P L D 1963 Supreme Court 163 (PLP)

The appellant, however, on the 19th of April 1961, applied under sub‑rule (2) of rule 2 and rule 3 of Order XXXVII for leave to defend the suit. This application was duly supported by affidavits of both the appellant and the said Abdul Sattar Ahmad Bhai which disclosed that the respondent had entered into a partnership with Abdul Sattar Ahmad Bhai on the 4th of January 1960, for a particular venture; namely, the purchase of scrap iron from East Pakistan, and in accordance with the terms of the partnership deed drawn up in Gujrati the respondent had made an advance payment of Rs.2,00,000 to the said Abdul Sattar Ahmad Bhai by cheque but the receipt for the same was to be issued by the appellant. The appellant claimed that this partnership was still subsisting and denied that any settlement of accounts had taken place between the partners in respect of the said venture. It was further stated that the respondent was attempting to back out of the partnership, as the price of iron scrap had suffered a setback in the market. The appellant, which is a limited liability company, claimed that it had no kind or manner of business transaction with the respondent but had merely acted in the matter of issuing the receipt and the cheques as the Agent of Abdul Sattar Ahmad Bhai, who was one of its Directors and the Chairman of the Board of Directors. The cheque for Rs.20,000 was alleged to have been obtained by misrepresentation and the second cheque for Rs.70,000 by fraud and coercion. The appellant's further case was that, in any event, on the 3rd of April 1961, as a result of some arrangement arrived at between Abdul Sattar Ahmad Bhai and the respondent the latter agreed to return the said two cheques and on the basis of this arrangement the third cheque for Rs.1,90,000 was issued post‑dated to the 15th of June 1961, to enable the respondent to obtain a short term loan from his bank to meet his financial difficulties. The respondent did not, however, return the first two cheques as he had promised but caused a telegraphic notice to be sent on the 5th of April 1961, to the appellant of the dishonor of the said cheques. He was again, through the appellant's Advocate, asked to return the said two cheques, but since he failed to do so, the appellant had been compelled to institute a suit on the 10th of April 1961, being Suit No. 797 of 1961, in the Court of a Sub‑Judge, First Class, Karachi, for a declaration that all the three cheques may be declared null and void and the respondent restrained by a permanent injunction from utilizing the said cheques in any manner. The said suit was still pending and the present suit had been filed by the respondent as a counterblast to the suit filed by the appellant and the respondent was thereby dishonestly trying to obtain Rs.2,80,000 against his investment of Rs.1,90,000 (Rs.10,000, it appears, had admittedly been received earlier in cash by the respondent). The appellant, therefore, sought leave to defend the suit upon the ground that the respondent had no cause of action in the suit against it, as it was merely acting as agent of Abdul Sattar Ahmad Bhai; the cheques had been obtained by fraud and without any consideration and that, in any event, since a prior suit had been filed by the appellant for the cancellation of the cheques, the present suit should be stayed under section 10 of the Code of Civil Procedure. The respondent opposed this application and in his counter affidavit repudiated that the partnership was still subsisting. According to the respondent it had been dissolved on the 3rd of January 1961, and the cheques that had been issued were in part payment of the amount settled to be paid to the respondent after taking of accounts. He charged that the business with regard to the purchase and sale of scrap iron had failed, as Abdul Sattar Ahmad Bhai had no money to invest and that even the sum of Rs.2,00,000, which had been‑advanced by him, had been misused by Abdul Sattar Ahmad Bhai for purchase of a fishing trawler out of which he had earned handsome profits. It was on this account that Abdul Sattar Ahmad Bhai had agreed to give him Rs.80,000 as compensation out of the profits earned by wrong fully utilizing the respondent's money in a different venture in which he had never joined as a partner nor agreed to the diversion of his funds in such a venture. The three cheques, it was thus maintained, were issued in fulfillment of this agreement, but the last cheque was fraudulently post‑dated by the appellant for which protest was duly lodged. The respondent further maintained that the appellant, being the maker of the negotiable instrument in its personal capacity, was according to its tenor liable thereon and could not take shelter behind the plea of agency now sought to be set up. Upon these affidavits it was strenuously contended before the learned Judge in the High Court that the parties were at issue on various questions of fact as well as of law, and hence leave to defend should be granted in the case. The partnership between Abdul Sattar Ahmad Bhai and the respondent was admitted but, whilst Abdul Sattar claimed that the partnership was subsisting, the respondent maintained that it had been dissolved on the 3rd of January 1961, and an account taken. The appellant denied that it had any personal liability with regard to these cheques, though it admitted that it had issued the cheques. Its further case was that the cheques had been obtained by misrepresentation, fraud and coercion. Hence they were without consideration. Lastly, it was contended that the respondent promised to return these two cheques, in respect of which the suit had been filed, upon the issuance of the third cheque, but had fraudulently failed to do so and attempted to negotiate the same. It will be noticed that, notwithstanding the allegation that the appellant was liable upon the cheques in its personal capacity, nothing was disclosed either in the plaint or in any of the various affidavits filed on behalf of the respondent as to how the appellant came into the picture with regard to the scrap iron business which was to be carried on in partnership between Abdul Sattar Ahmad Bhai, the respondent and one Allah Bux. Furthermore, there was nothing in these affidavits to indicate as to whether the trawler business was the personal business of Abdul Sattar Ahmad Bhai or the business of the appellant. The only connection that had been established between the appellant and Abdul Sattar Ahmad Bhai was that the latter was the Chairman of the Board of Directors of the appellant‑company, and that in the partnership deed entered into between Abdul Sattar Ahmad Bhai and the respondent the receipt for the sum of rupees two lacs paid by the respondent was to be issued by the appellant. The learned Judge in the High Court also felt the need for further investigation into some facts to ascertain the exact connection of the appellant with Abdul Sattar Ahmad Bhai in regard to the scrap iron transactions and, therefore, himself called upon the appellant to adduce evidence by disclosing certain documents, like the Auditor's report or other account books, to show how the amount of rupees two lacs paid by the respondent had been shown therein by the appellant. He also called for certain receipts to show the delivery of the complaints regarding coercion and fraud which were alleged to have been made by the appellant and Abdul Sattar Ahmad Bhai to the Superintendent of Police against the respondent. Unfortunately, for this purpose only half an hour's time was given to the counsel appearing on behalf of the appellant. Within this time only a receipt for the delivery of a letter dated the 31st of March 1961, could be produced, but neither the Auditor's report nor the account books could be made available in that short time. The non‑production thereof was, nevertheless, treated as "significant" because, it was said that had they been produced they would have "disclosed the nature of the transaction and would have constituted the facts which could be said to make it incumbent or not on the plaintiff to prove consideration against the defendant." This observation should have been sufficient to indicate to the learned Judge that without this connection the liability of the appellant upon the cheques issued could not be fixed but we regret to find that this vital issue relating to the question as to whether the cheques were issued for consideration was shelved on the ground that "it is of no consequence for the defendant liable on negotiable instruments to emphasise the uncertainties that formed the background of the instruments, because those uncertainties‑whether claims, counter‑claims or disputes‑were washed off by the execution of the instruments which stand in their place as their tomb stones." It is no doubt true that under section 118 of the Negotiable Instruments Act there is an initial presumption that a negotiable instrument is made, drawn, accepted or endorsed for consideration, but this presumption is a rebut able presumption and the onus is on the person denying consideration to allege and prove the same. With respect, however, to the learned Judge we have to point out that the question here was not as to whether that presumption should or should not be raised, but as to whether the defendant denying that the negotiable instrument was issued for consideration should be given the opportunity of rebutting the same. The considerations, which should have weighed with the learned Judge in such a case were whether the defense sought to be set up, namely, that the cheques were issued without any consideration, was supported by any fact or circumstance which, if proved to be true, would entitle the defendant in the suit to succeed. In the circumstances of this case when there was nothing to show that there was any dealing between the respondent and the appellant, the absence of consideration did not appear to be an altogether sham or colour-able defense. To make the defense appear plausible it was not necessary at this stage for the defendant in the suit to produce definite evidence in that behalf. He could well rely on the facts and circumstances of the case and refer also to the case of the plaintiff himself. The learned Judge was, therefore, in our view, not justified in proceeding to draw at this stage the inference that there must have existed "some monetary arrangement between the defendant and the plaintiff or between the defendant and Abdul Sattar Ahmad Bhai." It may well have been that the money advanced by the respondent (plaintiff' in the suit) may have been deposited with the appellant and the appellant was merely keeping it in deposit on behalf of Abdul Sattar Ahmad Bhai. The mere fact, therefore, that it acknowledged the receipt of this amount did not make it personally liable to pay it to the respondent or create any privity of contract between the appellant and the respondent. The receipt itself, which has been filed, clearly shows that the cheque had been received as per the partnership arrangement of Abdul Sattar Ahmad Bhai and the respondent and on behalf of the former. The case of the respondent himself being that this cheque was drawn in favour of Abdul Sattar Ahmad Bhai with whom he had entered into a partnership, it could not be said that the defence set up by the appellant was so inherently improbable that it did not even merit investigation by giving the appellant an opportunity to prove its case. The conclusion of the learned Judge, therefore, that by so giving the receipt the appellant had accepted the liability to personally discharge the cheques does not appear to us either to follow from the facts and circumstances of this case or to flow as a legal consequence from the mere fact that the appellant granted the receipt. The learned Judge himself also felt that this situation "ostensibly gives strength" to the plea that the cheques were executed without consideration. But, nevertheless, he did not think it right to give leave to defend in this case, for, he thought that the defense lacked in bona fides. If this was so, he could well have tested the bona fides of the appellant by giving it leave upon the condition of depositing the amounts of the cheques in Court. In a suit of this nature where the defendant discloses upon his affidavits facts which may constitute a plausible defense or even show that there is some substantial question of fact or law which needs to be tried or investigated into, then he is entitled to leave to defend. What is more is that even if the defense set up be vague or unsatisfactory or there be a doubt as to its genuineness, leave should not be refused altogether but the defendant should be put on terms either to furnish security, or to deposit the amount claimed in Court. The principles upon which the provisions of Order XXXVII of the Code of Civil Procedure should be applied are not dis similar to the principles which govern the exercise of the summary power of giving liberty to sign final judgment in a suit filed by a specially endorsed writ of summons under Order XIV of the Rules of the Supreme Court in England. One of such principles laid down by the Court of Appeal in the case of Kodak v. Alpha Film Corporation (1930) 2 K B 340) was that at the stage when leave to defend is sought "the Judge is not to try the action; he is to see that there is a bona fide allegation of a tri able issue, which is not illusory; he need not be satisfied that the defense will succeed; it is enough that such a plausible defense is verified by affidavit." Again in the case of Powszechny Bank Zwiazkowy W. Polsce v. Paros ((1932) 2 K B 353) Scrutton, L. J., quoted with approval the observations of Field, J., from the case of Millard v. Baddeley ((1884) W N 94) to the following effect: ‑ "It has been settled law for nearly twenty years that where there is fraud in the inception of a bill, there is no longer a presumption that value has been given and the onus of proof is shifted. Where a defendant says that a bill was obtained from him by fraud, and that he therefore desires to have the fact that value was given by the plaintiff strictly proved, there is no power upon a summons under Order XIV to test the story of either party." These observations clearly indicate that where the allegations are not merely illusory leave to defend should be granted. The allegations in the affidavits filed on behalf of the appellant in the present case are, by no means, illusory. Indeed, in the absence of any allegation to show that the appellant had any connection with the scrap iron business they are rendered probable and thus abundantly raise a tri able issue as to the consideration for which the cheques were passed or at any rate raise serious questions of fact which did not lend‑themselves to determination in a summary manner. In the circumstances we are, with respect, unable to agree with the learned Judge of the High Court that no tri able issue was raised in this case or plausible defense set up. Indeed, perusing the judgment of the learned Judge of the High Court one cannot help observing that the learned Judge has himself not only struck the issues arising in the case but also decided them without giving the appellant any chance of adducing its defense or defending the suit. "The wealth of cleverness" or "abundance of cunning" which the learned Judge had no hesitation in ascribing to the appellant, even though there was no evidence either documentary or oral to warrant such inferences, was, in our view, not only injudicious but also a pure assumption which should not have been so readily made at a stage when it was not possible to say with any degree of certainty as to which of the parties had really displayed such capabilities. Apart from this, there are other matters too in this case, which have a direct bearing on the question of consideration. Thus the assertion of the respondent that Abdul Sattar had agreed to pay him as much as Rs.80,000 as compensation for the conversion of the initial advance out of the profits of the trawler business, with which the respondent had no connection at all, is on its face so inconsistent with the conduct of a cunning business man that its acceptance without investigation appears to us to be difficult, particularly, since the respondent had disclosed no clear legal right to demand such compensation. This circumstance, in our view, also rendered the story that the respondent had agreed to return the cheques in suit on receipt of the third cheque for Rs.1,90,000 so plausible that it could not be rejected outright without giving the appellant an opportunity 'of establishing its truth. These facts, if proved to be true upon the taking of evidence, would clearly have rebutted the presumption of the passing of consideration and shifted the onus upon the plaintiff in the suit to prove consideration and, therefore, clearly entitled the appellant to leave to appear and defend the suit. In this view of the matter we would allow this appeal, set aside the judgment and decree passed by the High Court and give leave to defend in the suit but since the conduct of the appellant is not entirely free from suspicion this will be subject to the condition that the entire amount of Rs.90,000 is deposited in Court within two months of the announcement hereof. The costs of this appeal will abide the result of the suit. A. H. Appeal allowed.