S.C. Jain, J.
(1) MESSRS. Standard Chartered Bank, the plaintiff, filed a suit for recovery of Rs. 2,78,37,801.20 under Order 37 Civil Procedure Code against Mr. M.S. Handa, Mr. Ashwani Kapoor and Indian Overseas Bank. In brief the facts of the case as are apparent on record are that Mr. M.S. Handa is the drawer of Bill of Exchange No. HK/1 dated 23.6.1989. Defendant No 2, Mr. Ashwani Kapoor is the acceptor and Defendant No.3, Indian Overseas Bank is the co-acceptor of the said Bill of Exchange (Hundi). The said Bill of Exchange was duly discounted by the plaintiff bank by issue of a Reserve Bank of India cheque for Rs.4,75,62,500.00 favoring Indian Overseas Bank, defendant No.3, and by crediting a sum of Rs.5,17,295.00 into the account of defendant No.1. Before the maturity date of payment upon the said Bill of Exchange i.e. on September 20,1989 the plaintiff bank received a letter dated 3rd August, 1989 from the defendant No.3 's Zonal Office that the Branch Manager of Indian Overseas Bank .who had co-accepted the said Bill of Exchange (Hundi) had no authority to do so and thereforee, they had no liability towards the plaintiff bank on the said co-accepted Hundi dated 23.6.1989. This was refuted by the plaintiff bank. Despite the said defendant No.3's pretended protest made in terms of the said letter dated 3rd August,1989, the plaintiff bank received a sum ofRs.2,41,30,000.00 vide four cheques drawn on the Reserve Bank of India dated 4.8.1989, 10.8.1989,29.8.1989 and 12.9.1989. Upon maturity as provided in the said Hundi on demand made by the plaintiff bank, the defendant No.3 who had unconditionally promised and guaranteed payment on the Hundi on the due date i.e. 20.9.1989 failed and neglected to obtain a discharge by making payment against the said Hundi and as such, the said Hundi stands dishonoured for non-payment. On these facts this suit has been filed against all the three defendants.
(2) All the three defendants made appearance and filed applications seeking leave to defend under Order 37, Rule 3(5) Civil Procedure Code being I.A. No. 6035 of 1990 filed by defendant No. 1 ; I.A. No. 5777 of 1990 filed by defendant No.2 and I.A. No. 5778 of 1990 filed by defendant No.3.
(3) Defendant No.1.Mr.M.S.Handa in his application seeking leave to defend has stated that he only acted as a Finance Agent for arranging the finance. The plaintiff bank in the present case approached defendant No.1 for introducing to them the parties who may require the finance for any substantial project in hand and it was with this view that the plaintiff bank gave a letter dated 20.1.1989 to the defendant No.1 confirming that the bank was agreeable to discount the bills/hundis drawn for 90 days, provided Indian Overseas Bank accepts the same and confirms to them that they would make the payment to the plaintiff bank on the due date. He arranged loan for defendant No.2 and the defendant No.3 co-accepted the Hundi. No consideration had passed to the defendant No. I as far as this Hundi was concerned, and he was only paid the commission amount which was credited in his account. The cheque for Rs.4,75,62,500.00drawn by the plaintiff bank was in the name of the Indian Overseas Bank, who were the co-obligants of the Hundi and the amount was paid by them to the defendant No.2. The position as between the plaintiff and the defendant No. I is that of a principal and agent and no grounds have been shown in the plaint which would make the agent liable for the amount.
(4) Defendant No.2 pleaded in his application seeking leave to defend that against this Hundi of Rs.5Crores, before the maturity date, a sum of Rs.2,41,30,000.00had been paid to the plaintiff by the applicant by way of Reserve Bank cheques. The Hundi was never presented to defendant No.2. The payment of Rs.2,41,30,000.00before the date of maturity was made by defendant No.2 in view of the subsequent agreement arrived at between the parties. It is further pleaded by him that this Suit under Order 37 Civil Procedure Code does not lie on the basis of this Hundi. It is also pleaded that defendant No.2 has already filed a suit against the plaintiff bank being Suit No. 448 of 1990 which is still pending disposal in this Court. In that suit it has been specifically pleaded that after the payment of Rs.2,41,30,000.00, it was agreed that the balance amount was to be converted into a term loan. No demand has been made from the defendant No.2 and the entire amount of Hundi was demanded from defendant No.3 eventhough a substantial part has been repaid by defendant No.2 to the plaintiff bank by that time.
(5) Defendant No.3 in its application also took various pleas seeking leave to defend this suit. As per the averments made in this application the Hundi in dispute is understamped and it is a nullity in the eyes of law and inadmissible in evidence. No consideration has been received by the defendant No.3 for co-acceptance. The contract of co- acceptance between the bank and the drawer is without consideration and is hit by Section 25 of the Contract Act. It has also been pleaded that the plaintiff bank is not a holder in due course. The discounting by the plaintiff bank was not in accordance with the instructions of the Reserve Bank of India and the plaintiff bank has not made any reference to the controlling head office of the Indian Overseas Bank before discounting the Hundi which was for Rs.5 Crore. Nearly half of the amount of the Hundi i.e. Rs.2,41,30,000.00 has been paid by the defendant No.2 to the plaintiff bank even before the date of maturity and the presentation of Hundi for the full amount is not legal and no suit under Order 37 Civil Procedure Code is maintainable on this count also. It is further pleaded that the plaintiff bank had acted negligently and carelessly in discounting the Hundi ignoring instructions contained in the circulars of the Reserve Bank of India which are binding on all the banks operating throughout India. It is apparent on the face of the Hundi that the same was not a genuine transaction and was not accompanied by any trade bills. It was an accommodation transaction only and was not permissible in terms of the circulars of the Reserve Bank of India. The suit Hundi was not duly co-accepted by the Manager of defendant No.3 in terms of the usual banking practice and was not permissible in terms of the Reserve Bank of India circulars.
(6) The plaintiff contested all these applications filed by the three defendants and submitted written replies pleading,inter alia, that the suit is based on negotiable instrument i.e. Hundi, whose execution has not been specifically denied and that the pleas raised by the defendants in their applications seeking leave to defend are not sufficient for granting leave to them. The suit is based on negotiable instrument i.e. Hundi. The consideration has been passed in accordance with law and no tangible defense is made out by the applications filed by these defendants and, thereforee, these applications seeking leave to defend should be dismissed.
(7) From the pleadings of the parties, the following issues arise for consideration:-
(1)Whether defendant No.1 , drawer of the Hundi only acted as a Finance Agent on behalf of the plaintiff bank and he only arranged the loan for defendant No.2? (2) Whether the plaintiff hunk entered into a fresh agreement with defendant No.2 after part payment to the extent of Rs.2,41,30,000.00 of the said Hundi before its maturity date for treating the balance amount of Hundi as a term loan? (3) Whether a Suit under Order 37 Civil Procedure Code at all lies when admittedly this Hundi was not presented for payment to defendant Nos. 1 and 2 on the date of maturity? (4) Whether the Hundi has been properly stamped to be valid and admissible in evidence for enforcing a claim under Order 37 CPC? (5) Whether the plaintiff is a holder in due course when it had knowledge about the Reserve Bank of India instructions and had violated the same? (6) Whether the Indian Overseas Bank has duly co-accepted this Hundi, when admittedly the principal officer of the branch of the Indian Overseas Bank had violated the instructions of the Reserve Bank of India before doing that? (7) Whether the letter of defendant No.2 dated 22nd June. 1989 purporting to enclose the Hundi dated 23rd June,1989 would by itself not disclose the fraud in the transaction, thus putting the plaintiff bank into the need of careful enquiry? (8) Whether these facts constitute a case of conspiracy between the plaintiff bank on the one hand, and defendants I and 2 on the other? (9) Whether purported acceptance by defendant No.3 is binding upon the defendant No.3?
(7) Learned counsel for the plaintiff,Mr.Tiku submitted that no defense much less plausible defense has been set up by any of the defendants in their application seeking leave to defend. According to him, the plaintiff bank is a bonafide holder in due course. The acceptance of the Hundi has not been denied. The Reserve Bank of India instructions are not statutory instructions and even if the Manager of Indian Overseas Bank had violated those instructions, it will not invalidate the document. The fact remains that the Indian Overseas Bank is the co-acceptor of this Hundi and has assured the payment of this Hundi. No amount of Explanationn is admissible against the written document under section 91 of the Indian Evidence Act. According to him, the part payment of Hundi will not invalidate the document and that when the Hundi was presented to defendant No.3 it was for him to point out that a part payment of Hundi had already been made. The Hundi is duly stamped and the opinion of the Collector under Section 31 of the Stamp Act has already been obtained. It was not necessary to present the Hundi for payment to defendant Nos. 1 and 2 in view of the undertaking given by the defendant No.3 for making the payment of the Hundi on maturity date. He relied upon various decisions reported in Bank of Maharashtra vs . M/s Swastic Sales Corporation : 48(1992)DLT551 , Mis U. Ponnappa Moothan Sons,Palghat vs . The Catholic Syrian Bank Ltd. & Ors. : AIR1991SC441 , M/s Bezonji Byramji and Co. Jalna and Others vs . Central Bank of India Ltd. Bombay : AIR1963AP348 , Bank of India vs. M/s Krishan Lal & Co 1990(3) Dl 36, M/s M. Ramnarain Pvt. Ltd and Another vs . The State Trading Corporation of India Limited : AIR1988Bom45 , and Braja Kishore Dikshit vs. Puma Chandra Panda A.I.R. 1957 Ori 153 in support of his contentions.
(8) It is settled principle of law that the application for leave to defend must be supported by an affidavit disclosing a defense. The nature of defense alone should be examined at that stage and if the affidavit discloses a triable issue, i.e. a plea which is atleast plausible, then leave should be granted, whether the defense is a legal or an equitable one and even though it may not ultimately turn out to be a good defense. On the other hand, if no triable issue is disclosed by the affidavit or where there is no reasonable doubt that the plaintiff is entitled to judgment and,therefore, it is inexpedient to allow the defendant to defend for mere purposes of delay, or the facts disclosed by the defend p73 ant do not indicate that he has a substantial defense to raise or the defense intended to be put up by the defendant is frivolous or vexatious leave should be refused.
(9) In this case all the defendants have filed affidavits along with their applications seeking leave to defend disclosing their defense. Examining the defense at this stage, it is apparent from record that triable issues arise in this case. The defense is at least plausible. Regarding the plea that the Hundi in question is insufficiently stamped, under Article 13 sub-clause (b) and (c) of Indian Stamp Act the stamp duty payable on the Hundi is Rs.l,25,000.00. In supersession of the notification of the Govt. of India dated 15.5.57 and No.6 dated 14.7.1961 the Central Government directed with effect from 1st July,1976 that the Bill of Exchange can be stamped at one half of the rate specified in Article 13. A proviso has been added under which it is made clear that this rate of stamp duty shall not apply to issuance bill of exchange or Promissory Note drawn or made for securing finance from the Reserve Bank of India, Commercial Bank etc. for (a) bonafide commercial or trade transaction ......... Such instrument shall continue to bear the rates of stamp duty at one-fifth of the rates specified against the said items (b) and (c) in the said Article 13. In the present case, on prima facie ground the suit Hundi having been drawn between two third parties not being a bank, the Indian Overseas Bank being only a co acceptor and the transaction apparently not being a bona fide transaction, the above provision does not seem to be applicable. The stamp duty ofRs.62,500.00 has not been paid. The opinion of the Collector is only a tentative opinion and it is to be accepted or rejected by the Court. All these points need probe, which can only be done at the time of regular trial.
(10) Under the Indian law, a holder, to be a holder in due course, must not only have acquired the bill, note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. This condition requires that he should act in good faith and with reasonable caution.
(11) In this case, the Hundi is ofRs.5 Crore. The discounting by the plaintiff was not in accordance with the instructions of the Reserve Bank of India conveyed in their circulars Dbod No. GCSIP.BC/97/c-408(A)-83 dated 26.11.83 and Dbod NO. GC.SIC.BC.15/C.739(A-1)-85 dated 12.2.85. No reference was made to the controlling head office of the Indian Overseas Bank before discounting the aforesaid Hundi. In view of these circulars, which may be in the nature of administrative circulars, the Branch Manager .who co-accepted the Hundi, had no authority to undertake the transaction of such a magnitude without making a reference to the controlling head office of the Indian Overseas Bank. This point also needs probe.
(12) It is apparent on record that the Hundi is dated 23.6.1989 and the defendant vide his letter dated 22.6.1989 is alleged to have attached that Hundi showing thereby that the Hundi was in existence on 22.6.1989, though it was dated 23.6.1989. This point also needs probe as to how the document dated 23.6.1989 was sent along with the letter dated 22.6.1989.
(13) The plea raised by the defendant No.2 that a fresh agreement took place between him and the plaintiff bank to treat the balance amount as a term loan also needs probe. The Hundi was not presented to him for payment on its date of maturity and nearly half of the amount has been received before the maturity, and even the Hundi was not presented to him for payment on the date of maturity. These pleas raised by the defendant No.2 need trial.
(14) The plea raised by defendant No. I that he only acted as a Finance Agent has also got some substance and needs trial. The defendant No. I opened a bank account with the plaintiff bank with a meagre amount of Rs-2.000 and his commission amount of Rs.5,17,295 was deposited in that account by the plaintiff bank. Out of the amount of the Hundi Rs-19,20,205 was kept by the plaintiff bank towards interest and a pay order for Rs. 4,75,62,500.00 was sent to the I.O.B which was admittedly paid to defendant No.2. When it was a commercial transaction on the basis of the Hundi allegedly drawn by the defendant No. 1, why this commission was credited in his account needs an answer which can only be ascertained if the case would go on trial .
(15) In these circumstances, after examining the nature of the defense at this stage, I Find that the affidavits filed by the defendants disclose triable issues i.e. the pleas which are at least plausible and,therefore, I grant leave to defend to all these three defendants. All the three applications are allowed. Ordered accordingly.