1. The sole point for decision in this appeal is whether leave to defend a suit for the recovery of money based on a negotiable instrument should be allowed under Order XXXVII, Rule 3, Civil P. C.
2. The plaintiff Habib Ahmed brought a suit against the Jwala Bank Ltd., Agra, the Jwala Bank Ltd., Jhansi, and Haji Mohd. Zakria for the recovery of Rs. 80,309/- on the basis of two demand drafts. These drafts were delivered by defendant No. 2 to defendant No. 3 Mohd. Zakria and were endorsed in favour of the plaintiff. The drafts were presented and dishonoured. The plaintiff then brought the present suit for the recovery of Rs. 80,000/- representing the two drafts and Rs. 309/- representing the interest accruing up to the date of the suit. The suit was brought under Order XXXVII, rule 2, and the question arose whether the defendants should be allowed to defend the suit under rule 3. In the written statements put in by the defendants five distinct pleas were raised.
The defendants' story was that Mohd. Essa son of Mohd. Zakria defendant No. 3 went to the Jwala Bank Ltd., Jhansi, and handed over two cheques for Rs. 40,000/- each on the Bharat Bank Ltd., Jhansi, and requested the Bank' to issue two drafts of Rs. 40,000/- each. The Jwala Bank Ltd., declined to issue the drafts, but Mohd. Essa's father Mohd. Zakria defendant No. 3 then came and assured the Bank that the cheques handed over were good cheques and that if the cheques were not honoured the payment of the drafts could be stopped. On this representation, the drafts were issued and handed over to Mohd. Zakria. A little later Mohd. Essa came back to the Bank and told them that the drafts had been lost and asked the Bank to stop payment. The drafts had in reality been sent on to the plaintiff and the story of their having been lost was a complete fabrication. The plaintiff presented the drafts, but as instructions stopping payment had been issued the drafts were dishonoured. It was also pleaded by the Bank that Mohd. Zakria had no funds in the Bharat Bank Ltd., and that the two cheques for Rs. 40,000/- each handed over by him could not have been honour-ed at any time. It was also pleaded that the endorsement in favour of the plaintiff was a forgery and had not been made at Amritsar.
3. On these pleadings, five distinct lines of defence were open to the defendants, namely. (I) Defendant No. 3 had contracted with the Bank that if the cheques drawn on the Bharat Bank Limited were not honoured payment of the drafts could be stopped and it was in accordance with the terms of this contract that payment was stopped. (2) Defendant No. 3 had himself requested the Bank to stop payment of the drafts and the Bank thereupon informed the drawee and then the negotiable instrument ceased to exist. (3) A fraud was practised upon the Bank inasmuch as a false representation was made that there were funds available in the Bharat Bank Limited and secondly that the drafts had been lost when, in fact, they had been sent to the plaintiff. (4) The plaintiff was not a 'bona fide' holder in due course, because the endorsement in his favour was fictitious and also he was a party to the fraud. (5) The endorsement was not made at Amritsar and therefore the Amritsar Courts had no jurisdiction to hear the suit.
4. Now it is clear that these allegations can be proved by evidence and if proved they would defeat the plaintiff's claim entirely. The learned trial Judge refused to give leave to the defendants to enter upon their defence, because he took the view that they had no case and that the plaintiff being a holder in due course these defences were not open to the defendants. 'Holder in due course' is defined in Section 9 of the Negotiable Instruments Act. The plaintiff cannot be said to be a holder in due course if it can be proved that to his knowledge there was a defect in the drafts which came into his possession, and this is a matter which can only be proved by evidence. Again Section 43 provides that a negotiable instrument creates no obligation of payment if it is accepted or endorsed without consideration. The allegation of the defendants is that the plaintiff gave no consideration for the drafts. In any case, this is a matter which can only be proved or disproved by evidence.
5. The learned counsel for the respondent contended that under Section 118(a) presumption arises that the holder of a negotiable instrument is a holder in due course, but Section 118(g) contains a proviso to the effect that 'where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.' and this proviso, must be kept in view when reading Section 120 which creates an estoppel against denying the original validity of the instrument. If fraud can be established, no such estoppel arises. Fraud has, in fact, been alleged in this case and it cannot be said that the defendants have no defence whatsoever and that they should not be given an opportunity of establishing the allegation of fraud.
Counsel for the respondent has argued that if leave to defend were given in cases of this type leave would have to be given in almost every case, and that the whole purpose of Order XXXVII, Rule 2 would be defeated. Inother words, his argument is that in dealingwith suits on negotiable instruments regard should be paid to the question of expediency, but expediency should never be allowed to defeat the ends of justice. Rule 3 contains ample provisions for guaranteeing that no false or frivolous pleas are set up. The Court can call upon the defendant to deposit the entire amount claimed in Court before giving him leave to defend, and if the defence is false and frivolous to the knowledge of the defendant his whole purpose in asking for leave will be defeated for he will have to deposit the entire amount into Court and he cannot escape liability or payment by trying to delay the matter and entering upon a false defence.
Indeed some Courts have taken the view that where the defence set up entitled the defendant to succeed the Court has no discretion and must grant leave unconditionally. I would perhaps not go so far, but it seems to me clear that where the defendant makes allegations which if proved by evidence would be sufficient to defeat the plaintiff's claim, leave must be granted to him, whether unconditionally or upon conditions. It will depend in any particular case whether any conditions should be imposed and if so what conditions. If the Court feels that the defendant has a good case and the defence is a 'bona fide' one leave may be given unconditionally. If, on the other hand, the defendant's case as revealed in the affidavit filed by him is not a very good one and there are doubts about his 'bona fides' leave may be given subject to conditions, but if the written statement contains allegations which, if proved, would be a good defence to the plaintiff's claim leave must invariably be granted. Leave can be refused only in those cases where even upon the facts alleged by the defendant the plaintiff must succeed; in other words, where the defendant has no defence whatsoever.
6. The present appeal therefore must be allowed and the case must be remanded to the trial Court for decision according to law. The court-fee paid in appeal will be refunded. The costs in this Court will be computed as costs in the suit.
Harnam Singh, J.
7. I agree in allowing the appeal.