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Sewa Ram Vs. Hoti Lal and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad
Decided On
Reported inAIR1931All108
AppellantSewa Ram
RespondentHoti Lal and anr.
Excerpt:
.....promissory-note to the real creditor will not effectively discharge him and his liability on foot of the promissory-note will continue in spite of it. we are, therefore, clearly of opinion that the lower appellate court has taken an erroneous view of the right of the plaintiff-respondent to succeed apart from the promissory-note in suit. 14. this dictum has coma in for a good deal of criticism at the hands of the learned judges of the calcutta high court in brojo lal saha banikya v. defendant 1 on the other hand failed to establish the case set up by him as regards the manner in which he executed the promissory note in suit without receipt of any consideration therefore......for recovery of rs. 1,000 on foot of a promissory-note, dated 14th april 1924.2. the promissory-note in suit was executed by sewa ram, defendant 1 (the appellant) in favour of panna lal, defendant 2, on 14th april 1924 for a sum of rs. 700 advanced thereunder at the rate of rs. 1-4 per cent per mensem. seth hoti lal, the plaintiff respondent sued on the promissory-note on the allegation that defendant 1 is his brother-in-law (wife's brother) to whom he advanced the loan in question. he took the promissory-note in the name of defendant 2 and' retained it in his own possession. in other words, the plaintiff claims to be the real creditor under the promissory-note in suit, defendant 2 being his benamidar.3. the suit was contested by defendant 1 who denied having borrowed any money from.....
Judgment:

Niamatullah, J.

1. This is a defendant l's appeal from the decree passed by the learned Additional District Judge, reversing the decree passed by the Munsif of Kasganj in a suit brought by the plaintiff respondent for recovery of Rs. 1,000 on foot of a promissory-note, dated 14th April 1924.

2. The promissory-note in suit was executed by Sewa Ram, defendant 1 (the appellant) in favour of Panna Lal, defendant 2, on 14th April 1924 for a sum of Rs. 700 advanced thereunder at the rate of Rs. 1-4 per cent per mensem. Seth Hoti Lal, the plaintiff respondent sued on the promissory-note on the allegation that defendant 1 is his brother-in-law (wife's brother) to whom he advanced the loan in question. He took the promissory-note in the name of defendant 2 and' retained it in his own possession. In other words, the plaintiff claims to be the real creditor under the promissory-note in suit, defendant 2 being his benamidar.

3. The suit was contested by defendant 1 who denied having borrowed any money from the plaintiff but admitted the execution of the promissory-note in suit under circumstances stated in his written statement, viz., that one Ganeshi Lal said to be the plaintiff's karinda agreed to secure for defendant 1 a loan of Rs. 700 from defendant 2 Panna Lal; that in anticipation of the loan he (defendant 1), executed the promissory-note and made it over to Ganeshi Lal, but that no money was subsequently lent and the transaction fell through. The suggestion is that the plaintiff got the promissory-note from Ganeshi Lal and preferred a groundless claim. It was also pleaded that the plaintiff is not competent to maintain a suit on foot of a promissory-note in favour of defendant 2 in view of Section 78, Negotiable Instruments Act.

4. Both the lower Courts have disbelieved the defendant's story as regards the circumstances under which he alleged to have executed the promissory-note in suit and have concurrently found that the plaintiff respondent actually advanced the loan, evidenced by the promissory-note taking it in the name of defendant 2 as his benamidar. The Court of first instance dismissed the suit on the ground that the plaintiff cannot sue on the promissory-note not being the holder thereof. The lower appellate Court took a contrary view and decreed the suit holding that the plaintiff can fall back upon the original consideration, though he may be incompetent to sue on foot of the promissory-note of which he is not the holder. The principal question which has been the subject of discussion in second appeal is whether under the circumstances already stated the plaintiff respondent is entitled to sue for recovery of principal and interest due under the promissory-note in suit.

5. The learned advocate for the appellant has argued that a claim arising under a promissory-note cannot be enforced independently of it and that a plaintiff is allowed to fall back upon the original loan transaction only if the promissory-note is inadmissible in evidence or is for any other reason unenforceable. We are of opinion that the contention has force. Where a promissory-note or other negotiable instrument is inadmissible in evidence or void, the promise contained therein cannot be established by evidence afforded thereby, and the Court has to accept the position that there was no undertaking reduced to writing which can be the foundation of an action. But where such promissory-note or negotiable instrument is provable by the holder thereof who can recover the debt due thereunder, no case can exist for recovery of the same debt independently of its terms. Apart from conflicting claims arising from a contrary view there is an inherent flaw in a claim collateral to the deed being permitted. A benami transaction of the kind we are concerned with closely analysed amounts to a transaction in which the executant of the promissory-note promises to pay to the person in whose favour it is executed in consideration of the money advanced by another. The promissory-note having been executed and delivered, the consideration for it is exhausted. All the three, parties concerned in such a transaction stand committed to certain promises. The person actually advancing the money did so to induce the borrower to execute the promissory-note in favour of and to agree to pay the sum advanced with interest to the person mentioned in it. The holder of the promissory-note agrees to hand over the money when realized to the actual creditor.

6. The position of a benamidar has been described by their Lordships of the Privy Council as one having 'no beneficial interest in the property or business that stands in his name' but representing

the real owner and so far as their relative legal position is concerned, being a mere trustee for him.

7. Under ordinary circumstances the beneficiary can maintain a suit for relief arising out of a transaction in which he is beneficially interested through a benamidar. The right of the benamidar to maintain an action has also been affirmed by their Lordships of the Privy Council in Gur Narayan v. Sheolal Singh A.I.R. 1918 P.C. 140 from which the above quotation has been made. If there is no rule of law which bars a suit by the beneficiary, there can be no objection to a decree being passed in his favour in a properly-constituted suit do which the benamidar and the person liable are parties. In case of a benami promissory-note however, Section 78, Negotiable Instruments Act, imposes a certain amount of disability on. the person claiming to be the real creditor who took it in the name of another person. It runs as follows:

Subject to the provisions of Section 82, Clause (c), payment of the amount due on a promissory-note, bill of exchange or cheque, must, in order to discharge the maker or acceptor, be made to the holder of the instrument.

8. The case before us is free from any complication created by Section 82, Clause (c), referred to in Section 78. We may therefore leave it out of account. The section makes it perfectly clear that the executant of the promissory-note is bound to make the payment of the amount due on the promissory-note to the holder of the instrument and that payment to any-body else will not discharge him. The word 'holder' has been defined in Section 8 as a

person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.

9. It follows that payment by the maker of the promissory-note to the real creditor will not effectively discharge him and his liability on foot of the promissory-note will continue in spite of it. To allow the real creditor to sue for the money advanced by him independently of the promissory-note by proving the actual loan would expose the debtor to a double liability, to the real creditor on foot of the original consideration and to the holder of the promissory-note in terms of the express promise contained therein. We are, therefore, clearly of opinion that the lower appellate Court has taken an erroneous view of the right of the plaintiff-respondent to succeed apart from the promissory-note in suit.

10. The next question is whether the plaintiff-respondent is entitled to sue on the promissory-note under which he is the real creditor, the holder thereof being his benamidar or trustee. It has been argued with reference to Section 78, Negotiable Instruments Act, that the only person who can sue is the holder of the promissory-note, in this case defendant 2. If the plaintiff has otherwise a right of suit, we find nothing in Section 78 which precludes him from maintaining a suit for enforcement of the liability incurred by defendant 1 under the promissory-note. All that the section provides is that the payment made to any person other than the holder shall not operate as a discharge. It does not in terms even refer to the right to sue. In a suit brought by the real creditor, to which the debtor and the holder of the promissory-note are parties a decree can be passed against the debtor for what is due from him with a clear proviso that payment shall be made by the debtor to the holder or to his credit and that if it is made by deposit in [Court, or if money is recovered from him in execution of decree, it shall be to the credit of the holder or may be paid to the plaintiff if he secures a discharge of the debtor by the holder of the promissory-note. The plaintiff can also recover by suit against defendant 2 if the decretal amount is deposited to the latter's credit. A decree in these terms and payment made in pursuance thereof will satisfy all the requirements of Section 78. The holder of the promissory-note being a party will be bound by the result of the litigation, and there is no danger of the debtor being sued a second time; nor, if a payment is made by him in the manner directed by the decree, the discharge of his liability will be in any manner ineffective. Ordinarily there can be no difficulty in the real creditor obtaining proper endorsement of the promissory-note from the holder his benamidar, which will entitle him to sue. There may be cases in which the plaintiff may have to sue without such endorsement and, if the ends of justice so require we see no reason why the Court should not pass a decree in favour of the plaintiff making sufficient provision for safeguarding the interest of all the other parties to the suit.

11. The view stated above finds support from Brojo Lal Saha Banikya v. Budh Nath Pyarilal & Co. : AIR1928Cal148 in which a promissory-note sought to be enforced by a firm had been executed in favour of one of its partners. The suit was brought in the name of the firm as the plaintiff. Exactly similar contention based on Section 78, Negotiable Instruments Act, was put forward on behalf of the debtor but was negatived on two grounds : (1) that the holder of the promissory-note being one of the partners should be deemed to be the plaintiff and (2) that Section 78, Negotiable Instruments Act, did not preclude a third person suing the maker of the promissory-note and recovering money due thereunder if a discharge by the holder could be secured for the debtor.

12. In cases of benami promissory-notes the real creditor runs considerable risk in not forthwith obtaining an endorsement in his own favour, as cases are conceivable in which the holder may collude with the debtor and give him a discharge. In the case before us defendant 2 has not entered appearance and there is no suggestion that he has given a discharge to defendant 1, or that he opposes the claim of the plaintiff-respondent ,for the enforcement of the liability of defendant 1. As a mere lender of name he is apparently not concerned with the result of the suit. Unless on the authorities relied on by the appellant, to be presently noticed, the plaintiff-respondent is not entitled to maintain the suit at all we are of opinion that justice should be done by passing a decree against defendant 1 and safeguarding the interest of defendant 1 in the manner already mentioned.

13. One of the cases relied on by the learned advocate for the appellant in support of his contention that the plaintiff is not entitled to sue is Subba Narayana Vathiyar v. Ramaswami Aiyar [1907] 30 Mad. 88, in which the holder of the promissory note sued the debtor for the recovery of what was due thereunder. The latter pleaded in defence that the plaintiff was a mere benamidar and not the real creditor and therefore not entitled to sue. The learned Judges held with reference to the terms of Section 78, Negotiable Instruments Act, that it was not open to the defendant to plead that the payee or endorsee was a benamidar. The case before us is converse of that case. The actual decision of it is wholly inapplicable to the circumstances before us. The learned Judges however proceeded to lay down that:

According to the law merchant which governed negotiable instruments in this country before the passing of the Negotiable Instruments Act, no person could sue on a negotiable instrument unless he was named therein as payee or unless he had become entitled as endoree or bearer and that Sections 8 and 78, Negotiable Instruments Act have reproduced the law as it stool before the pissing of the Act.

14. This dictum has coma in for a good deal of criticism at the hands of the learned Judges of the Calcutta High Court in Brojo Lal Saha Banikya v. Budh Nath Pyarilal & Co : AIR1928Cal148 , and we share the views of those learned Judges. We have to construe the language of the Negotiable Instruments Act as we find it and are not at liberty to import considerations borrowed from the law merchant in the absence of appropriate words in Section 78, Negotiable Instruments Act, justifying such considerations. That the holder of the promissory note can sue on it was the only question which the learned Judges of the Madras High Court had to decide and which has bean correctly decided. Indeed the right of a benamidar generally to sue was always recognized and has been affirmed by their Lordships of the Privy Council in Gur Narain v. Sheolal Singh A.I.R. 1918 P.C. 140 already referred to. In an earlier case decided by the Madras High Court reported in Gurumurti v. Sivayya [1898] 21 Mad. 391, the right of the real creditor to sue on a promissory note taken by him benami in the name of another person was affirmed, but we find no discussion of the point raised before us with reference to Section 78, Negotiable Instruments Act.

15. In Ramanuja Ayyangar v. Sadagopa Ayyangar [1905] 28 Mad. 205, the promissory note in suit had been executed in favour of the mother of the minor plaintiff suing with his mother as next friend. The claim was barred by limitation if brought by the mother who was adult, but was within limitation if the promissory note be considered to be benami for the minor who sued and attempted to escape the bar of limitation in consequence of his minority. It was held that the suit was not maintainable and that it was only the payee of the note who could sue but that her claim was barred by limitation. In Dori Lal v. Sewak Ram [1915J 29 I.C. 988, a learned single Judge of this Court referred to the Madras case last noted apparently with approval. The case before him was one in revision from the decree passed by a subordinate Court dismissing the suit brought by a person alleged to be the real creditor under a promissory note executed banami in the name of a parson since deceased whose heirs were parties. The learned Judge dismissed the revision, not being prepared

to hold that the learned Subordinate Judge acted with material irregularity in the exercise of his jurisdiction, in applying to the decision of the question of law raised by the pleadings before him a principle which has been specifically laid down by one at any rate of the High Courts in India, and not dissented from by the Court to which he is subordinate.

16. We do not think that this is at all of law which had been acted upon by the Court whose decree was under revision.

17. In a later case Reoti Lal v. Manna Kunwar A.I.R. 1922 All. 70, the facts were similar to those before us. The learned Judges constituting the Division Bench followed the Madras cases referred to by us in upholding the decree of the first Court by which the plaintiff's suit for money under a promissory note alleged to have been executed benami for him was dismissed. The learned Judges have not discussed the terms of Section 78 to ascertain how far it precludes a suit by the real creditor which was for recovery of money by the plaintiff. It was not argued before the learned Judges, at any rate they have not considered the question, whether a decree can be passed with due reservations in favour of the debtor and consistently with the terms of Section 78, Negotiable Instruments Act. We take it as deciding no more than that a plaintiff suing to recovery from the debtor is not entitled to a decree and consider that we are at liberty to hold that a decree in terms already indicated by us can be passed in a proper case.

18. We have not bean referred to any other case decided by this or any other High Court other than the cases referred to by us. We think that the view taken by the Calcutta High Court in Brojo Lal Saha Banikya v. Budh Nath Pyarilal & Co. : AIR1928Cal148 , is based on a correct view of Section 78, Negotiable Instruments Act. We have already given our own reasons for arriving at the same conclusion. To dismiss the plaintiff's suit on the technical ground that he is not entitled to recover from defendant 1 what is due under the promissory- note in suit will inflict; a hardship on the plaintiff for what seems to us to be an erroneous view of law taken by his legal adviser in instituting the suit on his behalf with-out obtaining the endorsement of defendant 2 in respect of the promissory note in suit. Defendant 1 on the other hand failed to establish the case set up by him as regards the manner in which he executed the promissory note in suit without receipt of any consideration therefore. Both the lower Courts have given an emphatic finding that his defence was false. Considering all the circumstances of the case, we allow the appeal so far as to modify the decree passed by the lower Court by adding the following proviso to it:

(1) The decretal amount shall be paid to or to the credit of defendant 2; (2) it shall not be recoverable by the plaintiff except on obtaining a discharge from defendant 2 in respect of defendant 1's liability under the promissory note in suit; (3) if the decretal amount is deposited in Court by defendant 1 or is brought in execution of decree, it shall be to the credit of defendant 2.

19. In view of the peculiar circumstances of the case, we direct the parties to bear their own costs throughout.


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