New Standard Bank, Ltd. v. Prabodh Chandra Chakrabarti

The Judgment of the Court was as follows:—

The facts which are not in dispute in these two appeals are these:—

A limited company, named House of Labourers, Ltd., was incorporated in the year 1926. Another company, named Steel Construction Co., Ltd., was incorporated in the year 1929.

On December 31, 1930, Prabodh Chandra Chakrabarti (the respondent in these two appeals) for self and on behalf of the House of Labourers, Ltd., executed a promissory note for Rs. 10,000 with interest at 12 per cent, per annum with-half yearly rests in favour of a company known as the Rice and Oil Mills, Ltd., Comilla.

On December 15, 1931, the Steel Construction Co. took over the assets and liabilities of the House of Labourers, Ltd. and, at about the same time, the Rice and Oil Mills Co. was converted into a, company called the New Standard Bank, Ltd. (the appellant in these two appeals).

On September 23, 1932, an order was made by the Original Side of this Court for winding up of the Steel Construction Co. and a liquidator was appointed.

On November 28, 1932, Prabodh for himself and on behalf of the Steel Construction Co. jointly borrowed from the appellant Bank Rs. 1,891 on a promissory note agreeing to pay interest at the rate of 12 per cent, with half-yearly rests.

On December 23, 1932, the appellant Bank filed a claim before the liquidator of the Steel Construction Co. for Rs. 1,891-10-0 as the money due to them from the said company on the handnote up to November 28, 1932. They also, in this claim, included Rs. 12,147-11-0 due to them from the House of Labourers, Ltd., on the promissory note dated December 31, 1930 up to November 28, 1931, stating that this amount was mentioned in the balance-sheet of the Steel Construction Co., Ltd., as due to them from the said company.

On the next day, by a resolution of the House of Labourers, Ltd., Prabodh, a director of the said company, was authorised to renew the handnote dated December 31, 1930, in favour of the appellant Bank.

On December 25, 1932, Prabodh for self and as director of the House of Labourers, Ltd., executed a renewed handnote for Rs. 12,270 in favour of the appellant Bank, the interest stipulated being the same as in the original handnote.

On May 1, 1933, the operation of the order for winding-up the Steel Construction Co., Ltd., was stayed on certain conditions and a reconstruction scheme of the said company was approved by the Original Side of this Court.

On September 21, 1933, the House of Labourers, Ltd., executed a conveyance assigning its assets and liabilities in favour of the Steel Construction Co., Ltd.

In April, 1934, the House of Labourers, Ltd., went into voluntary liquidation and Prabodh was appointed liquidator.

On June 5, 1934, the reconstruction scheme of the Steel Construction Co., Ltd., was revoked and the proceedings for winding-up of the said company were revived.

On October 5, 1934, Prabodh, as liquidator of the House of Labourers, Ltd., instituted a suit (Suit No. 1) in the Court of the Subordinate Judge of Comilla for possession of the properties conveyed on September 21, 1933, on declaration that the assignment was void. This suit has been subsequently transferred to the Original Side of this Court and is still pending.

On November 27, 1935, the appellant Bank instituted a suit (Suit No. 61) against Prabodh and the liquidator of the Steel Construction Co., Ltd., in the Court of the Subordinate Judge of Comilla for recovery of Rs. 2,685-10-6 due on the handnote dated November 28, 1932.

On December 9, 1935, Peerless Tea Company, Ltd., a creditor of the Steel Construction Co., Ltd., obtained leave under s. 153 of the Indian Companies Act to convene a meeting of the creditors and shareholders of the Steel Construction Co., Ltd., for consideration of a fresh reconstruction scheme of the said company. The material portion of this proposed scheme are as follows:—

(11) The New Standard Bank, Ltd. are entitled to a sum of Rs. 16,000 or thereabouts to be paid in the manner following:—

By allotment to them of fully paid up shares in the company to be issued in accordance with this scheme to the face value of Rs. 12,000. By assignment of debts to the amount of Rs. 4,000………………….

(14) The amount due to the respective creditors and the debts due from the debtors shall be ascertained by the company, but, in case of any difference, it will be referred to Mr. R. Ray whose decision shall be final.

On January 2, 1936 the appellant Bank instituted a suit (Suit No. 62) in the Court of the Subordinate Judge of Comilla for recovery of Rs. 17,415 against the House of Labourers, Ltd. and Prabodh due on the renewed handnote, dated December 25, 1932.

On February 1, 1936, the appellant Bank authorised their Managing Director to attend the meeting ordered to be convened on December 9, 1935, for consideration of the proposed reconstruction scheme of the Steel Construction Company, Ltd., with the following reservations:—

(a) That the New Standard Bank, Ltd. does not give up their claim against the House of Labourers, Ltd. in liquidation and another relating to which a suit is pending in the First Subordinate Judge's Court, Comilla, and

(b) That this scheme is not to be regarded as novation of contract or as a discharge so far as the joint debtor with Steel Construction Co., Ltd. to New Standard Bank, Ltd. is concerned.

These reservations, however, were not pressed by the Managing Director of the appellant Bank at the meeting of February 9. On May 6, clause 11 of the proposed scheme was unanimously amended and a scheme of construction with certain modifications was approved. The material portions of this scheme ate:—

(i) The winding up will be set aside.

(ii) The Company will be carried on under a Board of Directors consisting of five Directors, of whom three will be nominated by the New Standard Co., Ltd., one by the Peerless Tea Co., Ltd., the remaining will be elected from the shareholders of the Company from amongst themselves.

(iii) The Company shall appoint the New Standard Bank, Ltd. as its Managing Agents for a term of ten years.

(xi) The New Standard Bank, Ltd. are entitled to a sum of Rs. 16,000 or thereabouts to be paid in the manner following:—

By allotment to them of fully paid up shares in the Company to be issued in accordance with this scheme to the face value of ¾th of the debt as ascertained not exceeding………Rs. 12,000

By assignment of debts to the ¼th of the amount of the debt as ascertained not exceeding………Rs. 4,000

(xiv) The amount due to the respective creditors and the debts due from the debtors shall be ascertained by the Company, but, in case of any difference, it will be referred to Mr. R. Ray, whose decision shall be final.

(xiva) Pending the allotment of new shares and the election of the Board of Directors, Messrs J.C Bhattachariya B.K Datta, J.A Graham, N.C Datta and Madhu Sudan Sen Gupta, Retired Superintendent Engineer, be appointed to carry out the scheme with a provision that three of them will form a quorum and that, in case of any casual vacancy, the continuing member will be Entitled to fill up the vacancy from amongst the creditors.

On June 15, 1936, this scheme was sanctioned by this Court on its Original Side. Thereafter the appellant Bank received Rs. 16,000 in accordance with this scheme.

On July 17, 1937, the appellant Bank filed an application on the Original Side of this Court for leave to proceed with Suit No. 62 pending in the Court of the Subordinate Judge of Comilla against both the defendants in that suit for recovery of the balance after deducting the amount paid to them in accordance with the reconstruction scheme. This application was dismissed by Lort-Williams, J. on August 10, 1937, on the ground that the appellant Bank agreed to the scheme without any reservation of any further claim against the House of Labourers, Ltd. and that the scheme was accepted as a final liquidation of the claims of the Bank both against the Steel Construction Co., Ltd. and the House of Labourers, Ltd.

An appeal against this order by the appellant Bank was dismissed.

In accordance with this order the House of Labourers, Ltd. were struck off from the category of the defendants in the Suit No. 62 and the appellant Bank amended their plaint by limiting it to the recovery of Rs. 5,519-12-0 from Prabodh alone, being the balance due to them after deducting Rs. 11,895-4-0 received by them on account of the claim in this suit in accordance with the scheme of reconstruction.

The Steel Construction Co., Ltd. were also struck off from the category of the defendants in Suit No. 61. In this suit also the appellant Bank amended their claim by limiting it to recovery of Rs. 835-2-0 against Prabodh alone, being the balance due to them after deducting Rs. 1,850-8-6 paid to them in accordance with the reconstruction scheme.

The suits were then contested by Prabodh.

The trial Judge has held that the debt which is the subject matter of Suit No. 62 was not put an end to by any novation of contract. He has also held that the liability of Prabodh in both the suits was extinguished by acts which happened after the institution of these suits, namely, satisfaction in pursuance of the final scheme of composition sanctioned by this Court on its Original Side. He, accordingly, dismissed both the suits.

Hence these two appeals by the plaintiff Bank.

Section 62 of the Indian Contract Act deals with one mode of discharge of contract by consent, namely, novation. By this section if the parties to a contract agree to substitute a new contract, the original contract is discharged. This may happen, if the parties agree to substitute a new contract, either between themselves or between different parties, the consideration being the discharge of the old contract. Whether all rights, and liabilities under the old contract have been extinguished by novation is a question of fact depending on the circumstances of each case. In each case the question is not only whether a new debtor has consented to assume liability but whether the creditor has agreed to accept his liability in substitution of the liability of the original debtor. In Manohur Koyal v. Thakur Das Naskar, this Court held that s. 62 of the Indian Contract Act does not apply where the agreement to substitute a new contract for the original one is made after, the breach of the original contract. The actual language of the section seems to limit its operation to cases before the breach of the contract. The section enacts that, in the circumstances laid down in it, “the original contract need not be performed”. This implies that the performance of the same could still be required. In the case referred to above, this Court observed:—

Section 62 is but a legislative expression of the common law; and its provisions do not apply after there has been a breach of the original contract.

Since this decision, however, there has been a good deal of controversy as to the scope of this section. In Ramiah Bhagavatar v. Somasi Ambalam, Seshagiri Aiyar, J. was not prepared to dissent from the view taken by the Calcutta High Court in the above case. But Kumaraswami Sastri, J. was unable to see any grounds for introducing the principles of common law in construing the sections of the Indian Contract Act. According to him there was—

no reason why after breach, the parties should not agree to vary the terms or why a plaintiff who consents to such variation should not be held bound by the terms of his agreement.

Later on in K.M.P.R.N.M. Firm v. P. Theperumal Chetty, Offg. C.J, and Odgers, J. approved of the remarks of Kumaraswami Sastri, J. and dissented from the views of the Calcutta High Court as expressed in the above case. In Brijmohan v. Mahabeer*, our learned brother Panckridge, J., referring to the Manohur Koyal case (supra), observed as follows:—

I think that if one does not go beyond the actual language of s. 62 there is something to be said for this view. “Parties to a contract” ordinarily signifies parties to an existing contract rather than parties to a contract that has already been discharged by breach. I find some difficulty, however, in applying this principle to a debt, for it appears strange if the mere failure to pay an outstanding debt on demand brings the case out of the scope of s. 62.

To these observations it might have been added that the section uses the words “the original contract need not be performed”, implying thereby that the stage contemplated by the section is the one at which performance of the original promise could yet be required.

Section 41 deals with another mode of discharge of contract. Under this section, the contract is discharged if the promisee accepts performance from the promisor. This section requires actual performance and falling short of novation does not absolve the debtor from liability.

Whatever difficulties there might have been in applying the provisions of s. 62 of the Contract Act, it is beyond all controversy that where a breach of contract has taken place the cause of action that arises from the breach may be discharged by accord and satisfaction. Accord is the agreement that the debtor shall pay and that the creditor shall accept something in satisfaction of the cause of action. Satisfaction is the actual execution of such agreement.

Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.

British Russian Gazette and Trade Outlook, Limited v. Associated Newspapers, Limited.

By s. 63 of the Indian Contract Act, every promisor may dispense with or remit wholly or in part the performance of the promise made to him or may accept instead of it any satisfaction which he thinks fit. This section makes a wide departure from the English law, inasmuch as it does not refer to any agreement and valuable consideration. It should not therefore, be enlarged by any implication of English doctrine. Chunna Mal Ram Nath v. Mool Chand-Ram Bhagat.

Before the institution of the two suits out of which these appeals arise the appellant Bank included in their claim before the liquidator of the Steel Construction Co., Ltd. the two debts for recovery of which these two suits have been brought. So far as the debt due on the handnote executed by the Steel Construction Co., Ltd. was concerned the plaintiff Bank were the creditors of the said Company. So far as the other handnote is concerned, they were the creditors of the House of Labourers, Ltd., but they included the debt due on this handnote in their claim as this debt was mentioned in the balance sheet of the Steel Construction Co., Ltd. In the suit to recover the debt due on the promissory note executed by the House of Labourers, Ltd., they did not implead the Steel Construction Co. as defendants. In the scheme proposed by the Steel Construction Co., Ltd., on December 9, 1935, the Company offered to pay Rs. 16,000 by debentures and assignment of debts on the footing that the appellant Bank were entitled to a sum of Rs. 16,000 or thereabouts and that the amount of the debt due to them would be ascertained by the Company and, in case of any difference, the decision of the liquidator would be final. The appellant Bank were not at first willing to accept the offer so far as the debt, which was the subject matter of Suit No. 62, namely, the debt due from the House of Labourers, Ltd. was concerned. They also were not willing at first to give up their claim against Prabodh in Suit No. 61. When the proposed reconstruction scheme of the Steel Construction Co., Ltd., which included the abovementioned offer by the Company to the appellant Bank, came up for consideration at the meeting ordered to be convened under s. 153 of the Indian Companies Act, Managing Director of the appellant Bank, who was deputed by the appellant Bank to represent them at the said meeting, accepted, without any reservation, the amendment of the original proposal as indicated in para. 11 of the scheme sanctioned by the Court. The amount due to the appellant Bank was, thereafter, ascertained by the liquidator and the appellant Bank received Rs. 16,000, without any reservation, in full satisfaction of their claims including their claims, in the two Suits Nos. 61 and 62. It is clear from the facts and circumstances of the present case, that, although Prabodh was a joint promisor in the two handnotes in suit, he was not at all personally benefited by any of these two loans. It is also clear that on account of this fact the two debtor companies took upon themselves the entire liability of these two: handnotes and the Steel Construction Co., Ltd., having taken over the liabilities of the House of Labourers, Ltd., paid Rs. 16,000 in full satisfaction of all claims of the appellant Bank including the claims of the two handnotes in suits.

Much reliance was placed by the appellant upon Ex parte Jacobs. In Re Jacobs. That was a case under the Bankruptcy Act. The appellant Bank were not the creditors of the Steel Construction Co., Ltd., in respect of the debt due on the handnote executed by the House of Labourers, Ltd. This debt therefore, could not have been affected by any scheme under s. 153 of the Indian Companies Act. But the appellant Bank agreed, without any reservation, to receive from the Steel Construction Co., Ltd., a certain amount in satisfaction of this debt. They also agreed to receive a certain amount without any reservation in full satisfaction of their debt due from the Steel Construction Co., Ltd. The facts of this case, therefore, are clearly distinguishable from the case of Eve parte Jacobs (supra).

The appellant Bank received without any reservation Rs. 11,895-4-0 in full satisfaction of their debt due on the handnote executed by the House of Labourers, Ltd. Assuming that this did not amount to discharge of the debt by novation, it certainly amounted to discharge of the debt under s. 41 of the Indian Contract Act. The appellant Bank also received, without any reservation, Rs. 1,850-8-6 in full satisfaction of the debt due on the handnote executed by the Steel Construction Co., Ltd. This amounted to discharge of the cause of action in Suit No. 61 under s. 63 of the Indian Contract Act.

Under the English law, accord and satisfaction made by one several parties jointly liable or jointly and severally liable to the same creditor for the same debt discharges the claim of the creditor against all (Leake on Contract, 8th Ed., pp. 683-684). There is no reason why this principle would not apply to cases of joint and several liability under s. 43 of the Indian Contract Act. This is indeed a principle of general application and can be traced to the doctrines of the Roman law. In Roman law—

Obligation of this sort went by the name of correality or solidarity. Such an obligation bound each promisor for the whole. And yet though there might be two obligations, one thing only turned on them. If, therefore, anyone paid what was due he put an end to the obligation of all and set all free.

In such an obligation, two or more persons were liable for the whole, but it was due only once, so that if the sum due was once paid, the whole was ended.

Each debtor might be compelled to pay the whole or any part of the debt.

If one of the debtors paid the whole or part of the debt, the other debtors were wholly or pro tanto released.

But when a debtor was released, by a cause that did not affect the joint obligation (as, if he was made captive and enslaved), the other debtors were not to any extent released.

In Roman law these cases fell into two groups, the essential difference being that in classical law in one group, the bringing of an action by, or against, one, barred or released, all the others. In other group, roughly speaking, only—satisfaction ended the obligation. To the first group the name correality was applied—the second case was commonly called simple solidarity.

Anything which completely destroyed a correal obligation as to one debtor, without affecting his personality (as St. Paul puts it, destroyed the debt, but not the debtor) destroyed it altogether.

In both the cases of correality and solidarity, whether there was one obligation, or more, there was at any rate only one thing due. One sum of money due and there was a very ancient rule expressed in the maxim non his in idem—the same thing must not be claimed twice.

As the appellant Bank, after the institution of the two suits adjusted the claims in the two suits at certain amounts without any reservation and as the adjusted claims have been paid in full, further claims against. Prabodh in these two suits are no longer maintainable.

The learned Subordinate Judge was, therefore, right in holding that the two debts for enforcing which the two suits, viz., Nos. 61 and 62, were instituted had been discharged and the plaintiff Bank were not entitled to recover anything from Prabodh.

The appeals, therefore, fail and are dismissed.

There will be no order as to costs in the appeals.

The cross-objections are not pressed and are, therefore, dismissed but without costs.

Appeal dismissed.

A.A