Radhakishan S/O R.S. Nathulal vs Smt.

Narainibai W/O Ramkishan

And Anr. on 8/1/1962
This is a first appeal by one of the defendants (defendant No. 2) against whom a decree
for Rs. 11,500/- and interest has been passed, presumably, in accordance with Section 35 second
part and 29 of the Negotiable Instruments Act, as the endorser of a dishonoured cheque in the
ostensible capacity of the executor of the original holder, without any express limitation of the
liability. No decree has been passed against defendant No. 1 (res. No. 2) the drawer of the
cheque, as the Court accepted his contention that the suit as framed by the plaintiff-respondent
No. 1 was bad for nonjoinder of all the heirs of the holder of the cheque. There is no appeal by
the plaintiff praying for a decree against the drawer (defendant No. 1).
The facts are practically common ground but are an unusual combination of
circumstances raising interesting questions:
(i) Whether the endorser would be liable under Section 35 of the Negotiable Instruments
Act when he endorsed it in favour and at the request of the holder's beneficiary for the
purpose of collection from the drawer by demand and if necessary by suit.
(ii) Whether the circumstances in which the endorsement was sought and given form tacit
contract saving the endorser from the liability imposed by Section 35, Negotiable
Instruments Act.
The facts for our purposes are the following. In 1945, there lived one Rai Sahib Nathulal
Mahajan at Mhow, Appellant Radhakishan is Nathulal's son. Defendant No. 1 Seth Madanlal is
his cousin or brother, (which relationship is immaterial to the controversy) and the plaintiff
Narainibai is the widow of another brother Ramkishan Mahajan. Seth Madanlal owed a sum of
Rs. 11,500/- to the Rai Sahab Nathulal, for the payment of which he drew a cheque on 5th
October, 1945 in favour of the latter. Already on the 7th September 1945, the Rai Sahib Nathulal
had executed a will nominating his son Radhakishan as the sole executor. One of the directions
in the will was that the sum of Rs. 11,500/- payable by Madanlal should, when recovered, be
given to his sister-in-law Narainibai as provision to her. The testator lived on till 17th of
December, but for reasons which are not clear, he did not, either endorse the cheque in favour of
the sister-in-law or collect the money himself by presenting the cheque to the drawee, the Indore
Bank Limited. Apparently he intended that the amount should be collected by his executor after
his death and then given to the beneficiary. When his son Radhakishan applied for probate, the
other heirs contested; after a few years, the probate was refused, the will being declared invalid,
Radhakishan did not go in appeal and that order stood. Meanwhile, giving himself out as the sole
executor, he tried without success to cash the cheque. Madanlal was creating difficulties, and by
the time the cheque was presented sometime in May 1947, it was already beyond the six months
period, and the Bank returned it dishonoured. It is obvious even if the cheque had been presented
in time, the bank would still have refused to pay; Radhakishan till had not obtained the probate.
All the time, the plaintiff was constantly worrying Radhakishan for the money, and
charging him with negligence and bad faith and threatening him with a suit. Radhakishan for his
part was pointing out his difficulties; thereupon the plaintiff wanted that the cheque should be
made over to her so that she could collect it. For reasons which are not clear, neither Narainibai
nor Radhakishan sued Madanlal for the loan as the heirs of the late Rai Sahib Nathulal after
impleading all the heirs, Narainibai in her turn, demanded payment from Madanlal, which he
refused; ultimately, upon her insistence, Radhakishan endorsed the cheque in her favour, signing
as "the sole executor." This was some time towards the end of 1947 an3 on the strength of this
endorsed cheque, she filed the present suit on 15-7-1948, within three years of the drawing of the
cheque by Seth Madanlal. Apparently, the probate proceedings were still pending and the
plaintiff was hopeful that Radhakishan would obtain probate; that is probably why she sued only
the drawer and "the executor", the former as defendant No. 1 and the latter as defendant No. 2;
the latter was sued not as the endorser of the cheque but as "sole executor of the last will and
testament of late Rai Sahib Nathulal", which capacity he never legally acquired.
Before the Civil Judge, the drawer took the position that though he had drawn the cheque,
and owed the money to the Rai Sahib, no decree could be passed against him in this suit as the
will had been declared inoperative; and it was not a suit by all the representatives of the estate of
the creditor. The defendant No. 2 took the position that he had nothing to do in the matter. He
had tried to obtain probate and to realise the money, but he had failed and therefore he was not
liable to Narainibai. The civil Court accepted the defence of the drawer, but held Radhakishan
liable not as the executor of Rai Sahib's estate which he was not, but as an endorser of the
cheque. He seems to have felt that he was liable under Section, 35 and the liability was personal
and unlimited under Section 29 of the Negotiable Instruments Act.
The defendant No. 1 is obviously satisfied, but defendant No. 2 has come up in appeal
and has urged that on the face of it, the judgment and decree are altogether inequitable and that
the endorsement he made on the cheque was really not with the purpose, covered by Sections 35
and 29 of the Negotiable Instruments Act. On the purely equitable side, it is obvious that the
decree against the endorser in these circumstances is grossly unjust. The learned Civil Judge
himself seems to have been aware of this; but he thought that he was helpless in view of the
provisions of the said Act. The plaintiff does not in appeal ask for a decree against defendant as
well.
A person signing his name on an instrument might be doing so, either as a drawer or
endorser. He would be personally liable in that capacity provided the endorsement or signature is
in itself one in the circumstances calculated to create liability. In other Words, the circumstances
have to be examined to see whether there is an express or tacit contract to the effect that the
writing or the endorsement as the case may be, is made not the undertaking of the liability, or the
guarantee of liability of the original drawer or the earlier endorser. In this case for example, it
was not intended either by the plaintiff or defendant No. 2 that the latter should guarantee the
payment by the drawee. All that was intended was that the latter having failed in enforcing
payment by the drawer of the cheque, the plaintiff should try to collect the amount at the first
instance by making a demand on the drawer, and on his failure, by bringing a suit. We have
before us the correspondence between the plaintiff and defendant No. 1 as also her clear
averments in the plaint. The plaintiff charges Radhakishan with retaining the money and calls
upon him to pay it up with interest (Notice of 22-11-1947). In reply, Radhakishan points out that
his father's direction in the will was that the executor should collect and pay the money to the
plaintiff but actually, be had not succeeded in doing so. As things turned out, he could never
succeed because the Court declared the will to be invalid and inoperative. He made a straight
offer to the plaintiff that if she wanted to take the matter to the Court and to collect the money,
she could please herself. It was in these circumstances that he returned the cheque. The plaintiff
also understood the position clearly because soon after the cheque, she noticed Madanlal drawer
calling upon him to re-pay the debt with interest, failing which she threatened him with a suit
notice dated 9th April 1948). The drawer, while admitting his liability to the estate of late Rai
Sahib, wanted to see the will and know who had been put in charge of the estate. Things did not
progress because the plaintiff insisted on payment and the drawer was equally insistent on being
satisfied about the validity of the will. The position therefore was clear both to the endorser and
the plaintiff that the endorsement was not a guarantee of payment, or an undertaking that the
endorser himself would pay, but only a step which, whether it was really necessary or not, both
of them thought was necessary before she could sue the drawer. These circumstances amount to
a clear contract that the endorsement in the special circumstances was not really one calculated
to render the endorser liable under Section 35 of the Act.This is also clear on the plaintiffs own
averment in the plaint. Having described defendant No. 2 as the sole executor, the plaintiff goes
on to say:
"In spite of his (defendant No. 2) repeated efforts, the cheque could not be cashed and eventually
it was returned to the plaintiff. Later on, the defendant No. 2 endorsed the cheque in favour of
the plaintiff to enable her to recover the amount due thereon."
In other words, the endorsement is a mere direction to the plaintiff to collect the amount on
behalf of the estate of the late Rai Sahib, and then retain in accordance with his direction in the
will. In our opinion in these circumstances, the endorser is not liable. Certainly in the event of
the endorser being liable, he should be liable personally, because the mere description as
executor has not the effect of restricting the liability for the purposes of. The result is that in the
circumstances of the case, Radhakishan defendant No. 2 is not liable though he has endorsed the
instrument. The appeal is accordingly allowed and the decree and judgment of the lower Court
are set aside. Costs throughout payable by the plaintiff to appellant-defendant No. 2 Radhakishan
according to rules. Defendant No. 1 should bear his own costs.