Kapur Chand Godha Vs. Mir Nawab
Himayatalikhan Azamjah  INSC 139 (12 April 1962)
12/04/1962 DAS, S.K.
CITATION: 1963 AIR 250 1963 SCR (2) 168
Contract--Province accepting performance from
third person in full satisfaction of claim--If can sue promisor for
balance--Indian Contract Act, 1872 (9 of 1872), ss. 41, 63, illustration (c).
In January 1937 one M & Co. sold and
delivered jewellery valued at about 13 lakhs to the respondent Prince of Berar.
The Prince acknowledged in writing the
purchase of the jewellery and the price thereof and passed various
acknowledgments in respect of the debts due and the last of such
acknowledgments was made for sum of Rs. 27,79,000. In April 1948, the appellants
presented their bill and were informed in January, 1949, that the Nizam had
passed the bill. In February, 1949, when Hyderabad was under military
occupation, a Committee was set up by the Military Governor to scrutinise all
debts of the Prince of Berar and his younger brother. The claim of the
appellants was considered by the Committee which recommended that the
appellants should be paid a sum of Rs. 20 lakhs in full satisfaction of their
claim. The appellants were paid the sum of Rs. 20 lakhs in two installments.
The appellants tried to pass a receipt when they received the second installment
reserving their right to recover the balance under the pronote from the 169
Prince of Berar. The relevant authorities refused to make payment on the said
receipt. Thereupon the appellants discharged all the previous promotes and on
each one of them recorded a satisfaction of the full amount. The appellants
thereafter sued the respondent for the recovery of the balance of the monies
due to them on the promote. The trial court decreed the suit on the ground that
there was no accord and satisfaction when the plaintiff received the second
cheque from the Accountant General, Hyderabad. In appeal by the respondent the
Appellate Court set aside the decree holding that the appellants had accepted
the sum of Rs. 20 lakhs in full satisfaction of their claim and duly discharged
the promisory notes by endorsing full satisfaction thereon.
The appellants came up to the Supreme Court
in appeal by certificate granted by the High Court.
Held, that when payment is accepted on the
condition on which it is offered, it is not open to the person receiving the
payment to say, either in fact or in law, that they have accepted the money but
not the condition.
A promisee accepting performance of the
promise from a third person, cannot afterwards enforce it against the promiser.
In the present case the appellants had given
a full discharge when they received the second installment; and as they
accepted the money in full satisfaction of their claim, they were not entitled
to sue the respondent for the balance.
Obiter : When a statute clearly covers the
case it is hardly necessary to refer to a decision.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 52 of 60.
Appeal from the judgment and decree dated
April 15, 1958, of the Bombay High Court in Appeal' No. 25 of 1957.
B. R. L. lyengar, for the appellants.
M. C. Setalvad, Attorney General of India, S.
R. Vakil, K. H. Bhabha, J. B. Dadachanji, O. C. Mathur and Ravindra Narain, for
the respondent, 170 1962. April 12. The Judgment of the Court was delivered by
S. K. DAS, J.-This is an appeal on a certificate granted by the High Court of
Bombay under s. 110 of the Code of Civil Procedure, and arises put of a suit
which the appellants had brought for recovery of Rs. 9,99,940/with interest and
cost from Mir Nawab Himayatalikban Azamjah, who was then known as the Prince of
Berar, being the eldest son of the Nizam of Hyderabad. The circumstances in
which the appeal has arisen are these.
On or about January 31, 1937 Baboo Mull and
Co. sold and delivered to the Prince of Berar in Bombay various articles of
jewellery the aggregate value of which was Rs. 13,20,750/-. Lala Kapurchand
Godha, who was the first plaintiff in the action and Lala Heeralal Godha, the
original second plaintiff, carried on business in jewellery in partnership with
their father and one Lala Baboo Mull (since deceased) in the name and style of
Baboo Mull and Co. It is not disputed that the appellants now before us own the
entire interest in the Subject matter of the suit and instead of using the name
of Baboo Mull and Co. we shall same the appellants as the persons who sold the
jewellery to the Prince of Berar on January 31, 1937. A writing dated January
31, 1937 was executed by the Prince Of Berar, respondent before us, by which be
declared and acknowledged having purchased the jewellery specified in a
schedule from the' appellants at the aggregate price of Rs. 13,20,750/-.
In that writing (Ex. A) the respondent
"I promise on behalf of myself and my
heirs, executors, administrators and successors to pay to you or to your order
at my option and leisure at your abovementioned 171 address the said sum of
rupees thirteen lacs twenty thousand seven hundred and fifty only together with
simple interest thereon @ 10% ten per cent. per annum. " It is not
disputed that the jewellery was in fact delivered by the appellants to the
respondent, and after January 31, 1937 the respondent passed various
acknowledgements in respect of the debt due at the time of the passing of the
respective acknowledgments. These documents consisted of an acknowledgement of
liability and a promise to pay on behalf of the respondent and the last of such
acknowledgments was passed on February 15/16, 1948. By that time the debt of
Rs.13,20, 750/-with ten per cent. interest thereon had inoreased to about
Rs.27,79,000/-. By that last document the respondent admitted his liability for
the amount of Rs.
27,79,078-2-0 and promised to pay the amount,
again at his option and leisure. On April 30, 1948, the appellants presented
their bill and sometime in January, 1949, one of the appellants had an
interview with the respondent and was told that the Nizam had passed the bill.
In 1949 when Hyderabad was under military occupation after the Police Action, a
Committee was set up on February 8, 1949, by the Military Governor known as the
Princes Debts Settlement Committee. The report of this Committee shows that it
was set up in accordance with a resolution made by the Military Governor in
order to scrutinize all debts of the Prince of Berar and his younger brother.
On February 19, 1949, the appellants presented a petition to the Military
Governor with regard to their claim and asked for payment of the amount due to
them or in the at ternative for the return of the jewellery. The claim of the
appellants was considered by the Committee in para 11 of their report. The
Committee recommended that the appellants should 172 be paid a sum of Rs. 20
lacs in full satisfaction of their claim. The Committee further stated that
they did not recommend the return of the jewellery. It may be here stated that
the Committee consisted of two persons, namely, Zaheruddin Ahmed, who was the
Controller of Accounts to the Nizam and A. N. Shah, a member of the Indian
It may also be stated that the report of the
Committee shows that it made a reduction of about ten per cent. In the case of
all suppliers of goods to the two Princes because the Committee thought that in
most of the cases the suppliers inflated the price for the supply of goods to
the two Princes. The Committee also thought that the reasonable rate of
interest would be six per cent. in the case of creditors who had to wait for a
number of years for payment of their dues. On September 27, 1949, a sum of Rs.1
1,25,000/-was paid to the appellants. At that time there was a dispute going on
as to whether the appellants were entitled to the entire amount of Rs.20 lacs
or to only 9/16th share there. of. That dispute having been finally settled in
favour of the appellant-, the appellants received a second payment of
Rs.8,75,000/on February 14, 1950.
This amount along with the earlier amount
paid to the appellants came to the total of Rs.20 lacs. which the Committee had
recommended should be paid to the appellants in full satisfaction of their
claim. On February 14, 1950, a receipt was passed by the appellants for the sum
of Rs.8,75,000/(Ex. C) and this receipt ran in the following terms:
"Received from the Controller General of
Accounts and Audit, Hyderabad Government, the sum of Rs.8,75,000/(Rupees eight
lacs and seventy-five thousand) only in full and final payment of the balance
of rupees twenty lacs allowed by the Government in respect of my claims under
the pronote dated 15 February 1948 passed by the Prince 173 of Berar in my
fovour, reserving however my right to recover the balance amount due to me
under the said pronote from the Prince of Berar." The relevant authorities
refused, however, to make payment on the receipt Ex. C in which the appellants
reserved their right to recover the balance amount due from the Prince of
Berar. Thereupon, the appellants discharged all the previous promotes and on
each one of them recorded a satisfaction of full payment. We may refer to the last
of them, namely, the one dated February 15/16, 1948. This was for a sum of
Rs.27,79,078-2-0 and on this document Kapurch and Godha, one of the appellants
recorded "received payment in full".
Then, on August 14, 1950, the appellants
served through their solicitors a notice on the respondent asking him to make
payment of the balance of Rs.9,99,940/with interest at ten per cent. The
respondent not having paid the amount a suit was instituted on February 5,
1951, in the High Court of Bombay for recovery of the amount.
The suit was tried by Coyajee, J. The
principal issue for trial was issue No. 6, namely, whether the appellants had
accepted payment of Rs. 20 lacs in full satisfaction of their claim against the
respondent and surrendered all the writings duly discharged and there was
absolute release of the debt as stated in paras. 7, 8 and 11 of the writtenstatement.
On a consideration of the oral and documentary evidence given in the case and
relying particularly on Ex. C, Coyajee, J. came to the conclusion that the
appellants did not take the sum of Rs. 20 lacs in full satisfaction of their
claim. The learned Judge said "Ordinarily, a plaintiff would have been in
a most difficult and unenviable position to 174 enforce this claim after having
endorsed those documents namely Ex. No. 1 as payment in full satisfaction. But
evidently "payment in full satisfaction" there meant full
satisfaction as regards the liability of the Hyderabad State and that would
naturally be the meaning if taken in conjunction with Ex. C where, he reserved
liberty to proceed personally against the Prince of Berar. I have therefore
come to the conclusion on the main issue in the suit namely, that there was no
accord and satisfaction when the plaintiff received the second cheque from the
Accountant-General of Hyderabad State." Then there was an appeal by the
respondent which was heard by the appellate court (Chagla, C. J. and Mody, J.)
By its judgment dated April 15,1958, the appellate court came to a contrary
conclusion and held that on the evidence, oral and documentary, given in the
case it was clearly established that the appellants accepted the sum of Rs. 20
lacs in full satisfaction of their claim and duly discharged the promissory
notes by endorsing full satisfaction thereon;
therefore, s. 63 of the Indian Contract Act,
1872, applied and the suit of the appellants was liable to be dismissed.
It accordingly allowed the appeal and
dismissed the suit with costs.
In the appeal before us Mr. B. R. L. Iyengar
appearing on behalf of the appellants has very strongly contended that the view
of Coyajee, J. is the correct view on the evidence given in the case. He has
emphasised two points in connection therewith: (1) the crucial question is-what
does the evidence show as to the intention of the creditor in accepting Rs. 20
lacs? and '2) what is the effect of Ex. C, a receipt executed contemporaneously
with the payment of the second installment of Rs. 8, 75,000 ? Mr. Iyengar has
argued that the appellate 175 court did not attach sufficient importance to
these two points and the conclusion which it reached is vitiated for that
reason. As the judgment of the appellate court is a judgment in reversal and
the question raised are essentially questions of fact on which there are
conflicting findings, we allowed counsel for the parties to place before us the
relevant evidence along with the pleadings of the parties.
Two of the witnesses whose evidence appears
to be decisive of the questions raised were, Putta Madhava Rao who was examined
on behalf of the appellants and Kapurchand Godha, one of the appellants. Putta
Madhava Rao was at the relevant time, Assistant Accountant-General,. Hyderabad
and he was present before the Committee on more than one occasion when the
claim of the appellants was considered.
Before Coyajee, J. a question was raised
whether the statements of this witness as to what transpired before the
Committee were admissible in evidence, when none of the two members of the
Committee was called for examination.
Madhava Rao was undoubtedly competent to
prove what he himself heard or saw if such hearing or seeing was a fact in
issue, and we consider it unnecessary to determine the further question as to
whether be was competent to prove the statements alleged to have been made by
one or other of the two members of the Committee. Therefore, we confine
ourselves to the statements of Madhava Rao as to what happened before him.
Madhava Rao said that before the Committee the appellants insisted on payment
of their full claim, but the Committee decided that the appellants must take
Rs. 20 lacs in full satisfaction of their claim; on this Kaparchand Godha
protested and said that he would have to reserve his right for the balance. The
Committee thereupon made it clear that they could not recommend payment of
anything more, because a specific amount for distribution had been allotted to
them. The reference to "a specific 176 amount" was to a sum of rupees
two crores earmarked for the liquidation of the debts of the two 'Princes out
of a fund known as Sarf-e-Khan. What happened after the Committee had made its
recommendation is very important. The first installment of Rs. 11,25,000/-was
paid on September 27, 1949.
At that time a dispute was going on about the
share of the appellants to the money. The receipt which was passed for the
payment of Rs. 11,25,000/is marked Ex. B. That receipt does not show whether
the appellants had agreed to accept Rs. 20 lacs in full satisfaction of their
claim. As to the second installment of Rs.,8,75,000/which was paid on February
14, 1950, Madhava Rao give the following evidence.
He said that when Ex. C was brought to him by
Kapurchand Godha, the witness told the latter that he could not make payment
against that receipt as the receipt recited, reservation of the right of the
appellants for the balance.
The witness took the document, Ex. C, to
Zaheruddin Ahmed who was the Accountant General then. Zaheruddin Ahmed
suggested that the claimant should endorse full satisfaction and payment of all
the promissory notes and then only the payment would be made. The witness then
"Thereupon I obtained these endorsements
(on the promissory notes) from Kapurchand.
Kapurchand whilst endorsing these documents
protested that he had been forced to endorse these and he was not at all
satisfied. This happened on the 14th of February, 1950." We may here state
that no plea was raised by the appellants to the effect that the endorsements
on the promissory notes had been obtained by coercion, and no issue was struck
between the parties as to the endorsements on the promissory notes having been
obtained by coercion. That 177 being the position, what is the effect of
Madhava Rao's evidence? The clear effect is that the authorities who were
paying the money in discharge of the debt of the respondent made it clear that
they would pay the money only if a full satisfaction of the claim was given by
the appellants. The appellants after some initial protests agreed and duly
discharged all the promissory notes by endorsing thereon full payment and
satisfaction. The question of coercion was introduced as and by way of afterthought.
Two facts seem to be clearly established by the evidence of Madhava Rao. One is
that the authorities refused to pay the second installment unless full
satisfaction of the claim was endorsed in accordance with the recommendation of
the Committee; the second is that the appellants did record full payment in
satisfaction of the promissory notes before they received the money. In our
opinion, these two facts clearly established the case of the respondent that
the appellants had given a full discharge when they received the second installment.
Indeed, the evidence of Madhava Rao is supported by the evidence of Kapurchand
Godha. Kapurchand Godha said that when he presented the receipt, Ex. C, to
Madhava Rao the latter said that he would not accept the receipt in that form.
Madhava Rao then took Kapurchand to the
Kapurchand was asked to produce the
promissory notes and was told that unless the promissory notes were endorsed
with full satisfaction, no payment would be made. Kapurechand then said "I
was told that unless I signed the receipt for full payment, no cheque would be
issued to me. Thereupon I endorsed the receipt for full payment. By that I mean
I was asked to endorse full payment on the vouchers and I did so. I protested
and said that as I was asked to endorse full payment, I 178 was doing so
despite the fact that I was not receiving full payment. Thereafter I signed the
receipt as the vouchers-and handed ever the documents to the
Accountant-General." This evidence is in accord with the evidence of
Madhava Rao and again establishes that appellants when they received the second
and the last installment of Rs. 8,75,000/-gave a full discharge of their claim
and the plea of coercion was later introduced as and by way of an
There was some difference of evidence as to
whether Ex. C bore the signature of Kapurchand when it was first presented to
Madbava Rao or whether the signature was later put on it.
With that difference we are not now
concerned. Nor are we concerned with certain minor discrepancies between the
evidence of the two witnesses referred to above. The substantial result of the
evidence of the two witnesses to whom we have referred is that whatever,
reluctance Kapurchand might have had in accepting Rs. 20 lacs in full
satification of the claim of the appellants, he ultimately agreed to do so,
Not; only did he agree, but he actually endorsed full satisfaction and payment
on all the promissory notes and thereafter be receive payment of the second installment
of Rs. 8,75,000/which along with the first installment of Rs. 11,25,000/-made
up the sum of Rs. 20 lacs.
On these facts which are established by the
evidence given on behalf of the appellants themselves, the only conclusion is
that there was full satisfaction of the claim of the appellants.
The legal position is clear enough. Section
63 of the Indian Contract Act reads :
"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 179 instead of it any
satisfaction which he thinks fit." Illustration (c) to the section says
"A owes B 5000 rupees. C pays to B 1000 rupees, and B accepts them in
satisfaction of his claim on A. This Payment is a discharge of the whole
claim.,, It seems to us that this case is completely covered by s. 63 and
illustration (c) thereof. The appellants having accepted payment in full
satisfaction of their claim, are not now entitled to sue the respondent for the
balance. A reference may 'also be made in this connection to s. 41 of the
Contract Act under which when a promisee accepts performance of the promise
from a third person. he cannot afterwards enforce it against the promiser.
There is some English authority to the effect that discharge of a contract by a
third person is effectual only if authorised or ratified by the debtor. ID
India, however, the words of s.
41 of the Contract Act leave no room for
doubt, and when the appellants have accepted performance of the promise from a
third person, they cannot afterwards enforce it against the promisor, namely,
When a statute clearly covers a case, it is
hardly necessary to refer to decisions. In deference however, to the arguments
advanced on behalf of the appellants, we refer to the two decisions on which
learned counsel for the appellant has relied. One is the decision in Day v. Mc
Lea (1). In that case the plaintiffs made a claim against the defendants for a
sum of money as damages for breach of contract; the defendants sent a cheque
for a less amount stating that it was in full payment of all demands. The
plaintiffs kept the cheque stating they did so on account and brought an action
for (1) (1899) 32 Q. B. D. 610-613.
180 the balance of their claim. It was held
that keeping, the cheque was not as a matter of law conclusive that there was
an accord and satisfaction of the claim ; but that it was a question of fact on
what terms the cheque was kept. We do not think that that decision is of any
help to the appellants As Lord Justice Bowen said in Day v. Mc Lea (1) :
"If a person sends a sum of money on the
terms that it is to be taken, if at all, in satisfaction of a larger claim ;
and if the money X X is kept, it is a question of fact as to the terms upon
which it is so kept. Accord and satisfaction imply an agreement to take the
money in satisfaction of the claim in respect of which it; is sent. If accord
is a question of agreement there must be either two minds agreeing or one of
the two persons acting in such a way as to induce the other to think.
that the money is taken in satisfaction of
the claim, and to cause him to act upon that view.
In either case it is a question of
fact." We have already referred to the facts which are clearly established
by the evidence in this case. Those facts clearly established that the
appellants took the second installment in full satisfaction of their claim. The
second decision relied on behalf of the appellants Neuchatel Asphalte Co. Ltd.
v. Barnett (2) also proceded on a similar ground. In that case the claim of the
plaintiff company amounted to pound 259, but the defendant raised some minor
question which might reduce it by E14 or pound 15. The defendant then sent a
cheque for pound 125 and stated in covering letter that this sum was "on
account" pending the receipt of the plaintiffs reply to outstanding
queries in connection with the work done. Sometime later the defendant enclosed
a further cheque for pound 75 and on the back of the (1) (1899) 32 Q.D. D.610,
(2)  1 All. R.R. 362.
181 cheque was endorsed ,in full and final
settlement of the account". The cheque was accepted by the plaintiff
company, which later sued for the balance of the amount of the claim.
It was held that having regard to
the-correspondence and the surrounding circumstances, there was no intention on
the part of the plaintiff company to accept the cheque for pound 75 in full
satisfaction of the plaintiff's claim, because the words "in full and
final settlement of the account" typed on the back of the cheque were inconsistent
with the main object and intention of the transaction, particularly since (a)
the covering letter sent by this defendants plainly imported that the cheque
was sent only on account and riot in full and final settlement, and (b) it
could not reasonably be supposed that. in the circumstances, the plaintiff
company had agreed to a reduction of the amount claimed. The facts of the case
before us are entirely different. The appellants were clearly and unambiguously
told that unless they gave a full satisfaction of their claim, they would not
be paid the amount. The appellants were left in no doubt as to the condition on
which payment would be made to them. The appellants clearly accepted the
condition and recorded full satisfaction on all the promissory notes. It is now
impossible to accept the 'position that the appellants reserved their right to
sue the respondent for the balance of the amount. In Hirachand Punam chand v.
Temple (1) the father of a debtor wrote to the creditor offering an amount less
than that of the debt in full settlement of the debt and enclosing a draft for
that amount. The creditor cashed and retained the proceeds of the draft and
afterwards brought an action against the debtor for the balance of the debt. It
was held that the creditor must be takan to have accepted the amount received
by him on the terms upon which it was offered and therefore he could not (1)
2 K. B. 330.
182 maintain the action. The case was
considered under the English law and it was observed that assuming that there
was no accord and satisfaction in the strict sense of the law in England, it
could still be held that the creditor had ceased really to beholder of the
negotiable instrument on which he sued. With the niceties of English law in the
matter of accord and satisfaction we are not concerned. The position in the
present case is that the appellants must have known that they could receive the
second installment and retain the first installment by accepting the condition
on which the sum of Rs. 20 lacs was offered to them, namely that they must
record a full satisfaction of their claim. They accepted the money on the
condition on which it was offered and it is not now open to them to Jay, either
in fact or in law, that they accepted the money but not the condition.
For these reasons we are satisfied that the
appellate court was right in the view which it took. Therefore, thus appeal fails
and is dismissed with costs.