IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOMAS P.JOSEPH MONDAY, THE 31ST MAY 2010 / 10TH JYAISTHA 1932 WP(C).No. 15591 of 2010(O) -------------------------- OS.275/2007 of PRINCIPAL SUB COURT,NORTH PARAVUR .................... PETITIONER(S): --------------- S.VISWANATHAN,S/O.V.R.SHIVARAMAKRISHNAN, AGED 51 YEARS,PROPRIETOR,R.S.COMBINES,V/31,PALACE ROAD,ALUVA RESIDING AT VIII/30,VARIETHU PUTHEN MADOM,BOC BUILDINGS,PALACE ROAD,ALUVA, ERNAKULAM DISTRICT,PIN-683 101. BY ADV. SRI.S.P.CHALY RESPONDENT(S): --------------- LESLIE PHILIP,PROPRIETOR, PERIYAR INFOTECH,RESIDING AT MALAYIL HOUSE, CHIRAYIRUMBU.P.O,MARAMON,PATHANAMTHITTA DISTRICT. BY ADV. SHRI M.R.RAJESH SHRI K.M.ALEXANDER THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 31/05/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: THOMAS P. JOSEPH, J. -------------------------------------- W.P.(C) No.15591 of 2010 -------------------------------------- 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 WP(C) No.15591/2010 2 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 WP(C) No.15591/2010 3 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 WP(C) No.15591/2010 4 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 WP(C) No.15591/2010 5 (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 WP(C) No.15591/2010 6 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 WP(C) No.15591/2010 7 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 WP(C) No.15591/2010 8 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