Kapur Chand Godha vs Mir Nawab Himayatalikhan Azamjah

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 52 of 60

Decision Date: 12 April 1962

Coram: S.K. Das, M. Hidayatullah, J.C. Shah

In the matter titled Kapur Chand Godha versus Mir Nawab Himayatalikhan Azamjah, the Supreme Court of India delivered its judgment on 12 April 1962. The opinion was authored by Justice S K Das, with Justices M Hidayatullah and J C Shah forming the bench. The parties were identified as the petitioner Kapur Chand Godha and the respondent Mir Nawab Himayatalikhan Azamjah. The decision is reported in the 1963 volume of the All India Reporter at page 250 and also in the 1963 Supreme Court Reporter (second series) at page 168. The case concerned the provisions of the Indian Contract Act, 1872, specifically sections 41 and 63 and illustration (c), dealing with the effect of a province accepting performance from a third person as full satisfaction of a claim and the question of whether the promisor may be sued for the balance thereafter.

The factual background, as summarized in the headnote, began in January 1937 when a firm identified as M & Co. sold jewellery to the respondent, who was then the Prince of Berar, for a value of approximately thirteen lakh rupees. The Prince acknowledged the purchase in writing and subsequently issued several acknowledgments of the debts owed to the sellers, the final acknowledgment being for the sum of twenty‑seven lakh, seventy‑nine thousand rupees. In April 1948 the appellants presented their bill for payment and were told in January 1949 that the Nizam had authorized the bill. In February 1949, while Hyderabad was under military occupation, the Military Governor constituted a committee to examine all debts of the Prince of Berar and his younger brother. After reviewing the claim, the committee recommended that the appellants be paid twenty lakh rupees as full settlement of their claim. Accordingly, the appellants received the twenty lakh rupees in two instalments.

When the second instalment was received, the appellants attempted to issue a receipt that reserved the right to recover any remaining balance under the promissory note from the Prince of Berar. The authorities refused to honour that receipt. Consequently, the appellants discharged all the earlier promissory notes, stamping each with a statement that the full amount had been satisfied. Thereafter, they instituted suit against the respondent seeking recovery of the balance allegedly due on the promissory note. The trial court dismissed the suit, holding that there was no accord and satisfaction when the plaintiff received the second cheque from the Accountant General of Hyderabad. The respondent appealed, and the appellate court reversed the trial court’s decree, finding that the appellants had accepted the twenty lakh rupees as complete satisfaction of their claim and had duly discharged the promissory notes by endorsing them as fully settled.

The appellants then appealed to the Supreme Court by way of a certificate from the High Court. The Supreme Court held that when payment is accepted on the condition on which it is offered, the recipient cannot later claim, either in fact or in law, that the money was accepted without the condition. Further, a promisee who accepts performance of a promise from a third person is barred from later enforcing the promise against the original promisor. In the present case, the Court concluded that the appellants had given a full discharge when they received the second instalment, and therefore they were not entitled to sue the respondent for any balance.

In the present case the Court observed that once the appellants had received the second instalment and had accepted that money as full satisfaction of their claim, they could not lawfully sue the respondent for any remaining balance. The Court added, as an obiter comment, that when a statute expressly governs a matter, it is rarely necessary to refer to case law. The judgment arose from Civil Appeal No 52 of 1960, which was filed against the decree dated 15 April 1958 pronounced by the Bombay High Court in Appeal No 25 of 1957. Counsel for the appellants was represented by a senior advocate, while the respondent was represented by counsel for the Government, including the Attorney General of India and several senior lawyers. The judgment was delivered on 12 April 1962 by Justice S. K. Das. The appeal was taken on a certificate granted under section 110 of the Code of Civil Procedure, and it concerned a suit filed by the appellants seeking recovery of Rs 9,99,940 together with interest and costs from Mir Nawab Himayatalikban Azamjah, who at that time was known as the Prince of Berar, the eldest son of the Nizam of Hyderabad. The factual background was that on or about 31 January 1937 the firm Baboo Mull and Co. sold and delivered to the Prince of Berar in Bombay various pieces of jewellery amounting in total to Rs 13,20,750. The first plaintiff, Lala Kapurchand Godha, and the original second plaintiff, Lala Heeralal Godha, carried on the jewellery business in partnership with their father and with the late Lala Baboo Mull under the name Baboo Mull and Co. It is not contested that the present appellants now own the entire interest in the subject matter of the suit; consequently, for convenience, the Court refers to them as the sellers of the jewellery to the Prince of Berar on 31 January 1937. On that same date the Prince executed a written instrument acknowledging his purchase of the jewellery listed in a schedule and confirming the aggregate price of Rs 13,20,750. In that document the Prince expressly promised, on his own behalf and on behalf of his heirs, executors, administrators and successors, to pay the sum of thirteen lakh twenty‑thousand seven‑hundred and fifty rupees, together with simple interest at ten per cent per annum, at his option and leisure to the appellants or to their order at the address specified. It is undisputed that the jewellery were actually delivered by the appellants to the respondent, and subsequent to 31 January 1937 the respondent issued a series of acknowledgments of liability and promises to pay, each constituting a document of acknowledgment of debt and a promise on his part to satisfy the amount due, the last of which was such an acknowledgment.

According to the record, an acknowledgement dated February 15/16, 1948, was executed by the respondent. By that date the original debt of Rs 13,20,750 together with ten per cent interest per annum had risen to approximately Rs 27,79,000. In the February 1948 document the respondent expressly admitted liability for the amount of Rs 27,79,078‑20 and again promised to pay the sum at his own option and leisure. On April 30, 1948 the appellants submitted their bill for the amount claimed. Several months later, in January 1949, a representative of the appellants interviewed the respondent and was informed that the Nizam had approved the bill. After the police action of 1948, Hyderabad came under military occupation. In response to the changed circumstances, the Military Governor established the Princes’ Debts Settlement Committee on February 8, 1949. The Committee was formed by virtue of a resolution of the Military Governor and its purpose was to examine all outstanding debts of the Prince of Berar and his younger brother. On February 19, 1949 the appellants presented a petition to the Military Governor, seeking either full payment of the amount due or, alternatively, the return of the jewellery that had been sold. The Committee considered the petition, as recorded in paragraph 11 of its report, and recommended that the appellants be paid a total of Rs 20 lacs in full satisfaction of their claim. The Committee further stated that it did not recommend the return of the jewellery. The Committee consisted of two members: Zaheruddin Ahmed, who served as the Controller of Accounts to the Nizam, and A. N. Shah, an officer of the Indian Civil Service. The Committee’s report indicated that it applied a general reduction of about ten per cent to the claims of all suppliers of goods to the two princes, on the ground that many suppliers had inflated prices for goods supplied to them. The Committee also held that a reasonable rate of interest for creditors who had to wait many years for payment should be six per cent per annum.

Following the Committee’s recommendation, a sum of Rs 11,25,000 was paid to the appellants on September 27, 1949. At that time a dispute arose as to whether the appellants were entitled to the full Rs 20 lacs or only a share equal to nine‑sixteenths of that amount. The dispute was eventually resolved in favour of the appellants, and a second payment of Rs 8,75,000 was made to them on February 14, 1950. Together with the earlier payment, this second remittance brought the total amount received by the appellants to Rs 20 lacs, which corresponded with the sum recommended by the Committee as full satisfaction of their claim. On the same day, February 14, 1950, the appellants executed a receipt for the amount of Rs 8,75,000 (Exhibit C). The receipt was worded to state that the sum had been received from the appropriate authority as full and final settlement of the balance of Rs 20 lacs allowed by the Government in respect of the appellant’s claim under the pronote dated 15 February 1948 issued by the Prince of Berar, while expressly reserving the right to recover any remaining balance from the Prince of Berar.

The receipt that the appellants executed stated that they had received from the Controller General of Accounts and Audit of the Hyderabad Government the sum of Rs 8,75,000 (Rupees eight lakh seventy‑five thousand) as full and final payment of the balance of twenty lakh rupees that the Government had allowed in respect of the appellants’ claims under the pronote dated 15 February 1948, which had been issued by the Prince of Berar in their favour. However, the receipt also expressly reserved the appellants’ right to recover any balance amount that might still be due to them under the same pronote from the Prince of Berar. The authorities concerned declined to make payment on that receipt because it contained the reservation of the right to claim the balance from the Prince. Subsequently, the appellants proceeded to discharge all the earlier promissory notes that they had held, and on each of those notes they recorded that full payment had been satisfied. The last of those discharges was a note dated 15‑16 February 1948 for the sum of Rs 27,79,078‑2‑0, on which Kapurch and Godha, one of the appellants, wrote “received payment in full”. On 14 August 1950, through their solicitors, the appellants served a notice on the respondent demanding payment of the remaining balance of Rs 9,99,940 together with interest at the rate of ten per cent. Because the respondent failed to pay the demanded amount, the appellants instituted a suit on 5 February 1951 in the High Court of Bombay for recovery of that balance. The suit was heard by Justice Coyajee, who identified the principal issue for trial as Issue No 6, namely whether the appellants had accepted the sum of Rs 20 lakh as full satisfaction of their claim against the respondent, whether they had surrendered all the writings that had been duly discharged, and whether there was an absolute release of the debt as set out in paragraphs 7, 8 and 11 of the written statement. After examining the oral and documentary evidence, particularly the receipt referred to as Exhibit C, Justice Coyajee concluded that the appellants had not taken the Rs 20 lakh as full and final satisfaction of their claim. He observed that ordinarily a plaintiff who had endorsed documents as payment in full would be in a difficult position to enforce the claim later, but the wording “payment in full satisfaction” on the earlier documents referred only to the liability of the Hyderabad State. In conjunction with Exhibit C, which expressly reserved the right to proceed against the Prince of Berar, the court found that there was no accord and satisfaction when the plaintiff received the second cheque from the Accountant‑General of Hyderabad State. The respondent then appealed the decision, and the appeal was heard by the appellate bench comprising Chief Justice Chagla and Justice Mody. By its judgment dated 15 April 1958, the appellate court reached a contrary conclusion, holding that, on the basis of the oral and documentary evidence presented, it was clearly established that the appellants had accepted the sum of Rs 20 lakh in full satisfaction of their claim.

The appellate court held that the respondents had taken the sum of Rs 20 lacs as full satisfaction of their claim and had thereby discharged the promissory notes by endorsing them as fully satisfied; consequently, section 63 of the Indian Contract Act, 1872 applied and the suit brought by the appellants had to be dismissed. The court therefore allowed the appeal, dismissed the suit and awarded costs. In the present appeal, counsel appearing for the appellants urged that the earlier view expressed by Justice Coyajee was the correct interpretation of the evidence. He stressed two crucial matters: first, what the evidence reveals about the creditor’s intention when accepting the Rs 20 lacs; and second, the legal effect of Exhibit C, a receipt dated at the same time as the second instalment of Rs 8,75,000. He contended that the appellate judges had not given sufficient weight to these two issues and that their conclusion was therefore vitiated. Because the appellate judgment reversed an earlier finding and because the matters raised were essentially factual questions with conflicting findings, the court permitted the parties to place before it the relevant documents and pleadings. Two witnesses whose testimony appeared decisive were Putta Madhava Rao, examined on behalf of the appellants, and Kapurchand Godha, one of the appellants himself. At the relevant time, Putta Madhava Rao occupied the post of Assistant Accountant‑General, Hyderabad, and he had attended the Committee’s proceedings on several occasions when the appellants’ claim was under consideration. Before Justice Coyajee, a preliminary objection was raised as to whether Rao’s statements concerning what transpired before the Committee could be admitted, since none of the two Committee members had been called to testify. The court observed that Rao was unquestionably competent to recount what he himself heard or saw, provided that such perception was a material fact, and it deemed it unnecessary to resolve the further question of whether he could also recount the statements allegedly made by the Committee members. Accordingly, the court confined itself to Rao’s own observations. Rao testified that the appellants had insisted on receiving the full amount of their claim before the Committee, but the Committee decided that the appellants should accept Rs 20 lacs as full satisfaction; on hearing this, Kapurchand Godha protested and declared that he would have to reserve his right to the balance. The Committee then clarified that it could not recommend any payment beyond that amount because a specific sum had already been earmarked for distribution, the reference being to a sum of two crores set aside for the liquidation of the Princes’ debts.

In this case the Court explained that the two princes were to receive money from a fund called Sarf‑e‑Khan. The Committee first recommended that the appellants accept a total sum of twenty lakh rupees as full settlement of their claim. Following that recommendation the first instalment of eleven lakh twenty‑five thousand rupees was paid on 27 September 1949. At the time of that payment a dispute existed concerning the share of the appellants in the money. The receipt issued for the payment of eleven lakh twenty‑five thousand rupees is recorded as Exhibit B. Exhibit B does not indicate whether the appellants had consented to accept the twenty‑lakh‑rupee amount as complete satisfaction of their claim.

The Court then turned to the second instalment of eight lakh seventy‑five thousand rupees, which was paid on 14 February 1950. Madhava Rao testified about the events surrounding that payment. He said that Kapurchand Godha brought Exhibit C to him and was told that payment could not be made against that receipt because the receipt preserved the appellants’ right to the balance. Madhava Rao took Exhibit C to Zaheruddin Ahmed, who was the Accountant‑General at that time. Zaheruddin Ahmed advised that the claimant should endorse a statement that all promissory notes were fully satisfied before any payment would be released. Following that advice Madhava Rao obtained the necessary endorsements on the promissory notes from Kapurchand Godha. Kapurchand Godha protested that he had been compelled to endorse the notes and that he was not satisfied with the arrangement; this protest was made on 14 February 1950. No plea was later raised by the appellants alleging that the endorsements had been obtained under coercion, nor was any issue formally raised on that point. The effect of Madhava Rao’s evidence, the Court held, was that the authorities responsible for disbursing the money made it clear that they would release the second instalment only if the appellants endorsed full satisfaction of their claim. After an initial protest the appellants agreed, endorsed the promissory notes as fully satisfied, and thereby recorded full payment before receiving the second instalment. The Court observed that the allegation of coercion was introduced only after the fact. Two factual conclusions were drawn from Madhava Rao’s testimony: first, the authorities refused to pay the second instalment unless the appellants endorsed full satisfaction in line with the Committee’s recommendation; second, the appellants had recorded such full satisfaction prior to receipt of the money. These facts, the Court concluded, supported the respondent’s case that the appellants had given a full discharge of their claim when they received the second instalment. The Court further noted that Madhava Rao’s evidence was corroborated by the testimony of Kapurchand Godha, who stated that when he presented Exhibit C to Madhava Rao, the latter refused to accept the receipt in its existing form and subsequently took him to the Accountant‑General for further instructions.

When the matter was taken to the Accountant‑General, Kapurchand was instructed to produce the promissory notes and was told that payment would not be released unless the notes were endorsed as showing full satisfaction of the claim. Kapurchand then testified that he was told a cheque would not be issued unless he signed the receipt confirming full payment. He explained that he was asked to endorse the vouchers as indicating full payment and that he complied, although he protested that he was being asked to endorse full payment while he had not actually received the entire amount. After signing the receipt, he handed the vouchers and related documents to the Accountant‑General. This testimony corresponded with the evidence of Madhava Rao and again demonstrated that the appellants, upon receipt of the second and final instalment of Rs 8,75,000, gave a full discharge of their claim, with the allegation of coercion being introduced only later as an after‑thought.

The evidence showed a minor dispute as to whether Exhibit C bore Kapurchand’s signature when it was first presented to Madhava Rao or whether the signature was added subsequently. The Court did not consider this discrepancy material, nor did it focus on other minor inconsistencies between the two witnesses. The essential finding from the testimonies was that, despite any initial reluctance on Kapurchand’s part to accept Rs 20 lakhs as full satisfaction of the appellants’ claim, he eventually consented and actually endorsed full satisfaction and payment on all the promissory notes. Following this endorsement, he received the second instalment of Rs 8,75,000, which together with the first instalment of Rs 11,25,000 completed the total sum of Rs 20 lakhs. On the basis of these facts, which were established by the appellants’ own evidence, the only logical conclusion was that the claim of the appellants had been fully satisfied.

The legal position was clear under Section 63 of the Indian Contract Act, which provides that a promisee may dispense with, remit, or accept any satisfaction he deems fit in respect of a promise made to him. Illustration (c) to that section states that if A owes B Rs 5,000, and C pays B Rs 1,000 which B accepts as satisfaction of his claim against A, that payment discharges the whole claim. The Court observed that this case fell squarely within Section 63 and its illustration. Having accepted payment in full satisfaction of their claim, the appellants could no longer sue the respondent for any balance. The Court also referred to Section 41 of the Contract Act, which bars a promisee from enforcing a promise against the promisor after having accepted performance from a third person. This statutory framework left no room for doubt that the appellants, having accepted full performance, were precluded from further enforcing the contract against the respondent.

In this matter the Court explained that when a promise is performed by a third party, the promisee loses the right to enforce the promise against the original promisor. The Court noted that some English authorities stipulate that discharge of a contract by a third party is effective only if the debtor authorises or ratifies that discharge. However, the language of section 41 of the Indian Contract Act leaves no doubt that once the appellants accepted performance of the promise from a third person, they could not later enforce the same promise against the respondent, who was the original promisor. The Court observed that when a statute directly governs the issue, it is rarely necessary to rely on case law. Nevertheless, out of respect for the arguments presented by the counsel for the appellants, the Court examined the two decisions that the appellants' counsel had relied upon. The first decision cited was Day v. McLea. In that case the plaintiffs had claimed damages from the defendants for breach of contract and the defendants responded by sending a cheque for a lesser amount, stating that the cheque represented full payment of all claims. The plaintiffs retained the cheque, saying they held it “on account,” and subsequently sued for the balance of the claim. The court in Day v. McLea held that the mere retention of the cheque did not, as a matter of law, conclusively prove accord and satisfaction; rather, it was a factual question as to the terms on which the cheque was kept. The Court further quoted Lord Justice Bowen, who explained that when money is sent on the condition that it may be taken as satisfaction of a larger claim, the determination of whether the money was indeed accepted as satisfaction depends on the facts, specifically whether there was an agreement—either an express meeting of minds or conduct that induced the other party to believe the money was accepted in satisfaction. The present Court concluded that the Day v. McLea decision did not assist the appellants because the facts of the present case differed, as the evidence clearly showed that the appellants had taken the second instalment as full settlement of their claim.

The second decision relied upon by the appellants was Neuchatel Asphalte Co. Ltd. v. Barnett. In that case the plaintiff company’s claim amounted to £259, but the defendant raised a minor issue that could potentially reduce the claim by £14 or £15. The defendant then issued a cheque for £125 and, in the accompanying covering letter, described the payment as being made “on account” pending a response to the plaintiff’s queries concerning the work performed. Later the defendant sent an additional cheque for £75, which the plaintiff endorsed on the back with the words “in full and final settlement of the account.” The plaintiff accepted this cheque and later sued for the remaining balance of the original claim. The court examined the correspondence and surrounding circumstances and held that there was no intention on the part of the plaintiff company to accept the £75 cheque as full and final settlement, because the inscription “in full and final settlement of the account” on the back of the cheque contradicted the primary purpose and intention of the transaction, especially in light of the earlier covering letter that indicated the payment was merely on account. This decision, like the earlier case, was based on the analysis of the parties’ intentions and the factual context surrounding the acceptance of the payment. The Court noted that the present case differed materially, as the evidence demonstrated that the appellants had expressly accepted the second instalment as full satisfaction of their claim, leaving no unresolved balance for them to pursue against the respondent.

In the earlier case the defendant had sent a cheque for one hundred twenty‑five pounds together with a covering letter stating that the sum was “on account” pending the plaintiff’s reply to outstanding queries concerning the work performed. Subsequently the defendant forwarded an additional cheque for seventy‑five pounds, on which the back was endorsed with the words “in full and final settlement of the account”. The plaintiff company accepted that cheque but later instituted suit to recover the balance of its claim. The court held that, when the correspondence and surrounding circumstances were considered, the plaintiff had no intention to accept the seventy‑five‑pound cheque as full satisfaction of the claim because the inscription “in full and final settlement of the account” conflicted with the primary purpose and intention of the transaction. Specifically, (a) the defendant’s covering letter clearly indicated that the cheque was sent only on account and not as a full and final settlement, and (b) it could not reasonably be inferred that the plaintiff had agreed to a reduction of the amount claimed. In contrast, the facts of the present case differ entirely. The appellants were explicitly informed that payment would be made only if they recorded full satisfaction of their claim; they were left with no doubt as to the condition precedent for payment. The appellants unmistakably accepted that condition and noted full satisfaction on all promissory notes. Consequently, it is untenable to argue that the appellants retained the right to sue the respondent for the balance. In Hirachand Punam Chand v. Temple (1) the father of a debtor wrote to the creditor offering a lesser amount in full settlement and enclosed a draft for that figure; the creditor cashed the draft and later sued for the remaining debt. The court held that the creditor was bound by the terms of the offer and could not maintain the action. Although that case was decided under English law and involved technicalities of accord and satisfaction not directly relevant here, it illustrates that a creditor who accepts money under specific conditions cannot thereafter claim the balance. Accordingly, the appellants must have known that they could obtain the second instalment while retaining the first only by accepting the stipulated condition that the sum of twenty lakh rupees represented full satisfaction of their claim. They accepted the money subject to that condition, and it is now impossible for them, either in fact or in law, to claim they accepted the money without accepting the condition.

The court observed that a sum of Rs 20 lacs had been offered to the appellants on the explicit basis that they would record a full satisfaction of the claim they were pursuing. The appellants duly received the money, but they did so expressly subject to the condition attached to the offer, namely the requirement to acknowledge that the claim was completely satisfied. In the present circumstance, the court held that it was not permissible for the appellants, either as a matter of fact or as a matter of law, to assert that they had accepted the monetary payment while repudiating the accompanying condition. Accordingly, the court was satisfied that the appellate tribunal had correctly applied the law in reaching its conclusion. On that basis, the court concluded that the present appeal could not succeed. The appeal was therefore dismissed and the appellants were ordered to bear the costs of the proceeding. The dismissal of the appeal was confirmed.