State Bank of India vs Smt. Sainam Ningol Thambal Devi

D.N. Baruah, J.—This appeal is directed against the judgment and decree dated 23.8.1976 passed by the subordinate judge II, Manipur, in Original (Money) Suit No. 114/73/10/74/13/74, dismissing the suit against the first defendant.

The brief narration of the facts pleading to the present appeal as follows: The appellant (plaintiff) is one of the schedule-banks engaged in banking business in different parts of the country. It has a branch at Iraphal, Manipur. the first defendant(second respondent) approved the appellant for a loan under the "Small Business Finance Scheme" for improvement of his business. The appellant Bank agreed to accommodate the said second respondent to the extend of Rs. 25,000/- as per the terms and conditions of the bank.

On 20.3.1970 the second respondent executed an agreement for cash credit covenenting that he would open a cash credit account with the appellant (plaintiff) and he would draw money by cheques through such cash credit amount and would not required advance more than Rs. 25,000. he also agree to repay the loan with interest at the rate mentioned in the agreement. The rate of interest prevalent at the time of execution of the agreement was 12% per annum.

The second respondent brought the first respondent on the same day to stand as guarantor for his due repayments. he also executed a pronote in favour of first respondent for a sum of Rs. 25,000 promising to pay the said amount on demand with interest. The pronote, however does not bear any date. The appellant(plaintiff) further stated that the first respondent, in term endorsed the said pronote in favour of the appellant. The first respondent also executed an agreement on the same day standing guarantor, of the second respondent and promised inter alia, that he should be jointly and severely liable for the outstanding amount due to the appellant for the second respondent she also promised that the appellant bank at its description mainly realise the full dues from the guarantor. In pursuance of the agreement, a cash credit amount was open in the name of second respondent and he received the money by cheques. The appellant banks used to send statement of accounts to the second respondent from time to time.

However, the second respondent fail to repay the loan and a sum of Rs. 28,704.97 stood as Dr. balance as on 30.1.1973. This amount included principal, interest, insurance and other incidental charges. As the second respondent failed to repay the amount the appellant bank brought a suit (No. 114/73/10/73/13/74) against the respondent. The amount was actually received by the second respondent, but the suit was brought against both the respondent for the recovery of Rs. 28,704.97. The second respondent didn''t contest the suit, but the first respondent entered appearance and filed written statement and contested the suit.

In her written statement she totally denied the averment made in the plaint. She specifically denied that she stood as a guarantor of the second respondent or executed any of document or she was aware of any transaction between the appellant and second respondent. She also denied that she ever put her signature on any of the documents referred to.

On the pleadings, trial court framed as many as nine issues. During trial the appellant bank examined 8 witnesses on the behalf and the first respondent examined herself as DW1. Thereafter, the second subordinate judge by his judgment dated 23.3.1976 declared the suit ex parte in favour of the second respondent for recovery of Rs. 22,800 alongwith interest and insurance charges etc., and dismissed the suit against the first respondent. Hence this appeal.

In this appeal the main point raised by the appellant is that the trial court erred in law by dismissing the suit against the first respondent who stood as a guarantor.

Mr. R.K. Sanajaoba Singh, learned Counsel appear on behalf of the aplenty. None appears on behalf of any of respondent Mr. Sanajaoba Singh submit that the crime court committed manifest error of law and facts by dismissing the suit against the first respondent. Under the facts and circumstances of the case as well as under the provision of law the suit ought to has been declared against the first respondent also, inasmuch as, she stood as a guarantor for repayment of the loan amount and in that respect the first respondent executed the agreement (Ext. A/3) and endorsed the promissory note (Ext. A/4) in favour of appellant bank. Therefore, under the facts and circumstances of the case, the appellant suit ought to have been declared both the respondents.

While deciding the issue of No. 4, the learn second subordinate Judge found that the guarantor (First respondent) name did not appear in the agreement (Ext. A/3). Similarly, in the pronote (Ext. A/4) also the of first respondent did not appear in right place. The learned second subordinate Judge while deciding this issue observed thus:

In the guarantor''s agreement. the name of the defendant No. 2 does not appear as guarantor and Sh. P.K. Mitter and A. Lakshmi Kumar Sharma (PW2) to clearly admit and no where the name of the defendant No. 2 Thambal Devi appeared as guarantor in the body of guarantor''s agreement. Further in the guarantor''s agreement, the person who stood has such it is not synonymous with the name as of the defendant No. 2 Thambal Devi. A. Lakshmi Kumar Sharma (PW2) A grade 1 officer of the plaintiff towards present, according to him and PW1 at the time of execution of the guarantor''s agreement by the defendants nearly says that the name as given in the guarantor''s agreement as guarantor viz. Smt. late Thambal Devi is not a Manipuri Meitel Name. On the second hand, I think the word late may employee some what a tribunal name. Not only this word "Thangbal" differs greatly from the name of defendants No. 2, Thambal.

The second subordinate Judge further observed thus:

... mere proving the signature of defendant No. 2 Thambal Devi and report of the examiner of the question documents to show that the signature marked Ext.A/3/1 to Ext. A/3-8 and the signature marked Ext. A/4-3 appearing on promissory note are of the defendant No. 2 are not sufficient to conclude that the defendant No. 2 stood as guarantor for the dues of the defendant No. 1 to the plaintiff by endorsing the promissory note in favour of plaintiff bank and by executing guarantor agreement Ext. A/3.

Accordingly, the learned Second Subordinate Judge decided the issue in favour of first respondent dismissing the suit against her. However, the suit was the decreed in favour of the second respondent.

I have pursued the evidence of the witnesses as well as the agreement (Ext A/3) executed by the first respondent and the promissory note (Ext. A/4) executed by the second respondent in favour the first respondent and in term she endorsed in favour of appellant Bank as claim.

The first respondent in her written statement and evidence totally denied the execution of any document and her signature on Ext. A/3 and Ext A/4. Handwriting expert (PW8) given his opinion that the signature appeared in Ext. A/3 and A/4 belong to the first respondent. The other appellant witnesses also categorically stated that the first respondent put her signature on Ext A/3 and A/4 in her presence. There is however, nothing to disbelieve this evidence. Considering this evidence of the witness of the appellant, it can be said that the said document were executed by the first respondent. Now the moot question is whether on the base of these documents the first respondent can be held responsible and decree can be passed against her.

P.K. Mitter (PW1) was working as agent of the appellant Bank during the relevant time. In this evidence he stated that the second respondent produce the first respondent as guarantor of the second respondent in respect of the said loan and she executed the agreement (Ext A/3). He further stated that the first respondent also executed a promissory note (Ext A/4) and was signed in his presence. Later on the said promissory note (Ext A/4) was endorsed in favour of appellant-Bank by the first respondent. He further stated that the said endorsement was made in his presence and Ext. A/4(3) was her signature. Ext A/4 was the hand written endorsement of Mr. Lakshmi Kumar Sarma. He further stated that the contents of Ext. A/3 and Ext. A/4 were explained to the first respondent by him and Lakshmi Sarma before she put her signature. In cross-examination this witness stated that he instructed the ledger keeper one K. John to fill in the blank portion of the agreement and he accordingly filled in the agreement.

A Lakshmi Kumar Sarma (PW2) in his evidence stated that second respondent produce the first respondent as a guarantor an she executed the agreement in his presence and the hand written portion of the agreement was filled in by K. John, who was transferred at the time of recording evidence of Manipur. Ext. A/3 to Ext. A/3-7 where the signature of the first respondent which she put in his presence. Besides, the first respondent endorsed the promissory note(Ext. A/4) in favour of applicant under her signature. The endorsement (Ext. A/4) was written by S. Babu, an officer Grade I of the appellant Bank in his presence. The first respondent also executed an undertaking (A/15) and his hand written was written by K. John. All these documents were executed by the respondent on the same day. In the cross examination, this witness stated that the name of Smt. late Thambal Devi appeared in the first pay of the guarantor''s agreement (Ext. A/3) was not a Manipuri Name. Besides, he also admitted that the amount granted was also not mentioned in the agreement.

Through the first respondent specifically denied the execution of any agreement, but these witnesses stated that the first respondent put her signature on Ext. A/3 and Ext A/4 in there presence. The blank portion Ext.A/3 was filed by K. John but he was not examined on the ground that he was out of Manipur. However, there is no evidence to show that the appellant Bank made any endeavour to bring the set witness for recording his evidence, in support of their claim. On perusal of the Ext A/3 It appears that the element was filled in most mechanically by a person, who was not the executant of the agreement (A). The hand written portion run thus:

... I/We the under signed have Smt. late Thambal Devi delivered to the said bank a promissory note dated for Rs. 25,000 and interest payable on demand made by the borrower in favour of me/us and for sufficient consideration to me/us endorsed by me/us to the said bank or order (the said promissory note being intended as a guarantee to the extend of Rs. ... and interest of the balance from time to time....

From the reading of the portion of Ext. A/3 coated below it appears that the first respondent did not stand as a guarantor of any amount even if she actuary executed the agreement. Therefore, on the basis of Ext A/3 she cannot be held responsible. The learned Counsel for the appellant Mr. Sanajaoba Singh Strenuously argues that even through the agreement is ignored the promissory note (Ext. A/4) was endorsed by the first respondent and the bank being the holder of the said promissory note, the first respondent is liable to pay the amount.

The Ext. A/4 is a printed promissory note, which was said to be executed by the second respondent for the sum of Rs. 25,000 in favour of first respondent on the back side of Ext. A/4 the signature of the first respondent appears and it was prove as the signature of the first respondent there is an endorsement, which runs thus: "Please pay to State Bank of India or order". The first respondent put her signature in Manipuri script but the endorsement nearly written in English.

PW1 Mr. P.K. Mitter in his evidence stated thus:

... the said promissory note was endorsed by Thambal Devi in favour of the bank under her signature. She made the said endorsement in my presence. Ext.A/4-3 is her signature. The hand written portion of Ext.A/4 is in the handwriting of Lakshmi Sharma. The endorsement in English was also written by, Lakshmi Sharma....

PW2, Mr. A. Lakshmi Kumar Sharma in his deposition stated that:

... Ext. A/4 is a DP Note in favour of the defendant No. 2 Thambal Devi. It is executed by the defendant No. 1 for Rs. 25,000. This was filed by S. Babu Sigh, Officer, Grade I of our bank in my presence. Ext. A/4-1 and Ext A/4-2 are the signature of the defendant No. 1, which he put in my presence. In Ext. A/4 he appended to his seal. Ext. A/4 was filed by K. John the clerk of our bank....

Again this witness stated that:

... the endorsement was written by S. Babu an Officer Grade-I of our bank in my presence, Ext. A/4 is the endorsement....

From the evidence of the PWs 1 and 2 it appears that the first respondent executed the undertaking (Ext.D) in their presence and the hand written portion was filled in by K. John. These witnesses further stated that all the documents i.e. Exts.A/3, A/4, A/15 were executed on the same day i.e. on 20.3.1970. By the Ext.A/3 itself. The learned Counsels for the appellant having found that by the Ext. A/3, the first respondent did not stand as your guarantor for any amount, he heavily realise on the Ext.A/4, the promissory note. The learned Counsel strenuously argues that this promissory note (Ext.A/4) was endorsement in the favour of appellant, and the appellant being the holder of the instrument has a right to get a decree in favour of the first respondent also. Therefore, it is now necessary to see whether the Ext. A/4 which was executed by the second respondent in favour of the first respondent endorsed the set promissory note in favour of the appellant. As admitted by the PWs 1 and 2, this endorsement was not written by the first respondent. PW1 stated that endorsement in English was written by Lakshmi kumar Sharma (PW2), but the PW2 stated in his evidence that the endorsement was written by S. Babu, an Officer Grade I of his bank in his presence. Unfortunately the said S. Babu was not examined/Because of the contradictory statements of PWs 1 and 2, it is very doubtful whether this endorsement was written before the first respondent put her signature on Ext.A/4. Therefore, I am not inclined to accept the endorsement made in favour the appellant as it id doubtful whether the endorsement was made before the first respondent put her signature on the back side of Ext.A/4.

Section 15 of the negotiable Instruments Act deals with the ''endorsement''. As per the said section when the maker of holder of the negotiable instrument signs the same otherwise then as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed there to, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same, and is called the ''endorser''. The word ''endorsement'' means the writing of one''s name on the instrument or any paper attached with the clear intention of transferring the same thereby. An endorsement is usually made on the back of the instrument, but may be written on the face of the instrument. In order to constitute ''endorsement'' the writing in question should contain a direction to pay the amount of the instrument to a specified person. The form of the assignment is immaterial, provided the intention to transfer is clear, the intention must be gathered from the words used and not from evidence.

In P.V. Govindan Vs. Thavarayil Kinathi Narayanan and Others, , the Madras High Court held thus:

... these words do not constitute an endorsement within the meaning of Section 16, Negotiable Instrument Act, because there is no direction to the amount of the instrument toaspecified person, nor dose it consist only of the signature of the endorsee''s name, and it is not necessary contended that it is. Non do the words in my opinion constitute an assignment. There are no words of assignment, no do they convey any expression of intention to transfer. Mr. Nambiar were strongly relied upon the observation of Lord Me Naughten in 1905 ACJ 454 (5), which indicate that the form of the assignment is immaterial provided the intention must be gathered from the wards unit and not from evidence aluunde.

From the above decision it is clear that in case of any endorsement there must be a clear indication to make a payment by the endorser to endorsee. Here, in the instant case, of course the endorsement written in English gives a clear indication to make the payment to the applicant, but writing of the endorsement being doubtful in view of the contradictory statements made by PWs 1 and 2 in their evidence, whether it was written before or after the signature of the first respondent, it is very difficult to accept that the first respondent endorsed the document in favour of the appellant Bank. I hold that there was no assignment of the document in favour of the appellant Bank. Therefore, the appellant Bank did not acquire any title in respect of the pronote(Ext.A/4) and on that bases the appellant Bank cannot get a decree against the first respondent.

There is yet another facet of the case which may also be looked into. Even assuming there was a proper endorsement, whether on the basis of the such endorsement, the appellant Bank is entitled to sue the first respondent on the strength of Ext.A/4. The averments made in the plaint would clearly indicate that at the time of endorsement no consideration was passed.

Section 43 of the Negotiable Instrument Act. provides that the negotiable instrument made, drawn, accepted, endorsed or transfer without consideration or for a consideration which fails, creates no obligation for 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 for the transferor for consideration or any prior party there to. The Section forth the circumstances in which, in suits on negotiable instrument, a plea of want or failure of consideration can be successfully getup and those in which it cannot, plea of no consideration is not available where the right of bonafide transferees are involved. As between immediate parties, that is, between the drawer and acceptor, between the payee and drawer, between the payee of the maker of a lot, between the endorse and his immediate endorser, the defendant can successfully plead that no consideration moved from the plaintiff to the defendant. From the evidence of the plaintiff''s to the defendant. From the evidence of the plaintiff''s witnesses it is clear that the first respondent had signed the pronote without any consideration.

In this regard, a decision of this Court may be referred to. In Jathmal Geneshmal firm v. Haridass Roy and Ors. AIR 1949 Ass 6, a Division Bench- of this Court held that the instrument having being transferred the rights of the parties to the instrument were governed by Section 43, the holder in due course was entitled to recover the amount of the cheque. However, this aspect of the matter has not such importance in view of any decision that there was no proper endorsement by the first respondent in favour of the appellant Bank.

In view of the above, I hold that the facts and circumstances of the case, the first respondent cannot be held responsible for payment of the amount and therefore, dismiss the appeal with costs to the first respondent all through.