Apex Court

Promissory Notes & Cheques 


Mode of citation : 

2016 [6] APEX COURT Civil Appeal  No(s).  3345-3346/2008-BALRAM ETC.-vs-LAXMI NARAYAN 

Murali Mohan. M.


1-12-5 Brahmin Street

Atmakur , kurnool dist. AP-518422


advocatemmmohan@gmail.com & yourcaselaw@gmail.com 

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                                   HEAD NOTES

  1. whether A Deputy General Manger is not a person who is responsible to the company for the conduct of the business of the company as he does not fall under any of the categories (a) to (g) listed in section 5 of the Companies Act  the Deputy General Manger, could  be prosecuted either under sub-section (1) or under sub-section (2) of Section 141 of the Act ? – No
  2. Mere proof of  Exhibit P.1disputed cheque was one of cheque leaf in Exhibit D.2, and all the leaves in Exhibit D.2 [check book  ] was seen used in the year 1987 itself did not empower the accused to ask for acquittal, in the absence of definite stand in the cross examination of the complainant – in the absence of proof of   material alteration of the cheque from 15000/- to 45,000/- and in the absence of challenge of date and year of the cheque 1989 – Once the execution was admitted and once the signature was admitted – the burden lies on the accused of which  the accused failed to discharge  Apex court held that the trial court recorded hasty acquittal which was correctly set aside by the High court. 
  3. in order to draw the presumption under Section 118 read along with 139 of the Negotiable Instruments Act, the burden was heavily upon the complainant to have shown that he had required funds for having advanced the money to the accused; that the issuance of the cheque in support of the said payment advanced was true and that the accused was bound to make the payment as had been agreed while issuing the cheque in favour of the complainant. – MERE ABSENCE OF SAYING WHETHER IT IS BLANK CHEQUE –  can not empower the complainant to rest his HEAD ON THE WINGS OF presumptions when he failed to prove his capacity to pay and when he failed to prove when exactly he paid the amount and who wrote the cheque.WHEN THE ACCUSED DENIEDTHE  CREDITOR AND DEBTOR RELATIONSHIP
  4. when the trial is a regular trial  – even though successive magistrate delivered judgment – it should not be remanded for denovo trial as no summary trial was conducted – in addition to it ,their Lordship held that unless and until there is grave miscarriage of justice in the light of illegality, irregularity, incompetence or any other defect which cannot be cured at an appellate stage
  5. In the absence of debtor and creditor relationship – issuing pay order at the instance of first party infavour of second party and stopped payment at the instance of first party – cheque bounce case is not maintainable
  6. whether the complaint without signature of the complainant under Section 138 of the Act is maintainable when such complaint is verified by the complainant and the process is issued by the Magistrate after verification.-YES
  7. APEX COURT DIRECTIONS: (1) Metropolitan Magistrate/Judicial Magistrate (MM/JM), on the day when the complaint under Section 138 of the Act is presented, shall scrutinize the complaint and, if the complaint is accompanied by the affidavit, and the affidavit and the documents, if any, are found to be in order, take cognizance and direct issuance of summons. (2) MM/JM should adopt a pragmatic and realistic approach while issuing summons. Summons must be properly addressed and sent by post as well as by e-mail address got from the complainant. Court, in appropriate cases, may take the assistance of the police or the nearby Court to serve notice to the accused. For notice of appearance, a short date be fixed. If the summons is received back un-served, immediate follow up action be taken. (3) Court may indicate in the summon that if the accused makes an application for compounding of offences at the first hearing of the case and, if such an application is made, Court may pass appropriate orders at the earliest. 16 of 19 (4) Court should direct the accused, when he appears to furnish a bail bond, to ensure his appearance during trial and ask him to take notice under Section 251Cr.P.C. to enable him to enter his plea of defence and fix the case for defence evidence, unless an application is made by the accused under Section 145(2) for re-calling a witness for cross-examination. (5) The Court concerned must ensure that examination-in-chief, cross- examination and re-examination of the complainant must be conducted within three months of assigning the case. The Court has option of accepting affidavits of the witnesses, instead of examining them in Court. Witnesses to the complaint and accused must be available for cross- examination as and when there is direction to this effect by the Court. 
  8. When the stamps which were affixed on the pronote were removed from another document and affixed on the said pronote.-such a pronote cannot be taken into consideration.
  9. Sending the promissory note and admitted signatures for expert opinion-during the trial if necessary, at any time , may summon the said Expert to court or send the documents to the Expert for examining the admi tted signatures of the petitioner and the disputed suit pronote and the other public documents for his opinion which will be subject to further scrutiny by the court-as it is not a substantive piece of evidence  and the court may come to a different conclusion altogether on its own upon appreciation of the evidence, both oral and documentary, made available on record. 
  10. Whether  the promissory note for Rs.1,00,000/- was void for want of consideration to the extent of loans of Rs.71,000 advanced to 37 persons and is valid for only the balance amount taken by the defendants for their personal is correct or not as held by the High Court  ? No- Once the promissory note was executed with consciousness and knowledge for their loan and also for loans of 37 others in total for one lakh, it is deemed that they have received the entire amount[ past debt of 37 and present of 3 defendants – valid considerations]  as Sec.118 of NI Act presumptions came in to operation and the defendants are liable to pay the debt .
  11. Whether defendant No. 3 is discharged of his liability as a surety by reason of the alleged conduct of the plaintiff-bank in violating the terms of the agreement–Ex. G or by the alleged fraudulent or negligent conduct of the plaintiff-bank in other ways.? [see -22 – contrary view because of waiver of rights by guarantor ]
  12. Scaling down of interest on renewal promissory note -The benefit of the Act would be available to a debtor if the renewal was in favour of: (a) the same creditor; or (b) any other person acting in his behalf; or (c) any other person acting in his interest. Since the Bank has an independent existence, even though the controlling interest herein was with N, it would not be correct to say that there was identity between him and the Bank. Neither was there any material to show that the Bank acted on N’s behalf when the appellant executed the promissory notes in favour of the Bank; and, even if the words “in the interest of” mean “for the benefit of” it cannot be said that the Bank, in obtaining the promissory notes in renewal of the original debt was acting in N’s interest. Therefore, the Explanation was not available to the appellant. 
  13. Once the plaintiff pleads consideration different from the one found in negotiable instrument, the statutory presumptions does not arise. Under Section 118(a) of the Act. until the contrary is proved, presumption shall be made that every negotiable instrument was made for consideration. In this case the finding of the trial Court as well as the appellate Court is that valid consideration was passed under Ex.A1 for a sum of Rs.1.50 lakhs. Since the respondents had delivered possession of 3 acres 44 cents of land and the building to the appellant which is in addition to the lands covered under Ex.B1, the possession of land having been passed into the hands of the appellant and since in consideration thereof he had executed Ex.A1 promissory note, it is supported by legally enforceable consideration- So consideration may be kind or cash is a valid one as proved.
  14. Whether the presumption mentioned in cl. (a) of s. 118, Negotiable Instruments Act, 1881 can be  invoked in insolvency proceedings where an alleged debt against the insolvent is called in question by the official receiver or by a creditor or by the insolvent ? No -as the question being not one between the insolvent and the proving creditor alone, and since the rights of other creditors of the insolvent have of necessity to be considered 
  15. whether the suit was not maintainable under s. 4 of the Bihar Money-Lenders Act, because, the suit promissory note was not a loan within the meaning of    s. 4, but was really renewal of a loan advanced when the respondent was not registered as a money-lender under the Act, 

whether the suit was barred by limitation as the part payment was made on February 4, 1954 when the post dated cheque was given to the respondent.

  1. Whether an agent can file a suit for accounts against the principal ? Like wise Whether the principal can not enforce the promissory note against the agent during pendency of his agency basing on the oral agreement between them ?
  2. Hindu Law-Partition-If bonafide-Onus of proof-Father’s debt–Liability of joint family property for antecedent debt-Personal law and lex situs-Which applicable 
  1. whether the appellant was entitled to a decree on the promissory note claiming that the first respondent failed to deliver the goods, that the agreement therefore did not ripen into a pledge?
  2. Whether the acknowledgment of debt by one of the legal heir  of deceased muslim under Sec,18  is binding on all other legal heirs  ? – No

Whether the liability of deceased muslim legal heirs is only for their respective share and as such the share of the acknowledged person is only liable for satisfaction of the decree and not the shares of the rest of the legal heirs ? – yes

  1. Whether a plaintiff being a registered partnership firm, has not impleaded all the partners co-nominees as plaintiff-party to the suit – suit is maintainable? – yes

Whether the suit is not maintainable – Pending suit, when one of the partners died and the legal representatives were not brought on record.- No

  1. Section 20(a) C.P.C.- Appellant executed a promissory note on 8.5.1999 at Saudi Arabia.Although both the parties were residing in Saudi Arabia, Plaintiff filed a suit in the Court of Subordinate Judge, Attingal for recovery of the said amount sometime in the year 2002-As per Section 20(a) C.P.C.every suit shall be instituted in a Court within the local limits of whose jurisdiction the defendant actually and voluntarily resides or carries on business or personally works for gain.- suit is maintainable
  2. Section 139 of the Contract Act. It is well established that the liability of the guarantor is equal to and co-extensive with the borrower and it is highly  doubtful that the guarantor can avoid his liability simply on the basis of the promissory note made out or an equitable mortgage created by the borrower in favour of the lender as the guarantor waived his rights given under Sec.139 under the loan agreement [I SHALL not be released by any exercise by you of you ] [ see – 11- the position of guarantor before wavering his rights ]
  3. Orissa Money-Lenders Act, 1939 (Act 3 of 1939), s. 5(4) :Orissa Money Lenders Rules, 1939, r. 5-Registration certificate under r. 5 providing for maximum capital to be invested in business-No such provision in Act-Rule providing for maximum capital whether valid.- not valid
  4. Bihar Money Lenders Act (3 of 1938), s. 5 and Bihar Money Lenders (Regulation of Transactions) Act (VII of 1939), s. 4-Moneylender lending money in excess of amount in registration certificate-Suit for recovery-Maintainability. – MAINTAINABLE
  5. Section 139 of the N.I. Act, once a cheque has been signed and issued in favour of the holder, there is statutory presumption that it is issued in discharge of a legally enforceable debt or liability.This presumption is a rebuttable one, if the issuer of the cheque is able to discharge the burden that it was issued for some other purpose like security for a loan.But the accused failed to discharge his burden having admitted the cheques and pronote were signed by him.
  6. Once the accused raised doubts about the financial capacity of the complainant for giving a hand loan of huge amount  to the accused – a probable defence on behalf of the accused – rebutted the presumption under sec.139 – which shifted the burden on the complainant to prove his financial capacity and other facts – the complainant failed to prove his financial capacity and as such complaint is liable to be dismissed.
  7. whether in the absence of any rebuttal by the respondents to the fact that the promissory note was for consideration as required, which gave rise to the presumption under Section 118 of the Negotiable Instruments Act, the courts below were justified in holding that since the appellant had given evidence inconsistent with such presumption, no decree could be passed on the basis of such presumption .
  8. Article 136 which provided for 12 years period of limitation for the execution of a decree = When there was a legislative bar for the execution of a decree and later due to legislative intervention the decree had to be scaled down and amended then enforceability of decree shall commence when the bar ceases or from the date the decree is amended and scaled down. If the period of 12 years is counted from the date of the amendment of the decree then the execution petition filed by the decree-holder on 18.9.1989 is within the period of limitation.
  9. whether the period of limitation for making deposit, in an application to set aside sale of immovable property under Order XXI Rule 89 of the Code of Civil Procedure, is 30 days from the date of sale (being the period prescribed in Order XXI Rule 92(2) C.P.C.) or 60 days from the date of sale (as prescribed in Article 127 of the Limitation Act).
  10. Production of document-Assessment proceedings-Law prohibiting income-tax authorities from disclosure Production of proceedings into court–Waiver by assessee–Indian Income-tax Act, 6122 (11 of 1922). s. 54. – the prohibition imposed in s. 54 of the Indian Income-tax Act, 1922, is absolute and the operation of the section is not obliterated by any waiver by the assessee in whose assessment the evidence was tendered, document pro- duced or record,prepared.
  11. Whether in a suit for recovery of money on a cheque issued by the defendant but dishonoured, the amount received by the plaintiff-creditor in a criminal proceeding should be adjusted, is the core question involved herein.

32.Merely because the plaintiff came forward with a case different from the one mentioned in the promissory note it would not be correct to say that the presumption under Section 118 did not apply at all. Such a presumption applies once the execution of the promissory note is accepted by the defendant.