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Ramlal Onkarmal Firm Vs. Mohanlal Jogani Rice and Atta Mills - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1965SC1679; [1965]35CompCas464(SC); [1965]3SCR103
AppellantRamlal Onkarmal Firm
RespondentMohanlal Jogani Rice and Atta Mills
Cases ReferredChamblerlyn v. Delarive
Excerpt:
.....was not due to the laches of the respondents' collecting agents. 9,461-4-0 drawn on the tripura modernbank, sibsagar which the appellants had endorsed in favour of the respondentsin satisfaction of the amount due upon that cheque and that, therefore, thesubsequent dishonour of the draft would not revive the appellants' liability topay rs. chatterjee is a good answer to the respondent'sclaim. 13. it is a well accepted rule of english law, which has been applied inthis country also, that when a debt becomes due the debtor must tender to thecreditor the exact amount of the debt in cash or other legal tender and thatwhere a cheque is tendered by the debtor to the creditor the payment may beabsolute or conditional, the strong presumption being in favour of conditionalpayment. ). therefore,..........a reasonable time. p.w. 3admitted that had the draft been presented for payment to the tripura modernbank before october 16, 1948, it would have been paid on presentation, and themoney could not be realised only because the calcutta commercial bank hadclosed in the meantime. the tripura modern bank closed its business on october16, 1948. because of its inability to pay its debts, the tripura modern bank isnow working under a scheme of arrangement. the failure of the respondents andtheir agents to cash the draft within a reasonable time altered the position ofthe appellants for the worse, and caused prejudice to them. in thecircumstances, the respondents must be regarded as having kept the draft inabsolute payment of the cheque. the cheque must be treated as duly paid andconsequently,.....
Judgment:

The Judgment of Raghubar Dayal, Bachawat and Ramaswami, JJ. was delivered byBachawat, J. Mudholkar, J. delivered a separate Judgment.

Bachawat, J.

1. The appellants carrying on business at Raha in Nowgong District haddealings with the respondents, carrying on business at Gauhati. As a result ofthe said dealing, the appellants were indebted to the respondents in a sum ofRs. 9,447-4-9. In order to satisfy the dues of the respondents, the appellantssent to the respondents a cheque for Rs. 9,461-4-0 dated August 31, 1948. Thecheque was drawn by a third party, Messrs. Nathuram Jaidayal of Sibsagar on theTripura Modern Bank, Sibsagar Branch, in favour of the appellants, who endorsedit to the respondents. On September 4, 1948, the respondents sent the cheque totheir bankers, the Calcutta Commercial Bank, Gauhati for collection. On thesame day, the Calcutta Commercial Bank, Gauhati sent the cheque to the TripuraModern Bank, Sibsagar for encashment. The Tripura Modern Bank, Sibsagar debitedthe accounts of their constituents. Messrs Nathuram Jaidayal with the sum ofRs. 9,461-4-0, and after deducting Rs. 6-4-0 on account of commission charges,sent to the Calcutta Commercial Bank, Gauhati a draft for Rs. 9,435/- datedSeptember 14, 1948 towards payment of the cheque. The draft was drawn by theTripura Modern Bank, Sibsagar on its Calcutta Head Office, and was markedcurrent for three months from the date of the issue. On receipt of the draft,the Calcutta Commercial Bank, Gauhati sent it to their Head Office at Calcuttafor collection. But the Calcutta Commercial Bank never presented the draft tothe Tripura Modern Bank, and made no attempts to collect the amount of thedraft. In the meantime, the respondents wrote to the appellants informing themthat cash payment for the cheque has not been received, and on September 18,1948 the appellants replied asking the respondents to get back the cheque. Butthe cheque was never returned to the respondents. On September 17, 1948, theCalcutta Commercial Bank closed its business, and subsequently, it was orderedto be wound up. On October 16, 1948, the Tripura Modern Bank also closed itsbusiness, and in view of its inability to pay its dues, was compelled to enterinto a scheme of arrangement with its creditors.

2. On November 19, 1948, the respondents requested the Tripura Modern Bankto pay the amount of the draft to them and not to the Calcutta Commercial Bank.But no payment was made by the Tripura Modern Bank either to the respondents orto the Calcutta Commercial Bank. On March 8, 1949, the respondents institutedthe suit, out of which the appeal arises, claiming payment of their dues fromthe appellants on the footing that the cheque dated August 31, 1948 wasreceived by the respondents as a conditional payment, and as the cheque was notcashed, the respondents were entitled to enforce their original claim. TheSubordinate Judge, Lower Assam District, dismissed the suit. On appeal, the HighCourt reversed the judgment appealed from, and decreed the suit. The appellantsnow appeal to this Court by special leave.

3. The High Court rightly held that the respondents originally received thecheque dated August 31, 1948 as a conditional payment of their dues, and ifnothing else happened, the original debt would have revived on non-payment ofthe cheque. But we think that having regard to the laches of the respondents inthe collection of the draft and the consequential prejudice to the appellants, therespondents must be deemed to have retained the draft as absolute payment ofthe cheque, and on the payment of the cheque, the original debt stooddischarged.

4. In Chitty an Contracts, 22nd Edn., Art. 1079, the law is stated thus :

'Where a negotiable instrument, upon which thedebtor is not primarily liable, is accepted by the creditor as conditionalpayment, he is bound to do all that a holder of such an instrument may do inorder to get payment; thus it is his duty to present a cheque within a reasonabletime, and if he fails to do so, and the debtor is thereby prejudiced, thecreditor is guilty of laches and makes the cheque his own, so that it amountsto payment of the debt.'

5. In Addition's Treatise on the Law of Contracts, 11th Edn., p. 156, it isstated :-

'If the debtor makes an order upon his banker forpayment of the amount of the debt, and the creditor accepts it, and keeps it inhis hands an unreasonable time before presenting it for payment, and the bankerbecomes insolvent, the debtor is discharged on account of the laches of thecreditor.'

6. In Hobkins v. Ware L.R. [1869] Ex. 268 it was held that a creditorwho takes from his debtor's agent on account of the debt the cheque of theagent, is bound to present it for payment within a reasonable time; and if hefails to do so and by his delay alters for the worse the position of thedebtor, the debtor is discharged, although he was not a party to the cheque. Inthe old case of Chamblerlyn v. Delarive 95 E.R. 854, it washeld that if a creditor accepting a note or draft of his debtor upon a thirdperson holds it an unreasonable time before he demands the money, and theperson upon whom it is drawn becomes insolvent, it is the creditor's own loss,though the draft be not a bill of exchange or negotiable.

7. Now, in the instant case, the respondents accepted from their debtors,the appellants, a cheque drawn by a third party on the Tripura Modern Bank andendorsed by the appellants. The respondents through their collecting agents,the Calcutta Commercial Bank, presented the cheque for collection to theTripura Modern Bank, and instead of obtaining cash payment, received a draftdrawn by the Sibsagar Branch of the Tripura Modern Bank on its Head Office.Having accepted this draft in course of collection of the cheque, therespondents vis-a-vis the appellants were in no better position than they wouldhave been, if they had accepted the draft from the appellants directly asconditional payment of the cheque. In the circumstances, the respondents owed aduty to the appellants to present the draft for payment within a reasonabletime. The draft could be presented for payment at any time during the period ofthree months from the date of its issue. Instead of presenting the draft forpayment, the respondents' collecting agents kept it in their hands, and made noattempts to cash it. P.W. 3, an employee of the Calcutta Commercial Bank, saidthat the draft, was sent by the Gauhati Office of the Bank to its head officeby registered post, but the head office had closed its business and the draftcame back to the Gauhati office undelivered. The closure of the business of thecollecting agents was not a lawful excuse for not obtaining delivery of thedraft and not presenting it for payment within a reasonable time. P.W. 3admitted that had the draft been presented for payment to the Tripura ModernBank before October 16, 1948, it would have been paid on presentation, and themoney could not be realised only because the Calcutta Commercial Bank hadclosed in the meantime. The Tripura Modern Bank closed its business on October16, 1948. Because of its inability to pay its debts, the Tripura Modern Bank isnow working under a scheme of arrangement. The failure of the respondents andtheir agents to cash the draft within a reasonable time altered the position ofthe appellants for the worse, and caused prejudice to them. In thecircumstances, the respondents must be regarded as having kept the draft inabsolute payment of the cheque. The cheque must be treated as duly paid andconsequently, the original debt stood discharged.

8. The High Court was in error in holding that the failure to obtain paymentof the draft was not due to the laches of the respondents' collecting agents.In one part of the judgment, the High Court wrongly assumed, contrary to fact,that the Tripura Modern Bank had stopped business on September 16, 1948 andtherefore the draft could not be cashed on presentation, whereas, in fact, theTripura Modern Bank had stopped business a month later on October 16, 1948.Moreover, the High Court wrongly assumed that the appellants did not suffer anyloss on account of the delay in the presentation of the draft. There is clearevidence on the record that the draft would have been cashed, if it had beenpresented for payment before October 16, 1948.

9. Mr. Chatterjee also contended that the respondents' collecting agentsmust be deemed to have accepted the demand draft on September 14, 1948 asabsolute payment of the cheque, and that the cheque was, in the eye of law,paid and discharged on that date. There is a lengthy discussion on this pointin the judgment of the High Court, but we do not think it necessary to decidethis question.

10. In the result, the appeal is allowed, the judgment and decree passed bythe High Court are set aside, and those of the trial Court are restored. Therespondents shall pay to the appellants the costs in this Court. The partieswill pay and bear their own costs in the Courts below.

Mudholkar, J.

11. I agree with my brother Bachawat that this appeal should be allowed; butI would prefer to rest my decision upon a different ground.

12. It is not necessary to repeat here the facts which have been set out inmy learned brother's judgment. Mr. N. C. Chatterjee, appearing for thedefendants-appellants, urged two grounds, the first of which was that theplaintiffs-respondents had accepted the draft for Rs. 9,455/- dated September14, 1948 drawn by the Tripura Modern Bank, Sibsagar on its Head Office atCalcutta in payment of the cheque for Rs. 9,461-4-0 drawn on the Tripura ModernBank, Sibsagar which the appellants had endorsed in favour of the respondentsin satisfaction of the amount due upon that cheque and that, therefore, thesubsequent dishonour of the draft would not revive the appellants' liability topay Rs. 9,455/- to the respondents. The other ground was that the appellantswere discharged from liability because of the latches of the respondents in notpresenting the draft for encashment within reasonable time of the drawing ofthat draft. My learned brother has rested his decision on the second ground. Inmy view, however, it is not necessary to express any opinion upon the secondground as the first ground urged by Mr. Chatterjee is a good answer to the respondent'sclaim.

13. It is a well accepted rule of English law, which has been applied inthis country also, that when a debt becomes due the debtor must tender to thecreditor the exact amount of the debt in cash or other legal tender and thatwhere a cheque is tendered by the debtor to the creditor the payment may beabsolute or conditional, the strong presumption being in favour of conditionalpayment. (see Chalmers on Bills of Exchange, p. 301, 12th ed.). Therefore, whenthe respondents accepted the cheque drawn by Messrs Nathuram Jaidayal ofSibsagar in favour of the appellants and endorsed by the appellants in theirfavour and sent it to the Calcutta Commercial Bank Ltd., Gauhati Branch forcollection they must have accepted it as conditional payment. The respondents'bank, instead of collecting cash from the Tripura Modern Bank Ltd., Sibsagar,sought to collect the amount by draft. The reason for this given by DebendraChandra Mazumdar, P.W. 3, who was Assistant Accountant at the Gauhati Branch ofthe Calcutta Commercial Bank Ltd. at the relevant time was that the Bankusually collected money from other banks by draft. There is nothing to indicatein his evidence that this was the prevailing practice in the Banks carrying onbusiness in Assam. According to him, the respondents' bank asked for a draftpayable at Gauhati but the Tripura Modern Bank Ltd. sent one payable atCalcutta. The respondents' bank, however, accepted the draft and sent it byregistered post to Calcutta for collection. Some time thereafter therespondents' bank closed business and the demand draft was returnedundelivered. The respondents' Bank made over the draft to the respondents. Itmay be mentioned that though the Tripura Modern Bank Ltd., had branch atGauhati the respondents' Bank did not object to a draft payable at Calcuttathinking that the money due thereunder could be collected earlier from theCalcutta branch of the Tripura Modern Bank. The matter, however, did not restthere, After the respondents' Bank went into liquidation the respondents wrotea letter on November 19, 1948 to the Agent of the Tripura Modern Bank Ltd.,Calcutta saying that the demand draft belonged to them and not to the CalcuttaCommercial Bank Ltd., who were only acting as their agents for collection purposesand that the amount for which the draft was drawn should be paid to them andnot to the Calcutta Commercial Bank or any one on its behalf. This letterclearly shows that the respondents accepted the draft in full payment of theamount due to them under the cheque which the appellants had endorsed in theirfavour. Thus, though the cheque endorsed by the appellants in favour of therespondents was only a conditional payment of the amount for which the chequewas drawn the respondents by accepting the demand draft drawn by the TripuraModern Bank, Sibsagar on its Calcutta Branch must be deemed to have acceptedthat draft as a legal tender or as absolute payment of the amount payable underthe cheque endorsed in their favour by the appellant. Their rights thereafterwould rest only upon the demand draft and not upon the original debt which theappellant owned to them. It may be mentioned that the Tripura Modern Bank hadnot gone into liquidation till a month later and would, as stated by DebendraChandra Mazumdar, P.W. 3, have been able to meet the draft had it beenpresented to its Calcutta Branch within reasonable time from the date on whichit was drawn. It is because the respondents' Bank went into liquidation justabout the time the registered letter containing the draft was sent to Calcuttaand no one took delivery of it that the draft could not be presented to theCalcutta Branch of the Tripura Modern Bank. The remedy of the respondents,therefore, could be against their own bank, that is, the Calcutta CommercialBank or against the Tripura Modern Bank but certainly not against theappellant. Reliance, however, was placed by Mr. S. C. Nath for the respondentsupon the letter dated September 10, 1949 written by the appellant to therespondents in which the appellant wrote as follows :

'...........and received your letter. You wrotethat the payment of Rs. 9,461-4-0 had not been received. Please get the chequeback. We have written to the drawer, which please note.'

14. According to learned counsel, therefore, the appellant must be deemed tohave accepted its liability upon the cheque which it had endorsed in favour ofthe respondents. There is no reference in this letter to the demand draft andit is quite clear therefore what the appellant said was in ignorance of thefact that the respondents' bank had accepted a demand draft in payment of thecheque. It may be mentioned that the Tripura Modern Bank, Sibsagar had actuallydebited the account of the drawer of the cheque with the amount for which thecheque had been drawn. The cheque had thus been honoured by them. But insteadof paying cash they issued a demand draft at the instance of the respondents'bank. This letter, therefore, does not improve matters for the respondents.

15. For these reasons the appeal is allowed, the decree of the High Court isset aside and that of the trial court restored. The respondents will pay theappellants' costs in this Court and in the Courts below and bear their owncosts.

16. Appeal allowed.


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