1980 PLP 1279 (CLC)

The respondent herein the National Bank of Pakistan limited filed suit No. 37 of 1967 on 25th February, 1967 in the Court of District Judge, Hyderabad against the appellants herein under Order XXXVII. rule 2, C. P. C. The case of the respondent was that at its own request appellant No. I which is a proprietary concern was granted a cash credit loan of 1280 Rs, 10,000 under scheme known as Peoples Derhands Credit Scheme on the hypothecation of its stock of printing press material in its shop and on the guarantee of appellant No.

2. The loan was repayable on demand and was secured with a promissory note executed on 5th March, 1964 by appellant No. 1 in favour of appellant No. 2 for a sum of Rs. 10,000 with the stipulated interest, duly endorsed by appellant No. 2 in favour of the plaintiffs as guarantor. Appellant No. 2 further executed a separate agreement of guarantee in favour of the respondent and both defendants also executed a Deed of Hypothecation in respect of the goods in the shop as a futther, security for repayment of the loan. In para. 12 of the plaint the following statement was made. "That the suit is based on promissory note dated 5th March, 1964 and on the original consideration received by defendant No. I and guaranteed by defendant No.

2. The suit is also based on the guarantee, hypothecation deeds and statement of accounts. These documents in original are filed along with the plaint."

2. On the aforesaid allegations the respondent prayed for a decree for a sum of Rs. 6,043.44 with interest at the rate of Rs. 81/o per annum with monthly tests. Upon admission of the plaint, summons in Form No. 4 in Appendix ii were issued to the appellants. In response to the sum the two appellants made separate applications on 19th June, 1967 under Order XXXVII, rule 3, C. P. C. for permission to defend the suit on the grounds disclosed in their respective affidavits. In substance, the grounds urged by appellant No. 1 were that the suit was not maintainable under Order XXXVII, rule 2, C. P. C., that the liability of appellant No. 1 was not under the promissory note but under agreement of cash credit, that the promissory note issued by the said appellant was without conside ration and was executed as a security, that the suit was based admittedly on agreement of loan, hypothecation bond and statement of accounts, and that certain items were included which were not recoverable from the said'. appellant. On the other hand, the grounds urged by appellant No. 2 were that be had not signed any document as guarantor and that he had put his signatures on the documents as a result .,)f conspiracy and fraud bet ween respondent and appellant No. 1.

3. Before the learned District Judge, however, the only ground urged to support of the application of appellant No. 1 was that the suit was not competent under Order XXXVII, C. P. C as it was admittedly based not only upon the promissory note but also on the hypothecation and grantee agreements. On behalf of appellant No- 2 it was urged that he guarantee had signed the documents under the impression that he was signing as a witness and not as a guarantor. The learned District Judge repelled the contentions of the appellants and came to the conclusion that no triable issue had been made gut by the appellants in their affidavits to defend the suit. In this view of the matter he rejected both the applications and as a result decreed the suit of the respondent, by his order dated 15th January, 1968. By this appeal the appellants have challenged the afore said order and decree.

4. It will be appreciated that none of the appellants disputed the execution of the promissory note or the fact that the same was executed in consideration of the loan advanced to appellant No.

1. However, it was urged by Mr. Ishaque Ahmed, the learned counsel appearing for the' appellants that the averments in the plaint as filed do not constitute a suit competent under Order XXXVII, C. P. C. Counsel argued that in terms of rule 2 of Order XXXVJI, (

2. P. C. only suits based upon, inter alia, promissory notes are competent which in other words means that the suit must be solely based upon the promissory note. Consequently, if the suit is based upon a cause of action other than the promissory note, such a suit would be deemed to be are ordinary suit in which the defendant will be allowed to defend as a matter of sight. Mr. Mansoorul Arfin, on the outer hand, submitted that the suit wars clearly based upon the promissory note and a reference to the accounts or other securities does not convert the nature of the suit. In Bank of Bahawnlpur Ltd. v. Sind Punjab Agencies (P L D 1966 Kar. 249) it was held that it is established law that where promissory notes were taken as co11ateral security merely because the suit was substantially one based upon accounts the legal character of the pro missory notes as negotiable instruments is not stroyed and that they shall be deemed to be executed for consideration either for the present or for the future. In arriving at this view the learned Judge referred to an unreported judgment in Suit No. 1%5,163 in this Court in which Farooqui, J. made the following observations "Why should a suit which is based upon a promissory note lose its character merely because there is a reference to are account ? it is not disputed that the consideration of the promissory notes in this case was the advance which was trade .from time to time in the two accounts. The two promissory notes were admittedly a collateral security for these advances. The security was for the repayment of the loan. A suit is permissible upon a promissory note and unless the note combined all the terms of the contract the claim may also be made on the original consideration." In Habib Bank Ltd. v. Gazanfarullah (P L D 1978 Kar. 263), Naimuddin, J cited several unreported judgments of this court in support of his view that a suit under Order XXX VII. C P. C. against the principal-debtor on the basis of pronote and against the guarantor or the agreement of guarantee is not bad in law and car, be split so) that the suit against the principal-debtor can proceed under the similarly procedure provided for in Order XXXVIT. C. P. C. and against the guarantor the suit can proceed according to the normal procedure . In Khatija Bai v. M C B. (P L D 1978 SC 96) their Lordships of the Supreme Court approved the `practice in similar circum stances of splitting the case two defendants in the following words "Learned counsel's only other submission was that the suit against the petitioners bad been split up by the order of 21st February, 1970 wilt the result that it would be hear as a short cause matter against in petitioner and as a ions; cause mater against the second petitioner, the therefore would lead to injustice and duplica tion of proceedings because it is of great importance to the public that the holder of a Dill of Exchange should be able to obtain judgment for what :s due to hint as speedily as possible. From the aforesaid examination of the case law it appears to me that it would be permissible to the Court to entertain and decree a suit filed under Order XXXVII, C. P. C. if the cause of action is based upon a pro missory note partly that is to say against one of the defendants and pro ceed against the other defendant by way of normal procedure if the suit is not based on the promissory note as against such defendant. If this is permissible there is no reason to hold that merely because a plaintiff supports his claim on other instruments besides and in addition to the promissory note, his suit should be held to be not maintainable under Order XXXVII, C. P. C. The perusal of the impugned Judgment clearly shows that in this case the trial Court solely proceeded on the basis of the promissory note in passing the decree against the appellants. So far as the appellant No. 1 is concerned, he being the drawer of the promissory note was clearly liable upon it and appellant No. 2 was liable as a party endorser under section 37 of the Negotiable Instruments Act, 1881. 1, therefore, find no force in the submission of the learned counsel that the suit of the respondent was not maintainable.

5. It was next contended by Mr. Ishaque Ahmed that the suit was also not competent under Order XXXVII, C. P. C. as such a suit can be filed within one year from the date of the promissory note by virtue of Article 5 of the Limitation Act. The contention is wholly misconceived. Prior to 6th March 1961 a suit under Order XXXVII, C. P. C. was governed by Article 5 of the Limitation Act, but on that day by virtue of Ordinance IX of 1961 the Limitation Act was amended so that by the omission of certain words from Article 5 and insertion of a new Article 64-A, suits under Order XXXVII, C. P. C. were governed by the three years' period of limitation.

6. It was further half-heartedly contended on behalf of the appel lants that the respondent was not holder in due course of the promissory note and, therefore, had no right to bring the suit inasmuch as he was aware that the promissory note was given by way of collateral security. This submission is also wholly misconceived and in any case this ground was not urged in support of the application for leave to defend before the trial Court. It is clear from the record and undisputable that the promis sory note was drawn by appellant No. 1 in favour of appellant No. 2 who duly endorsed it in favour of the. respondent. Therefore, under section 14 of the Negotiable Instruments Act the Promissory note was negotiated and transferred to the respondent as holder in due course.

7. It was lastly contended that as laid down in Fine Textile Mills Limited v. Haji Umer (P L D 1963 S C 163) the appellants were entitled to be permitted to defend upon making a bona fide allegation of a triable issue. However, their Lordships pointed out in the aforesaid Judgment that under section 118 of the Nagotiable Instruments Act, there is an initial pre sumption that a negotiable instrument is made, drawn, accepted or endorsed for consideration. But this presumption is a rebutable pre sumption and the ones is on the person denying consideration to allege and prove the same. In the present case no argument was advanced be fore the learned District Judge that the promissory note was without con sideration. Their Lordships further seem to be of the opinion that where the defence disclosed in the application appeals to be altogether sham or colourable, the Court would be justified to refuse permission. In neither of the affidavits filed by the two appellants there is a clear averment that the promissory note was issued without consideration. 1, therefore, agree with the learned District Judge in his view that no triable issue was made out to justify the grant of permission to defend.

8. For the foregoing reasons, I find no merit in this appeal. The appeal is accordingly dismissed with costs. M. Y. M. Appeal dismissed.