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Perumal Chettiar Vs. Kamakshi Ammal - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1938Mad785; (1938)2MLJ189
AppellantPerumal Chettiar
RespondentKamakshi Ammal
Cases ReferredIn Venkatachalapathi v. Ramakrishnayya
Excerpt:
- - it is well settled both in england and in this country, that where a negotiable instrument is given in respect of an antecedent debt the creditor may sue on the debt and ignore the note. (6) if the terms of the agreement under which the loan was made have been embodied in an instrument no evidence can be adduced in proof of the terms of the contract except the document itself, and if the document is not admissible in evidence as the result of its being improperly stamped the suit must fail. if there is an obligation apart from the one under the note itself it may clearly be enforced. 400 lent on a promissory note on the 17th june, 1928. the plaintiff's case was that there had been payments to account and that these payments had been endorsed on the instrument. though it may.....alfred henry lionel leach, c.j.1. the question which the court is called upon to decide in this case is whether a person who has lent money on a promissory note can sue to recover the debt apart from the note when the note embodies the terms of the contract with the borrower but is inadmissible in evidence owing to a defect in the stamping. in england the right to sue on the original consideration is recognised, and the same principle has been applied by some judges in india, but section 91 of the indian evidence act says that no evidence shall be given in proof of the terms of the contract except the document itself, or secondary evidence where secondary evidence is admissible and other judges have held that this section prohibits a suit on the original consideration. this court, except.....
Judgment:

Alfred Henry Lionel Leach, C.J.

1. The question which the Court is called upon to decide in this case is whether a person who has lent money on a promissory note can sue to recover the debt apart from the note when the note embodies the terms of the contract with the borrower but is inadmissible in evidence owing to a defect in the stamping. In England the right to sue on the original consideration is recognised, and the same principle has been applied by some Judges in India, but Section 91 of the Indian Evidence Act says that no evidence shall be given in proof of the terms of the contract except the document itself, or secondary evidence where secondary evidence is admissible and other Judges have held that this section prohibits a suit on the original consideration. This Court, except in two cases to which I shall in due course refer, has held that Section 91 of the Evidence Act is a bar to a suit on the debt when the loan and the instrument are contemporaneous. Before turning to examine the decisions of this Court and certain of the other authorities to which reference has been made I should point out that the Court is not considering the case where a promissory note has been given in respect of an antecedent debt. It is well settled both in England and in this country, that where a negotiable instrument is given in respect of an antecedent debt the creditor may sue on the debt and ignore the note. We are merely concerned here with the case where the note has been given at the time of the loan or in pursuance of the arrangement then made and embodies in full the terms of the contract.

2. The earliest reported case of this Court to which our attention has been drawn is that of Krishnaswami Pillai v. Rangaswami Chetty I.L.R.(1883) Mad. 112 where a promissory note had been given by two members of a joint Hindu family in consideration of a loan to the family. The instrument was improperly stamped, but the Court held that this was no bar to the suit because the cause of action for the money lent was complete in itself before the giving of the note. The report does not set out the facts and apparently the Court was of the opinion that the instrument had been given for an antecedent debt. The question was raised before Collins, C.J. and Parker, J., in Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94. There the loan having been arranged and the money paid a promissory note specifying the terms of the contract was executed later in the day. The note was not duly stamped and the Court held that the suit was not maintainable. It was recognised that there might be circumstances under which the loan could be recovered apart from the note, but the Court was firmly of the opinion that when the contract is reduced to writing the instrument itself is the only evidence of the transaction. This decision was followed by Boddam and Sankaran Nair, JJ., in Yarlagadda Veera Raghavayya v. Gorantla Ramayya : (1905)15MLJ484 , by Sadasiva Aiyar and Spencer, JJ., in Muthu Sastrigal v. Visvanatha Pandara Sannadhi (1913) 26 M.L.J. 19 : I.L.R. 1913 Mad. 660 and by Varadachariar and Burn, JJ., in 'Chockalingam Chettiar v. Palaniappa Chettiar (1934) 67 M.L.J. 595 : I.L.R.1934 Mad. 660. The same principle was applied by Madhavan Nair, J., in Pulugurta Somaraju v. Machiraju Venkatasubbarayudu (1924) 20 L.W. 943 and Reilly and Anantakrishna Aiyar, JJ., in Gura Sahu v. Tangi Krishnamma alias Babu Patro (1932) 36 L.W. 432 by Krishnan Pandalai, J., in Chandrasekharam Pillai v. Srinivasa Pillai (1932) 37 L.W. 723 and again by Anantakrishna Aiyar, J., in Alimane Sahib a v. Kolisetti Subbarayudu : AIR1932Mad693 .

3. In Ramaswami Pillai v. Murugiah Padayachi (1935) 70 M.L.J. 267 : I.L.R.1935 Mad. 268 (F.B.), a Full Bench consisting of Beasley, C. J., Cornish and Pandrang Row, JJ., had to consider a promissory note which was expressed in these terms:

We have taken from you on credit this day 10 kalams of Kuruvai paddy at Rs. 3 a kalam for Rs. 30 arid we have executed this hand-letter promising to pay the sum of Rs. 30 with interest thereon at 3 pies per rupee per mensem to you or to your order.

4. The document was unstamped and it was conceded that it was inadmissible in evidence. It had not been given in respect of an antecedent debt, but was a contemporaneous document executed at the time of the sale of the paddy. The Court held that the suit was maintainable on the debt. In the course of his judgment Beasley, C.J., recognised that where a promissory note is in consideration of a loan the debt cannot be proved aliundi. The learned Chief Justice and Pandrang Row, J., were of opinion that in all such cases the Courts must be guided by what appears on the face of the promissory note. If it is expressed in such a way as to leave what was intended by the parties in any way in doubt, then the facts must settle the question. If it is clear on the face of the promissory note that it is the contract, then no further evidence can be permitted. The Court held that the suit was maintainable because it considered that the promissory note was merely given as a conditional payment for the paddy. Cornish, J., reserved his opinion on the question whether the payee of a note given for a contemporaneous loan has or has not a right of action on the debt. In Chockalingam Chetti v. Annamalai Chetti (1915) 34 I.C. 417 Coutts-Trotter and Srinivasa Aiyangar, JJ., expressed the opinion that the giving of an instrument in recognition of a pre-existing debt does not extinguish, but merely suspends the cause of action on the original debt. The giving of an instrument is merely conditional to its discharge. I do not regard this judgment as questioning the correctness of the decision in Pothi Reddi. v. Velayudasivan I.L.R.(1886) Mad. 94. Stone, J., in Murugappa Chetti v. Nachiappa Chetti (1934) 67 M.L.J. 30 held that where the cause of action is complete before the giving of the promissory note the creditor may sue on the debt. This is another case in which the promissory note was given in respect of an antecedent debt.

5. The two cases which conflict with Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 are Gopala Padayachi v. Rajagopal Naidu : AIR1926Mad1148 and Chinnayya Naidu v. Srinivasa Naidu (1934) 67 M.L.J. 912. In Gopala Padayachi v. Rajagopal Naidu : AIR1926Mad1148 , Wallace, J., stated that when a promissory note is taken for a contemporaneous debt, the balance of opinion is that the execution of the instrument does not discharge the debt, but only suspends the remedy on the debt. I am unable to agree that this is the balance of judicial opinion in India. The learned Judge made no reference to the decision in Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 or to that in Muthu Sastrigal v. Visvanatha Pandara Sannadhi (1913) 26 M.L.J. 19 : I.L.R.1913 Mad. 660. In Chinnayya Naidu v. Srinivasa Naidu (1934) 67 M.L.J. 912 Venkatasubba Rao, J., expressly held that where the loan and the giving of the promissory note are contemporaneous the lender may fall back on the original contract. This decision is, therefore, in direct conflict with Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 and the cases which followed it. The learned Judge in the course of his judgment, referred to a marked conflict of judicial opinion in this High Court. He regarded the decision of 'Stone, J., in Murugappa Chetti v. Nachiappa Chetti (1934) 67 M.L.J. 912 as being in conflict with the judgment of Varadachariar and; Burn, JJ., in Chockalingam Chettiar v. Palaniappa Chettiar (1934) 67 M.L.J. 595 : I.L.R. Mad. 261. With great respect I do not look upon these decisions as being in conflict and until the judgment of Venkatasubba Rao, J., the only previous departure from the general trend of decisions of this Court was to be found in the judgment of Wallace, J. The correctness of the decision in Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 has, however, now been called in question and in view of the importance of the matter the present case has been placed before a bench of five Judges.

6. The question under discussion was considered by a Full Bench of the Rangoon High Court of which I was a member in the case of Maung Chit v. Roshan N.M.A. Kareem Oomer and Co I.L.R.(1934) Rang. 500 (F.B.) and there all the important decisions, both Indian and English, were discussed in the course of the arguments. The judgment of the Court was delivered by Page, C.J., who deduced the following propositions of law from the authorities: (1) When a loan is contracted it is an implied term of the agreement that it shall be repaid. (2) When a promissory note is given by the borrower either at the time when the loan is contracted or afterwards, the terms upon which it is given and taken is a question of fact and not of law. (3) The giving of a negotiable security by a debtor to his creditor operates prima facie as a conditional payment only, and not as a satisfaction of the debt unless the parties so regard it. (4) If the promissory note is itself the consideration for the loan or if it is accepted as an accord and satisfaction of the original debt, the lender is restricted to his rights under the instrument. (5) The lender is entitled to sue on the original consideration if the instrument is given merely as a collateral security. (6) If the terms of the agreement under which the loan was made have been embodied in an instrument no evidence can be adduced in proof of the terms of the contract except the document itself, and if the document is not admissible in evidence as the result of its being improperly stamped the suit must fail. I concurred in this judgment and subject to one qualification I still consider that it correctly states the law. The qualification which I would now make has reference to the statement that the giving of a negotiable instrument operates prima facie as a conditional payment of the debt. On further consideration I have come to the conclusion that this must depend on the facts of the particular case and that there is no presumption that the instrument has been given as conditional payment. Therefore, in my opinion, when the lender wishes to sue on the original contract on the ground that the instrument was given by way of conditional payment he must prove facts which warrant the inference.

7. I am in agreement with the observations of Sulaiman and Kendall, JJ., in Kundan Lal v. Bhikari Das-Ishwar Das I.L.R.(1929) All. 530. The learned Judges there said :

It is true that in considering this point we cannot be solely guided by the equitable considerations which are given effect to in English cases. The express provisions of Section 91 of the Indian Evidence Act cannot be ignored. Under that section, where the terms of a contract have been reduced to the form of a document, no evidence can be given in proof of the terms of such contract except the document itself or secondary evidence of its contents where it is admissible. If therefore the hundis are the embodiment of the whole contract between the parties and those hundis are not admissible in evidence and cannot be looked at for the purpose of finding out the terms of the contract, the plaintiffs cannot be allowed to adduce other evidence to prove the terms of such contract. It is conceivable that in special cases a bill of exchange or a promissory note may be the only document containing the terms of the contract between the parties, and in such a case if that document cannot be adduced in evidence the creditor may be prevented from recovering the amount. This is clear from illustration (c) to Section 91. On the other hand, from the mere fact that a bill of exchange or hundi has been executed it does not necessarily follow that the whole of the contract between the parties has been reduced to the form of such a document. A hundi is principally a written promise to pay a fixed amount on or after a. certain date. It does not necessarily contain all the terms of the agreement between the parties as a bond, for instance, would do. In many cases, a promissory note or a hundi may merely be a written security taken for the loan. The promise to pay the amount may be only a part of the whole contract between the parties, in which case it cannot be said that that contract has been reduced to the form of a hundi. In such cases it would be impossible to hold that the provisions of Section. 91 would exclude evidence showing the terms of the whole contract which cannot be determined from the hundi alone.

8. A decision to the same effect was given by this Court in Chidambaram Chettiar v. Ayyasami Tevan : (1916)31MLJ401 , an appeal heard by Oldfield and Krishnan, JJ. Oldfield, J., said:

The second question referred to us is whether the lender can be given a decree apart from the note for the money lent upon the note. It is not possible to answer this question without further knowledge of the facts.

9. Krishnan, J., observed:

If there is an obligation apart from the one under the note itself it may clearly be enforced. The fact that the 'loan and the note are contemporaneous' is not conclusive of the non-existence of such obligation.

10. In my opinion the law may be stated shortly in this way. If the promissory note embodies all the terms of the contract and the instrument is improperly stamped no suit on the debt will lie. Section 91 of the Evidence Act and Section 35 of the Stamp Act tar (he 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.

11. It has been stressed in argument that the English rules of evidence do not run counter to Section 91 of the Indian Evidence Act, and therefore it is said that the section cannot be regarded as a bar to the application of the principle accepted in England that a suit lies on the debt apart from the instrument. This argument ignores two important factors. In the first place, the English rules of evidence are not statutory, but Judge made, and in the second place the tendency in England has always been to ignore as far as possible stamp objections, as is pointed out in Taylor on Evidence, Vo1. I, page 276 (12th Edition). In India the law is statutory and the Courts are given no latitude in matters of this nature. Section 35 of the Stamp Act absolutely prohibits a negotiable instrument improperly stamped being put in evidence, and Section 91 of the Evidence Act insists that where a contract has been reduced to writing the document alone shall be looked at.

12. The suit out of which the present petition arises was for the recovery of a sum of Rs. 400 lent on a promissory note on the 17th June, 1928. The plaintiff's case was that there had been payments to account and that these payments had been endorsed on the instrument. The defences were: (1) the promissory note was not supported by consideration; (2) there had been no payments to account and the endorsements were false; (3) the suit was barred by limitation; and (4) it was not maintainable as the promissory note was insufficiently stamped. The promissory note was insufficiently stamped, but the trial Judge found against the defendant on the facts and granted a decree on the ground that the plaintiff was entitled to sue on the original consideration, because the promissory note had been executed 1 1/2 hours after the lending of the money. The learned trial Judge did not consider the question whether the promissory note embodied the whole of the terms of the contract between the parties. The case should, therefore, be remanded to the trial Court for further consideration and decision in the light of this judgment. The petitioner is entitled to his costs in this Court.

Madhavan Nair, J.

13. I agree.

Varadachariar, J.

14. I agree. In deference however to the decisions which have laid down a different rule, I feel bound to explain my inability to follow them, especially when that rule has the attraction of avoiding apparent injustice, while the conclusion stated in the judgment just delivered has been described as 'needlessly technical' by an eminent Judge (Jenkins, C.J.) in Krishnaji v. Rajma I.L.R.(1899) 24 Bom. 360 .

15. As indicated by me in the order of reference, the question for consideration is, what is the purpose and effect of the prohibition contained in Section 35 of the Stamp Act? It seems to me there can be little doubt that in enacting that prohibition, the legislature expected that it would be made effective, by the combined operation of that section, and Section 91 of the Indian Evidence Act. The possible hardship to the lender was noted by Sir Richard Couch, as early as 1873 in Ankur Chunder Roy Chowdhry v. Madhub Chunder Ghose (1873) 21 W.R. 1. The learned Chief Justice observed that the law has to be so, for the reason that 'if the consequence of not stamping a document of this kind was not serious, the stamp laws would very frequently be disregarded?' If I am right in my interpretation of these provisions of the statute law, I venture to think that it is not for the Court to attempt to circumvent the law, even for the laudable purpose of advancing substantial justice.

16. There has been little or no controversy as to the effect of Section 35 of the Stamp Act. The divergence of opinion disclosed in the decided cases relates to the bearing and effect of Section 91 of the Evidence Act. Even on this point, the general principle underlying the section hardly admits of any doubt. In the words of Sir Richard Couch (quoted by the Judicial Committee in Subramcmian v. Lutchman (1922) 44 M.L.J. 602 : L.R. 50 IndAp 77 : 1922 I.L.R. 50 Cal. 338 (P.C.) 'the rule with regard to writings is that oral proof cannot be substituted for the written evidence of any contract which the parties have put into writing'. The question is, how far does this rule or the reason of the rule apply to cases in which a person borrowing money executes as part of the same transaction a promissory note in favour of the lender? That the terms as to rate of interest, date of payment, etc., form part of the contract and cannot be proved except by proof of the note seems to be more or less admitted (see Ram Bahadur v. Dusuri Ram (1912) 17 C.L.J. 399 . Is there an obligation to repay divorced from these terms and can such obligation be proved independently of the note is the point in controversy. The answer seems to me to depend on, whether it is not true even in this case that the writing, namely, the promissory note is 'tacitly considered by the parties as the only repository and the appropriate evidence of their agreement' {per Sir Richard Couch in the case already quoted from).

17. The course of decisions in the Indian High Courts may be briefly stated. The Allahabad and Lahore High Courts have after some fluctuation of opinion adopted the stricter view in their latest Full Bench pronouncements. The Madras decisions have been dealt with by my Lord who has also referred to the judgment of the Full Bench of the Rangoon High Court. In Calcutta, the stricter rule was laid down in Ankur Chunder Roy Chozvdhry v. Madhub Chunder Ghose (1837) 21 W.R. 1 but this was virtually departed from the Golap Chand Marwaree v. Thakurani Mohokoom Kooaree I.L.R.(1878) Cal. 256. Judging from the statement of facts, the last mentioned case seems to have arisen out of a suit by an indorsee of the unstamped promissory note; with all respect, it is difficult to see how the indorsee who could not even prove the note could sue on the original consideration between the maker and the payee. (See Waynawi v. Bend (1808) 1 Camp. 175 : 170 E.R. 918. In Sheikh Akbar v. Sheikh Khan I.L.R.(1881) Cal. 256 Garth, C.J., re-affixmed the stricter rule; but in Pramatha Nath Sandal v. DwarkaNath Dey I.L.R.(1896) Cal. 851 his statement of the law was interpreted in a manner not easily reconcilable with the way that Garth, C.J., had himself applied it in Radhakant Shaha v. Abhoy-churn Mitter I.L.R.(1882) Cal. 721. Later decisions of the Calcutta High Court seem to have alternated between the two views (cf. Ranendramohan Tagore v. Keshabchandra Chanda I.L.R.(1934) Cal 433 Indra Chandra v. Hiralal : AIR1936Cal658 Ram Bahadur v. Dusuri Ram (1912) 17 C.L.J. 399 and Tarachand Protap-mal v. Tamijuddin Sheikhi : AIR1935Cal658 ; but Pramatha Nath Sandal v. Dwarka Nath Dey I.L.R.(1896) Cal. 851 was followed by the Bombay High Court in Krishnaji v. Rajmal I.L.R.(1899) 24 Bom. 360. In Jacob and Co. v. Vicumsey (1926) 29 Bom. L.R. 432 the learned Judge seems to be adopting the view of Page, C.J., in the Rangoon case. In Patna, the question can scarcely be regarded as settled (cf. Dhaneswar Sahu v. Ramrup Girl I.L.R.(1928) Pat. 845 where Macpherson, J., concurred only on the ground of stare decisis).

18. As some of the Indian decisions purport to follow the' English rule, it is necessary to note the exact terms of the relevant rules of the English law and the basis on which they rest, with a view to see how far they can be followed in this country; for, as pointed out by'the Judicial Committee in Maung Kyin v. Ma Shwi La (1917) 33 M.L.J. 648 : 1917 L.R. 44 IndAp 236 : 1917 I.L.R 45 Cal. 320 (P.C.) Courts in India cannot depart from the provisions of the Indian Evidence Act merely on the ground that the laws of evidence in England, when similar questions come before the English Courts, permit certain facts to be esablished by proof at large. Though it may generally be true to say that Section 91 of the Indian Evidence Act embodies what is known as the 'best evidence' rule in the English law, the terms in which the rule has been codified here do not permit to the Courts in India the latitude which English Courts enjoyed at a time when the rule was being developed and administered there substantially as a rule of caution in leaving evidence to the jury. Thus, the same learned Chief Justice (Lord Tenterden) who in Vincent v. Cole (1828) M. & M. 257 : 173 E.R. 1151 said that he had always acted most strictly on the rule that what is in writing shall only be proved by the writing itself, observed in Reid v. Battee (1829) M. & M. 413 : 173 E.R. 1207:

So much injustice has frequently been done by rigid adherence to this rule that I should certainly be reluctant to carry it into strict execution. (See Taylor on Evidence Volume, 1, Section 397.)

19. Further, rules of exclusion which had been developed mainly with a view to avoid ignorant juries being misled or confused, were not scrupulously adhered to by Courts of Chancery where the Judge himself adjudicated both on law and on fact, especially when the exclusion of a writing by reason of the prohibition arising from the Stamp laws threatened to defeat a just claim. In Huddlestone v. Briscoe (1805) 11 ves. 583 : 32 E.R. 1215 when pressed with an objection based on the Stamp laws, Lord Eldon stated that it was his 'duty to struggle to support what has been the practice of the Court'.

20. Bearing these considerations in mind, I proceed to deal with the relevant rules of the English law which are thus stated in Roscoe's Treatise on Evidence in Civil Actions (20th Edition, Vol. 1, p. 226):

When the transaction is capable of being legally proved by other evidence than that of the instrument which ought to bear a stamp, such evidence, if allowed by the pleadings, may be resorted to. Thus (A) Where a promissory note appears to be improperly stamped, the plaintiff may resort to the original consideration (S). If a plaintiff succeeds in making out a case of implied or oral contract and it does not appear on the cross-examination of his witnesses that there was any contract in writing, the defendant will not be allowed to give an unstamped written contract in evidence for the purpose of non-suiting the plaintiff.

21. The proposition that I have marked (B) in the above extract need not detain us because I have never found it adopted in those terms in any Indian case and it is scarcely conceivable that the legislature would have intended to permit an evasion of Section 91 in the manner suggested. Some of the English decisions cited in connection with the question now before us seem however to rest on this principle. (Cf. Magnay v. Knight (1840) 1 Man & G. 944 : 133 E.R. 615 and The King v. The Inhabitants of Padstow (1832) 4 B. & Ad. 208 : 110 E.R. 434. The proposition that I have marked (A) in the above extract purports to be based on Farr v. Prices and Tyte v. Jones reported as a foot-note to Farrv. Priced (1800) 1 East. 55 : 102 E.R. 22.

22. Farr v. Price (1800) 1 East. 55 : 102 E.R. 22 Will On examination be found to be an action by an indorsee of a pronote; and in view of what is taken by Lord Ellenborough in Waynam v. Bend (1808) 1 Camp. 175 : 170 E.R. 918 to be indisputable, that is, that the indorsee cannot recover under any of the money counts 'as he was not an original party to the bill and there was no evidence of any value being received by the defendant from him', it is doubtful if the reference in the report of Farr v. Price (1800) 1 East. 55 : 102 E.R. 22 to the general counts in the declaration and to possible evidence of payment of consideration by the plaintiff to the defendant was intended to relate to the original loan between the maker and the payee. If it did, it can perhaps be explained as resting on the principle which had at one time been enunciated in England that an unstamped document was a mere paper which did not amount to an 'agreement' and which therefore left the plaintiff's evidence where it stood (The King v. The Inhabitants of Padstow (1832) 4 B. & Ad. 208 : 110 E.R. 434). Such a theory is scarcely maintainable in view of later authorities (see Alcock v. Delay (1855) 4 El. & Bl. 660 : 119 e.R. 243 ; Roscoe, p. 227 Evidence in Civil Actions; see also Ram Bahadur v. Dusuri Ram (1912) 17 C.L.J. 399. If, as held by the Judicial Committee in Subramanian v. Lutchm a n, a document which was excluded from evidence under Section 49 of the Registration Act was nevertheless a written contract in the sense that its existence precluded oral evidence of the same being given, it is difficult to see how a different principle will apply to cases where the document is excluded by Section 35 of the Stamp Act.

23. Tyte v. Jones (referred to in the foot-note to Farr v. Price (1800) 1 East. 55 : 102 E.R. 22 seems to rest on another principle of the English law which the Indian Legislature had deliberately departed from, in enacting Section 22 of the Evidence Act. The proof that was permitted in Tyte v. Jones was to the effect that when the money for which the unstamped promissory note had been given was demanded of the defendant, he acknowledged the debt. This is explicable in the light of the rule supported by some authority in England that admissions by a party, even when proved by parol evidence, constitute an exception to the 'best evidence' rule (see Singleton v. Barrett (1832) 2 C. & J. 368 : 149 E.R. 157. This view has been criticised even in England (see Taylor on Evidence, Sections 410 to 412), and Section 22 of the Indian Evidence Act adopted the stricter view and relegated 'oral' admissions as to the contents of a document to the category of 'secondary evidence'. The result, in India, is that if by reason of the document being unstamped, no evidence of its contents whether primary or secondary is admissible, evidence of admissions by the defendant is equally inadmissible. The position may be different where admissions are made in the pleadings themselves (cf. Huddleston v, Briscoe (1805) 11 Ves. 583 : 32 E.R. 1215 and Thynne v. Protheroe (1814) 2 M. & S. 553 : 105 E.R. 488 because by reason of Section 58 of the Evidence Act, it may not be necessary to prove admitted facts and the objection under Section 91 will not arise unless the plaintiff is called upon to go into evidence. (Mallappa v. Mat an Naga Chetty : (1918)35MLJ555 This was the position in Pramatha Nath Sandal v. Dwarka Nath Dey (1896) I.L.R. 23 Cal. 851; cf. however Chenbasappa v. Lakshman Ramchandra I.L.R.(1893) 18 Bom. 369 where it was suggested that in a suit on an unstamped promissory note, even an admission in the written statement may not avail the plaintiff, as the Court when giving a decree on such admission may be 'acting on' the document within the meaning of Section 35 of the Stamp Act; see also Ankur Chunder Roy Chowdhry v. Madhub Chunder Gkose (1873) 21 W.R. 1.

24. It seems to me that the other English authorities which have been referred to in this connection by text writers or in the Indian decisions do not really bear on the objection arising under Section 91 of the Evidence Act, Henry Gomperts v. Thomas Bartlett (1853) 2 El. & Bl. 849 : 118 E.R. 985 turned on the rights and obligations of vendor and vendee, though an unstamped bill came into the picture. The defendant had sold a bill as a 'foreign' bill when in fact it was not. If it were a foreign bill, it could have been subsequently stamped; but not being a foreign bill it became worthless on account of the absence of a stamp. The claim of the vendee for money had and received was sustained on the ground that the vendor had sold as a foreign bill what in fact was not a foreign bill. It seems to me that this decision does not warrant the conclusion that a person lending money on an unstamped note can maintain an action for money had and received. I shall recur to this point later.

25. Sutton v. Toomer (1827) 7 B. & C. 416 : 108 E.R. 778 proceeded on the footing that though by reason of the alteration, the promissory note had become unenforceable, the alteration did not extinguish the debt 'and that it was competent to the plaintiff to give the paper in evidence to prove the terms on which the money was deposited.' It is noteworthy that Bayley, J., instanced the case of a usurious security being taken for a pre-existing debt. Wilson v. Kennedy (1794) 1 Esp. 245 : 170 E.R. 345 was a case of an unstamped note given for a preexisting debt (in lieu of an acceptance of the defendant which was due when the note was given) and the language of Lord Kenyon is almost identical in terms with the first rule stated by Garth, C.J., in Sheikh Akbar v. Sheikh Khan I.L.R.(1881) Cal. 256. The same remark applies to Brown v. Watts (1808) 1 Taunt. 353 : 127 E.R. 870 and to Cundy v. Marriott (1831) 1 B. & Ad. 696 : 109 E.R. 945 which was a case of a bill given for goods sold (see also Plimley v. Westley (1835) 2 Bing. N.C. 249 : 132 E.R. 98).

26. It may be convenient to refer next to those of the Indian decisions which when dealing with claims for money lent under unstamped notes invoke the principle that the giving of a negotiable instrument only operates as a 'conditional discharge' or merely suspends the plaintiff's remedy and that the plaintiff's right to sue is revived if the instrument turns out to be worthless or is not discharged by payment in due course. I see no difficulty in applying this principle to cases where money is already due to a person--as for goods sold or for a pre-existing debt--and the debtor gives his own note to the creditor or draws a bill or cheque in his favour. It is legitimate to presume in such cases that the creditor is not accepting the instrument in satisfaction of his existing claim but only as a security or as means of obtaining satisfaction from the drawee of the bill or cheque. Even in cases where money is lent contemporaneously with the giving of a cheque by the borrower or the drawing of a bill on a third party, it may be reasonable to treat the bill or cheque as an attempt at payment and to presume that it was only a 'conditional' payment. The difficulty created by Section 91 of the Evidence Act will not arise in this case because the cheque, bill or hundi does not embody a promise to pay by the promisor but only a direction to another person and the lender can fall back on the 'implied' promise in the absence of a promise 'in writing'. But where the borrower gives his own promissory note as part of the loan transaction, it seems to me artificial to treat that very 'promise to pay' obtained in that note as amounting to a payment and then to seek to import the theory of 'conditional' payment.

27. So far as I have been able to examine the English cases which enunciate the doctrine of 'conditional' payment, I do not find that any of them relates to a promissory note executed as part of the loan transaction itself. I am therefore with all respect unable to concur in the proposition stated by Page, C.J., as proposition No. 3 in Maung Chit v. Roshan N.M.A. Kareem Oomer and Co. I.L.R.(1934) Rang. 500 (F.B.) and statements to the same effect in other reported decisions (see for instance Maung Kyi v. Ma Ma Gale (1919) 54 I.C. 84 (F.B.)). With the like respect I must add that my experience does not coincide with what the learned Chief Justice states (on page 508) to be his experience that 'it rarely if ever happens that the whole of the terms of the agreement under which a loan is made are embodied in a promissory note given to the lender by the borrower except in cases in which the parties contract that the negotiable instrument shall itself be the consideration for the loan,' if, as later observations in the judgment imply, a promissory note cannot, according to the learned Judge, be reasonably presumed to have been taken as 'consideration' for the loan. I am free to confess to some difficulty in understanding what the learned Chief Justice had in mind when he postulated the possibility of a promissory note by the borrower being 'consideration' for the loan as distinguished from the 'contract' of loan. I can understand the position taken in Kundan Lal v. Bhikari Das-Ishwar Das I.L.R.(1929) All. 530 that from the mere execution of a note it does not necessarily follow that the whole of the contract between the parties has been reduced to the form of such a document (see Chidambaram Chettiar v. Ayyaswami Thevan : (1916)31MLJ401 and I respectfully agree that in this sense it will be a question of fact in each case whether or not the note represents the whole contract between the parties. I am unable to hold that there is any presumption that a promissory note taken from the borrower as part of the loan transaction is taken merely as 'collateral security'; but in particular cases the evidence may lead to that conclusion. (See per Pratt, J., in Maung Kyi v. Ma Ma Gale (1919) 54 I.C. 84 (F.B.))

28. The theory propounded by Ormond, J., in Maung Kyi v. Ma Ma Gale (1919) 54 I.C. 84 (F.B.) that in every case of a promissory note loan 'there are two distinct promises made by the borrower (1) that be will pay the amount borrowed to the lender and (2) that he will pay the amount due on promissory note to the holder of the note ' that each promise is a distinct cause of action and that Section 91 applies only to the 2nd promise, seems to me, with all respect, equally artificial, if the learned Judge meant to hold that even promise No. 1 was an express promise. If, on the other hand, it is only an implied promise, the question arises, whether the principle enunciated by Lord Cairns in Shaw v. Foster (1872) L.R. 5 H.L. and applied by the Judicial Committee in Subramanian v. Lutchman (1922) 44 M.L.J. 602 : L.R. 50 IndAp 77 : 1922 I.L.R. 50 Cal. 338 (P.C.) would not preclude the lender from falling back on the implied promise when the contract between the parties had been reduced to writing.

29. It has been asked why a man should be put in a worse position when he takes a worthless document than when he does not take any. Lord Cairns said:

Any implication that might be raised, supposing there was no document is put out of the case and reduced to silence by the documents by which alone you must be governed.

30. This principle was applied by Sir Richard Couch to a claim for money due under ant unstamped note. The learned Chief Justice observed:

The plaintiff cannot ... say that from the deposit there arose a contract on the part of the defendant to repay it, because here the parties have made an express contract which has been put in writing, The plaintiff cannot resort to any implied contract; if he recovers at all, it must be on the contract actually made and he must prove that, if it is denied, and he must do it by the production of the writing, which, not being stamped, cannot be seen in evidence,' (Ankur Chunder Roy Chowdhry v. Madhub Chunder Ghose (1873) 21 W.R. 1.)

31. This case has sometimes been explained away on the ground that the suit was there laid on the note and not on the consideration. (See Golap Chand Marwaree v. T. Mohokoom Kooaree (1878) I.L.R. 3 Cal. 314 and Krishnaji Narayan v. Rajmal Manichand I.L.R.(1899) 24 Bom. 360. This distinction wholly ignores the principle on which the decision was avowedly based.

32. It has been suggested that this principle of the 'implied promise' being superseded by the 'express' promise in writing should be limited to cases where the writing can be proved and enforced but where it is not admissible in evidence, the paper may be treated as non-existent and the objection based on Section 91 will not arise (see Mulla and Pratt, Commentaries on the Stamp Act, 3rd Edition, p. 134). The decision in Subramanian v. Lutchiman (1922) 44 M.L.J. 602 : L.R. 50 IndAp 77 : 1922 I.L.R. 50 Cal. 338 (P.C.) furnishes the answer even to this suggestion. In the absence of a document embodying the terms of the security created by the deposit of title deeds, the lender could have proved the deposit by oral evidence and obtained the benefit of the security; but when the transaction was accompanied by an unregistered document their Lordships held that the creditor could not establish his security by oral evidence as to the deposit, even though the document was inadmissible by reason of non-registration (see also Ram Bahadur v. Dusuri Ram (1912) 17 C.L.J. 399. The same decision of the Judicial Committee answers the argument that though the contract between the lender and the borrower cannot be proved without the document, the fact of a loan could be proved. Under the daw, the mere deposit of title deeds (with intent to create a security) would suffice, but in the case referred to, their Lordships declined to allow even the fact of such deposit to be proved when the document turned out to be inadmissible. It is obvious that when the creditor is asking for permission to prove the fact of the loan, he is only seeking to invoke the theory of an implied promise to repay. In Krishnaswami Pillai v. Rangasami Chetti I.L.R.(1883) Mad. 112 the learned Judges held that:

the defendant's request and the payment by plaintiff which constitute the cause of action can be proved independently of the note.

33. With great respect, I cannot help thinking that this is merely the theory of 'implied' promise stated in other words.

34. The theory of 'failure of consideration' has sometimes been invoked as also the formula of 'money had and received' (cf. Baij Nath Das v. Salig Ram (1914) A.C. 398 . The appeal to the theory of failure of consideration in a case like the present seems to me, with all respect, to ignore the distinction between the 'contract' and the 'consideration' for the contract. We only fall back on the question whether the promissory note represents the contract or the consideration for some other contract. In view of the judgments delivered in Sinclair v. Brougham I.L.R.(1883) Mad. 112 it seems to me that neither the theory of failure of consideration nor the formula of money had and received is available in the case before us. Both these causes of action rest on a 'notional or imputed promise to repay ' (see Sinclair v. Brougham (1914) A.C. 398 and the consideration above adverted to in connection with the theory of 'implied promise' equally apply to this way of supporting the lender's claim. In the case of a loan transaction, the principal contract itself consists of the promise to repay and it cannot be said that 'the implied promise on which the action for money had and received depends' forms no part of but is merely collateral to the main contract (per Lord Parker in Sinclair v. Brougham (1914) A.C. 398 The claim for 'failure of consideration' can arise only when the contract has been proved and the very question for decision is whether or not Section 91 of the Evidence Act prevents the contract being proved without the production of the note.

34. The observations of Bowen, L.J., in In re Guardian Permanent Benefit Building Society (1883) 23 Ch. D. 440 quoted by Lord Stunner in Sinclair v. Brougham (1914) A.C. 398 seem equally to apply to the argument of 'failure of consideration' in the present case. The unstamped promissory note has all along been unenforceable and inadmissible and both parties must be presumed to have known the law on the point. It is sometimes assumed that it is the debtor's duty to affix the proper stamp; but the statute, with a view to safeguard the interests of the revenue, expects the creditor also to make sure that the document is duly stamped - though, according to several decisions he may not incur the penalty prescribed by Section 62 of the Stamp Act by taking an unstamped document. It only remains to add that Section 70 of the Indian Contract Act, which has sometimes been appealed to, is scarcely appropriate to a case of money lent to the defendant. There is no possibility in such a case or even a contemplation of the 'thing delivered' being restored - which obviously means in specie; and lending money to the defendant cannot be described as something done for the defendant.

Lakshmana Rao, J.

35. I agree with my Lord and have nothing to add.

Stodart, J.

36. Section 91 of the Indian Evidence Act so far as material is:

When the terms of a contract have been reduced to the form of a document no evidence shall be given in proof of the terms of such contract except the document itself.

37. The document now in question is a promissory note which is inadmissible in evidence because it is improperly stamped. Assuming that the promissory note contains a recital of the consideration for which it was executed is the promisee debarred from proving the fact that consideration passed and must he therefore fail in a suit to recover the consideration? All the High Courts in India appear to be agreed that when the consideration passed prior to the execution of the note--as when the note is executed for money due on account--or when the consideration arises out of a transaction which can be separated from the execution of the promissory note - as when the note is executed for the price of goods sold - then a separate cause of action arises on the consideration and the consideration can be proved. But in cases where the note is executed for money or other consideration which passes at the time of the execution of the note, there is a conflict of decisions. For my part, I must confess that I see no difference in principle between the two cases. The promissory note may be in the form:

For money which I owe you on account I promise to pay you, etc.,' or 'For money received from you to-day I promise to pay you, etc.

38. Then, if the recital of consideration is a term of the contract it cannot on a strict interpretation of Section 91 be proved at all except by proof of the promissory note. See the similar opinions expressed by Phillips and Reilly, JJ., in Venkata-chalapathi v. Ramakrishnayya : AIR1930Mad168 .

39. The question for decision as formulated by my Lord is:

Whether a person who has lent money on a promissory note can sue to recover the debt apart from the note when the note embodies the terms of the contract with the borrowers but is inadmissible in evidence owing to a defect in the stamping.

40. My answer to this question is first that the existence of the debt is not a term of the contract, and even if it is recited in the promissory note it can be proved by other evidence; and secondly that the terms of the contract between the promisor and the promisee can never be wholly embodied in the promissory note. One of the terms of the contract is that the promisee agrees to accept the promissory note in satisfaction of the debt due to him by the promisor. What he agrees to accept is a valuable security and not a worthless piece of paper - which is all that the note is if it is not properly stamped. If then the note is valueless the promisor has not done that which he contracted to do. The promisee has not got what he bargained for. The promisor therefore is bound to restore to the promisee the advantage which he the promisor has obtained from the transaction. To me it appears that when a man gives another a promissory note in satisfaction of a debt or for other consideration he gives at the same time a warranty that the note is a good and enforceable instrument. If the note is bad for want of a proper stamp it is difficult to see how it can operate as a discharge of the debt any more than the giving of a counterfeit currency note could so operate. This implied warranty is in my opinion a term of the contract and such a warranty is in my experience not generally embodied in a promissory note or other negotiable instrument.

41. Reverting to the first proposition which I have stated, namely, that the recital in a promissory note of the existence of the debt is not a term of the contract, it is permissible, I think to refer to the opinion of the learned and distinguished authors of the Commentary on the Indian Stamp Act (Mulla and Pratt, 3rd Edition, 1935, at page 134):

'The fact of the loan is not a term of the contract and proof of that fact is outside the scope of Section 91 of the Indian Evidence Act.' And again:

If the loan was made at the debtor's request, the request implies a promise to repay. If the express provisiqn in the promissory note could be proved it would exclude the implied promise. But as the express promise cannot be proved the lender may rely on the implied promise. If the loan was not made at the request of the debtor, there is a liability to make compensation under Section 70 of the Contract Act.

42. In spite of the conflict of decisions in Indian Courts on the question whether a separate cause of action arises on the consideration in the case where consideration passes at the same time as the promissory note, I think that it is possible to interpret the decision of the Judicial Committee in Sadasuk Janki Das v. Maharajah Kishan Pershad (1918) 36 M.L.J. 429 : L.R. 46 IndAp 33 : I.L.R. 46 Cal. 663 (P.C.) as answering that question in the affirmative.

43. Sadasuk Janki Das v. Maharajah Kishan Pershad (1918) 36 M.L.J. 429 : 1918 L.R. 46 IndAp 33 : 1918 I.L.R. 46 Cal. 663 (P.C.) was a case where the consideration passed at the same time as the execution of the hundis on which the suit was brought. It was sought to make the Maharajah liable on the hundis which were drawn and accepted by an officer of his Treasury on the ground that the money was borrowed on his behalf. The Judicial Committee held that the Maharajah could not be made liable on the hundis but that the plaintiffs could in the alternative have based their suit on the consideration:

It would have been open to the plaintiffs had they thought fit to have framed their case in an alternative form and to have sued both on the hundis and alternatively upon the consideration.

44. In Venkatachalapathi v. Ramakrishnayya : AIR1930Mad168 already cited in another connection, the principle of this decision was applied to the case of a claim on a promissory note executed by one partner in a firm on which it was sought to make the other partners liable. It was held that the plaintiff's suit as framed must fail but that he might be allowed to amend his plaint so as to make it clear that he was alternatively suing all the defendants as members of a firm on loans made to that firm. Reilly, J., as he then was said:

If the firm is to be made liable the lender must not only allege and prove that the loan was really taken for his firm by the partner who made the promissory note but must base the suit on the loan to the firm.

45. Sadasuk Janki Das makes it clear in my opinion that when money or other valuable consideration passes and a negotiable instrument is given in exchange for that consideration a cause of action arises on the consideration apart from the engagements evidenced by the instrument. I am not able to subscribe to the view that because the consideration is recited in the instrument no evidence can be given of it except the instrument itself. The consideration, that is to say, the loan for which the promissory note is given, is the subject-matter of the contract and not a term of the contract within the meaning of Section 91 of the Indian Evidence Act. In the matter of the loan the lender consents to it only on condition that the borrower gives him a negotiable instrument in the shape of a promissory note containing certain stipulations; and the borrower for his part consents to execute a promissory note. If in the promissory note the borrower embodies a recital that he has received the money that in my opinion is not a 'term of the contract' but merely a statement of the actual circumstance which has given rise to the contract.

46. In this view, I hold that the decision of the learned District Munsif may be allowed to stand.


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