M. Mahadevan Pillai vs Smt. Vedavalli Ammal

The defendant is the appellant. The suit is on a promissory note dated 19-9-1972 executed by the defendant in favour of the plaintiff for a sum

of Rs. 5000/-According to the plaintiff, the defendant paid a sum of Rs. 1000/- and made an endorsement on 15-3-1975. It is stated in the plaint

that while making the endorsement, the defendant added the words ""for Devi Talkies (P) Ltd'', above his signature and the words ""Managing

Director"" below the same. It is stated that the plaintiff did not notice the mistake immediately and as the endorsement was made by the defendant

himself, he was personally bound. The suit was filed on 15-3-1978.

The defendant stated as follows in the written statement : The defendant was the Managing Director of M/s. Devi Talkies (P) Ltd., which owned

a cinema theatre called Devi Talkies. The previous Managing Director filed a suit against the company and the Board of Directors for an injunction

restraining them from interfering with his management. The suit was dismissed and an appeal met with the same fate. A receiver was in management

during the pendency of the suit and the appeal. There was a second appeal in the High Court and the receiver was continued by interim orders.

The High Court suggested a lease of the theatre. The Directors decided to take the lease in the name of the defendant for the benefit of !he

company and deposited the lease amount of Rs. 13,000/- per annum. The Directors by name Sounderaraja Iyengar and Parthasarathy Iyengar

paid Rs. 5000/- each and a shareholder by name Srinivasan paid Rs. 3000/-. Parthasarathy Iyengar obtained a promissory note from the

defendant for Rs. 5000/- in the name of his wife Rangammal, while Soundararaja lyengar obtained another promissory note in the name of his

daughter, the plaintiff. Thus, the amounts were not borrowed by the defendant for his personal use. No consideration passed under the promissory

notes. After the disposal of the second appeal, the Board of Directors passed a resolution on 25-7-1973 to treat the lessee''s management as

company management from the inception. The payment made towards the promissory note was made by the company and on behalf of the

company. The amount payable to Srinivasan, the share-holder was paid from out of the funds of the company on 5-3-1975. Thus, the company

alone was liable to pay the amount and the defendant could not be made liable in his individual capacity. The defendant was entitled to the benefits

of Debt Relief Legislation of Tamil Nadu. The suit is barred by limitation as the endorsement will not save the suit.

The trial Court held that the defendant obtained the amount under the promissory note in his personal and individual capacity and the

endorsement made by him under Ex. A-2 saved the suit from the bar of limitation. But the trial Court dismissed the suit holding that it was

premature in view of the provisions of Tamil Nadu Act 40 of 1978.

On appeal by plaintiff, the learned District Judge, Tiruchirappalli confirmed the findings of the trial Court as regards the personal liability of the

defendant and the question of limitation. The lower appellate Court held that the suit was not premature and in any event, Tamil Nadu Act 40 of

1978 having expired, relief could be granted to the plaintiff. A plea was raised by the defendant that the entire debt stood wiped out by the

provisions of Tamil Nadu Act 13 of 1980. That plea was negatived by the appellate Judge as he found on facts that the defendant did not satisfy

the definition of debtor'' found in the Act. Consequently, the lower appellate Court granted a decree in favour of the plaintiff as prayed for by her.

In this second appeal it is vehemently argued by learned counsel for the appellant that it is only the company which is liable for the payment of

the amount due under the promissory note and the defendant is in no way responsible therefor. Secondly it is contended that the defendant is

entitled to invoke the benefits of Section 28 of the Negotiable Instruments Act. Thirdly it is argued that the suit is barred by limitation as the

endorsement Ex. A-2 is made on behalf of the company and if the defendant is personally liable for the amount due on the promissory note, the

endorsement will not serve the purpose of an acknowledgment by the defendant and hence the suit is barred. Learned counsel for the appellant did

not argue the other two questions as to whether the suit was premature and the defendant was entitled to the benefits of Tamil Nadu Act 13 of

1980.

On a perusal of the entire evidence on. record, 1 do not find any substance in he arguments of learned counsel for the appellant. Both the Courts

have referred to in detail the various documents filed in the case and come to the conclusion that the defendant is personally liable under the

promissory note. P.W. 1 (wrongly referred to as P.W. 2 by the lower appellate Court in paragraph 13 of its judgment) has deposed categorically

that a sum of Rs. 5000/- was paid by the plaintiff to the defendant. He is an attestor to the promissory note. His evidence has been accepted by

the Courts below. Hence, the contention that no amount was paid by the plaintiff and received by the defendant under the promissory note cannot

be accepted. Reliance is placed by learned counsel for the appellant on Exs. B-1 to B-9 in support of his contention that the company entered the

amounts in its account books and treated the debts as its debis. According to learned counsel, the dccuments prove repayment of the amounts to

the creditors by the company. Ex.B-1 is a promissory note for Rs. 3000/- executed by the defendant in favour of Srinivasan. It is discharged by

payment on 5-8-1975. The endorsement on the back of the promissory note shows that a sum of Rs. 3870/- was paid towards principal and

interest. The endorsement does not show that the amount was paid by the company. The promissory note also does not indicate that the amount

was borrowed by the company. Learned counsel refers to Ex.B-7, a resolution passed by the Board of Directors in their meeting held on 4-3-

1975. The resolution is to the effect that out of the sum of Rs. 16088.57 withdrawn from Court deposit, a sum of Rs. 1390.95 should be paid

towards Municipal tax and the promissory note in favour of Sri B. Srinivasan dated 19-9-1972 should be discharged by payment of principal and

interest in full. Significantly, the recital in the resolution is that the amount was borrowed by M. Mahadevan Pillai (defendant) for the benefit of Devi

Talkies and the recital is not that the amount was borrowed by the company through the defendant. Thus, the Board of Directors while deciding to

pay off the amount due to Srinivasan, did not treat it as a loan taken by the company; but treated it as a loan taken by the defendant for the cinema

theatre and took over the liability. That resolution will not help the defendant to contend that he will not be liable as per the tenor of the promissory

note or that the company was the debtor. The entries in the account books marked as Exs.B-3 and B-4 are sought to be proved by D.W. 2, who

was a part-time accountant in the company. His evidence is not convincing and the suggestion made to him that the entries were made

subsequently by him at the instance of the defendant is probable. But, it is unnecessary to go into that question. Even assuming that the company

had treated it as a liability of its own, that will not bind the creditors as such, unless they were also parties to the arrangement. Excepting the ipse

dixit of the defendant as D.W. 1 there is absolutely nothing on record to show that the plaintiff and the other creditors were parties to the

arrangement. When the positive evidence of P.W. 1 that a sum of Rs. 5000/ - was paid by the plaintiff to the defendant has been accepted, the

case of the defendant that the Directors of the company paid the amount and no consideration passed under the promissory notes falls to ground.

It is also seen from Ex.B-5 that the management of the threatrc was treated as one by the company only by a resolution dated 25-7-1973. On the

date of the promissory note, or on the date of the commencement of the lease, the company was not the lessee. The defendant as an individual was

the lessee. Admittedly, he took the lease as an individual in his name. Ex.A-1 is written entirely by the defendant in his own hand. There is nothing

in the promissory note to indicate that he borrowed on behalf of the company as its Managing Director or agent. The purpose of the loan is

mentioned as one for deposit of lease amount of Devi Talkies Private Limited. That will not in any way help the defendant to contend that he signed

the promissory note only as an agent of the company or in his capacity as Managing Director, The Courts below have considered all the evidence

and come to the conclusion that the defendant is personally liable on the facts of the case. There is no infirmity or error in the discussion or

appreciation of the evidence. I confirm the finding of fact that the defendant did borrow a sum of Rs. 5000/-from the plaintiff under Ex,A-1 and he

is liable personally to repay the same.

Before considering the other two contentions of the defendant, it is necessary to refer to the law on the subject. The basic principle of the

Negotiable Instruments Act is that the parties to the instrument should be held bound by the terms of the instrument. Section 26 of the Act is that

every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing,

acceptance, indorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. Section 27 deals with the case of agency and

provides that every person capable of binding himself or of being bound as mentioned in Section 26, may so bind himself or be bound by a duly

authorized agent acting in his name. It is made clear in the Section that 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. The section also states that an

authority to draw bills of exchange does not of itself import an authority to endorse. Thus, it is clear that if a person acts as an agent, he should

have the specific authority of his principal to bring about a negotiable instrument. Section 28 of the Act reads that ""an agent who signs his name to a

promissory note, bi!! of exchange or cheque wilhoul indicating thereon that he signs as agent, or that he does not intend thereby to incur personal

responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held

liable"". (Underlining mine). Tt has been held in several cases that knowledge of agency to the other party does not free the agent from liability, if he

does not disclose on the instrument that he signed as agent. The principle is that unless the maker has clearly affixed his signature to the instrument

as agent or on account of or on behalf of a principal whose name is disclosed or, unless though he has signed unconditionally he has unequivocally

and clearly disclaimed in some portion of the document his own responsibility and mentions the name of the person really liable, he cannot escape

liability. Section 29 of the Act deals with legal representatives and makes a legal representative of a deceased person who signs his name to a

promissory note, bill of exchange or cheque liable personally thereon unless he expressly limits his liability to the extent of the assets received by

him as such. Section 30 of the Act speaks of the liability of the drawer of a bill of exchange or cheque, in case of dishonour by the drawee or

acceptor thereof to compensate the holder. Section 32 reads that in the absence of a contract to the contrary, the maker of a promissory note and

the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity according to the apparent tenor of the note or

acceptance respectively and the acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand.

In T.R. Narasimma Murthi Sastri brought in place of Ramasami Pillai Vs. A.T.V. Ramasami Chettiar and Another, , a Division Bench of this

Court held that Section 92 of the Indian Evidence Act precludes one of the two joint executants of a primissory note from proving against the

promisee that it was orally agreed between them at the time of the execution of the note that his liability should arise only in the event of the other

executant not paying and that he was to be regarded as a surety, the other executant being the principal. The Bench pointed out that in that respect,

the Indian taw differed from the English as propounded by the English decisions and held that equitable exceptions could not be allowed to the

provisions of Section 92 of the Evidence Act.

A Full Bench of three Judges in P. Govindan Nair Vs. K. Nana Menon, , held that where the Karnavan of a tarwad signed a promissory note in

his own name, though in the body of the note described himself as the Karnavan of the (arwad and the suit is brought on the note and not on the

original cause of action, the tarward property in the hands of the defendants could not be made liable. It was held that the Karnavan was

personally liable.

In National Bank of Upper India Ltd. v. Bansidhar AIR 1929 Privy Council 297, the facts were almost similar. The respondent in that ease

executed in favour of the National Bank of Upper India Limited a promissory note payable on demand for Rs. 20,000/- on 22-12-1917. The

bank was in liquidation and the liquidators filed suit claiming the money due under the note. The defence was that one Bisharnbhar Nath, who was

a director of the Bank had been allowed by the bank''s manager to become indebted in a large sum to the bank and in December 1917, in view of

the approaching half-yearly audit it was stated that the account should he squared in some way so as not to show the director as a debtor to the

bank. The respondent before the Judicial Committee was carrying on business in Lucknow with his brother and he was persuaded to execute the

promissory note in favour of the bank so as to show him as the bank''s debtor for Rs. 20,000/-. The amount was credited in the books of the bank

to Bishambhar, thus wiping out the latter''s liability. No part of the amount came into the hands of the respondent before the Judicial Committee

and apparently he had nothing to gain by the transaction, the plain effect of which was to substitute him as a debtor of the bank for Rs. 20,000/- in

the place of Bishambhar. He contested the suit on the ground that he was not liable on the note as it was agreed that the debt would be discharged

by Bishambhar. The latter admitted that the debt was his. Hence, the plea was that there was no consideration for the promissory note. It was also

contended that the suit was barred by limitation. The bank relied upon certain payments made by Bishambhar for saving limitation. The trial Court

held that there was consideration for the promissory note inasmuch as a sum of Rs. 20,000/- was credited to Bishambhar''s account; but. the suit

was barred by limitation, as no payment was made by the defendant in the suit. On appeal, the High Court held that there was no consideration for

the promissory note and the bank should proceed only against Bishambhar. The High Court also returned a finding that the suit was barred by

limitation. On further appeal to the Privy Council, it was held that the plea that Bishambhar was alone liable was not available to the defendant. The

relevant observations of the Judicial Committee are as follows (at page 298 (of AIR)):--

So far as the representations of Bishambhar and Ram Nath that respondent 1 would not be held liable upon the promissory note are relied upon

as an oral agreement between the parties, they are clearly inadmissible in evidence under S. 92, Evidence Act..... In their Lordships'' opinion the

true legal effect of the transaction is that as between respondent 1 and the bank the promissory note was an effective contract, the credit to

Bishambhar being, as the trial Judge held, a sufficient consideration, but that as between Bishambhar and respondent 1, the former undertook to

discharge the liability to the bank....

Referring to Section 28 of the Negotiable Instruments Act, their Lordships observed thus:

They thought, therefore, that the case came within the exception to S. 28, Negotiable Instruments Act, which provides that where an agent signs

his name to a promissory note without indicating thereon that he signs as agent or that he does not intend thereby to incur personal responsibility,

he is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.

Their Lordships arc unable to take this view of the transaction. Respondent 1''s counsel, at an early stage of the proceedings, formally disclaimed

the theory of agency, which indeed, is negatived by the evidence of both respondent 1 himself and his witness Bishambhar. But, apart from this,

their Lordships are satisfied that the essence of the tripartite arrangement of 22nd December 1917, was to conceal Bishambhar''s indebtedness

from the bank and to make the bank believe that respondent 1 was their debtor for the Rs. 20,000 and interest. Their Lordships cannot doubt that

respondent i lent himself to this scheme fully understanding that its object was the deception of the bank and they think that under these

circumstances it would be impossible for them to hold that he was induced by the bank to believe that he would not be held liable upon his written

contract"".

On the question of limitation, their Lordships held that the payment made by Bishambhar should be treated as payments made on behalf of the

defendant as his agent inasmuch as Bishambhar had agreed to discharge the defendant''s debt due to the bank. The relevant observations are as

follows (at page 299 (of AIR) :--

Upon what they have already held to be the true meaning and effect of the transaction of 22nd December 1917, it was agreed between

Bishambhar and respondent 1 that the former would discharge the latter''s debt to the bank in respect of both principal and interest, and it is clear

from respondent 1''s evidence that he left it to Bishambhar to do so. Under these circumstances, it being admitted that no'' formal authorisation of

the agent is required under this section, their Lordships find no difficulty in implying authority from respondent 1 to Bishambhar to pay the interest

on his behalf as it became due"".

The ruling of the Privy Council will apply to this case on all fours and the contentions of the defendant in this case will have to be negatived.

In Sivagurunatha Pillai v. Padmavathi Ammal, AIR 1941 Madras 417, a Full Bench of five Judges held that the effeet of Section 28 of the

Negotiable Instruments Act was not the same as that of Section 26, English Bills of Exchange Act, and consequently, the English decisions can be

of no assistance in construing Section 28, Negotiable Instruments Act. It was held that the Court could not look into the surrounding circumstances

to ascertain whet her the maker of a promissory note excluding his personal liability and that (he instrument alone should be looked on and its effect

judged from the words used. The proposition of law is succinctly stated in the following words of Leach C.J. (at page 426 (of AIR)):

As the Courl cannot look beyond what is stated in the instrument in a case like the present one, it is now necessary to decide whether the

promissory note in suit should be construed in accordance with the judgment of Sundara Iyer, J. or the judgments of Sadasiva Iyer, J. and White

C. J. In my opinion the judgment which should be followed is that of Sundara Iyer, J. It is the duty of the Court to read the instrument and judge its

effects from the words used, but a promissory note drawn up in a vernacular language cannot always be construed according to the literal

transalation into English.

In this case, the promissory note is written in English by the defendant in his own hand and the exception indicated by the learned Chief Justice

will not come into play.

Following the judgments of the Privy Council and the above Full Bench, the Kerala High Court in P.R.S. Pillai Vs. Manuel Sathyanesan, , held

that in a suit on a promissory note containing unconditional undertaking by the defendant to pay the plaintiff on demand in the absence of any

indication whatever in the note that the defendant signed the note as the manager of a company or that he did not intend thereby to incur personal

liability, it is not open to the defendant to raise the plea in the defence repudiating his personal liability on the ground that he had in reality acted for

an undisclosed principal namely, the copany in executing the promissory note.

In this case the defendant has raised a plea in the written statement that the plaintiff was aware of the arrangement between the Directors of the

company and the defendant and that the plaintiff did not pay any money under the promissory note. I have already accepted the finding of the

Courts below that the plaintiff paid a sum of Rs. 5000/- to the defendant under Ex.A-1. Even if the plaintiff was aware that the defendant was

acting on behalf of the company, that will not enable the defendant to resist the suit. u/s 28 of the Negotiable Instruments Act, the only exception is

in the case of those persons who induced the maker of the promissory note to sign on the belief that the principal only would be held liable. There

is absolutely no pleading in the written statement that the plaintiff induced the defendant to sign the promissory note on the assurance (hat he will

not be made liable and the company alone will be made liable. In the absence of any such plea in the written statement, it is not open to the

defendant to raise such a contention in the second appeal.

Learned counsel places reliance on the jugment of Ananthanarayanan, J. in S. Guruswami Achari Vs. Vengiduswami Achari, . In that case, the

learned Judge on a construction of the averments found in the written statement held that although the defendant did not say that it was the plaintiff

who induced him to sign the instrument in the belief that the company alone would be liable, that was the gist and substance of the averments and

the question of applicability of the principle of the last part of Section 28 of the Negotiable Instruments Act specifically arose on the pleadings. The

ruling of the learned Judge turned on the construction of the pleadings. That will not apply to the present case. It does not lay down any principle

universally applicable. In the present case, the plea raised in the written statement is that the amount was paid by the Directors of the company and

no consideration passed under the promissory note from the plaintiff, but it is found on the facts that the plaintiff paid a sum of Rs. 5,000/- to the

defendant. It is nowhere stated in the stalement that the plaintiff was a party to the arrangement or that the plaintiff brought about the promissory

note into existence. It is the specific case of the defendant that the Directors of the company took the promissory notes from the defendant in the

names of the plaintiff and others. It cannot by any stretch of imagination be contended that there is an implied plea in the written statement that the

plaintiff induced the defendant to sign the promissory note on the belief that the company will alone be made liable and not the defendant. Hence,

the ruling of Anantha-narayanan, J. will have no bearing on the facts of this case.

Learned counsel contended that the endorsement Ex.A-2 will not save the suit from bar of limitation. According to him, the endorsement is

made on behalf of the company and the payment was also made only on behalf of the company. Hence, it cannot be treated as acknowledgment of

liability by the defendant in his personal capacity, when he is sued as such. Learned counsel places reliance on the judgments of the Supreme Court

in Khan Bahadur Shapoor Fredoom Mazda Vs. Durga Prosad Chamaria and Others, and Tilak Ram and Others Vs. Nathu and Others, . The

Supreme Court held that an acknowledgment of liability should indicate the existence of jural relationship between the parties such as that of debtor

and creditor, and it must appear that the statement could admit such jural relationship. The Supreme Court also pointed out that such intention can

be inferred by implication from the nature of the admission, and need not be expressed in words. The ruling of the Supreme Court in the above

cases will not help the defendant in the present case. Section 19 of the Limitation Act reads, ""Where payment on accunt 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."" The section speaks of payment by the person

liable to pay the debt or by his agent duly athorised in this behalf. While considering the first contention urged by learned counsel, it is held that the

defendant is the person liable to pay the debt. The proviso to the Section requires that there should be an acknowledgment of the payment which is

in the hand-writing of or in a writing signed by the person making the payment. In this case, the payment is made by the defendant. The

endorsement Ex.A-2 is written in his own hand. It is signed by him. Though he contends that the payment was made on behalf of the company, the

defendant having been held to be liable under the promissory note personally, will undoubtedly fall within the Section and its proviso, as he made

the payment and he made the endorsement in his own hand-writing and he signed the same. While the Section talks of the person liable to pay the

debt, the proviso refers only to the person making the payment. Hence, the endorsement of acknowledgment need not be by the person who is

liable to pay the debt. If the person making the payment is not the person liable to pay the debt, but an agent duly authorised to make the payment

and the endorsement is made by such an agent, that is sufficient to bring the same within the proviso to the Section and save limitation. If the

contention of the defendant that the payment was made by the company is accepted and the contention that the endorsement is also made by the

company as he had made the payment on behalf of the company and signed the same on behalf of the company is also accepted, the payment

should be treated as one made by the company as agent of the defend ant as held by the Privy Council in National Bank of Upper India Ltd. v.

Bansidhar, MR 1929 PC 297. Hence that payment and the endorsement will save the suit from bar of limitation.

Even assuming that the payment and the endorsement will not help the plaintiff in this suit as against the defendant, admittedly the defendant is a

debtor claiming benefits under Tamil Nadu Act 40 of 1978 as an agriculturist. Even before the said Act came into force, there was moratorium

from 16-1-1975 onwards under Tamil Nadu Ordinance 10 of 1975, Tamil Nadu Act 10 of 1975 and similar Acts in 1976 and 1977. The

moratorium was in force till 15-7-1978 when the Tamil Nadu Act 40 of 1978 came into force. Thus, the plaintiff could not have filed the suit on

the promissory note after 16-1-1975 till July 1978. When she filed the suit in March 1978, it was well within lime.

Even though no argument was advanced by learned counsel on the suit being premature and the debt being wiped out by Tamil Nadu Act 13

of 1980,1 find that there is no substance in the contentions raised by the defendant in the Courts below. The lower appellate Court has referred to

the relevant evidence on record and held that the defendant does not satisfy the definition of ''debtor'' in the Tamil Nadu Act 13 of 1980. The

lower appellate Court is also justified in granting a decree, as the Tamil Nadu Ac! 40 of 1978 had come to an end before the suit was taken up for

trial.

Hence, 1 affirm the judgment and decree passed by the lower appellate Court and dismiss the second appeal with costs.

Appeal dismissed.