The Madhya Pradesh High Court recently had the opportunity to clarify the law relating to the distinction between a Bond and a Promissory Note.
6. To appreciate the rival contention of the parties, it would be appropriate if the definition of bond in the Indian Stamp Act, 1899 may be referred which reads thus:
Bond: Section 2(5) "Bond" includes:
(a) 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;(b) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and(c) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another.
Promissory note has been defined in Section 2(22) which reads thus:
Promissory Note: Section 2(22) "Promissory note" means a promissory note as defined by theNegotiable Instruments Act, 1881;
It also includes a note promising 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 happen.
As per Section 2(22) the definition of Promissory note shall be as defined by Negotiable Instruments Act, 1881. For ready reference the definition of promissory note as defined in Section 4 of the Negotiable Instruments Act may be referred, which reads as under:
4. "Promissory note".- A "promissory note" is an instrument in writing (not being a bank-note or a currency- note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
Now in the light of aforesaid definitions firstly the definition of promissory note may be looked into. Section 4 of the Negotiable Instruments Act provides as under:
(a) An instrument in writing.
(b) An unconditional undertaking, signed by the maker, to pay a certain sum of money only.
(c) Money is payable to the person in whose favour the promissory note is executed or to the order of a certain person or to the bearer of the instrument. It should be signed by the maker. From the perusal of aforesaid document, it is apparent that except the money was payable to the order of or the bearer of instrument, other conditions were incorporated in the document.
7. Under Section 2(h) of the Indian Contract Act, 1872, an agreement enforceable by law is a contract. Under Section 10 of the Contract Act all agreements are contracts if they are made by free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. An "agreement" or a "memorandum of agreement to sale of immovable property" has been provided in Schedule 1-A of Indian Stamp Act, which provides stamp duty when possession of property is delivered or is agreed to be delivered without executing the conveyance, the stamp duty as of conveyance on the market value of property is to be paid. But when possession of property is not given 1 % of the total consideration of property, set forth in the agreement or in the memorandum of agreement, is payable. But in the present case, the sale deed was already executed and possession was also delivered to the petitioner herein. In the set of facts, it does not fall within the purview of agreement as provided under Schedule 1-A of Indian Stamp Act.
8. Now the definition of "bond" may be looked into, as provided under Section 2(5) of the Indian Stamp Act, which has been referred hereinabove. As per the definition, the essential ingredients of bond are as under:
(1) The person obliges himself to pay money to another.(2) On a condition that the obligation shall be void if the specific act is performed or not performed, as the case may be.(3) The instrument must be attested by a witness.
(4) That the amount shall not be payable to order or bearer and a person obliges himself to pay money to another.9. A Full Bench of this Court had an occasion in Sant Singh (supra), to consider the essential and distinctions of bond and promissory note. The Full Bench held the essentials of a promissory note as under:
(1) An unconditional undertaking to pay;
(2) The sum should be a sum of money and should be certain;
(3) The payment should be to the order of a person who is certain, or to the bearer of the instrument; and
(4) The maker should sign it.
If these four conditions exist, the instrument is a promissory note.
In respect of bond, the Full Bench held that following are the essentials of a "bond":
(1) There must be an undertaking to pay;
(2) The sum should be a sum of money but not necessarily certain;
(3) The payment will be to another person named in the instrument;
(4) The maker should sign it;
(5) The instrument must be attested by a witness; and
(6) It must not be payable to order or bearer.
The Full Bench on a comparison between the essentials of promissory note and those of bond found that there are three distinguishing features, which are as under:
(i) If money payable under the instrument is not certain, it cannot be a promissory note, although it can be a bond.
(ii) If the instrument is not attested by a witness, it cannot be a bond, although it may be a promissory note.
(iii) If the instrument is payable to order or bearer, it cannot be a bond, but it can be a promissory note.
Defining aforesaid the two peculiar features of bond has been narrated as under:
(a) Positive - it must be attested by a witness.
(b) Negative - it must note be payable to order or bearer.
Appreciating aforesaid, the Full Bench held in Paras 7, 8 and 9 as under:
7. It is also clear that if in an instrument the above two distinguishing features positive and negative) are present, then, even if the four essentials of a promissory note are also present, the instrument will still be a bond, because all the ingredients of a promissory note are also present in a bond with the exception that whereas a promissory note can be payable, apart from the person named in it, to the order of that person or to the bearer of the instrument, a bond cannot be payable to order or bearer.
8. Therefore, an instrument, which is not payable to bearer or order but is attested by a witness will also be a bond within the definition of Section 2(5) of the Stamp Act, although simultaneously it may also fall within the definition of a promissory note within the meaning of Section 2(22) of the Stamp Act read with Section 4 of the Negotiable Instrument Act.
9. Having thus opined out the distinction between promissory note and a bond, we may at once say that in the last mentioned situation that is, where an instrument comes within the description of a promissory note as well as that of a bond, by virtue of Section 6 of the Stamp Act, it will be chargeable only with the highest of the duties chargeable, i.e., stamp duty as chargeable on a bond. That section reads thus:
Subject to the provision of the last preceding section, an instrument so framed as to come within two or more of the descriptions in Schedule I, shall, where the duties chargeable thereunder are different be chargeable only with the highest of such duties:
Provided that nothing in this Act contained shall render chargeable with duty exceeding one rupee a counterpart or duplicate of any instrument chargeable with duty and in respect of which the proper duty has been paid.