TMI Blog1981 (1) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... npaid in spite of demands and a notice. The second defendant filed written statement contending that the firm has been dissolved, that the third defendant had no authority to borrow money so as to bind the firm, that the business was stopped on account of the unlawful acts of the third defendant, that documents in the suit are brought about by collusion of the plaintiff and the third defendant who are friends, that loan could not be contracted without the junction of the second defendant, that in any event the alleged promissory notes are hot supported by consideration and are vitiated by collusion, that they did not find a place in the accounts maintained by the third defendant, that there was no necessity for borrowing on behalf of the firm, that in any event plaintiff is not entitled to interest or a decree against the firm or the second defendant, that the promissory notes do not appear to have been duly stamped at the time of execution and therefore are hot admissible in evidence. The third defendant filed written statement admitting execution of the documents but denying that they were duly stamped or that they were executed as promissory notes. According to him, on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no interest can be claimed, and that the plaintiffs are not entitled to decrees either on the promissory notes or on the basis of the debts. Accordingly, both the suits were dismissed with costs of defendants 1 to 3. The respective plaintiffs now seek redress at the hands of this Court. 5. Exts. A1 and A2 purport to be the two promissory notes which are subject matter of the suit O. S. 157/71. Ext. A37 is the alleged promissory note being the subject-matter of O. S. 252/72. A contention was raised by the defendant in the trial court that the documents are not promissory notes. This contention was overruled by the trial court. Learned counsel for the respondents have urged this contention before us also. They argued that Exts. A1, A2 and A37 cannot be treated as promissory notes for two reasons, viz., that they do not mention the promisee and they are not executed to the order of the payee. Section 4 of the Negotiable Instruments Act defines promissory note as an instrument in writing (not being a banknote or a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of, a certain person or to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the documents as a whole would show that the person whose name is written at the top was intended to be indicated as the payee under the document. In each of the documents, the payee is ascertained by name and the name is given at the top. The instruments definitely and with certainty point out the persons who are to receive the money. As pointed out by Bhagwati, J. (as he then was) in Jagjivandas v. Gumanbhai (AIR 1967 Guj 1) that - Section 4 does not say that the name of the payee must appear in the words of the promise nor does it say that the payee must be specified in any particular part of the instrument. The name of the payee may be set out in any part of the instrument and so long as it appears clearly on a reading of the instrument taken as a whole that the instrument specifies the payee with certainty, the instrument must be held to be a promissory note if the other ingredients of the definitions are satisfied. We have no hesitation to agree with the trial court that Exts. A1, A2 and A37 clearly spell out and specify the payee with certainty and therefore the documents have to be treated as promissory notes. 6. The next question which arises for consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant's firm. Ext. B3 day book does not make any reference to the amounts covered by Exts. A1 and A2. D. W. 1 has no personal knowledge about any transaction. He is not in a position to speak about Ext, B3 or any of the entries therein. He only states that Ext. B3 was given to him when the partnership business was closed in April, 1971. Though it is admitted that the business was stopped in 1971, no document was produced to show in which month the business was stopped or the firm was dissolved. D.W.I also stated that third defendant had no authority to borrow without his junction. Ext. B3 refers to other loans and repayments regarding which D W 1 has no knowledge, DW 2 clearly admitted that he executed Exts. A1 and A2 though he would say they were not stamped. According to him he had not borrowed any monies thereunder. He was making purchase of arecanuts from P. W. 1; sometimes he used to pay the money or portion of the money only in the evening or the next day and whenever he had to postpone the payment till the evening or the next day, he used to give letters like Exts. A1 and A2 at the request of the plaintiff and in the evening or the next day the amounts used to be repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that in 1970 there was an inspection by the Sales Tax Intelligence officials. But it was not elicited from him as to which shop was inspected. It may be that the mention of the year 1970 is a mistake for 1971. Of course no initials are seen in the account books as having been put in 1970. But the account books show initials by the concerned officials as having been put on 20-1-1971. There is nothing to show that the officials who inspected the shop actually looked into the account books or put any initials. It is seen from the evidence that the date of inspection as suggested in cross-examination was a Sunday. As we have already pointed out there could be a mistake about the year of the inspection also. P. W. 1 is certain that the inspection was in January. We have pointed out that the initials are seen put in January, 1971. We take note of the fact that Ext. B3 also bears the initials of concerned officials only on 21-2-1971, though it is a book relating to the year 1969. Under these circumstances, we are unable to agree with the view taken by the trial court that Exts. A3 to A6 have no value. 8. The trial court placed very strong reliance on the circumstance that Exts. A1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rupees and the purchases were of a very little amount compared with the cash balances, a loan of a huge amount of ₹ 20,000/- was taken. In the absence of any explanation, we are unable to hold that any implicit reliance can be placed on the entries in Ext. B3, particularly when D. W. 3 (D. W. 2?) himself has not deposed that the entries were made truly and in the ordinary course of business. Hence we find that the trial court erred in drawing any inference from the fact that Ext. B3 makes no reference to Exts. A1 and A2 transactions. We cannot also accept the entries in Ext. B3 to hold that on the concerned days, there were huge cash surplus available with the third defendant, particularly in the absence of production of purchase register, bank account books etc. 9. The trial court has also proceeded on the basis that the plaintiff admitted that there were no other borrowings by the third defendant earlier. This does not appear to be correct. The lower court does not appear to have carefully studied the oral evidence in the case. Even in chief examination P. W. 1 has stated that third defendant used to borrow money to the extent of ₹ 5,000/- and ₹ 10,000/- f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that P. W. 1 did not directly speak regarding the payment of money, but only stated (matter in Malayalam omitted. -- Ed.) This view of the evidence also does not appear to be correct. In chief examination P.W. 1 has definitely stated that the consideration of Exts. A1 and A2 has been paid to D. W. 3, that is (matter in Malayalam omitted. -- Ed.). The matter was pursued in cross-examination where he definitely stated that under Exts. A1 and A2 he paid cash amounts to third defendant. The lower court was in error in holding that PW 1 did not directly state that he paid the cash amounts. P. W. 5 has been dismissed as an unreliable witness. This also appears to be a hasty conclusion. It is true that he is a casual witness. But his name has been elicited in cross-examination of P. W. 1 as one of the persons present. He has given an explanation for his presence at the shop. There is nothing inherently improbable in the explanation. He appears to be a respectable witness. A reading of his evidence sounds as if he is speaking the truth. He has not definitely identified the borrower as the defendant. If he is a hired witness, he could have been easily persuaded to identify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of straw from whom no recovery could be made. It is difficult to believe in the circumstances of the case that the third defendant would have been a party to concoct documents which would create liability for huge amounts in third defendant himself. Learned trial Judge did not properly appreciate the evidence, oral arid documentary, and the circumstances and probabilities. The evidence adduced is quite sufficient to establish a preponderance of probability in favour of the truth of P. W. 1's case. The material before the court is not sufficient to show that the documents were brought about in collusion. If Exts. A1 and A2 are genuine transactions there is a presumption in support of consideration, though such a presumption may not be drawn against the second defendant. But the evidence of P. W. 1 supported by the entries in the account books and the admitted means of P. W. 1 to pay amounts and the attendant circumstances already discussed above are sufficient to establish passing of consideration under Exts. A1 and A2 also. 12. We may now consider Ext. A37. The promisee under Ext. A37 is the 4th defendant in O. S. No. 252/72 examined as P. W. 4. He endorsed the promissory n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returned the money. The witness has no accounts or bank accounts. 14. We have already adverted to the nature of the evidence given by D.Ws. 1 and 2. D. W. 1 has no personal knowledge about any of the transactions of the firm at Chalisserry and he is not in a position to affirm or deny anything. The stand taken by him is that this transaction does not find a place in account book Ext. B3 maintained by the third defendant on behalf of the firm. We have already noticed that no reliance could be placed on the entries in Ext. B3; therefore Ext. B3 cannot be accepted as sufficient rebuttal of the evidence of P. Ws. 2 and 4. That leaves us only with the testimony of D. W. 2. In his written statement, the stand taken is that Ext. A37 was executed as a security for price of arecanuts purchased and subsequently payments have been made. He repeated the stand in chief examination, but under stress of cross-examination he had to admit, as we have already noticed that Ext. A37 is practically a transaction of borrowing. He says; I should have paid. If I borrowed I should have paid. I have paid it. I don't remember if I asked for return of the documents when I paid . His failure to take ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions took place in a small bazar in a rural area where the idea of Sunday as a holiday may not have taken deep roots. It cannot be said that agriculturists intending to sell arecanuts or other commodities would avoid coming on Sundays. We find that not even a suggestion on this aspect has been put on behalf of the second defendant to D. W. 2. The reasons which weighed with the trial court to hold against Ext. A37 transaction do not appear to be sound. We are unable to find any proper or sufficient reason to disbelieve the evidence of P. Ws. 2 and 4 in the light of Ext. A37 and admissions made by DW2 in cross-examination. If their evidence is accepted it must follow that Ext. A37 is also true and genuine supported by consideration and is not collusive document. 16. The trial court has found that Exts. A1, A2 and A37 have been materially altered and therefore can have no legal effect. The third defendant took the stand that when he signed and gave these documents, no stamps had been affixed and they must have been clandestinely affixed subsequently and purported to be cancelled by drawing two lines. In each of these documents the stamps are seen affixed on the face of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilise the contention of the third defendant that the documents are executed only as security. Our conclusion is that the documents are intended to be promissory notes. If so, in the normal course of events, the parties would have taken care to see that they were stamped and the stamps cancelled. The 3rd defendant has no case that he was not aware that the documents are required to be stamped or that the stamps required to be cancelled and therefore it was not so done. 18. The learned counsel for the 2nd respondent strenuously contended that drawing two lines across the stamps is not sufficient cancellation according to law. Section 12 of the Stamp Act deals with cancellation. Section 12(3) of the Stamp Act reads thus: (3) The person required by Sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing or in any other effectual manner. Even according to this provision cancellation by writing the signature or initials is not the only way of cancelling the stamp. Cancellation must be done in an effectual manner. Writing the name or initials is one su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cancel is clear from what has been done. So also the drawing of two lines crossing each other across the face of the stamp. Also the drawing of two parallel lines on the three stamps affixed to a promissory note where a perusal of the note showed that the intention to cancel was clear..... 19. A scrutiny of Exts. A1, A 2 and A37 shows that across each of the stamps affixed in these documents two parallel lines have been drawn. These lines indicate the intention to cancel the stamps. The lines have been drawn in such manner that it would be evident to any ordinary person that the stamp had already been used. The cancellation in the instant case is therefore effective and lawful. When cancellation has been made in a lawful manner we do not think any suspicion could be attached to it by stating that cancellation has not been done by writing the signature over the stamps or that it has not been done in the proper manner or normal way. On the other hand, we are of opinion that since the documents purport to be promissory notes, in the normal course stamps could have been affixed and' they would have been cancelled. This is what is spoken to by P. Ws. 1 and 4 also. We find no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law in a reasonable way. We are concerned with several acts required to be done in connection with the promissory note, namely, writing, signing, affixing stamps, cancelling it and delivering the same to the promisee. Cancellation is expected to be done according to Section 12 of the Stamp Act, either when stamps are affixed or when it is executed, that is, when it is signed. If we look at the section in a mechanical way, it means either affixing and cancellation must be done simultaneously or at the same time, that is, at the identical moment or signing and cancellation must be done at the identical moment. In practical terms, this is an impossibility. This provision must be understood in a reasonable and intelligible way. Viewed in this light, the provision could only mean that the stamps must be cancelled either immediately they are affixed or immediately after the maker puts his signature. In other words, the entire process must take place in such a manner that one must be able to say that it has been done simultaneously as part of the same transaction T. C. Raghavan, J. (as he then was) took the same view in Markose v. Varkey (AIR 1966 Ker 315) : (1966 Ker LT 603) , relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the third defendant as the Managing Partner of the firm and directs that he shall be in charge of the day to day business of the partnership firm. It requires that bank accounts in the name of the firm shall be opened by the partners, though the accounts shall be operated by the third defendant. Clause 10 of Ext. XI states that the partnership may raise or borrow loans, or overdrafts, cash credit etc., from banks or other parties on the securities of the assets of the firm or without any security at such rate of interest etc. This clause makes it clear that the agreement contemplated raising of loans as part of the process by which business activity of the firm is to be carried out. Ext. X1 of course does not confer any specific power on the third defendant to contract loans by himself, nor does it create any restriction on his power. A specific conferment of power to contract debt on a partner in a trading firm is unnecessary since every partner is an agent of the firm for the purpose of business of the firm. This follows from Section 18 of the Indian Partnership Act which reads: Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contain a non obstante clause. 27. PWs 1 and 4 have deposed that the third defendant represented to them that he had the power to borrow monies on behalf of the firm. They have also deposed that they were not informed about the so-called restrictions created in Ext. B1 document. The firm had bank accounts in several banks. The evidence of the Manager of one of the banks, PW3 would show that even though a copy of Ext. X1 has been submitted to the hank, a copy of Ext. B1 has not been so submitted. DWs 1 and 2 also have no case that these persons were aware of the terms, of Ext. B1. It cannot therefore be said that PWs 1 and 4 were aware of the so-called restrictions in Ext. B1. Thus, the implied power of the 3rd defendant to borrow money on behalf of the firm from third parties remained unimpaired, so far as third parties were concerned. 28. Section 20 of the Indian Partnership Act contemplates contract between the partners to extend or restrict the implied authority of a partner. Such a restriction shall not affect an act done by a partner on behalf of the firm falling within his implied authority unless the person with whom he has dealings knows of the restriction or does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the alleged partner on behalf of the firm and the use of the letter-head of the printing press was only to indicate his address. The Court relying on an earlier decision of the Privy Council in Sadasuk Janki Das v. Kishan Pershad AIR 1918 PC 146, observed that the real point for decision is whether the promissory -note has been so drawn that in form it binds the firm. In other words, importance was attached to the form of the document also. 32. In the decision reported in Pattabhirami Reddi v. Balliah AIR 1928 Mad 1196 the promissory note was signed by two persons, who happened to be partners in a firm along with a third person. But the document recited that the borrowing was made for the necessity of the partnership firm. It was held that on a fair interpretation of the instrument the name of the firm as the party liable is sufficiently disclosed and all the partners are liable. It was argued before the Court that the firm will be liable only if the partners signed in their capacity as partners or specifically in the name of the firm. This argument was rebutted by relying on Section 27 of the Negotiable Instruments Act which provides that a person may be bound by a duly autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to bind the firm, be done by a partner in the name of the firm, and it is not sufficient that they are done in any other manner expressing or implying an intention to bind the firm, which under Section 22, Partnership Act, would otherwise be sufficient to bind the firm, for the latter section must yield to the special provisions of the Negotiable Instruments Act. It is not, however, necessary that the note should be signed by the partner in the name of the firm but the name of the firm as the party liable on the note must be sufficiently disclosed. (emphasis ours) 35. The decision reported in Adikappa Chettiar v. Official Assignee dealt with a promissory note signed by an individual who happened to be a partner in a firm of which she and her husband were partners. The promissory note did not disclose in any manner the name of the firm or the firm liability, though evidence was adduced to show that money was actually utilised for the benefit of the firm. It was held that only the signatory was liable since on the face of the promissory note she alone was the debtor and not the firm. 36. Reliance is also placed on the decision reported in Devji v. Magan Lal (AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the instrument is so drawn that in form it binds the firm. It is not sufficient that the firm name is mentioned only as an address of the signatory-partner. The responsibility of the firm must be made plain and must be instantly recognised from the form in which the instrument is made, since the instrument may pass from hand to hand. The true meaning of the instrument must be evident at the first glance. This, however, does not mean that the firm will be liable only if the signatory signs specifically on behalf of the firm. It is sufficient if the form in which the instrument is drawn up or made is such that it may be said reasonably that the instrument has been made by a duly authorised agent acting in the name of the principal, that is, by a partner acting in the name of the firm. 38. The matter has to be decided in the light of the above principles. Each of the three promissory notes in the case has been written on a letter-head which contains the full name, description and address of the partnership firm. It is no doubt true that the promissory notes are seen signed only by third defendant, who did not put the name of the firm or put his description as Managing partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not contain the expression to the order of . The same is the position with reference to negotiable instrument, as defined in Section 13(1) of Negotiable Instruments Act. Explanation 1 to Section 13 of the Act says inter alia that a promissory note is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words, prohibiting transfer or indicating an intention that it shall not be transferable. In other words, a promissory note is payable to order in two cases, namely, where it is expressed to be so payable to order or where even if it is not expressed to be so payable to order, if it is expressed to be payable to a particular person and does not prohibit expressly or by implication transfer of the note. Viewed in this light, it can be seen that Ext. A37, is a promissory note expressed to be payable to a particular person and does not contain any express or implied prohibition against a transfer and therefore it must be treated as payable to order. We, therefore, hold that Ext. A37 is negotiable and the endorsee is entitled to claim the money due thereunder. This view is supported by the decisions in Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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