Lachmi Chand v. Madanlal Khemka — 1946 DIGILAW 135 (ALL)

JUDGMENT Wali-Ullah, J. - This is an appeal by the defendants against the decree passed by the learned Civil Judge decreeing the claim due on the basis of a promissory note dated 25-8-1928. The suit was instituted by B. Madan Lal Khemka as Secretary of Baba Kali Kamliwala Panchaiti Kshetra, Rishikesh, a registered society under Act 21 of 1860. The two defendants impleaded were Lala Lachmi Chand and his son, Onkar Prasad. As mentioned above, the suit was decreed against the defendants, both of whom filed an appeal in this Court. Lala Lachhmi Chand died during the pendency of the appeal leaving his son Onkar Prasad, appellant 2, as his sole legal representative. The position, therefore, is that Onkar Prasad is the sole appellant in this case. 2. The case set out in the plaint was to this effect. A pro-note was executed by Lala Lachhmi Chand, defendant 1, on 25-8-1928 for a sum of Rs. 10,000. The rate of interest stipulated was 12 annas per cent, per mensem. It was in favour of Shri 108 Baba Kali Kamliwala Ramnath Maniramji of Rishikesh. On 28-7-1930 a sum of Rs. 4800 was paid by defendant 1 through one Mt. Draupadi. On 25-8-1932 a fresh pro-note was executed in renewal of the previous pro-note by both Lala Lachhmi Chand and Onkar Prasad for a sum of Rs. 8363 the total amount then found due. On 5-11-1934 another pro-note by way of renewal was executed for Rs. 9887-4-3. It was executed by Lala Lachhmi Chand alone. In November 1937 another pro-note is said to have been executed in respect of the amount found due on the previous pro-note and handed over to the creditor. Along with this pro-note a letter (Ex. 5) dated 3-11-1937 acknowledging the liability for payment of RS. 12,024-1-6 then due was sent over the signatures of both Lala Lachhmi Chand and Onkar Prasad. Lastly, on 14-11-1939 a pro-note was executed by both Lachhmi Chand and Onkar Prasad for a sum of Rs. 18,302 11-9. This purported to be by way of renewal of the pre-existing liability under the former pro-note. The plaint was filed on 4-11-1942 with the allegations set out above and it was specifically stated in para. Lastly, on 14-11-1939 a pro-note was executed by both Lachhmi Chand and Onkar Prasad for a sum of Rs. 18,302 11-9. This purported to be by way of renewal of the pre-existing liability under the former pro-note. The plaint was filed on 4-11-1942 with the allegations set out above and it was specifically stated in para. 7 of the plaint that the cause of action for the suit arose on 25-8-1928, the date of the original transaction, and it was stated that limitation was saved by reason of the subsequent acknowledgment in the form of pro-notes executed from time to time by the defendants in favour of the plaintiff. 3. The defendants resisted the suit on various grounds. Of them the most material pleas were these: (i) The suit was misconceived inasmuch as the plaintiff was not a payee under the pro-note of 1928 and consequently was not entitled to sue under the provisions of the Negotiable Instruments Act; (ii) that the cause of action on the basis of the pro-note of 1928, as set out in the plaint, did not exist: and (iii) that in any event, the defendants were "agriculturists" and as such entitled to the benefit of the Agriculturists' Belief Act in the matter of reduction of interest and the grant of instalments. It may be mentioned here in passing that the plaintiff admitted that the defendants were agriculturists. It is also a matter of admission that both the defendants were members of a joint Hindu family and Lachhmi Chand was the Karta of that family. 4. The facts, as set out in the plaint, were substantially admitted. The defendants led no oral evidence while the plaintiff contented himself with the production of one single witness Bishambhar Sahai, the Karinda of the plaintiff. Bishambhar Sahai produced the plaintiff's Bahi Khata from sambat 1995 to Sambat 1998. His evidence was to the effect that the plaintiff's accounts were kept regularly and defendants accounts were sent to them regularly. His evidence was also intended to prove that all the loans advanced by Baba Ramnath Maniramji were actually advanced by the Kshetra Kali Kamliwala which was the real creditor, The documemary evidence in the case consists of various pro-notes executed from time to time and the correspondence exchanged between the parties as well as the statement of the defendants' accounts as they stood in the Bahi Khatas of the plaintiff. 5. The learned Civil Judge, on a consideration of the materials on the record, came to the conclusion that the defendants were "agriculturists" but that the plaintiff was not a "creditor" within the meaning of S. 32, Agriculturists' Belief Act. He also found that the interest claimed was not excessive and that owing to the declaration given by the plaintiff under S. 4, Debt Redemption Act, the provisions of that Act were not applicable. He also recorded a finding that the loans advanced by Baba Ramnath Maniramji, including the loan in question in the present case, were advanced out of the funds of Kshetra Kali Kamliwala which is a religious and charitable institution at Rishikesh. On the main question, whether the plaintiff was debarred from suing on the pro-note dated 25-8-1928, the learned Civil Judge seems to have missed the real point which had to be decided. He came to the conclusion, to quote his own words, that "there was no legal defect in the plaint" and in view of the renewals of the original loan he held that the suit was within limitation. In view of the findings recorded by him, he decreed the claim with costs and pendente lite and future interest at 3 per cent, per annum payable by monthly instalments of Rs. 500 each, first instalment falling due on 1-9-1943. On failure to pay any of those instalments the whole amount due was directed to be recoverable at once. A large number of points have been raised in the memorandum of appeal. Of them the first and foremost point obviously is the question whether the plaintiff's suit, as framed, was maintainable. If it be held that the suit, as instituted, cannot succeed no other questions need be considered. 6. Learned counsel for the appellant has strongly contended that the plaintiff not being the "payee" of the pro-note could not, by reason of S. 78 read with S. 8, Negotiable Instruments Act, successfully enforce the liability of the defendants under the pro-note. We have heard learned counsel for the parties at great length on this question. Our attention has been invited to a large number of rulings both of this Court as well as of other High Courts. The relevant provisions of the Negotiable Instruments Act are contained in Ss. 8 and 78 of the Act. We have heard learned counsel for the parties at great length on this question. Our attention has been invited to a large number of rulings both of this Court as well as of other High Courts. The relevant provisions of the Negotiable Instruments Act are contained in Ss. 8 and 78 of the Act. Section 8 defines the "holder" of a promissory note bill of exchange or a cheque. It says : The holder of a promissory note, bill of exchange or cheque, means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Section 78 reads thus : Subject to the provisions of S. 82, Cl. (c), payment of the amount due on a promissory note, bill of exchange or cheque, must, in order to discharge the maker or acceptor, be made to the holder of the instrument. 7. Reading the two sections together it is clear that the person to whom the payment should be made in order to discharge the maker or the acceptor from all liability under the instrument is the "holder" of the instrument or his accredited agent, such as a banker acting as an agent for collection. The "holder" of a promissory note is essentially the person who is "entitled in his own name." The words "entitled in his own name" are obviously most significant. The legislature appears to have clearly intended to prevent any one from claiming the rights of a "holder" under the Act on the grounds that the ostensible holder is a mere name-lender. The term "holder", therefore, does not include a person who, though in possession of the instrument, has not the right to recover the amount due thereon from the parties there to. The principle enshrined in S. 78 of the Act is clearly in accord with the basic principle underlying the law relating to negotiable instruments, viz that the doctrine of benami will introduce an element of uncertainty greatly hampering the free circulation of negotiable instruments. The Negotiable Instruments Act has been enacted for encouraging trade and commerce and the underlying principle undoubtedly is that promissory notes, bills of exchange and cheques should be negotiated as apparent on their face without reference to the secret title to them. The Negotiable Instruments Act has been enacted for encouraging trade and commerce and the underlying principle undoubtedly is that promissory notes, bills of exchange and cheques should be negotiated as apparent on their face without reference to the secret title to them. It is for this reason that the provisions of S. 78 provide that in order to discharge the maker or acceptor from liability payment must be made to the "payee" or the "holder" of the instrument. Section 48 of the Act provides for the negotiation of a promissory note by the holder by means of an endorsement and delivery. The effect of such endorsement and delivery is to transfer to the endorsee the property in the note with a right to negotiate it still further. It would appear, therefore, that the property, or ownership, in a promissory note including the right to recover the amount due thereon is vested by statute in the holder of the note. The express words of S. 78 no doubt do not negative a right of suit but the effect of allowing a suit by any one except the payee or the holder of the note would necessarily be to put the maker or the acceptor of the instrument in a most difficult situation. As has been said, a person so circumstanced is liable to be shot at twice : once by the person who is the "real" holder and then again by the person who is the "holder" within the meaning of the Negotiable Instruments Act. 8. Under the general law, a principal can institute a suit to enforce a contract entered into by his agent though his name is not disclosed but S. 78, Negotiable Instruments Act, clearly implies that there is an exception to the general rule so far as negotiable instruments are concerned. There are numerous cases in the reports and quite a number of them have been brought to our notice in the course of arguments by the learned counsel in which S. 78 of the Act has been strictly construed, and it has been held that a valid discharge can be given to the maker or acceptor of the instrument only by the payee of the note or the holder thereof. It has further been clearly laid down that there is no such thing for this purpose as a benami promissory note taken in the name of one person but really meant for the benefit of another. Reference might fee made to the cases of Ghanshyam Das Marwari Vs. Ragho Sahu and Others, AIR 1937 Patna 100 , Reoti Lal and Another Vs. Manna Kunwar, AIR 1922 All 70 ; Dori Lal Vs. Sewak Ram and Another, AIR 1915 All 261 Harkishore Barua Vs. Gura Mia Chowdhry and Another, AIR 1931 Cal 387 and Raghubir Mahto Vs. Ramasray Bhagat, AIR 1939 Patna 347 The sum total of the principle enunciated in the cases referred to above comes to this. Where a hand-note is executed in favour of a benamidar, it is not open to the promisor to assert thai the holder of the note is not the beneficial owner, Conversely, if a suit is to be based upon the hand-note it must be instituted by the holder whose name appears on the note and not by any person who alleges that the original holder is his benamidar and that he is the beneficial owner. Reference might also be made here to the case of [Sadasuk Janki Das v. Sir Kishan Pershad] (18) 5 AIR 1918 P.C. 146 (147): 46 Cal. 663 46 I.A. 33 : 50 I.C. 216 (P.C) and to the case of [Subba Narayana Vathiyar v. Ramaswami Aiyar] (07) 30 Mad. 88 (91) (FB). It was observed by their Lordships of the Privy Council in the case of Sadasukh janki Das that: 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......It is not sufficient that the principal's name should be "in some way" disclosed, it must be disclosed in such a way that or any fair interpretation of the instrument his name is the real name of the person liable upon the bills. With reference to the contention based on Ss. With reference to the contention based on Ss. 26, 27 and 28 of the Negotiable Instruments Act their Lordships observed : These sections contain nothing inconsistent with the principles already enunciated, and nothing to support the contention, which is contrary to all established rules, that in an action on a bill of exchange or promissory note against a person whose name properly appears as party to the instrument, it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal. In the case of [Subba Narayana Vathiyar v. Ramaswami Aiyar] (07) 30 Mad. 88 (91) (FB) the Full Bench of the Madras High Court held that According to the law merchant which governed negotiable instruments in this country before the passing of the Negotiable Instruments Act, 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. Sections 8 and 78, Negotiable Instruments Act have reproduced the law as it stood before the passing of the Act. The general provisions of the Indian Contract Act as regards the rights and liabilities of undisclosed principals were not intended to alter these well established rules as to negotiable instruments. In a suit on a negotiable instrument by the payee named therein or the indorsee, it is not open to the defendant to plead that such payee or indorsee is a mere benamidar. 9. As a corollary to the general rule above indicated, it has been held that the "real" creditor, as distinguished from the payee or the holder of the instrument, cannot be allowed to fall back upon the original consideration and to sue for the money advanced by him independently of the promissory note by proving the actual loan. On the contrary, obviously with a view to moderate the rigour of the general rule above indicated, it has been held in a number of cases that section 78 does not in reality deal with a right of suit and looking to the language of section 78 that is obviously correct. On the contrary, obviously with a view to moderate the rigour of the general rule above indicated, it has been held in a number of cases that section 78 does not in reality deal with a right of suit and looking to the language of section 78 that is obviously correct. It has accordingly been held that the real owner is entitled to sue provided he is in a position to obtain a good discharge from liability from the maker or acceptor of the instrument The fact that a person who is not the holder of the instrument cannot claim the privileges of a "holder," so it has been held, does not disentitle him from suing. Thus, in a suit brought by the "real" creditor to which the maker and the holder of the promissory note were parties a decree was passed against the maker with a proviso that payment shall be made to the real creditor only on his securing a valid discharge of the maker from the holder of the note: vide Sewa Ram Vs. Hoti Lal and Another The contention that the real creditor, the holder of the promissory note being his benamidar, is precluded from maintaining a suit for enforcement of the liability incurred by the maker under the pro-note was repelled. With the utmost respect to the two learned Judges, Sen and Niamatullah, JJ., who decided that case, we must say we find ourselves in full agreement with their views. Similarly, in Surajman Prasad Misra Vs. Sadanand Misra and Others, AIR 1932 Patna 346 it has been held by two learned Judges of the Patna High Court that: In a suit on a pro-note in which the holder though not a plaintiff is a party and the plaintiff the real owner is in a position to give to the drawer through the holder a discharge, the plaintiff can maintain the suit. To the same effect is the decision of a learned single Judge of the Patna High Court in Surjug Singh Vs. Deosaran Singh and Another, 123 Ind. Cas. 395 where it was held that : Section 78 does 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. Deosaran Singh and Another, 123 Ind. Cas. 395 where it was held that : Section 78 does 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 object of S. 78 is to secure a valid discharge to the maker of the note. If the person who is ostensibly the holder of the promissory note is made a party to the suit and in his presence it is alleged that the plaintiff is the real beneficiary and that the ostensible holder was not the real holder of the instrument, and he can prove his allegation by evidence or by the admission of the ostensible holder of the instrument, there is no reason why such a suit should not be maintainable. The same principle has been followed in the case of [Swaminatha Odayar v. Subbarama Aiyar] (27) 14 AIR 1927 Mad. 219 (225): 50 Mad. 548 : 100 I.C. 10. In this case plaintiff 1 sold some properties to the defendant and for part of the purchase money took from the defendant a promissory note in favour of his mother, plaintiff 2. Plaintiff 1 then instituted a suit for enforcing his lien on the property sold for the part of the purchase money represented by the promissory note. It was held that his lien under S. 55 (4)(b), T.P. Act, was lost, but as the holder of the promissory note (plaintiff 2) was willing that a simple money decree on the basis of the note be passed in favour of plaintiff 1 (the beneficiary) such a decree could be passed. Similarly, in Brojo Lal Saha Banikya Vs. Budh Nath-Pyari Lal Das, AIR 1928 Cal 148 two learned Judges of the Calcutta High Court expressed the view, though by way of obiter "Section 78 does not prohibit any person other than the holder to bring a suit, if that person is the true owner." They further observed that it would be a very good defence for the maker or acceptor of a promissory note to say that unless the plaintiff in the suit gets him a discharge from the holder of the instrument he is not bound to pay. It must, however, be mentioned here that in a later Calcutta case, Harkishore Barua Vs. It must, however, be mentioned here that in a later Calcutta case, Harkishore Barua Vs. Gura Mia Chowdhry and Another, AIR 1931 Cal 387 two other learned Judges of the Calcutta High Court dissented from the view expressed in 55 cal. 55112 aforementioned and held that the real owner cannot sue even though the holder of the note is impleaded as a defendant to the suit and is willing to give a good discharge. Again, in AIR 1941 207 (Nagpur) Bose J. while agreeing with his own decision in the case of AIR 1932 23 (Nagpur) that the doctrine of benami could not be applied to negotiable instruments held that the question whether the real owner could in the special circumstances institute a suit when he was in a position to give a good discharge was left open in that case. He expresed his clear preference for the broader view taken in the Patna and Allahabad cases. He went on to observe : Although the doctrine of benami does not apply as such to negotiable instruments, the decisions of the Privy Council upholding benami transactions cannot be altogether ignored. I see no reason why a narrow view of the law which would defeat a just claim should be taken. I do not think S. 78 deals with a right of suit, for as I have already pointed out, there are cases in which a person who is not the 'holder' can sue. The learned Judge was quite clear that the real owner was entitled to sue provided he was in a position to obtain a good discharge for the defendant. 10. As must have been noticed from the discussion and the decisions in the cases above referred to judicial opinion on the question whether a suit lies at the instance of the real holder as distinguished from the payee or the endorsee of a promissory note is far from unanimous. The broader view, however, which has been accepted in some of the cases referred to above, e.g., in the case in Sewa Ram Vs. Hoti Lal and Another the case in Surajman Prasad Misra Vs. Sadanand Misra and Others, AIR 1932 Patna 346 and the case in AIR 1941 207 (Nagpur) appeals to us as the one more in consonance with the dictates of justice and fairplay. Hoti Lal and Another the case in Surajman Prasad Misra Vs. Sadanand Misra and Others, AIR 1932 Patna 346 and the case in AIR 1941 207 (Nagpur) appeals to us as the one more in consonance with the dictates of justice and fairplay. It must, however, be carefully noted that in all these cases, with the exception of the Nagpiy: case, the "holder" of the note was himself a party to the suit. In the Nagpur case, however, the promissory notes in question were in favour of Khudai Dad Khan and not in favour of the firm of partnership that had instituted the suit. In that case Khudai Dad Khan does not appear to have been impleaded as a party but he had entered the witness box and was evidently agreeable to the decree being passed in favour of the plaintiff (the partnership.) Under those circumstances the decree in favour of the firm was maintained provided the firm obtained within one month from the date of the decision a proper discharge from Khudai Dad Khan exonerating the defendant from all liability to him under the pro-note. 11. Reverting to the facts of the present case we find that the pro-note dated 25-8-1928 as also the pro-notes executed subsequently by the defendants were all in favour of Shri 108 Baba Kali Kamliwata Raninath Maniramji of Rishikesh, that is to say, in favour of an individual person, namely, Ramnath Maniramji of Rishikesh. It is true that in the pro-note dated 5-11-1934 Baba Ramnath Maniramji is described as "the owner and manager of the Kshetra Baba Kali Kamliwala" but that cannot be of any help to the plaintiff-respondent in this case. It is beyond dispute therefore that the original pro-note as well as the pro-notes executed subsequently were in favour of Ramnath Maniramji Maharaj. It may be that he was the owner and manager of what became a registered Society as Baba Kali Kamliwal Panchaiti Kshetra, Rishikesh, in the year 1932we are informed that the society was registered on 4-1-1932but that fact, in our judgment, cannot make any real difference. The position, therefore, is that the suit has been instituted in the name of a registered body and the payee of the promissory note in question is not a party to the suit. The position, therefore, is that the suit has been instituted in the name of a registered body and the payee of the promissory note in question is not a party to the suit. During the course of the hearing of this appeal we were informed by the learned counsel that Ramnath Maniramji Maharaj was dead. Beyond this statement of the learned counsel for the respondent, however, there is no other indication in the record as to whether he is dead or alive and also, if he died, when he died and whether he left any heir and who that heir is. From the unrebutted evidence of Bishambhar Sahai, the Karindd of the plaintiff-respondent, it appears that the consideration of the pro-note in question may very possibly have come out of the funds of the Kshetra Baba Kali Kamliwala, the registered society, but in the present case we find it impossible to hold that the plaintiff (the registered society) was (while the suit was pending in the Court below) or is even now in ft position to secure a discharge of the defendant from all liability under the pro-note in suit. We are, therefore, constrained to hold that the present case does not fall even within the scope of the "broader principle" referred to above. In this view of the matter, the contention of the learned counsel for the appellant must be accepted. It follows, therefore, that the suit as instituted by the plaintiff-respondent could not succeed. As the decision on this question is fatal to the claim of the plaintiff-respondent we do not discuss the other questions raised in the case. 12. In the result, therefore, this appeal must be allowed, the decree of the Court below set aside and the suit filed by the plaintiff-respondent dismissed with costs throughout. The appeal is accordingly allowed with costs throughout.