# RAMLAL ONKARMAL FIRM v. MOHANLAL J"OGANI RICE AND ATIA MILLS

- **Citation:** [1965] 3 S.C.R. 103
- **Court:** Supreme Court of India
- **Decided:** 1965-02-16
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ramlal-onkarmal-firm-v-mohanlal-j-ogani-rice-and-atia-mills-3377
- **Pages:** 7

## Headnote

A
RAMLAL ONKARMAL FIRM
v.
MOHANLAL J"OGANI RICE AND ATIA MILLS
February 16, 1965
103
B (RAGHUBAR DAYAL, J. R. MUDHOLKAR, R. S.
BACHAWAT
AND
V. RAMASWAMI. JJ.]
D
E
F
Debt-Discharge of on payment by cheque-acceptance by c~!
!ecting bank draft in payment of cheque-Whether debt discharged.
In oayment of an amount due from them to the respondents.
the aopellants sent to the respondents on August 31, 1948 a cheque
which had been drawn on the Sibsagar branch of a Tripura Bank
in favour of the appellants by a third party and thereafter endorsed
by the appellants to the respondents. On September, 4,
1948, the
respondents forwarded the cheque to their bankers, a Gauhati Bankwho, in turn, sent the cheque to the Tripura Bank at Sibsagar for
encashment. That bank debited the amount of the cheque to the
account of the third party and sent to the respondent's Gauhati Bank
a draft which was payable at its own Head Office at Calcutta. Thereafter the respondents' Gauhati Bank forwarded the draft to their
Head Office at Calcutta for collection but the latter never presented
the draft and made no a !tempt to collect the amount of the draft.
In the meantime, the respondents bank closed its business on
Sept~mber 17, 1948 and was ordered to be wound up. About a month
later, the Tripura Bank also closed its business and was compelled
to enter into a scheme of arrangement with its creditors.
Upon the failure of their attempts to obtain payment of the
draft amount from the Tripura B•nk, the respondents instituted a
suit against the appellants claiming payment of their dues on the
ground that the cheque dated August 31, 1948 was received by the
respondents as a conditional payment, and as the cheque had not
been cashed, the respondents were entitled to enforce their original
claim. The sub-Judge dismissed the suit but the High Court in appeal
reversed the decision and decree the suit.
On appeal to the Supreme Court,
HELD: (per Raghubar D•yal, Bachawat and Ramaswami, JJ)-
Although the respondents originally received the cheque as -a condi-
-6
tional payment of their dues, and if nothing else had happened, the
ori!\inal debt would have revived on non-payment of the cheque,
havmg regard to the !aches 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. rl05 E-Fl
B
Chetty on Contracts, 22nd Edn. Art. 1079; Addison's Treating on
the Law of Contracts, 11th Edn. p. 156;
flobkins v. Ware, L.R. (1869) 4 Ex. 268;
Chamber.!yn v. Delarive, 2 Wils. K.B. 353, referred to.
(per Mudholkar. ,J.) : There was evidence to show that respondents' bank, instead of collecting cash from the Tripu"a Bank
at Sibsagar, sought, for reasons of their own, to collect th; amount
by draft. Furthermore, after the resrxmdent bank went into J:quidation, the respondents wrote to the Tripura Bank stating that the
lOJ
SUPREME
COURT
REPORTS
(1965] 3 s.o.R.
amount of the demand draft
belonged to them and not to their A
bankers who were only acting as their agents for collection purposes
and that accordingly the draft amount should be paid to them. Thus,
though the cheque endorsed by the appellants in favour of the
r.espondonts was only a conditional payment of the amount for which
tne che~ue was drawn, the respondents, by accepting the demand
draft drawn by the Tripura Bank must be deemed to have accepted
the draft as a legal tender or. as absolute payment of the amount
payable under the cheque endorsed in their favour by the appelB
!ant. Their rights thereafter would rest only upon the demand draft
~!'d not upon the original debt which the appellant owed to them.
1 he remedy of the respondents, therefore, could be against their
own bank, or against the Tripura Bank, but not against the appellants. fl08 E, 109 CJ

## Text

A
RAMLAL ONKARMAL FIRM
v.
MOHANLAL J"OGANI RICE AND ATIA MILLS
February 16, 1965
103
B (RAGHUBAR DAYAL, J. R. MUDHOLKAR, R. S.
BACHAWAT
AND
V. RAMASWAMI. JJ.]
D
E
F
Debt-Discharge of on payment by cheque-acceptance by c~!
!ecting bank draft in payment of cheque-Whether debt discharged.
In oayment of an amount due from them to the respondents.
the aopellants sent to the respondents on August 31, 1948 a cheque
which had been drawn on the Sibsagar branch of a Tripura Bank
in favour of the appellants by a third party and thereafter endorsed
by the appellants to the respondents. On September, 4,
1948, the
respondents forwarded the cheque to their bankers, a Gauhati Bankwho, in turn, sent the cheque to the Tripura Bank at Sibsagar for
encashment. That bank debited the amount of the cheque to the
account of the third party and sent to the respondent's Gauhati Bank
a draft which was payable at its own Head Office at Calcutta. Thereafter the respondents' Gauhati Bank forwarded the draft to their
Head Office at Calcutta for collection but the latter never presented
the draft and made no a !tempt to collect the amount of the draft.
In the meantime, the respondents bank closed its business on
Sept~mber 17, 1948 and was ordered to be wound up. About a month
later, the Tripura Bank also closed its business and was compelled
to enter into a scheme of arrangement with its creditors.
Upon the failure of their attempts to obtain payment of the
draft amount from the Tripura B•nk, the respondents instituted a
suit against the appellants claiming payment of their dues on the
ground that the cheque dated August 31, 1948 was received by the
respondents as a conditional payment, and as the cheque had not
been cashed, the respondents were entitled to enforce their original
claim. The sub-Judge dismissed the suit but the High Court in appeal
reversed the decision and decree the suit.
On appeal to the Supreme Court,
HELD: (per Raghubar D•yal, Bachawat and Ramaswami, JJ)-
Although the respondents originally received the cheque as -a condi-
-6
tional payment of their dues, and if nothing else had happened, the
ori!\inal debt would have revived on non-payment of the cheque,
havmg regard to the !aches 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. rl05 E-Fl
B
Chetty on Contracts, 22nd Edn. Art. 1079; Addison's Treating on
the Law of Contracts, 11th Edn. p. 156;
flobkins v. Ware, L.R. (1869) 4 Ex. 268;
Chamber.!yn v. Delarive, 2 Wils. K.B. 353, referred to.
(per Mudholkar. ,J.) : There was evidence to show that respondents' bank, instead of collecting cash from the Tripu"a Bank
at Sibsagar, sought, for reasons of their own, to collect th; amount
by draft. Furthermore, after the resrxmdent bank went into J:quidation, the respondents wrote to the Tripura Bank stating that the
lOJ
SUPREME
COURT
REPORTS
(1965] 3 s.o.R.
amount of the demand draft
belonged to them and not to their A
bankers who were only acting as their agents for collection purposes
and that accordingly the draft amount should be paid to them. Thus,
though the cheque endorsed by the appellants in favour of the
r.espondonts was only a conditional payment of the amount for which
tne che~ue was drawn, the respondents, by accepting the demand
draft drawn by the Tripura Bank must be deemed to have accepted
the draft as a legal tender or. as absolute payment of the amount
payable under the cheque endorsed in their favour by the appelB
!ant. Their rights thereafter would rest only upon the demand draft
~!'d not upon the original debt which the appellant owed to them.
1 he remedy of the respondents, therefore, could be against their
own bank, or against the Tripura Bank, but not against the appellants. fl08 E, 109 CJ
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 638
of 0
1962.
Appeal by special leave from the judgment and decree dated
May 21, 1957 of the Assam High Court in First Appeal No.']., of
1962.
;
N.C. Chatterjee and D.N. Mukherjee. for the appellants.
D
S.C. Nath, P.K. Chatterjee for R. Gopa/akrishnan, for the
respondent.
The Judgment of RAGHUBAR DAYAL, BACHAWAT and RAMASWAMJ JJ. was delivered by BACH~WAT J. MUDHOLKAR J. delivered
a separate Judgment.
Bachawat J. The appellants carrying on business at Raha in
Now gong District had dealings with the respondents, carrying on
business at Gatihati. As a result of the said dealings, the appel·
)ants were indebted to t,he respondents in a sum of Rs. 9,447-4-9.
In order to satisfy the dues of the respondents, the appellants sent
E
to the respondents a cheque for Rs. 9,461-4·0 dated August 31,
F
1948. The cheque was drawn by a third party, Messrs. Nathuram
Ja:dayal of Sibsagar on the Tripura Mo::!ern
Bank, Sibsagar
Branch, in favour of the appellants, who endorsed it to the respondents. On September 4, 1948, the respondents sent the clieque to
their bankers, the Calcutta Commercial Bank, Gauhati for collection. On the same day, the Calcutta Commercial Bank, Gauhati
sent the cheque to the Tripura Modern
Bank,
Sibsagar
G
for encashment. The Tripura Modern Bank, Sibsagar debited the
accounts of their constituents. Messrs Nahuram Jaidayal
with
the sum of Rs. 9,461-4-0, and after deducting Rs. 6·4-0 on account
of commission charges, sent to the Calcutta Commerci3l Bank,
Gauhati a draft for Rs. 9,435/- dated September 14, 1948 towards II
payment of the cheque. The draft was drawn by the·
Tripura
Modern Bank, Sibsagar on its Calcutta Head Office .. and was marked current for three months from the date of the issue. On receipt
of the draft, the Calcutta Commercial Bank, Gauhati sent it to
the'r Head Office at Calcutta for colh;ction.. But the Calcutta Commercial Bank never presented the draft to the Tripura Modern
Bank, and made no attempts to collect the amount of the draft.
I
RAMLAL v. MUHANLAL (Bach.iwat, J.)
105
A
In the meantime, the respondents wrote to the appellants informing them that cash payment for the cheque has not been recdved,
and on September 18, 1948 the appellants replied asking the respondents to get back the cheque. But the cheque was never returned to the respondents. On September 17, 1948, the Calcutta
Commercial Bank closed its business, and
subsequently, it was
B ordered to be wound up. On October 16, 1948, the Tripura Modern
Bank also closed its bus'ness, and in view of its inability to pay
its dues, was compelled to enter into a scheme of arrangement with
its creditors.
On November 19, 1948, the respondents requested the Tr,ipura
Modern Bank to pay the amount of the draft to them and not to
C the Calcutta Commercial Bank. But no payment was made by the
Tripura Modern Bank either to the respondents or to the Calcutta
Commercial Bank. On March 8, 1949, the respondents instituted
the suit, out of which the appeal arises, claiming payment of their
dues from the appellants on the footing that the cheque dated
D August 31, 1948 was received by the respondents as a conditional
payment, and as the cheque was not cashed, the respondents were
entitled to enforce their original claim. The Subordinate Judge,
Lower Assam District, dismissed the suit. On appeal, the High
Court reversed the judgment appealed from, and decreed the suit.
The appellants now appeal to this Court by special leave.
E
The High Court rightly held that the respondents originally
received the cheque dated August 3], 1948 as a conditional payment of their dues, and if nothing else happened, the original debt
would have revived on non-payment of the cheque. But we think
that having regard to the laches of the respondents in the collection
of the draft and the consequential prejudice to the appellants, the
F 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.
G
H
In Chitty on Contracts, 22nd &In., Art. 1079, the law is stated
thus:
"Where a negotiable instrument, upon which the debtor is
not primarily liable, is accepted by the creditor as conditional payment, he is bound to do all that a holder of
such an instrument may do in order to get payment;
thus it is his duty to present a cheque within a reasonable time, and if he fails to do so, and the debtor is
thereby prejudiced, the creditor is guilty of !aches and
makes the cheque his own, so that it amounts to payment of the debt."
In Addison's Treatise on the Law of Contrac.ts, I Ith Edn.,
p. 156, it is stated:-
"If the debtor makes an order upon h~s banker for payment
of the amount of the debt, and the creditor accepts it,
and keeps it in his hands an unreasonable time before
100
8'UPREME
COURT
REPOltTS
[1965] 3 S.C.R.
presenting it for payment, and the banker becomes inA
solvent, the debtor is discharged on account of the
!aches of the. creditor."
In Ii ob kins v. Ware('), it was held that a creditor who takes from
his debtx's agent on account of the debt the cheque of the agent,
is bound to present it for payment within a reasonable time; and
if he fails to do so and by his delay alters for the worse the posiB
tion of the debtor, the debtor is d'scharged, although he was not a
party to the cheque. In the old case of Chamblerlyn v. Delarive('),
it was held that if a creditor accepting a note or draft of his debtor
upon a third person holds it an unreasonable time before he
demands the money, and the person upon whom. it is drawn becomes insolvent, it is the creditor's own loss, though the draft be C
not a bill of exchange or negotiable.
Now, in the instant case, the respondents accepted from their
debtors, the appellants, a cheque drawn by a third party on the
Tripura Modern Bank and endorsed by the appellants. The respondents through their collecting agents, the
Calcutta Commercial D
Bank, presented the cheque for collection to the Tripura Modern
Bank, and instead of obtaining cash payment, received. a draft ·
drawn by the Sibsagar Branch of the Tripura Modern Bank on its
Head Office .. Having accepted this draft in course of collection of
the cheque, the respondents vis-a-vis the appellants were in no
better position than they would have been,· if they had accepted E
the draft from the appellants d'rectly as conditional payment of the
cheque. In the circumstances, the respondents owed a duty to the
appellants to present the draft for payment within a reasonable
time. The draft could be presented for payment at any time during
the period of three months from the date of its issue. Instead of
presenting the draft for payment, the respondents' collecting agents
F
kept it in their hands, and made no attempts to cash it. P.W. 3, an
emPJoyee of the Calcutta Commercial Bank, said that the draft,
was sent by the Gauhati Office of the Bank to its head office by
registered post, but the head office had closed its business and the
draft came back to the Gauhati office undelivered. The closure of
the business of the collecting agents was not a lawful excuse for not G
obtaining delivery of the draft and not presenting it for payment
within a reasonable time. P.W. 3 admitted that had the draft been
presented for payment to the Tripura Modern Bank before October
16, 194R, it would have been paid on presentation, and· the money
. could not be realised only because the Calcutta Commercial Bank
had closed in the meantime. The Tripura Modern Bank closed its
R
business on October 16, 1948. Because of its inability to pay its
debts, the Tripura Modern Bank is now working under a scheme
of arrangement. The failiure of the respondents and their agents to
cash the draft within a reasonable time altered the position of the
appellants for the worse, and caused prejudice to them. In the circumstances, the respondents must be regarded as having kept the
I') L. R. [1869] 4 Ex. 268.
(1) 2 Wils. K. B. 353; 95 E.R. 854.
•
RA}!LAL V. Mc·HANLAL (Mudh.otkar, J.)
107
A
draft in absolute payment of the cheque. The cheque must be
treated as duly paid and consequently, the original debt stood discharged.
The High Court was 'n error in holding that the failure to
obtain payment of the draft was not due to the !aches of the respondents' collecting agents. In one part of the judgment, the High
B Court wrongly assumed. contrary to fact, that the TriJYura Modem
Bank had stopped business on September 16, 1948 and therefore
the draft could not be cashed on oresentation, whereas, in fact.
the Tripura Modern Bank had stopped business a month later on
October 16, 1948. Moreover, the High Court wrongly assumed that
the appellants did not suffer any loss on account of the delay in the
C presentation of the draft. There ·'s clear evidence on the record that
the draft would have been cashed, if it had been presented for
payment before October 16, 1948.
Mr. Chatterjee also contended that the respondents' collecting agents must be deemed to have accepted the demand draft on
D
September 14, 1948 as absolute payment of the cheque, and that
the cheque was. in the eye of law, paid and discharged on that
date. There is a lengthy discussion on this point in the j'udgment
of the H;gh Court. but we do not think it necessary to decide this
question.
In the result. the appeal is allowed, the judgment and decree
E
passed by the High Court are set aside, and those of the trial Court
are restored. The respondents shall pay to the appellants the costs
in this Court. The parties will pay and bear the'r own costs in the
Courts below.
Mudbolkar, J. I agree with my brother Bachawat that this
F appeal should be allowed; but I would prefer to rest my decision
upon a different ground.
It is not necessary to repeat here the facts which have been
set out in my learned brother's j,udgment. Mr. N. C. Chatter.iee,
appearing for the defendants-appellants, urged two grounds, the
first of which was that the plaintiffs-respondents had accepted the
G draft for Rs. 9,455/- dated September 14, 1948 drawn by the
Tnpura Modern Bank, S1bsagar on its Head Office at Calcutta in
payment of the cheque for _Rs. 9,461-4-0 drawn on the Tripura
Modern .Bank, S1bsagar wh•ch .the appellants
had endorsed in
favour of the respondents in satisfaction of the amount due upon
that cheque and that, therefore, the subsequent dishonour of the
H
draft would not revive the appellants' liability to pay Rs. 9,455/-
to the respondents. The other ground was 'that the appellants were
~ischarged fro.m liability because of the !aches of the respondents
m not presentmg the draft for encashment within reasonable time
of the drawing of that draft. My learned brother has'rested his decision on the second ground. In my view, however, it is not necessary
to express any opini~n upon the second ground as the first ground
urged by Mr. Chattef)ee 1s a good answer to the respondent's claim.
108
SUPREME
COUR1'
n.EPOR'fS
[J 965] 3 il.C.R.
It is a well accepted rule of English law, wh'ch has been apA
-plied in this country also, that when a debt becomes due the debtor must tender to the creditor the exact amount of the debt in
cash or other legal tender and that where a cheque is tendered by
the debtor to the creditor the payment may be absolute or conditional, the strong presumption being in favom of conditional payment. (see Chalmers on Bills of Exchange, p. 301, 12th ed.). ThereB
fore, when the respondents accepted the cheque drawn by Messrs
Nathuram Jaidayal of Sibsagar in favour of the appellants and endorsed by the appellants in their favour and sent it to the Calcutta
Commercial Bank Ltd., Gauhati Branch for collection they must
nave accepted ;t as conditional payment. The respondents' bank,
instead of collecting cash from the Tripura Modern Bank Ltd.,
C_
Sibsagar, sought to collect the amount by draft. The reason for
this given by Debendra Chandra Mazumdar, P.W. 3. who was A'-
sistant Accountant at the Gauhati Branch of the Calcutta Commercial Bank Ltd. at the relevant time was that the Bank 'usuallv
collected money from other banks by draft. There is nothing to ind'cate in his evidence that this was the prevailing practice in the
D
Banks carrying on business in Assam. According to him, the respondents' bank asked for a draft payable at Gauhati but the Tri-
-pura Modern Bank Ltd. sent one payable at Calcutta. The respondents' bank, however, accepted the draft and sent it by registered
post to Calcutta for collection. Some time thereafter the respondents' bank closed business and the demand draft was returned E
undelivered. The respondents' Bank made over the draft to the
respondents. It may be mentioned thatthough the Tripura Modern
Bank Ltd., had branch at Gauhati the respondents' Bank did not
object to a draft payable at Calcutta thinking that the money due
thereunder cauld be collected earlier from the Calcutta branch of
F
the Tripura Modern Bank. The matter, however, did not rest there.
After the· respondents' Bank went into liquidation the respondents
wrote a letter on November 19, 1948 to the Agent of the Tripura
Modern 'Bank Ltd., Calcutta saying that tlie demand draft belonged to them and not to the Calcutta Commercial Bank Ltd., who
were only acting as their agents for collection purposes and that
G
the amount for which the draft was drawn should be paid to them
and not to the Calcutta Commercial Bank or any one on its behalf. This letter clearly shows that the respondents accepted the
'draft in full payment of the amount due to them under the cheque
which the appellants had endorsed in their favour. Thus, though the
cheque endorsed by the appellants in favour of the respondents H
was only a conditional payment of the amount for which the cheque
was drawn the respondents by accepting the demand draft drawn
by the Tripura Modern Bank, Sibsagar on its Calcutta Branch
must be deemed to have accepted that draft as a legal tender or as
absolute payment of the amount payable under the cheqite endorsed in their favour by the appellant. Their rights thereafter would
rest only upon the demand draft and not upon thl'. original debt
which the appellant owed to them. It may be mentioned that the
ltAMLAL v. MOllANLAL (Mudholkar, J.)
109
A Trioura Modem Bank harl not gone into liquidation till a month
later and would, as stated by Debendra Chandra Mazumdar, P.W.
3 have been able to meet the draft had it been presented to its
Calcutta Branch within reasonable time from the date on which
it was drawn. It is because tbe respondents' Bank went into liquidation just about the time the registered letter containing the draft
B was sent to Calcutta and no one took delivery of it that the draft
could not be presented to the Calcutta Branch of the Tripura Modern Bank. The remedy of the respondents, therefore, could be
against their own bank, that is, the Calcutta Commercial Bank or
against the Tripura Modern Bank but certainly not against the appellants. Reliance, however, was placed by Mr. S. C. Nath for the
C respondents upon the letter dated September JO, 1949 written by
the appellant to the respondents in which the appellant wrote as
follows.
" ............ and received your letter. You wrote that the payment of Rs. 9 ,461-4-0 had not been received. Please get the cheque
D back. We have written to the drawer, which please note."
According to learned counsel, therefore, the appellant must
be deemed to have accepted its liability upon the cheque which
it had endorsed in favour of the respondents. There is no reference in this letter to the demand draft and it is quite clear therefore what the appellant said was in ignorance of the fact that the
respondents' bank had accepted a demand draft in payment of the
E cheque. It may be mentioned that the Tripura Modern Bank, Sibsagar had actually debited the account of the drawer of the cheque ..
with the amount for which the cheque had been drawn. The cheque
"
had thus been honoured by them. But instead of paying cash they
issued a demand draft at the instance of the respondents' bank.
This letter, therefore, does not improve matters for the responF dents.
•
6
. For these reasons the appeal is
allowed, the decree. of the
High Court is set aside and that of the trial court restored. The
respondents will pay. the appellants' costs in this Court and in the
Courts below and bear their own costs.
Appeal allowed.
L/B(D)2SCI-9