Patna High Court
Sarajoo Pd. And Anr. vs Smt. Rampayari Debi And Ors. on 19 April, 1950
Equivalent citations: AIR1950PAT493, AIR 1950 PATNA 493
JUDGMENT Ramaswami, J.
1. In the suit out of which this appeal arsse the plaintiffs claimed a sum of Rs. 2459 and odd from defendant 1 being the amount proportionate to his liability under a handnote. It was alleged that plaintiff 2, defendant 1 and Chandrika Prasad father of defendant 3 executed the handnote in favour of defendant 4, benamidar for plaintiff l who actually advanced the amount for which the handnote was executed. The handnote was executed on 30th magh 1342, after which there was separation in the joint family. Plaintiff 2 and the proforma defendant 3 paid off their respective share of the debt and the present suit is brought for the share due from defendant l on the handnote. The main ground of defence was that the handnote was not genuine, that no consideration passed and that the suit was not maintainable. The learned Subordinate Judge accepted the plaintiffs case and decreed the suit. This decree has been affirmed by the learned District Judge.
2. The first question to be determined in this appeal is whether the plaintiff who is not the holder of the promissory note can maintain a suit for the recovery of the amount due thereon even though the holder is admittedly the benamidar and is impleaded in the suit.
3. The answer to the question depends upon the construction of Sections 8 and 78, Negotiable Instruments Act.
4. Section 78 enacts that subject to the provisions of Section 82 (c), which do not apply in the present case, "payment of the amount due as a promissory note, must in order to discharge the maker be made to the holder."
The section is imperative and in my opinion precludes the maker when sued upon the instrument from pleading discharge by payment to anyone but "the holder'. Section 8 defines the "holder" as "any parson entitled in his own name to the possession of the handnote and to receive or recover the amount due thereon from the parties thereto."
The use of the phrase "entitled in his name" is significant, and it is obvious that no one can claim the rights of a holder under the Act on the ground that the ostensible holder is a mere name lender. In this contest reference should be made to Section 27 which provides that "Every person capable of binding himself or of being bound, as mentioned in Section 36, may so bind himself or be bound by a duly authorised agent acting in his name. A general authority to transact business and to 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."
5. Section 32 is also important.
"In the absence of a contract to the contrary, the maker of a promissory note as the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity according to the apparent tenor of the note or acceptance respectively, and the acceptor of a bill of exchange at or after maturity ia bound to pay the amount thereof to the holder on demand. In default of such payment as aforesaid, such maker or acceptor is bound to compensate any party to the note or bill for any loss or damage sustained by him and caused by such default."
Upon a proper construction of these sections it is manifest that the maker of a promissory note can obtain the discharge of a debt by payment to the holder alone and be none else. It makes no difference whether the holder is a benamidar or is a true owner. To say that payment to any one except the holder of the handnote will (not?) discharge the debt is tantamount to saying that no one can recover the debt from the maker of the promissory note except the person in whose favour it is made or who is a holder thereof. By the use of the words "apparent tenor" Section 32 makes it clear that payment in order to be a valid payment must be made to the person whose name appears on the face of the bill or note as entitled to demand payment.
6. In this context it is important to state that according to the Law Merchant no person would be sued unless he appeared as party by name or designation on the face of the instrument ; nor could any person sue unless he was named therein as payee-promises or unless he had become entitled as indorsee or bearer. In Pease V. Hirst, (1829) 10 B. & C. 122 at p. 126 : (S. L. J (o. s.) K. B. 94), Bayley J, made the following observation :
"It is said that the note was considered by all parties to be for the benefit of the new house; and therefore, that the persons who are now partners in the banking house must sue It seems to me that the action has been rightly brought in the names of the members of the firm to whom the note was given. If the note bad been endored to the new firms, then the action must have been brought in the names of the indorsees; but not having been so endorsed, the action is properly brought in the names of the original payees for the benefit of the parties interested,"
7. This opinion is supported by Subba Narayan v. Ramaswami Aiyar, 30 Mad. 88 : (16 M. L. J. 508 P. B.) in which the question was whether it was open to the defendant in a suit on a negotiable instrument to plead that the payee named in the instrument or the indorsee as the case may be was a mere benamidar and not entitled to sue upon the instrument. The Full Bench held that no person could sue on a negotiable instrument unless he were named therein as payee or unless he had become entitled as endorsee or bearer; that in a suit on a negotiable instrument by the payee named therein or the indorsee, it was not open to the defendant to plead that such payee or indorsee was a mere benamidar.
8. This case was followed in Reoti Lal v. Manna Kunwar, 44 ALL. 290 : (A. I. R. (9) 1922 ALL. 70) in which it was observed that the provisions of the Negotiable Instruments Act do not admit of a suit being brought on a promissory note by a benamidar whose name did not appear upon the document.
9. In Harkishore v. Gura Mia 68 Cal. 752: (A. I. R. (18) 1931 Cal. 387) also a Division Bench held that the holder of a promissory note alone was entitled to maintain a suit for the recovery of the amount due thereon, that a true owner who is not a holder cannot maintain a suit on the promissory note. In that case, the note wag purported to have been executed by the principal defendant in favour of pro forma defendant 2 but the plaintiff claimed to have advanced the money and to be the real or beneficial owner of the note. The plaintiff further alleged that pro forma defendant was merely his benamidar and the pro forma defendant himself deposed to that effect. Even so, the lower appellate Court held that plaintiff had no cause of action; and dismissed the suit. The decision was affirmed by the High Court. Patterson J. observed that the property in a promissory note including the right to recover the amount due thereon is vested by statute in the holder of the note. The Negotiable Instruments Act was enacted for the benefit of trade and commerce and the principle underlying it is that promissory notes, bills of exchange and cheques should be negotiable as apparent on their face without reference to secret title to them.
10. In Sadasuk Janki Das v. Kishan Pershad, 46 I. a. 33 : (A. I. R. (5) 1918 P. c. 146), the Judicial Committee had enunciated the same principle. The question was whether upon the form of the hundi respondent 1, viz., the Maharaja was properly included as a defendant in the suit or whether as against him the claim was demurrable. The Judicial Committee held that no person was liable upon a hundi or bill of exchange unless his name appeared upon the instrument in a manner which, upon a fair interpretation of its terms showed that the name is the name of the person really liable, and that in an action of bill of exchange or promissory note against a person whose name properly appears as a party to the instrument it was not open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal. At page 36 Lord Buck, master states :
"It is of the utmost importance 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. In this case tbe preliminary words mention no more than that Mohan Lal has been directed to execute the hundis, and they do not necessarily imply that he has been clothed with authority to execute them in any other form than that in which they were actually prepared--a form which it has already been shown constituted nothing more than a personal liability on behalf of Mohan Lal."
11. On behalf of the respondents reliance waa placed upon Sarjug Singh v. Deosaran Singh, 11 P L. T. 255 : (A.I.R. (17) 1930 Pat. 313) in which Kulwant Sahay J. held that Section 78 did not debar the real beneficiary under the promissory note from suing on the basis of the note if he can give a discharge to the maker of the promissory note. The learned Judge expressly based the decision upon Broja Lal v. Budhnath, 55 cal. 551: (A. I. R. (15) 1928 cal. 148) which has been dissented from in the subsequent Calcutta case Harkishore Barna v. Gura Mia, 58 cal. 752 : (A. I. R. (18) 1931 cal. 387) wherein it was held that a true owner who was not a holder cannot maintain a suit on a promissory note even though the holder was admittedly his benamidar and was made a party to the suit. In a later Patna case also Hriday Singh v. Kailash Singh, 19 Pat. 404: (A.I.R. (27) 1940 Pat. 377), a Division Bench held that in a suit based on a negotiable instrument it was not open to the defendant to plead that the holder of the note, viz., the payee was not the person entitled to recover on it that is to say, the defendant cannot plead that the person to whom the money was due was not the plaintiff, who was the specified payee, but someone else. The decision of Kulwant Sahay J, in Sarjug Singh v. Deosaran Singh, 11 P. L. T, 255 : (A. I. R. (17) 1930 pat, 313) was disapproved.
12. On behalf of the respondents reference was also made to Surajman Pd. v. Sadanand, A.I.R (19) 1932 Pat. 346 : (11 rat. 616) in which a Division Bench hold that in a suit on a promissory note in which the holder, though not a plaintiff was party and the plaintiff real owner was in a position to give to the drawer through the holder a discharge, the plaintiff could maintain a suit. Learned counsel also referred to another Division Bench case Ramnagina Pd. v. Bishwanath Pd., 15 P. L. T. 102 : (A. I. R. (21) 1931 Pat 85) in which it was held that Section 78 did not debar the real beneficiary under the hand-note from suing on the basis of the note i£ ho can give a discharge to the maker of the hand-note and if the person in whose name the document stands is a party to the litigation and does not dispute the plaintiff's right to recover the loan and give a valid discharge. But I think that the authority of the two cases is doubtful in view of the decision of the Judicial Committee in Sadasuk Jankidas v. Kishen Pershad, 46 I, A 33 : (A. I. R. (5) 1918 P. C. 146) wherein the rule is clearly laid down that in an action on a bill of exchange or promissory note against a parson whose name properly appears as party to the instrument it was not open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal. In any event the present case may be distinguished from Surajman Pd. v. Sadanand, A.I.R. (19) 1932 Pat. 346 : (11 Pat 616) and Ramnagina Pd. v. Bishwanath Pd., 15 P. L. T. 102: (A.I.R (21) 1934 Pat. 85) because defendant 4 in whose name the handnote stands did not appear in the trial Court though summoned nor did she offer to give a discharge to defendant 1 if the latter should make payment to the plaintiff. In the High Court when the appeal was heard Mr. Rajeshwar Prasad Singh, advocate, filed a vakalatnama on behalf of defendant 4 and offered to give a discharge. Even so the facts would not be strictly parallel to Sarajman Pd. v. Sadanand, A.I.R. (19) 1932 Pat. 346 : (11 Pat. 616) and Ramnagina Pd. v. Sudanand, 15 P. L. T. 102 : (A.I.R (21) 1931 Pat. 85) the authority of which is highly doubtful for reasons I have already stated.
13. On the first question therefore I hold that the contention on behalf of the appellants is correct and that the suit cannot be maintained in view of Section 78, Negotiable Instruments Act.
14. For the respondents it wag nevertheless maintained that every loan carried with it a contract to repay and that it was open to the respondents to bring a suit on the original consideration of the handnote. It is necessary that the question should be subjected to a closer legal analysis. When a promissory note is given by the borrower to the lender in connection with the loan either at the time when the loan is contracted or afterwards the promissory note may be regarded as given either as collateral security or as conditional payment. The fact that the execution of the promissory note is contem poraneous with the borrowing cannot exclude the possibility of the instrument having been given as collateral security or by way of conditional payment. The question depends in each case on the intention of the parties. In the former case the lender is entitled to are upon the original consideration independently of the security and without regard to any rights he may possess under the negotiable instrument. But if the promissory note or other negotiable instrument is treated as a conditional payment of the loan the cause of the action on the original consideration is suspended during the currency of the negotiable instrument. But the cause of action to resover the amount of the debt revives if the negotiable instrument is dishonoured or the rights thereunder are not enforceable. On the contrary the cause of action on the original consideration is extinguished when the amount due under the negotiable instrument is paid or if the lender by negotiating the instrument or by laches or otherwise has made the bill his own and thus accepted the negotiable instrument in accord and satisfaction of the borrower's liability on the original consideration In In re Romer and Hastam, (1893) 2 Q. B 286 at p. 296: (62 L. J. P. B. 610) Esher M. R. states:
"It is perfectly well-known law, which is acted upon in every form of mercantile business, that the giving of a negotiable security by a debtor to his creditor operates as a conditional payment only, and not as a satisfaction of the debt, unless the parties agree so to treat it, Such a conditional payment is liable to be defeated on non-payment of the negotiable instrument at maturity, and it is surprising that there can be at the present day any doubt as to the business result of such a transaction." In the same case Bowen L, J. states at p. 300:
"It has been established by a series of authorities, which it would be ridiculous to go through seriatim, that a bill of exchange given for a debt amounts to conditional payment of that debt, and is only conditional payment so long as it is running; the payment is liable to be defeated when the bill is dishonoured."
15. The principle has been recognised in a catena of authorities.
16. In Golab Chand v. Mohokoom Kooaree, 3 Cal. 314 : (2 C. L. R. 412n), Kennedy J. observed that the plaintiff in a suit of promissory note written on unstamped paper was not debarred from giving independent evidence of consideration and that the principle was well settled that the existence of an unstamped promissory note did not prevent the lender of money from recovering on the original consideration if the pleadings are properly framed for that purpose.
17. In Sheikh Akbar v. Sheikh Khan, 7 Cal. 256 : (8 C. L. R. 528), the plaintiff had sued to recover a gum of money on a handnote which wag insufficiently stamped. The question before the High Court was whether the evidence for the consideration of the note was admissible. Garth C. J. observed that if a cause of action for money was complete in itself, whether for goods sold, or for money lent, or for any other claim, and the debtor then gave a bill or note to the creditor for payment of the money at a future time, the creditor, if the bill or note was not paid at maturity, might always, as a rule, sue for the original consideration, provided that he had not endorsed or lost or parted with the bill or note, under such circumstances as to make the debtor liable upon it to some third person. But when the original cause of action was the bill or note itself, and did not exist independently of it, as for instance, when, in consideration of A depositing money with B, B contracted by a promissory note to repay it with interest at six months' date, there was no cause of action for money lent, or otherwise than upon the note itself, because the deposit was made upon the terms contained in the note, and no other. In such a case the note was the only contract between the parties and if for want of a proper stamp or some other reason the note was not admissible in evidence the creditor must lose his money.
18. The law has been similarly expounded in Krishnaji Narayan v. Rajmal Manikchand, 24 Bom. 360 : (2 Bom. L. R. 25) in which Jenkins C. J. held that the holder of a hundi which was defective and inadmissible in evidence for want of stamp may still sue on the consideration the person to whom he gave it though he cannot use the bill in support of his suit.
19. In Payana Reena Saminathan v. Pana Lana, Palaniappa, 41 I. A 142 (P. C.), the respondent commenced an action in the District Court of Colombo on two promissory notes. At the trial it appeared that material alteration had been made in the promissory notes by one of the arbitrators at the request of the respondent. The action was accordingly dismissed. The respondent then commenced a second action against the appellants claiming payment of the sums due on the promissory notes. The Supreme Court held that the appellants had failed to discharge the onus of rebutting the presumption that the promissory notes were given in conditional payment and further that the respondent was not precluded by the judgment in the previous action from bringing the present action. In appeal the Judicial Committee also held that the second action was maintainable. At p. 147 Lord Molton states :
"Through an innocent act the promissory notes have become incapable of being enforced, and the appellants have availed themselves of this and have refused to pay the notes, so that payment in the form contemplated has failed. But this does not affect the substance of the award or the basis of the arrangement, which was liability, and therefore it was open to the respondent to being an action for the unpaid balance of the sum found due i. e., for the amount of the promissory notes."
20. In the present case the circumstances indicate that the handnote was taken as collateral security for the debt. In para, 6 of the plaint it is alleged that plaintiff 1 advanced Rs. 600 on 15th January 1935 to the joint Hindu family consisting of plaintiff 2, defendants l and 2 and father of defendant 3 and that a further sum of Rs. 4400 was paid on 18th February 1935 to the same persons in order to pay mokkari rent clue to Raj Darbhanga. It is alleged in the plaint that as collateral security for the two loans plaintiff 2, defendants 1 and 2 and father of defendant 3 executed the handnote on 30th Magh 1342 in favour of the persons already named. In para. 15 of the plaint it is said that the cause of action arose on 15th January 1935 and on 18th February 1935, the date of the loans and the date of the handnote. The evidence of the witnesses examined for the plaintiff would also suggest that the handnote was taken as collateral security for the loans which have been made to the defendants. In view of the principles already enunciated it must be held that the plaintiffs are entitled to maintain the suit not upon the handnote but upon the original consideration of the loan.
21. For these reasons I should affirm the decree of the lower appellate Court and dismiss this appeal with costs.
Sarjoo Prasad, J.
22. I agree.