Judgement Appeal from a judgment and decree of the High Court (November 20, 1916) affirming a decree of Macleod J. (March 26, 1916). The suit was instituted by the respondent bank against the appellants in the High Court to recover 36,427 Rs. as the balance due upon an account which the appellants had been allowed to overdraw upon the security of cotton and under a written agreement. The appellants counterclaimed (1.) for an account, on the ground that they had been charged compound interest with monthly rests, which they alleged was not in accordance with the agreement; (2.) for damages for the dishonour of two cheques for 15,000 Rs., each drawn upon the respondents upon August 1, 1916, which they contended that the respondents were bound to honour under the terms of the agreement. Law. Rep. 47 Ind. App. 17 ( 1919- 1920) Haridas Ranchordas V. Mercantile Bank of India, Limited 134 The facts material to this report appear from the judgment of their Lordships. The trial Judge, Macleod J., made a decree for the amount claimed by the respondents, and dismissed the counterclaim for damages. With reference to the amount charged for interest the learned judge said "ft was contended that the plaintiffs are not entitled to charge compound interest. Now there is not the slightest doubt that the defendants knew that the plaintiffs were charging compound interest, and agreed to that interest being charged in that way with monthly rests. The only question is whether when the plaintiffs are suing on the accounts they can ask the Court to give them interest calculated in that way considering the terms of the letter of hypothecation. Clause 2 of that letter merely gives the rate at which interest will be charged ; and if the case had stopped there interest would run in law at that rate perhaps with half-yearly rests, certainly with yearly rests. But there is no reason as far as I can see why the plaintiffs should not be entitled to prove that the method by which interest should be charged was not included in the letter of hypothecation. That was arranged orally between the bank and the defendants. I do not think that s. 92 of the Evidence Act prevents the plaintiffs from proving such an agreement. That section has always caused me considerable difficulty. That was arranged orally between the bank and the defendants. I do not think that s. 92 of the Evidence Act prevents the plaintiffs from proving such an agreement. That section has always caused me considerable difficulty. But proviso 2 to the section seems to apply to this case The existence of any separate oral agreement as to any matter on which a document is silent and which is not inconsistent with its terms may be proved. The document is silent as to the way in which interest should be charged, and it is no answer to that to say that if there had been no oral agreement the law would allow interest either simple or with yearly rests." He also held that the respondents in refusing to honour the cheques had committed no breach of the agreement. The decision of the trial Judge was affirmed on appeal. The learned judges (Sir Basil Scott C.J. and Heaton J.) found that the evidence established that the cotton in the hands of the bank as security, having regard to the conditions prevailing on August 1, 1914, was not enough to cover a further loan, or even for the loans already advanced, and held that in those circumstances under the terms of the contract the appellants had not a right to a further advance. They were of opinion that though it was contemplated that the appellants should take their advances by cheques, the outstanding cheques which had been drawn in favour of third parties did not prevent the respondents from exercising their rights under clause 1 of the agreement to discontinue the overdraft at any time. Upon the question of interest the learned judges held that the rate was fixed by the contract, but the method of calculation by the long existing practice between the parties. 1919. Oct. 28. De Gruyther K.C. and E. B. Raikes for the appellants. The written agreement provided for yearly interest. It is conceded that the passbook showed that compound interest with monthly rests was being charged. An agreement that it should be so charged cannot be implied, since the respondents are precluded by s. 92 of the Indian Evidence Act from giving evidence to vary the written agreement. [Reference was made to Daniel v. Sinclair. (( 1881)6 App. Cas. 181.)] The appellants were entitled to damages for the dishonour of the cheques. An agreement that it should be so charged cannot be implied, since the respondents are precluded by s. 92 of the Indian Evidence Act from giving evidence to vary the written agreement. [Reference was made to Daniel v. Sinclair. (( 1881)6 App. Cas. 181.)] The appellants were entitled to damages for the dishonour of the cheques. Upon the evidence the net market value of the deposited cotton entitled the appellants to a further advance, and it was not proved that the respondents had given notice terminating the agreement. Wootten (with him Gore-Browne K.C.) for the respondents, being called only as to the interest charged, referred to Fergusson v. Fyffe (( 1841) 8 Cl. & F. 121.), Rufford v. Bishop ((1829) 5 Russ. 346.), and Bruce v. Hunter. ((1813) 3 Camp. 467.) Nov. 18. The judgment of their Lordships was delivered by SIR JOHN EDGE. This is an appeal from a decree, dated November 20, 1916, of the High Court at Bombay, which confirmed a decree of that Court made in a suit which was instituted in that Court in Law. Rep. 47 Ind. App. 17 ( 1919- 1920) Haridas Ranchordas V. Mercantile Bank of India, Limited 135 its ordinary civil jurisdiction on May 27, 1915, by the Mercantile Bank of India, Ld., against Haridas Ranchordas, Ludha Dossa and Bhanji Madhavji. The Mercantile Bank of India, Ld., is the respondent here. Bhanji Madhavji, named as a defendant to the suit, was not served, and has, it is said, disappeared. The appellants here are Haridas Ranchordas and Ludha Dossa. The defendants, under the name of Dharamsay Jaitha & Co., carried on business at Bombay as cotton merchants, their bankers were the plaintiff bank, and the suit was brought by the bank to recover from them a balance due by the defendants to the bank and interest on that balance. The defendants Haridas Ranchordas and Ludha Dossa filed a written statement and counterclaim in which they claimed an account and damages for the dishonour on August 1, 1914, by the bank of two cheques drawn by their firm upon the bank. Their Lordships are informed by counsel that by the rules of the High Court at Bombay relating to suits in its original civil jurisdiction counterclaims are permitted. Their Lordships are informed by counsel that by the rules of the High Court at Bombay relating to suits in its original civil jurisdiction counterclaims are permitted. The trial Judge ordered that the suit as against the defendant Bhanji Madhavji should stand adjourned, and on the claim of the bank made a decree against the defendants Haridas Ranchordas and Ludha Dossa, as two of the partners in their firm of Dharamsay Jaitha & Co. and in their individual capacities, for Rs. 39,025, 10 annas for the debt (including compound interest with monthly rests), with future simple interest from the date of the decree until payment, and by his decree dismissed the counterclaim. The High Court on appeal made a decree confirming that decree of the trial Judge. From that decree of the High Court this appeal has been brought. The questions now in dispute are (1.) was the bank entitled to charge compound interest with monthly rests on the amounts from time to time overdrawn by the defendants ? and (2.) was the bank entitled to refuse to honour the two cheques ? To understand these two questions it is necessary briefly to refer to the course of dealing between the bank and the defendants firm. For several years, at least from 1906, the bank had allowed the defendants firm to overdraw their account. The practice was that annually on December 1 the defendants, in the name of their firm and individually, signed a letter in a printed form addressed to and given to the bank, and in accordance with those letters the bank allowed the defendants firm to overdraw their account. The last of such letters was given to the bank on December 1, 1913, and so far as it is material it was as follows "In consideration of your allowing us an overdraft to the extent of, but not exceeding at any one time, Rs. 10 lacs in current account it is hereby agreed that all moneys advanced and hereafter to be advanced in pursuance of these presents (hereinafter referred to as the said overdraft or such overdraft) shall be advanced upon the terms arid conditions hereinafter mentioned (1.) The said overdraft shall be repayable within twelve months from this date and/or at your option on demand being made therefor. (2.) Interest shall be charged at 7 per cent, per annum, and shall be calculated on the daily balance due to you in respect of the said overdraft till June 30, 1914, and thereafter till December 1, 1914, at 5 per cent, per annum. . . , . (4.) As security for the said overdraft we hereby agree to pledge with you all cotton pressed and impressed at present stored in your godowns and/or jethas and/or which may hereafter be stored by us in your godowns and/or jethas. (5.) Notwithstanding any thing hereinbefore contained you shall be under no obligation to advance any moneys except against the deposit of cotton by us from time to time as provided by clause 4 hereof, and in no case shall such advances exceed Rs. 10 lacs outstanding at any one time, and such advances shall not exceed seventy-four and a half per cent. (74½ %) on the net market value of the cotton for the time being deposited in your godowns and/or jethas, against which cotton such advances shall from time to time be made. (6.) If at any time a margin of twenty-five and a half per cent. (25½ %) on the net market value of the cotton stored in your godowns and/or jethas shall not Law. Rep. 47 Ind. App. 17 ( 1919- 1920) Haridas Ranchordas V. Mercantile Bank of India, Limited 136 be fully maintained you are to have full right to dispose of the cotton stored in the said godowns and/or jethas and apply the proceeds thereof towards making up such margin and/or claim on us for any such margin and/or for any balance due in respect of the same after the disposal of the cotton in pursuance thereof. .... (10.) A register shall be kept by you of all cotton deposited in and/or removed from any godown and/or jetha in pursuance of this agreement, and such register shall be open to our inspection at any time during the usual business hours no cotton shall be removed from the said godowns and/or jethas except on a delivery order or orders signed by you....." Whatever may be the strict construction of clause 2 of that letter, the bank invariably struck a balance of its customers accounts on the last day of each month, and charged interest on the amount of that balance. The interest so charged was added to the monthly balance, and the resultant balance, which included the interest, was carried forward to the debit of the customer as the balance due on the 1st of the following month. The passbook of the defendants with the bank shows clearly that that was the way in which interest was computed and charged in their account with the bank. The defendants never, until after August 1, 1914, raised any objection to that principle of charging them compound interest or to compound interest being charged by the bank on their overdrafts. It was the course of business to which it must be taken that the defendants agreed. As long ago as 1813 Lord Ellenborough in Bruce v. Hunter (3 Camp. 467.) held that the fact that the defendant in that case had not objected to a charge of compound interest in accounts which for several years he had annually received from the plaintiff afforded sufficient evidence of a promise by him to pay interest in that manner. In addition to the evidence afforded by the passbooks to which their Lordships have referred, there is the uncontradicted evidence of the manager in Bombay of the bank that the defendants knew that their account was charged by the bank with compound interest with monthly rests, and had never objected to that course of business. The trial Judge, on a very careful consideration, found that there was not the slightest doubt that the defendants knew that the bank was charging compound interest, and agreed to that interest in that way with monthly rests, and made the decree upon the claim against the defendants Haridas Ranchordas and Ludha Dossa which has been already mentioned. He rightly held that s. 92 of the Indian Evidence Act did not prevent the bank from proving that agreement as to compound interest. The High Court in the appeal taking the same view of the facts as the trial Judge, confirmed that decree, and their Lordships agreeing with the findings of the Courts below on the question of interest are of opinion that the decree of the High Court should be affirmed. The counterclaim relates to the dishonour by the bank on August 1, 1914, of two cheques drawn by the defendants upon the bank and presented for payment on that day. The counterclaim relates to the dishonour by the bank on August 1, 1914, of two cheques drawn by the defendants upon the bank and presented for payment on that day. On August 1, 1914, the overdraft of the defendants firm amounted to Rs. 5,81,454. On July 31, 1914, the bank issued a notice to the defendants firm that the bank was not advancing further against cotton, and would be obliged by the defendants reducing "the present advance." That notice was not received by the defendants until after office hours on August 1, 1914. On that date the bank held as security for the overdraft cotton which at the market rates at the end of July, 1914, as deduced from the daily circulars of Messrs. P. Chrystal & Co., represented Rs. 8,45,065, or, less the 25½ per cent, margin, Rs. 6,29,574. On July 25, 1914, in the cotton market, prices at Bombay began to fall owing to political events in Europe. In their daily cotton report of July 30, 1914, Messrs. P. Chrystal & Co. made the following remark " There is practically no business in the local market pending develop ments in Europe." In their daily cotton report of July 31, 1914, Messrs, P. Chrystal & Co. remarked “The local market is demoralised on account of grave political situation." On August 1, 1914, Messrs. P. Chrystal & Co. in their daily cotton report remarked " The local market is practically closed. Quotations are only nominal." Those remarks of Messrs. P. Chrystal & Co. were fully justified by the facts then known, and under the circumstances existing on August 1, 1914, the realizable value of the cotton then Law. Rep. 47 Ind. App. 17 ( 1919- 1920) Haridas Ranchordas V. Mercantile Bank of India, Limited 137 held by the bank as security for the overdraft was not sufficient to cover the then overdraft; the evidence shows that there was then practically no market. Their Lordships agree with the Courts below that the bank was justified in refusing to increase the overdraft by honouring the cheques. It is to be observed that the bank could at any time have demanded payment of the whole overdraft. It is proved that after August 1, 1914, the Bombay cotton market got gradually worse, and that there were very few purchasers of cotton at Bombay during August, 1914, and only in small lots. It is to be observed that the bank could at any time have demanded payment of the whole overdraft. It is proved that after August 1, 1914, the Bombay cotton market got gradually worse, and that there were very few purchasers of cotton at Bombay during August, 1914, and only in small lots. In August, 1914, there was a large stock of about 500,000 bales of unsold cotton in Bombay. The trial Judge by his decree rightly dismissed the counterclaim, i and the High Court in appeal confirmed that decree. Before concluding this judgment their Lordships think it right to say that they see no reason for questioning the propriety of action of the solicitor for the defendants in the suit. Their Lordships will humbly advise His Majesty that this appeal should be dismissed. The appellants must pay the costs of this appeal.