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Sharanbasappa Tippanna Vs. Rachappa Basappa Shettar - Court Judgment

LegalCrystal Citation
SubjectBanking;Contract
CourtMumbai
Decided On
Case NumberSecond Appeal No. 240 of 1929
Judge
Reported inAIR1933Bom101; (1933)35BOMLR68
AppellantSharanbasappa Tippanna
RespondentRachappa Basappa Shettar
DispositionAppeal dismissed
Excerpt:
.....s.c. 11 bom. l.r. 255, distinguished. - - 92):-we do not think that the general provisions of the indian contract act, 1872, as to the rights and liabilities of undisclosed principals were intended to alter well-established rules as to negotiable instruments which in our opinion continued to bo governed by the law morehant based on general mercantile usage. it appears from the fair reading of the plaint that the suit is based on the promissory note and not in the alternative for the loan which formed the consideration for the promissory note, and though in the counter-written statement reference is made to the debt, no application was made before the subordinate judge for an amendment of the plaint, and after the plaintiff failed in the first court, it does not appear that any..........was not passed for the partnership business as manager of the firm, and that the debt under the suit promissory note was not binding on defendants nos. 3 and 4. the findings were arrived at on the ground that the suit was based on the promissory note and not based on the debt independently of the promissory note. he, therefore, held that defendants nos. 3 and 4 were not liable on the promissory note signed by defendant no. 1, and passed a decree in favour of the plaintiff against defendants nos. 1 and 2.3. on appeal, the learned district judge, relying on the decision in the case of sadusuk janki das v. kishan pershad (1918) l.r. 46 indap 33 21 bom. l.r. 605 held that only the person who appeared on the face of the document as signatory to the promissory note was liable, that.....
Judgment:

Patkar, J.

1. In this case the plaintiff sued to recover Rs. 3,714 on a promissory note passed to him by defendant No. 1 on January 23, 1925, on the allegation that defendants Nos. 1 and 2 lived in union and defendants Nos. 3 and 4 were partners of defendant No. 1, and that the promissory note was passed by defendant No. 1 as a partner and manager of the partnership shop.

2. The learned Subordinate Judge held that defendant No. 3 was a partner of defendant No. 1's firm and that the promissory note was not passed for the partnership business as manager of the firm, and that the debt under the suit promissory note was not binding on defendants Nos. 3 and 4. The findings were arrived at on the ground that the suit was based on the promissory note and not based on the debt independently of the promissory note. He, therefore, held that defendants Nos. 3 and 4 were not liable on the promissory note signed by defendant No. 1, and passed a decree in favour of the plaintiff against defendants Nos. 1 and 2.

3. On appeal, the learned District Judge, relying on the decision in the case of Sadusuk Janki Das v. Kishan Pershad (1918) L.R. 46 IndAp 33 21 Bom. L.R. 605 held that only the person who appeared on the face of the document as signatory to the promissory note was liable, that defendants Nos. 3 and 4 were not liable on the promissory note, and that the suit could not be said to be based on the loan advanced to the partnership. He, therefore, confirmed the decree of the lower Court.

4. It is contended on behalf of the appellant that the view taken by both the Courts is erroneous having regard to the decision in the ease of Shanmuganatha Chettiar v. Srinivasa Ayyar I.L.R. (1916) Mad. 797 following the decision of the Privy Council in Karmali Abdulla v. Karimji Jiwanji I.L.R. (1914) Bom. 261 17 Bom. L.R. 103 and also the decision in Raghunathji Tarachand v. The Bank of Bombay I.L.R. (1909) Bom. 72 11 Bom. L.R. 255

5. In Shanmuganatha Chettiar v. Srinivasa Ayyar, where a promissory note was executed by two out of throe partners of a firm for money then advanced to the executants for purposes of the firm and did not contain any indication that it was executed on behalf of the firm, it was hold in a suit on the promissory note that even the third partner who did not execute the note was liable. In that case reliance was placed on the decision of the Privy Council in Karmali Abdulla v. Karimji Jiwanji.

6. Where a promissory note is passed by a partner, the other partners would not bo liable unless the promissory note is passed in the name of the firm. Under Section 27 of the Negotiable Instruments Act, every person capable of binding himself or of being bound, as mentioned in Section 26, may so bind himself or be bound by a duly authorized agent acting in his name. It must, therefore, appear from the promissory note that the agent is acting in the name of the principal A partner is an agent of the other partners and when ho passes a bill of exchange or a promissory note as an agent, he must pass it in the name of the firm in order to make the other partners liable on the bill of exchange or promissory note.

7. The case of Karmali Abdulla v. Karimji Jiwanji, which was relied upon in the decision in Shanmuganatha Chettiar's case, was not based on the bills of exchange or hundis. In Karmali Abdulla's case the suit was an action for accounts by a person who had accepted the bills of exchange and was for the recovery of the amount paid by the plaintiff to meet the acceptances by him for the accommodation of the drawer or drawers, and the question was decided on the true construction of the agreement between the two partners and the plaintiff. The bills were drawn by the two defendants who had embarked on a joint venture, and when they became due and were payable to the banks, one of the defendants retired the bills of which he was the drawer but the other defendant who had become insolvent had not retired the bills of which he was the drawer and the plaintiff whose name was on the bills as acceptor had to retire them. The bills of exchange were already paid by the plaintiff and the suit was brought by the plaintiff on account of the payments made by him. Their Lordships of the Privy Council were of opinion (p. 274) that it was erroneous to treat the question as purely a question of liability on the bills, and held that the issue proposed by the trial Judge was right, viz., whether plaintiff paid and advanced moneys on the hundis (bills) for and on account and for the credit of the partnership. The case does not appear to be an authority for the proposition that if a bill of exchange or promissory note is signed by one of the partners individually and not in the name of the firm, the other partners are necessarily bound by the bill of exchange or promissory note.

8. The decision in the case of Raghunathji Tarachand v. The Bank of Bombay, which was brought against the members of a firm on hundis drawn by the manager of the joint family, can be distinguished on the ground that the hundis were drawn by the manager in the name of the family firm.

9. Where a partner of a mercantile firm passes a negotiable instrument in the recognized trading name of the firm, the other partners would bo liable on it though their names do not appear on the face of the instrument according to the decisions of the Privy Council in Bunarsee Dass v. Gholam Hossein (1870) 13 M.I.A. 358 and Moti Lal v. Unao Commercial Bank : (1930)32BOMLR1571 This ride is based upon the principle embodied in Section 251 of the Indian Contract Act that each partner who does any act necessary for, or usually done in, carrying on the business of such a partnership as that of which lie is a member, binds his co-partners to the same extent as if he were their agent duly appointed for that purpose. But under Section 27 of the Negotiable Instruments Act the partner so acting must act in the name of the firm in order to bind the firm or till the partners.

10. The question in the present case is whether the other partners are liable when a promissory note or bill of exchange is not passed in the name of the firm but is executed by one of the partners in his individual capacity. In Subbu Narayana Vathiyar v. Ramaswami Aiyar I.L.R. (1906) Mad. 88 it was observed as follows (p. 92):-

We do not think that the general provisions of the Indian Contract Act, 1872, as to the rights and liabilities of undisclosed principals were intended to alter well-established rules as to negotiable instruments which in our opinion continued to bo governed by the law morehant based on general mercantile usage.

11. In the case of Vithalrao v. Vithalrao (1922) 25 Bom. L.R. 151 which related to a promissory note signed by one of the members of the joint family as manager in his own name, it was held that though the suit could be maintained in order to recover the debt duo under the promissory note against all the members of the joint family, the members of the joint family cannot be held liable in a suit filed on a promissory note signed by one of the members of the family as manager in his own name.

12. In Sadusuk Janki Das v. Kishan Pershad (1918) L.R. 46 IndAp 33 21 Bom. L.R. 605 after reference to Sections 26 27 and 28 of the Negotiable Instruments Act, it was observed as follows (p. 37) :-

It is sufficient to say that 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 whoso 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 Muting for an undisclosed principal.

13. In that case the suit was dismissed against the Maharaja who was a party to the suit, and the agent was held liable even though he signed the promissory note as 'Acting-Superintendent of the 'Private Treasury of His Excellency Sir Maharaja, the Prime Minister of H.H. the Nizam.'

It is observed at page 35 :-

It would, of course, have been open to the plaintiffs had they thought fit to have framed their case in an alternative form, and to have sued both on the hundis and alternatively upon the consideration.

14. The same view was taken in Sitaram, Krishna v. Chimandas Fatehchand I.L.R. (1928) Bom. 640 30 Bom. L.R. 1300 where Marten C.J., after referring to Sadusuk Jankidas case where the Judicial Committee held that the Maharaja was not liable, observed as follows (p. 645) :-

We quite appreciate that the present is a case of an alleged firm and not of a Maharaja; but there is no distinction in principle, and it is unnecessary therefore to cite other authorities on the point.

I may in this connection refer to Halsbury's Laws of England, Vol. II, para. 835, and Vol. XXII, para. 57.

15. It appears clear from these authorities and Section 27 of the Negotiable Instruments Act that whore a partner passes a promissory note not in the name of the firm but in his individual capacity, the other members of the firm are not liable.

16. It is contended on behalf of the appellant that even if defendants Nos. 3 and 4 are not liable on the promissory note passed by defendant No. 1, they are liable for the debt due on the promissory note. In Gordhandas v. Raghuvirdasji : AIR1932Bom539 it was held that debts contracted by the managing partner of ginning factory for the purposes of the firm are bindin'' on all the partners in the factory, but the suit was not based on the promissory note passed by the managing partner but on the various transactions of loans acknowledged by him in the last khata. The question is whether the present suit is based on the promissory note or in the alternative for a debt which formed the consideration for the promissory note. Both the Courts have taken the view that the suit is based principally and solely on the promissory note and not on the debt which formed the consideration of the promissory note.

17. In the plaint in para. 2 reference is made to the passing of the promissory note for Rs. 3,000 which were borrowed by defendant No. 1 for the partnership business and the suit was to recover the said amount, and in para. 6 it its stated, that defendant No. 1 passed the suit promissory note as owner and partner of the shop. There is no clear indication in the plaint that the suit is based in the alternative for the debt which was the consideration of the promissory note. In the counter-written statement, para. 5, reference is, however, made to the debt, and it is stated that all the defendants are liable for the suit loan as it is for the partnership shop. It appears from the fair reading of the plaint that the suit is based on the promissory note and not in the alternative for the loan which formed the consideration for the promissory note, and though in the counter-written statement reference is made to the debt, no application was made before the Subordinate Judge for an amendment of the plaint, and after the plaintiff failed in the first Court, it does not appear that any application was made to the District Judge for an amendment of the plaint. We do not think that the plaint is based in the alternative on the debt which formed the consideration of the promissory note. Under the circumstances of this case we do not think that the plaint should be allowed to be amended at this late stage.

18. It is contended on behalf of the respondent that the amendment should not be allowed at this late stage when the claim on the debt would be time-barred, and that the plaintiff could not sue in the alternative for the consideration as it was not for any antecedent or previous debt or goods supplied but for a fresh loan, and that the promissory note was the sole transaction between the parties which gave rise to the cause of action in the present suit. I do not think that it is necessary to go into these points. It is sufficient to say that the plaint on a fair construction of it does not appear to have been based for recovery of the debt in the alternative, and that at this late stage of the case the amendment should not be allowed.

19. I think, therefore, that the view taken by the lower Courts is right; and this appeal must be dismissed with costs.

Murphy, J.

20. The question to decide arises on the following facts. Defendant No. 1, on January 23, 1925, executed a promissory note for Rs. 3,000, also providing for interest, in the plaintiff's favour. The plaintiff's case was that though defendant No. 1 was the only party to the promissory note, and it did not on its face purport to create a liability against any one but himself, the promissory note was really executed on behalf of a firm composed of himself and his brother defendant No. 2, and defendants Nos. 3 and 4 who were also partners of the same firm.

21. The Courts below have both held that since the suit is based exclusively on the promissory note and on its face defendant No. 1 is alone (with his joint brother) liable, no decree can be passed against the firm, but only against defendants Nos. 1 and 2. The Courts have relied on the ruling in Sadusuk Janki Das v. Kishan Pershad (1918) L.R. 40 IndAp 33 21 Bom. L.R. 605

22. The whole question here is whether when, on the face of a negotiable instrument, it appears that it was drawn in the executant's individual capacity, we can go behind the facts thus stated and ascertain what the real ones were and decide according to them.

23. The plaintiff's case was that not only was the person executing the promissory note liable, but also his partners. Mr. Coyajee has quoted Karamati Abdulla v. Karimji Jiwanji I.L.R. (1916) Bom. 261 17 Bom. L.R. 103 but this case seems to me to have no application. The suit there was not brought on the hundis. The hundis in question themselves had been retired, some by the drawer and some by the acceptor, and the latter was suing the partnership for money paid by him on their behalf. The case, therefore, does not help us. The cases of Raghunathji Tarachand v. The Bank of Bombay I.L.R. (1909) Bom. 72 11 Bom. L.R. 255 Subba Narayana Vathiyar v. Ramaswami Aiyar I.L.R. (1906) Mad. 88 Vithalrao v. Vithalrao (1922) 25 Bom. L.R. 151 Shanmuganatha Chettar v. Shrinivasa Ayyar I.L.R. (1816) Mad. 727 and Sadusuk Janki Das v. Kishan Pershad (1918) L.R. 46 IndAp 33 21 Bom. L.R. 605 have also been cited. Most of these are not strictly apposite. The general rule in fact is clear, and it is that if a suit is brought on a negotiable instrument, that person alone can be recovered from whose name appears on its face, and only in the character in which he so appears. But where a suit is brought for a sum already duo, which has been acknowledged, so to speak, in some form by the execution of a negotiable instrument, which is mentioned but does not form really the cause of action, evidence may be given to show that others besides the person who executed the instrument are liable. The point appears to me to have been most clearly put by Sir Richard Garth in Sheikh, Akbar v. Sheikh Khan I.L.R. (1881) Cal. 256 the case referred to and explained in Parsotam Narain v. Taley Singh I.L.R. (1903) All. 178. There are single Judge rulings of this Court on the point, in Manchersha v. Govind : AIR1930Bom424 , Jacob & Go, v. Vicumsey (1926) 20 Bom. L.R. 432 and Burjorji v. Hormusji (1931) 34 Bom. L.R. 643 and it has been considered by the appellate Court in the case of Sitaram Krishna v. Chimandas Fatehchand I.L.R. (1928) Bom. 640 30 Bom. L.R. 1300 and the trend of the opinion of the Judges of this Court seems to me to be that, where there is a negotiable instrument, prima facie the suit is on it, unless there are circumstances, such as an antecedent debt, and the suit is so framed as to base the cause of action on a fact independent of the negotiable instrument; and that where the suit is on a negotiable instrument alone it can only bind those appearing on the face of the document.

24. We have considered the language of the plaint and the counter-written-statement, to see if there is a possibility of reading into these documents an alternative claim to the one made on the promissory note. But I think that no such claim can bo spelt out of these documents, and that on their faces and prima facie construction, we must hold that 'this suit was really on the promissory note. Evidently, the alternative claim did not occur to the trainers of the plaint as naturally it would not, since here the payment of the loan and the execution of the promissory note were contemporaneous, and the promissory note was not to secure some other liability. In these circumstances I think that, we cannot have recourse to the alternative claim, and it does not seem to be a case fit to allow of an amendment of the plaint and re-trial on the point.

25. I agree that the appeal must be dismissed with costs.


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