1. What is a bond: A Bond is also a form of contract. Bonds are of two main categories (i) ordinary bonds, and (ii) security bonds. Ordinary bonds are either (a) conditional or (b) simple.
A bond is a deed whereby one person binds himself (under seal) to another for the payment of a specified sum of money either immediately or at a fixed future date or whereby several people bind themselves jointly or jointly and severally to one or more persons to the same effect[1]. Any words which show the intention of the party to bind himself will be sufficient, for such obligation is in the nature of a contract or a security for the performance of a contract which is construed according to the intention of the parties[2].
A bond is also a covenant with this difference that while a covenant is an instrument between two parties a bond is given only by one party.
Bond may be for payment of penalty or liquidated damages. But In case of penalty, the Court has a right to relieve the person liable for penalty in a given case on equitable principle under section 74 ofthe Contract Act. The Indian Stamp Act defines a 'Bond' to include (a) any instrument whereby a person obliges himself to pay money to another on condition that the obligation shall be void if a specified act is performed or is not performed as the case may be, (b) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another and (c) any instrument so attested whereby a person obliges himself to deliver grain or other agricultural produce to another. Clause (a) is a case of conditional bond and clauses (b) and (c) are simple bonds. Similarly, bond is covered by Article 54 of the Schedule I to the Act. This definition is not exhaustive[3] and, therefore, there can be a document in the nature of a bond even if it does not fall within the scope of the definition. Clause (a) refers to a bond under which the liability is conditional upon the happening or not happening of any event, and clause (b) refers to a document under which the liability is unconditional but at the same time it is nota promissory note or other negotiable instrument under which also the liability is unconditional and is payable to order or bearer and which is not required to be attested. The speciality of clause (c) bond is difficult to understand. It covers only an instrument which is attested and whereby the person obliges himself to deliver grain or other agricultural produce to another. Does it mean that if a person obliges himself to deliver anything other than grain or agricultural produce it is not a bond? Or, if it obliges one person to deliver grain or other agricultural produce but the document is not attested, it is not a bond? Of course it follows that such a document will not be a bond within the meaning of the Stamp Act and would not be liable to stamp duty as a bond. But nonetheless it may be a contract in the nature of a bond under ordinary law of contract. A mere acknowledgement of liability which could have been enforced, apart from the main document creating liability would not be a bond[4].
Security Bond is also required to be furnished to the Court u/sec 375 of Indian Succession Act 1925, at the time of granting of succession certificate.Such bond is to furnished with one or more sureties or any other sufficient security.
The provisions regarding Security Bond are also provided for under the Indian Lunancy Act (sec 14&15). The Security Bond is obtained from the relatives or friend of the lunatic assuring & undertaking to take proper care of the lunatic & of his Maintenance & injury to self and others.
2. Elements of Bond : (1) There must be an undertaking to pay; (2) sum should be ascertained in money; (3) pay is to be made by one person to another person named in the instrument (4) document should be signed bypromisee; (5) document must be attested by a witness and it should not be payable to order or bearer.
A document containing specific express promise by defendent to pay to the plaintiff to pay outstanding amount and is signed by executant and attested by six Witnesses is a bound[5]. The Limitation Act, 1963 u/s. 2(d) defines "Bond" as "includes any instrument whereby a person obliges himself to pay money to another on condition that the obligaton shall be void if a specified act is performed, or is "not performed as the case may be". Thus if can be seen that there is difference between the definition under the Stamp Act and the Limitation Act. The clause of the Stamp Act defining Bond should be read distinctively for the purposes of stamping.
An agreement containing simple obligation to pay money may be a 'bond' though it is not attested[6]. An agreement to do an act and in default to pay certain sum of money may be a bond[7]. Bond is an instrument in which the obligation to pay is created expressly and not impliedly[8]. In order to determine as to whether a particular document is a promissory note or bond, the intention of parties is a very necessary circumstance to be considered and it must be seen whether parties intended that the said document should be negotiable or it was only to serve as evidence of the debt. Therefore, a document though styled as a promissory note but is attested and the executing party obliges himself to pay an amount within a specified time, it would be a bond and not a promissory note[9]. On the other hand a document which is a pro-note payable to order cannot be construed as a bond even if it is attested[10]. No document can be a bond unless it is one which itself creates an obligation to pay[11]. An attested document which contains an acknowledgement as well as an express promise to pay may amount to a bond[12]. Bond is no doubt an agreement but it is something more than an agreement[13]. An agreement to pay a pre-existing liability under a document or any law by instalments or otherwise is not a bond[14]. An instrument not attested may not amount to a bond even if it is not made payable or payable to bearer or order[15]. But an instrument which is payable to a person or order is a promissory note and not a bond inspite of the factthat it is attested[16]. Promissory note must be for a sum certain but a bond can be for an unascertained amount. The word 'Bond' is defined in the Stamp Act in a special sense[17]. Requirement of attestation by a witness does not make the instrument one required by law to be attested like mortgage[18].In fact, the significance or importance given to attestation in the definition of a 'bond' is not understandable. A document is not invalid unless it is attested except in certain specified cases like a mortgage or gift or Will. The Bombay Stamp Act has added an explanation to the definition which is in the form of the definition of attestation, given in the Transfer of Property Act in S 3. Attestation under the Stamp Act does not however mean attestation by two or more witnesses. It may be even by one witness[19]. Therefore the relevance of attestation is only from the point of view of stamp duty. So a document may be a bond, though it may not fall within the definition of a 'bond' under the Stamp Act and liable to stamp duty accordingly. A document which does not fall within the mischief of the definition in the stamp Act, may be an agreement, simpliciter, unless it falls under any other Article of the Schedule to the Stamp Act, like a Promissory Note (Article 49). The difference between an agreement and a bond is that in case of a bond the party who has obligated himself to pay is liable to pay the amount stipulated,in case of breach of the obligation, while in the case of agreement, the party who commits a breach is liable in damages as may be fixed by the Court of Law[20]. The obligation to pay in order to become a bond, must be express and not implied[21]. A bond has two parts one creating obligation and the other laying the condition.
3. Types of bond: Bonds are of different types. The Indian Stamp Act provides for several bonds such as (1) Ordinary bond as defined by section 2 (5) of the Act, (2) Administration bond (Art 2), (3) Bottomry bond (Article 16), (4) Custom Bond (Art 26), (5) Indemnity bond (Art 2), (6) Respondentia bond (Art. 49), (7) Security bond (Art. 50).
(1) Administration bond is a bond required to be given under S. 6 of the Govt. Savings Bank Act of 1873 or under Section 291,375 and 376 of the Succession Act 1928. The forms of the bonds under these sections are prescribed by the High Courts and they are in standard forms and the question of drafting such bonds does not arise.
(2) An ordinary or common bond is defined in S. 2(5) of the Stamp Act as discussed above. This is a residuary Article.
(3) Bottomry bond is an instrument whereby the master of a sea-goingship borrows money on the security of the ship to enable him to preserve the ship or to prosecute her voyage. In effect it is a mortgage of the ship for the moneys borrowed. Bottomry bond may be both for mortgaging the shipas well as the cargo. This form is now obsolete but it may give rise to a maritime lien which can be enforced by arrest and sale of the ship.
(4) Customs bond is a bond required to be executed under section 92 of the (Sea) Customs Act. It is given for payment of Custom or Excise duties or for preventing frauds or evasion thereof or for any other matter or thing relating to custom or excise. These bonds are prescribed under the rules made under the Customs Act and the Central Excise and Salt Act and, therefore, the question of giving forms or precedents thereof does not arise.
(5) Indemnity bond is more or less a document of indemnity. Indemnity is defined in s. 124 of the Contract Act, 1872. The difference between an indemnity and a bond is, firstly, the amount of liability is generally ascertained in a bond while in an indemnity it is unascertained; secondly, indemnity is in the nature of damages while a bond is not; thirdly, in anindemnity the liability arises when the event for the happening or nonhappening for which it is granted, happens or does not happen while in case of a bond, particularly a conditional bond, the liability does not arise if the condition is fulfilled; fourthly, an indemnity may be for an indefinite period while the liability under a bond is generally for a definite period. For further discussion on the subject of indemnity see Introductory note on 'Indemnity & Guarantee' and forms thereunder[22].
(6) Respondentia bond is an instrument securing a loan on the cargo laden or to be laden on board of a ship and making repayment contingent on the arrival of the cargo at the port of destination. For example where the master of a ship borrowed moneys from B on the security of some goods shipped therein and executed a document acknowledging receipt of the moneys and agreeing to repay the same with interest within certain specified time after the vessel reached the port, the document would be a Respondentia bond. This bond is only in respect of cargo while Bottomry Bond can be in respect of both the ship and the cargo. Both the bonds are effective if the ship arrives safely at the port of destination[23].
(7) Security bond is a document executed by way of security for the due execution of an office or to account for money or other property and received by virtue thereof or executed by a surety to secure the due performance of a contract. It is equivalent to a deed of mortgage executed by a surety to secure his liability as a surety. This deed is different from a dead of mortgage covered by Article 40 of the Stamp Act. Article 40 applies when the debtor himself executes a deed of mortgage in respect of his property. However a mortgage deed or Security bond under Article 57 is a document executed by the surety[24]. For example, when A borrows money and the payment thereof is guaranteed by a surety and the surety executes a deed mortgaginghis property as a security for his liability as a surety or guarantor, that deed is a security bond though for all other purposes it is a deed of mortgage.Therefore, in such a case the person principally liable or bound to perform the contract is different from the person executing the instrument of security. Therefore a person who gives security to perform his own contract the document is not a security bond. But when a person gives security for execution of his office or to account for moneys received by him by virtue of his office. the document would be a security bond. For example, a bond executed by guardian of a minor for safeguarding or protecting the estate of the minor would be a security bond[25]. In other words security bond is executed when a person guarantees the payment of somebody else's money or liability and not his own[26]. Security Bond is also required to be furnished to the Court u/s. 375 of Indian Succession Act, 1925, at the time of granting of succession certificate. Such bond is to be furnished with one or more sureties or any other sufficient security.
The provisions regarding Security Bond are also provided for under the Indian Lunancy Act (Sec. 14 and 15). The Security Bond is obtained from the relatives or friend of the lunatic assuring and undertaking to take proper care of the lunaticand of his maintenance and injury to self and others[27]. It appears that in England there is one more kind of a bond known as Post Obit Bond, that is a bond which is conditioned for payment of a sum after the death of a specified person and is usually given in respect of the loan for a sum greater than that advanced[28]. Such bonds do not appear to be known in India.
4. Bond, and debenture: A bond should be distinguished from a debenture. Debenture is also a kind of bond. But a writing called debenture has acquired a special meaning and it denotes an instrument issued by a company normally but not necessarily called on the face of it a debenture and providing for the payment of money or acknowledging the indebtedness in a specific sum and at a fixed date with interest therein. It is in fact or effect a bond specially called a debenture in Company Law parlance. A special feature of a debenture is that it is generally issued not singly but in a series and debentures are generally secured by a mortgage. The Indian Stamp Act does not define a debenture but is treated separately under Article 27 and is referred to as debenture (whether a mortgage debenture or not) being a marketable security transferable (a) by endorsement or a separate instrument of transfer, or (b) by delivery. Therefore, the distinguishing feature of a debenture as against a bond is that it is transferable by writing or delivery.
[1] Butterworth'S EncyClopaedia of Forms and Precedents Vol. 3, 4th Ed. Page 9l.
[2]bid. Foot No.2
[3] Bengal Paper Mills v. CoUector of Calcutta. AIR 1976 Cal 416.
[4]M/ s Patel Stone Trading Co. v. Ramsingh. AIR 1975 Born. 79.
[5]Praveen Nahar (Dr.) v. Krishan Gopal, AIR 2006 M.P. 89,91.
[6]L.H. Sugar Factory v. Moti, AIR 1941 All. 243.
[7]R.Devi v, D.L. Issar, AIR, 1971 Pat. 378.
[8] State of Hyderabad. v. Kaneez Fatima, AIR 1953 Hyd. 155; Finn ChWlilal v. Finn Mukatlal, AIR 1968 All 164
[9]K. Mallaya Ladunayya Gop v. Prabhakar Rao, AIR .1976 Born. 234
[10]Hanwnan v. Fattu. AIR 1967 Raj 235
[11]Chhaganlal v. Emperor, AIR 1934 Nag 261; Punjab Zamindar Bank v. M.D. Shaft. AIR 1938 Lab. 505
[12]AIR 1934 Nag. 261 Supra. Pamsingh v. GqjrabaiAIR 1959 M.P. 327
[13]In Re. Board of Revenue U. P. AIR 1936 All. 481; Tulsa Singh v. Board of Revenue, AIR 1971 All. 430
[14]R. .S.S. Sabha v. Rqj Narain, AIR 1943 All. 218; But see in the matter KupuswwniAIR 1955 Mad. 652 FB, 11
[15]Bahadurrinisa v. Vasudev. AlR 1967 A.P. 123
[16]Govinda v. Haribhan, AIR 1933 Nag. 391
[17]Jiwanlal v. Rameshwarlal, AIR 1967 S.C. 1118
[18]Ramchandra v. Jhibal, AIR 1940 Nag. 240; MotiTam v. Ratna, AIR 1953 M.B. 158
[19]Govula RCUI1Jlkistiah v. Yallappa, AIR 1959 A.P. 653
[20]In the matter of Hamdard Dawakhana Delhi. AIR 1968 Delhi 1
[21]Choudhri Gulabchand v. Bhama ,AIR 1972 M.P. 54; See also AIR 1975 Born. 79 Supra
[22] See Pollock & Mulla's Contract Act, 10th Ed. Pages 715 to 720. See also HindustW1 Sugar Mills Ltd. v. State of Uttar Pradesh, AIR 1972 All. 8 and Chief Controlling RevenueAuthority Board of Revenue v. R.K. SubramW1iam, AIR 1977 Mad
[23]Butterworth's Encyclopaedia of Forms and Precedents Vol. 34th Ed. P 77-78
[24]H. Hunter v. Emperor. AIR 1942 Oudh 371
[25]Baburcro v. Ka1avati Bai, AIR 1940 Born. 275: In Re Kupuswami MudaIiar, AIR 1949 Mad. 567
[26]Kamla Devi v. Chief Controlling Revenue Authority. AIR 1966 Punj. 293
[27]Butterworth's Encyclopaedia of Forms and Precedents Volume 3. 4th Ed
[28]See Palmer's Company Law 23rd Ed. P. 530