Not on stamp paper, so the paper is worthless? The Supreme Court said no.

Key points

• Section 35 of the Stamp Act 1899: an instrument chargeable with duty is not admitted in evidence or acted upon "unless such instrument is duly stamped".
• Proviso (a) to s.35: most such instruments, but not a bill of exchange or a promissory note, can be admitted on payment of the duty and a penalty, which can be up to ten times the duty or the missing part of it.
• Section 36: once an instrument "has been admitted in evidence", that admission cannot be called in question at any later stage of the same suit on the ground that it was not duly stamped.
• The Supreme Court in 2014 SCMR 1562: "An insufficiently stamped Promissory Note is neither invalid nor void instrument, but it is only subject to disabilities mentioned in section 35".

The rule in one line

A missing or short stamp does not make a document void. Until the duty is paid, the court will not take it in evidence; for most documents you can pay the duty and a penalty and have it admitted. And once a court has admitted a document, the other side cannot attack it later in that case for want of stamp.

What happened in this case

A man gave a total of ten lakh rupees, on different dates, to a cloth trader as an investment in his business, on the promise that the money would be returned on demand. To assure him, the trader signed a promissory note dated 25 May 2001 for Rs. 10,00,000 (paragraph 2).

On 20 July 2001 the trader paid back two lakh rupees but did not return the rest. The man sent a legal notice and then filed a summary suit under Order XXXVII, Rule 2 of the Code of Civil Procedure for recovery of Rs. 10,00,000 (paragraph 2).

The trader said the note was forged. At trial the note was produced and exhibited as P.2 without any objection from him (paragraphs 3 and 4). The trial court decreed the suit on 7 August 2004 (paragraph 5).

The High Court of Sindh allowed the trader's appeal on 18 June 2007 and dismissed the suit (paragraphs 1 and 5). The note was insufficiently stamped, and the High Court also held that it was not attested under Article 17(2)(a) of the Qanun-e-Shahadat Order (paragraph 9).

What the Supreme Court said

The man came to the Supreme Court in a direct appeal, Civil Appeal No. 1428 of 2007. Justice Amir Hani Muslim wrote the judgment, and the appeal was decided on 14 May 2014.

On attestation, the Court said: "This finding of the learned High Court is contrary to the language of section 4 of the Act, which defines a Negotiable Instrument" (paragraph 9). A promissory note is defined by the Negotiable Instruments Act, not by the attestation rule for other documents.

On the stamp, the Court held: "An insufficiently stamped Promissory Note is neither invalid nor void instrument, but it is only subject to disabilities mentioned in section 35" (paragraph 12). Because the note had already been admitted in evidence without objection, section 36 of the Stamp Act barred the trader from questioning it later on the ground of stamp (paragraphs 13 to 15).

The appeal was allowed and the trial court's decree was restored.

Still, use the right stamp paper

This is not a licence to skip stamp duty. Under s.35 a paper that is not duly stamped is kept out of evidence until the duty is paid, and the penalty can be up to ten times the duty. For a promissory note or a bill of exchange, proviso (a) does not even allow admission on payment of a penalty. The note in this case was saved because it had already been admitted without objection.

The simplest protection is to use the correct stamp paper from the start, and to raise any objection to the other side's paper at the moment it is produced in court.

The case at a glance

Facts

A summary suit for Rs. 10,00,000 on a promissory note dated 25 May 2001 given for money invested in a cloth business. The note was insufficiently stamped but was exhibited as P.2 without objection. The trial court decreed the suit on 7 August 2004; the High Court of Sindh allowed the defendant's appeal on 18 June 2007.

The question

Whether a promissory note that is insufficiently stamped, and was admitted in evidence without objection, can be discarded on appeal for want of stamp or for want of attestation.

What the Court held

No. An insufficiently stamped promissory note is not invalid or void; it is only subject to the disabilities in s.35. Once admitted, s.36 bars questioning it in the same suit. Appeal allowed and the trial court's decree restored.

Why

Section 35 limits the use of an unstamped paper as evidence; it does not destroy the transaction. Section 36 protects an admission already made. A promissory note is governed by the definition in s.4 of the Negotiable Instruments Act, so the attestation requirement in Article 17(2)(a) did not apply to it.

Limits

The note was saved because it had already been admitted without objection. Had the defendant objected when it was produced, s.35 would have kept it out, and for a promissory note the penalty route in proviso (a) is not available. The judgment does not say stamp duty may be ignored.

The law it relies on

What this does not mean

• It does not mean stamp duty is optional. Until the duty is paid, a paper that is not duly stamped is not taken in evidence, and the penalty can be ten times the duty.
• It does not mean every short-stamped promissory note will be enforced. This note was saved because it was admitted in evidence without objection; s.35 does not let a promissory note in on payment of a penalty.
• It does not decide whether the money was really owed in every such case. The trial court decided that on the evidence, and the Supreme Court restored its decree.

Questions people ask

Sources

• Sheikh Muhammad Shakeel v. Sheikh Hafiz Muhammad Aslam, 2014 SCMR 1562 (Supreme Court of Pakistan, 14 May 2014), paras 2, 4, 5, 9, 12, 13, 14, 15
  An insufficiently stamped promissory note is neither invalid nor void; it is only subject to the disabilities in s.35 of the Stamp Act, and s.36 bars questioning it once admitted. Trial court's decree restored. verified against full text
• Stamp Act, 1899, s.35 text checked in FAI Statute Search Pakistan Code
• Stamp Act, 1899, s.36 text checked in FAI Statute Search Pakistan Code

Every quote and section above is traced to the full judgment or statute text by an automatic check that runs on every update.

What the reel says