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

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 Nattu-kottai 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 allied 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 credited 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 1932.

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, promotes 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 23-4-1941

Subsequently a fresh deposit agreement as shown by the statement of account up to 12-4-1941 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 23-4-1941, Rs. 1000/- on

2-7-1941 and Rs, 500/- on 7-3-1944. After this no further payments were made. Demand was made on the defendants for the balance of the

amount due on 16-9-1949 but the defendants 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 notices of demand the defendants sent an evasive and false reply. The cause of action arose at Rangoon Where the

deposit agreements 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 exits 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 & the defendants'' C.V.R.M. firm at Rangoon and that those transactions were finally closed on 14-2-1932 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 14-2-1932 and by way of collateral security for the said sum an equitable mortgage

Was created in respect of certain properties situate in Burma on 24-2-1932 by deposit of title deeds with the plaintiff.

In these circumstances it was contended that (here was no relationship of depositor and de-positee 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. businesss 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 they independent loans of Rs. 15,000 and Rs. 50007-

respectively.

The third issue related to the question whether the promissory note for Rs. 22,2007- 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. B. M. was one of deposit payable on demand, that the promissory notes or the mortgage on deposit of title deeds were

merely collaterally for the deposit made by the plaintiff from time ic 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. 60007-and that the promissory note for Rs. 22,200/- was

not executed as collaterally 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 issue 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 the defendants''

(Appellants'') firm. It is not disputed that the transactions between the parties orginated as deposit by a constitutent in a banking firm. Ex. A-l is the

pass book issued to the plaintiff by the Rangoon C. V. R. M. firm. The transactions commenced on 1-2-1921 and closed on 14-2-1932.

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 14-2-1932 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. Ex. A-24 relates to entries at pages 116 and 117 in the day book No. 5 of the C. V. R. M. firm on

13-2-1932 and 14-2-1932. There is a credit entry in favour of the plaintiff, Jecvarathanammal, for one pro-note executed by ''K'' with interest at

the nadappu rate 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 Jeevarathanamma. Ob-viously 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 use 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 Lim. Act where it is provided that for money lent under an agreement that it shall be payable 011 demand the period 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-, 23-4-1941 when Ex. 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 AIR 1940 132 (Privy Council) where their Lordships 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 he was to keep the moneys fill 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 Lim. 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 Sheikh Akbar v.

Sheikh Khan. ILR 7 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. Palani-appa Chettiar, ILR 26 Mad 526 , Yarlagadda Veera Ragavayya v. Gorantla Bamayya, ILR 29 Mad

111 (D), Mallayya v. Ramayya, 21 Mad LJ 462 and Subramaniaii Chetty v. Muthia Chetty, ILR 35 Mad 639 (P) 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 no more be extinguished by 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 Chit Maung v. Roshan N. M. A. Kareem Oomer & Co., ILR 12 Rang 500 AIR

1934 Hang 389 after discussing a large body of case law has laid down that the giving of a negotiable security by & 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 proposition after discussing the case law at pages 506 and 507 (of ILR Bang) : (at pp. 390-391 of

AIR) 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, (1704) 2 Ld. Raym. 928 (J) to the effect that the acceptance of such a note is not actual payment.

The discussion at pages 109 and 110 is instruc tive on the question whether the note operates as a conditional payment or not. Holt, C. J. Is

quoted as laying down that it is a firmly established principle that a note or Dill 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 a 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 the 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 (6th edn.) Vol. II, in para. graphs

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 Volume II, 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

(1704) 2 Ld. Raym, 928 (J) 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 QB 286(K) may also be noted and

they are to the following effect:--

''It as perfectly well'' known law, Which is acted upon in every form of mercantile 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 nonpayment 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"".

Bower 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, (1858) 28 LJPC 110 and Alien v. Royal Bank of Canada, 1925 13 1 LT 194 . So far as the English

Law is concerned.

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

especially at p. 602 the matter is considered at great length and all case law on the subject has been referred citing the following Indian decisions

Saminathan v. Palaniappa, 41 Ind App 142 Co., & Cawie Ebrahim 8 Ind Cas 967 Sarrapu v. Rampratapu, ILR 25 Mad 580 (P); ILR 26 Mad

526 (C); Kuttayan Chetty v. Palaniappa Chetty, ILR 27 Mad 540 (Q); Alexander Stewart y. Delhi & London Bank, Ltd., 17 Suth WR 201 (R);

Somarimull v. Bhairo, 7 Beng LR 431 (S); ILR 35 Mad 639 ILR ; Punjab National Bank Vs. Tajammul Husain Bisheshar Nath and Others,

Budhumal v. Gokal Chand, ILR 7 Lah 113 AIR 1626 Lah 328 From these above cases there can be no doubt that the promotes 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 her''s from

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

and depositee. In transactions among Nattu-kottai 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 Ex. 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 Valliarnmal 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 Ex. 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 Ex. A. pn the other hand Ex. 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 de-posited 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 de-posit payable on demand to t""e order of the second pilaintiff"".

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 hits 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 strenously put forward m 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. Exs. B-8 and B-ll are referred to in this

connection. In Ex. B-8 dated 2,1-1943 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, askes P, W. 3 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. Ex. B-ll dated 7-4-1944 written by

tlie 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

she wants the entire amount, and that she can, not wait any longer. She further states that the firm''s agent assured her that he would send a sum of

Rs. 1000/- 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 Ex. B-11 as a demand as contemplated in col. 3 of Article 60 of the

Limitation Act and contends that the suit not having been laid within three years from 7-4-1944 is barred by limitation. In this connection our

attention was also invited to Ex. B-10 dated 10-2-1947.

Mr. Venkatadd answers the above argument by relying upon the observations contained in Subbiah Chetty v. Visalakshi Achi, 63 Mad LJ

232: AIR 1932 Mad 685 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 Ex. B-ll 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 Ex. B-ll as an unconditional demand for the amount due. Moreover from Ex. 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 Ex. B-10 is for the

payment of the Balance amount due up to 28-2-1947.

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 un- conditional demand was made. We are, therefore, of the

opinion that the demand necessary to attract the provisions of col. 3 of Article 60 of the Limitation Act was made only by Ex. 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 Rango 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 Ex. A-I4 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 moneys 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, Ex. 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-suit ed 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 Ex. A-24 it was

obligatory upon the plaintiif 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 n 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 he 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.