Appeal No 638 of 1952
Appeal by special leave from the judgment and decree dated May 21 1957 of the Assam High Court in First Appeal No 7 of 1962
NC Chatterjee and DN Mukherjee for the appellants
SC Nath PK Chatterjee for R Gopalakrishnan for the respondent
The Judgment of RAGHUBAR DAYAL BACHAWAT and RAMASWAMI JJ
was delivered by BACHWAT J MUDHOLKAR J delivered a separate Judgment
Bachawat 1
The appellants carrying on business at Raha in Nowgong District had dealings with the respondents carrying on business at Gauhati
As a result of the said dealings the appellants were indebted to the respondents in a sum of Rs 9447 4 9
In order to satisfy the dues of the respondents the appellants sent to the respondents a cheque for Rs 9461 4 0 dated August 31 1948
The cheque was drawn by a third party Messrs Nathuram Jaidayal of Sibsagar on the Tripura Modern Bank Sibsagar Branch in favour of the appellants who endorsed it to the respondents
On September 4 1948 the respondents sent the cheque to their bankers the Calcutta Commercial Bank Gauhati for collection
On the same day the Calcutta Commercial Bank Gauhati sent the cheque to the Tripura Modern Bank Sibsagar for encashment
The Tripura Modern Bank Sibsagar debited the accounts of their constituents
Messrs Nahuram Jaidayal with the sum of Rs 9461 4 0 and after deducting Rs 6 4 0 on account of commission charges sent to the Calcutta Commercial Bank Gauhati a draft for Rs 9435 dated September 14 1948 towards payment of the cheque
The draft was drawn by the Tripura Modern Bank Sibsagar on its Calcutta Head Office and was marked current for three months from the date of the issue
On receipt of the draft the Calcutta Commercial Bank Gauhati sent it to their Head Office at Calcutta for collection
But the Calcutta Commercial Bank never presented the draft to the Tripura Modern Bank and made no attempts to collect the amount of the draft
105 In the meantime the respondents wrote to the appellants informing them that cash payment for the cheque has not been received and on September 18 1948 the appellants replied asking the respondents to get back the cheque
But the cheque was never returned to the respondents
On September 17 1948 the Calcutta Commercial Bank closed its business and subsequently it was ordered to be wound up
On October 16 1948 the Tripura Modern Bank also closed its business
and in view of its inability to pay its dues was compelled to enter into a scheme of arrangement with its creditors
On November 19 1948 the respondents requested the Tripura Modern Bank to pay the amount of the draft to them and not 10 the Calcutta Commercial Bank
But no payment was made by the Tripura Modern Bank either to the respondents or to the Calcutta Commercial Bank
On March 8 1949 the respondents instituted the suit out of which the appeal arises claiming payment of their dues from the appellants on the footing that the cheque dated August 31 1948 was received by the respondents as a conditional payment and as the cheque was not cashed the respondents were entitled to enforce their original claim
The Subordinate Judge Lower Assam District dismissed the suit
On appeal the High Court reversed the judgment appealed from and decreed the suit
The appellants now appeal to this Court by special leave
The High Court rightly held that the respondents originally received the cheque dated August 31 1948 as a conditional payment of their dues and if nothing else happened the original debt Would have revived on non payment of the cheque
But we think that having regard to the laches of the respondents in the collection of the draft and the consequential prejudice to the appellants the respondents must be deemed to have retained the draft as absolute payment of the cheque and on the payment of the cheque the original debt stood discharged
In Chitty on Contracts 22nd Edn article 1079 the law is stated thus Where a negotiable instrument upon which the debtor is not primarily liable is accepted by the creditor as conditional payment he is bound to do all that a holder of such an instrument may do in order to get payment thus it is his duty to present a cheque within a reasonable time and if he fails to do
so and the debtor is thereby prejudiced the creditor is guilty of laches and makes the cheque his own so that it amounts to payment of the debt
 In Addison s Treatise on the Law of Contracts 11th Edn p 156 it is stated If the debtor makes an order upon his banker for payment of the amount of the debt and the creditor accepts it and keeps it in his hands an unreasonable time before 106 presenting it for payment and the banker becomes insolvent the debtor is discharged on account of the laches of the creditor In Hobkins vs Ware1 it was held that a creditor who takes from his debtor s agent on account of the debt the cheque of the agent is bound to present it for payment within a reasonable time and if he fails to do so and by his delay alters for the worse the position of the debtor the debtor is discharged although he was not a party to the cheque
In the old case of Chamblerlyn vs Delarive2 it was held that if a creditor accepting a note or draft of his debtor upon a third person holds it an unreasonable time before he demands the money and the person upon whom it is drawn becomes insolvent it is the creditor s own loss though the draft be not a bill of exchange or negotiable
Now in the instant case the respondents accepted from their debtors the appellants a cheque drawn by a third party on the Tripura Modern Bank and endorsed by the appellants
The respondents through their collecting agents the Calcutta Commercial Bank presented the cheque for collection to the Tripura Modern Bank and instead of obtaining cash payment received a draft drawn by the Sibsagar Branch of the Tripura Modern Bank on its Head Office
Having accepted this draft in course of collection of the cheque the respondents vis a vis the appellants were in no better position than they would have been if they had accepted the draft from the appellants directly as conditional payment of the cheque
In the circumstances the respondents owed a duty to the appellants to present the draft for payment within a reasonable time
The draft could be presented for payment at any time during the period of three months from the date of its issue
Instead of presenting the draft for payment the respondents collecting agents kept it in their hands and made no attempts to cash it
PW 3 an employee of the Calcutta Commercial Bank said that the draft was sent by the Gauhati Office of the Bank to its head office by registered post but the head office had closed its business and the draft came back to the Gauhati office undelivered
The closure of the business of the collecting agents was not a lawful excuse for not obtaining delivery of the draft and not presenting it for payment within a reasonable time
PW 3 admitted that had the draft been presented for payment to the Tripura Modern Bank before October 16 1948 it would have been paid on presentation and the money could not be realised only because the Calcutta Commercial Bank had closed in the meantime
The Tripura Modern Bank closed its business on October 16 1948
Because of its inability to pay its debts the Tripura Modern Bank is now working under a scheme of arrangement
The failure of the respondents and their agents to cash the draft within a reasonable time altered the position of the appellants for the worse and caused prejudice to them
In the circumstances the respondents must be regarded as having kept the 1LR 2   107 draft in absolute payment of the cheque
The cheque must be treated as duly paid and consequently the original debt stood discharged
The High Court was on error in holding that the failure to obtain payment of the draft was not due to the laches of the respondents  collecting agents
In one part of the judgment the High Court wrongly assumed
contrary to fact that the Tripura Modern Bank had stopped business on September 16 1948 and therefore the draft could not be cashed on presentation whereas in fact the Tripura Modern Bank had stopped business a month later on October 16 1948
Moreover the High Court wrongly assumed that the appellants did not suffer any loss on account of the delay in the presentation of the draft
There is clear evidence on the record that the draft would have been cashed if it had been presented for payment before October 16 1948
Mr Chatterjee also contended that the respondents  collecting agents must be deemed to have accepted the demand draft on September 14 1948 as absolute payment of the cheque and that the cheque was in the eye of law paid and discharged on that date
There is a lengthy discussion on this point in the judgment of the High Court but we do not think it necessary to decide this question
In the result
the appeal is allowed the judgment and decree passed by the High Court are set aside and those of the trial Court are restored
The respondents shall pay to the appellants the costs in this Court
The parties will pay and bear their own costs in the Courts below
Mudholkar j I agree with my brother Bachawat that this appeal should be allowed but I would prefer to rest my decision upon a different ground
It is not necessary to repeat here the facts which have been set out in my learned brother s judgment
Mr NC Chatterjee appearing for the defendants appellants urged two grounds the first of which was that the plaintiffs respondents had accepted the draft for Rs 9455 dated September 14 1948 drawn by the Tristan Modern Bank Sibsagar on its Head Office at Calcutta in payment of the cheque for Rs 9461 4 0 drawn on the Tripura Modern Bank Sibsagar which the appellants had endorsed in favour of the respondents in satisfaction of the amount due upon that cheque and that therefore the subsequent dishonor of the draft would not revive the appellants  liability to pay Rs 9455to the respondents
The other ground was that the appellants were discharged from liability because of the laches of the respondents in not presenting the draft for encashment within reasonable time of the drawing of that draft
My learned brother has rested his decision on the second ground
In my view however it is not necessary to express any opinion upon the second ground as the first ground urged by Mr Chatterjee is a good answer to the respondent s claim
108 It is a well accepted rule of English law which has been applied in this country also that when a debt becomes due the debtor must tender to the creditor the exact amount of the debt in cash or other legal tender and that where a cheque is tendered by the debtor to the creditor the payment may be absolute or conditional the strong presumption being in favour of conditional payment
see Chalmers on Bills of Exchange p 301 12th ed
Therefore when the respondents accepted the cheque drawn by Messrs Nathuram Jaidayal of Sibsagar in favour of the appellants and endorsed by the appellants in their favour and sent it to the Calcutta Commercial Bank Ltd Gauhati Branch for collection they must have accepted it as conditional payment
The respondents  bank instead of collecting cash from the Tripura Modern Bank Ltd Sibsagar sought to collect the amount by draft
The reason for this given by Debendra Chandra Mazumdar PW 3 who was Assistant Accountant at the Gauhati Branch of the Calcutta Commercial Bank Ltd at the relevant time was that the Bank usually collected money from other banks by draft
There is nothing to indicate in his evidence that this was the prevailing practice in the Banks carrying on business in Assam
According to him the respondents  bank asked for a draft payable at Gauhati but the Tripura Modern Bank Ltd sent one payable at Calcutta
The respondents  bank however accepted the draft and sent it by registered post to Calcutta for collection
Some time thereafter the respondents  bank closed business and the demand draft was returned undelivered
The respondents  Bank made over the draft to the respondents
It may be mentioned that though the Tripura Modern Bank Ltd had branch at Gauhati the respondents  Bank did not object to a draft payable at Calcutta thinking that the money due thereunder could be collected earlier from the Calcutta branch of the Tripura Modern Bank
The matter however did not rest there
After the respondents  Bank went into liquidation the respondents wrote a letter on November 19 1948 to the Agent of the Tripura Modern Bank Ltd Calcutta saying that the demand draft belonged to them and not to the Calcutta Commercial Bank Ltd who were only acting as their agents for collection purposes and that the amount for which the draft was drawn should be paid to them and not to the Calcutta Commercial Bank or any one on its behalf
This letter clearly shows that the respondents accepted the draft in full payment of the amount due to them under the cheque which the appellants had endorsed in their favour
Thus though the cheque endorsed by the appellants in favour of the respondents was only a conditional payment of the amount for which the cheque was drawn the respondents by accepting the demand draft drawn by the Tripura Modern Bank Sibsagar on its Calcutta Branch must be deemed to have accepted that draft as a legal tender or as absolute payment of the amount payable order the cheque endorsed in their favour by the appellant
Thehrights thereafter would rest only upon the demand draft and not upon the original debt which the appellant owed to them
It may be mentioned that the 109 Tripura Modern Bank had not gone into liquidation till a month later and would as stated by Debendra Chandra Mazumdar PW3 have been able to meet the draft had it been presented to its Calcutta Branch within reasonable time from the date on which it was drawn
It is because the respondents  Bank went into liquidation just about the time the registered letter containing the draft was sent to Calcutta and no one took delivery of it that the draft could not be presented to the Calcutta Branch of the Tripura Modern Bank
The remedy of the respondents therefore could be against their own bank that is the Calcutta Commercial Bank or against the Tripura Modern Bank but certainly not against the appellants
Reliance however was placed by Mr SC Nath for the respondents upon the letter dated September 10 1949 written by the appellant to the respondents in which the appellant wrote as follows    and received your letter
You wrote that the payment of Rs 9461 4 0 had not been received
Please get the cheque back
We have written to the drawer which please note
 According to learned counsel therefore the appellant must be deemed to have accepted its liability upon the cheque which it had endorsed in favour of the respondents
There is no reference in this letter to the demand draft and it is quite clear therefore what the appellant said was in ignorance of the fact that the respondents bank had accepted a demand draft in payment of the cheque
It may be mentioned that the Tripura Modern Bank Sibsagar had actually debited the account of the drawer of the cheque with the amount for which the cheque had been drawn
The cheque had thus been honoured by them
But instead of paying cash they issued a demand draft at the instance of the respondents bank
This letter therefore does not improve matters for the respondents
For these reasons the appeal is allowed the decree of the High Court is set aside and that of the trial court restored
The respondents will pay the appellants costs in this Court and in the Courts below and bear their own costs
Appeal allowed


Summary:
In payment of an amount due from them to the respondents the appellants sent to the respondents on August 31 1948 a cheque which had been drawn on the Sibsagar branch of a Tripura Bank in favour of the appellants by a third party and thereafter endorsed by the appellants to the respondents
On September 4 1948 the respondents forwarded the cheque to their bankers a Gauhati Bank who
in turn sent the cheque to the Tripura Bank at Sibsagar for encashment
That bank debited the amount of the cheque to the account of the third party and sent to the respondent s Gauhati Bank a draft which was payable at its own Head Office at Calcutta
Thereafter the respondents  Gauhati Bank forwarded the draft to their Head Office at Calcutta for collection but the latter never presented the draft and made no attempt to collect the amount of the draft
In the meantime the respondents bank closed its business on September 17 1948 and was ordered to be wound up
About a month later the Tripura Bank also closed its business and was compelled to enter into a scheme of arrangement with its creditors
Upon the failure of their attempts to obtain payment of the draft amount from the Tripura Bank the respondents instituted a suit against the appellants claiming payment of their dues on the ground that the cheque dated August 31 1948 was received by the respondents as a conditional payment and as the cheque had not been cashed the respondents were entitled to enforce their original claim
The sub Judge dismissed the suit but the High Court in appeal reversed the decision and decree the suit
On appeal to the Supreme Court HELD per Raghubar Dayal Bachawat and Ramaswami J JAlthough the respondents originally received the cheque as a conditional payment of their dues and if nothing else had happened the original debt would have revived on non payment of the cheque having regard to the laches of the respondents in the collection of the draft and the consequential prejudice to the appellants the respondents must be deemed to have retained the draft as absolute payment of the cheque and on the payment of the cheque the original debt stood discharged
105 E F Chetty on Contracts 22nd Edn article 1079 Addison s Treating on the Law of Contracts 11th Edn
p 156 Hobkins vs Ware  Chamberlyn vs Delarive   referred to
per Mudholkar
J There was evidence to show that respondents  bank instead of collecting cash from the Tripura Bank at Sibsagar sought for reasons 0 their own to collect the amount by draft
Furthermore after the respondent bank went into liquidation the respondents wrote to the Tripura Bank stating that the 104 amount of the demand draft belonged to them and not to their bankers who were only acting as their agents for collection purposes and that accordingly the draft amount should be paid to them
Thus though the cheque endorsed by the appellants in favour of the respondents was only a conditional payment of the amount for which the cheque was drawn the respondents by accepting the demand draft drawn by the Tripura Bank must be deemed to have accepted the draft as a legal tender or as absolute payment of the amount payable under the cheque endorsed in their favour by the appellant
Their rights thereafter would rest only upon the demand draft and not upon the original debt which the appellant owed to them
The remedy of the respondents therefore could be against their own bank or against the Tripura Bank but not against the appellants
108 E 109 C