The Kerala High Court explains the difference between a “bond” and a “agreement.”

The Kerala High Court has clarified the distinction between an agreement and a bond, stating that in order for an instrument to have the character of a bond, an obligation must be generated within the instrument itself.

The Court had to decide whether the parties’ agreement constituted a bond or an agreement, as defined by Section 2(a) of the Kerala Stamp Act, 1959.

To reach a conclusion, Justice Viju Abraham referenced passages from numerous historic decisions:

“A bond’s defining element is that the obligation must have been formed in the instrument itself; if the obligation was already in place, it would not qualify as a bond… When an obligation already exists, the later document describing the nature of the duty or the contract’s terms and conditions is merely an agreement.”

Finding that there was a particular admission in the agreement of an amount owed to the petitioner as of the date of execution of the instrument, it could only be construed as an agreement and not as a bond as specified in Section 2(a) of the Act.

As a result, it was determined that the document in question can only be interpreted as an agreement and not as a bond.

Background:

The respondent as well as the petitioner had been involved in a number of commercial transactions over the years and chose to stop them on the basis of account settlement. The respondent was held to be responsible for a sum of Rs.53,57,000/-.

On the 16th of January 2017, a contract and a promissory note were signed based on this.

As a result, an action was filed in the trial court seeking to recover an amount of over Rs.54 lakhs from the respondent.

However, the court determined that the agreement itself generated the responsibility to pay; as a result, the instrument has the character of a bond, and the petitioner was ordered to pay stamp duty and penalty.

The petitioner has petitioned the Court to overturn the Additional Sub Court’s order.

Disputes Aroused:

The petitioner’s lawyer, N.M Madhu, contended that a reading of the contested document would plainly reveal that it did not establish any obligation and that it was simply done to acknowledge and confess a liability that already existed. As a result, he argued that a document in which the executor agrees to clear a prior liability within a certain time frame is just an agreement, not a bond. As a result, it was contended that the order directing payment of stamp duty and penalty as if it were a bond is unsustainable and should be overturned by the Court.

The respondent’s lawyer, V.V Surendran, argued that the account had been settled according to the agreement, and that the sum due to the petitioner under the settlement of accounts is clearly specified in Clause (3) of the contract.

As a result, it was contended that the paper itself generated a financial obligation, and so it would fall under the definition of a bond as defined in Section 2(a) of the Act.

Observations:

To determine whether the contested document constituted as a bond, the Court looked to Section 2(a) of the Act. Following this investigation, it was discovered that in order for an instrument to have the character of a bond, an obligation had to be generated within the instrument itself.

The Bench then examined the document in question based on this interpretation. Clause (2) of the said instrument solely stated that on the said day, both parties cleared the accounts relating to the said business transaction that had taken place over the previous three years by mutual consent in complete satisfaction.

According to the facts and circumstances of the case, the contract in question can only be interpreted as an agreement and not as a bond. As a result, the initial petition was granted, and the trial court’s order was reversed.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close