Seth Jagjivan Mavji Vithlani vs Messrs Ranchhoddas Meghji

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 31 of 1954

Decision Date: 28 May 1954

Coram: Mehar Chand Mahajan, Vivian Bose, Natwarlal H. Bhagwati, T. L. Venkatakara Ayyar

On 28 May 1954 the Supreme Court of India delivered its judgment in the appeal titled Seth Jagjivan Mavji Vithlani versus Messrs Ranchhoddas Meghji. The bench that heard the matter comprised Chief Justice Mehar Chand Mahajan together with Justices Das, Sudhi Ranjan Bose, Vivian Bose, Natwarlal H. Bhagwati and the puisne judges Ayyar, T L Venkatram. The case is reported at 1954 AIR 554 and 1955 SCR 503. The appeal arose under the Negotiable Instruments Act, 1881 (XXVI of 1881), specifically sections 7, 32, 61, 64 and 78, and concerned the liability of a drawee, the nature of acceptance, and the validity of an oral acceptance of a hundi.

The Court explained that, pursuant to section 32 of the Act, a drawee becomes liable only when he accepts the bill; the statute does not impose liability on the drawee merely by virtue of the instrument, except in the limited circumstance described in section 31 where a drawee of a cheque holds sufficient funds of the customer, and even then the liability is owed only to the drawer and not to the payee. The Court rejected the contention that section 61 applies to presentment for acceptance only when a bill is payable after sight and not when it is payable on demand. It observed that a bill payable after sight involves two distinct stages: the first stage, governed by section 61, is the presentment for acceptance, and the later stage, governed by section 64, is the presentment for payment. Accordingly, presentment for acceptance must always precede presentment for payment. When a bill is payable on demand, the two stages coincide, resulting in a single presentment that serves both acceptance and payment. Consequently, the person entitled to receive payment under section 78 is the same person who is entitled to present the instrument for acceptance.

Regarding the form of acceptance, the Court referred to section 7, which, following English law, declares that a drawee becomes an acceptor when he signs his assent on the bill. Therefore, apart from any recognized mercantile usage, an oral acceptance of a hundi is not permissible, and acceptance by conduct is unavailable where no question of estoppel arises. The Court stressed that liability under section 32 depends on actual acceptance of the instrument, not merely an acknowledgment of liability. While the law does not prescribe a specific form for acceptance, any acknowledgment can be treated as an acceptance only if it satisfies the requirements of section 7, namely that it appears on the bill and bears the drawee’s signature. The judgment cited the authorities 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) in support of these principles.

The case was heard in civil appellate jurisdiction as Civil Appeal No. 31 of 1954, an appeal filed by the appellant.

Special leave was granted to hear this appeal from the judgment and decree dated 9 September 1952 of the High Court of Judicature at Bombay in Appeal No 811 of 1951, which itself arose from the original decree dated 24 July 1951 of the Bombay City Civil Court at Bombay in Suit No 2310 of 1950. The appellant was represented by counsel for the Solicitor-General for India, while the respondent was represented by counsel for the appellant. The appeal was heard on 28 May 1954 and the judgment was delivered by Justice Venkatarama Ayyar.

The suit from which this appeal originates was instituted by the appellant on a hundi for Rs 10,000 dated 4 December 1947. The hundi had been drawn in the appellant’s favour by Haji Jethabhai Gokul and Co., a firm of Basra, and was drawn on the respondents, who carried on business as merchants and commission agents in Bombay. The hundi was posted by registered post to the appellant in Bombay and was actually received by a person named Parikh Vrajlal Narandas. On 10 December 1947 Vrajlal presented the hundi to the respondents and obtained payment under it.

It is relevant that the appellant had been conducting forward-contract business through Vrajlal, who acted as his commission agent, and that the appellant at that time resided at Vrajlal’s pedhi. On 12 January 1948 the appellant sent a notice to the respondents repudiating Vrajlal’s authority to act on his behalf and demanding the return of the hundi. The respondents replied on 10 February 1948, denying any liability and asserting that Vrajlal was the appellant’s agent and that the amount had been paid to him in good faith on the basis of his representation that he was authorised to receive the payment.

On 9 December 1950 the appellant filed the present suit in the Court of the City Civil Judge, Bombay. In the plaint the appellant merely alleged that the payment made to Vrajlal was not binding on him and that the “defendant-drawee” remained liable on the hundi. The defendants, besides relying on Vrajlal’s purported authority to obtain a discharge, also contended that the plaint failed to disclose a cause of action because it did not aver that the hundi had been accepted by them.

At trial the appellant proved that Vrajlal had received the registered cover containing the hundi in the appellant’s absence and had collected the amount due thereunder without the appellant’s knowledge or authority. The learned City Civil Judge accepted this evidence, held that Vrajlal had not been authorised to receive the amount, and further held that the defendants’ plea of discharge implied that they had accepted the hundi. Consequently the trial judge decreed the suit in favour of the appellant.

The defendants appealed the decree to the High Court of Bombay. The appeal was heard by Chief Justice Chagla and Justice Shah, who held that the appellant could acquire a right of action on the hundi against the respondents only if the respondents had accepted it, and that, as the plaint did not allege such acceptance, no cause of action was disclosed against them.

The High Court held that because the plaintiff’s complaint did not state that the respondents had accepted the hundi, the suit lacked a cause of action against them; consequently the High Court allowed the appellant’s appeal and dismissed the suit. The plaintiff now seeks review of that decision by means of a special leave petition under article 136 of the Constitution. No substantial challenge has yet been made before this Court to the legal principle upon which the High Court based its judgment, namely that a drawee of a negotiable instrument is not liable to the payee unless he has effected acceptance of the instrument. Chapter III of the Negotiable Instruments Act sets out the duties of the parties to such instruments. Section 32, quoted in full, provides that, in the absence of a contrary contract, the maker of a promissory note and the acceptor of a bill of exchange before its maturity are bound to pay the amount at maturity according to the apparent tenor of the note or acceptance, and that an acceptor of a bill of exchange after maturity is bound to pay the amount to the holder on demand. This provision makes clear that liability of the drawee arises only upon his acceptance of the bill. The Act contains no clause that imposes liability on the drawee merely by virtue of being named on the instrument, the sole exception being section 31 which deals with a cheque drawee who has sufficient funds of the customer in his bank; even that liability is owed only to the drawer and not to the payee. This rule is elementary law and was affirmed by West J. in the decision of Seth Khandas Narandas v. Dahibai, where he observed that where there is no acceptance, no cause of action can arise against the drawee in favour of the payee. The contention that section 61 of the Act limits presentment for acceptance to bills payable after sight, and not to those payable on demand, has no merit. In a bill payable after sight there are two distinct stages: first the presentment for acceptance, and later the presentment for payment. Section 61 governs the former stage, while section 64 governs the latter. As noted in Ram Ravji Jambhekar v. Pralhaddas Subkarn, presentment for acceptance must invariably precede presentment for payment. By contrast, when a bill is payable on demand, the two stages coincide, resulting in a single presentment that serves both as acceptance and as demand for payment. If the bill is paid, acceptance has occurred; if it is not paid, the instrument is effectively dishonoured for non-acceptance. Whether the bill is payable after sight, at sight, or on demand, acceptance by the drawee is a prerequisite for imposing liability upon him. Acceptance creates the necessary privity between the payee and the drawee, and therefore determines the existence of a cause of action.

The Court concurred with the learned Judges of the High Court that, in the absence of a valid acceptance, the holder of a bill cannot maintain an action against the drawees. The principal argument advanced by the appellant was that the acceptance of the bill should be presumed to have occurred when the respondents received the bill and subsequently made payment. The appellant contended that the very act of paying the hundi to Vrajlal constituted an acknowledgement that the defendants were liable on the hundi to whoever might be the lawful holder. The Court rejected this contention on two grounds. First, there was no legitimate presentment of the hundi for acceptance; second, even if a presentment had occurred, the law required a proper acceptance which was lacking in this case. Regarding presentment, the Court noted that the individual who physically presented the hundi to the defendants was Vrajlal. If Vrajlal did not possess authority to act on behalf of the plaintiff, it was difficult to deem him as having presented the hundi on the plaintiff’s behalf. The only act that transpired was Vrajlal’s presentation of the hundi and the subsequent receipt of the amount due. Since he lacked authority to receive the payment, he likewise lacked authority to present the bill for acceptance. The appellant argued that the Act contained no provision obliging presentation for acceptance of a bill payable at sight, unlike the requirement found in section 61 for bills payable after sight. The Court explained that, for a bill payable at sight, the stages of presentment for acceptance and presentment for payment merge into a single step. Consequently, the person entitled to receive payment under section 78 of the Act is also the person entitled to present the bill for acceptance. Section 78 mandates that payment be made to the holder of the instrument; therefore, if Vrajlal was not authorized to receive the amount on the plaintiff’s behalf, his receipt did not constitute a valid presentment for acceptance. The Court then turned to the question of whether, assuming a proper presentment, a valid acceptance had been effected. The appellant submitted that the defendants’ possession of the hundi and their production of it amounted to acceptance. Under English common law, even a verbal acceptance could be valid, as noted in the observations of Baron Parke in Bank of England v. Archer, and it was held that acceptance could be inferred when the drawee improperly retained the bill, as discussed in the Note to Harvey v. Martin. However, the Court observed that English law had been modified by section 17(2) of the Bills of Exchange Act 1882, which required acceptance to be written on the bill and signed by the drawee. Accordingly, the Court concluded that, in the present case, there was no written and signed acceptance, and therefore no valid acceptance of the hundi had occurred.

The Court observed that, under the relevant statutory provision, an acceptance of a hundi is invalid unless the acceptance is written on the instrument itself and is signed by the drawee. Section 7 of the Negotiable Instruments Act, which mirrors the English legal position, states that the drawee becomes an acceptor only when he has affixed his signature to his assent on the bill. In light of these statutory rules, and except for any specific mercantile usage, the Court held that an oral acceptance of the hundi cannot be recognized, and an acceptance inferred solely from conduct is also impermissible where no estoppel issue arises. Nevertheless, the parties argued that mere possession of the hundi should not be the sole basis for inferring acceptance; they pointed to the defendants’ plea that they had discharged the hundi, relying on authorities such as the 1843 case reported in I.M. & W. 383 at pages 389-390 and I.R. 852 855, and the 1808 case reported in 1 Camp. 425 and I 70 E.R. 1009. The defendants contended that their claim of discharge amounted to an acknowledgment of liability on the bill and therefore granted the plaintiff a right of action. The Court noted that assuming a plea of discharge automatically implies an acknowledgment of liability is a proposition it found difficult to accept. The remaining issue, therefore, was whether such an acknowledgment could legally attach liability to the defendants with respect to the hundi. According to Section 32, liability attaches only when the drawee expressly accepts the instrument, not merely when an acknowledgment of liability is made. While the law does not prescribe a particular form for acceptance, any acknowledgment must still satisfy the requirements of Section 7, meaning it must be written on the bill and signed by the drawee. In the present case, the alleged acknowledgment was neither manifested in writing nor signed by the defendants; it was merely inferred from the purported discharge of the instrument. Consequently, the Court concluded that this implication was insufficient to impose liability on the defendants under Section 32. The Court therefore held that there was neither a valid presentment of the hundi for acceptance nor a valid acceptance of it. As a result, the appeal was dismissed with costs, and the order of dismissal was entered.