Andhra HC (Pre-Telangana)
Lothamasu Sambasiva Rao vs Thadwarthi Balakotiah on 14 November, 1972
Equivalent citations: AIR1973AP342, AIR 1973 ANDHRA PRADESH 342, ILR (1974) ANDH PRA 1 (1974) 1 ANDH WR 235, (1974) 1 ANDH WR 235
JUDGMENT Obul Reddi, J.
1. The question referred to this Bench of seven Judges by a Division Bench to which two of us ( Obul Reddi and Madhava Reddy, JJ. ) were members, is "Whether a plaintiff can lay action for recovery of the amount advanced by him basing on the original cause of action when the negotiable instrument evidencing the transaction is inadmissible in evidence under Section 35 of the Stamp Act. "
2. The necessity to refer the question to a larger Bench arose as a result of the view expressed by Gopal Rao Ekbote, J. ( as he then was ) in Mohd. Jamal Saheb v. Munnar Begum, , which does not accord with the ruling of the Full Bench of the Madras High Court in Perumal Chettiar v. Kamakshi Ammal, ILR ( 1938 ) Mad 933 = ( AIR 1938 Mad 785 ( FB ) ). The learned Judge, Gopal Rao Ekbote, held that the plaintiff can have his money back through the document is in-admissible in evidence because it is in-sufficiently stamped and that Section 91 of the Evidence Act is no bar to the plaintiff succeeding on a non-contractual basis, that is, in an action for money had and received. In so coming to the conclusion, the learned Judge seems to have felt that he is not bound by the decision of the Full Bench in ILR ( 1938 ) Mad 933 = ( AIR 1938 Mad 785 ( FB ) as " two decisions decided in 1918 by the Privy Council ( John v. Dodwell and Co. Ltd. AIR 1918 PC 241 and Juscurn Boid v. Prithichandlal, AIR 1918 PC 151 ) were not brought to the notice of the Full Bench ". Having regard to the fact that the High Courts of Allahabad, Bombay and some other High Courts have taken a view different from that expressed by the Full Bench of five Judges of the Madras High Court in ILR ( 1938 ) Mad 933 ( 935 ) = ( AIR 1938 Mad 785 ( FB ) the question posed above was referred for consideration by a larger Bench.
3. It may be necessary at the outset to refer to the contentions put forth by the counsel appearing for the petitioner and the counsel appearing for the respondent. Mr. C. N. Babu appearing for the petitioners in C. R. P. No. 255/65, relying upon the decision in Pithi Reddy v. Velayudasivan, ( 1885-1887 ) ILR 10 Mad 94 and Perumal Chettiar's case, ILR ( 1938 ) Mad 933 = ( AIR 1938 Mad 785 ( FB ) ) contended that a plaintiff cannot recover money lent on a unstamped or an insufficiently stamped promissory note apart from the note in view of the bar of Section 35 of the Stamp Act and Section 91 of the Evidence Act. It is further contended by him that there is no presumption, when the lending of the money and the execution of a promissory note are contemporaneous that the promissory note operates as a conditional payment or a collateral security so as to say that the real contract is different from what is embodied in the promissory note and thus bypass the provisions of Section 91 of the Evidence Act.
4. Mr. K. Jagannadha Rao appearing for the petitioner in C. R. P. No. 1998 of 1966 similarly contended that the view expressed by the Full Bench in Perumal Chettiar's case. ILR ( 1938 ) Mad 933 = AIR 1938 Mad 785 (FB) is the correct view and that it stood the test of time from 1938 onwards and that the learned single Judge of this Court was not justified in invoking the theory of ' money had and received ' on the ground that " two decisions decided in 1918 by the Privy Council " were not taken into consideration by the Full Bench. According to the learned counsel, there is no question of presumption of a conditional payment or collateral security where the money lending and the execution of the promissory note are part and parcel of the same transaction, in other words, contemporaneous or simultaneous and that being the case, the plaintiff is not entitled to set up a case independent of the note in view of the stringent provisions of Section 91 of the Evidence Act. The learned counsel also contended that when the factum of loan itself cannot be established by any means other than the promissory note itself, where the debt is not an antecedent debt, in respect of which a promissory note has been taken, because of the bar of Section 35 of the Stamp Act and Section 91 of the Evidence Act, no obligation under Section 70 of the Contract Act will arise under the theory of ' implied promise. '
5. Mr. Venkata Reddy and Mr. M. Jagannadha Rao appearing for the respondent ( decree-holder ) contended that, even where lending of money and execution of the promissory note are contemporaneous and form part and parcel of the same transaction, the promissory thus taken operates only as a conditional discharge and not full or complete discharge of the loan and when the promissory note becomes in-admissible in evidence, the creditor will be entitled to fall back on the original demand. The learned counsel also, relying upon the language of Section 70 of the Contract Act, contended that the expression " anything " is of sufficient amplitude to bring within its ambit transactions of money and that the creditor will be entitled to recover on the principles of ' implied promise ' or ' money had and received '. In short the learned counsel contended that the view of the Full Bench of the Madras High Court in Perumal Chettiar's case. ILR (1938) Mad 933 = AIR 1938 Mad 785 ( FB ), is not correct and the decision requires to be overruled.
6. It is, therefore, necessary having regard to the contentions put forth by the learned counsel appearing for both sides and the view expressed by the learned single Judge, which is in conflict with the Full Bench's to frame the following questions for decision --
"1. Whether a plaintiff can bring action for recovery of the amount advanced by him basing on the original consideration when the promissory note on foot of which action is brought is in-admissible in evidence under Section 35 of the Stamp Act, and, if so, under what circumstances ?
2. If the promissory note is in-admissible in evidence, whether action can be maintained for recovery of the amount either on the theory of " money had and received " or under the provisions of Section 70 of the Contract Act. "
7. It may be made plain at the beginning itself, before we consider the questions, that we are not concerned with a case where a promissory note has been executed in respect of an antecedent debt we are here concerned with the question under what circumstances the loan could be recovered apart from the promissory note, which is not duly stamped, when the execution of the promissory note is contemporaneous or simultaneous with the borrowing. There are no decisions of the Supreme Court so far which have any bearing on the questions raised. We, therefore, have necessarily to look to the decisions of the various High Courts and English Courts for answering the questions. The Courts in India have expressed divergent views as to the recovery of the loan independently of the note given. Broadly the decisions come under three categories (1) those which hold that, if the promissory note is not receivable in evidence because of the absolute prohibition of Section 35 of the Stamp Act, no action would lie independently of the note and to hold otherwise would be nullifying the provisions of Section 91 of the Evidence Act; (2) Notwithstandiing the bar of Section 35 of the Stamp Act, it would still be open to the creditor to prove the loan and all its terms in the case of a contemporaneous transaction also, independently of the promissory note by letting in other evidence and Section 91 of the Evidence Act will not operate as a bar and action can also be maintained on the principle of money had and received under Section 70 of the Contract Act; and (3) which say that, even where the bar of Section 35 of the Stamp Act and Section 91 of the Evidence Act is there provided the promissory note does not embody all the terms of the contract, the true nature of such transaction can be proved where the instrument is given as a collateral security or by way of conditional payment provided it is so alternatively pleaded in the plaint. In Perumal Chettiar's case. ILR (1938) Mad 933 = AIR 1938 Mad 785 (FB) it was the third view that was expressed by the Full Bench. We may now proceed to examine the conflicting views expressed by the High Courts in India.
8. The opinion of the Calcutta High Court, it may be said, has not been consistent. While some of the decisions adopt the strict rule of the bar of Section 91 of the Evidence Act as stated by Chief Justice Garth in Sheikh Khan, (1881) ILR 7 Cal 256, the other decisions show a marked departure from the strict rule enunciated by Garth, C.J. which we will refer to presently.
9. The earliest of the cases is the case of Golap Chund Marwaree v. Thakurani Mohokoom Kooaree. (1878) ILR 3 Cal 314, where it was held that the plaintiff could fall back on the original consideration when an insufficiently or unstamped promissory note cannot be received in evidence. But that would appear to be a case where a suit was filed by an indorsee of an unstamped promissory note, for the Court of first instance refused to allow the plaintiff to summon the production of the second defendant's books in order to show therefrom that the 1st defendant was the debtor for the amount for which the note was given. We are unable to subscribe to the view taken in this case for an indoors obviously cannot fall back on the original consideration between the maker and the payee.
10. The case of (1881) ILR 7 Cal 256 has been followed as laying down the authoritative pronouncement in innumerable cases of the several High Courts (Including the Full Bench decision of the Madras High Court). That case came up before Sir. Richard Garth, C.J. and McDonell. J. On reference from the Judge of the Small Cause Court at Dacca. Garth C.J. speaking for the Court said:
"When a cause of action for money is once complete in itself, whether for goods sold or for money lent, or for any other claim, and the debtor then gives bill or note to the creditor for payment of the money at a future time the creditor, if the bill or note is not paid at maturity may always, as a rule sue for the original consideration provided that he has not endorsed or lost or parted with the bill or note under such circumstances as to make the debtor liable upon it to some third person. In such cases, the bill or note is said to be taken by the creditor on account of the debt, and if it is not paid at maturity, the creditor may disregard the bill or note and sue for the original consideration. But when the original cause of action is the bill or note itself and does not exist independently of it, as for instance when in consideration of A depositing money with B.B. contracts by a promissory note to repay with interest at six month's date, here there is no cause of action for money itself because the deposit is made upon the terms contained in the note and no other. In such a case, the note is the only contract between the parties, and if for want of proper stamp or some other reason the note is not admissible in evidence the creditor must lost his money.
This passage was interpreted differently by another learned Chief Justice of the same Court in Pramatha Natha Sandal v. Dwarka Nath Dey. (1896) ILR 23 Cal 851, Sir. Comer Petheram .C.J. interpreted what was held by Garth, C.J. as not in conflict with the view he was taking and after referring to the above passage from Garth. C.J.'s judgment observed (at page 853) "But a reference to the earlier portion of the Judgment shows that such was not the meaning of the Chief Justice, and that when he spoke of a deposit he did not mean a loan as he then says where money is lent and a bill or note given for the loan which is not paid at maturity, the creditor may disregard the note and sue on the original consideration. This is in accordance with the case of (1878) ILR 3 Cal 314."
That opinion of Petheram. C.J., was based on what is stated in Farr v. Price, (1800) 1 East 55 = 102 ER 22 viz. That the existence of an unstamped promissory note does not debar the plaintiff from recovering on the original consideration if the pleadings are properly framed for that purpose.
11. In Indra Chandra v. Hiralal Rong. AIR 1936 Cal 127 and Mahatobuddin Mia v. Md, Nazir Joddar AIR 1936 Cal 170 R.C.Mitter. J., sitting single, held that it is not necessary that there should be an independent express contract prior to the execution of such a promissory note and that the fact that the money has been lent implies a promise to repay it and the plaintiff in such a case has a cause of action on the implied promise, which is independent of the promissory note. The fact that the money has been lent according to the learned Judge gives a cause of action to the plaintiff which is independent of the promissory note and in so holding he relied upon what Sir. Comer Petheram, C.J. said in (1896) ILR 23 Cal 851 that an implied contract to repay money lent always arises from the fact that the money is lent even though no express promise, either written or verbal is made to repay it. But the same learned Judge, we may point out, had expressed a different opinion in Firm Tarachand v. Tamijuddin, AIR 1935 Cal 658 where he said that if the plaintiff's cause of action to recover the money had become complete before the execution of the promissory note, he would be entitled to sue and succeed on the original: but if he does not base his case in the plaint on the original consideration, he is out of Court because the promissory note is inadmissible in evidence being insufficiently stamped. In so holding he relied upon the decision of the Privy Council in Sadasuk Janki Das v. Sir Kishen Pershad, SIR 1918 PC 146 and followed the decision in Sheik Akbar v. Sheikh Khan, (1881) ILR 7 Cal 256 and Nazir Khan, v. Raz Mohan, AIR 1931 ALL 185 (FB). His view in the 1935 case was that if the execution of the promissory note and the borrowing of the money are contemporaneous constituting part and parcel of the same transaction and the note becomes inadmissible in evidence the plaintiff will be out of Court. The learned Judge with great respect to him seemed to swing between the two stands taken by the two Chief Justices of his Court. We do not even find a passing reference to the earlier decision of his in AIR 1935 Cal 658 in his two later Judgments as to what led him to take a different view.
12. Chief Justice Jenkins of the Bombay High Court sitting with Justice Candy in Krishnaji Narayan Parkhi v. Rajamal Manikchand Marwari, (1900) ILR 24 Bom 360 was dealing with a case of liability arising out of a hundi. There the plaintiff lent the defendant Rs. 675/- and at the same time took a hundi to secure its repayment. There was the admission of liability by the defendant and he had promised to pay. There was also the further fact that the hundi had been admitted in evidence, as no objection was taken as to the absence or deficiency in stamping. The learned Chief Justice, therefore, said that it is perfectly true that the terms of the contract contained in the hundi can, apart from the conditions which permit secondary evidence, only be proved by the hundi, but this does not prevent proof of the loan independently of the note. The learned Chief Justice relied upon the decision in Chenbasapa v. Lakshman Ramachandra, (1894) ILR 18 Bom 369. Where the distinction between cases in which the suit is brought solely on the note or hundi and cases in which there is and can be a claim to recover the original loan has been acknowledged. It may be pointed out that the learned Chief Justice was not considering the question under what circumstances when an action fails on a promissory note executed contemporaneously with the borrowing of the money on account of the bar of Section 35 of the Stamp Act, it would not debar the plaintiff from resorting to the original consideration.
13. Kemp J. In Jacob 7 Co.v. Vicumsey. AIR 1927 Bom 437, followed the decision in (1900) ILR 24 Bom 360 on the ground that it is binding upon him, in holding that if the promissory note is insufficiently stamped the plaintiff can proceed with the suit on the loan. He however doubted the correctness of that decision as it appeared to conflict with the provisions of Section 91, Illustration (b) of the Evidence Act .
14. We may now notice some of the leading cases of the Allahabad High Court, which reveal that the view expressed in Sirdarkuar v. Chandrawati, ( 1882 ) ILR 4 All 330 ; Kundan Lal v. Sahu Bhikhari Das, AIR 1929 All 254; Nazir Khan v. Ram Mohan, AIR 1931 All 183 ( FB ) and Kunwar Bahadur v. Suraj Baksh, AIR 1932 Oudh 235 ( FB ) is no longer good law in view of the subsequent decision of the Full Bench of that Court in Sheo Nath Prasad v. Sarjoo Nonia, AIR 1943 All 220 (FB) which is followed in Lakshmi Narain v. Mt. Aparna Devi, . As the latest opinion of the Allahabad High Court as expressed in AIR 1943 All 220 and is in conflict with the Full Bench decision of the Madras High Court in Perumal Chettiar's case, ILR ( 1938 ) Mad 933 = ( AIR 1938 Mad 785 ) ( FB ) it may be useful to notice the leading cases of that Court :
15. In ( 1882 ) ILR 4 All 330, a case arising in second appeal, it was expressed by Straight and Broadhurst, JJ. That in a case where the adjustment of accounts took place and the bond was made, it was intended to consolidate and secure the debt due from the defendant to the appellant, and the new contract was to subsist between the parties in suppression of the former one. The learned Judges however observed that :
"Much though we might have wished to be able to hold that the bond entered into between the parties did not preclude the plaintiff-appellant from recovering on his account stated, we find ourselves unable to do so. "
16. The decision in Ram Sarup v. Jasodha Kunwar, ( 1912 ) ILR 34 All 158 which runs counter to the above view was rested on the dictum of Lord Kenyon in the well-known case of (1800) 1 East 55 = 102 ER 22 in holding that even where the debt is inseparable from the promissory note, the debt could be proved notwithstanding the note is not admissible in evidence. The learned Judges in Banarasi Prasad v. Fazl Ahmad, (1906) ILR 28 All 298, though purported to follow the case of (1881) ILR 7 Cal 256 by saying that the law on the subject is clearly stated by Garth C. J., however swung to the opposite view by observing :
"It seems to us therefore that the Court of first instance ought not to have summarily dismissed the plaint, but ought to have given the plaintiff an opportunity of proving the consideration of the note if there was such consideration. "
In a later case viz., Baijnath Das v. Salig Ram, (1912) 16 Ind Cas 33 (All) the learned Judges, after referring to the bar of Section 91 of the Evidence Act, however, took the view that where a promissory note is taken in consideration of the money advanced and is held to be inadmissible in evidence, a suit filed on foot of such a note may be treated as a suit for money had and received if the pleadings are properly framed without treating it as such a suit. These decisions were considered by Sulaiman and Kendall, JJ., in AIR 1929 All 254 and the view expressed by the learned Judges was quoted and endorsed by Sir Lionel Leach, C. J. in Perumal Cettiar's case, ILR (1938) Mad 933 = (AIR 1938 Mad 785) (FB) to the extent of the scope of Section 91 of the Evidence Act. What Sulaiman and Kendall, JJ. Said that case is that if a hundi is the embodiment of the whole of the contract between the parties and it is not admissible in evidence and cannot be looked at for the purpose of finding out the terms of the contract other evidence to prove the terms of such contract cannot be allowed. But where the hundi embodies only a part of the contract between the parties it cannot be said that the whole contract is reduced to the form of a hundi and Section 91 does not exclude evidence showing the terms of the whole contract which cannot be determined from the hundi alone. But the view of the learned Judges in so far as the applicability of Section 70 of the Contract Act was not endorsed by the Full Bench as may be seen from the judgment of Justice Varadachariar. What was said in the case of a hundi which need not necessarily contain all the terms of the agreement between the parties was applied by the Madras Full Bench to a promissory note. The learned Judges, Sulaiman and Kendall, JJ. However affirmed the view in Baijanath Das's case (1912) 16 1nd Cas 33 (ALL) that, when a hundi is held to be inadmissible in the evidence, the plaintiff would still be able to succeed on the basis of the theory of 'money had and received' or for compensation and this view did not find favour with Varadachariar. J.
17. A Full Bench of the same Court composed of Mears. C.J. Mukerji and Young. JJ. In AIR 1931 ALL 183 (FB) overruled the decisions in (1912) ILR 34 AII158 and (1906) ILR 28 AII 293 referred to supra and followed the decisions Parsotham Narain v. Taley Singh, (1903) ILR 26 AII 178 and Sheikh Akbar v. Sheikh Khan. (1882) ILR 7 Cal 256. As may be seen from the Judgment of Mukerji. J. Who spoke for the Full Bench he did not approve the view of Sulaiman and Kendall, JJ. In so far as invoking the aid of Section 70 of the same Court in Miyan Bux v. Mt. Bodhiya, AIR 1928 AII 371 (SB). One of the learned Judges of the Special Bench, Sen. J. Refused to express any opinion on the ground that it is outside the scope of reference to determine whether a plaintiff can maintain a claim against the debtor founded upon an obligation independent of a promissory note. Although he was of the view that "though the promissory note was in a form forbidden by law, it was admissible in evidence under Section 91 of the Evidence Act and the answer of two learned Judges. Boy and Kendall, JJ. Viz. The plaintiff could sue of the basis of any obligation whether antecedent to or arising simultaneously with the execution of the promissory note was not called for."
The view of the Full Bench as expressed by Mukherji J., that verbal negotiations leading upto an express contract in writing cannot be set up as an independent contract and are not admissible in evidence as provided by Section 91 and that where there is an express promise will not be inferred, was overruled by a Full Bench of five Judges in AIR 1943 All 220 ( FB ).
18. A Full Bench of the Oudh High Court consisting of Wazir Hasan, C. J. Srivastava and Raza, JJ. However, took a different view from the one expressed in AIR 1931 All 183 ( FB ) holding that, in spite of the provisions of Section 91, it is open to the party who has lent money on terms recorded in a promissory note which turns to be inadmissible in evidence for want of proper stamp duty to recover his money by proving orally the advance of the loan and that oral evidence to prove the terms of the contract however is admissible. Srivastava, J., with whom Nazir Hassan, C. J. " generally agreed and Raza, J., agreed wholly, was not of the opinion that the fact of the advance of the loan or the amount of the loan cannot be regarded as one of the terms of the promissory note. " In that view he opined that " if it is not so, then the path of the plaintiff is clear. In the case of every loan there is a presumption of an implied contract to repay the loan. " We shall deal later with the question of the presumption of an implied contract, but suffice it to say for the present that we are unable to understand how the amount of loan mentioned in the promissory note cannot be regarded as a term of the contract. A promissory note, as defined in Section 4 of the Negotiable Instruments Act, must contain an unconditional undertaking to pay a certain sum of money. If the amount of loan is not mentioned in the promissory note, then it ceases to be a promissory note which should constitute a contract between the maker and the payee. When the rate of interest, date of payment etc., could constitute terms of the promissory note, we fail to understand how it could be said that the amount on which interest is payable can be held to be not a term of the contract.
19. We may now notice the facts of the Full Bench case in AIR 1943 All 220. That was a case where the plaintiff is said to have lent a sum of Rs. 495 /- to one Bhaggu Nonia and obtained a promissory note and a receipt on the same day from the debtor. After the suit was filed, the legal representatives of the deceased defendant were brought on record. The Court of first instance dismissed the claim on the ground that the promissory note was inadmissible in evidence and that apart from the promissory note, the loan cannot be proved by any other evidence. The judgment was affirmed in appeal by the Civil Judge. In the second appeal preferred by the plaintiff, the matter was referred to a Full Bench of five Judges by a single Judge of that Court as he felt that the Full Bench decision in AIR 1921 All 183 ( FB ) required reconsideration. The learned Judge, Dar, J., expressed total disagreement with the view of the Full Bench of the Madras High Court and concurred with the statement of law by Sir Arthur Page, C. J. as contained in proposition No. 3 of his judgment in Maung Chit v. Roshan and Co., AIR 1934 Rang 339 = ILR 12 Rang 500 ( FB ). He, however, found himself unable to agree with the 4th and 6th propositions of Sir Arthur Page C. J. ( which were endorsed by the Full Bench of the Madras High Court ) on the ground that he ( Page C. J. ) did not correctly state the law. To quote the learned Judge, Dar J.
"In my opinion the law on the subject may thus be stated. When a promissory note was given in consideration of a sum of money it is a question of fact in each case whether the sum of money was given as a loan or not as a loan; in absence of all evidence the presumption is that it was given by way of a loan, and there is a further presumption that the promissory note was given in conditional payment of the loan. If by reason of the defect of stamp the promissory note is held inadmissible in evidence, it is open to the plaintiff to prove the loan and all its terms and to recover the loan irrespective and independently of the promissory note by giving other evidence including that furnished by a contemporaneous receipt if there be any. It is for the defendant to prove that the promissory note was given for a sum of money which was not given as a loan or it was given in absolute satisfaction of the loan or the plaintiff has made it his own by his agreement or by his conduct. If the defendant succeeds in proving any of these facts the plaintiff shall be restricted to the promissory note and he shall not be allowed to recover independently of the promissory note. " Having so said, he however was not prepared to express any opinion on the question whether the money given under a promissory note which is inadmissible in evidence for insufficiency of stamp can be recovered under Section 70 of the Contract Act. Mathur, J. Who wrote a separate Judgment concurring with the view on the main question, however, expressed the opinion, differing from Sulaiman and Kendall, JJ., in AIR 1929 All 254, that Section 70 of the Contract Act does not contemplate the case of payment of money and it will be doing violence to the language of the section to hold that the words ' lawfully does anything ' mean payment of money. On the other question, the learned Judge agreed with the statement of the law made by Srivastava, J. In AIR 1932 Oudh 235 ( FB ) that Section 91 of the Evidence Act excluded parole evidence about the terms but not about the factum of the contract ; but he was unable to agree with him that the advance of the loan or the amount of the loan cannot be regarded as one of the terms of the promissory note. In the words of Mathur, J. " As I look at the matter, I think that amount of the loan is certainly one of the terms of the contract as would be the manner or the time of its repayment. " He was also not prepared to agree with Srivastava, J. That " there is nothing in Section 91 to prevent the plaintiff from giving evidence to prove that at the time of the transaction the plaintiff paid a sum of Rs. 700 /- in cash to the defendant. ' The leaned Judge, Mathur, J. In our opinion, rightly commented that ' I think if this were allowed it would make Section 91 absolutely nugatory. " Where we find it difficult to agree with Mathur, J., or Dar, J., with whom the other learned Judges of the Full Bench agreed is that it would be permissible to look at the document for the sake of determining whether it contained all the terms of the contract, after the document is held inadmissible in evidence for want of proper stamp under Section 35 of the Stamp Act. Mathur, J., in so coming to the conclusion sought support from what Sir Asutosh Mookerjee said in Ram Bahadur v. Dasuri Ram, ( 1913 ) 17 Cal LJ 399.
"The learned vakil for the respondent has ingeniously suggested that as the instrument itself must be held inadmissible, there is no proof that the terms of the contract for payment of interest were reduced to writing. This argument is obviously fallacious. The written instrument may be looked at for the purpose of showing that the terms of the contract for payment of interest had been reduced to writing within the meaning of Section 91. Evidence Act, or oral evidence may be given to show that the contract, as a matter of fact, was reduced to writing. "
The learned Judge also drew support, quoting, Lord Atkin from his judgment in Mohd. Akbar Khan v. Attar Singh, 1936 All LJ 986 = AIR 1936 PC 171. The Judicial Committee there held that the document which was contended to be a promissory note was not a promissory note but was merely a receipt containing the terms on which the amount was to be refunded. It was, therefore, said by Lord Atkin "Being primarily a receipt, even if coupled with the promise to pay, it was not a promissory note. As the document did not record or purport to record all the terms of the contract between the parties and as there was nothing in the document explaining how the money came to be received the parties were not prevented from showing that it was paid by way of loan or deposit or for some other purpose. "
It is thus plain that what Lord Atkin said of a receipt which did not record all the terms of the contract cannot be applied to a case of a promissory note, which could not be received in evidence on account of the bar of Section 35 of the Stamp Act. It is in that context that Lord Atkin observed that Section 91 or 92 of the Evidence Act does not come in the way when " the document does not record or purport to record all the terms of the contract between the parties. " The ruling of the Judicial Committee, therefore, does not lend support to his ( Mathur, J.'s ) view as sought to be made out by him and for the same reason we regret we are unable to endorse the view of that eminent Judge, Sir Asutosh Mookerjee. We are also unable to agree with him for reasons which we will state presently when we deal with the scope of Section 35 that the words " no instrument chargeable with duty shall be admitted in evidence for any purpose, " occurring in Section 35 only mean that the document shall not be made the basis of the decision or that it shall not be relied on to support any finding, but to look at the document merely for the purpose of finding out whether it contained all the terms or not in order to attract the provisions of Section 91. Evidence Act would not be really admitting it in evidence.
20. A division Bench of the Allahabad High Court in following the Full Bench decision in AIR 1943 All 220 ( FB ) held that :
".............. in the absence of the evidence to the contrary, the presumption is that it is as a conditional payment or as a collateral security only. Where it is in absolute payment or discharge of oral debt, the document alone can be used to prove the terms of the debt because in that case the debt has been reduced " to the form of a document and therefore Section 91 is no bar to the proof of the debt other than by production of the document. "
In Patna, as observed by Varadachariar, J., in the Full Bench decision, the question can scarcely be regarded as settled ; ( Dhaneshwar Sahu v. Ramrup Gir, ILR 7 Pat 845 = ( AIR 1928 Pat 426) where Macpherson, J., concerned only on the ground of stare decisis.
21. A Division Bench of the Patna High Court in Sarajoo Prasad v. Rampawari Devi. considered the question whether every loan carried with it a contract to repay and if so, it was open to the plaintiff to bring a suit on the original consideration of the handnote. That question was answered having regard to the facts of that case that the handnote was taken as a collateral security for the debt, for it was alleged in the plaint that, as collateral security for the two loans, plaintiff 2, defendants 1 and 2 and father of defendant 3 executed the handnote on 30th Magh 1342 in favour of the persons already named. In paragraph 15 of the plaint it was also said that the cause of action arose on 15th January 1935, the date of the loans and the date of the handnote. On those facts, the learned Judges held that, where it is clearly shown that a promissory note was intended to be merely a collateral security for the loan, the person advancing the loan can sue on the original consideration of loan itself instead of the note. We do not read that decision as laying down a general rule that in every case where as action brought on foot of the promissory note fails, there arises automatically a cause of action otherwise than upon the note itself on the presumption that it was given as a conditional discharge or collateral security.
22. The Nagpur High Court in Udaram Mangiram v. Laxman Marwari, AIR 1927 Nag 241 held that even though the promissory note becomes inadmissible in evidence for want of proper stamp, the creditor can fall back on the original transaction under Section 70 of the Contract Act treating the promissory note as non-existent and ask for refund of the consideration paid. This decision supports the view of the learned Judge in , but runs counter to the Madras Full Bench view in Perumal Chettiar's case. ILR (1938) Mad 933 = AIR 1938 Mad 785 (FB).
23. A Division Bench of the Jammu and Kashmir High Court consisting of Fazl Ali and Janki Nath Bhat JJ. In Gulam Mohad. Labroo v. Habib Ullah. AIR 1966 J & K 127. After an elaborate review of the cases expressing divergent views, disagreed with the view expressed by the Full Bench of the Allahabad High Court in AIR 1943 AII 220 (FB) and held that, when the terms of the entire contract between the parties are reduced to the form of a promissory note and the advance of the loan and the execution of the promissory note are part of the same transaction, the provisions of Section 91 are a clear bar to any other evidence, except the promissory note and if the pronote is inadmissible in evidence, the whole suit must fail. In so holding, the learned Judges were not prepared to follow the view which accords either with the Allahabad Full Bench or the Madras Full Bench, as in the case of the former, according to them, they (the Judges there) completely ignored the existence of Section 91 of the Evidence Act and in the case of the latter, the Judges there have tried to bypass the provisions of S. 91 "by introducing such theories as that of the pronote not containing all the terms of the contract or that of the pronote not being a final accord or discharge of the date, so on and so forth."
24. The decision of the Mysore High Court in K. Anantharajaiah v. Shivaramaiah. AIR 1968 Mts 148 does not render any assistance to the respondents. It was held by Gopivallabha Iyengar, J. That where a creditor lent a loan and had taken a receipt and a promissory note to evidence it, his claim for recovery of loan without producing the promissory note is not maintainable. But it is however pointed out by him, that, if the cause of action is antecedent to the making of promissory note, then there is nothing to prevent the creditor from maintaining a suit on the original cause of action founded on the loan.
25. Now it may be convenient to notice the Full Bench decision of the Rangoon High Court in AIR 1934 Rang 389 = ILR 12 Rang 500 (FB) which was approved by the Full Bench of the Madras High Court as regards the statement of law except proposition No. 3 formulated by Sir Arthur Page C.J. That was a case where the creditor had lent two sums of Rs.300/- and Rs.100/- to the debtor and on each occasion when the loan was made, a promissory note was executed by the debtor. A suit was filed in the Small Cause Court of Mandolay on foot of the promissory note or in the alternative a like sum for money lent. The promissory notes were not duly stamped and they were held inadmissible in evidence under Section 35 of the Stamp Act. A decree was, however, passed on the alternative claim for the amount of the loans without interest. On revision to the High Court Durkley. J. Referred the following question for determination by a Full Bench:
"When a creditor sues on a claim for money in respect of which the debtor has executed a promissory note, under what circumstances can the creditor sue for the original consideration if the promissory note cannot be proved."
26. The learned Chief Justice Sir Arthur Page deduced the following propositions of law on a consideration of the "many Indian and English authorities on this question."
1. When a loan is contracted it is an implied term of the agreement that the loan shall be repaid (1913) 41 1nd App 142 (PC)
2. When a promissory note or a bill of exchange or indeed anything else, is given by the narrower to the lender in connection with the loan, 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, (1889) 22 QBD 610.
3. It is prima facie to be presumed (although the presumption is rebuttable) that the parties to the loan transaction have agreed that the promissory note or other negotiable instrument given and taken in such circumstances shall be treated as conditional payment of the loan; the cause of action on the original consideration for money lent being suspended during the currency of the negotiable instrument, and if and so long as the rights of the parties under the instrument subsist and are enforceable; but the cause of action to recover the amount of the debt revives if the negotiable instrument is dishonoured or the rights thereunder are not enforceable. On the other hand the cause of action on the original consideration is extinguished when the amount due under the negotiable instrument is paid or if the lender by negotiating the instrument or by laches or otherwise has made the bill his own, and thus must be regarded as having accepted the negotiable instrument in accord and satisfaction of the borrower's liability on the original consideration."
Then, after quoting Esher M.R. In Re Romer and Haslam, (1893) 2 QB 286 at p. 296 and Bowen. L.J. (Ibid. P. 300):Farr v. Price (1800) 1 East 55 = (102 ER 22) and noticing English and Indian cases the learned Chief Justice proceeded to say:
"4. If a promissory note or other negotiable instrument is given by the borrower to the lender and the negotiable instrument is itself the consideration for the loan, or if the promissory note or other negotiable instrument is accepted as an accord and satisfaction of the original debt, the lender is restricted to his rights under the negotiable instrument, by which he must stand or fall in the one case the note or bill is itself the original consideration and in the other the original debt has been liquidated by the acceptance of the negotiable instrument."
5. "If it is agreed between the parties that the promissory note or other negotiable instrument shall be taken merely as collateral security for the repayment of the loan the lender is entitled to sue upon the original consideration independently of the security, and without regard to any rights that he may possess under the negotiable instrument,"
6. "Further, if the terms of the agreement, by which I mean the whole of the terms, under which the loan was made have been embodied in a negotiable instrument or in any other document no evidence can be adduced in proof of the terms of the contract except the document itself, or secondary evidence of the contents of the document in cases in which secondary evidence thereof is admissible. It follows therefore that in such cases if the document which contains the whole of the terms of the agreement is not admissible in evidence a suit to recover the amount of the loan must fail because the plaintiff is not in a position to prove the debt."
He, however, regarded the oft-quoted passage of Garth. C.J. in (1881) ILR 7 Cal 256 as unfortunate and incorrect. These six propositions deduced by Sir Arthur Page .C.J. were quoted by Sir Lionel Leach. C.J. who was a party to that decision as a puisne Judge of the Rangoon High Court and relied upon the propositions deduced except in so far as the third proposition is concerned. This is how Sir Lionel Leach. C.J. explained in Perumal Chettiar's case. ILR (1938) Mad 933 at p. 944 = (AIR 1938 Mad 785) (FB) in later changing his view as regards proposition No. 3.
"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.' What precisely has to be considered by us is whether there is a presumption, when a negotiable instrument is taken in lieu of payment, the parties intended it to be a conditional charge or a collateral security. While Mr. D. Venkata Reddy and Mr. M. Jagannadha Rao would argue that presumption automatically arises in every case of a promissory note taken in lieu of money payment, though such presumption is rebuttable. Mr. C.N. Babu and Mr. K. Jagannadha Rao contend that such a presumption does not automatically arise and it depends upon the intention of the parties and the circumstances under which the instrument was executed and whether the promissory note contains all the terms of the contract or not.
27. Before considering the correctness or otherwise of what was enunciated by the Full Bench, it may be necessary to notice what constitutes a conditional payment. Das, J. ( as he then was ) in Commr. Of Income-tax, Bombay v. Ogale Glass Works Ltd., explained that "when it is said that a payment be negotiable instrument is a conditional payment what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand. "
This distinction between a collateral security and conditional payment is this. In the case of a collateral security, the cause of action is not suspended, but whereas conditional payment suspends the cause of action.
28. In Halsbury's Laws of England, Third Edition, Vol. 8 at p. 212, it is said that where a negotiable instrument is given by a debtor to his creditor the question upon what terms it is given is one of the fact, depending on the intention of the parties. The question whether a negotiable instrument has been accepted in absolute satisfaction or only as a conditional payment is one of fact and depends on the intention of the parties,. If what the parties intended is put in the instrument in other words, if all the terms agreed upon are incorporated in the promissory note itself then no difficulty arises. The difficulty arises only of all the terms relating to the contract are not found in the promissory note.
29. All the decisions which accord with the view expressed in ( 1885-1887 ) ILR 10 Mad 94 and also the two of the cases in Gopala Padayachi v. Rajagopal Naidu, AIR 1926 Mad 1148 and Chinnayya Naidu v. Srinivasa Naidu, AIR 1935 Mad 206 = ( 67 ad LJ 912 ) which struck a different note were referred to in main judgment of Sir Lionel Leach, C. J., and in the judgment of Justice Varadachariar, Krishnasami v. Rangaswami, ( 1884 ) ILR 7 Mad 112 ( which ) was a case of an improperly stamped promissory note executed in favour of two members of a joint Hindu family in consideration of a loan given to them. It was held that though the promissory note was insufficiently stamped, that 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. It, therefore, appears to be a case of an antecedent debt as rightly put by Leach, C.J. Before Collins C. J. And Parker, J., in ( 1885-1887 ) ILR 10 Mad 94. It was urged on the strength of ( 1884 ) ILR 7 Mad 112, that the plaintiff may be permitted to prove the consideration which preceded the contract and that the suit may be regarded as one for the return of " money lent " to defendant. The learned Judges rejected that plea observing, " We cannot assent to such a doctrine and to do so would entirely nullify the provisions of Section 91 of the Evidence Act. They went on to add ; " It is a necessary condition to every written contract that the terms should be orally settled before they are reduced to writing, and to hold when such a contract has been reduced to a writing that a plaintiff can take advantage of the absence of a stamp on the promissory note to sue at once for the return of money which he may have contracted to lend for a fixed period would entirely defeat the provisions of Section 91 of the Evidence Act.
30. Mr. C. N. Babu, in the course of his arguments, sought to point out that the Full Bench departed from the strict rule of Section 91 operating as a bar stated in Pothireddy's case, ( 1885-1887 ) ILR 10 Mad 94, when the Full Bench said that even in the case of a contemporaneous transaction, if it could be shown that all the terms of the contract are not incorporated in the promissory note and a plea is found in the plaint to that effect so as to show that the promissory note was executed as a collateral security or conditional payment. Section 891 will not operate as a bar. The Full Bench no doubt did not make any difference between the case of an antecedent debt or a contemporaneous one in this regard but we see no conflict between Pothi Reddy's case, ( 1885-1887 ) ILR 10 Mad 94 and the Full Bench case, for Collins, C. J. and Parker, J., were never considering the question, if in certain given circumstances all the terms of the contract are not embodied in the promissory note. The Full Bench affirmed the view that, if the promissory note written in such a way as to leave no room to doubt the intention of the parties, no further evidence can be permitted in the face of the intention of the parties which has been completely expressed in the promissory note. In such a case, they also hold that the debt cannot be proved aliunde. It would no doubt appear prima facie that the rule viz., the bar of Section 91, laid down in Pothi Reddy's case, ( 1885-1887 ) ILR 10 Mad 94 is relaxed but Chief Justice Leach made it absolutely clear that Section 91 would operate as a bar if all the terms of the contract are embodied in the promissory note. In ( 1884 ) ILR 7 Mad 112, the learned Judges were not considering a case where a plea of a collateral security or conditional payment was advanced before them on foot of the pleadings and, therefore, we feel that it may not be correct to say that what was laid down there covers actions brought on the alternative plea viz., that all the terms of the contract do not find a place in the note. The defendant in that case admitted the receipt of the money on the evening of the same day when he obtained the loan of Rs. 1,000 /- and promised to pay the same with interest in three instalments under the promissory note. There the memorandum which was held to be a promissory note, contained all the terms of the contract and it was not the case of the plaintiff there, as already pointed out, that it was executed as a collateral security or a conditional payment. The Full Bench, of course, has not stated in so many words what it meant by " all the terms of the contract ", but it is quite plain that that expression ' all the terms of the contract ' was used only with reference to a collateral security or conditional payment as otherwise they would not have qualified it by stating " where an instrument has been given as a collateral security or by way of conditional payment, a suit on the debt will lie ". Therefore, the words " if it does not embody all the terms of the contract " only mean, if the promissory note does not contain terms regarding its having been as a collateral security or as a conditional payment, it would be open to the plaintiff to fall back on the original demand provided such a plea is based on the pleadings.
31. Sir Richard Couch, C. J., in Kedarnath v. Sham Lall, ( 1873 ) 11 Beng LR 405 at p. 412 was of the opinion that the promissory note is " the only repository and the appropriate evidence of the agreement ". But that strict principle enunciated by him no longer holds the field even in the Calcutta High Court. The later decisions of the various High Courts would show the swing that, where all the terms are not embodied in the contract Section 91 is no bar to establish the true nature of the transaction viz., that was given as collateral security or by way of conditional payment. The diametrically opposite view , to what Couch, C. J., expressed as stated by the Full Bench of the Allahabad High Court in AIR 1943 All 220 ( FB ) is that, in every case, where a promissory note is executed simultaneously with the borrowing of the money, there is always a presumption that the promissory note was given by way of a conditional payment or as a collateral security and that the bar of Section 35 of the Stamp Act as to its inadmissibility owing to the defect in stamping or the bar of Section 91 of the Evidence Act will not preclude the plaintiff from falling back on the original demand. This view is based on the assumption that every loan contains an implied promise to repay the money and when the promissory note becomes inadmissible in evidence under Section 35 of the Stamp Act, the plaintiff has a cause of action de hors or independently of the promissory note notwithstanding that the borrowing of the money and the execution of the promissory note formed part of the same transaction. The presumption of an implied promise to repay the money when the promissory note is shut out from evidence by virtue of Section 35 of the Stamp Act is not recognised by the Full Bench of the Madras High Court.
32. As Sadasiva Iyer, J., pointed out in Muthusastrigal v. Viswanatha, ILR 38 Mad 660 at p. 663 = ( AIR 1914 Mad 657 (2) ). " To import the doctrines laid down in English cases about vague obligations to repay arising out of equity and not out of contract or about obligations which can be enforced if the plaintiff skilfully draws up his plaint as one on account of money had and received cancelling the real contract of loan which had been reduced to the form a document is, it seems to me, merely trying to nullify Section 91, Evidence Act ". To the same effect was the view of Rankin, J. In Dula Meah v. Abdul Rahaman, 28 Cal WN 70 = 81 Ind Cas 461 = ( AIR 1924 Cal 452 ), where there is an express promise, an implied promise cannot be inferred.
33. Mr. M. Jagannadha Rao sought to rely upon certain English decisions to show that, even where the borrowing of money and the execution of the promissory note are contemporaneous and form part and parcel of the same transaction, still there exists always an implied promise to pay the loan notwithstanding the inadmissibility of the promissory note on account of the bar of Section 35 of the Stamp Act. What fails for determination is whether presumption as such that the promissory note was executed as a conditional payment or collateral security without further investigation or enquiry as to the intention of the parties at the time when they made the contract arises in the case of the contemporaneous transaction when Section 35 of the Stamp Act shuts out the promissory note from being admitted in evidence for " any purpose ".
34. The case of Brown v. Watts, ( 1808 ) 127 ER 870, relied upon by Mr. M. Jagannadha Rao is not a case of a contemporaneous transaction. That was a case where " the plaintiff declared on a promissory note with the usual counts for money, and upon an account stated. " The note " was upon a wrong stamp and therefore could not be read. " Then the plaintiff proved a distinct admission of the original debt made before the note was given. The facts of that case show that it was a case of an antecedent debt and therefore it was held that the plaintiff may prove his original debt. "
35. In Re Romer & Haslam, ( 1893 ) 2 QB 286 was also a case of a pre-existing debt for what has been held in that case that " the handing by a client to his solicitor of a negotiable security for the amount of his bill of costs, coupled with the giving of a receipt by a solicitor in which it is expressed to be taken " in settlement " of his bill does not amount to repayment in the event of the negotiable security being dishonoured, unless there be proof ( the onus of which lies on the solicitor ) that such was at the time the intention of the parties, and that the client was aware of the effect of the transaction upon his right to tax the bill of costs. " The facts of that case established that series of bills were sent by the solicitors to the clients and they were accompanied by cash account in which all payments on account were credited and showed a balance due to the solicitors.
36. In Halsbury's Laws of England, Third Edition, Vol. 8 at page 213, it is stated having regard to what is held in ( 1893 ) 2 QB 286 C. A. that the question whether a negotiable instrument has been accepted in absolute satisfaction or only as a conditional payment is one of fact and depends on the intention of the parties. That, in our view, represents the correct position. Crowe v. Clay, ( 1854 ) V. 9 Exch 604 is another case of pre-existing debt incurred for goods delivered.
37. Payana Reena Saminathan v. Pana Lena Palaniappa, (1913 ) 41 Ind App 142 ( PC ) is not a case of contemporaneous there was in respect of a pre-existing liability under an award. The plaintiff in that case sued upon promissory notes, but the action failed owing to a material alternation in the notes. He afterwards sued to recover a part of the consideration for which the promissory notes had been given. It was held by the Judicial Committee, on those facts, that although the claims in the two actions arose out of the same transaction, they were in respect of different causes of action, and that consequently, the second action was not brought contrary to Section 34 of the Ceylon Civil Procedure Code ( same as Order 2, Rule 2 of the Indian Code of Civil Procedure ) and could not be maintained.
38. Dargavarabu Sarrapu v. Rampratabu ( 1902 ) ILR 25 Mad 580 ( FB ) was also a case of an antecedent debt. The plaintiffs sold and delivered opium to defendants on different occasions taking a promissory note at each sale for the value of the parcel sold. The case of the defendants was that action should have been brought on the foot of the notes and not on the sales. But the Full Bench consisting of Sir Arnold White, C. J., Benson and Bhashyam Ayyangar, JJ., repelled that contention and held that the plaintiffs were entitled to sue for the price of the goods sold and delivered.
Jambhu Chetty v. Palaniappa Chettiar ( 1903 ) ILR 26 Mad 526, was a case where a suit was laid on the amount due on account of the goods sold and delivered and money lent. The defence was that the plaintiff was accepted hundis in discharge of the debt and was, in consequence, debarred from suing on the original consideration and that his remedy, if he had one, was on the hundis. What was held by the learned Judges, Benson and Bhasyam Ayyangar, JJ., is that it is a question of fact, with regard to promissory notes or bills or hundis, whether the parties intended them to operate as absolute or conditional payment and the presumption is that the effect of giving and taking a note or bill is that the debt was conditionally paid. It was also held on the evidence that the plaintiff had accepted the hundis unconditionally and was, in consequence, precluded from suing on original debt; in other words, the acceptance of the hundis was in complete discharge of the debt and not was conditional discharge and therefore, the plaintiff, having accepted the hundis unconditionally, cannot fall back on the original debt.
39. What Benson and Sundaram Aiyar, JJ., said in Palaniappa Chetty v. Arunachellam Chetty, ( 1911 ) 21 Mad LJ 432 is that the general presumption is that a Bill of exchange or hundi given for a debt operates only as a conditional discharge of the debt : that the execution of a formal for the amount covered by the bill of exchange or hundi is not sufficient to rebut the presumption of conditional discharge ; and that an endorsement of receipt on the promissory note is on no better footing. We wish to observe that what is said of a bill of exchange or hundi cannot be made applicable to a promissory note, for a cheque, bill or hundi does not embody a promise to pay by the maker, 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. The distinction between the promissory note and hundi or bill of exchange is explained by Vradachariar, J., in these words :
"But where the borrower gives his own promissory note as part of the loan transaction, it seems to me artificial to treat that every ' promise to pay ' obtained in that note as amounting to a payment, and then to seek to import the theory of ' conditional ' payment. "
, was a case where an income-tax assessee expressly requested the Government to ' remit ' the amounts of the bills by cheques. The Government sent the cheques by post as requested by the assessee and posted them at Delhi and none of the cheques had been dishonoured on presentation. On those facts, Das J. ( as he then was ), after quoting Benjamin on Sale, 8th Edition, p. 23. Hart on Banking, 4th Edition, Vo. 1 p. 342, Byrne, J., in Felix Hadley & Co. v. Hadley ( 1898 ) 2 Ch 680 and Lord Maugham in Rhokana Corpn. Ltd. v. Inland Revenue Commrs. 1938 AC 380 observed at p. 433 :
"The position, therefore, is that in one view of the matter there was in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view even if the cheques were taken conditionally the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques. "
It is on those facts that an implied agreement of unconditional acceptance of payment was inferred and it is therefore not an authority for the proposition relied upon by Mr. Jagannadha Rao.
40. In Chitty on Contracts ( Twenty-third Edition ) dealing with " payment by negotiable instrument ", it is pointed out in para 1184 at page 560 that " Apart from express agreement a creditor is not bound to accept payment in any way except cash, i. e., legal tender. If, however, he accepts a negotiable instrument, such as a bill of exchange, promissory note or cheque, it is a question of fact depending on the intention of the parties, whether it is taken in absolute satisfaction of the debt, or only in conditional satisfaction. " To the same effect is what is stated by Byles in his book on Bills of Exchange ( Twenty-second Edition ) at page 392 :
"The word ' payment ' is not always used in its strict legal sense. A plea of payment by bill means in law that the bill has been taken in satisfaction; but in the popular sense payment by bill may merely mean that a bill has been given for and on account of the debt. Whether a bill is taken in complete satisfaction or merely as conditional payment, is a question depending on the facts of each case, the onus lying on the party alleging that the bill operated as a complete satisfaction of the original debt, the presumption of fact being the other way. "
41. Leach, C. J. and Varadachari, J., after referring to the previous cases of the court ( it is not necessary to notice all those cases here ) as also the English decisions on the point because some of the High Courts followed the English rule of ' best evidence ', held that the English authorities which were cited before them and the Indian decisions, which followed the English authorities, do not really bear on the objection arising under Section 91 of the Evidence Act. The reason, as rightly stated by the learned Chief Justice is that the English rules of evidence are not statutory, but judge made and the tendency in England has always been to ignore as far as possible stamp objections ( See Taylor on Evidence Vol. 1 P. 276 ( 12th Edition ).) In this connection, it is not necessary for us to refer to the two decisions of the Madras High Court in AIR 1926 Mad 1148 and AIR 1935 Mad 206, which conflict with Pothi Reddy's case, ( 1885-1887 ) ILR 10 Mad 94, for those two decisions were referred to and overruled by the Full Bench.
42. We may here refer in brief to the decisions of the Punjab High Court, which has consistently taken the view which accords with the view taken in Pothi Reddy's case ( 1885-1887 ) ILR 10 Mad 94, and Sheik Akbar v. Sheikh Khan, ( 1881 ) ILR 7 Cal 256. In Chanda Singh v. Amritsar Banking Co., AIR 1922 Lah 307, Chevis and Harison JJ., held that even in a case where the execution of the ' hundi ' had for certain reasons been postponed for sometime after the loan had been advanced, the loan, having been granted on the security of the ' hundi ', the plaintiff had no cause of action independent of the ' hundi ' and that, as the ' hundi ' was inadmissible in evidence and Section 91 of the Evidence Act forbids secondary evidence, the plaintiff's suit must fail. It was similarly held with regard to a promissory note by Broadway and Forde, JJ., in Ram Jas v. Shahabuddin, AIR 1927 Lah 89. To the same effect is the decision in Sohan Lal Nihal Chand v. Raghu Nath Singh, AIR 1934 Lah 606, where Shadi Lal, C. J. and Rangi Lal, J., went to the extent of holding that a decree cannot be passed on the basis of a promissory note which is inadmissible in evidence even if the defendant admits the liability on it. These decisions were referred to and followed by Khosla and Falshaw, JJ., in Amin Chand v. Firm Madho Rao Banwari Lal, .
43. Now let us examine whether the learned Judge, Gopal Rao Ekbote, J. had any valid reason in not following the Full Bench decision by invoking the theory of money had and received. He felt not bound by the Full Bench decision on the ground that the two decisions of the Privy Council in AIR 1918 PC 241 and AIR 1918 PC 151, were not noticed by the Full Bench. The question is whether those two decisions touch the question involved at all.
44. AIR 1918 PC 151, was a case where a taluk was put up for auction for arrears of rent at the instance of the Zamindar. The purchaser paid the entire amount of the purchase money and also obtained a sale certificate of payment. The purchaser received an order for possession but a third party being desirous of contesting the right of the Zamindar to make the sale, sued for reversal of the sale. A decree for reversal of the sale was passed and the suit was, therefore, brought by the purchaser to recover from the Zamindar the total amount of purchase money including interest. The Court of first instance dismissed the suit as barred by limitation and that decree was affirmed by the High Court on appeal and that decision was the subject-matter of appeal before the Judicial Committee. They were construing Section 14 of the Bengal Patni Regulation 1819, which authorises a suit against the Zamindar for the reversal of the sale under the Regulation and then provides that " the purchaser shall be made a party in such suits and upon decree passing for reversal of the sale the court shall be careful to indemnify him against all loss at the charge of the Zamindar at whose suit the sale may have been made ". It is with reference to that provision that it was observed :
"And so the Courts in that series of suits failed to apply the provision of Section 14 in a manner that would be conclusive as to the purchaser's right to be indemnified. How far the remedy provided by Section 14 in a purchaser's favour excludes all other remedies apart from any determination of an issue, is a question of some nicety. There is much to be said in favour of its exclusive character on the score of policy and convenience.
xx xx xx xx xx xx xx But they again desirs to emphasize the point that if the Court observe the duty cost on them by Section 14 this difficulty never can arise. And they would only add this, that there decision of this appeal on other grounds is due to the particular course this litigation had taken, and must not be regarded as indicating an opinion that the suit is competent. "
This decision, it is manifest from the above facts has absolutely no bearing on the questions with which we are now concerned. The Privy Council based their conclusion on the express terms of Section 14 of the Regulation and were not expressing any views on the doctrine of " money had and received " generally, much less with reference to a claim under an unstamped promissory note.
45. In AIR 1918 PC 241, the Privy Council was concerned with entrustment of the property to an agent. A stranger had taken transfer of property from the agent with knowledge of a breach of a duty committed by him in making the transfer. The transferee applied for the property according to the agent's instructions. It was, therefore, held that the transferee is accountable to the principal and that that obligation is not based on contract, but on fiduciary obligations. It was also held that the claim may also be maintainable, as it was not merely for conversion but alternatively to recover what was in effect a trust fund. Viscount Haldane discussed the theory of " money had and received " under the Common Law of England and observed :
"The question in the present case, where an agent in accordance with whose instructions appellants had acted, intervened between the owner and the tort-feasor was as what was the effect and extent of such affirmance of contractual relation. Could the contractual relation be split up and only part of it be approbated while the rest was reprobated and could any obligation based on its contract be imputed to the person whose tort was waived inconsistent with the actual contract which he, in point of fact, made with the intermediary ?
xx xx xx xx xx xx xx xx xx point was one which their Lordships were reluctant to deal with unnecessarily in an appeal from a Court which was not confined to administering the common law of England and which could be disposed of on the other principle referred to. "
It is, therefore, clear that their Lordships did not choose to apply the common law of England to Ceylon, which had its own laws. This decision can obviously have no application where an action is laid on an improperly-stamped promissory note, the effect of which is governed by statutory provisions.
46. AIR 1918 PC 146, which was relied upon in , is a case where it was held that it is contrary to established rules to contend that in an action on a bill of exchange or a promissory note against a person whose name properly appears as party to the instrument it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal. The Judicial Committee was considering a case where the drawer of a hundi described himself beneath his signature as " Acting Superintendent of the Private Treasury of His Excellency Sir Maharaja the Prime Minister of H. H. Nizam. " It was held that it was nothing but a description of the drawer's position and was certainly not a signature in the form necessary for an agent signing on behalf of a Principal. The observation that " it would of course have been open to the plaintiffs had they thought fit to have framed their case in an alternative form, and to have sued both of the hundis and, alternatively, upon the consideration " relied upon by the learned single Judge in, , was with reference to a hundi transaction. As already adverted to the difficulty created by Section 91 of the Evidence Act does not come in the way as a cheque, bill or hundi does not embody a promise to pay by the maker, but only a direction to another person and therefore the lender can fall back on the implied promise in the absence of a promise in writing. The above discussion on the Privy Council cases would bear out that, as they were not relevant for the purpose of the question to be answered by the Full Bench, the need to consider them did not arise. However, in the dissenting judgment of Stodart, J., he noticed Sadasuk Janki Das's case, AIR 1918 PC 146, and that is indicative of the fact that the learned Judges of the Full Bench were invited to the decisions or were aware of them. We are, therefore, of the opinion, with great respect to the learned Judge, Gopal Rao Ekbote, J. That there was no warrant to strike a different note from what is laid down by the Full Bench on the assumption that, if the two decisions in AIR 1918 PC 151 and AIR 1918 PC 241, were noticed by the learned Judges of the Full Bench they would not have taken the view that they had taken.
47. AIR 1929 Allahabad 254 is one of the cases where it was held that, even if the hundi is held to be inadmissible, the plaintiff would still be able to succeed if his suit can be treated as one for recovery of the money had and received or for compensation of money paid by him. That case was referred to and disagreement with the view taken there was expressed by Leach, C. J. It is not as if the learned Judge of the Full Bench did not consider the question whether the cause of action could be based on the doctrine of " money and received ", for the learned Judge, Gopal Rao Ekbote, J. To assume that the opinion of the Full Bench would have been different had they looked at those two decisions in AIR 1918 PC 151 and AIR 1918 PC 241.
48. Now it remains to be considered how far Section 70 of the Contract Act can be invoked for the purpose of recovering the loan on the theory of ' implied promise to pay ' or ' money had and received ' . Section 70 of the Contract Act is in these terms :--
" Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered. "
The learned Counsel, Mr. Jagannadha Rao, seeks to construe the words " does anything " or " delivers anything " as to include " payment of money under promissory note " and in support thereof, relied upon three decisions of the Supreme Court in State of West Bengal v. B. K. Mondal and Sons, ; New Marine Coal Co. v. Union of India, and Mulamchand v. State of Madhya Pradesh, in addition to other decisions which we shall presently refer.
49. Section 70 no doubt is intended to apply to all cases of benefit bona fide conferred by one person on another which benefit is enjoyed by the person receiving it. What the plaintiff is required to prove is that he did something lawful to another person or delivered something to him and that what he did or delivered was not intended to be gratuitous and the person to whom " anything " was delivered or done derived benefit under it, or has been a beneficiary of what he did or delivered to him so as to entitle him to be compensated or to restore the " thing " so delivered or done.
50. Before referring to the cases of the Supreme Court, it may be necessary to refer to the other cases relied upon by the learned Counsel, Sri M. Jagannadha Rao. The case of a Royal Bank of Canada v. The King, 1913 AC 283, was an appeal from the judgment of the Supreme Court of Alberta. The main controversy was as to the validity of the statute ( Alberta Act 1 Geo 5 C 9 ) passed in 1910, dealing with the sale of certain bonds. The proceeds were deposited in certain banks, one of them being the Royal Bank of Canada, the defendant-appellant. The Government of Alberta brought action against the Royal Bank of Canada and two other companies to recover certain amount with interest being the amount of the deposit held by the bank. The Courts below had held against the Bank. On appeal, the Privy Council said that the lenders in London remitted their money to New York to be applied in carrying out the particular scheme which was established by the statutes of 1909 and the Orders in Council, and by the contracts and mortgage of that year. The money claimed in the action was paid to the appellant-Bank as one of those designated to act in carrying out the scheme. The Bank received the money at its branch in New York, and its general manager then gave instructions from the head office in Montreal to the manager of one of its local branches, at Edmonton in the province of Alberta for the opening of the credit for the special account. The local manager was told that he was to act on instructions from the head office, which retained control. Viscount Haldane therefore observed, " It appears to their Lordships that the special account was opened solely for the purposes of the scheme, and that when the action of the Government in 1910 altered its conditions, the leaders in London were entitled to claim from the bank at its head office in Montreal the money which they had advanced solely for a purpose which had ceased to exist. Their right was a civil right outside the province and the Legislature of the province could not legislate validly in derogation of that right. The statute was held to be beyond the powers of the Legislature of Alberta, inasmuch as what was sought to be enacted was neither confined to property and civil rights within the province nor directed solely to matters of merely local or private nature within it. In so holding Viscount Haldane extended the principle of English common law as to apply to cases of money transactions on the ground that, when money has been received by one person which, in justice and equity, belongs to another, under circumstances which render the receipt of it a receipt by the defendant to the use of the plaintiff, the latter may recover as for money had and received to his use. In stretching the principle he relied upon what Brett L. J., said in Wilson v. Church, ( 1879 ) 13 Ch D 1 at p. 49, viz., " when money has been paid to borrowers in consideration of the undertaking of a scheme to be carried into effect subsequently to the payment and which has become abortive. " The principle in that case was sought to be stretched here beyond limits of what was stated there, to a case of promissory note too on the ground that whatever may be the reason which invalidated the promissory note, still the right to recover the money is not lost. There, it should be remembered. the action was laid not on foot of any promissory note but solely on the ground that money remitted was to be applied in carrying out a particular scheme by certain statutes and the orders in Council and certain contracts. The Royal Bank of Canada, which had received monies was to carry out the scheme adumbrated under the statute. It was for that reason that the Privy Council held that a civil right existed and was enforceable outside the province of Alberta and the Legislature of the province of Alberta could not validly legislate beyond its jurisdiction.
51. What Lord Mansfield said in Moses v. Macferlan, ( 1760 ) 97 ER 676, cannot also applied where there is a statutory prohibition under the Stamp Act and the Evidence Act. It is not necessary to refer to the facts of that case except to state what Lord Mansfield observed, for that decision was not later followed in Sinclair v. Brougham, 1914 AC 398. What Lord Mansfield said in that case is this : ( at p. 680 ):
"This kind of equitable action to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. It lies only for money which ex aequo et bono, the defendant ought to refund. It does not lie for money paid by the plaintiff, which is claimed of him as payable in point of honour and honesty, although it could not have been recovered from him by any course of law; as in payment of a debt borrowed by the Statute of Limitations xx xx xx But it lies for money got through imposition. ( express or implied ) or extortion, or oppression; or an undue advantage taken of the plaintiff's situation contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is, that the defendant upon the circumstances of the case, is obliged by the ties of the natural justice and equity to refund the money. " Lord Sumner, in 1914 AC 398 commented on what Lord Mansfield said in these terms ( at pp. 455, 456 ) :--
"I think it is evident that Lord Mansfield did not conceive himself to be deciding that this action was one in which the Courts of common law administered " an equity " in the sense in which it was understood in the Court of Chancery and the cases actually decided show that the description of the action as being founded in the aequum et bonum is very far from being precise. Even the decision in ( 1760 ) 97 ER 676 which has since been dissented from for sometime unsettled the law ( see Smith's Leading Cases, Notes to Marriot v. Hampton, ( 1797 ) 7 TR 269 = 2 Sm LC ( 11th Ed. ) 421) and this last mentioned case is one which illustrates the proposition that money is not thus recoverable in all cases where it is unconscientious for the defendant to retain it, for no one could doubt that Hampton's retention of the money in that case was very like sharp practice............. There is now no ground left for suggesting as a recognizable " equity " the right to recover money in personam merely because it would be the right and fair thing that it should be refunded to the prayer. "
52. It should be clearly borne in mind that the principles of natural justice, equity and good conscience cannot be imported so as to alter or put an end to the contractual rights or obligations regulated by statutes.
53. Brook's Wharf and Bull Wharf Ltd. V. Goodman Brothers, )1937 1 KB 534, was a case where the defendants had imported a consignment of squirrel skin, out of which some of the packages stored in the warehouse were stolen. The plaintiffs as bonded warehousemen were compelled by law at the demand of the Customs to pay the duties on those packages out of their own moneys. The defendants had refused to supply for that purpose. The plaintiffs laid an action in respect of the amount paid towards customs duty on the ground that as between themselves and the defendants, the defendants were primarily liable for the duties. It is on those facts that it was held that the plaintiffs having been compelled under Section 85 of the Customs Consolidation Act. 1876. To pay the duties on the defendants' goods were entitled to be reimbursed the amount of the duties they had so paid. That was a case where the statute provided for reimbursement and as such it can have no application to a loan under a promissory note. There is an interesting commentary quoted hereunder on this case and 1914 AC 398 by P.H. Wins-field in (1937) 53 LQR 447. Which answers the theory of an implied promise or of liability in quasi-contract pleaded by the learned counsel, Mr. M. Jagannadha rao.
"The decision in the Brook's Wharf case was an application of the principle that where A has been compelled by law to pay, or, being compellable by law has paid money which B was ultimately liable to pay, so that B obtains the benefit of the payment by the discharge of his liability then B is held indebted to A in that amount. The principle is a familiar instance of liability in quasi-contract or, as the older pleaders described it an instance of the common indebitatus count for money paid. Lord Wright, in referring to some of the authorities on it. Said (at p.545)"These statements of the principle do not put the obligation on any ground of implied contract or of constructive or notional by the Court simply under the circumstances of the case and on what the Court decides is just and reasonable, having regard to the relationship of the parties.
Now what is 'just and reasonable' except 'natural justice' in another guise? But I wish to add that (as I have tried to show elsewhere) this fiction of implied contract is really unnecessary in the law of quasi-contract at the present day. It did good service in the development of that department of the English system but at its best it was quite in adequate to explain intelligibly many of the decisions on quasi-contract and on the scope of elegantia juris we should be well rid of it nowadays. In 1914 AC 398 it led to this remarkable result . The Court started to search for a non-existent contract and abandoned the chase because even if it had found one, the contract would have been illegal. This remains one of a recent book by a famous mathematician intended for popular reading in which , in explaining the theory of relativity he first urged the uninstructed public to get into their heads the square root of -1 and then frankly admitted that no such quantity exist. "
54. Mr. Winsfield thus ridiculed the doctrines propounded by the English Courts, the latest of them being the principle of ' just and reasonable . ' That doctrine of ' just and reasonable ' applied in English common law cannot be invoked in the teeth of the provisions of Section 35 of the Stamp Act and Section 91 of the Evidence Act or beyond the scope of Section 70 of the Contract Act.
55. The case of Fibrosa Spolka Akcyjna v. Fairbarin Lawson Combe Barbour Ltd., 1943 AC 32 was a case of frustration of contract. It was, therefore, stated by Lord Wright that :
"The claim of a party who has paid money under a contract, to recover it on the ground that the consideration for which he paid it has wholly failed is not based on any provision in the contract, but arises because in the circumstances the law gives a remedy in quasi contract to the party who has not got what he bargained for. Although, in the formation of a contract, a promise to do a thing may be the consideration, in dealing with the law of failure of consideration and the right to recover money on that ground it is generally speaking, not the promise which is referred to as the consideration, but its performance. "
As it was a case of frustration, the contract having become impossible of performance, Viscount Simon, in his judgment observed ( at p. 49 ) that :
"I can see no valid reason why the right to recover equally arise on frustration arising from supervening circumstances as it arises on frustration from destruction of a particular subject matter. "
Lord Wright, in the course of the same judgment described the nature of a quasi-contract in these words :
"It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English Law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been quasi-contract or restitution. "
Mr. M. Jagannadha Rao also placed reliance on a passage in Anson's Law of Contract ( Twenty-third Edition ) at page 601 : " Where one person pays money to another in pursuance of an agreement which is ineffective, or which subsequently becomes so, he may recover from that other the money which he has paid ". Putting the case under the head of quasi-contractual liability, the nature of a quasi-contract is stated in Chapter XXI of Anson's Law of Contract, at page 589 in these words : " Circumstances must occur under any system of law in which it becomes necessary to hold one person to be accountable to another, without any agreement on the part of the former to be so accountable on the ground that otherwise he would be retaining money or some other benefit which has come into his hands to which the law regards the other person as better entitled, or on the ground that without such accountability the other would unjustly suffer loss. The law of quasi-contract exists to prove remedies in circumstances of this kind. " The three common law actions of a quasi-contractual nature as we get from page 590 of the same Volume are : (1) for money paid by the plaintiff to the defendant's use ; (2) for money had and received by the defendant to the plaintiff's use and (3) quantum meruit. It is under the first two heads that Mr. Jagannadha Rao sought to put his case as, according to him. Section 70 incorporates what is a quasi-contract in the English Common Law.
56. The question of quasi-contract or implied promise to pay has to be examined in the context of the statutory prohibitions where a contract is made in writing and not on the basis of the principles enunciated under the English Common Law. The Supreme Court laid down the conditions under which Section 70 can be called in aid. In the case of Gajendragadkar, J., ( as he then was ) said that ( at P. 786 ) :
Three conditions must be satisfied before this Section can be invoked. The first condition is that a person should lawfully do something for another person or deliver something to him. The second condition is that in doing the said thing or delivering the said thing he must not intend to act gratuitously and the third is that the person for whom something is done or to whom something is delivered must enjoy the benefit thereof. " That was a case where the contract was held to be invalid because of the provisions of Section 175 (3) of the Government of India Act corresponding to Article 299 of the Constitution. The case of the contractors there was that they feared to put up certain temporary storage godowns at Aranbagh for the use of the Civil Supplies Department and the offer was accepted by the department by a letter dated 12th February, 1944 and after the offer was accepted, the contractors completed the constructions and sent the bill, which was duly paid in July, 1944. But meanwhile on 7th April, 1944, the contractors were requested by the Sub-Divisional Officer of the Department to submit their estimate for the construction of a kutcha road, guard room, office, kitchen and room for clerks at Arambagh for the use of the Department of Civil Supplies. That was followed by the visit of the Additional Deputy Director of Civil Supplies, who instructed the contractors to proceed with the construction in accordance with the estimates submitted by them. The constructions were completed and a bill was presented.. The State of West Bengal refuted the claim on the ground that the claims made in respect of the constructions were invalid as the constructions were unauthorised and there was no valid contract as required under Section 175 (3) of the Government of India Act to bind the Government of West Bengal. Their Lordships therefore held that the claim for compensation under Section 70 of the Contract Act is not made on the basis of a contract but on voluntary acceptance of a thing and there was no conflict between Section 70 of the Contract Act and Section 175 (3) of the Government of India Act. In upholding the claim for compensation, Gajandragadkar, J., ( as he then was ) observed :--
" Where a claim for compensation is made by one person against another under Section 70, it is not on the basis of any subsisting contract between the parties ; it is on the basis of the fact that something was done by the party for another and the said work so done has been voluntarily accepted by the other party. In regard to the claim made against the Government of a State under a Section 70 it may be that in many cases the work done or the goods delivered are the result of a request made by some officer or other on behalf of the said Government. In such a case, the request may be ineffective or invalid for the reason that the officer making the request was not authorised under Section 175 (3) of the Government of India Act, or if the said officer was authorised to make the said request the request becomes inoperative because it was not followed up by a contract executed in the manner prescribed by Section 175 (3) of the Government of India Act. In either case the thing has been delivered or the work has been done without a contract and that brings in Section 70. " The same learned Judge spoke for the Court in , and following the earlier decisions in the learned Judge said :
" But in pursuance of the said void contract, A has performed his part and the Government of India has received the benefit of the performance of the contract by A ; Section 70 Contract Act, would apply and the Government of India was bound to make compensation to A in the form of the value of the said coal under that section. "
It is for the reason that the learned Judge held that since the Government had received the benefit under an invalid or void contract, it is nevertheless bound to make good or recompense the person who lawfully did something for the Government by which the Government benefited having voluntarily accepted the benefit, that Mr. Jagannadha Rao seeks to contend that here too the contract evidenced by the promissory note has become invalid by reason of the absolute bar of Section 35 of the Stamp Act and as such the lender cannot be deprived of the remedy available to him under the beneficial provision of Section 70. In support of his contention, he also invited our attention to another decision of the Supreme Court in where Ramaswami, J., construing the expression " anything " brought deposit of money into a Government Treasury also within the meaning of that expression. The learned Judge, after referring to the two earlier cases of the court referring to supra, observed :
" But if money is deposited and goods are supplied or if services are tendered in terms of the void contract. The provisions of Section 70 of the Indian contract Act may be applicable. In other words. If the conditions imposed by Section 70 of the Indian contract Act are satisfied then the provisions of that section can be invoked by the aggrieved party to the void contract."
It is for the reason that in that case, the learned Judge said that money deposited is also recoverable by virtue of the provisions of Section 70, that Mr. M. Jagannadha Rao contended that. When a promissory note becomes invalid by reason of section 35 of the Stamp Act, it would still be open to the plaintiff to recover the money lent under the note under the provisions of section 70. As the expression "anything delivered," according to the learned counsel, is of wide import or amplitude as to take within its ambit or range money given under an invalid promissory note. That was a case where the appellant had purchased a right to pluck, collect and remove the forest produce. Out of the forest produce only the tendu leaves crop was allowed to be enjoyed by the appellant on his depositing a sum Rs. 3,000 in the Government Treasury. The deposit was made by the appellant to save the tendu leaves crop from being sold to others by the Government. The case of the appellant was that he was entitled to the refund of the amount, as the right to collect tendu leaves had already been purchased by him. From the facts it is clear that that was a case of deposit of money by way of security, so that the tendu leaves crop may not be sold to others. The deposit of money as a security cannot be equated to money lent under a promissory note. For there is no element of lending when the money is deposited into the Treasury in terms of a condition imposed by the Government. There, there is no borrower or lender. It was therefore observed by Ramaswami, J,. That "if money is deposited " and goods are supplied or if services are rendered in terms of the void contract. The provisions of Section 70 of the contract Act may be applicable and that the money deposited could be recovered under Section 70 when a contract becomes invalid or void. It is in that context that the expression "anything " was construed to include "money " deposited. There is nothing in what the Supreme Court said in the three cases cited above, as sought to be made out by Mr. M. Jagannatha Rao. Which over rules the opinion of the Madras Full Bench. As expressed by Varadachariar, J., that Section 70 of the Contract Act is scarcely appropriate to a case of money lent to the defendant ; that there is no possibility in such a case or even a contemplation of the " thing delivered " being restored - which obviously means in specie ; and that lending money to the defendant cannot be described as something done for the defendant .
57. The essential difference or distinction between the three cases of the Supreme Court and an action based on foot of a promissory note where the bar of Section 35 of the Stamp Act operates is this : The recover of "any thing "under Section 70 is only by way of compensation or to restore the " thing so done or delivered ". What the promisor promises to pay under a promissory note is a certain sum of money and therefore the question of payment of compensation will not arise in view of the specific terms embodied in the promissory note. The question of restoring the " thing so done or delivered " even if it is to be construed that that expression takes in "money " will not arise, for as stated by their Lordships of the Supreme Court. The remedy under Section 70 cannot be had on foot of a subsisting contract.
58. Now let us turn to Section 35 of the Stamp Act which imposed an absolute prohibition on the use of a promissory note if it is not duly Stamped. This section to the extent relevant reads :
"No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence. Or shall be acted upon, registered or authenticated by any such person or by any public officer unless such instrument is duly Stamped:
Provided that-
(a) any such instrument not being an instrument chargeable with a duty not exceeding ten naya paise only, or a bill of exchange of promissory note, shall. Subject to all just exceptions be admitted in evidence on payment of the duty with which the same is chargeable, or. In the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees of when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion."
It is well settled that a promissory note not duly stamped cannot be used for any purpose whatsoever and it is not one of those documents which could be received in evidence on payment of deficit duty and penalty.
59. The expression "for any purpose" occurring in Section 35 was construed by the Madras High Court as early as in 1907 in Thaji Beebi V. Tirumalaiappa, (1907) 17 Mad LJ 308 and by the Allahabad High Court in Mt. Bibbo v. Gokaran Singh. AIR 1937 All 101 and later by the Privy council in Ram Rattan v. Parmanand. AIR 1946 PC 51, and by this Court in Sanjeeva Reddy v. Johanputra Reddy, . The Madras High Court held that an instrument which should have been Stamped according to law but is unstamped , is not admissible in evidence for any purpose whatsoever . The Allahabad High Court construed the expression "for any purpose" as undoubtedly implying "for each and every purpose whatsoever , without any exception" and the Privy Council set at rest the conflicting views expressed by the various High Courts by pointing out that the words "for any purpose" should be given their natural meaning and effect and would include a collateral purpose. In one of us (Obul Reddi, J.) held that there is a total and absolute bar as to the admission of an unstamped instrument whatever foreign or independent the purpose may be for which it is sought to be used unless there is compliance with the requirements of the provisos to Section 35.
60. The question then to be considered is, when the promissory note itself cannot be used for any purpose for whatsoever because of the absolute bar of Section 35 of the Stamp Act whether the factum of loan can be established dehors or independently of the promissory note. Their Lordships of the Supreme Court were not considering a case where a contract becomes inadmissible for " any purpose " whatsoever. In those cases, the contracts were admissible in evidence; but they became invalid by reason of the constitutional provisions and hence an action could not be founded on those contracts which were not made in conformity with the requirements of the constitutional provisions. Here, the promissory note cannot be received in evidence and cannot be looked into for any purpose whatsoever, that is to say, no part of the document, be it a single sentence or a word can be received in evidence and to do so is to do violence to Section 35. Further as pointed out by Gajendragadkar, J. ( as he then was ) the claim for compensation was not based on foot of contract, which had become invalid, but on the work of lawfully done by the contractors under the orders of the Government officials, the Government having become the beneficiary of the works executed by the contractors. The obligation to recompense or make good to the extent the Government derived benefit arose not out of the contract, which became invalid, but independently of the contract. But here, the money is sought to be recovered on the basis of the contract put in writing viz., the promissory note, which cannot at all be received in evidence and looked into for any purpose whatsoever even if it be for a collateral purpose ( see AIR 1946 PC 51 ).
61. We may now read Section 91 of the Evidence Act to the extent material for our purpose :
"When the terms of a contract, or of a grant or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions hereinbefore contained.
xx xx xx xx xx xx xx xx xx xx Illustration (b) : If a contract is contained in a bill of exchange, the bill of exchange must be proved."
It is cardinal and well established principle of the law of evidence that where written contracts exist they shall be produced as being the best evidence of their contents. It is an inflexible rule that whenever a contract is reduced into writing the terms of the contract should be proved only by what is contained in the contract which the parties made voluntarily. They should be " the repositories and memorials of truth ". Any other evidence is excluded from being used either as a substitute for such instruments or to contradict or alter them. It may be mentioned that the exceptions contained in Sections 95 and 97 have no application as the use of the promissory note is prohibited for any purpose by Section 35 of the Stamp Act. Oral evidence, therefore, cannot be substituted for a written contract which embodies the contractual terms for proof of those terms.
62. Lord Cairns in the well known case of Shaw v. Foster, ( 1872 ) 5 HL 321 at p. 341 = ( 42 LJ Ch 49 ) dealing with deposit of a document of title, observed :
"Although it is a well-established rule of equity that a deposit of a document of title without more, without writing, or without word of mouth will create in equity a charge upon the property referred to. I apprehend that that general rule will not apply where you have a deposit accompanied by an actual written charge. In that case you must refer to the terms of the written document and any implication that might be raised, supposing there were no documents, is put out of the case and reduced to silence by the document by which alone you must be observed. "
Lord Carson in Subramanian v. Lutchman, AIR 1923 PC 50 = ( 50 ) Ind App 77 ) quoted with approval what Chief Justice said in ( 1873 ) 11 Beng LR 405 :
"The law upon the subject admits of no doubt. The rule with regard to writings is that oral proof cannot be substituted for the written evidence which the parties have put into writing. And the reason is that the writing is tacitly considered by the parties themselves as the only repository and the appropriate evidence of their agreement. "
To the same effect is what is held by Patanjali Sastri, J. ( as he then was ) in Rachpal Maharaj v. Bhagwandas, while dealing with the case of deposit of title deeds: ' if the parties choose to reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its terms '. These cases were referred to and followed by the Supreme Court in V. G. Rao v. Andhra Bank, . Referring to Ex. A-6 a document in that case, Hegde, J., observed : " If that document is considered as a contract of mortgage between the Bank and the depositors, the same having not been registered, it is inadmissible in evidence. If on the other hand that document is considered as a mere memorandum evidencing the deposit of title deeds in pursuance of an earlier contract then the correctness of the recitals therein can be gone into without being inhibited by Sections 91 and 92 of the Evidence Act. "
63. In K. Bhavanarayana v. S. Venkataratnam, a Division Bench of this Court, to which one of us ( Obul Reddi, J. ) was a party, dealing with the admissibility of a document. Ex. A-7 evidencing the deposit of title deeds, observed : that if a document of this nature is not registered as provided under Section 49 of the Indian Registration Act, it cannot be used as evidence at all and that the transaction cannot be proved by oral evidence either, in view of what is provided under Section 91 of the Evidence Act.
64. It is not necessary to multiply decisions on this point, for in view of what the Privy Council say, when once the parties agreed to put on record the terms of the contract, in other words, put the terms agreed upon into writing, it is the document alone that could be looked into to ascertain the terms of the contract and that Section 91 of the Evidence Act prohibits any other evidence to prove or construe the contract reduced into writing.
65. Now let us consider whether Section 91 comes in the way of a promissory note which does not incorporate or embody all the terms of the contract. Section 91 refers to all kinds of contracts. A promissory note is a document which requires by law to be in writing. The prohibition of Section 91 is only with regard to the terms of such contract reduced in writing. In other words, Section 91 excludes any evidence other than a promissory note for proof of its terms. All the terms of the contract need not be necessarily be embodied in a promissory note. If the terms required to be stated by Section 4 of the Negotiable Instruments Act, are incorporated in a contract, that would be sufficient to make it a promissory note. The parties may stipulate terms culminating in the giving of the promissory note, but all such terms may not be embodied in the promissory note in which event, if the promissory note becomes inadmissible in evidence by reason of Section 91 its terms cannot be proved by other evidence, but not the other terms of the contract which do not find a place in the promissory note. That is to say, if the terms of the contract relating to execution of the promissory note as a conditional discharge or collateral security are not embodied in the promissory note, it cannot be said that when the plaintiff seeks to establish on the basis of his pleadings that the promissory note was obtained by him by way of a collateral security or as a conditional payment, the bar imposed by Section 35 of the Stamp Act and Section 91 of the Evidence Act comes in the way of proving the terms relating to collateral security or conditional payment not embodied in the promissory note. To put it differently when a plaintiff sets up the case of collateral security or conditional payment on the failure of his action on foot of the promissory note, he does not seek to prove the terms contained in the promissory note, but seeks to prove the terms of the contract which are not embodied in the promissory note. In that case, it cannot be said that the plaintiff is attempting to nullify the provisions of S. 91 or by-passing or circumventing those provisions, for then his action is not on foot of the promissory note, but on the basis of the alternative cause of action shown in the plaint viz., that the promissory note was given by the debtor as a collateral security or conditional payment and on the basis of the alternative cause of action pleaded by him he would be entitled to let in other evidence to prove his claim. The bar of Section 91 therefore operates in such a case only to the extent of the terms of the contract embodied in the promissory note, but not to the terms of the contract which are not evidenced by the promissory note. In other words, the promissory note, which cannot be used for any other purpose whatsoever on account of the bar of Section 35 of the Stamp Act, becomes a ' worthless piece of paper ' in which event Section 91 will not come in the way, as the plea of conditional discharge or collateral security is not founded on the terms of the promissory note, but on the terms of the contract which do not find a place in the promissory note and that would put the case of the plaintiff beyond the reach of Section 91 of the Evidence Act.
66. Mr. M. Jagannadha Rao made a feeble attempt to alternatively rest his case on the doctrine of in pari delicto potior est conditio defendantis for the reason that under Section 29 of the Stamp Act, in the absence of an agreement to the contrary, the expense of providing proper stamp shall be borne by the person making or executing a promissory note. In the first place, it should be borne in mind that there could always be an agreement between the parties that the expense of providing proper stamp shall be borne not by the party executing it, but by the party in whose favour it is executed. This doctrine only lays down that the Courts will refuse to enforce al illegal agreement at the instance of a person who is himself a party to an illegality or fraud. To apply the doctrine to the case of a promissory note, the defendant should be in a position to put the case under Sections 23 and 24 of the Contract Act which lay down what considerations are unlawful making the agreements void. We are unable to see how on the basis of Section 29 of the Stamp Act, a promissory note not duly stamped could be brought within the mischief of Sections 23 and 24 of the Contract Act. It is one thing to say that the contract evidenced by the promissory note is hit by Sections 23 and 24 of the Contract Act and another thing to say that the obligation case upon the executant of a promissory note to bear the expense of providing proper stamp has not been discharged by him. Section 29 does not say that the defendant shall affix the proper stamp on the promissory note. It only says that the defendant shall bear the expense of providing the proper stamp. That distinction should be borne in mind. The promisee can always recover the expense initially incurred by him from the executant of the promissory note. The action brought on a promissory note fails not on account of any illegality attached to it as laid down in Section 23 or 24 of the Contract Act, but because of Section 35 of the Stamp Act, which makes it 'a worthless piece of paper' for any use in evidence. In-admissibility in evidence should not be mixed up on confused with illegality.
67. Another feeble attempt was also made to contend that, when the cons, under Hindu Law are made liable for the father's debt not on the foot of a promissory note but on the basis of the personal law, why should not the debt be recovered from the promisor himself de hors or independently of the promissory not. It should be remembered that, if the action against a Hindu father, the executant of the promissory note, fails on account of the bar of Section 35 of the Stamp Act and Section 91 of the Evidence Act then there is no question of proceeding against the sons of recovery of the debt invoking the personal law. The liability of the sons to pay the father's debt arises not because the promissory note is duly stamped but on account of the personal law in respect of such a debt contracted by a Hindu father, so long as that debt is not tainted with immorality or vice. If this is borne in mind, there is no question of recovering the money lent under an insufficiently stamped promissory note, except in the manner and circumstances already made clear by us agreeing with the view of the Madras Full Bench.
68. For the reasons recorded by us. We find no conflict between Perumal Chettiar's case ILR (1938) Mad 933 = (AIR 1938 Mad 785 (FB) and Pothi Reddy's case. (1887) ILR 10 Mad 94 and hold that the view, as expressed by the Full Bench is correct and that Section 70 of the Contract Act cannot be invoked on the theories of implied promise, money had and received, quasi-contract and just and reasonable or unjust enrichment or any other equitable doctrine. We cannot, therefore, endorse the view expressed by Gopal Rao Ekbote. J. in Mohammad Jamal Saheb's case, that "on the basis of the theory of ' money had and received ' also, the plaintiff may be entitled to claim his money ". The questions posed by us are answered accordingly.
69. Before parting with this case, we would like to observe that, if any provision in any enactment requires an amendment, there cannot be a better one than the provisions of Section 35 of the Stamp Act so as to incorporate a proviso to make an insufficiently stamped promissory note, admissible in evidence by directing the person relying upon it to make the deficit stamp duty and subjecting him to such penalty as the Legislature may deem fit to impose. Such an amendment in our view, would not only bring about uniformity in the law in the various States, but also avoid unnecessary litigation and save quite a lot of judicial time.
70. We therefore, send back the civil revision petitions for disposal by a single Judge.
Alladi Kuppuswami, J.
71. The question which has been referred to the Full Bench is as follows :
"Whether a plaintiff can lay action for recovery of the amount advanced by him basing on the original cause of action when the Negotiable Instrument evidencing the transaction is inadmissible in evidence under Section 35 of the Stamp Act. "
Having regard to the arguments advanced on both sides it was considered desirable to frame the following questions for consideration :
"Whether a plaintiff can bring action for recovery of the amount advanced by him basing on the original consideration when the promissory note on foot of which action is brought is inadmissible, in evidence under Section 35 of the Stamp Act, and if so, under what circumstances ?
2. If the promissory note is inadmissible in evidence whether action can be maintained for recovery of the amount either on the theory of " money had and received " or under the provisions of Section 70 of the Contract Act. "
For nearly a hundred years, the Courts in India have been struggling with the question whether a plaintiff is without any remedy if a promissory note executed in his favour is not stamped or insufficiently stamped and is in admissible in evidence or whether he is entitled to sue on the debt or on the consideration. Different views have been expressed from time to time expressing different shades of opinion. A mass of authorities representing the views of the High Courts from Jammu & Kashmir in the North to Kerala in the South have been placed before us. Sitting as we are in a Full Bench of seven Judges, it is not necessary for us to consider in detail all these decisions as none of these decisions are binding upon us. Of course, we have derived considerable light from the reasoning contained in some of those decisions and we are indebted to the advocates on both sides for the able manner in which their respective cases were presented. As the decisions have been discussed in detail in the judgments of my learned brothers Obul Reddi and Venkataramasastry, JJ. I have considered the matter mainly in the light of first principles.
72. The three provisions of law which have to be considered in dealing with the first question are :
(a) Section 4 of the Negotiable Instruments Act which contains the definition of a ' promissory note ', (b) Section 35 of the Stamp Act and (c) Section 91 of the Evidence Act.
Section 4 of the Negotiable Instruments Act is as follows :
"A 'promissory note' is an instrument in writing ( not being a bank-note or a currency note ) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. " Section 35 of the Stamp Act in so far as it is relevant for the purpose of this reference is in these terms :--
"No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any public officer, unless such instrument is duly stamped ;
Provided that :--
(e) any such instrument not being an instrument chargeable with a duty not exceeding ten naya paise only, or a bill of exchange or promissory note shall subject to all just exceptions, be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to tentimes such duty or portion. "
It is seen at once that a promissory note does not come under the proviso and is covered by the main Section.
73. The relevant portion of Section 91 of the Evidence Act is in the following terms :
"When the terms of the contract, or of a grant of any other disposition of property, have been reduced to the form of a document no evidence shall be given in roof of the terms of such contract, grant or other disposition of the property............... except the document itself or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions hereinbefore contained. "
Illustration :
(b) If a contract is contained in a bill of exchange, the bill of exchange must be proved.
74. Applying Section 91 to the document with which we are concerned viz; a promissory note, it is seen that if the promissory note contains the terms of the contract between the parties, then proof of such terms is to be given only by the document itself and no evidence except the document shall be given in proof of the terms. But in this case as the promissory note is unstamped or insufficiently stamped, it shall not be admitted in evidence for any purpose, nor shall it be acted upon. The combined effect of S. 91 of the Evidence Act and Section 35 of the Stamp Act would therefore be, in the case of unstamped or insufficiently stamped promissory note which contains the terms of the contract, that the promissory note is inadmissible for any purpose and no other proof of the terms of the contract is permissible, except the document, with the result that the plaintiff's suit in such a case will have to be dismissed.
75. The question therefore, in every suit for the recovery of an amount for which a promissory note is executed resolves itself into this viz., whether the terms of the contract have been reduced to the form of a document, namely, the promissory note, or in other words whether the promissory note contains the terms of the contract. All that is required to satisfy the definition of a promissory note is that there must be an unconditional undertaking to pay a certain sum only to, or to the order of, a certain person or to the bearer of the instrument. There may be other terms of the contract between the parties, which may not find a place in the promissory note but still if the conditions mentioned in Section 4 of the Negotiable Instruments Act are satisfied it will be a valid promissory note. For instance, among the eight illustrations that are given to the definition, illustrations (a) and (b) are mentioned as being promissory notes. Illustration (a) states : " I promise to pay B or order Rs. 500 ": and (b) states: " I acknowledge myself to be indebted to B in Rs. 1000 /- to be paid on demand for value received. " It is seen from the illustration (a) that the only term that is stated is that A promises to pay B or order Rs. 500 /-. No other terms of the contract are mentioned, for example, the rate of interest, or when the amount is to be paid and so on. Even so it is a valid promissory note. On the other hand a promissory note may also contain all the terms of the contract. The question whether a promissory note contains all the terms of the contract between the parties or not is a question of fact and has to be decided on the evidence in the case. There is no presumption either that it contains all the terms or that it does contain all the terms. If it contains all the terms, no evidence shall be given in proof of the terms, except the promissory note and as the promissory note is inadmissible for any purpose, the result would be that the terms cannot be proved at all and the plaintiff is left without a remedy. If, on the other hand, the promissory note does not contain all the terms, Section 91 of the Evidence Act is not a bar and he is entitled to allege and prove such terms by evidence other than the promissory note.
76. In this connection it is necessary to bear in mind that a promissory note may be executed in different circumstances.
(a) A person may incur a debt in the first instance and subsequently execute a promissory note promising to pay the amount due by him. For example, a promisor may purchase certain goods from the promisee and become indebted to him for the sale price and later on at the instance of the promisee execute a promissory note for the value of the goods purchased by him; or the promisor might have borrowed certain sum of money even without a document and later on at the instance of the latter may execute a promissory note for the amount borrowed.
(b) A promissory note may be executed simultaneously with the loan advanced or the debt incurred. In this connection the expression ' simultaneously ' is used in the sense that the execution of the promissory note or the incurring of the debt from part of one and the same transaction . It is possible that they may be separated in point of time, for instance, the amount may be borrowed in the morning and the promissory note executed in the evening, but the true position is that they form part of the same transaction, the mere fact that they are separated by some interval of time would not really make a difference.
77. In cases coming under (a) it may be the intention of the parties that the previous debt is discharged by the execution of the promissory note and the promissory note alone should hence-forward be treated as constituting the contract between the parties. In other words, there is accord and satisfaction of the debt and thenceforward the liability based upon the promissory note. In such a case it is clear that the terms of the contract are reduced to a document within the meaning of Section 91 of the Evidence Act and it is not permissible to prove the terms of the contract by any other evidence except the promissory note, and as the promissory note itself is inadmissible under S. 35 of the Stamp Act for any purpose the suit must fail.
78. On the other hand, the intention of the parties may be that it is regarded only as a conditional payment of the antecedent debt, or is taken by way of collateral security for the debt. In either case, the original contract is not in any way affected and if for any reason the promissory note cannot be enforced, the plaintiff is entitled to fall back on the original contract. In the first case the payment being conditional ceases to be a payment when the promissory note cannot be enforced. In the second case, the only result is the security fails but the debt remains. In both these cases it cannot be said that the terms of the contract have been reduced to the form of a promissory note, for the promissory note is only treated as conditional payment or executed by way of collateral security and hence Section 91 of the Evidence Act does not come in the way and it is always open to the promise to sue upon the original cause of action, namely, the advancing of the loan by the promisee, or incurring of the debt by the promisor. The observation of Leach C. J. In AIR 1938 Mad 785 ( FB ) at p. 786, that where a negotiable instrument is executed in respect of an antecedent debt the creditor may sue on the debt and ignore the note would be applicable only to this class of cases and not the first where the debt is completely discharged and the promissory note is intended to substitute the debt.
79. Even in a case coming under (b) where the promissory note is simultaneous with the loan, it is still open to the parties to prove that the promissory note was not regarded as the embodiment of the contract but only taken by way of collateral security or by way of conditional payment. Where a promissory note has been executed subsequent to the incurring of the debt or simultaneously, the question still remains whether it was intended by the parties to reduce the terms of the contract into the form of a promissory note, or whether it was intended merely to be a conditional payment or by way of collateral security and that has to be decided with reference to the evidence in each case.
80. It was sought to be argued by Sri M. Jagannadha Rao that in every case of a promissory note there is always an implied promise to pay, apart from what is contained in the promissory note and therefore, it must be taken that a promissory note must always be regarded as conditional payment or executed by way of collateral security. At any rate it was contended that there is a presumption that the promissory note was taken by way of conditional payment or by way of collateral security and unless that presumption is rebutted by evidence the plaintiff would be entitled to prove the contract by evidence other than the promissory note. We are not inclined to accept the argument. On a review of all the authorities referred to in the judgments of Obul Reddi and Sastry, JJ., it would appear that there is no presumption either way and in each case it has to be considered on the evidence on record whether the promissory note was executed only by way of conditional payment or by way of collateral security or whether it embodies all the terms of the contract.
81. A further question which arises is this-- Suppose the promissory note is not executed by way of conditional payment or as collateral security, but it turns out that it does not contain all the terms of the contract, would it still be open to the plaintiff to fall back on the original consideration ? An example of such a case has already been given, namely, where a person promises to pay a sum of Rs. 500 /- and nothing is mentioned regarding interest. If under the terms of contract the defendant had agreed to pay interest it cannot certainly be said that the promissory note contains all the terms of the contract. In such a case will Section 91 of the Evidence Act operate as a bar to prove the terms of the contract by evidence other than the promissory note ? It was sought to be contended that it is only in cases where the promissory note is executed by way of conditional payment or by way of collateral security that a suit would lie on the original cause of action and the following passage in AIR 1938 Mad 785 ( FB ) Supra, was relied on for this purpose.
"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 Evidence Act and Section 35 Stamp Act bar the way. But if it does not embody all the terms of the contract the true nature of the transaction can be proved ; and where an instrument has been given as a 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 a 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. "
I an however, of the view that this passage does not lend support to the argument that the plaintiff can sue on the debt only in cases where the promissory note was executed by way of conditional payment or by way of collateral security. These are only two of the instances referred to, where the promissory note does not embody all the terms of the contract. The general principle as laid down in the decision of the Full Bench is that if the note does not embody all the terms of the contract the true nature of the transaction can be proved. I do not think there is any warrant for restricting the right of the plaintiff to fall back on the original debt only in such cases. The last part of the judgment of Leach, C. J. Also makes this clear, wherein it is stated "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. "
While I agree with the conclusions of the Full Bench of the Madras High Court in AIR 1938 Mad 785 (FB ) (Supra) on this part of the case. I would like to make it clear that my understanding of the decision is that the plaintiff has a right to fall back on the original consideration in all cases where the promissory note does not contain all the terms of the contract and is not restricted merely to a case where the promissory note is executed by way of conditional payment or by way of collateral security.
82. Another question which has crept up during the course of the argument is whether the promissory note can be looked into for the purpose of finding out whether it embodies all the terms of the contract or not. As Section 35 says that the promissory note cannot be admitted in evidence for any purpose, it was suggested that it could not be looked into even for the purpose of finding out whether it contained all the terms of the contract or not. It is true that the Privy Council has decided in 73 Ind. App. 28 = AIR 1946 PC 51 that the expression " for any purpose " should be given its natural meaning and the document cannot be admitted in evidence for any collateral purpose. This decision has been uniformly followed by all the courts in India including the Supreme Court. But in my view the decision is not authority for the proposition that the document cannot be looked into even for the purpose of finding out whether the terms contained in the promissory note are the same as the terms of the contract between the parties. If this argument is accepted it will be impossible to put into effect Section 91 of the Evidence Act. In order that Sec. 91 may apply , one has to find out whether the terms of the contract have been reduced to the form of writing. Unless we look into that writing, one cannot say if the terms of the contract have been reduced to writing or not. If one has to close ones eyes to the terms of the promissory note, because it is unstamped, then it is impossible to ascertain whether it contains all the terms of the contract or not. The oral evidence or other evidence has to be placed side by side with the document and only then can it be found out whether all terms of the contract are contained in the document.
83. Before concluding the discussion on this point reference may be made to the decision of the Privy Council in AIR 1918 PC 146. There it was held that in an action on a bill of exchange or a promissory note against a person whose name properly appears as party to the instrument it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal. In the course of the judgment they remarked 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 . But as they found that the plaint did not embrace both these forms of relief and was confined to an action brought upon the hundies themselves, the sole question for decision was whether upon the form of the hundi the first respondent was properly included as a defendant to the suit and proceeded to consider that question. This decision cannot be taken as an authority for the proposition that in every case of a hundi or negotiable instrument a suit can be filed on the original consideration. That would depend upon the terms of the hundi and on the question whether it contained all the terms of the contract or not, as has been pointed out earlier.
84. Considerable arguments were advanced on the second question as to whether the plaintiff would in any event be entitled to recover the amount under the provisions of Section 70 of the Contract Act or under the theory of " money had and received. "
85. In , it was observed, quoting the judgment of the Privy Council in Ramanandi Kuer v. Kaalawati Kuer, 55 Ind App 18 = ( AIR 1928 PC 2 ) that where there is a positive enactment of the Indian Legislature the proper course is to examine the language of that statute and to ascertain its proper meaning uninfluenced by any consideration derived from the previous state of the law or of the English law upon which it may be founded. It is therefore, neither, necessary nor proper to consider the various English decisions on the doctrine of ' unjust enrichment ' or on the theory of ' money had and received ' . It is sufficient to consider the provisions of Section 70 of the Contract Act and see whether the plaintiff can found his claim on those provisions in the circumstances of the case. Section 70 of the Contract Act reads as follows :--
"Where a person lawfully does anything for another person or delivers anything to him, not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of , or to restore, the thing so done or delivered. "
It is doubtful whether this provision is applicable to a case where the act is done by one person all the express request of another. In this case, the amount was paid to the promiser at his express request on his executing a promissory note. Section 70 of the Contract Act in such circumstances would have no application.
86. Further even if S. 70 of the Contract Act is applicable and the plaintiff is permitted to bring an action for the recovery of the amount paid on foot of Section 70 of the Contract Act there is insuperable difficulty in the way of the plaintiff obtaining a decree. In order to obtain a decree the plaintiff has to prove that the defendant has derived the benefit, in this case that he received the amount of the loan.
87. No evidence other than the promissory note is admissible to prove that the amount of the loan was received by the promisor, as the amount of the loan is one of the terms of the contract. He cannot prove the same by the production of the promissory note as it is not admissible for any purpose under Section 35 of the Stamp Act ; with the result there is no evidence before the Court as to the amount of the loan received by the defendant. If, on the other hand the promissory note does not contain all the terms of the contract it has already been held that the plaintiff is entitled to sue on the original consideration. In that event there is no need for him to have recourse to Section 70 of the Contract Act. In such a case it does not make any difference whether the plaintiff's right is described as one based upon the original consideration or on the footing that the defendant had received the benefit or derived advantage.
88. I must confess that I felt considerable difficulty in arriving at the above conclusion in view of certain decisions of the Supreme Court which were relied on this connection. In ( Supra ) the Supreme Court had to consider a case where a contract was void by reason of its not being in conformity with Section 175 (3)of the Government of India Act . But the party to the contract had done some works and one of the questions was whether if the contract was invalid his claim for compensation for the work done. Fell under Section 70 of the Contract Act. The Supreme Court held that Section 70 was applicable to the facts of that case. One of the contentions urged was that the recognition of the respondent's claim for compensation virtually permits the circumvention of the mandatory provisions of Sections 175 (3)of the Government of India Act. Because the work done was no more than the performance of the contract, which was contrary to the said provisions. If a decree was passed for the compensation it would in substance amount to treating the invalid contract as being valid. This argument was rejected by the Supreme Court which observed the claim for compensation was based not upon the delivery of the goods or doing of any work. But acceptance and enjoyment of the said goods or said work and hence by awarding compensation under Section 79 the contravention of Sec. 175 (3) is not condoned. For the same reason it was submitted that by holding that the plaintiff is entitled to return all the money advanced by him under the inadmissible promissory note. There is no circumvention of the provisions of Section 91 of the Evidence Art or of Sec. 35 of the Stamp Act. As the action is based upon the advantage received by the defendant and not on the promissory note. Though there is considerable force in the contention that the present case is similar to the case considered by the Supreme Court, I am inclined to take the view, though not without hesitation that the situation is not identical. As has been observed already in the case before the Supreme Court the work was done only under a contract which was void under Section 175 (3) of the Government of India Act. The contract was no doubt not enforceable. But there was nothing preventing the petitioner from proving the fact that he performed the work or that the defendant derived benefit or advantage and claiming compensation on that basis. In the present case. However, the plaintiff is precluded from proving the fact of the loan in view of Section 91 of the Evidence Act read with Section 35 of the Stamp Act. In this connection it was argued on the strength of some cases that the amount of the loan is not a term of the contract. I fail to see how such an argument can be advanced. If the amount of loan itself cannot be treated as a term of the contract. I wonder what else can be regarded as a term of the contract in the case of a promissory note?
89. I may however. State that I am not in agreement with that view expressed by Varadachariar J in AIR 1938 Mad 785 (FB) (Suprs) that "Sec 70 of the Contract Act is scarcely appropriate to a case of money lent to the defendant and there is no possibility in such a case or event a contemplation of the "thing delivered." Being restored which obviously means in specie; and lending money to the defendant cannot be described". This is the view of Vaaradachariar H. Only and cannot in any sense be regarded as the view of the Full Bench. There is no reference to S.70 of the Contract Act in the decision of Leach, C. J. No authority is cited by Varadachari, J., in support of the proposition that the expression "thing delivered" would only mean "in specie" and lending money to the defendant cannot be described as something done for the defendant. On the other hand. In of the Contract Act was made applicable to a case where an amount was paid in pursuance of a contract and the contract was ultimately found unenforceable as it was contrary to Sec. 175 of the Government of India Act. It was held that the plaintiff would be entitled to a refund of the amount though in the particular case they held that he was not entitled to such refund having regard to the evidence in that case. The expression "thing:" used in Sec. 70 is of general import and I am unable to see any valid reason why it should not take within its purview "money" also.
90. It remains only to refer to the decision in . In which Gopal Rao Ekbote. J. (As he then was)observed that the plaintiff can have his money back though the plaintiff can have his money back though the document is inadmissible in evidence on the ground that it is insufficiently stamped. Dealing with the opinion expressed by Varadachariar. J.in AIR 1938 Mad 785 (FB) (Supra) he pointed out that the two decisions of the Privy Council in AIR 1918 P. C. 241 and AIR 1918 P.C. 151. Where not brought to the notice of Varadachariar J. Gopal Rao Ekbote. J. Observed that from these cases it is clear that an action analogous to that for money had and received can be maintained without resort to any theory of implied contract and the plaintiff would be justified in asking his money back from the defendant although the suit promissory note is inadmissible in evidence on the theory of money had and received
91. Before considering these observations it may be pointed out that as far as the first question referred to the Full Bench is concerned. Gopal Rao Ekbote. J. Followed the decision in AIR 1938 Mad 785 (FB) Supra. And held that the said suit based on the debt and the promissory note was sought to be given as collateral security and therefore the allegations had to be enquired into and the court below was in error in deciding the case without recording the evidence of the parties it is only with reference to the second question that Gopal Rao Ekbote, J. took the view that the plaintiff is entitled to claim his money back also on the theory to money had and received.
90. AIR 191d8 PC 241 (Supra) was a case from Ceylon. After referring to (1760) 2 Burr. 1005 and (1914)A. C. 398 their Lordships of the Privy Council observed that they where reluctant to deal with the question on the footing of money had and received. As they were of the opinion that the appeal could be disposed of on another ground. I am unable to find anything in the decision of the Privy Council which would cover a case of the right of the person to claim refund of the money which was advanced on foot of an insufficiently stamped promissory note. In AIR 1918 PC 151 the Privy Council had to deal with the question of limitation. Though they observed that the facts of the case would more nearly approach the formula of "money had and received" by the defendant for the plaintiff's use they said in view of the course the suit had taken and of the attitude of both sides they ought to deal with the fase on the assumption that the suit would come within Art 97 of the Limitation Act. In this case also. No light is thrown on the question for consideration. I do not think that a reference to the above decisions of the Privy Council would have affected the result of the decision of the Full Bench in AIR 1938 Mad 785 (FB) supra.
93. In the result the first question is answered by saying that the plaintiff would be entitled to sue on the original consideration if the promissory note does not contain all the terms of the contract. The plaintiff has to allege and prove that all the terms of the contract are not contained in the promissory note. While agree with the majority view that the decision of the Full Bench in AIR 1938 Mad 785 (FB) (Supra) is correct I am not able to share their view as to the interpretation and scope of that judgment.
94. The plaintiff will not be entitled to claim compensation under Section 70 of the Contract Act if the promissory note is inadmissible in evidence under section 35 of the stamp Act. Here again I am in agreement with the conclusion of the majority though for some what different reasons which have been set out by me A.D.V. Reddy, J.
95. The controversy that arises out of the question referred to us centres solely round the problem of proof relating to claims for monies due under negotiable instrument unstamped or inadequately stamped. Section 35 of the Stamp Act imposes an embargo on the admissibility of such negotiable instruments in evidence for any purpose and further stipulates that no claim can be based on it. Section 91 of the Evidence Act superimposes the additional disability of proving otherwise the terms embodied in the said document as they have been reduced into writing. We have therefore to consider the impact of these provisions on the claims for debts due under negotiable instruments unstamped. Or inadequantely or insufficiently stamped. As in this case we are concerned only with promissory notes. I will confine my remarks to promissory notes.
Promissory notes are of three kinds:
1. promissory notes executed to evidence antecedent debts. Debts incurred anterior in point of time to the execution of the promissory note ;
2. Promissory notes executed as a result of an agreement of arrangement between the parties as a collateral security or conditional payment; and
3. Promissory notes executed for monies lent under it. Where the amount lent and the promissory note form part and parcel of the same transaction.
96. In the first category of cases. Where there is an antecedent debt either on accounts settled. Goods supplied monies lent or for any other claim where the cause of action is complete in itself there is no dispute that de hors the promissory note . the party can fallback on the original consideration. In the second of the categories, where a promissory note is executed either after the incurring of the debt or even simultaneously with the lending on a specific understanding or agreement that the promissory note is only to serve as a collateral security or as a conditional payment, it is well settled that if the promissory note cannot be proved by reason of the provisions of Section 35 of the Stamp Act and Section 91 of the Evidence Act, the claimant can fall back on the original debt and the passing of the consideration thereunder. In both the cases, however the fact of the execution of the promissory note and the terms contained therein cannot be relied on for any purpose, as the promissory note is defective as it is inadequately stamped and is inadmissible in evidence. The term ' any purpose' excludes even a collateral purpose and evidence aliunde has to be let in regarding the prior debt and the understanding or agreement relating to the promissory note being only a collateral security or a conditional payment.
97. What we are concerned with is the third category of promissory notes. Where the lending is under a promissory note. Where the lending and the note form part and parcel of the same transaction and the entire contract is contained wholly in the promissory note. In such a case apart form the promissory note and the terms contained therein, there is no other transaction to evidence the debt and other transaction cannot be proved by reason of the provisions of Section 35 of the Stamp Act and Section 91 of the Evidence Act., the cause of action disappears because they are so inextricably interwined as the substance and its shadow. If the shadow is to be eliminated, the substance has to disappear. There is no factum of loan to be proved independent of the one that arises under the promissory note. There is no promise implied or express independent of the promissory note and no debt incurred dissociated from the one under the promissory note. No doubt, in every loan there is an implied promise to pay. If the loan fails for want of proof, the implied promise goes with it. The benefit had and received under Section 70 of the Contract Act, even if it should include a benefit by way of payment of money also should be proved that when the proof suffer from the infirmity of being hit by the provisions of Section 35 of the Stamp Act and Section 91 of the Evidence Act, there can be no claim based on it. Recognising such claims on the ground of implied promise or on the ground of benefit had any received under Sec. 70 of the Contract Act, amount to ignoring nullifying the effect of the statutory provisions of Section 34\5 of the Stamp Act and Section 91 of the Evidence Act and amount to an attempt at salving equity by sacrificing law. The impact of the above provisions of the third category of unstamped or inadequately stamped promissory note is to convert the promissory note into a scrap of waste paper and the lending under it a bad debt.
98. The reference to the instruction embodying or not embodying all the terms of the contract in the judgment of Leach. C.J. in ILR (1938) Mad 933 = (AIR 1938 MAD 785) (FB) had led to the contention that in case of the instrument does not contain all the terms of the contract, the promisee will be entitled to sue on the original consideration. A scrutiny of the Judgment shows that the above observations were made only in relation to the category of instruments that were executed as collateral securities or as conditional payments. This is made abudantly clear by the following paragraph contained in the Judgment of the Full Bench at Page 945 :-
"In my opinion the law may be stated shortly 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 Stamped Act bar the way. But if it does not embody all the terms of the contract the true nature of the transaction can be proved and where an instrument has been given as collateral security or by way of conditional security or by the 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".
99. The Court has necessarily to look into the instrument first to find out whether it constitutes a promissory note as per the provisions of Section 4 of the Negotiable Instruments Act and then find out whether it is properly stamped, to see whether the provisions of Section 35 of the Stamp Act are attracted. If the latter provisions are attracted, the other occasion for the Court to look into it is when oral evidence is sought to be let in to find out whether the instrument contains any of the terms with regard to which such oral evidence is adduced to exclude it if it offends the provisions of Section 91 of the Evidence Act. These are the two occasions when the Court has to took into the instrument and they are purely procedural.
100. If the promissory not is inadmissible under Section 35 of the Stamp Act and the terms cannot be proved by other evidence as per the provisions of Section 91 of the Evidence Act, in the first of the categories detailed above, where the promissory note is executed to evidence and antecedent debt the promissory note need not be looked into all as independent evidence with regard to an antecedent debt can be let in.
101. With regard to the third of the categories, where it is executed for monies lent under it, no further evidence can be let in. If it is hit by the above provisions as all the essential terms that go to make out a promissory note under Section 4 of the Negotiable Instruments Act should be there to constitute a promissory note and any other evidence with regard to a term. I.e. for instance like interest though left out can be of no consequence as the promissory note itself of debt under it cannot be otherwise proved. Where the promissory note contains all the essential terms , the names of the promisor, the promisee, the unconditional undertaking to pay the consideration etc., and if the pronote is note by Section 91 of the Evidence Act even if it did not contain all the terms. The passing of the consideration under the note cannot be proved otherwise and no claim can be based on it. Therefore there is no force in the contention that if all the terms are not contained in the document the party can sue on the original consideration.
102. It is only in cases where there is an agreement that the promissory note is executed by way of collateral security or as a conditional payment . The question arises whether the terms which spell out that agreement if contained in the document that is defective, can be looked into. It is permissible to the party to prove other circumstances by leading evidence to show that the promisory note was executed as a collateral security or as a conditional payment but if those terms are contained in the document itself, they will also be hit by the provisions of Act 91 of the Evidence Act . However, if the document that purports to be a promissory note becomes inadmissible as a promissory note the terms contained in it relating to its being executed as a collateral security or as a conditional payment , being in the nature of an agreement, will be saved by the proviso of Section 35 of the Stamp Act and by paying penalty it can be admitted in evidence as an agreement containing the terms. This proof will however be need not for suing on the promissory note as it will be unenforceable but only to establish the agreement and enable the party to sue on the original consideration.
103. With the above observations, I agree with the Judgment of my learned brother Obul Reddi. J. That the judgment of the Full Bench in I.L.R. (1938) Mad 933 = (AIR 1938 MAD 785) (FB) : lays down the correct law and that no claim can also be based under Section 70 of the Contract Act if the instrument on which a claim is based is hit by the provisions of Section 35 of the Stamp Act and Section 91 of the Evidence Act.
Venkatarama Sastry, J.
104 . I agree with the judgment just delivered by my learned brother Obul Reddi. J on behalf of the Bench. But having regard to the importance of the question and the divergent views expressed by the several High Court in India I propose to add my own reasons :
105. Following is the question referred to this Full Bench :-
"Whether a plaintiff can lay action for recovery of the amount advanced by him basing on the original cause of action when the Negotiable Instrument evidencing the transaction is inadmissible in evidence under Section 35 of the Stamp Act".
106. A negotiable instrument, according to Section 13 of the Negotiable Instruments Act 1881, means a promissory note, bill of exchange or cheque payable either to order or bearer. An instrument according to Section 2 (14) of the Indian Stamp Act, includes every document by which any right or liability is or purports to be created, transferred, limited, extended extinguished or recorded. It is an inclusive definition. There is no doubt that a Negotiable Instrument is an instrument coming within the ambit of this definition. An instrument of the nature of a Negotiable Instrument is liable for stamp duty according to Article 13 (bill of exchange) and Article 49. (Promissory Note). Section 35 of the Stamp Act deals with Instruments not duly stamped and provides as follows :-
"No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped.
Provided that :
(a) any such instrument not being an instrument chargeable with a duty not exceeding ten naya paise only, or a bill of exchange or promissory note shall subject to all just exceptions be admitted in evidence on payment of the duty with which the same is chargeable or in the case of an instrument insufficiently stamped of the amount required to make up such duty together with a penalty of five rupees or when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees of a sum equal to ten times such duty or portion" 9 As seen from the proviso, there is no scope for paying a penalty in the case of a bill of exchange or a promissory note so as to make it admissible in evidence under Section 42 (2) of the Act. The prohibition enacted by Section 35 makes such an instrument not duly stamped inadmissible in evidence for any purpose. The Privy Council in its decision in AIR 1946 PC 51 says that the words ' for any purpose' should be given their natural meaning and effect and would include a collateral purpose. Hence such an instrument would be inadmissible in evidence whether it is intended to use it as the basis of a claim or for a collateral purpose. There is a difference between a document which is not duly stamped and a document which is not registered. The proviso to Section 49 of the Registration Act makes an unregistered document receivable in evidence of a contract in a suit for specific performance or evidence of part performance of a contract for the purposes of Section 53-A of the Transfer of Property Act or as evidence of any collateral transaction not required to be effected by a registered instrument. But the inhibition imposed under Section 35 is absolute and complete and makes it inadmissible in evidence for any purpose. Some decisions have gone to the length of saying that an instrument which is not duly stamped is a worthless one and nothing more that a waste paper. The principle underlying this prohibition appears to be that promissory notes and bills of exchange are commercial instruments, which are put into circulation in large numbers in the commercial world and as the claims on them would be mostly settled out of court, severe penalties should attach to non-stamping them, or understanding them in order that there may be wholesome check on any tendency to defraud the public Revenue.
107. Failure to stamp a Negotiable Instrument properly does not affect the validity of the transaction embodied therein. But renders the document inadmissible in evidence ( Vide Purna Chandra V. Kalipada Roy. AIR 1942 Cal 386). It is unfit to be acted upon by person having authority to receive evidence or by any public offices. When a promissory note is not admissible in evidence on account of Section 35 of the Stamp Act, the question arises as to how to amount due under such a promissory note can be recovered in a court of law.
108. The terms of contract of loan, which are embodied in the promissory note can be proved only by the production of the promissory note itself, according to Section 91 of the Evidence Act, which enacts the best evidence rule. If the unstamped or improperly stamped promissory note becomes inadmissible in evidence 'for any purpose' on account of the prohibition contained in Section 35 of the Stamp Act then is there any method by which such terms of the contract could be proved? There is the question which we have to answer here :-
109. Section 91 excludes also secondary evidence of the contents of the original document if it is unstamped or insufficiently stamped (Vide Muthuswami Mudali v.Verri Chetti . (1907) ILR 30 Mad 382 and Ankur Chunder Roy Chowdhry V.Madhub Chunder Ghose (1874 ) 21 Suth WR 1)
110. "The rule with regard to writings " says Sir Richard Couch C.J. in (1873) 11 Beng. LR 405 is that oral proof cannot be substituted for the written evidence of any contract which the parties have put into writings And the reason is that the writing " is tacitly considered by the parties themselves as the only repository and the appropriate evidence, of their agreement". Following this decision the Privy Council upheld, in ILR 50 Cal 338 = AIR 1923 PC 50 the objection that oral evidence was not admissible as the memorandum therein constituted the contract between the parties and that Section 91 was a bar. The aforesaid two cases have again been approved and followed by their Lordships of the Supreme Court in . It is also well established that when there is specific provision in the Evidence Act like Section 91, resort cannot be had to equitable principles for the admission of any evidence which is otherwise inadmissible. Thus where a promissory note is not admissible in evidence the creditor cannot prove its terms even by other oral evidence. If there is no independent contract of loan except what is embodied in the promissory note.
111. This leads us to the question as to the admissibility of other evidence relating to the debt or original consideration apart from and dehors the promissory note. In the case of a promissory note executed in discharge of an antecedent debt arising out of goods sold or mutual dealings in account or on account of liability incurred prior to and not contemporaneous with the lending of money which is evidenced by the promissory note there arises no difficulty because there exists in all those cases a debt or liability dehors the promissory note. The evidence in proof of such a debt or liability is not shut out by Section 91 of the Evidence Act , since the plaintiff in such a case is not proving the terms of the contract as evidenced by the writing in the promissory note.
112. But difficulty has always arisen giving rise to a lot of divergence of judicial opinion in our country, in the case of proof of loans contemporaneous with the execution of the promissory note. The stricter view was that the promissory note represents all the terms of the contract and when the said note becomes inadmissible in evidence the suit should fail altogether. The liberal view was based upon the principles that a promissory note is only a conditional payment or conditional discharge of the debt and when the promissory note becomes inadmissible the suspension of the remedy on the note is removed and therefore the debt as such can be proved. Some cases of this line of reasoning have also put it on the ground of an implied promise in every debt represented by a promissory note, which could be used upon irrespective of the inadmissibility of the promissory note. Some other cases which toe this line of reasoning also base their judgments on the theory of 'Money had and received or by invoking to their aid the provisions of Section 70 of the Indian Contract Act. The third view which takes a via media view is that if the promissory note does not embody all the terms of the contract though no suit on the debt would lie, yet evidence can be let into prove the true nature of the transaction and if the promissory note has been given as a collateral security or by way of conditional payment, a suit is held to lie on the debt. These cases recognise the principle that the fact that the loan and the note are contemporaneous is not conclusive of the non-existence of an obligation apart from the note itself and permit only such evidence as to whether the note was given as a conditional payment or a collateral security both of which postulate a debt or for the conditional discharge of which or for security which the promissory note is taken. This view does not recognise the applicability of theories based upon implied promise or money had and received or Section 70 of the Contract Act to such cases.
113. Nearly a century ago Sri Richard Couch C.J. and Glover J. have negatived a claim based on unstamped promissory note on the ground that it was inadmissible in evidence and observed:
"This instrument clearly comes within these words (of the Stamp Act) and the plaintiff cannot make use of that part of it which states the deposit of the money and say 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 used in evidence, and the suit must fail" (the words in brackets are mine). (Vide (1874) 21 Suth WR 1)
114. The earliest of the decisions which stems all the development of the case law on the subject now under discussion is that of Sir Richard Garth C.J. and Mcdonnel J. In (1881) ILR 7 Cal 256, wherein two propositions have been laid down as follows:-
"(1) When a cause of action for money is once complete in itself whether for goods sold or for money lend or for any other claim, and the debtor then gives a bill or note to the creditor for payment of the money at future time the creditor if the bill or note is not paid at maturity may always as a rule, sue for the original consideration provided that he has not endorsed or lost or parted with the bill or note under such circumstances as to make the debtor liable upon it to some third person. In such cases the bill or note is said to be taken but the creditor on account of the debt and if it is not paid at maturity the creditor may disregard the bill or note and sue for the original consideration.
(2) But when the original cause of action is the bill or note itself and does not exist independently of it, as for instance when in consideration of A depositing money with B.B contracts by a promissory not to repay it with interest at six month's date, here there is no cause of action for money lent or otherwise than upon the note itself because the deposit is made upon the terms contained in the note and no other. In such a case the note is the only contract between the parties and if for want of a proper stamp or some other reason the note is not admissible in evidence the creditor must lose his money".
115. I shall now deal with the development of case law in the various high Courts on this topic and indicate the divergence of opinion and the scope for reconciliation, if any.
116. Taking the decisions of the Madras High Court first, the earliest decision where the second proposition in (1881) ILR 7 Cal 256 was applied was by Sri Arthur Collins C.J. & Parker J. Is (1887) ILR 10 Mad 94 where money was lent in the morning and the promissory note was taken in the evening and it was held that the contract was contemporaneous with the note and that Section 91 of the Evidence Act was a bar to an attempt to prove the original consideration. This decision was followed by Benson & Sundarayyar J.J. 462 by Sadasivayyar and Spencer J.J. in Muthu Sastrigal v. Viswanatha Pandara Sannadhi. ILR 38 Mad 660 = (AIR 1925 Mad 351 by Pillay and Anantakrishnayyar JJ. Gura Sahu v. Krishnamma AIR 1932 Mad 687 by Anantakrishnayyar J. In Alimane Sahiba v. Subbarayudu, AIR 1932 Mmad 693 by Pandalai J. In Chandra Sekaran v. Srinivasa AIR 1933 Mad 71 by Varadacheri and Burn JJ and in Chockalingam Chettiar v. Palaniappa Chettiar ILR 58 Mad 261 = (AIR 1935 Mad 23) The (FB) in Ramaswami Pillai v. Murugaiah Padavachi ILR 59 Mad 268 = (AIR 1936 Mad 179) reviewed all these cases as well as those in which a contrary view was expressed and after referring to the divergence of views in other High Courts Beasely C.J. observes as follows:-
"So far as the Madras High Court is concerned the preponderance of opinion seems to be to support the respondent's argument. But all the courts take the view that with regard to antecedent debts, the position is that the original debt can be sued upon irrespective of the subsequent document or promissory note and the better opinion with regard to contemporaneous loans and promissory note is the consideration for the loan the debt cannot be proved aliunde. That view in my opinion is clearly the correct view in view of Section 91 Evidence Act".
xx xx xx xx xx xxxx "My view, therefore is that in all cases 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".
117. Even after this pronouncement the authority of the decision in (1877) ILR 10 Mad 94 was again challenged and a Full Bench of five Judges was constituted in 1938 and its decision is in AIR 1938 Mad 785 (FB). This Full Bench upheld the correctness of the decision in (1887)ILR 10 Mad 94 and overruled the two decisions in Gopala Padavachi v. Rajagopala Naidu. AIR 1926 Mad 1148 and Chinnayya v. Srinivasa, AIR 1935 Mad 206 which struck a different note. Sir Lionel Leach C.J. expressed the opinion of the Full Bench in the following words:
"In my opinion the law may be shortly stated 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. Evidence Act, and Section 35, Stamp Act bar the way. But if it does not embody all the terms of the contract, the true nature of the transaction can be proved and where an instrument has been given as collateral security or by way of conditional payment. Whether a suit lies on the debt apart from the instrument therefore, depends on he circumstances under which the instrument was executed".
(Underlining is mine).
118. The learned Chief Justice approved five out of six propositions laid down by Page C.N. in the Full Bench decision ....... in ILR 12 Rang 500 = (AIR 1934 Rang 389) but disagreed with the 3rd proposition which ran as follows:
"(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".
119. After further consideration Leach C.J. observed in regard to this proposition that it must depend upon the facts of the particular case and that there is no presumption that the instrument has been given as conditional payment. Varadachariar J. In his concurring judgment has discussed elaborately the case law, English and Indian, bearing upon the subject and rejected the pleas of conditional discharge, implied promise money had and received, and Section 70 of the Contract Act.
120. The Full Bench decision can be taken to have settled the law finally so far as the Madras High Court was concerned and has been uniformly followed eversince. The plaintiff therefore in a suit upon a promissory note which is improperly stamped is at liberty to prove the true nature of the transaction. If he is able to establish that the instrument was given as a collateral security or as a conditional payment the suit on the debt can be proved, without any bar under Section 91. Evidence Act.
121. The case in Calcutta High Court reveal an approval as well as disapproval of the view expressed in (1881) ILR 7 Cal 256 over the years but each case taking a different view can be explained on some ground or other. In (1896) ILR 23 Cal 851 Petheram C.J., and Rampuri J., invoke the principle of an 'implied promise' in every case where money is lent and in view also of the admission of one loan by the defendant in that case the suit was held to be maintainable as an action for breach of an implied promise or contract independent of the promissory note. The case in (1881) ILR 7 Cal 256 was distinguished on the ground that deposit was not meant to be a loan. The case in (1913) 17 Cal LJ 399 permitted a suit if the debt did not merge in the promissory note. Though a similar view was held in Sudhir Chandra Das v. Govinda Chandra Roy, ILR 45 Cal 538 = (AIR 1918 Cal 688) it related to a Hundi, wherein the borrowing is complete before a direction is given by a hundi to a third party to pay. The suit was on an account between a principal and agent, in Ramendra Mohan v. Keshab Chandra, AIR 1934 Cal 554 where an amendment of plaint was allowed to sue on the basis of debt as per the 1st proposition in (1881) ILR 7 Cal 256. The decisions of Mukerjee J., in Shekh Abdul Rabbani v. Shyam Lal Tapa, (1930) 34 Cal WN 554 and of R.C.Mitter J. In Tarachand Protap Mal v. Tanijuddin Sheikh, 39 Cal 1241 = (AIR 1935 Cal 658); Indra Chandra Bag v. Hiralal Rong, 40 Cal WN 696 = (AIR 1936 Cal 127) and Mohatabudin Mia v. Mahmmad Najir Jodda (1936) 40 Cal WN 473 were based upon an implied promise in the case of money lent. D.N.Mitter J., held the suit to lie as there was also a claim on the debt in the plaint in Bhushan Chandra v. Kanai Lal, 41 Cal WN 537 = (AIR 1937 Cal 241) Nasim Ali and Biswas JJ. Also relied upon an implied promise in Iswar Sridhar Jick v. Jahorlal, 49 Cal WN 37 = (AIR 1945 Cal 268) but it can be seen from the facts that there was no stamp infirmity and so the question of Section 91. Evidence Act did not arise. The decision of Derbyshire C.J., and Mukherjee J., in Te E.B.Commercial Bank Ltd.m, v. Surendra Naravana Saha (1935) 39 Cal WN 1235 related to a promissory note and a voucher and an amendment was allowed.
122. The Allahabad High Court opined, while overruling the decision in Ram Sarup v. Jasodha Kunawar, (1912) ILR 34 All 158 and Chhotu v. Jawahar (1906) ILR 28 All 293 and approving the view of Aikram J., in (1904) ILR 26 All 178, that a plaintiff cannot set up a case independent of the note in view of Section 91 and cannot prove orally the terms of the contract in ILR 53 All 114 = (AIR 1931 All 183(FB). But this view was not accepted in the Full Bench in AIR 1943 All 220 wherein it was held that other evidence to prove the terms of the contract independently of the pronote is admissible that a pronote cannot be said to contain all the terms of the contract of loan and therefore the contract of loan could be proved independently of the note. In one respect it differed from the Full Bench of Madras High Court. It holds that there is a presumption that a pronote is given only as a conditional payment while the Madras view is opposed to it. A Full Bench of Allahabad High Court in Major Mistri v. Binda Debi. AIR 1946 All 126 (FB) also holds a similar view. But in Ramnath v. Bhagwati Prasad, AIR 1946 All 150 a Bench held that where a pronote contained all the terms the plaintiff cannot fall back on the independent cause of action to recover the loan because there is no cause of action independent of and apart from the promissory note. They explained the Full Bench in Sheonath Prasad v. Sarjoo Nonia, AIR 1943 All 220 in Kanhai Lal v. Brij Nanda. it was held by Raghubir Dayal J. (As he then was ) in the case of a promissory not executed in the following manner:-
"I have at this time borrowed Rupees 300/- half of which Rs. 150/- in cash according to my needs from you. I shall pay this amount of yours with interest at eight annas per cent per mensem on demand and have therefore written these few sentences by way of a stamped promissory note so that they may be of use in time of need".
That it included all the substantial terms of the contract of loan and therefore no oral evidence to prove the loan transaction was admissible. His Lordship referred to the Full Bench decision in AIR 1943 All 220 (FB) and yet the refusal of the trial Court to prove the loan transaction was upheld. If according to the Full Bench the contract of loan could be proved this decision strikes a different note.
123. But in it was held that the promissory note was held to be a collateral security and a suit on the basis of original loan was held maintainable and Section 91 was no bar.
124. Though Section 91 was held to be a bar for proof about original consideration in Nankhu Singh v. Girja Bux Singh, AIR 1929 Oudh 399 it was held by the Full Bench in AIR 1932 Oudh 235 (FB) that the factuum of loan is not a term of the contract and as such can be proved by evidence aliunde. This theory of the factum as not a term is not accepted by the Allahabad Full Bench, and with respect the latter view is the correct one.
125. In Chint Ram v. Shib Devi, AIR 1922 Lah 207 the Madras view was applied and it was held in the case of a hundi the plaintiff had no cause of action independent of the hundi and as the hundi was inadmissible for want of a proper stamp Section 91 was a bar to letting in secondary evidence. A similar view was held in AIR 1927 Lah 89 and in AIR 1934 Lah 606. In , after a review of some of the cases the same view was reiterated.
126. In (1900) ILR 24 Bom 360 the Bombay High Court followed the decision in (1930) 34 Cal WN 554 and held that there was an implied contract in every loan which can be proved. In Ranchhod v. Ravji Bhai AIR 1926 Bom 357 this decision was followed, But in AIR 1927 Bom 437 the learned Judge while following the decision in (1909) ILR 24 Bom 360, laid down three pronositions. In Soma Bhai v. Kalyan Bhai, AIR 1938 Bom 286 also Rangnekar J. Followed the principle laid down in (1900) ILR 24 Bom 360).
127. In Mohan v. Ramji AIR 1931 Nag 113 and Lal Bahadur v. Gulam Yasin, AIR 1933 Nag 57 (2) the Nagput J.C.'s Court held that a suit would be on the debt, In Ananda Namdeo v. Pundalik Tukaram, AIR 1936 Nag 225. It was held by Stone C.J. and Niyogi J. At page 227 as follows:-
"In every case it becomes a question of fact whether the promissory note was intended to constitute the contract or serve some collateral purpose. In the former case Section 91, Evidence Act would preclude proof of the contract otherwise than by the document itself. If it is inadmissible for any reason, the contract cannot be proved by any extraneous oral evidence. Nor can the money be recovered for the use of the lender a person pays money to another on a contract which he is unable to enforce by reason of any law governing it , he cannot recover it. (See Thomas v. Brown, 1876-1 QBD 714) In the latter case the promissory note is independent of and distinct from the oral agreement and the inadmissibility of the document will not affect the oral contract which may be proved aliunde".
128. This view was followed in Lalchand v. Pyare Dasarath, , where it was held:
"It was next contended that the trial Court also erred in holding that the plaintiff could not be allowed to proved the loan except by producing the pronote. We have briefly stated the case set up in the plaint. The contract of loan was not contemporaneous with the pronote. The contract pleaded contained terms relating to the pledge of diamond and payment of interest. These terms do not find place in the pronote which according to the plaint was executed by the defendants not at the instance of the plaintiff but at the instance of other persons after the defendants had already committed the breach of the original contract by refusing to deliver the diamonds to the plaintiff. On the case pleaded in the plaint it cannot he held that the pronote was intended to constitute the contract or that the original contract of loan merged in or was extinguished by the promissory note. In these circumstances, the original contract of loan could be proved apart from the promissory note and the Court below clearly erred in not permitting the plaintiff to prove the original contract (See AIR 1936 Nag 225).
129. In Gour Chandra v. Garib Kar, the Orissa High Court held that a promissory note is a conditional payment but if there is an agreement that the loan would not be sued upon then no suit lies.
130. In Ram Narain Sahu v. Lachmi Prasad Sahu, AIR 1921 Pat 317 a Bench of Patna High Court held in a case of a hundi that the cause of action was complete following the first proposition in (1881) ILR 7 Cal 256, and held the suit to lie. In Brahmadeo Rai v. Ram Kishun Mahton. AIR 1921 Pat 318 also Section 91 was held to be no bar even in the case of a promissory note. But in Choto Lal v. Gumani, AIR 1926 Pat 432 a suit was held not to lie. The learned Judge followed the decision in Chinnappa Pillai v. M.R.Muthuraman Chettiar. (1911) 9 Mad L.T.281. In Dhaneswar v. Ramrup, AIR 1928 Pat 426 the conflict between these two views was noticed by a Bench which ultimately preferred to follow the principle of an implied promise in every promissory note as laid down in (1896) ILR 23 Cal 851. In Abdul Md Khan v. Mahananda, AIR 1931 Pat 293, this view was held to be correct by another Bench of the same Court. In Domoo Khan v. Agha Arshad, AIR 1933 Pat 575 (FB) the Full Bench decided the case on the basis of the first proposition laid down in (1881) ILR 7 Cal 256 Manohar Lal., J., held in Anuplal Mahto v. Mahesh Jha, AIR 1937 Pat 656 that evidence on original consideration was admissible. In Kesho Das v. Hari Kishundas, AIR 1938 Pat 205 another Bench held that the consistent view in that High Court to be to allow evidence on original consideration or an implied contract to repay. In Ramaswami & S.Prasad JJ. Preferred to lay down the law that a promissory note may be given as conditional payment of collateral security in which case a suit on the debt would lie and that the question depends on each case on the intention of the parties. This accords more with the Madras views.
131. In Raghavan v. Varaithu, (1962) 2 Ker LR 1, it was held that if the suit was filed on the basis of a promissory note no decree can be passed on the debt.
132. In Gangaram v. Keshava Deo, Bapna Ag. C. J. & Ranawat J. Accepted the principal of an implied contract in every loan after entire case law was reviewed.
133. In Champalal v. Saligram Modi & Chhangani JJ. Held that where a promissory note is not proved to have been given in absolute discharge of a debt it can be treated as a conditional payment of the debt and a suit on the debt would lie.
134. In Dhondi Emki v. Hazari Vittal, AIR 1952 Hyd 137. Saidatali Khan J. Followed the decision in Sadasukh Jankidas v. Sir Kishen Pershad, AIR 1918 PC 146 ; Sarafalli v. Maha Sukhbhai AIR 1933 Bom 476 and Hazi Syed Shah v. Bachi Rajappa, 35 Deccan L. R. 368 and held that if there is a distinct and separate transaction and the promissory note was given as a collateral security, then separate transaction can be proved, and to that effect an amendment also can be allowed, whether the transaction is antecedent or contemporaneous with the promissory note, and section 91 is no bar. In a decision rendered on 22-8-1956 in Brji Raj v. Raja Ram, AIR 1957 Hyd 35 Srinivasachari, J. held that in a loan contemporaneous promissory note there is a presumption of conditional payment. The payee is therefore entitled to prove the existence of an obligation to pay the amount advanced as a loan. The fact that the promissory note is contemporaneous with the loan does not negative in the inference that it was executed as a collateral security or conditional payment. Though the learned Judge refers for another purpose to decisions in S. Krishner v. Meenakshi Iyer, AIR 1933 Mad 781. Venkanna v. Parasuram AIR 1929 Mad 522 he follows AIR 1918 PC 146, and holds that a promissory note is only a conditional payment. It does not appear that the Full Bench decision in AIR 1938 Mad 785 ( FB ) was brought to the notice of the learned Judge.
135. Datta J. In Manik Lal v. Dhirendra Chandra, AIR 1957 Tripura 28 followed the Full Bench decisions in AIR 1943 All 220 ( FB ) and AIR 1946 All 126 ( FB ) and held that unless there are circumstances or evidence to show the contrary a promissory note is always given as a conditional payment and hence a suit on the debt would lie. The Full Bench decision in AIR 1938 Mad 785 ( FB ) was not considered in this case also.
136. In the case before the Full Bench decision in AIR 1934 Rang 389 = ILR 12 Rang 500 ( FB ) the suit was based upon the promissory note or in the alternative for money lent. Page C. J. who spoke for the Full Bench laid down six propositions which, except for the third one, were accepted by the Madras Full Bench in AIR 1938 Mad 785 (FB ) says Page C. J., at page 391 :--
"I apprehended that the same principles apply as between borrower and lender and that when a promissory note or bill of exchange is given for a loan prima facie it is given and taken as conditional payment and not in accord and satisfaction, of the debt, if the promissory note or bill of exchange is taken as a conditional payment, and that term is embodied in the document cadit questio, but if it is not therein set out the document does not contain all the terms of the agreement upon which the loan was made, and in my opinion Section 91, Evidence Act does not apply. "
Dealing with the decision in ( 1881 ) ILR 7 Cal 256 the learned Judge says at page 392:
"I confess that I do not understand why in the above cases so much significance should have been held to attach to the handing over of the promissory note and the money being part of the same transaction ; and I am of opinion, with all respect, that the fallacy that lies within the above proposition of law is that it does not appear to have been appreciated in those cases that it is not the time when but the terms upon which, the loan was made that matters, and that whether the promissory note or bill of exchange was given at the time when the money was handed over to the borrower or subsequently in either case it is necessary for the court to ascertain the terms of the agreement upon which the loan was made ; the question as to what those terms " were being a question of fact to be determined according to the particular circumstances obtaining in each case. "
Stress is therefore laid on the terms of the agreement upon which the loan was made. Evidence is admissible regarding those terms without any inhibition under Section 91 Evidence Act. But for the view that there is a presumption that promissory note is prima facie conditional payment, this view accords with Madras view. The Madras Full Bench also laid down that the terms or the true nature of the transaction may be proved.
137. In Naraindas v. Jassomal, AIR 1921 Sind 80 it was held as follows :--
"The question whether a loan was given and taken, can in certain cases such as those of collateral security, be distinguished from the question of terms of the loan and its repayment. When it can so distinguished even if the document embodying the terms is inadmissible, the lender may fall back and sue upon the loan itself and prove it by other evidence. An implied contract to repay money lent always arises from the fact that the money is lent. "
138. In Lokumal v. Sind Bank Ltd. 57 Ind Cas 386 = ( AIR 1920 Sind 66 ) after a review of the case law a view akin to the Madras was laid down :
139. In Chandulal v. Baboolal AIR 1952 Madh Bha 45, Mehta, J., held that where a cause of action for money lent is once complete in itself whether for goods sold or money lent or for any other claim and the debtor then gives a promissory note to the creditor for the payment of money at a future time the creditor may, if the money is not paid on the maturity of the pronote fall back on the original consideration. This is in accordance with the 1st proposition laid down in ( 1881 ) ILR 7 Cal 256, But it is to be noted in this connection that the suit promissory note in this case was executed after settling accounts relating to dealings in silver. Hence it is a clear case of an antecedent debt.
140. In R. K. Radhu & Co. v. Mathra Das , AIR 1936 Pash 146 Jolly Officiating C. J. speaking for the F. B. held that where a contract is wholly contained in a pronote, which is inadmissible in evidence the person suing on the pronote is precluded from proving the debt independently of the pronote. Says the learned Judge at page 147 :--
" Now where the contract is contained wholly in the pronote, it is clear from the provisions of Section 91, Evidence Act and Illustration (b) thereto that the plaintiff will be precluded from proving the debt alinude ; in the present case even in the amended plaint the suit is framed on the pronote with the more addition of the fact that plaintiff advanced the money and obtained a receipt therefor ; the plaint states that defendant got from plaintiff Rs. 2,000 /- in cash and executed a pronote in plaintiff's favour and also gave a receipt for the amount ; again in para 3 plaintiff sums up his claim as follows Rs. 2,000 /- due on the pronote, Rs. 341 /- as interest and Rs. 180 /- as rent. This would appear to be a clear admission that the contract was in fact contained in the pronote and we find it difficult to regard the pronote as a mere subsidiary contract in respect of interest and time of payment and not in respect of liability for the principal, for the pronote, if admissible would undoubtedly afford a cause of action for both principal and interest. Assuming that the money actually changed hands before the execution of the pronote, the implied contract for repayment would be reduced to writing in the form of the pronote which must then deemed to have been regarded by the parties as the repository of their agreement, and therefore the only evidence thereof under Section 91 Evidence Act. "
For this proposition the decision in AIR 1927 Bom 437 was followed as laying down the correct rule. It therefore accords with the Madras view.
141. In T. S. Srinivasa Gowda v. Siddiah, AIR 1971 Mys 144 it was held following the earlier decision of the same High Court in Srinivasa v. Thimmaiah, AIR 1964 Mys 56 that a plaintiff cannot fall back on the original consideration.
142. Mohd Jamal Saheb v. Munwar Begum, My Lord Gopal Rao Ekbote, J. ( as he then was ) held that the plaintiff can succeed on a non-contractual basis, viz., for money had and received. To that extent the Full Bench view was not followed.
143. In AIR 1966 J. & K. 127 it has been held by Fazl Ali and Janki Nath Bhat JJ. After review of the case law when the terms of the entire contract between the parties are reduced to the form of a promissory note where it is a contemporaneous lending. Section 91 is a clear bar to any other evidence and the whole suit must fail. This differs from the Madras view.
144. From a view of the above authorities it is evident that there are two lines of thought expressed by the different High Courts. The view laid down by the Full Bench of the Madras High Court in AIR 1938 Mad 785 ( FB ) finds acceptance, more or less, generally in the decisions rendered by the Lahore, Punjab, Patna, Kerala, Sind, Peshawar, Jammu Kashmir and Mysore High Courts. The contrary view taken by the other High Courts viz; Calcutta, Allahabad, Oudh, Bombay, Hyderabad, Tripura, Rangoon and Madhya Bharat, is based either more upon the theory of an implied promise in every contemporaneous loan or upon the presumption that a promissory note is only a conditional payment in the case of every loan transaction. This conflict it, appears to me, is irreconcilable at the present moment and it is only an authoritative pronouncement by their Lordships of the Supreme Court that can set at rest or give a quietus to this age-long controversy.
145. As far as this case is concerned we have to see which view is acceptable as one based upon principle and in tune with the legal provisions arising in this matter.
146. As stated supra the provisions of the Evidence Act cannot be departed from in our country by courts to evolve an equitable principle howsoever laudable it may be. ( Vide Maung Kyin v. Ma Shwe Law, ILR 45 Cal 320 = ( AIR 1917 PC 207 ). Hence the bar laid down by S. 91 of the Evidence Act has to be given its fullest effect. If the loan transaction is merely oral no difficulty arises in regard to its proof as any amount of oral evidence can be adduced without any legal bar. The difficulty arises only when such a loan transaction is reduced to the form of a writing or a document like a promissory note. In all such cases Section 91 lays down the best evidence rule namely that no evidence shall be given in proof of the terms of such contract or of such matter except the document itself or secondary evidence of its contents in cases in which such secondary evidence is admissible under the provisions of the Evidence Act. Their Lordships of the Supreme Court have held in Jupudi v. Pulavarthi, as follows :
"The first limb of Section 35 clearly shuts out from evidence any instrument chargeable with duty unless it is duly stamped. The second limb of it which relates to acting upon the instrument will obviously shut out any secondary evidence of such instrument for following such evidence to be let in when the original admittedly chargeable with duty was not stamped or insufficiently stamped, would be tantamount to the document being acted upon by the person having by law or authority to receive evidence. Proviso (a) is only applicable when the original instrument is actually before the Court of law and the deficiency in stamp with penalty is paid by the party seeking to rely upon the document. Clearly secondary evidence either by way of oral evidence of the contents of the unstamped document or the copy of it covered by Section 63 of the Indian Evidence Act would not fulfil the requirements of the proviso which enjoins upon the authority to receive nothing in evidence except the instrument itself. Section 35 is not concerned with any copy of an instrument and party can only be allowed to relay on a document which is an instrument for the purpose of section 35. ' Instrument ' is defined in section 2 (14) as including every document by which any right or liability is, or purports to be created transferred limited extended, extinguished or recorded. There is no scope for inclusion of a copy of a document as an instrument for the purpose of the Stamp Act. "
147. Again at page 1077 it is said :--
" A we have expressed our view already that Section 35 imposed a bar on the reception of any, but the original instrument and forbade the reception of secondary evidence. "
148. There can be no doubt that term of the loan or borrowing is the most important term of the contract while the terms as to rate of interest, duration of the loan or the method of payment etc., are incidental or ancillary terms of such a contract. If the contract of loan is reduced to writing one cannot resort to an implied promise to pay, out of such an express contract, as it would amount to violating or bypassing the strict mandatory provisions of the Evidence Act. The promise to pay whether express or implied is contained in every case of loan or borrowing and once it takes the form of writing both get merged in the document. One cannot be separated from the other as both mean the same thing. If the express promise cannot be proved on account of a legal bar the implied promise contained in that writing cannot also to be proved as the legal bar would equally apply to such proof. By permitting proof of such an implied promise in case of promissory notes executed for contemporaneous borrowing the law enacted in Section 91 would in my opinion be clearly violated.
149. It has been held by the Privy Council in ILR 50 Cal 338 = ( AIR 1923 PC 50 ) that document excluded from evidence is nevertheless a written contract and so as the effect of excluding evidence of the same being given. If there is an express promise resort cannot be made to an implied promise. In that case their Lordships held that the creditor could not establish as to the deposit of title deeds. A fortiori the fact of the loan cannot be proved on the basis of an implied promise. The law laid down by this Privy Council decision was also recently approved by their Lordships of the Supreme Court in a decision in .
150. Regarding the theory that a promissory note is a conditional payment, though it may happen in many cases, it cannot be decided as a matter of presumption in every case. It is a matter of allegation in the plaint and proof in each and every case. In the case of a simple loan the lender may lend and the borrower may borrow the money by execution of a promissory note at the time of the borrowing to evidence that loan. In such a case, it cannot be said that debt borrowed is instantaneously repaid by the promissory note. It depends upon the intention of the parties whether they intended to treat the promissory note as a conditional payment or not. In the generality of cases of a simple loan payment by a pronote may not arise on the date of lending itself. The very idea of a loan or borrowing indicates that the borrower is in need of money which he could not secure otherwise than by borrowing it on that day from the lender and the lender may take the pronote as evidence or a voucher for it. But in some cases it may be open to them to agree that the promissory note may be treated as a conditional payment of the debt involved in the borrowing so that in case the promissory note becomes in- admissible in evidence the creditor or lender may fall back upon the original debt or original consideration. That again is a matter for proof by evidence and not a matter of presumption in every case. As laid down in ILR 51 All 530 = ( AIR 1929 All 254 ) from the mere execution of the promissory note it does not necessarily follow that the whole contract between the parties has been reduced to the form of a document. This view which was also held in Chidambaram Chettiar v. Ayyaswami Thevan, ILR 40 Maad 585 = ( AIR 1917 Mad 201 ) and accepted by their Lordships Leach C. J. and Varadachariar J. In the Full Bench decision in AIR 1938 Mad 785 ( FB ) appears to me to lay down the law correctly. Thus in a case where all the terms of the contract of a loan are not incorporated in the promissory note, the true nature of the transaction may be proved, if there is an alternation and proof about it, and where on such proof it is established that the promissory note was executed as a conditional payment or a collateral security, the claim can be decreed on the basis of the original debt or original consideration.
151. Then coming to the theory of ' money had and received ' adopted in some of the decisions this again depends upon the theory of an implied promise to pay. It appears from the discussion in 1914 AC 398, that this theory is applied generally in the case of contracts in rem and not in personam. As this also depends upon the proff of a contract and inasmuch as the bar under Section 91 is to that very proof, a resort to this theory of ' money had and received ' is quite inappropriate and unwarranted in such cases. ( Vide ILR 38 Mad 660 = ( AIR 1914 Mad 657 (2) ).
152. As regards the applicability of Section 70 of the Contract Act to cases of this type it may be noted that Section 70 which appears in Chapter V of the Contract Act relates to certain relations resembling those created by contract and which are not contracts by themselves. It deals with certain obligation imposed by law on the parties concerned and not resulting from any contract express or implied. Such relations though they are commonly known as quasi-contracts the basic element of a contract viz. agreement is entirely lacking in most of them. Hence in the obligations imposed there can be nothing contractual. The promise or the obligation which Section 70 creates is entirely fictitious and is a creating of law. Any action to enforce this obligation is not an action based on a contract. It has been held by lord Gopal Rao Ekbote, J. ( as his Lordships then was ) in N. Kanaka Rao v. Venkata Ramalinga Reddy, that Section 70 cannot be pressed into service and no relief can be granted on the basis of a quantum meruit where there is an express contract. His Lordship has cited the relevant case law and elaborately discussed the question in that decision. Thus where there is an express contract and that contract is not admissible in evidence for any purpose, as in this case. Section 70 cannot come to the rescue of the plaintiff. Failure to stamp the promissory note properly does not affect the validity of the transaction enbodied therein, as stated by me earlier in this judgment.
153. The three decisions of the Supreme Court relied upon in this connection in favour of the applicability of Section 70 are in my opinion, clearly distinguishable. In Gajandrakadkar J. Puts the claim not on the basis of a subsisting contract, but on some thing done by the party to the other. It was a case where the plaintiff constructed the warehouse in excess of the stipulated valid contract. The plaintiff could not have compelled the defendant to accept it but since the defendant accepted it and used it, the illustration (a) to Section 70 was held to apply to that case. Their Lordships also negatived the argument that by decreeing the suit claim Section 175 (3) of the Government of India Act was violated by the following words :
"Once it is realised that the cause of action for a claim for compensation under Section 70 is based not upon the delivery of the goods or the doing of any work as such but upon the acceptance and enjoyment of the said goods or the said work it would not be difficult to hold that Section 70 does not treat as valid the contravention of Section 175 (3) of the act. "
154. The case in related to a void contract or a contract which was non est. In also as a result of the contravention of the mandatory provisions of law the contracts therein became nullified and void and it was recognised therein that there was no contract in existence. It was made clear that the juristic basis of obligation was not founded upon any contract or tort but upon the third category of law, namely, quasi contract or restitution. As in the present case before the Full Bench, the existence of the contract or its validity cannot be disputed, the principles of the above three decisions cannot apply therein. Moreover resort to Section 70 in this case also would amount to violating or by-passing the mandatory provisions of Section 91 of the Evidence Act and as such is not permissible.
155. Since I am of the view that the basic foundations of the contrary view are not legally tenable. I would prefer to hold that the view enunciated in AIR 1938 Mad 785 ( FB ) states the law correctly and has to be followed in these cases as well. My answer therefore to the question posed before this Full Bench is that plaintiff can lay any action for recovery of the amount advanced by him basing on the original cause of action, where the suit negotiable instrument becomes inadmissible on account Section 35 of the Stamp Act, provided that there is an allegation in the plaint and proof in evidence about the fact that the promissory note did not incorporate all the terms of the contract of loan and that it was executed as a conditional payment or a collateral security.
C. R. P. No. 255 of 1965.
Sambasiva Rao, J.
156. This revision petition has contributed substantially to legal history. From a single Judge it went to a Division Bench and from there it travelled to a Full Bench of seven Judges. It has now come back all the way to me for deciding the case in the light of the opinion expressed by the Full Bench.
157. A few facts relevant for determination of the case may be briefly stated. The defendant borrowed from the plaintiff a sum of Rs. 1,000 /- on 21-11-1960 and contemporaneously executed a hand letter in favour of the plaintiff . Since it was only a hand letter it was not stamped. The hand letter indicates that the defendant agreed to pay a sum of Rs. 1,000 /- with interest at 12 % per annum on demand. The interest was, however, claimed in the suit only in accordance with the provisions of the Madras Act IV of 1938.
158. Though the lower Court noticed the decision of a Full Bench consisting of five Judges in AIR 1938 Mad 785 ( FB ), which held that the promissory note embodied all the terms of the contract and the instrument was improperly stamped no suit on the debt will lie and that Section 91 of the Evidence Act and Section 35 of the Indian Stamp Act bar the suit, it preferred to follow the single Judge decision of Ekbote, J., ( as he then was ) in which took a contrary view.
160. Now, the Full Bench consisting of seven Judges upheld the view expressed in AIR 1938 Mad 785 ( FB ) and held that Section 70 of the Contract Act cannot be invoked on the theories of implied promise, money had and received, quasi-contract and just and reasonable or unjust enrichment or any other equitable doctrine. It further expressed its disagreement with the views taken by Gopala Rao Ekbote J. in Moahamad Jamal Saheb's case, .
161. In view of this it must be held that the suit is not maintainable. The lower Court's decree is therefore, set aside. The revision petition is accordingly allowed . But in the light of the lower Court's finding of fact that the defendant had in fact received the amount from the plaintiff. I direct the parties to bear their own costs.
C. R. P. No. 577 of 1965.
162. The revision petition also comes up before me after the Full Bench of seven Judges expressed their view in regard to the maintainability of a suit on an unstamped or insufficiently stamped document in C. R. P. No. 255/65 and batch dated 3rd October, 1972. The Full Bench of seven Judges affirmed the decision of the Full Bench of the Madras High Court in AIR 1938 Mad 785 (FB ) and held that Section 70 of the Contract Act cannot be invoked on the theories of implied promise, money had and received, quasi-contract and just and reasonable etc., and did not endorse the view expressed by Gopalrao Ekbote, J. in .
163. In the present case the incurring of the loan and the execution of Hundi were contemporaneous. It is also common case that the Hundi was insufficiently stamped. Simply proceeding on the averment in the plaint that the Hundi, though contemporaneously taken, was only in the nature of a collateral security, the lower Court was inclined to decree the suit. It also invoked the principle of money had and received in further support of the decree. There is no discussion and no finding that the execution of the Hundi, though contemporaneous with the incurring of the debt, was quite apart from the actual contract of debt. In the absence of any such finding this revision by the defendant should be allowed in the light of the Full Bench decision in C. R. P. No. 255/65 and batch dated 3-10-1972.
164. The revision petition is thus allowed. But in view of the finding that the defendant had actually received the money I direct the parties to bear their own costs.
C. R. P. No. 1998 of 1966.
165. This another revision petition that comes up before me after the Full Bench expressed its opinion on the question of law in C. R. P. No. 255 of 1965 and batch dated 3rd October, 1972.
166. In this case the defendant borrowed Rs. 334 /- from the plaintiff and executed a promissory note dated 25th of May, 1964. It is common ground that the promissory note was insufficiently stamped. On this the office took objection that the suit was not maintainable. Then plaintiff amended the plaint to the effect that the debt was incurred in the morning with a promise that it would be returned by the evening, but when the defendant could not keep his word he executed the promissory note. Therefore, the incurring of the debt and the execution of the promissory note were not simultaneous and in fact , the latter was taken as a collateral security. As a finding of fact, on a consideration of the evidence, the lower Court found this part of the plaintiff's case as false and held that the promissory note was contemporaneously executed with the incurring of the debt. Nevertheless, it decreed the suit on the principle that money was had and received by the plaintiff.
167. In the light of these facts, and following the rule laid down by the Full Bench in C. R. P. No. 255 of 1965 and batch D/- 3-10-1972 it must be held that the suit is not maintainable.
168. Consequently, the decree of the lower Court is set aside and the revision petition is allowed. In view of the fact that the defendant had received the money. I direct the parties to bear their own costs.
C. R. P. No. 2234 of 1968.
169. This is yet another case which comes up before me after the decision of the Full Bench in C. R. P. No. 255 of 1965 and batch dated 3rd October, 1972. This is a plaintiff's revision petition. The lower Court found, as a fact, that the defendant had borrowed the sum of Rs. 290 /- from the plaintiff. It also held that the execution of the promissory note was contemporaneous with the borrowing. In view of the fact that the promissory note was insufficiently stamped following the decision in AIR 1938 Mad 785 ( FB ) it is dismissed the suit Perumal Chettiar's case, AIR 1938 Mad 785 ( FB ) is now affirmed by the aforesaid Full Bench by its opinion dated 3-10-1972 in C. R. P. No. 255/65.
170. In view of the facts found by the lower Court and following the opinion of the Full Bench. I dismiss the plaintiff's revision. But in view of the fact that the defendant-respondent had been found to have actually received the money. I direct the parties to bear their own costs.
C. R. P. No. 605 of 1969.
171. This revision petition is also coming up before me after the Full Bench expressed the opinion in C. R. P. No. 255 of 1965 and batch dated 3rd October, 1972 affirming the view of the Full Bench of the Madras High Court in AIR 1938 Mad 785 = ILR ( 1938 ) Mad 933 ( FB ).
172. This is a plaintiff's revision petition. The suit was on the foot of a promissory note dated 7-6-1965 for Rs. 400 /- to recover a sum of Rs. 456.85 Ps. One of the decrees was that the debt was discharged but the lower Court was not prepared to believe this defence. Al the same it dismissed the suit following Perumal Chettiar's case, AIR 1938 Mad 785: ILR ( 1938 ) Mad 933 ( FB ) on the ground that the promissory note was insufficiently stamped though executed contemporaneously with the incurring of the debt. It is not in doubt that the promissory note is insufficiently stamped and it is contemporaneous with the incurring of the debt. So, following the opinion of the Full Bench dated 3rd Oct. 1972 in C. R. P. No. 255/65 and batch. I dismiss the plaintiff's revision petition. But, in the circumstances of the case I direct the parties to bear their own costs.
C. R. P. No. 2130 of 1969.
173. This is a revision petition by the second defendant.
174. The Small Cause Suit was filed by the plaintiff on the foot of a promissory note dated 28th of April 1966 executed by the 1st defendant in her favour for Rs. 375 /- and the suit was to recover Rs. 437 /-. Defendants 2 and 3 are the sons of the first defendant; but defendants 1 and 3 remained ex-parte and only the second defendant contested the suit. It is true, that the promissory note was not sufficiently stamped. But no objection was taken by the office. The husband of the plaintiff went into the box as P. W.1. During his examination-in-chief, the promissory note was marked as an exhibit and received in evidence without any objection. It was duly endorsed by the presiding officer as required by the Civil Procedure Code. Thus, it became an exhibit and part of the record. It was only during the cross-examination of P. W. 1 that the insufficiency of the stamp on the promissory note was noticed and then objection was raised as to the maintainability of the suit on such promissory note. The lower Court found that the first defendant died, in fact, receive the amount of Rs. 375 /- and also held that Section 35 was only a bar to the admissibility of an unstamped or insufficiently stamped document. But when it was admitted in evidence it cannot afterwards be withdrawn. Consequently, it decreed the suit. Therefore, the second defendant has brought this revision petition.
175. Section 36 of the Stamp Act provides that:
" where an instrument has been admitted in evidence such admission shall not except as provided in Section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped ".
Therefore, in view of the undoubted fact that the promissory note had been admitted in evidence no objection could be raised at any stage in the suit that it was not duly stamped. Section 35 is only a bar to the admissibility of unstamped or insufficiently stamped documents. Since an unstamped document is inadmissible in evidence, the Full Bench in C. R. P. No. 255/65 and batch dated 3-10-1972 took the view that no suit can be laid on such admissible document. But, that principle has no application to the facts of the present case for the reason that the promissory note had already become part of the record as one of the exhibits. Therefore, the principle laid down by the Full Bench has no application. The lower Court is, therefore, right in decreeing the suit when it came to the conclusion that the promissory note was supported by consideration. For this reason the revision petition must be found as having no merits. It is accordingly dismissed with costs.
176. Order accordingly.