Chodey Sanyasi Rao vs Draksharama Choultry repted. by its Trustees

Ramachandra Rao

The question that arises for consideration in this Second Appeal preferred by the first defendant-appellant is, whether he is liable to pay the suit amount due on a promissory note admittedly executed by him and the defendants 2 and 3 in favour of the plaintiff-respondent Draksharama Choultry represented by its trustees. The plaintiffs'' case is that the defendants 1 to 3 were carrying on business as partners in the name and style of Sri Krishna Vilas Rice Mill, Ramachandrapuram, that they purchased paddy from the plaintiff''s choultry and when accounts were settled, it was found that the defendants became indebted to the plaintiffs to the tune of Rs. 13,000/-, for which they executed the suit promissory note on 26-3-1953 agreeing to repay the same with interest at 6 per cent per annum There were ten endorsements of payments on the promote, the last of which was for Rs. 500/- on 19-1-1966 Deducting the aforesaid amounts, the suit was laid for recovery of a sum of Rs. 5,666. 25 P.

The first defendant filed a written statement admitting the execution of the promissory note but denying that he was a partner along with the other defendants of Sri Krishna Vilas Rice Mill or that there was purchase of paddy or settlement of accounts. He raised a plea that the pronote was executed by the three defendants in their individual capacity and it had nothing to do with the partnership business.

The defendants 2 and 3 admitted the execution of the pronote as well as the pureness of paddy on behalf of the firm. They contended that they were carrying on business under the name and style of Sri Krishna Vilas Rice Mill contractors Chodey Sanyasirao and others. They rested the pleas, that they wore so me partners of the firm who were necessary parties to the suit and that the suit was hatred by limitation.

On the aforesaid pleadings, the learned District Munsif framed the following issues:--

i) Whether he defendants are the partners of Sri Krishna Vilas Rice Mill ?

2) Whether the suit pronote was scented by I he defendant as partners of Sri Krishna Vilas Rice Mill after the settlement of accounts and was not executed in their individual capacity?

3) Whether the payments made under the suit pronote by the defendants 2 and 3 are true and if so whether the defendants 2 and 3 have got right, authority i.e., capacity to make or to endorse the said payments on be ha if of the first defendant and bind the 1st defendant ?

4) Whether the suit pronote is barred by limitation against any defendant?

5) Whether the defendants are entitled to the benefits of Act IV of 1938?

6) To what relief?

On issue No. I it was found that the defendants were partners of Sri Krishna Vilas Rice Mill Contractors Chodey Sanyasirao and others but not Sri Krishna Vilas Rice Mill. On Issue No. 2 it was found that the suit promissory not was executed by the defendants partner Sri Krishna Vilas Rice Mill contractors Chodey Sanyasirao and other, after settlement of accounts and that it was not executed in their individual capacity. The learned District Munsif found on issue No. 3, that the endorsements of payments were true, that the defendants 2 and 3 had authority to make the endorsements of payments, and that they were binding on the first defendant. On issue No. 4, he found that the suit was not barred by limitation. As the defendant''s firm was an income tax assessee, the claim for relief under Act. No. IV of 1938 was negatived. On those findings, the suit was decreed against all the defendants with costs.

Only the first defendant preferred an appeal in A. S. No. 31/1972 to the court of the District Judge, East Godavary, Rajahmundry, and the learned Judge framed the following points for consideration:

1) Whether the defendants executed the suit promissory note as partners of Sri Krishna Vilas Rice Mill or in their individual capacity?

2) Whether the 1st defendant (appellant) is only a surety for the defendants 2 and 3 and thus is not liable under the suit promissory note? If not, whether the suit is in time?

3) Whether the suit as framed is in correct form?

(4) Whether defendant are entitled to the benefits of Act IV of 1938?

The learned District Judge confirmed the findings of the District Munsif, that the suit promissory note was executed by the defendants as partners of Sri Krishna Vilas Rice Mill and not in their individual capacity, that the first defendant did not execute the promissory note as surety for the defendants 2 and 3, that the endorsements of payments made by the defendant 2 and 3 were binding on the first defendant, that the suit was not barred by limitation, that the suit as framed was proper and that the defendants were not entitled to claim the benefit of Act IV of 1936, and accordingly dismissed the appeal with costs.

In this second appeal, Sri M. Jagannadha Rao, learned counsel for the appellant 1st defendant contended that the first defendant did not execute the suit promissory note as a partner of the firm but only in his individual capacity, that the endorsements of payments made by the defendants 2 and 3 would not bind the first defendant, that ex-facie the Promissory note does not disclose that the first defendant executed the suit promissory note as a partner and that oral evidence is inadmissible to prove that the 1st defendant executed the promissory note as a partner.

Sri MSK Sastry, learned counsel for the respondents on the other hand contended that the first defendant was also an executants of the promissory note, and that it is open to the plaintiff to establish that the 1st defendant executed the promissory note as a partner and not in his individual capacity.

The concurrent findings of both the courts below are that the suit amount was borrowed by the three defendants as partners of Sri. Krishna Vilas Rice Mill contractors Chodey Sanyasirao & others, that the endorsements of payments were true, and that the plea of the first defendant that he executed the suit pronote as a surety of the defendants 2 and 3 was not true.

The only question for consideration is whether the endorsement of payments made by the defendants 2 and 3 would be binding on the first defendant. The endorsements of payments would bind the first defendant only if it is established that the defendants 2 and 3 had the authority to make the endorsements on behalf of the first defendant. The plaintiff''s contentions are that the defendants 2 and 3 had the authority to make the endorsements of payments, as all the defendants 1 to 3 were partners of the firm, that the money was borrowed for the partnership business and the suit promissory note was executed by all the defendants for the amount found to be due to the plaintiff on settlement of accounts, that the defendants 2 and 3 being partners of the firm of which the first defendant also a partner and the suit debt having been incurred in the course of the business carried on by the firm, the defendants 2 and 3 had the requisite authority as partners to make the payments and bind the first defendant.

In Veeranna Vs. Veerabhadra Swamy ILR 41 madras P. 427 a Full Bench of the Madras High Court held that "direct evidence that one of several partners or co-contractors had authority to acknowledge liability or make payments so as to save limitation as against his partners or co-contractors is not necessary, but such authority can be inferred from surrounding circumstances such as the position of other co-contractors or Partners".

In that case, the plaintiff advanced money to the defendants 1 and 2 (father and son) to purchase timber on their own account and to forward the same to the plaintiff. There were several periodical settlements of accounts and acknowledgements of liability by both the defendants upto the year 1910. In the year 1913, the first defendant alone settled account and executed a promissory note for the balance found due and also gave a letter to the plaintiff acknowledging the joint liability of himself and his son. The plaintiff then filed the suit for recovery of the amount due on the promissory note.

The second defendant contended that he had no connection on with the timber business, that his father had no authority to acknowledge liability on his behalf, that the settlement, acknowledgment of liability and the promissory note signed by his father were not binding on him. The learned Subordinate Judge held that the timber business was an ancestral family trade of both the defendants, that both of them were liable to pay the plaintiff the suit amount from out of their ancestral property, and that the first defendant alone and not the 2nd defendant was personality liable for the claim as the 2nd defendant was not a party to the settlement, promissory note and the letters of acknowledgment given to the plaintiff by the first defendant. On appeal to the High Court, the following question was referred to a Full Bench:--

Whether in the absence of direct evidence that a co-contractor or partner has authorised his co-contractor or partner to make acknowledgments or payments saving limitation on his behalf such authority can be inferred from other circumstances such as the position of the other co-contractors or partners in the business.

The Full Bench answered the question in the affirmative.

In Manikyam Vs. Achayya 1968 II ALT 321 the facts are us follows: The suit was filed to recover the balance of the amount due on a promissory note executed by the 2nd defendant in favour of the plaintiff. The suit promissory note was in renewal of two earlier promissory notes. The first attendant was a firm in which the defendants 2, 4 and 8 were partners and the other defendants were the sons of the partners. The District Judge held that the suit was not maintainable in against any of the defendants other than the 2nd defendant who executed the suit promissory note; and accordingly decreed the suit against the 2nd defendant.

On appeal, Umamsheshwaram, J., held that the suit was based not merely on the promissory note but also on the original cause of action viz., the amounts lent under the earlier promissory notes, that the partnership account showed that the accounts was entered is having been dent to the partnership and there was also evidence of the plaintiff that the amount was lent to the partnership and there fore the other partners were liable to repay the suit a mount. The suit was however remanded for determining the issue, whether the suit based on the original debt or cause of action was not barred by limitation Chandrasekhara Sastiy, J., held that it was clear from the judgement of Umamsheshwaram, J., that on the question of limitation the learned Judge was clearly of the view that the debt was a debt of the partnership that the partners would be liable to re-pay if the claim was in time. Accordingly the learned Judge repelled the continence, of the learned counsel for the appellant that the debt was only a personal debt of the 2nd defendant.

Another contention was raised on behalf of the appellant that the 2nd defendant was not authorised to make the payment on behalf of the firm or to make the acknowledgments so as to keep the debt alive. It was contended that there was nothing to show that the 2nd defendant made the payments on behalf of the firm and therefore the firm would not be bound by the payments or acknowledgments made by the 2nd defendant. The learned Judge repelled the aforesaid contention in the following words :--

In effect what Mr. Krishna Murtay, wants me to hold is that even for the purpose of deciding whether an acknowledgment or a payment made by a partner binds the firm, the payment or acknowledgment must be expressly made on behalf of the firm and that otherwise the firm would not be bound. Virtually the learned counsel invites me to apply the law relating to negotiable instruments to payments and acknowledgments also. I do not see that there is any warrant for such a view. Sections 19 and 20 of the Indian Limitation Act, 1908 require that the payments or acknowledgments shall be made by the person liable to pay or by a person duly authorised by him in that behalf. The Sections do not require that the payments or acknowledgments must be expressly made on behalf of the firm. It is enough that the person making the payments or acknowledgments should be the person duly authorised in that behalf by the person liable to pay.

The learned Judge then considered the evidence on record and came to the conclusion in agreement with the learned District Judge that it was only pursuant to the authority conferred on him by the deed of partnership that the 2nd defendant borrowed the amounts and was making payments, that is, impliedly on behalf of the firm, and there was sufficient material on record to hold that the 2nd defendant acted on behalf of the firm and that the payment gave a fresh start to the point of limitation and that the suit was in time.

The aforesaid ruling directly applies to the facts of the present case.

In the instance case also, it is found by both the courts below that the defendants 1 to 3 were partners of firm, that the suit promissory note was executed for the amount found due on settlement of accounts that the suit amount was borrowed for the partnership business, that the defendants 2 and 3 being partners of the firm, were empowered to make payments or acknowledgments, and that the payments or acknowledgments made by them would also bind the first defendant who was a partner of the firm.

Sri Jagannadha Rao, relies upon a ruling of this court In Ratan Lal and Another Vs. Commercial and Industrial Bank Ltd. and Others, . In that case, alter referring to the provisions of Section 21 (2) of the Limitation Act, it was observed as follows:--

From this it is clear that one of several joint contractors like first defendant in the present case cannot keep the debt alive and subsisting against the other joint debtors by reason only of a written acknowledgment signed or a payment made by himself. What is further necessary for the plaintiff to prove is that the 1st defendant was the agent of the other defendants duly authorised by them to acknowledge the liability or to make the payment on account of the debt and acknowledge the payment in writing signed by him.

These observations do not support the contention of the learned counsel for the appellant. On the other hand, they support the view that even though on acknowledgement is signed or a payment Is made by one of joint debtors, it could be established by other evidence that the acknowledgement or payment was made on behalf of the other joint debtors.

24 Soma Ramanujulu Vs. Soma Narasimhulu and Others, does not also hold the appellant. In that case, two members (not kartas) of two Joint Hindu families, who were conducting a partnership business, executed a promissory note which did not show ex-facie that it was either for the partnership or for the benefit of the two joint families, the other members of the joint families were sought to be made liable under the suit promissory note. It was held by the learned Judges that it was only the maker of a negotiable instrument that could be made liable and that if others were sought to be made liable, there must be some indication to that effect in the body of the promissory note, though they had not signed the promissory note. In that case, the persons who were not executants of the promissory note were sought to be made liable, whereas in the present case, the first defendant is an executant of the suit promissory note and admittedly he would be libable to pay the amount due under the promissory note provided it is established that the endorsements of payments were shown to have been made by the other defendants as partners of the firm of which the first defendant was also a partner.

B. V Suryanarayana Raja Vs M. Apparao 1969 (2) An. WR 104 does not help the case of the appellant as in that case, the first defendert who was not the executant of the pronote was sought to be made liable on the ground that the executant of the pronote was the agent of the first defendant. In that case, the learned Judges held that the executant of the promissory note was not an agent of the first defendant, that the promissory note Itself did not show that it was executed by the executant in his capacity as an agent and that the surrounding circumstances could not be looked into for deciding whether the maker of the promissory note had executed is as an agent of another. In that case, the question whether an endorsement of payment or an acknowledgment made by a joint debtor would bind the other debtors or not, did not arise for consideration.

In the instant case, the first defendant was admittedly an executant of the promissory note along with the defendants 2 and 3 and therefore he would be jointly and severally liable for the amount due under the suit promissory note. The first defendant, seeks to escape the liability solely on the ground that the endorsements of payments made by the defendants 2 and 3 would not bind him and that the suit would file barred by limitation as against him. It was found, that the defendants 1 to 3 were partners of the firm business and that the borrowal of the amount was for the partnership business and that the defendants 2 and 3 had the requisite authority as partners of the firm to make payments or acknowledgments and they would bind the first defendant. Therefore the acknowledgment made by the defendants 2 and 3 would bind the fist defendant. If so, it is not disputed that the suit would be within time against the first defendant. In the result, the second appeal fails and is dismissed with cost.