Andhra HC (Pre-Telangana)
Kirlampudi Sugar Mills Ltd. vs G. Venkata Rao on 8 October, 2002
Equivalent citations: 2003(2)ALT550, [2003]114COMPCAS563(AP), [2003]42SCL798(AP)
JUDGMENT P.S. Narayana, J.
1. The unsuccessful defendants 2 and 3 in OS No. 61 of 1987 on the file of the Subordinate Judge, Pithapuram are the appellants and the plaintiff in the said suit is the respondent.
2. The parties will be referred to as arrayed in the trial Court for the purpose of convenience. The plaintiff filed the suit in OS No. 184 of 1984 on the file of the Subordinate Judge, Kakinada which was renumbered as OS No. 61 of 1987 on the file of Subordinate Judge, Pithapuram for recovery of a sum of Rs. 48,882.40 ps towards balance of the principal and interest due on a promissory note dated 30-3-1982 executed by the 1st defendant in favour of the plaintiff for Rs. 40,000 repayable with interest at 24 per cent p.a. together with subsequent interest and for costs of the suit.
3. In the trial Court on the strength of respective pleadings of the parties, framed issues. On behalf of the plaintiff PWs. 1 and 2 were examined and Exs. A-1 to A-8 were marked. Likewise on behalf of the defendants D.W. 1 was examined and Exs. B1 to B3 were marked.
4. The trial Court on appreciation of the oral and documentary evidence ultimately decreed the suit as prayed for personally against the 1st defendant and also against the assets of the 2nd and 3rd defendants. Aggrieved by the said judgment and decree, defendants 2 and 3 preferred the present appeal.
5. The respective pleadings of the parties are as hereunder.
6. It is pleaded in the plaint that the 1st defendant during the time when he was acting as Chief Executive of M/s. Kirlampudi Sugar Mills Limited, Pithapuram borrowed a sum of Rs. 40,000 from the plaintiff for the purpose of paying huge amounts due to the A.P, Electricity Board and executed the demand promissory note dated 30-3-1982 undertaking to repay the same with interest at 2 per cent per month to the plaintiff or to his order on demand. It was also pleaded that the 1st defendant executed the promissory note in the capacity of Chief Executive of M/s. Kirlampudi Sugar Mills Limited and bound himself personally also. Since the assets are transferred to defendants 2 and 3, they are added as parties. It was also further pleaded that subsequent thereto the 1st defendant on behalf of M/s. Kirlampudi Sugar Mills Limited paid a sum of Rs. 10,000 on 29-9-1982 as part payment and endorsed the same on the reverse of the said promissory note. Inasmuch as no further payments were made, the plaintiff got issued a notice on 26-7-1983 to the defendants and though the notice was received there was no reply from the defendants. It was also further pleaded that as the management of M/s. Kirlampudi Sugar Mills, Pithapuram did not pay the value of sugarcane to the growers, the mills, premises and machinery and stocks of sugar etc., were seized by the District Collector and subsequently certain amounts were deposited by the management of the Kirlampudi Sugar Mills with the District Collector, East Godavari District and the 3rd defendant management had taken possession of the premises, undertaking to receive and pay all assets and liabilities. Certain other details had been pleaded and however, it was stated that since the said Sugar Mills became very heavily indebted, it was trying to give up the debt.
7. The defendants 2 and 3 had filed a written statement with the following allegations that these defendants had not admitted the borrowing of the amount by the 1st defendant and also execution of the promissory note dated 30-3-1982 agreeing to repay the same with interest at 24 per cent p.a. It was further pleaded that there is no credit in the accounts of the factory that the plaintiff lent Rs. 40,000 to the factory. It was also stated that these defendants had not admitted that the 1st defendant borrowed Rs. 40,000 from the plaintiff for the purpose of paying dues of the factory. It was also pleaded that these defendants represent the public limited company and the management of the defendants 2 and 3 was Patwaris and their group previously. In April, 1983 Morarkas of Bombay and their group have taken the controlling interest by way of transfer of shares from Patwaris and their group. After the Morarkas and their group had taken the controlling interest, the Board of Directors was reconstituted on 7-4-1983 and new management came into existence. It was also pleaded that the new management deposited 33 lakhs of rupees into the State Bank of Kakinada to the District Collector for payment of dues to the cane-growers. The management also paid 15 lakhs of rupees towards the electricity and fee of other statutory liabilities. The management had spent 20 lakhs for acquiring new machinery and the management paid 16 lakhs of rupees towards salaries, bonus etc. Thus the management had spent 84 lakhs of rupees to bring the factory into a running condition. It was also further pleaded that the cane was also crushed in 1983-84 season. The allegations that the factory is heavily indebted and secreting the properties and the plaintiff is asking attachment of properties before judgment had been specifically denied. It was also pleaded that the account books of the defendant factory do not show any liability of the defendants 2 and 3 to the plaintiff and hence they are not liable to pay the suit amount. It was also stated that the registered notice said to have been issued was received by one of the employees of the defendant-factory who had not brought it to the notice of the management and hence reply could not be given. It was further pleaded that the plaintiff has no cause of action to file the suit as against the defendants 2 and 3. The 1st defendant had not contested the litigation.
8. On the strength of the respective pleadings of the parties, the following issues were framed by the trial Court--
(a) Whether there is no cause of action against D-2 and D-3 and whether D-2 and D-3 are not liable to pay the suit amount ?
(b) Whether D-1 executed the suit promissory note dated 30-3-1982 in favour of the plaintiff and whether the plaintiff is entitled to recover the suit amount from D-l ?
(c) To what relief ?
9. As already stated supra after recording evidence ultimately the suit was decreed and hence defendants 2 and 3 had preferred the present appeal.
10. Sri Chitturu Srinivas, learned Counsel representing the appellants/ defendants 2 and 3 while making elaborate submissions had contended that the plaintiff had filed the suit for recovery of money against the defendants based on promissory note dated 30-3-1982 alleged to have been executed by the 1st defendant as Chief Executive of the 2nd defendant, having borrowed the said amount for payment of electricity charges of the 2nd defendant Company. The learned Counsel further submitted that the 3rd defendant is the new management which had taken over the 2nd defendant during April, 1983. It was also further contended that the 1st defendant left the 2nd defendant long prior to 3rd defendant taking over the management of the 2nd defendant from the Collector, East Godavari District. The learned Counsel also submitted that the 1st defendant had remained ex parte and had chosen not to contest the suit at all. It was further submitted that the 2nd and 3rd defendants/appellants herein had denied the very execution of the promissory note and also had taken a stand that the company books do not show this loan transaction at all and hence it cannot be said that the company is liable to pay the amount. The learned counsel also had drawn my attention to the evidence of P.Ws.1 and 2 and had contended that the evidence of P.W.1 is in total variance of the pleadings. The learned Counsel also pointed out that the details narrated by P.W.1 had not been pleaded in the plaint at all. It was also further contended that here is a case where the plaintiff had not chosen to enter into the witness box and P.W. 1 is the cousin of the plaintiff and had been examined on this ground only. The trial Court should have non-suited the plaintiff. The learned Counsel also had taken me through the promissory note and had contended that neither the body nor the recitals of the promissory note go to show that the 1st defendant executed the promissory note representing the Company and at the best it can be said that the promissory note was executed by the 1st defendant in his individual capacity and hence in such case on the strength of such document, the company cannot be fastened with the liability. The learned Counsel further elaborating his submissions had drawn my attention to Sections 4, 7, 26, 27, 28 and 118 of the Negotiable Instruments Act, 1881 and also to Sections 47 and 147(1)(c) of Companies Act, 1956. The learned Counsel further submitted that a reading of the promissory note Ex.A-1 would show that D-2 and D-3 are not the makers of the promissory note and hence the essential requirement of a promissory note as contemplated under Section 4 of Negotiable Instruments Act is violated. The unconditional promise to pay is not there as far as 2nd defendant and Ex.B-3 are concerned and hence the company is liable to pay the amount. The learned Counsel also submitted that the identity of the maker also must be certain and Ex-A-1 simply shows the 1st defendant as the maker of the promissory note and an unconditional promise is made only by the 1st defendant. The learned Counsel also stressed on the body of Ex.A-1 showing that the 1st defendant son of Ramgilal Patwari executed the promissory note in his personal capacity and at any rate it does not show that the 1st defendant executed the promissory note as Chief Executive of 2nd defendant Company. The learned Counsel also further commented about the evidence of P.W.1 who had deposed that he does not know whether the 1st defendant has power to borrow on behalf of the 2nd defendant Company. The learned Counsel also contended that the statements of P.Ws.1 and 2 relating to the payments of consideration under Ex.A-1, are contradictory and hence at any rate the trial Court should have arrived at a conclusion that Ex. A-1 is an unenforceable document as far as the appellants/defendants 2 and 3 are concerned.
11. The learned Counsel also made elaborate submissions relating to the nature of presumption available under Section 118 of the Negotiable Instruments Act and had contended that the plaintiff in the present case had miserably failed to discharge the burden and the trial Court has not considered this aspect in proper perspective. The learned Counsel also placed reliance on G. Vasu v. Syed Yaseen Sifuddin Quadri (FB), and Visvonata Raghunath Audi v. Mariana Colaco AIR 1976 Goa, Daman and Diu 60. The learned Counsel also further had submitted that at any rate inasmuch as the 1st defendant had executed the promissory note in his individual capacity, his liability cannot be extended or the promissory note cannot be enforced as against appellants/defendants 2 and 3. Strong reliance was placed on Jhandu Mal & Sons v. Official Liquidators of the Dehradun Mussoori Electric Tramway Co. AIR 1930 All. 778, Probodh Chandra Chakravarty v. Jatindra Mohan Chakravorly AIR 1940 Cal. 177, Brindaban Chandra Mitra v. Atul Krishna Basu [1936] 164 Indian Cases 728 (Cal.), Edula Ayyappa Reddy v. Amma Bai [1970] 1 ALT 246 and Mangal Bahu v. Jaitly & Co. [1946] 16 Comp. Cas. 214 (All).
12. Sri Ram Mohan, learned Counsel representing the respondent/plaintiff had contended that in view of the material available on record, it is a clear case where the 1st defendant as the Chief Executive of the Company had borrowed the amount under Ex.A-1 promissory note for the sake of the company and 2nd and 3rd defendants intend to escape the liability by taking such a defence. The learned Counsel also further contended that when it was specifically pleaded in plaint that the 1st defendant as the Chief Executive had executed Ex.A-1 promissory note and had borrowed the amount representing the subject company only, there should have been a specific denial in the written statement and in the absence of such a denial, it should be taken that the case of the plaintiff in this regard had not been disputed by the contesting defendants. The learned Counsel also further submitted that the recitals of the particular promissory note are very clear and the learned Counsel also had pointed out that the amount was borrowed for the purpose of paying electricity charges of the M/s. Kirlampudi Sugar Mills Limited, Pithapuram and as the Chief Executive of the Company he had undertaken to pay the amount. The learned Counsel also had drawn my attention to the signature portion and also the seal which had been affixed in Ex. A-1. Payment endorsement also had been pointed out by the learned Counsel for the respondent/plaintiff while further making elaborate submissions. The learned Counsel commented that it is no doubt true that the plaintiff was not examined, but however P.W.1 who had no knowledge about the transaction was examined and he had deposed about all the details. The evidence of P.W. 1 is well supported by the evidence of P.W. 2 the attester of Ex.A-1 and hence in the light of this evidence, it can be said that the cause of action of the promissory note is duly proved by the respondent/plaintiff. Hence, non-examination of the plaintiff is of no consequence. The learned Counsel further contended that it is no doubt true that certain details which had been narrated by P.W.1 had not been pleaded in the plaint. But, however, while considering the pleadings, the Courts are expected to take a liberal view so as to advance the substantial justice instead of taking a narrow and technical view while looking into the pleadings. The learned Counsel also had drawn my attention to Section 47 of the Indian Companies Act, 1956 and had contended that in the light of the language of the said provision, it cannot be said that the 1st defendant had no authority to borrow the amount representing the company. The learned Counsel submitted that it is not the case of the other side also and had pointed out to the admissions made by D.W.1 in this regard in the cross-examination that is relating to authority of the 1st defendant to borrow the amounts on behalf of the company and representing the company. The learned Counsel further submitted that the 1st defendant had not chosen to contest the matter of defendants 2 and 3 who are liable to pay the amount. The company will be in the custody of all the records and a 3rd party creditor cannot be expected to know about the several internal affairs relating to the Indoor Management of the company as such and hence the respondent/plaintiff/3rd party creditor cannot be expected to produce such a relevant material which would be in the custody of the opposite party and hence in such a case, non-production of such records by the company should be taken serious note of and this was rightly done by the trial Court. Strong reliance was placed on Gopal Krishnaji v. Mohamed Haji Latif . The learned Counsel further submitted that though Sections 4, 26, 27 and 28 of the Negotiable Instruments Act, 1881 may throw some light on the Negotiable Instruments, in the case of execution of promissory notes on behalf of the Company, the provisions of the Companies Act, 1956 have to be looked into for the purpose of deciding the binding nature of such a document. The learned Counsel had drawn my attention to the language of Section 47 of Indian Companies Act, 1956 while taking me in detail through the evidence of D.W.I. The learned Counsel commented that the admissions made by D.W.1 are sufficient to establish the claim put forth by the respondent/plaintiff. The learned Counsel placed strong reliance on Oriol Industries Ltd, v. Bombay Mercantile Bank Ltd. , and P. Rangaswami Reddiar v. R. Krishnaswami Reddiar . The learned Counsel also had placed reliance on Lohia Properties (P.) Ltd. v. Atmaram Kumar 1993 (2) APLJ 58 (SC), and also Bharat Barrel & Drum Mfg. Co. v. Amin Chand Pyarelal .
13. Heard both the learned Counsel at length and also perused both the oral and documentary evidence available on record from the respective contentions which had been advanced by both the Counsels elaborately. The following points for consideration will arise in this appeal.
(a) Whether the appellants/defendants 2 and 3 are also liable to pay the amounts due under Ex.A-1 promissory note ?
(b) Whether the respondent/plaintiff has cause of action to file the suit as against the appellants/defendants 2 and 3 ?
(c) Whether the trial Court had appreciated the aspect of burden of proof in the context of Section 118 of the Negotiable Instruments Act, 1881 properly ?
(d) To what relief ?
Points a to c.
14. Since points a to care closely inter-connected and for the purpose of avoiding overlapping discussion and for the purpose of convenience, all these points are being discussed together.
15. The suit is based on the strength of promissory note dated 30-3-1982 executed by the 1st defendant in favour of the plaintiff for Rs. 40,000. It was marked as Ex.A-1 and the endorsement on the promissory note was marked as Ex.A-2, Ex.A-3 is the office copy of notice. Exs. A-4 to A-8 are the postal acknowledgements. The evidence of P.Ws. 1 and 2 had been let in on behalf of the plaintiff. The 1st defendant had not chosen to contest the matter. No doubt, defendants 2 and 3 filed written statements taking a stand denying the very execution of Ex.A-1 but however the proper person to take a stand in this regard is the 1st defendant. As already observed by me, the 1st defendant had not chosen to contest the matter. P.W. 1 is one Jogarao, the cousin brother of the plaintiff. P.W. 1 deposed that he worked as Yard Inspector in K.S. Mills, Pithapuram and had resigned his job in 1984. P.W. 1 also deposed that the 1st defendant was the Chief Executive of D.2 factory and one Narasimha Rao, worked as Cane Superintendent in D.2 factory. He also had resigned his job and Mohan Chatterjee was working as cashier in the 2nd defendant's factory and still he is working as cashier in the 2nd defendant's factory. P.W. 1 further deposed that the 1st defendant asked him for a loan of Rs. 40,000 for paying electrical charges for 2nd defendant's factory and he brought the money from his cousin's brother, the plaintiff and gave Rs. 40,000 to 1st defendant and on the next day, the 1st defendant executed a promissory note as the Chief Executive of 2nd defendant's factory and agreed to pay interest at 2 per cent p.m. This witness also further deposed that Ex.A-1 was executed at the premises of the factory and D. 1 also affixed stamp of the mill and signed the pronote so as to show that the debt is for the mill. P.W. 1 further deposed that the attestors of the Ex.A-1 were present when the consideration of Rs. 40,000 was passed and the plaintiff was not present when Ex.A-1 was executed. P.W.1 also further deposed that the 1st defendant on behalf of the 2nd defendant paid Rs. 10,000 towards the part payment of debt covered by Ex.A-1 and the said endorsement was marked as Ex.A-2 and it also contains the stamp of the mill and subsequently, thereto no other payment had been made. P.W.1 further deposed about the issuance of notice and the acknowledgement in the cross-examination at length for the purpose of establishing that D2 and D3 are not liable and the suggestion that Ex.A-1 is the collusive document to defraud D-2 and D-3 had been specifically denied by P.W.1
16. P.W. 2 Narasimha Rao, one of the attestors of Ex. A-1 was examined and P,W. 2 deposed that he worked as Cane Superintendent in Sugar Mill from 1952 to September, 1982. P.W.2 also deposed that the 1st defendant was the Chief Executive of the 2nd defendant and he had attested Ex.A-1 and in his presence P.W. 1 paid Rs. 40,000 to the 1st defendant and he attested the pronote and he was present at the time of payment of Rs. 40,000 and also at the time of execution of Ex.A-1 and the 1st defendant executed in his capacity as the Chief Executive of the 2nd defendant. P.W.2 also deposed about the affixing of the stamp of the Sugar Mills on the promissory note. P.W.2 also deposed that the promissory note was executed in favour of G. Venkata Rao but he was not present either at the time of payment of consideration or at the time of execution of Ex.A-1. No doubt, this witness was also cross-examined by putting certain suggestions but however the suggestions had been denied by P.W. 2. As against the oral and documentary evidence adduced on behalf of the respondent/plaintiff and on behalf of the appellants/ contesting defendants Ex.B-1 entry at page 357 in cash book relating to Kirlampudi Sugar Mills Ltd., for the year 1981-82; Ex. B-2 ledger at page 223 for the year 1981-82 as expenditure towards Electricity charges and Ex.B-3 is the ledger at page 358 for the year 1981-82 towards cash advance from Andhra Bank, Pithapuram had been marked. D.W.1 the only witness had deposed that he has been working in the D.2 factory since 1970 as accounts clerk and no doubt he deposed about the entries made in the regular course of his business and had spoken about the electrical Charges. D.W.1 also had deposed that from the plaintiff there is no credit entry in the books of the Company and hence the company is not liable to pay anything to the plaintiff. D.W.1 also deposed that the factory accounts do not show any payment of Rs. 10,000 on 29-9-1982 to the plaintiff. This witness was cross-examined at length and in cross-examination, D.W.1 admitted that there will be vouchers when the loans are taken on promissory notes by the company. D.W.1 also deposed that cashier prepares the vouchers and send them to him and if the vouchers are misplaced or not received by him for any reason, that will not be accounted for and he has nothing to do with the balance in the account or the cash in hand and he does not deal with cash and therefore he cannot say whether the cash balance represented is there or not. D.W. 1 also deposed that he does not know personally where from the cash was paid for electricity bills. D.W. 1 also deposed that Sri Mahesh Kumar Patwari was the Chief Executive and he is D1 in this case and he is authorised to borrow and pay moneys and he is also a general power of attorney holder. D.W. 1 also made several other admissions which may not be necessary to be dealt with in detail. No doubt, in cross-examination relating to the entries several questions were put and answers had been elicited in detail. D.W.1 also was cross-examined relating to the maintenance of several loose sheets relating to the company in relation to the maintenance of accounts. As can be seen from the evidence available on record, P.Ws. 1 and 2 had specifically deposed that the plaintiff was not present at the time of Ex.A-1 transaction and the payment was made by P.W.1 the cousin brother of the plaintiff and hence P.W.1 was examined and to further prove the execution of the promissory note though it was not specifically denied by the 1st defendant, P.W.2 one of the attestors also had been examined. Thus the execution of the promissory note had been duly proved that the Executant of the promissory note the 1st defendant had not chosen to deny Ex.A-1. It is also pertinent to note that in the plaint at para 4 it was specifically pleaded that the 1st defendant had executed the pronote as the Chief Executive of the company and this aspect was not specifically denied though a vacate plea was taken in the written statement.
17. In Lohia Properties (P.) Ltd. 's case (supra) it was held that when the plaint contains specific averment as to service of notice of termination of tenancy on the tenant and it was not denied in written statement and only legality of the notice contested in the written statement. Non denial of service amounts to implied admission.
18. Not only that the 1st defendant had not chosen to contest the matter but also in view of the clear evidence of P.Ws. 1 and 2 it can be definitely said that the execution of Ex.A-1 had been duly proved. No doubt, the learned Counsel for the appellants had pointed out that in the plaint it was not specifically pleaded that P.W.1 had borrowed the amount from the plaintiff for the sake of the company and paid the amount to the 1st defendant. The learned Counsel had contended that this is the variance between the pleading and proof. In Mir Niyamalh Ali Khan v. Commercial & Industrial Bank Ltd. AIR 1969 AP 294, it was held thus :
"...although the evidence let in on issues on which the parties actually went to trial should not be normally made the foundation for decision of another and different issue, which was not present to the minds of the parties and on which they had no opportunity of adducing evidence, that rule, however, has no application to the present case where the parties have gone to trial with full knowledge that the very question is in issue, though no specific issue was framed, and adduced evidence relating thereto. Normally the Court will not grant relief to the plaintiff on a case for which there was no foundation laid in the pleadings and which the defendant was not called upon to meet. It may be either oral or in writing. It may be expressed or it may even be implied. It might be even inferred from the course of conduct of the parties concerned. However, whatever may be the form of the contract, it must be satisfactorily proved...." (pp. 297-298)
19. It is no doubt true that the details deposed by P.W.1 had not been pleaded in the plaint but the evidence of both P.Ws.1 and 2 is clear, categorical and consistent relating to the effect that the plaintiff was not present at the time of Ex.A-1 transaction and P.W.1 paid the amount and P.W.2 and other attestors were witnesses who had witnessed the transaction. In the light of such clear evidence, I do not see that the mere omission to plead these aspects can be taken to be fatal to the case of the respondent/plaintiff so as to non-suit him. In Ganesh Trading Co. v. Moji Ram AIR 1978 SC 484, the Apex Court while dealing with object of provisions relating to pleadings had explained as follows :--
"2. Procedural law is intended to facilitate and not to obstruct the course of substantive justice. Provisions relating to pleadings in civil cases are meant to give to each side intimation of the ease of the other so that it may be met, to enable Courts to determine what is really at issue between parties, and to prevent deviations from the course which litigation on particular causes of action must take." (p. 485)
20. In Manjushri Raha v. B.L. Gupta , it was held that the pleadings have to be interpreted not with formalistic rigour but with latitude or awareness of low legal literacy of poor people.
21. Hence in the light of the evidence of P.Ws. 1 and 2 it cannot be said that the non-examination of the plaintiff is fatal to the case of the plaintiff especially in the light of the fact that plaintiff was not present and it is P.W.1 who had advanced the amount and P.W.2 the other witness who had witnessed the passing of consideration and also execution of Ex.A-1 and hence, the mere omission to plead this aspect cannot be taken as a serious defect in the pleading. Before adverting to the other contentions which had been argued at length by the learned Counsel representing to the respective parties it may be appropriate to look into Ex.A-1. Ex.A-1 the demand promissory note reads as hereunder.
DEMAND PROMISSORY NOTE Pithapuram, Dated 30-3-1982 Rs. 40,000 (Rupees forty thousand only) Promissory note executed by Mahesh Kumar Patwari son of Ramgilal Patwari of Pithapuram in favour of Giyyana Venkata Rao son of Appalaraju of Thimmapuram on demand, I promise to pay Rs. 40,000 (Rupees forty thousand only) borrowed from you today for the purpose of paying electricity charges of the Kirlampudi Sugar Mills Ltd., Pithapuram of which I am the Chief Executive and I undertake to pay the same with interest at Rs. 2 per cent per mensum to you on order. The consideration is received in cash today from you and undertake to be also personally liable.
Mahesh Patwari Witnesses :
1. Narasimha Rao
2. Mohan Chaterjee It is no doubt true that the commencement portion of the promissory note reads as though it is executed by Mahesh Kumar Patwari son of Ramgilal Patwari but however if the document is read as a whole it is specifically stated that he had executed as the Chief Executive and had undertaken to pay the amount borrowed with interest at 2 per cent per month. The promissory note is attested by two witnesses and the 1st defendant not only had signed Ex. A1 but also the seal of the company is affixed. Apart from Ex.A1 even in the payment of endorsement of Ex.A2, the 1st defendant signed as the Chief Executive affixing the stamp of M/s. Kirlampudi Sugar Mills, Limited. Thus a careful reading of Ex.A1 clearly goes to show that Ex.A1 was executed by the 1st defendant as the Chief Executive of the 2nd defendant company at the relevant point of time.
Now the question which had been seriously argued by the learned Counsel for the appellants to the effect that Ex.A1 transaction is not binding on the 2nd and 3rd defendants, has to be considered in the light of the elaborate submissions advanced by the learned Counsel for the appellants/defendants 2 and 3. It is no doubt true that defendants 2 and 3 arc not shown as parties in the main body of the document. The 3rd defendant is only a successor-in-interest in the present management of the affairs of the company. The main stand taken by the contesting defendants is that inasmuch as this amount was not shown in the accounts, defendants 2 and 3 cannot be fastened with the liability on the strength of the promissory note alleged to have been executed by the 1st defendant. Sections 26, 27 and 28 of the Negotiable Instruments Act read as hereunder :
"Section 26. Capacity to make, etc. promissory notes, etc.--Every person capable to contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing acceptance, indorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.
Minor - A minor may draw, indorse, deliver and negotiate such instruments so as to bind all parties except himself. Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered."
Note Whether company has power to issue cheques - The power is to be found in the relevant provisions of the Companies Act itself. Section 26 does not purport to make any provision of substantive or procedural law. The latter part of Section 26 merely brings out that a company cannot claim authority to issue a cheque under its first part. Oriol Industries Ltd. v. Bombay Mercantile Bank Ltd. .
Section 27 : Agency - Every person capable of binding himself or of being bound, as mentioned in Section 26 may so bind himself or be bound by a duly authorised agent acting in his name. A general authority to transact business and receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind his principal.
An authority to draw bills of exchange does not of itself import an authority to indorse."
Section 28 : Liability of agent signing - An agent who signs his name to promissory note, bill of exchange or cheque without indicating thereon that he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable."
Sections 47 and 147(l)(c) of the Indian Companies Act, 1956 read as hereunder :
"Section 47 : Bills of Exchange and promissory notes - A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a company if drawn, accepted, made, or endorsed in the name of, or on behalf or on account of, the company by any person acting under its authority, express or implied.
Section 147 : Publication of name by company - (1) Every company--
(a) ** ** **
(b) ** ** **
(c) shall have its name (and the address of its registered office) mentioned in legible characters in all its business letters, in all its bill heads and letter papers, and in all its notices [***] and other official publications; (and also have its name so mentioned in all bills of exchange), handies, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the company, and in all bills of parcels, invoices, receipts and letters of credit of the company."
22. In Oriol Industries Ltd. 's case (supra) the Apex Court had observed as follows :
"Before a company can be bound by a negotiable instrument one of the essential conditions is that the instrument on its face must show that it has been drawn, made accepted or endorsed by the company. This may be done either by showing the name of the company itself on the instrument, or by the statement of the person making the instrument that he is doing so on behalf of the company. In other words, unless the plain tenor of the negotiable instrument on its face satisfies the relevant requirement the instrument cannot be validly treated as an instrument drawn by the company. The inevitable consequence of this requirement is that whenever a negotiable instrument is issued without complying with the said requirement it would not bind the company and cannot be enforced against it. The principle enunciated by Section 89 cannot be extended to a claim made by a company against its bank on the ground that the cheque which the bank accepted and honoured was defective in that it did not comply with the requirements of Section 89 and could not have been enforced against it." (p. 993) It may also be relevant to note another passage in the same judgment in Oriol Industries Ltd.'s case (supra). The Apex Court had observed as follows :
"That takes us to the principal question of law in dealing with the said question it is first necessary to refer to Section 26 of the Negotiable Instruments Act, 1881 (26 of 1881). This section provides that 'every person capable of contracting according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsements, delivery and negotiation of a promissory note, bill of exchange or cheque'.
This section further provides, inter alia, that 'nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered'.
This section does not purport to make any provision of substantive or procedural law. The latter part of the section merely brings out that a company cannot claim authority to issue a cheque under its first part. The law in regard to the company's power to issue negotiable instruments has to be found in the relevant provisions of the Companies Act itself. We must, therefore, turn to Section 89 of the said Act." (p. 995)
23. In Visvonata Raghunath Audi's case (supra) it was held there is no presumption about execution of a negotiable instrument and in case of a denial by the opposite side the party basing its claim on such instrument must fully prove its execution.
24. In Jhandu Mal & Son's case (supra) it was held that Company not liable for promissory note executed by and in name of agent so authorised. In Probodh Chandra Chakravarty's case (supra) it was held thus :
"Where a director of company executing promissory note thereby promising to pay certain amount both in his personal capacity as well as on behalf of company. His signature having at its top words 'on behalf of company' impressed by rubber stamp. It was held that this endorsement at the top held did not alter his personal liability."
Strong reliance was also placed on Brindaban Chandra Mitra's case (supra).
25. In Mangal Baku's case (supra) while dealing with the liability of Company in case of a promissory note executed by managing agent personally it was held as hereunder :
A firm belonging to a joint Hindu family of which J was the manager, were the managing agents of an electric supply company. J borrowed some money from P and executed in his own name a promissory note in favour of P. J also pledged certain fully paid up share held by the family in his name and transferred in blank the share of P. The money borrowed by J was deposited in the High Court on behalf of the company in order to secure the postponement of the appointment of a provisional liquidator. There was no indication in the promissory note that J was acting on behalf of the company. All the indications in the case were that the loan was made to J personally and on his personal security, there being very good reasons why P should not lend the money to the company. The question was whether the company could be made liable for the payment of the loan :
(1) that the mere fact that the company benefited was not by itself sufficient to bind the company;
(2) that before the company could be held liable, it must be found not only that money came into their hands but that it was in effect put into their hands by P through the managing agents, it being understood by both parties when the promissory note was executed that the company would be liable for repayment;
(3) that though J signed as manager of the family and though the managing member of a joint Hindu family could execute in his sole name a promissory note which would be binding on the family as a whole, there was no justification for extending the principle to a company, for which there is a special provision in Section 89 of the Indian Companies Act;
(4) that the company was not therefore liable for the payment of the loan.
The general principle to be followed in cases of negotiable instruments is that the name of a person or firm to be charged upon a negotiable document should be clearly stated on the face or on the back of the document, so that the responsibility is made plain and can be instantly recognised as the document passes from hand to hand. It is not sufficient that the name of the principal should be in some way disclosed; it must be disclosed in such a way that on any fair interpretation of the instrument, his name is the real name of the person liable on the bill.
If B borrows money from A in order for his own purposes to lend it to C, C cannot be held to A, even if A knew with what object the money was being borrowed. Before he can be held so liable, it must be found that the loan was actually a loan to C.
26. Strong reliance was also placed on the principles of construction of a promissory note as decided in Edula Ayyappa Reddy's case (supra).
27. Apart from the above decisions relating to the aspect of presumption under Section 118 of Negotiable Instruments Act, 1881 no doubt reliance was placed on G. Vasu 's case (supra) and also Bharat Barrel & Drum Mfg. Co.'s case (supra).
28. In P. Rangaswami Reddier's case (supra) it was held thus :
"4. The next contention of the appellants is that there is no resolution by the Board of Directors of the company in terms of Section 292(c) of the Companies Act enabling the Managing Director to borrow money on promissory notes. Apart from the fact that this plea had not been raised in the written statement there is no substance also in this contention. It is not disputed that the Memorandum and Articles of Association allow borrowing by the directors. The transaction is a loan which is therefore authorised under the Memorandum and Articles of Association. Article 21 of the Memorandum provides that the Directors may raise or borrow money on promissory notes. By Resolution 4 of Ex. A2 which is a certified copy of the registration of resolutions, the 1st defendant was appointed as the managing director. Resolution 6 vested in him full powers for the management of the company's affairs and also authorised him to sign all papers of the company. The transaction is, therefore, one which could be entered into on behalf of the company by the first defendant. In such a circumstance, the creditor is entitled to presume that all formalities required in connection therewith have been complied with. A bona fide creditor in the absence of any suspicious circumstance is also entitled to presume its existence. The creditor being an outsider or a third party so far as the company is concerned is entitled to proceed on the assumption of the existence of such a power. In fact the money was utilised for the purpose of the company is not in dispute and the 2nd defendant himself has made a part payment towards this promissory note. In this connection it is also useful to refer to the decision of the Allahabad High Court in L.R. Cotton Mills Co. v. J.K. Jute Mills Co. . It was held in that case that even where there was no actual resolution authorising a director to enter into a transaction on behalf of the company either by the Board of Directors or by the Board of Managing Agents a claim of a creditor could not be affected if the terms of its Memorandum and Articles of Association authorised such a transaction. It was also held that in such a case the person negotiating with a company is entitled to presume that all the formalities in connection therewith have been complied with. There is no dispute in this case as to the bona fides of the plaintiff. This contention of the appellants is therefore unsustainable." (p. 252) In Surve Kedarappa v. D.G. Bhimappa AIR 1959 Mys. 36, it was held thus :
"The plaintiff, an endorsee of a promissory note executed by the defendants in favour of a company sued on the basis of that note impleading as defendant the Manager of the Branch of the Company who had endorsed the note in his favour. Under the Articles of Association of the Company the Managing Director of the Company had authority to endorse or negotiate any bill of exchange, promissory note etc. executed in favour of the Company and in such circumstances it was :
Held, that the plaintiff was entitled to assume that the Manager of the branch had authority to assign the pronote in question within the meaning of Section 89, Companies Act. Under Section 118, Negotiable Instruments Act there is a presumption that the holder of a negotiable instrument is a holder in due course. It was for the defendants to establish that the Branch Manager had no authority to endorse the note and that the plaintiff was not a holder in due course." (p. 36)
29. The learned counsel for the respondent/plaintiff had placed strong reliance on Gopal Krishnaji's case (supra) to the effect that the non-production of documents on the part of the defendant's company should be taken serious note of and an inference had to be drawn as against the company and not as against the respondent/plaintiff. In the aforesaid decision it was held that a party in possession of best evidence which would throw light on the issue in controversy withholding it, Court ought to draw an adverse inference against him notwithstanding that onus of proof does not lie on him.
30. On appreciation of oral and documentary evidence available on record in the present case, the 1st defendant as Chief Executive of the Company at the relevant point of time had not denied the execution of Ex.A1 promissory note. The 3rd defendant is only a successor-in-interest of the 2nd defendant company who is in the present management of the affairs of the company. The material on record also shows that several other liabilities of the company also had been discharged by the present management but; however, the appellants defendants 2 and 3 in the present suit had taken a stand that inasmuch as Ex. A1 transaction does not find a place in the accounts of the company, the company cannot be made liable. As already observed by me, the Chief Executive of the company at the relevant point of time executed Ex.A1 and borrowed the amount for the purpose of payment of the electricity bills of the company only. Hence the said borrower pays for the sake of the company and at any stretch of imagination, it cannot be said that the amount was borrowed by the 1st defendant in his personal capacity.
31. It is pertinent to note that the making of entries or maintenance of account books by the company predominantly relate to the Indoor Management or the Internal Management of the affairs of the company with which a creditor is not concerned with and the creditor will not have any control over the maintenance of the accounts and hence on that ground a creditor of the company cannot be non-suited. Even in Section 47 of the Indian Companies Act, 1956 the words implied are "shall be deemed to have been made" and also "express or implied". A careful reading of Section 47 clearly go to show that as far as the companies are concerned relating to binding nature of Negotiable Instruments like bill of exchange and promissory note. Section 47 has to be looked into though the general provisions under the Negotiable Instruments Act, 1881 also may be relevant to some extent. In the light of the clear language of Section 47 especially in the light of the evidence of PW1 and PW2 and also clear admissions made by DW1 relating to the authority of the Executive to enter into Ex. A1 transaction, I am of the considered opinion that the findings recorded by the trial Court fastening the liability in relation to Ex. A1 as against defendants 2 and 3 cannot be said to be unsustainable. Hence I do not see any reason to disturb any of the findings which had been recorded by the trial Court in this regard. No doubt, on the aspect of the burden of proof and also presumption that can be drawn under Section 118 of the Negotiable Instruments Act several contentions had been advanced by both the learned Counsels. But, however, in the light of the clear evidence of PW1 and PW2 and admissions made by DW1 and also the different provisions under Sections 26, 27 and 28 of the Negotiable Instruments Act, 1881 and also Section 47 and also Section 147(1)(c) of the Indian Companies Act, 1956, it is not necessary to further discuss these aspects in detail since it will not alter the situation in any way in favour of the appellants/defendants 2 and 3. Hence all the findings recorded by the trial Court are hereby confirmed.
Pointed
32. In the light of the findings recorded above in detail especially in the light of the oral and documentary evidence available on record the appeal is devoid of merits and accordingly the appeal is dismissed with costs.
33. This Court also records its appreciation for the able assistance given by both the learned Counsels Sri Chitturu Srinivas and Sri Ram Mohan in deciding the matter.