Makalu Impex Pvt. Ltd. vs Mr. Vivek Nagpal on 20 March, 2006

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93
Delhi High Court
Makalu Impex Pvt. Ltd. vs Mr. Vivek Nagpal on 20 March, 2006
Equivalent citations: III (2007) BC 276, 2006 133 CompCas 593 Delhi
Author: S K Kaul
Bench: S K Kaul

JUDGMENT

Sanjay Kishan Kaul, J.

Page 1044

IA No. 11181/2001 (Under Order xxxvII Rule 3(5) CPC)

1. The plaintiff has filed a suit for recovery of Rs. 46,70,470/- under the provisions of Order xxxvII of the Code of Civil Procedure, 1908 (hereinafter referred to as the ‘Code’).

2. The plaintiff is a company incorporated and registered under the Companies Act, 1956. It is the case of the plaintiff that on 09.07.1997 defendant came to the office of Mr. R.C.Kapoor, charted accountant and requested the plaintiff through its Manager Rohit Bahl to advance a sum of Page 1045 Rs. 25 lakh as loan. The plaintiff wanted collateral security and the defendant in view of the same surrendered 1,13,000 shares bearing distinctive numbers from 020082703-020195702 of M/s Padmini Polymers Ltd. The defendant is further stated to have given additional 29,000 shares bearing distinctive numbers from 020195703-020224702 of the same company towards the margin money for performance of the said agreement as prevalent in the market. On surrender of the said shares, the sum of Rs. 25,00,000 was advanced to the defendant and sale confirmation was executed.

3. It is stated that the defendant approached the plaintiff for execution of an agreement for repurchase of both the set of shares on 06.10.1997 and an agreement was executed being the purchase agreement.

4. Simultaneously a cheque dated 06.10.1987 drawn on Punjab National Bank, Okhla Industrial Area, New Delhi for the sum of Rs. 26,23,860/- was handed over to the plaintiff by the defendant towards the principal and the interest accrued thereon.

5. The plaintiff states that as per instructions of defendant this cheque was not to be presented for a period of three months and was presented in the beginning of January, 1998 and was returned on 06.01.1998 for insufficiency of funds. The cheque was again presented on two occasions, but the same was again dishonoured and was last returned on 03.04.1998. The plaintiff has thus filed this suit on 03.01.2001 for the principal along with interest at the rate of 24 per cent per annum.

6. In the leave to defend application, a three-fold plea has been raised. The first plea raised is in respect of limitation. The defendant also claims that there is no written contract and and thus the suit would not be maintainable under the provisions of Order 37 of the Code. On merits, it is stated that the shares have actually not been returned and the cheque had been handed over in good faith. It is also stated that though the plaint refers to two sets of shares, the documents filed do not show the purchase confirmation for the 29,000 shares.

7. Insofar as the plea of the written document is concerned, I find it difficult to accept the same since the transaction is not in question. The sale confirmation and purchase confirmation show the same and the suit is based on the negotiable instrument being the cheque which has been returned for insufficiency of funds. However the plea of the defendant about there being no handing over of the shares as per purchase confirmation has to be examined. Learned counsel for the defendant does not dispute that there is no written communication by the defendant objecting to the same or any legal action taken in respect thereof. The defendant has however filed with the rejoinder certain documents being the transfer deeds showing transfer of shares to Mr. Rohit Bahl.

8. In my considered view, it was the duty of the defendant to have disclosed all the documents relied upon at the stage of filing of the application for leave to defend since the plaintiff can have no opportunity to meet the case set up in the rejoinder. What is however relevant is that there is no document filed in respect of the purchase confirmation regarding 29,000 shares and thus it is not shown as to how those 29,000 shares were returned, if at all.

Page 1046

9. The most material aspect in the present application is the plea of limitation and this arises out of the plea as to whether it is the date put on the negotiable instrument being the cheque which is relevant or the date of presentation of the cheque.

10. Learned counsel for the defendant has referred to various judgments to substantiate the plea that tender of negotiable instrument amounts to conditional payment and thus it is the date of instrument which would be relevant and not the date of presentation. Learned counsel referred to the provisions of Section 19 of the Limitation Act, 1963, which reads as under:

19. Effect of payment on account of debt or of interest on legacy – Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made:

Provided that, save in the case of payment of interest made before the 1st day of January 1928 an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.

Explanation – For the purposes of this section, –

a) where mortgaged land is in the possession of the mortgage, the receipt of the rent or produce of such land shall be deemed to be a payment;

b) ‘debt’ does not include money payable under a decree or order of a court.

11. Learned counsel referred to the judgment of the Division Bench of the Bombay High Court in Chinataman Dhundiraj v. Sadguru Narayan Maharaj Datta Sansthan and Ors. where it was observed in Para 5 as under:

Mr. Banaji on behalf of the plaintiff contends that the learned trial judge was in error in holding that the claim was barred by the law of limitation. Mr. Banaji says that the amount having been borrowed by Shri Narayan Maharaj on 12-7-1939 on his agreeing to repay it in October 1939, by acknowledgments and part payments made by cheques dated 25-9-1942 and 10-11-1944, the suit file don 08-11-1947 must be regarded as within limitation.

We are unable to accept that contention. There is in our view no acknowledgment of liability merely by giving a cheque which is dishonoured, and a cheque which is dishonoured cannot be regarded as part payment within the meaning of Section 20, Limitation Act. Reliance was sought to be placed upon a judgment of the Calcutta High Court in Kedar Nath v. Dinobandhu Saha 1916 Cal 580 AIR (3) (A)

In that case, Sir.Lawrence Jenkins, Chief Justice, delivering the judgment of the court held that if a cheque is delivered to a payee by Page 1047 way of payment and is received as such, it operates as a payment subject to a condition subsequent that if upon due presentation the cheque is not paid, the original debt revives. It was further held that where such a cheque is signed by the debtor and paid in part payment of the principal of a debt, the cheque being subsequently honoured, the proviso to Section 20 of the Limitation Act has been complied with.

It is evident from the judgment in Kedar Nath’s case (A) that a cheque was given part payment, it was received in part-payment and the cheque was honoured; and the Court held in that case that the requirement of the proviso to Section 20, Limitation Act, was complied with. In the present case the cheque was dishonoured and when it was dishonoured, the amount of the cheque cannot be regarded as part payment of the principal.

It is true that when a cheque is delivered to a payee in whole or part satisfaction of a liability and it is accepted the delivery of the cheque and acceptance thereof would be regarded normally as conditional satisfaction of the liability and if the cheque is dishonoured, the original debt which was conditionally satisfied would be deemed to be revived.

By the delivery of the cheque dated 25-9-1942 it may be that the debt due by Narayan Maharaj was conditionally satisfied. But when the cheque was dishonoured, there was a revival of the debt and the suit had to be filed within the normal period of limitation. In our view, the learned trial judge was right in holding that the claim for the amount of Rs 35,000 on the original debt was barred by the law of limitation.

12. Learned counsel thus submits that the aforesaid judgment clearly brings out the principle that in case of a dishonour of a cheque, there would be a revival of the debt and the suit has to be filed within normal period of limitation.

13. Learned counsel also referred to the Judgment of the learned single Judge of the Punjab and Haryana High Court in Northern India Finance Corporation (P) Ltd. v. R.L. Soni to advance the proposition that the payment by cheque will not save limitation under Section 19 of the Limitation Act if the cheque is dishonoured on presentation to the bankers on whom the cheque has been drawn. If the cheque is not honoured, it cannot be said that the amount represented by the cheque has been paid by the drawer to the payee.

14. Learned counsel next referred to the judgment of the Supreme Court in Jiwanlal Achariya v. Rameshwarlal Agarwalla where in para 8 it has been observed as under:

8. this brings us to the question of limitation. The facts are not in dispute now. The promissory note was executed on February 4, 1954. On the same date a post-dated cheque bearing the date February 25, 1954 was given by the defendant-appellant to the plaintiff-respondent, the Page 1048 intention being that on being realised it would be credited towards part payment. It was realised some time after February 25,1954 and was credited towards the part payment, the appellant himself having made an endorsement admitting this part payment. But it is contended on behalf of the appellant that as the post-dated cheque was given on February 4, 1954, that must be held to be the date on which part payment was made. It has been held by the High Court that the acceptance of the post-dated cheque on February 4, 1954 was not an unconditional acceptance. Where a bill or note is given by way of payment, the payment maybe absolute or conditional, the strong presumption being in favor of conditional payment. It followed from the finding of the High Court that the payment was conditional i.e. that the payment will be credited to the person giving the cheque in case the cheque is honoured. In the present case the cheque was realised and the question is what is the date of payment in the circumstances of this case for the purpose of Section 20 of the Limitation Act. Section 20 inter alia lays down that where payment on amount of debt is made before the expiration of the prescribed period by the person liable to pay the debt, a fresh period of limitation shall be computed from the time when the payment was made. Where, therefore, the payment is by cheque and is conditional, the mere delivery of the cheque on a particular date does not mean that the payment was made on that date unless the cheque was accepted as unconditional payment. Where the cheque is not accepted as an unconditional payment, it can only be treated as a conditional payment. In such a case the payment for purposes of Section 20 would be the date on which the cheque would be actually payable at the earliest, assuming that it will be honoured. Thus if in the present case the cheque which was handed over on February 4, 1954 bore the date February 4, 1954 and was honoured when presented to the bank the payment must be held to have have been made on February 4, 1954,namely, the date which the cheque b ore. But if the cheque is post dated as in the present case it is obvious that it could not be paid till February 25, 1954 which was the date it bore. As the payment was conditional it would only be good when the cheque is presented on the date it bears, namely, February 25, 1954 and is honoured. The earliest date, therefore, on which the respondent could have realised the cheque which he had received as conditional payment on February 4, 1954 was the 25th February 1954 if he had presented it on that date and it had been honoured. The fact that he presented it later and was then paid is immaterial for it is the earliest date on which the payment could be made that would be the date where the conditional acceptance of a post-dated cheque becomes actual payment when honoured. We are, therefore, of opinion that as a post-dated cheque was given on February 4, 1954 and it was dated February 25, 1954 and as this was not a case of unconditional acceptance, the payment for the purpose of Section 20 of the Limitation Act could only be on February 25, 1954 when the cheque could have been presented at the earliest for payment. As in the present case the cheque was honoured it must be held that the payment was made on February 25, 1954. It is not in dispute that Page 1049 the proviso to Section 20 is complied with in this case, for the cheque itself is an acknowledgment of the payment in the hand writing of the person giving the cheque. We are, therefore, of the opinion that a fresh period of limitation began on February 25, 1954 which was the date of the post-dated cheque which was eventually honoured.

15. The aforesaid judgment of the Supreme Court establishes that the payment of a cheque is a conditional payment and mere delivery of a cheque on a particular date does not mean that the payment was made on that date unless the cheque was accepted as unconditional payment. Learned counsel has also drawn the attention of this court to the Judgment of the Supreme Court in The Commissioner of Income Tax, Bombay South, Bombay v. Messrs. Ogale Glass Works Ltd. Ogale Wadi where it was observed as under:

When it is said that a payment by negotiable instrument is a conditional payment what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand: Stedman v. Gooch (1793) I Esp. 5. It is said in Benjamin on Sale, 8th Edition, page 788:-

The payment takes effect from the delivery of the bill, but is defeated by the happening of the condition, i.e., non payment at maturity.

16. In Byles on Bills, 20th edition, page 23, the position is summarised pithily as follows:

A cheque, unless dishonoured is payment.

17. To the same effect are the passages to be found in Hart on Banking, 4th Edition, Volume I, page 342. In Felix Hadley & C.V. Hadley L.R. (1891) 2 Ch.D. 680 Byrne J. expressed the same idea in the following passage in his judgment at page 682:

In this case I think what took place amounted to a conditional payment of the debt; the condition being that the cheque or bill should be duly met or honoured at the proper date. If that be the true view, then I think the position is exactly as if an agreement had been expressly made that the bill or cheque should operate as payment unless defeated by dishonour or by not being met; and I think that the agreement is implied from giving and taking the cheques and bills in question.

18. The last judgment referred in this behalf by learned counsel for the defendant is of the Division Bench of this Court in Ashok K. Khurna v. Steelman Industries and Anr. (DB) where it has been observed in Para 10 & 13 as under:

10. In our considered view the Trial Court appears to have misread and misapplied the law laid down by the Supreme Court in Jeewan Lal’s Page 1050 case (supra), which was a case of a post-dated cheque. Supreme Court in that case held that mere delivery of a cheque on a particular date does not mean that the payment was made on that date unless the cheque is not accepted as unconditional payment. It was further observed that when the cheque is not accepted as an unconditional payment it can only be treated as a conditional payment. It was observed:

Thus if in the present case the cheque which was handed over on 4th February, 1954 bore the date February 4, 1954 and was honoured w hen presented to the Bank the payment must be held to have been made on February 4, 1954, namely, the date which the cheque bore.

But if the cheque is post-dated as in the present it is obvious that it could be paid till February 25, 1954 which was the date it bore. As the payment was conditional it would only be good when the cheque is presented on the date it bears, namely, February 25, 1954 and is honoured. The earliest date, therefore, on which the respondent could have realised the cheque which he had received as conditional payment on February 4, 1954 was the 25th February, 1954 if he had presented in on that date and it had been honoured.

The fact that he presented it later and was then paid is immaterial for it is the earliest date on which the payment could be made that would be date where the conditional acceptance of a post-dated cheque becomes actual payment when honoured.

13. In Commissioner of Income Tax’s case (supra), Supreme Court had observed that a sum of money may be received in more ways than one cannot be doubted. It may be received by transfer of coins or currency notes or a negotiable instrument which represents and produces cash and is treated as such in business. It was also observed that in the absence of any agreement, express or implied to the contrary, a payment by a negotiable instrument is always understood to be conditional. It was observed:

When it is said that a payment by negotiable instrument is a conditional payment what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand.

A cheque unless dishonoured, is payment. The payment takes effect from the delivery of the cheque but is defeated by the happening of the condition i.e. non payment at maturity.

19. Learned counsel for the plaintiff on the other hand referred to the judgment of the learned single judge of this Court in DCM Financial Services Ltd v. Sunil Kala & Co. and Anr. . The said case deals with a situation where the debtor himself requested the creditor to postpone the presentation of a cheque and it was held that the same would amount to postponement of Page 1051 payment itself. Learned counsel thus contends that the said judgment would apply to the present case as an averment has been made in the plaint that a request was made by the defendant for postponement of the cheque.

20. Learned counsel referred to the judgment of the Supreme Court in Munoth Investments Ltd v. Puttukola Prperties Ltd. and Anr. . However the said judgment deals with the issue of the limitation period for issuing a notice in case of dishonour of a cheque Section 138(2) of the Negotiable Instruments Act and in my considered view would have no application to the matter in issue in the present case.

21. Learned counsel lastly referred to the judgment of the learned single judge of this Court (as he then was) in Rajesh Kumari v. Prem Chand Jain to advance the proposition that the payment on account of a debt would extend the period of limitation if the cheque is issued by the debtor in part payment of the principal amount. In this behalf, learned counsel has referred to Para 13 of the judgment which reads as under:

I may illustrate. The loan is dated 1-3-81, the Limitation for suit for recovery expires on 1-3-84. On 28-2-84 the debtor delivers a cheque in part payment of principal or in payment of interest duly signed by him. The plaintiff files a suit on 7-3-84 seeking ex tension in limitation relying on payment dated 28-2-84. The suit will be within Limitation though the cheque may bounce during the pendency of the suit. The bouncing of the cheque will not undo the advantage of extension in the period of limitation earned by the plaintiff and his validly instituting the suit on 7-3-84. Thus, dishonoring of the cheque results in not extinguishing the liability of the debtor to the extent of the amount of the cheque; nevertheless the cheque remains an effective payment for the purpose of section 19 of the Limitation Act, 1963.

22. Learned counsel thus contends that if the dates referred to above are taken into consideration, they would show that there was an extension of period of limitation relying on the payment date. However it maybe noticed that this judgment relates to a factual position where the suit was filed and the payment was made during the pendency of the suit.

23. In my considered view the issue of limitation in view of the judgments cited by learned counsel for the defendant does raises an important friable issue in the present case. This is more so since the plea of the learned counsel for the plaintiff is based on an averment in the plaint that the defendant had asked the plaintiff to postpone the date of payment. It is on the said plea that the learned counsel seeks to rely on the judgment of the DCM Financial Services Ltd’ case (supra). A mere averment in this behalf would not suffice and evidence would have to be recorded to substantiate the said plea.

Page 1052

24. In considering the issue of an application for leave to contest and whether it should be granted unconditionally or subject to terms, plausibility of the defense set up by the defendant has to be considered. Reference may be made in this behalf to the Supreme Court in Mechalec Engineers and Manufacturers v. Basic Equipment Corporation . If the aforesaid parameters are applied in the present case, two factors, in my considered view, would entitle the defendant to an unconditional leave to defend the suit. The first is the plea of limitation as discussed above and the second would be the absence of any disclosure by the plaintiff as to what happened to 29,000 shares which were given as security by the defendant. This aspect has also to be examined in view of the allegation of the defendant that the shares were actually appropriated through the representative of the plaintiff, Mr. Rahul Bahl, for satisfaction of the claim of the plaintiff and thus the transfer of the shares and the consideration realised there from is much more than the amount due to the plaintiff.

25. The application is accordingly allowed and the defendant is granted unconditional leave to defend the suit.

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