Suresh Mahajan vs Myveneers

Murlidher Rao, J.—These two appeals arise out of Judgment and decree in O.S.93/1975, on the file of Civil Judge, Civil Station, Bangalore. Plaintiff''s suit based on promissory note, is decreed against defendant-2 and dismissed against defendant-1. Defendant-2 has filed R.F.A.143/1979 and plaintiff has filed R.F.A.193/1979, Defendant-2 is the son of defendant-1.

Second defendant was one of the partners in M/s. Myveneers (hereinafter called as ''Firm''). M.S. Lakshman Gupta, who represents the firm, was the Managing Partner. The managing partner and the other partners suspected that second defendant had misappropriated certain amounts and has overdrawn the amounts from the firm. On 2-12-1974, second defendant retired from the firm, but, his father (defendant-1) states that he ceased to be the partner from 1-10-1974. On 20-11-1974, the firm, by its managing partner, filed a complaint before Metropolitan Magistrate, VI Court, Bangalore, alleging commission of offences of falsification of accounts and misappropriation. That case was dismissed as withdrawn in December 1974.

In the suit filed on 11th June 1975, the firm sought for a decree for Rs. 32,930-60, inclusive of interest calculated at 18% per annum on Rs. 30,212-60. The suit was based on promissory note for Rs. 30,212-60 executed by both the defendants on 2-12-1974. It is alleged that first defendant had promised to make payments; since he failed, plaintiff sent a letter on 8-2-1975 (Ext.D-5) which was replied by the first defendant on 12-2-1975 (Ext.D-6); while admitting execution of pronote it was stated that the pronote was not supported by consideration and was executed on the assurance that the accounts will be shown. Plaintiff was given a bank draft for Rs. 20,000/- on 2-12-1974, as part of settlement. In view of this reply, plaintiff got issued a lawyer''s notice on 19-2-1975 (Ext.D-7).

In the written statement filed by first defendant it was contended that the promissory note dated 2-12-1974 was without consideration. The pronote is void and unenforceable; he was a stranger to the partnership business; he joined the execution, on the promise, held out by plaintiff, that he would withdraw the criminal proceedings. This assurance prompted him to part with the bank draft for Rs. 20,000/-. He narrated certain factual events explaining the circumstances which made him execute the pronote and give a demand draft of Rs. 20,000/-, the receipt of which is acknowledged.

In the statement filed by first defendant while adopting the above defence, he added that the documents were got executed by blackmailing and coercion. He stated that he was managing partner of ''Myveneers1 (firm) along with Lakshman Gupta. He was also a partner, along with Lakshminarayan Gupta, in the firm called ''Metalite''. On 31-12-1973, he was asked to sign a memorandum and blank cheques for ''Myveneers'' and ''Metalite'', He would initiate separate proceedings for dissolution of the plaintiff firm.

On the pleadings the Court below framed the following issues:-

"1. Whether the suit promissory note dated 2-12-1974 is not supported by consideration for the reasons mentioned in the written statements of the defendants?

Whether defendants prove that they executed the suit promissory note under coercion and threat of criminal prosecution by the Managing Partner of the plaintiff, namely M.S. Lakshmana Gupta and whether therefore the suit promissory note is void, invalid and unenforceable?

Whether the consideration for the suit promissory note is illegal and opposed to public policy and invalid as contended by 2nd defendant?

Whether the plaintiff is entitled to interest as claimed in the suit?

Whether there is no cause of action?"

On appreciating the evidence, the Court held that the suit document is supported by consideration against second defendant; defendants failed to establish threat and coercion; suit document was not void and illegal and lastly the consideration was neither illegal nor opposed to public policy. The Court granted a decree for the sum stipulated in pronote and awarded interest at 18% per annum till the date of suit and at 6% per annum towards current interest. Suit against first defendant (father of defendant 2) was dismissed.

In the appeal filed by second defendant (son) it was urged by Sri Somayaji that the contract evidenced by suit pronote was void and illegal as admittedly no consideration passed on that date and the only consideration was to withdraw the criminal proceedings, filed by plaintiff against second defendant. Secondly plaintiff has failed to establish that the deed was supported by consideration. Mr. K.R.D. Karanth, who appeared for respondent (father) in R.F.A.193/1979, supported Mr. Somayaji''s arguments and cited the following decisions:-

Kamini Kumar Basu v. Birendra Nath Basu

AIR 1941 95 (Privy Council)

3 Sudhindra Kumar Rai Chaudhuri and Others Vs. Ganesh Chandra Ganguli and Others,

V. Narasimha Raju Vs. V. Gurumurthy Raju and Others,

5 Ouseph Poulo and Others Vs. Catholic Union Bank Ltd. and Others,

In addition he contended that the circumstances indicated that defendants were coerced to execute the suit pronote since, in reality, no consideration passed on 2-12-1974; the transaction was void and unenforceable. Supporting the dismissal of suit against his client, he added, in principle there is no distinction between the two defendants and transaction being void, entire suit was liable to be dismissed.

Mr. S.V. Srinath the learned Counsel for plaintiff-appellant deriving sustenance from the findings recorded by Court below urged that suit is based on pronote and both the defendants being joint promisors, plaintiff was entitled to get decree against both. He contended that the transaction is neither void nor illegal, nor was it opposed to public policy. He said that consideration was the amount owed by second defendant, the liability of which was admitted by both the defendants, The withdrawal of criminal proceedings was not the consideration for the suit transaction. He urged that the criminal prosecution was withdrawn as a gesture of goodwill and for maintaining good business relationship. That was neither the motive nor the intention of parties. He maintained that with the assurance of the first defendant in joining the execution of pronote without disputing the liability and paying Rs, 20,000/- through the bank draft, the plaintiff, of his own accord, considered it futile to continue those proceedings; it was an unilateral step. He referred to the correspondence between the parties to demonstrate that the withdrawal of criminal proceedings had never weighed with the parties on and after the execution of suit pronote. He prayed for passing a decree against both the defendants.

The points that crop up for consideration are:-

Whether the suit transaction is void and illegal and is opposed to public policy, in the context of Section 23, Indian Contract Act?;

Whether the pronote is without consideration?

Can the dismissal of suit against defandant-1 (father) be justified and is it sustainable?

What order?

POINT - I:- This contention is based on Section 23, Indian Contract Act, which reads thus:-

"23. The consideration or object of an agreement is lawful, unless -

it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."

The words ''public policy'' are not defined. It would be useful to refer to the following observation of Supreme Court in Central Inland Water Transport Corporation Limited and Another Vs. Brojo Nath Ganguly and Another,

"The Contract Act does not define the expression "public policy" or "opposed to public policy." From the very nature of things, the expressions "public policy", "opposed to public policy", or "contrary to public policy" are incapable of precise definition. Public policy, however, is not the policy of a particular Government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old transactions which were once considered against public are now being upheld by the Courts and similarly where there has been a well-recognized head of public policy, the Courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy...."

Reproducing the following passage In Kedar Nath Motani and Others Vs. Prahlad Rai and Others,

"The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position....."

The Court observed in Central Inland Water Transport Corporation case (referred to above) as follows:

"The types of contracts to which the principle formulated by us above applies are not contracts which are tainted with illegality but are contracts which contain terms which are so unfair and unreasonable that they shock the conscience of the Court. They are opposed to public policy and require to be adjudged void."

Therefore it is manifest that to attract Section 23, Indian Contract Act, it is not that the contract is tainted with illegality but it should contain terms which are so unfair and unreasonable that they shock the conscience of the Court.

To continue this discussion, it is not necessary to refer to all the decisions cited above, suffice it to refer to law as declared by Supreme Court in V. Narasimharaju v. V. Gurumurthy Raju and ors. and Ouseph Poulo and anr. v. The Catholic Union Bank Ltd. and ors.;5 both the Judgments are rendered by Sri P.B. Gajendragadkar, J. (as he then was) after reviewing the earlier cases. In V. Narasimharaju''s case (supra) the dispute was referred to the Arbitrator, after the dismissal of criminal case. After narrating the facts, His Lordship stated thus:-

".....But apart from this consideration even the statement made by the appellant on which the argument is founded shows that the proposal was clear - criminal case had to be withdrawn or not to be prosecuted and the agreement of reference had to be made. These two steps were related to each other as cause and effect, or one step was a consideration and the other was the acceptance of the proposal to enter into the arbitration agreement. Therefore, we do not see how it would be possible to repel the appellant''s argument that the consideration for the arbitration agreement was the promise of respondent No. 1 not to prosecute his criminal complaint."

In Ouseph Poulo and anr. v. The Catholic Union Bank Ltd. it was stated thus--

"The main point to remember is that the party challenging the validity of the impugned transaction must show that it was based upon an agreement to stifle prosecution. If it is shown that there was an agreement between the parties that a certain consideration should proceed from the accused person to the complainant in return for the promise of the complainant to discontinue the criminal proceedings that clearly is a transaction which is opposed to public policy....."

Later in Para 17, it is stated:

" Mr. Desai argues and we think, rightly that where the validity of an agreement is impeached on the ground that it is opposed to public policy u/s 23 of the Act, the party setting up the plea must be called upon to prove that plea by clear and satisfactory evidence. Reliance on a mere sequence of events may tend to obliterate the real difference between the motive for the agreement and the consideration for it. Did the parties offer to give security and execute the documents in consideration for the withdrawal of the criminal complaint by the Bank? That is the question which has to be decided in the present appeals, and in proving their case, the plaintiffs are expected to lead satisfactory evidence; and in our opinion, the High Court is, on the whole, right when it came to the conclusion, that the evidence led by the plaintiffs is far from satisfactory....."

Bearing these principles in mind, the facts and sequence of events in the present case need to be examined. One glaring fact, which is a serious omission is that second defendant (son), against whom the impugned decree is passed, has not been examined. Father alone is made to combat the attack. Whatever may be the strategy in the legal battle, his non-examination at least to support his father, results in adverse inference being drawn against him. To us it appears that being a joint-executants of pronote his evidence was vital and to a great extent, his challenge in this appeal has lost much of its force.

The attack that contract is void and illegal having been raised by defendants, burden is on them to establish the same. Admitted documents, before the institution of suit, throw much light regarding the nature of transaction, and what the parties intended. Suit pronote was jointly executed on 2-12-1974, at Bangalore. P. Vishwanathan (DW-2) and M.S. Hussain have signed as witnesses. It is for Rs. 30212-60. On the same day first defendant handed over a demand draft for Rs. 20,000/- "towards the discharge of debt due from Suresh Mahajan to Myveneers" and obtained a stamped receipt from plaintiff. In addition letter was addressed to first defendant which reads thus: (Ext.D-2)

"Dear Sir,

We acknowledge receipt of Rs. 20,000-00 (Rupees twenty thousand only) paid to us by you by way of Demand Draft obtained on the Indian Bank, Bangalore, Draft No. 71/D 344750, towards partial discharge of your son''s debt to the firm. We have also accepted the joint promissory note executed by you and your son Sri Suresh Mahajan for the balance amount due by him to us.

Out of deference to the request made by you of us not to proceed against your son on the criminal side, we are advising our advocate to do the needful in the matter."

The Counsel emphasised the latter portion of the letter to canvass that "the request" was a part of the contract. If that was so intended, the parties being businessmen, nothing precluded them from employing the words "as agreed to between us" or "as a condition for this settlement". An oral request dehors of the transaction cannot be read in the terms of transaction, A request on the part of one party, being unilateral, has the uncertainty and risk of being rejected by the other. It cannot be equip rated with an agreement binding on both the parties. Request as commonly understood is seeking or begging for an obligation or soliciting an assistance. It is not equivalent to or a substitute for imposition of term in an agreement, where two minds consent to do reciprocal acts. That the request is acceded to and it has resulted in withdrawal of criminal proceedings is of no consequence to hold the existence of prior agreement. That consequence may flow because the initiator may realise the weakness of his complaint or having secured part payment he may feel that it is futile to continue the proceedings which involves sparing time and money, in his busy schedule of business. In the absence of specific agreement, it becomes a matter of surmise and conjecture. That it is so, is made clear by the letter, written on the same day, by the first defendant which reads thus:

"In partial discharge of my son''s liability to the firm, I have this day paid a sum of Rs. 20,000-00 (Rupees twenty thousand only) by way of Demand Draft obtained on Indian Bank (Draft No: 71/D 344750). For the balance sum of Rs. 30,212-60, I have executed a Joint On Demand Promissory Note along with my son in your favour.

In view of my having intervened on behalf of ray son, I request you that any criminal action initiated, if any, be withdrawn.

Thanking you,

Yours faithfully, Sd/- D.R. Mahajan."

On 8th February 1975, the plaintiff sent a letter to the first defendant which reads thus:

"Dear Sir,

Ref: Joint Pronote for Rs. 30,212-60 executed by you and Sri Suresh Mahajan dated 2nd December 74.

At the time of executing the pronote you indicated that this would be discharged on an early dated. Please let us know whether we can look forward to the pronote being discharged soon.

Thanking you,

Yours faithfully, for MYVENEERS, Sd/- xxxx Managing Partner."

If the parties, had agreed to some terms regarding the criminal proceedings, the plaintiff, who had already got them dismissed, would have certainly mentioned about it and would have made it as ground of reciprocity. In reply to this letter first defendant stated that he was not willing to sign the pronote till the accounts were scrutinized and the documents returned. In his own words he stated thus: (vide Ext. D-6)

"....I pointed out on that day that the document for Rs. 30,212-60 is being executed by me without consideration and so it is invalid. After scrutinising the accounts and return of the documents referred by you in your correspondence, I shall confirm the execution later, and you coerced me to pay Rs. 20,000/- by draft in your favour in advance, which I was not willing to pay on 2nd December 1974 but wanted to pay after the scrutiny of the documents. I am sorry you are not keeping up your word and proved to be totally unreliable and, therefore, please take notice that the joint pronote referred by you, executed by me and Suresh Mahajan on 2nd December 1974 is without consideration under the circumstances and the false promise made by you as stated above."

This reply is also silent about criminal proceedings. The stress was on non-payment of consideration, the return of documents and producing accounts for scrutiny. In the light of these documents the evidence of DW-1 - 1st defendant is clearly a twisted version and it is not possible to accept it. The version of DW-2 who is the attestor and scribe of pronote and the receipt for Rs. 20,000/- by bank draft is worthy of acceptance only to the extent that 1st defendant insisted for the return of documents and production of accounts for his scrutiny, but, the later version that defendant-1 agreed to part with Rs. 20,000/- on condition that the criminal complaint against his son (2nd defendant) would be withdrawn is unacceptable. Therefore we agree with the Court below that the transaction was neither void nor illegal. The dismissal of criminal proceedings was not a condition, agreed to, for the execution of suit pronote. It was an admission of liability, without any reservations.

POINT No. II:- In the circumstances narrated above it cannot be said that the pronote was without any consideration. It is true that no consideration passed on 2-12-1974, but, it was executed to discharge the amount owed by second defendant. The payment of Rs. 20,000/- on that day itself is a strengthening circumstance to show that both the defendants were convinced of the fact that second defendant was liable for the amount stipulated by the plaintiff and there was a default on his part. Hence it is not possible to accept the contention to the contrary; it is accordingly rejected.

POINT No. III:- As mentioned above, defendants 1 and 2 are joint promissors. Their liability is joint. The execution having been admitted both of them have made themselves liable to discharge the amount, stipulated therein. This was an independent transaction creating joint liability. It was not proper for the Court below to treat it as a security for the debt of 2nd defendant. As pleaded by 2nd defendant in his written statement, he was contemplating an action for dissolution of partnership firm. The debt, due to firm, would necessarily be the subject matter of that proceedings, but, not the amount due under the suit pronote executed by the 2nd defendant and his father independently of the firm. Hence the dismissal of suit against first defendant is clearly erroneous and cannot be sustained.

It follows, therefore, that the plaintiff is entitled to get a decree, as prayed for, against both the defendants.

For the aforesaid reasons, the appeal filed by 2nd defendant in R.F.A.143/1979, fails and it is dismissed with costs. The appeal filed by plaintiff in R.F.A.193 of 1979, is allowed; suit is decreed against both the defendants. The plaintiff-appellant is entitled to costs in both the Courts.