Ganpatdas Kaludas Gosai v. Harivallabh Onkarji Trivedi

1. This is a defendant's appeal from an order of remand passed under O. 41, R. 23 of the CPC, by the first Additional District Judge, Nagpur, in civil appeal No. 1-B on 29th April 1939. The respondent sued to recover Rs. 1170 on the strength of a document dated 5th June 1935, which was described as a promissory note. The terms of that document are as follows:

On demand I promise to pay to Mr. Harivallabh Onkarji Trivedi of Nagpur the sum of Rs. 950 only which I have taken this day as a loan in cash without mortgaging anything with interest at the rate of Re. 1 percent, per month; the whole capital as well as interest will be repaid by three years from the date. If I failed to repay within the time I shall pay interest at 1½ rupee per cent, per month.

2. It bears an adhesive revenue stamp of four annas.

3. The defendant contended that, it being a promissory note under which the loan was payable otherwise than on demand, was liable to stamp duty under Article 49(b) of sch. I to the Stamp Act II of 1899 as a bill of exchange and that as it was insufficiently stamped Section 35 of the Stamp Act, bars its validation by levy of penalty. That contention prevailed in the Court of first instance but was overruled on appeal.

4. The principal question is whether it was intended to be a promissory note within the meaning of that expression as defined in Section 4 of the Negotiable Instruments Act. The mere use of the words “I promise to pay” would not necessarily make it a promissory note. As observed by Bowen, L.J, in (1888) 21 QBD 3521 at p. 357 most commercial documents contain, either expressly or by implication, a promise to pay a sum of money, but they may contain a great deal besides, and it cannot be contended that all such documents are promissory notes within the meaning of the section.” This case was decided on appeal from the decision reported in (1888) 20 QBD 6452 in which the observations of Pollock, B., are as significant. They are as follows:

The next question is, can we say that this instrument is necessarily included in the terms of the section? It would be easy to say that every instrument was necessarily included which provides simply and purely for the payment of money, whether it be one single payment, or distributed over a period, or to be paid out of a particular fund, or upon any condition or contingency. But can that construction be applied where, though all the terms of the section are satisfied with respect to the payment of money, the document is not a document which in ordinary parlance is called a promissory note, but contains terms beyond a stipulation for a mere money payment? In that state of things ought it to be treated as one instrument or as two separate instruments? I think it is clear that for the purposes of the Stamp Act it cannot have been intended that a document should be treated as in part a promissory note and in part an agreement. It must be either one or the other. The question is, what is the dominant, the substantial effect of the instrument? In this respect the prior decisions assist me in forming a conclusion. The Courts have said that in order to determine the question two things must be enquired into—what is the intention of the parties, and what is the instrument in the common acceptation of men of business, or persons among whom it is commonly used.

5. Their Lordships of the Privy Council in 17 LAH 5573 at p. 569, decided a similar point on the broad ground, namely, whether it was intended to be brought within the definition relating to documents which are to be negotiable instruments. Their Lordships referred to the English case reported in (1888) 20 QBD 352 at p. 357, and pointed out that documents such as receipts and agreements generally were not intended to be negotiable, and serious embarrassment would be caused in commerce if the negotiable net were cast too wide. On the terms of the instrument before them, their Lordships found that it was primarily a receipt and they declared that even if it was coupled with a promise to pay it was not a promissory note. In AIR 1938 PC 1214 their Lordships of the Privy Council observed that there was a strong current of authority in India to the effect that documents containing a promise to pay came within the ban of Section 35 of the Stamp Act, and alluding to 63 IA 279, pointed out that the test is not that the instrument contained a promise to pay but whether or not the parties clearly intended the document to serve as a negotiable instrument.

6. It is consequently 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. It is a well-recognized rule of construction of documents that they must be construed as a whole, that every part of the documents must receive attention and that the intention should be gathered from the whole context of the instrument so as to make one entire and consistent construction of the whole: see, 54 MLJ 825 at p. 87.

7. The document under consideration starts with the words “On demand I promise to pay” but subsequently says that the principal sum with interest would be repaid in three years. The words “promise to pay on demand” as explained in 11 NLR 1896 at p. 192, import that the debt is due and payable immediately. Now, this stipulation is inconsistent with the later one which says that the money was payable within three years. The learned counsel for the appellant contends that the intention was that the money was to be repaid within three years from the date of demand made for its payment. On this argument the making of a demand would be a condition precedent to payment and the date of payment would vary according to the date of the demand. That is manifestly not an unconditional promise to pay. If the promise to pay within the specified time, namely three years, had stood by itself it would not have affected the unconditional nature of the promise as provided in Section 5 of the Negotiable Instruments Act, for the reason that the obligation to pay, though not immediate, was postponed till a specified date. Whether the parties contemplated payment immediately or after a lapse of a specified period, the date when the promise is liable to be enforced is a well-defined and certain date and the liability is unconditional; but, that is not the position with regard to the document under consideration which recites a promise to pay immediately and in the same breath at some future unspecified and shifting date. This glaring inconsistency in the document itself evidences that it was not intended to be used as a negotiable instrument. The recital containing in that instrument, viz., that the executant had received Rs. 950 in cash was a false recital inasmuch as it is clear from the trend of the pleadings that the amount represented a balance found due on previous accounts. The position was that the creditor had been lending money to the debtor from time to time and receiving payments. The relations between the parties were purely those of debtor and creditor and they obviously intended to bring into existence an acknowledgment of the debt coupled with a fresh agreement to discharge the balance found due within the period specified there with a fresh agreement as to payment of interest.

8. The primary rate of interest settled was Re. 1 per cent, with a stipulation for its enhancement to Re. 1½ per cent, on default being made in payment of the debt within the specified period. The material terms of the document leave no doubt that it was intended to be a memo of an already concluded oral agreement. To escape payment of the full stamp the agreement was made to simulate the form of a promissory note by use of initial words “on demand I promise to pay”. I agree with the lower Appellate Court 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. It was therefore rightly validated on levy of the penalty. The appeal is dismissed with costs. Costs in the Courts below will be paid as ordered by the lower Appellate Court.

D.S/R.K

9. Appeal dismissed.