C.V.R.M. Ramaswami Chettiar and Others vs P. Jeevarathnammal

Govinda Menon, J.—Defendants in O.S. No. 182 of 1949 on the file of the Sub-Court of Devakottai are members of a Hindu joint family

belonging to the Nattukottai Chettiar community, being the sons of one Venkatachalam Chettiar who was doing banking business in

Kanadukathan, Ramanathapuram district, as well as in various other places in Burma. The suit against them was for recovery of a sum of Rs.

23,689-4-3 being the amount due under an alleged deposit account with interest thereon. The plaintiff alleged that she was residing in Burma with

her husband from about 1920 till she left it in 1933 and that during the period of her residence there, she became a customer of the C.V.R.M.

Bank at Burma which was the defendants* family firm doing banking business and opened a deposit account, depositing for interest all the moneys

she had been saving from time to time. All the amounts deposited by her were entered in a pass book and the total of the amounts in deposit was

ascertained to be Rs. 22,000 in all in February, 1932 and the deposit account was continued, the same being cerdited in the accounts as a fresh

deposit carrying Rangoon nadappu rate of interest repayable to the plaintiff whenever demanded. While such a relationship of depositor and

depositee was subsisting collateral to it by way of further security without detriment to such relationship, the defendants'' family bank created a

mortgage of certain specific immovable properties in Burma by deposit of title deeds in Rangoon in 1938. It is alleged that the properties belonged

to the said business in Rangoon and the said collateral mortgage security is still subsisting and continuing. The bank had also been executing from

time to time by way of additional collateral security periodically, pronotes for some round figures signed by any one of the defendants or by the

agent of the firm at Rangoon and the last of the security documents was a deposit letter executed by the third defendant on behalf of the family firm

in favour of the plaintiff for a sum of Rs. 25,000 on 23rd April, 1941. Subsequently a fresh deposit agreement as shown by the statement of

account up to 12th April, 1941, was also created for a sum of Rs. 25,654-2-0 bearing Rangoon Nadappu rate of interest. Subsequent to this the

following amounts were paid, viz., Rs. 2,154-2-0 on 23rd April, 1941, Rs. 1,000 on 2nd July, 1941 and Rs. 500 on 7th March, 1944. After this

no further payments were made. Demand was made on the defendants for the balance of the amount due on 16th September, 1949, but the

defendant sent a reply notice dated 20th September, 1949, setting out false defences. The plaintiff also expressed her willingness to receive

payment in Rangoon if the defendants would name the agent if any appointed by them to make payment there. To this notice of demand the

defendants sent an evasive and false reply. The cause of action arose at Rangoon where the deposit agreement had been made and concluded

from February, 1949 when the demand was made but as the defendants are permanently residing in Kanadukathan and as the headquarters of

their business also exists there, the suit has been filed in the Devakottai Sub-Court.

The defendants in their written statement denied the existence of any deposit account as alleged by the plaintiff but stated that there were certain

transactions between the plaintiff and the defendants'' C.V.R.M. firm at Rangoon and that; those transactions were finally closed on 14th February,

1932 by payment to the plaintiff of a sum of Rs. 924-8-3 in cash. It was further averred that as a result of subsequent dealings between the plaintiff

and their firm at Rangoon, the firm''s agent had executed a promissory note in favour of the plaintiff for Rs. 22,200 on 14th February, 1932 and by

way of collateral security for the said sum an equitable mortgage was created in respect of certain properties situate in Burma on 24th February,

1932, by deposit of title deeds with the plaintiff. In these circumstances it was contended that there was no relationship of depositor and depositee

existing between the plaintiff and the defendants and the claim on the basis of the promissory note as well as the right to enforce payment for the

mortgage amount personally against the defendants would be barred by limitation. It was further alleged that it is because the remedy on the basis

of the promissory note is no longer, enforceable that the plaintiff has invented the story of deposit for the purpose of filing a vexatious suit against

the defendants.

On these pleadings, the learned Subordinate Judge framed as many as eleven issues the first of which was whether the transaction with the

defendants'' C.V.R.M. business was one of deposit payable on demand. The second issue was : Were the promissory notes or the mortgage on

deposit of title deeds made merely collaterally for the deposit account or were the independent loans of Rs. 15,000 and Rs. 5,000 respectively.

The third issue related to the question whether the promissory note for Rs. 22,200 in consolidation thereof was executed as collateral security only

for the mortgage amount of Rs. 22,200. On these issues the learned Subordinate Judge came to the conclusion that the transaction with the

defendants'' firm C.V.R.M. was one of deposit payable on demand, that the promissory notes or the mortgage on deposit of title deeds were

made merely collaterally for the deposit made by the plaintiff from time to time extending for a period of over twenty years. It was further found

that they were not either independent loans of Rs. 15,000 and Rs. 5,000 and that the promissory note for Rs. 22,200 was not executed as

collateral security for the mortgage for Rs. 22,200. On the question covered by issues 8 and 9 whether the Sub-Court at Devakottai had

jurisdiction to try the suit and whether the plaintiff had cause of action for filing the suit the learned Judge held in favour of the plaintiff. Issue No. 7

was whether the suit was barred by limitation. The finding of the learned Subordinate Judge on this issue was that for the reasons given by him

while discussing issues 1 to 3 the plaintiff''s suit was not barred by limitation.

On these findings the suit was decreed with costs and aggrieved by that judgment the defendants have preferred the present appeal.

The main contention on behalf of the appellants is with regard to the question whether the plaintiff was a depositor with defendants''

(Appellant''s) firm. It is not disputed that the transactions between the parties originated as deposit by a constitutent in a banking firm. Exhibit A-1

is the pass book issued to the plaintiff by the Rangoon C.V.R.M. firm. The transactions commenced on 1st February, 1921 and closed on 14th

February, 1932. From the several entries noted there, it is found that various amounts were deposited by the plaintiff during the relevant period of

eleven years. The entry against the date 14th February, 1932, is to the effect that there was a credit of Rs. 24-8-3 and a debit of Rs. 924-8-3.

There can therefore, be no doubt that the transactions were as deposit. Exhibit A-24 relates to entries at pages 116 and 117 in the day book No.

5 of the C.V.R.M. firm on 13th February, 1932 and 14th February, 1932. There is a credit entry in favour of the plaintiff, Jeevarathnammal, for

one pronote executed by ''K'' with interest at the nadappu rates for Rs. 22,200. In addition to this entry it is noted that as security for the pronote

of Rs. 22,200 various title deeds in respect of properties in Burma and other places have been handed over to Jeevarathnammal. Obviously the

intention was to create an equitable mortgage. Mr. Gopalaswami Ayyangar''s argument for the appellants is that when once the amount is

consolidated and a promissory note is executed for that and along with it, title deeds are deposited as collateral security the jural relationship of

depositor and depositee ceases to exist and thereafter the parties stand in the roles of mortgagor and mortgagee with the result that the plaintiff has

to sue for recovery of the amount due by enforcement of the mortgage or after relinquishing the security, sue for the amount due if the personal

remedy is not barred. In any event learned Counsel contends that the defendants cannot be made liable personally for the sum due. He invokes the

application of Article 59 of the Limitation Act where it is provided that for money lent under an agreement that it shall be payable on demand the

peiiod of limitation is three years from the time when the loan is made. Contrast is made with the language of Article 60 which states that for money

deposited under an agreement that it shall be payable on demand including money of a customer in the hands of his banker so payable, the period

of limitation is three years from the time when the demand is made. Comparing the provisions of these two articles learned Counsel contends that in

the instant case Article 59 would apply because from the date, viz., 23rd April, 1941, when Exhibit A-12 was executed the plaintiff has become a

promisee under the promissory note and a lender so far as the loan is concerned in which case the period of limitation will be only three years from

the 7th of March, 1944, when the endorsement of payment was made. The observations of the Judicial Committee in Suleman Haje Ahmed Umar

v. Abdulla Haje Rahimtulla 1940 M.W.N. 1000 , where their Lordship have laid down that the test in deciding whether a transaction is a loan or a

deposit is by ascertainment from the facts whether there was an obligation on the bailee to seek out the bailor and repay him and whether lie was

to keep the moneys till the bailor asked for them and held that where there is no duty on the bailee of the moneys to seek out his bailor and repay

him but only a duty to repay if and when the bailor requested payment the bailment was a deposit and a suit to recover the moneys will be

governed by Article 60 of the Limitation Act and if the bailment were a loan it would be reasonable to expect it to be attended by one or other of

the things, viz., any security for the alleged loan, any receipt in writing, any promissory note, or any agreement as to what rate of interest the loan

thereto should carry, were called in aid to support the contention that when the promissory note was executed and later on collateral security by

deposit of title deeds was also given the transaction had got transformed into that of a loan and the original character of deposit had ceased to

exist.

On the other hand Mr. T. Venkatadri for the respondent invited our attention to a large body of case-law to the effect that it is competent for a

promisee under a negotiable instrument such as a promissory note to fall back upon the original cause of action and institute a suit on that basis

without having recourse to any rights and liabilities under the promissory note. Our attention was invited to the leading case in Sheik Akbar v.

Sheikh Khan I.L.R.(1881) Cal. 256, where the learned Judges laid down that a suit can be laid on the original cause of action apart from the cause

of action on the promissory note or any other negotiable instrument. A distinction is made between a case where the cause of action for money is

complete before the execution of the bill or the note itself and where the original cause of action is bill or note itself. In the former case it is open to

the plaintiff to fall back upon the original cause of action. When a promissory note is executed in consideration of the money due under an earlier

transaction contemporaneous with the advent of the note itself the execution of the note operates only as a conditional discharge and it is always

open to the creditor to fall back upon the original cause of action. See the decisions in Jambu Chetty v. Palaniappan Chettiar (1902) 13 M.L.J.

252 : ILR Mad. 526, Yarlagadda Veeraraghavyya, and Others Vs. Gorantla Ramayya, , Kodali Mallaya Vs. Tangoppala Ramayya, , and

Sundararamayya v. Sitamma ILR Mad. 639, and all of which are authorities for the position that the mere fact that a promissory note was

executed will not extinguish the original relationship that exists between the parties under the earlier transaction. The observations of Biswas, J., in

Sri Sri Iswar Sridhar Jieu Thakur represented by his shebait Jyoti Prosad Bandopadhya Vs. Jahor Lal Mukhopadhya and Others, , to the effect

that when a promissory note is executed in consideration of an already existing liability the note containing as it does an express promise to repay

cannot wipe out the promise to repay which is implied in the loan itself, were stressed. It is, therefore, contended that there can be no question of

any merger of the original consideration in the promissory note so as to make the promissory note the only available cause of action. The liability

under the original loan being quite independent of the promissory note can ho more be extinguished fey the execution of a fresh promissory note

than an original debt is by substitution of a new security. A dictum similar to the above is contained in Abdul Majid Vs. Ganesh Das Kalooram Ltd.

and Another, . A Full Bench of five Judges in Maung Chit v. Roshan M.M.A. Kareem Oomer & Co. I.L.R.(1934) Rang. 500, after discussing a

large body of case law has laid down that 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 agree to treat it as such. Such a conditional payment is liable to be defeated on

non-payment of the negotiable instrument at maturity. The learned Chief Justice formulates various propositions after discussing the case-law at

pages 506 and 507 of the judgment. The observations contained in well-known text books as well as in various cases decided in England were

also cited at the Bar. In Holdem''s History of Negotiable Instruments in English Law, page 85, there is a citation from the judgment of Holt, C.J.,

and Powell, J., in Ward v. Evans 2 Ld. Raym. 928, to the effect that the acceptance of such a note is not actual payment. The discussion at pages

109 and no were instructive, on the question whether the note operates as a conditional payment or not, Holt, G.J., is quoted as laying down that it

is a firmly established principle that a note or bill given operates in the absence of an express agreement as a conditional payment only. Various

cases are cited at page 110.

In Byles on Bills of Exchange (21st edn.) at page 315 paragraph relating to bill as collateral security states that a creditor who takes from his

debtor as collateral security only, a bill does not give up his original cause of action. The paragraph runs as follows:

A creditor may agree to take for debt already due a bill as a collateral security without affecting'' his present right to sue for that debt. A creditor

who takes from his debtor as a collateral security only a bill, endorsed by his debtor, as he is the trustee, of the rights, so he is bound by the duties

of a holder and if he neglects to present or give notice of dishonour to his debtor the debtor is; discharged; for no one but the actual holder can

perform these duties.

The American law on the subject is contained in the well-known treatise, by Daniel on Negotiable Instruments ((sic)th edn.), Vol. 11. In

paragraphs 1259 and 1260-at page 1418 of the book it is stated that with regard to the question whether a bill or note taken for and on account of

a debt operates as a complete merger or simply as a collateral security or any suspension of the debt during its currency the controlling element is

the intention of the parties. It is a general principle of law that one simply executory contract does not extinguish another for which it is substituted

and negotiable securities form no exception and by the general commercial law as well of England as of the United States a bill of exchange drawn

or promissory note made by the debtor does not discharge the precedent debt for which it was given unless such be the agreement of the parties.

The creditor may return the bill or note when dishonoured by non-acceptance or non-payment and proceed upon the original debt. Then follows

the quotation from Lord Holt which we have already considered. Another text book where the same subject-matter is dealt with is Foundations of

Legal Liability by Street, Vol. 11, Contract. At page 389 of this book there is a discussion regarding a note or bill given for a precedent debt

treated as a conditional payment. Quoting from Ward v. Evans 2 Ld. Raym. 928, the learned author says that it operates only as a conditional

payment of debt. The foundation of all these discussions is the judgment of Lord Holt, C.J., the observations of Lord Esher, M.R. in Re Romer v.

Haslam (1893) 2 Q.B. 286 , may also be noted and they are to the following effect:

It is perfectly well-known law, which is acted upon in every form of mercantitle business that the giving of a negotiable security by a debtor to his

creditor operates as a conditional payment only and not as a satisfaction of the debt unless the parties agree so to treat it. Such a conditional

payment is liable to be defeated on non-payment of the negotiable instrument at maturity, and it is surprising that there can be at present day any

doubt as to the business result of such a transaction.

Bowen, L.J., at page 300 agrees with the Master of the Rolls in the following words:

It has been established by a series of authorities which it would be ridiculous to go through seriatim that a bill of exchange given for a debt amounts

to a conditional payment of that debt and is only conditional payment so long as it is running; the payment is liable to be defeated when the-bill is

dishonoured.

We may also refer to Bottomley v. Nuttall 28 L.J. C. C. P. 110, and Allen v. Royal Bank of Canada 134 L.T.R. 194 , so far as the English

law is concerned.

It is a recent edition of the Negotiable Instruments Act by Bashyam and Adiga (10th edn., 1956) in Appendix G from page 597 onwards the

matter is considered at great length and all case-law on the subject has been referred. From these above cases there can be no doubt that the

pronotes executed in 1941 would amount only to conditional payment.

The application of the doctrines enunciated in the case-law discussed above would reveal that even though the plaintiff took a promissory note

as security for the moneys due under the deposit and also became a mortgagee under an equitable mortgage there is no overt act of hers from

which it can be conclusively held that she has waived her legal rights that would enure in her favour because of the relationship of the depositor and

depositee. In transactions among Nattukottai Chettiars where such deposits are made, the nature of the deposit is not altered by taking of security

can be seen from the decision in Ramaswamy Chettiar alias Sethu Chettiar and Others Vs. K.S.M. Manikkam Chettiar and Others, . In that case

Exhibit A an agreement had as its foundation the moneys given from time to time to a bridegroom from the bride''s family as deposit and when a

suit was brought more than three years after the date of the document, a plea was put forward that it was barred by limitation. Pandrang Row, J.,

answered that contention in the following words:

The original deposit of the money at the time of Valliammal Achi''s marriage was undoubtedly a deposit with a banker and this position has not

been disputed before us. It is, however, contended, that after the execution of Exhibit A the position was radically changed and the money was no

longer a deposit with a banker. We fail to see how this transformation can be said to have been effected by Exhibit A.

On the other hand Exhibit A clearly says that the portion of the money that was to go to the first plaintiff was payable to the order of the second

plaintiff by the firm with whom the money was lying. The original deposit itself was in the name of the first plaintiff and the arrangement came to

nothing more than that a portion of what was deposited should be paid for the benefit of the first plaintiff and to the order of the second plaintiff. In

other words that money still remains as a deposit payable on demand to the order of the second plaintiff.

These observations are particularly apt in regard to the point now for decision. We do not think that by the execution of subsequent documents the

character of the original deposit has in any way been altered.

Such being the case it should be held that the relationship of the depositor and depositee between the plaintiff and the defendants'' banking firm

continues, to exist.

The next argument strenuously put forward on behalf of the appellants is that, even if the transaction can be viewed as a deposit in 1944, still

the suit having been brought more than three years after the demand took place is barred by limitation. Exhibits B-8 and B-11 are referred to in

this connection. In Exhibit B-8 dated and January, 1943, plaintiff writes to P.W. 2 complaining that she has not received any amount for the

principal and interest due to her from the defendants'' family. She, therefore, asks P.W. 2 to remit to her at once the entire principal and interest:

payable thereon up to date and requests him to forward her letter to the defendants'' firm and to expedite the payment of the amount. Exhibit B-1.1

''dated 7th April, 1944, written by the plaintiff to the defendants'' firm contains a request for the payment of the amount. In this the plaintiff says that

she is hard pressed for money; and that she wants the entire amount, and that she cannot wait any, longer. She further states that the firm''s agent

assured her that he would send a sum of Rs. 1,000. but that only a sum of Rs. 500 was sent towards the endorsement of payment on the

promissory note. So she claims the full amount to be paid to her immediately. Mr. Gopalaswami Ayyangar relies on Exhibit B-11 as a demand as

contemplated in Column 3 of Article 60 of the Limitation Act and contends that the suit not having been laid within three years from 7th April,

1944, is barred by limitation. In this connection our attention was also invited to Exhibit B-10 dated 10th February, 1947.

Mr. Venkatadri answers the above argument by relying upon the observations contained in Subbiah Chetty and Others Vs. Visalakshi Achi,

for the position that the demand-should be an unqualified one and for the entire amount. It may be mentioned in this connection that even though

Exhibit B-11 may be construed as a demand, it was not an unconditional one because the plaintiff wanted Rs. 500 which had not been paid to her

to be paid immediately.

Though there are words in the earlier portion of the document stating that she (the plaintiff) was not willing to wait any longer we find it difficult

to interpret Exhibit B-11 as an unconditional demand for the amount due. Moreover from Exhibit B-10 it is clear that till that date the parties were

proceeding on the footing that the relationship of depositor and depositee existed between them. The demand contained in Exhibit B-10 is for the

payment of the balance amount due up to 28th February, 1947. The observations of the Supreme Court in a recent decision in V.E.A. Annamalai

Chettiar and Another Vs. S.V.V.S. Veerappa Chettiar and Others, , were also called in aid in support of the contention of the respondent that no

unconditional demand was made. We are, therefore, of the opinion that the demand necessary to attract the provisions of Column 3 of Article 60

of the Limitation Act was made only by Exhibit B-10 and the suit having been filed within three years from that date is not barred by limitation.

The next argument of Mr. Gopalaswami Ayyangar is that the demand should be at the place of deposit, namely, in Rangoon and since there

has been no demand made on the defendants'' firm in Rangoon the suit is not sustainable. He relied on the decision in The Delhi Cloth and General

Mills Co. Ltd. Vs. Harnam Singh and Others, . In paragraph 43-A of their Lordships'' judgment there are observations to the effect that the

demand should be made at the branch where the account is kept. In this connection reference has to be made to Exhibit A-14 the registered notice

sent by the plaintiff to the defendants wherein it is stated that the plaintiff is prepared to make arrangements to receive payments at Rangoon at the

appointed place and time. That being the case there is no substance in the argument that the demand for payment should have been made in

Rangoon. Further the defendants are residing in the State of Madras and the plaintiff has already expressed her willingness to receive payment at

Rangoon. The venue of the defendants'' banking business is now in the Madras State though they transact business in Rangoon and that firm is only

part and parcel of their Indian concern. It cannot be said that these Nattukottai Chettiars who are carrying on business in money lending are

bankers in the strict sense of the term in order to attract the observations of their Lordships in The Delhi Cloth and General Mills Co. Ltd. Vs.

Harnam Singh and Others, . In any event if the defendants are willing to pay the money in Rangoon there would be no difficulty for the plaintiff to

receive the payment as stated in her letter, Exhibit A-14.

Mr. Gopalaswami Ayyangar then raised a question as a subsidiary point to the main contention that the firm of the defendants is still functioning

in Rangoon. But there is no satisfactory evidence to show that it is still functioning there. We do not think that the plaintiff can be non-suited by

raising such a plea.

Learned Counsel''s further argument based upon Section 68(2) of the Transfer of Property Act which lays down that for the money due on a

mortgage a suit cannot be brought until the mortgagee has exhausted all his available remedies against the mortgaged property or what remains of it

unless the mortgagee abandons his security and if, necessary, retransfers the mortgaged property, has now to be considered.

What is argued is that when there has been an equitable mortgage by deposit of title deeds in Rangoon as is seen from Exhibit A-24 it was

obligatory upon the plaintiff to file a suit on foot of that mortgage in Rangoon and exhaust that remedy and then only can she avail herself of the

remedy under the deposit. The difficulty in accepting this argument is that the plaintiff cannot bring a suit in the State of Madras when there is no

equitable mortgage on which a suit can be filed. Whether such an equitable mortgage exists in Burma need not be considered for this, reason that

the provisions of the Transfer of Property Act now in force in our country may or may not be applicable in Burma at the present time. The

prohibition contained in Section 68 (2) of the Transfer of Property Act will apply only if the suit could be laid in the Madras State and admittedly

such a suit cannot be filed.

We do not think that this argument is acceptable.

In the result the decision of the lower Court is correct and this appeal fails and is dismissed but in the circumstances, the parties will bear their

costs here and in the lower Court.