M/S Wolstenholme International ... vs Twin Stars Industrial ...

on 5 March, 2001

Bombay High Court Bombay High Court M/S Wolstenholme International ... vs Twin Stars Industrial ... on 5 March, 2001 Equivalent citations: AIR 2001 Bom 409, 2001 (4) BomCR 114, (2001) 3 BOMLR 777 Author: D D Chandrachud Bench: . D Chandrachud JUDGMENT Dr. D.Y. Chandrachud, J. 1. In the Summary Suit in which the present Summons for Judgment has been instituted, the claim of the Plaintiffs for a decree in the sum of Pound Sterling 1,21,115.63 with further interest at 18% per annum on the principal amount of Pound Sterling 88,284.64. At the prevailing rate of exchange when the suit came to be instituted, the claim has been valued at Rs. 84,78,094/-. The claim in the suit is based on three Bills of Exchange drawn by the Plaintiff and accepted by the First Defendant. The First Defendant is a partnership firm of which the Second to Fifth Defendants are partners. 2. The Plaintiff supplied to the First Defendant three consignments of Bronze Powder under three invoices these being (i) an invoice dated 21st March, 1996 for Pound Sterling 38,970/-, (ii) an invoice dated 11th April. 1996 for Pound Sterling 38,970 and (iii) an invoice dated 1st May, 1996 for Pound Sterling 30,344/-. The Plaintiff drew three Bills of Exchange which were duly accepted by the First Defendant, these being as follows : (a) Bill of Exchange dated 11th April, 1996 in the sum of Pound Sterling 38,970.00; (b) Bill of Exchange dated 20th May, 1996 in the sum of Pound Sterling 38,970.00; and (c) Bill of Exchange dated 30th May, 1996, in the sum of Pound Sterling 30,344.64. The Bills of Exchange dated 11th April, 1996 and 20th May, 1996 were drawn payable at sight, while the Bill of Exchange dated 30th May, 1996 was payable at "70 days sight from E.T. A." (Estimated Time of Arrival of the goods). The E.T.A. is described as 11.6.1996. 3. By its Fax message dated 23rd May, 1996, the First Defendant requested the Plaintiff to relax the payment terms of the first two Bills of Exchange drawn at sight by allowing at least 60 days interest free credit from the date of clearance/delivery of the consignments. Acting on this request, the Plaintiff addressed a communication dated 24th May, 1996 to its Bankers to change the collection terms from "sight" to "70 days sight from E.T.A.", which was duly intimated to the First Defendant. 4. As stated earlier, the three Bills of Exchange were accepted by the First Defendant. These Bills of Exchange were forwarded by the Plaintiff through its Bankers to the First Defendant's Bankers, Bombay Mercantile Co-operative Bank Ltd. for collection and negotiation. After the Bills of Exchange were accepted by the First Defendant, documents relating to the three consignments are stated to have been released to the First Defendant which in turn cleared the consignments on arrival. 5. On the due dates of the three Bills of Exchange- 5th July, 1996, 27th July, 1996 and 20th August, 1996, the corresponding E.T.As. being 27th April, 1996, 18th May, 1996 and 11th June, 1996, no payment was forthcoming. The First Defendant made a part payment of the sum of Pound Sterling 20,000/- on 8th May, 1998. No further payments were made by the First Defendant and the Bills of Exchange were returned by the Bank to the Plaintiff unpaid. The three Bills of Exchange were noted and protested and on 5th October, 1998, the Plaintiff addressed an Advocate's notices to the Defendants calling upon them to repay the principal sum of Found Sterling 88,284/- along with interest at the rate of 18% per annum. The Defendants having failed to
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M/S Wolstenholme International ... vs Twin Stars Industrial ... on 5 March, 2001

make payment to the Plaintiff, a Summary Suit came to be instituted by the Plaintiff on 19th January, 1999. 6. An affidavit in reply has been filed on behalf of the Defendants in which, inter alia, the following defences have been raised : (1) The Bills of Exchange do not provide for payment of any interest; (2) A suit has not been filed for the recovery of an amount which is admitted and ascertained; (3) The Bills of Exchange are inadmissible since they are not properly stamped; (4) The Plaintiff has no cause of action against the Defendants since the Bills of Exchange were negotiated by the Plaintiff in favour of the Bombay Mercantile Bank Ltd: and (5) The Bills of Exchange were not properly noted and protested. 7. Before dealing with the defences which have been urged on behalf of the Defendants, it would be necessary to note at the outset that there is no traverse or denial in the reply of (1) the antecedent transaction between the parties under which the Plaintiff supplied three consignments of goods to the Defendants; (2) of the receipt of goods supplied by the Plaintiff to the Defendants; (3) of the liability of the Defendants to pay for the goods which were duly received; and (4) of the fact that the First Defendant had made a part payment of Pound Sterling 20,000/- towards the payment of the invoices of the Plaintiff. In para 6 of the reply, the Defendants deny that they "have admitted the liability to pay the amount claimed in the Plaint" and in para 9 there is a denial that the Plaintiff is entitled to a decree in the amount as claimed or for interest as claimed. 8. Before dealing with the main controversy which was the subject matter of the submissions at the hearing of the Summons for Judgment, it would be necessary to reject at the outset the defence that the Plaintiff has claimed interest at the rate of 18% per annum, which they are not entitled. The suit is filed on Bills of Exchange and the Plaintiff is clearly entitled to interest at 18% per annum in view of the provisions of Section 80 of the Negotiable instruments Act, 1881. Similarly, there is no substance in the contention that the Bills of Exchange having been negotiated by the Plaintiff in favour of the Bombay Mercantile Bank Ltd., there is no cause of action against the Defendants. The Bills of Exchange contained an endorsement that they were accepted for payment at the Bombay Mercan- tile Bank Ltd. and they were thus, negotiated only for collection. There is, therefore, no substance in the submission of the Defendants. The Bills of Exchange have been duly noted and protested. In fairness, it must be stated that these submissions though urged in the affidavit in reply, were not pressed at the hearing of the Summons for Judgment. 9. The main submission in defence on behalf of the Defendants was that the Bills of Exchange have not been duly stamped under the provisions of the Indian Stamp Act, 1899. It was urged that the three Bills of Exchange are not Bills of Exchange payable on demand and they are, therefore, required to be stamped under Entry 13 of the Schedule to the Indian Stamp Act, 1899. On behalf of the Plaintiff, this submission was sought to be rebutted by pleading that (1) As the Defendants raised the contention that the Bills of Exchange were not duly stamped and were not admissible in evidence, the Plaintiffs Solicitors without prejudice to their contention that the Bills were not liable to be stamped, submitted the Bills to the General Stamp Office for adjudication and stamping and pursuant to an adjudication order dated 27th September, 2000, the Plaintiff duly paid the duty of Rs. 19,670/- upon which an endorsement has been made to that effect on the bills; (2) The Bills of Exchange in the present case, were not required to be stamped since under Section 2(3) of the Indian Stamp Act, 1899, the Bills of Exchange were payable on demand as a result of which no stamp duly was attracted. 10. The first issue which may be considered is whether, on the assumption that the Bills were required to be duly stamped, the subsequent adjudication to stamp duty would cure the initial defect and render the Bills of Exchange admissible in evidence. In considering this question, the provisions of Schedule IV of the Indian
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M/S Wolstenholme International ... vs Twin Stars Industrial ... on 5 March, 2001

Stamp Act, 1899 will 'have to be considered. Chapter IV is entitled, "Instruments not duly stamped". Section 33 confers a power of examination and impounding of instruments upon every person having by law or consent of parties authority to receive evidence and upon every person in charge of a public office before whom any instrument, chargeable, in his opinion, with duty is produced or comes in the performance of his functions. Section 35 provides that no instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence or shall be acted upon registered or authenticated by any such person or by any Public Officer unless such instrument is duly stamped. Under proviso (a) to Section 35, a power is given to the officer concerned, to admit the instrument in evidence on the payment of a duty and penalty. The proviso is material for the present purposes and is as follows : "(a) any such instrument not being on instrument chargeable with a duty not exceeding ten naye paise only, or a Bill of Exchange or Promissory Note, shall, subject to all just exceptions, be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion." From the proviso, it would be evident that it does not apply inter alia, to a Bill of Exchange or a Promissory Note. In order words, the Legislature has made an exception so as to provide that the power to admit in evidence art instrument upon the payment of duty and penalty would not be applicable to a Bill of Exchange, a Promissory Note or an instrument not chargeable to duty exceeding 10 paise. Section 36 provides that where an instrument has been admitted in evidence, such admission shall not except as provided in Section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped. Under the provisions of sub-section (1) of Section 38, when the person impounding an instrument under section 33 has by law or consent of parties authority to receive evidence and admits such instrument in evidence upon payment of a penalty as provided by Section 35 or of duty as provided by Section 37, he shall send to the Collector an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof, and shall send such amount to the Collector. In every other case, the person impounding the instrument has to send it in original to the Collector, (sub-section (2) of Section 38). Section 40 of the Act is again material because it provides that when the Collector impounds any instrument under Section 33, or receives any instrument sent to him under sub-section (2) of Section 38, not being an instrument chargeable with a duty not exceeding ten paise or a Bill of Exchange or Promissory Note, he shall adopt the procedure which is laid down there which is to calculate the proper duty together with penalty as prescribed if the document has not been sufficiently stamped. When the duty and penalty have been paid under Sections 35, 40 or 41 as the case may be, the person admitting such instrument in evidence or the Collector, as the case may be, is required to certify by endorsement that the proper duty or as the case may be a duty and penalty have been levied. The provisions of sections 35, 38, 40 and 42 would make it abundantly clear that the power to admit an instrument in evidence upon the payment of duty or as the case may be a duty and the penalty is not attracted to a case of a document where the duty chargeable does not exceed 10 paise or a Bill of Exchange or a Promissory Note. Therefore, whereas an instrument which is chargeable with duty can be admitted in evidence by a person having by law or consent of parties authority to receive evidence, upon the payment of duty and penalty, as the case may be, this would not apply to the excepted categories of instruments specified in proviso (a) to Section 35. Similarly, the power of the Collector impounding an instrument under Section 37 or receiving an instrument sent to him under sub-section (2) of section 38 to certify the instrument upon the payment of proper duly or penalty is not attracted to an instrument falling in the excepted category. The view which I take is fortified by a Judgment of a Learned Single Judge of this Court, D. R. Dhanuka, J. in Kallappa Pundlik Reddi v. Laxmibai Dattoba Vellaram,. A similar view was taken by a Division Bench of the Madras High Court in Thenappa Chettiar v. Andiyapp Chettiar,.

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M/S Wolstenholme International ... vs Twin Stars Industrial ... on 5 March, 2001

11. In the alternative, it was urged on behalf of the Plaintiff that the Bills of Exchange in the present ease are not payable on demand and are, therefore, not subject to payment of stamp duty under Article 13 to the Schedule of the Indian Stamp Act, 1899. Under clause (b) of Article 13 stamp duty is leviable on Bills of Exchange which are payable otherwise than on demand depending upon the period after which they are payable and under clause (c) where they are payable at more than one year after date or sight. The expression "Bill of Exchange payable on demand" is defined by clause (3) of Section 2 as follows : "(3). "Bill of Exchange payable on demand", - "Bill of Exchange payable on demand" includes (a) an order for the payment of any sum of money by a Bill of Exchange or Promissory Note, or for the delivery of any Bill of Exchange or Promissory Note in satisfaction of any sum of money, or for the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may not be performed or happen: (b) an order for the payment of any sum of money weekly, monthly, or at any other stated period; and (c) a letter of credit, that is to say, any instrument by which one person authorizes another to give credit to the person in whose favour it is drawn;" The Indian Stamp Act, 1899 is a fiscal measure. In Hindustan Steel Ltd. v. Dilip Construction, the Supreme Court held thus : "5. The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments; it is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interest of the revenue." The expression "Bill of Exchange payable on demand" has been defined for the purposes of the Indian Stamp Act, 1899 in a manner which is different from the definition of the expression for the purposes of Negotiable Instruments Act, 1881. Section 19 of the Negotiable Instruments Act, 1881 provides as follows : "19. Instrument payable on demand.- A Promissory Note or Bill of Exchange, in which no time for payment is specified, and a cheque, are payable on demand." Comparing the definition in Section 19 of the Negotiable Instruments Act, 1881 with the definition in Section 2(3) of the Indian Stamp Act, 1899, it would be apparent that the Indian Stamp Act, 1899 provides an extended definition of the expression "Bill of Exchange payable on demand". In so far as the present case is concerned, the Learned Counsel for the Plaintiff emphasised that 'Bill of Exchange payable on demand' includes an order for the payment of any sum of money by a Bill of Exchange or Promissory Note or for the delivery of Bill of Exchange or Promissory Note in satisfaction of any sum of money or for the payment of any sum of money out of any particular fund which may or may not be available or upon any condition or contingency which may or may not be performed or happened. In the present case, the first two Bills of Exchange were drawn at sight, while the third Bill of Exchange was payable 70 days on sight after the estimated time of arrival. The Learned Counsel appearing on behalf of the Plaintiff submit- ted that in any event, the first two Bills of Exchange were payable at sight and the modification which was brought about was only in the terms of collection upon the request of the Defendants that they may be granted some additional or extended time to pay the amount due under the two Bills of Exchange. The submission was that even if the terms of collection of the two Bills of Exchange and the terms of the third Bill of Exchange are taken into consideration, it would be apparent that what they provide is that the Bill of Exchange is payable 70 days sight from the estimated time of arrival. The payment of the amount due under the Bill of Exchange was, it was submitted, thus conditional upon the estimated time of arrival and if the goods did not arrive, there was no question of the contingency for the payment of the goods coming into existence. The payment under the
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Bill of Exchange was, therefore, according to the submission conditional or contingent upon arrival which was an event which may not in a given case have happened or come into existence. In these circumstances, it was argued that the Bills of Exchange in the present case are all Bills of Exchange payable on demand within the meaning of that expression contained in the Indian Stamp Act, 1899, and that being the position, the three Bills of Exchange were not liable to be stamped under the provisions of the Indian Stamp Act, 1899. On the other hand, the Learned Counsel for the Defendants submitted that clauses a, b and c of sub-section (3) of Section 2 deal with instruments which are not in themselves Bills of Exchange. Consequently, since the instruments in the present case are Bills of Exchange, the Plaintiff cannot rely upon clause (a) to sustain the submission that the Bills were an order for payment conditional on the happening of an event and were hence payable on demand. 12. The submissions may now be considered. Sub-section (2) of Section 2 of the Indian Stamp Act, 1899 provides a definition of the expression 'Bill of Exchange'. Besides a Bill of Exchange as defined by the Negotiable Instruments Act, 1881, the expression has also been defined to include a hundi and any other document entitling or purporting to entitle any person, whether named therein or not to payment by any other person or to draw upon any other person for, any sum of money. Sub-section (3) of Section 2 provides a definition of the expression 'Bill of Exchange payable on demand'. The definition is an inclusive definition and is hence not an exhaustive enumeration. Clauses (a), (b) and (c) of sub-section (3) extend the ordinary connotation of the meaning of that expression. That is indeed clear from clause (c) which includes even a letter of credit within the meaning of what constitutes a Bill of Exchange payable on Demand. Clauses (a) includes (i) an order for the payment of any sum of money by a Bill of Exchange or Promissory Note; (ii) an order for the delivery of any Bill of Exchange or Promissory Note in satisfaction of any sum of money; (iii) an order for payment of any sum of money out of any particular fund which may or may not be available; and (iv) an order for the payment of any sum of money upon any condition or contingency which may not be performed or happen. Similarly, an order for the payment of any sum of money weekly, monthly, or at any other stated period is considered to be a Bill of Exchange payable on demand under clause (b) of sub-section (3). These provisions of sub-section (3) would demonstrate that for the purposes of the fiscal enactment which the Stamp Act is, the Legislature adopted an extended definition of what constitutes a Bill of Exchange payable on demand. This definition extends the ordinary meaning of the expression as known in common parlance or for that matter as adopted by the Negotiable Instruments Act, 1881. No stamp duty is payable on a Bill of Exchange payable on demand. 13. In the present case, the Bill of Exchange dated 11th April, 1996 in the amount of Pound Sterling 38,970 and the Bill of Exchange dated 2nd May, 1996 in the same sum were payable at sight- The third Bill of Exchange dated 30th May. 1996 which was in the amount of Pound Sterling 30.344.64 was payable 70 days sight from E.T.A. 11.6.1996. The first two Bills of Exchange, in any event, were payable on demand since they were payable at sight. Thereafter, acting upon the request of the Defendants, the Plain tiff issued instructions to its Bankers on 24th May. 1996 to change the collection terms from sight to 70 days sight from E.T.A. for the two Bills of Exchange. The change in the collection terms does not alter the basic document since, it is well settled, that stamp duty is payable not in respect of the transaction but on the instrument or the document. What is chargeable to stamp duty under Section 3 is the instrument itself. For the present purposes, regard must be had to the defence of the Defendants that in so far as the third Bill of Exchange is concerned., it was not payable on demand since it was payable 70 days sight from E.T.A. 11th June, 1996. 14. In evaluating the defence which has been made out on behalf of the Defendants, the Court cannot be unmindful of the fact that in the present case, there is no denial of the transaction which took place between the parties, the receipt of the goods, a part payment in the amount of Pound Sterling 20,000/- or of the liability of the Defendants to pay the balance. In the affidavit in reply, the only evasive denial is that there was no admission of liability on the part of the Defendants. In these circumstances, the Learned Counsel appearing for the Plaintiff has, in my view with justification, relied on the judgment of Rajamannar, J. in Ponnusami v. Kailasam, in which the Learned Judge held while construing the provisions of the Stamp Act. 1899 that when the fact of the execution of a document is admitted. It need not be proved and this would be so even when the
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document in question is not admissible on account of any provision of the Stamp Act. Even in the proceedings under Order 37 of the Code of Civil Procedure, 1908, the Court must of course consider all defences which are raised on behalf of the Defendants and indeed some of them may be technical such as an objection as to stamping. Unquestionably, such a defence must be considered carefully since the failure to stamp a document has necessary consequences as envisaged in the Indian Stamp Act, 1899. At the same time, regard must well be had to what Mr. Justice J. C. Shah, as the Learned Chief Justice then was, observed in Hindustan Steel Ltd, v. M/s. Dilip Construction Co.,. The Learned Judge observed that the Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments and is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponents. The Supreme Court In Badat and Co. v. East India Trading Co., while construing the provisions of Order 8 of the Code of Civil Procedure, 1908, took notice of the fact that in the matter of "mofussil pleadings", the Courts relying upon the proviso to Rule 5 had tolerated a certain degree of laxity in the pleadings in the interests of justice. The Supreme Court, however, held that different considerations may perhaps have to apply when a pleading on the Original Side of the Bombay High Court does not contain a traverse of the contents of the Plaint. Subba Rao., J. as the Learned Chief Justice then was, held thus : "But on the Original Side of the Bombay High Court, we are told, the pleadings are drafted by trained lawyers bestowing serious thought and with precision. In construing such pleadings the proviso can be invoked only In exceptional circumstances to prevent obvious injustice to a party or to relieve him from the results of an accidental slip or omission, but not to help a party who designedly made vague dentals and thereafter sought to rely upon them for non-suiting the Plaintiffs. The discretion under the proviso must be exercised by a Court having regard to the justice of a cause with particular reference to the nature of the parties, the standard of drafting obtaining in a locality, and the traditions and conventions of a Court wherein such pleadings are filed." In the present case, one aspect of the defence which stands out is the almost complete absence of any denial on the merits of the claim by the Defendants. Indeed, the Learned Counsel appearing on behalf of the Paintiff submitted that this case could well justify even a decree on admission in term of Rules of Order 12 of the Code of Civil Procedure, 1908. 15. The circumstances of the case would require in the interests of justice, having regard to the nature of the defence, that while leave to defend the suit be granted to the Defendants, this should be conditional on a deposit of an amount equivalent to Pound Sterling 77,940/- in this Court within a period of 8 weeks from today. In arriving at this conclusion, I have had due regard to the circumstances of the case particularly the objection as to stamp with reference to the provisions of the Indian Stamp Act, 1899. Having regard to the provisions of Rule 222(1) of the High Court (O. S.) Rules, it would be in the interests of justice to grant leave to defend conditional upon the deposit of the amounts covered by the first two Bills of Exchange which works out to Pound Sterling 77,940/-. This would meet the requirements of proposition (e) of the principles enunciated by the Supreme Court in Mechalec Engineering and Manufacturers v. Basic Equipment Corporation, which provides thus : "(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defence." The amount equivalent to the aforesaid amount shall be computed by the Prothonotary & Senior Master on the basis of the rate of exchange as prevailing today and shall be deposited within a period of 8 weeks from today, in this Court.

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M/S Wolstenholme International ... vs Twin Stars Industrial ... on 5 March, 2001

16. On such deposit, the suit be transferred to the list of Commercial Causes. The Defendants shall file their Written Statement within 8 weeks thereafter. Inspection and discovery will be completed within 8 weeks thereafter. 17. In the event the amount are deposited as aforesaid, the Prothonotary & Senior Master to initially deposit the said amount in a Nationalized Bank, for a period of one year and thereafter, for equal successive periods, till the disposal of the suit. 18. On failure to deposit the aforesaid amount, liberty to the Plaintiffs to apply for further orders. 19. Summons for Judgment is disposed of in the aforesaid terms. No costs.

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