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Financial Transactions between Friends - Legal or Illegal? – A Case Study


1. Umesalma, III year of B.M.S. College of Law, Bangalore

2. Sudheendra Rao, Director of MBA Department, SVM VVSS Institute of Management Studies, Ilkal

3. Vishwanath, B.Com., LL.B.


Financial transactions between friends Krishnamurthy and Jagannathan who work the same Public Sector Undertaking from past 20 years Krishnamurthy needed money to pay rent, new gas connection, electricity bills and daughters marriage.

KrishnamurthyapproachedJagannathan to help him with financial support to overcome the emergency crises for security reasons Krishnamurthy has given OnDemand promissory note and cheque both duly signed and unfilled to Jagannathan to receive Rs. 1,00,000.00 in two instalments with the first instalment of Rs. 50,000.00 and agreed to pay 5% interest per month. Jagannathan has withdrawn the money from the PF account and gave it to Krishnamurthy. Krishnamurthy paid interest promptly for a few months and later stopped all payment. Jagannathan presented the cheque to the bank and bounced back with a decent note as insufficient funds in the account. Jagannathan Approached the court for claims Krishnamurthy died due to an accident and Jagannathan helped Krishnamurthy’s wife Indrani to claim the eligible amount such as PF amount, Insurance amount, Credit cooperative societies amount, House building cooperative societies amount, LLTC amount, Leave encashment amount, Bonus amount, Arrears of wage revisions amount Gratuity amount. The court observed the synopsis and admitted the case after the court ordered the legal heirs of Krishnamurthy to pay Rs. 1,00,000.00 together with an interest of 6% per annum.


Two friends exchange financial transactions – Offer–Acceptance–Agreement–OnDemand Promissory Note–Signed unfilled cheque issue –the rate of interest– extended help –absent for work–possessing credit cards–dishonour of cheque–stops paying of Interest–The Indian Contract Act, 1872–The Indian Evidence Act, 1872–Karnataka Money Lenders and Pawn Brokers Act, 1961 And Rules 1965andother essential Acts involving in this case– the death of receiver Krishnamurthy – giver Jagannathan approaching Advocate for help – the establishment of legal heir– liability of the legal heir – observation of court–court judgment or order–Jagannathan received money with 6% per annum instead of 5% per month.


The Nation witnesses a lot of cheating businesses by well-planned criminals and circumstances made them cheat. Consider the case of any house personnel. On average, many have cheated their relatives or friends. Finally, who trusted will be cheated. He says that if and only if you believe me then only, I can cheat you - isn’t it? People will observe the financial positions of the other person. Normally middle-class people, salaried class persons, farmers are most affected. Few of them are exempted!

Preamble Mr. Krishnamurthy who was working in the Public Sector Undertaking in the Marketing Department is to collect the money from his colleagues by describing his need for money and request to help him as it is badly in need of money for making payments for his school-going children, purchase of new gas connection, the marriage of his elder daughter Kum. Sharanya and paid his rent to the house owner Prasant Tarafdar. Further, he assures that he will repay the money within two years or three years and offers to pay an interest of 5 % per month. Mr. Jagannathan is the secretary to the Corporate Public Relations Department of the same PSU and they are good friends. They used to go together for lunch, cinemas, meetings, parties and also to each other's houses and became their family friends for over 20 years from the date of joining the work on 01.04.1985.

CASE: Jagannathan obtained an advance or withdrawn the Provident Fund amount and gave to Krishnamurthy a sum of Rs. 50,000.00 here there is an agreement between both of them. Both are in sound mental health. No cohesion and willing fully agreed as per The Indian Contract Act, 1872. After 6 months of continuous making payment of interest to Jagannathan, he was so happy with an additional income to his salary and enjoying it. Later he gave an additional amount of Rs.50,000.00 to Krishnamurthy to get 5% of the total sum of Rs.1, 00,000.00unfortunately, after three months Krishnamurthy has started to make a delayed payment, and thereafter 5th month, he stopped to make payment neither interest nor principal amount and requestedJagannathan to give some more time and I will reimburse the amount which I have taken now I am in an emergency. And prolonging this for quite some time.

Krishnamurthy has given an OnDemand promissory note duly signed at the time of obtaining loan amount together with a blank cheque duly signed for the said consideration of Rs. 50,000.00 and on trust not obtained the documents for another Rs.50,000.00Krishnamurthy was unable to repay the amount to his friend and hence not showing his face to his friend and become irregular to the office to avoid to see him. Krishnamurthy is not taking loans alone from Jagannathan but also several friends by not disclosing to each other. Now another threat is that he exhausted all the leaves and is going for a loss of pay on one side and on the other hand friends are starting to shout at him. Now Krishnamurthy approached the credit cards issuing financial institutions including banks and obtained a minimum of 10 credit cards and waited for six more months by avoiding all the people, friends, relatives, and the borrowers. And finally, he poured kerosene on his body and lit the matches. He was burnt alive and unable to sustain the injuries and ran and immersed in the water tank. By that time, he had been injured at least 60 per cent. He was admitted to the hospital after 6 days at the time of evening 07:00 PM on03 August 2007 he breathed his last.

Question - Is Jagannathan getting his amount? And how?

Here we have to analyze many acts

1. The Indian Contract Act,1872

2. The Companies Act, 1956

3. The Negotiable Instruments Act, 1881

4. Karnataka Money Lenders and Pawn Brokers Act, 1961 And Rules 1965

5. The Indian Evidence Act, 1872

6. The Provident Funds Act, 1925

7. The Employees State InsuranceCorporation(ESIC) Act, 1948

8. The Payment of Gratuity Act, 1972

9. The Credit Card Act of 2009

10. The Insurance Act, 1938

11. The Hindu Marriage Act, 1955

The Indian Contract Act, 1872 says there will be a contract between two parties here Krishnamurthy and Jagannathan. As per Section 2(a), Krishnamurthy Offers/proposal made and Jagannathan accepts Section 2(b) and expresses his willingness to do it means there will be a legal contract established to get some rewards in terms of money which is a lawful proper valid offer. This does not come under the 1st category that is the General offer and hence this is a special offer or specific offer. This is also a cross offer because both are accepted and offered to each other. Jagannathan was ready to give Rs. 50,000.00 and Krishnamurthy accepted to pay 5% Interest per month. Their agreement further extended with a time limit period and hence it is also a standing offer.


1. As per The Indian Contract Act, 1872Section 2(h), an agreement made between Krishnamurthy and Jagannathan is enforceable by law. And it is a valid contract. Because consideration is indicated, and both the parties are competent to contract, the object is lawful and consent is free all the Sections of 2(a), 2(b), and 2(c) are in force.

2. Both Krishnamurthy and Jagannathan are working in the Public Sector Undertaking hence follow the rules of the company as per The Companies Act, 1956 and no other personal transactions or manhandling will be allowed. However, the money transaction has happened on the premises of the company.

3. The consideration of Rs. 50,000.00 and another Rs. 50,000.00 is transferred from Jagannathan to Krishnamurthy in the written form OnDemand Promissory Note including signed unfilled Chaque section 6 hence The Negotiable Instruments Act, 1881 exists and he can recover the amount in his name as per Section 6 the person who promises to pay abides by his promise Section 139 provokes that it shall be presumed that the holder of a cheque, received the cheque of nature referred to in Section 139 of The Negotiable Instruments Act, 1881 for the discharge in whole or in part, of any debt or other liability.

4. Jagannathan is not holding any license as mentioned in Section 7 of Karnataka Money Lenders and Pawn Brokers Act, 1961 money lender license as per Section 7and it is mandatory to show as per Section 11 of and Rules 1965. Otherwise, he cannot claim based on the OnDemand Promissory Note provisions of Section 61 and Section 64 of The Indian Evidence Act, 1872 the document had to be proved by the primary evidence viz, by the production of the document itself for inspection of the court, unless a case is made out or shown to come within the framework of Section 65 in which case secondary evidence relating to the documents may be given but Jagannathan failed to submit the documents.

5. Jagannathan was an employee of the PSU and hence he holds a provident fund account. Since his service is more than 20 years, he has a reasonable amount in his account, and once in 6 months for some purpose, he can withdraw the money once in a financial year after the 5th year. Hence his withdrawal of money is genuine.

6. Krishnamurthy was absent by himself to the organization where he was working and produced the medical certificate from ESIC Doctor for a few months. And obtained ESI coverage and received huge money for the tenure of absence at the workplace.

7. Krishnamurthy has a minimum of 10 credit cards in his possession and each credit card will cover the insurance of Rs. 2,00,000.00 this is applicable only in case of death by accident.

8. Jagannathan presented the cheque in the bank and obtained the receipt stating that insufficient funds. And cheque bounced back.

9. Krishnamurthy died on 03 August 2007at 07-00 PM at the hospital leaving his wife and two daughters.

Jagannathan was thinking about how to collect back his hard-earned money and approached one superior Advocate by the name of Sara Devi who had examined the case and suggested Jagannathan file a writ petition and argued in the court.

An order passed by the Judge

1. After going through the synopsis of the case and further in-depth the intention behind Jagannathan is to help. His friend. It is unfortunate his death. But his legal heirs called sapinda relations as per Section 3 of The Hindu Marriage Act, 1955. His wife Indrani is the legal heir to claim all the benefits from the organization where he was working. Krishnamurthy was supposed to receive the money from the organization amount toRs.5,43,216.00in addition to his Gratuity payment. The court cannot claim any attachment to the Gratuity amount.

2. Indrani is the wife of Krishnamurthy has produced the documents as his legal heir as per records submitted to the organization where he was working and the same copy is available with the court for verification is legal. And she is an apparent legal heir.

3. The court is of opinion that Indrani is entitled to claim all the benefits in the same way she is also entitled to his liabilities.

4. The rate of interest court declared at 6% per annum.

5. Court ordered the PSU where he was working to deduct that money and to pay Jagannathan.


The Principles of Natural Justice was given to Jagannathan by the court. And lessons learned not to be greedy for the higher rate of interest.


1. City Civil Court order information

2. All The Acts related to this case

3. Supreme Court cases



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