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Madhavdas Jethabhai Vs. Sitaram Ramnarayan - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 58 of 1933 and Suit No. 891 of 1927
Judge
Reported inAIR1934Bom402; (1934)36BOMLR941; 153Ind.Cas.959
AppellantMadhavdas Jethabhai
RespondentSitaram Ramnarayan
DispositionAppeal dismissed
Excerpt:
.....received-procedure-practice. the cause of action against a shah, who receives payment on a forged shah jog hundi, to reimburse the drawee, is for money had and received to the use of the plaintiff, based either on the money having been paid under a mistake of fact, or without consideration, and does not arise upon any implied covenant for indemnity.; guaranty trust company of new york v. hannay & co. [1918] 2 k.b. 623, daulatram shriram v. bulakidas khemchand (1890) 6 b.h.c.r. (o.c.r.) 24, and rule d, seihna v. jwalaprasad (1914) 16 bom. l.r. 972, referred to.; bansidhat v. jwalaprasad (1914) 16 bom. l.r. 434, not approved.; also, that the proper procedure for the drawee to recover the money from the shah is to bring a suit against him. - - the point is clearly put by pickford l...........were drawn by a firm upon defendants no. 1 in favour of the plaintiffs. as is usual in the case of shah jog hundis, the hundis were not presented to the drawees for acceptance before payment. the hundis eventually came into the hands of defendants no. 2 who are admittedly shahs, and were presented by them to defendants no. 1 for payment, and were duly paid. subsequently, it was discovered that, owing to the dishonesty of a third party,, defendants no. 2 had no title to the hundis, since the indorsements under which they claimed had been forged. thereupon, the plaintiffs, as the true owners of the hundis, sued defendants no. 1 as the drawees, and defendants no. 2 as the shahs to whom payment had been made, for recovery of the amounts of the hundis, and judgment was given against both the.....
Judgment:

John Beaumont, Kt., C.J.

1. In this case certain Shah Jog hundis were drawn by a firm upon defendants No. 1 in favour of the plaintiffs. As is usual in the case of Shah Jog hundis, the hundis were not presented to the drawees for acceptance before payment. The hundis eventually came into the hands of defendants No. 2 who are admittedly Shahs, and were presented by them to defendants No. 1 for payment, and were duly paid. Subsequently, it was discovered that, owing to the dishonesty of a third party,, defendants No. 2 had no title to the hundis, since the indorsements under which they claimed had been forged. Thereupon, the plaintiffs, as the true owners of the hundis, sued defendants No. 1 as the drawees, and defendants No. 2 as the Shahs to whom payment had been made, for recovery of the amounts of the hundis, and judgment was given against both the defendants. Defendants No. 1 issued a third party notice against defendants No. 2 claiming indemnity against loss suffered by them through 'payment of the hundis, and upon that notice Mr. Justice Kania gave judgment for defendants No. 1, but he held that the moneys payable to them under the implied indemnity of defendants No. 2 did not cover the costs incurred by defendants No. 1 in defending the original suit. From the latter part of the judgment defendants No. 1 appeal, whilst defendants No. 2 have filed cross-objections contending that the third party proceedings were misconceived, since there was no liability upon them to indemnify defendants No. 1.

2. So far as regards the appeal of defendants No. 1, I feel no doubt that if defendants No. 2 are under an obligation to indemnify defendants No. 1 against the loss sustained by them through payment of the hundis, that loss must include the costs of defendants No. 1 incurred in defending the suit. The correspondence before action shows that defendants No. 2 were not prepared to make any admissions or assume any liability, and, in the circumstances, defendants No. 1, in my judgment, had no option except to defend the suit, and if they are entitled to indemnity, such indemnity must cover the costs properly incurred in so doing.

3. The cross-objections of defendants No. 2 involve a more difficult question. The learned Judge based his view that defendants No. 2 were liable to indemnify defendants No. 1 upon the principle of law laid down in Dugdale v. Lovering (1875) L.R. 10 C.P. 196 and approved by Lord Halsbury in Sheffield Corporation v. Barclay [1905] A.C. 392 in the following terms (p. 397):

It is a general principle of law, when an act is done by one person at the request of another, which act is not in itself manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done.

4. The learned Judge's view was that defendants No. 2, in presenting the hundis for payment to defendants No. 1, requested defendants No. 1 to pay the hundis, and thereby impliedly agreed to indemnify them against the consequences in acting upon the request. Mr. Daphtary for defendants No. 2 contends that the principle referred to has no application to the holder of a negotiable instrument presenting it for payment to a party liable, and a fortiori, where, as here, the party to whom the instrument is presented is not under any contractual obligation to the holder to pay it. The point is clearly put by Pickford L.J., as he then was, in Guaranty Trust, Company of New York v. Hannay & Co. [1918] 2 K.B. 623 where he says (p. 631):

The position of the holder of a bill of exchange who presents it for payment is, I think, well expressed in a lecture by Dean Ames, of Harvard, in the Harvard Law Revieiv, vol. 4, pp. 297, 302, republished in Ames' Lectures on Legal History, p. 270, where he says: 'The attitude of the holder of a bill who presents it for payment is altogether different from that of a vendor. The holder is not a bargainer. By present merit for payment he does not assert, expressly or by implication, that the bill is his or that it is genuine. He, in effect, says: ' Here is a bill, which has come to me, calling by its tenor for payment by you. I accordingly present it to you for payment, that I may either get the money, or protest it for non-payment.' Mr. Justice Chambre's statement in Smith v. Mercer (1815) 6 Taunt. 76, that the holder warrants the genuineness -of the bill by presenting it, was expressly repudiated by Littledale and Bayley JJ. in The East India Co. v. Tritton (1824) 3 B. &. C. 280.

5. Mr. Setalvad, on the other hand, on behalf of defendants No. 1, contends that, although in the case of an ordinary bill of exchange or hundi there may be no implied indemnity by the holder who receives payment in favour of the party paying, nevertheless the position is different in the case of Shah Jog hundis. No evidence was led in this case as to the customs affecting such hundis, but reliance is placed upon the cases dealing with the subject. The leading case is Davlatram Shriram v. Bulakidas Khemchand (1869) 6 B.H.C.R.24 in which the character of a Shah Jog hundi is discussed by Mr. Justice Arnould. He held in that case, on the evidence, that the drawee of a Shah Jog hundi in accepting and paying it looks mainly to the Shah as responsible in case of anything afterwards going wrong with the hundi, and that he relies on the solvency and respectability of the Shah as one of the principal grounds in inducing him to make payment without further inquiry, and he sums up his conclusion at p. 31 in these terms:

The rule, I take it, as substantially sought to be established by the plaintiffs' evidence is this, that in the absence of any proof of connivance or laches on the part of the drawee, who has paid to sha on presentation a hundi drawn 'shah jogi', the drawee, on the hundi afterwards turning out to have been a forged hundi, is entitled to a refund from the shah, though an innocent and banafide buyer of the hundi for full value, with interest at six per cent, from the day of payment to the day of refund, provided that the drawee has discovered the forgery as soon as according to the usual course of business it could be discovered, and has lost no time in communicating the fact of forgery to, and in makinghis claim for refund upon, the shah.

6. Mr. Setalvad contends that, from the findings in that case that the drawee relies on the responsibility of the Shah, it must be inferred that the Shah presenting the hundi for payment represents that he is a Shah, that is to say, a respectable and responsible person known in the market, and on that basis requests payment, and that such request involves the liability to indemnify as established in the cases to which I have referred. It is, however, to be observed that all that was established in Davlatram Shriram v. Bulakidas Khemchand, ubi supra, was that the Shah with certain limitations was liable to refund the amount of the forged hundi with interest, and it is clear that in that case the cause of action was for money had and received, and was not upon an indemnity. In my judgment, to hold that a Shah presenting a Shah Jog hundi for payment to the drawee requests the drawee to pay, and impliedly agrees to indemnify him against the consequences of payment, would be to annex to such hundis an incident which has not been established either by the authorities or by evidence.

7. Mr. Setalvad has further relied upon a dictum of Mr. Justice Macleod, as he then was, in Bansidhar v. Jwalaprasad (1914) 6 Bom. L.R. 434 to the effect that the Shah guarantees the genuineness of the hundi. But, in my opinion, that dictums was not approved by the Court of Appeal in the same case R.D. Sethna v. Jwalaprasad : AIR1914Bom260 and is not supported by any evidence in the case or by the decisions upon the characteristics of Shah Jog hundis. In my judgment, on the decided cases and in the absence of any evidence as to custom, the cause of action against a Shah, who receives payment on a forged Shah Jog hundi, to reimburse the drawee is for money had and received to the use of the plaintiff, based either on the money having been paid under a mistake of fact, or without consideration, and does not arise upon any implied covenant for indemnity. In my opinion, therefore, the proceedings on the third party notice were misconceived. The cross-objections must be allowed with costs, and the third party notice dismissed with costs. The appeal must be dismissed with costs.

Rangnekar, J.

8. Defendants No. 1 are drawees of two Shah Jog hundis, and defendants No. 2 are Shahs, who were paid the amount of the hundis by defendants No. 1. The title of defendants No. 2 admittedly rests upon a prior forged indorsement. The true owners of the hundis brought a suit against both the defendants to recover the amount due on the hundis, and obtained a decree against them. The suit was defended by both the defendants, and in addition to their other defences defendants No. 1 contended that defendants No. 2 were bound to indemnify them in the sum of Rs. 4,000, the amount of the hundis, and interest and costs, and under Rule 139 of the High Court Rules, 1930, they took out a third party notice against defendants No. 2. The notice is in these terms-

Take notice that this suit has been brought by the above named plaintiffs against the defendants herein praying that the said defendants be ordered and decreed to pay to them the sum of Rs. 4000 mentioned in the plaint with interest and costs of the suit and interest on judgment at 6 per cent, per annum till payment.

The 1st defendants abovenamed claim to be indemnified by you against liability in respect of the claim of the plaintiffs against the 1st defendants in this suit and to repay the 1st defendants the said sum of Rs. 4000 and interest with costs, charges and expenses including costs of the 1st defendants of this suit and any costs which they may be ordered to pay to the plaintiffs by reason of your having caused and induced the 1st defendants to honour and pay the hundis mentioned in the plaint.

9. Defendants No. 2 pleaded that the third party notice was misconceived. Mr. Justice Kania made the notice absolute with costs of the notice, but declined to give to defendants No. 1 the costs incurred by them in defending the suit. Defendants No. 1 appeal and their appeal is confined to these costs. I have no doubt in my mind that they were entitled to their costs, if their claim to be indemnified by defendants No. 2 is correct. But, it is not necessary to decide the question, in view of the conclusion to which I have come on the cross-objections filed by defendants No. 2. Their contention is that the third party notice was misconceived as defendants No. 1 had no right to be indemnified by defendants No. 2, and that their only right was to bring a separate suit to recover the amount of the hundis from them as moneys had and received or moneys paid under a mistake. It is obvious that if defendants No. 1 had filed a suit against defendants No. 2 for recovery of the amount which they were held liable to pay to the plaintiffs, their claim could not have been resisted by defendants No. 2. The cross-objections thus raise a question of procedure, the answer to which, however, depends upon a more important and substantial question of law. The question is, whether defendants No. 1 have a right of indemnity against defendants No. 2, and the answer to the question depends upon the legal relationship between the defendants inter se.

10. It is conceded by Mr. Setalvad that if this were a case of an ordinary hundi, his clients could not have claimed any indemnity against defendants No. 2. This is obvious. If a signature on a bill is forged, the forged signature is clearly inoperative, and no right to enforce payment thereof can be acquired through or under that signature. This is the principle of Section 24 of the English Bills of Exchange Act, and although there is no corresponding section in our statute, the principle is well recognised by the Law Merchant and has been followed in this country. The principle is that forgery does not convey any title even to an innocent transferee. When, therefore, a payment is made in such a case, the payor can recover the money paid, provided the payor was not guilty of negligence in making the payment, and the position of the party receiving the payment has not been prejudiced before the discovery of the mistake and notification thereof : see Kerrison v. Glyn, Mills Currie, & Co. (1911) 17 Con. Cas. 41, The position is put in Byles on Bills of Exchange, 19th Ed., in these terms (p. 293):

It is a general rule of law, that money paid under a mistake, as to facts, may be recovered back. If the drawee discovers, after payment, that the bill or cheque is a forgery, he may in general, by giving notice on the same day, or within a reasonable time, recover back the money. So, too, if a forged note is discounted, the transferee, on discovery of the forgery within a reasonable time, may recover back the money paid, the imagined consideration totally failing. But any fault or negligence on the part of him who pays the money on the note will disable him from recovering.

11. The liability is grounded upon mistake, and the case would fall under Section 72 of the Indian Contract Act. That section is in the terms following:

72. A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

12. The position of a holder in such a case is explained by Pickford L. J. in Guaranty Trust Company of New York v. Hannay & Co. [1918] 2 K.B. 623as follows (p. 631):

The position of the holder of a bill of exchange who presents it for payment is, I think, well expressed in a lecture by Dean Ames, of Harvard, in the Harvard Law Review, vol. 4, pp. 297, 302, republished in Ames' Lectures on Legal History, p. 270, where he says: 'The attitude of the holder of a bill who presents it for payment is altogether different from that of a vendor. The holder is not a bargainer. By presentment for payment he does not assert, expressly or by implication, that the bill is his or that it is genuine. He, in effect, says: 'Here is a bill, which has come to me, calling by its tenor for payment by you. I accordingly present it to you for payment, that I may either get the money, or protest it for non-payment.' Mr. Justice Chambre's statement in Smith v. Mercer (1815) 6 Taunt. 76, 83-84, that the holder warrants the genuineness of the bill by presenting it, was expressly repudiated by Littledale and Bayley JJ. in The East India Co. v. Trittonn (1824) 3 B. & C. 280,. He is no doubt in that passage speaking of the question of whether there is a representation as to the genuineness of the bill of exchange, but I think the statement as to the position of the holder in such a case applies equally to the question whether there is a representation as to the bill of lading. But if it were a request, it was only a request to them to perform that contract, and such a request did not impose any liability upon the plaintiffs. It was not in any way such a request as those in the cases of Sheffield Corporation v. Barclay [1905] A.C. 392 and Bank of England v. Cutler [1908] 2 K.B. 208 : see Mod Tryvan Skip Co. v. Kruger & Co. [1907] 1 K.B. 809,

13. In the same case Warrington L. J. observed (p. 652):

I will first consider the case on the assumption that the draft was a bill of exchange in the proper sense, i. e., a negotiable instrument. The plaintiffs receive from the drawer the bill of exchange with the bill of lading attached. They are the indorsees of the bill, and have become so for value and in due course. They then present the bill to the drawee for acceptance. The consideration for the acceptance moves from the drawer to the acceptor, not from the indorsee, even in a case in which the indorsee requests the drawee to accept: Robinson v. Reynolds (1841) 2 Q.B. 196. That is to say, the drawee accepts the bill, not in performance of any new engagement made between him and the indorsee, but by virtue of the arrangement he has with the drawer. But in truth the plaintiffs did not request the bank to accept; they only desired to know whether the bank would acknowledge their liability to do so and perform it or not, with an intimation that in the latter case a well-known step would be taken. It is quite clear that in such a case there is no warranty of genuineness of the signature of the drawer: East India Co. v. Tritton (1824) 3 B. & C. 280, the principle of which, though dealing directly with the signature of the indorser, applies also, with at least equal force, to that of the drawer.

14. This position is conceded by Mr. Setalvad. It is further admitted that the present case does not come within Section 124 of the Indian Contract Act, and there is no express contract of indemnity between the parties. But Mr. Setalvad contends that this being a Shah Jog hundi, having regard to the usages applicable to such hundis as established by judicial decisions, an agreement to indemnify must arise by a necessary implication from the circumstances based on an implied request from the Shah for the payment of the hundis. He relies on Dugdale v. hovering (1875) L.R. 10 C.P. 196 which was approved by Lord Halsbury in Sheffield Corporation v. Barclay[1905] A.C. 392 and the cases cited therein. The principle enunciated there is as follows (p. 397):

It is a general principle of law, when an act is done by one person at the request of another, which act is not in itself manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing It is entitled to an indemnity from him who requested that it should be done.

15. This argument found favour with the learned trial Judge, who, relying on Sheffield Corporation v. Barclay, held that defendants No. 1's claim to be indemnified by defendants No. 2 was correct. In my opinion, these cases proceed upon the principle that where there is a request from one person to another to do an act not illegal or tortious in itself, the doing of the act entitles the doer to an indemnity against the person who made the request, when the act results in an injury to the rights of a third party. Apart from the fact that in this case there was ' TIO request by the Shah for payment, I do not think that the principles laid down in those cases apply as between the drawee of a hundi and the holderMr. Setalvad, however, says that in the case of Shah Jog hundis there is an implied request from the Shah, and relies upon Davlatram Shriram v. Bulakidas Khemchand (1869) 6 B.H.C.R. 24. Now, it is very difficult to get an exact idea of the facts in that case, but it appears that it was a suit for moneys had and received to recover back the amount of the two hundis which had been paid by the plaintiffs to the defendants and which afterwards the plaintiffs averred that they turned out to be forged. It further appears that the drawer of the hundi was a fictitious person, and so was the person who is alleged to have made the deposit on which the hundis were issued. The defendants were Shahs, and, as far one can see from the evidence led in the case, their defence was that although in cases where the hundi after it was paid to the Shah turns out to be lost or stolen, recourse may be had to the Shah to procure a refund, the usage did not apply in the case of forged hundis, and there could be no refund in such a case. That was the only question raised in that case, and Mr. Justice Arnould held that, according to the mercantile usage among the Hindus, where a Shah Jog hundi is paid at maturity to the Shah by the drawee, and if such hundi afterwards turns out to be forged, the Shah, though a bona fide holder for value, is bound to repay to the drawee the amount of such hundi with interest from the date of payment, provided the drawee has not been guilty of laches in discovering the forgery and communicating the fact of such forgery to the Shah. The Shah, however, relieves himself from such liability by producing the actual forger. Mr. Setalvad relies upon the observation of Mr. Justice Arnould (p. 27):.the result of the evidence on both sides as to this point, supported by the learned etymological evidence of Mr. Balaji Pandurang, is clearly this, that shah means a responsible and respectable person, a man of worth and substance known in the bazar. A hundi payable to shah is paid on the responsibility of the shah. If he be not known to the drawee, inquiry is made about him, and the amount of the hundi is not paid till that inquiry is satisfactorily answered, or till some one known to the drawee is found to identify him or speak to his responsibility.

16. The usage proved in that case, then, goes no further than casting upon the holder who receives payment from the drawee a legal duty of refunding the moneys with interest thereon in the event of the hundi turning out to be forged. As far as I can see, the Shah Jog hundi differs from an ordinary hundi in two material respects: (1) it need not be presented for acceptance, and the acceptance of the drawee is not necessary and need not be written across the hundi; and (2) the holder is relieved from liability if he produces the forger. And so in that case it was held that as the defendant had made no attempts to find out the forger, he was liable. But this exactly is the position in the case of a bill of exchange or a hundi apart from the Shah escaping liability by reason of production of the forger, a case which, as Mr. Justice Arnould points out, is not likely to arise in practice. Under the Law Merchant where the title of the holder is based upon forgery, the holder is liable to make good the amount to the drawee. Under the usage applicable to Shah Jog hundis, the Shah is liable to repay the amount with interest to the drawee unless he produces the forger. Apart from this, there is no material distinction between the two classes of hundis in this respect. This being so, it is difficult to hold that, before any payment was made by the drawee, there was any request either express or implied from the Shah for such payment, or there is anything in the circumstances to raise an implied request by the Shah for payment There is no contract between the drawee, the holder, or the Shah, and the former is not bound to pay the amount of the hundi to the Shah, and presenting the hundi to the drawee is nothing more than an inquiry as to whether the drawee would honour the hundi. If the drawee declined to do so, he may be liable to the drawer but not at all to the Shah. That being so, I am unable to hold that the drawee makes the payment to the Shah because of any request from the latter.

17. Mr. Setalvad relies on certain observations of Sir Norman Macleod in Bansidhar v. Jwalaprasad : AIR1914Bom239 to the effect that the Shah guarantees the genuineness of the hundi. These, however, were not approved by the Court of Appeal in the same case, and there is nothing in the judgment of Mr. Justice Arnould, or in any of the Bombay decisions, to support it. No evidence was led in that case, or in any of the cases which followed it, to show that the Shah guarantees the genuineness of the hundi. In my opinion, therefore, the cause of action in such a case is to recover moneys paid under a mistake, or for moneys had and received, or for failure of consideration, and not a contract of indemnity, either express or implied. The third party notice, therefore, was clearly misconceived.

18. In the result, therefore, the cross-objections must be allowed with costs, and the third party notice dismissed with costs. The appeal fails and must be dismissed with costs.


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