Skip to content


Kerala Arecanut Stores Vs. Ramkishore and Sons and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtKerala High Court
Decided On
Case NumberA.S. No. 46 of 1971
Judge
Reported inAIR1975Ker144
ActsPartnership Act, 1932 - Sections 69(2); Negotiable Instruments Act, 1881 - Sections 36, 37 and 93
AppellantKerala Arecanut Stores
RespondentRamkishore and Sons and anr.
Advocates: P.C. Balakrishna Menon and; V.P. Mohankumar, Advs.
Cases ReferredSankeralinga Nadar v. Chacko
Excerpt:
.....- endorsement result in transfer of right in property of cheque and not assignment of debt - unregistered firm entitled to sue drawer of cheque on its dishonour. - - 1. thequestion for decision here is quite an interesting one. whether the suit by a partner of an unregistered firm for recovery of mony claimed on the dishonour of a cheque endorsed in favour of the firm would be maintainable is the question in controversy. 2,500/,-all of the date 21-4-1965 in favor of the second defendant firm and the second defendant firm receiving consideration endorsed these cheques to the plaintiff. the case is that the goods were not actually supplied, but nevertheless second defendant collusively endorsed the cheques in favour of the plaintiff. the certificate of registration was the best..........the plaintiff has, hence, come up to this court in appeal.2. the plaintiff-company claims to be a firm registered under the indian partnership act. the plaintiff is said to be the managing partner. admittedly the first defendant issued three cheques, one for rs. 7,500/-, another for rs. 5,000/-and yet another for rs. 2,500/,- all of the date 21-4-1965 in favor of the second defendant firm and the second defendant firm receiving consideration endorsed these cheques to the plaintiff. these were sent for collection by the plaintiff to the canara bank limited, but they were dishonoured and returned to the plaintiff. the plaintiff therefore claims the amount of the cheque together with the interest and also the amount collected by the bank from the firm as discount.3. the suit was contested.....
Judgment:

Subramonian Poti, J.

1. Thequestion for decision here is quite an interesting one. Whether the suit by a partner of an unregistered firm for recovery of mony claimed on the dishonour of a cheque endorsed in favour of the firm would be maintainable is the question in controversy. It was contended that the suit is barred by Section 69(2) of the Indian Partnership Act. The court below, while holding in favour of the plaintiff on the merits of the case, dismissed the suit accepting this contention. The plaintiff has, hence, come up to this court in appeal.

2. The plaintiff-company claims to be a firm registered under the Indian Partnership Act. The plaintiff is said to be the managing partner. Admittedly the first defendant issued three cheques, one for Rs. 7,500/-, another for Rs. 5,000/-and yet another for Rs. 2,500/,- all of the date 21-4-1965 in favor of the second defendant firm and the second defendant firm receiving consideration endorsed these cheques to the plaintiff. These were sent for collection by the plaintiff to the Canara Bank Limited, but they were dishonoured and returned to the plaintiff. The plaintiff therefore claims the amount of the cheque together with the interest and also the amount collected by the Bank from the firm as discount.

3. The suit was contested by the first defendant firm. Its case was that the cheques were issued as security on a promise by the second defendant to supply pepper to the first defendant and the understanding was that the cheques were to be cashed only after such supply. The case is that the goods were not actually supplied, but nevertheless second defendant collusively endorsed the cheques in favour of the plaintiff. In short, the plea is that the cheques are not supported by consideration and the plaintiff is not a holder in due course. There was further contention that the plaintiff was not a registered firm and the person who has filed the suit as managing partner was not a partner at all.

4. On the evidence, the court found that the cheques must be found to be supported by consideration and the plaintiff was a holder in due course, but nevertheless the court below dismissed the suit since it found that the plaintiff firm being unregistered, the suit instituted by one of the partners must be found to be barred by Section 69(2) of the Indian Partnership Act.

5. The only plea the plaintiff urges in this appeal is one of challenge to the finding that the suit is unsustainable by reason of Section 69(2) of the Act. While seeking to support the judgment of the court below on this point counsel for the defendant challenges the finding on the question of considerationfor the cheques and also the finding that the plaintiff is a holder in due course. We will necessarily have to deal first with the plea of the appellant that the lower court ought to have found the suit was sustain-able in law.

6. Section 69 of the Indian Partnership Act reads:

'69. (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in a firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the register of Firms as partners in the firm.

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm, or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the Presidency Towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.

(4) This section shall not apply:- (a) to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories are situated in areas to which, by notification under Section 56, this Chapter does not apply, or.

(b) 'to any suit or claim of set-off not exceeding one hundred rupees in value which in the presidency towns, is not of a kind specified in Section 19 of the Presidency Small Cause Courts Act, 1882, or, outside the presidency towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act. 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.' This is not claimed to be a suit against a firm or against any person alleged to be or to have been a partner in the firm. Evidently therefore Section 69(1) is not applicable. Reliance is placed on Section 69(2). According to learned counselfor the first defendant the suit on the dishonoured cheques must be found to be a suit to enforce a right arising from a contract instituted against a third party and such a suit would not lie in a Court unless the firm is registered and further the persons suing are or have been shown in the Register of Firms as partners in the firm. There is controversy on the question whether the firm is registered. Though plaintiff averred in the plaint that it was registered and the first de-defendant categorically refuted it in the written statement and an issue had been framed in the suit, no evidence was let in by the plaintiff to show that the firm was registered. The certificate of registration was the best evidence. That was not produced. On the evidence the Court below was right in holding that the plaintiff firm was not registered. The plaintiff relies on Ext. A-8, which is a memorandum acknowledging receipt of documents by the Registrar of Firms, issued to the plaintiff. This is seen dated 3-6-1964. This does not indicate that the plaintiff's firm was registered. Any application made under Section 58 must satisfy certain requirements, and it is for the Registrar of Firms to decide whether registration could be granted or not. Registration is not retrospective from the date of application, but is operative only from the date the firm is registered. Therefore unless the plaintiff succeeds in showing that there has actually been registration, by the mere production of evidence to show that he had applied for registration, his case cannot be found. Even here there has been no attempt to produce evidence to show that the firm was registered, though it would appear from the memorandum of appeal filed as early as in 1971 that sufficient opportunity has not been granted is one of the grounds in appeal urged by the appellant. Hence on that question we must agree with the Court below.

7. Now that we find that the firm is not registered, the question is how far the Court below was right in dismissing the suit. This arises because it is not every suit by a partner of an unregistered firm that will have to be dismissed as infringing Section 69(2) of the Act. It is necessary that the party contending that the suit is not maintainable must show that it is a suit to enforce a right arising from a contract. Necessarily therefore whenever a plea that the suit is not maintainable by reason of Section 69(2) of the Partnership Act is raised the Court will have to examine (1) what right is sought to be enforced in the suit (2) does such right arise from a contract If the right which is sought to be enforced arises otherwise than as in tortsor from rights conferred by statutory provisions necessarily the bar under Section 69(2) of the Indian Partnership Act will not operate.

8. The Negotiable Instruments Act is a self contained enactment and provides for the rights and obligations of parties to the negotiable instruments and parties who acquire rights to such instruments in accordance with law. It may be necessary, in this context, to refer to certain provisions of the Negotiable Instruments Act relating to cheques. Section 30 of the Act defines the liability of a drawer. It provides that a 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 provided in the Act. Section 36 defines the liability of prior parties to the holder in due course and Section 37 concerns the liability of a maker of a cheque. Section 36 provides that every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. Section 37 provides that the maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the accepter are in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker. Section 92 of the Act relates to dishonour by non-payment. It defines that a cheque is dishonoured by non-payment when the drawee of the cheque makes default in payment upon being duly required to pay the same. When it is so dishonoured the holder thereof or some party thereto who remains liable thereon has to 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. This is the provision in Section 93 of the Act.

9. Reference has been made to these provisions to indicate that the obligation of the drawer of a cheque as well as the indorser to the indorsee who is the holder in due course arises by virtue of statutory provisions. It is not as if there is any privity of contract between the maker of a cheque and the holder in due course. Any right of action available to such holder is not under any contract, for he would be a third Party to the contract and would not come within one of the exceptions enabling a third party to a contract to sue. But he is entitled to sue on his cheque by reason of the right conferred upon him by the statute. In fact, in the case of an indorsement of a pronote or of a cheque it is not an assignment of the debt as such but only of the property in the note or the cheque and it is by virtue of obtaining such property in the note or the cheque that the indorsee sues thereon. It is not necessary to advert to the several decisions which indicate that a person suing on a negotiable instrument is not suing by virtue of the assignment of the debt. That, we think, is well settled and therefore we are not referring to the decisions cited by counsel on this point. It is sufficient to state here, for the purpose of this case, that the right of action available to an indorsee of a cheque who comes to hold the cheque in due course is based upon conferment on him by the statutory provisions the right to sue the maker of the cheque and also the indorser. If that be the case the right that is sought to be enforced does not arise from a contract. It is not a suit by the indorsee to enforce a right arising out of a contract and therefore the bar under Section 69(2) of the Partnership Act will not operate in such a case.

10. We have not been referred to any decision directly bearing on the point. No doubt there is a decision of this Court by a learned single Judge reported in Sankeralinga Nadar v. Chacko, 1963 (1) Ker LR 443. That was a case where a similar suit on a cheque was found to he sustainable since it was said that it did not arise out of a contract. But there is no discussion on this question in that decision.

11. Having found that the suit would not be bad for the reason found by the Court below, we have necessarily to consider the objections urged by the defendant to the findings in the judgment under appeal which are against him. According to him the Court was not right in holding that the cheques were supported by consideration. Counsel for the respondent urges that the Court ought to have found that the evidence in the case indicated that the cheques were issued not as price of any goods supplied nor in satisfaction of any money received, but purely as an arrangement by way of advance towards the value of goods agreed to be supplied in due course and these could have been presented only after such supplies were made. These questions have been urged before the Court below. But we may state here that both parties adduced very little evidence on this in the lower Court. Oral evidence is only that of the managing partner of the plaintiff firm as PW1 and the manager of the defendant firm as DW1. Reliance is sought to be placed by the first defendant on an account book. Ext. B1. Itwould appear that the first defendant is a very well established firm and we are surmised that the only account book produced is Ext. B1 which does not appear to us to be an account book at all. Anyhow there are entries in regard to certain transactions in that book and probably those entries might have been regularly made. But that book must have been kept, in addition to the regularly kept account books. We cannot conceive a state of affairs when the first defendant firm was having only a book like Ext. B-1 and no day book or ledger. Whatever that be, we think the criticism made by the Court, below of Ext. B-1 is not well founded. There are entries in Ext. B-1 which would show that the second defendant firm had been receiving advances by way of cheques even earlier. That is what the entries indicate in spite of what the Court below says to the contrary. We are saving this because the Court below seems to think that the entry in Page 125 of Exhibit B-1 to the effect 'otherwise can return cheques' is written in a different ink and assume this to be a correction made subsequently. Possibly so. The rest of the entry which of course could not have been any interpellation refers to the cheques having been handed over to the second defendant by way of advances for the goods to be supplied and therefore even if the words which are said to be made by way of interpellation are omitted the idea conveyed by the entry which is relied on is that the second defendant received these cheques as advances against goods agreed to be supplied. Further the book contains other entries of similar advances received by the second defendant firm. Unfortunately this aspect of the matter has not been noticed by the Court below. Not that this is conclusive of the issues, between the parties, but this is relevant in properly assessing the merits of the controversy. It is true that Ext. B-1 has not been produced before the Sales Tax Department. It is also not been produced before the Income-tax authorities. Probably there are other books which have been so produced. There has not been a Proper cross-examination also on this point. The disputed entries in Ext. B-1 are seen signed by the representative of the second defendant. There is no cross-examination as to whether the signatures appearing as that of the second defendant are really that of the second defendant. None has been examined on behalf of the second defendant. The first defendant would have been well advised to take steps to properly prove the acknowledgment by the second defendant in regard to these entries. Thus we feel that while on the evidence the Court below was possiblyright in coming to the conclusion reached by it, this is a case where the parties Would have been well advised to adduce better evidence and therefore when the first defendant prays for a further opportunity to adduce evidence we are inclined to view it favourably. It is not that merely for the asking we are inclined to give an opportunity. That should not be the case. But taking into account the circumstances and the nature of the evidence in the case, we are not happy that the matter should be left as it is and in the interests of justice, we are inclined to grant an opportunity to the first defendant provided he is agreeable to comply with the heavy terms that we propose to impose. In case the entire costs of the appellant in this appeal is paid by the first defendant to the appellant's counsel in this Court within one month from this date, the decree of the Court below will stand set aside and the case will stand remitted to the Court below for enabling the parties to adduce evidence and in that event the Court below will take up the matter immediately and post the case day-to-day and dispose it of within four months from the date of receipt of records in that Court. In case the condition is not complied with, there is no question of further opportunity and on the evidence the first defendant must lose his case on the merits. Now that we have found that the suit is maintainable that would mean that the plaintiff would be entitled to a decree in terms of the plaint. In that event the plaint will stand decreed with costs throughout.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //