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Judgment
Dixit, J.—This is an appeal by the Plaintiffs from a decision of the Civil Judge First. Class Shivpuri, dismissing the Plaintiff''s suit for the recovery of Rs. 5225/8/- due on the basis of adjustment of accounts signed by the Defendants. The suit was dismissed on the ground that there had been a novation of the contract sued upon and that the suit, was, therefore, not maintainable.
The Plaintiffs case was that after adjusting the accounts of mutual dealings between the parties, the Defendants signed the Plaintiff''s'' ledger on 20-10-1933 acknowledging a sum of Rs. 5697/8/- as due from them; that thereafter the Defendants paid Rs. 36/11/9 on 9th February 1934 and Rs. 250/- on 6th March 1934; that by documents dated 15-3-1934, 18-3-1934, 27-3-1934 and 2-4-1934 the Defendants undertook to repay the Plaintiff''s amount by the sale of certain properties specified in the document dated 15-3-1934; that on 9-4-1934 the Defendants credited to their account Rs. 1208/7/ being the proceeds of some property and that there after the Defendants did not pay any amount to the Plaintiffs and hence the suit.
The Plaintiffs claiming that on the, date of the suit the amount due to them came to Rs. 7181/8/-limited their claim to Rs. 5225/8/- only.
The Defendants admitted that they signed the Plaintiffs'' account books and acknowledged a sum of Rs. 5697/8/- as due. They contested the suit pleading that the accounts were not explained to them when their signatures were obtained on the Plaintiffs'' account books; that no suit could be based merely on tin acknowledgment of die debt; and that even if the acknowledgment could form the basis of a suit, the Plaintiff''s suit did riot lie as their liability for the debt in respect of which die acknowledgment was given had been superseded by a subsequent agreement.
According to them there was an agreement Ex. D.1 of 15-3-1934 by which it was settled that die present Plaintiffs and other creditors of the Defendants would in satisfaction of their debts accept and sell the movable and immovable properties mentioned in Ex. D. 1 and distribute amongst themselves pro rata the proceeds of the sale, and die debts including the Plaintiffs'' debt were discharged: that in pursuance of tins agreement the Plaintiffs took possession of the property and obtained from the Defendants the title deeds of the immovable properties; that a part of this property was sold and the Plaintiffs received Rs. 1208/7/- in rate able distribution out of the proceeds of sale of same Katha; and that on 2-4-1934 there was yet Anr. agreement to the same effect extinguishing the Defendants'' liability under the acknowledgment.
The Court below rejected the plea of the Defendants that the accounts were not explained to them and that no suit could be based merely on an acknowledgment of debt. Their plea that subsequent to the acknowledgment, there was a, complete contract extinguishing the old contract and bringing into existence a new one was, however, accepted by the learned Civil Judge with the result that the Plaintiffs'' suit based on the acknowledgment was dismissed.
In this appeal the main controversy centres round the nature of the documents Ex. D. 1 dated 15-3-1934, Ex. D. 2 dated 18-3-1934, Ex. 4 dated 2-4-1934 and a document bearing the date 27-3-1934 on which the Defendants rested their plea of novation.
It is necessary and convenient to refer to these documents at the outset. Ex. D. 1 came into existence on 15-3-1934. It was signed by the Defendants the Plaintiffs and other creditors of the Defendants. The signatories stated in the document that
ge uhps nLr[kr djus okyksas dk #i;k HkkbZ xksihykyth cUlh/kjth fpajksthykyth dh rjQ gS mlds isVs tks fyLV eky o edku dh gS mldks QjksDr djds fgLlsjlnh ls ckV yh tk;xh mlesa fdlh dh mtj u djsaxs - - - -
The document then, proceeded to specify certain movable and immovable property of the Defendants, by Ex. D. 2 dated 18-3-1934 the Plaintiffs and other creditors agreed to the sale of the Defendants'' share in a house and some cloth belonging to them, in favour of Khubchand for Rs. 2750/-. Ex. D. 3 dated 21-3-1934 contains a record of the bids that were received when some of the properties mentioned in Ex. D. 1 were put to sale.
On 27-3-1934 the Defendants, the Plaintiffs and other creditors of the Defendants put their signatures to a document which stated that in accordance with the condition of settlement dated 15-3-1934 the proceeds of the sale of the properties mentioned in that settlement would be ratably distributed amongst die creditors and receipts discharging the debts would be given and that a sum of Rs. 800/- and a sum of Rs. 300/- that would be shown in the receipts as balance due to Todarmal and Ramkishan respectively would be paid to them in instalments and with interest as indicated in the document.
On 2-4-1934 the parties and other creditors of the Defendants put their signatures to a document Ex. D. 4 Which stated that the creditors would on that date get the Katha mentioned in Ex. D.1 weighed and distributed amongst themselves pro rata according to its value and that the remaining property would be sold the next day and similarly distributed, and that discharge receipt would be given and further that the property mentioned in the document dated 15-3-1934 Ex. D.1 shall be regarded as the property of five creditors signing the document Ex. D. 4 and of two Banks who were also the document Ex.D.4 and of two Banks who were also the creditors of the Defendants. The document Ex.D.4 is as follows:
Jh xkikhykyth caU''kh/kjth fpjksathykyth us tks dRFkk o edkukr cStx iRFkj oxSjk ftldh fyLV rk- 15 & 3 & 34 cuh gS mlesa dk dF;k vkt rqykdj ikaph tuS fgLls jlnh #i;ksa dh rknkn ij dj ysxsa ckdh edkukr lkeku cxSjk dh dy ckjg cts nqckjk QjksDr djds mldh Hkh rDlheh jde ds ekQd djnh tkosxh blesa pwdrh jlhn nsnh tkosaxh vkSj rk- 15 & 3 & 34 dh fyLV dh ekfy;r nksukssa cSad bu ikapks lkgckas dh le>h tkosxh vykok bu lkgcksa ds vkSj dksbZ lDl nkoknkj bu ml fyLV ds ugha gksxk vkSj dksbZ gksxk rks mldk tqEesnkj ca''kh/kj th gksxk A
Ex. D4 by necessary implication replaced the document of 27-3-1934. Ex. D.5 dated 5-4-1934 embodies the proceeding of the distribution of Katha amongst the creditors.
On these document the question which arises for decision is whether there was anything between the parties which had the effect bringing into existence a new contract and extinguishing the Defendants liability under the old contract to pay the amount acknowledge by them.
Mr. Bhagwandas Gupta learned Counsel for the Appellants contended that the documents referred to above did not establish the fact that there was an agreement between the parties to substitute a new contract or that the agreement was supported by consideration ; that the documents fell within the (sic)uryiew of Section 63 of the Contract Act and (sic)nerely showed that the Plaintiff had only proposed to take less than what was due and to give a receipt discharging the Defendants from their liability on the condition of the Defendants delivering their property was sold and the proceeds distributed amongst the creditors; that the proposal was not given effect to, as the Defendants failed to deliver all the properties and the Plaintiffs also did not pass any receipt discharging the Defendants from their liability to pay the debt acknowledge by them continued to subsist.
It was further said that the documents relied upon by the Defendants in order to operate as a composition deed required registration, and as they were not registered they were inadmissible in evidence. Learned Counsel for the Appellants also raised the contention, which he was unable to support by any authority, and which has only to stated to be rejected here, that the liability of a debtor to pay his debt does not rest in contract.
In reply Mr. Mungre urged that the documents Ex. D. 1 to Ex. D. 5 conclusively establish that the Plaintiffs and other creditors agreed re(sic) the property mentioned in Ex. D. 1 ''as'' satisfaction of their debts and to distribute the proceeds the sale of the properly pro rata amongst themselves; that as a result of this novated contract, the Plaintiffs debt was wiped out and all that they could have claimed was die specific performance of the new agreement.
He also argued that for this agreement there was ample consideration to each creditor, namely, the undertaking by other compromising. creditors to give up apart of their claim, and again the transfer of the Defendants'' property to the Plaintiffs and other creditors for the satisfaction of their debts which they would not have otherwise got, was in itself good and a valuable consideration; and that Section 63 of the Contract Act was not relevant here.
It was said that there was accord between the parties when they agreed to satisfy the debt by receiving the Defendants'' property and having it sold and there was satisfaction inasmuch as the promise to give the property or allow it to be sold accepted. It was pointed out that u/s 9(2)(a) Gwalior Registration Act Samvat 1971 (in force when the deeds were executed) corresponding to Section 17(2)(i) of the Indian Registration Act, a composition deed did not require any registration.
Relying on -''Teoomal Rochaldas v. Dharamdas'' AIR 1929 Sind 49 (A) and - ''Syed Ahmad v. Ramgopal AIR 1939 Nag 224 (B), Mr. Mungre said that Ex. D. 1 and Ex. D. 4 contained a composition between the Defendants and their creditors which operated as satisfaction and that, therefore, the Plaintiffs were precluded from falling back on the original liability.
We were referred to several cases by the learned Counsel appearing in the case upon the scope of Sections 62 and 63 of the Contract Act. Learned Counsel for the Appellant look a good part of the day in reading out to us several passages from Chitty ''On Contracts''. I do not think it necessary to examine in detail all the cases cited, as I am of opinion that the principles of law applicable here are well settled. The real difficulty is the application of the principles, which is a question of fact.
The question whether the parties intended to substitute a new contract for the old one is a question of fact in each case depending for its decision on the circumstances of the case. Now Section 62, Contract Act speaks of the substitution of a new contract and says that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
It is plain from this section that in a novation there must be immediate and present substitution of Anr. contract, and there is no true novation, if the liability under the original contract is not extinguished by the new contract and if there is reversion to the old contract. An agreement u/s 62 necessarily implies consideration. Novation itself constitutes a good consideration for a fresh promises. (See - AIR 1943 147 (Privy Council) . For there is a release from an existing obligation and this is unquestionably a good consideration for a promise to undertake a fresh obligation.
Section 63, Contract Act makes a wide departure, from the English Law inasmuch as it does not refer to any agreement and valuable consideration. It simply declares that every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.
The old contract subsists when the promisee acts in any one of the four ways mentioned in Section 63. But from this it does not follow, as the learned Counsel for the Appellant seemed to think, that aj contract for the repayment of a debt can never be discharged or substituted by a new contract which involves the payment of a reduced amount to the credit in a specified manner, illustration (b) to Section 63 clearly indicates that such a new contract extinguishes the old debt.
The distinguish between Section 62 and Section 63, is that whereas u/s 62 the original obligation is wiped cut b the act of both parties, namely, by the creation of a new contract, u/s 63 the act of the promisee by itself does not extinguish the contract. What Section 63 does, is to enable the Defendant in a suit filed by the promisee, dispensing or remitting performances or accepting satisfaction and subsequently trying to enforce the promise made to him, to pelad that he was relieved performimg that which the Plaintiff told he need not do.
As to "accord and satisfaction" that statement in Haisbury''s Laws of England (Lord simonds Edition 1954) at pp. 207 and 208 is as follows:
An accord without satisfaction has no legal effect in discharging the debt. The original cause of action is not discharged so long as the satisfaction agreed upon remains wholly or partly executory, but the consideration on each side may be an executory promise, the two mutual promises making an enforceable agreement. A mere tender of performance of the consideration is not sufficient.
If, however, it can bee shown that what the creditor accepted in satisfaction was the debtor''s promise, and not the performance of that promise, the original cause of action is discharged from the time when the promise was made.
An accord is not a contract, and performance of it cannot be enforced by action against the debtor, who remains liable on the original cause of action until the satisfaction has been executed; but a compromise of a disputed cause of action, by which the creditors agrees not to sue the debtor, may amount to an which is binding on both parties, and in that case it is enforceable by action.
In the same way, although an agreement by which a creditors accepts part of his debt in satisfaction of the whole is not a discharge of his right of creditors are made parties to the agree to accept a composition for their claims, this is not a mere accord, but a binding contract, the consideration for each creditor''s promise being the undertaking by the other creditors to forego part of their claims.
On the question of the operation of a contract between a debtor and his creditor that the debtor should sell and the creditor should accept any property in satisfaction of the debt, reference may usefully be made to the decision of the Madras'' High Court in - ''Krishnaswami Rao v. Srinivasa Desikan AIR 1937 Mad 261 (D).
In that case it was pointed out that such a contract may operate in one of three ways, namely,
(1) the contract by itself may operate as an absolute discharge of the debt, giving the creditor thereafter only the remedy by way of specific performance of the contract, or
(2) it may operate only as a conditional discharge of the debt giving the creditor, in case of the debtor''s default, a right to claim cither performance of the contract or, if he elects to put an end to it, the payment of the debt or
(3) the contract may be an independent transaction in the souse that it does not affect the rights of the creditors or the obligations of the debtor till the sale is actually completed. In which of these ways the contract: is to have operation will depend upon the intention of the parties to be gathered, in the absence of any express stipulation, from their conduct and the surrounding circumstances in the particular case.
These principles were applied in - Ellappa Naicker and Others Vs. Sivasubramania Maniagaran, and - Kruttiventi Mallikharjuna Rao and Others Vs. Vemuri Pardhasaradhirao and Another, .
It is in the light of these principles that the question whether the parties substituted a new contract superseding the Defendants'' obligation to pay the amount acknowledged by them as due, has to be determined. The Plaintiffs'' cause of action is the promise, express or implied, of the payment to them of the amount acknowledged by the Defendants. Is this promise still operative? I am of opinion it is not.
Looking at the documents Ex. D. 1 and Ex. D. 4, it is plain that the parties agreed that the Plaintiffs and, other creditors of the Defendants would receive the properties mentioned in Ex. D. 1 satisfaction of .their debts; that they would have the properties sold, and the proceeds thereof distributed pro rata amongst themselves; that they would be treated as owners of the said properties; and that they would give receipts of discharge. Ex. D. 2, Ex. D. 3 and Ex. D. 5 show that some of these properties were sold and their proceeds distributed by die creditors amongst themselves.
It is also in evidence that the creditors took steps for obtaining the possession of the properties specified in Ex. D. 1 and for their sale. No doubt Ex. D. 1 and Ex. D. 4 do not, in so many worth, say that the Defendants shall give or hand over this property to die creditors. But, in my judgment, when they agreed that the creditors shall, ''as'' satisfaction of their debts have the properties sold, the necessary implication was that the Defendants would give to the creditors the property for sale or allow it to be sold.
Mr. Bhagwandas Gupta learned Counsel for the Appellants claimed that Ex. D. 1 and Ex. D. 4 did not operate as an absolute discharge of the Defendants original obligation; that the extinguishment of the Defendants liability to pay the amount acknowledged by them was to take place only when the properties detailed in Ex. D. 1 were actually handed over to the Plaintiffs and other creditors, sold by them and the proceeds thereof distributed by die creditors amongst themselves, and only when thereafter receipts of discharge were passed by the creditors.
I do not agree. The creditor-signatories to Ex. D. 1 stated in that document that "in exchange of" or "in lieu of" the amount due from the Defendants they would have the property mentioned therein sold and the proceeds distributed pro rata amongst themselves. The words that is to say ''in exchange of'' or ''in lieu of'' are strong evidence that the parties intended to wipe out the debts owed by the Defendants as such ones, for all and to substitute for diem the new obligation set out in die document.
This conclusion is strengthened by Ex. D. 4 dated 2-4-1934 which after reiterating the intention of the creditors to sell the properties mentioned in Ex. D. 1, to have the proceeds distributed amongst themselves and to give receipts of discharge, proceeded to state that the creditors including two Banks shall be deemed to be the owners of the said properties.
If, as Ex. D. 4 shows, the debtors treated the creditors as owners of the property, it is a fair inference that the parties intended that on the mere execution of Ex. D. 4 the liability to pay the debts would come to an end. It would be against reasons to hold that they intended to keep the debts alive even after the declaration that the creditors were the owners of the property.
It would, therefore, appear that the creditors had agreed to take satisfaction of their debts not by the actual giving over of the property to them or its sale and the distribution of the proceeds thereof, but merely by the Defendants promise to give the property for sole or allow it to be sold. What was accepted in satisfaction was the Defendants promise and not the performance by them of that promise.
The agreement represented by the document Ex. D. 1 and Ex. D. 4 was, therefore,. a complete bargain and not merely a provisional arrangement and the Defendants'' liability for the original debts teased merely by reason of the agreement reached between the parties and contained in Ex. D. 1 and D. 4. It''s extinguishment did not depend on the performance by the Defendants of the promise to give the property to the creditors for sale or allow it to be sold. Nor did it depend, on the passing of receipts of discharge by the creditors. The giving of the receipts was not a condition precedent to the discharge of the debts, it was merely a formal act -a mere expression of the desire of the parties as to the manner and shape in which the discharge already agreed to will be put.
Of the cases relied upon by the learned Counsel for the Appellants, the decision in - T.K. Shanmugasundara Mudaliar Vs. S.C. Sivalinga Mudaliar and Another, , does not seem In mo to be of .airy assistance to the Appellants. All that was held in that case was that a remission ''in praesenti'' which is suspended until a certain future event occurs is Valid, but in agreement to remit in ''futuro'' requires consideration, if it is to be a binding contract. The other case cited namely, Babulal Marwari and Others Vs. Tulsi Singh and Others, is distinguishable on facts, that case the Defendant executed a registered hand note in favour of the Plaintiffs for ascertain promising to repay the amount with interest. Subsequently on an adjustment of accounts it was found that a sum of Rs. 13300/- was due from the Defendant.
The parties then agreed to substitute for this liability a new contract under which the Defendant was required to pay its. 500/- cash, down on a certain date and to execute on that very date a mortgage bond for the balance. The amount of Rs. 500/ - was never paid by the Defendant and the did not by words or conduct accept the as a mortgagee.
In these circumstances it was hold by the Patna High Court that there was no novation and the Plaintiff could fall back on the original contract. It will be seen that in the Patna case the Plaintiff did not accept the naked promise to pay Rs. 500/- and to give a mortgage bond ''as'' satisfaction of his debt. The satisfaction was to be by the performance of he promise. On this distinction has no application to the present case.
Learned Counsel for the Appellant also suggested that the provisions of Section 62, Contract Act, do not apply after there has been a breach of the original contract. No doubt in - ''Monohar Thayal v. Thakurdas Naskar'' 15 Cal 319 (I) and other cases it has been held that Section 62 does not apply where the agreement to substitute a new contract is made after the broach of the original contract.
It is not necessary for me to consider whether the ''view taken in those eases is correct or whether the expression "parties to a contract" used in Section 62 Ordinarily signifies parties to an existing Contract rather than parties to a contract that has already been discharged by breach. For, it seems me difficult to maintain that the mere failure to pay an outstanding debt on demand prevents the contract of repayment of the debt being substituted by a new contract.
In ''Brijmohan v. Mohabeer'' 63 Cal 194 (J) Panckridge J., while observing that there was something to be said for the view, taken in 15 Calcutta 319 (I), found some difficulty in "applying this principle to a debt. He said it would be strange if the mere failure to pay an outstanding debt on demand were to take the case out of the scope of Section 62. It must also be noted that, here, while acknowledging the amount due from them, the Defendants did not specify the time within which they would pay the amount to the Plaintiffs and there is no evidence to indicate that the Plaintiffs prior to the execution of the documents Ex. D. 1 to Ex. D. 5 demanded payment of their debts but failed to obtain it.
The agreement embodied in Ex. D. 1 and Ex. D. 4, as was rightly pointed out by the learned Counsel for the Respondent, was a composition between the Defendants and their creditors including the Plaintiffs and was fully supported by consideration. The consideration was the mutual agreement of the creditors to forego parts of their claims and the specification of certain properties belonging to the Defendants for the satisfaction of debts which the creditors would not have otherwise got. The composition was not a mere accord but a binding contract. The Plaintiffs, who were parties to the composition, cannot, therefore be permitted to re-sile from it and to sue the Defendants for the recovery of the debt. (See - AIR 1929 Sind 49 (A)).
If the Defendants had failed to carry out agreement by handing over their property to the creditors, the Plaintiffs should have filed a suit against them for enforcing the novated agreement, joining the other creditors as co-Plaintiffs. That a composition deed does not require registration is clear enough from Section 9(2)(a), Gwalior Registration Act Samvat 1971 corresponding to Section 17(2)(i), Indian Registration Act.
But Mr. Bhagwandas Gupta learned Counsel for the Appellant relying on - AIR 1945 74 (Privy Council) sought to argue that an unregistered composition deed was ineffective. The Privy Council case in no way supports the Appellants contention. The question decided by the Privy Council was whether Section 17(2)(i), Indian Registration Act would prevail if a composition deed creating a trust required registration u/s 5, Trusts Act.
It was held that Section 17(2)(i), Registration Act did not mean that if a document required registration under any other enactment, e.g. Trusts Act, Section 5, the exemption contained in Clause 2 would prevail against that other enactment, and that as u/s 5, Trusts Act, a document creating a trust required registration, therefore, a composition deed operating as a trust deed also required to be registered and if not registered was in effective. In the instant case I cannot find anything in the documents Ex. D. 1 and Ex. D. 4 to justify die conclusion that a trust was intended. The Privy Council decision is, therefore, not in point here.
In my judgment on the execution of Ex. D. 1 and Ex. D. 4.tlie Defendants'' liability to pay the amount acknowledged by them was wiped out and substituted by a new contract and the Plaintiffs could not, therefore, sue on the original obligation. Their remedy was to compel the performance of the novated agreement.
Relying on - Srinivas Ram Kumar Vs. Mahabir Prasad and Others, ; - Kidar Lall Seal and Another Vs. Hari Lall Seal, and AIR 1943 147 (Privy Council) , Mr. Bhagwandas Gupta then urged that though the Plaintiffs had not sued on the basis of the novated agreement and had not claimed any specific relief on that basis, yet as the Defendants themselves had in answer to the Plaintiffs'' claim, pleaded the novated agree as a Las to the Plaintiffs'' suit ,on the original obligation and as the Plaintiffs had made a general prayer for such relief as they may be found entitled to, a decree for the specific performance of the novated agreement should be passed in the case.
In my opinion the Plaintiff''s-Appellants cannot be granted in the present case it decree for the specific performance of the novated agreement. It must be noted that in the present case on 12.12.1916 the Plaintiffs sought to amend the plaint so as to base it alternatively on the novated agreement after adding other creditors as Defendants to the suit. This amendment was allowed by the trial Court . But when the matter came up before this Court it was held by Full Benchin '' Ramjidas v. Todarmal,'' Madh-BLR 1949 Civil 328 (FB)(N) that the Plaintiffs could not be allowed to amend the plaint as the amendment sought had the effect of a(sic )ing the complexion of the case completely and of depriving the Defendants of the valuable right vested in them, marely, the defence that the Plaintiffs new laim was barred by limitation.
The amendment having been disallowed, it is, clearly now, not opens to the Appellant to say that on the suit as framed, they are to a decree for the specific performance of the novated agreement. The cases cited by the learned Counsel for the Appellant nowhere lay down that it is open to a Court to grant relief to the Plaintiff on a different cause of action and on a plea for which there was no foundation in the pleadings even though the Plaintiff had been refused permission to add the plea by amending his plaint and even if the Plaintiff''s claim on the plea had become barred by time and the necessary parties had not been impleaded in the suit.
For the above reasons I am of the opinion that the Appellants'' suit was rightly dismissed by the trial Court and that this appeal must ho dismissed with costs.
Shinde, C.J.
I agree.