This matter was taken up in the Commercial High Court, Colombo. It’s a money matter where the party that had leased property had sought to enforce the guarantee bond securing the lease, upon default. But the party that had 
leased out, the lessee, in this case the defendant in the High Court, objected to the guarantee bonds being produced as evidence in Court as they had not been stamped with due diligence under provisions of the Stamp Act.
The High Court judge was in Agreement and duly made an order that the guarantee bonds cannot be marked as evidence. Aggrieved by the order the plaintiff Company appealed the order in the Supreme Court. (Ceylease Financial Services Ltd. v. Sriyalatha And Another – SLR – 169, Vol 2 of 2006 [2006] LKSC 5; (2006) 2 Sri LR 169 (December 11, 2006).)
The relevant Supreme Court judgement states:
“The facts of this appeal, albeit brief, are as follows:
On 15.03.2002, the appellant instituted action against respondents seeking inter-alia, Judgement and Decree against the respondents in a sum amounting to Rs. 8,914,834 together with interest in a sum of Rs. 6,642,632 from 19.02.2000 until payment in full (XI).
On 02.03.2004, the matter was taken up for trial, and the Evidence-in-Chief of the witness for the appellant commenced. Upon the producing of Guarantee and Indemnity dated 19.12.1996, through the afore-mentioned witness, the respondents objected to the said document being accepted on the basis that the said Guarantee and Indemnity had not been property stamped.”
The learned High Court judge had heard both parties and accepted the defendant’s objections that the guarantee bonds had not been properly stamped.
A bond basically is an acknowledgment for monies due with or without provisions for interest to be paid therein specified in the bond document.
The person issuing the bond should be a debtor and not a third party and such person should owe a specific amount without any equivocation about what’s owed, submitted by the President’s Counsel who represented the plaintiff in High Court.
The guarantee and indemnity that the plaintiff-appellant sought to be marked in his submission in High Court referred however to a lease agreement.
The Supreme Court judgement states that the guarantee and indemnity document stated:
“We the under-signed do and each of us doth hereby jointly and severally guarantee the punctual payment by the Lessee of all rental, interest and all other sums whatsoever due under the Lease Agreement.”
To all except perhaps the appellant the lease meant that the party that issued the guarantee bond issued it as security pledging that a certain sum would be paid back within a stipulated period of time.
The Supreme Court judgement was emphatic about the nature of the document and stated:
“In such circumstances, it is evident that the guarantee sought to be marked in evidence clearly falls with the words” bond, pledge and mortgage.””
In this case the respondents who made the guarantee indemnified and pledged by the guarantee document to make good any failure on the part of the lessee to pay the rent.
A bond is an instrument under seal where a person pledges to pay a specified sum at the current time or on a given date. It could include a Guarantee Bond and/or an Indemnity bond. The court decided to disregard the nomenclature and look into the content of the bond itself to find what its identity is.
The Supreme Court judgement states:
“Thus considering all the facts and circumstances, it is apparent that, on an examination of the nomenclature of the Guarantee and indemnity in question, it is undoubtedly in law a bond, which would come within Item No.7 of the Gazette Extraordinary No.224/3 dated 20.12.1982 as amended by Gazette Extraordinary No. 948/15 dated 06.11.1996.”
Counsel in this case tried to take cover under the fact that the guarantee and indemnity bonds that were figured in this case are not for a specified sum of money because there is an interest rate involved. Therefore they contended, the instruments did not come under definition of bond, and were not eligible for stamp duty.
As the judgement states:
“‘The default interest, which had got accrued will not come within the definition of ‘definite and certain sum’, counsel contended.”
But Section 17 of the Stamp Duty Act, No. 43 of 1982 (as amended) (hereinafter referred to as the Stamp Duty Act), expressly deals with this situation and states that stamp duty is charged in a guarantee bond for the principal amount and not the interest accrued, or words to that effect.
The judgement quotes the relevant section:
““Where interest is expressly made payable by the terms of an instrument, such instrument shall not be chargeable with stamp duty higher than that with which it would have been chargeable had no mention of interest been made there in.”
Thus it is evident that Item No.7 of the Gazette Extraordinary No. 224/3 dated 20.12.1982 as amended by Gazette Extraordinary No. 948/15 dated 06.11.1996 does deal with guarantees and/or indemnities.”
The Supreme Court also considered whether the learned Judge of the High Court erred in law by making an order on P2 — a copy of a guarantee bond annexed to the plaint — more particularly as P2 was not yet in evidence and has not yet been sought to be marked.
Learned President’s Counsel for the appellant made quite an issue about the fact that the indemnity and guarantee bond sought to be marked as evidence was not the one attached to the lease Agreements in the plaint, on which the judge had made the order. He said therefore the order of the High Court judge should be set aside. But the Supreme Court dismissed this argument as irrelevant, basically, as the guarantee bond document attached to all three lease agreements were identical in all respects and therefore there is no difference just because what’s sought to be marked in evidence is interchanged and is not the same as what’s marked in the plaint as the bond document regarding which the judge made the order.
For the reasons aforementioned, the appeal was accordingly dismissed and the order of the High Court dated 03.08.2004 was affirmed.
