A legal document is a written agreement between two or more parties that can be relied upon in court. They can be used to establish contractual relationships, grant rights, or provide evidence for legal obligations.
It is inevitable for banks to ascertain that they could easily take possession of such security based on documents obtained from the borrower with very little expenses and dispose-off the same to recover its dues when the account goes bad. Therefore, different types of legal documents are used by banks based on loan advances and other types of transactions.
Under section 17 of the Indian Stamp Act 1899, all the documents chargeable with stamp duty shall be properly and duly stamped before or at the time of execution in India. Stamp duty is a tax that is levied on certain legal documents, including loan agreements. The purpose of stamp duty is to ensure that these documents are properly stamped and recorded so that they can be legally enforced. The amount of stamp duty payable will depend on the value of the transaction. The different rates of stamp duty are applicable in different States concerning sales, gifts, mortgages, and such transactions, and therefore stamp duty is payable according to the State where the documents are executed.
Some of the commonly used Banks require payment of stamp duty. Here is the list of important documents which attract stamp duty.
In the cases of Demand Promissory Note (pro-note), acknowledgment of debts, bill of exchange, etc. if under stamped, is ‘void ab-initio’ and same cannot be admitted in evidence even by paying penalty. The revenue stamps on the document should be effectively canceled at the time of execution. The best way of canceling of revenue stamp is by signing over all the stamps in such a manner that the signature extends even beyond the stamps.
“Promissory note”: A “promissory note” means a promissory note as defined by the Negotiable Instruments Act, of 1881 (XXVI of 1881). Once a promissory note has been issued, it has to be stamped as per the rules and regulations of the Indian Stamp Act. It also includes a note promising the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen. A common practice is using a revenue stamp on the note which is signed by the borrower. If revenue stamps are unavailable, promissory notes can be issued on the stamp paper.
Acknowledgment of debt: An acknowledgment of debt (AOD) is a legal document that confirms a debt and the debtor’s responsibility to repay it. It’s also known as an IOU.
“Receipt”: A “receipt” includes any note, memorandum, or writing— (a) whereby any money, or any bill of exchange, cheque, or promissory note is acknowledged to have been received, or (b) whereby any other moveable property is acknowledged to have been received in satisfaction of a debt, or (c) whereby any debt or demand, or any part of debt or demand, is acknowledged to have been satisfied or discharged, or (d) which signifies or imports any such acknowledgment, and whether the same is or is not signed with the name of any person; You need a revenue stamp on your receipt if you pay your rent with cash, and it’s more than Rs. 5,000. However, if you have paid rent through a check, bank transfer, or any other non-cash way, there is no need for a revenue stamp.
“Power-of-attorney”: A “Power-of-attorney” includes any instrument (not chargeable with a fee under the law relating to court fees for the time being in force) empowering a specified person to act for and in the name of the person executing it.
Affidavit: The meaning of AFFIDAVIT is a sworn statement in writing made especially under oath or on affirmation before an authorized magistrate or notary public. The affidavit includes an affirmation or declaration, in the case of persons by law, allowed affirming or declaring instead of swearing.
“Bill of exchange”: A “bill of exchange” means a bill of exchange as defined by the Negotiable Instruments Act, 1881, (26 of 1881), and includes also a hundi, and any other document entitling or purporting to entitle any person, whether named therein or not, to payment by any other person of, or to draw upon any other person for, any sum of money;
“Bill of exchange payable on demand”: A bill of exchange may be payable on demand or other than demand. A bill of exchange payable on demand” includes—
(a) an order for the payment of any sum of money by a bill of exchange or promissory note, or the delivery of any bill of exchange or promissory note in satisfaction of any sum of money, or for the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen; (b) an order for the payment of any sum of money weekly, monthly, or at any other stated period;
and (c) a letter of credit, that is to say, any instrument by which one person authorizes another to give credit to the person in whose favour it is drawn. In the case of Bills of exchange payable on demand, no stamp duty is required for bills of exchange payable on demand. For Bills of exchange payable otherwise than on demand: The duty for these bills is specified in Article 13 of the Indian Stamp Act, 1899. Article 13 levies duty on a Bill of Exchange (other than one payable on demand). The duty varies according to the period within which the Bill is payable (after the date or sight). It also varies according to the value.]
“Bill of lading”: A “bill of lading” includes a “through bill lading”, but does not include a mate’s receipt. In India, under Article 14, a bill of lading, including a through bill of lading, is charged with a duty of 25p. There is, however, a remission granted by notification made under section 9, in respect of inland bills of lading, and there are also two exemptions under Article 14 itself. A bill of lading need not be necessarily in respect of carriage by a sea-going vessel. It can be in respect of inland navigation also. However, the duty on an inland bill of lading has been remitted by a notification issued under section 9.
“Bond”: A “bond” includes (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.
Letter of Pledge: A Letter of Pledge for a Loan is a formal document in which a borrower (the pledgor) commits specific assets as collateral to a lender (the pledgee) to secure a loan. This letter serves as a legal promise that the pledged assets will be forfeited to the lender if the borrower defaults on the loan repayment.
Letter of hypothecation: Hypothecation means offering an asset as collateral to back a loan. However, hypothecation occurs when an asset is offered as collateral to secure a loan without giving up title, possession, or ownership rights. Common uses for hypothecation include hypothecation of stocks, book debts auto loans, crops etc.
Letter of assignment: A letter of assignment is a document with which an assignor assigns a specific portion of his/her rights to an assignee. Letters of assignment are commonly used by individuals for assigning Life insurance policies for availing loans.
Letter of lien: A letter of lien, also known as a notice of intent to lien, is a legal document. A lien is a claim on a property that ensures payment of a debt. When a creditor files a lien on a property, the debtor is notified that action is being taken against the property. The creditor can then seize and sell the property if the debtor doesn’t meet their financial obligations.
Agreement or memorandum of an agreement:
Agreement relating to deposit of title deeds, pawn or pledge; that is to say, any instrument evidencing an agreement relating to (1)the deposit of title deeds, or instruments, constituting or being evidence of the title to any property whatever (other than marketable security), or (2) the pawn or pledge of moveable property, where such deposit, pawn or pledge has been made by way of security for the repayment of money advanced, or to be advanced, by way of loan, or an existing or future debt-(a) If such loan or debt is repayable on demand or more than three months from the date of the instrument agreement.
Bank Guarantee: A Bank guarantee deed executed by a Bank as a surety to secure the due performance of a contract or the due discharge of a liability.
Personal Guarantee: A personal guarantee refers to an individual’s promise to repay finance if the borrower can’t. In the case of a personal guarantee made by an individual on behalf of another, the person who makes the personal guarantee is usually referred to as a co-signer of a note for a loan. A guarantor can be any party, including an individual or another organization, with a credit history.
Indemnity Bond: An indemnity bond is a legal agreement that protects a person or entity from financial loss in the event of certain circumstances. An indemnity bond assures the holder of the bond that they will be duly compensated in case of possible loss.
Mortgage Deed: A mortgage deed is a legal document that outlines the terms and conditions of a mortgage agreement between a borrower and a lender. A mortgage deed includes details such as the loan amount, interest rate, repayment plan, and any extra fees or penalties. It also includes the lender’s right to foreclose on the property if the borrower defaults on the loan.
Mortgage of a crop-including any instrument evidencing an agreement to secure repayment of a loan made upon any mortgage of a crop, whether the crop is, or is not, in existence at the time of the mortgage.
Note or Memorandum: Note or Memorandum-sent by a Broker or Agent to his principal, intimating the purchase or sale or account of such principal.
Note of protest: A note of protest is a formal statement made by a notary public to indicate that a negotiable instrument, such as a check or promissory note, was not paid or accepted. It is a way to express disapproval or dissent.
A note of protest can also refer to:
A statement that disputes the validity or legality of a debt, while still agreeing to make payment.
A statement made by a taxpayer to indicate that they are making a payment unwillingly because they believe the tax is invalid.
A declaration made by a shipowner or crew to indicate that damages to their cargo or vessel were caused by perils of the sea and that they are not liable for the damages.
A note of protest is different from a letter of protest, which is a formal declaration made against a specific person.
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UNDERSTANDING DOCUMENTATION PROCEDURE AND STAMPING IN BANKS
