Thakker Keshavji Thakershi vs Narashi Ramji and Another

Chhatpar, J.—This appeal arises out of a suit based upon a document, Ex.. 18 in the case, which is freely translated as under:

The account of Patel Narshi Ramji of Vanthali; ''Maha Sud'' 15 of the year 2003, dated 5-2-1947. Cr Dr. Rs. 2250/- Balance due, page 46. Account settled for Rs. 2250/- which are to be paid as detailed below:

Rs. 1125/- Rs. Eleven hundred & twenty five to be paid on ''Magsar Sud'' 2 of ''Samvat'' 2004.

Rs. 1125/- Rs. Eleven hundred and twenty five to be paid on ''Magsar Sud'' 2 of ''Samvat'' 2005.

The abovementioned amount of Rs. twenty two hundred and fifty is to be paid as detailed above. In default of payment on due dates, interest will run at � per cent month from today''s date and this amount is to be repaid with interest whenever demanded. The above amount is recoverable as a personal debt.

This ''Khata'' has been drawn up with free will by himself at Manavadar. Dated the same.

(Four annas Stamp)

Signed Patel Narshi Ramji in his own hand.

The first Defendant Patel Narshi Ramji contended that the suit was not maintainable; that the debt acknowledged by Ex. 18 was in respect of transactions of a wagering nature and therefore illegal and that the document was a promissory note and being insufficiently stamped was inadmissible in evidence. The second Defendant Patel Ramji Gokal contended that he had no interest in the business of the first Defendant and was not a signatory to the document. He also pleaded that the ''Khata'' was in respect of transactions of a wagering nature and therefore no liability accrued. The first issue framed by the Court was whether the suit document was insufficiently stamped as a promissory note and therefore inadmissible in evidence.

At the time of the evidence, the document was exhibited and numbered Ex. 18. On the same day the issue about the admissibility of the document was argued. The trial Court held that the document was inadmissible in evidence being chargeable with stamp duty as a bill of exchange and could not be admitted in evidence on payment of penalty u/s 35 of the Stamp Act. The Court consequently dismissed the suit on the preliminary issue. The lower appellate Court held that the document was a promissory note payable otherwise than on demand and therefore inadmissible in evidence. The Plaintiff has now filed the present second appeal.

Mr. T.U. Mehta, the learned Advocate for the Appellant, has raised three contentions: (1) that the document is not a promissory note, (2) that the document having been exhibited in evidence, Section 36 of the Stamp Act applied and (3) that the Court should not have dismissed the suit but should have permitted the Plaintiff to fall back on the original cause of action i.e. the account of transactions between the parties.

As regards the first contention, Section 2(22) of the Stamp Act defines a promissory note in the following terms:

Promissory note means a promissory note as defined by the Negotiable Instruments Act, 1881; it also includes a note promising the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen.

The definition of "promissory note" in the Negotiable Instruments Act is given in Section 4 as under:

A ''promissory note'' is an instrument in writing not being a Bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument.

It would be seen that essential feature of a promissory note is an express unconditional promise to pay; and it is not enough that the substantial effect of the instrument should be to make the executant liable to pay a sum of money; see the cases of - ''Govind v. Balvantrao 22 Bom 986 (A), - ''Tirupathi Goundan v. Rama Reddi 21 Mad 49 (B) and - ''Karuthappa v. Baba. Moidin 86 Mad 370 (C). Mulla & Pratt in their commentary on Indian Stamp Act, 1950 Edition, give instances where the words "I am liable to pay" or "I am bound to pay" and even under certain circumstances "I promise to pay" do not import a promise to pay but are merely acknowledgments of liability; see the cases reported in - 21 Mad 49 (B)'' and - ''Ganpatdas Kaludas v. Harivallabh Onkarji AIR 1941 Nag 1 (D).

However, in the case of - ''Manick Chund v. Jamoona. Doss 8 Cal 645 (E), a Bench of the Calcutta High Court held two documents signed by the Defendant, each bearing a one anna stamp, in one of which a sum of Rs. 203/- was stated to be ''due to you, and payable on the 16th July'', and in the other a sum of Rs. 515/- was mentioned ''for which I give you this writing, the whole amount of which will be paid in full on the 3rd August'', to be not mere acknowledgments but promissory notes and being payable otherwise than on demand, were not sufficiently stamped and consequently were not admissible in evidence. This decision of the Calcutta High Court was overruled by the Privy Council in the case of - ''Mahomed Akbar v. Attar Singh AIR 1936 PC 171 (P), where a document after reciting the amount received stated it to be payable after two years, interest at the rate of 51 per cent, per annum to be charged.

It was contended that the document was a promissory note payable otherwise than on demand and could not be admissible in evidence. Their Lordships of the Privy Council held that the document was not a promissory note and was merely a receipt containing the terms on which the amount has to be refunded; being primarily a receipt, even if coupled with the promise to pay, it was not a promissory note. Their Lordships further observed that as the document did not record or purport to record all the terms of the contract between the parties and as there was nothing in the document explaining how the money came to be received the parties were not prevented from showing that it was paid by way of loan or deposit or for some other purpose. At pages 173 and 174 their Lordships remarked:

If this document is otherwise within the definition of a promissory note, it would seem that it must be negotiable, for there appear to be no words prohibiting transfer or indicating an intention that it should not be transferable. It must be admitted that it would be a somewhat unusual visitor in the accustomed circles of negotiable paper. It is indeed doubtful whether a document can properly be styled a promissory note which does not contain an undertaking to pay, not contain an undertaking which has to be inferred from the words used. It is plain that the implied promise to pay arising from an acknowledgment of a debt will not suffice; for the third illustration (to Section 4 of the Negotiable Instruments Act) indicates that an IOU is not a promissory note, though of the implied promise to pay there can be no doubt.

The second illustration however seems to show that the express words ''I promise'' or ''I undertake'' are unnecessary. The form of words is taken from an early English case, reported in ''Selwun''s N. P. 11th Edn. p. 401, from Scacc. M.I. Geo II MSS (I)'', where according to the learned author the Court stated that the words ''to be paid'' in the document there sued on amounted to a promise to pay, observing that the same words in a lease would amount to a covenant to pay rent. It does not appear to form a useful general illustration except in the case of a document in that particular form of words.

Their Lordships prefer to decide this point on the broad ground that such a document as this is not and could not be intended to be brought within a definition relating to documents which are to be negotiable instruments. Such documents must come into existence for the purpose only of recording an agreement to pay money and nothing more, though of course they may state the consideration. Receipts and agreements generally are not intended to be negotiable, and serious embarrassment would be caused in commerce if the negotiable net were cast too wide. This document plainly is a receipt for money containing the terms on which it is to be repaid.

It is not without significance that the Defendants who drew it, and who were experienced money-lenders, did not draw it on paper with an impressed stamp as they would have had to if the document were a promissory note, and that they affixed a stamp which is sufficient if the document is a simple receipt. Being primarily a receipt even if coupled with a promise to pay, it is not a promissory note. This view of the meaning of a promissory note appears to coincide with the grounds of decision in - ''Mortgage Insurance Corporation v. Inland Revenue Commrs.'' (1888), 21 Q. B. D. 352(G), where the English Court of appeal found themselves bound to give a restricted meaning to the much wider definition in the English Stamp Act.

It will have the effect of overruling some decisions in the Indian Courts notably the case of - 8 Cal 645 (E)'', where the Defendant had given a sale note to his customer recording a resale to him on certain rupee paper previously bought from the customer, and bringing out a difference expressed to be payable on a day in the next month. The document was a sale note coupled with an account, and in no way resembled a promissory note, or anything capable of being a negotiable instrument. Once it is decided that the document has not to be stamped as a promissory note, their Lordships are not called upon to decide whether the document othewise bears a sufficient stamp. If that question had been raised it is sufficient to say that if improperly stamped it could have been stamped after execution under a penalty.

This case was followed by the case of - ''Karam Chand v. Firm Mian Mir Ahmad Aziz Ahmad AIR 1838 PC 121 (H) where documents recited:

Received from you this day a cheque for Rs. .. The amount would be repaid with interest thereon at the rate of ......per cent. Time ten months. The principal amount will be paid with interest after ten months from this date.

It was held that the documents were not promissory notes and were not inadmissible in evidence for want of stamp. Their Lordships observed that the documents were clearly never intended to be negotiable instruments and were not promissory notes and were not therefore inadmissible in evidence for want of stamp. These Privy Council cases have been relied upon in a number of cases. Mulla and Pratt in their commentary on the Stamp Act give three criteria for judging whether an instrument is a promissory note:(1) the promise to pay must be the substance of the instrument and must be express as already discussed above,(2) the instrument must consist substantially of a promise to pay a definite sum of money and of nothing else, and (3) the instrument must be something which the parties intend to be a promissory note.

Although it is not strictly correct to speak of the intention of the parties to make a promissory note as being the guiding factor, it is nevertheless the function of the Court to take into account the circumstances under which the document was executed for which the intention of the parties would be relevant along with the characteristic features of the document including mercantile usage according to which a promissory note is essentially a negotiable instrument. Although there can be promissory notes which are not negotiable nevertheless negotiability is the ordinary incidence of a promissory note. In short, the test as to negotiability and intention of the parties is principally for determining whether the essential purpose of an instrument was to record only a promise to pay and nothing more. I may also mention a Bench decision of the Sind Court in the case of - ''Mt. Kulsambai v. A.K. Mandviwalla Firm AIR 1939 Sind 281 (I), wherein a document was worded as under:

To: Bai Kulsambai Allibhoy-Written by Allibhoy Karimji Mandviwalla Rupees 80,000/- in words Rupees eighty thousand have been received from you in cash. The same shall be paid whenever you demand.

Signature on one anna stamp.

Sd/- A.K. Mandviwalla, per Tyeb.

Following the Privy Council case of-''Mohamed Akbar v. Attar Singh (F)'', it was held not to be a promissory note. The learned Judges stressed the negotiable aspects of a promissory note and held that the document was not intended or contemplated to be negotiable. In the case of - ''Chandraprasad v. Varajlal Umedram'' 8 Bom LR 644 (J), a ''Khata'' was executed by the Defendant as in the present case showing the credit and debit sides, and on the debit side a sum of Rs. 291-2-0 was stated to have been found due on account of previous ''Khata'' having been made up and it was further mentioned

the same (i.e., monies) are payable by me. I am to pay (the same) whenever you may make A demand (therefor). This ''Khata'' is passed at Ahmedabad. The handwriting of Vraj....

It was held that the document was not a promissory note within the meaning of the Negotiable Instruments Act and would be a simple contract containing a promise to pay u/s 25(iii) of the Indian Contract Act. This case appears to be very much similar to the present case under consideration. The Allahabad High Court in the case of - Firm Ratanji Bhagwanji and Co. Vs. Prem Shanker, , considered a document which acknowledged two items of money mentioned therein to have been borrowed which the executant had to repay on demand. It was held that there was no unconditional undertaking to pay. The learned Judge observed:

There is no promise to pay but only an admission of liability to pay. I translate the words ''denaka had'' as I have to pay or I am liable to pay'' and not as ''I promise to pay.

(3a) Mr. Dave the learned Advocate for the Respondents has strongly relied upon, a Bench ruling of the Allahabad High Court in the case of - Pandit Sushil Chander Chaturvedi Vs. Wali Ullah and Others, . where the Court had to consider a document worded as under:

Abdul Hamid Mohammad Said residents of Mauza Armara whereas with regard to glass of Hanuman Glass Works account is due from us we therefore acknowledge and promise to pay on demand Rs. 1781/- with interest at 2 per cent per mensem.

This document was held to be a promissory note. The two Privy Council cases of - ''Md. Akbar Khan v. Attar Singh (F)'', and - ''Karam Chand v. Mir Ahmad Aziz Ahmad'', (H) were distinguished and Dar J., observed:

In our view the main question in each case is to consider not whether the instrument is negotiable or not, though ordinarily negotiability of an instrument is a good test to determine whether a document is a promissory note or not; but to consider whether in substance and in primary intention of the parties the document was or was not a promissory note and whether it contained necessary recitals or whether it was intended to record a different kind of transaction altogether.

This case is clearly distinguishable from the present case. There was an express promise to pay a specific sum and it was also held that the document was regarded as a promissory note by the parties. Mr. Dave has also relied upon the cases of-''Hafiz Umarderaz Khan v. Akbar Khan AIR 1934 Pesh 1 (M),- At. N. At. Chockalingam Chettiar Vs. Rama Mu Rama Palaniappa Chettiar, , - Alamelu Ammal Vs. P. Rangai Gounder, and - ''Bansidhar v. Bu Ali Khan 3 All 260 (FB) (P); but these cases have little or no application. All 260 (FB) (P), was a case of a cash loan and a ''rukka'' in the nature of a promissory note payable on a certain date was executed and it was held that the document was a promissory note. At. N. At. Chockalingam Chettiar Vs. Rama Mu Rama Palaniappa Chettiar, )'' was a case of a document similar to those in vogue among Chetties (i.e. money-lenders) in Southern India, which were regarded as promissory notes containing undertakings to pay after a certain period of time, while AIR 1934 Pesh 1(M)'' was also a case of an express promise to pay after five years.

Alamelu Ammal Vs. P. Rangai Gounder, )'' has hardly any relevancy, the dispute there being whether the promissory note was payable on demand or not. In the present case, the document is contained in an account book and if the words ''to be paid etc'', were not there it would simply be an acknowledgment of settled accounts and the sum found due, in ordinary course, would have been carried forward to the next year if the account was continued. The mere fact that there is a further statement of the amount being payable by certain instalments does not substantially convert the essence of the document as it was never intended to be otherwise than as an acknowledgment of settled accounts between the parties containing the terms of payment of money found due without the least idea of making the document a promissory note. Applying the test given by the Privy Council and the High Courts in India discussed above, I hold that the document in question is not a promissory note and therefore it was admissible in evidence on payment of penalty.

As regards the second contention based upon Section 36 of the Stamp Act, I hold that although the document is exhibited in the case, it cannot be said to have been ''admitted in evidence. There was already an issue before the Court as to its admissibility, which was argued after it was exhibited and which leads to the conclusion that its exhibition was merely for the purpose of putting it on record for identification and not consciously admitting in evidence. The words "admitted in evidence" in Section 36 mean admitted after judicial consideration of the circumstances relating to its admissibility. This appears to be the settled law.

I may refer to Mulla and Pratt''s Stamp Act page 121 and the cases reported in - ''Yerri Swami v. Chinna Vannurappa'' AIR 1949 Mad 300 (Q); - Vavarthar Abdul Wahab Saheb Vs. Pallapotha Kanaka Anjaneyalu and Others, ; and - ''Jagan Nath v. Mt. Chauli'' AIR 1933 Lah 271 (s). The case of - M.K. Lodhi Vs. Zia-ul Haq, , relied upon by Mr. Mehta for the Appellant is distinguishable on the ground that no plea as to the admissibility of the document was raised and it was after it was duly admitted in evidence by the Judge and when the case came before his successor-in-office that the question was raised before the latter. I therefore hold that there is no force in the second contention of Mr. Mehta.

As regards the third contention that the Court should have permitted the Plaintiff to fall back on the original cause of action, it was no doubt open to the Plaintiff to have filed an application for amendment of the plaint, which was not done in the trial Court. A request was made in the lower appellate Court for permission to amend the plaint. It is not necessary for me to consider this objection in view of my ruling that the document was admissible in evidence on payment of penalty. I therefore set aside the decisions of the lower Courts and remand the case to the trial Court with direction to levy the stamp duty and penalty which the Appellant is prepared to pay on the instrument and admit the same in evidence and to decide the case in accordance with law. The authorities cited before me seem to favour it being construed as an agreement rather than as a bond. Stamp duty and penalty should be levied accordingly. Costs to abide by the result of the case.