SEYLAN MERCHANT BANK LTD., vs. SAVOY DEVELOPERS (PVT) LTD AND OTHERS

037-SLLR-SLLR-2006-V-2-SEYLAN-MERCHANT-BANK-LTD.-vs.-SAVOY-DEVELOPERS-PVT-LTD-AND-OTHERS.pdf


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SEYLAN MERCHANT BANK LTD.,
VS.
SAVOY DEVELOPERS (PVT.) LTD., AND OTHERS
COURT OF APPEAL.
IMAM, J.,
SRISKANDARAJA, J.
CA 119/2003.
DC COLOMBO 20336/MR.
AUGUST 2, 8, 2005.
Stamp Duty Act, No. 43 of 1982, sections 5(5) and 33(1) – Stamping ofdocuments – Lease agreement stamped – Should the Guarantee Bond bestamped ?
The plaintiff petitioner entered into a lease agreement with the 1 st defendantrespondent with regard to certain vehicles and the 2nd and 3rd defendantsguaranteed the lease agreement by a guarantee bond. Action was instituted bythe plaintiff petitioner to recover the amount due. When the case was taken up fortrial the petitioner marked the lease agreement and attempted to mark theguarantee bond. Objection was taken that, the guarantee bond was not dulystamped to the same value as the lease agreement. This objection was upheld.
On leave being sought,
HELD:
Section 5 provides that if a bond or mortgage has been made inpursuance of another agreement or instrument and if such instrumenthas been stamped with ad valorem stamp duty the bond or mortgageis exempt from stamp duty.
The guarantee has been clearly made pursuant to the lease bond, andis directly connected with the lease Bond and was executed during thecourse of the same transection. In the circumstances, the guarantee isexempt from stamp duty.
Per. Imam, J.
“When a party moves to mark a document in evidence which has not beenproperly marked, the Court could make an order that the document could beadmitted in evidence on the payment of a penalty in order to protect revenue.Nowhere does the proviso Say that at the time a party seeks to mark a document
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Seylan Merchant Bank Ltd., vs.
Savoy Developers (Pvt.) Ltd., and Others (Imam J.)
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it shall be properly stamped, however when the document is admitted inevidence, the document must bear the stamps to the proper value togetherwith a penalty if necessary; however in this case the lease agreement wasproperly stamped."
APPLICATION for leave to appeal from the order of the District Court of Colombo.Cases referred to:
Rupawardane Somapala Wickremasinghe vs. GoodwillMarine Academy (Pvt.) Ltd. and two Others – 2001 2Sri LR – 284(distinguished).
Kistnappa vs. Ratnam – District Court of Colombo 37084 Reports ofCeylon Tax Cases Vol. II – pages 37.
/. S. de Silva with Ms. Iresha Fernando for plaintiff petitionerHussain Ahamed with Ms. T. K. Jaleel for defendant respondent.
Cur.adv. vult.
February 09, 2006.
IMAM, J.
This is an application by the Plaintiff-Petitioner (hereinafter referred toas the 'Petitioner’) to set aside the order of the learned Additional DistrictJudge of Colombo dated 24.03.2003, to permit that the Guarantee Bondsought to be marked as P2 in the District Court be received in evidence,for costs and inter-aiia for other reliefs as prayed for in the Petition. Leaveto Appeal was granted on 25.06.2004 with regard to the District Judge’sorder refusing to admit the Guarantee Bond in evidence on the basis thatit has been insufficiently stamped.
The facts of the case are briefly as follows : The Plaintiff-Petitionerentered into a Lease Agreement (XI) on 06.07.1995 with the 1 st DefendantRespondent (hereinafter referred to as the 1 st Respondent) with regard tothe vehicles morefully described in the schedule to the aforesaid Agreement(XI). The 2nd and 3rd Defendants-Respondents (hereinafter referred to asthe ‘2nd and 3rd Respondents' respectively) guaranteed the aforesaid LeaseAgreement (XI) by Guarantee dated 06.07.1995 (X2) to the extent ofRs. 10,485,000 and the interest thereon. The Respondents having failed
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to pay the money due to the Petitioner in accordance with the LeaseAgreement (X1) and the Guarante Bond (X2) respectively, the petitionerinstituted action (20336/MR) against the 1st Respondent on X1 and the2nd and 3rd Respondents on X2 respectively for the recovery of the moneyas set out in the schedule to the plaint, but nevertheless restricted theclaim to a sum of Rs. 8,872,643.54 (X3). The Respondents filed Answer(X4) denying the sum claimed, moved for a dismissal of the action andalso sought Rs. 10,000,000 as a Claim in Reconvention. When the casewas taken up for trial, counsel for the Petitioner marked the LeaseAgreement (X1) as P1 and attempted to mark the Guarantee Bond (X2)and P2 when Counsel for the Respondents objected to the aforesaid Bond(X2) being marked on the basis that it was not duly stamped to the samevalue as the Lease Agreement (X1). Subsequently both parties tenderedtheir written submissions (X6 and X7 respectively), consequent to whichthe learned Additional District Judge of Colombo made order dated24.03.2003 (X8) in which he upheld the Objection of the Respondents andheld that the Guarantee Bond (X2) was not duly stamped and should havehad stamps affixed to the value of the main lease Agreement (X1).
The contention of the Petitioner was that the learned Trial Judge erredin law, since the Lease Agreement (X1) was duly stamped and that thereis no provision in law that a Guarantee Bond should have affixed on it thesame value of stamps as the main Agreement. The Petitioner submittedthat although the learned trial Judge relied on the decision in RupawardeneSomapala Wickramasinghe Vs. The Good Will Marine Academy (Pvt.)Ltd. and two others the aforesaid decision has no application to thefacts of this case, since in the aforementioned case neither the Agreementnor the Surety Bond was duly stamped. The petitioner contended that thefacts in this case are completely different as in this case the LeaseAgreement (X1) was duly stamped and hence there is no legal requirementthat the Guarantee Bond (X2) should bear stamps to the same value asX1. It was further averred by the Petitioner that section 5(5) of the StampDuty Act, No. 43 of 1982 refers to documents which are exempt fromStamp Duty and that in accordance with this section the Guarantee (X2)being pursuant to the Lease Bond (X1) is directly connected with theLease Agreement and that the Lease is with the 1st Respondent in thiscase. It is submitted by the Petitioner that the Guarantee (X2) reads asfollows : “For the purpose of this guarantee it is hereby agreed that theterm ‘Debtor” shall mean Savoy Developers Private Limited of No. 12,
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Galle Road, Colombo 06”. At page 3 of (X2) the Guarantors referred totherein have guaranteed upto a sum of Rs. 10,485,000 of the moneyspayable to the Bank and hence as the Guarantee (X2) was given pursuantto the Lease Agreement (X1), is thus exempt from Stamp Duty.
The Respondents in their written submissions referred to section 33(1)of the Stamp Duty Act, No. 43 of 1982, which reads as follows :
“No instrument chargeable with stamp duty shall be received or admittedin evidence by any person having by law or consent of parties authority toreceive evidence or registered or authenticated or acted upon by any personor by any officer in a Public Office or Corporation or bank or approvedcredit agency unless such instrument is duly stamped.” provided that anysuch instrument may-
be admitted in evidence by any person having by law or consent ofparties authority to receive evidence; or
if the stamp duty chargeable on such instrument is one thousandfive hundred rupees or less, be acted upon by the Registrar-General,upon payment of proper duty with which it is chargeable or theamount required to make up the same and a penalty not exceeding3 times the proper duty.
It is contended by the Respondents that the Guarantee was signed on
and that the relevant Gazette notification is by Gazette ExtraOrdinary No. 224/3 of 20.12.1982 with regard to the said transaction whichreads as follows :
Item No. 7. (b) “Bond or Mortgage whereby any sum of money ishypothecated as security for the due performance of any act or acts or forfulfilling any obligation under any contract or otherwise or indemnifyingany person in respect of any damage, loss or expenses for everyRs. 1,000 or part thereof."
The Respondents contend that in view of the fact that the Guaranteebond has been valued at Rs. 10,485,000 the stamp duty payable on thesaid bond in terms of the said gazette Notification is Rs. 10 for every Rs.1,000 which amounts to Rs. 104,850 and as the Guarantee Bond has
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been stamped for only Rs. 10 it is not admissible in law in terms of section33(1) of the Stamp Duty Act and for that reason cannot be led in evidence.
I have examined the submissions and documents tendered by bothsides.
Section 5 of the Stamp Duty Act, No. 43 of 1982 states as follows :“The following instruments and documents shall be exempt from thepayment of Stamp Duty.” Sub-section (5) states that 'Bond or Mortgagemade in pursuance of covenant or other Agreements in that behalfcontained in some other instrument and without additional moneyconsideration, if such other instrument had been stamped with an 'advalorem’ stamp duty on the amount of the consideration for such Bond orMortgage”. Hence this sub-section 5 provides that if a Bond or Mortgagehas been made in pursuance of another Agreement or Instrument and ifsuch other Instrument has been stamped with an ‘ad valorem’ stamp dutythe Bond or Mortgage is exempt from Stamp Duty. The Guarantee (X2)has been clearly made pursuant to the lease Bond (1), is directly connectedwith the Lease Agreement (X1) and is during the course of the sametransaction both having been signed on 06.07.1995. Furthermore theGuarantee X2 refers to the 1 st Respondent as “Debtor”. The 2nd and 3rdRespondents have guaranteed upto a sum of Rs. 10,485,000 of the moneyspayable by the ‘debtor’ to the bank. Thus as the guarantee X2 was givenpursuant to the Lease Agreement (X1), in accordance with section 5(5),the Guarantee (X2) is exempt from Stamp Duty.
The general practice is for the principal Borrower and the Guarantors tosign one Agreement and the stamps are affixed only to the value of thesaid Agreement. However in this case there are two separate Agreements,namely the Lease Agreement (X1) with regard to the 1 st Respondent theLessee and a Guarantee Bond (X2) for the Guarantors. Thus it is my viewthat the result is the same whether the parties have signed one documentor two separate documents. Once the main document is duly stampedthere is no requirement that the Guarantee Bond should also be stampedto the value of the main Agreement.
However the proviso to section 33 of the Stamp Duty Act, No. 43 of
1982 says that “Any such instrument may be admitted in evidence
upon payment of proper duty which is chargeable for the amount required
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to make up the same and the penalty not exceeding three times theproper duty.”
In Rupawardena Somapala Wickremasinghe Vs. Goodwill MarineAcademy (Pvt.) Ltd. and two others(1) the main agreement itself was notproperly stamped with an ad valorem duty but a Rs. 10 stamp and thusthe surety Bond could not be led in evidence as it did not carry with it theappropriate stamp duty. In that case Edussuriya, J held that at the timethe surety Bond was sought to be marked in evidence it should be dulystamped and if not must be rejected. Furthermore,.Edussuriya, J in hisjudgment held as follows :
“Under the proviso to section 33(1) such an under stamped Bond maybe admitted in evidence upon payment of the proper duty or the amountrequired to make up the same and a penalty not exceeding three timesthe proper duty; this had not been done at the time the document wassought to be marked in evidence when the objection was taken. Hencethe objection must be upheld."
The purpose of revenue is to contribute to the revenue of the State. InKistnappa Vs. Rutnam{2) – at 37, De Sampayo, J stated that the matter ofstamp concerns the revenue principally and if the interests of revenue areconserved by an order of the Court to which a document is first tendered,there is no object in allowing the parties to continue the contentions overthe matter of stamp.
Thus where a document is not properly stamped at the time of tenderingthe penalty must be paid, if the said document is to be relied on andadmitted as evidence. Thus when a party moves to mark a document inevidence which has not been properly stamped, the Court could make anorder that the document could be admitted in evidence on the payment ofa penalty in order to protect revenue. Nowhere does the proviso say that atthe time a party seeks to mark a document it should be properly stamped.However when the document is admitted in evidence, the document mustbear the stamps to the proper value together with a penalty if necessary.The facts of this case are different to Wickremasinghe Vs. The Good willMarine Academy(supra) where the Lease Agreement itself was not properlystamped. However in this case the Lease Agreement (X1) was duly stamped.Hence the decision in Wickremasinghe case(supra) will not be applicable
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to this case. The purpose of section 33 of the Stamp Duty Act, No. 43 of1982 is to ensure that revenue is properly protected. Hence I hold that interms of section 5(5) of the Stamp Duty Act, No. 43 of 1982 the Guarantee(X2) need not be duly stamped as the Lease Agreement (X1) which formspart of the same transaction has been duly stamped. For the aforesaidreasons, I permit the appeal of the petitioner and set aside the order of thelearned Additional District Judge of Colombo dated 24.03.2003 (X8). I makeno order with regard to costs.
SRISKANDARAJAH, J. – / agree.
Appeal allowed.