Gobindjee Madhwajee and Co. Ltd. vs C.J. Smith and Another

This is an appeal by defendant 1, Gobindjee Madhawjee & Co., Ltd., against the decree of the Subordinate Judge of Dhanbad setting aside an ex-parte decree for Rs. 1,03,813-11-2 obtained by him against the plaintiff in the High Court at Bombay on 28th March 1922 on the ground of fraud. The plaintiff C.J., Smith, the proprietor of the Bagdighi Colliery at Jharia, alleged in his plaint that in 1916 he entered into an agreement with the defendant second party P.S. Mehanti and Company, a firm carrying on business in Bombay, for the supply of 100,000 tons of rubble coal. The firm advanced one lakh of rupees against this agreement which was to be repaid by the deduction of one rupee per ton out of the price of the coal supplied. Three promissory notes were executed in further security of the loan; one on 2nd May 1916 for Rs. 35,000 and two on 27th June 1916, one for Rs. 35,000 and the other for Rs. 30,000. As the Government took over the control of coal, the plaintiff was unable to supply the coal according to the contract and the promissory notes were renewed by three fresh promissory notes one on 2nd May 1919 for Rs. 35,000 and two others on 27th June 1919 for Rs. 35,000 and Rs. 30,000. On 14th August 1920 the plaintiff entered into a new agreement with the firm and in pursuance of that agreement paid to the defendant firm on 8th January 1021, through the Bank of Baroda Limited, Rs. 3,60,000 the balance of the sum due under that agreement, and Rs. 92,000, the balance of the debt due on the original contract for rubble coal after crediting a sum of Rs. 8,000 for rubble coal supplied; and on the same day the firm granted a receipt in full discharge of their claims. Notwithstanding this agreement and receipt the defendant company brought the suit above referred to and obtained a decree.

It is alleged in the plaint that the summons which purported to have been received on behalf of the plaintiff by one Sachindri Mohan was not in fact received by his clerk Sachindra Mohan Nag and that the signature purporting to be his was a forgery. It was farther alleged that the plaintiff believed that the defendant firm had in collusion with the defendant company falsely endorsed the promissory notes in favour of the latter without any consideration and after they had been fully satisfied; and that the ex-parte decree was obtained by fraudulently suppressing the summons.

In their defence the defendant company denied that the sum of Rs. 92,000 or any other sum had been paid on account of or against the three promissory notes and pleaded that the agreement and receipt by the defendant firm had no connexion with the three promissory notes inasmuch as the defendant firm had endorsed and delivered the three promissory notes to the defendant company long before the agreement and receipt. It was alleged that the original advance of one lakh of rupees was made by the defendant company to the defendant firm and that the original promissory notes were endorsed to them and that after renewal the renewed notes were also endorsed on or about the date of renewal and delivered to the defendant company. It was further alleged that by a letter dated 8th August 1921 addressed to the plaintiff and sent by registered post, the defendant company through their solicitors had demanded payment, but that no reply was received and that the suit was then instituted in the High Court and summons was duly served. It was further alleged that Sachindra Mohan Nag was the personal clerk of the plaintiff and worked in his bungalow and used to receive registered parcels and postal packets for him; and that he received the summons on his behalf and the plaintiff was fully aware of the same. The defendant company denied that there was any collusion about the endorsement of the promissory notes.

After this written statement was filed and evidence had been taken on commission, the plaintiff amended his plaint by referring to an agreement entered into between the defendant firm and the defendant company in June 1916. He further alleged that endorsement of the notes of 1916 in favour of the defendant company was kept concealed from the plaintiff who all along believed that they were in possession of the defendant firm. He further referred to a loan of twenty-five lakhs of rupees taken from the Bank of Baroda on a first mortgage of the Colliery, the plaintiff putting an end to the contract for rubble coal; and the mortgage deed in favour of the Bank and the receipt and release dated 8th January 1921 were all drawn up by Messrs Orr Dignam & Company and they were both executed about the same time and the Manager of the Bank of Baroda was fully aware of the deed of release executed by the defendant firm and the sum of Rs. 92,000 covered by the receipt was left with the said Manager for payment; and the plaintiff stated his belief that the defendant company was fully aware of the mortgage deed, one of the debts guaranteed by them having been repaid out of the same mortgage money and that the sum of Rs. 92,000 had been paid by the Bank of Baroda to the defendant company in full payment of the promissory notes and that after the satisfaction thereof the defendant firm made a false and fictitious endorsement in favour of the defendant company.

The learned Subordinate Judge held that the signature of Sachindra Mohan on the postal acknowledgment was false and fabricated and that he never received the summons sent by registered post. He farther found that the amount, due to the defendant firm was left with the Manager of the Bank of Baroda and that after correspondence over the payment of Rs. 92,000 between the Bank of Baroda and the defendant company, the amount was (as now admitted) paid to the defendant company on behalf of the defendant firm on 24th January 1921. He held that the amount received in cash from the plaintiff was paid over to the defendant company thus loading again to the inference that the payment could not have been made on any other account than on account of the advance of one lakh of rupees and that the plaintiff fully paid up the loans secured by the promissory notes which he had executed against the contract of 1916 and for which he gave fresh promissory notes in 1919. He referred to the fact that the endorsements on the renewed notes were undated and to the fact that the plaintiff admittedly was unaware of the transfer of the promissory notes to the defendant company at least before August 1921. He was of the opinion that although the instruments were in the form of promissory notes, they were not in effect promissory notes because they had to be read along with the agreement for the supply of coal, the whole constituting one contract, and neither the defendant firm nor the defendant company regarded the promissory notes in any other light. The notes, therefore not being negotiable but merely chooses in action notice of transfer was necessary; but no notice of transfer was given until long after the notes had been paid. He referred to the fact that the correspondence between the defendants company and the Bank of Baroda had not been produced and was of opinion that this would have explained the real nature of the transaction and that Rs. 92,000 was paid to the defendant company. He further held that this payment had been credited to the personal account of the defendant firm and not to the point account which stood in the names of the plaintiff and the defendant firm, because the defendant firm was heavily indebted to the defendant company and there was very little prospect of repayment of the debt. With regard to the demand said to have been made in August 1921, the learned Subordinate Judge was of the opinion that the signature of the plaintiff on the postal acknowledgment was not genuine. On these findings he set aside the decree and granted an injunction restraining the defendant company from executing it.

The first question that arises is as to the service of summons.

The facts which may be said to have been proved in this connexion, are briefly these: On 6th February 1922, the solicitors on behalf of Gobindjee & Company addressed a letter to the Prothonotary of the Bombay High Court asking him to transmit the duplicate writ of summons by registered post to the address of Mr. Smith at Hirapur in the District of Dhanbad to be served on him there. This letter is Ex. 3 in the case and the summons is Ex. 59 and dated 3rd February 1922. Ex. W is a postal receipt dated 8th February 1922 and showing that a registered letter addressed to Charles, J. Smith at Hirapur, District Dhanbad, was received at the Church Gate Street Post Office, Bombay. Ex. 26 is a postal acknowledgment, dated 11th February 1922, showing that a registered letter addressed to Charles, J. Smith Esq., at Hirapur, District Dhanbad, was received on his behalf and the person who received it signed his name as follows: "Sachindra Mohan for Charles, J. Smith Esq." This acknowledgment appears to have been received in the Prothonotary''s office on 16th February 1022. On 22nd March 1922, one Sadasiv Bal Krishna Joglekar, a clerk in the Prothonotary''s office, swore an affidavit to the effect that summonses had been sent by registered post to the defendants in the suit and the postal acknowledgment relating to the summons addressed to Mr. Smith had been received in the Prothonotary''s office and was annexed with the affidavit.

It is contended on behalf of the respondents that these facts do not constitute even prima facie proof of service of summons. It is said that there is no evidence on the record, that it was Sachindra Mohan Nag (P.W. 1) who had received the registered letter, nor is it proved that he had any authority to receive any registered letters on behalf of Mr. Smith. Reference is also made to Order 5, Rule 15, Civil P.C., wherein it is provided that service of summons may be made on any adult male member of the family of the defendant who is residing with him and it is further provided that a servant is not a member of the family within the meaning of this rule, It is also contended that there is no evidence on the record to show that Mr. Smith was at all aware or made aware of the summons having been received on his behalf.

In our opinion it is unnecessary to go into this question, specially in view of the fact that the matter is really governed by the rules framed by the Bombay High Court and that it appears from Ex. 18, the decree passed by the Bombay High Court, that in the present case the service of the summons was considered to have been prima facie proved and the Court proceeded to pass an ex-parte decree. At the same time, however, it is clear that the evidence as to the service of summons in the present case is of a very meagre character and once it is brought into question very slight evidence would be necessary to displace it. In the case of Sunder Spinner v. Makan Bhula AIR 1922 Bom. 377 Macleod, C.J., observed as follows:

We need say no more in this case than that the defendant on representing to the Court that he had not been offered the postal picket was entitled to a retrial. Service by registered post is at any time a poor substitute for personal service which is directed by the Court. It is allowed to litigants as a matter of convenience. But when sitting on the original side I have invariably allowed a defendant a re-trial, if after the decree had been passed against him on evidence that the summons was sent by registered post and returned refused he appeared and denied that the packet had ever been delivered to him by the postal authorities.

Thus if the only question in the present case had been as to whether the summons was served on Mr. Smith or not, there would have been no difficulty in answering it in the negative having regard to the evidence of Mr. Smith and other circumstances of the case.

But in this case we have not only to be satisfied that there was a deliberate and fraudulent suppression of such service. The evidence, therefore, of Sachindra Mohan Nag is of very great importance in this case and we had carefully to go through it with the assistance of the learned Counsel for the appellants as well as the learned advocate for the respondents. (The judgment then, while discussing the evidence, proceeded.) It is urged on behalf of the appellants that the onus being on the plaintiff in this case, it was his duty to have examined the postal peon who was entrusted with the delivery of the registered letter in question and also the handwriting expert to prove that the signature on Ex. 26 is a forged one. There is no doubt that the onus is primarily on the plaintiff in this case. But once we find sufficient materials to believe the evidence of Sachindra Mohan Nag, there will be no difficulty in deciding the case even though the witness referred to has not been examined. Then again there is nothing on the record to show who this postal peon was, and assuming that a fraud was really committed in this case and the registered letter was not delivered to P.W. 3 in consequence of the fraud, it is apparent that the postal peon, whoever he may have been, must have been a party to it and it is unreasonable to expect that he would depose truthfully to circumstances which would necessarily tend to incriminate himself.

As to the handwriting expert not having been examined, we may quote the following passage from Dr. Lawson''s work on the Law of Expert Opinion and Evidence which has also been quoted in Re. Venkata Rao [1912] 36 Mad. 159:

The evidence of the genuineness of the signature based upon a comparison of handwriting and of the opinion of experts is entitled to proper consideration and weight. It must be confessed, however, that it is of the lowest order of evidence or of the most unsatisfactory character. We believe that in this opinion experienced laymen unite with members of the legal profession. Of all kinds of evidence admitted in a Court this is the most unsatisfactory. It is so weak and decrepit as scarcely to deserve a place in our system of jurisprudence.

Dr. Lawson has perhaps used too strong language in deprecating the value of expert opinion in cases of disputed handwritings, and we are not prepared to go so far as he has gone. But it is a fact that in a large number of cases the Courts have hesitated to base their conclusions entirely upon expert opinion. In our opinion the absence of expert evidence in the present case does not constitute any real difficulty in the way of deciding It. (The judgment then further examined the evidence and proceeded.) We, therefore, agree with the finding of the learned Subordinate Judge that the signature on Ex. 26 is not the signature of P.W. 1, Sachindra Mohan Nag and it has been fabricated by some one else.

Once we are satisfied that the summons was suppressed in this case, it is permissible to us to examine the merits of the claim on which the ex-parte decree was based. As was pointed out in the case of Damodar Pershad v. Ramsarup Kumar AIR 1923 Pat. 327.

if the Court comes to the conclusion that the summons was not in fact served upon the defendant, it is at liberty to examine the evidence with a view to find out whether there was any foundation for the previous suit and for the purpose of enabling it to decide whether the failure of service of summons was accidental or deliberate.

Before, however, we proceed to discuss the merits of the case and the question raised on behalf of the plaintiff that he had a fair defence to the suit brought in Bombay by defendant 1, we wish to consider the allegation made on behalf of defendant 1, that before they instituted the suit in Bombay they, had sent through their solicitors "a notice of demand" to the plaintiff in which they had asked him to pay up the dues under the three pronotes of 1919 and had also informed him that the said pronotes had been endorsed to them by Mehanti & Co. We propose to examine this question because both the learned Subordinate Judge and the appellants have laid great stress on the importance of the notice. In fact the learned Subordinate Judge goes so far as to say that if this notice was indeed sent as alleged it would take away all foundation of fraud. The learned Counsel for the appellant, although he does not put the case so high, contends that if this notice is proved to have reached Mr. Smith, it will, in the first instance, greatly discredit the veracity of Mr. Smith; and in the second place, it will make his allegation of fraud highly improbable. (The judgment then proceeded to examine the evidence as regards the alleged notice and holding that no such notice had been received by the plaintiff, proceeded.) The question is whether Mr. Smith had a defence to the suit brought against him and this depends principally upon whether the promissory notes had been satisfied before the suit was brought. It is clear that as to the interest claimed against him he had a good defence, because he was not liable to pay interest under the agreement for the supply of coal. The argument on behalf of the appellant is that the notes of 1916 and the renewed notes of 1919 were on their face negotiable instruments and the appellant was a holder in due course. The suit was brought within time and the only defence that could be taken was to show that payment had been made to the holder of the instruments: Section 78, Negotiable Instruments Act, 1881. But the respondent does not prove payment to the appellant and, therefore, there was no defence to the suit.

As to the view taken by the learned Subordinate Judge that these instruments were not negotiable because they were controlled by the contemporaneous agreement in 1916, it is contended in the first place that the agreement has not been properly proved. The original is said to be missing, but according to the evidence of Mr. Smith it was executed in duplicate and the duplicate was not called for from the defendant firm. Moreover, the agreement which was for three years was not renewed when the notes were renewed, and consequently they stood clear of the agreement even if it had attached to the original notes. The agreement was exhausted and the renewed notes at all events were promissory notes and nothing else, and in any case the agreement was definitely put an end to in August 1920 before the notes were satisfied. It is contended further that there is no proof that the notes were satisfied to the knowledge of the appellant. The best evidence of payment would have been the production of the notes which Mr. Smith admittedly did not receive back and the receipt which he took from the defendant firm when Rs. 92,000 was paid does not refer to the promissory notes at all.

Now we shall assume for the present that these documents are negotiable instruments as in fact they appear to be on their face. (The judgment then dealt with the evidence as to satisfaction of the notes and holding that they had been satisfied proceeded). So far we have dealt with the case on the assumption that the notes were promissory notes, but it seems plain that they were not. They were, as Mr. Smith says, additional security for the one lakh of rupees which was the subject-matter of the agreement entered into between him and Mehenti. The original of this agreement was missing and a draft was tendered in evidence but the Court; did not receive it. In these circumstances in our opinion, secondary evidence could be given and Mr. Smith has stated what the agreement was, namely that the money advanced was to bear no interest and was to be deducted from the price of coal at one rupee per ton on dispatch. This is also found from the defendant''s own evidence Exs. O and P. Ex. O is a letter from Mehenti and Company to Gobindjee on 2nd May 1916 when the first advance of Rs. 35,000 was made and there it is stated that according to their agreement with Mr. Smith they were to deduct one rupee per ton as the rubble was delivered to them from his bills and the said amount as deducted would be paid to Gobindjee by Mehenti every month and that the whole amount was to be paid within three years.

In Ex. P which is a mere elaborate agreement on 27th June 1916 when the balance of the lakh of rupees was advanced, there is the same undertaking to deduct from the price of every ton of coal delivered by C.J. Smith, one rupee and to pay the amount of the deduction to Gobindjee and Company at their office in Bombay. It was also stipulated as between them that the promissory notes were to be negotiable, but it was provided that any repayment made should be endorsed on the notes. This was evidently no part of the agreement between Mr. Smith and Mehenti and is not binding on the plaintiff. But these documents are sufficient to show that these notes were controlled by the agreement and were in fact not negotiable instruments because they were to be satisfied by the supply of coal. We have referred to the argument based upon the fact that the agreement was not renewed in 1919; but Mr. Smith has explained that there was no need to renew it because it was effective until all the contracts were cancelled in 1920, and this must evidently be the case. It was an agreement for the supply of 100,000 tons of coal and the fact that three years had elapsed without coal being supplied by reason of the Government control would not put an end to the agreement. And, as the learned Subordinate Judge has pointed out, if the instruments were not originally negotiable, they would not become negotiable by the cancellation of the agreement in 1920. It is significant that in the written statement the defendant denies all knowledge of the agreement for the supply of coal although this denial is plainly falsified by Exs. O and P; and he also professes ignorance of the payment of Rs. 92,000. The defence developed at the trial, that this sum was paid on P.S. Mehenti''s personal account, finds no place in the written statement which is confined to a bare denial that Rs. 92,000 was paid on account of the promissory notes in suit.

On a consideration of the whole evidence there is in our opinion no room for doubt that the plaintiff had a good defence to the suit in Bombay and that the suit was fraudulent because the claim made in the suit had already been satisfied to the knowledge of the claimant.

Our conclusions in this case may be summed up as follows:

(1) That there was no service of summons on Mr. Smith.

(2) That this is not a case of mere non-service due to accident but a case of deliberate suppression of service as evidenced by the fact that the signature of Sachindra Mohan was fabricated.

(3) That Mr. Smith had a fair defence to make if he could have appeared to defend the suit at Bombay which was decreed ex parte against him on account of his non-appearance.

(4) That defendant 1 suppressed a number of material facts when he brought the suit at Bombay.

(5) That he must have been aware that the sum of Rs. 92,000 which he got through the Bank of Baroda was paid on account of the three promissory notes executed by Mr. Smith in favour of Mehenti and Company.

On these findings we are of opinion that this suit was correctly decided by the learned Subordinate Judge and we dismiss the appeal with costs.