Dishonor of a cheque alone cannot establish a debt claim without proof of underlying consideration; subsequent agreements may signify novation of prior contracts.

JUDGMENT :

K. SUJANA, J.

1. This Appeal Suit is filed challenging the judgment and decree dated 19.11.2007 made in O.S.No.119 of 1999 on the file of the Principal Senior Civil Judge, Warangal.

2. The appellants herein are defendant Nos.1 and 3, respondent No.1 herein is plaintiff, and respondent No.2 herein is defendant No.2, in O.S.No.119 of 1999. For the sake of convenience, the parties herein are referred to as arrayed in suit.

3. The brief facts of the case are that the plaintiff instituted the suit on 07.06.1999 against defendants 1 to 3 seeking recovery of Rs.3,70,000/- with future interest, cancellation of a gift deed executed by defendant No.1 (D1) in favour of defendant No.3 (D3), and a declaration that the said deed is null and void. The plaintiff alleged that on 01.10.1997, defendants 1 and 2 (D1 and D2) borrowed Rs.3,70,000/- and executed two promissory notes, one for Rs.2,00,000/- and another for Rs.1,70,000/, marked as Ex-A12 and Ex-A13, with D2 as executant and D1 signing as guarantor. The copies of these notes were marked as Ex-A4 and Ex-A5 respectively. To discharge the debt, D1 issued cheque dated 10.10.1998 for Rs.3,70,000/- in favour of the plaintiff (Ex-A1), which was dishonoured on 30.11.1998 with the bank endorsement “Party reported to stop operation in the account and insufficient funds” (Ex-A2). A torn bank slip evidencing the transaction was marked as Ex-A3. The plaintiff issued a legal notice demanding payment (Ex-A6) and also published a notice in Vaartha Telugu Daily (Ex-A7). A complaint under Section 138 of the Negotiable Instruments Act was filed and marked as Ex-A10. The plaintiff relied on an agreement of sale dated 29.04.1998 executed by D2 for transfer of his computer business (Ex-A11), and a similar agreement by D1 (Ex-A15). The original promissory notes were later received by the plaintiff through postal cover from the USA, marked as Ex-A14.

4. D1, in her defence, denied liability and contended that the cheque was issued to Ushodaya Finance, though no evidence from the said entity was produced. She asserted that the house was gifted to D3 through a registered settlement deed dated 25.04.1998 (Ex-A9), the original of which was marked as Ex-B3. D1 also relied on the complaint filed by the plaintiff (Ex-B1) and the deposition of PW1 in the criminal case (Ex-B2). The plaintiff examined himself as PW1 and one attesting witness to the promissory notes, PW2 Indrasena Reddy, who confirmed execution and consideration. D1 was examined as DW1, while D2 and D3 were set ex parte.

5. Upon evaluating the oral and documentary evidence, the trial Court found that D1 had indeed signed as guarantor on Ex-A12 and Ex-A13, and issued Ex-A1 cheque towards discharge of the debt. The signatures on the cheque and promissory notes matched those on D1’s written statement and vakalathnamas. The trial Court rejected the defence of novation of contract and held that the suit was maintainable for recovery of the amount. It was further observed that the gift deed (Ex-A9/Ex-B3) was executed with intent to defraud creditors and was liable to be cancelled. Accordingly, the suit was decreed in favour of the plaintiff. Aggrieved thereby, this Appeal Suit is filed by the appellants who are defendant Nos.1 and 3 in the suit.

6. Heard Sri V.Ramchander Goud, learned counsel for appellants, and Sri MV. Rama Rao, learned counsel for respondents.

7. Learned counsel for the appellants submitted that the impugned judgment is contrary to law, unsupported by evidence, and based on conjectures, resulting in grave injustice. He contended that the registered gift deed dated 25.04.1998 executed by appellant No.1 in favour of appellant No.2 preceded the alleged cheq