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indermal Takaji Mahajan Vs. Ramprasad Gopilal and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 150 of 1967
Judge
Reported inAIR1970MP40; 1969MPLJ442
ActsCode of Civil Procedure (CPC) , 1908 - Sections 21 - Order 6, Rule 2 - Order 7, Rule 7 - Order 12, Rule 1 ; Negotiable Instruments Act, 1881 - Sections 118; Contract Act, 1872 - Sections 2 and 25
Appellantindermal Takaji Mahajan
RespondentRamprasad Gopilal and anr.
Appellant AdvocateS.D. Sanghi, ;A.P. Tare, ;M.L. Jain and ;C.M. Kirtane, Advs.
Respondent AdvocateH.K. Maheshwari, Adv. for No. 1 and ;H.N. Vijaywargiva, Adv. for No. 2
DispositionAppeal dismissed
Cases ReferredShadwell v. Shadwell
Excerpt:
- - 30,000/- together with interest and costs grounded upon a promissory note dated 10th september, 1962, which he had executed for that sum in favour of the defendant 2, who subsequently endorsed it in favour of the plaintiff. 30,000/-,that it was endorsed in his favour at mhow for consideration and that, being thus theholder in due course, he is entitled to recover the amount due thereon. the defendant 1 further denied that the plaintiff was the holder of the promissory note in due course and contested his claim that it was duly negotiated or endorsed in his favour either at mhow or for consideration. 5. upon a consideration of the evidence led by the parties, the lower court held inter alia that the promissory note was negotiated and endorsed at mhow for a consideration of rs......pandey, j. 1. this appeal by the defendant 1 is directed against a money decree for rs. 30,000/- together with interest and costs grounded upon a promissory note dated 10th september, 1962, which he had executed for that sum in favour of the defendant 2, who subsequently endorsed it in favour of the plaintiff. 2. the material facts which are not in controversy may be shortly stated. at ujjain, the defendant 1, indermal, had executed in favour of the defendant 2, mohammad hussain, the promissory note ex. p. 1 dated 10th september, 1962 for an apparent consideration of rs. 30,000/-repayable on demand and carrying interest at 6% per annum. on the back of that document, there is an endorsement in favour of the plaintiff, ramprasad, which purports to have been made at mhow in indore civil.....
Judgment:

Pandey, J.

1. This appeal by the defendant 1 is directed against a money decree for Rs. 30,000/- together with interest and costs grounded upon a promissory note dated 10th September, 1962, which he had executed for that sum in favour of the defendant 2, who subsequently endorsed it in favour of the plaintiff.

2. The material facts which are not in controversy may be shortly stated. At Ujjain, the defendant 1, Indermal, had executed in favour of the defendant 2, Mohammad Hussain, the promissory note Ex. P. 1 dated 10th September, 1962 for an apparent consideration of Rs. 30,000/-repayable on demand and carrying interest at 6% per annum. On the back of that document, there is an endorsement in favour of the plaintiff, Ramprasad, which purports to have been made at Mhow in Indore Civil District within the jurisdiction of the lower Court. Upon demand having been made by the plaintiff for the amount due on the promissory note, the defendant 1 did not make any payment.

3. Ramprasad (Plaintiff) averred that the promissory note was executed for a cash consideration of Rs. 30,000/-, that it was endorsed in his favour at Mhow for consideration and that, being thus theholder in due course, he is entitled to recover the amount due thereon. While the promisee Mohammad Hussain (defendant 2) accepted these averments, the promisor Indermal (defendant 1) resisted the claim on several grounds.

4. The defendant 1 denied that he received any consideration for the promissory note and pleaded that he executed that document in order to persuade the defendant 2 to sign the sale deed of Nazar Ali Mills, Ujjain, so that the sale proceeds thereof might be made available for satisfying the numerous creditors of those Mills. According to the defendant 1, the consideration for execution of the promissory note was thus against public policy and unlawful. Further, the amount due under the promissory note was, by agreement arrived at between the parties, adjusted towards the amount due to the defendant 1 under a decree passed against several persons including the defandant 2, who did not then return the promissory note on the pretext that it was lost. The defendant 1 further denied that the plaintiff was the holder of the promissory note in due course and contested his claim that it was duly negotiated or endorsed in his favour either at Mhow or for consideration.

5. Upon a consideration of the evidence led by the parties, the lower Court held inter alia that the promissory note was negotiated and endorsed at Mhow for a consideration of Rs. 20,000/- and, therefore, the Court at Indore had jurisdiction to try the suit but the plaintiff, being admittedly aware that the amount had already become due and had not been paid in spite of demand, was not a holder in due course. The promissory note itself was, however, found to have been executed by the defendant 1 for Rs. 30,000/-received by him in cash and it was further held that, even the consideration for that document, as pleaded by him in his defence, was valid and good in law.

6. In the memorandum of appeal, the defendant 1 raised ground No. 20 to challenge the lower Court's conclusion that it had jurisdiction to try the suit, His counsel, however, readily conceded before us that he was unable to show that any prejudice was caused by reason of the fact that the suit was tried at a wrong place, Indore, instead of Ujjain. That being so, the conclusion is, having regard to the provisions of Section 21 of the Code of Civil Procedure, not assailable. The further finding that the plaintiff was not a holder in due course was, in view of the evidence on record and the circumstances of the case, not challenged before us. The learned counsel for the defendant 1, however, vigorously attacked the following conclusions:

(i) That the promissory note was executed for a cash consideration of Rs. 30,000/-.

(ii) That even otherwise, it was, in the circumstances pleaded by the defendant 1 himself, supported by good and valid consideration.

(iii) That there was no adjustment or appropriation of the amount due on the promissory note towards payment of a debt owing by the defendant 2 and other persons.

(iv) That endorsement was made for consideration of Rs. 20,000/-.

7. The question whether the promissory note in this case was executed for a cash consideration of Rs. 30,000/- was debated at the bar at some length. In considering this controversy, we must bear in mind the statutory presumption arising under Section 118 of the Negotiable Instruments Act, 1881, and the legal position that the presumption may be rebutted by direct or circumstantial evidence or even presumption of law or fact. So, in Kundan Lal v. Custodian, Evacuee Property, Bombay, AIR 1961 SC 1316, Subba Rao J., who spoke for the Court, observed:

'To illustrate how this doctrine works in practice, we may take a suit on a promissory note. Under Section 101 of the Evidence Act, 'whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist'. Therefore, the burden initially rests on the plaintiff who has to prove that the promissory note was executed by the defendant. As soon as the execution of the promissory note is proved, the rule of presumption laid down in Section 118 of the Negotiable Instruments Act helps him to shift the burden to the other side. The burden of proof as a question of law rests, therefore, on the plaintiff, but as soon as the execution is proved, Section 118 of the Negotiable Instruments Act imposes a duty on the Court to raise a presumption in his favour that the said instrument was made for consideration. This presumption shifts the burden of proof in the second sense, that is, the burden of establishing a case shifts to the defendant. The defendant may adduce direct evidence to prove that the promissory note was not supported by consideration, that, if he adduced acceptable evidence, the burden again shifts to the plaintiff and so on. The defendant may also rely upon circumstantial evidence and, if the circumstances so relied upon are compelling, the burden may likewise shift again to the plaintiff. He may also rely upon presumptions of fact for instance those mentioned in Section 114 and other sections of the Evidence Act. Under Section 114 of the Evidence Act, 'The Court may presume the existence of any factwhich it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case'. Illustration (g) to that section shows that the Court may presume that evidencewhich could be and is not produced would, if produced, be unfavourable to the person who withholds it. A plaintiff who says that he had sold certain goods to the defendant and that a promissory notewas executed as consideration for the goods and that he is in possession of the relevant account books to show that hewas in possession of the goods sold and that the sale was effected for a particular consideration, should produce the said account books, for he is in possession of the same and the defendant certainly cannot be expected to produce his documents. In these circumstances, if such a relevant evidence is withheld by the plaintiff, Section 114 enables the Court to draw a presumption to the effect that, if produced, the said accounts would be unfavourable to the plaintiff. This presumption, if raised by a court, can under certain circumstances rebut the presumption of law raised under Section 118 of the Negotiable Instruments Act. Briefly stated, the burden of proof may be shifted by presumptions of law or fact, and presumptions of law or presumptions of fact may be rebutted not only by direct or circumstantial evidence but also by presumptions of law or fact.' (Pages 1318-9)

8. In the course of arguments, we were also reminded that this is a Court of appeal and that we should be slow to interfere with the lower Court's findings of fact. In this connection, the counsel referred to us the oft-cited cases, namely. Netherlands-che v. Chettiar Firm, R. M. P., AIR 1929 PC 202, Virappa v. Periakaruppan, AIR 1945 PC 35, Veeraswami v. Narayya, AIR 1949 PC 32, Sariu Per-shad v. Jwaleshwari, AIR 1951 SC 120, and Radha Prasad Singh v. Gajadhar Singh, 1960 MP LJ 1 = (AIR 1960 SC 115). The way in which the conclusions reached by the first Court on questions of fact should be approached and regarded is well settled and it is not necessary for us to dilate upon considerations which should be borne in mind in any examination of such conclusions in appeal. Weconsider it sufficient to say that, in this case, the proved circumstances not onlyshift the onus of proof in regard to payment of Rs. 30,000/- in cash as consideration for the promissory note, but they also contraindicate and render improbable the conclusion reached on the point by the lower Court.

9. In proof of the circumstances inwhich Mohammad Hussain came in possession of Rs. 32,000/-. he produced the undated Ikrarnama Ex. 2D-1. He admitted that it was executed on the same date (the date of the promissory note) by Fazl Hussain, Allahbux, Asgarbhai, Saifuddin and Ismail. The relevant portion of that document reads:

^^dkjksckj eksgEnvyh bZlkHkkbZ o utjvyh vykcD'kij dtkZ Hkh cgqr gks x;k vkSj flok; feYl ds cspku ds nwljk dksbZ tfj;k jgk ughaftlls vnk;xh gks dkjksckj ds flyflys esa Jh eksgEen gqlsu HkkbZ dk Hkh tkrh :i;ko :bZ utjvyh feYl esa vk;k ftldk ewY; 2'OOO fd;k x;k blesa ls 2OOO :i;kuxn odr jftLVh fnyk;k x;k gSA ckdh .OOO :i;k jgrk gSA utjvyh feYl ds [kjhnoklds ikl tfj;s c; esa ls :i;k ''OOO ftlds okcr >xMk 'kklu ls py jgk gSge eqdksjku dk er gS fd ;g :i;k nsuk ugha iMsxk blfy;s cgqr dqN de gks tk;sxkAfeYl ds c;ukesa dh jftLVh gksrs gh ge eqdksjku ;k bUnjey Vsdkth ;g nksuksizdj.k ;kuh feYl etnwjksa dk eqrkyck o lsYl VDl erkycs ds lEca/k esa dksf'k'kdj ds >xMksa dks fudky djok nsxs dksbZ jDe bu >xMks dh rlfQ;s ds ckn 'ks'kjgsxh rks ge eqdksjku mlesa ls :i;k .OOO loZ izFke ekQZr lsB bUnzeyVsdkth ds lsB eksgEen gqlsu oYn utjvyh dks nsaxsa gedksa mtj u gksxkA**

These recitals unmistakably indicate that, in that document, Rs. 32,000/- was shown to have been given to Mohammad Hussain out of the proceeds of sale of Nazar Ali Mills. But, in the witness-box, he (Mohammad Hussain 2 D.W. 2) repudiated that suggestion, though he continued to accept that the amount was paid to him at the time of registration of the sale deed in respect of those Mills [Paragraph 27] and also in the office of the registering officer [Paragraph 8]. The recitals of the sale deed Ex. D. 1-12 dated 10th September, 1962, whereby the Nazar Ali Mills were sold, show that no part of the consideration of Rs. 12,75,000/- of that deed was received in cash by any of the vendors of Nazar Ali Mills, who executed Ex. 2D-1. It is true that Inayat Hussain, an executant of Ex. D. 1-12, received a sum of Rs. 65,000/- out of the consideration for that sale deed, but Mohammad Hussain admitted that he did not then receive any amount from Inayat Hussain [Mohammad Hussain 2 D. W. 2, Paragraph 8]. The position, therefore, is that five of the vendors of the Nazar Ali Mills, who had not received any part of the sale price of those Mills, executed Ex. 2-D-1 showing that out of that price, a sum of Rs. 32,000/- was paid to Mohammad Hussain. None of these five executantswas examined by him to prove that the amount was, or would be, so paid. Further, when Mohammad Hussain was pointedly questioned on the point, he was obliged to state that either Fazal Hussain or Allabux paid to him the amount, Rs. 32,000/- [Mohammad Hussain 2 D. W. 2, Paragraph 8]. In regard to Ex.2D-l itself, which Mohammad Hussain had produced, he made varying inconsistent statements including the one that he could not say in which year it was executed or indeed anything at all [Mohammad Hussain 2 D. W. 2, Paragraph 27].

Although all these statements indicated a virtual repudiation of that document, its purpose and effect the learned Judge of the lower Court observed in paragraph 14 of his judgment that it showed that Mohammad Hussain had received on the occasion, like Indermal (defendant 1) and Inayat Hussain, a sum of Rs. 1,32,000/-out of the amount due to him from the Nazar Ali Mills and Rs. 93,000/- remained to be paid to him by the Mills. In so doing, the Judge failed to take into account unambiguous admissions made by Mohammad Hussain to the effect that he did not receive the amount out of the sale proceeds of Nazar Ali Mills, that not all the executants of Ex. 2-D-1 paid to him that amount and that either Fazal Hussain or Allabux did so. Even apart from the consideration that neither Fazal Hussain nor Allabux was likely to personally discharge any part of the debt due from the Nazar Ali Mills, there is the fact that these two persons were not examined presumably because they would not have supported Mohammad Hussain either in regard to the payment or their ability to make it. Nay, Jagan-nath and Nathulal, who attested the promissory note and in whose presence the consideration of Rs. 30,000/- was said to have been paid in cash, were also not examined. It is reasonable to presume that they too would not have supported payment of Rs. 30,000/- in cash consideration for the promissory note.

This is not all. Admittedly, Mohammad Hussain was impecunious for the last 9 vears in debts and in no position to lend money. Indeed, even on 10th September, 1962, he needed money [Mohammad Hussain 2 D. W. 2, paragraph 8]. Thus he was not in a position to advance any loan. On the other hand, Indermal was in affluent circumstances and had received on the same day a sum of Rs. 3,25,000/-in payment of the amount due to him from the Nazar Ali Mills. In these circumstances, it was extremely unlikely for him to borrow for investment 'as capital for his business' a sum of Rs. 30,000/-on interest terms from Mohammad Hussain. Further, if Mohammad Hussain had advanced the amount in cash on interestterms, it was improbable that he would have endorsed for a consideration of only Rs. 20,000/- the promissory note on which, on the date of endorsement, a sum of Rs, 34,725/- inclusive of interest was due from an admittedly solvent party. Finally, when Indermal stated in his notice Ex. P. 6 dated 5th June, 1965, that there was no valid consideration for the promissory note, the plaintiff, who claimed in the witness-box to have been duly informed that it was for cash consideration, would not have remained altogether silent about it in his reply Ex. P. 7 dated 17th June, 1965.

10. It may be, as observed by the lower Court, that Manaklal 1 D. W. 2, Shrawanlal 1 D. W. 3, Udharam 1 D. W. 4 and Hakimuddin 1 D. W. 7 are not disinterested and their evidence is , not dependable otherwise also, but we do not propose to take a different view about their credibility. We consider this Question in the light of inherent probabilities and the weight of evidence. In paragraph 15 of the judgment of the lower Court, it has referred to the subsequent conduct of Indermal lest we think that that conduct is not inconsistent with the promissory note being without any cash consideration, In our opinion, the fact that Mohammad Hussain did not receive any part of the consideration of the sale of the Nazar Ali Mills as sought to be shown by Ex. 2D-1 dated 10th September. 1962 and the presumption arising from the fact that he did not examine the person who he claimed gave him Rs. 32,000/-to enable him to advance a loan of Rs. 30,000/- to Indermal rebutted the presumption under Section 118 of the Negotiable Instruments Act, 1881, and shifted the onus of proof.

Further, having regard to the considerations set out in the foregoing paragraph, we are also of opinion that this shifted onus of proving, as alleged, that the consideration for the promissory note was a cash advance of Rs. 30,000/- was not discharged by the prevaricating, sup-pressive and unsupported , evidence of Mohammad Hussain 2 D. W. 2. In short, we conclude, differing from the lower Court, that the consideration for the promissory note was not a cash advance of Rs. 30,000/-. We may, however, add that this conclusion does not affect the claim grounded on the promissory note because, as we would show in the sequel, it was otherwise supported by good and valid consideration.

11. In paragraph 13(5) of his written statement, Indermal (defendant 1) pleaded that there was no consideration for the promissory note or that such consideration, even if regarded as existing technically, was illegal and opposed topublic policy on the following averments, The Nazar Ali Mills, which was owned by Mohammad Hussain and 31 others of one Bohra family, was largely indebted. For recovery of a small sum due to Government, the Mills had been sold by public auction for Rs. 7,00,000/- only. Some disinterested persons intervened and got the sale set aside. Then theowners of the Mills decided to sell it and satisfy the claims of all its creditors. Mohammad Hussain too agreed to that course. Since there were numerous owners, they appointed six among themselves, including Mohammad Hussain, as agents for the purpose. There was a contract with two persons, Gendalal and Parasmal, for sale of the Mills for Rs. 12,50,000/- and a separate contract for sale of another property for Rs. 75,000/-.

Since the Mills were subject to charge for payment of several debts, the creditors too were called. Indermal, who too was a creditor, extended his full co-operation to facilitate the sale. There were two such meetings but, at the time of execution of the sale deed, Mohammad Hussain did not sign it on some pretext or another and thus the contract fell through. However, Mohammad Hussain subsequently agreed to extend full cooperation and also gave an assurance that he would sign the sale deed. Thereafter a new contract was made with Bachharaj Factories (Private) Limited to sell the Mills for Rs. 12,75,000/-. All agreed to it, but, at the time of execution of the sale deed. Mohammad Husain said that, before signing it, he would, like other executants, take Rs. 60,000/- as commission over and above the agreed price. Then, at the instance of others, Indermal intervened and, by executing the promissory note dated 10th September, 1962 for Rs. 30,000/- in lieu of the commission demanded by Mohammad Hussain, induced him to execute the sale deed.

12. The lower Court framed issues 3 (a) and (b) to cover the plea of want of good and valid consideration for the promissory note. In support of this plea, Indermal stated in the witness-box inter alia that the sale of the Mills to Bachhraj Factories (Private) Limited was arranged through him, that, at the time of execution of the sale deed, Mohammad Hussain declined to sign it saying that he would do so only if Rs. 60,000/- be paid to himand that, in the end, it was settled between him (Indermal) and Mohammad Hussain that the former would pay Rs. 30,000/- to the latter who would then sign the sale deed. Continuing, Indermal stated that it was in pursuance of this agreement that he (Indermal) executed the promissory note without receiving any cash consideration and added that, before the contract for sale was made with Bachhrai Factories (Private) Limited, Mohammad Hussain had promised not to ask for more money but, at the time of execution of the sale deed, he became obdurate and insisted on getting more money.

13. The learned counsel for Indermal attacked the conclusion of the lower Court that the passing of valid consideration could be spelled out of the plea contained in paragraph 13(5) of his written statement mainly on the ground that it was not permissible to dissect a pleading and to found a conclusion, as was done by the lower Court, only that part of it which was favourable to Mohammad Hussain. The principle no doubt is that admission in a written statement may be taken as a whole or not at all. There is, however, some misconception about the mode in which it should be used in order to operate agajnst the defendant. It is, therefore, necessary to refer to two leading cases bearing on the point. Long ago, Sir Barnes Peacock laid down in Sooltan Ali v. Chand Bibee, (1868) 9 Suth WR 130, that a written statement was not a pleading in confession and avoidance whereby a defendant was bound by the confession and compelled to prove the avoidance and that, if used against the defendant, the whole statement must be taken together. Giving an instance of application of the principle, Sir Barnes Peacock devised a hypothetical illustration:

'Suppose a man should be sued for goods sold and delivered and should state and swear to the statement that the goods were bought and delivered to him in a shop by a person whom he did not know and that he paid for them at the time.

If that statement were true, he could not honestly state that he had never bought the goods, and if the statement that he had bought them, was to be taken against him without also taking his statement that he paid for them at the time, the greater injustice might be done, for he would be unable to compel the attendance of the man who sold the goods, inasmuch as he was unknown to him, but if the plaintiff being unable to read one part of the statement as evidence against the defendant without reading in his favour what he said as to payment, the plaintiff would have to cite the man who sold the goods for the purpose of proving his case, and then if the witness should speak the truth, the statement would make out his defence by eliciting from the witness on cross-examination the fact that the defendant had paid for the goods at the time.'

This view was repeated by Sir Barnes Peacock in a subsequent Full Bench case in Poolin Beharee v. R. Watson and Co. (1868) 9 Suth WR 190 (FB). The same principle was laid down by the Judicial Committee in Motabhoy Mulla Essabhoyv. Mulji Haridas, AIR 1915 PC 2. In that case. Lord Dunedin observed:

'It is permissible for a tribunal toaccept part and reject the rest of anywitness's testimony. But an admission inpleading cannot be so dissected, and if itis made subject to a condition, it musteither be accepted subject to the conditionor not accepted at all. Therefore theadmission that the promissory note wasto be held as satisfied on 30th Januaryby a new debt on the part of Hyderally,provided that security was found for thewhole debt by that date cannot be treatedas an admission that in any case thepromissory note was to be held as satisfied by 30th January.' (Page 4)

It is plain that the principle illustrated above is that, if a written statement incorporates an admission of some facts favourable to the plaintiff and a denial of certain other facts favourable to him or an assertion of still other facts which are unfavourable to him, he (plaintiff) must, if he wants to take advantage of the admission, take not only the first set of facts as truly stated but also the second set of facts as so stated. But the principle is limited in application to facts and does not embrace within its ambit any plea of law raised by the defendant on the cumulative effect of the two sets of facts. We would show in the following paragraphs that the conclusion reached by the lower Court can be supported on this basis.

14. It is now well established that where an alternative case, which the plaintiff could have made, but did not make in the plaint, is admitted by the defendant in his written statement, it is permissible to grant to the plaintiff relief on that basis. So, in Firm Shrinivas Ram Kumar v. Mahabir Prasad, AIR 1951 SC 177, Mukherjee J. (as he then was) held:

'The rule undoubtedly is that theCourt cannot grant relief to the plaintiffon a case for which there was no foundation in the pleadings and which the otherside was not called upon or had an opportunity to meet. But when the alternativecase, which the plaintiff could have made,was not only admitted by the defendantin his written statement but was expressly put forward as an answer to the claimwhich the plaintiff made in the suit, therewould be nothing improper in giving theplaintiff a decree upon the case whichthe defendant himself makes. A demandof the plaintiff based on the defendant'sown plea cannot possibly be regardedwith surprise by the latter and no question of adducing evidence on these factswould arise when they were expresslyadmitted by the defendant in his pleadings.' (Pages 170-80)

15. In this case, the matter does not rest there. As we indicated earlier, thefacts alleged by Indermal in paragraph 1' (5) of his written statement as constituting want of consideration and the consideration being unlawful or opposed to public policy were put in issue and the burden of proving those facts was rightly placed on Indermal. Examining himself in support of those issues, he disclosed in his evidence that, before the contract was made, Mohammad Hussain had promised not to ask for more money but after the bargain was made through him (Indermal), Mohammad Hussain did so. There is a variation between this evidence and the pleading to the effect that all (presumably including Mohammad Hussain) had agreed to the contract and then Mohammad Hussain turned back and asked for more money. The rule no doubt is that no amount of evidence can be looked into upon a plea that was never made: Siddik Mahomed Shah v. Mt. Saran, AIR 1930 PC 57 (1). But that rule is based mainly on the principle that no party should be prejudiced by the change in the case introduced by this method. In Eshenchunder Singh v. Shamachurn Bhutto, (1866-67) 11 Moo Ind App 7 (PC), Lord Westbury, in delivering the judgment of the Board, observed:

'It will introduce the greatest amount of uncertainty into judicial proceedings if the final determination of causes is to be founded upon inferences at variance with the case that the plaintiff has pleaded, and, by joining issue in the cause, has undertaken to prove.........They desire tohave the rule observed, that the state of facts, and the equities and ground of relief originally alleged and pleaded by the plaintiff, shall not be departed from........'

These observations were, however, explained by the Board in Haji Umar v. Gustadji Muncherji Cooper, AIR 1915 PC 89. Viscount Haldane, who delivered the judgment of the Judicial Committee, observed that the principle was not to be applied in an abstract way and added:

'In applying such a principle the whole of the circumstances must be taken into account and carefully scrutinised. The question is in ultimate analysis one of circumstances and not of law.' (Page 92) We have already noticed in the case of AIR 1951 SC 177 (supra) an example of departure from the rule which was permitted because, in the facts of that case, the question of surprise could not possibly arise and no injustice could possibly result to the defendant. Similar considerations persuade us to take the view that Indermal could not be prejudiced by his own evidence given on the issues he had undertaken to prove, though that evidence is in one respect at variance within his pleading on the point. If, as disclosed by the evidence, Mohammad Hussain had promised, before the contract was made,that he would not ask for more money, that assurance could not prevent him from exercising his freedom of contract by not accepting the terms of the bargain subsequently settled through Indermal and demanding a larger price for the shares represented by him in the transaction. But we do not propose to rest our decision on this narrow ground. We would show hereafter that the ultimate result is not different even if we consider cumulatively all the facts pleaded in paragraph 13{5) of Indermal's written statement.

16. Shri Sanghi, learned counsel for Indermal, suggested that the contract for sale of Nazar Ali Mills was really a tripartite contract to which the creditors, including Indermal, were parties. We do not find anything in paragraph 13(5) or elsewhere in his written statement to show that the creditors too were parties to the contract which was made with Bachharai Factories (Private) Limited. The facts as pleaded in paragraph 13(5) taken together do, however, show that all the owners of the Nazar Ali Mills, including Moham-mad Hussain, had agreed to the contract for sale of the Mills with that Company but, at the time of execution of the sale deed, Mohammad Hussain insisted on taking a sum of money as commission over and above the agreed price and, in lieu of the commission thus demanded, Indermal agreed to pay Rs. 30,000/- for which he executed the promissory note. In short, therefore, Indermal, a third party, who was looking forward to recovering from the sale price a large sum of money upon completion of the sale, executed the promissory note and thereby induced Mohammad Hussain to perform his part of the executory contract for sale, which he was already bound to perform under the contract with Bachha-raj Factories (Private) Limited. The question is whether the promise to perform an existing contract with a third party can be a good and valid consideration for another contract.

17. The definition of consideration in Section 2(d) of the Indian Contract Act comprehensively provides that when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or promises to do or abstains from doing, something, such act or abstinence or promise is called the consideration for the promise. It will be readily seen that, according to this definition, the fresh promise, which Mohammad Hussain gave to Indermal, for fulfilling his part of the executory contract for sale is the consideration for the promissory note. Sir Frederick Pollock and Sir D. F. Mulla in their commentary on the Indian Contract and Specific Relief Act (Eighth Edition, pages 209-10) observe:

'If A is already bound to do a certain thing, not by the general law, but under a contract with Z, it seems plain that neither the performance of it nor a fresh promise thereof without any addition or variation will support a promise by Z, who is already entitled to claim performance. For Z is none the better thereby in point of law, nor A any worse. But what if M, a third person not at present entitled to claim anything, offers a promise to A, in consideration of (a) A's performance of his obligation to Z, or (b) A's promise to M to perform that obligation? These questions have given rise to great difference of learned opinion in. England and America. They do not seem to have been considered by Indian Courts. Such English authority as there is favours the opinion that the performance is a good consideration; but the reasons given are not very clear, and seem that both performance and promise must be good consideration in such a case, or neither. It is submitted, however, that on principle this assumption is not tenable. The test is whether there is any legal detriment to A, the supposed promisee. Now A's performance of what he already owes to Z is no detriment to him, as has been pointed out, and indeed the resulting discharge of his liability seems rather to be an advantage; and therefore it is no consideration for a new promise by any one But A's promise to M to do something though he may have already promised Z to do that same thing, is the undertaking of a new obligation to a new party. There is no reason why it should not be made binding by M's counter-promise, as in any other case of a contract by reciprocal promises, unless the law forbids the same performance to operate in discharge of two distinct contracts. There is no positive authority for any such rule of law, and when we bear in mind that in a contract by reciprocal promises, the promises are the consideration for each other, and not the performance, no such rule appears to be demanded or warranted by principle.'

18. In Gopal Co. Ltd., Bhopal v. Hazarilal and Co., Bhopal, 1962 MP LJ 781 = (AIR 1963 Madh Pra 37), a Division Bench of this court had to consider whether the promise to do a thing which the promisee was already bound to do under a contract with a third party could be good consideration to support a contract. The facts of that case were these. The plaintiff had entered into a contract with a textile mill for purchase of some bales of cloth. The defendant, which was the sole selling agent of the mill, signed the contract, as guarantee broker. After taking part delivery of the first consignment, the plaintiff refused to take further delivery of the goods mainly because it would be put to loss owing to fall in the marketprice. The defendant, which was the guarantee broker as already indicated, Induced the plaintiff to take delivery of the remaining part of the first lot by offering to purchase some bales from the plaintiff at the contract price or to pay to him at his option a sum of Rs. 25,000/-. The plaintiff accepted the offer, took delivery of the goods and subsequently brought a suit to recover from the defendant Rs. 25,000/- with interest and, in the alternative, claimed the loss which it had suffered on the bales agreed to be purchased by the defendant. The claim was resisted inter alia on the ground that the agreement to pay Rs. 25,000/- was without consideration and unenforceable because it was nothing more than a gratuitous offer for something which the plaintiff was already bound to do under the contract with the textile mill. The Division Bench rejected that contention and held that there was good consideration to support the contract relating to payment of Rs. 25,000/-. In doing so, the Division Bench referred inter alia to the English law and particularly to the two leading cases on the point.

19. In Halsbury's Laws of England, Simonds Edition, Volume 8, page 117, the law is thus stated:

'The fact, moreover, that the promisee is already under a legal liability to some third person to perform the act does not prevent his promise to perform it at the request of the promisor from constituting a valid consideration.'

One of the leading cases mentioned at the foot-note is Shadwell v. Shadwell, (1860) 142 ER 62. In that case, an uncle wrote to his nephew, who was already engaged to be married, as follows:--

'I am glad to hear of your intended marriage with Ellen Nicholl; and, as I promised to assist you at starting, I am happy to tell you that I will pay to you 1501 yearly during my life and until your annual income derived from your profession of a Chancery Barrister shall amount to 600 guineas.'

The plaintiff married Miss N. He never earned as much as six hundred guineas. The annuity fell into arrears; the uncle died and the plaintiff sued his executors. In regard to the question whether there was consideration for the promise to pay the annuity, the majority of the judges answered in the affirmative. They observed that there was benefit to the promisor because the marriage was an 'object of interest with a near relative' and a detriment to the promisee because he may have made the most material changes in his position and have incurred pecuniary liabilities resulting in embarrassment, which would be in every sense a loss if the income which has been promised should be withheld'. The other leadingcase mentioned at the foot-note is Scot-son v. Pegg, (1861) 158 ER 121. There Scotson promised to deliver to X, or to his order a cargo of coal then on board a ship. X made an order in favour of Pegg. Subsequently, Pegg made an agreement with Scotson that if the latter delivered the coal to him, he would in return unload and discharge the coal at a fixed rate each day from the date when the ship was ready for discharge. This he failed to do, and when sued by Scotson, pleaded that there was no consideration for the promise because Scotson was already liable to deliver the coal under the contract with X and had, therefore, promised no more than what he was bound to perform in any case. The Court held that there was consideration and Pegg was liable. Wilde B. observed:

'If a person chooses to promise to pay a sum of money in order to induce another to perform that which he has already contracted with a third person to do, I confess I cannot see why such a promise should not- be binding.'

20. Pollock has considered the question whether the promise in such a case is valid consideration in his treatise on Principles of Contract, Tenth Edition, at pages 183 to 187 and concluded:

'What is here mentioned is that a promise made for valuable consideration, andotherwise good as between the parties, isnot the less valid because the performance will operate in discharge of an independent liability of the promisor toa third person under an independent contract already existing. This was the opinion of W. H. Leake, a most accuratelawyer, and of Prof. Langdell of Harvard.' (Page 186-7)

21. Referring to the two cases, (1860) 142 ER 62 (supra) and (1861) 158 ER 121 (supra), Anson observes:

'But it seems reasonable to hold that they establish that the performance of an existing duty to a third party is a good consideration. Indeed, this is the interpretation which has generally been adopted.'

(Page 99)

'There Is, in fact, very little reason why either the promise or the performance of an existing contractual duty to a third party should not be a good consideration. The promisor gets a benefit for which he bargains, something to which he was not previously entitled and which he Would not otherwise have received. Although consideration is sometimes thought of only in the sense of a detriment to the promisee, this overlooks the fact that it may also consist of a benefit conferred on the promisor as the result of a bargain made between them. Further, there are no sound reasons of public policy, as there might be, say, in the case of the performance of an existing duty to thepublic in general, which would serve to justify such an exception to the rule regarding sufficiency of consideration. The conclusion is, then, that either the performance, or the promise of performance, of an act which is already obligatory towards a third party constitutes a good consideration.'

[Principles of the English Law of Contract, 1967 Edition, page 100].

22. Cheshire and Fifoot discuss the same question in their treatise on the Law of Contract (1964 Edition) at pages 88 to 92. Referring to the two leading cases, they observe:

'If this interpretation be correct, English Judicial authority, as far as it goes, is unanimous in holding that the performance of an outstanding contractual obligation is sufficient consideration for a promise from a new party, while there is no decided case, at least since the dark years of the early seventeenth century, upon the validity of a promise of such performance.

How far is this distinction betweenexecutory and executed consideration tobe regarded as relevant? Sir FrederickPollock thought that, in principle at least,it should be decisive. In his opinion thepromise might be good consideration, forit involved the promisor in two possibleactions for breach of contract instead ofone, and thus was a detriment within themeaning of the law.'

(Page 91)

Concluding the authors observe:

'It would seem, therefore, reasonable to accept the three cases in the nineteenth century as deciding, as a matter of concrete law, that the performance of an outstanding contractual obligation is sufficient consideration for a promise by a new party, and to assume, as does the great bulk of juristic opinion, that the promise of performance is equally valid.'

(Page 92)

In our opinion, it is thus clear, both on principle and authority, that the promise of Mohammad Hussain to perform his part of the executory contract for sale of the Mills, which he had already contracted with a third party so to do, constituted good consideration for the promissory note executed by Indermal who, upon subsequent performance of the promise, admittedly recovered out of the price realised by the sale of the Mills a sum of Rs. 3,25,000/-.

23. The further submission that the consideration of the promissory note ia illegal or opposed to public policy may be shortly disposed of. It was argued that Mohammad Hussain demanded Rs. 30,000/-to exercise his influence over the co-sharers, whom he represented in the transaction, in favour of the proposed sale and thus secured the promissory note. In this connection, the learned counselinvited our attention to Illustration (j) under Section 23 of the Contract Act. Here there is no evidence at all to show that the money was demanded for such a purpose. What is more, the specific plea contained in paragraph 13(5) of the written statement of Indermal is that ha wanted the money for himself (Swayam Ke Liye). Further, there is neither any plea nor any evidence to support the argument that the promissory note was secured by practising on the co-sharers, whom Mohammad Hussain represented, any fraud by concealment. In this situation, the lower Court rightly rejected this contention.

24-25. Their Lordships then held that the case of the appellant that there was an adjustment of the amount due on the promissory note was not substantiated by evidence. Their Lordships further held that the presumption under Section 166 of the Negotiable Instruments Act that the endorsement was for consideration was not rebutted and observed that a bare finding that the endorsement was for consideration was enough to sustain the claim decreed by the lower Court.

26. In view of the discussions in the foregoing paragraphs and the reasons therein given, this appeal fails and is dismissed. Costs throughout shall follow that event. Hearing fee in this Court according to schedule.


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