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Chinnayya Naidu Vs. Srinivasa Naidu - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1935Mad206; 160Ind.Cas.1069
AppellantChinnayya Naidu
RespondentSrinivasa Naidu
Cases ReferredNazir Khan v. Ram Mohan
Excerpt:
- - the note as well as the loan were contemporaneous and there is really no question of a. if a bill or a note is given for a contemporaneous debt, there is a difference of opinion, but the better opinion is that even in such a case the bill merely suspends the remedy, and does not. this is precisely what wallace, 3.,has said in gopala padayachi v. 9. it is difficult to conceive that an illustration to a section of the evidence act could have been intended to abrogate or annul the well-settled rule of the english law, that a negotiable instrument operates only as a conditional discharge. 657, about the doctrine of the english law being inapplicable, fail, with all respect, to take note of the fact that the law of negotiable instruments is not a part of the indian legal system. but..........later in the day. the note was not stamped and the plaintiff was not allowed to fall back upon the contract evidenced by the loan. a similar view was taken in muthu sastrigal v. viswanatha pandara sannadhi 1914 mad. 657. there the loan was treated as having become merged in the promissory note and as no suit could lie on the unstamped note, the plaintiff could not fall back upon the loan. in chandrasekharam pilli v. srinivasa pillai 1933 mad. 71, krishnan pandalai, j., held, following : muthu sastrigal v. viswanatha pandara sannadhi 1914 mad. 657, and several decisions by single judges, that section 91, evidence act, precluded the proof of the loan, on the ground that its terms were reduced to writing and embodied in the note which became inadmissible.4. the learned judge observes that.....
Judgment:
ORDER

Venkatasubba Rao, J.

1. The suit is filed on an insufficiently stamped promissory note. The learned Subordinate Judge has on the allegations in the plaint and the recitals in the note, holding that no-action would lie on the original consideration, dismissed the suit, without taking evidence. On this point there is-a marked conflict of judicial opinion in this Presidency, although the lower Court assumes that the law is clear and settled. Two recent decisions will serve to show how divergent the views taken by this Court on this question are. In Murugappa Chetty v. nachiappa Chetty 1934 Mad. 503, the question arose before Stone, J., in a case on the original, side of the High Court. There a hundi for Rs. 10,000 addressed to the plaintiff's firm was handed by the plaintiff to defendant 1 who deeming it equivalent to cash, executed in favour of the plaintiff a promissory note for that sum. The question arose, was there a cause of action independent of the note? Stone, J., thus observes:

Had the transaction in question stopped with the giving of the letter empowering defendant 1 to go to Madras and collect Rs. 10,000 it would not be arguable but that the plaintiff had a cause of action springing out of the contract of loan. What is there that makes the letter given by defendant 1 to the plaintiff and a promissory-note to secure the re-payment of that loan a. merger or a novation extinguishing the earlier contract and turning these two contracts into-one, a contract contained in a promissory note? I cannot understand under what principle of law the first contract is to be regarded as extinguished.

2. This is a very emphatic statement of the law as understood by that learned Judge. Just a few months after that decision, Varadachariar, J., delivering, the judgment of the Bench consisting of himself and Burn, J., expressed himself quite definitely holding the opposite view. Says the learned Judge:

The note as well as the loan were contemporaneous and there is really no question of a. definite anterior liability apart from the note...he must be permitted to prove the very terms contained in the suit letter under the guise of art original debt. To permit him to do so will be in the very teeth of Section 91, Evidence Act : Chockalingam Chettiar v. palaniappa Chettiar 1935 Mad. 23.

3. The conflict, to which I have referred, is thus brought out by these two judgments, both of recent date, and an examination of the authorities will show that throughout there have been two radically opposite views which have found expression in two sets of decisions. In Pothi Reddi v. Velayudasivan (1887) 10 Mad. 94 the terms of a contract to repay a loan of money having been settled and the money paid, a promissory note embodying those terms was executed later in the day. The note was not stamped and the plaintiff was not allowed to fall back upon the contract evidenced by the loan. A similar view was taken in Muthu Sastrigal v. Viswanatha Pandara Sannadhi 1914 Mad. 657. There the loan was treated as having become merged in the promissory note and as no suit could lie on the unstamped note, the plaintiff could not fall back upon the loan. In Chandrasekharam Pilli v. Srinivasa Pillai 1933 Mad. 71, Krishnan Pandalai, J., held, following : Muthu Sastrigal v. Viswanatha Pandara Sannadhi 1914 Mad. 657, and several decisions by single Judges, that Section 91, Evidence Act, precluded the proof of the loan, on the ground that its terms were reduced to writing and embodied in the note which became inadmissible.

4. The learned Judge observes that unless the consideration for the note is both in fact and in substance anterior in time to its date, the lender could not be permitted to rely upon the original loan. In fact, the Judges whose view finds expression in Krishnan Pandalai J's judgment, seem to put the question somewhat thus. Was there or was there not a completed transaction independent of, and antecedent to, the execution of the invalid note? If the answer be in the affirmative, a suit would lie on the original consideration : If in the negative, it would not. Turning now to the other set of decisions, it was held in Krishnaswami Pillai v. Rangaswami Chetti (1884) 7 Mad. 112, that the existence of the improperly stamped promissory note did not prevent the plaintiff from relying upon the original loan. The learned Judges observed:

he cause of action 'for money lent' was complete in itself before the giving of the note, and defendants' request and the payment by plaintiff, which constitute the cause of action, can be proved independently of the note.

5. Ramachandra Rao v. Venkataramma Ayyar (1900) 23 Mad. 527, again, the plaintiff was allowed to sue on the original debt, the endorsement of the note in his favour having been found invalid. Pothi Reddi v. Velayudasivan (1887) 10 Mad. 94 was referred to in the judgment, but scarcely any attempt was made to distinguish it. The facts of the next case, to which I shall refer, namely, Yarlagadda Veera Ragavayya v. G. Ramayya (1906) 29 Mad. 111, lend special significance to the judgment in that case. The plaintiffs there alleged that the defendant came to them on a certain morning and borrowed Rs. 400 promising to execute a promissory note for the amount in the evening, and that he accordingly came in the evening and executed an unstamped promissory note, representing that no stamp was available. On those facts it was held that there was a completed contract independent of the note, which must be deemed to have been executed on account of the loan made previously. The facts of this case are indistinguishable from those in Pothi Reddi v. Velayudasivan (1887) 10 Mad. 94, already cited, although two different and opposite conclusions were: reached. In Pothi Reddi v. Velayudasivan (1887) 10 Mad. 94 case also there was an oral promise made in the morning, which was followed by the note executed in the evening. The principles bearing on this point have been fully discussed in the judgment of Coutts-Trotter and K. Srinivasa Ayyangar, JJ., in Chokkalingam Chetty v. Annamalai Chetty 1917 Mad. 460. Coutts-Trotter, J., declares:

The giving of the security does not extinguish but merely suspends the cause of action on the original debt, which revives if the security be not discharged at maturity,

and the learned Judge treats this proposition as fundamental and rudimentary. Srinivasa Aiyangar, J., having held that the chit was inadmissible in evidence, goes on to say:

If a bill or a note is given for a contemporaneous debt, there is a difference of opinion, but the better opinion is that even in such a case the bill merely suspends the remedy, and does not. operate as a discharge.

6. The Italics are mine and this decision is valuable as it contains an exposition of the real character of negotiable instruments. In Shunmuganatha Chettiar v. Srinivasa Ayyar 1917 Mad. 108, though the suit was not on an invalid note, the observations made in the judgment are extremely relevant. Abdur Rahim, J., says:

The whole contention is that because the advance of money and the execution of the promissory note were simultaneous, a suit would lie only on the promissory note and not on the debt evidenced by it. There seems to be nothing in reason in support of such a distinction.

7. I do not propose to refer to the observations of K. Srinivasa Aiyangar, J., made in the same sense. This case was referred to with approval by Oldfield and Krisbnan, JJ., in a later case : see Chidambaram Chettair v. Ayyaswami Thevan 1917 Mad. 201. Pausing here for a moment, I must observe, that, far from the law being settled the other way for this Presidency, as seems to have been conceded by the learned Advocate-General in Chockalingam Chettiar v. Palanippa Chettiar 1935 Mad. 23, there appears to be a preponderance of authority in favour of the view that although the execution of the note is simultaneous with the loan, the lender can fall back upon the original consideration. This is precisely what Wallace, 3., has said in Gopala Padayachi v. Rajagopal Naidu 1926 Mad. 1148, where the learned Judge, after examining numerous authorities, observes:

Where a promissory note is taken for a contemporaneous debt, the balance of opinion is that the execution of the promissory note does not discharge the debt but only suspends the creditor's ordinary remedy during the currency of the promissory note.

8. The other view seems, with all respect, to ignore the fundamental principle, that a negotiable instrument is but a conditional payment and does not supersede or destroy the original that springs up from the contract of loan. As regards Illus. (b), Section 91, Evidence Act, which says:

If a contract is contained in a bill of exchange, the bill of exchange must be proved.

9. It is difficult to conceive that an illustration to a section of the Evidence Act could have been intended to abrogate or annul the well-settled rule of the English law, that a negotiable instrument operates only as a conditional discharge. Moreover, that illustration does not in fact lead to the view in support of which it is relied on. Its effect is no more than to exclude all proof other than the bill itself, when the matter to be proved is the contract embodied in that bill. That is one thing, but it is quite a different thing to say that the original debt is superseded by the bill, it being of the very essence of a negotiable instrument that it is but a conditional payment; in other words, it is a payment if the bill is paid, the suspension lasting only so long as the bill is not overdue, and if the bill has not been parted with when it becomes due and is dishonoured, the suspended right revives.

10. In the case of an invalid note, there is not even a conditional payment, it being a worthless piece of paper:' see Cundy v. Marriott (1831) 1 B. & Ad. 696. The fallacy consists in ignoring this all-important attribute of a negotiable instrument. The observations of Sadasiva Ayyar, J., in Muthu Sastrigal v. Viswantha Pandara Sanndhi 1914 Mad. 657, about the doctrine of the English law being inapplicable, fail, with all respect, to take note of the fact that the law of negotiable instruments is not a part of the Indian legal system. The effect then of Section 91, Evidence Act, is merely to provide that the contract embodied in the bill shall be proved by the bill itself; but that does not mean or imply that the bill has either destroyed or superseded the original right, for to hold that it does would amount to holding that the rule of evidence overrides a well-settled principle of substantive law.

11. That Section 91 does not stand in the way of the lender falling back on the original loan, is explained in the judgment of Jenkins, C.J., in Krishnaji Narayan v. Rajmal Manikchand (1900) 24 Bom. 380 and a recent judgment of the Patna High Court, Dhaneswar Sahu v. ramrup Gir 1928 Pat. 426, takes the same view. I may in this connexion usefully refer to the criticism of Mulla and Pratt of the objection based upon Section 91. They point out in their valuable comment on Section 35, Stamp Act, that the true answer to the objection is that the note being a negotiable instrument, the law merchant treats it not as a contract but as potential cash and that this has been overlooked in some Indian decisions. It is unnecessary to go so far, as, in my opinion, it would be safer to treat the bill as a contract but not having the effect of superseding the original right. The further note of the learned authors that the rule that a bill is regarded as a conditional payment, is confined to what are in strict law negotiable instruments emphasises the point under discussion. (Mulla and Pratt's Indian Stamp Act (1930), Edn. 2, pp. 123 and 124).

12. The authority of Sheikh Akbar v. Sheikh Khan (1881) 7 Cal. 256, where Garth, C.J., has made a twofold classification first, where there is a completed cause of action, as, for goods sold, and secondly, where the cause of action is the note itself, has been weakened by the subsequent decisions which have carefully considered that case. In Pramatha Nath Sandal v. Dawarka Nath (1896) 23 Cal. 851, Petheram, C.J., distinguished that raling (and in fact dissented from it, though it is not so stated) and the lender was allowed to sue on the implied contract arising from the loan. In Krishnaji Narayan v. Rajmal Manikchand (1900) 24 Bom. 360, already cited Jenkins, C.J., after observing that the lower Court had taken a needlessly technical view,' refers to the judgment of Petheram, C.J., who, he goes on to add, had a wide experience and intimate knowledge of commercial law.' In that case again, the note having been inadmissible for want of a stamp, tee lender was allowed to sue on the original consideration. The English cases, of which Farr v. Price 102 E.R. 22, is an instance, have been referred to and relied on. I am aware that in some High Courts a different view has prevailed : see, for instance, Nazir Khan v. Ram Mohan 1931 All. 183, which has departed from the earlier view long prevalent in that Court), but I have come to the conclusion that the : correct; rule based on true principle is that even where the loan is not antecedent to, and independent of, the bill but is contemporaneous with it, the lender, when the note turns out to be invalid, can fall back upon the original contract, express or implied, arising from the loan. In the result, the lower Court's decision is set aside and it is directed to 'return findings, after taking evidence, on the issues that arise in the case, within one month from the receipt by it of this order. Time for objections, if any, is one week. The costs of the civil revision petition are reserved.


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