2002 (10) TMI 710 - HC - Companies Law

Summary

Issues Involved:
1. Liability of Defendants 2 and 3 under the promissory note.
2. Cause of action against Defendants 2 and 3.
3. Burden of proof and presumption under Section 118 of the Negotiable Instruments Act, 1881.

Detailed Analysis:

1. Liability of Defendants 2 and 3 under the Promissory Note:

The plaintiff filed the suit for recovery of Rs. 48,882.40 towards the balance of principal and interest on a promissory note dated 30-3-1982 executed by the 1st defendant in favor of the plaintiff. The 1st defendant executed the promissory note as the Chief Executive of M/s. Kirlampudi Sugar Mills Limited. The trial court decreed the suit against the 1st defendant personally and against the assets of Defendants 2 and 3. Defendants 2 and 3 denied the execution of the promissory note and claimed no entry of the loan in the factory's accounts. However, the court found that the promissory note (Ex. A-1) was executed by the 1st defendant as the Chief Executive, with the company's stamp affixed, indicating that the loan was for the company's benefit. The court held that the execution of the promissory note was duly proved and binding on Defendants 2 and 3.

2. Cause of Action Against Defendants 2 and 3:

The plaintiff argued that since the assets of the company were transferred to Defendants 2 and 3, they were liable for the debt. Defendants 2 and 3 contended that there was no cause of action against them as the loan was not recorded in the company's books. The court noted that the 1st defendant, as the Chief Executive, had the authority to borrow money on behalf of the company. The evidence showed that the loan was for the company's electricity charges, and the 1st defendant signed the promissory note in his official capacity. The court concluded that the plaintiff had a valid cause of action against Defendants 2 and 3.

3. Burden of Proof and Presumption under Section 118 of the Negotiable Instruments Act, 1881:

The court discussed the presumption under Section 118 of the Negotiable Instruments Act, which assumes that every negotiable instrument was made for consideration. The plaintiff's evidence, including the testimonies of P.W.1 and P.W.2, supported the claim that the loan was given to the company. The court found that the defendants failed to rebut the presumption of consideration. The plaintiff's witnesses provided consistent and credible evidence about the execution of the promissory note and the loan transaction. The court held that the burden of proof was properly discharged by the plaintiff, and the presumption under Section 118 was not rebutted by the defendants.

Conclusion:

The court confirmed the trial court's findings and held that Defendants 2 and 3 were liable for the amount due under the promissory note. The appeal was dismissed with costs, and the court appreciated the assistance provided by both counsels in deciding the matter.