1. This is a second appeal under the second proviso or, in the alternative, a revision under the first proviso, to Section 75 of the Provincial Insolvency Act, 1920. by the three creditors Abdul Shakur, Abdul Rashid and Abdul Wahid, against. the appellate decision of the learned District Judge of Kanpur, dated 18-12-1951, whereby the order of the Insolvency Judge under Section 68, dated 12-4-1948, directing the debts due to the present appellants to be scheduled under Section 33 of the Act, was set aside and that of the Official Receiver, dated 1-4-1946, dismissing the claims, of the present appellants restored.
2. The present creditors applied for the insolvency of the respondent Kotwaleshwar Prasad on 11-8-1936 on foot of three pronotes in, their favour aggregating Rs. 22.500 in value. The petition for insolvency was opposed by the debtor, but eventually it was allowed on 8-10-1937 on an admission of the debtor himself. An interim receiver was appointed and, under the powers delegated to him under Section 80 of the Act, he proceeded to frame a schedule of debts under Section 33. In those proceedings the debts set up by the present creditors were impugned by the insolvent and also by a creditor named Abdul Sayeed.
3. While the said enquiry was being held, the insolvent applied under Section 35 for annulment of the order of adjudication on 27-5-1939 on the ground, inter alia, that he made the said statement, on the basis of which the order of adjudication had been passed, while under the influence of drink. This application oi his was rejected by the Insolvency Judge on 11-8-1939.
4. The Official Receiver rejected the claim of the creditor Abdul Sayeed. As regards the contest of the insolvent, he brushed it aside on the ground that he could not go behind the order of adjudication which had been passed on the admission of the insolvent himself. In the result, the Official Receiver scheduled the debts of the present creditors by an order dated 8-11-1940.
On an appeal by the insolvent under Section 68, the Insolvency Judge held that the order of adjudication was no bar to the debts in question being enquired into, and he therefore remanded the case for a fresh enquiry by an order dated 14-10-1942. The creditors' appeal against that order was dismissed by the District Judge on 7-8-1943 and by this Court on 30-11-1943. It was as a result of this fresh enquiry on remand that the said order dated 1-4-1946 was passed by the Official Receiver, dismissing the claim of the present creditors, which has led up to the present second appeal or revision, as the case may be.
5. Of the three creditors two, Abdul Shakur and Abdul Wahid, are evacuees. Besides the insolvent, there are two other respondents, the Official Receiver of Kanpur and the Assistant Custodian of Evacuee Property, Kanpur. The last named represented the estate of the two evacuee-creditors. The three creditors and the Assistant Custodian made a common cause, and the appeal was opposed only by the insolvent. No appearance was put in on behalf of the Official Receiver. In fact, after the rejection of the claim of Abdul Sayeed creditor, the contest with regard to the present debts layonly between the insolvent Kotwaleshwar Prasad on the one hand and the creditors Abdul Shakur, Abdul Rashid and Abdul Wahid on the other.
6. Apart from the question, to be considered later, whether the findings in the judgment under appeal are open to challenge, there was a preliminary point raised by the learned counsel for the insolvent respondent as to whether this should be heard as a second appeal or a revision. The decision of the Court below has been impugned, as will appear presently, on the ground that it is contrary to law. That is a ground which is common to both a revision and a second appeal under Section 75 of the Provincial Insolvency Act. The distinction sought to be drawn is therefore without a difference and need not detain us any further.
7. The learned District Judge considered certain circumstances which, in his opinion, were disclosed by the evidence produced before the Official Receiver and, relying upon a Division Bench decision of this Court reported as Kadher Mal v. Sheo Narain : AIR1943All90 he came to the conclusion that those circumstances considerably weakened the presumption of consideration under Section 118 of the Negotiable Instruments Act, 1881, and the burden of proof shifted on to the creditor appellants which they had failed to discharge. He therefore passed the aforesaid order dated 18-12-1951 rejecting the claims of the appellants.
8. The learned counsel for the appellants argued that the Court below had drawn a wrong inference of law in holding that the presumption under Section 118 had been weakened and the burden of proof had consequently shifted on to the appellants. On the other hand, it was sought on behalf of the insolvent respondent, on the authority of Re Union Indian Sugar Mills Co. Ltd. v. Brij Lal Jagannath : AIR1927All426 , to deprive the appellants totally of the benefit of Section 118 by putting forward the argument that that section had no application whatsoever to insolvency proceedings.
Without entering into the merits of the arguments of the learned counsel for the law to the facts (sic) of the present case, we were of the opinion that the law itself appeared to have been wrongly formulated in Kadher Mal's case (A). We also did not agree with the proposition propounded on behalf of the respondent that Section 118 did not apply to insolvency proceedings. We therefore directed the case to be laid before the Hon'ble the Chief Justice for the constitution of a Full Bench for a decision of the following questions:--
1. Whether the presumption mentioned in Clause (a) of Section 118. Negotiable Instruments Act, 1881, can be invoked in insolvency proceedings where an alleged debt against the insolvent is called in question by the Official Receiver or by a creditor or by the insolvent?
2. If it can be invoked, would circumstances tending to make it doubtful that consideration passed under the Negotiable Instrument, eventhough coupled with a denial on the part of the maker of the instrument, suffice to deprive the creditor of the benefit of the presumption and require ram to prove by evidence that consideration did actually pass?
The Full Bench have, by a majority, answered both the questions in affirmative. Vide Abdul Shakur v. Kotwaleshwar Prasad : AIR1956All403 . We shall now deal with the arguments had before us on receipt of the answers of the Full Bench.
9. Before taking up the other arguments relating to the merits of the case there is one concerning the answer of the Full Bench to the second question which must needs be disposed of first. That argument, raised by the learned counsel for the appellants, was that
1. the answer of the Full Bench does not apply to a case in insolvency proceedings where the dispute is, as in this case, between a sole creditor and an insolvent, and where no other creditor exists and the Official Receiver is not a party to the dispute in the sense that he rejects the creditor's claim and therefore assumes the role of a Judge.
2. the answer applies only to a case where the insolvent has denied passing of consideration but not to a case where he has only denied the execution of the instrument and his plea of non-execution has been disbelieved and there is no satisfactory explanation as to why he executed the instrument.
3. the Full Bench has not answered the question whether in case of doubt the presumption under Section 118 is rebutted when the debt is questioned by the insolvent and the dispute is between the original parties to the instrument, and
4. according to the answer of the Full Bench onus is shifted only when the debt is called in question by a creditor other than the creditor who is a party to the dispute or by the Official Receiver representing any such other creditor, so that the onus is not shifted when the debt is questioned by the insolvent himself, and that therefore the presumption under Section 118 of the Negotiable Instruments Act remained in force against the insolvent and no question of a weakening of the presumption arose. Now, the first question was so worded as to comprehend calling in question of a debt by any and every conceivable party in an insolvency proceeding without setting any limitation to the circumstances in which that may be done. The argument that the second question has been answered in a certain permutation or combination of parties or circumstances only is therefore untenable on the face of it.
The learned counsel, however, wanted us to interpret the otherwise clear and categorical monosyllabic affirmative answers of the Full Bench in the light of the reasonings adopted by the majority in arriving at those answers. His argument, in other words, was that, in the light of the reasonings adopted, the answers should be deemed to be different from what they purport to be. The argument therefore implies that in order that the answers be taken tomean what they say the reasonings adopted in the majority judgments should have been different,
But this would clearly be out-stepping the limits of argument before us, for we have to accept the answers of the Full Bench as they are and not to sit in judgment, as it were, over the reasonings adopted by that Bench in arriving at those answers. We shall not, therefore, as indeed we cannot, enter into the merits of the aforesaid answers, but should dispose of the case in the light of what the answers of the Full Bench purport on the face of them to be.
10. The main issue before us is whether the various findings of fact arrived at, and the inferences drawn therefrom, by the lower appellate Court are open to challenge and, if so,whether its ultimate decision is correct. But there were certain arguments raised on behalf of the appellants which, so to say, fenced withthat issue in the sense that, if those arguments were to foe accepted either the appeal should be allowed without entering into the merits ofthe main issue or, in any case, the approach to a decision of that issue should be in a stereotyped manner. Those arguments were the following, the first three belonging to the former category and the last two to the latter:--
1. That the insolvent-respondent is debarred by res judicata from questioning theclaims of the creditor-appellants;
2. that the insolvent's conduct during insolvency proceedings barred his questioning theclaims by estoppel;
3. that the proper procedure was notfollowed during insolvency proceedings;
4. that the appellant's had only to make out a prima facie case in proof of their claims; and
5. that the only plea raised by the insolvent was one of non est factum, and therefore the lower appellate Court, having found against the respondent on that plea, enteredinto irrelevancies in proceeding to decide the question of consideration.
11. We are of the view that none of these contentions has any force, and that the main issue, pointed out above, will deserve our basic consideration. And since our finding on the said main issue is going to be in favour of the appellants, we need do no more than dispose of those contentions in passing.
12. The first contention was based on the Insolvency Judge's order of adjudication dated8-10-1937 and on the basis of the Insolvency Judge's order dated 11-8-1939 rejecting the insolvent's application for annulment of adjudication. It was argued that the order of adjudication and the finding on which the order dated 11-8-1939 was passed barred by res judicata the insolvent's contest against the claims of the appellants. As noticed already, the Official Receiver had originally scheduled the debts of the present appellants by his order dated 8-11-1940 after rejecting the insolvent'scontest on the ground that he could not go behind the order of adjudication dated 8-10-1937 because that order had been passed on the admission of the insolvent. It has also been noticed that, on an appeal against that order by the insolvent, the Insolvency Judge held that the order of adjudication was no bar to the debts in question being, enquired into, and he remanded the case on 14th October, 1952 for fresh enquiry. The present creditor's appeal against that order of the Insolvency Judge was dismissed by the District Judge on 7-8-1943, and their second appeal against the District Judge's order was dismissed by this Court on 30-11-1943. It would thus appear that the point now raised by the creditor appellants namely, that on account of the order of adjudication dated 8-11-1937 the insolvent was debarred by res judicata from questioning their claims, has been decided in the negative at an earlier stage of the present case. That being so, the appellants themselves are debarred, on the same principle, from raising that question over again since it is well-established that the principle which prevents the same issue being twice raised is of general application and is not limited by the specific words of Section 11 of Code of Civil Procedure, so that a matter decided at an earlier stage of the same suit or proceeding would be as binding between the parties as one decided in a former suit. Ram Kirpal v. Rup Kuari, 11 Ind App 37 (PC) (D); Behari Lal v. Majid Ali, ILR 24 All 138 (E). So far as the order of Insolvency Judge, dated 11-8-1939, is concerned, it only repelled the insolvent's plea of his having made under the influence of drink the Statement on the basis of which he had been adjudicated insolvent. That is, however, only one of the several circumstances which were taken into consideration by the lower appellate Court, and which will be dealt with presently when examining that Court's findings.
13. With regard to the second point, reference was made by the learned counsel for the appellants to certain dilatory tactics which are said to have been adopted by the insolvent during the course of the insolvency proceedings, and for the details of which he referred us to the judgment of the Insolvency Judge, dated 12-4-1948. Now, there is no doubt that estoppel by conduct is of the very essence of the rules of estoppel embodied in Sections 115, 116 and 117 of the Evidence Act, but since the acts of the parties which come in for consideration in a litigation the acts, that is, of the party sought to be estopped, and those of the other who has been led thereby to change his position and who therefore pleads the bar of estoppel against the former must necessarily be acts performed prior to the commencement of the litigation, so that the conduct of a party in the course of the litigation, while it may affect the question of costs, should be wholly irrelevant for judging those acts. This is all that need be said regarding the second point.
14. The argument relating to the third point was directed to showing that the Official Receiver had arrogated to himself in the proceedings before him under Section 33 of the Provincial Insolvency Act powers which could, andshould, have been exercised by the Insolvency Judge when the matter was brought before him under Section 68 of the Act. The argument was put forward despite the fact that the particular Official Receiver had been duly empowered under Section 80(1)(b) of the Act to frame schedules and to admit or reject proofs of creditors. Under Section 100(1)(c) of the Code of Civil Procedure, an error or defect in the procedure would not, however, be a good ground for a second appeal unless, apart from its being of a substantial character, the error or defect in question has possibly produced error or defect in the decision of the case on the merits. As to that, while the correctness of the decision of the Court below was no doubt questioned, the error in the decision was not ascribed to any defect in the procedure. On the contrary it was conceded that no question of a remand to the Court below arises in this case since the parties have adduced all the evidence they wanted to adduce on the several questions that arose for determination. That being so, it is not necessary to enter into only an academic discussion of the alleged defects of procedure.
15. In support of the contention that the appellants had only to make out a prima facie case in proof of their claims reference was made to Section 49 of the Act, which provides that a debt may be proved under the Act by delivering, or sending by post in a registered letter to the Court, an affidavit verifying the debt. Now, as observed by their Lordships of the Privy Council in Govind Prasad v. Pawan Kumar , 'provable' and 'proof' are words of technical import in the language of the law of insolvency. And it is only that a certain debt may conform to that description for certain purposes of the Act that the convenient mode of proof prescribed by Section 49 has been laid down. Per instance, under the proviso to Section 78(2) of the Act, the provisions as to limitation contained in that Section are not applicable to a debt provable but not proved under the Act. Again, in order that a creditor may be entitled under Section 33(3) of the Act to apply to the Court for an order directing his name to be entered in the schedule as a creditor in respect of any debt provable under the Act, he should tender proof of his debt before the discharge of the insolvent. Also, where a claim for recovery of a debt is not contested, the mode of proof prescribed by Section 49 should be sufficient. But to say that that mode of proof will do even where a claim is contested would be to run counter to the recognised rule's of pleading and proof. There is nothing in the Act which places a creditor in that privileged position for purposes of the insolvency proceedings. On the other hand, if the view propounded were to be accepted, the provisions for expunction of a Scheduled debt after further enquiry by the Court, whether on the motion of the Official Receiver under Section 50 or on the application of a party under Section 68, would be rendered nugatory where the debt is contested on the ground, inter alia, that lit did not exist. Where therefore a debt iscontested in the insolvency proceedings it should be proved in the ordinary way, and it would be no answer to the contest that a prima facie proof of it according to the mode prescribed by Section 49 had already been given.
16. In order that the last of the above four preliminary points raised by the learned counsel for the appellants may be appreciated the details of the appellants' claims and the insolvent's plea in respect of the same may here be set forth. It has been stated above that the appellants' claim, aggregating Rs. 22,500/-, was based on three pronotes executed by the insolvent. One was for Rs. 15,000/-dated 28-9-1935 in favour of Abdul Shakur and Abdul Wahid, the other for Rs. 3,500/- dated 9-2-1936 in favour of Abdul Rashid, and the third for Rs. 4,000/- dated 7-4-1936 also in favour of Abdul Rashid. The insolvent's reply, as contained in his first written objection dated 9-9-1936, and repeated in other objections subsequently, was that, taking advantage of his credulity and inexperience and addicting him to drinking and prostitution, and without really advancing any sum to him, the creditors took his signatures on several blank stamped papers while he was drunk on promise of supplying him with funds for a litigation which he wanted to launch against his brothers. Apart from other evidence, the insolvent produced two expert witnesses, one Dr. S. N. Mukerji and the other M. B. Dixit. The former descanted on alcoholism, or action of alcohol on human system, and the latter, a hand-writing expert, opined that Kotwaleshwar appeared to have appended his signatures to the pronotes under the influence of drink. A contrary opinion was expressed by R. Scott, Examiner of Questioned Documents, Government of India, produced by the creditors. On this single point, however, the finding of the lower appellate Court was against the insolvent. It held that it was not proved that the insolvent who had admittedly signed the pronotes, 'was then so much under the influence of drink that he was not aware of what he was doing.' Laying emphasis on the aforesaid expert evidence produced by the insolvent, it was urged by the learned counsel for the appellants before us that the real, by which he meant to say the only, plea of insolvent was one of non est factum that his signatures on the pronotes had no force since they had been obtained while he was under the influence of drink, so that 'the mind of the signor did not accompany the signature'. Foster v. Mackinnon, (1869) 4 CP 704 (G). The learned counsel urged further that, having found against the insolvent on that point, the lower appellate Court should have found ipso facto that the pronotes were for consideration.
17. Now, this argument appears to proceed on a misreading of the insolvent's plea. His basic plea was that, although nothing was paid to him at the time, his signatures were obtained on blank stamped papers on the promise of his being paid the requisite amount in future. It would thus appear that although that plea was hedged in with the assertionsthat the creditors took advantage of his credulity, inexperience and addiction to wine and women, and even of his being drunk when he signed the pronotes, his assertion clearly was that the pronotes were without consideration. It would appear further that the insolvent had no misgivings or delusions as to what he was up to when in the act of signing the pronotes. He admittedly knew that he was affixing his signatures to blank and (what is particularly significant) stamped papers on the basis of which he was to receive in further from those who were obtaining his signatures the wherewithal to finance his litigation against his brothers. It could not validly be contended therefore that the mind of the insolvent did not accompany the signature. The correct position therefore appears to be the very reverse of what has been urged on behalf of the appellants : there was no plea of non est factum by the insolvent but of want of consideration.
18. The main issue before us may now be taken up -- the issue, that is, whether the finding of the Court below that the circumstances appearing in the case tended to make it doubtful that consideration passed under the pronotes in question so as to deprive the creditor of the benefit of the presumption under Section 118(a) of the Negotiable Instruments Act, and so as to require him to prove by evidence that consideration did actually pass, and that the creditors had failed to discharge that onus, could be challenged in this second appeal and, if it could be, whether that finding is correct. It is necessary therefore to be clear in the first instance as to the correct scope of a second appeal.
19. The second proviso to Section 75 of the Provincial Insolvency Act lays down that any such person, meaning thereby the debtor, any creditor, the receiver or any other person aggrieved by a decision of the District Court on appeal from a decision of a subordinate Court under Section 4, may appeal to the High Court on any of the grounds mentioned in Sub-section (1) of Section 100 of the Code of Civil Procedure, 1908. Even in insolvency proceedings therefore a second appeal to the High Court would lie only on any of the grounds mentioned in Sub-section (1) of Section 100 of the Code. That subsection is in the following terms :
'1. Save where otherwise expressly provided in the body of this Code or by any other law for the time being in force, an appeal shall lie to the High Court from every decree passed in appeal by any Court on following grounds, namely :
(a) the decision being contrary to law or to some usage having the force of law;
(b) the decision having failed to determine some material issue of law or usage having the force of law;
(c) a substantial error or defect in the procedure provided by this Code or by any other law for the time being in force, which may possibly have produced error or defect in the decision of the case upon the merits.'
20. The dismissal of the appellants' claims being based on the finding of fact that the pronotes in question were without consideration, this second appeal would seem to have the benefit of none of the grounds mentioned above. But the process of arriving at a finding of fact may come within the mischief of one or the other of the grounds mentioned in Sub-section (1) of Section 100 of the Code, and, if that be so, the finding of fact would be assailable in second appeal. There was no argument had before us based on Clause (b) or the second half of Clause (a) of the sub-section, and the only argument based on Clause (c) relating to error or defect in the procedure has been found to be untenable. It has therefore to be seen whether the decision of the Court below comes within the mischief of the first hall of Clause (a) as being a decision contrary to law. Now, the locus classicus on the subject of the assailability of a finding of fact in second appeal, where there is no error or defect in procedure, is the dictum of the Privy Council in Mt. Durga Chowdhrani v. Jawahir Singh, 17 Ind App 122 (PC) (H), that there is no jurisdiction to entertain a second appeal on the ground of an erroneous finding of facts, however gross or inexecusable the error may seem to be, if the first appellate Court had before it evidence proper for its consideration in support of the finding.
21. The words 'had before it evidence proper for its consideration' constitute the pith of the dictum and epitomize within themselves a number of other dicta which flow from it. In the first place, the having before I it of evidence proper for its consideration in support of a finding of fact being a condition precedent to the arriving at the finding, there would be a violation of the rule, and the finding would therefore be assailable in second appeal, if there be no evidence to support the finding, since arriving at a finding of fact on no evidence becomes a question of law.
So it was held in Anangamanjari Chowdhrani v. Tripura Soondari Chowdhrani, 14 Ind App 101 (PC) (I), where the decision turned on the question of fact of whether the plaintiffs were in possession, that the High Court (though found by their Lordships to be wrong in drawing that inference) would have been within their jurisdiction to interfere in second appeal if
'there was, as an English lawyer would express it, no evidence to go to the jury, because that would not raise a question of fact such as arises upon the issue itself, but a question of law for the consideration of the Judge.'
Midnapur Zamindari Co. v. Secretary of State for India, 56 Ind App 388: (AIR 1929 PC 286) (J), was another case of like nature where-the High Court's decision on Second appeal was upset by the Privy Council because it was found that the High Court's view as to the lower appellate Court's finding being based on no evidence was wrong.
On the other hand, in Damusa v Abdul Samad, 46 Ind App 140: (AIR 1919 PC 29) (K),interference in second appeal by the Judicial Commissioner was upheld because he was found correct in holding that there was no evidence in support of the concurrent finding of fact of the Courts below that the sale-deed which the plaintiffs sought to avoid had been brought about by fraud.
It may be added as a corollary that a finding based on mere conjectures or surmises would be tantamount to a finding on no evidence since 'conjectures cannot be accepted as a substitute for proof'. Atar Singh v. Thakar Singh, 35 Ind App 206 at p. 211 (PC) (L).
22. The words 'evidence proper' signify that the evidence on which the finding of fact is based should be evidence relevant and admissible under the law relating to the relevancy and admissibility of evidence. So where a finding of fact is based partly on admissible and partly on inadmissible evidence, there would be good ground for interference by the High Court in second appeal. Saktoo Mal v. Gopal Chand, AIR 1922 All 439 (M).
23. Nor are the words 'had before it' without significance. One of the arguments put forward on behalf of the appellants before their Lordships of the Privy Council in Durga Chawdhrani's case (H), was that the evidence on record had not been considered. While expressing their regret that the Judicial Commissioner should have dealt with the matters before him 'in so meagre a fashion', they did not accept the aforesaid argument because they had 'no reason to doubt that all the evidence was fully and duly considered by him'.
A Court cannot therefore be said to arrive at a finding of fact on evidence which it 'had before it' if it arrives at that finding without 'fully and duly considering' that evidence. So where it appears that in arriving at a finding of fact the first appellate Court did not consider the oral evidence, nor did it apply its mind to the question, it is not possible to say that there is any finding of fact which Should not be interfered with in second appeal. Hirday Narain v. Har Prasad, AIR 1948 Oudh 291 (N).
24. It is only where a finding of fact passes muster according to the aforesaid dictum of their Lordships the dictum, that is, that (there being no error or defect in the procedure) in arriving at the finding the first appellate Court had before it evidence proper for its consideration in support of the finding that there would be no jurisdiction, as their Lordships laid down further, to entertain a second appeal on the ground of an erroneous finding of fact, 'however gross or inexcusable the error may seem to be'.
It follows therefore that, provided there is no transgression of that dictum, the second appellate Court would be exceeding its powers under Section 100 of the Code if it were to differ from the view of the first appellate Court only upon appreciation of oral evidence Misri Lal Nayak v. Mt. Surji, 1950 All LJ 113, at p. 115: (AIR 1950 PC 28 at pp. 29-30) (O), or interpretation of documents which are not documents of title Midnapur Zamindari Co v. Uma Charan, AIR 1923 PC 187 (P).
25. It would thus appear that a finding of fact arrived at by the first appellate Court in transgression of any of the aforesaid' facts of the dictum of their Lordships of the Privy Council in Durga Chaudhrain's case (H), would raise a question of law and so become liable to be interfered with in second appeal. There are two other ways in which it may become so liable. One is where the finding, though no doubt a finding of fact, has to be recorded on an accurate formulation.
Another Privy Council case, reported as Paul v. Robson, 41 Ind App 180: (AIR 1914 PC45) (Q), illustrates the point. That was a case of alleged infringement of certain rights of light. There were concurrent findings on the relevant questions of fact, but their Lordships proceeded to consider whether those findings had been arrived at on an accurate formulation of the law -- the law, that is, that the measure for judging infringement is not the amount of light enjoyed during the period of prescription but whether the infringement amounted to an actionable nuisance.
26. The other way in which a finding of fact would render itself liable to interference in second appeal is where a legal inference has to be drawn from proved facts. Of that proposition the Privy Council case of Dhanna Mal v. Mati Sagar , is an illustration in point. In that case, which was a case where landlord's suit for ejectment of tenants and enhancement of rent turned on the true nature of the tenants' interest in land whether permanent, as pleaded by the tenants, or precarious, as averred by the landlord, it was held that inference on that crucial question from proved facts was a legal inference and therefore second appeal to the High Court was competent.
27. And here, in the context of the proposition considered in the next preceding paragraph, may be considered a piece of argument that was put forward by the learned counsel for the insolvent respondent. It has been noticed that, relying upon a decision of this Court, the lower appellate Court came to the conclusion that, in view of certain circumstances, the presumption of consideration under Section 118 of the Negotiable Instruments Act was considerably weakened.
It went on to hold further that the weakening of presumption had shifted the burden of proof on to the creditors, and that the creditors had failed to discharge that burden. We are not concerned at this stage with the latter finding as to the shifting of onus and to its not being discharged. We are concerned at this stage with the earlier finding that the presumption of consideration had been weakened, for it was with regard to this finding that the argument was put forward.
That argument was that a finding as to whether a statutory presumption was rebutted, or weakened, was a finding of fact and there-fore a finding unassailable in second appeal. The argument is however too broadly stated, as will be shown presently : it holds good in a certain circumstance, but not always.
28. Reliance, in support of the argument, was put on the Privy Council case of Wall Mohammad v. Mohammad Bakhsh . That was a case arising out of a suit for redemption of a mortgage, and the question for determination was one of fact, namely, whether the defence plea of the mortgagees that there had been a sale of the equity to them was correct. The entries in the record-of-rights, prepared under the Punjab Land Revenue Act (17 of 1887), about the correctness of which there was to be a presumption under Section 44 of that Act, supported the defence.
The trial Court gave effect to that presumption and dismissed the suit. The first appellate Court reversed that decision, and one of the conclusions it came to in doing so was that the record-of-rights was unworthy of credence. The High Court held that it could not go behind the finding on the aforesaid question of fact, and the Privy Council upheld that view. It would thus appear that, the entries themselves having been found to be unreliable, no question of their giving rise to any presumption arose. In deciding the case, however, their Lordships of the Privy Council laid down a number of propositions for disentangling questions of law and fact under Section 100 of the Code of Civil Procedure. And one of the propositions laid down by them was :
'The question whether a statutory presumption is rebutted by the rest of the evidence, being evidence such as in this case, is a question of fact.'
They referred in this connection to a Calcutta case, Kumeda Prosonno Bhuiya v. Secretary of State, 19 Cal WN 1017: (AIR 1915 Cal 647) (T), and to a decision of the Board, 56 Ind App 388: (AIR 1929 PC 286) (J). The former was a first appeal and therefore no question of rebuttal of a statutory presumption being a finding of fact such as would be binding in second appeal arose.
In the latter, which arose out of a suit for a declaration that the plaintiff was an occupancy Raiyat, the question of presumption of correctness of entry in the record-of-rights did arise, and from certain findings of fact arrived at it was held by the first appellate Court that the presumption of correctness of the record stood rebutted. On second appeal the High Court upset the lower appellate Court's judgment.
The Privy Council set aside the High Court's decree and restored that of the first appellate Court, and while doing so their Lordships observed: 'If he', meaning the first appellate Court, 'had evidence proper for his findings notwithstanding the statutory presumptions then it seems to their Lordships that his findings of fact were final and conclusive'. It would thus appear that their Lordships were only judging the findings of factwhich were in conflict with the presumption, that they were doing so in the light of the rule in Durga Chaudhrain's case (H), and that they did not lay down that the question whether a statutory presumption is rebutted by the rest of the evidence is a question of fact.
It may however be noted that in Wall Mohammad's case (S). relied upon by the learned counsel for the insolvent respondent in the present appeal, the finding arrived at as a result of the rebuttal of the statutory presumption was a finding of fact, namely, that there was no sale. Taking this view along with that expressed in Dhanna Mal's case (R), noticed already, the correct position with regard to rebuttal of statutory presumptions would appear to be this : if the finding arrived at as a result of the rebuttal of a statutory presumption is a finding on a question of fact, such as whether there has been a sale, that finding would be final for purpose's of a second appeal, but if, on the other hand, that finding, be a finding on a question of law, such as whether a tenancy is permanent or precarious, it would be open to question in a second appeal.
29. The above views as regards the scopeof second appeal find support from the following observations of their Lordships of the Supreme Court of India in Dhiraj Lal Girdhari Lal v. Commissioner of Income-tax Bombay : 26ITR736(SC) :
'The question whether or not the Hindu undivided family was doing business in shares transferred to it by the firm, is undoubtedly a question of fact; but if the Court of fact whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an, issue of law arises.
It is apparent from the following quotation from the judgment of the Tribunal that not only was its approach to the question raised before it tainted with suspicion, but it took into consideration a number of circumstances based purely on conjectures and surmises and for which there was not a scintilla of evidence on the record.'
And again :
'The learned Attorney-General frankly conceded that it could not be denied that to a certain extent the Tribunal had drawn upon its own imagination and had made use of a number of surmises and conjectures in reaching its result. He however, contended that eliminating the irrelevant material employed by the Tribunal in arriving at its conclusion, there was. sufficient material on which the finding of fact could be supported.
In our opinion, this contention is not well founded. It is well established that when a Court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it inarriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises.'
30. What has gone before could not perhaps toe said to be exhaustive of the scope of second appeal on the ground of the decision appealed from being contrary to law, within the intendment of the first half of Clause (a) of Sub-section (1) of Section 100. Civil Procedure Code; but the disposal of this second appeal would lie within its compass.
It may be stated further that there was no complaint by any party that the inquiry before the Official Receiver was not full, or that there had been any deprivation of opportunity to produce evidence. The evidence on the record is sufficient within the purview of Section 103 of the Code and Section 167 of the Evidence Act. That being so, it will be open to this Court in this second appeal itself to determine an issue of fact if it finds that it has been wrongly determined by reason of any illegality, and there would be no question of a remand for a new trial.
31. The scope of a second appeal, or at least of this second appeal, having been considered, it may now be seen whether the finding of fact arrived at by the lower appellate Court, namely, that the pronotes in question were otherwise than for valuable consideration, was correct. In view of the answers of the Full Bench there is no doubt that the lower appellate Court's decision does not suffer from the defect of its having proceeded to record that finding of fact on an inaccurate formulation of the law.
It has still to be seen, however, whether it was right in holding that there were circumstances which tended to make it doubtful that consideration passed under the pronotes so as to deprive the creditor appellants of the benefit of the presumption under Clause (a) of Section 118 of the Negotiable Instrument's Act and to require them to prove by evidence that consideration did actually pass, and that they had failed to discharge that onus. The circumstances relied upon by the lower appellate Court may therefore be examined. Those circumstances, as found by that Court, were the following :
1. That the insolvent's father, Lala Ram Charan Lal, died in 1933, leaving considerable properties.
2. That the insolvent was at the time of his father's death 'a very young man', about 20 years of age, inexperienced, 'open to all the temptations of early life.''
3. That the insolvent 'got mixed up with Amir Hasan, Dullu and others, and they initiated him into the mysteries of wine and women.'
4. That although the pronotes were not executed under the influence of drink, 'there were grounds for holding that he was under the influence of Amir Hasan' when he signed them.
5. That it was 'significant that these three pronotes were executed in quick succession'. and at that time the insolvent was already indebted to the creditors to the extent of Rs. 6000/- under two pronotes of Rs. 3,000/- each, one dated 4-9-1935 and the other dated 15-9-1935.
6. That the creditors had no previous business relations with the insolvent.
7. That although the creditors knew that the insolvent's share in the property left by his father was only Rs. 28,000/- or Rs. 30,000/-, and that he was joint in the estate with his brothers, no kind of security was taken from the insolvent, nor was any enquiry made as to whether the said property was encumbered or not.
8. That Abdul Wahid creditor admitted that about 2 1/2 months after the execution of the pronotes dated 28-9-1935 for Rs. 15,000/- he came to know that the insolvent was executing bogus and fictitious pronotes in favour of his friends to defraud real creditors, and therefore it was incredible that further sums should have been advanced under the two Subsequent pronotes of Rs. 3,500- and Rs. 4,000/- dated respectively 9-2-1936 and 7-4-1936.
9. That the insolvent was 'fairly well off for his ordinary needs' and 'no apparent reason has been made out why the insolvent should have borrowed those considerable sums of money.'
10. That the creditors 'did not have sufficient funds with them' to advance either the amounts covered by the three pronotes in question or those under the prior pronotes of 4-9-1935 and 15-9-1935.
11. That the thumb-impressions of the insolvent had been taken in addition to his, signatures on the pronotes, and that his signatures were also obtained on the Rokar bahi.
12. That the oral evidence produced by the creditors in proof of passing of consideration did not inspire confidence.
13. That the admission of the insolvent dated 8-10-1937 on foot of which the order of adjudication was passed appeared to have been made in suspicious circumstances, and it was 'an erroneous admission' and therefore did not bind the insolvent.
14. That the bahi khatas of the creditors were of a suspicious character.
32. The lower appellate Court therefore came to the conclusion that the circumstances were similar to those which appeared in : AIR1943All90 , so that the presumption under Section 118 of the Negotiable Instruments Act was considerably weakened, and that the onus of proving consideration which had thereby shifted on to the creditors had not been discharged by them.
That Court has not stated from which of the circumstances enumerated in its judgment it drew the preliminary inference that the presumption had been weakened, and from which others it concluded that the creditors had failed to discharge the onus of proving consideration. It appears however that the first nineshould belong to the first category and the last five to the second.
33. The correctness, or otherwise, of the preliminary inference must needs be considered first. Scrutiny of that inference should however be prefaced with the observation that it is open to question not only because the various findings, or at least the material ones, described as circumstances by the Court below, whereon that inference was based suffer from one or the other of the legal defects pointed out above, but also because the inference drawn by that Court as a result of its view that the statutory presumption stood rebutted was a finding on a question of law and not on a question of fact.
That inference, or finding, of the Court below was that the onus of proving consideration had shifted on to the creditors. Now, it is perhaps easier realised than described in so many words as to which is a finding on a question of fact and which a finding on a questionof law -- so easy, it Should seem, that one might have the same shock of surprise on being pointed out the difference as had the character in one of Moliere's plays when told that he had been speaking for more than forty years without knowing it was prose.
A work-a-day definition could be this: A finding which has to draw on a rule of law forthe recording of it or for the ascertainment of its truth is a finding on a question of law, any other, a finding on a question of fact. The finding that onus has shifted has to draw on the rules of pleading and proof, of procedure and evidence, for the recording of it as well as for the ascertainment of its truth. It is therefore a finding on a question of law. The so-called circumstances relied upon by the Court below for arriving at that finding may now be examined.
34. The most important circumstances relating to the preliminary inference of the weakening of the presumption as to consideration relied upon by the Court below were (1) that the insolvent was a raw and inexperienced youth who had been initiated into the mysteries of wine and women by the creditors or their henchmen, (2) that he was under the influence of Amir Hasan, an employee of the creditors, and (3) that he had no need to borrow money.
The other circumstances were of an innocuous, or at least an inconclusive, nature. Execution of the pronotes by the insolvent in quick succession while still encumbered with prior debts might be Symptomatic of his need but certainly not of any craftiness of the creditors. There could be no previous business dealings between them as need for such dealings arose only on the death of the insolvent's father.
No security was taken by the creditors because none could well be taken before the partition for which the insolvent intended to sue his brothers, and none appeared prima facie to be necessary in view of the admittedly substantial share of the insolvent in the property left by his father. As regards execution of bogus pronotes by the insolvent, one of the creditorsdid explain that the information turned out to be only a bugbear. The Court below did not discredit that explanation, nor is there anything on the record to show that the explanation was discreditable.
35. Reverting to the aforementioned three important circumstances, it was strenuously urged by the learned counsel for the appellants that the findings that the insolvent was a raw and inexperienced youth, and that he had been initiated into the evil habits of drinking wine and prostitution, were totally unfounded. We should express no opinion on this submission since it invites us to differ from the views of the first appellate Court on those points upon an appreciation of evidence and so to exceed our powers under Section 100 of the Code.
But there is no doubt that there is no finding (not because of any inadvertent omission on the part of the Court below, but because there is actually no evidence to support such a finding) that there was any connection between the alleged evil habits of the insolvent and the debts which are the basis of the creditors' claims. The only connection alleged, namely, that the pronotes had been obtained from the insolvent while he was under the influence of drink, has been found to be baseless. That being so, mere general bad character of the insolvent would be quite irrelevant in a civil case. Section 52, Indian Evidence Act.
36. As regards the second circumstance that the insolvent was under the influence of Amir Hasan, there is really no evidence to support that finding for it was based on mere surmise. This is apparent from the language used by the lower appellate Court. It says at one place: 'The appellant', meaning the insolvent, 'might have made the signatures while under the influence of Amir Hasan and others'. At another place it expresses itself as follows:
'While discussing the question whether the appellant was under the influence of liquor at the time he executed these pronotes, I gave my reasons for holding that while it was not proved that the appellant was under the influence of liquor when he signed these pronotes, nevertheless, there were grounds for holding that he was under the influence of Amir Hasan. What this influence was can be only a matter of surmise.'
37. The finding which constitutes the third circumstance is again wholly unsustainable. Evidence was led on behalf of the creditors to show that money was needed by the insolvent for running dangals. The creditors filed notices of dangals held by the insolvent in Luck-now, and it was conceded that he carried on the business of running dangals which his late father used also to carry on. The Receiver thought however that dangals could cost only Rs. 1,000 or so.
The Insolvency Judge was of the view that dangals held on a commercial scale may cost even Rs. 10,000 per dangal. The lower appellate Court found fault with this view of the Insolvency Judge on the ground that it appeared to be based on surmises. But in doing so itfell into the same mistake since there was no evidence to warrant a contrary conclusion. This was not a case where it lay on the creditors to prove what the need, was, as where legal necessity for a Hindu father's debt has to be established.
The onus, on the contrary, lay on the insolvent to prove, as one of the circumstances displacing or weakening the presumption of consideration in favour of the creditors, that he had really no need to borrow money. As to that, not only were no books of account produced by him, nor was it stated that he maintained none though he admittedly carried on the aforesaid ancestral business, but it appeared, firstly, that he was in straitened circumstances Since admittedly his brothers had usurped possession on the major part of the property left by their father and a bagicha fetching a paltry Rs. 28 or so per mensem was the only item of property the insolvent had managed to grab, and, secondly, that he was in need of money to run the said business and also to sue his brothers for partition.
It would thus appear that this finding about the insolvent having had no need to borrow money suffered from several legal defects: it was based on surmises and therefore on no evidence, it proceeded on placing onus probandi on wrong shoulders, and it ignored evidence to the contrary that there was on the record.
38. The circumstances on which the preliminary inference as to the weakening of the presumption under Section 118 of the Negotiable Instruments Act was based having been found to be illusory and unfounded, the creditor-appellants were not deprived of the benefit of that presumption so as to have been reduced to the necessity of proving by evidence that consideration did actually pass.
That being so, they are entitled that this appeal be allowed on that finding alone. It would, however, be worth while to examine the further finding of the Court below that the creditors had failed to prove consideration, if only to show that it was of a piece with the preliminary inference drawn by it. The amounts under each of the three pronotes purport to have been paid in cash to Kotwaleshwar Prasad.
The creditor's also obtained receipts from him and his endorsement on their books of account. The books of account of the creditors show that on 9-2-1936 and 7-4-1936, when Rs. 3,500 and Rs. 4,000 respectively were advanced to him, they had the requisite balances in hand where from to make the advances. On 28-9-1935, when Rs. 15,000 were advanced, the opening balance was Rs. 3,362-11-0, but they made up the deficiency by withdrawing by means of two cheques Rs. 13,000 from the bank. They also produced oral evidence to prove the passing of consideration.
The criticisms of the Court below that the creditors 'did not have sufficient funds', or that the balance in hand 'dropped down' after the advances, or that the oral evidence did not inspire confidence because it was strange thatthey remembered the facts, are therefore, of no significance. They are criticisms indicative of that Court having arrived at its finding without applying its mind to the evidence on therecord.
The other criticisms that payments need not have been by cash but by bearer cheques, or that the relevant entries in the books were not in the handwriting of one creditor but of another or of their employee, or that thumb-impressions of the insolvent were taken over and above his signatures, are criticisms merely for the sake of criticism. It was also said that books of account were suspicious, but that was not in relation to the entries of the advances in question but to an alleged alteration in regard to the comparatively small sum of Rs. 500 twenty four days before the first loan of 28-9-1935.
Another remark made in this connection was that some fresh pages appeared to have been added, but that again related to another book, a kachcha rokar, and to a period unrelated to that when the advances in question were made. Again, a perusal of the lower Court's judgment leaves the impression that these criticisms were more reproductions of the Official Receiver's opinions than well-considered conclusions of its own. In these circumstances, the finding as regards the creditors' failure to discharge onus of proof of the passing of consideration should have been the very reverse of that arrived at by the Court below.
39. Finally, the view of the Court below as regards the admission of Kotwaleshwar Prasad on the basis of which he was adjudged insolvent is also wholly unsupportable. The admission, couched in clear and unequivocal terms, was this: 'I admit the debts of the opposite parties, I may be adjudged insolvent.' The Court below was of the view that the admission appeared to have been made in suspicious circumstances, and that it was an erroneous admission.
The plea of the insolvent that he had made that statement under the influence of drink was rejected by the Insolvency Judge when the insolvent applied for annulment of the order of adjudication. The plea that he made that statement under the influence of Amir Hasan was rejected by the Official Receiver, and this finding was endorsed by the Court below. Inspite of all this, the Court below led itself to hold that the admission was made in suspicious circumstances because, in its opinion, the insolvent was at the time not accompanied by his counsel and because it was strange that the insolvent should have made an admission so damaging to his cause.
The aforesaid specific pleas of the insolvent having been found to be baseless, it is manifest that the inference drawn by the Court below was founded on nothing but surmises and therefore on no evidence. Nor could the admission by any stretch be described as erroneous in view of the rest of the evidence on record. In these circumstances, the insolvent should have been held to be fully bound by the admission.
40. It follows from all that has gone before that the facts of this case were materially different from those of : AIR1943All90 , embodying the principle endorsed by the Full Bench, which the lower appellate Court sought to follow.
The important facts not in pari materia were these: in that case the creditor was himself heavily indebted, but in this the creditors have been proved to have had the means to advance the loans in question; in that case the young man had just emerged from minority and appeared to be inexperienced, in this his age, according to the Court below, may have been anything between 19 and 24, and he was certainly not inexperienced since he admittedly used to run dangals; in that case the young man had no necessity to borrow money, but in this, as shown already, the reverse was the case; in that case, unlike the present, the young man had been brought by the creditor under his control; and in that case the creditor produced no books of account, but in this the creditors did, and the authenticity of entries in them found support from withdrawals from the bank.
The present therefore is clearly a case where not only had the insolvent failed to displace, or even to weaken, the presumption in favour of the creditors under Section 118 of the Negotiable Instruments Act, but the passing of consideration stood fully established, even if there were no initial presumption in favour of the creditors, by the evidence adduced by themand by the insolvent's own admission.
41. In the result, therefore, the appeal is allowed with costs throughout against the insolvent, the judgment and order of the District Court dated 18-12-1951 are set aside and it is directed that the debts of the appellants be scheduled.