RAMA SHAH Vs. LAL CHAND

JUDGEMENT

(1.) This appeal raises questions as to the true construction and effect of S. 20, Limitation Act (9 of 1908) as amended by the Limitation Amendment Act (1 of 1927). Conflicting decisions in India have made it desirable that their Lordships should construe the Section, and as in the present case the High Court has differed from the trial Court on the facts, the evidence must be examined. The plaintiff appellant Rama Shah is described as a banker and carries on a business at Jhelum which includes the lending of money. The defendant Lal Chand is a timber merchant of the same town who on various occasions between 17 October 1929, and 17 July 1931, took a loan from the plaintiff, giving to him a promissory note for the amount of the loan with interest at twelve percent. per annum. Two small loans not covered by promissory notes were alleged by the plaintiff to have been made and were disputed by the defendant, but five promissory notes are admitted by the defendant and a number of substantial payments are admitted by the plaintiff to have been received in respect of them. There has, however, been considerable dispute between the parties as to the proper allocation of the payments to promissory notes. In the result, when the plaintiff on 24 January 1936, brought in the Court of the Subordinate Judge at Jhelum the suit out of which this appeal arises, he brought it as a suit for the balance due upon a promissory note for Rs.18,500 dated 4 February 1930. He claimed that the amount outstanding for principal and interest was Rs.11,463. The learned Subordinate Judge was satisfied as to the correctness of this figure but the High Court having reduced it to Rupees 10,334-9-3 the plaintiff by his counsel has accepted the lower figure as the sum to be decreed if it be held that his suit succeeds.

(2.) The promissory note of 4 February 1930, being expressed to be payable on demand the period of limitation for a suit on the note was three years from its date (Art. 73) so that the plaintiff's suit of 24th January 1936, was prima facie barred. There was an endorsement, however, on the note in the writing of the defendant dated 24 January 1933, signed by him: "Paid Rs. 100 to-day in this pro-note. (sgd.) Lal Chand Bahri, 24 January 1933." This date was within the period of three years from the date of the note but only by a few days, and the probable object of the endorsement is reasonably plain. The defendant admitted that he had made the endorsement on 24 January 1933, but denied that any money passed. Both Courts in India have disbelieved him on this point and it is not now disputed that the sum of Rs. 100 was paid as the endorsement states. The proviso at the end of sub-s. 1 of S. 20, Limitation Act of 1908, was the subject of amendment made by Act 1 of 1927 and the amended sub-section stands as follows: 20-(1) Where interest on a debt or legacy is, before the expiration of the prescribed period, paid as such by the person liable to pay the debt or legacy, or by his agent duly authorized in this behalf or where part of the principal of a debt is, before the expiration of the prescribed period, paid by the debtor or by his agent duly authorized in this behalf, a fresh period of limitation shall be computed from the time when the payment was made : Provided that, save in the case of a payment of interest made before 1 day of January 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment Before 1927 the proviso read : Provided that in the case of part payment of the principal of a debt, the fact of the payment appears in the handwriting of the person making the same.

(3.) There is no room for the contention that the sum of Rs. 100 exceeded the amount of principal or of interest outstanding in respect of the note at the date of the payment so that part of it at least must of necessity have been intended to go towards interest or towards principal. Applying the amended sub-section to the present case, the learned Subordinate Judge found on the evidence that the payment of Rs. 100 on 24 January 1933, was immediately appropriated by the plaintiff towards the principal of the debt, and was a part payment of principal from which a fresh period of limitation began to run. He accordingly gave judgment for the plaintiff (9 June 1936). On appeal, the High Court at Lahore (Dalip Singh and Skemp JJ.) held that the sum of Rs. 100 was never ap00propriated by the debtor or by the creditor either to interest or to part- payment of principal until the date of suit (24 January 1936), or at earliest until 18 December, 1935-that is, until long after three years had elapsed from the date of the note. On this view of the facts the High Court, by the decree (14 April 1937) now under appeal, dismissed the suit as time-barred, being of opinion that a payment made generally on account of an interest-bearing debt becomes a payment towards the principal only by appropriation thereto and must (in order to have the effect of preventing limitation) be appropriated before the period of limitation has expired. In so holding the learned Judges followed a decision of the High Court at Allahabad in 58 All 261, 1a Full Bench case, in which two of the five members of the Full Bench had dissented. It appears that some dissent has since been expressed in the High Court at Patna 16 Pat 27 2and 16 Pat 294. 31938 RLR 591 4is also inconsistent with the Full Bench decision. A recent case Civil Revn. No. 559 of 1938 5before the Lahore High Court in revision under S.25, Provincial Small Cause Courts Act (9 of 1887), was referred by Tek Chand J. to a Division Bench by an order dated 9 June 1939, which has been laid before the Board. In this order the different views taken by High Courts in India as to the correctness of 58 All 2691 have been usefully set out, and it would appear that in some respects that decision is not consistent with certain previous decisions, and that the decision of the Lahore High Court now under appeal has not since been uniformly followed in that Court. It will be convenient that their Lordships should state their opinion as to the effect of S. 20 in a case where the debtor has made a payment on account of an interest-bearing debt without appropriating the sum paid either towards interest or principal, and where the creditor has made no appropriation until after the expiry of the period of limitation. The view taken by the dissenting Judges in 58 All 2611 is that as the debtor in making the payment must have meant it to go either towards interest or principal, a fresh period of limitation must always begin to run if the requirement as to writing is satisfied. This view has in one or other of the cases upon the subject been defended both by regarding the words "as such" retained in the amending Section, as nugatory; and also by contending that if the payment was not intended by the debtor as a payment of interest he must have intended it as a payment on account of principal, and that in any case it was a part-payment of principal, even if not of principal as such. On the other hand the view taken by Sulaiman C. J. in 58 All 261 1was that where no appropriation is made by the debtor the creditor may appropriate: if he appropriates the payment towards interest it becomes a payment of interest though not paid by the debtor as such: if he appropriates it towards principal it becomes a part-payment of principal and saves limitation none the less that it was not paid as such. The learned Chief Justice rejected the doctrine that the debtor's payment must be either a payment of interest as such or a part payment of principal.