Jiwanlal Achariya v Rameshwarlal Agarwalla (1966)

A post-dated cheque is handed over on one day but cannot be cashed until a later day. When, in law, has the debtor paid? The answer matters for limitation: under s. 20 of the Limitation Act a part payment starts a fresh period of limitation "from the time when the payment was made". A few weeks' difference decided whether this creditor's suit was in time or barred.

The majority held that where a post-dated cheque is taken as a conditional payment and is honoured, the payment is made on the date the cheque bears — not the date it was handed over. Bachawat J dissented sharply, holding that payment relates back to the date of delivery. Because the Court split 2–1, this is a case where you must know both views.

On 4 February 1954 the appellant executed a promissory note for Rs 10,000, carrying interest at 12 per cent, in favour of the respondent. On the same day he handed over a post-dated cheque for Rs 1,000, dated 25 February 1954, towards part payment. The cheque was realised some time after 25 February 1954 and credited towards part payment; the appellant himself endorsed an admission of that part payment.

The suit on the promissory note was filed on 22 February 1957 — more than three years after 4 February 1954, but less than three years after 25 February 1954. The creditor relied on the cheque payment to bring the suit within time.

The debtor raised two defences: (i) the suit was barred by s. 4 of the Bihar Money-Lenders Act 1939, because the note merely renewed an older loan made before the respondent's family was registered as a money-lender (registration was about 1952); and (ii) limitation, because the part payment was made on 4 February 1954 when the cheque was delivered.

The Patna High Court rejected both defences. It found that the delivery of the post-dated cheque "could not be treated as an unconditional payment" and that the payment must be held made at the earliest on 25 February 1954. The debtor appealed by special leave. The respondent did not appear in the Supreme Court.

1. Does s. 4 of the Bihar Money-Lenders Act bar a suit on a promissory note executed after registration, where the note renewed a loan originally advanced earlier?
2. For s. 20 of the Limitation Act, when is a part payment by post-dated cheque made — on delivery of the cheque, on the date it bears, or on the date it is cashed?

The appeal was dismissed (by majority). The suit was maintainable and within time. No order as to costs, since the respondent had not appeared.

On s. 4 of the Money-Lenders Act (unanimous)

The definition of "loan" in s. 2(f) includes "a transaction on a bond bearing interest executed in respect of past liability". "Bond" is used in its general sense — an instrument by which a person obliges himself to pay — following the Federal Court in Surendra Prasad Narain Singh v Sri Gajadhar Prasad Sahu Trust Estate. The Court refused to split the definition: "We have to use the definition of "loan" given in s. 2(f) in its entirety for the purpose of s. 4 or we should not use it at all."

It held "that the word "loan" used in s. 4 has the same meaning as it has in s. 2(f) and includes a transaction on a bond bearing interest executed in respect of past liability." The promissory note of 4 February 1954 was therefore a fresh loan made after registration, and s. 4 did not bar the suit. Bachawat J agreed on this point.

On limitation — the majority (Wanchoo and Shah JJ)

The starting point is the nature of the payment: "Where a bill or note is given by way of payment, the payment may be absolute or conditional, the strong presumption being in favour of conditional payment." The High Court had found the cheque was taken conditionally.

From that, the majority reasoned: "Where therefore the payment is by cheque and is conditional, the mere delivery of the cheque on a particular date does not mean that the payment was made on that date unless the cheque was accepted as unconditional payment." In such a case "the payment for purposes of s. 20 would be the date on which the cheque would be actually payable at the earliest, assuming that it will be honoured."

The date on which the creditor actually presented the cheque is irrelevant: "The fact that he presented it later and was then paid is immaterial for it is the earliest date on which the payment could be made that would be the date where the conditional acceptance of a post-dated cheque becomes actual payment when honoured."

The majority distinguished Commissioner of Income-tax v Ogale Glass Works Ltd, where this Court had said payment by cheque relates back to the date of receipt. There was nothing to show that the cheques in Ogale were post-dated, and "it is clear that no payment of a post-dated cheque is possible before the date which it bears." Marreco v Richardson was distinguished because the cheque there bore the date on which it was delivered, with only an oral arrangement to delay presentation; Felix Hadley v Hadley, the majority said, did not deal with a post-dated cheque.

The conclusion: "where a post-dated cheque is accepted conditionally and it is honoured, the payment for purposes of s. 20 of the Limitation Act can only be the date which the cheque bears and cannot be on the date the cheque is handed over, for the cheque, being post-dated, can never be paid till the date on the cheque arrives."

The proviso to s. 20 was satisfied because the cheque itself, in the debtor's handwriting, was an acknowledgment of the payment. A fresh period began on 25 February 1954, and the suit filed on 22 February 1957 was in time.

The majority expressly left open the position of a bill payable on a future date: "we are expressing no opinion as to what would happen in case there was a bill payable on a future date, for the question does not directly arise in the present appeal."

Where a post-dated cheque is given towards a debt and accepted as a conditional payment, and it is later honoured, the part payment for the purposes of s. 20 of the Limitation Act 1908 is made on the date the cheque bears — the earliest date on which it could be paid — and not on the date it was handed over or the later date on which it was actually cashed. A fresh period of limitation runs from that date.

• Direct question: When is payment by a post-dated cheque complete? Discuss with reference to limitation. State the absolute/conditional distinction, the "strong presumption" in favour of conditional payment, then the majority rule (date the cheque bears), and close with Bachawat J's dissent (date of delivery).
• Problem question: a debtor hands over on 1 March a cheque dated 20 March; it is cashed on 5 April; the suit is filed just under three years after 20 March. Apply Jiwanlal: payment is on 20 March, and the suit is in time — note that the date of actual encashment is immaterial.
• Distinguishing: be ready to explain why Ogale Glass Works (payment relates back to delivery of cheque) did not govern: the cheques there were not shown to be post-dated.
• Cross-reference: the definition of a cheque and post-dated instruments under the Negotiable Instruments Act; and in Unit 4 on limitation and part payment, pair this case with the rules on conditional payment by negotiable instrument.
• Side point worth marks: the unanimous holding on the Bihar Money-Lenders Act — a renewal note bearing interest is a fresh "loan" under s. 2(f), so registration at the date of renewal is enough.