1. This is a defendant's appeal arising out of a suit on a promissory note, dated 22nd June 1929 for Rs. 900 which contained no mention of any liability to pay interest. The plaintiff alleged in the plaint that the promissory note had been executed in respect of Mine old debt and after borrowing money in cash. In his defence the defendant pleaded that he had received only Rupees 200 out of the amount of the promissory note and did not get the balance. He also denied his liability to pay interest, which the plaintiff had alleged had been agreed upon orally to be at 1 per cent per mensem. The plaintiff replied that although only Rs. 200 had been paid in cash, the balance of Rs. 700 consisted of a sum of Rs. 500 due on a previous promissory note of 15th April 1926 and Rs. 200 interest due thereon at 1 per cent per mensem as well as Rs. 20 on a parole debt. The Court of first instance decreed the claim for Rs. 900 together with past and future interest at six per cent per annum. The defendant appealed, but the plaintiff submitted to the decree. On appeal the decree of the first Court has been affirmed.
2. The first point urged in appeal is that the consideration of Rs. 700 alleged by the plaintiff was non-existent inasmuch as the debt had become time-barred. A time-barred debt cannot be recovered, and an oral promise to pay a time-barred debt is not a good consideration under Section 25, Indian Contract Act. But if the promise to pay a time-barred debt either wholly or in part is made in writing and signed by the person to be charged therewith, then the consideration is not void under Sub-section (3) of that section. In the present case the defendant in writing signed by him agreed to pay Rs. 900 which apparently included the time-barred debt as well, but there was no specific reference to this earlier debt. There is some authority for the view that it is not necessary for the purposes of Section 25, Sub-section (3), specifically to refer to the previous time-barred debt, so long as it can be ascertained that there is a promise in writing to pay such debt. Gnaaptty Moodelly v. Maniswami Moodelly (1910) 33 Mad 159. On the other hand, there are some observations in Appa Roy v. Suyaprakasa (1900) 23 Mad 94, which support the contrary argument, though the latter case can be distinguished on facts. It seems to us that where there is nothing but a mere promise to pay a time-barred debt, then unless that promise is in writing and signed by the person to be charged therewith, it would not form a good consideration. But where there is not merely a promise to pay a time barred debt, but there is a novation of contract under which fresh consideration passes from the promisee and there is on the part of promisor the receipt of such consideration as well as a promise to pay time-barred debt, the two taken together would amount to a valid agreement, although the previous debt had been 'barred by time.
3. This would be particularly so where it was clear that the creditor would not have advanced further consideration, unless a promise to pay the time-barred debt had also been made. The case of Bindeshri Prasad v. Sarju Singh 1923 21 ALJ 446 has some bearing on this point. In that case the defendant's father, while a ward of the Court of Wards, had executed a promissory note in favour of the plaintiff for a certain sum, and after release of the estate and the death of the defendant's father, he executed a fresh bond in favour of the plaintiff for an additional consideration and also promising to pay his deceased father's debt. It was held that the contract was not unlawful and was enforceable. In that case the bond was executed before the coming into force of the Usurious Loans Act of 1916. The Court held that Section 25 was not applicable to such a case. It is difficult to hold that a fresh contract of this kind is in any way illegal, void or ineffective. The mere inadequacy of the consideration cannot be enquired into by the Court. Nor can it be said that any part of the consideration was merely absent within the meaning of Section 44, Negotiable Instruments Act or that part of the consideration had subsequently failed. We therefore hold that the Courts below have rightly held that the amount due on the previous promissory note could have been legally included in the consideration for the second contract. The same argument would have applied to the promise to pay interest at the contractual rate of 1 per cent per mensem on the previous debt, which also would then have been a part of the consideration for the second contract.
4. We find however that neither the plaintiff nor his father specifically stated that there was any agreement at the time of the execution of the first promissory note to pay interest at all. Indeed as regards the second promissory note, although the plaintiff said that it was settled orally between them that interest would be paid at 1 per cent per mensem, the plaintiff's father clearly stated that no interest had been agreed on when the promissory note Ex. A was written. There is also no clear finding by the lower appellate Court that any such agreement had really been entered into. We must accordingly disallow interest; on that amount. The second contention urged on behalf of the appellant is that the interest on the second promissory note should not be allowed at all, and in any case not from a date earlier than the institution of the suit. It seems to us that although there might be no agreement as to payment of interest entered in the promissory note, a collateral agreement to this effect can be proved under proviso (2) to Section 92. Where the written agreement merely mentions the promise to pay the principal and is silent as to the payment of interest, it does not amount to adding to the terms of the contract, if by collateral agreement a promise to pay interest is also proved, as such an agreement is not in any way inconsistent with the terms of the written document. Where however a rate of interest was specified and that rate was-tried to be varied, the position would be-different.
5. The main difficulty arises in the case-on account of the difficulty in interpreting Section 80, Negotiable Instruments Act. Under Section 79 where the interest at & specified rate is expressly made payable' on a promissory note, the interest is to be calculated at the rate specified on the amount of the principal money from the date of the instrument, and under Section 80, when no rate of interest is specified under the instrument, interest on the amount due has to be calculated at the rate of 6 per cent per annum from the date at which the 'same ought to have been paid by the party charged.' It is note-worthy that in one section the Legislature has expressly used the expression from the date of the instrument,' while in the other section the words are ' from the date at which the same ought to have been paid.' The first point to consider is whether the word 'same' means interest or amount due thereon. On this point also there has been a conflict of opinion. The Bombay High Court in Ganpat Tukaram v. Sopana Tukaram 1928 52 Bom 88, the Lahore High Court in Khurshed Haq v. Bamditta Mall 1928 Lah 665, and the Patna High Court in Bishun Chand v. Audh Behari Lal 1917 2 PLJ 451, have taken the view that the word 'same' must mean the amount of principal and not the interest. On the other hand a learned Judge of the Calcutta High Court in Prem Lal Sen v. Radhaballah Kankara 1931 58 Cal 290, came to the conclusion that the word 'same' should mean interest. The section has been amended by Act 30 of 1926, and the words 'notwithstanding any agreement relating to interest between any parties to the instrument' have been added therein.
6. There are difficulties in either view. If the word same' were to refer to interest only and not to the amount, then in a case where there is neither specification of any rate of interest nor even of interest, it would be difficult to see from what date interest ought to be calculated as there would be no date from which interest ought to have been paid, unless it were assumed that it would necessarily become payable on the date on which the principal would become payable. On the other hand, if the word 'same' refers to the amount, then there may be difficulty in applying the section to a case where the principal amount is due immediately, but there is a contract that interest would be payable after a fixed time, though no rate of interest is specified. If the interest is to be calculated from the date when the principal becomes payable, it would be contrary to the written contract. The matter is not free from difficulty, but we think that on the whole the word 'same' should be understood to refer to the amount due on the instrument and not to the interest on that amount, because the noun 'amount' was nearest to it before the amendment. It would therefore follow that interest is to be calculated from the date at which the amount of the principal ought to have been paid. This is a reasonable construction because the Legislature was providing for payment of interest in a case where no rate of interest is specified and it is quite reasonable to assume that interest should be calculated from the date on which the principal sum becomes payable.
7. Now there is a clear distinction between (1) an amount payable immediately and (2) an amount payable on demand or an amount payable after the expiry of a fixed time after demand or after sight or after presentation. In the first case there can be no doubt that the principal amount becomes payable immediately and in such a case interest has to be charged from that date. But where the amount becomes payable only on demand or at sight or on presentation, it would be difficult to say that the amount ought to have been paid on the very date of the interest. No doubt it is not necessary for a plaintiff to make any previous demand of payment before instituting his suit on the basis of a promissory note. Such a suit cannot fail on the mere ground that no previous demand had been made. Nevertheless the amount cannot be said to have been payable until the demand is made, and in this case the demand is not considered to be made until the suit is filed. This was the view expressed in Prem Lal Sen v. Radhaballah Kankara 1931 58 Cal 290, quoted above.
8. Prior to the amendment of Section 80, their Lordships of the Privy Council in Ghanshiam Lalji v. Ram Narain (1907) 29 All 33, had distinctly held that Section 80 conferred a right on creditors to interest where no rate of interest was specified and did not take away any right to recover interest which had accrued either under the Usurious Loans Repeals Act or had been acquired by contract. Subsequent to that ruling Section 80 was amended and the words 'notwithstanding any agreement relating to interest between any parties to the instrument' have been added, which would make the section applicable in spite of any contrary agreement relating to interest between the parties to the instrument. There seems to be no reason why this part of the section should apply only to the rate at which interest is calculated, and not to the date from which such interest is to be calculated. It would, accordingly, follow that where no rate of interest is specified in a written instrument, then notwithstanding any contract to the contrary the interest is to be calculated at the rate of 6 per cent per annum, and the date from which such interest should be calculated should be the date on which the principal amount ought to have been paid, that is, it becomes payable. In the present case there was in fact no proof that there was any private agreement to pay interest at any rate at all. Even if there had been one, we would have been compelled to hold that under Section 80, interest should be charged from the date of the demand only. There is no proof here that any demand was made prior to the suit. Accordingly the plaintiff was not entitled to charge interest for any period prior to the institution of the suit. Since the institution of the suit the plaintiff is certainly entitled to interest at 6 per cent per annum simple until the date of realization. We accordingly allow this appeal in part, and modifying the decrees of the Courts below, decree the plaintiff's claim for Rs. 720 together with interest on this amount at 6 per cent per annum simple from the date of the institution of the suit till realization. The parties will receive and pay costs in proportion to success and failure throughout.