2022 (6) TMI 909 - HC - Indian Laws

Scope of the Drawer or Maker or acceptor under Negotiable instrument act - recovery from the surety - Recovery of amount jointly and severally, from the first and second Defendants together with interest at 18% per annum on the principal sum - allegation is that the first Defendant repeatedly engaged in fraudulent activities by taking delivery of goods and not paying for the same - HELD THAT - In the absence of a contract to the contrary (see added emphasis in Section 37 supra), in the context of a bill of exchange, only the drawer until acceptance, and the acceptor thereafter is liable as principal debtor. If this provision is read with Section 33, only the drawee, including a person named in the bill as a drawee for need, or an acceptor for honour are liable as principal debtors. Any other party to the bill would be liable only as surety unless there is a contract to the contrary. In this case, the bill does not indicate that there is a drawee in case of need. The requirements of Section 100 of the NI Act in relation to an acceptor for honour, whereby the bill should be noted or protested for non-acceptance or better security were also not satisfied - As regards the second Defendant, such contract may even impose liability as primary obligor or principal debtor and not only as surety. With this background, the evidence on acceptance should be examined. Section 37 of the NI Act does not prescribe any requirements for a contract to the contrary, whether with regard to form, parties, etc. - The admitted position, in this case, is that second Defendant was the buyer/first Defendant's bank and the third Defendant was the seller/Plaintiff's bank. As the seller's bank, the third Defendant discounted the bill. Subsequently, in correspondence between the seller's bank and the buyer's bank, which were copied to the buyer, the buyer's bank, on being called upon, agreed categorically that it will pay amounts due under the bill of exchange to the seller's bank. In my view, this qualifies as a contract under which the buyer's bank agreed to co-accept the bill for payment as a principal debtor and not as surety in the event of default by the buyer. Thus, it is evident that the first Defendant/Buyer accepted the bill in September 2017 and sought an extension of 30 days to honour the bill. Although such acceptance was not by making an endorsement on the bill as prescribed in Section 7 of the NI Act, for reasons set out earlier, the liability of the first Defendant as the buyer of goods is not contingent on valid acceptance of the bill - When the evidence on record is considered cumulatively, it may be concluded that there is a contract that has the effect of varying the prescription in Section 37 read with Section 33 of the NI Act as regards acceptance of liability as a primary obligor by a person other than the drawee or drawee in need or acceptor for honour. On the facts of this case, however, it does not make a material difference whether the second Defendant's obligation is as principal debtor under a contract to the contrary or as surety because the first Defendant failed or refused to pay for goods received, thereby triggering the liability of the second Defendant even if considered as a surety. Both the first and second Defendants are jointly and severally liable in respect of the claim of Rs.1,02,49,709/-. The Plaintiff has also claimed penal interest of Rs.3,84,154/- on the basis of the communication dated 17.04.2018 from the third Defendant to the Plaintiff, whereby the third Defendant informed the Plaintiff that this amount was being debited from its account as penal interest. On examining the communication dated 17.04.2018(Ex.P12), it is clear that the third Defendant informed the Plaintiff that the sum of Rs.1,02,49,709/- was debited under the OCC account of the Plaintiff so as to close Bill No.0012 - By taking into account the interest rate prevailing from November 2017 till date, interest is awarded at the rate of 9% per annum on the suit claim. In accordance with the loser pays principle, the first and second Defendants are liable to pay costs to the Plaintiff. By taking into account the sum of Rs.1,18,629/-, which was paid as court fee, reasonable lawyer's fee and other expenses, the first and second Defendants are directed to pay a sum of Rs.3,00,000/- as costs to the Plaintiff. The suit is decreed by directing the first and second Defendants to pay the Plaintiff, jointly and severally, a sum of Rs.1,06,33,863/- along with interest at the rate of 9% per annum from 07.11.2017 till the date of realization. The first and second Defendants shall also pay the plaintiff a sum of Rs.3,00,000/- as costs, which includes the court fee of Rs.1,18,629/-, lawyer's fees and other expenses - Application disposed off.

Summary

Issues Involved:
1. Liability of the first and second Defendants for the suit claim.
2. Acceptance of the bill of exchange.
3. Contractual obligations under the Negotiable Instruments Act, 1882.
4. Payment of penal interest and costs.

Issue-wise Detailed Analysis:

1. Liability of the First and Second Defendants for the Suit Claim:
The suit was filed by the Plaintiff, a seller of goods, against the first Defendant to recover Rs.1,15,09,628/- jointly and severally from the first and second Defendants, with interest at 18% per annum on the principal sum of Rs.1,06,33,863/-. The Plaintiff supplied TMT bars to the first Defendant based on a purchase order dated 23.05.2017. The goods were dispatched under Invoice Nos.139 to 150, amounting to Rs.1,02,49,709/-. The Plaintiff claimed that the bill of exchange dated 24.05.2017 was accepted by the first Defendant and co-accepted by the second Defendant, albeit without endorsements. The Plaintiff had discounted the bill with the third Defendant, who requested the second Defendant to convey its acceptance and make payment upon maturity.

2. Acceptance of the Bill of Exchange:
The Plaintiff contended that the second Defendant accepted the bill of exchange via an SFMS message dated 29.05.2017, indicating an unconditional payment undertaking. The Plaintiff asserted that both Defendants failed to honor the bill on false pretexts of returned goods due to quality issues, which were not raised contemporaneously. The first Defendant denied liability, citing defective goods, while the second Defendant claimed it acted merely as a collection agent and was not liable without a bank guarantee or letter of credit.

3. Contractual Obligations under the Negotiable Instruments Act, 1882:
The judgment analyzed the definitions and liabilities under Sections 5, 7, 33, and 37 of the NI Act. The bill of exchange did not show acceptance by the second Defendant or the first Defendant as per Section 7. However, the court examined the emails exchanged between the second and third Defendants, which indicated the second Defendant's agreement to make payment on the due date. The court concluded that there was a contract varying the prescription under Section 37, making the second Defendant liable as a principal debtor or surety.

4. Payment of Penal Interest and Costs:
The Plaintiff established that due to the Defendants' default, the third Defendant debited Rs.1,02,49,709/- along with penal interest of Rs.3,84,154/- from the Plaintiff's account. The court awarded interest at 9% per annum on the suit claim from 07.11.2017 till realization, considering the prevailing interest rates. Additionally, the Defendants were ordered to pay Rs.3,00,000/- as costs, including court fees and lawyer's fees.

Conclusion:
The court decreed that the first and second Defendants are jointly and severally liable to pay the Plaintiff Rs.1,06,33,863/- with 9% interest per annum from 07.11.2017 till realization and Rs.3,00,000/- as costs.