Chandrakantaraj Urs, J.
1. This is an application filed by the official liquidator under s. 446(2)(b) of the Companies Act, 1956, to recover a sum of Rs. 1,709 being the principal and interest due from respondents Nos. 1, 2 and 3 jointly and severally in respect of the chit fund transaction the 1st respondent had with the company in liquidation while it was carrying on business.
2. The chit value was Rs. 2,500. Respondent No. 1 was the highest bidder at the auction held for chit group-DLN of the company (in liquidation). The auction was held on June 23, 1974. He received the prize amount on July 22, 1974, and on the latter date he executed a promissory not for Rs. 1,675 promising to repay the said amount together with interest at the rate of 18 per cent per annum. Respondents Nos 2 and 3 executed the pronote as sureties.
3. After the company came to be wound up, the official liquidator issued notice of demand to the respondents for the payment of the balance due by the 1st respondent in respect of the aforementioned transaction he had with the company without success.
4. The official liquidator's claim is as follows :
Rs.'Chit value 2,500Subscription paid inclusive of dividend 1,395------Balance 1,105Interest at 18 per cent. per annumfrom 11-11-1974 to 8-7-1976. 330Interest at 6 per cent per annumfrom 9-7-1976 to 2-7-1980. 264Notice charges. 264 10-------Amount payable 1,709'-------
5. As no payments were made by the respondents, the application has been filed.
6. Respondents Nos. 1, 2 and 3 were served and remained absent and unrepresented on October 1, 1980. On that day, they were placed ex parte and the application was ordered to be called on October 23, 1980. However, Shri Jagadeesh Mundaragi, advocate, entered appearance for respondents Nos. 1 and 2 and made an application for recalling the order made on October 1, 1980. That application came to be allowed by me and the respondents were permitted to file their objections and the same was filed on November 4, 1980.
7. In the statement of objections, respondents Nos. 1 and 2 have averred that they were not a aware of the winding-up order made by the court on July 9, 1976, and that they came to know of it only on receipt of the notices dated February 16, 1977, issued by the applicant-official liquidator. They also claim that those notices were suitable replied to by the 1st and the 2nd respondents separately. They admit partially the fact of the transaction the 1st respondent had with the company but have denied their liability jointly and severally to pay the sum demanded. It is, however, asserted in the statement of objections that the respondents had settled the debt due under the chit transaction of the 1st respondent as far back as December 2, 1975. 2nd respondent had paid totally Rs. 1,715 in respect of three accounts he had in pass books Nos. 1, 2 and 3. The statement of account of the 2nd respondent has been produced at annex. 1 to the objection statement. It is, however, asserted by the respondents that the managing director of the company (in liquidation) agreed with the 1st and the 2nd respondents in adjusting the amount in the account of the 2nd respondent to the extent of Rs. 1,078.80 which was due by the 1st respondent on the date of the agreement and the managing director issued a receipt on December 2, 1975, for the said sum and in that circumstance, it is stated that respondent No. 1 is not due to pay any amount whatsoever as claimed by the official liquidator as there was no cause of action subsisting on the date of the application. The respondents prayed that the application may be dismissed with costs.
8. An enquiry, therefore, became necessary and as the transaction was admitted and a plea of discharge entered, the respondents were allowed to lead evidence to prove the discharge.
9. On behalf of the respondents, one witness was examined and the stamped receipt for Rs. 1,078.80 was marked for the respondents as Ex. R-1. R.W. 1 is none other than the son of the 1st respondent. He has spoken to the following facts. His father retired from service as a bill collector in the Municipal Office of Davanagere and that since his retirement he is not keeping good health. He was aware of the account which his father had with the company (in liquidation) when it was carrying on its business. The account was opened in 1972. His father subscribed for about five months. In 1975, the managing director of the company sent for his father and in response thereto both he and his father went to the office of the company at about 3. p.m. The 2nd respondent, Rajendra Prasad, was also present at the office of the company. The company owned money to respondent No. 2 and his father as on that day owed Rs. 1,078.80 to the company. His father's account was on that day closed after adjusting the amounts due to respondent No. 2 and respondent No. 1 agreed to pay Rs. 1,078.80 to respondent No. 2 Exhibit R-1 is the receipt issued by the managing director of the company of Rs. 1,078.80.
10. In cross-examination he has stated that Rs. 1,078.80 represented both the principal sum borrowed and the interest thereon. He did not remember how much his father owed to the company in January, 1975. He did not know the name of the managing director of the company. But the signature on Ex. R-1 is that of the managing director of the company. He denied knowledge as to whether a complaint to the police had been given about the company's failure to declare divident regularly. He also denied the suggestion that Ex. R-1 was obtained by coercion in the police station without paying the dues. He has stated that the promissory not was not taken back together with the consideration receipt because he and his father did not remember about it.
11. In re-examination he has stated that he did not know the whereabouts of the managing director of the company.
12. On the pleadings set out above and on the oral and documentary evidence adduced in the case, the point for determination is whether respondents Nos. 1 and 2 prove discharge of the debt in the circumstances pleaded by them and supported by the evidence of Ex. R-1.
13. R.W. 1 is not a party to the transaction. Respondents Nos. 1 and 2 have not chosen to examine themselves. R.W. 1's evidence cannot be accepted as the sole truth because he is an interested witness. It is very strange that he claims to know about the transaction his father had with the company but conveniently does not remember the name of the managing director. No doubt, Ex. R-1 is the stamped receipt for Rs. 1,078.80 in favour of the 1st respondent and signed by somebody as managing director for Sudhakar Syndicate (Private) Ltd. It bears the date December 2, 1975. It also contains the reference to the chit group and to the book No. 19. The managing director himself has not been examined to prove the signature. We have only the assertion of R.W. 1 that he (the managing director) signed at the office of the company in his (R.W. 1) presence as well as in the presence of respondents Nos. 1 and 2. But this statement is totally uncorroborated. Respondents Nos. 1 and 2 have not examined themselves and no reason has been offered as to why they could not step into the witness box to speak to the events that occurred on December 2, 1975. Though it is claimed that the 2nd respondent's account was adjusted against the account of the 1st respondent; that 2nd respondent had three accounts with the company has not been proved by any documentary evidence such as the pass books mentioned in the objection statement. Nor have the respondents taken the precaution to summon the books of the company now in the possession of the official liquidator to prove the same. In the absence of any corroboration of the oral evidence and the absence of formal proof of Ex. R-1, I am unable to accept the plea of discharge pleaded by the respondents.
14. The suggestion by the counsel for the claimant official liquidator, that Ex. R-1 was obtained by coercion at the police station, is not conclusive evidence in itself. But it does point to the fact that the managing director was subjected to some police harassment in connection with the business of the company. In this connection, the records of Company Petition No. 3/76 were perused and it is found therein that the company was wound up on the application made by the managing director, and in that, he has stated that some of the contributories and subscribers lodged a false complaint against him to the police at Davanagere and obtained his signature to several receipts by creation. Whatever that may be, that cannot be held to be conclusive as no evidence in that behalf was recorded in the proceedings in Company Petition No. 3/1976.
15. However, the learned counsel for the official liquidator has placed reliance on the fact that the pronote and the consideration receipt remained with the company and that fact itself was conclusive that there was no discharge of debt in terms of s. 8 of the Negotiable Instruments Act. He contends that the official liquidator has produced the pronote and the consideration receipt with the application and that should satisfy this court that the respondents' defence is a self-serving and concocted story and has placed reliance on two decisions of the Madras and Kerala High Courts in support of his contention.
16. In the case of Alapati Venkata Krishnaiah v. Vemuri Manikyaraw AIR 1948 Mad 171, Rajamanner J. (as the then was) had occasion to consider the plea of discharge with reference to s. 81 of the Negotiable Instruments Act. In that case, the suit was filed by the plaintiff on the basis of the pronote. The pronote was executed by defendant No. 1 therein in favour of defendant No. 2 and defendant No. 2 transferred the pronote to the plaintiff on March 27, 1944, for consideration. The trial court granted a decree in favour of the plaintiff against the transferor, defendant No. 2, and his son, defendant No. 4, but dismissed the suit against defendant No. 1 and defendant No. 3 as they had died before the suit. That decree was sought to be revised in the High Court in so far as it dismissed the suit against defendant No. 1, the marker of the promissory note. The case put forward by defendant No. 1 was that he had paid the entire amount due on the pronote to defendant No. 2 and had obtained a receipt which had been marked as Ex. D-1 and that the promissory note was not duly endorsed with the discharge because it was not available at that time. In dealing with that defence the learned judge held as follows (p. 172) :
'But there is certainly negligence on the part of defendant 1. When he made the payment, it is clear that the promise was unable to produce the promissory note and make an endorsement of payment and even deliver it up to him cancelled. Under s. 81, Negotiable Instruments Act, defendant 1 was before payment entitled to have the promissory note shown to him and on payment entitled to have the promissory note shown to him and on payment entitled to have it delivered up to him, or (as is now alleged by him), if the instrument cannot be found, to be indemnified against any further claim thereon against him. This is what he should have done and if he did not act as indicated in the section, he has to blame himself. In any event, his ultimate claim must be only against the promise whom he had paid and he cannot be allowed to plead any defence to an action by a holder in due course.'
17. Thus, that revision petition came to be allowed holding that defendant No. 1 was liable to a holder in due course.
18. Similar is the view taken by a learned single judge of the Kerala High Court in the case of K. K. Koran v. T. Tara Bai : AIR1958Ker124 . The learned judge has explained the scope and the application of s. 81 of the Negotiable Instruments Act, in the following terms (p. 124) :
'The normal rule is that the document on which the suit is based should be produced along with the plaint. The production of the basis document is thus insisted on to afford protection to the person liable under it against a similar claim in a subsequent suit brought by a party who might claim to have legally acquired the rights under the document and produce it is support of his claim. The possibility of such risk is greater in the case of negotiable instruments which may change hands frequently by successive endorsements. Against the claim preferred by a holder in due course of such an instrument, the person liable under it may not be entitled to set up a plea that the amount due under the instrument has already been paid. Possession of the instrument by the holder in due course will be prime facie evidence of the liability not having been discharged.'
19. The above two decisions have correctly explained the legal position, I have no doubt in my mind.
20. In the instant case, respondents Nos. 1 and 2 cannot be said to be ignorant people. They both admittedly were members of the company having transactions with it. Respondent No. 1 was bill collector in the municipality and, therefore, it must be presumed that he is a knowledgeable person in regard to financial transactions of the kind to which he had become a party. In the instant case, the official liquidator has produced the pronote and the consideration receipt which does not bear any endorsement of discharge. The explanation from the witness though not specifically pleaded in the statement of objections is far from satisfactory. It does not even suggest that they made any enquiries in the matter of endorsing the pronote with the discharge. I, therefore, must hold in favour of the official liquidator that he has proved the existence of the debt and the respondents have failed to prove the discharge pleaded by them.
21. The best evidence available to the respondents has not been produced.
22. For the above reasons, I am compelled to allow the application with costs. An order accordingly will issue directing respondents Nos. 1, 2 and 3 (who remained ex parte) to jointly and severally pay to the official liquidator a sum of Rs. 1,078.80 with costs and current interest at 6 per cent. per annum on the principal amount from the date of application till date of realisation.