S. Sajjar Rao, S. M. Ramakrishna Rao and Co. vs The Kothari Textiles

V. Sethuraman, J.—This appeal has been filed by the plaintiff in O. S. No. 8837 of 1972. The suit came to be filed in the following circum

stance. The plaintiffs by name Messrs. S. Sajjan Rao. S. M. Ramakrishna Rao and Co., were the selling agents for Lakshmi Vishnu Cotton Mills

Limited, Sholapur for the Madras City and other areas. It was stated that on account of the goods sold to the defendants, a sum of Rs. 1,593.67.

was due and owed by the defendants to the Mills and that on 27th July, 1969, the Mill drew a bill of exchange on the defendants in the Sight Draft

No. 2524 for Rs. 1,593-67. The ""drawee in case of need"" in that bill was said to be the plaintiffs. The goods were despatched by Lakshmi Vishnu

Cotton Mills from Sholapur to the defendants and the relevant documents ware sent through a bank. The defendants dishonoured the bill and the

amount was alleged to have been adjusted in the accounts of the mills in the folio for the plaintiffs in December, 1970. The plaintiffs, therefore, filed

a suit for recovery of Rs. 2,537.67 with further interest on the sum of Rs. 1,593,67 from the date of the plaint to the date of payments. The

defendants contended that there was no privity of contract between the parties to the suit and therefore the suit was liable to be dismissed in limine.

It was also stated that payments had been made to the mills and that the mills never demanded any amount from the defendants.

The learned trial Judge went into the question whether there was privity of contract between the plaintiffs and the defendants. It was held that

there was privity. However, the decree was passed only with reference to the sum of Rs. 778.47 with interest at 12 per cent. per annum from 27th

July, 1969. The suit was thus decreed for Rs. 1,225.41 with proportionate costs.

There was an appeal by the defendants against this judgment which came before the III Additional Judge, City Civil Court, Madras. He went

into the question whether the plaintiffs were entitled to the entire suit claim or only to the amount as decreed by the trial Court. He held that there

was no evidence to suggest that the plaintiffs were in the position of surety, that they undertook the obligation to pay the amount due from the

defendants to the mills and that they had become subrogated to the rights of the mills. In this view, the appeal was allowed and the judgment and

decree of the trial Court were set aside. There was also cross-objection by the plaintiffs with reference to the balance that was not decreed and the

cross objection was dismissed. The plaintiffs have come forward with the present appeal.

The learned Counsel for the appellant contended that the bill of exchange bearing No. 135 mentioned the appellant as a ''drawee in case of

need'' and, that as a person who had paid the bills he was entitled statutorily to be treated as a surety and that therefore the plaintiff could recover

the full amount. The learned Counsel for the respondents submitted that this is not a case in which the plaintiff came forward with any suit on a bill

of exchange in which he was a drawee in case of need and that in any event, the bill has not been presented by the Bank to the appellant as such

drawee so that he would be entitled to the protection of the provisions of the Negotiable Instruments Act. He submitted that the Court below had

acted rightly in dismissing the suit completely.

Before proceeding further, it may be mentioned that Exhibit A-2 is a document produced by the plaintiffs. In that document, several bills drawn

against the defendants are mentioned along with the respective amounts due under each of those bills. Bill No. 135 is one those bills and the

amount due thereunder is Rs. 1,572,37. The total amount due from the defendants in respect of the several bills came to Rs. 26,401.15. The

defendants had paid by demand drafts an aggregate of Rs. 25,901.15. There was thus a balance of only Rs. 500, which according to the

defendants would alone be due. Even with reference to this sum, the defendants pleaded certain adjustments which have been rejected by the

Court below. Therefore, on the basis of Exhibit A-2, itself, the amount due would only be Rs. 500 with interest.

The suit does not appear to have been filed on the basis of a bill of exchange or a hundi under Bill No. 135 for a sum of Rs. 1,575.57, having

been drawn against the defendants. In paragraph 4 of the plaint it is stated that the sum of Rs. 1,573-67 was due in respect of the said bill.

However, on a reference to Exhibits A-4 and A-5, it is found that the amount due under draft No. 2594, dated 28th July, 1969(Invoice No. 135)

was Rs. 1,573 67. That was admittedly the amount with reference to which the present suit has been filed.

The question that now arises for consideration is whether the plaintiffs would be entitled to the amount due under Exhibits A-4 and A-5- Though

the original bill of exchange has not been marked, it is common ground that the plaintiffs have been mentioned as ''drawee in case of need'' in the

said bill. The plaintiffs would, however, have to pay only that amount which remained unsatisfied with reference to the said bill and cannot be made

to pay any larger amount as claimed from the defendants As already seen, a sum of Rs. 26, 401-15 was the total of the several bills and a sum of

Rs. 25,901.15 had been paid. It was not suggested that there was any independent transaction that was not covered by Exhibit A-2. There was

thus a balance of only Rs. 500 and if really the plaintiffs paid anything more to the Mills, then it cannot be on account of the defendants. Therefore,

the plaintiffs would be entitled only to a sum of Rs. 500 with interest after 45 days from the due date, 30 days from the date of draft was given as

the grace period and there was a retention period of 15 days after due date The date of the invoice is 28th July, 1969, and therefore, after the

expiry of the 45 days period from that date, the defendants would have to pay interest as agreed to between the parties.

The question that now remains to be considered is whether the plaintiff is entitled to recover the said sum. One of the contentions taken before

the lower Court was that the plaintiff is in the position of a volunteer and that the plaintiff cannot seek to recover the amount which he volunteered

to pay. Ordinarily, when an amount is due under a bill of exchange, a person should make the claim either as a holder in due course or as an

endorsee. In the present case, there is no endorsement.

The meaning of the word ''drawee in case of need'' has been defined in Section 7 of the Act as follows:

The maker of a bill of exchange or cheque is called the ''drawer'', the person thereby directed to pay is called the ''drawee''. When in the bill or in

any endorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need, such person is called a

''drawee'' in case of need.

It is not necessary to refer to the rest of the provision. Section 91 reads

A bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of several drawees not being partners, makes default in

acceptance upon being duly required to accept the bill, or where presentment is excused and the bill is not accepted.

Section 115 which deals with the position of a drawee in case of need provides:

Where a drawee in case of need is named in a bill of exchange, or in any endorsement therein, the bill is not dishonoured until it has been

dishonoured by such drawee.

Section 116 provides ""A drawee in case of need may accept and pay the bill of exchange without previous protest.

There is another provision, namely, Section 37 which may be referred to in this context. It runs as follows:

The maker of a promissory note or cheque, the drawee of a bill of exchange until acceptance, and the acceptor are, in the absence of a contract to

the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as securities for the maker, drawer or

acceptor, as the case may be.

It is on the basis of these provisions the learned Counsel for the appellant contended that in the case of a drawee in case of need like the

appellant here, he is put in the statutory position of a surety and that he is entitled to recover from the defendants. In this connection, the lower

appellate Court has referred to the decision in K.V. Periyamianna Marakkayar and Sons Vs. Banians and Co., . That was a case where the

plaintiffs were dubashes or banians who guaranteed the due performance of a contract for purchase of goods. They were not parties to the

particular contract between the trading company and a customer. The customer was not also a party on the contract of guarantee entered into

between the plaintiff and the trading company. The trading company supplied goods to the customer who refused to take them on the ground that

the company did not comply with certain terms of the contract. The account of the dubashes, namely, the plaintiffs in that case, was debited and

the dubashes (plaintiffs) sued the company to cancel the debit or in the alternative to recover the amount debited from the customer who were in

default. It was held that a contract of guarantee, unlike one of indemnity, required the concurrence of three parties, namely, the principal debtor,

the creditor and the surety and that the surety should undertake the obligation at the request, express or implied, of the principal debtor. On the

facts of that case, it was held that there was no contract of guarantee as there was no privity of contract between the principal debtor, creditor, and

the surety. It was taken to be a contract only of indemnity. It was also held that in a contract of indemnity, the indemnifier could not, on

performance of the obligations of the debtor, in the absence of an assignment from the creditor, sue, in his own name, the debtor as there was no

subrogation in law to him of the creditor''s rights.

The learned Counsel for the appellant sought to distinguish this decision on the ground that in the said case there was no question of any bill of

exchange which was the subject-matter for consideration. It was also pointed out that the plaintiff in that case did not claim any rights based on his

being drawee in case of need. This contention appears to be well-founded and therefore, the present case cannot be taken as concluded by the

above-cited decision.

If, in the present case, there was an assignment of the bill in favour of the plaintiffs there would have been no difficulty. If the plaintiffs had

joined with Lakshmi Vishnu Cotton Mills Limited, and filed the present suit, then also there would have been no difficulty as the case would have

squarely fallen with the scope of the decision in K.V. Periyamianna Marakkayar and Sons Vs. Banians and Co., . Therefore, the point boils down

to this, namely, whether the plaintiff when it paid the Mills, was only in the position of a volunteer so that it cannot claim from the defendant the

amount that he paid over to the Mills.

It is in this context that Section 37 appears to be material. The plaintiff is the acceptor of the bill of exchange. The fact that he did not pay the

amount due to the bank is not material. The payment was made to the Mill only on account of the bill and the payment was made only in his

capacity as an accepter in case of need. There is a statutory recognition in the provisions of the plaintiff as a surety with respect to the amount

which was paid towards the amount due under the bill of exchange. As he is in the position of a statutory surety, it is no necessary that there should

be a kind of tripartite contract as envisaged in the decision of K.V. Periyamianna Marakkayar and Sons Vs. Banians and Co., . In this case, it car

also be said that there is an obligation cast on the plaintiff as an acceptor in case of need to pay the bill. The knowledge of the defendant about the

plaintiff being are acceptor cannot be disclaimed as the bill carried on its face the name of the plaintiff as an acceptor in case of need. The plaintiff is

not in the position of a volunteer. The plaintiff was also interested in the payment as be was liable to pay the amount to the mills. Section 69 of the

Contract Act would also be applicable. Looked at from any angle, the plaintiff can thus claim the amount from the defendant. There is no equity in

the defence. It is not disputed that there is liability to pay the amount due under the statement of accounts. However, the plaintiff''s claim would be

accepted only to the extent of the amount decreed by the trial Court as the balance had already been paid by the defendant to the mills The result

is that the appeal is partly allowed and the decision passed by the trial Court is restored. The plaintiff will be entitled to proportionate costs

throughout.