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Reference under Rule 10
of Sind Chief Court Rules (O. S. in Suit No. 409 of 1956, decided on 19th April 1963.
Promissory note not properly stamped and thus inadmissible under S. 35, Stamp Act, 1899‑Whether and when lender can fall back on original consideration by adducing evidence other than instrument itself and claim decree for money lent on that basis.
Where the pronotes on the basis of which suits were filed were not properly stamped and were thus not admissible in evidence under section 35, Stamp Act, 1899, on the question whether the lender can fall back on original consideration by adducing evidence other than the pronotes and claim decree for money lent on that basis.
Held, that if the promissory note embodies all the terms of the contract and the instrument is improperly stamped, no suit on the debt will lie in view of the bar of section 91, Evidence Act, 1872 and section 35, Stamp Act, 1899. But if it does not embody all the terms of the contract the true nature of the transaction can be proved and the lender's claim can be decreed on that basis. The fact that the execution of the promissory note is contemporaneous with the borrowing cannot exclude the possibility of the instrument having been given as collateral security or by way of conditional payment. Whether a suit lies on the debt apart from the instrument, therefore, depends on the circumstances under which the instrument was executed. In those cases where an instrument has been given as collateral security or by way of conditional payment, a suit on the debt would lie and there would be a cause of action independent of the instrument for its recovery.
Since, in the case, the pronotes in question did not embody all the terms of the contract, neither section 91 of the Evidence Act, 1872 nor section 35 of the Stamp Act, 1899 would be a bar in the way of the lender to file a suit for the recovery of the debt alleged to have been advanced by him as loan.
Sohan Lal‑Nihal Chand v. Raghu Nath Singh and others A I R 1934 Lah. 606 distinguished.
L. Amin Chand v. Firm Mandho Ram Banwari Lal and others A I R 1954 Pb. 301; Bharpura v. Diwan Chand A I R 1940 Lah. 329 ; Firm Sri Chand Sheo Parshad v. Lajjia Ram A I R 1939 Lah. 31 ; Sheo Nath Prasad v. Sarjoo Nonia and another A I R 1943 All. 220 ; Muhammad Akbar Khan v. Attar Singh and others A I R 1936 P C 171 ; Nazir Khan and another v. Ram Mohan Lal and another A I R 1931 All. 183 ; Ram Nath v, Bhagwati Prasad and another A I R 1946 All. 150 ; Lakshmi Narain v. Mst. 4parna Devi A I R 1953 All. 535 ; Domoo Khan v. Agha Arshad Khan A I R 1933 Pat. 575 ; Kunwar Bahadur v. Suraj Bakhsh A I R 1932 Oudh 235 ; Mahadeo Tukaram Mahajan v. Ramchandra Deoyya Yelmi A I R 1940 Nag. 215 ; Jacob & Co. v. A. P. Vicumsey and others A I R 1927 Born, 437 ; Ma Shwe Hpaw and another v. Dwa Hpaw A I R 1933 Rang. 161 ; Somabhai Naran bhai Patel v. Kalyanbhai Kashibhai Patel 40 B L R 174 ; Perumal Chettlar v. Kamakshi Ammal A I R 1938 Mad. 785 ; Lokumal v. Sind Bank Ltd. A I R 1920 Sind. 66 ; Naraindas and another v. Jassomal A I R 1921 Sind 80 ; In re : Assaram Motiram A I R 1929 Sind 164 ; Shah Chimanlal Jagijivandas v. Kambhla Savji Bechar A I R 1955 Saurashtra 74 ; Manik Lal Choudhry v. Dhirandra Chandra Bardhan A I R 1957 Tripura 28 ; Brij Raj v. Raja Ram A I‑R 1957 Hyd. 35 ; Champalal v. Saligram A I R 1961 Raj. 235 ; Maung Chit v. Roshan N. M. A. Kareem Oomar & Co. A I R 1934 Rang. 389 ; Kundan Lal v. Bhikari Das Iswar Das 51 All. 530 ; Subramanian v. Lutchman 50 Cal. 338 ; Firm Sadasuk. Janki Das v. Sir Kishan Pershad and another A I R 1918 P C 146 and Ram Rattan v. Parma Nand A I R 1946 P C 51 ref.
Requisite stamps affixed on instrument but each stamp not cancelled‑Instrument deemed to be unstamped ‑ Pronote bearing eight annas stamp having only four one‑anna stamps cancelled and remaining four one‑anna stamps , uncancelled‑
pronote inadmissible and decree cannot be passed on basis of such instrument.
Sohan Lal‑Nihal Chand v. Raghu Nath Singh and others A I R 1934 Lah. 606 ref.
A. A. Zari for Plaintiff.
Muzaffar Hassan for Defendant.
Dates of hearing : 21st and 22nd January 1963.
This judgment will deal with Suit No. 409/1956 and Suit No. 410/1956 in which common questions of law and facts are raised. Both the suits have arisen in the following circumstances.
2. On the 26th of September 1953, the plaintiff lent and advanced a sum of Rs. 30,000 to the defendant as a friendly loan for commercial purposes. On the 4th of December 1953, he lent and advanced a similar amount to the defendant for a similar purpose. On the respective dates the defendants passed two pronotes for Rs. 30,000 each as a collateral security for the said loans. The agreed rate of interest is alleged to be 2 per cent. per annum. The above‑mentioned amounts were not repaid by the defendant. Thereupon the plaintiff brought Suit No. 409/ 1956 for the recovery of Rs. 31,750 and Suit No. 410/1956 for the recovery of Rs. 31,650.
3. The suits are resisted on behalf of the defendant on numerous grounds. One of the objections raised by the defen dant is that the pronotes, on the basis of which the suits were originally filed, are not properly stamped and, therefore, the suits must fail. On the objection, the plaintiff in both the suits sought to amend the plaints and he was allowed to amend them by order dated 5‑1‑1960. On the 14th January 1960 in both the suits the plaintiff filed amended plaints and based the claims in dispute on the basis of the original considerations namely the loans advanced to the defendant. The defendant denied his liability on this basis and has strongly contested the suit. On the amended pleadings, the following additional issues were struck
(1) Is the relief based on original consideration time‑barred
(2) Can the plaintiff sue on the original cause of action when it was replaced by an inadmissible pronote
(3) Is there any cause of action independent of the pro notes
There being divergence of judicial view on the points raised in issues Nos. 2 and 3, the matter was referred, under Rule 10 of the Sind Chief Court Original Side Rules, for decision to the Division Bench. We would, therefore, dispose of the points covered by additional issues Nos. 2 and 3 by this judgment.
4. The main point for consideration is whether the plaintiff in view of the admitted position that the pronotes, on the basis of which the original suits were filed, are not properly stamped and not admissible in evidence under section 35 of the Stamp Act, can fall back on the original consideration and claim a decree for the amount in dispute on 'that basis. Mr. Muzaffar Hassan, the learned counsel for the defendant, has contended that once it is found that the promissory note is insufficiently stamped or the stamps affixed are not properly cancelled, a plaintiff in such a case cannot be permitted to fall back on the original consideration and base his suit on it. The learned counsel has referred us to section 35 of the Stamp Act, which is in the following terms
"No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped
Provided that‑
(a) any such instrument not being an instrument chargeable with a duty of one anna (or half an anna only), or a bill of ex change or promissory note, shall, subject to all just exceptions, be admitted in evidence on payment of the duty with which the same is chargeable, or in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion."
Thus, under this provision of law, an instrument inadmissible in evidence or not duly stamped is considered non‑existent in the suit in which it was tendered. In the present case each of the promissory notes required to be stamped with eight annas stamps, though on both the promissory notes the requisite stamps are affixed, but out of them only four revenue stamps of one anna each are cancelled and the remaining four revenue stamps of one anna each are uncancelled. The learned counsel contended that since all the stamps are not cancelled both the pronotes should be considered to be insufficiently stamped. In view of the decision of the Lahore High Court in Sohan Lal Nihal Chand v. Raghu Nath Singh and others (A I R 1934 Lah. 606) it cannot be doubted that the principle underlying section 12 of the Stamp Act is that there should not be any possibility of a stamp axed to an instrument being used again. It was held in the above mentioned case that‑
"So far as an uncancelled stamp is concerned the instrument to which it is affixed shall be deemed to be unstamped."
It was further held that‑
"So where a pronote requiring four annas stamp bears only three cancelled one anna stamps and one uncancelled one anna stamp it should be considered as insufficiently stamped."
The principles enunciated in this decision have not been challenged by the learned counsel for the plaintiff. It is, therefore, quite) obvious that the pronotes in the two suits in question are insufficiently stamped and inadmissible in evidence under section 35 of the Stamp Act. Consequently no decree can be passed on the basis of the pronotes which are inadmissible in evidence. It was for this reason that the plaintiff amended the plaints and has fallen back on the original consideration, namely the loans advanced to the defendant in the above‑mentioned suits.
5. Mr. Muzaffar Hassan, the learned counsel for the defendant, further contended that oral evidence cannot be allowed to prove the terms of a contract, which has been reduced to writing, and if the written contract is inadmissible in evidence, the suit must fail. The learned counsel has also supported this contention on the Lahore case referred to above. He has further referred us to another decision of the East Punjab High Court in the case of L. Amin Chand v. Firm Mandho Ram Banwari Lal and others (A I R 1954 Ph. 301). In that case too it was held that the suit must fail where the instrument is inadmissible for want of proper stamping, and the plaintiff cannot fall back on the loan which forms part of the consideration for the negotiable instrument in suit. So far as the Lahore view is concerned, except some earlier decisions, there is unanimity of opinion on this question. Besides the above decisions, this view was also taken in the case of Bharpura v. Diwan Chand (A I R 1940 Lah. 329) and Firm Sri Chand Sheo Prashad v. Lajjia Ram (A I R 1939 Lah. 31).
6. On the other hand, Mr. Zari, the learned counsel for the plaintiff, has referred us to a large number of decisions of pre-partition Indian High Courts and post‑Partition Indian Courts in support of his contention that a plaintiff can fall back on the original consideration and his claim can be decreed on that basis. In the case of Sheo Nath Prasad v. Sarjoo Nonia and another (A I R 1943 All. 220) a Full Bench of the Allahabad High Court held that it was immaterial that the pronote and the loan were part and parcel of the same transaction and were made simultaneously, and that even in such a case the promissory note ordinarily and presumably is given as a conditional payment or as a collateral security and the advance of a loan was a distinct and separate cause of action by itself which could be sued upon and proved by other evidence even though the promissory note was not admissible in evidence. Dar, J. who expressed an extreme view on the point under consideration observed as under at page 227 :
"In my opinion, the law on the subject may thus be stated. When a promissory note was given in consideration of a sum of money it is a question of fact in each case whether the sum of money was given as a loan or not as a loan ; in the absence of all evidence the presumption is that it was given by way of a loan ; and there is a further presumption that the promissory note was given in conditional payment of the loan. If by reason of the defect of stamp the promissory note is held inadmissible in evidence, it is open to the plaintiff to prove the loan and all its terms and to recover the loan irrespective and independently of the promissory note by giving other evi dence including that furnished by a contemporaneous receipt, if there be any. It is for the defendant to prove that the promissory note was given for a sum of money which was not given as a loan or it was given in absolute satisfaction of the loan or the plaintiff has made it his own by his agreement or by his conduct. If the defendant succeeds in proving any of these facts the plaintiff shall be restricted to the promissory note and he shall not be allowed to recover independently of the promissory note."
The concensus of opinion, however, of all the Judges in this case is that there is ample authority for the proposition that if all the terms of the contract are not contained in the pronote oral evidence always be given to prove those terms, and reliance was placed on the decision of the Privy Council in the case of Muhammad Akbar Khan v. Attar Singh and others (A I R 1936 P C 171). It may be noticed at this stage that an earlier Full Bench decision of this Court in Nazir Khan and another v. Ram Mohan Lal and another (A I R 1931 All. 183) held that it is not open to the party who has lent money on terms recorded in a promissory note, which turns out to be inadmissible in evidence for want of proper stamp duty, to recover his money by proving orally the terms of the contract as evidence admissible under section 91 of the Evidence Act. In spite of these two Full Bench decisions, the controversy in the Allahabad High Court still continues. In the case of Ram Nath v. Shagwati Prasad and another (A I R 1946 All. 150) a Division Bench of the Allahabad High Court held that‑
"Where, as in the suit in appeal and as usually, all the substantial terms of the contract have not been embodied in the promissory note and where, as in the suit in appeal, the promissory note is inadmissible in evidence by reason of section 35, Stamp Act, it is open to the plaintiff to prove the terms of the contract. Under such circumstances the bar of section 91, Evidence Act, does not apply."
In the case of Lakshmi Narain v. Mst. Aparna Devi (A I R 1953 All. 535) a Division Bench held that the Full Bench decision was based on a general ground, namely that the taking of the loan and giving of the promissory note were two different causes of action and the admissibility of the promissory note merely disabled the plaintiff from suing upon the promissory note, but did not prevent him from suing upon the separate and distinct cause of action on the advance of the loan.
7. In the Patna, Oudh and Nagpur Courts the view is that where money is advanced under a promissory note which is not sufficiently stamped, the lender is entitled to maintain a suit for the recovery of the money lent and to adduce evidence other than the instrument itself, even in cases where the lending of the money and the producing of the promissory note are not simultaneous. Reference may be made in this connection to the case of Domoo Khan v. Agha Arshad Khan (A I R 1933 Pat. 575) ; Kunwar Bahadur v. Suraj Bakhsh (A I R 1932 Oudh 235) and Mahadeo Tukaram Mahajan v. Ramchandra Deoyya Yelami (A I R 1940 Nag. 215 ). In the case of Jacob & Co. v. A. P. Yicumsey and others (A I R 1927 Bom. 437) and Ma Shwe Hpaw and another v. Dwa Hpaw (A I R 1933 Rang. 161) the passing of a promissory note was taken to be a sort of conditional payment of the loan and it was held that the transaction of loan is actionable and provable apart from the promissory note which owing to its not having been properly stamped does not discharge the debt. In a later Bombay case : Somabhai Naranbhai Patel v. Kalyanbhai Kashibhai Patel (40 B L R 174) it was held that a suit on the original consideration could be maintained because the transaction of loan creates a cause of action independently of a promissory note and the fact that there was a loan is proved otherwise than by a promissory note, it not being a term of the contract contained in the pro missory note.
8. In a Full Bench decision of the Madras High Court in the case of Perumal Chettiar v. Kamakshi Ammal (A I R 1938 Mad. 785) the majority of the Judges held that‑
"If the promissory note embodied all the terms of the contract and the instrument is improperly stamped, no suit on the debt will lie. Section 91, Evidence Act and section 35, Stamp Act, bar the way. But if it does not embody all the terms of the contract the true nature of the transaction could be proved."
It was further held that‑
"Where an instrument has been given as collateral security or by way of conditional payment, a suit on the debt will lie. The fact that the execution of the promissory note is contemporaneous with the borrowing cannot exclude the possibility of the instrument having been given as collateral security or by way of conditional payment. Whether a suit lies on the debt apart from the instrument therefore depends on the circumstances under which the instrument was executed."
9. The view taken in the Sind Courts supports the con tention of the learned counsel for the plaintiff. In the case of Lokumal v. Sind Bank Ltd. (A I R 1920 Sind 66) a Division Bench of the Judicial Commissioner's Court held that it is open to the holder of a promissory note, which is given in discharge of a loan and which is inadmissible in evidence, to sue on the original consideration. Similarly, in the case of Naraindas and another v. Jassomal (A I R 1921 Sind 80) another Division Bench of the Judicial Commissioner's Court took the view that‑
"The question whether a loan was given and taken, can in certain cases, such as those of collateral security, be dis tinguished from the question of the terms of the loan and its repayment. Where it can be so distinguished, even if the document embodying the terms is inadmissible, the lender may fall back and sue upon the loan itself and prove it by other evidence. An implied contract to repay money lent always arises from the fact that the money is lent."
This view was also expressed in a single Judge judgment of Rupchand. A. J. C. in the case of re : Assaram Motiram (A I R 1929 Sind 164). It was held by the learned Judge that‑
"Even if a chit produced is a promissory note and as such inadmissible in evidence for want of stamp, it is open to a creditor to prove his original debt."
10. In passing, it may be remarked that in the post‑Partition Indian Courts there is a preponderance of opinion in favour of the view that unless there are circumstances or evidence to show the contrary, a promissory note is always given and accepted as a conditional payment. If, therefore, the pronote fails for want of stamp, a suit should lie for the debt. In the case of a simultaneous loan and pronote where the plaintiff's cause of action on the pronote fails by reason of the pronote being inadmissible for want of due stamp his cause of action based on the debt in the absence of special circumstances survives and he can fall back upon it and prove the debt by independent evidence. The cases supporting this view are
(1) A I R 1953 All. 535 (Lakshmi Narain v. Mst. Aparna Devi).
(2) A I R 1955 Saurashtra 74 (Shah Chimanlal Jagijivandas v. Kambhla Savji Bechar).
(3) A I R 1957 Tripura 28 (Manik Lal Choudhry v. Dhirandra Chandra Bardhan).
(4) A I R 1957 Hyd. 35 (Brij Raj v. Raja Ram).
(5) A I R 1961 Raj. 235 (Champalal v. Saligram).
11. Mr. Zari, the learned counsel for the plaintiff, has strongly supported the view taken in the above‑mentioned cases. The above‑mentioned view is largely based on the theory of implied promise and the theory of failure of consideration. It is also based on the view taken in the English Courts. The basis on which this view is taken is that the giving of a negotiable security by a debtor to his creditor operates prima facie as a conditional payment only and not as a satisfaction of the debt, unless the parties so regard it. This view was exploded by a Full Bench of the Madris High Court in the case of Perumal Chettiar v. Kamakshi Ammal Leach, C. J. who was a party to a Full Bench of the Rangoon High Court in the case of Maung Chit v. Roshan N. M. A. Kareem Oomar & Co. (A I R 1934 Rang. 389) and had subscribed to this view, changed his opinion and observed that the statement that the giving of a negotiable instrument operates prima facie as a conditional payment of the debt, on further consideration must be qualified. He came to the conclusion that this must depend on the facts of the particular case and there is no presumption that the instrument has been given as conditional payment. The learned Chief Justice who wrote the leading judgment in the above‑mentioned Madras case in this connection relied on the observations of Sullaiman and Kendall, JJ. in the case of Kundan Lal v. Bhikari Das Iswar Das (51 All. 530)
"It is true that in considering this point we cannot be solely guided by the equitable considerations which are given effect to in English cases. The express provisions of section 91, Evidence Act, cannot be ignored. Under that section, where the terms of a contract have been reduced to the form of a document, no evidence can be given in proof of the terms of such contract except the document itself or secondary evidence of its contents where it is admissible. If therefore the hundis are the embodiment of the whole contract between the parties and those hundis are not admissible in evidence and cannot be looked at for the purpose of finding out the terms of the contract, the plaintiffs cannot be allowed to adduce other evidence to prove the terms of such contract. It is conceivable that in special cases a bill of exchange or a promissory note may be the only document containing the terms of the contract between the parties, and in such a case if that document cannot be adduced in evidence, the creditor may be prevented from recovering the amount. This is clear from Illus. (c) to section 91. On the other hand, from the mere fact that a bill of exchange or hundi has been executed, it does not necessarily follow that the whole of the contract between the parties has been reduced to the form of such a document. A hundi is principally a written promise to pay a fixed amount on or after a certain date. It does not necessarily contain all the terms of the agreement between the parties, as a bond, for instance, would do. In many cases a pro missory note or a hundi may merely be a written security taken for the loan. The promise to pay the amount may be only a part of the whole contract between the parties, in which case it cannot be said that that contract has been reduced to the form of a hundi. In such cases it would be impossible to hold that the provisions of section 91 would exclude evidence showing the terms of the whole contract which cannot be deter mined from the hundi alone."
Varadachariar, J. has discussed this question at great length and has not accepted this view. The observations of the learned Judge in this respect are reproduced below
"It seems to me that the other English authorities which have been referred to in this connection by text writers or in the Indian decisions do not really bear on the objection arising under section 91, Evidence Act, (1853) 2 E & B 849=118 E R 985 (H. Gompert v. Bartlett) turned on the rights and obligations of vendor and vendee, though an unstamped bill came into the picture. The defendant had sold a bill as a foreign bill when in fact it was not. If it were a foreign bill, it could have been subsequently stamped ; but not being a foreign bill it became worthless on account of the absence of a stamp. The claim of the vendee for money had and received was sustained on the ground that the vendor had sold as a foreign bill what in fact was not a foreign bill. It seems to me that this decision does not warrant the conclusion that a person lending money on an unstamped note can maintain an action for money had and received. I shall recur to this point later.
(1827) 108 E R 778 (Sutton v. Toower) proceeded on the footing that though by reason of the alteration, the promissory note had become unenforceable, the alteration did not extinguish the debt and that it was competent to the plaintiff to give the paper in evidence to prove the terms on which the money was deposited.
It is noteworthy that Bayley, J. instanced the case of a usurious security being taken for a pre‑existing debt. 170 E R 345 =1 Esp. 245 (Wilson v. Kennedy) was a case of an unstamped note given for a pre‑existing debt (in lieu of an acceptance of the defendant which was due when the note was given) and the language of Lord Kenyon is almost identical in terms with the first rule stated by Garth, C. J. in 7 Cal. 256 (Sheikh Akbar v. Sheikh Khan). The same remark applied to (1808) 1 Taunt 353 (Brown v. Watts) and to (1831) 1 B & Ad. 696 (Cundy v. Marriot) which was a case of a bill 'given for goods sold : see also (1835) 2 Bing (N C) 249‑132 E R 98 (Plimley v. Wastley). It may be convenient to refer next to those of the Indian decisions which when dealing with claims for money lent under unstamped notes invoke the principle that the giving of a negotiable instrument only operates as a conditional discharge' or merely suspends the plaintiff's remedy and that the plaintiff's right to sue is revived if the instrument turns out to be worthless or is not discharged by payment in due course. I see no difficulty in applying this principle to cases where money is already due to a person as for goods sold or for a pre‑existing debt‑and the debtor gives his own note to the creditor draws a bills or cheque in his favour. It is legitimate to presume in such cases that the creditor is not accepting the instrument in satisfaction of his existing claim but only as a security or as means of obtaining satisfaction from the drawee of the bill or cheque. Even in cases where money is lent contemporaneously with the giving of a cheque by the borrower or the drawing of a bill on a third party, it may be reasonable to treat the bill or cheque as an attempt at payment and to presume that it was only a conditional' payment. The difficulty created by section 91, Evidence Act, will not arise in this case because the cheque, bill or hundi does not embody a promise to pay by the promisor but only a direction to another person and the lender can fall back on the implied' promise in the absence of a promise in writing'. But where the borrower gives his own promissory note as part of the loan transaction, it seems to me artificial to treat that very promise to pay' obtained in that note as amounting to a payment, and then to seek to import the theory of conditional' payment.
So far as I have been able to examine the English cases which enunciate the doctrine of conditional payment', I do not find that any of them relates to a proper promissory note executed as part of the loan transaction itself. I am therefore with all respect unable to concur in the proposition stated by Page, C. J. as proposition No. 3 in 12 Rang. 500 (Maung Chit v. Roshan N. M. A. Kareem Oomer & Co.) at page 504 and state ments to the same effect in other reported decisions : See for instance 54 I C 84 (Maung Kyi v. Ma Ma Gale) at page 91. With the like respect I must add that my experience does not coincide with what the learned Chief Justice states on page 508 to be his experience that it rarely, if ever, happens that the whole of the terms of the agreement under which a loan is made are embodied in a promissory note given to the lender by the borrower except in cases in which the parties contract that the negotiable instrument shall itself be the consideration for the loan, if, as later observations in the judgment imply, a promissory note cannot, according to the learned Judge, be reasonably presumed to have been taken as consideration' for the loan. I am free to confers to some difficulty in understanding what the learned Chief Justice had in mind when he postulated the possibility of a promissory note by the borrower being consideration' for the loan as distinguished from the contract' of loan. I can understand the position taken in 51 All. 530 (Kundan Lal v. Bhikari Dos Iswar Das) that from the mere execution of a note it does not necessarily follow that the whole of the contract between the parties has beep reduced to the form of such a document (see 40 Mad. 585) and I respectfully agree that in this sense it will be a question of fact in each case whether or not the note represents the whole contract between the parties. I am unable to hold that there is any presumption that a promissory note taken from the borrower as part of the loan transaction is taken merely as collateral security' ; but in particular eases the evidence may lead to that conclusion : (see per Pratt, J. in 54 I C 84 at page 94.")
The contrary view supporting the contention of the learned counsel for the plaintiff was discussed by Dar, J. in the case of Sheo Math Prasad v. Sarjoo Nonfa and another at page 224. The learned Judge on this question observed as under
"If in relation to a pre‑existing loan or liability a pro missory note is given by the debtor to the creditor the promissory note can operate in one of three ways, either as an absolute payment or as a conditional payment or as given by way of collateral security, and whether it operates in one way or the other is a question of fact which falls to be deter mined on evidence in each case. But in the absence of all .lo, evidence the presumption is that it operates as a conditional n, payment only. It is also settled law that in such a case the promissory note does not express the terms of the original loan or liability, nor does it express the terms upon which it was given and accepted and if the promissory note is dis honoured or is inadmissible in evidence or is not available for any other reason, the original loan or liability can be enforced independently of the promissory note. Does it make any real difference in law if in relation to a loan of money a promissory note is given by the borrower to the lender contemporaneously with the loan as a part of the loan transaction with the avowed object of creating evidence of the loan
A sum of money may be given by a payee to the maker of a promissory note not as a loan at all but for the sole purpose of securing the promissory note of the maker. In such a case the promissory note and the sum of money given for its making are the sole consideration of each other and there comes into existence no obligation to return the sum of money independently and apart from the promissory note and the undertaking given in the promissory note and the obligation to return the money stand and fall with the promissory note. But when in relation to a sum of money there is a distinct agreement that it is being given as a loan and contemporane ously a promissory note is also taken as a part and condition of the loan with the avowed object of creating evidence of the loan and in circumstances from which it appears that but for the execution of the promissory note the loan might not have been made, but from which it does not appear that the pro missory note was taken in absolute payment of the loan or it was taken for a sum of money which was not given as a loan, the primary and real consideration of the loan is such a case is the return of equivalent sum of money and the delivery pf the promissory note is an additional or secondary consideration. The lender in such a case parts with his money on two considerations, the return of the money by the borrower and the execution of the promissory note by the borrower to furnish the evidence of the loan and the promissory note thus given also serves two purposes‑it discharges the loan con ditionally or absolutely as the case may be and thus indirectly furnishes evidence of the existence of the loan.
It may be that but for the promissory note the loan might not have been made and it may be that the promissory note was taken with the avowed object of creating evidence of the loan. But just as in a case where a promissory note is taken in relation to a preexisting loan it only operates as a payment and does not express the terms of pre‑existing loan or the terms upon which the promissory note was given, similarly in the case where the loan comes into existence contemporaneously with the promissory note the instrument only operates as a payment and the terms of the loan or the terms upon which the instrument was taken do not get themselves reduced to the form of a promissory note. And the fact that but for the promissory note the loan could not have been made and the further fact that the promissory note was executed with the avowed object of furnishing evidence of the loan and the statements made in the pleadings or in evidence‑about these facts do not mean that the terms of the loan or the terms upon which the promissory note was given were expressed in the promissory note, but they only mean that the promissory note was taken in proof of the loan which proof it furnishes by raising a presumption that the sum of money given for a promissory note was given by way of loan and the promissory note operates as its conditional payment."
At this stage it may be mentioned that the view of the Madras High Court is based on the decision of the Privy Council in the case of Subramanian v. Lutchman (50 Cal. 338). It was held by the Judicial Committee in that case that the principle with regard to writings is that oral proof cannot be substituted for the written evidence of any contract which the parties have put into writing. But the Judicial Committee itself did not follow this rule of evidence in a number of cases including those of negotiable instruments in spite of the fact that those documents were found to be inadmissible in evidence for insufficiency of stamps. In the case of Firm Sadasuk Janki Das v. Sir Kishan Pershad and another (AIR 1918 P C 146) a case of hundis, the Judicial Committee observed as under
"It would, of course, have been open to the plaintiffs, had they thought fit to have framed their case in an alternative form, and to have sued both on the hundis and alternatively upon the consideration."
In a later decision in the case of Muhammad Akbar Khan v. Attar Singh and others (AIR 1936 P C 171
) their Lordships at page 174 observed as under
"The further objection to the admissibility of the document was that it recorded the terms of a contract reduced to the form of this document, and that under sections 91 and 92, Evidence Act, no oral evidence was admissible to contradict, vary, add to, or subtract from its terms. The answer is that the document does not record or purport to record all the terms of the contract between the parties. There is nothing in the document which explains how the money came to be received : and nothing to prevent the parties from showing that it was paid by way of loan, deposit, or on account of some joint adventure. The use of the money might have been limited in various ways. The only terms which the document does express are as to the date of repayment of the money expressed to be received and as to the rate of interest. These terms the defendants do not now seek to contradict, vary, add to or subtract from. The Board therefore can proceed to examine the evidence untrammelled by the restriction imposed upon themselves unnecessarily as now appears by the Courts below of having to disregard the receipt or evidence as to the actual transaction in 1917."
In the case of Ram Rattan v. Parma Nand (AIR 1946 PC 51) a decision quoted by the learned counsel for the defendant, their Lordships after holding that an unstamped document cannot be admitted in proof of some collateral matter, disregarded the partition deed and proceeded to consider the oral evidence on the question of partition, which is quite clear from the following observations
"Their Lordships, therefore, pay no regard to the documents marked C' and D' but they are in agreement with the High Court in thinking that the oral evidence proved partition in February 1939. The respondent no doubt failed to prove the partition in 1934 which was alleged in his written statement, but the important question is whether partition had been effected before the institution of the suit in December 1939. Two witnesses, Das Mal and Sain Das, gave evidence of a partition of the joint property in February 1939, at which the witnesses were present, and of the parties taking possession of the property allotted to them. This evidence was supported by evidence that soon after February 1939, some land revenue was paid separately by respondent, though previously it had been paid by both parties jointly ; by evidence of two witnesses who stated that they had cultivated land belonging jointly to the parties, but that since April 1939 they had paid the produce separately to each ; and by the evidence of the respondent that for 1939‑40 and 1940‑41 he had submitted separate returns for income‑tax. Their Lord ships think it unnecessary to discuss the evidence in further detail since this was done in both the lower Courts. In their Lordships' view the evidence establishes a physical division of much of the joint property in February 1939, and this is only consistent with a severance in the status of the parties having taken place."
The facts of that case were that the respondent alleged that partition was effected in 1934 between the members of the joint Hindu family and that thereafter he and the appellant were divided in status, but remained joint owners of their share of the family property until 21st February 1939 ; that on that date the bulk of the property was physically divided between the two brothers, though part still remained in joint ownership, and that two memoranda were prepared showing the division arrived at and what property continued joint, one memorandum being retained by each brother. The two memoranda were found to be not properly stamped and were rejected and, in spite of that, their Lordships considered the oral evidence about partition and accepted it as good for deciding the case. There is, therefore, ample support for the view expressed on behalf of the plaintiff: But as in this case it is not necessary to adjudicate upon the question whether in a case where the promissory note is given as security for the loan, there is a presumption of conditional payment, we would keep it as an open question and refrain from expressing any firm opinion on it.
12. In the light of the above discussion it is, however, quite clear to us that there is unanimity of opinion in all the High Courts that if a promissory note or negotiable instrument does not embody all the terms of the contract the true nature of the transaction can be enquired into. There is further unanimity on the point that where an instrument has been given as collateral security or by way of conditional payment, a suit on the debt will lie. It will, therefore, be open to the plaintiff in the present case to base his claim on the original consideration on the ground that all the terms on which the loan in question was advanced to the defendant are not incorporated in the two pro notes executed by the defendant or that the instruments in question were given as a collateral security or by way of conditional payment. The pronotes executed by the defendant are in the following terms
"On demand I, Mirza Rashid Ahmad son of Khan Bahadur Sultan Ahmad of Nazimabad Estate, promise to pay Mr. K. M. Muneer son of Khan Sahib K. Abdul Hye a sum of Rs. 30,000 (Rupees thirty thousand only) with two per cent interest."
Even on the defendant's plea it is abundantly clear that the documents in question were not executed in respect of any amount advanced as loan by the plaintiff but in respect of certain amounts paid in advance towards the agreement of sale of the agricultural land belonging to him in Nazimabad Estate, Tharparkar District. It seems to us that since the pronotes in question do not embody all the terms of the contract, neither section 91 of the Evidence Act nor section 35 of the Stamp Act would be a bar in the way of the plaintiff to file a suit for the recovery of the debt in question alleged to have been advanced by him as loan. According to the Madras Full Bench decision‑
"If the promissory note embodies all the terms of the contract and the instrument is improperly stamped, no suit on the debt will lie. Section 91, Evidence Act, and section 35, Stamp Act, bar the way. But if it does not embody all the terms of the Contract the true nature of the transaction can be proved and where an instrument has been given as collateral security or by way of conditional payment, a suit on the debt will lie. The fact that the execution of the promissory note is contemporaneous with the borrowing cannot exclude the possibility of the instrument having been given as collateral security or by way of conditional payment. Whether a suit lies on the debt apart from the instrument therefore depends on the circumstances under which the instrument was executed."
In our opinion this view lays down the correct proposition of law on the question under consideration. The decision in the case of Sohan Lal Nihal Chand v. Raghu Nath Singh and others is distin guishable because the plea of falling back on the original considera tion was raised for the first time before the appellate, Court. It was for this reason that their Lordships of the Lahore High Court observed
"It is futile to contend at this stage that the suit lay on the basis of the receipt mentioned above when no attempt was made to prove its execution by the debtor."
Their Lordships, therefore, considered it unnecessary to consider whether the receipt contained an implied promise to pay or not. The following observations of the learned Judges of the High Court
"As for the contention that the suit lay on the factum of the loan, it is now well settled not only by a uniform course of decision of this Court and the Punjab Chief Court but also by the latest pronouncements of various other High Courts that section 91, Evidence Act, is an absolute bar to the production of any oral evidence to prove the terms of a contract which has been reduced to writing and if the written contract is inadmis sible in evidence a suit to enforce it must fail,"
must be read in the context of the dispute between the parties before them. The claim in the appeal was respect of interest only. The appellant wanted to claim interest from the respondents on the basis of the rate of interest mentioned in the pronote. This plea was bound to be rejected because the document in question contained the stipulation about the rate of interest. The Lahore case, therefore, is only an authority to the limited extent, namely, that if a particular term of a contract is reduced to writing, no oral evidence can be led in support of such term in case the document is found to be inadmissible in evidence.
13. After considering the arguments advanced by the learned counsel for the parties, our answer to the points raised on issues Nos. 2 and 3 is as under
(a) If the promissory note embodies all the terms of the contract and the instrument is improperly stamped, no suit on the debt will lie in view of the bar of section 91, Evidence Act, and section 35, Stamp Act. But if it does not embody all the terms of the contract, the true nature of the transaction can be proved and the plaintiff's claim can be decreed on that basis.
(b) In those cases where an instrument has been given as collateral security or by way of conditional payment, a suit on the debt will lie and there would be a cause of action independent) of the instrument for its recovery.
14. In view of this answer, the office is directed to place the cases for final decision before the Single Judge in accordance with law.
R. B. A.
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