Andhra Pradesh High Court - Amravati
Dasari Purushottam vs Bobba Vasudeva Rao on 17 October, 2024
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APHC010448212006
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3369]
(Special Original Jurisdiction)
THURSDAY, THE SEVENTEENTH DAY OF OCTOBER
TWO THOUSAND AND TWENTY FOUR
PRESENT
THE HONOURABLE SRI JUSTICE T MALLIKARJUNA RAO
SECOND APPEAL NO: 1294/2006
Between:
Dasari Purushottam ...APPELLANT
AND
Bobba Vasudeva Rao ...RESPONDENT
Counsel for the Appellant:
1. P PRABHAKAR RAO
Counsel for the Respondent:
1. G JHANSI
The Court made the following JUDGMENT:
1. This Second Appeal has been filed by the Appellant/Appellant/
Defendant against the Decree and Judgment dated 17.10.2006
17.10.2006,, in A.S.
A.S.No.7 of
2003 on the file of VIII Additional District and Sessions Judge, (Fast Track
Court), Vijayawada (for short, 'the 1st Appellate Court') confirming the decree
and Judgment dated 20.01.2003, in O.S.No.16 of 1997 on the file of I
Additional Senior Civil Judge, Vijayawada (for short, 'the trial Court').
2. The Respondent/Respondent is the Plaintiff, who filed the suit in
O.S.No.16 of 1997 seeking recovery of Rs.50,60
Rs.50,600/- being the principal and
interest from the Defendant based on the promissory note, dt.20.03.1994.
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3. Referring to the parties as they are initially arrayed in the suit in
O.S.No.16 of 1997 is expedient to mitigate any potential confusion and better
comprehend the case.
4. The factual matrix, necessary and germane for adjudicating the
contentious issues between the parties inter se, may be delineated as follows:
The defendant procured a sum of Rs.30,000/- from one Smt.
K.Sarada, the spouse of Bapuji, on the 20.03.1994, executing a
promissory note in favor of K. Sarada, thereby undertaking to
recompense the borrowed amount along with interest accruing at a
rate of 24% per annum. Notwithstanding repeated entreaties for
repayment, the defendant has manifestly neglected to fulfill this
obligation. Subsequent to these developments, K. Sarada's health
deteriorated, necessitating her to solicit financial assistance from
the plaintiff to defray her medical expenses. In light of the
outstanding sum owed to the plaintiff, and following the settlement
of the residual balance stipulated in the promissory note, K. Sarada
duly executed a transfer of the aforementioned promissory note to
the plaintiff on the 24.02.1995, for valid consideration.
Consequently, the plaintiff is entitled to recover the amount
specified in the promissory note from the defendant. The transfer
endorsement was inscribed on the reverse of the promissory note.
Tragically, K. Sarada passed away on the 09.03.1995. In the
ensuing period, the plaintiff made multiple demands upon the
defendant for repayment. However, the defendant, for reasons
undisclosed, has consistently deferred payment.
5. The Defendant filed written statement, refuting the plaint averments. He
asserts that he borrowed Rs.30,000/- from K.Sarada, w/o Bapuji, on
20.03.1994 and categorically denies the execution of promissory note in her
favour. He challenges the claims of neglect following notice, denying that
Sarada incurred debts to the Plaintiff for medical expenses. The Defendants
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contends that the transfer endorsement on the promissory note, dated
24.02.1995, is a fabrication, orchestrated by the Plaintiff after Sarada's death.
Moreover, he claims to have disbursed Rs.30,000/- to K. Bapuji on
20.02.1995, for which a receipt was duly issued, responding to Bapuji's urgent
plea for funds for Sarada's cancer treatment. The Defendant has consistently
paid interest on this amount. In the wake of Sarada's demise, he alleges that
disputes emerged, prompting the Plaintiff to forge the transfer endorsement in
a bid to lay a false claim. Thus, the Defendant asserts that the promissory
note is fully discharged, relieving him of any financial obligation to the Plaintiff.
6. Based on the above pleadings, the trial Court has framed the following
issues:
i. Whether the transfer endorsement dated 24.02.1995 alleged to
have been executed by Kodali Sarada in favour of the Plaintiff
is true, valid and it is for consideration?
ii. Whether the discharge pleaded by the Defendant in respect of
the suit promissory note executed by the Defendant in favour
of Kodali Sarada is true?
iii. Whether the receipt dated 20.02.1995 issued by Kodali Bapuji
on behalf of his wife Sarada is true?
iv. Whether the Plaintiff is entitled to recover the suit amount
from the Defendant?
v. To what relief?
7. During the trial, P.Ws.1 to 3 were examined and marked Exs.A.1 to A.5
on behalf of the Plaintiff. Conversely, on behalf of the Defendant, D.Ws.1 to 3
were examined and marked Ex.B.1.
8. After completing the trial and hearing the arguments of both sides, the
trial Court decreed the suit with costs against the Defendant for Rs.50,600/-
together with interest at 12% per annum from the date of suit till the date of
decree on Rs.30,000/- and thereafter at 6% per annum till realization.
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9. Aggrieved by the same, the Defendant filed an Appeal in A.S.No.7 of
2003 on file of the 1st Appellate Court. The 1st Appellate Court, being the final
fact-finding Court, framed the following points for consideration:
i. Whether the discharge plea taken by the Defendant /
Appellant is established?
ii. Whether the judgment of the trial Court is erroneous?
iii. To what relief?
10. The 1st Appellate Court, after scrutinizing oral and documentary
evidence adduced on behalf of both sides, dismissed the Appeal by its
Judgment and Decree dated 17.10.2006. Assailing the same, the Defendant
preferred the present Second Appeal.
11. Heard Sri P. Prabhakar Rao, learned Counsel representing the
Appellant/Defendant, and Ms. G. Jhansi, learned Counsel for the Respondent/
Plaintiff.
12. Based on the Appellant's contentions, the following substantial question
of law is involved in this Second Appeal:
i. Does the Appellate Court having come to conclusion that
the Appellant / Defendant has discharged the suit
promissory note and that the Defendant rightly paid the
amount on 20.02.1995 is right in dismissing the Appeal
without allowing it?
ii. Does the Respondent / Plaintiff become "holder in due
course" under section 9 of the N.I. Act when he himself
pleaded that in spite of several demands made by his
transferor debt under Ex.A.1 was not discharged.
iii. Does the presumption under section 118 of N.I.Act is
available to the Respondent in view of the Appellant
successfully rebutting the said presumption by way of
cogent evidence shifting the burden of proof on to the
Respondent.
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iv. Does Section 78 of N.I Act has application to the facts of
the case on hand.
13. Before delving into the matter, since the Appeal is filed under Sec.100
of C.P.C., this Court must see the scope of Section 100 of C.P.C.
14. In H.P.Pyarejan V. Dasappa (dead) by L.Rs. and others 1 , the
Hon'ble Supreme Court held that:
Under Section 100 of the Code (as amended in 1976), the
jurisdiction of the High Court to interfere with the judgments of
the courts below is confined to hearing on substantial questions
of law. Interference with the finding of fact by the High Court is
not warranted if it involves re-appreciation of evidence (see
Panchugopal Barua v. Umesh Chandra Goswami (1997) 4 SCC
713) and Kshitish Chandra Purkait v. Santosh Kumar
Purkait (1997) 5 SCC 438)......
15. Considerations in Section 100 of C.P.C. arise only when there is a
substantial question of law and not mere such questions of law or one based
on facts. The learned Counsel for Respondent is right in placing reliance on
these rulings. However, it has to be borne in mind that in case of
misapplication of law and improper appreciation of evidence on record,
particularly the documentary evidence, it is the bounden duty of the High
Court sitting in Second Appeal to consider such questions which are
substantial in terms of law.
16. In the second Appeal, while exercising jurisdiction under Section 100 of
the C.P.C., this Court must confine itself to the substantial question of law
involved in the Appeal. This Court cannot re-appreciate the evidence and
interfere with the findings of the Courts below, where the Courts below
recorded the findings judicially by appreciating both oral and documentary
evidence. Further, the existence of a substantial question of law is the sine
qua non for the exercise of jurisdiction. This Court cannot substitute its own
1
2006 (3) ALT 41 (SC)
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opinion unless the findings of the Courts below are manifestly perverse and
contrary to the evidence on record.
17. The stand taken by the Defendant in the written statement reveals a
notable absence of dispute regarding the execution of the promissory note in
favour of Smt. K. Sarada. However, the Defendant, as DW.1, asserts that he
borrowed Rs. 30,000/- on 20.03.1994 from K. Bapuji, the husband of Sarada.
To substantiate his defence, Defendant examined K. Bapuji as DW.3.
Conversely, to affirm the execution of the promissory note (Ex.A.1), Plaintiff
examined K. Subbarayudu as PW.3, who testified that Defendant indeed
borrowed Rs.30,000/- from K. Sarada on the same date and attested the
promissory note.
18. PW.2, Y. Ramachandra Rao, who is the brother-in-law of PW.1 and the
scribe of the transfer endorsement (Ex.A.2), consistently supports the
testimony of P.Ws.1 and 3 regarding the illness of K. Sarada, who was
diagnosed with cancer. PW.1 provided financial assistance for her medical
treatment, and on 24.02.1995, K. Sarada executed Ex.A.1 in favour of PW.1
after receiving an additional Rs.12,000/-, beyond the previous consideration. It
is undisputed that P.Ws.1 to 3 are closely related to K. Sarada, the original
lender, who is, in fact, PW.1's sister. The assertion that Smt. K. Sarada fell ill
due to cancer remains uncontested, and it is a fact that she passed away on
09.03.1995. Before initiating the suit, PW.1 issued a legal notice dated
17.10.1996 to the Defendant, demanding repayment of the debt, which was
returned, as evidenced by Ex.A.4.
19. The evidence adduced reveals that one K. Srinivasa Rao scribed
Ex.A.1, which K.S.Rayudu attested. Defendant contends that K. Bapuji (DW.3)
requested repayment of the loan amount stipulated in the promissory note,
citing urgent financial need for the treatment of his wife, K.Sarada, who was
battling cancer. In response, Defendant settled the amount due under the
promissory note and requested the return of Ex.A.1. However, DW.3 claimed
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the document had been misplaced. Nevertheless, DW.3 issued Ex.B.1 a
receipt dated 20.02.1995 acknowledging the payment.
20. As aptly noted by both the trial Court and the 1st Appellate Court, the
Defendant has not disputed the execution of the promissory note in favour of
K. Sarada nor the receipt of the consideration amount there under. Instead,
the Defendant asserts that he received this amount from DW.3. To
substantiate the transfer endorsement, Plaintiff called upon PWs.2 and 3,
whose testimonies reinforced Plaintiff's claims. Upon careful evaluation of the
evidence, the trial Court determined that PW.1 effectively proved the transfer
endorsement of Ex.A.2 by examining both the scribe and the attestor. The trial
Court found the Defendant's assertions regarding the discharge of the debt
through Ex.B.1 to be unconvincing. The 1st Appellate Court, in turn,
considered the arguments presented by both parties and meticulously
reviewed the evidence, ultimately affirming the findings of the trial Court.
21. Both the trial Court and the 1st Appellate Court carefully examined
Ex.B.1 and Ex.A.5, noting that these documents may have been created by
the Appellant/Defendant with the assistance of DW.3, K.Sarada's husband.
The Courts observed that despite the Defendant's claim of having made the
payment on 20.02.1995 and the subsequent passing of K.Sarada on
09.03.1995, he took no steps to retrieve Ex.A.1 or to obtain an endorsement
from K. Sarada herself. Given that Defendant has acknowledged the
execution of the Ex.A.1 promissory note and the receipt of the consideration
amount, the burden of proof squarely rests upon him to demonstrate that the
payment was made by DW.3 rather than by his wife.
22. Both the trial Court and the 1st Appellate Court, after a thorough
appraisal of the evidence on record, arrived at the correct conclusion that the
Defendant failed to provide adequate evidence to support the assertions made
in his written statement.
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23. In Satya Gupta v. Brijesh Kumar2, the Hon'ble Supreme Court had
observed as under:
"At the outset, we would like to point out that the findings on facts by the
lower appellate Court as a final court of facts, are based on appreciation of
evidence and the same cannot be treated as perverse or based on no
evidence. That being the position, we are of the view that the High Court,
after reappreciating the evidence and without finding that the conclusions
reached by the lower appellate Court were not based on the evidence,
reversed the conclusions on facts on the ground that the view taken by it
was also a possible view on the facts. The High Court, it is well settled,
while exercising jurisdiction under Section 100 CPC, cannot reverse the
findings of the lower appellate Court on facts merely on the ground that on
the facts found by the lower appellate Court another view was possible."
24. In S.R. Tewari v. Union of India 3 , the Hon'ble Supreme Court
formulated the following test of what constituted perversity under Section 100
of C.P.C.:
"The findings of fact recorded by a court can be held to be perverse if the
findings have been arrived at by ignoring or excluding relevant material or
by taking into consideration irrelevant/inadmissible material. The finding
may also be said to be perverse if it is 'against the weight of evidence', or if
the finding so outrageously defies logic as to suffer from the vice of
irrationality. If a decision is arrived at on the basis of no evidence or
thoroughly unreliable evidence and no reasonable person would act upon it,
the order would be perverse. But if there is some evidence on record which
is acceptable and which could be relied upon, the conclusions would not be
treated as perverse and the findings would not be interfered with."
25. Interference on facts is a forbidden zone in a Second Appeal unless the
Appellant can make out a case that the appreciation of evidence suffers from
any form of perversity. As a natural corollary, sans any perversity, merely
because an alternative view is possible on a reading of the evidence, that
would not constitute a legally valid ground for interference under Section 100
of C.P.C.
26. At the outset, it is important to emphasize that both the trial Court and
the 1st Appellate Court reached concurrent findings of fact regarding the
2
(1998) 6 SCC 423
3
(2013) 6 SCC 602
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execution of the promissory note by the Defendant in favour of Smt. K.Sarada.
Furthermore, they rightly discredited the Defendant's claims concerning the
discharge of the debt through payment to her husband, DW.3. These findings
were made following a comprehensive evaluation of the entire evidence on
record. Consequently, unless the concurrent findings of the trial Court and the
1st Appellate Court are deemed perverse, this Court is not required to interfere
with them in the exercise of its powers under Section 100 of the C.P.C.
27. Defendant contends in the Second Appeal that, given Plaintiff's own
assertion that Smt K.Sarada made multiple demands before transferring the
promissory note to Plaintiff and the Respondent/Plaintiff cannot be considered
a holder in due course under Section 9 of the N.I.Act. However, the Defendant
did not raise this contention before the trial and 1st Appellate Courts.
28. The learned counsel for the Appellant contends that both Courts
overlooked the admission made by the Respondent/Plaintiff that he got
transferred the promissory note only after the original transferor made
demands. The Appellant/Defendant maintains that, in law, the Respondent/
Plaintiff cannot be deemed a Holder in Due Course of the promissory note,
given his admission that he had the promissory note solely following a
demand notice issued by the original lender.
29. The main contention projected by the Learned Counsel for the
Appellant/Defendant is that both the Courts failed to consider the necessary
ingredients of Section 9 of N.I.Act, which provides that 'Holder in Due Course'
means any person who for consideration became the possessor of the
promissory note before the amount mentioned in it became payable.
30. Per contra, it is the submission of the learned Counsel for the
Respondent/Plaintiff that both the Courts have taken into account the entire
attendant facts and circumstances of the case, coupled with the oral and
documentary evidence available on record and has come to a clear
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conclusion that the suit promissory note debt has not been discharged by the
Appellant/Defendant.
31. For better appreciation, it is relevant to extract the plaint averments,
which are as follows:
"3........................... In spite of repeated demands made by the said
Sarada, Defendant has not chosen to repay the same, and further, the said
Sarada made several requests that she is in need of the said amount as
she has to clear off her debts with the said amount. All attempts made by
the said Sarada are in vain.
4...............In the above circumstances, due to her ill-health, the said
Sarada, by taking into consideration the said due amount payable by her to
the Plaintiff, after receiving the remaining balance amount, transferred the
said promissory note in favour of the Plaintiff on 24.02.1995 (Twenty Fourth
February Nineteen Ninety Five) for a valid consideration .........................
.......................... After that, Plaintiff made several demand Defendant to
collect the said amount, but for the reasons best known to himself, the
Defendant dragged on the payment. Finally, the Plaintiff was constrained to
issue a notice and got issued the same on 17.10.1996
........................................
32. Whereas, Defendant has contended in the written statement as follows:
"4. Except the allegation that Defendant borrowed a sum of Rs.30,000/-
from one Kodali Sarada, wife of Bapuji, on 20.03.1994 and executed a
promissory note in favour of Kodali Sarada and other all allegations
mentioned in the plaint are all incorrect and false..................
33. The Plaintiff has not claimed to have personal knowledge of the
demands made by Smt. K. Sarada to Defendant regarding the discharge of
the debt, nor has he stated that he demanded repayment of the debt by
Defendant. Defendant has explicitly disputed this contention in his written
statement and testified to this effect in Court. As such, it is difficult to accept
the Appellant's counsel's submission and consider the plea articulated in the
plaint. Nevertheless, this Court is inclined to weigh the arguments presented
by both sides in light of the pleas raised in the plaint and in the written
statement and the evidence adduced.
34. Learned counsel for the Appellant relied on the decision in Somisetty
Subbarao V. Mynampati Ramakrishna Rao4, wherein the composite High
Court of Andhra Pradesh held that:
In order to get the status of holder in due course, Plaintiff has to get the
transfer of the promissory note in his favour before making the demand for
payment to Defendant.
4. Section 9 of the Negotiable Instruments Act defines holder in due course
reads as follows:
"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 indorse 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.
According to this section, there is a difference between a holder for
collection and a holder in due course. In due course, a holder is entitled to
claim better rights than the transferor. Any defect in the transferor's title will
not affect the holder's rights in due course. It is only where the transferee of
the payee wants to claim higher rights than the transferor that he must
satisfy the requirements of a holder in due course as laid down in Section 9.
Basavaiah v. Venkamma MANU/AP/0058/1967: AIR1967AP275.
5. Section 9 mentions that when a consideration becomes payable to the
possessor of the promissory note and before the amount becomes payable
to the transferee becomes a holder in due course. But in the present case,
given the legal notice issued by the transferor to Defendant on 24.8.1989,
he has lost the status of holder in due course as the transfer endorsement
obtained by the Plaintiff was only on 31.12.1989, which is subsequent to the
date of legal notice. So far as the original creditor is concerned, it is an
undisputed fact that the suit promissory note was executed at Kandukuru,
and the transferor belongs to Kandukuru, so also Defendant. Therefore, the
Kandukuru Court was the proper Court to present the Plaintiff for the
purpose of adjudication of the dispute. But the Plaintiff filed the suit at
Ongole on the basis of endorsement that the consideration for the
endorsement was paid at Ongole and the endorsement was also obtained
there.
9. In the light of the above judgments, the Plaintiff cannot be treated as a
holder in due course. Therefore, he cannot acquire better rights than the
transferor. When once he had no better rights, no part of the transaction
regarding the execution of the promissory note passing of the consideration
MANU/AP/0981/2007
took place at Ongole. Therefore, the Court at Ongole has no jurisdiction to
entertain the suit. Therefore, the suit is liable to be dismissed.
35. A review of the plaint and the evidence on record needs to be clarified
regarding whether Plaintiff became aware of the demands made by the
original lender before or after the transfer of the promissory note in his favour.
Furthermore, the Judgment does not indicate that a transferee who acquires
knowledge of such demands before the transfer of the instrument is precluded
from recovering the amount from the borrower.
36. The Appellant's counsel further relied on the decision in Dittakavi
Venkata Narayana V. Chennuri Venkateswara Rao and another 5, wherein
the composite High Court of Andhra Pradesh held that:
1..................... The defence raised by the respondents is that Ex. A-1 is
not supported by consideration. It was executed only as collateral security
to another transaction; therefore, he is not a 'holder in due course'. Since
the Appellant is only a 'holder' for collection, the Court below has no
territorial jurisdiction to entertain the suit. The trial court framed appropriate
issues and negatived the respondents' contention that it is not supported by
consideration and held that the promissory note Ex. A-1 is supported by
consideration but it held that the Appellant is not a 'holder in due course'
under Ex. A-2, dated February 1, 1978. Since the endorsement was made
at Pamarru, the Court below has no jurisdiction to entertain the suit. On that
premise, dismissed the suit.
6. It is seen that the Court below found, and, in fairness, it was not disputed
across the bar, that the Appellant has laid the suit on July 17, 1978, in his
own right as a 'holder in due course'. It has now been found that no
consideration has been given under the endorsement, Ex. A-2. he is not a
'holder in due course'. When the Appellant came to the Court in his own
right as a 'holder in due course' but not as a 'holder' and having the finding
that he is not a 'holder in due course' undisputed, then it is not open to him
to fall back upon the plea that he is continuing to be a 'holder' as a
beneficial owner, for the benefit of the original owner, promisee, under Ex.
A-1. This stand was not taken earlier nor pleaded in the plaint, and there
was no opportunity for the respondents to contest this stand. Under those
circumstances, having become unsuccessful in his stand that he is a 'holder
in due course', it is not open to him to fall back upon the plea that he
continues to be a 'holder', namely, beneficial owner for the benefit of the
original promisee under Ex. A-1 Promissory note--on that promise, the
1988 SCC OnLine AP 306
second question, namely, whether the suit should be transferred to the
Court having pecuniary jurisdiction, is redundant........
37. Upon careful examination of the decision, it becomes evident that
Plaintiff failed to demonstrate that consideration had been paid under Ex.A.2.
In contrast, in the present case, the Plaintiff has successfully established the
transfer of the consideration amount under transfer endorsement.
38. The learned counsel for the Respondent relied on the decision in
Pradeep Kumar v. Postmaster General 6 , wherein the Hon'ble Supreme
Court held that:
15. Sections 15 and 16 of the N.I. Act defines "indorsement", "indorsee",
"indorser", "indorsement in blank", and "in full". Indorsement for the purpose
of negotiation is made by the maker or holder of the negotiable instrument
when he signs on the back or face of thereof, on a slip of paper annexed
thereto or on a stamp paper for the purpose of negotiation. The person
signing is called the indorser. If the instrument is signed by the indorser in
his name only, it is an indorsement in blank. If the indorser also specifies
the person to whom payment is to be made, the indorsement is said to be
"in full", and the person so specified is called the indorsee.
16. Sections 78 and 82 of the N.I. Act read:
"78. To whom payment should be made.--Subject to the provisions of
Section 82, clause (c), payment of the amount due on a promissory note,
bill of exchange or cheque must, in order to discharge the maker or
acceptor, be made to the holder of the instrument."
***
82. Discharge from liability.--The maker, acceptor or indorser,
respectively, of a negotiable instrument is discharged from liability
thereon--
(a) by cancellation.--to a holder thereof who cancels such acceptor's or
indorser's name with intent to discharge him, and to all parties claiming
under such holder;
(b) by release.--to a holder thereof who otherwise discharges such maker,
acceptor or indorser, and to all parties deriving title under such holder after
notice of such discharge;
(c) by payment.--to all parties thereto, if the instrument is payable to
bearer, or has been indorsed in blank, and such maker, acceptor or
indorser makes payment in due course of the amount due thereon."
(2022) 6 SCC 351
17. Section 78 states that when payment is to be made to the "holder" of
the instrument, which would include his accredited agent, such as a banker
acting as an agent for collection [ See Maddali Tirumala Ananta Venkata
Veeraraghavaswami v. Srimat Kilambi Mangamma, 1939 S.C.C. OnLine
Mad 237: A.I.R. 1940 Mad 90 and Raghubir Mahto v. Ramasray Bhagat,
1937 S.C.C. OnLine Pat 268: A.I.R. 1939 Pat 347 and also p. 533 of
Bhashyam & Adiga's The Negotiable Instruments Act, 22nd Edn. (2019).]
The maker or acceptor is discharged from liability. However, Section 78 is
subject to and does not apply to payments covered under clause (c) of
Section 82 of the N.I. Act. Clause (c) to Section 82 applies to an instrument
payable to the bearer or has been indorsed in blank, and in such cases, the
maker, acceptor or indorser of a negotiable instrument is discharged from
liability when such maker, acceptor or indorser makes "payment in due
course" of the amount due thereon. The expressions "holder" and "payment
in due course" are "terms of art" as Section 8 defines the expression
"holder", whereas Section 10 defines the expression "payments in due
course". On a harmonious reading of Section 78 and clause (c) of Section
82, it follows that different principles apply for discharge from liability when
the negotiable instrument is payable to bearer or has been indorsed in
blank, in which case payment must be made in terms of Section 10,
whereas when the negotiable instrument is payable to order, the maker,
acceptor or endorser would be discharged from liability when payment is
made to the "holder" of the instrument.
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19. The requirements of Section 8 are twofold, and both requirements have
to be satisfied. A holder means a person:
(i) entitled to possession of a promissory note, bill of exchange or a cheque,
and
(ii) entitled to sue the maker, acceptor or indorser of the instrument for the
recovery of the amount due thereon in his name [ In the context of the
present case, we need not examine the controversy and difference of
opinion on the issue of benami owner, which aspect and issue have been
the subject-matter of several decisions, including Subba Narayana Vathiyar
v. Ramaswami Aiyar, 1906 S.C.C. OnLine Mad 79: I.L.R. (1907) 30 Mad 88,
Bacha Prasad v. Janki Rai, 1957 S.C.C. OnLine Pat 25: A.I.R. 1957 Pat
380 and Bhagirath v. Gulab Kanwar, 1956 S.C.C. OnLine Raj 13: A.I.R.
1956 Raj 174. We express no opinion in this regard.].
Thus, a person who is in possession of the instrument but has no right to
recover the amount due thereon from the parties thereto is not a "holder".
On a harmonious reading of Sections 8 and 78, it follows that payment
made to a person in possession of the instrument but not entitled to receive
or recover the amount due thereon in his name is not a valid discharge.
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21. As per Section 9, a "holder in due course" is a person who, for
consideration, has become a possessor of the instrument if payable to a
bearer or if payable to the order to the person mentioned, i.e. the payee, or
becomes the indorsee thereof. Holder in due course means the original
holder or a transferee in good faith, who has acquired possession of the
negotiable instrument for consideration without having sufficient cause to
believe that there was any defect in the title of the person from whom he
has derived the title. Negotiation in case of transfer should be before the
amount mentioned in the negotiable instrument becomes payable--clause
(g) to Section 118............
22. This brings us to Section 10 of the N.I. Act, which defines the
expression "payment in due course" and reads as follows:
"10. "Payment in due course".--"Payment in due course" means payment
in accordance with the apparent tenor of the instrument in good faith and
without negligence to any person in possession thereof under
circumstances which do not afford a reasonable ground for believing that he
is not entitled to receive payment of the amount therein mentioned."
When payment is made in accordance with the apparent tenor of the
instrument in good faith and without negligence to a person in possession
thereof, it is payment in due course. The requirement in Section 10 that the
payment should be in both good faith and without negligence is cumulative.
Thus, mere good faith is not sufficient. Consequently, Section 3(22) of the
General Clauses Act, 1897, which defines "good faith" as an act done
honestly, whether done negligently or not, is not sufficient to hold that the
payment made was "payment in due course" under the N.I. Act.
Ascertainment of whether the act of payment is in good faith and without
negligence is by examination of the circumstances in which payment is
made. In other words, antecedent and present circumstances should not
afford a reasonable ground for believing that the person to whom payment
is made is not entitled to receive payment of the amount mentioned. [Bank
of Maharashtra v. Automotive Engg. Co., (1993) 2 S.C.C. 97: 1993 S.C.C.
(Cri) 461] While it would not be advisable or feasible to straitjacket the
circumstances, albeit value of the instrument, other facts that would raise
doubts about the reliability and identity of the person entitled to receive
payment and genuineness of the instrument in the payer's mind are
relevant considerations.
39. In M/s. Precision Processors (India) Private Limited V. Bank of India7, the
High Court of Calcutta held that:
32. The indorsement by Espee Trading on the reverse of the bill of
exchange does not indicate that the amount covered under the bill would
be payable to the bank. In absence of such indorsement, it cannot be said
2016 SCC OnLine Cal 75
that the opposite parties would be liable as an acceptor of the bill to the
bank. However, the obligation of the opposite party to Espee on the tenor
of the bill of exchange remains, although the opposite party has relied
upon communications to show that Espee Trading has discharged the
opposite party from its obligation to pay under the Bill of Exchange. Under
such circumstances, I am inclined to accept the view expressed by the
Debt Recovery Tribunal that the said bills were sent on a collection basis,
and the bank was not authorized to enforce its right as a holder in due
course in respect of the said bills. Moreover, Espee Trading Corporation
has contended that they have communicated to the bank that the opposite
party is discharged from its liability.
40. This extract supports the notion that, even if the proper endorsement for
establishing the holder in due course status was missing, the underlying
obligation between the drawee (Precision Processors) and the drawer (Espee
Trading) still persists based on the terms of the bill of exchange itself.
41. In M.Selvaraj V. T.S.R.M.Subramaniya Iyer 8 , the High Court of
Madras held that:
41. It cannot be gainsaid that as per Section 59 of the Negotiable
Instruments Act, 1881, the holder of a negotiable instrument, who has
acquired it after dishonour, whether by non-acceptance or non-payment,
with notice thereof, or after maturity, has only, as against the other parties,
the rights thereon of his transferor etc.
42. Indeed, Section 43 of the Negotiable Instruments Act has to be read
subject to Section 59 of the Negotiable Instruments Act in all cases in which
Section 59 squarely applies. In Kizhedath Pappi Amma V. Rama Iyer, A.I.R.
1937 Mad 438: 173 IC 147, it is held that 'Where an indorsee of a pronote is
not proved to be a holder in due course, he is entitled only to such rights as
the indorser of the note had.
42. This Court's view is that if the holder in due course was aware of the
previous demand and non-payment when acquiring the promissory note, then
the holder in due course would not enjoy the protections granted under the
N.I.Act. He would be stepping into the shoes of the original holder. He would
face the same limitations as the original holder. If the holder in due course had
known that the demand for repayment was dishonoured before they acquired
the promissory note, and they still went ahead with the transaction, he
2012 SCC OnLine Mad 196
essentially lost the special protections granted to a holder in due course under
the N.I.Act. However, it doesn't necessarily mean the debt is entirely lost.
43. As the Defendant admitted to the execution of the promissory note in
favour of Smt. K. Sarada and the receipt of the consideration amount, the
burden now lies with Defendant to prove that the amount was paid by
K.Sarada's husband (DW.3). Upon careful examination of the record and
considering the probabilities, both courts concluded that Defendant failed to
substantiate his defence. The trial Court and the 1st Appellate Court provided
cogent and convincing reasons for disbelieving Defendant's claim that he
subsequently discharged the suit debt by paying the amount to DW.3. Both
the courts determined that the Appellant/Defendant likely colluded with DW.3,
creating Ex.B.1 to take advantage of the disputes between PW.1 and DW.3.
Furthermore, both the Courts noted that the contents of Ex.A.5 and Ex. B.1
strongly suggest that the Appellant may have fabricated both documents with
assistance from DW.3.
44. The Supreme Court, in several cases, has held that the exercise of
powers under Section 100 of the Code of Civil Procedure can interfere with
the findings of fact only if the same is shown to be perverse and based on no
evidence. Some of these judgments are Hajazat Hussain V. Abdul Majeed &
others9, Union of India V. Ibrahim Uddin10, and Vishwanath Agrawal V.
Sarla Vishwanath Agrawal11.
45. The findings of the trial court and the 1st Appellate Court, which affirm
that Plaintiff has successfully established the payment of consideration
amount to Defendant on execution of the promissory note and Defendant
failed to establish the plea of discharge, are neither perverse nor a result of
misinterpretation of documents or misreading of evidence. After careful
reading of the material on record, this Court finds that the trial Court and the
2011 (7) SCC 189
2012 (8) SCC 148
2012 (7) SCC 288
1st Appellate Court concurrently decreed the Plaintiff's suit by recording all the
findings of facts against Defendant enumerated above, and the findings were
neither against the pleadings nor evidence nor against any provisions of law.
This Court considers that the conclusions of the trial Court and the 1st
Appellate court are not subject to interference under Section 100 of C.P.C.
There is no question of law, let alone the substantial questions of law, involved
in this Second Appeal, and therefore, the Second Appeal is liable to be
dismissed.
46. Accordingly, the present second Appeal sans merit and is hereby
dismissed without costs for the reasons indicated above. Consequently, the
Judgment dated 17.10.2006 passed by the learned VIII Additional District and
Sessions Judge (Fast Track Court), Vijayawada, in A.S.No.7 of 2003, is
hereby affirmed.
Miscellaneous petitions pending, if any, in this Appeal, shall stand closed.
______________________________
JUSTICE T. MALLIKARJUNA RAO
Date: 17.10.2024
SAK
THE HON'BLE SRI JUSTICE T.MALLIKARJUNA RAO
SECOND APPEAL NO.1294 OF 2006
Date: 17.10.2024
SAK
