1. These two appeals arise out of two suits filed originally in this court on its Original Side (C. S. Nos. 103 and 183 of 1954) and subsequently transferred to the City Civil Court at Madras, where they were numbered as O. S. Nos. 1453 and 1463 of 1955 respectively. Both the suits were tried together by the learned Additional Judge of the City Civil Court and decreed as prayed for. The first defendant in the two suits is the appellant in the two appeals before us. O. S. No. 1456 of 1955 is a suit to recover a sum of Rs. 26798/4/7 alleged to be due for balance of principal and interest in res-pect of a promissory note executed on 1-3-1951 by the first defendant, M/s. Wazir Sultan and Sons, a firm of merchants carrying on business at Hyderabad, in favour of the second defendant Shyamala Industries Corporation Ltd., a private limited company, for Rs. 32691/5/2 O. S. (that is, Hyderabad currency) and assigned by the second defendant to the plaintiff, Karlapaty Syamalamba, on 15-1-1954.
The following are the material allegations in the plaint. On 1-3-1951, the defendants settled their accounts in respect of a partnership business carried on by them at Secunderabad and the second defendant retired from the partnership and released its rights therein in consideration of a sum of Rs. 32691/5/2 agreed to be paid by the first defendant to the second defendant. For this sum the first defendant executed a promissory note agreeing to pay the sum with interest at 4 per cent, per annum. Towards the promissory note a sum of Rs. 2691/5/2 (O. S.) was paid and there is a sum of Rs. 30,000 (O. S.) now due for principal, equivalent to Rs. 25714/4/7 in Indian Currency and interest from 1-3-1951 which comes to Rs. 1084.
On 19-2-1954. the first defendant paid a sum of Rs. 2000 by a cheque towards the promissory note. After giving credit for the said sum, an amount of Rs. 26798/4/7 is due for principal and interest. The first defendant by partner Abdul Hameed Sultan filed a written statement in which the execution of the promissory note was admitted. The only plea was that in addition to the payments admitted by the plaintiff to have been received, the defendant made further payments of Rs. 5000 (O. S.) Rs. 5000 (O. S.) and Rs. 2000 (Indian Cur-rency) on 12-6-1951, 21-7-1951 and 17-10-1951 respectively and therefore the first defendant is liable to pay only the amount that may be found due after giving credit to these payments.
These payments were alleged to have been made to Mr. K. Appa Rao, Managing Director of the second defendant company. The first defendant complained that the said Appa Rao had for his own reasons unlawfully treated the said payments to other accounts on which no amount was due to him and had also filed another suit. The plaintiff was no other than the mother of the said Appa Rao and the plaintiff in the other suit is no Other than his nephew. An error in the calculation of the amount due in the plaint was also pointed out.
2. The other suit. O. S. No. 1463 of 1955, is a suit on another promissory note executed on 2-1-1950 by the first defendant, M/s. Wazir Sultan and Sons, represented by its managing partner Hameed Sultan, in favour of the second defendant, K. Appa Rao, for a sum of Rs. 45000 and transferred by him to the plaintiff on 25-8-1951. The following are the material allegations in this plaint, On 2-1-1950, the first defendant by its managing partner Hameed Sultan executed a promissory note in favour of the second defendant for a sum of Rs. 45000 (O. S.) repayable with interest at 12 pec cent, per annum.
In respect of the said promissory note the first defendant paid to the second defendant two sums of Rs. 5000 each on 12-6-1951 and 21st July, 1951 respectively. The balance due in respect of the principal and interest is Ms. 52985 (O. S.) equivalent to Rs. 45414 in Indian. Currency. The first defendant practically admitted the execution of the promissory note but denied all liability under it. His case was as follows. By deed of partnership dated 12-6-1949 the first defendant and Shyamala Industries Corporation Ltd., a private limited company of which K. Appa Rao was the Managing Director, became parners and conducted business at Hyderabad.
Under the said deed of partnership the Shyamala Industries Corporation Ltd., was to invest in the partnership firm capital to the extent of Rs. 70,000 and the second defendant, its Managing Director, was to be in sole charge of the business. The partnership commenced its business on 12-6-1949 and was dissolved by mutual consent on 28-2-1951. Advances were made by the Shyamala Industries from time to time and as per the balance-sheet of the partnership as on 31-12-1949 the total sum thus advanced was Rs. 42959/14/0. In respect of this amount the second defendant K. Appa Rao,. Managing Director of the Shyamala Industries Corporation Ltd., desired that the first defendant should execute a promissory note for a sum of Rs. 45,000 in his favour, and in pursuance of such a request he executed the promissory note.
It was specifically agreed at the time that the suit promissory noe was enforceable, only to the extent of the amount that might be intimately due by the partnership. The promissory note was an additional security for the sums advanced. As per the balance-sheet of the partnership firm drawn on 28-2-1951, the date of its dissolution, the first defendant had to pay to the other partner a sum oi Rs. 16490/8/10 towards the balance due on the loan account and half the losses of the partnership which amounted to Rs. 14741/0/8. After certain adjustments it was settled that the first defendant was liable to pay the sum of Rs. 32691/5/2 and for this sum a promissory note was executed by the first defendant in favour of the Shyamala Industries Corporation Ltd. (the promissory note which is the subject-matter of O. S. No. 1456 of 1955).
This sum included the balance due in respect of the advances made by the second defendant to the firm. Hence the suit promissory note for Rs. 45,000 automatically got extinguished and is therefore not enforceable. The assignment in favour of the plaintiff who is a near relation of the second defendant is fraudulent and intended to make the first defendant liable twice over for the same debt. Though the first defendant demanded a return of the promissory-note the second defendant promised to do so but did not. The first defendant also raised a plea of limitation as the suit had been filed more than three years after the execution of the promis-sory note.
3. Both the suits were tried together and the evidence adduced by the parties was treated as evidence in the two suits. The learned trial judge held that the promissory note for Rs. 45,000 was not executed for the purpose and in the circumstances set out by the first defendant, that the said promissory note was not extinguished by the execution of the other promissory note for Rs. 32691/5/2 as alleged by the first defendant, that the two sums of Rs. 5000 each were sent by the first defendant in part payment of the promissory note for Rs. 45,000 and not for the other promissory note and thai the suit was not barred by limitation. Following the result of these findings, the learned Judge also held that the first defendant should not be given credit to the said two sums as payments towards the promissory note of Rs. 32691/5/2.
There was one other payment of Rs. 2000 made-by the first defendant on 17-10-1951 which K. Appa Rao credited towards his alleged dues in respect of a mica transaction. The learned Judge expressed a doubt whether Appa Rao could lawfully appropriate this sum towards the mica account when such appropriation was disputed by the first defendant. But he held that the said sum could not be taken as paid towards the promissory note for Rs. 32691/5/2 and refrained from recording a definite finding as to what relief the first defendant should get for this admitted payment. In the result both the suits were decreed as prayed for.
4. The main contest in these two appeals has centred vound the promissory note for Rs. 45000 executed by the first defendant in favour of the second defendant Appa Rao on 2-1-1950 (Ex. B. 4). It runs thus :
"On demand we promise to pay Mr. K. Appa Rao or his order a sum of Rs. O. S. 45000 (Rs. forty five thousand only) with interest at 12 per cent per annum for value received in cash....."
The first defendant's case in short is that there was no payment in cash of any sum and that the promissory note was executed as an additional security for the sums advanced by K. Appa Rao as the Managing Director of the Shyamala Industries Corporation Ltd, as per the terms of the partnership agreement.
* * * * *
His Lordship then discussed the evidence and held that the promissory note in question had not been shown to be devoid of consideration and proceeded:)
5. There remains only the question of limitation. The promissory note for Rs. 45000 (Ex. B. 4) was executed on 2nd January 1950. The suit was brought on 3rd February 1954, that, is beyond three years. To save the suit from the bar of limitation the plaintiff relied on the two payments by drafts on the Central Bank of India and sent along with the covering letters, Exs. B. 8 and B 9 on 12th June 1951 and 21st July 1951 respectively, and the provisions of Section 20 of the Indian Limitation Act. The material provisions of that section as it stands now, and as it stood on the date of the suit are as follows:
"Section 20(1): Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period, by the person liable to pay the debt or legacy, or by his duly authorised agent, a fresh period of limitation shall be computed from the time when the payment was made ;
6. Originally the sub-section ran as follows:
"Where interest on a debt or legacy is, before the expiration of the prescribed period, paid as such by the person liable to pay the debt or legacy, or his agent duly authorised in this behalf, or where part of the principal of a debt is, before the expiration of the prescribed period, paid by the debtor or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made."
6a. By the Indian Limitation Amendment Act, 1927, in place of the old proviso the following proviso was substituted:
"Provided that, save in the case of a payment of interest made before the 1st day of January 1928, an acknowledgment of the payment appears jn the handwriting of, or in a writing signed by, the person making the payment."
7. As the sub-section now stands, the distinction between the payment of interest as such and the payment of part of the principal of a debt no longer exists. The words are general so far as a debt is concerned. The payment must be "on account of a debt." According to the sub-section as it now stands, the creditor to get the benefit of an extension of limitation, has to prove two facts, (1) that there has been a payment on account of a debt before the expiration of the prescribed period by the person liable to pay the debt or by his duly authorised agent and (2) that there is an acknowledgment of the payment in the hand-writing of, or in a writing signed by, the person making the payment. It is important to keep these two requirements separate. Payment is an act. It consists in the passing of money or the equivalent of money from one person to another. The acknowledgment is a record in writing. Section 20(1) does not admit of an oral acknowledgment.
8. When a payment, say of money, is made by one person to another, it may be made for different reasons. The payment may be in person, in which case the person paying may mention to the person receiving the money the purpose for which the payment is made. Apart from any authority, it appears to us to be common sense to hold in such a case evidence can be given as regards the purpose for which the payment was made. Now obviously a payment alone, even if it is established that it was on account of a debt, would not be sufficient to start a fresh period of limitation. There should be an acknowledgment on the payment in a document either in the hand-writing of, or in writing signed by the person making the payment. This acknowledgment is only evidentiary in character.
It is the payment that starts the fresh period of limitation and not the acknowledgment of the payment -- vide Viswanath Raghunath v. Mahadeo Rajaram ILR 57 Bom. 453: (AIR 1933 Bom 252), per Beaumont C.J. Hence it has been held that the fresh period of limitation would start from the date of the payment and not from, the date of the acknowledgment -- Ram Prasad v. Mohan Lal, AIR 1923 Nag. 117. In ILR 57 Bom. 453; (AIR 19S3 Born 252) cited above, Beaumont C. J. observed thus:
"It is true that the payment has to be made within the prescribed time period; but the Act does not provide that the acknowledgment is to be made within that period. It is the payment and not the acknowledgment which extends the period of limitation. The acknowledgment is merely a matter of evidence and provided it is signed before the suit is commenced, that appears to me to be sufficient."
While the words "on account of a debt" occur in the main sub-section, they do not occur in the proviso. Under the proviso, all that is required is an acknowledgment of the payment in the hand-writing of, or in a writing signed by, the person making the payment.
9. Mr. Rajah Aiyar, learned counsel for the first defendant-appellant contended that the acknowledgment of the payment should on the face of it show that it is -a payment on account of a debt. But the language of the proviso does not compel us to agree with this contention. In support of his argument he relied on an early ruling of this court in Mackenzie v. Tiruvengadatban ILR 9 Mad. 271 which was followed without "discussion in Ramchander v. Chandi Prasad, ILR 19 All, 307, and the decision of a single learned Judge of the Patna High Court in Gobind Ram v. Finn Chuni Ram Jamuna Das, AIR 1942 Pat. 47. Jn ILR 9 Mad 271, to compute a fresh period of limitation, a cheque drawn in favour of the debtor and endorsed by him to the creditor was relied on.
That was the only writing which they produced in evidence of a part payment made on account of the principal. No evidence was produced to show that the endorsement had been made and signed by the debtor. It was held by Parker J. who first tried the suit that this would not avail the plaintiff as there was an evidence even as to who made the endorsement. On appeal, the learned Judges confirmed this decision but made the following observations obiter:
Assuming that respondent No. 2 (the debtor) eindorscd the cheque B, it does not satisfy the requirements of Section 20 of the Act of Limitation. The proviso to that section requires that the fact of the part payment should appear in the handwriting of the debtor or his agent. The cheque is only an order for payment, and it does not evidence any payment at all. Nor does it show for what purpose the payment was made. There is no doubt, some parole evidence as to the payment, but the Act requires that the fact of the payment, and that such payment was a part-payment, should appear in writing signed by the debtor or his agent authorised to make the payment."
10. It is necessary to remember that the proviso under the Limitation Act of 1877, which was the Act applicable, ran thus : "Provided that in the case of part payment of the principal of a debt, the fact of the payment appears in the handwriting of the person making the same. The observations must be understood in the context that what was relied, on was a cheque. There has been considerable change of opinion as regards the conception of payment by cheque and it is now well established that a cheque may be treated as payment. A full discussion of the tonic is to be found in Subraman-yam v. Venkataratnam, and
Frafulla Chandra v. Jatindra Nath, ILR (1938) 2 Cal 020: (AIR 1938 Cal 538). There is also the difference in language between the section as it stood then and as it now stands. We cannot treat the decision in ILR 9 Mad. 271 as an authority on Section 20 Sub-section (1) as it now stands. In AIR 1942 Pat. 47., a certain amount was sent by the debtor by money order; but there was nothing in the money order coupon to show on what account the remittance was made.
Rowland J. held that the requirement of Section 20 was not satisfied. The reasoning of the learned Judge can be stated in his own words:
"I think the acknowledgment must appear on its face to be on account of the debtor, at least on account of a debt, whereas in the money order coupon there is nothing at all to show on what account the remittance was made."
The learned Judge was apparently of the view that it is necessary that the connection between the payment and the debt should appear on the face of the writing required by the proviso to Section 20(1) of the Limitation Act. With respect to the loarne'd Judge we do not agree with him as his view is not supported either by the language of Section 20 or by the decisions of courts. An early decision of the English Courts in Tippets v. Heane, (1834) 149 ER 1074, was relied on but it does not directly bear on a construction of the present Sub-section (1) of Section 20 of the Indian Limitation Act.
11. Mr. T. M. Krishnaswami Aiyar for. the plaintiff-respondent relied on certain observations and decisions as supporting his contention that the conditions required by Section 20 must be deemed to have been complied with in this case. His argument was that it can be proved by evidence that a payment was on account of a debt and that it is not necessary that the acknowledgment of the payment should specify expressly the debt towards which the payment had been made. It may be by evidence of surrounding circumstances or of direct parole evidence of what happened at the time of payment. It may consist in an appropriation by the creditor of an open payment.
All that Section 20(1) requires is proof of payment on account of a debt and an acknowledgment of payment in the handwriting of, or in a writing signed by, the person making the payment and proof of the payment can be in any manner recognised in law. So the argument ran. Great reliance was placed on the observations made by the. Judicial Committee in Rama Shah v. Lal Chand, 1940-1 Mad. LJ. 895: (AIR 1940 PC 63). No doubt that was a case decided before the amendment of 1942 and related to the true construction and affect of Section 20 of the Limitation Act as amended by the Amending Act of 1927.
The decision on the facts in that case has no direct application to the present case. There the suit was brought on a promissory note dated 4th February 1930. The suit was instituted on 24th ( January 1936. To save the suit from the bar of' limitation, an endorsement on the promissory note in the writing of the defendant dated 24th January 1933 was relied on. The endorsement ran thus:
"Paid Rs. 100 today in this pronote."
The High Court of Lahore held in appeal from the decree of the Subordinate Judge who gave a decree to the plaintiff that the sum of Rs. 100 was never appropriated by the. debtor or by the creditor either to interest or part payment of principal until the date of suit, that is, until long after three years had elapsed from the date of the promissory note and, therefore, the suit was time barred.
The reasoning of the High Court was that a payment made generally on account of an interest bearing debt becomes a payment towards the principal only by appropriation thereto, and must, in order to have the effect of preventing limitation, be appropriate before the period of limitation had expired. The Judicial Committee held, reversing the decision of the High pourt, that as there was evidence that the payment had been appropriated to principal by the defendant within the prescribed period, the suit was not barred.
There is considerable discussion on the import of the words "as such'' in relation to the payment of interest but that discussion is now academic having regard to the amendment in 1942. Dealing with the right of appropriation by a creditor, their Lordships said,
"The subject of 'appropriation of payments' is dealt with in the Indian Contract Act by Sections 59 to 61, inclusive. Section 60 provides that, when the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor."
Their Lordships laid down that the creditors act of appropriation of payment to the principal debt should be before the lapse of the prescribed time. On the facts they held that there had been such an appropriation within the prescribed time. There is one passage in the opinion of their Lordships which does help the plaintiff-respondent and that is this:
Stress was laid on the change in the proviso from 'the fact of the payment appears' to 'an acknowledgment of the payment appears', but neither expression affords in their Lordships' opinion any ground for holding that the character of the payment, as intended to go towards interest or towards principal, must appear by the writing, still less that it must be ascertainable or ascertained at the date of the payment."
The ruling in Kandaswami Mudaliar v. Thevam-mal, 1937-2 Mad LJ 54: (AIR .1938- Mad 8481 though given long before the above Privy Council decision, proceeds on the same assumption, It was held that according to the plain language of the proviso to Section 20 of the Limitation Act, what is required is acknowledgment of payment. Whether the said payment is payment towards interest as such or principal can be proved by other evidence. Though this decision was also before the amend-ment of 1942, it is valuable because of its construction of the proviso which remained unaltered by the amendment in 1942. In that case a promissory note was executed by the debtor in favour of his creditor and it was alleged by the creditor that it was towards a portion of the interest on the debt due under the previous note in his favour.
The lower courts accepted this case of the creditor. It was held that the promissory note saved the suit brought on the original debt from the bar of limitation. The learned Judge, Venkataramana Rao J. held that evidence could always be given that the payment was made towards a particular debt. After a discussion of several decisions of this court and other courts, the learned Judge held that so far as part payment of principal was concerned, a writing need not show that payment was towards principal. He pointed out,
"If the Scheme of the Act is taken into consideration, it does not appear to be the intention of the legislature that the writing evidencing the payment should also indicate that the payment is towards interest or principal. Section 19 deals with an acknowledgment of liability as such in respect of any property or right or debt. Section 20 is intended to provide by way of statutory declaration that from the fact of payment of interest or part payment of principal of a debt you can imply acknowledgment of liability in respect of the debt. If it was intended that the writing also should specify that the payment was towards interest or principal of a debt. Section 20 is superfluous as the writing will operate as an acknowledgment under Section 19 of the Limitation Act. I am therefore of opinion that the writing need not specify that the payment was made towards interest or principal. That any payment was made towards a particular debt evidence can always he given."
It may be mentioned in passing that the decision in ILR 9 Mad 271 was referred to by the learned fudge and its scope limited. In ILR 1938-2 Cal 320 : (AIR "1938 Cal 538), it was held that when part payment of a debt is made and accepted by cheque written in the handwriting of the person liable to pay the debt, it was evidence both of thg fact of payment and of acknow'edgment within the meaning of Section 20 of the Indian Limitation Act. At p. 325 (of ILR Cal) : (at p. 540 of AIR) S. K. Gbose, J. said,
"The Indian statute only requires that, the acknowledgment must be of the payment. It is not necessary that it must also be stated that the payment is towards a particular debt."
There is no direct authority of this court or of any other court on the construction of Sub-section (1) of Section 20 of the Limitatiou Act, as amended in 1942. But the principles which have been, in our opinion, clearly laid down in dealing with Section 20 (1) before 1942 will apply to cases arising after the amendment of 1942.
We hold that the fact that the payment of money was on account of a debt can be proved by evidence and it need not appear on the face of the acknowledgment of payment in writing. It can always be proved that a payment was towards a particular debt. The Court may be called upon to infer from circumstances and probabilities that a payment was towards a particular debt. In the case before us, as we have already mentioned, it was never suggested on behalf of the first defendant that several debts were due and owing to the plaintiff by them and that therefore it could not be taken that the payment of Rs. 5000 each by drafts was towards a debt other than the debt due under the promissory note for Rs. 45000. Of course there was the other debt due under the promissory note dated 1-3-1951 (Ex. B. 7); but that promissory note was not in favour of K. Appa Rao. It was in favour of the Shyamala Industries Corporation which is different in law from Appa Rao. It appears to be reasonably clear to us that these two drafts must have been sent to the plaintiff in part payment of the debt due under the promissory note Ex. B. 4. The drafts were sent in June and July, 1951. Even leaving out of account Exs. A.2 A.3 and A.4, there is the notice given by the plaintiff on 7-11-1951 (Ex. B.14) in which it was expressly stated that the sums sent by the two drafts were credited to the promissory note of Rs. 45000.
This notice was within three years from the date of the promissory note. The suit was filed in February, 1954, within three years from the date of the notice. There was clearly appropriation by the creditor towards the impugned promissory note within the prescribed time and that fulfils the condition that the oayment should be on account of the debt. As the suit was instituted within three years from the date of these payments, tbe suit was not barred by time.
12. It also follows that in calculating the amount due under the promissory note, Ex. B.4, the first defendant should be given credit to the two sums of Rs. 5000 each, as well as to the sum ot Rs. 2000 sent by a demand draft subsequently. C. C. C. A. No. 15 of 1957 which relates to this promissory note is allowed only to the extent of Rs. 2000 hut is substantially dismissed. The appellant and the plaintiff-respondent will pay and Teceive proportionate costs.
13. In the other suit which has given rise to C. C. C. A. No. 16 of 1957, there was practically no defence except the plea of partial discharge on the ground that the three payments of Rs. 5000, 5000 and 2000 were made towards the promissory note on which this suit was based. As we have held that these payments must go towards the promissory note of Rs. 45000 (Ex. B.4) they cannot obviously be taken as payments made towards Ex. B. 7. The plaintiff is entitled to get a decree for the sum claimed by him. The appeal fails and is dismissed with costs.
(C. C. C. A. No. 15 of 1957 having been set down for being mentioned this day, the court made the following Order) :
14. The decree of the lower Court shalli be amended by substituting the value of the Indian currency for Rs. 45000, Hyderabad currency for the principal amount namely Rs. 37800. Interest will be calculated on this sum. It is represented that since the date of this decree of the court below further payments have been made towards the amount due under the decree. Such payment, if any, will be given credit.