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IN THE HIGH COURT OF BOMBAY
Desai S.T, J.
Appellants: Sunderdas Sobhraj
Vs.
Respondent: Liberty Pictures
Suit No. 296 of 1951
Decided On: 28.11.1955
Counsels:
For Appellant/Petitioner/Plaintiff: Banaji and K.K. Desai, Advs.
For Respondents/Defendant: B.J. Kapadia and Laud, Advs.
PARTNERSHIP - AUTHORITY OF PARTNER - IMPLIED AUTHORITY - DRAWING OF CHEQUE IN OWN FAVOUR - HOLDER IN DUE COURSE - NEGOTIABLE INSTRUMENTS ACT, SECTION 9 - PARTNERSHIP ACT, SECTION 19.
Fact of the Case:
The Plaintiffs sued to recover two sums of Rs. 5000 and Rs. 34,000 with interest from the Defendants, a partnership firm. The Plaintiffs claimed that they had lent and advanced to the Defendants Rs. 10,000/- at interest on 16-6-1948 and as collateral security for repayment of that loan, Jamnadas, a partner of the Defendants, delivered to the Plaintiffs a post-dated cheque for Rs. 10,000/- drawn on behalf of the Defendants by Jamnadas and made out in favour of the Plaintiffs. The cheque was presented by the Plaintiffs on 20-3-1949 and again on 22-6-1949 but it was dishonoured. A sum of Rs. 5000/- was paid by the Defendants to the Plaintiffs in part payment on 12-7-1949 and the balance of Rs. 5000/- was the subject-matter of one of the claims of the Plaintiffs in this suit. The Plaintiffs also claimed that on 5-8-1949 they had lent and advanced to Messrs. Jamnadas & Co., of which Jamnadas was the sole proprietor, a sum of Rs 34,000 at interest. As collateral security for repayment of that loan of Rs. 34,000 Jamnadas delivered to the Plaintiffs a crossed and bearer cheque for Rs. 34,000/- which was post-dated 20-8-1949. That cheque was drawn by the Defendants in favour of Jamnadas & Co., and was signed on behalf of the Defendants by Jamnadas, as a partner of the Defendants firm. Jamnadas endorsed over that cheque as the proprietor of Jamnadas & Co. in favour of the Plaintiffs, when he handed over the same as security for the personal loan of Rs. 34,000/-. The cheque was presented by the Pltffs. for payment but was dishonoured. The Defendants denied their liability in respect of both the sums of Rs. 5,000/- and Rs. 34,000/-.
Finding of the Court:
The Court held that the implied authority of a partner to draw cheques in the name of the firm where it ex facie appears that a negotiable instrument is made by a partner purporting to act on behalf of the firm and given to secure his private debt, the first thing to be ascertained is whether he had authority, express or implied, to do so. In the present case, there was no evidence to show that Jamnadas was expressly authorised by his partners to draw this postdated cheque in his own favour. The Court also held that the Plaintiffs were not holders in due course of the cheque for Rs. 34,000/- as they had sufficient cause to believe that there was a defect in the title of Jamnadas, who had drawn and endorsed the cheque in his own favour.
Issues: 1. Whether the implied authority of a partner to draw cheques in the name of the firm where it does exist can also extend to drawing by such partner of a post-dated cheque in his own favour and- then endorsing it in favour of a third party who is aware of the fact that the post-dated cheque has in fact been drawn by- such partner in his own favour? 2. Whether a third party who is the endorsee of the post-dated cheque for consideration can in such a case without proving anything more prefer a claim to be a holder in due course? 3. Whether it would be incumbent on the endorsee of the post-dated cheque in any such case to show that he did not have sufficient cause to believe that any defect existed in the title of the payee, that is, the person from whom he derived his title?
Ratio Decidendi: The Court held that a partner's implied authority to bind the firm is restricted to acts usually done in the business of the kind carried on by the firm. Drawing a cheque in one's own favour and then endorsing it in favour of a third party to secure repayment of one's own separate debt is not an act usually done in the business of a firm. Therefore, Jamnadas did not have the implied authority to draw the cheque in his own favour and endorse it in favour of the Plaintiffs. The Court also held that the Plaintiffs were not holders in due course of the cheque because they had sufficient cause to believe that there was a defect in the title of Jamnadas, who had drawn and endorsed the cheque in his own favour.
Final Decision: The Court decreed for the Plaintiffs against the defendants for Rs. 5000/- with interest thereon at 6 per cent, per annum from 19-6-1949 till judgment. There was no order for costs and each party bore its own costs.
1. The Plaintiffs sue to recover two sums of Rs. 5000 and Rs. 34,000 with interest from the Defendants. The Defendants are a partnership firm of which at all material times the partners were according to the Plaintiffs Jamnadas, Lavji, Abbasbhai and Vyas.
It is the Plaintiffs case that on 16-6-1948 the plaintiffs lent and advanced to the Defendants for the purposes of their business a loan of Rs. 10,000/-at interest. As collateral security for repayment of that loan Jamnadas, who had approached the Plaintiffs for the loan, delivered to the Plaintiffs a postdated cheque for Rs. 10,000/-. That cheque which was post-dated 19-6-1949 was drawn on behalf of the Defendants by Jamnadas and made out in favour of the Plaintiffs.
The cheque was presented by the Plaintiffs on 20-3-1949 for payment and again on 22-6-1949 but it was dishonoured. The memo of the Bank showed the remarks : "not arranged for". The Plaintiffs intimated about the dishonour of the cheque to all the partners of the Defendants and called upon them to pay the Plaintiffs that amount.
A sum of Rs. 5000/- was paid by the Defendants to the Plaintiffs in part payment on 12-7-1949 and the balance of Rs. 5000/- is the subject-matter of one of the claims of the Plaintiffs in this suit. At the hearing of the suit the Defendants gave up their contention that they were not liable to repay this amount of Rs. 5000/-.
2. It is also the case of the Plaintiffs, and that is now the subject-matter of dispute between the parties, that on 5-8-1949 the Plaintiffs lent and advanced to Messrs. Jamnadas Co., of which Jamnadas was the sole proprietor, a sum of Rs 34,000 at interest. As collateral security for repayment of that loan of Rs. 34,000 Jamnadas delivered to the Plaintiffs a crossed and bearer cheque for Rs. 34,000/- which was post-dated 20-8-1949. That cheque was drawn by the Defendants in favour of Jamnadas Co., and was signed on behalf of the Defendants by Jamnadas, as a partner of the Defendants firm. Jamnadas endorsed over that cheque as the proprietor of Jamnadas Co. in favour of the Plaintiffs, when he handed over the same as security for the personal loan of Rs. 34,000/-.
The cheque was presented by the Pltffs. for payment but was dishonoured. On 24-8-1949 the Plaintiffs through their attorneys addressed letters to all the partners of the Defendants calling upon them to pay the amount of Rs. 34,000/-. In the correspondence that ensued between the parties the Defendants denied their liability in respect of both the sums of Rs. 5,000/- and Rs. 34,000/-.
3. Various contentions were raised by the Defendants in their written statement but the sole contention that was urged at the hearing of the suit was that although Jamnadas was a partner of the Defendants with full powers to manage the affairs of the Defendants and the power to borrow moneys and operate on banking account of the defendants, he had no authority either express or implied to draw, sign or deliver to the Defendants the cheque in dispute by making the amount payable to his firm of Jamnadas Co., i.e. to himself.
It was also urged that the Plaintiffs knew that the cheque was drawn by Jamnadas in his own favour and that they were consequently on the facts and circumstances of the case not entitled to claim to be holders-in-due course of this cheque. As the Defendants gave up a number of contentions raised by them in their written statement it is not necessary to summarise their defence here. Most of the facts are not disputed and the brief evidence to which I shall immediately refer clearly chows that the facts are mostly not disputable.
4. Laxmichand Sobhraj, a partner in the Plaintiffs firm was examined on behalf of the Plaintiffs. He stated that he attended to the monetary transactions in dispute. He said that he knew that in the Defendant firm there were four partners, viz. Jamnadas, Lavji, Abbasbhai Kagalwalla and Nanubhai Vyas. He knew Jamnadas and Lavji since 1947, and both of them had dealings with his
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