
and conditions of that agreement. Condition No.1 is that the agreement will be
effective from 01.10.2004 onwards. Condition No.2 which is relied on by both
sides is that “the party of the first part will pay an amount of Rs.50,000/- per
month as consideration for the services done by party of the second part for
conducting training in data conversion and other IT related activities”.
(emphasis supplied). Condition No.3 says that petitioner shall be responsible
for meeting all expenses in connection with the aforesaid activities including
staff salary, electricity charges, etc. Condition No.4 is that fee for imparting the
training will be collected from the students by respondent . The last condition is
that the agreement can be terminated by both parties by giving the other three
months’ prior notice.
6. There is weight in the contention of the learned counsel for
petitioner that it is not as if as per Ext.P2 a liability is created on the respondent
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for the first time to pay Rs.50,000/- to the petitioner. Instead payment of the said
amount is for service rendered and is only one of the terms and conditions of
the agreement entered into between the parties their primary intention being
conduct of business as stated therein subject ofcourse to the terms and
conditions specified. Condition No.2 which is relied on by the parties did not
create any unconditional obligation on respondent to pay any amount to the
petitioner for the first time. The agreement only evidences terms and conditions
agreed to between the parties. The agreement contains reciprocal promises.
Payment of Rs.50,000/- to the petitioner is conditional on petitioner rendering
service to the respondent. I am unable to understand reading Ext.P2 as a
whole and condition No.2 in particular that it is a document as per which
liability is created for the first time on respondent to pay a certain amount.
Ext.P2, in my view is only an ‘agreement ‘. I also bear in mind that as stated in
Surendra Prasad Narain Singh v. Sri Gajadhar Prasad Sahu
Trust Estate and others (supra) violation of the terms or conditions of the
agreement as per Ext.P2 gives the parties, though it is not specifically stated in
the agreement a right to sue for recovery of damages from the defaulting party.
A further fact to be noted is that the agreement is terminable on the part of either
of the parties at any time , the only condition being that three months’ prior notice
has to be given. Section 2(a)(ii) of the Act in the above circumstances has no
application. Clause (i) also has no application as Ext.P2 does not provide that
obligation to pay the amount shall be void if a specified condition is performed or
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not performed. Learned Sub Judge was not correct in holding that Ext.P2 is a
bond. As such Ext.P1, order dated 19.03.2010 is liable to be set aside. I hold
that Ext.P2 is only an agreement, nothing less, nothing more and is not liable
to stamp duty as a bond.
Writ Petition succeeds. Ext.P1, order under challenge is set aside holding
that Ext.P2 is only an agreement and not a bond.
THOMAS P.JOSEPH,
Judge.
cks