P L D 1968 Lahore 914 (PLP)

WAHIDUDDIN AHMAD, C. J.‑

This is a Regular Second Appeal from the judgment of the learned District Judge, Gujranwala, as Ex‑Officio Additional District Judge, Sialkot, in Civil Appeal No. 82 of 1956, decided on the 27th of August 1956. By this judgment the learned appellate Court allowed the appeal and passed a decree for Rs. 5,000.00 against the appellant in favour of respondent Mst. Nur Fatima.

2. This appeal arises out of Suit No. 108 of 1954, filed by Mst. Nur Fatima for the recovery of Rs. 5,000.00 against appellant Ghulam Sarwar Khan and three others, namely, Sh. Nazir Hussain, Sh. Muhammad Shafi and Muhammad Afzal Khan. The appellant and the other three, named above, were the directors of Messrs Asian Tanneries Limited, Sialkot. During the pendency of the suit, the three persons other than the appellant admitted their liability and confessed judgment, as a result of which a decree was passed against them. The suit was contested only by appellant Ghulam Sarwar Khan. The learned senior Civil Judge, Sialkot, by his judgment dated the 23rd of March 1955, dismissed the suit on the ground that the loan of Rs. 5,000.00 taken under pronote dated the 16th of January 1951, was on behalf of Messrs Asian Tanneries Limited, Sialkot, and that the appellant signed the pronote only in his capacity as the Managing Director of the said company.

3. In the suit itself a number of issues were framed. It is, however, unnecessary to reproduce them; because Issues Nos. 2 and 3 were decided against the appellant and the findings on them were not challenged before the learned Additional District Judge. On Issues Nos. 1 and 5 the learned trial Court held that any contract between defendants 1 any 2 on the one hand and the other directors of Messrs Asian Tanneries Limited, Sialkot, on the other, will not affect the rights of the plaintiff respondent, who could not be deprived under any condition, of her right to recover the debt. On Issue No. 5 the trial Court held that the factum of Ghulam Sarwar Khan appellant having severed his connections with the company would not deprive the plaintiff of her right to recover her debt. None of the findings was challenged before the learned Additional District Judge, Sialkot, by the appellant.

4. It may be stated that on the 16th of January 1951, a pronote was executed by four Directors of Messrs Asian Tanneries Limited, Sialkot, in favour of Mst. Nur Fatima respondent. Appellant Ghulam Sarwar Khan, who was the Managing Director, also signed the said pronote. Sh. Nazir Husain, Sh. Muhammad Shafi and Muhammad Afzal Khan, who is the husband of respondent Mst. Nur Fatima, also signed the said pronote. It is alleged that Muhammad Afzal Khan issued a receipt in favour of Mst. Nur Fatima on behalf of the company. The pronote in dispute is Exh. P/1 and the alleged receipt is Exh. D. 1/A. On 10th of April 1951, the appellant ceased to be the Managing Director of the said company and Sh. Nazir Husain became the Managing Director. On 20th of July 1951 the appellant severed his connections with the said company and he was relieved of all the liabilities of the company under Agreement Exh. D/15. It was thereafter that the above suit was filed against the appellant and other three persons.

5. The case of the respondent Mst. Nur Fatima was that a sum of Rs. 5,000.00 was taken from her as loan on the basis of the pronote in their personal capacity by the appellant and the other Directors aid they were personally liable to pay the said amount. On the other hand, the defence of the appellant was that he had signed the document only as the Managing Director of the company, that the loan was taken for the benefit of the company and that he was not personally liable to pay it. The important issue, therefore, is Issue No. 4 which is reproduced below:‑-- "Was the promissory note executed by the defendants on behalf of the Asian Tanneries Limited, Sialkot, and can the debt be realized from the assets of the company only and can the defendants prove these facts?" The learned trial Judge decided this issue in favour of the appellant but the learned Additional District Judge has disagreed with him on this finding. He has held that the finding of the trial Court on Issue No. 4 is wrong and that Ghulam Sarwar Khan appellant was personally liable to pay the amount in dispute to Mst. Nur Fatima.

6. The only point, therefore, for consideration in this appeal is whether appellant Ghulam Sarwar Khan executed the pronote Exh. P/1 in His individual capacity or as the Managing Director of Messrs Asian Tanneries Limited, Sialkot and on their behalf. in order to appreciate the contention of the parties, it will be useful to reproduce here the translation of the pronote Exh. P/1, which reads as under:‑

"We, the undersigned, who have borrowed the sum of Rs. 5,000.00 for the business of the Asian Tanneries Limited, Sialkot, undertake to pay this amount to Mst. Nur Fatima, wife of Muhammad Afzal, on demand, with interest at the rate of 12 per cent. per annum. This promissory note has, therefore, been written in favour of the said Mst. Nur Fatima." The document is signed by Ghulam Sarwar Khan appellant, Managing Director, and by Muhammad Afzal Khan, Nazir Husain and Muhammad Shah Directors of Messrs Asian Tan neries Limited, Sialkot. It also bears the seal of Messrs Asian Tanneries Limited, Sialkot, It will be noticed that in the body of the pronote all the four persons, named above, have acknow ledged that they had borrowed the sum of Rs. 5,000.00 for the business of Messrs Asian Tanneries Limited, Sialkot, and that they undertook to pay the amount of the pronote to Mst. Nur Fatima, wife of Muhammad Afzal Khan, on demand, with interest at the rate of 12%. per mensem. The question, therefore, for consideration is whether this was a pronote executed on behalf of Messrs Asian Tanneries Limited or on behalf of the persons who executed the pronote. After hearing the learned counsel for the parties, we have not the slightest hesitation in coming to the conclusion that the appellant Ghulam Sarwar Khan executed the pronote in dispute in his individual capacity, The mere fact that while signing the said document he described himself as the Managing Director of Messrs Asian Tanneries Limited, Sialkot, would not show by itself that he signed it on behalf of the said company. In fact, it was only a description of the appellant. The tenor of the document clearly indicates that the loan was taken by the above‑mentioned four persons in their individual capacity, though it was for the business of Messrs Asian Tanneries Limited, Sialkot. Had the pronote been executed on behalf of the said company, it would have been on behalf of the company and the signatures of the above mentioned four persons on the said pronote then would have been taken in their capacity as the directors of the said company. We have noticed that the pronote has been scored at the place where `I' is printed and instead of that "We" has been substi tuted for it. Moreover, if the pronote was to be executed only on behalf of the company there was no need for the other three Directors to sign it. It was admitted by Mr. Aftab Hussain, learned counsel for the appellant, that the said private limited company bad not passed any resolution for obtain ing loan on behalf of the company. It was only later that a resolution was passed ratifying the action of the Directors.

7. The learned counsel for the appellant invited our attention to section 89 of the Companies Act (VII of 1913), which is to the following effect:

"

89. A bill of exchange, hundi or promissory note shall be deemed to have been made, drawn, accepted or endorsed on behalf of a company if made, drawn, accepted or endorsed in the name of, or by or on behalf or on account of, the company by any person acting under the authority, express or implied." He vehemently contended that under 'this provision of law the liability is of the company and not of the Directors. The contention of tie learned counsel has no force because in the present case the liability of the company is not to be determined. It is the liability of the appellant whim is to be determined. This provision of law might have been of some help to the respon dent if she had filed a suit for recovery of the amount in dispute against the said. company but since sloe has not chosen to do so, it is not necessary for us to consider the effect of the above provision on the liability of the said company.

8. It was next urged by the learned counsel for the appellant that when the company incurred the debt in dispute, a receipt Exh. D. 1/A was executed by Muhammad Afzal khan, husband of the contesting respondent. This receipt is in the following terms:‑- "Dated 16‑1‑1951. Asian Tanneries Ltd. High Class Tanneries and Manufacturers of Leather Goods, Sialkot, Pakistan. Received with thanks from Mst. Nur Fatima, wife of Khan Muhammad Afzal Khan, Advocate, Sialkot, the sum of Rs. five thousand only on account of loan at the rate of 12% per mensem. For Asian Tanneries Ltd., (Sd.) M. AFZAL, Director. Mr. Khalil‑ur‑Rehman, learned counsel for the contesting res pondent pointed out that this receipt was not produced by his client, that a counter‑foil of the said receipt was produced and that the evidence on the record shows that though in the begin ning Muhammad Afzal Khan signed it but he scored out his signatures because he had signed it by mistake. He referred us to the statement of Muhammad Afzal Khan who admitted having executed this receipt but, according to him, he scored out his signatures after having signed the document because he had signed it by mistake. He further stated that the debt had been advanced to the defendants personally and not to the company and that was the reason why he had scored out his signatures. This explanation of Muhammad Afzal Khan was accepted by the learned Additional District Judge, and we see no reason to differ with his view on this aspect of the case.

9. Sheikh Aftab Husain also referred us to section 28 of the Negotiable Instruments Act, 1881, which reads as under:‑-- "

28. Liability of agent signing. An agent who signs his name to a promissory note, bill of exchange or cheque without indicating thereon that he signs as agent or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable." Learned counsel contended that as the appellant had indicated that he was signing as an agent, he was wrongly held to be personally liable by the first appellate Court. In our opinion, the contention of the learned counsel has no force. In law it is necessary for an agent intending to avoid personal liability on a promissory note signed by him that he should, on the face of the document, exclude his personal liability and indicate that he has signed as an agent. This essential ingredient ii, missing in the present case. The tenor of the document clearly indicates that the four persons named above including the appellant, took the loan in their individual capacity and that the appellant signed the document in question in his individual capacity though he described himself as the Managing Director of Messrs Asian Tanneries Limited, Sialkot. Sheikh Aftab Husain referred us to a decision of the Lahore High Court in Punjab Co‑operative Bank Ltd., Lahore v. Muhammad Yuauf and others (A I R 1939 Lah. 225) but it is distinguishable because in that case the question of the liability of the endorser was involved. It was held in that case that where a person has been acting as manager of a company for a long period and has been transacting all the business of the company as such manager, including the acceptance and endorsing of the bills of exchange of the value of several lacs of rupees, this fact alone is sufficient to establish that he had the proper authority of the partners to act as the manager of the company and to bind it as such. This is not the dispute here. In the present case the appellant signed the pronote in the body of which he agreed to pay the amount of the promissory note. He did not expressly exclude his personal liability, nor did he state in the body of the 8 pronote that he was signing on behalf of or on account of the limited company. Similarly the case Chapman v. Smethurst ((1909) 1 K B 927) I relied upon by the learned counsel for the appellant, is also dis tinguishable because in that case the Managing Director of the company signed the promissory note in the following terms :‑ "J. H. Smethurst's Laundry and Dye Works, Limited, J. H. Smethurst, Managing Director." It was in these circumstances that it was held that the note was the note of the company and that the Managing Director was not personally liable. Admittedly, in the present case the pronote has not been executed in this manner.

10. Next, reliance was placed on a decision of the Privy Council in Abdul Majid Khan and another v. Sharaswatibai and others (A I R 1934 P C 4), but that case also is of no help to the appellant. It was contended in that case that the Joint Hindu Family was liable because the karta borrowed the loan for the purpose of the joint family business. It was in that context that their Lordships held that where it is necessary for the proper conduct of the joint family business that money should be borrowed from time to time on promissory notes, it would be within the authority of the karta to borrow money in his own name for the purpose of the family business. But the fact that the promissory notes are signed by the karta in his own name is equally consistent either with a borrowing by him for his own individual purposes, or a borrowing for the purposes of the joint family business. This decision might have been of some help if the company had repudiated its liability, but no such occasion has arisen in the present case.

11. After going through the evidence produced by the parties and the relevant documents, it is evident that the appellant and the three persons named above had undertaken to repay the debt to respondent Mst. Nur Fatima. The most important decision bearing on the point under consideration is the decision of the Privy Council in Sadasukh Jankidas v. Kishen Parshad (A I R 1918 P Q 146). It was held by their Lordships in that case that the promissory note must be so drawn that the name of the person or firm to be charged upon a negotiable instrument must be clearly stated on the face or back of the instrument so that the responsibility is made 1 plain. Their Lordships further observed that it is contrary to all established principles that in an action on a promissory note against a person whose name properly appears as party to the instrument, it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal. In that case the pronote was signed by Kishen Parshad as the Manager of Nizam of Hyderabad. It was held that Kishen Parshad was himself liable on the pronote. In Punjab United Bank Ltd., Lahore v. Muhammad Husain and others (A I R 1924 Lah. 358), one of the partners of the firm signed a pronote. It was contended that all the partners were liable under it. In that case, one of the partners of the firm who signed the pronote described himself as the Proprietor of the Punjab Alliance Auction Rooms, Lahore. It was held that this description was not sufficient to justify the partners in the firm being held liable. It was further observed that where one of the partners of the firm signs a promissory note, in order that all the partners are liable under it, it is necessary that not merely the firm's name should be disclosed in come way but it must be disclosed in such a way that on any fair interpreta tion of the instrument the firm must be the real person liable upon it. Similarly in Damodar Keshav Parasharami v. Ramnath Rajhakisan (A I R 1932 Bom. 607), a promissory note was signed by defendant, the Chairman of a Society. In the body of the promissory note he also described himself as Chairman of the Society and agreed to pay the amount of the promissory note. It was held that it is necessary that an agent intending to avoid personal liability upon a promissory note signed by him should, on the face of the document, exclude his personal responsibility or indicate that he signs as agent. Since the defendant did not expressly exclude his personal liability, nor did he state in the body of the promissory note that he was signing on behalf, or on account, of the Society, the defendant was held personally liable.

12. Considering the facts of the present case from this angle, it is abundantly clear that the appellant was rightly held liable on the basis of the pronote executed in this case.

13. Lastly, it was urged by the learned counsel for the appellant that in paragraph 30 of her grounds of appeal before the learned Additional District Judge, Sialkot, respondent Mst. Nur Fatima bad acknowledged that she had received Re. 1,576.00 from one of the executants and she claimed only a decree for the balance of Rs. 3.424.00. This position was not contested by the learned counsel for Mst. Nur Fatima. In these circum stances, we would allow the appeal to the extent of Rs. 1,576.00. It may be noted that the respondent bad not claimed any interest. In the result, the appeal is allowed to the extent of Rs. 1,576.00, and now the respondent will only be entitled to the recovery from the appellant of the balance of the amount, namely, Rs. 3,424.00. In the special circumstances of the present case, the parties are directed to bear their own costs, K.B.A. Appeal partly allowed.