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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, 504 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 505 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 65 506 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. 507 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. 508 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.