Case: Ramlal Onkarmal Firm Vs. Mohanlal Jogani Rice And Atta Mills

Bachawat, J. (On behalf of himself, Raghubar Dayal and V. Ramaswami, JJ.):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. 9,447-4-9. In order to satisfy the dues of the respondents the appellants sent to the respondents a cheque for Rs. 9,461-4-0 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 Nathuram Jaidayal with the sum of Rs. 9,461-4-0, and after deducting Rs. 6-4-0 on account of commission charges, sent to the Calcutta Commercial Bank, Gauhati a draft for Rs. 9,455, 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. In the meantime, the respondents wrote to the appellants informing them that cash payment far 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.2. On November 19, 1948, the respondents requested the Tripura Modern Bank to pay the amount of the draft to them and not to 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.3. 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.4. In Chitty on Contracts, 22nd Edn., Art. 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 Addisons 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 presenting it for payment, and the banker becomes insolvent, the debtor is discharged on account of the laches of the creditor."In Hobkins v. Ware, (1869) 4 Ex 268, it was held that a creditor who takes from his debtors 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 Chamberlyn v. Delarive, (1767) 2 Wils KB 353: 95 ER 854, it was held that it a creditor accepting a note of 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 creditors own loss, though the draft be not a bill of exchange or negotiable.5. 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. P. w. 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. P. W. 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 agent to cash the draft within a reasonable time altered the position of the appellants for the worse, and caused prejudice to them. In the altered the respondents must be regarded as having kept the draft in absolute payment of the cheque. The cheque must be treated as duly paid and consequently, the original debt stood discharged.6. The High Court was in 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, 1948.7. 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.8. 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.9. 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.10. It is not necessary to repeat here the facts which have been set out in my learned brothers judgment. Mr. N. C. Chatterjee, appearing for the defendants-appellants, urged two grounds, the first of which was that the plaintiffs-respondents had accepted the draft for Rs. 9,455 dated September 14, 1948 drawn by the Tripura Modern Bank, Sibsagar on its Head Office at Calcutta in payment of the cheque for Rs. 9,461-4-0 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 dishonour of the draft would not revive the appellants liability to pay Rs. 9,455 to 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 urge by Mr. Chatterjee is a good answer to the respondents claim.11. 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 Edn.).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, P. W. 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 appellant had endorsed 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 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. It may be mentioned that the Tripura Modern Bank had not gone into liquidation till a month later and would, as stated by Debendra Chandra Mazumdar, P. W. 3, 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 appellant. Reliance, however, was placed by Mr. S. C. Nath for the respondents upon the letter dated September 18, 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. 9,461-4-0 had not been received. Please get the cheque back. We have written to the drawer, which please note."12. 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 foot 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.

Decision:
1[ds]6. The High Court was in 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.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. P. w. 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. P. W. 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 agent to cash the draft within a reasonable time altered the position of the appellants for the worse, and caused prejudice to them. In the altered the respondents must be regarded as having kept the draft in absolute payment of the cheque. The cheque must be treated as duly paid and consequently, the original debt stood discharged.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.