Y. Veeraiah vs Margadarsi Chit Fund Pvt. Ltd.

Jayachandra Reddy, J.—The question that is referred to the Bench is whether the document on construction is to be held a promissory note on demand, or otherwise than on demand, or whether it is merely an agreement?

The plaintiff, a chit fund company, filed a suit for recovery of money on the basis of certain documents executed by the defendants. When the document in question which was executed by the defendants was sought to be marked, an objection was taken that it is a promissory note payable otherwise than on demand, and that it is not properly stamped and, therefore, becomes inadmissible in evidence. Learned Principal District Munsif, on a construction of the document, held that it amounts only to an agreement and that, therefore, it is admissible. As against that, the fourth defendant filed a civil revision petition and the learned single judge, after hearing the rival contentions, referred it to a Bench. The learned single judge felt that the observations made in Venkata Subbayya v. Satyanarayanamurthy [1958] AWR 224 strike a different note from the observations made in Thenappa Chettiar Vs. Andiyappa Chettiar, , and, therefore, for an authoritative pronouncement, referred the matter to the Division Bench and that is how it has come up before us.

Before we consider the document and the terms therein, it may be necessary to refer to the relevant provisions of law. Section 2(22) of the Indian Stamp Act, defines a promissory note in the following terms :

"Section 2(22) Promissory note.- `Promissory note'' means a promissory note, as defined by the Negotiable Instruments Act, 1881 (26 of 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."

Now, it becomes necessary to refer to the provisions of the Negotiable Instruments Act, 1881. Section 4 of the Negotiable Instruments Act defines a promissory note thus :

"4. 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."

This definition to some extent is linked up with the language used in section 5 of the Negotiable Instruments Act, which defines a "bill of exchange" and which reads thus :

"5. A `bill of exchange'' is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

A promise or order to pay is not `conditional'', within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

The sum payable may be `certain'', within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange or is, according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.

The person to whom it is clear that the direction is given or that payment is to be made may be a `certain person'', within the meaning of this section and section 4, although he is misnamed or designated by description only."

Article 49 of the Stamp Act prescribes the proper stamp duty payable on a promissory note when payable on demand, and also payable otherwise than on demand. For a promissory note otherwise than on demand, the duty is as for a "bill of exchange". Now, the contention on behalf of the petitioner is that the document in question is a promissory note payable otherwise than on demand. Therefore, the stamp duty is insufficient and, consequently, becomes inadmissible. For better appreciation of this contention, it may be necessary to refer to the relevant portion of th e document which reads thus :

"On demand, I/we jointly and severally promise to pay Margadarsi Chit Fund (P). Ltd. (a company with registered office at Margadarsi House, Abid Road, Hyderabad), Warangal, or order the sum of Rs. 9,800 (rupees nine thousand and eight hundred) repayable with interest at twelve per cent. per annum being the amount of future instalments due to Margadarsi Chit Fund Pvt. Ltd., Warangal, in respect of ticket No. 3 in LT 12E series in monthly instalments of Rs. 200 (rupees two hundred only) for 49 months on or before 5th of each month commencing from August, 1975, and in default of any single monthly instalment on demand, the entire balance shall be due."

The terms contained in this document clearly go to show that, on demand and on certain events happening, the promisee should pay to the chit fund company the amount mentioned therein representing the instalments and interest therein and also the future instalments, and it finally lays down that, in default of any single monthly instalment on demand, the entire balance shall be due. The definition of the promissory note makes it clear that it is an instrument in writing containing an unconditional undertaking signed by the maker, to pay the amount mentioned therein or to the order of, a a certain person or to the bearer of the instrument. The promissory note as an instrument is negotiable. The decision in Venkata Subbayya v. Satyanarayanamurthy [1958] 1 AWR 224 is also a case where one of the executants was member of a chit fund and the question was whether the undertaking given in the document by him amounts to a promissory note payable on demand or an agreement, the learned judge referred to a case in Mortgage Insurance Corporation v. IRC [1888] 21 QBD 352 and held that :

"The test, therefore, is what is the instrument in the common acceptation of men of business and, in my opinion, according to the aforesaid test, the substantial effect of the instrument is not that of a promissory note. If the entire contents of the document are gone into, it will be seen that one of the executants happened to be a member of the chit fund; that his obligation arose by bidding for the chit,; and that part of the amount has already been adjusted towards subscription. Then, in addition to the under-taking to pay the balance of Rs. 420, there are several other stipulations...Clearly, the document was written to be some record of how the promisors had become liable to pay the sum which they were promising to repay with some other undertakings."

In this view of the matter, the learned judge held that the document was not a promissory note. The view expressed in this decision is directly on the point.

However, learned counsel for the petitioner relied on a decision of the Division Bench of the Madras High Court in Thenappa Chettiar Vs. Andiyappa Chettiar, . That was a case where the document was in the following terms (at page 291) :

"I have already received Rs. 15,000 from your Colombo A.S. shop for doing business of my own. I shall pay in after two years on demand by you with interest at two annas per month per Rs. 100 to you or to your order and receive back this promissory note."

The question was whether the document was a promissory note pay able on demand or otherwise than on demand. The Bench held that it was a promissory note payable otherwise than on demand. In arriving at such a conclusion, they took into consideration the fact that for two years the promisee cannot demand and that the document contains an unconditional undertaking. Therefore, it is a promissory note within the definition of the Negotiable Instruments Act. But, it is only a document payable otherwise than on demand. During the course of the judgment, the learned judges also observed that, where a document prescribes time for payment, it cannot be on demand. We have carefully gone through the judgment and we find that the only question that fell for consideration was whether a particular document was a promissory note payable on demand or payable otherwise than on demand. In the instant case, we are concerned with the question, whether it is a promissory note or an agreement. To make a document a promissory note, it must substantially consist of a promise to pay a defined sum and must not be something else and guaranteeing payment of a fixed sum on a certain date after certain period, it becomes promissory note payable otherwise than on demand. So far as the present document is concerned, it is not negotiable and for the chit fund company to make a demand, certain events have to take place and the payment by the promisors is subject to the happening of certain conditions and contingencies. Therefore, it does not answer the description of a promissory note. We may, at this juncture, refer to a judgment of a single judge of this court in Mehrunnisa Begum v. Shaik Chand Bi [1985] 58 Comp Cas 197; [1983] 1 A WR 181, where a similar question arose and it was observed that the chit fund, company had no authority to transfer those promissory notes and they were only taken as collateral securities. These observations also go to show that the document in such cases entered into between the chit fund company and the members do not amount to promissory notes either payable on demand, or payable otherwise than on demand. Consequently, such a document amounts to an agreement. For all these reasons, we dismiss the civil revision petition. No costs.