Rambilas Dinaram Shivlal vs (Smt. Shantadevi Sitaram ...
2003 Latest Caselaw 940 Bom

JUDGMENT

S. T. Kharche, J.

1. In both these Second Appeal common questions of law are involved, and therefore, both the appeals are being disposed of by this common judgment.

2.The plaintiff is a businessman carrying the business of bankers and brokers and he accepts the cheques from businessman and pays them in cash. The defendant nos. 1 and 2 are the businessmen and the defendant no.3 is a munim to defendant no.2. On 9th November, 1978 the defendant no.3 brought cheque of Rs. 4510/- issued by the defendant no.1 in favour of defendant no.2 and obtained the amount of Rs. 4510/- by endorsing the cheque on its back in favour of the plaintiff. The defendant no.3 used to encash the cheque in this way previously also. This cheque was presented on 09.11.1978, by the plaintiff, but it was returned with an endorsement "refer to drawer". The fact of dishonour of cheque was informed by the plaintiff to the defendant nos. 1 and 2, and on their request it was again presented to the Bank on 24.03.1979, but it was again returned for the same reason. The defendant no.3 allowed the commission of Rs. 2.30 to the plaintiff on the date of accepting the payment, but the plaintiff did not receive the payment of the said cheque together with interest inspite of notice dated 19.10.1981 served on the defendant, and ultimately the plaintiff was compelled to file suit for recovery of amount of Rs. 6995/- with interest and cost, together with notice charges.

3.The defendant combated the claim of the plaintiff by filing written statement. However, the defendant no.1 admitted that cheque for Rs. 4510/- was issued by him in favour of the defendant no.2 and it was endorsed by the defendant no.3 in favour of the plaintiff. He further contended that he never assured the plaintiff regarding payment of the cheque. He contended that there is no privity of contract between him and the plaintiff, and therefore, he is not responsible for payment to the plaintiff. The defendant no.1 further contended that, the cheque was issued against the price of the delivery of some goods from the defendant no.2, and on failure by the defendant of making delivery of the goods the cheque was not accepted, and it was dishonoured.

4.The defendant no.2 did not appear in the trial, and the suit proceeded ex-parte against him.

5.The defendant no.3 admitted that he had carried the cheque to the plaintiff and endorsed it for defendant no.2 in favour of the plaintiff, and contended that he is personally not liable to pay the amount for the endorsement put by him on the reverse of the cheque, negotiating the cheque in favour of the plaintiff.

6.The trial court on appreciation of the evidence adduced by both the parties, had decreed the suit and directed the defendant nos. 1 and 2 to pay Rs. 6995/- with interest at the rate of 18% p.a. to the plaintiff and dismissed the suit against defendant no.3. The Appellate Court found that the rate of interest for which the decree has been granted directing the defendant nos. 1 and 2 to pay interest @ 18% p.a. was quite exorbitant and hence the Appellate Court was of the view that the plaintiff would be entitled to recover interest @ 6% p.a. This finding has been challenged by the plaintiff in Second Appeal No.71 of 1988.

7.Further the Appellate Court has also recorded the finding that the plaintiff was a holder in due course, on considering the various provisions of Negotiable Instrument Act and consequently granted decree in favour of the plaintiff for the amount of Rs. 4510/with interest @ 6% p.a. by allowing the appeal partly. This finding has been challenged by the defendant no.1 in Second Appeal No. 224 of 1988.

8.Mr. Lambat, the learned Counsel for the plaintiff vehemently argued that there was no reason for the Appellate Court to reduce the rate of interest @ 6%. He contended that the transaction between the parties was a commercial transaction and the parties are businessmen, and therefore, the Appellate Court ought not to have interfered into the finding recorded by the trial court regarding grant of interest @ 18% p.a. and therefore, according to Mr. Lambat, the finding of the Appellate Court is not sustainable in law. He contended that the substantial question of law arises for consideration is whether in a commercial transaction when the cheque is dishonoured, whether grant of interest at the rate of 6% p.a. is proper.

9.Mr. Daga, the learned Counsel for the defendant no.1 vehemently argued that there was no privity of contract between the defendant no.1 and the plaintiff. According to him the plaintiff was not the holder in due course, and therefore, no liability can be fasten against the defendant no.1. He contended that the concurrent findings of both the courts that the defendant no.1 is liable to pay the amount of the cheque is contrary to the provisions of law, and cannot be sustained in law. He further contended that the transactions between the defendant nos. 1 and 2 was in the nature of money lending, therefore, the suit ought to have been dismissed by both the courts. He further contended that the substantial question of law for consideration is whether the plaintiff can be said to be the holder in due course of the cheque which was drawn by defendant no.1, in favour of defendant no.2, endorsed in favour of plaintiff, by defendant no.3, without having express authority from defendant no.2.

10.I have given thoughtful consideration to the contentions canvassed by the learned Counsel for the parties. It is not in dispute that the defendant no.1 issued cheque in favour of the defendant no.2, and the latter was the holder of the cheque, and defendant no.1 was the maker or drawer of the cheque. The cheque was endorsed by defendant no.3 who was acting as a agent or munim of defendant no.2 in favour of the plaintiff. The plaintiff tried to encash the amount of cheque by presenting it to the Bank twice, but it was returned with the endorsement "refer to drawer", and consequently the cheque has been dishonoured. It is not in dispute that the cheque was drawn by the defendant no.1 for an amount of Rs.4510/- on 09.11.1978 and the said cheque was dishonoured on 09.11.1978 and 24.03.1979. The trial court granted interest @ 18% p.a. whereas the Appellate Court reduced it from 18% to 6% p.a. and the relevant observations of the Appellate Court would show that there was no satisfactory evidence regarding the prevailing market rate of interest.

11.Section 34 of the Code of Civil Procedure lays down that if the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six percent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks, in no agreement in respect of payment of interest. No satisfactory evidence was led to prove the customs. Admittedly the parties were Traders and the transaction was in the nature of negotiable instrument.

12.Section 79 of the Negotiable Instrument Act, 1981 (hereinafter referred to as N.I.Act, for short) lays down that, when interest at a specified rate is expressly made payable, then interest shall be calculated at the rate specified. In the present case such rate of interest was not specified in the instrument i.e. Cheque (Exh.41). So provisions of Section 79 are not attracted, and therefore, the Appellate Court also considered the provisions of Section 80 of the N.I.Act. Section 80 of the N.I.Act, deals with the cases of grant of interest when no rate is specified in the instrument, then the rate on the amount due shall be calculated at the rate of 6% per annum from the date at which the sum ought to have paid by the party charged till realization of the amount due or until such date after the institution of an suit to recover such amount as the court directs. The explanation of this Section lays down that when a party charged is the endorser of the instrument dishonoured by nonpayment, he is liable to pay interest only from the time that he receives notice of the dishonour.

13.So the Appellate Court held that the provisions of Section 80 of the Act are attracted to this case, and held that the plaintiff is entitled to recover interest @ 6% p.a. and nothing more. Therefore, it held that the finding of the Trial court regarding grant of interest @ 18% from the date of issuance of the cheque was liable to be set aside and, accordingly the Appellate Court modified the decree.

14.On close scrutiny it would emerge that the Appellate Court has considered the provisions of law and has arrived at a finding that, the plaintiff would be entitled to recover the amount with interest @ 6% p.a. and this finding cannot be said to be not based on appreciation of evidence. There is no error of law in the observations of the Appellate Court, so far as this point of granting interest @ 6% p.a. is concerned, and therefore, I am of the considered view that no substantial question of law is involved in Second Appeal No. 71 of 1988, which deserves dismissal and is hereby dismissed with no costs.

15.Now so far as Second Appeal No. 224 of 1988 is concerned, Mr. Daga, the learned Counsel vehemently argued that there was no privity of contract between the defendant no.1 and the plaintiff, and consequently the latter was not holder in due course, and therefore, no liability would arise on the part of the defendant no.1.

16.In this context it would appear from the judgment of the Appellate Court that the provisions of Negotiable Instrument Act, 1981 have been considered. It is necessary to reproduce relevant sections of N.I.Act which read thus :

"Sec. 13. "Negotiable Instrument" (1)A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation 1 : A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Explanation 2 : A promissory note, bill of exchange or cheque, is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. Explanation 3 : Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person and not to him or his order, it is nevertheless payable to him or his order at his option.

2.A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees."

"Sec. 15. Endorsement. When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same, and is called the "endorser"."

"Sec. 27. Agency. Every person capable of binding himself or of being bound, as mentioned in section 26, may bind himself or be bound by a duly authorized agent acting in his name. A general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or endorsing bills of exchange so as to bind his principal. An authority to draw bills of exchange does not of itself import and authority to endorse."

17.The fact of issuance of cheque by defendant no.1 for Rs. 4510/- is not in dispute. It is also not in dispute that the said cheque was endorsed by defendant no.3 in favour of the plaintiff, and thereafter the cheque was presented to the Bank for encashment. Hence as per Section 13 of the N.I.Act, the cheque was a negotiable instrument, and as per the explanation 1, there was no prohibition for transfer of the said cheque in favour of the plaintiff. There is no evidence to indicate that there was an intention on the part of the defendant no.1 that it shall not be transferable. Consequently, the cheque which was a negotiable instrument was transferred in favour of the plaintiff. Similarly, it would reveal that the cheque was transferred in favour of the plaintiff by making an endorsement on it, which was signed by the defendant no.3 as per the provision of Section 15 of the N.I.Act, and the defendant no.3 was the endorser of the said cheque. Admittedly, the defendant no.3 was acting as an Munim i.e. agent, and therefore, if the provision of Section 27 of the N.I.Act are read along with Section 15, then it would clearly reveal that the cheque was validly endorsed in favour of the plaintiff. In such circumstances, the contention of Mr. Daga, that there was no privity of contract between the defendant no.1 and the plaintiff is required to be rejected.

14.The Appellate Court has also considered the provisions of Section 118. It may be beneficial to extract sub sections (a), (b) and (g) of Section 118 of N.I.Act :

"Sec. 118. Presumptions as to negotiable instruments of consideration. Until the contrary is proved, the following presumptions shall be made -

(a)of consideration - that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration;

(b)as to date - that every negotiable instrument bearing a date was made or drawn on such date;

(c)....

(d)....

(e)....

(f)....

(g)that holder is a holder in due course - that the holder of a negotiable instrument is a holder in due course; provided that, where the instrument has been contained from its lawful owner, or from any person in lawful custody thereof by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him."

19.The Appellate Court considered the aforesaid provisions of law and has arrived at a conclusion that the plaintiff was the holder in due course of the cheque (Exh.41) and that the presumption can be drawn regarding passing of the consideration mentioned in the cheque from defendant no.1 to defendant no.2 and that this presumption of law has not been rebutted by the defendant no.1. Infact defendant no.2 had chosen not to contest the suit of the plaintiff, and in such circumstances, I am of the considered view that the finding of the Appellate Court is not erroneous and is sustainable in law.

20.Mr. Daga, tried to contend that the transaction of the cheque (Exh.41), was in the nature of money lending and therefore, the trial court was perfectly justified in dismissing the suit of the plaintiff. However, Mr. Daga rightly pointed out that this point of money lending transaction has not been raised in the trial court or before the Appellate Court. In that view of the matter, it is obvious that the said point cannot be allowed to be agitated for the first time in this Second Appeal.

21.No substantial question of law is involved in this appeal and thus, in the result, I do not find any reason to interfere into the findings recorded by the Appellate Court, and consequently, the Second Appeal is also liable to be dismissed and is dismissed, but in the circumstances, without any order as to cost

22.Both the Second Appeals No.71 of 1988 and 224 of 1988 are dismissed, with no order as to cost.