PAKALAPATI VEERAYYA Vs. DEVULAPALLI SOBHANADRI

JUDGEMENT

(1.) This is a suit upon a promissory note dated 6 August, 1924, executed by the defendant in favour of the plaintiff. The case for the plaintiff is that the amount was paid in cash. The execution of the pronote is admitted but the consideration is denied. The case for the defence is that the said promissory note was executed in view of a pending settlement of a criminal prosecution and a civil liability in respect of the sale of immovable property effected by the defendant and his father in favour of one Boddaluru Seshayya and four others; the complaint of the vendees was that on the date of the sale to them there was a mortgage on the property which was not disclosed. A decree was obtained on the footing of the said mortgage and the property sold in execution thereof and a suit was instituted for recovery of possession from the vendees. The said Boddaluru Seshayya thereupon launched a criminal prosecution being C.C. No. 100 of 1924 on the file of the Additional Deputy Collector, Bezwada, for cheating under Section 420, Indian Penal Code. The complaint was no doubt filed by the said Seshayya but all the other vendees were cited as witnesses for the prosecution. The plaintiff was interesting himself on behalf of the vendees and there were negotiations to bring about an adjustment of the disputes between the defendant and the vendees; the defendant was anxious that the criminal prosecution should be withdrawn and he was willing to be guided by what the plaintiff would direct him to do. Pending the final settlement of this matter the defendant executed a promissory note for Rs. 500 but finally an arrangement was come to which was embodied in a document Ex. V in and by which it was arranged that a sum of Rs. 700 should be paid in full settlement of the disputes and that Rs. 200 should be paid immediately and the balance of Rs. 500 within a year from the date of the agreement to the plaintiff on behalf of the vendees and on failure to pay the same the vendees could have recourse to such civil proceedings as they may be advised. The plea therefore is that the promissory note ceased to have any force after the matter was finally settled and in any event the promissory note was executed in consideration of the criminal case being withdrawn and therefore is unenforceable. The lower appellate Court found that the promissory note was executed "as a security on which alone the civil suit and the criminal case would have to be closed up", that after the execution of the agreement Ex. V it was superseded and therefore the plaintiff is not entitled to sue on the note. In regard to the plea that the suit promissory note was executed to stifle the criminal prosecution he held in favour of the plaintiff on the ground that the object was to settle the civil dispute and not to compound the criminal offence. Mr. Satyanarayana Rao on behalf of the plaintiff attacks the finding of the learned Judge in regard to the supersession of the note. There can be no doubt that the case with which the plaintiff came to Court, namely, that Rs. 500 was paid on the date of which the promissory note was executed was false. It has also been found by the lower appellate Court that no money was actually paid by the plaintiff in respect of the said promissory note. It seems to be clear from the evidence that negotiations for settlement of both the civil dispute and the criminal liability were on foot sometime prior to the actual execution of the promissory note and that a draft agreement was written on or about the 28 July, 1924. Ex. B is a letter which was written by the defendant Seshadri to D.W. 4, a pleader who appears also to be a relation of the plaintiff. In that letter he clearly states that he has given the plaintiff the draft agreement which D.W. 4 wrote, that he is sending the promissory note post-dated and directs D.W. 4 to give the note and a sum of Rs. 200 to plaintiff after taking the agreement. He also makes it distinctly clear that though the promissory note mentions interest, interest was not to be charged, that the understanding should be that the amount payable will be paid in a year. He also desired him to get this understanding confirmed. From this letter it is therefore clear that there was no final settlement arrived at. In fact it was only on the 16 August, 1924, that the parties came to a definite understanding by the execution of Ex. V. According to Ex. V, Rs. 700 should be paid in full settlement of the claim which the vendees had against the defendant, Rs. 200 to be paid immediately and Rs. 500 within one year from the said date to the plaintiff on behalf of the vendees and that the payment should be endorsed on the back of the agreement itself and a receipt obtained therefor; if default is committed Rs. 200 should be appropriated towards the expenses of criminal proceedings and the vendees should be at liberty to take such civil proceedings as they may be advised in the matter. No reference was made to the promissory note at all and in fact this agreement was attested by the plaintiff himself. There can be no doubt that Ex. V was the final and concluded agreement between the parties and the rights of the parties must be regulated according to the terms of the said agreement. If the promissory note should be treated as subsisting in spite of this agreement it will be inconsistent with the terms thereof because according to the promissory note the plaintiff would be entitled to enforce it at any time he chose and realise interest, whereas according to Ex. V payment should not be made for a year and interest should not be charged. Further if it was intended that the liability under the promissory note should be enforced there is no meaning in the agreement providing that in default of payment of Rs. 500 within a year the parties can have recourse to such civil proceedings as they may be advised, i.e., the liability of the defendant is not limited to the sum of Rs. 500; it may be more or it may be less according to the damage sustained by the vendees. The intention of the parties seems to be that on the execution of Ex. V the liability under the promissory note should be treated as not subsisting. Even though it may be said that originally it was intended that a promissory note should be given, in view of the further terms imposed by the defendant according to Ex. B the parties thought of arriving at the final settlement which they did in Ex. V.

(2.) Even if I am not right in this view it seems to me that the plea taken by the defendant that the promissory note was unenforceable under Section 23 of the Indian Contract Act must prevail. On the 4 August, 1924, when the promissory note was executed and sent with the date 6 August, 1924, there was admittedly a criminal prosecution pending which the defendant was anxious to get rid of. It seems to be also clear from Ex. B that the plaintiff expected that the said case will be withdrawn even on the 6 August, 1924. The last sentence in that letter clearly indicates it. It runs thus: He said that he would get the case withdrawn, etc., on the 6 August, 1924, itself. Please get it arranged that it is withdrawn on that day itself. Kindly render this help without fail. Please reply.

(3.) It is thus apparent that the object of sending the promissory note was to enable the case being withdrawn on the faith of it. Again Ex. V also indicates that the sum of Rs. 700 was in settlement of all the disputes between the parties not only the adjustment of the civil liability but the dropping of the criminal prosecution. No doubt Ex. V does not specifically state so but it is very clear from the concluding portion of Ex. V which provides in case of default of payment of Rs. 500 within a year Rs. 200 should be appropriated towards the expenses of the criminal case. In fact the criminal case was withdrawn on 16 August, 1924, the date of Ex. V. Mr. Satyanarayana Rao relied upon a number of cases to show that where a transaction between the parties involves a civil liability as well as a criminal offence, a settlement of the civil liability is not vitiated by the fact that the criminal prosecution is also withdrawn. But I think the true rule is that where there is an existing debt or an obligation a creditor is not precluded from taking any security therefor by threat of a criminal prosecution and the security is not vitiated by the fact that he was induced to abstain from prosecuting the debtor. But if it is a part of the bargain that the creditor should not prosecute the debtor, the security taken for the debt will be invalid. In Jones V/s. Merionethshire Permanent Benefit Building Society (1892) 1 Ch. D. 173, Lindley, L.J., points out: In order to amount to a defence on the ground of illegality there must be an agreement not to prosecute-an agreement as it is called to stifle a prosecution.