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PETITIONER:

SETH JAGJIVAN MAVJI VITHLANI

Vs.

RESPONDENT:

MESSRS RANCHHODDAS MEGHJI.

DATE OF JUDGMENT:

28/05/1954

BENCH:

AIYYAR, T.L. VENKATARAMA

BENCH:

AIYYAR, T.L. VENKATARAMA

MAHAJAN, MEHAR CHAND (CJ)

DAS, SUDHI RANJAN

BOSE, VIVIAN

BHAGWATI, NATWARLAL H.

CITATION:

1954 AIR 554 1955 SCR 503

ACT:

Negotiable Instruments Act, 1881 (XXVI of 1881) ss. 7, 32,

61, 64, 78-Drawee, liability of-Acceptance-Bill payable at

sight -Presentment-Acceptance-Oral-Whether valid.

HEADNOTE:

Under section 32 of the Negotiable Instruments Act, 1881,

the liability of the drawee arises only when he accepts the

bill. There is no provision in the Act that the drawee is

as such liable on the instrument, the only exception being

under section 31 in the case of a, drawee of a cheque having

sufficient funds of the customer in his hands; and even

then, the liability is only towards the drawer and not the

payee.

There is no substance in the contention that section 61 of

the Act provides for presentment for acceptance only when

the bill is payable after sight, and not when it is payable

on demand. In a bill payable after sight, there are two

distinct stages,

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firstly when it is presented for acceptance, and later when

it is presented for payment. Section 61 deals with the

former, and section 64 with the latter. Presentment for

acceptance must always and in every case precede presentment

for payment. But when the bill is payable on demand both

the stages synchronise and there is only one presentment,

which is both for acceptance and for payment and therefore

the person who is entitled to receive the payment under

section 78 of the Act is the person who is entitled to

present it for acceptance.

Section 7 of the Negotiable Instruments Act, 1881,

following the English Law, provides that the drawee becomes

an acceptor when he has signed his assent on the bill.

Accordingly there cannot be, apart from any mercantile

usage, an oral acceptance of the hundi, much lose an

acceptance by conduct, where at least no question of

estoppel arises.

What is requisite for fixing the drawees with liability

under section 32 is the acceptance by them of the instrument

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and not an acknowledgment of liability. As the law

prescribes no particular form for acceptance, there should

be no difficulty in construing an acknowledgment as an

acceptance; but then, it must satisfy the requirements of

section 7, and must appear on the bill and be signed by the

drawee.

Seth Khandas Narandas v. Dahibai (I.L.R. 3 Bom. 182), Ram

Raviji Jambhekar v. Prahladdas Subhakaran (I.L.R. 20 Bom.1

33), Bank of England v. Archer ((1843) 11 M. & W. 383) and

Harvey v. Martin ( (1808) 1 Camp. 425) referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 31 of 1954.

Appeal by Special Leave from the Judgment and Decree

dated the 9th September, 1952, of the High Court of

Judicature at Bombay in Appeal No. 811 of 1951 from the

Original Decree arising from the Judgment and Decree dated

the 24th July, 1951, of the Bombay City Civil Court at

Bombay in Suit No. 2310 of 1950.

C.K. Daphtary, Solicitor-General for India (J. B.

Dadachanji and Rajinder Narain, with him) for the appellant.

S.C. Isaacs (S. S. Shukla, with him) for the respondent.

1954. May 28. The Judgment of the Court was delivered

by

VENKATARAMA AYYAR J.-The suit out of which this appeal

arises was instituted by the appellant on- a hundi for Re.

10,000 dated 4th December, 1947, drawn

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in his favour by Haji Jethabhai Gokuil and Co., Of Basra on

the respondents, who are merchants and commission agents in

Bombay. The hundi was sent by registered post to the

appellant in Bombay, and was actually received by one Parikh

Vrajlal Narandas, who presented it to the respondents on

10th December, 1947, and received payment therefore It may

be mentioned that the appellant had been doing business in

forward contracts through Vrajlal as his commission agent,

and was actually residing at his Pedhi. On 12th January,

1948, the appellant sent a notice to the respondents

repudiating the authority of Vrajlal to act for him and

demanding the return of the hundi, to which they sent a

reply on 10th February, 1948, denying their liability and

stating that Vrajlal was the agent of the appellant, and

that the amount was paid to him bonafide on his

representation that he was authorised to receive the

payment.

On 9th December, 1950, the appellant instituted the present

suit in the Court of the City Civil Judge, Bombay. In the

plaint he merely alleged that the payment to Vrajlal was not

binding on him, and that " the defendant-drawee " remained

liable on the hundi. The defendants, apart from relying on

the authority of Vrajlal to grant discharge, also pleaded

that the plaint did not disclose a cause of action against

them, as there was no averment therein that the hundi had

been accepted by them.

At the trial, the appellant gave evidence that Vrajlal had

received the registered cover containing the hundi in his

absence, and collected the amount due thereunder without his

knowledge or authority. The learned City Civil Judge

accepted this evidence, and held that Vrajlal had not been

authorised to receive the amount of the hundi. He also hold

that the plea of discharge put forward by the respondents

implied that the hundi had been accepted by them. In the

result, he decreed the suit.

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The defendants took up the matter in appeal to the High

Court of Bombay, and that was heard by Chagla C.J. and Shah

J. who held that the appellant would

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have a right of action on the hundi against the respondents

only if it had been accepted by them, and that as the plaint

did not allege that it had been. accepted by them, there was

no cause of action. against them. They accordingly allowed

the appeal, and dismissed the suit. The plaintiff prefers

this appeal on special leave granted under article 136 of

the Constitution.

There has been no serious attempt before us to challenge the

correctness of the legal position on which the judgment of

the High Court is based, that the drawee of a negotiable

instrument is not liable on it to the payee, unless he has

accepted it. On the provisions of the Negotiable

Instruments Act, no other conclusion impossible. Chapter

III of that Act defines the obligations of parties to

negotiable instruments. Section 32 provides that,

" In the absence of a contract to the contrary, the maker of

a promissory note and the acceptor before maturity of a bill

of exchange are bound to pay the amount thereof at maturity

according to the apparent tenor of the note or acceptance

respectively, and the acceptor of a bill of exchange at or

after maturity is bound to pay the amount thereof to the

holder on demand. "

Under this section, the liability of the drawee arises only

when he accepts the bill. There is no provision in the Act

that the drawee is as such liable on the instrument, the

only exception being under section 31 in the case of a

drawee of a cheque having sufficient funds of the customer

in his bands; and even then, the liability is only towards

the drawer and not the payee. This is elementary law, and

was laid down by West J. in Seth Khandas Narandas v.

Dahibai(1) in the following terms:

" Where there is no acceptance, no cause of action can have

arisen to the payee against the drawee."

Nor is there any substance in the contention that section

61 of the Act provides for presentment for acceptance only

when the bill is payable after sight, and not when it is

payable on demand., as is the suit

(1) I.L.R, 3 Bo. 182 at P. 183.

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hundi. In a bill payable after sight, there are 'two

distinct stages, firstly when it is presented for accept-

ance, and later when it is presented for payment. Section

61 deals with the former, and section 64 with the latter.

As observed in Ram Ravji Jambhekar v. Pralhaddas Subkarn(1),

" presentment for acceptance must always and in every case

precede presentment for payment." But when the bill is

payable on demand, both the stages synchronise, and there is

only one presentment, which is both for acceptance and for

payment. When the bill is paid, it involves an acceptance;

but when it is not paid, it is really. dishonoured for non-

acceptance. But whether the bill is payable after sight or

at sight or on demand, acceptance by the drawee is necessary

before he can be fixed with liability on it. It is

acceptance that establishes privity on the instrument

between the payee and the drawee, and we agree with the

learned Judges of the High Court that unless there is such

acceptance, no action on the bill is maintainable by the

payee against the drawees.

The main contention on behalf of the appellant was that

such acceptance must be implied when the respondents

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received the bill and made payment there for. The argument

was that the very act of the payment of the hundi to Vrajlal

was an acknowledgment that the defendants were liable on the

hundi to whosoever might be the lawful holder thereof. The

answer to this contention is, firstly, that there was no

valid presentment of the hundi for acceptance; and secondly,

that there was no acceptance of the same as required by law.

On the question of the presentment of the hundi for

acceptance, the position stands thus: The person who

presented it to the defendants was Vrajlal; and if he had no

authority to act in the matter, it is difficult to see how

he could be held to have acted on behalf of the plaintiff in

presenting the hundi. There was only one single act, and

that was the presentment of the hundi by Vrajlal and the

receipt of the amount due thereunder. If he had no

authority to receive the payment, he had no authority to

present the bill for acceptance. It was argued that there

was no provision

(1) I.L.R. 2o Bom. 133 at P- 141.

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in the Act requiring that bills payable at sight should be

presented for acceptance by the holder or on his behalf, as

there was, for bills -payable after sight, in section 61.

But, as already pointed out, in the case of a bill payable

at sight, both the stages for presentment for acceptance and

for payment are rolled up into one, and, therefore, the

person who is entitled to receive the payment under section

78 of the Act is the person, who is entitled to present it

for acceptance. Under section 78, the payment must be to

the holder of the instrument; and if Vrajlal had no

authority to receive the amount on behalf of the plaintiff,

there was no valid presentment of the hundi by him for

acceptance either.

It has next to be considered whether, assuming that there

was a proper presentment of the hundi for acceptance, there

was a valid acceptance, thereof The argument of the

appellant was that as the hundi had got into the hands of

the defendants and was produced by them, the very fact of

its possession would be sufficient to constitute acceptance.

Under the common law of England, even a verbal acceptance

was valid. Vide the observations of Baron Parke in Bank of

England v. Archer(1). It was accordingly held that such

acceptance could be implied when there was undue retention

of the bill by the drawee. (Vide Note to Harvey v.

Martin(1)). But the law was altered in England by section

17(2) of the Bills of Exchange Act, 1882 which enacted that

an acceptance was invalid, unless it was written on the bill

and signed by the drawee. Section 7 of the Negotiable

Instruments Act, following the English law, provides that

the drawee becomes an acceptor, when he has signed his

assent upon the bill. In view of these provisions, there

cannot be, apart from any mercantile usage, an oral accept-

ance of the hundi, much less an acceptance by conduct, where

at least no question of estoppel arises.

But then, it was argued that the possession of the hundi was

not the only circumstance from which acceptance could be

inferred; that there was the plea

(1) (1843) I. M. & W. 383 at PP. 389, 390; I52 E.R. 852,

855.

(2) (1808) 1 CAMP- 425; I 70 E.R. 1009,

509

of the defendants that they had discharged the hundi; and

that that clearly imported an acknowledgment of liability on

the bill, and was sufficient to clothe the plaintiff with a

right of action thereon. Assume that the plea of discharge

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of a hundi implies an acknowledgment of liability

thereunder-an assumption which we find it difficult to

accept. The question still remains whether that is

sufficient in law to fasten a liability on the defendants on

the hundi. What is requisite for fixing the drawees with

liability under section 32 is the acceptance by them of the

instrument and not an acknowledgment of liability. As the

law prescribes no particular form for acceptance, there

should be no difficulty in construing an acknowledgment as

an acceptance; but then, it must satisfy the requirements of

section 7, and must appear on the bill and be signed by the

drawees. In the present case, the acknowledgment is neither

in writing; nor is it signed by the defendants. It is a

matter of implication arising from the discharge of the

instrument. That is not sufficient to fix a liability on

the defendants under section 32. In conclusion, we must

hold that there was neither a valid presentment of the hundi

for acceptance, nor a valid acceptance thereof.

In the result, the appeal fails, and is dismissed with

costs.

Appeal dismissed.