Boottam Pitchiah v. Boyapati Koteswara Rao .

1. The common question raised in these two revision petitions is whether a promissory note executed outside British India but bearing Indian Stamp sufficient for validation as a negotiable instrument requires again the proper stamp to be affixed and cancelled before it is endorsed in favour of the first holder in India.

2. The few following facts are necessary to be stated:

The Small Cause Suits Nos. 223 and 224 of 1956 have been filed by the plaintiff each for recovery of Rs. 1,297-1-9 based on two separate promissory notes executed on 26-5-1953 by the defendant in favour of the plaintiff's transferor. Each of those promissory notes bore the Indian Stamp sufficient for validation of the stamp if they were executed In India. But the learned Subordinate Judge, Vijayawada has found that those promissory notes in fact were executed in Katla Kachavaram in Hyderabad State in favour of the transferor of the plaintiff and endorsed in favour of the plaintiff on 16-5-1956. The point taken by the defendant that a promissory note executed outside British India, but stamped in accordance with the law in India is not enforceable has been negatived by the learned Subordinate Judge, But ha however held that even a promissory note so stamped and executed outside British India requires that another proper stamp should be affixed and cancelled in order to render the endorsement of that promissory note effective and enforceable. In those revision petitions, it is the decision of the learned Subordinate Judge on the second point that is questioned.

3. As regards the first point concerning the enforceability of the promissory note even though executed outside British India but stamped according to the law in India a decision of the Bombay High Court in Dhondlram Chatrabliuj v. Sadasuk Savatram, AIR 1918 Bom 211 is in point. There, the Division Bench consisting of Batchelor Ag. C. J. and Shah, J., while considering the maintainability of a suit brought on a promissory note executed in Hyderabad State not bearing stamp as required by laws of the Hyderabad State, but stamped with British India Stamp, applied the principle laid down in James v. Catherwood, (1823) 3 Dow and Ry. 190 and approved the following passage which reads as follows:

"It would be productive of prodigious inconvenience, if in every case in which an instrument was executed in a foreign country, we were to receive in evidence what the law of that country was, in order to ascertain whether the Instrument was or was not valid."

Batchelor, Ag. Chief Justice, summing up the conclusion of the Division Bench, observed as follows:

"that, if the law of the foreign country in which the document was executed provides no more than that the agreement shall not be received in evidence, because it is not stamped, then the agreement may be sued upon and enforced in a Court in British India; but if the law of the foreign country provides that, by reason of the want of stamp, the agreement itself which is contained in the unstamped document shall be void, then the plaintiff cannot succeed in a court of British India."

The relevant portion of the Hyderabad Stamp Act, Act IV of 1331 Fasli bearing on the point in Section 33, Sub-section (1) of which reads as follows:

"No person having by [aw or consent of parties authority to receive evidence, shall admit in evidence an instrument on which duty is payable and no such person or Government Servant shall act upon, register or authenticate it unless it is duly stamped."

4. It is clear from the language of this that this provision does not make an unstamped promissory note void, but renders only inadmissible. The same has been the prevailing view in Madras and should be taken to govern the State of Andhra Pradesh concerning the enforceability of such unstamped promissory notes. The rest of the decisions referred to also proceed on the same basis. This view cannot therefore be differed from as the same is not also questioned by the learned counsel for the petitioner.

5. As regards the second point, it presents considerable difficulty. Mockett, J., had occasion to deal with the came or similar question in Siva Subramania v. Kalankarayan, 1941-2 Mad LJ 301 : AIR 1941 Mad 868. There the defendant made a promissory note in Colombo. The promissory note was at the time stamped with one anna adhesive stamp i.e., the correct stamp for a note in British India, and was duly cancelled. It is stated that after 11th March 1934, We promissory note came into British India and was assigned to the plaintiff. Construing Section 19 of the Indian Stamp Act, the learned Judge ruled that:

"So far as a promissory note is concerned stamping and cancellation seems to be required only before transfer or endorsement."

And relying on the decisions in Mahomed Rowthan v. Mahomed Hussain Rowthan, ILR 22 Mad 337 and in Griffin v. Weatherby, (18E8) 3 OB 753, he arrived at the conclusion that affixing of fresh stamp and cancellation of it is obligatory before any endorsement is made. It is also pointed out that the same is the view expressed by Seshagin lyyer J., in Kunhi Koya Haji v. Asan Bava Haji, 36 Mad Lj 188 :

(AIR 1919 Mad 104). .

The similar question has again come up before Raghava Rao, J, in J.D. Lobo v. Marajal Doggu, . Though the learned Judge observed that there is reason in the contention raised before him that while making the endorsement of the promissory note, another proper stamp need be affixed and cancelled even when the promissory note bears the stamp already, he was not prepared to uphold that view 33 he felt that in the interests of judicial comity, apart from any other consideration, ha had to follow the judgment in 1941-2 Mad LJ 301 : AIR 1941 Mad 868.

The learned counsel for the petitioner contended for the contrary and argued relying upon a decision in Rattan Chand Biroo Ram v. Kharaiti Ram Nand Lal, (S) , wherein Kapur, J., observed that:

"Further if a British Indian Stamp is already on the promissory note it will not require a fresh stamp because if that is done the Crown or the Stats as the case may be will be charging double duty."

The learned counsel also submitted that the view taken m 1941-2 Mad LJ 301 : AIR 1941 Mad 868 (Supra), which has been doubted in should no longer be adopted by this Court.

I feel there is something to be said in favour of this argument. But Kapur, J., had not to decide this particular question in the decision in , and the observation referred to is thus obiter. The learned Judge had to deal only with a case of the fact of acknowledgment in respect of the debt due under a promissory note which was insufficiently stamped. The learned Judge was therefore aware that no question of presentation for acceptance or payment or endorsement, transfer or otherwise negotiation of instrument as mentioned in Section 19 of the Indian Stamp Act came in for consideration while deciding the case. Therefore, as it was not necessary for the learned Judge to decide this question, it cannot be said that Kapur, J., was postulating a dictum. Nevertheless, the reasoning; behind this observation of Kapur, J. has been employed at the bar as the argument of the learned counsel for the petitioner, and it therefore requires to be examined.

What is contended for is that when a promissory note has been properly stamped though executed outside British India and is sought to be made enforceable in British India, there is no question of any further operation of Section 19 when it is endorsed or transferred in favour of another holder. Secondly, it is pointed that if Section 19 of the Indian Stamp Act did apply, the affixure of a proper British India or India Stamp would tantamount to charging double duty and that therefore such a course should be denounced. The reasons given by Kapur, J., for doubting. The authority of the decision in 1941-2 Mad LJ 301 : AIR 1941 Mad 868 (Supra), are repeated and a point is sought to be made from the fact that the case in (1868) 3 QB 753 relied upon by Mockett, J., concerned only with a casa of unstamped instrument and not one bearing the proper Stamp of England.

6. Having regard to the fact that in adopting the ruling of Mockett, J., in 1941-2 Mad LJ 301 : AIR 1941 Mad 868, the instrument would be subjected to double duty and also that the basis for that decision is an Instrument without any stamp affixed thereto, I consider that the question raised in these two revision petitions needs to be decided by a Division Bench of this Court ****** Satyanarayana Raju, J.

7. These revision petitions raise air identical question of law for decision and can, conveniently, be disposed of in a common judgment.

8. The admitted facts in the latter of the revision petitions may be briefly set out: On the 26th March 1953, the respondent executed a promissory nota in favour of one Koti Raghavayya for a sum of Rs. 1103-11-3. On the 16th May, 1956, Raghatrayya transferred the promissory note to the petitioner for RS. 1400/-. After obtaining the transfer, the petitioner filed a suit for recovery of the amount due on the promissory note, in S. C. S. No. 223 of 1956, on the fife of the Stibordinata Judge's Court, Vijayawada. The defendant resisted the suit. Among the defences raised by him was the one that the suit promissory note was not executed in accordance with the requirements of the stamp law in force at the time in the erstwhile Hyderabad State and that as such the suit promissory note was "ab initio void and unenforceable". He also pleaded that the plaintiff was not a holder in due course and that the suit debt was discharged.

All the other pleas were negatived and found against the defendant. On the main plea, however, it was held that the suit promissory note was executed at Katta Kachavararn in the former Hyderabad State and though it was stamped with the requisite Indian Revenue Stamp, it was not executed In conformity with the provisions of the stamp act in force in the Hyderabad Stat" and that It was unenforceable: by reason of non-compliance with the requirements Of Section 19 of the Indian Stamp Act. As- a result of this finding, the trial Court dismissed the suit. The conclusion reached by the lower Court has been assailed before us.

9. We may at the outset refer to the material provisions of the Indian Stamp Act. Section 3 (b) reads:

"3. Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that schedule as the proper duty therefor respectively, that is to say:-

*****

(b) every bill of exchange payable otherwise than on demand or promissory note drawn or made out of India on or alter that day (the 1st day of July 1899) and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India...

Section 19, which is the other material provision reads as follows:

"19. The first holder in India of any bill of exchange, payable otherwise than on demand, or promissory note drawn or made out of India shall, before he presents the same for acceptance or payment, or endorses, transfers or otherwise negotiates the same in India, affix thereto the proper stamp and cancel the same........."

In both the above provisions the words "India except Part B States" were substituted for the words "British India" by the Adaptation of taws Order, 1950. The erstwhile State of Hyderabad became a part of the Indian Union on the 26th January 1D50 and it was thereafter one of the. Part B States Of the Union. We may also notice the sub-sequent amendment introduced by Act XLIll of 1955 which became law on the 1st April 1956. By reason of the provisions of this Act, the word "India" was substituted for "India except Part 9 States". As a result if the above statutory changes in Section 3(b) and Section 19, the word "India" has been substituted for what was originally "British India" and which subsequently became "India* except Part B States".

10. Bills of exchange- payable otherwise than en demand and promissory notes executed out if India must be stamped by the first holder at any time before he presents the same for acceptance or payment or endorses or transfers or otherwise negotiates the same in India. The first holder must stamp such Bill or Note by affixing the-proper adhesive stamp bearing the words "foreign bill" and cancel it in the manner prescribed by section 12.the obligation under the section only attaches to a foreign bill or note if the first holder presents it for acceptance or payment or endorses it or otherwise negotiates the-same in India. The consequents of tho omission would be that tho bill or note is inadmissible in evidence.

11. In the casa of a promissory not executed out of India and stamped at the time of execution with the proper Indian Stamp which was subsequently brought into India, the question arose as to whether it was necessary under Section 19 for the first holder in India to stamp the note again.

12. In (1941) 2 Mad LJ 301 : (AIR 1941 Mad 36B): it has been held by Mr. Justice Mockett that the stamp Act commences to operate on foreign bills and notes when they are brought into India and subsequently sought to be acted upon, and that it was irrelevant, therefore, that the note had already been stamped with at) Indian stamp outside India. In the casa before the learned Judge, the facts were these: The defendant executed a promissory note in Colombo on the 11th March 1934 in favour of one Arunachala Thevar. The promissory not* at that time was stamped with one anna adhesive- stamp and was duly cancelled. On or before the llth March 1935 the oro-missory note came into British India and was assigned ID the plaintiff and he sued upon the note. The defence was that the requirements of Section 19 of the Stamp Act had: not been satisfied. Mockett J. held that in the case of assignment or transfer of a promissory note drawn or made outside British India, tho first holder in British India must affix a proper stamp and cancel the same and the affixing of the stamp and its cancellation must be done before the process of transfer began in British India.

13. In a later decision, Raghava Rao J. held that in the interests of judicial comity, quite apart from any consideration of the correctness of tho decision, he was prepared to follow the decision of Mockett J. in 1941-2 Mad LJ 301 : AIR 1941 Mad 868 (supra).

14. In a recent judgment in S. A. No. 871 of 1958, DA 1-2-1962 (AP), our learned brother Mr. Justice Jaganmohan Reddy, followed the above two decisions. The facts of that casa were these: The second defendant, a resident of Secunderabad, executed a promissory note on the 6th October 1950, for a sum of Rs. 4,000/-. It was not disputed that the requisite stamp according to the Stamp Act then in force in the State of Hyderabad was affixed. On the 26th January, 1956, the 2nd defendant transferred the promissory note with an endorsement thereon "for collection at Bapatla in Guntur District." The transferee filed a suit on the 1st February 1956 for recovery of the amount due on the promissory note. The learned Judge held that the endorsement made by the 2nu defender in favour of the plaintiff required to be stamped as a foreign bill and since it had not been so stamped, it was inadmissible under Section 35 of the Stamp Act..

15. From the facts in the above case, it is clear that the promissory rote was executed in Hyderabad and was affixed with the requisite stamp according to the Hyderabad Stamp Act after Hyderabad became part of the Indian Union. The endorsement of transfer was made on the 26th January 1956, at a time when the word 'India' was not substituted in Sec, 19 by Act XLIII of 1355 and the words were "India except Part B Slates", Hyderabad then being a part B Slate, the decision of the learned Judge v/as correct with reference to the, law as it then stood.

As already mentioned the word "India" was substituted in Section 19 by Act XLIII of 1955, which came into force on 1st April 1956. Admittedly, the assignment in the present case was made on the 16th May 1956 after Section 19 was amended by the substitution of the word "India" for the words "India except Part B States". Therefore, by the date of the endorsement, not only the distinction between British India and Indian States but also the distinction between Part B States and Part A States had completely disappeared. On the date of the transfer in favour of the petitioner in the present cases, the position was that Hyderabad was part of India within the meaning of Section 19. Therefore the question as to whether the stamp affixed on the suit promissory note is the proper stamp or not must be- adjudged in accordance with the law now in force. On the dale of the transfer in favour of the plaintiff, the stamp affixed on the suit promissory rote was the proper stamp as per the provisions of the Indian Stamp Act. We are of opinion that the suit promissory note is a foreign bill drawn or made out of India and that it has been affixed with the proper stamp. In this view the suit brought upon the promissory note in question is maintainable. The decision of the lower Court that the suit is not maintainable cannot he sustained.

16. The facts in the other revision petition are identical and need not be separately dealt with.

17. Having regard to the conclusions by us the Revision Petitions are allowed and the suits are decreed with costs throughout.