N. Chellaperumal Chetty vs N.M. Jayarathnam Chettiar

Subrahmanyam, J.—The plaintiff appeals from the judgment and decree of the Additional City Civil Judge, Madras, in A.S. No. 29 of 1956

on his file. The learned Judge allowed the appeal preferred by the defendant from the judgment and decree of the Sixth Assistant Judge on the file

of that Court in O.S. No. 1462 of 1953, and dismissed the plaintiff''s suit with costs.

There was a public limited company known as the Conjeevaram Funds, Limited. The company was conducting chits. The defendant was

subscribing to a chit conducted by the company in the years 1949-53. The chit commenced in April, 1949. The defendant subscribed to five

tickets in that chit. The amount payable per ticket per month was Rs. 30. The duration of the chit was for forty months-The defendant paid the

amount for the five tickets for five months. In September, 1949, he purchased the chit and had to pay Rs. 5,250 on account of the remaining 35

instalments of the chit. He had to pay Rs. 150 per instalment. The total sum payable by him was Rs. 5,250. For that sum of Rs. 5,250, he

executed a promissory note, Exhibit A-1, in favour of the company.

The plaintiff was another subscriber in the same chit. He had subscribed to the chit fully and had not been paid the money due to him. On 13th

October, 1952, he instituted an Original Petition on the file of this Court for having the company wound up. The petition was being adjourned from

time to time for settlement. On nth March, 1953, the company endorsed in favour of the plaintiff the promissory note for Rs. 5,250 which the

defendant had executed on 5th September, 1949. The plaintiff reported to this Court on 12th March, 1953, that his petition for having the

company wound up was not pressed. The petition was dismissed on that date.

The plaintiff instituted the suit out of which the second appeal arises, for recovery of the sum due on the promissory note. After the execution of

the promissory note, the defendant paid some instalments of the chit. The amount payable on the promissory note on the date of the endorsement,

11th March 1953, was Rs. 2,395. The plaintiff prayed for recovery of that sum with interest from the date of the endorsement.

The learned Sixth Assistant Judge, City Civil Court, Madras, decreed the suit as prayed for. The decree was reversed in appeal by the learned

Additional Judge, City Civil Court at Madras. The suit was dismissed.

The learned Additional Judge held that the plaintiff was not entitled to sue on the promissory note and recover any money. The learned Judge''s

view was that the promissory note was executed as security for the payment of the money due on the future instalments of the chit and that the

plaintiff, by obtaining the promissory note on endorsement, obtained nothing. The learned Additional Judge thought that, while the Fund might have

been entitled to sue on the debt due on the chit and secured by the promissory note, the defendant could be sued by the plaintiff for the recovery of

the money in the event only of his obtaining an assignment of the debt in addition to getting the promissory note endorsed. That is a view which is

plainly wrong.

The defendant executed the promissory note for money payable to the chit fund. It is an error to call the promissory note, security. It is a

grievous error to say that, being mere security, the promissory note could not be enforced at all. The liability to the Company to pay Rs. 5,250 in

35 instalments was converted into the promissory note which the company took from the defendant. Thereafter, there was no liability on the part of

the defendant to the company other than the liability which could be enforced under the promissory note. There was no independent written

agreement on the part of the defendant to pay any sum of money to the Company on account of the future instalments of the chit. There was,

however, an oral agreement that the promissory note would be deemed to be discharged in the event of payment of Rs. 150 every month during

the next 35 months. After the execution of the promissory note, the relationship between the parties, viz., the Conjeeveram Funds, Limited and the

defendant, as creditor and debtor, was this. The defendant owed money on the promissory note and that liability enforceable under the promissory

note would be discharged by payment of Rs. 150 every month during the succeeding 35 months. If the defendant paid no money after the

execution of the promissory note, the company could institute a suit only on the promissory note and not on the basis of the initial agreement

relating to the chit. In suing on the promissory note, the Company would have to give credit to all the sums received as for the chit and sue only for

the recovery of the money which would be outstanding after giving credit to those sums. If, for example, three instalments were paid subsequent to

the execution of the promissory note, Rs. 450 would have to be credited and Rs. 5,250 minus Rs. 450 alone could be claimed as principal

outstanding on the promissory note.

So long as the defendant does not plead that the promissory note was nominal or that no liability was intended to be incurred under it, he cannot

be allowed to plead that the promissory note was mere security for some other liability, or that it was not enforceable. Evidence seeking to prove

any such plea would be barred u/s 92 of the Evidence Act.

I find that the defendant was bound to pay the Company the money due under the promissory note and that the promissory note represented

enforceable liability.

In taking the view that, in obtaining the promissory note on endorsement, the plaintiff obtained nothing, the learned Additional Judge appears to

have been misled by the analogy of endorsement of a promissory note executed by the manager of a joint Hindu family for a debt borrowed by him

for family necessity. The promissory note embodies merely his own personal promise to pay the money. It does not contain a promise on his part

to pay the money also out of the joint family properties. Where the payee in such a case endorses the promissory note, the endorsee obtains the

right to enforce the personal promise. He does not, by reason merely of the endorsement, obtain the right to enforce the managing member''s

liability to pay the debt also out of the joint family property belonging to him and the other members of the family. That is because the endorsement

operates only on the liability which is apparent on the face of the instrument. It is part of the general law of negotiable instruments that nothing

passes by an endorsement of a negotiable instrument except such liability as one may recognise on the face of the instrument. In the present case,

the liability which the plaintiff seeks to enforce is the liability which is apparent on the face of the promissory note.

The defendant''s liability to pay the money stated in the document appears on its face. That liability was transferred to the plaintiff by the

endorsement. He does not seek to enforce any further or other liability. S. Maruthamuthu Naicker Vs. P. Kadir Badsha Rowther and Others, has

no bearing on the questions that arise for determination in this case.

I find that the endorsement being in favour of the plaintiff he has obtained the right to enforce the promissory note and recover whatever money

was payable by the defendant, under it, to the Company.

The plaintiff does not state that he is a holder in due course, entitled to recover any money which the Company could not itself recover. The

discussion about the plaintiff being a holder in due course does not arise on the pleadings.

The learned Additional Judge held, further, that the suit was barred by limitation. For saving limitation, the plaintiff relied on Exhibit A-4 and

Exhibit A-5. Exhibit A-5 is a chalan signed by the defendant on 26th February, 1951, for payment of Rs. 150 to the Company. That sum was paid

to his credit in the chit account. The learned Additional City Civil Judge held that that payment could not save limitation u/s 20 of the Limitation Act

because the payment was made towards the debt due on the chit. That mistake followed on the learned Judge''s view that the promissory note was

mere security. The expression ""security"", as I have attempted to show, does not make meaning with reference to the facts of this case. The

promissory note was itself the document under which the defendant was liable to pay whatever money was payable by him to the Company on

account of the chit transactions. Sums which, subsequent to the execution of the promissory note, the defendant paid into the chit account had to

be credited towards the liability on the promissory note. Whatever sum was credited in the chit account was a sum paid towards the debt due

under the promissory note. The sum of R. 150 paid by the defendant on 26th February, 1951, was a sum which was paid in reduction of his

liability on the promissory note. Being a payment in reduction of the liability under a document which bears the defendant''s signature, it is a

payment which, u/s 20 of the Limitation Act saves the suit from the bar of limitation.

Exhibit A-4 is a letter by the defendant to the Company written on 20th January, 1953. In that letter, the defendant asked for further time to

make payment. He said, ""I shall soon bring the, money and pay. Therefore please do not blame me. Please excuse me."" The defendant''s evidence

shows that, by that letter, the defendant asked for time, for paying the money due on the chit account.

The respondent''s learned Counsel argued that oral evidence is not admissible to prove that the money which the defendant promised to pay

was money payable on the chit account, that is to say, in reduction of the liability on the promissory note. Whether oral evidence could be admitted

to explain the contents of a document depends upon the degree of formality of the document. Exhibit A-4 is a letter. It was not intended to be

formally complete. Therefore, reference in that letter to money, payment, etc., could be explained by oral evidence. I find that Exhibit A-4 contains

an acknowledgment of the defendant''s liability on the chit account, that is to say, liability under the promissory note.

The learned Additional City Civil Judge''s finding that the suit is barred by limitation is not sustainable. It is hereby set aside. I find the suit is in

time.

The argument that the endorsement in favour of the plaintiff was void by reason of certain winding up proceedings does not appear to be

maintainable. The plaintiff filed an Original Petition on 13th October, 1952, on the file of this Court for having the Company wound up. He

obtained the promissory note on endorsement on nth March, 1953 and did not press the petition. It was dismissed on 12th March, 1953. Another

creditor filed a petition on the 19th March for winding up the Company. The company was wound up, on that petition, by an order passed on 21st

September, 1953. There is no evidence as to whether the winding up proceedings have terminated and if so how. Learned Counsel for the

respondent says that the petition filed on 19th March, 1953, should be deemed to be a continuation of the petition which was dismissed on the

12th March and that therefore the endorsement made in favour of the plaintiff should be held to be void. There is no authority in support of that

proposition. Nor am I able to recognise any principle on the basis of which one might hold that the petition which was dismissed on 12th March

would be deemed to have been pending and continued by the petition presented on 19th March.

The appeal is allowed. The suit is decreed as prayed for. The plaintiff will have his Costs in both the Courts below, and, the Court-fee on the

memorandum of second appeal. Otherwise the parties will bear their own costs in the second appeal.