Supreme Court Allows Appeal in Debt Discharge Case Due to Creditor's Laches in Presenting Demand Draft. Creditor's Failure to Present Draft Within Reasonable Time Amounted to Absolute Payment of Cheque, Discharging Original Debt.

Case Note & Summary

The appeal arose out of a suit for recovery of debt. The appellants, Ramlal Onkarmal Firm, carrying on business at Raha in Nowgong District, were indebted to the respondents, Mohanlal Jogani Rice and Atta Mills, carrying on business at Gauhati, in a sum of Rs. 9,447-4-9. To satisfy the dues, the appellants sent to the respondents a cheque for Rs. 9,461-4-0 dated August 31, 1948, drawn by a third party, Messrs. Nathuram Jaidayal of Sibsagar, on the Tripura Modern Bank, Sibsagar Branch, in favour of the appellants, who endorsed it to the respondents. On September 4, 1948, the respondents sent the cheque to their bankers, the Calcutta Commercial Bank, Gauhati, for collection. On the same day, the bank sent the cheque to the Tripura Modern Bank, Sibsagar, for encashment. The Tripura Modern Bank debited the account of the third party and sent to the Calcutta Commercial Bank a draft for Rs. 9,435/- dated September 14, 1948, drawn on its Calcutta Head Office, marked current for three months. On receipt of the draft, the Calcutta Commercial Bank sent it to their Head Office at Calcutta for collection, but the draft was never presented and no attempt was made to collect its amount. In the meantime, the respondents wrote to the appellants informing them that cash payment for the cheque had not been received. The Calcutta Commercial Bank closed its business on September 17, 1948, and was ordered to be wound up. The Tripura Modern Bank closed its business on October 16, 1948, and entered into a scheme of arrangement with its creditors. On November 19, 1948, the respondents requested the Tripura Modern Bank to pay the draft amount directly to them, but no payment was made. On March 8, 1949, the respondents instituted a suit claiming payment of their dues from the appellants on the footing that the cheque was received as a conditional payment and, as the cheque was not cashed, they were entitled to enforce their original claim. The Subordinate Judge, Lower Assam District, dismissed the suit. The High Court of Assam reversed the judgment and decreed the suit. The appellants appealed to the Supreme Court by special leave. The main legal issues were whether the original debt stood discharged when the creditor accepted a cheque as conditional payment and later accepted a demand draft from the drawee bank but failed to present the draft within a reasonable time, causing prejudice to the debtor; and whether the creditor's laches deemed the draft as absolute payment. The respondents argued that the cheque was conditional payment and, since it was not cashed, the original debt revived. The appellants contended that the respondents were guilty of laches in collecting the draft, causing prejudice, and therefore the draft should be deemed absolute payment of the cheque, discharging the debt. The majority, per Bachawat J, held that although the respondents originally received the cheque as conditional payment, having regard to the laches of the respondents in the collection of the draft and the consequential prejudice to the appellants, the respondents must be deemed to have retained the draft as absolute payment of the cheque, and on the payment of the cheque, the original debt stood discharged. The Court relied on Chitty on Contracts, Addison's Treatise, and the English cases Hobkins v. Ware and Chamberlyn v. Delarive. The High Court was found to have erred in assuming that the Tripura Modern Bank had stopped business on September 16, 1948, and that the appellants suffered no loss. Evidence showed the draft would have been paid if presented before October 16, 1948. Mudholkar J concurred on a different ground, holding that by accepting the demand draft, the respondents must be deemed to have accepted it as absolute payment of the amount payable under the cheque, and their rights rested only on the draft, not the original debt. The Supreme Court allowed the appeal, set aside the High Court judgment and decree, restored the trial court's dismissal, and directed the respondents to pay costs in the Supreme Court, with parties bearing their own costs in the courts below.

Headnote

Issue of Consideration

Final Decision

Appeal allowed; judgment and decree of the High Court set aside and those of the trial Court restored; the suit dismissed; respondents to pay costs in Supreme Court; parties to bear own costs in courts below.

Law Points