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Four Bhai Private Ltd. Vs. Walaiti Ram and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtDelhi High Court
Decided On
Case NumberRegular Second Appeal Nos. 184D and 188D of 1966
Judge
Reported inILR1973Delhi891
ActsNegotiable Instruments Act, 1881- Sections 6 and 118
AppellantFour Bhai Private Ltd.
RespondentWalaiti Ram and anr.
Advocates: Anoop Singh,; G.S. Vohra and; S.L. Bhatia, Advs
Cases ReferredRattan Lal Shah v. Firm Lalman Das Chhadamma Lal and
Excerpt:
(i) commercial - holder in due course - sections 9 of negotiable instruments act, 1881 - compliance of section 9 necessary to establish holder in due course. (ii) overriding effect - section 114 of indian evidence act, 1872 and section 118 of negotiable instruments act, 1881 - section 114 of 1872 act rebuts presumption drawn under section 118 of 1881 act. (iii) parties to suit - order 41 rule 4 and 33 of code of civil procedure, 1908 - effect of decree in favor of non-appealing party - court has power to reverse or vary decree in favor of non-appealing party but it does confer any right in favor of non-appealing party - court has discretion to exercise this power. - - disctrict judge had acted contrary to law in drawing the presumptions under section 114 of the indian evidence act.....safeer, j.(1) this judgment will dispose of r. s. as. 184-d and 188-d of 1966 in which common questions of law arise. r.s.a. 184-d/ 1966 arises out of suit no. 571 of 1964 and r.s.a. 188-d/1966 arises out of suit no. 570 of 1964. both these suits were filed on the 15th of december, 1964. the appellants were defendant no. 1 in both the suits. in suit no. 571 of 1964 out of which r.s.a. 184-d/1966 arises the second defendants were m/s. gian surgical works, who are the second respondent to that appeal.(2) in suit no. 570 of 1964 out of which r. s. a. 188-d/66 arises m/s. chacha surgical works figured as the second defendant and are the second respondent to the appeal.(3) the broad allegations in the plaints through which the suits were instituted present some identity. it was alleged by.....
Judgment:

Safeer, J.

(1) This judgment will dispose of R. S. As. 184-D and 188-D of 1966 in which common questions of law arise. R.S.A. 184-D/ 1966 arises out of suit No. 571 of 1964 and R.S.A. 188-D/1966 arises out of Suit No. 570 of 1964. Both these suits were filed on the 15th of December, 1964. The appellants were defendant No. 1 in both the suits. In Suit No. 571 of 1964 out of which R.S.A. 184-D/1966 arises the second defendants were M/s. Gian Surgical Works, who are the second respondent to that appeal.

(2) In Suit No. 570 of 1964 out of which R. S. A. 188-D/66 arises M/s. Chacha Surgical Works figured as the second defendant and are the second respondent to the appeal.

(3) The broad allegations in the plaints through which the suits were instituted present some identity. It was alleged by Walaiti Ram plaintiff who is Respondent No. 1 to both these appeals that the cheques mentioned in paragraph 1 of the two plaints had been issued by the present appellants for the respective amounts in favor of the second defendant in both the suits. The common allegation then was that without presenting the cheques to the State Bank of India, the drawee in both the cases, the second defendant in each suit had negotiated the cheques by delivering them to the plaintiff on the different dates mentioned in the two plaints and had received consideration in respect thereof. It was not stated that the consideration consisted of any precise amounts paid to the second defendant.

(4) The identical allegation in paragraph 3 of the two plaints was that after the delivery of the cheques to him the plaintiff presented them to defendant No. 1 for payment, who wanted time but did not eventually make any payment. It was further alleged that registered notices had been sent to, the defendants on the 27th of July, 1964, in spite of which they had not retired the cheques. Paragraph 4 in both the plaints containing the basis on which the plaintiff sought the decrees deserves to be reproduced:-

'PARA4. That the plaintiff is a transferee of the cheque for a consideration from defendant No. 2 and is entitled to decree thereon against both the defendants'.

(5) The defendants contested the suits. The written statements filed in both the suits by the present appellants in essential details were identical.

(6) It was admitted that in both cases on the 8th of January, 1963 post-dated cheques had been drawn in favor of defendant No. 2, but the entries in the account books were reversed on the 30th of March. 1963 showing that no money on account of the cheques issued remained due from the appellants to the second defendants in the two suits

(7) It was denied that the cheques had been negotiated by the second defendants for consideration and it was urged that after the 30th of March, 1963 the instruments had become non-negotiable. It was denied by the appellants that the cheques were ever presented to them for obtaining payment or that they ever promised that they would make any payment in respect of those cheques to respondent No. 2 to these appeals. It was further asserted that there was no valid or legal transfer in favor of respondent No. 3 and that he was not a holder in due course.

(8) The second defendants in both the suits took similar but not identical stand. M/s. Gian Surgical Works in suit No. 571 of 1964 slated in their written statement that they had never handled any such cheque as mentioned in the plaint and had never negotiated the same and that no money had ever been received by them from the plaintiff. It was stated by them that they had no knowledge about the previous dealings between the plaintiff and defendant .No. 1. They denied that any notice had ever been sent to them by the plaintiff demanding any amount. They asserted that the plaintiff was not entitled to any relief against them. In paragraph 6 they pleaded that the cheque having never been negotiated there was no cause of action for filing the suit.

(9) M/S. Chacha Surgical Works in their written statement filed in suit No. 570 of 1964 stated in paragraph 2 that the plaintiff had paid no consideration to them for delivery of the cheque in question. It was stated that the negotiation of the cheque in favor of the plaintiff was without consideration. While in paragraph 3 it was stated that they had received a notice to which they had sent a reply, in paragraph 6 they asserted that no cause of action had accrued to the plaintiff against them.

(10) The parties went to trial in both the suits on the following identical issues:-

1. Whether the plaintiff is a holder in due course of the cheque in question for consideration?

2.Whether defendant No. 1 issued the cheque in question in favor of defendant No. 2 for consideration?

3.Whether defendant No. 1 made the payment of the cheque in question to defendant No. 2 ?

4.Whether the plaintiff is entitled to charge any interest If so, at what rate ?

5.Whether defendant No. 2 negotiated the cheque in question in favor of the plaintiff ?

6.Relief and against whom ?

(11) The trial court dismissed both the suits. Respondent No. 1 to these appeals aggrieved by the decrees of dismissal filed appeals under section 96 of the Civil Procedure Code, hereafter called 'the Code' and those appeals being R.C.As. Nos. 137 and 138 of 1965 were accepted by an Addl. District Judge in terms of his judgments recorded separately on the 15th of March, 1966. Bearing in mind the scope of section 100 of the Code and the observations made by the Supreme Court in V. Ramachandra Ayyar and another v. Ramalingam Chettiar and another, : [1963]3SCR604 , it has to be noticed that both the courts below concerned with the plaints in both the suits missed to find out for themselves whether the plaints disclosed any cause of action or not.

(12) Order 7 rule l(e) of the Code prescribes that the plaint shall contain the facts constituting the cause of action and will disclose when it arose. A striking feature in both the plaints was that the cheques were never stated to have been presented to the drawee for encashment. The trial court should have applied its mind to that aspect at the very out-set when the suits were entertained.

(13) The court of first appeal acting within the scope of section 96 of the Code was the court of fact. The hearing of the appeal under that provision suffered from no such limitations as are imposed by section 100 of the Code and was in the nature of a complete rehearing of the suit. The learned Addl. District Judge reversed the decrees on the basis that the trial judge had erred in placing reliance on the correctness of the account Ex. DW1/1 produced by the present appellants and held that respondent No. 1 to these appeals was the 'holder in due course' because the second defendants had not produced their account books which omission allowed the presumption to be raised under section 114 of the Evidence Act that the cheques had been negotiated for consideration.

(14) The learned Addl. District Judge depended also on the presumptions furnished by clauses (a) and (g) of section 118 of the Indian Negotiable instruments Act hereafter called 'the Act' and held that the cheques had been drawn for consideration and thereafter negotiated for consideration. The view taken was that respondent No. 1 to these appeals being presumptively the 'holder in due course' was entitled to the decrees for which he had come to court.

(15) It has been contended on behalf of the appellants that the Addl. Disctrict Judge had acted contrary to law in drawing the presumptions under section 114 of the Indian Evidence Act as well as section 118 clauses (a) and (g) of the Act. It is urged that the plaintiff was not a 'holder in due course'. Finding the plaints as they stand I asked whether they disclosed cause of action. I have also been addressed on that aspect.

(16) The Act was enacted with the object of codifying the law relating to promissory Notes, bills of exchange and cheques. In order to make out a cause of action for obtaining a decree a plaintiff has to allege and prove his case in terms of the obligations imposed by the Act. The litigation in these appeals is concerned with a bearer cheque issued in each case.

(17) In order to appreciate the transaction it comprises, the definition of 'cheque' in the Act has to be kept in view. Section 5 of the Act defines a 'bill of exchange' as an instrument in writing containing an unconditional order signed by the maker directing a certain person to pay a certain sum of money only to or to the order of a certain person , or to the bearer of the instrument. The sum payable is to be certain and similarly the person to whom it is made payable is to be a 'certain person'.

'CHEQUE'is defined in section 6:- 'S.6. A 'cheque' is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.'

(18) thereforee to be a cheque it must be a bill of exchange drawn on a specified banker mentioning the precise amount and specifying the person to whom it is to be paid. 'Drawer' and Drawee' are defined in section 7 of the Act. The maker of the cheque is called the 'drawer' and the 'person' thereby directed to pay the amount is called the 'drawee'.

(19) The 'drawee' in case of both the cheques was the State Bank of India, Delhi. The definitions contained in sections 5 and 6 indicate that where a person is entitled to receive a specified sum then instead of paying it in cash to him the agreed manner of payment may be through a cheque drawn in his favor. He who accepts the payment in that manner apparently gives up the demand to receive the sum in cash and contracts that he will obtain it from the drawee who is commanded through the instrument to make the payment to the person who may be its holder or who may become a 'holder in due course'. Sections 8 and 9 which define a 'holder' and 'a holder in due course' may be noticed:-

'S. 8. The 'holder' of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed its holder is the person so entitled at the time of such loss or destruction.'

'S.9.'Holder in due course'.-'Holder in due course' means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee thereof, if (payable to order), before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.'

(20) For concluding that a person was, at a particular time, the 'holder', it has to be found that he was entitled in his own name to possess the cheque as also to receive or recover the amount due thereon.

(21) The primary requirements of section 8 have to be found in the person who being dominus litus institutes an action for recovering the amount due on a cheque. As distinguished from such a person any person who for consideration becomes the possessor of a cheque or the endorsee thereof at a time when the amount covered by it is payable without having sufficient cause to believe that any defect existed in the title of his predecessor would be the 'holder in due course'.

(22) The distinctions in the fore-going provisions and the true scope of the definitions contained therein have assumed significance for the reason that while depending upon the presumption provided by clause (g) in section 118 it was not appreciated by the court below that it could ensure only to a person who was in the first instance to succeed in proving that he was a ''holder' within section 8 of the Act. To obtain benefit from section 118(g) the litgarit had to prove the preliminaries that he was entitled in his own name to possess the instrement and further to receive or recover the amount due thereon.

(23) The words 'entitled in his own name' in section 8 are related to the definitions in sections 5 and 6 of the Act. In case of a cheque it is drawn on a specified banker for a certain sum payable t6 a precise person named therein. The holder would be a person entitled in .his own name to possess the cheque, and he must also be having the right to receive or recover the amount due thereon. A person must qualify as a 'holder' and then urge as to what effect and to What extent the presumption in section 118(g) is available to him.

(24) The presumptions in section 118 are in the nature of special roles of evidence. They present two significant aspects. As the opening words of the provision prescribe the presumptions would be available only until the contrary is proved. Secondly the presumptions furnishing presumptive evidence may also otherwise be displaced by direct or circumstantial evidence. They do not counter the operation of the provisions contained in the Indian Evidence Act. These appeals call for a consideration of the scheme of the Act and the next provision to be noticed is section 14:-

'S.I4. Negotiation.-.When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.'

A cheque would thereforee be held to have been negotiated only when it is found to have been transferred to any person so as to constitute that person the 'holder' thereof. When a cheque is made out in the name of a certain person specifying the amount payable directing the drawee to pay it to him and is given to that person, he becomes the 'holder' thereof for the reason that the contents of the instrument constitute his title to possess it as well as to receive or recover the amount due thereon. The combined effect of sections 5, 6, 8 and 14 is that the mere making of the cheque would not amount to negotiation and the negotiation would be concluded only where it is shown that it has been transferred so as to constitute the transferee the 'holder' thereof.

(25) Walaiti Ram respondent was essentially to prove in terms of issue No. 1 that he was a holder of the cheque or a holder in due course. In order to prove that he was a holder, he had to establish the requirements of section 8 of the Act and in order to prove that the cheque had been competently negotiated he had to meet the obligations of section 14 thereof. Only on proving that he was a holder he could urge that he should be given the benefit, of the presumption provided by section 118(g) of the Act.

(26) The next provision in the Act which has drawn arguments from both sides is section 30:-

'S.30.Liability of drawer.-The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been given to, or received by, the drawer as hereinafter provided.'

It has been urged on behalf of the appellants, that the cheques should have been presented to the State Bank of India, the drawee, for obtaining payments inasmuch as they contained unconditional orders directing that the amounts specified therein be paid. The counsel appearing for respondent No. 1 has on the other hand contended that the appellants being the drawers of the cheques remained liable under all circumstances. I am of the view that the key to the true scope of section 30 is provided by the words 'in case of dishonour' used in it. The provision would be applicable only where a bill of exchange or a cheque has been dishonoured. Only after the instrument is dishonoured the occasion would arise to give notice thereof to the drawer.,

(27) The counsel for the respondents while dwelling on section 30 has also sought aid from section 93 of the Act:-

'S.93.By and to whom notice should be given.-When a promissory note, bill of exchange or cheque is dishonour ed by non-acceptance or non-payment, the holder thereof, or some party thereto who remains liable thereon, must give notice that the instrument has been so dishonoured to all other parties whom the holder seeks to make severally liable thereon, and to some one of several parties whom he seeks to make jointly liable thereon.

Nothing in this section renders it necessary to give notice to the maker of the dishonoured promissory note or the drawee or acceptor of the dishonoured bill of exchange or cheque.' The argument by the learned counsel for respondent No. 1 is that the maker of a cheque is in a different category and his liability is of a different nature than that of all other subsequent parties. The learned counsel combines the afore-quoted two provisions with section 76 clause (d) of the Act in order to urge that the drawer of a cheque will remain liable for the amount due thereon if he could not suffer damage for want of its presentment to the drawee.

(28) Section 30 would be applicable only in case of dishonour of the instrument and section 93 would not apply to a case where a cheque may have never been presented to the drawee conveying the unconditional order to make the payment. By its terms section 93 is made applicable where the 'cheque' is dishonoured by non-acceptance or non-payment.' In that event 'the holder thereof, or some party thereto, who remains liable thereon' has to give notice that the instrument has been dishonoured to all other parties who are sought to be made severally liable and to some one of the several partie's who may be sought to be made jointly liable. The exemption provided by the , concluding part of the provision would apply only where a cheque is dishonoured and by itself it does not create any liability. The expression ' drawee' used therein is essentially related to 'cheque' Section 93 will not aid an argument that taken together with section 30 of the Act it will 'keep alive the responsibility of the drawer of a cheque even where it may have never been on presentation dishonoured by the drawee.

(29) Section 76(d) of the Act on which the counsel for -respondent No. I relies, is :-

'S.76. When presentment unnecessary.-No presentment for payment is necessary, and the instrument is dishonoured at the due date for presentment, in any of the following cases:-

(D)As against the drawer, if the drawer could not suffer damage from the want of such presentment.'

In order to be entitled to a decree on the basis of a dishonoured cheque the plaintiff has to prove that he was either the 'holder' or the 'holder in the due course'. The presumption in section 118(g) would be available to such a person and for deriving any benefit from section 76(d) of the Act he will have to prove that for want of presentment no damage had been suffered by the drawer. The plaints do not contain averments as to why the cheques were not presented to the drawee and what were the circumstances due to which the appellants suffered no damage for want of presentment. Only on raising the necessary plea a plaintiff can render proof in respect thereof and get benefit of a provision of law in terms of the case he is able to establish. The applicability of Section 76(d) is eliminated also for another reason. The provision would be applicable only in case of such instruments which may have a 'due date' for presentment. Section 76 would cover those instruments which apart from the date of their making have. a 'due date for presentment'. In case of such instruments the money due thereon will not be claimable except on or after the 'due date for presentment'. The various provisions in the Act indicate that where a provision is sought to be made applicable to all the three kinds of instruments then they are specifically mentioned in it. There are certain provisions which are confined to particular types of instruments. Section 66 of the Act is confined to promissory notes and bills of exchange. Section 67 would apply only in case of a promissory note. While section 68 mentions all the three kinds of instruments section 69 is confined to promissory notes and bills of exchange.

(30) Section 76 being restricted in applicability to those instruments which contain a 'due date' for presentment no presentment would be necessary and the instrument would be found dishonoured 'at the due date for presentment' only where postulations contained in one or more of clauses (a) to (d) in section 76 stand proved. In order to determine the applicability of section 76(d) it has to be appreciated that there is no 'due date for presentment' in case of a cheque in sequence of the date on which it is made. As against the drawer of a cheque it cannot be concluded that he 'could not suffer damage from the want of such presentment' where no presentment is made to the drawee even on the date on which it is made or soon thereafter. The statute is sovereign and cannot be given any absurd meaning. Section 76(d) is not attracted to a cheque because the instrument contains an unconditional order directing the drawee to pay the amount specified therein and the transaction comprised in it is in the nature of an agreement to obtain the payment from the drawee. The want of presentment would shake the basis of the transaction and apparently damage it. The requirements imposed by Chapter V of the Act regarding the presentment of instruments and in particular section 72 in it rule out the applicability of section 76(d).

(31) The intendment in the various provisions in the Act is that by issuing a cheque the maker thereof is absolved from making the payment in cash and the payment due thereon has in the first instance to be obtained by presenting it to the drawee. In case the drawee dishonours the cheque the liability of the maker as well as of the intervening parties would then have to be adjudicated upon in terms of the relevant provisions. Chapter V which deals with presentment contains section 64 :-

'S.64. Presentment for payment .-Promissory notes, bills of exchange and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf of the holder as hereinafter provided. In default of such presentment, the other parties thereto are not liable thereon to such holder.

(Where authorised by agreement or usage, a presentment through the post office by means of a registered letter is sufficient). Exception.-Where a promissory not is payable on demand and is not payable at the specified place, no presentment is faecessary in order to charge the maker thereof.' In case of a cheque it has to be presented to the drawee and the words 'respectively, by or on behalf of the holder' are significant. It is provided that in default of such presentment the other parties thereto are not liable thereon to such holder.

(32) In order to be entitled to present the cheque to the drawee the person presenting it must be 'the holder' or a person who may present it ''on behalf of the holder'. 'The holder' is to possess the qualifications prescribed by section 8-of the Act. Unless it is established that the presentment was in accordance with section 64 there would be no default within its scope. ' When there is a default in presentment 'by or on behalf of the holder' to the drawee for its encashment 'the other parties' to a cheque do not become liable.

(33) The word 'respectively' in section 64 confined to a cheque prescribes that presentment thereof is to be to the drawee and not to the drawer. The words 'the other parties thereto' include the drawer of the cheque. A cheque is made out of an agreement that the person entitled to recover or receive the amount specified therein will recover it from the drawee on whom it contains an unconditional order to pay it. Section 64 of the Act was applicable to the cheques on the basis whereof the suits were filed and Walaiti Ram respondent No. 1 to these appeals could never plead ignorance of law. Being 'the other parties' to the cheques, in default of their presentment to the State Bank of India, the appellants were exempted by section 64 from liability thereon. Section 92 of the Act may be noticed with advantage:-

'S.92. Dishonour by non-payment.-A promissory note, bill of exchange or cheque is said to be dishonoured by nonpayment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.'

(34) A cheque will not be concluded to have been dishonoured till the drawee makes default in making the payment. Taking sections 64 and 92 together Walaiti Ram could have pleaded the cause of action only on stating that he being the holder on a particular date the cheques on being presented by him or on his behalf the drawee had made default in making the payment.

(35) Section 98 which has also been brought to my notice is more concerend with the second defendants in the suits and would be applicable to those cases where dishonouring of the insrument ha& decidedly occurred. There can be cases where the maker of a cheque may approach the holder or the holder in due course to receive the payment and may receive the instrument back as cross payment made in cash. In this litigation there is no plea and no Explanationn why the cheques were never presented to the drawee.

(36) Section 72 of the Act prescribes that in order to charge the drawer of a cheque, it must be presented to the bank on which it is drawn and that has to be done before the relations between the drawer and his banker suffer any alteration to the prejudice of the drawer. The provision is subject to section 84 of the Act. Section 72, is :-

'S.72 Presentment of cheque to charge drawer.-(subject to the provisions of Section 84) a cheque must in order to charge the drawer, be presented at the bank upon which it is drawn before the relation between the drawer and his banker has been altered to the prejudice of the drawer.'

(37) The counsel for respondent No. 1 urges that the drawer would not be absolved of his responsibility so long as his relations with his banker do not suffer alteration. There is fallacy in the argument in as much as the provision requires the presentment of a cheque and has no applicability to a case where there is no presentment of the instrument at all. The illustrations given under section 84 of the Act support me in this view. Moreover there was no controversy between the parties that the relations between the appellant and the drawee had suffered any alteration.

(38) It has been pleaded in the plaint that the appellants were contacted and they said that they should begiven time and it is also pleaded that notices were given to them before filing the suits. If it be accepted that the appellants and the second respondents to these appeals had not made any payment in respect of the cheques in spite of time having been given to them and in spite of notices having been issued demanding the payment before the filing of the suits, it remains unexplained why Walaiti Ram respondent No. 1 to these appeals did not even then meet the requirements of sections 64 and 92 of the Act and present the cheques to the drawee. It was all the more necessary for him to present the cheques for encashment to the drawee when he had failed to obtain the payments from the appellants or from the second respondent to these appeals and when he had fallen under the need of acquiring cause of action for filing the , suits.

(39) The Calcutta High Court in Ahmed Hossein v. Mt. Chambelli and others, : AIR1951Cal262 , became concerned with the question as to when liability would arise in respect of an amount due on a cheque and as to in what circumstances the plaintiff would be able to plead that cause of action had arisen. In paragraph 3 of the judgment it was observed.-

'THEonly way thereforee in which liability on a cheque may arise is when (1) the cheque is dishonoured and (2) notices of such dishonour has been given or circumstances exist which render it unnecssary to give such notice.'

(40) The conclusion would be that a holder will be entitled to sue on the basis of a cheque for the recovery of the amount due thereon only where after being presented to the drawee, the cheque is dishonoured. In the Calcutta case reliance was placed on the observation ' made by Lord Coleridge, C.J. in (1892) 67 I.T. 350 : 61 L.J.Q.B. 717 which may be quoted here with advantage :-

'THEobligation upon the drawer of a cheque to pay does not arise until notice of dishonour thereof has been given to him, and thereforee the statement of the case against the deft. here is not full and complete without either an allegation of notice of dishonour of the cheque having been given to the defendant the drawer of it, or of facts excusing the plaintiff from giving such notice.'

Respondent No. 1 to these appeals never alleged in his plaints that the concerned cheques having ever been presented to the drawee had been dishonoured. There was nothing in law exempting the plaintiff from preventing the cheques to the drawee. It is stated in Daniel's Treatise on the Law of Negotiable Instruments Vo.III., 7th Edition paragraph 1771 :-

'IT is the general rule, in respect to check that the holder has no recourse upon the drawer until the cheque has been presented to the bank, and payment refused; and such presentment and refusal are essential preliminaries to an action against him.'

(41) In the case of Fruhauf v. Grosvenor and Company reported on page 717 of the law Journal 1892 Vol. 61, the question was whether the omission of an allegation in the indorsement of the writ that the defendants had received due notice of the dishonour of their cheque precluded the plaintiff from obtaining an order for final judgment. The Master was of the opinion that the statement of claim indorsed on the writ disclosed no cause of action. He found that there was no allegation of notice of dishonour and for that reason no case of action had been shown. The question then raised was whether it was necessary that the plaintiff should give the defendant a notice that he, the defendant, has no money at his banker's.

(42) It was contended that the view taken by the Master was incorrect and there was no authority for the proposition that the drawer of a cheque is relieved from paying because he had received no notice of dishonour. Lord Coleridge, CJ. did not accept that contention and agreeing with the Master observed in his judgment:-

'HEREthe statement contained in the indorsement of the writ is not complete without an allegation of notice of dishon- our, or of facts dispensing with it-'

(43) As discussed earlier, the Act contains Chapter V which relates to presentment. As soon as a cheque is issued it contains an unconditional order by the maker directing that the drawee should pay a certain sum of money to a certain person. Section 64 of the Act imposes the obligation that in case of a cheque it must be presented to the drawee and in default of such presentment the other parties thereto, obviously including the maker thereof, would not be liable to the holder.

(44) He who takes a cheque agrees to take payment from the drawee and the 'holder' or the 'holder in due course' are bound by Section 64 of the Act.

(45) IT. has been noticed earlier that while defining a 'cheque' in section 6 of the Act it has been described as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. In Sagar Mal v. Bhudan Sahu and another 19 IC 251 the Calcutta High Court dealt with the case of a bill of exchange. The action in that case had been brought by the indorsee against the endorser and the drawer of the bill of exchange. At the trial the plaintiff had failed to prove presentment. For that reason the judgment given by the court of first instance in his favor was reversed by the court of first appeal. The appellant before that court was the endorser and the drawer was made a party to the appeal. It was urged before the Calcutta High Court that the judgment made by the trial court in favor of the plaintiff should have been allowed to stand at any rate as against the drawer who was not a party to the first appeal. The High Court took the view that the plaintiff having not proved presentment which was essential to make out a case in his favor he could not have any judgment at all against either the endorser or the drawer.

(46) I am of the view that whether the case is one in respect of a bill of exchange or a cheque in order to have the cause of action for a decree the plaintiff ought to plead presentment and prove that the instrument having not been honoured he deserves to be given a decree against particular defendant or defendants.

(47) Another case brought to my notice is Ghania Lal v. Karam Chand A.I.R. 1929 Lah 240. There the court dealt with the case of a promissory note and interpreted section 64 of the Act. It was noticed that promissory notes, bills of exchange and cheques must be presented for payment to the maker, acceptor or drawee thereof 'respectively. In case of a cheque the presentment has to be to the drawee. In default of the presentment other parties to the instrument are not to be liable thereon. The observation made, was:-

'ITwill be observed that default in making the presentment discharges only the 'other parties' to the instrument. The natural construction of the expression''other parties' is that it means parties other than those mentioned in earlier portion of section,' namely, parties other than the maker, acceptor or the drawee.'

Accepting the view I am persuaded to hold that where a cheque is not presented to the drawee, the drawer thereof being included in the words 'other parties thereto' in section 64 of the Act is absolved from liability.

(48) The claim of respondent No. 1 to these appeals was based on the concerned cheques and their negotiation by the second defendants in his favor. Keeping in view the distinction between sections 96 and 100 of the Civil Procedure Code, the Addl. District Judge should have discussed in detail the evidence produced by the plaintiff and then found whether he had proved that he was a holder entitled to presses the cheques and to receive or recover the amount due thereon. I find that the impugned decees are based on judgments which contain no discussion of the evidence produced by respondent No. 1. It is not for this Court to discuss evidence, but illegality provided by non discussion thereof by the Court below which exercised jurisdiction contained in section 96 of the Code, may furnish basis for interference. Appearing as P. W. 2. respondent No. 1 to these appeals stated that he was keeping the accounts (the khata)- He could have produced his books of account to show that he had paid the consideration to the second defendants who transferred the cheques entitling him to posses them and to receive and recover the payment due thereon. Issue No. 1 enjoined on him to prove that he was a holder within section 8 of the Act. I hold that in the absence of establishing that he was a 'holder' and the cheques having never been dishonoured by the drawee, respondent No. 1. to these appeals could not have claimed the decrees.

(49) Turning to the second aspect I find that the court below had drawn presumptions under section 114 of the Evidence Act and section 118 clauses (a) and (g) of the Act. Section 114 of the Evidence Act should have been taken into consideration in respect of the nobproduction of the accounts by respondent No. 1 to these appeals. He had brought the suits. He was in any case to prove that he was a holder within section 8 of the Act. After rendering that proof he could invoke the presumption contained in section 118 clause (g) of the Act. Before crossing the requirement of proving that he was a holder he could not have invoked the presumption contained in section 118 clause (g) of the Act on which the court below depended. It is I not appreciated as to why the presumption was not drawn against respondent No. 1. under section 114/of the Indian Evidence Act that if produced his books of account would have been unfavorable to him and would not have established that he had paid the consideration to the second defendants for becoming entitled to possess the cheques and to the recovery of the amounts due thereon. The court below erred in ignoring that the suits filed and issues Nos. 1 and 5 framed for their trial co-related to each other required of the plaintiff to prove in the first instance that he was a 'holder' of the cheques and only on such proof the presumption allowed by section 118(g) of the Act could have been invoked in his favor. The non-production of his account (khata) by the plaintiff in disregard of the onus of proof placed on him by the afore-mentioned issues called for raising the presumption against him under section 114 of the Evidence Act. In case of the plaintiffs failure to prove that he was a 'holder' he could not make out his claim as a 'holder in the course'.

(50) The court below depended also on the presumption furnished by section 118 clause (a) of the Act which provides that until the contrary is proved it will be presumed that every negotiable instrument was made or drawn for consideration and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.

(51) To find the true scope of section 118(a) section 14 of the Act which deals with negotiation has essentially to be looked into. Unless the negotiable instrument is shown to have been transferred so as to constitute the transferees as the 'holder' thereof an instrument would not be found to have been negotiated. The presumptions in section 118 being rules of evidence cannot supersede the requirements of substantive provisions in the Act and section 14 is such a provision. If section 14 and 118(a) of the Act are harmonised a suit for the sum specified in a cheque would be decreed only if the plaintiff proves that at the time the cause of action arose he was a person entitled to receive or recover the amount. The presumption in clause (g) in section 118 is distinct from that in clause (a) and would be available only where a person has already proved that he is a holder within section 8 of the Act. There is no intendment that the two presumptions in clauses (a) and (g) of section 118 of the Act be combined to displace the need of proving the requirements of sections 8 and 14 of the Act. The limitations in section 8 would allow only a person who is a 'holder' to file the suit. A person proved as the 'holder' could avail of the presumption enumerated in section 118(g) and establish his right to adecree. In that view of the matter the court below should have approached the litigation by considering sections 8, 14 and 118 of the Act together.

(52) Apart from the views expressed by several High Courts that the presumptions allowed by section 118 of the Act may be rebutted even by circumstantial evidence as also by the presumption arising under section 114 of the Evidence Act, I find that the nature of the presumption enacted in section 118(a) of the Act and the scope of its rebuttal were examined in Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay, Air 1961 Supreme Court 1316. Paragraphs 4 and 5 may be noticed:- 'Pap 4. To appreciate this argument it would be necessary to notice at the outset the scope of the presumption under S. 118 of the Negotiable Instruments Act and also the different methods available to a person against whom such a presumption is drawn to rebut the same. The relevant part of s- 118 of the Negotiable Instruments Act reads: 'Until the contrary is proved, the following presumpdors shall be made:-

(A)that every negotiable instrument 'was made or drawn for consideration, and that every such instrument when it has been accepted, endorsed, negotiated or ;ansferrcd was accepted, endorsed, negotiated or transferred for consideration.'

Para 5. This section lays down a special rule of evidence applicable to negotiable instruments. The presumption is one of law and there under a court shall presume, inter alias that the negotiable instrument, or the endorsement was made or endorsed for consideration. In effect it throws the burden of proof of failure of consideration on the maker of the note or the endorser, as the case may be. The question is, how the burden can be discharged? The rules of evidence pertaining to burden of proof are embodied in Chapter Vii of the Evidence Act. The pharase 'burden of proof' has two meanings-one the burden of proof as a matter of law and pleading and the other the burden of establishing a case; the former is fixed as a question of law on the basis of the pleadings and is unchanged during the entire trial whereas the latter is not constant but shifts as soon as a party adduces sufficient evidence to raise a presumption in his favor. The evidence required to shift the burden need not necessarily be direct evidence i.e. oral or documentary evidence or admissions' made by opposite party; it may comprise circumstantial evidence or presumptions of law or fact. To illustrate how this doctrine works in practice, we may take a suit on a promissory note. Under S. 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.' thereforee 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, thereforee, on the plaintiff; but as soon the/execution is proved. S. 118 of the Negotiable Instruments Act imposes a duty on the court to raise a presumption in his favor 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, and, if he adduced acceptable evidence, the burden again shifts to the plaintiff and so on. The defendant may also rely upon the circumstantial evidence and if the circumstances so relied are compelling the burden may like-wise 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 fact which it thinks likely to have happened, regard being had to the common course of natual 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 evidence which could be and is not produced would if produced be unfavorable, to the person who withholds it. A plaintiff, who says that he had sold certain goods to the defendant and that a promissory note was executed as consideration for the goods and that he is in possession of the relevant account books to show that he was 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 cannot be expected to produce his documents. In those 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 unfavorable 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. We are not concerned here with irrebutable presumptions of law.'.

(53) I am persuaded to conclude that:-

'(A)The presumptions enacted in section 118 of the Indian Negotiable Instruments Act are subject to the provisions contained in the Indian Evidence Act;

(B)that the said presumptions are rebuttable and their rebuttal may be found in admissions made by the opposite party or in evidence of whatsoever kind adduced in the case; and

(C)A presumption arising-under section 114 of the Evidence Act or for that matter any presumption of law or of fact arising out of the proof rendered at the trial may rebut any one or more of the presumptions allowed by section 118 of the Act.'.

(54) In this litigation Walaiti Ram respondent No. 1 to these appeals was essentially to prove that he was the holder or 'the holder in due course' within sections 8 or 9 of the Act. He was also to meet the obligations of section 14 of the Act. He admitted that he had been maintaining accounts (khata). He did not produce the account books. The presumption irresistably arises against him under section 114 of the Evidence Act, that if produced, the entries in his account books would have been unfavorable to him and would not have substantiated that he had paid any consideration, to the second respondent to these appeals. That presumption rebuts the presumption contained in section 118(a) of the Negotiable Instruments Act which does not mitigate the applicability of section 114 of the Indian Evidence Act.

(55) It is contended by the learned counsel appearing for respondent No. 1 that the second respondent herein having never appealed against the impugned decrees will remain bound by them. Controverting that submission, the counsel for the second respondent places reliance on order 41 rule 4 of the Code, which is: '0.41 r.4. Where there are more plaintiffs or more defendants than one in a suit, and the decree appealed from proceeds on any ground common to all the plaintiffs or to all the defendants, any one of the plaintiffs or of the defendants may appeal from the whole decree, and thereupon the Appellate Court may reverse or vary the decree in favor of all the plaintiffs or defendants, as the case may be. It is contended that the impugned decrees proceed on grounds common to both sets of defendants i.e. those that have filed the appeals and the second respondent to these appeals. The court below held that the cheques were drawn by defendant No. 1 (appellant in these two appeals) for consideration in favor of defendant No. 2 (the second respondent to these appeals) and the reversing of entries by the appellants in their account books did not prove that the liability under the cheques stood discharged. It is also emphasised that common presumption had been drawn under section 118 of the Act that the appellants had drawn the cheques for consideration and the second respondants had negotiated them for consideration. It is further contended that if the non-presentment of the cheques before filing of the suits could ensure under section 64 of the Act to exempt the drawer from liability thereon, the second defendants could not be made liable inasmuch as the cheques having never been dishonoured even the occasion for giving the notice in that behalf under section 93 of the Act did not arise. Order 41 rule 4 of the Code becomes applicable in terms of Order 42 rule I thereof to these appeals. In order to support himself the counsel for the second respondents had cited Rustom K. Karanjia and another v. Krishnaraj M. D. Thackersay and others, : AIR1970Bom424 . In that case defendant No. 4 had not filed any appeal but the High Court held that the fact was immaterial and not of much consequence in view of the principle underlying rules 4 and 33 of Order 41 of the Code.

(56) The Supreme Court while interpreting order 41 rule 4 of the Code in paragraph 3 of its judgment in Rattan Lal Shah v. Firm Lalman Das Chhadamma Lal and another, : [1970]1SCR296 observed:-

'THEobject of the rule is to enable one of the parties to a suit , to obtain relief in appeal when the decree appealed from proceeds on a ground common to him and others. The court in such an appeal may reverse or vary the decree in favor of all the parties who are in the same interest as the appellant'.

It was noticed in paragraph 5 of the judgment that the decree of the trial court proceeded on a ground common to Mohan Singh and Rattan Lal. In the appeal filed by Rattan Lal alone he was denying the liability for the claim of the plaintiffs in entirety. Rattan Lal had imp leaded Mohan Singh as the second respondent to the appeal. Towards the end of paragraph 5, the Supreme Court observed :

'INthe appeal filed by Rattan Lal he was denying liability for the claim of the plaintiff in its entirety. This was essentially a case in which the Court's jurisdiction under Order 41, Rule 4, Code of Civil Procedure could be exercised.'

(57) The learned counsel for respondent No. 1 to these appeals has cited Rangam Lal and another v. Jhandu, I.L.R. 34 Allahabad 32 and has Urged that it would not be legal to interfere with the decree subsisting against the 'second respondents. In that case the Court was concerned only with the scope of Order 41 Rule 33 of the Code. He has also relied upon Bhawar Lal v.Mathura Prasad, : AIR1962MP141 , wherein it was observed :- ,

'The wording of Order 41, Rule 33, Civil Procedure Code indicates that the Court has that power to vary the decree in favor of any of the non-appealing respondent if it thinks it necessary to do so and if it further thinks that such an interference with the decree is required on account of the decree in favor of an appellant being varied or reversed. But the said provision does not confer any right on any of the non-appealing respondent to claim to duplicate the rights and privileges exercisable by an appellant. thereforee, we are of the opinion that although the Court would have the power to reverse or vary a decree in favor of a non-appealing respondent the respondent concerned cannot demand it as a matter of right, he having elected to be satisfied with the decree passed by the trial court.'

(58) In the afore-quoted observation interpreting Order 41, Rule 33, of the Code the power of the Court of appeal to reverse or vary the decree in respect of a non-appealing party, where it proceeds on grounds common to such party and the appellant is not controverter. Having. carefully considered the provisions contained in Rules 4 and 33 of Order 41 of the Code I find that the scope of Rule 4 is distinct and different. No case interpreting Rule 4 of Order 41 of the Code has been cited on behalf of the first respondent to these appeals.

(59) As I have found that the plaints did not disclose the cause of action and the presumption under section 118(g) of the Act could have been drawn in favor of the first respondent to these appeals, only on his proving that he was 'holder' of the cheques within section 8 of the Act, while presumption raised under section 114 of the Evidence Act against him rebuts the presumption arising under section 118(a) of the Act and that the decrees appealed from proceed on common grounds and are covered by Order 41, Rule 4 of the Code accepting the appeals, the impugned decrees are set aside as against the appellants as well as the second respondent.

(60) There will be no order as to costs.


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