Chavali Kameswara Sarma vs Mahankali Rajaratnam and others

Sambasiva Rao, J.—A question of some consequence in the law of Negotiable Instruments arises, in this Second Appeal. The question is whether a suit can be filed not only against the executant of a promissory note but also his coparceners who are non executants, when there has been a re-endorsement of the debt by the endorsee in favour of the heirs of the original payee under the promissory note.

This is a plaintiff''s second appeal. He has been un-successful in both the courts. He filed the suit to recover a sum of Rupees 1922/25 ps. being the principal and interest due on a promissory note dated 7-7-1964 (Ex. A-2) executed by the 1st defendant in favour of the plaintiff''s father. Defendants 2 to 5 are the sons of the 1st defendant who had been adjudicated insolvent. The 6th defendant is the official Receiver. Defendants 7 to 9 are the brothers of'' the plaintiff. They have been added on the ground that they are also entitled to a share in the promissory note amount as per endorsement of transfer Ex. A-4 on the promissory note Ex. A-2.

Defendants 1 and 6 to 9 remained ex parte. Defendants 2 to 5 were minors and were represented by their mother. The debt under Ex. A-2 was transferred to the plaintiff by an endorsement marked Ex. A-3. Subsequently the father died having left a will. Under the will all the properties not mentioned therein were bequeathed to the four sons. viz. the plaintiff and defendants 7 to 9. The plaintiff made an endorsement of the debt after the death of his father in favour of himself and his three brothers. Since the three other brothers did not join him in filing the suit he joined them as defendants 7 to 9. The defence to the claim came from defendants 2 to 5. On their behalf many contentions were raised. Inter alia it was contended that the suit against the 1st defendant is not maintainable because the leave of the insolvency Court u/s 28(2) of the Provincial Insolvency Act is not obtained for filing the suit, that the suit debt was not incurred for family necessity or benefit and was not binding on the sons. The debt was liable to be scaled down under the Madras Agriculturists'' Debt Relief Act. Another contention is that the plaintiff and defendants 7 to 9 are the transferees of the suit promissory note and not entitled to sue the non-executants of the promissory note i.e., defendants 2 to 5. The last plea was that they and their father the 1st defendant were divided by metes and bounds on 25-12-1964 under the partition deed Ex. B. 1. Properties worth about Rs. 37,000/- were allotted to the share of the 1st defendant for discharge of the suit debt and other debts, while property worth Rs. 15000/- was allotted to the share of all the defendants 2 to 5 put together. Therefore plaintiff and defendants 7 to 9 should proceed against the share of the 1st defendant only to recover the debt.

The trial court found that the suit promissory note Ex. A-2 was true and supported by consideration. Its another finding is that in the partition no reasonable and proper provision was made for discharge of the suit debt. The trial court also held that the endorsement evidenced by Ex. A-3 on Ex. A-2 effected only a transfer of the promissory note for collection. The plaintiff being the transferee of the promissory note cannot seek to enforce the instrument against the non-executants-defendants 2 to 5. It further held that the plaintiff is a holder in due course of the suit promissory note. The will set up by the plaintiff was also found to be true. The court also found that the suit debt was properly scaled down and that the suit was not maintainable even against the 1st defendant as the leave of the Insolvency Court was not obtained. In view of the crucial findings on issues 1 and 6, the trial court dismissed the suit.

In appeal preferred by the plaintiff, the Subordinate Judge''s court, Tanuku held that the suit is maintainable even without the leave of the insolvency court. It had also rejected the defendants'' case that the partition between defendants 2 to 5 on the one hand and their father on the other was bona fide one. It also held that on the basis of the provision in the partition deed, the plaintiff could not be forced to proceed against the 1st defendant alone. So far the view taken by the appellate Court is in favour of the plaintiff, However, the lower appellate Court was of the view that the endorsement Ex. A-4 does not entitle the plaintiff and defendants 7 to 9, to make the non-executants liable to the extent of their shares, because the re-endorsement is not made in favour of all the legal representatives of the original payee. In the view of that Court the will cannot operate in respect of the suit promissory note as it has ceased to be testator''s property the moment it was endorsed in favour of the plaintiff as per Ex. A-3;

In the light of the findings of the appellate Court, the only question that will have to be decided is whether the debt evidenced by Ex. A-3 can be enforced by way of suit not only against the 1st defendant, who is the sole executant, but also against his sons who are non-executants. It is useful to recapitulate as to how the two courts dealt with this question. The trial court was of the opinion that the original endorsement evidenced by Ex. A-3 is merely a transfer endorsement for collection of the debt due under the promissory note and does not transfer the original debt incurred by the 1st defendant. By the time the re-endorsement took place under Ex. A-4, the original payee died and so there was no re-endorsement in his favour, Consequently the trial court felt that when the endorsee for collection re-endorsed the promissiory note to the heirs of the original payee, no suit on the foot of the promissory note can be filed against the sons of the executant who did not join in the execution of the promissory note. The view of the appellate Court, however, is different. That court appears to have been under the impression that the debt evidenced by A-2 itself was transferred. In other words there was an assignment of the debt by the original payee to the plaintiff. Consequently the will by the payee could not govern this asset, because it did not form part of his estate. The re-endorsement (Ex. A-4) was only in favour of the four sons of the payee and was not in favour of all the heirs, Such an endorsement cannot be, in law, an edorsement in favour of the original payee with the result that no suit can be filed against the non-executants.

Mr. M.S.R. Subrahmanyam, the learned counsel for the appellant challenges this view. The gist of his argument can be analysed in the following manner (1) Under Ex. A-4 there was a transfer of the debt. Ex. A-3 evidences an assignment of the debt and not merely transfer for collection. (2) Under the will, all the residuary assets would go to the four sons and so the re-endorsement could be only in favour of the four sons and not in favour of all the heirs of the original payee. (3) Consequently a suit wherein the four sons of the original payee are re-endorsees and parties to the suit a claim can be made not only against the executant but also the non-executant sons of the executant.

It is a fundamental principle of the law relating to Negotiable Instruments that no one whose name does not appear in the instrument can be held liable thereon, and there is no privity of contract between the endorsee and the maker or acceptor. Therefore the right of the endorsee of the promissory note is limited to his remedy against the executant of the note. However if the endorsement is so worded as to transfer the debt as well and the stamp law is complied with, the endorsee can sue the non-executant coparceners on the ground of their liability under the Hindu Law. If the debt is not transferred and the stamp law is not complied with, an endorsee cannot sue the non-executant coparceners. This is the position well settled by the Full Bench decision of the Madras High Court in S. Maruthamuthu Naicker Vs. P. Kadir Badsha Rowther and Others,

Now in regard to the nature of the endorsement under Ex. A-3 there was a difference of opinion between the trial court and the appellate Court. The trial Court holds that it is merely a transfer for collection while the appellate court found that the debt itself was transferred. It is very easy to resolve this difference of opinion by referring to the language of Ex. A-3 itself. In Ex. A-3 the original payee stated in clear terms that the debt under the promissory note was transferred to his son, the plaintiff, He proceeded to say that the transferee could collect all the amount due under the debt and enjoy it. The expressions "transfer of the debt" and "enjoyment of the amount collected" are clearly indicative of the transfer of the debt itself. The endorsement concluded with saying that the endorsee himself should bear the profit or loss arising out of the promissory note debt. There cannot be a clearer statement of the intention of the original payee to transfer the debt itself.

There is, however a hurdle, that too a serious hurdle, in the way of holding that there is in law a transfer or assignment of the debt. Though the transfer of the debt is clearly indicated in the endorsement, the provisions of the stamp law are not complied with. In fact there is no stamp affixed under the endorsement. Consequently the assignment of the debt is ineffective. This result once again follows from the Full Bench decision in S. Maruthamuthu Naicker Vs. P. Kadir Badsha Rowther and Others, . Therefore the inescapable conclusion on the basis of law is that the transfer is only transfer for collection.

Now if it is transfer for collection what is the position? Although the endorsee of the promissory note would not be entitled to recover the debt from the shares of the coparceners in the family, yet if the endorsee retransfers the promissory note in favour of the original payee, a suit can be bled against the executant and the other members of the family to recover the debt from the shares of all the members. This is exactly what has happened in this case. As I have held, the transfer of the promissory note under Ex. A-3 is in law effective only as a transfer for collection with the result the promissory note debt thereunder continued to be the asset of the original payee. There is no dispute that in the will left by him, the testator categorically provided that all the assets or properties which were not mentioned in the will should go to his four sons viz. the plaintiff and defendants 7 to 9. After the death of the father, that is to say, after the will came into force, the plaintiff made a re-endorsement under Ex. A-4 in favour of himself and his three other brothers, who are residuary legatees under the will of the payee. I have no doubt whatever, whether the re-endorsement is in favour of the payee or in favour of his legal heirs, the suit filed by the re-endorsees would have the same amplitude as the suit filed by the original payee if he were himself the re-endorsee. On no principle of law could the heirs be denied the right of the payee, particularly when he made them residuary legatees by virtue of which the promissory note and the debt thereunder went to them. Therefore the plaintiff and defendants 7 to 9 come in the place of the original payee and therefore can sue not only the executant but also his sons. Had the original payee filed the suit, there is little doubt that he could have filed it not only against the executant father, but also the non-executant sons. The same thing should apply when there is re-endorsement in favour of the sons who become his residuary legatees under the will. I am therefore of the opinion that the suit, as filed by the plaintiff adding the other three endorsees as defendants 7 to 9, is maintainable against the 1st defendant as well as defendants 2 to 5.

Since all the other contentions of the defendants were repelled by the lower appellate court and found in favour of the plaintiff, it follows that there shall be a decree in favour of the plaintiff and defendants 7 to 9 as claimed in the suit. The plaintiff will have his costs from the contesting defendants 2 to 5 of the trial court as well as the appellate Court. Since the respondents though served are absent. I make no order as to costs in the Second Appeal. No leave.