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Surajman Prasad Misra v. Sadanand Misra
Judgment Summary — Khaja Mohamad Noor, J. (with Dhavle, J. concurring)
Factual and Procedural Background
This matter is an application in revision against a decree of the District Judge of Gaya which dismissed the plaintiff's appeal from a decree of the Munsif of Aurangabad. The Munsif had dismissed the plaintiff's suit founded on a promissory note.
The promissory note was alleged to have been executed by defendant no. 1 as manager of a joint family (consisting of himself and defendants 2 and 3) in favour of defendant no. 4, who was asserted by the plaintiff to be the plaintiff's benamidar (nominee/nominal holder). The plaintiff alleged that at the time the loan (consideration for the promissory note) was advanced he was a minor, which explained why the note was taken in the name of defendant no. 4.
The defendants denied execution of the promissory note, denied the passing of consideration and denied the plaintiff's right to sue.
At trial the Munsif dismissed the suit on a preliminary ground, holding that under section 78 of the Negotiable Instruments Act (and the definition of "holder" in section 8) only the holder could give discharge to the drawer and therefore only a holder could maintain the suit. On appeal the District Judge of Gaya affirmed that dismissal. The present opinion is the revision hearing in which Noor, J. examined the correctness of that approach and remitted the cause for trial.
Legal Issues Presented
- Whether a person other than the holder of a promissory note (specifically a putative beneficiary or benamidar) can maintain an action on the promissory note by alleging that the ostensible holder is the plaintiff's benamidar.
- Whether a court may, in appropriate circumstances, permit the holder (or alleged holder) to be transposed from defendant to plaintiff (i.e., be made a plaintiff) so that the suit may proceed — and whether such transposition is barred by considerations of limitation.
Arguments of the Parties
Plaintiff's Arguments
- The plaintiff averred that he was a minor at the time the loan was advanced and therefore the promissory note was taken in the name of defendant no. 4 (the alleged benamidar) for the plaintiff's benefit.
- Implicit in the plaint was the contention that the substance of the transaction entitled the plaintiff to enforce the promissory note, despite the name of the ostensible holder.
Defendant(s)' Arguments and Position
- The defence included denials of execution of the promissory note and of the passing of consideration, and challenged the plaintiff's right to sue.
- Relying upon section 78 of the Negotiable Instruments Act (and related concepts such as the definition of "holder" in section 8), the trial Court took the position that only the holder could give discharge to the drawer and therefore that no one other than the holder could maintain suit on the note; this was the legal basis for the preliminary dismissal.
- Opposing counsel (Mr. Sarjoo Prasad) drew attention to the decision of the Judicial Commissioner of Nagpur in Vishnu v. Achut as supporting the view that a person could not maintain a suit on a promissory note by alleging that the holder was his benamidar (though the opinion recorded uncertainty about the precise facts of that authority).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ramdas Sahu v. Chhota Lal Mander (Single Judge decision) | The opinion states this case did not decide the maintainability point; it was conceded in that case that such a suit was not maintainable and the holder had asked to be made a plaintiff; the lower court refused and that refusal was upheld on the exercise of discretion to protect a defendant's limitation-based defence. | Noor, J. treats this decision as not deciding the specific question and later disagrees with the approach taken by the Single Judge to refuse transposition where the holder sought to be made plaintiff. |
| Sarjoog Singh v. Deosaran Singh (Single Judge decision of this Court) | Held — on the facts of that case — that where the holder was a defendant, came into Court and stated he was a benamidar and was ready to give a complete discharge, the suit should proceed and be tried on the merits. | Noor, J. treats this decision as the principal case of this Court supporting the proposition that suits of this character may be maintained when in substance the suit is by the holder (or the holder is available and ready to discharge the drawer). He holds the District Judge should have followed it. |
| Brojo Lal Saha Banikya v. Budhnath Pyari Lal & Co. (Calcutta High Court) | On the facts (note in the name of Pyarilal Das; suit on behalf of the firm of which he was a partner and he verified the plaint), the Court held the suit was effectively on behalf of the holder and decreed it. | The District Judge had noted this case but preferred others; Noor, J. regards this as a decision supporting the proposition that when a suit is in substance by the holder (or the holder is before the Court) it can be maintained. |
| Reoti Lal v. Manna Kunwar (Allahabad High Court) | The holder of the hand-note died without any heir and nobody before the Court was capable of giving a discharge to the drawer; the suit was dismissed. | Noor, J. distinguishes this case on its facts from those where the holder is available to discharge the drawer, and notes that the reasoning in some other courts may have been influenced by such factual scenarios. |
| Subba Narayana Vathiyar v. Ramaswami Aiyar (Madras High Court, Full Bench) | The real decision indicated that in a suit by the holder of a promissory note a plea that the plaintiff was a benamidar was not maintainable (the observations were general but the decision focused on suits by holders). | Noor, J. records this as part of the "trend" supporting the view that only holders can maintain actions, while observing that the Full Bench's observations are general and were concerned with suits by holders. |
| Sadasuk Jankidas v. Siri Kishan Pershadi (Judicial Committee / Privy Council) | The Judicial Committee held that it was not open to either party of a Hundi to show, either by claim or defence, that the signatory was in reality acting for an undisclosed principal. | Noor, J. cites this authority as supporting restrictive approaches to proving an undisclosed principal in negotiable instrument contexts, but he distinguishes factually when the holder is available to discharge the drawer. |
| Vishnu v. Achut (Judicial Commissioner of Nagpur) | Held (as reported) that a person could not maintain a suit on a promissory note on the allegation that the holder was his benamidar. | The Court notes the decision but records uncertainty as to whether the holder was a party to that suit and whether the plaintiff could have procured a discharge through the holder; Noor, J. therefore treats its value as limited on the specific question. |
| Swaminatha Odayar v. Subbarama Ayyar | On the facts, plaintiff no.1 sold property and took a promissory note in favour of his mother (plaintiff no.2); because the holder was willing that a simple money decree on the note be passed in favour of plaintiff no.1 (the beneficiary), that remedy was afforded. | Noor, J. cites this as an instance where, because the holder was willing to permit enforcement in favour of the beneficiary, the Court granted relief — illustrating that where the holder can give discharge or permit enforcement, suits may proceed. |
| Decisions of the Madras and the Allahabad High Courts (general reference) | Described as taking a trend in support of the proposition that no person other than the holder can maintain an action on a promissory note; however, the opinion notes in many such cases the point was not directly decided and facts differed. | The trial Court and the District Judge relied on these decisions; Noor, J. treats them as not strictly dispositive in cases where the holder is effectively before the Court and able to give a discharge. |
Court's Reasoning and Analysis
Noor, J.'s analysis proceeds through the following steps and observations (all based on the opinion's text):
- Identification of error: The learned Munsif dismissed the suit without going into its merits on the basis that section 78 of the Negotiable Instruments Act restricts discharge of the drawer to the holder (as defined by section 8), and therefore concluded no one other than a holder could maintain suit. The District Judge affirmed that conclusion. Noor, J. considered that the District Judge should have followed this Court's Single Judge decision in Sarjoog Singh v. Deosaran Singh and that the District Judge's failure to follow it constituted a material irregularity in jurisdiction.
- Precise legal question: Noor, J. frames the central inquiry as whether any person other than a holder can maintain a suit on the allegation that the holder is his benamidar. He notes that the authorities are not uniform and that many decisions are fact-specific rather than directly deciding the abstract proposition.
-
Review of authorities: The opinion surveys decisions from Madras, Allahabad, Calcutta, the Privy Council and other fora. Noor, J. emphasizes that:
- Some cases (Madras, Allahabad trend) suggest only the holder may maintain the action, but often those cases involved different factual matrices (for example, where the holder was dead or not before the Court).
- Other authorities (Calcutta case and Sarjoog Singh) show that where in substance the suit is by the holder or the holder is before the Court and ready to give a complete discharge to the drawer, the suit may be maintained and proceeded with on the merits.
- Some authorities (e.g., Sadasuk Jankidas) impose restrictions on showing undisclosed principals in certain negotiable-instrument contexts, but these must be applied with attention to the facts.
- Distinguishing cases on facts: Noor, J. repeatedly stresses that precedents are often confined to their facts; examples include Reoti Lal (holder dead/no one could discharge) and the Calcutta decision where the suit was effectively by the holder. He draws a clear factual distinction between suits where the holder cannot be produced and suits where the holder is available and willing to discharge the drawer or be made a plaintiff.
-
On the procedural device of transposition (making the holder a plaintiff): Noor, J. rejects the approach in Ramdas Sahu that such transposition must be refused because it would destroy the defendant's right acquired by limitation. He reasons (from statutory text cited in the opinion) that:
- Efflux of time bars the remedy but does not destroy the substantive right, and section 28 of the Limitation Act pertains to immovable property (limitation consequences for other claims differ); and
- Sub-clause (2) of section 22 of the Limitation Act recognises that if a person already on the record is transferred from defendant to plaintiff (or vice versa), the change of position will not affect the application of limitation under clause (1). This statutory framework, the Court reasons, permits a discretion to allow transpositions where justice requires it.
- Relief directed: On these analyses Noor, J. finds the learned Munsif should not have dismissed the suit on the preliminary ground. The plaintiff should have been given an opportunity to produce the holder so that the holder could, if willing, give a discharge and support the plaintiff's case. Further, if the holder (defendant no.4) wishes to be made a plaintiff, that transposition should be permitted.
Holding and Implications
HOLDING: The Court made the rule absolute and remanded the case to the trial Court for hearing on the merits.
Direct consequences and instructions contained in the opinion:
- The Munsif's preliminary dismissal of the suit was incorrect; the suit is to be remanded for trial on the merits.
- The plaintiff must be given an opportunity to produce the ostensible holder so the holder may support the plaintiff's case and, if appropriate, give a discharge to the defendants.
- If defendant no. 4 (the alleged benamidar / ostensible holder) applies to be made a plaintiff, the Court directs that he ought to be allowed to be transposed and the suit to be disposed of on the merits accordingly.
- With respect to costs: the parties are to bear their own costs already incurred; the costs of the rehearing will abide the result of the suit.
The Court’s opinion contains detailed discussion of authorities and of how factual differences influence their application; it emphasizes that where the holder is effectively before the Court and can give a discharge, different considerations apply than in cases where the holder cannot be produced. The Court remanded for trial rather than deciding the factual issues itself.
Disposition
Rule made absolute. Case remanded to the first Court for trial on the merits (Dhavle, J. concurred).
Khaja Mohamad Noor, J.:— This is an application in revision directed against a decree of the District Judge of Gaya, dismissing the plaintiff's appeal against a decree of the Munsif of Aurangabad which in its turn dismissed the plaintiff's suit based upon a promissory note. The note in question is said to have been executed by the defendant no. 1 as the manager of the joint family consisting of himself and his two sons (defendants 2 and 3) in favour of defendant no. 4 alleged to have been a benamidar of the plaintiff. The plaintiff averred that at the time when the loan (the consideration of the pro-note) was advanced he was a minor and, therefore, the note was taken in the name of the defendant no. 4. The defence, inter alia, was a denial of execution of the pro-note, the passing of the consideration and the plaintiff's right to sue.
The trial Court without going into the merits dismissed the suit. It held that under section 78 of the Negotiable Instruments Act the holder (as defined in section 8) was the only person who could give discharge to the drawer and, therefore, no other person was entitled to maintain the suit. It relied upon two decisions of the Madras High Court and a decision of a learned Judge of this Court sitting singly in Ramdas Sahu v. Chhota Lal Mander The last case did not, however, decide the question and I shall refer to it later. Another Single Judge decision of this Court in Sarjoog Singh v. Deosaran Singh taking a contrary view does not seem to have been brought to the notice of the learned Munsif.
On appeal the learned District Judge dismissed the appeal. Sarjoog Singh's case and the decision of the Calcutta High Court in Brojolal Saha Banikya v. Budhnath Pyari Lal & Co., on which it was based, was brought to his notice; but he preferred to follow, the Madras and the Allahabad decisions as being in his opinion more in consonance with the Act. In my opinion, the decision of a Single Judge of this Court, though not binding on us sitting in a Division Bench, being nevertheless the decision of a superior Court, ought to have been followed by the learned District Judge; and in not doing so he has acted with material irregularity in the exercise of his jurisdiction.
Now the question is whether any person other than a holder can maintain a suit on the allegation that the holder was the plaintiff's benamidar. Strictly speaking there is only one decision of this Court on this point, viz., that in the case of Sarjoog Singh. The case of Ramdas Sahu v. Chhota Lal Mander, relied upon by the learned Munsif, did not, as was pointed out by the learned District Judge in this case and by Kulwant Sahay, J. in Sarjoog Singh's case, decide the point. It was conceded in that case that such a suit as the present one was not maintainable. The question of the maintainability of the suit was neither argued nor decided. In that case (as in this) the holder was a defendant and had asked to be made a plaintiff. The lower Court refused this. The learned Judge held that it being conceded that the suit as it stood was not maintainable, the lower Court exercised a correct discretion in not allowing the holder to be made a plaintiff and thereby destroying the valuable right acquired by the defendant by virtue of the law of limitation. Later on I shall have to revert to this decision as I propose to allow the defendant no. 4 of this suit to be made a plaintiff if he so desires.
The trend of the decisions of the Madras and the Allahabad High Courts is in support of the view that no other person than the holder of the promissory note can maintain an action thereon; but in none of the cases the question was directly in issue and decided. The Calcutta High Court has taken a contrary view in the case of Brojo Lal Saha Banikya v. Budhnath Pyarilal & Co. and that case was followed by a learned Judge of this Court in Sarjoog Singh's case. Now it is well-settled that a decision of a particular case is, strictly speaking, confined to the facts of that case and the observations made therein need not necessarily be applied to another case unless the facts of the latter case justify this application. It is easy to conceive cases which though in form are on behalf of the beneficiaries or, in other words, on behalf of persons other than the holders of promissory notes, in reality and in substance they are suits by the holders themselves and in such suits plaintiffs are in a position to give through the holders complete discharge to the drawers. Therefore a suit of such a nature is in effect by the drawer himself and the principle enunciated by the Madras and the Allahabad High Courts cannot strictly be made applicable to it. For instance, in the Allahabad case of Reoti Lal v. Manna Kunwar the holder of the hand-note died without any heir and nobody was before the Court capable of giving a discharge to the drawer. The suit was dismissed. The observations of the learned Judges are no doubt somewhat general, but as far as the facts of that particular case were concerned, the considerations which influenced the decisions in the Calcutta case and in Sarjoog Singh's case in this Court did not apply. In the Full Bench decision of the Madras High Court in Subba Narayana Vathiyar v. Ramaswami Aiyar, though, again, the observations of the learned Judges were general, the real decision was only this much that in a suit by the holder of a promissory note the plea that the plaintiff was the benamidar was not maintainable. Here again one who was under the law competent to give a discharge was the plaintiff;, the defendant was not allowed to plead that somebody else was the beneficiary of the promissory note. In Sadasuk Jankidas v. Siri Kishan Pershadi their Lordships of the Judicial Committee in fact held that it was not open to either party of a Hundi to show either by way of claim or defence that the signatory was in reality acting for an undisclosed principal.
The learned Advocate for the opposite party (Mr. Sarjoo Prasad) has drawn our attention to a decision of the Judicial Commissioner of Nagpur: Vishnu v. Achut, where it was held that a person could not maintain a suit on a pronote on the allegation that the holder was his benamidar. It is not clear from the judgment of this case if the holder was a party to the suit and whether the plaintiff was in a position through the holder to give a discharge to the drawer. In fact none of the these cases is an authority for the proposition, that in a suit in which the holder, though not a plaintiff, is a party and the plaintiff is in a position to give to the drawer, through the holder, a discharge, the plaintiff cannot maintain the suit.
On the other hand in the Calcutta case the promissory note was in the name of one Pyarilal Das and the suit was on behalf of the firm of which Pyari Lal Das was a partner. In fact it was he who had verified the plaint. It was held that the suit was on behalf of the holder and, therefore, the Court decreed the suit. In Sarjoog Singh's case the holder of the hand-note was a defendant in the suit who had appeared in Court and stated that he was a mere benamidar. In fact he was ready to give the defendant (the drawer of the promissory note) a complete discharge. The learned Judge directed the suit to be tried on the merits. As I have said the facts on which decrees were passed in the Calcutta case and on which this Court decided. Sarjoog Singh's case are not covered by any of the decisions of the Madras and the Allahabad High Courts or of the Privy Council. I am not prepared to say that a beneficiary can maintain a suit on a promissory note without any reservation or restriction. But in a case where in effect the suit is by the holder himself different considerations arise and I see no reason why the suit should be dismissed. I may here refer to the case of Swaminatha Odayar v. Subbarama Ayyar where this principle was followed. In that case plaintiff no. 1 sold some properties to the defendant and for the balance of the purchase money took from him a promissory note in favour of his mother plaintiff no. 2. Plaintiff no. 1 then wanted to enforce his lien on the property sold for the balance of the consideration money. It was held that the plaintiff no. 1 having accepted a promissory note for the balance of the consideration money his lien was lost, but as the holder (plaintiff no. 2) was willing that a simple money decree on the basis of the hand-note be passed in favour of the plaintiff no. 1, the beneficiary, this was done.
The learned Munsif should not have dismissed the suit on the preliminary ground and should have allowed the plaintiff an opportunity of producing the holder to support the plaintiff's case and give a discharge to the defendant if he wanted. I am also of opinion that if the holder wishes to be made a plaintiff, he ought to be allowed to do so. I have already referred to the decision of Allansori, J. in Ramdas Sahu v. Chhotalal Mander where the learned Judge held that such a transposition of the defendant to the category of the plaintiff should not be allowed as it would deprive the defendant of a valuable right. With utmost respect I disagree with him. First of all, in suits for money efflux of time only bars the remedy through Court but does not destroy the right and does not vest any right in the defendant. Section 28 of the limitation Act is confined to immoveable properties. Secondly, the legislature has by enacting sub-clause (2) of section 22 of the Limitation Act, recognized that if a person is a party to a suit, his change of position will not affect limitation; and it was to meet cases like these that it has been provided that if a party already on the record is transferred from the category of the defendant to that of the plaintiff or vice versa, provisions of clause (1) will not apply; and I think, in a proper case the Court will be exercising a wise discretion if it allowed such transpositions in order to give relief to an aggrieved party. To disallow this on the ground given by the learned Judge will be defeating the very object which the legislature had in view.
I would, therefore, remand this case to the first Court for trial on the merits. If defendant no. 4, the alleged benamidar, applies to be made a plaintiff in the suit, this will be allowed and the suit disposed of on the merits on the lines I have indicated. In the circumstances of the case, I think the parties should bear their own costs, so far incurred by them. The costs of rehearing will abide the result of the suit.
Dhavle, J.:— I agree.
Rule made absolute.
Case remanded.
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