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Khitish Chandra Sahu Vs. Rajkishore Sahu - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtOrissa High Court
Decided On
Case NumberA.H.O. No. 21 of 1976
Judge
Reported inAIR1980Ori10; 48(1979)CLT79
ActsStamp Act, 1899 - Sections 35; Evidence Act, 1872 - Sections 91; Contract Act, 1872 - Sections 70
AppellantKhitish Chandra Sahu
RespondentRajkishore Sahu
Appellant AdvocateR.C. Patnaik and ;P.K. Misra, Advs.
Respondent AdvocateL. Rath and ;A.K. Misra, Advs.
DispositionAppeal allowed
Cases Referred(Naraindas v. Jassomal
Excerpt:
.....gita banik, 1996 (2) glt 246, are not good law]. - 7. in the first category of cases, where a promissory note is executed to evidence an antecedent debt, the legal position is well settled that dehors the promissory note the creditor can sue on the original consideration. in such cases, it, is not permissible to prove the terms of the contract by any other evidence except the promissory note and if the promissory note is inadmissible under section 35, stamp act, the suit is bound to fail. in such cases, it is well settled that if the promissory note cannot be proved on account of the bar under section 35 of the stamp act and section 91 of the evidence act, the creditor can fall back on the original debt and the passing of the consideration thereunder, because though the security..........(b) to section 91, evidence act covers the case of complete discharge of satisfaction of the loan.promissory note might be executed in respect of a consideration which constitutes a pre-existing debt or past liability. in such cases, it ordinarily operates as a conditional discharge or payment of the loan or as a collateral security. conditional discharge or payment of loan implies that the plaintiffs remedy for recovery of loan for the time being is suspended and his right to sue is revived if the instrument turns out to be worthless or is not discharged by payment in due course. the antecedent liability is not extinguished on the exclusion of the promissory note. it remains suspended and becomes actionable on the inadmissibility of the promissory note.whether a promissory note.....
Judgment:

P.K. Mohanty, J.

1. The appeal is by the plaintiff against a reversing appellate decree arising out of a suit for recovery of Rs. 6,800/- with interest on allegations that the respondent who happens to be a cousin of the appellant and was carrying on timber business, approached him in Nov. 1967, for an advance of Rs. 5,000/- by way of temporary accommodation and took the amount on 6-11-1967 promising to repay the same on demand and thereafter executed a document by way of security acknowledging the receipt of the amount and stipulating to pay back the money on demand. Despite several demands, when the respondent did not repay the loan, the suit was filed on 6-11-1970 for realisation of the amount with interest by way of compensation at the rate of 12 per cent per annum from the date of loan till the date of suit.

2. The defendant-respondent denied the loan and contended that the suit was hit by section 8 of the Orissa Money Lenders Act. It was further pleaded that the suit was based on a promissory note which was insufficiently stamped and thus the amount was not recoverable on the basis thereof.

3. The learned Subordinate Judge, who tried the suit believed the advance of the loan and held that the plaintiff not being a money-lender in regular course of advance the suit not hit by Section 8 of the Act. She also held that though the promissory note was inadmissible in evidence being insufficiently stamped, the cause of action for the suit was not founded on the hand note and the hand note not being thebasis to the loan, the plaintiff was entitledto sue on the original cause ofaction and on the aforesaid findings, shedecreed the suit for the prince pal amountand disallowed the claim fo interest on the ground that there was no stipulation for its payment.

4. Aggrieved by the decree, the defendant came up in appeal to this Court. The plaintiff also filed a cross-objection asking for interest. The learned single Judge agreed with the trial court that the suit was not hit by Section 8 of the Orissa Money Lenders Act. But he came to hold that the loan was squarely based on the promissory note and as it was inadmissible in evidence being insufficiently stamped, the other evidence adduced by the plaintiff to establish his case of advance of loan could not be looked into. Accordingly, he set aside the decree of the trial court and dismissed the suit. In view of his above findings, he did not deal with the other evidence on record to assess the truth of the plaintiff's case regarding advance of loan. He also dismissed the cross-objection filed by the plaintiff. The decision of the learned single Judge has been reported in ILR (1976) Cut 634.

5. It is urged on behalf of the plaintiff-appellant that the promissory note operated only as a collateral security and not as full or complete discharge of the loan and the cause of action for the suit having been based on the original consideration, the learned single Judge erred in reversing the decree granted by the trial court.

6. Promissory notes are of three categories:

(i) Promissory notes executed to evidence antecedent debts.

(ii) Promissory notes executed for money lent under it, where the amount lent and the promissory note form part and parcel of the same transaction.

(iii) Promissory notes executed as collateral security.

7. In the first category of cases, where a promissory note is executed to evidence an antecedent debt, the legal position is well settled that dehors the promissory note the creditor can sue on the original consideration.

In the second category, of cases, wherethe promissory note is executed formoney lent under it, no further evidencecan be let in if the promissory note ishit by Section 35, Stamp Act, If it isthe intention to the parties that thedebt, should be discharged by executionof the promossory note and the promissorynote alone should be treated asconstituting the contract between theparties, in other words, if there is accordand satisfaction to the debt and the liability is based on the promissory note, it is clear that the terms of the contract are reduced to a document within the meaning of Section 91, Evidence Act. In such cases, it, is not permissible to prove the terms of the contract by any other evidence except the promissory note and if the promissory note is inadmissible under Section 35, Stamp Act, the suit is bound to fail.

With regard to the third of the categories, the promissory note is independent of and distinct from, the oral agreement and the inadmissibility of the document will not affect the oral contract which may be proved aliunde. In such cases, it is well settled that if the promissory note cannot be proved on account of the bar under Section 35 of the Stamp Act and Section 91 of the Evidence Act, the creditor can fall back on the original debt and the passing of the consideration thereunder, because though the security fails, the debt remains and Section 91 of the Evidence Act does not come in the way. Even where the pronote is executed simultaneously with the advance of loan it is open to the party to prove that the promissory note was not regarded as substituting the contract, but only taken by way of collateral security. The question whether it was intended by the parties to reduce the terms of the contract into the form of a promissory note or whether the promissory note was taken by way of collateral security has to be decided with regard to the pleading and proof in each case.

8. In Chitty on Contracts (Twenty-third Edition), Volume-I dealing with 'payment by negotiable instrument', it is pointed out in para 1184 at page 560 that 'apart from express agreement, a creditor is not bound to accept payment in any way except cash, i.e., legal tender. If, however, he accepts a negotiable instrument, such as a bill of exchange, promissory note or cheque, it is a question of fact depending on the intention of the parties, whether it is taken in absolute satisfaction of the debt or only in conditional satisfaction.'

9. We shall now deal with the development of case-law in the various High Courts on this topic.

10. The earliest case, which has been frequently referred to in the later decisions, is Sheikh Akbar v. Sheikh Khan, (1881) ILR 7 Cal 256. Garth C. J. enunciated two propositions:--

'(1) When a cause of action for money is once complete in itself, whether for goods sold or for money lent, or for any other claim, and the debtor, then gives a bill or note to the creditor for payment of the money at future time, the creditor, if the bill or note is not paid at maturity, may always, as a rule, sue for the original consideration, provided that he has not endorsed or lost or parted with the bill or note, under such circumstances as to make the debtor liable upon it to some third person. In such cases the bill or note is said to be, taken by the creditor on account of the debt and if it is not paid at maturity, the creditor may disregard the bill or note and sue for the original consideration.

(2) But when the original cause of action is the bill or note itself, and does note exist independently of it, as for instance when, in consideration of A depositing money with B. B contracts by a promissory note to repay it with interest at six months' date, here there is no cause of action for money lent, or otherwise than upon the note itself, because the deposit is made upon the terms contained in the note and no other. In such a case, the note is the only contract between the parties, and if for want of a proper stamp or some other reason the note is not admissible in evidence, the creditor must lose his money'.

11. In AIR 1945 Cal 268 at page 275 (Sri Iswar Sridhar Jieu Thakur v. Jahor Lal Mukhopadhya), a Division Bench held as follows:--

'.........In our opinion, the true position is that where A lends money to B, A can always sue B for the money as for money lent, whether there is a promissory note executed contemporaneously with the loan or at any time thereafter on account of it. As between an actual lender and an actual borrower, a promissory note can never be anything but collateral security, and the lender can, therefore, always sue on the original consideration, disregarding the security. The promissory note in such a case, containing as it does an express promise to repay, cannot wipe out the promise to repay which is implied in the loan itself. There can be no question of any merger of the original consideration in the promissory note so as to make the promissory note the only available cause of action'.

12. The Allahabad High Court in AIR 1953 All 535 (Lakshmi Narain v. Mt. Aparna Devi) summarises the legal position in the following words:

'When a promissory note is not taken in discharge of an oral contract of loan but is taken only by way of conditional payment or collateral secutity, as it will be presumed to have been so taken unless there is a contract to the contrary Section 91 has no application to the case and the terms of the original contract or loan can be proved if the promissory note is not admissible in evidence or for any other reason cannot be proved. The facts that the promissory note was executed simultaneously with the advance of the loan or that the loan was advanced on the basis of the promissory note or that the promissory note contained all the terms of the contract of loan are all immaterial, provided only that the promissory note is not in absolute discharge of the original contract of loan.'

13. The view expressed by the Allahabad High Court in the case cited above was relied upon by this Court in the case of Chandra Sekhar Mishra v. Gobinda Chandra Das, (1965) 31 Cut LT 917, wherein G. K. Misra, J. (as he then was) quoted the above passage as laying down the correct law and enunciated the following proposition;

'The consideration of the promissory note may be a complete discharge or satisfaction of a loan. This occurs when the contract between the parties is that the debtor would not be liable if the promissory note could not be enforced. The instrument, in that case, is taken as a substitute of the liability. If the instrument becomes inadmissible in evidence, the liability cannot be otherwise enforced. The acceptance of the promissory note operates as accord and satisfaction of the debt or the liability. Illustration (b) to Section 91, Evidence Act covers the case of complete discharge of satisfaction of the loan.

Promissory note might be executed in respect of a consideration which constitutes a pre-existing debt or past liability. In such cases, it ordinarily operates as a conditional discharge or payment of the loan or as a collateral security. Conditional discharge or payment of loan implies that the plaintiffs remedy for recovery of loan for the time being is suspended and his right to sue is revived if the instrument turns out to be worthless or is not discharged by payment in due course. The antecedent liability is not extinguished on the exclusion of the promissory note. It remains suspended and becomes actionable on the inadmissibility of the promissory note.

Whether a promissory note given by a debtor to a creditor operates one way or the other is a question of fact which falls to be determined on evidence in each case. Authorities are agreed that in respect of a pronote for pre-existing loan or liability, in the absence of all evidence, the presumption is that it operates as a conditional payment only. The same principle would apply to a case of contemporaneous loan. In other words, if the agreement between the parties in respect of a contemporaneous loan is that the loan would not be independently actionable, if the promissory note becomes inadmissible, no suit on the original cause of action would lie. In other cases the claim on the original cause of action can succeed.'

14. In AIR 1950 Pat 493 (Sarjoo Pd. v. Smt. Rampayari Debi), a Division Bench consisting of Ramaswamy and Sarjoo Prasad, JJ. held as follows:

'.........When a promissory note is given by the borrower to the lender in connection with the loan either at the time when the loan is contracted or afterwards the promissory note may be regarded as given either as collateral security or as conditional payment. The fact that the execution of the promissory note is contemporaneous with the borrowing cannot exclude the possibility of the instrument having been given as collateral security or by way of conditional payment. The question depends in each case on the intention of the parties. In the former case the lender is entitled to sue upon the original cansideration indpendently of the security and without regard to any rights he may possess under the negotiable instrument. But if the promissory note or other negotiable instrument is treated as conditional payment of the loan the cause of the action on the original consideration is suspended during the currency of the negotiable instrument. But the cause of action to recover the amount of the debt revives if the negotiable instrument is dishonoured or the rights thereunder are not enforceable. On the contrary the cause of action on the original consideration is extinguished when the amount due under the negotiable instrument is paid or if the lender by negotiating the instrument or by laches or otherwise has made the bill his own and thus accepted the negotiable instrument in accord and satisfaction of the borrower's liability on the original consideration.......'

15. The matter was considered by a Full Bench of the Madras High Court in AIR 1938 Mad 785, (Perumal Chettiar v. Kamakshi Ammal), and the majority of the Judges held:

'If the promissory not embodies all the terms of the contract and the instrument is improperly stamped, no suit on the debt will lie, Section 91, Evidence Act, and Section 35, Stamp Act, bar the way. But if it does not embody all the terms of the contract, the true nature of the transaction can be proved and where an instrument has been given as collateral security or by way of conditional payment, a suit on the debt will lie. The fact that the execution of the promissory note is contemporaneous with the borrowing cannot exclude the possibility of the instrument having been given as collateral security or by way of conditional payment. Whether a suit lies on the debt apart from the instrument therefore depends on the circumstances under which the instrument was executed............'

This decision was followed in a recent decision of the Madras High Court in the case of Firm of Shamlal and Co. v. Rajagopala Chettiar, AIR 1977 Mad 340.

A Full Bench of the Andhra Pradesh High Court consisting of seven Judges in AIR 1973 Andh Pra 342, (Sambasiva Rao v. T. Balakotiah) upheld the view expressed in AIR 1938 Mad 785 (FB).

16. In AIR 1936 Nag 225 (Ananda Namdeo v. Pundalik Tukaram) a Division Bench enunciated the law as follows :--

'In every case it becomes a question of fact whether the promissory note was intended to constitute the contract or serve some collateral purpose. In the former case Section 91, Evidence Act would preclude proof of the contract otherwise than by the document itself. If it is inadmissible for any reason, the contract cannot be proved by any extraneous oral evidence.........In the latter case the promissory note is independent of and distinct from the oral agreement and the inadmissibility of the document will not affect the oral contract which may be proved aliunde.'

17. In AIR 1957 Hyd 35 '(Brij Raj v. Raja Ram) the Court held as follows:

'The trend of authorities therefore leads to this principle that in a contemporaneous promissory note with loan there is a presumption of conditional payment. The fact that the loan and the promissory note are contemporaneous does not rule out the payee from proving the existence of an obligation to pay the amount advanced as a loan. It may also be observed that merely because the advancing of the loan and the execution of the promissory note are contemporaneous this circumstance does not necessarily negative the inference that the promissory note was executed as a collateral security or by way of conditional payment and it is clear that if a promissory note has been given by way of collateral security or conditional payment a suit would lie on the debt apart from the promissory note.'

18. In AIR 1957 Tripura 28 (Manik Lal v. Dhirendra Chandra), it was held that unless there are circumstances or evidence to show the contrary, a promissory note is always given as a conditional payment and hence a suit on the debt would lie.

19. In AIR 1960 Raj 10 (Gangaram v. Keshava Deo) the Court accepted the principle of an implied contract in every loan. In a later decision in AIR 1961' Raj 235, (Champalal v. Saligram), the Court held that where a promissory note is not proved to have been given in absolute discharge of a debt it can be treated as a conditional payment of the debt and a suit on the debt would lie.

20. In (1900) ILR 24 Bom 360 (Krishnaji Narayan v. Rajmal Manikchand), the Court held that there was an implied contract in every loan which can be proved. This decision was followed in the case of Somabhai v. Kalyanbhai, AIR 1938 Bom 286.

21. In AIR 1921 Sind 80 (Naraindas v. Jassomal) it was held as follows:

'The question whether a loan was given and taken, can in certain cases, such as those of collateral security, be distinguished from the question of the terms of the loan and of its repayment. Where it can be so distinguished, it has been held by the High Courts of Calcutta, Bombay and Allahabad that, even if the document embodying the terms is inadmissible, the lender may fall back and sue upon the loan itself and prove it by other evidence. And in such a case to quote the word of Patheram, C. J., 'There can be no doubt that an implied contract to re-pay money lent always arises from the fact that the money is lent'.'

22. It would, thus, appear that in a catena of authorities the principle has been well recognised that every loan carries with it a contract to re-pay, and if a promissory note executed by way of collateral security cannot be accepted in evidence for some reason or other, there is nothing in law to prevent the plaintiff from giving other evidence as regards the loan and that if he can satisfy the court as regards the truth of his version, there is no reason why he should not be able to obtain a decree in his favour.

23. In the present case, the circumstances indicate that the promissory note was taken as a collateral security for the debt. In para 2 of the plaint, it was stated:

'The defendant took Rs. 5,000/- on 6-11-1967 promising to pay back the money on demand and he thereafter executed the suit document as a security acknowledging the receipt of the amount and stipulating to pay back the money on demand.'

The cause of action for the suit is also based on the original consideration. In para 6 of the plaint it was stated that the cause of action for the suit arose 'on and from 6-11-1967 when the money was taken by the defendant.'

The evidence of the witnesses examined for the plaintiff would also suggest that the promissory note was taken by way of collateral security for the loan. The plaintiff, examined as PW 3, stated that there was no proposal for execution of a promissory note, but the defendant after receiving the amount voluntarily handed over the document He further stated that he read the contents of the document 2 to 3 months after the advance of the loan. The evidence of P. Ws. 1 and 2 also shows that the defendant after receiving the amount voluntarily wrote out a document. On the case pleaded in the plaint and the evidence adduced by the plaintiff, it cannot be held that the pronote was intended to constitute the contract or that the original contract of loan merged in or got extinguished by the execution and passing of the promissory note. There is absolutely no evidence on the record to show that the parties intended that the promissory note would operate as a complete discharge of the loan. In these circumstances, the original contract of loan could be proved apart from the promissory note and the learned single Judge clearly erred in not looking into the evidence adduced by the plaintiff in proof of the original contract.

24. Now the question arises whether the plaintiff's case of advance of loan of Rs. 5,000/- is true. The plaintiff as P.W. 3 stated that the defendant approached him for the loan on 5-11-1967 and he was asked to take the money on the next day. Thereafter, the plaintiff counted a sum of Rs. 5,000/-, wrapped it in a cloth packet and kept the same with his wife saying that it was meant for the defendant. On the next day the defendant met him in court premises and asked for the money. The plaintiff brought the money from his wife through P.W. 1 and handed over the same to the defendant. His evidence is fully corroborated by P. Ws. 1 and 2. The evidence of these witnesses has not been shaken in any manner. The trial court, on a careful consideration of the evidence, believed the plaintiff's case of advance of loan and we see no cogent ground to take a different view. The defendant is a Forest Contractor and admittedly he was in need of a sum of Rs. 5,000/- for making payment to the Forest Department. His contention was that he had a joint timber business with D.W. 6 Bipin Behari Sahu and two others. D.W. 6 approached the plaintiff to lend a sum of Rs. 5,000/- and the plaintiff agreed. On the next day, he (defendant) executed a promissory note and went with P.W. 5 to the house of the plaintiff to get the money/ The plaintiff took the document and went inside his house. About half an hour after he came out of his house and said that he would pay the amount two to three days after on return of his brother Shyam Sundar. In the meantime, his requirement was met by a timber merchant named Taraknath Koley who advanced the amount of Rs. 5,000/-. Thereafter, the defendant demanded back the pronote and the plaintiff said that as it was insufficiently stamped it was worthless and that he would destroy it. Neither Tarakanath Koley was examined in the case nor the business accounts of the defendant were produced to show the alleged advance of Rs. 5,000/- made by Tarakanath Koley though it was stated by D.W. 6 that the alleged payment by Tarakanath Koley had been entered in the accounts. It is difficult to believe that the defendant who is a Contractor would make over a promissory note creating liability to the tune of Rs. 5,000 to the plaintiff without receiving the amount and that even after he got the amount from Tarakanath, he would not insist on taking 'back the valuable security from the plaintiff and would allow the same to remain in his custody. On a review of the entire evidence on the record, we are inclined to agree with the findings of the trial court that the plaintiff's case of advance of loan of Rs. 5,000/- is true and that the defence contention is false. The plaintiff is, therefore, entitled to recover a sum of Rs. 5,000/- advanced by him to the defendant on 6-11-1967.

25. Although there was no contract for payment of interest the plaintiff claimed interest by way of compensation at the rate of 12% per annum from the date of loan till the date of suit. The Trial Court held that the plaintiff was not entitled to any interest as there was no stipulation for the same. Interest for the period prior to the suit is claimable either under an agreement or usage of trade or under a statutory provision or under the Interest Act. In the present case, admittedly there was no contract to pay interest, nor is the grant of interest sought to be supported by any usage or under any statutory provision. The plaintiff is, therefore, not entitled to interest, as claimed.

26. In the result, the appeal is allowed with costs. The decree passed by the learned single Judge is set aside and that of the learned Subordinate Judge is restored.

B.N. Misra, J.

27. I agree.


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