1966 (8) TMI 85 - SC - Indian Laws

Promissory Note Suit Allowed Under Section 4, Bihar Money-Lenders Act

The suit was found maintainable under Section 4 of the Bihar Money-Lenders (Regulation of Transactions) Act, 1939, as the promissory note constituted a ... Meaning of 'loan' under the Bihar Money-Lenders (Regulation of Transactions) Act, 1939 - transaction on a bond bearing interest executed in respect of past liability - renewal instrument treated as fresh loan - part payment and computation of fresh period under Section 20 of the Indian Limitation Act, 1908 - legal effect of a post-dated cheque as conditional paymentMeaning of 'loan' under the Bihar Money-Lenders (Regulation of Transactions) Act, 1939 - transaction on a bond bearing interest executed in respect of past liability - renewal instrument treated as fresh loan - Whether s. 4 of the Bihar Money-Lenders (Regulation of Transactions) Act, 1939 barred the plaintiff's suit where the cause of action rested on a promissory note executed in renewal of an earlier liability. - HELD THAT: - The Court held that the word 'loan' in s. 4 must be given the meaning assigned in s. 2(f) of the 1939 Act, including 'a transaction on a bond bearing interest executed in respect of past liability.' The promissory note of February 4, 1954 obliged the defendant to pay, was in respect of past liability and bore interest, and thus fell within the inclusive part of the statutory definition. The Court rejected the appellant's attempt to confine the meaning of 'loan' in s. 4 to an actual advance of money or kind while excluding the inclusive part of s. 2(f). The Court also accepted that a renewal instrument may itself operate as a fresh loan for the purposes of s. 4. Applying these principles to the facts, the promissory note dated February 4, 1954 was a loan within s. 2(f) made after the money-lender's registration and therefore s. 4 did not bar the suit. [Paras 6, 7, 8]S. 4 of the 1939 Act did not bar the suit; the promissory note of 4 February 1954 was a 'loan' within s. 2(f) and being made after registration the suit was maintainable.Part payment and computation of fresh period under Section 20 of the Indian Limitation Act, 1908 - legal effect of a post-dated cheque as conditional payment - Date from which a fresh period of limitation runs under s. 20 of the Limitation Act where the creditor received a post-dated cheque as conditional part payment which was subsequently honoured. - HELD THAT: - The majority held that a cheque which is post-dated and received by the creditor as a conditional payment cannot be treated as payment on the date of delivery; the earliest date on which such conditional payment can become actual is the date borne on the cheque, when it could first be presented for payment. Accordingly, where a post-dated cheque dated February 25, 1954 was handed over on February 4, 1954 and was subsequently honoured, the date of payment for the purpose of s. 20 is February 25, 1954 (the date the cheque could first be paid). The Court distinguished earlier observations in Ogale Glass Works (which did not involve a post-dated cheque) and rejected the submission that delivery of a post-dated cheque gives rise to payment as of the delivery date. Applying this principle, the part payment related to February 25, 1954 and a fresh limitation period commenced from that date, making the suit (filed February 22, 1957) within time. The judgment notes a contrary view expressed by a concurring judge (who would have held payment to relate back to delivery), but the majority rule as above governs the result. [Paras 10, 11, 13]For the purpose of s. 20 the payment occurred on the date borne on the post-dated cheque (25 February 1954) when it could first be presented and was honoured; a fresh period of limitation ran from that date and the suit was within time.Final Conclusion: Majority dismissed the appeal: s. 4 of the Bihar Money-Lenders Act, 1939 did not bar the suit because the 1954 promissory note was a 'loan' within s. 2(f), and under s. 20 of the Limitation Act the post-dated cheque dated 25 February 1954 constituted the date of part payment when honoured, so the suit was within time. Issues Involved:1. Maintainability of the suit under Section 4 of the Bihar Money-Lenders (Regulation of Transactions) Act, 1939.2. Whether the suit was barred by the three-year rule of limitation.Detailed Analysis:1. Maintainability of the Suit under Section 4 of the Bihar Money-Lenders (Regulation of Transactions) Act, 1939The primary issue was whether the suit was maintainable under Section 4 of the Bihar Money-Lenders (Regulation of Transactions) Act, 1939 (hereinafter referred to as the '1939-Act'). The appellant argued that the loan was actually advanced in 1951, and the promissory note for Rs. 10,000 executed on February 4, 1954, was merely a renewal of that loan. Since the loan was advanced before the registration of the respondent's joint family as a money-lender in 1952, the appellant contended that the suit was barred by Section 4 of the 1939-Act.The court examined the definition of 'loan' in Section 2(f) of the 1939-Act, which includes not only an actual advance of money or kind but also a transaction on a bond bearing interest executed in respect of past liability. The court held that the word 'bond' in this context should be interpreted broadly to include a promissory note, as it is an instrument by which one person binds himself to pay a sum to another person.The court concluded that the promissory note of February 4, 1954, constituted a 'loan' within the meaning of Section 2(f) of the 1939-Act. Since the promissory note was executed after the respondent's family had been registered as a money-lender, Section 4 did not bar the suit. Therefore, the suit was maintainable.2. Whether the Suit was Barred by the Three-Year Rule of LimitationThe second issue was whether the suit was barred by the three-year rule of limitation. The promissory note was executed on February 4, 1954, and a post-dated cheque dated February 25, 1954, was given towards part payment. The cheque was honored sometime after February 25, 1954, and was credited towards part payment.The appellant argued that the limitation period should start from February 4, 1954, when the cheque was delivered, making the suit time-barred. However, the court held that the acceptance of the post-dated cheque on February 4, 1954, was not an unconditional acceptance. The payment was conditional upon the cheque being honored, and therefore, the date of payment for the purposes of Section 20 of the Indian Limitation Act, 1908, would be the date on which the cheque could be presented for payment at the earliest, i.e., February 25, 1954.The court noted that since the cheque was honored, the payment must be considered to have been made on February 25, 1954. Consequently, a fresh period of limitation began on February 25, 1954, making the suit filed on February 22, 1957, within the limitation period.Separate Judgment by Bachawat, J.Bachawat, J. agreed with the majority opinion that the suit was not barred by Section 4 of the 1939-Act. However, he dissented on the issue of limitation. He opined that the payment should be considered to have been made on February 4, 1954, the date on which the cheque was delivered, not the date it was honored. Therefore, he concluded that the suit was barred by limitation.ConclusionThe majority judgment held that the suit was maintainable under Section 4 of the 1939-Act and was not barred by the three-year rule of limitation. Consequently, the appeal was dismissed with no order as to costs. However, Bachawat, J. dissented on the issue of limitation, opining that the suit was time-barred.