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2026 DIGILAW 9 (TS)

M. Prabhavathi v. R. Pramodh Reddy

2026-01-05

K.SUJANA

body2026
JUDGMENT : K. SUJANA, J. 1. This Appeal Suit is filed challenging the judgment and decree dated 19.11.2007 made in O.S.No.119 of 1999 on the file of the Principal Senior Civil Judge, Warangal. 2. The appellants herein are defendant Nos.1 and 3, respondent No.1 herein is plaintiff, and respondent No.2 herein is defendant No.2, in O.S.No.119 of 1999. For the sake of convenience, the parties herein are referred to as arrayed in suit. 3. The brief facts of the case are that the plaintiff instituted the suit on 07.06.1999 against defendants 1 to 3 seeking recovery of Rs.3,70,000/- with future interest, cancellation of a gift deed executed by defendant No.1 (D1) in favour of defendant No.3 (D3), and a declaration that the said deed is null and void. The plaintiff alleged that on 01.10.1997, defendants 1 and 2 (D1 and D2) borrowed Rs.3,70,000/- and executed two promissory notes, one for Rs.2,00,000/- and another for Rs.1,70,000/, marked as Ex-A12 and Ex-A13, with D2 as executant and D1 signing as guarantor. The copies of these notes were marked as Ex-A4 and Ex-A5 respectively. To discharge the debt, D1 issued cheque dated 10.10.1998 for Rs.3,70,000/- in favour of the plaintiff (Ex-A1), which was dishonoured on 30.11.1998 with the bank endorsement “Party reported to stop operation in the account and insufficient funds” (Ex-A2). A torn bank slip evidencing the transaction was marked as Ex-A3. The plaintiff issued a legal notice demanding payment (Ex-A6) and also published a notice in Vaartha Telugu Daily (Ex-A7). A complaint under Section 138 of the Negotiable Instruments Act was filed and marked as Ex-A10. The plaintiff relied on an agreement of sale dated 29.04.1998 executed by D2 for transfer of his computer business (Ex-A11), and a similar agreement by D1 (Ex-A15). The original promissory notes were later received by the plaintiff through postal cover from the USA, marked as Ex-A14. 4. D1, in her defence, denied liability and contended that the cheque was issued to Ushodaya Finance, though no evidence from the said entity was produced. She asserted that the house was gifted to D3 through a registered settlement deed dated 25.04.1998 (Ex-A9), the original of which was marked as Ex-B3. D1 also relied on the complaint filed by the plaintiff (Ex-B1) and the deposition of PW1 in the criminal case (Ex-B2). She asserted that the house was gifted to D3 through a registered settlement deed dated 25.04.1998 (Ex-A9), the original of which was marked as Ex-B3. D1 also relied on the complaint filed by the plaintiff (Ex-B1) and the deposition of PW1 in the criminal case (Ex-B2). The plaintiff examined himself as PW1 and one attesting witness to the promissory notes, PW2 Indrasena Reddy, who confirmed execution and consideration. D1 was examined as DW1, while D2 and D3 were set ex parte. 5. Upon evaluating the oral and documentary evidence, the trial Court found that D1 had indeed signed as guarantor on Ex-A12 and Ex-A13, and issued Ex-A1 cheque towards discharge of the debt. The signatures on the cheque and promissory notes matched those on D1’s written statement and vakalathnamas. The trial Court rejected the defence of novation of contract and held that the suit was maintainable for recovery of the amount. It was further observed that the gift deed (Ex-A9/Ex-B3) was executed with intent to defraud creditors and was liable to be cancelled. Accordingly, the suit was decreed in favour of the plaintiff. Aggrieved thereby, this Appeal Suit is filed by the appellants who are defendant Nos.1 and 3 in the suit. 6. Heard Sri V.Ramchander Goud, learned counsel for appellants, and Sri MV. Rama Rao, learned counsel for respondents. 7. Learned counsel for the appellants submitted that the impugned judgment is contrary to law, unsupported by evidence, and based on conjectures, resulting in grave injustice. He contended that the registered gift deed dated 25.04.1998 executed by appellant No.1 in favour of appellant No.2 preceded the alleged cheque dated 10.10.1998, and hence, the relief of cancellation of the gift deed was unwarranted. He further contended that the trial Court erred in decreeing the suit beyond the scope of recovery under the promissory notes, despite having held that the suit was maintainable only to that extent. He averred that the plaintiff failed to establish passing of consideration under Exs.A12 and A13, and that there were material contradictions between the oral testimony of PW1 and his deposition in Ex.B2. He divulged that the appellants denied execution of the promissory notes and asserted that the transaction was discharged through transfer of the computer business under Ex.A11, amounting to novation of contract. He divulged that the appellants denied execution of the promissory notes and asserted that the transaction was discharged through transfer of the computer business under Ex.A11, amounting to novation of contract. He averred that the reliance of trial Court on signature comparison without expert opinion was criticized as unjust, especially when appellant No.1 was not the executant of the promissory notes. He further averred that appellant No.2 was neither a party to the transaction nor a guarantor, and her inclusion in the suit was a case of misjoinder. The acquittal of appellant No.1 in C.C.No.275 of 1999 under Section 138 of the Negotiable Instruments Act, upheld in appeal, was cited to reinforce the absence of liability. Therefore, he prayed this Court to allow the appeal suit, setting aside the impugned judgment dated 19.11.2007. 8. On the other hand, the learned counsel for respondents, submitted that the appeal filed by defendants 1 and 3 is devoid of merit and the judgment and decree dated 19.11.2007 passed in O.S. No.116 of 1999 by the Principal Senior Civil Judge, Warangal, rightly decreed the suit for recovery of Rs.3,70,000/- with interest and cancelled the gift deed executed by defendant No.1 in favour of defendant No.3. He contended that the promissory notes dated 01.10.1997 for Rs.2,00,000/- and Rs.1,70,000/- (marked as Exs.A12 and A13) were executed by defendant No.2 as borrower and signed by defendant No.1 as guarantor, and that the cheque dated 10.10.1998 for Rs.3,70,000/- (Ex.A1) issued by defendant No.1 was dishonoured with the endorsement “party reported to stop operation in account and insufficient funds” (Ex.A2), clearly indicating intent to evade liability. He lamented that the plea of novation of contract based on the alleged transfer of computer business under Ex.A11 was rightly rejected by the trial Court, as there was no evidence of possession or delivery of the business to the plaintiff. He divulged that the trial Court correctly relied on signature comparison across Ex.A1, the written statement, and vakalatnamas, and found the evidence of DW1 (defendant No.1) to be unreliable. The gift deed (Ex.B3) was found to be a device to defraud the plaintiff, executed after the loan transaction and without any genuine intent. The acquittal of defendant No.1 in the criminal complaint under Section 138 of the Negotiable Instruments Act was argued to be irrelevant to the civil claim based on promissory notes. The gift deed (Ex.B3) was found to be a device to defraud the plaintiff, executed after the loan transaction and without any genuine intent. The acquittal of defendant No.1 in the criminal complaint under Section 138 of the Negotiable Instruments Act was argued to be irrelevant to the civil claim based on promissory notes. Therefore, he prayed that the appeal be dismissed and the decree be upheld. 9. Having regard to the rival submissions made, and on going through the material placed on record, the points determined for consideration by this Court are: I. Whether the plaintiff is entitled for recovery of Rs.3,70,000/- with future interest, if so, whether appellants herein are liable to pay the same ? II. Whether there is any novation of contract ? III. Whether the gift deed executed by D1 in favour of D3 is only to avoid the payment to plaintiff ? IV. Whether the judgment of trial Court requires any interference of this Court ? POINT Nos. I to IV: 10. Having considered the rival submissions and upon perusal of the record, this Court finds that the plaintiff has not established his entitlement to recovery of Rs.3,70,000/- against the appellants. The suit was primarily based on two promissory notes dated 01.10.1997, marked as Ex.A12 and Ex.A13, allegedly executed by defendant No.2 as borrower and signed by defendant No.1 as guarantor. However, the originals were not produced contemporaneously with the plaint and were later received through postal cover from the USA under Ex.A14. It is contended by appellant herein that the trial Court’s reliance on signature comparison across Ex.A1 cheque, written statement, and vakalatnamas without expert opinion is unsafe, particularly when execution and consideration were specifically denied. Further, defendant No.1 was only a guarantor and not the principal borrower, and no independent evidence was adduced to prove her liability. The dishonour of Ex.A1 cheque, though proved by Ex.A2, cannot by itself establish the underlying debt when the foundational consideration remains unproven. 11. On the issue of novation, the plaintiff himself relied on Ex.A11 and Ex.A15, agreements of sale dated 29.04.1998 for transfer of the computer business of defendants, which were executed prior to the cheque Ex.A1. These agreements, along with Ex.A13 and Ex.A14 notarized for Rs.5,50,000/-, clearly indicate that the parties contemplated a new arrangement in substitution of the earlier promissory notes. On the issue of novation, the plaintiff himself relied on Ex.A11 and Ex.A15, agreements of sale dated 29.04.1998 for transfer of the computer business of defendants, which were executed prior to the cheque Ex.A1. These agreements, along with Ex.A13 and Ex.A14 notarized for Rs.5,50,000/-, clearly indicate that the parties contemplated a new arrangement in substitution of the earlier promissory notes. Novation does not require completed performance but requires intention to substitute the old contract with a new one. The existence of these agreements demonstrates that the original promissory notes were not intended to remain enforceable. That being so, it can be held that the trial Court erred in rejecting the plea of novation merely on the ground that delivery of business was not proved, without appreciating the intention behind the agreements. 12. With respect to the gift deed dated 25.04.1998 (Ex.A9/Ex.B3) executed by defendant No.1 in favour of defendant No.3, it is evident that the said deed preceded the cheque dated 10.10.1998. There is no evidence to show that the alleged loan was secured on the suit property or that the plaintiff had any agreement creating a mortgage or charge over the property. In the absence of such security arrangement, the Court cannot cancel a voluntary transfer merely on the basis of an unsecured debt. Defendant No.3 was neither a party to the borrowing nor a guarantor, and her inclusion in the suit was a clear case of misjoinder. The trial Court’s finding that the gift deed was executed to defraud creditors is unsustainable in law and fact. 13. In view thereof, this Court holds that the plaintiff failed to prove the debt under Ex.A12 and Ex.A13, that there was novation of contract through Ex.A11 and Ex.A15, and that the gift deed Ex.A9/Ex.B3 cannot be cancelled in the absence of any mortgage or security interest. The trial Court committed errors in appreciating the evidence and in granting relief beyond the scope of the suit. Therefore, these points are answered. 14. Accordingly, this Appeal Suit is allowed, setting aside the impugned judgment dated 19.11.2007 passed in O.S.No.119 of 1999 on the file of the Principal Senior Civil Judge, Warangal. There shall be no order as to costs. Miscellaneous applications, if any pending, shall also stand closed.