In Re: Chief Controlling Stamp Authority Hyderabad, Referring Officer

Basi Reddy, J.—This is a reference by the Chief Controlling Stamp Authority to the High Court under Sec. 55 of the Hyderabad Stamp Act (No. IV of 1331 Fasli) for a decision on the question of the proper stamp duty chargeable on certain documents which are termed ''rental-deeds'', each also containing a clause whereby a third party undertook to guarantee the due payment of the stipulated rent and the performance of the other conditions of the lease. The point for determination in this reference is whether each of the leases in question is to be treated as relating to two distinct matters not forming parts of the same transaction, within the terms of Sec. 5 of the Hyderabad Stamp Act, so as to require to be stamped both as a lease-deed and as a security bond.

The leases follow the same pattern and for the sake of convenience, the terms of a specimen deed may be set out:

I.........son of........aged- years, occupation....resident of Hyderabad, Deccan, with a sound mind and judgment, without any duress or coercion and of my own free will and accord, do hereby execute this rental deed in favour of the Municipal Corporation represented by the Vice-Chairman. Municipal Corporation, Hyderabad, to the effect that I have obtained a mulgi/stall, bearing No.... on 195......,for the purpose of establishing a shop for a period of (11) eleven months on a stipulated monthly rent of O. S. Rs........ on the following conditions:

That I have paid a sum of Rs..... as advance of rent for one month for the aforesaid mulgi/stall and that I have also deposited as ''dharawat'' a sum of Rs......... equivalent to 3 months'' rent and obtained a receipt therefor, and I do hereby agree to pay without making any excuses or objections the monthly rent in advance by the 5th of each month and obtain a receipt therefor.

That in case of delay in the payment of the monthly rent or if any arrears remaining outstanding against me, the Municipal Corporation. Hyderabad, shall be at liberty to deduct the same from the amount of ''dharawat'' deposited by me or to recover the same from my person or property under the rules or to eject me from the said mulgi/stall.

On receiving the orders from the Municipal Corporation, Hyderabad, for the vacation of the said mulgi/stall, I shall vacate the said mulgi/stall without making any excuses or objections within 15 days from the date of the receipt of such, order or within such time as may be fixed by the Municipal Corporation, Hyderabad.

In case I myself should desire to vacate, I shall notify the Municipal Corporation, Hyderabad, one month in advance and before such vacation I shall discharge, all the dues etc. that may be outstanding against me for the duration of my tenancy. If I vacate the mulgi/stall within the month, I shall be liable to pay one month''s rent and the Municipal Corporation, Hyderabad, shall be at liberty either to deduct the same from the amount of ''dharawat'' deposited by me or to recover the same according to law from my person, and property. Moreover until and unless permission is granted to me for vacating the mulgi/stall and all the outstanding arrears are paid by me, I shall not be entitled either to take away any ''samara'' or to vacate the mulgi/stall and till full satisfaction is made, the vacation shall not be deemed to be complete.

That I shall not sublet the said mulgi/stall to any one or deliver over the possession thereof to a third party without the permission of the Municipal Corporation, Hyderabad.

That in opening and closing my shop, I shall duly observe the market hours and that I shall not be entitled to stay or sleep in the shop after the market is closed:

That I shall not fix any nails etc. on the walls of the mulgi-stall and that I shall be held responsible to make good any loss that may be so sustained by the Corporation either through me or through my servant. Also I shall not have any right to make any new constructions or repairs without the permission of the Municipal Corporation.

That I shall not keep my mulgi/stall locked up more than a week without the permission of the Municipal Corporation, Hyderabad, and that in case of my failure to notify and obtain the permission of the Municipal Corporation, the said Municipal Corporation, shall be entitled to take into its custody my ''samans'' and mulgi/stall by breaking open the lock and after holding a panchanama and to charge to me and recover from me the rent for the entire month in which such action may be taken and also that the said Municipal Corporation is exonerated from the liability for any damage or loss caused to me.

That I shall make arrangement for cleaning the said mulgi/stall from time to time and that I shall not keep in the said mulgi/stall anything that may be obnoxious or injurious to health or contrary to any agreement nor shall do any kind of cooking therein; that I shall be bound by the Marketing Act and the Rules promulgated thereunder, now in force or that may come into force at any time and that within the prohibited limits fixed by the Market authorities I shall neither establish any branch of my shop nor carry on my business in any other way.

That I shall comply with the orders issued by the Municipal Corporation within the time allowed without any objection or excuse and that in case of breach of contract the Municipal Corporation will be empowered to eject me and forfeit the amount of ''dharawat'' deposited by me and to recover the rental dues found against me with costs and damages either from my person and property or from those of my surety as in the case of property tax, after issuing an order for attachment and that in such an eventuality neither I nor my heirs or legal representatives shall have any objection or excuse.

That without the permission of the Municipal Corporation, Hyderabad, I shall not carry on any business other than the one permitted by the Municipal Corporation.

That in case of my using the electricity in the aforesaid mulgi-stall, I shall obtain permission separately in this regard while notifying the number of bulbs and candle powers that I intend to use; that in case of the permission being granted I shall pay in advance the prescribed charges for one month like in the case of the rent, for the mulgi/stall and deposit the charges of 3 months towards the electricity deposit in the Municipal Corporation before consuming the electricity; that I shall not use electric bulbs of higher candle power without the permission of the Municipal Corporation and that if I should happen to do so at any time the said Municipal Corporation may forfeit my electricity deposit and credit the same to the account of the Municipal Corporation and may cut off the supply of electricity and can recover any charges that may be incurred on account of my excessive use of electricity either from my person or property like property tax.

That I shall pay the electricity charges according to the prescribed rates to the Municipal Corporation and that if any recoveries are made as above in case of any default in payment, I shall have no objection. Therefore, I have written these few lines by way of rental-deed so that the same may serve as a deed of authority and be used as and when required.

Dated................195

signed)

Witness

Witness

Witness

I have caused Sri...........son of occupation........... resident of....to stand surety for me who has executed the surety bond as below.

Signed...................

I............son of............. resident of....in full possession of my senses without any duress or coercion and of my own free will and accord do hereby declare that I stand surety for Sri son of ..............aged........caste.....resident of........and agree that in case of the aforesaid person committing default by railing to pay the rent in time in accordance with the terms of the rental deed dated...... 195.......bearing stamp No.......... or commits any breach of contract. I shall be liable to pay all the claims against the aforesaid person from my own person and property and that in case of default, the Municipal Corporation shall be empowered to recover the same together with damages and costs from my person and property, movable and immovable as in the case of property in accordance with law now in force or any law that may be enforced later on and that in such a case neither I, nor my heirs and legal representatives shall have any objection or excuses. Therefore, I have written these few lines by way of surety bond so that the same may serve as a deed of authority and be used as and when necessary.

Signed/- 195

Witness

Witness

Witness.

It will thus be seen that clauses 1 to 13 of the instrument embody the contract entered into by the lessee with the Municipal Corporation, whereas clause 14 relates to the covenant by the surety at the instance of the lessee.

Now, Section 5 of the Hyderabad Stamp Act provides that "any instrument comprising or relating to several distinct matters and not forming part of the same transaction shall be chargeable with the aggregate amount of the duties with which, if separate instruments were written for each of such matters, would be chargeable."

This section may be compared with the corresponding Sec. 5 of the Indian Stamp Act, 1899. The latter section reads:

Any instrument comprising or relating to several distinct matters shall be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matters, would be chargeable under this Act.

It will be noticed that the language of these two sections is almost identical except that the words "and not forming part of the same transaction," which occur in Sec. 5 of the Hyderabad Act, do not find place in Sec. 5 of the Indian Act. We have adverted to this difference in language only with a view to emphasize that certain decisions to which we shall presently refer, which have construed Sec. 5 of the Indian Stamp Act of 1899 or its forerunner - section 7 of Act No. I of 1879, would apply with greater force to cases arising under the Hyderabad Act.

Now, in the instant case, the instrument does comprise two matters, namely, the contract by the lessee and the covenant by the surety; but the crucial questions are

Do they relate to distinct matters? and

Do they not form parts of one and the same transaction?

A reading of the document makes it plain that the lessee has induced the surety to give an undertaking guaranteeing the payment of rent and the performance of the other conditions of the lease. The covenant entered into by the surety is therefore incidental and ancillary to the contract between the lessor and the lessee and forms part of the consideration for granting the lease. It is but an additional term of the bargain and forms-an integral part of it; so that, the lease and the covenant do not relate to two distinct matters but only to the terms on which the lessor lets the building and the lessee takes it. Thus the lease and the guarantee form parts of a single transaction; the document in question is not a multifarious instrument relating to several distinct matters, and Sec. 5 of the Hyderabad Stamp Act cannot be pressed into service.

For determining whether or not certain matters are distinct, the criteria adopted by courts in England are indicated in the case of Price v. Thomas, (1831) 2 B.&Ad. 218. There, by an instrument, in the form and containing the usual covenants of a lease, A demised premises to B, and B and C covenant to pay the rent. In an action against C on the covenant to pay rent, it was held that the instrument was available against him, though stamped as a lease only and that a deed stamp was unnecessary. Lord Tenterden, C. J. said:

If this covenant had introduced matter no way connected with the demise, but wholly distinct and independent, it might then have been said that the plaintiff could not benefit by such a stamp as was affixed to this indenture. But that was not the case. The objection, therefore, cannot prevail.

Littledale, J. observed:

The lease was the principal, to which this covenant was an accessory.

And Park E. J. said :

This covenant was part of the consideration for granting the lease.

A similar ruling had been previously made by Patteson, J. at Nisi Prius, on the same document, Pratt v. Thomas, (1831) 4 C&P. 554.

He observed :

I think this stamp is sufficient. This deed is a lease and this covenant is only ancillary to it. The question is, what is the leading character of the instrument?

Stead v. Liddard, (1823) 8 Moore C. P. 2 is an authority for the position that the mere fact that the contract of the principal appears separately on the instrument from the contract of the surety, does not render two stamps necessary. In that case a letter was written proposing certain terms of agreement, and the person, to whom it was sent, wrote, at the foot of it, a memorandum consenting to those terms. On the Back of the letter, the father of the latter wrote a guarantee of the performance of the agreement by his son. It was held by the Court of Common Pleas that one stamp was sufficient and that the latter, the memorandum accepting its terms and the guarantee - all formed but one transaction.

In re Secretary to Commr. of Salt, Abkari and Separate Revenue. Madras, ILR 43 Mad 365 : (AIR 1920 Mad 225) (F B) a Full Bench of the Madras High Court held that a sale deed, in which the vendor mortgages lands not included in the sale as security for the due performance of his covenants, need not the stamped both as a sale and as a mortgage by virtue of the provisions of Sec. 5 of the Indian Stamp Act, 1899, as the sale deed is not an instrument comprising or relating to distinct matters within the meaning of the section. Wallis, C. J., who delivered the judgment, reviewed the case law and dissented from the Full Bench decision in Govindan Nambudri v. Moidin, ILR 41 Mad 469 : (AIR 1918 Mad 504 (2)) (FB), to which he himself had been a party. In doing so, the learned Chief Justice observed :

In ILR 41 Mad 469 : (AIR 1918 Mad 504 (2)) (FB) which was decided without argument, the answer would no doubt have been to the same effect, if these authorities had been brought to the notice oft the Court, and we think that the decision should not be followed in future cases.

It may be mentioned that in Govindan Nambudiri''s case, ILR 41 Mad 469 : (AIR 1918 Mad 504 (2)) (FB) the Court was dealing with a Malabar ''marupat'', i. e., the counterpart of a lease, executed by a tenant but which also contained a provision whereby the arrears of rent were charged upon the improvements that might be effected by the tenant and it was held that the deed was both a counterpart of a lease and a mortgage and should be stamped with the aggregate duty.

In Dowlatram Harji v. Vitho Radhoji, ILR 5 Bom 188 (FB), which arose under the Indian Stamp Act I of 1879, a bond was written upon one stamp paper but the contract of the principal came first and was signed by him, and next after that signature, followed the contract of the surety signed by the latter. A Full Bench of the Bombay High Court was of the view that the document should be regarded as one instrument and not as two instruments, the contract of the surety being incidental and accessory to that of the principal and in respect of one and the same sum or consideration - the leading object or character of the document being the securing of that sum. The Court, therefore, held that the bond and the guarantee did not fall within S. 7 of the Act and did not require to be separately stamped.

Applying the tests deducible from the above decisions, we are of opinion that each of the instruments in the present case, does not comprise or relate to distinct matters, nor can it be said that the matters therein do not form parts of the same transaction. It follows that the provisions of Sec. 5 of the Hyderabad Stamp Act are not attracted and consequently the instruments are not chargeable with stamp duty both as lease-deeds and as security bonds.