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  • Bennet, JJ.
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Smart Summary

Factual and Procedural Background

This is a second appeal by the defendant (the appellant, Salig Ram) against a decree of the learned Additional Subordinate Judge of Moradabad which, on appeal, had decreed the plaintiff's suit with costs. The plaint as originally drafted relied on a promissory note dated 7 November 1925 for Rs. 1,350 (interest stated at Re. 1-4-0 per mensem). The plaint was later amended to base the suit on an earlier promissory note dated 10 November 1922 for Rs. 1,000 (at the same stated monthly rate). Both promissory notes were alleged to have been executed by Salig Ram in favour of the plaintiff's father. The later promissory note of 7 November 1925 was admitted to be insufficiently stamped and therefore inadmissible under Section 35 of the Stamp Act. The suit was instituted on 27 June 1927. The defendant contended the action based on the 1922 transaction was time-barred; the plaintiff relied on an endorsement (dated 7 November 1925) on the back of the 1922 promissory note as an admission within Section 19 of the Limitation Act to save limitation.

Legal Issues Presented

  1. Whether the endorsement dated 7 November 1925 on the back of the 10 November 1922 promissory note constituted a valid acknowledgment of liability within the meaning of Section 19 of the Limitation Act, thereby saving the plaintiff's cause of action from being time-barred.
  2. Whether the inadmissibility (for want of stamp) of the 7 November 1925 promissory note and any alleged substitution thereby operated to extinguish or merge the original 1922 obligation, so as to leave no subsisting contract on which the plaintiff could sue.
  3. Whether the inadmissible 1925 promissory note barred the plaintiff from suing on the underlying 1922 transaction by operation of Section 91 (and related principles) of the Evidence Act.

Arguments of the Parties

Appellant's Arguments

  • The endorsement of 7 November 1925 is not a valid acknowledgment of liability under Section 19 of the Limitation Act; it should be read as a statement that the liability under the 10 November 1922 promissory note had terminated (i.e., the writing denies liability).
  • By reason of the alleged substitution (the 1925 promissory note), there was no subsisting contract or enforceable obligation arising from the 1922 transaction at the time of suit; the 1922 loan was merged into the 1925 promissory note, and because the 1925 note is inadmissible (insufficiently stamped), the plaintiff cannot proceed.
  • The appellant relied on authorities (Badri Das v. Manohar Das and Rangasivami v. Thangavelu) to support the contention that writings which assert payment or discharge of the earlier debt are not acknowledgments of liability.

Respondent's Arguments

  • The plaintiff relied on the endorsement on the back of the 1922 note (dated 7 November 1925) as an admission of liability within Section 19 of the Limitation Act, thereby saving the suit from being time-barred.
  • The respondent urged that the endorsement indicated substitution of security (a new promissory note) without discharging the underlying debt, and therefore amounted to an acknowledgment of an existing debt rather than its payment.
  • The respondent referred to authority (Maniram Seth v. Seth Bupchand) for the proposition that the literalism of wording should not be given undue weight and that the implied meaning of the endorsement should be considered.
  • The respondent also argued that Section 91 of the Evidence Act could not be used to bar the plaintiff's action because the inadmissible 1925 promissory note did not contain the terms of the 1922 contract and the transactions were independent.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Badri Das v. Manohar Das [1913] 20 I.C. 10 Holds that a written statement which alleges that a previous debt has been paid is not an acknowledgment of liability for the purposes of Section 19 Limitation Act. The court distinguished this authority because, unlike those cases where payment and discharge were alleged, the endorsement in the present case indicated substitution of security and not payment of the debt.
Rangasivami v. Thangavelu [1919] 42 Mad. 637 Same principle as above: statements asserting payment of a prior debt are not admissions of liability. Distinguished on the ground that the present endorsement does not state payment or discharge but a replacement of the security for a subsisting liability.
Govind Singh v. Bijay Bahadur Singh, A.I.R. 1929 All. 980 Where a later promissory note (insufficiently stamped) was accompanied by a contemporaneous receipt, the transaction could amount either to an acknowledgement or a substituted contract so that the plaintiff's claim remained within time. The court held this authority did not assist the defendant because, unlike that case, there was no receipt executed on 7 November 1925 in the present matter.
Nazir Khan v. Ram Mohan, A.I.R. 1931 All. 183 (Full Bench) Explains Section 91 Evidence Act: if a promissory note is collateral security for a completed and separate cause of action, the plaintiff may sue on the original consideration even if the note is inadmissible; but if the note and loan were concurrent conditions (part of a single transaction), Section 91 may bar oral proof independent of the note. The court applied the distinction to conclude Section 91 could not bar the suit here because the 1925 note did not contain the terms of the 1922 transaction and the 1922 transaction was independent of the later note.
Maniram Seth v. Seth Bupchand [1906] 33 Cal. 1047 Privy Council authority indicating that the literal form of words in an alleged acknowledgment should not be unduly stressed; implied meaning may suffice as an acknowledgment of liability. The court relied on this approach to construe the endorsement's sense and meaning (not purely its literal phrasing), concluding it implied a subsisting debt and constituted a valid acknowledgment under Section 19.
Jagan Prasad v. Indar Mal [1914] 36 All. 259 Held that when refreshed or renewed securities (hundis) are found inadmissible for stamping reasons, the plaintiffs could fall back on the original securities/agreements to recover. The court cited this authority to support the conclusion that the plaintiff could fall back on the original 1922 transaction and sue for the loan despite the later inadmissible security.

Court's Reasoning and Analysis

The court proceeded through the following analytical steps, based solely on the material contained in the opinion:

  1. Stamping and admissibility: The court accepted that the 7 November 1925 promissory note was insufficiently stamped and therefore inadmissible under Section 35 of the Stamp Act; as a result the 1925 note is left entirely out of consideration as evidence.
  2. Character of the endorsement (Section 19 Limitation Act): The central question was whether the endorsement dated 7 November 1925 on the back of the 1922 note amounted to an acknowledgment of liability within Section 19. The court examined the language of the endorsement and its translation, finding that it recorded the execution of a second promissory note in lieu of the present one and that the earlier promissory note had been replaced by a new security.
  3. Distinguishing precedents which held 'payment' and 'discharge': The court distinguished authorities (Badri Das and Rangasivami) where the writings expressly stated payment/discharge of the prior debt; in those cases the writing denied liability. By contrast, in the present case the endorsement did not allege payment but a substitution of security for a subsisting debt.
  4. Consideration of analogous rulings: The court considered Govind Singh v. Bijay Bahadur Singh, where a contemporaneous receipt supported a conclusion of renewal or acknowledgement, but noted the present facts were different because there was no receipt on 7 November 1925.
  5. Section 91 Evidence Act and independence of the 1922 transaction: Relying on the principles in Nazir Khan v. Ram Mohan, the court analysed whether Section 91 (which restricts proving contract terms by oral evidence when reduced to a document) barred the present suit. The court concluded that the inadmissible 1925 note did not embody the 1922 contract's terms and that the 1922 transaction was independent of the later note; therefore Section 91 could not be used to bar the action based on the 1922 transaction.
  6. Approach to construction of the endorsement: The court accepted the approach (as in Maniram Seth) that the endorsement should be read with regard to its sense and implied meaning rather than with excessive literalism. Applying that approach, it found the endorsement implied a subsisting debt of Rs. 1,350 and that the defendant was creating a new security in lieu of the earlier promissory note, not discharging the debt.
  7. On merger and substitution (Section 62 Contract Act): The appellant's submission that the 1922 loan had been merged into and replaced by the 1925 promissory note was considered. The court observed that Section 62 contemplates a substituted contract that is enforceable; because the 1925 promissory note was not admissible (and thus not enforceable) due to the Stamp Act, it did not amount to a substituted contract within the meaning of Section 62. Moreover, the court regarded the original promissory note as security for the loan and held that, where a later security fails, the plaintiff may fall back on the original agreement to repay.
  8. Support from analogous authority: The court relied on Jagan Prasad v. Indar Mal as supportive of the view that plaintiffs may fall back on original securities/agreements where later renewals are inadmissible.
  9. Conclusion of analysis: On the combined application of these principles, the court held that the endorsement of 7 November 1925 was a valid acknowledgment of liability for the purposes of Section 19 of the Limitation Act and that there remained a subsisting cause of action based on the 10 November 1922 transaction which the plaintiff could enforce.

Holding and Implications

DISPOSITION: The appeal is DISMISSED and the dismissal is with costs.

Direct consequences for the parties (as stated in the opinion):

  • The endorsement dated 7 November 1925 on the back of the 10 November 1922 promissory note was held to be a valid acknowledgment of liability under Section 19 of the Limitation Act and therefore operated to save the plaintiff's suit from being time-barred.
  • The plaintiff is competent to recover on the underlying 1922 loan/transaction; the inadmissibility of the 1925 promissory note does not prevent the plaintiff from suing on the 1922 cause of action.
  • The appellant's contention that the 1922 obligation had been extinguished or merged into an unenforceable 1925 promissory note was rejected by the court.

Broader implications: The opinion applies existing authorities and statutory provisions to the facts before the court but does not purport to create or announce a novel legal principle. The decision confirms that (on these facts) an endorsement indicating substitution of security can amount to an acknowledgment under Section 19 and that an inadmissible later instrument does not necessarily bar recovery on an antecedent, independent transaction.

Show full summary ...

    Pandit Salig Ram v. Radhay Shiam

    1. This is a second appeal by the defendant against a decree of the learned Additional Subordinate .Judge of Moradabad in appeal decreeing the suit of the plaintiff with costs. The plaint as originally brought was based on a promissory note of 7th November 1925 for Rs. 1,350 with interest at Re. 1.4-0 per cent. Subsequently the plaint was amended and the suit was based on an earlier promissory note of 10th November 1922 for Rs. 1,000 at the same rate of interest of Be. 1-4-0 per mensem. Both the promissory notes were stated to be executed by Salig Ram, the appellant, in favour of the father of the plaintiff.

    2. As regards the second promissory note it is admitted that this promissory note was not properly stamped. Accordingly, Section 35, Stamp Act, applies which states:

    No instrument chargeable with duty shall be admitted in evidence for any purposes unless such instrument is duly stamped.

    3. It is contended that this promissory note of 7th November 1925 is inadmissible for evidence for any purpose and therefore we leave it entirely out of consideration. The suit was brought on 27th June 1927, and it is claimed for the appellant-defendant that the suit on the transaction of 10th November 1922 is time barred. For the respondent it is claimed that limitation is saved by an admission of liability under Section 19, Lim. Act. This admission is contained in an endorsement on the back of a promissory note of 10th November 1922 and is on the following terms:

    7th November 1925 ko promissory note haza Ke ewaz men dusra promissory note tadadi 1350 rupia ka takrir kaidya yeh hhoka hogaya.

    4. The translation of this is that on 7th November 1925 in lieu of the present promissory note, a second promissory note of the amount of Rs. 1,350 has been executed and this promissory note has become void.

    5. If this is a valid acknowledgment under Section 19, Lim. Act, then the suit of the plaintiff would be within time and if it is not a valid acknowledgment, then the suit of the plaintiff would be time barred. The learned Counsel for the appellant has contended firstly that there is no valid acknowledgment and secondly that there was no subsisting contract of 1922 on which the suit could be based. In regard to the first point as to whether there is a Valid acknowledgment in this endorsement, it was argued by learned Counsel that Section 19 requires "an acknowledgment of liability." Learned Counsel alleges that there is no clear acknowledgment of liability because the endorsement of 7th November 1925 amounts to an allegation that the liability on the promissory note of 10th November 1922 has terminated and he therefore says that this writing denies liability. He supports his argument by reference to Badri Das v. Manohar Das [1913] 20 I.C. 10 and Rangasivami v. Thangavelu [1919] 42 Mad, 637. In both these oases it was held that the alleged acknowledgment was no admission of liability, because in each case the person making the acknowledgment had stated that the debt which had previously existed had been paid. In the present case however we consider that the acknowledgment is to be distinguished, because in the cases quoted, the allegation was that payment had been made and the debt had been discharged. In the present case the acknowledgment set forth not that the debt of Rs. 1,350 had been paid but that a different form of security had been given for that debt. The allegation is not that the liability had terminated but that a different form of security for the subsisting liability had been created. What had been terminated was the promissory note of 10th November 1922 and that promissory note had been replaced by a promissory note of 7th November 1925.

    6. Reference was also made to a ruling reported in Govind Singh v. Bijay Bahadur Singh A.I.R 1929 All. 980. In that case which was somewhat similar, there was in 1925 a promissory note executed for Rs. 349 which was due under an earlier promissory note of 1923 and as in the present case the later promissory note was insufficiently stamped. In addition however to the promissory note of 1925 there was also executed a receipt on the same date. It was held on p. 1285 by Sulaiman, J.:

    Even if the receipt and the inadmissible promissory note were not executed in payment of a cash payment' but were in renewal of a previous debt, either that previous debt has been acknowledged afresh or very likely it had been substituted by a new contract including a fresh promise to par. In either case, the plaintiff's claim lies and is within time.

    7. We do not consider that the case for the defendant receives any support from this ruling and it is to be noted that the facts in the present case are not parallel, because in the present case there was no receipt executed on 7th November 1925 by which there purported to be a transaction of repayment of the loan and a fresh contract.

    8. Reference was also made to the Full Bench ruling of this Court in Nazir Khan v. Ram Mohan A.I.R. 1931 All. 183 (F.B.). In that case the question was whether Section 91, Evidence Act, barred or did not bar a suit which was based on a transaction in which the promissory note figured. It was held that where there is a completed cause of action for recovery of money on foot of a distinct and separate transaction and a promissory note is given as a collateral security, the plaintiff will be entitled to sue for the original consideration, even if, for some flaw in the promissory note, the promissory note itself may not be sued upon, . being inadmissible in evidence. On the other hand where the plaintiff would not have lent the money without the promissory note, the making and handing over of the note and the payment of the money are "concurrent conditions" (i. e. part and parcel of the same transaction) and if the promissory note turns out to be inadmissible in evidence for any reason (such as the absence of a proper stamp), it is not open to the plaintiff to recover his money by proving orally the terms of the contract, in the teeth of the provisions of Section 91, Evidence Act (i. e. by setting up a case independent of the note).

    9. Now in the present case the language of Section 91, Evidence Act, clearly shows that it cannot be a bar to the suit of the plaintiff based on the transaction of 1922. Section 92 states:

    When the terms of a contract...have been reduced to the form of a document...no evidence shall be given in proof of the terms of such contract...except the document itself...

    10. Now it is clear that the inadmissible promissory note of 1925 does not contain the terms of the contract of 1922, and that the transaction of 1922 is quite independent of the promissory note drawn up three years later. Accordingly, Section 91 cannot be used as a defence in the present case.

    11. The next point which we may examine is whether the acknowledgment under Section 19 is to be an acknowledgment which must be taken absolutely literally or whether the Court should have regard to the sense and meaning of the words used and to what is implied by the words used. Reference was made by learned Counsel for the respondent to Maniram Seth v. Seth Bupchand [1906] 33 Cal. 1047 at p. 1059 where their Lordships of the Privy Council apparently held the view that the literal meaning of the words should not be given undue stress as their Lord-ships held that the use of the words "alleged indebtedness" did not prevent the statement being an acknowledgment of liability. We consider that the meaning implied by the endorsement of 7th November 1925 is that there was a subsisting debt of Rs.. 1,350 due by. the defendant to the father of the plaintiff and that in lieu of that debt the defendant was executing another security. There is no suggestion whatever that the debt which had previously been due had been paid up or was being paid up by the security, but the suggestion is that the debt remained unpaid and that new promissory note which was inadmissible in evidence was created for the purpose of collateral security of the debt. We therefore consider that there is a perfectly valid acknowledgment in the endorsement of 7th November 1925 and that that endorsement is valid for the purpose of saving limitation.

    12. We now turn to the second point which was advanced by the learned Counsel for the appellant and that is that there was no subsisting contract at the time of the suit for the loan of 1922. This portion of the argument was based on the theory that the loan of 1922 became merged in the promissory note of 1925 and as it is impossible for plaintiff to sue on the promissory note of 1925, therefore it ought to be impossible for the plaintiff to sue on the loan of 1922. In this connexion we would refer to Section 62, Contract Act, which states:

    If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

    13. It was therefore argued by the learned Counsel for the appellant that in place of the original promissory note the parties had substituted a new promissory note therefore the terms of the original promissory note need not be carried out. This however would involve more than one fallacy. In the first place the original promissory note is merely a security for the loan which was granted at the same time and the later security of 1925 having failed, there is no reason why the plaintiff should not sue on the original agreement to repay. Secondly, Section 62 contemplates a new contract being substituted. Now under Section 62 (h) of that Act : 'An agreement enforceable by law is a contract." The agreement embodied in the promissory note of 1925 is admittedly not enforceable by law and therefore as this agreement cannot be proved owing to Section 35, Stamp Act, therefore we consider that it does not amount to a contract such as is contemplated by Section 62, Contract Act.

    14. A similar view of the law was held in Jagan Prasad v. Indar Mal [1914] 36 All. 259 where it was held where defendants had borrowed from plaintiffs and paid security of certain hundis and later these hundis were renewed by hundis which were found to be inadmissible in evidence being insufficiently stamped, that the plaintiffs could fall back on the original hundis and succeed in their claim. Accordingly we consider that there was a subsisting contract between the parties at the time of the suit based on the transaction of 1922 and that the plaintiff is competent to recover the amount which was due on the loan of 10th November 1922.

    15. We therefore dismiss the appeal with costs.

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    Comments

    Pandit Salig Ram v. Radhay Shiam
    (Feb 25, 1931)