JUDGMENT
P.S. Narayana, J.
1. These three appeals, no doubt, arise out of the different judgments made in O.S. No. 20 of 1984, O.S. No. 35 of 1984 and O.S. No. 32 of 1984 on the file of the Subordinate Judge, Nizamabad. The plaintiffs in all the above suits are the appellants and aggrieved by the judgments and decrees made in the said suits, negativing the relief as against defendant Nos. 3 to 5 in O.S. No. 20 of 1984; and defendant Nos. 4 to 7 in other suits i.e., O.S. No. 35 of 1984 and O.S. No. 32 of 1984, respeetively. These appeals are filed. The 3rd defendant in O.S. No. 20 of 1984 is shown as 4th defendant in other two suits and the partners of the said firm are impleaded as the other defendants, referred to supra, and the relief was negatived as against these defendants and aggrieved by the same, sinee the appellant-plaintiffs only had succeeded partly the present appeals are preferred praying for a decree as prayed for as against the rest of the defendants also.
2. The facts, in brief, as narrated in the respective pleadings of the parties are as referred to hereunder:
A.S. No. 1171 of 1989
The appellant-plaintiff filed a suit in O.S. No. 2 of 1984 on the file of the Subordinate Judge, Nizamabad, for recovery of Rs. 1,25,000/- with interest thereon, defendant No. 3-firm of Amruthlal and Company purchased turmeric on 6.2.1984 from M/s. Gopal and Company, the 1st defendant in the suit and towards its price, the defendant No. 3 issued a post-dated cheque bearing the date of 16.2.1984 on 10.2.1984 to the defendant No. 1 and the defendant No. 1 had discounted the cheque with the plaintiff firm on 10.2.1984 and the plaintiff firm paid cash under the cheque to defendant No. 1. On 16.2.1984 the plaintiff sent the cheque for collection to its banker Andhra Bank, at Main Branch Godown Road. Nizamabad and the Bank sent the cheque for clearance to Union Bank of India for payment. But the Bank refused
to pay the amount with the remark that the drawer of the cheque i.e., defendant No. 3 requested the Bank to stop the payment likewise, on 14.2.1984 the defendant No.. 3 purchased turmeric from defendant No. 1 and towards its price issued a cheque with date of. 16.2.1984 for Rs. 25,000/- on Union Bank of India and defendant No. 1 discounted the said cheque with the plaintiff on 14.2.1981 and received cash under the cheque from the plaintiff, and likewise it was refused with a remark that the defendant No. 3 asked to stop payment. It was also pleaded that on 14.2.1984 the defendant No. 1 also executed a promote and agreement in favour of plaintiff admitting the discounting of the cheques with the plaintiff and receiving cash under it. It was also pleaded that all the defendants had colluded with each other to defeat the rights of the creditors and in the said circumstances, the suit was instituted.
3. The first and second defendants in the suit filed written statement pleading that the plaintiff is not a registered firm and that they are not aware of the fact that the cheques were dishonoured and they are not liable to pay the amount and the defendants have received the cash from the plaintiff in lien of the said cheques which were drawn by defendant No. 3 in favour of these defendants, after receiving goods and the copies of the bills under which defendant No. 3 purchased goods also had been supplied to the plaintiff. After making inquiries with defendant Nos. 3 to 5 and having been satisfied about the cheques and their payment, discounted the same and hence they are not liable to pay the amount.
4. Defendant No. 3 had filed a separate written statement pleading that he does not know whether the plaintiff firm is a registered firm or not and it was also pleaded that the allegation that defendant No. 3 purchased turmeric from defendant No. 1 and issued a post-dated cheque for Rs. 1,25,000 towards the sale price is false and it is alleged that defendant No. 1 firm used to obtain post-dated cheques from defendant No. 3 on the promise of supply of commodities and thus the defendant No. 1 had taken post-dated cheques totalling to Rs. 4,00,000/- on the promise of supply of commodities, defendant No. 3 believing defendant No. 1 issued postdated cheques payable on 16.2.1984. But, as the defendant No. 1 failed to supply the goods as promised and the sister concern of defendant No. 1 firm were due of the amount already amounting to Rs. 4,00,000/- towards provisions due, defendant No. 3 instructed the Bank to stop payment of all the cheques issued by them and defendant No. 3 is not aware of the documents executed by defendant No. 1 in favour of the plaintiff. Tt was pleaded that the plaintiff colluded with defendant No. 1 firm with a view to put defendant No. 3 into troubles with a mala fide intention and that there is no privity of contract between defendant No. 3 and the plaintiff.
5. On the strength of the respective pleadings of the parties in O.S. No. 20 of 1984, the
following issues were settled:
1. Whether the plaintiff firm is a registered firm and the person who signed the pleadings is a managing partner of the plaintiff firm, entitled to use on behalf of plaintiff firm?
2. Whether there is a privity of contract between plaintiff and D3 and the plaintiff has cause of action against D3?
3. Whether the plaintiff firm can deai with the cheques transaction under the Banking Regulation Act or RBI Act?
4. Whether D1 or D3 are liable for the cheques discounted by the plaintiff?
5. To what relief?
6. The evidence of PW1, DW1 and DW2 was recorded and Exs. A1 to A9 and Ex. B1 got marked and the Trial Court on appreciation of both oral and documentary evidence had decreed the suit of the appellant-plaintiff with costs for Rs. 1,25,000/- against defendant No. 1 and defendant No. 2 with future interest at 12% per annum till realisation and dismissed the suit with costs as against defendant Nos. 3 to 5
A.S. No. 1399 of 1989
7. The appellant-plaintiff filed O.S. No. 35 of 1984 on the file of the Subordinate Judge, Nizamabad for recovery of Rs. 60,000/- and the averments made in the respective pleadings of the parties are almost similar. However, the 3rd defendant in O.S. No. 20 of 1984 is shown as defendant No. 4 in this suit and defendant Nos. 5 to 7 are the partners of the said firm. The pleadings of the parties in brief are as follows:
It is pleaded in the plaint that defendant No. 4 purchased turmeric, rice and paddy from defendant No. 1 firm and for the price of the same, defendant No. 4 issued two cheques dt. 20.2.1984 tor Rs. 40,000/- and another for Rs. 20,000/- drawn on Union Bank of India and the defendant No. 1 discounted the said cheques on 15.2.1984 and the plaintiff paid the cash under the cheques on the same day and defendant No. 1 firm acknowledged the receipt of the same by signing in the cash book and even on the earlier occasion defendant No. 1 discounted the cheques which were honoured and the appellant-plaintiff had sent these two cheques to Union Bank of India on 20.2.1984, but the payment was refused under a memorandum that defendant No. 4, the drawer of the cheques, had stopped the payment and after pleading all other details, it was also pleaded that defendant No. 4 the drawer of the cheques, had stopped the payment and after pleading all other details, it was also pleaded that defendant No. 4 firm had colluded with defendant No. 1 with a view to put the creditors into trouble and it was also pleaded that the appellant-plaintiff had issued a notice on 23 2.1984 to defendant Nos. 1 and 4, and defendant No. 4 received and gave a reply on 27.2.1984 with false allegations.
8. Defendant Nos. 2 and 3 filed written statement taking the plea that the plaintiff firm is not a registered firm, but however, admitted the contents in paragraph Nos. 2 to 4 of the plaint. It was also pleaded that defendant No. 4 firm, in fact, purchased the agricultural goods from defendant No. 1, after obtaining delivery of the goods, issued cheques for payment of rice and hence it is not true that defendant No. 4 issued a cheque on the promise of defendant No. 1 to supply the commodities and a specific stand was taken that these cheques are supported by consideration.
9. The 1st defendant had adopted the written statement of defendant Nos. 2 and 3.
10. Defendant No. 1 filed a separate written statement taking a stand that the plaintiff firm is not a registered firm and it was further pleaded that the 1st defendant and its sister-concern had business transactions with the defendant No. 4 and the defendant No. 1 used to obtain post-dated cheques from defendant No. 4 on the promise to supply agricultural commodities and thus defendant No. 1 firm had obtained post-dated cheque for Rs. 60,000/- from defendant No. 4 firm. But, however, defendant No. 1 failed to supply the commodities as defendant No. 1 and its sister concern were already due to the tune of Rs. 4,00,000/- and hence defendant No. 4 instructed the Union Bank on 16.2.1984 to stop payment to defendant No. 1 under the cheques issued by them and that the plaintiff purchased post-dated cheques on 15.2.1984 from defendant No. 1 is false and incorrect and even otherwise, he was not authorised to purchase the post dated cheques and he is not entitled to deal with the post-dated
cheques and it was also denied that the plaintiff requested defendant No. 4 and its partners to pay the cheque amount and that there is no privity of contract between the plaintiff and defendant No. 4 and that the defendant No. 1 and the plaintiff had colluded with each other to put these defendants into trouble.
11. Defendant Nos. 5 to 7 adopted the written statement filed by defendant No. 4.
12. The following issues were settled at paragraph No. 7 of the judgment:
1. Whether the plaintiff is entitled to recover the suit amount from the defendants?
2. Whether there is privity of contract between the D4 firm and plaintiff firm, and the D4 firm is liable for the suit amount?
3. Whether the plaintiff firm having necessary licence from RBI, for dealing with the cheques transaction and if so, what is its effect?
4. Whether the suit is bad for mis-joinder of parties as contended by D4 to 7?
5. Whether the plaintiff is not having the money lending licence as contended by D4 to 7, if so, what is its effect?
6. To what relief?
13. The plaintiff in the suit was examined as PW1 and Exs. A1 to A8 were marked and DWs 1 and 2 were examined and Ex. B1 was marked. On appreciation of oral and documentary evidence, the Trial Court had decreed the suit of the appellant/plaintiff with costs for Rs. 60,000/- with future interest at 12% per annum till the date of realisation against defendant Nos. 1 and 3 in the suit and the suit as against defendant Nos. 4 to 7 was dismissed with costs.
A.S. 1475 of 1989
14. The appellant-plaintiff in the suit filed the suit in O.S. No. 32 of 1984 on the file of the Subordinate Judge’s Court, Nizamabad for recovery of Rs. 50,000/- with interest thereon and the facts are almost similar. It was pleaded that the plaintiff is a registered firm doing the business as Commission Agent and General Merchants and defendant Nos. 1 and 4 firms also are doing the same business and they are also registered firms and defendant Nos. 2 and 3 are the partners of 1st defendant firm and defendant Nos. 5 and 7 are the partners of defendant Nos. 4 firm. Defendant No. 4 purchased turmeric, rice and paddy from defendant No. 1 firm and for the price of the same, defendant No. 4 had issued two cheques dated 16.2.1984 for Rs. 25,000/- each drawn on Union Bank of India and defendant No. 1 discounted the said cheques on 10.2.1984 and the plaintiff paid cash under the cheques on the same day and the defendant No. 1 firm acknowledged the receipt of the same by signing the cash book and even on the earlier occasion, defendant No. 1 discounted the cheques which were honoured and the plaintiff had sent the two cheques to Union Bank of India on 16.2.1984, but the payment was refused with a memorandum that defendant No. 4, the drawer of the cheques, had stopped the payment and the plaintiff orally informed defendant Nos. 4 to 7 about the discounting of the cheques by defendant No. 1 with the plaintiff firm and also informed about dishonouring of the said cheques and requested defendant Nos. 4 to 7 to pay the amount and they informed the plaintiff that they will arrange the payment shortly and that they came to know that defendant No. 4 firm issued several cheques in favour of defendant No. 1 who in turn discounted with the various parties and the defendant No. 1 firm had countermanded of the cheques and that the defendants colluded with each other in order to put the creditors into
trouble. Several other allegations also had been made and ultimately the exchange of notices dated 23.2.1984 and 27.2.1984 also had been pleaded.
15. Defendant Nos. 2 and 3 filed a written statement and defendant No. 1 adopted the, same. A specific stand was taken that the plaintiff firm is not a registered firm. But, however, it was stated that the 1st defendant had supplied commodities to defendant No. 4 and the cheques are supported by consideration. These defendants also admitted that they had discounted the cheques issued by defendant Nos. 4 to 7 with the plaintiff, but however, stated that they are not liable to pay the said amounts since they have received the cheques for consideration of price of the goods supplied by them.
16. The 4th defendant filed a written statement denying all the allegations. It was pleaded that the 1st defendant and its sister concern had business transactions with defendant No. 4 and defendant No. 1 used to obtain post-dated cheques from defendant No. 4 on the promise of supply of agricultural commodities and thus defendant No. 1 firm had obtained issue of post-dated cheques for Rs. 5,000/- on 16.2.1984. But, inasmuch as the 1st defendant failed to supply the commodities and defendant No. 1 and its sister concern had been already due to the tune of Rs. 4,00,000/-, defendant No. 4 instructed the Union Bank of India on 16.2.1984 to stop payment to defendant No. 1 under the cheques issued by them and that the plaintiff purchased the post-dated cheques on 10.2.1984 is false and incorrect and even otherwise, he was not authorised to purchase the post-dated cheques and he was not entitled to deal with the post-dated cheques and this action was taken only because of non-supply of commodities by the 1st defendant firm and the 1st defendant and plaintiff colluded with each other and filed the present suit.
17. The defendant Nos. 5 to 7 adopted the written statement filed by the 4th defendant.
18. On the respective pleadings of the parties, the following issues had been framed.
1. Whether the plaintiff is entitled to recover the suit amount from the defendants?
2. Whether there is privity of contract between the D4 firm and the plaintiff firm, and the defendant No. 4 firm is liable for the suit amount?
3. Whether the plaintiff firm having necessary licences from the RBI for dealing with the cheque transaction and, if so, what is its effect?
4. Whether the suit is bad for mis-joinder of parties as contended by the defendants 1 to 7?
5. Whether the plaintiff is not having the money lending licence as contended fey the defendants 4 to 7, if so, what is its effect?
6. To what relief?
19. The plaintiff was examined as PW1 and Exs. A1 to A8 were marked and DWs 1 and 2 were examined and Ex. B1 was marked on behalf of the defendants. On appreciation of the oral and documentary evidence, the Trial Court decreed the suit with costs for Rs. 50,000/ – with future interest at 12% per annum till the date of realisation against defendant Nos. 1 to 3 only, and the suit against defendant Nos. 4 to 7 was dismissed with costs.
20. As already stated supra, aggrieved by the said judgments and decrees, negativing the relief as against certain of the defendants, the appellant-plaintiffs in the respective suits specified above, had preferred the present appeals and since except for certain minor factual
variations inasmuch as the facts in all these cases and also the questions of law involved in all these matters being one and the same, all these matters are being disposed of by his common judgment.
21. Mr. P.S. Murthy, the learned Counsel representing the appellant-plaintiffs in all these appeals, had contended that though the plaintiff firms are different, the defendants are almost the same, especially the contesting defendant is the 3rd defendant in O.S. No. 20 of 1984 and 4th defendant in O.S. No. 35 of 1984 and O.S. No. 32 of 1984 and the other defendants are the partners of the said firm. The learned Counsel submitted that for the purpose of convenience the parties can be referred to as arrayed in the suits. The learned Counsel also further contended that the stand taken by the contesting defendant, the 3rd defendant in O.S. No. 20 of 1984 and 4th defendant in O.S. No. 35 of 1984 and O.S. No. 32 of 1984 and the other partners of the said firm, is to the effect that the 1st defendant had not supplied the goods to the 3rd defendant. The learned Counsel also submitted that the stand taken by the said contesting defendant, hereinafter referred to as M/s. Amruthlal and Company, for the purpose of convenience, is that since there was no consideration for issuance of the cheques, an intimation was sent not to make payments, and the further stand taken by the said firm is that the appellant-plaintiffs and the 1st defendant in these suits had colluded for the purpose of putting this defendant in trouble. The learned Counsel would further maintain that the question of privity of contract in a matter of this nature does not arise at all since the issuance of a cheque and the endorsement and recovery of amount on the strength of such Negotiable Instrument, these aspects are governed by the provisions of the Negotiable Instruments Act, 1982 (in short hereinafter referred to as ‘the Act’). The learned Counsel would further maintain that whatever may be the inter se dispute between defendant Nos. 1 and 3 in O.S. No. 20 of 1984 and defendant Nos. 1 and 4 in the other suits i.e. O.S. No. 35 of 1984 and O.S. No. 32 of 1984, the appellant-plaintiffs are not concerned with that and when once the cheques were endorsed in favour of the appellant-plaintiffs for consideration, they being holders in due course, they are entitled to recover the amount automatically and merely because a plea of collusion between the 1st defendant and the plaintiff had been raised by the said M/s. Amruthlal and Company, by that it cannot be said that the burden of proof automatically shifts on the appellant-plaintiffs. The learned Counsel had drawn my attention to Sections 36, 43, and also 118 of the Act, in this regard. The learned Counsel also had drawn my attention to Federal Bank Limited v. P.S. Carves Ltd., AIR 1996 Kerala 5, Jeethmal Ganeshmal Firm v. Haridas, AIR 1949 Assam 6; and Smt. A. Usha Swamy v. Vijaya Pretessed Pro. (P) Ltd., 2002(1) DT (AP) 233. The learned Counsel also had taken me through the evidence of DW2, in particular, in all the suits and had stated that in the light of this evidence, the finding recorded by the Trial Court that because of the non-production of account books, adverse inference has to be drawn, cannot be sustained, it is further contended (hat when the 1st defendant had never denied the passing of consideration, there is no question of proving any fact and even otherwise, as far as passing of consideration is concerned, it will amount to an admitted fact and such an admitted fact need not be proved at all in view of Section 58 of the Indian Evidence Act. The learned Counsel also had drawn my attention to the order passed in C.M.P. No. 6457 of 1989 in A.S. No. 1171 of 1989, dated 20.7.1989 wherein M/s. Amruthlal and Company was permitted to take the amount on giving an undertaking to re-deposit the said amount.
22. Mr. Sridhar Reddy, the learned Counsel representing the contesting respondent-defendants, had strenuously contended that it is a case of clear collusion between the 1st
defendant and the plaintiff-appellants in all these suits and the conduct of the respective pleadings clearly points out the said collusion. The learned Counsel also had further drawn my attention that at no point of time any attempt was made by the appellant-plaintiffs proceeded against the rest of the defendants and had aimed at only as against this defendant i.e., M/s. Amruthlal and Company and this definitely throws any amount of suspicion. The learned Counsel also had submitted that in view of the peculiar facts of the case, the question of applying the principles under Sections 36, 43, 118 of the Act will not arise and even otherwise, the very fact that even the account books were not produced to show that there was consideration clearly goes to show that the transaction is not a bona fide transaction. The learned Counsel had taken me through the written statements filed by the contesting defendant in all the suits and also the evidence of DW2. The learned Counsel also pointed out the findings which had been recorded by the Trial Court relating to the aspect of collection and also relating to the non-discharging the burden of proof. Strong reliance was placed on a decision reported in Kundan Lal v. Custodian, Evacuee Property, AIR 1961 SC 1316 in this regard.
23. Heard both the Counsels and also perused the oral and documentary evidence available on record.
24. The common points which arise for consideration in all these appeals are as follows:
(a) Whether the appellant-plaintiffs are entitled to recover the amounts as prayed for as against M/s. Amruthlal and Company and its partners?
(b) Whether the Trial Court had recorded proper findings and had appreciated Sections 36, 43 and 118 of the Negotiable Instruments Act, in a proper perspective?
(c) If so, to what relief the appellant-plaintiffs are entitled to in these appeals?
25. Points (a) and (b) : Points (a) and (b), for the purpose of convenience, can be discussed together. Except for the variation of certain dates relating to the cheques and the issuance of notices, the facts in all the cases are almost similar. The 3rd defendant and its partners in O.S. No. 20 of 1984, the 4th defendant and partners in O.S. No. 35 of 1984 and O.S. No. 32 of 1984 are the real contesting partners. Though the suits were decreed as against the other defendants, the appellant-plaintiffs are more aggrieved of the dismissal of the suits as against these parties and hence the present appeals are filed. As can be seen from the evidence of PW1 and also DWs 1 and 2, in all these suits the essential facts are not in dispute at all. Exs A4 and A5 in O.S. No. 20 of 1984 are the cheques; Exs A12 and 13 are the endorsements; Ex. A10 is letter dated 1.2.1984 given by 1st defendant to plaintiff that he supplied turmeric to defendant No. 3 and received cheque Ex. A4, Ex. A11 is letter dated 10.2.1984 given by 1st defendant to plaintiff similar to that of Ex. A10 regarding the cheque Ex. A5; Ex. A8 is intimation by the Bank that D3 directed to stop payment relating to Ex. A4: Ex. A9 is intimation by the Bank that D3 directed to stop payment relating to Ex. A5, Exs. A14 and 15 are the notices.
26. Likewise in O.S. No. 35 of 1984, Ex. A2 and A4 are the cheques, Ex. A3 is the Memo issued by the Bank that D4 directed the Bank to stop payment on Ex. A2, Ex A5 is yet another Memo relating to Ex. A4; and Ex. A7 is the notice.
27. Likewise, Exs. A2 and A4 in O.S. No. 32 of 1984 are the cheques Exs. A3 and A5 are the Memos and Ex. A7 is the notice and as already referred to supra, the oral evidence
recorded was that of PW1 and DWs. 1 and 2.
28. Several important facts between the parties are not in dispute at ail. The issuance of cheques and the endorsements made are not at all in dispute. The stand taken by the con testing defendants is that the 1st defendant had not kept up the promise of supply of goods and these cheques are post-dated cheques and merely because the 1st defendant colluded with the plaintiff on the strength of the said cheques, in the absence of any convincing material relating to passing of consideration, the suits cannot be decreed as against these contesting defendants. It is needless to point out that the suits were decreed as against the 1st defendant and its partners. The word Cheque is defined under Section 6 of the Act and the said provision reads as follows :
“A ‘cheque’ is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”
29. Likewise, Section 9 of the Act defines Holder in due course as follows :
“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.”
30. In Law of Negotiable Instruments and Dishonour of Cheques by me at page 39, while dealing with the conditions necessary to be a holder in due course, I had stated as follows:
Under Section 9 in order to be a holder in due course three conditions are necessary-
(1) that the endorsee becomes the holder in due course when it is for consideration.
(2) he can be a endorsee before the amount mentioned in the promissory note became payable and
(3) without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
31. Section 36 of the Act dealing with the liability of prior parties to holder in due course says that every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.
32. Section 43 of the Act reads as follows :
Negotiable instrument made, etc. without consideration : A negotiable instrument made, drawn, accepted, endorsed, or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without endorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.
33. A casual reading of these provisions clearly reveals the protection to a holder in due course. It is no doubt true that the stand taken by the contesting defendant firm is that the 1st defendant had not supplied the goods at all on the strength of the post-dated cheques and there is no consideration and further there is collusion between the 1st defendant and the plaintiffs in thinking all these litigations as against this party. Closing words of Section 43 of the Act read “may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.” Here is a case, where the 1st defendant is not denying the passing
of consideration and as far as the 1st defendant is concerned, the said fact is not in dispute at all. The stand taken by M/s. Amruthlal and Company is that there is some collusion in between the 1st defendant and the plaintiffs. Whether by this stand taken by M/s Amruthlal and Company, can it be said that the plaintiffs are not entitled to make M/s. Amruthlal and Company and its partners liable on the strength of the cheques. No doubt, the learned Counsel representing these parties had pointed out that even non-passing of consideration on these endorsements had been pleaded and deposed and in view of the non-production of the Accounts Books, the burden had not been discharged and hence the findings recorded by the Trial Court in this regard are definitely sustainable.
34. In Jethmal Ganeshmal Firm v. Haridas’ case (supra), the brief facts are as hereunder:
“A drew a cheque in favour of B who endorsed it to C for consideration. The cheque was dishonoured on the strength of instructions from A issued on the ground that there was failure of consideration undertaken by B. It was held that the instrument having been transferred the rights of the parties to the instrument were governed by Section 43, C being a holder in due course was entitled to recover the amount of the cheque from A.”
35. In Federal Bank Limited v. P.S. Carves Ltd. (supra) at page-6 it was observed as follows:
“The provision that directly deals with instruments unsupported by consideration is Section 43 of the Act. Avoiding exceptions 1 and 2 which are not relevant in this context, the material portion of Section 43 may be read :
“43. A negotiable instrument made, drawn, accepted, endorsed, or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without endorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.”
The first part of the section provides that where there is initial want of consideration or where there is subsequent failure of consideration for a negotiable instrument, such instrument does not create an obligation for payment as between the parties to the transaction. The expression ‘parties to the transaction’ clearly indicates that the plea of avoidance of the liability is available only to the immediate parties to transaction. The very essence of a negotiable instrument is its negotiability and as is well known there may be one or more assignments of the rights under an instrument. Absence of consideration or failure of consideration could avoid the liability only as between the parties to the particular transaction for which there was no initial consideration or there was a subsequent failure of consideration. That the Legislature never intended to extend such avoidance of obligation to other transactions pertaining to the same instrument is clear from the second part of the provision. The second part lays down that as far as a holder for consideration or a subsequent assignee for consideration are concerned, any one of them can recover the amount due under the instrument not only from his transferor but from any prior party to the instrument. The expression “prior party” is found in other provisions of the Act, like Sections 36 and 38. The
latter part of Section 43 apparently is to safeguard the rights of a holder in due course. Such a positive provision was necessary because Section 36 of the Act provides that every prior party to the negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. Section 36 of the Act, thus, confers a special right on a holder in due course in the matter of realisation of the amounts due under the instrument, he holds. Section 43 has, therefore, to be read in conjunction with Section 36 of the Act. The rights conferred to a holder in due course under Section 36 are not intended to be defeated on the ground that a prior transaction relating to the instrument was had for want of consideration. The latter part of Section 43, thus, is to preserve intact the rights conferred on a holder in due course under the general provision contained in Section 36 of the Act. An analogous position came up for consideration before the Assam High Court in the decision reported in Jethmal Ganeshmal Firm v. Haridas Roy, AIR 1949 Assam 6. In that case it was held that the plaintiff, who was the holder in due course, was entitled to recover the amount not only from the payee, but also from the drawer, even though there was failure of consideration for the transaction between the drawer and the payee. The second respondent made a faint attempt to show that the plaintiff is not a holder in due course. Such a contention has no basis in the pleadings in the case. The pleadings as well as the decisions of the Court below proceeded on the basis that the plaintiff is a holder in due course.
36. Section 118 of the Negotiable Instruments Act dealing with the presumptions as to negotiable instruments of consideration reads as follows:
“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) as to time of acceptance--that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity; (d) as to time of transfer--that every transfer of a negotiable instrument was made before its maturity; (e) as to order of endorsements--that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon; (f) as to stamps--that a lost promissory note, bill of exchange or cheque was duly stamped; (g) that holder is a holder in due course--that the holder of a negotiable instrument is a holder in due course: 37. It is no doubt true that in Kundan Lal's case (supra) it was held that the presumption under Section 118 is rebuttable and the Apex Court while dealing with this aspect held as follows : "(5) This section lays down a special rule of evidence applicable to negotiable instruments. The presumption is one of law and thereunder a Court shall presume,
inter alia, 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 phrase “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 later is not constant but shifts as soon as a party adduces sufficient evidence to raise a presumption in his favour. The evidence required to shift the burden need not necessarily be direct evidence, i.e., oral and 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 Section 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.” Therefore, the burden initially rests on the plaintiff who has to prove 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, therefore, on the plaintiff; but as soon as the execution is proved, Section 118 of the Negotiable Instruments Act imposes a duty on the Court to raise a presumption in his favour that the said instrument was made lor consideration. This presumption shifts the burden of proof in the second sense, that is, the burden 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 against shifts to the plaintiff, and so on. The defendant may also rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise 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 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 unfavourable 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 certainly 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 unfavourable 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 irrebuttable presumptions of law.”
38. On the strength of the ratio laid down in the decision of the Apex Court, a contention was advanced by the learned Counsel for the contesting respondent-defendants, that inasmuch as the burden of proof relating to consideration had not been discharged at all by the appellant-plaintiffs, the appellant-plaintiffs are not entitled to the relief as against these respondents. It is pertinent to note that the cheques were issued by M/s. Amruthlal and Company in favour of the 1st defendant who in turn made an endorsement in favour of the plaintiffs and the 1st defendant had taken a clear stand relating to the passing of consideration by supplying the goods relating to the cheques and also receiving consideration by virtue of the endorsements and hence, as far as the plaintiff-appellants in these appeals are concerned, nothing more to be proved in view of the presumption available in favour of passing of consideration under Section 118 of the Act. It is not the case where the 1st defendant had denied the passing of consideration and as a holder in due course, the appellant-plaintiffs are not entitled to the inter se dispute between the 1st defendant and M/s. Amruthlal and Company and if at all M/s, Amruthlal and Company intends to take a stand of non-passing of consideration for non-supply of goods, it is an inter se dispute between those parties. But, as far as the appellant-plaintiffs as holders in due course are concerned, it cannot be said that merely because a stand had been taken by M/s. Amruthlal and Company relating to collusion, the burden of proof shifts inasmuch as the presumption under Section 118 is a rebuttable presumption and hence the facts and the ratio laid down in the decision by the Apex Court are distinguishable since here is a case where the passing of consideration under the endorsements is not a dispute at all and no doubt the stand of M/s. Amruthlal and Company is that the 1st defendant is colluding with the appellant-plaintiffs and as already observed by me M/s. Amruthlal and Company is at liberty to work out the remedies available to the said firm in law as against the 1st defendant, if it is so advised, in this regard. But in view of clear legal position as can be culled out from Sections 36 and 43, Sections 9 and 118 of the Act, this Court has no other go except to arrive an irresistible conclusion that the other defendant i.e., M/s. Amruthlal and Company and partners also are liable to pay the amounts due under the cheques and the findings recorded by the Trial Court in this regard are not only erroneous, but also on mis-appreciation of several provisions of the Act and hence the appellant-plaintiffs, in view of the aforesaid findings, are bound to succeed in all these appeals.
Point (c) : In the light of the findings recorded in detail, relating to points (a) and (h), the appellant-plaintiffs are entitled to the relief prayed for in the appeals and the suits arc decreed as against the other contesting defendant-respondents also i.e., defendant Nos. 3 to 5 in O.S. No. 20 of 1984 and defendant Nos. 4 to 7 in O.S. No. 35 of 1984 and O.S. No. 32 of 1984, with future interest at 12% per annum till the date of realisation as against those defendants also. As far as A.S. No. 1171 of 1989 is concerned, proper steps may be taken relating to redeposit of the amounts. Thus, the appeals are allowed to the extent indicated above. In the facts and circumstances of the case, without costs.