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Union Of India v. M/S Navilakha And Sons Opponents.
Factual and Procedural Background
These Civil Revision Applications were filed under section 25 of the Provincial Small Causes Court Act and were decided through a common judgment because they raised a common question of law. [1]
The respondents transported goods through the Central Railway, owned by the Petitioners. Following alleged negligence and resulting damage, the respondents issued notices under section 78(b) of the Indian Railways Act, 1890. The Petitioners sent cheques for amounts lower than the claims, stating that the cheques were in full and final settlement and should be returned if unacceptable. Except in one matter, the respondents accepted or encashed the cheques under protest as part payment and later issued notices under section 80 of the Civil Procedure Code seeking the balance. [2][3]
The suits were decreed by the 5th Additional Small Causes Court, Pune, after rejecting the Petitioners’ defences. The decrees were challenged in these revision applications. [4]
Legal Issues Presented
- Whether the acceptance and encashment of the cheques resulted in accord and satisfaction, thereby discharging the Petitioners from liability for the balance under section 63 of the Contract Act, 1872. [5]
- Whether unconditional acceptance of the cheque in Civil Revision Application No. 138 of 1988 had a different legal consequence from acceptance under protest in the other matters. [6]
Arguments of the Parties
Petitioners’ Arguments
- The Petitioners argued that the cheques were expressly sent in full and final settlement and that the respondents should have returned them if they did not accept those terms. Their encashment allegedly constituted accord and satisfaction under section 63 of the Contract Act. [5][7]
- The Petitioners contended that the lower court had wrongly relied on Union of India v. Babulal Uttamchand Bhandari, reported at 1968 Mh.L.J 35 : 69 BLR 843, because the present facts were distinguishable. [7]
- They also relied on Lala Kapurchand Godha v. Mir Nawab Himayatalikhan Azamjah, arguing that acceptance of payment sent in full satisfaction discharged the entire claim. [8]
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Babulal Uttamchand Bhandari, 1968 Mh.L.J 35 : 69 BLR 843 | Payment of a smaller amount and encashment of a cheque sent in full and final settlement do not necessarily establish satisfaction under section 63 where the claimant remains entitled to pursue the balance. | The Court held that this principle could broadly apply and that the lower court was not wrong in relying on it. [7] |
| Lala Kapurchand Godha v. Mir Nawab Himayatalikhan Azamjah, AIR 1963 SC 250 | Acceptance of payment in full satisfaction of a claim may discharge the entire claim under section 63 of the Contract Act. | The Court distinguished the precedent because, unlike that case, the respondents here accepted the cheques under protest as part payment. [8] |
| Union of India v. Gangaram Bhawandas, AIR 1977 MP 215 | Encashment of a cheque does not establish accord and satisfaction where the claimant did not accept it as full settlement and pursued the balance. | The Court’s reasoning was consistent with this approach, as the respondents communicated that the cheques were accepted only under protest, except in one matter. [9][6] |
Court's Reasoning and Analysis
The Court held that merely sending cheques with a statement that they represented full and final settlement, followed by their encashment, did not by itself establish accord and satisfaction. [10]
The respondents’ immediate communications showed that they accepted the cheques only as part payment and under protest. In two matters, they specifically stated that the cheques would be encashed under protest unless the Petitioners objected within ten days; no objection was made. The Court held that such encashment did not prevent the respondents from claiming the balance because it did not demonstrate an intention to accept the cheques in full satisfaction. [6]
Accord and satisfaction requires an agreement to accept the money in satisfaction of the larger claim. The Court noted that the result could have been different if the Petitioners had offered a specified amount on the condition that it be accepted unconditionally, and the respondents had agreed before the cheques were sent. That was not what occurred here. [6]
The Court distinguished the case in which payment was expressly accepted in full satisfaction, but found that principle applicable to Civil Revision Application No. 138 of 1988 because the cheque in that matter was accepted unconditionally and without protest. [8][6]
Holding and Implications
Revision applications allowed only in part. The rules in Civil Revision Applications Nos. 172 of 1987, 391 of 1987, 259 of 1989, 319 of 1989, Civil Application No. 330 of 1989, 331 of 1989, and 382 of 1989 were discharged. The rule in Civil Revision Application No. 138 of 1988 was made absolute. There was no order as to costs. [11]
The direct effect was that respondents who accepted cheques under protest remained entitled to pursue the unpaid balance, while the unconditional acceptance in Civil Revision Application No. 138 of 1988 attracted the consequence of accord and satisfaction. The opinion does not state any broader implication or identify a new precedent being established. [6][11]
1. These Civil Revision Applications which are filed under section 25 of the Provincial Small Causes Court Act involve common question of law. Hence they are disposed of by this common judgment.
2. The facts involved in these Revision Applications are broadly similar. In all these matters the respondents sent certain goods through Central Railway owned by the Petitioner. There was negligence on the part of the Petitioners and hence respondents suffered damages. The opponents issued notices under section 78(b) of the Indian Railways Act, 1890 making claims. The Petitioners sent cheques for various amounts. They also informed the opponents that the cheques are sent in full and final settlement of the claims and the cheques should be sent back if the amount was not acceptable. As the cheques were for lesser amounts than the claims made, the opponents accepted the cheques under protest, and except in the case of Civil Revision Application No. 138 of 1988. In fact in Civil Revision Application No. 319 of 1989 and Civil Revision Application No. 259 of 1989 the opponents communicated as under:
“If you have any objection for our acceptance under protest as part payment, you may inform us within ten days from the receipt of this letter. If you do not reply this letter within 10 days, we will encash said cheque under protest and accepts as part payment, please note.” There was no reply. The opponents thereafter sent notices under section 80 of the Civil Procedure Code claiming the balance amount. The same was not paid by the Petitioners, hence various suits came to be filed.”
3. The suits came to be heard by the learned 5th Additional Small Causes Court, Pune. Various defences raised on behalf of the Petitioners came to be negatived and the claims made by the opponents came to be decreed. The same is under challenge in these revisions.
4. The learned Counsel for the Petitioners has pressed only one point i.e there was accord and satisfaction and the provisions of section 63 of the Contract Act are attracted in view of the letter written by Petitioners while sending cheques and the opponents have not returned the cheques but encashed them. Therefore the question that arises for my consideration is whether there has accord and satisfaction and the provisions of section 63 of the Contract Act, 1872 are attracted in the present case.
5. The learned Counsel for the Petitioners submitted that the Court below has mainly relied upon the judgment delivered by this Court reported in 1968 Mh.L.J 35 : 69 BLR 843, Union of India v. Babulal Uttamchand Bhandari. He submitted that it has no application in the present case and therefore it was an error to rely upon it. According to him as the Petitioners have sent cheques along with letter which specifically mentioned that the cheques are sent in full and final settlement of the claim and the cheques should be sent back, if not acceptable, then the opponents ought to have sent back the cheques. But, when they encashed the cheques there was accord and satisfaction and section 63 was attracted. In 1968 Mh.L.J 35 : 69 BLR 843, it was contended on behalf of the Railways that as the amount was paid in full and final settlement of the claim, the claimants were not entitled to sue for the balance. In the said case, the Railway Administration has sent the cheques along with printed form signed by the Chief Commercial Superintendent stating that it was sent in full and final settlement of the claim. The cheques were encashed. The question arose when the claimants had accepted the smaller amount without informing the Railways that they would claim the balance, whether they were entitled to sue for the balance. It was held that the provisions of section 63 are not attracted and there cannot be said to be any satisfaction of the claim and the claimants were entitled to claim the balance. Broadly this can also be applied in the present case and it cannot be said that the Court below was wholly wrong in relying upon it.
6. The learned Counsel for the Petitioners then relied upon AIR 1963 SC 250, in the case of Lala Kapurchand Godha v. Mir Nawab Himayatalikhan Azamjah. It was the case where the Plaintiffs after some initial protest expressed readiness to accept the sum sent in full satisfaction of his claim and discharge the promissory note by making endorsement of full satisfaction and received the payment. Thereafter the Plaintiffs filed the suit claiming the balance amount. In these circumstances it was held that the case was completely covered by section 63 of the Contract Act. The plaintiff having accepted payments in full satisfaction of the claim, it would amount to discharge of full claim by defendants. Here illustration ‘C’ to section 63 was also relied upon. But in my opinion, this is not attracted in the present case, in view of the facts stated above.
7. In AIR 1977 MP 215, Union of India v. Gangaram Bhawandas, the claimants did not accept the cheque remitted by the Railway stating that it was in full and final settlement of their claim for damages. The cheque was encashed but no receipt was sent. On the contrary after receiving the said cheque, the claimant prosecuted the suit for the balance amount. They led evidence to show that intention of the claimants was not to accept the cheque in full and final satisfaction of the claim. It was held that the railway failed to prove that there was case of accord and satisfaction.
8. In my opinion, merely because the Petitioners have sent cheque along with the letter mentioning that: “A cheque for this amount will be sent to you by the Chief Cashier, Central Railway, Bombay VT please note that this payment is in full and final settlement of your claim. The cheque should be sent back if it is not so acceptable to you”, and the cheques were encashed would not amount to accord and satisfaction in the present case.
9. The cheques were encashed by the opponents, but they accepted the cheques under protest as part payment and communicated the protest except in case of Civil Revision Application No. 138 of 1988. In fact in Civil Revision Application No. 319 of 1989 and Civil Revision Application No. 259 of 1989, the opponents have specifically written to the Petitioners that if they are having any objection to accept the cheques under protest as part payment then they may be informed within 10 days, and if no reply is received then the cheques would be encashed under protest. There was no reply. In view of this the encashment would not disentitle those Opponents to claim the balance who have accepted the same under protest. The acceptance under protest was communicated immediately. It cannot be said that there was satisfaction and those Opponents have foregone the balance. Petitioners cannot be said to be discharged from liability for balance. Encashment of cheque in this case does not amount to promise to release the Petitioners from the obligation to pay the balance. Acceptance under protest and communication thereof shows that there was no intention on the part of those opponents to accept the cheques in full satisfaction of their claims. Mere encashing the cheques in the facts and circumstances cannot amount to agreement to accept lesser amount. Accord and satisfaction imply an agreement to take the money in satisfaction of the claim in respect of which it is sent. If a person sending a sum of money on the term that it is to be taken, if so desired, in satisfaction of a larger claim and if money is kept, then the question of accord and satisfaction has to be decided considering the facts. It was possible for.the Petitioners to write in reply to the notice under section 78(b) to the opponents that particular amount is only payable and if the opponents are prepared to accept it unconditionally, the Petitioners would send the cheques for those amounts. If the opponents communicate accepting the same and thereafter the Petitioners send the cheques then it would amount to accord and satisfaction and section 63 of the Contract Act would be attracted. However, this is not the position here. In the facts and circumstances therefore it cannot be said that there was any accord and satisfaction and the provisions of section 63 of the Contract Act are attracted, except in the case of Civil Revision Application No. 138 of 1989. In Civil Revision Application No. 138/89 I find that there was no protest made and the caeque was accepted unconditionally.
10. In view of this I pass the following order: Rule in Civil Revision Application No. 172 of 1987, Civil Revision Application No. 391 of 1987, Civil Revision Application No. 259 of 1989, Civil Revision Application No. 319 of 1989, Civil Application No. 330 of 1989, Civil Revision Application No. 331 of 1989, Civil Revision Application No. 382 of 1989 is discharged. Rule in Civil Revision Application No. 138 of 1988 is made absolute. In the facts and circumstances there shall be no order as to costs.
Order accordingly.
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