- Bookmark
- Share
- CaseIQ
Chiranjilal v. Ramnath
Factual and Procedural Background
This appeal arises from a suit by the plaintiffs for recovery of Rs. 510/-, composed of Rs. 376/2/- alleged principal due from Gomla (the defendant's father) and Rs. 133/14/- interest. According to the plaintiffs, on Magh Sud 11, Samwat 2000 (4 February 1944) a balance of Rs. 376/2/- was struck in the creditor's khata (account book) against Gomla, with interest stipulated at Rs. 1/9 per cent per mensem. Gomla died thereafter, and his son Gidha (the defendant) was sued as liable for the balance.
The defendant pleaded, among other things, that the document relied on by the plaintiffs was a promissory note but was insufficiently stamped (chargeable with 2 annas but bearing only a 1-anna stamp) and therefore inadmissible in evidence. The learned Munsif and the learned Civil Judge accepted the defendant's plea and dismissed the suit. The plaintiffs appealed to the Jaipur High Court, where a Single Judge referred the matter to a Division Bench. Before resolution by the High Court and following the supersession of the Jaipur High Court by this Court, the appeal reached this Court. The defendant Gidha died during the pendency of proceedings in the High Court; his sons (including Ramnath) were substituted as parties.
Legal Issues Presented
- Whether the document relied upon by the plaintiffs is a promissory note (a negotiable instrument) or is instead an acknowledgment/agreement (a struck balance in the khata) such that different stamp-duty rules apply.
- If the document is a promissory note, whether its alleged insufficient stamping renders it inadmissible in evidence; conversely, if it is an acknowledgment/agreement, what stamp consequences and evidentiary rules follow (including the possibility of allowing evidence on payment of penalty).
Arguments of the Parties
Appellants' Arguments (Plaintiffs)
- Counsel for the appellants (Mr. R.K. Rastogi) argued that the document was not a promissory note but a mixture of an acknowledgment and an agreement — principally an entry striking a balance in the khata and recording a rate of interest.
- He urged that the intention of the parties at the time of execution governs whether a document is a promissory note; that the primary intention here was to record a liability in the khata and fix interest, not to create a negotiable instrument.
- He submitted that the mere words near the end — "Rupees will be paid when they will be demanded by the owner adding interest..." — do not transform the whole document into a promissory note.
- He relied on authorities including two Privy Council decisions (Nawab Major Sir Mohammad Akbar Khan v. Attar Singh; Lala Karam Chand v. Firm Mian Mir Ahmad Aziz Ahmad), a Nagpur High Court decision (Ganpatdas Kaludas Gosai v. Harivallabh Onkarji Trivedi), and an English Court of Appeal decision (Mortgage Insurance Corporation Ltd. v. Commissioners of Inland Revenue) in support of the proposition that the intention and surrounding circumstances determine characterisation and that a receipt/acknowledgement coupled with a promise may not be a promissory note.
Respondents' Arguments (Defendant / Respondent)
- On behalf of the respondents, the Court was referred to a ruling of the Allahabad High Court (Pandit Sushil Chander Chaturvedi v. Wali Ullah, A.I.R 1941 Allahabad 158) where a document with language similar to the present one was held to be a promissory note and inadmissible for want of sufficient stamp. The respondents relied on that decision to support the conclusion that the present document is a promissory note and therefore inadmissible in evidence due to insufficient stamping.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nawab Major Sir Mohammad Akbar Khan v. Attar Singh, A.I.R 1936 Privy Council 171 | The intention of the parties at the time of execution is decisive; a receipt (even if coupled with a promise to pay) may not be a promissory note; the nature of the stamp affixed and the form of the document are relevant. | The Court relied on this holding to emphasise that one must examine the document as a whole and the surrounding circumstances to determine whether it is a promissory note; this authority supports treating the present document as not necessarily a promissory note simply because it contains a promise to pay. |
| Lala Karam Chand v. Firm Mian Mir Ahmad Aziz Ahmad, A.I.R 1938 Privy Council 121 | Documents with express promises to repay and other factual indicia may still not be promissory notes if the intention was not to create a negotiable instrument; the parties' intention and context control. | The Court cited this case to show that even where express promises appear, the document may not be a promissory note if the parties did not intend negotiability; used to support the proposition that intention and context are determinative. |
| Mortgage Insurance Corporation Limited v. Commissioners of Inland Revenue, (1888) 21 QBD 352 | A mere promise to pay in a document does not automatically make it a promissory note; the intention of the parties is an element to consider (per Lord Esher, M.R.). | The Court relied on this English authority (and the explanatory observation of Lord Esher) to reinforce that the characterisation of a document depends on intention and surrounding stipulations, not on isolated words promising payment. |
| Ganpatdas Kaludas Gosai v. Harivallabh Onkarji Trivedi, A.I.R 1941 Nagpur 1 | It is necessary to look into the terms of the document and the surrounding circumstances to see whether it was intended to be a promissory note; mere use of words “I promise to pay” does not necessarily make it a promissory note. | The Court cited Niyogi, J.'s holding to support the approach of construing the document as a whole and considering surrounding circumstances; applied to conclude that the present document should not be treated as a promissory note merely because of payment language. |
| Pandit Sushil Chander Chaturvedi v. Wali Ullah, A.I.R 1941 Allahabad 158 | Where a document had similar language and circumstances (including the stamp used and the plaint's description) the Allahabad High Court treated it as a promissory note and held it inadmissible for want of proper stamp. | The Court considered this decision but found it distinguishable on facts (noting differences such as the striking of a balance in the khata, the stamp actually affixed, and the plaintiff's own description in the plaint). The Court declined to follow it as directly controlling on the present facts. |
Court's Reasoning and Analysis
The Court began from the central principle repeated in the authorities placed before it: the characterisation of a document as a promissory note depends primarily on the intention of the parties at the time of execution and must be determined by looking at the document as a whole and the surrounding circumstances.
The Court reviewed the Privy Council decisions (Nawab Major Sir Mohammad Akbar Khan v. Attar Singh and Lala Karam Chand v. Firm Mian Mir Ahmad Aziz Ahmad) and the English authority (Mortgage Insurance Corp. v. Commissioners). These were read for the propositions that (i) the presence of words promising payment is not conclusive, (ii) a receipt or acknowledgement coupled with a promise may remain a receipt or agreement rather than a promissory note, and (iii) the relevant statutory provisions (sec. 49 of the English Stamp Act and the corresponding sec. 35 of the Indian Stamp Act) must be construed with regard to the parties' intention.
The Court examined the document itself. It reproduced the original vernacular entry and its English rendering, which recorded: an account/balance of Rs. 376/2/- against Gomla Gidha struck in the khata on Mah Sud 11 Samwat 2000 (4 February 1944), the rate of interest (Rs. 1/9/-), and the phrase that "Rupees will be paid when they will be demanded by the owner adding interest at the rate of one pice per rupee." The entry bore a 1-anna stamp.
On a close textual and contextual reading, the Court concluded that the primary intention of the parties was to record a balance in the creditor's khata and to fix a rate of interest to avoid later dispute — that is, to create an acknowledgment/record of liability rather than a negotiable promissory instrument. The 1-anna stamp, according to the law then prevailing in Jaipur, was chargeable on an acknowledgment/receipt; a promissory note for an amount above Rs. 250 would have been chargeable with a 2-anna stamp. Neither the khata entry nor the plaint described the document as a promissory note, and there were no indicia that the parties intended the document to be negotiable.
The Court distinguished the Allahabad case relied upon by the respondents on factual grounds: in that case a balance was not struck in a khata in the same manner; the stamp affixed and the plaint's description of the document supported the conclusion that the parties intended it to be a promissory note. The Court found those factual markers absent here.
Accordingly, the Court held that the lower courts erred in treating the document as a promissory note. The appropriate characterisation was that of an agreement/acknowledgement, and—because it was insufficiently stamped for that character—it could be used in evidence only upon payment of the necessary penalty.
Holding and Implications
Holding: The appeal is allowed; the decrees of the lower courts (which had dismissed the plaintiffs' suit on the basis that the document was an insufficiently stamped promissory note and therefore inadmissible) are set aside. The case is remanded to the original court for decision on the merits in light of the Court's observations. Costs hitherto shall abide the result after remand.
Implications for the parties and practice:
- Direct effect on the parties: The plaintiffs' appeal succeeds; the suit will be reconsidered on the merits by the trial court. The document in question is to be treated as an acknowledgment/agreement rather than a promissory note and is admissible only upon payment of the applicable penalty for insufficient stamping.
- On precedent and legal principle: The Court applied established principles (principally that intention and contextual construction decide whether a document is a promissory note) and distinguished the Allahabad decision on its facts. The opinion does not purport to lay down a novel rule of law beyond applying and clarifying these existing authorities.
Sharma, J.:— This is the plaintiffs' appeal, and has arisen out of a suit for the recovery of Rs. 510/- against the defendant-respondent.
2. The plaintiffs alleged that the defendant's father, Gomla, had money dealings with the plaintiffs' firm, and that on Magh Sud 11, Samwat 2000, corresponding to 4th February, 1944, according to the account, a balance of Rs. 376/2/- was found against Gomla, the father of Gidha defendant, and that a balance was struck in the Khata and thumb-marked by Gomla. Interest was stipulated at the rate of Rs. 1/9/- per cent per mensem. After the striking out of this balance, Gomla died, and Gidha, son of Gomla, has been sued for the recovery of the amount of Rs. 376/2/- principal and Rs. 133/14/- interest, total Rs. 510/-. It was pleaded by Gidha defendant, inter alia, that the document in suit was a promissory note, and was insufficiently stamped, inasmuch as it was chargeable with a stamp duty of 2 annas, whereas a stamp only of the value of 1 anna had been affixed. The document was therefore, not admissible in evidence.
3. The plea of the defendant was given effect to by the learned Munsif, Nim-ka-Thana, and on appeal, the learned Civil Judge. Nim-ka-Tharia, Page: 300too agreed with the Munsif, and confirmed the decree of dismissal. Against this decree the plaintiff went in second appeal to Jaipur High Court. It was heard by a Single Judge of that Court, who referred it to a Division Bench, and on the supersession of the Jaipur High Court by this Court, it has come up for hearing before us to day. During the pendency of the appeal in the High Court, Gidha defendant died, and his sons, Ramnath and two others, have been substituted in his place.
4. It has been argued by Mr. R.K Rastogi on behalf of the appellants that the document in suit was not a promissory note, but was a mixture of an acknowledgement and agreement. It has been argued that in order to see whether a document is a promissory note, the intention of the parties at the time of execution of the document is to be looked into. In the present case, the primary intention of the parties was to acknowledge a certain liability, and to agree to pay a certain rate of interest on the balance found. Simply the words “the money will be paid when demanded by the owner adding interest at the rate of 1 pice per rupee” towards the end, does not convert the document into a promissory note. The circumstances, from which he has asked us to infer that the document was not a promissory note, are that the balance was struck in a bahi, and that apart from the words about the payment, the document only furnishes evidence of a certain liability found after going into the accounts. He has cited two recent rulings of the Privy Council in the cases of Nawab Major Sir Mohammad Akbar Khan v. Attar Singh A.I.R 1936 Privy Council 171 and Lala Karam Chand v. Firm Mian Mir Ahmad Aziz Ahmad A.I.R 1938 Privy Council 121. He has also relied upon a ruling of the Nagpur High Court in the case of Ganpatdas Kaludas Gosai…Defendant v. Harivallabh Onkarji Trivedi…Plaintiff . A.I.R 1941 Nagpur 1. He has also cited a ruling of the Court of Appeal of England in the case of Mortgage Insurance Corporation, Limited v. Commissioners of Inland Revenue (1888) 21 Queen's Bench Division 352.
5. On behalf of the respondents, we have been referred to a ruling of the Allahabad High Court in the case of Pandit Sushil Chander Chaturvedi v. Wali Ullah A.I.R 1941 Allahabad 158, and it has been argued that the learned Judges had before them a document practically in the same language as that of the document in suit, and that on a consideration of the two rulings of the Privy Council, cited above, they came to the conclusion that the document was a promissory note, and being insufficiently stamped was inadmissible in evidence.
6. We have considered the arguments of both the learned counsel. One important question that emerges from a perusal of all the authorities placed before us is that the intention of the parties at the time of the execution of the document is to be looked into in order to find out whether the document in question is a promissory note or not. In (Nawab Major Sir) Mohammad Akbar Khan v. Attar Singh A.I.R 1936 Privy Council 171, the recitals in the document before their Lordships of the Privy Council ran as follows:
“This (one) receipt is hereby executed by H and A, residents of Hoti, for Rs. 43,900/-, half of which amount comes to Rs. 21,950/-, received from the firm of L, for and on behalf of M of Hoti. This amount to be payable after two years. Interest at the rate of Rs. 5/4/0 per cent per year to be charged. Dated 1st April 1917 Stamp has been duly affixed.”
7. It was held by their Lordships that the said document was not a promissory note but was merely a receipt containing the terms on which the amount was to be refunded. One of the circumstances, amongst others, which was taken into consideration by their Lordships was that the document was not drawn on paper with an impressed stamp, as would have Page: 301been the case, if the document were a promissory note, and that the stamp, which was affixed, was sufficient only if the document were a simple receipt. Reliance was placed upon the ruling in the case of Mortgage Insurance Co. v. Commissioner of Inland Revenue (1888) 21 Queen's Bench Division 352, cited above. Learned counsel for the respondents argued that in the case before their Lordships there were no words showing express promise to pay, and, therefore, the ruling did not apply to the facts of the present case. It is true that the document did not say in clear terms that the money shall be repaid to the creditor, but their Lordships held that being primarily a receipt, even if coupled with a promise to pay, it was not a promissory note. The dictum of their Lordships is clear that even if a receipt is coupled with a promise to pay, it would not be a promissory note. In the later case of Lala Karam Chand v. Firm Mian Mir Ahmad Aziz Ahmad A.I.R 1938 Privy Council 121, quoted above, however, there was an express promise to pay in the documents each of which ran as follows:
“Received from you this day……………a cheque for Rs. ………… The amount would be repaid with the interest thereon at the rate of…………percent. Time ten months. The principal amount will be paid with interest after ten months from this date.”
8. Their Lordships held 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 a stamp, and they could be relied upon to show the real nature of the transaction. Certain authorities of the Indian High Courts were placed before their Lordships in order to show that such documents were held to be promissory notes. But in spite of that, their Lordships recorded a finding that the documents before them could not be considered to be promissory notes, as upon the language of the document as well as the circumstances of the case, intention of the parties could not be said to be to bring a promissory note into existence. In the English case of Mortgage Insurance Corporation Limited v. Commissioner of Inland Revenue (1888) 21 Queen's Bench Division 352, cited above, it was held that simply because a document contained a promise to pay, it could not be said to be a promissory note. Lord Esher, M.R, observed that:
“The intention of the parties is an element to be taken into account in considering what is the nature of the document.”
9. Their Lordships had before them the provisions of sec. 49 of the English Stamp Act, which is substantially in the same language as sec. 35 of the Indian Stamp Act. It was observed by Lindley, L.J, that:
“If the instrument is not merely a promise to pay but contains a promise to pay in connection with a number of other stipulations, then it is not a promissory note within the meaning of sec. 49. Unless some restriction of that kind is placed upon the words of sec. 49, they would include every document containing a promise to pay.”
10. In the case of Ganpatdas Kaludas Gosai…Defendant v. Harivallabh Onkarji Trivedi…Plaintiff . A.I.R 1941 Nagpur 1, hereinbefore referred to, it was held by Niyogi, J. that:
“It is necessary to look into the terms of the document and the surrounding circumstances to see whether it was intended to be a promissory note in the sense of its being intended to be used as a negotiable instrument. The mere use of the words “I promise to pay” would not necessarily make it a promissory note.”
11. The document in that case recited that the whole capital as well as interest would be repaid by three years from the date. The learned Judge held that the parties did not intend the document to be a negotiable instrument, and that in reality it purported to incorporate only the terms of an oral agreement between the debtor and the creditor. It could, therefore, be validated on levy of the penalty, if it was insufficiently stamped. Further on, the learned Judge observed that:
“Documents must be construed as a whole, and every part of the documents must receive attention and the intention should be gathered from the whole context of the instrument so as to make one entire and consistent construction of the whole.”
12. Thus, on the authorities cited by the learned counsel for the appellants, we need not be embarrassed by the portion of the document containing a promise to pay. It is permissible to consider carefully every part of the document and also to examine the surrounding circumstances in order to find out whether the document is a promissory note or not.
13. Before we discuss the language of the document in question, it would be profitable to give the actual words of the document. The document runs as follows:
“Hisab Gomla Gidha Aheer beta pota Heera ka dhani Meetha Ramji hali tan Sirohi ka ko Miti Mah Sudi 11 Samwat 2000 ka byaj dar Rs. 1/9/-.”
Rs. 376/2/- Baqi rajoo lena rupaya teen so chhintar anna do Hanuman Sahai Kaluram lena Gomla Gidha dena rupaya dhani mange jab de dewange biyaj piso rupaya soon desyan jorkar. -/1/- tikat ko Tareekh 4 February, 1944. Da. Gomla Gidha Heer ka Ba. Hazarilal Mahajan ki. Ni. Gomla ka guntha banivan ki Ba. Hazarilal Mahajan.”
14. Rendered into English, it reads as follows:
“Account of Gomla Gidha Ahir, son and grand son of Heera (residents of) Dhani of Meetha Ramji village Sirohi, dated Mah Sud 11, Samwat 2000, interest at the rate of Rs. 1/9/-.
Rs. 376/2/- as arrears (in words) rupees three hundred seventy-six and annas two, due to Hanuman Sahai Kaluram and recoverable from Gomla Gidha. Rupees will be paid when they will be demanded by the owner adding interest at the rate of one pice per rupee. Stamp of -/1/-. Dated 4th February, 1944. Sd. Gomla Gidha Ahirs, written by Hazarilal Mahajan. Left hand thumb impression of Gomla written by Hazarilal Mahajan.”
15. It would appear from the language of the document given above that it was the primary intention of the parties that a balance of the previous account be struck in the khata of the debtor in the account books of the creditor. A certain rate of interest was also recorded in order to save any dispute about the rate. This khata was stamped with one anna stamp, which, according to the law prevailing in Jaipur at that time, was chargeable on acknowledgment. A promissory note for an amount, above Rs. 250/- was chargeable with a stamp duty of -/2/-. Neither in the khata nor in the plaint is the document described to be a promissory note. The parties cannot be said to have intended that the document would be negotiable. On a careful consideration of the language, of this document and the authorities cited on behalf of the plaintiffs, we are of opinion that the parties did not intend that the document in question should operate as a promissory note. All that they intended was to furnish an evidence of the balance due against the debtor with stipulation to pay interest at a certain rate. Considering the entire circumstances of the case, we are not prepared to hold the document to be a promissory note simply on account of the words about payment having found place towards the end of the document. The only authority, after the two Privy Council authorities cited above, which has been placed before us on behalf of the defendant-respondent, is that of the Allahabad High Court in the case of Pandit Sushil Chander Chaturvedi v. Wali Ullah A.I.R 1941 Allahabad 185. That case is, however, distinguishable from the present case. In that case it does not appear that a balance of the previous account Page: 303was struck in the khata of the debtor in the account books of the creditor. The document was stamped with as 3-6 stamp, whereas the proper duty was a stamp of as 4. The duty chargeable on a receipt or on acknowledgment was -/1/- only. Among the factors, which influenced the learned Judges, was the factor that the parties would not have stamped the document with as 3-6 stamp, if they did not intend that it should operate as a promissory note. There was yet another factor which strongly tipped the balance in favour of the defendant. In the plaint itself the plaintiff described the document as a promissory note. Considering the circumstances given above along with the fact that the money was made expressly payable on demand, the learned Judges came to the conclusion that the parties intended that the document should be a promissory note. We have been unable to find out anywhere in the said judgment that the document was held to be a promissory note simply because the money was made payable on demand. We are of opinion that the lower courts were wrong in holding the document to be a promissory note. To our mind, the document should at best be considered to be an agreement, and should have been stamped as such. As it was insufficiently stamped, it could be used in evidence only on the payment of necessary penalty.
16. The appeal is allowed, the decrees of the lower courts are set aside, and the case is sent back to the original court for decision on merits in the light of the observations made above. Costs hitherto shall abide the result of the case after remand.
Alert