Ghanshyam Das Marwari vs Ragho Sahu and Others

James, J.—Ramadhin Sahu borrowed a sum of money from Sitaram Marwari for which he gave a hand-note. Sitaram Marwari sold the hand-note to Ghanshyam Das Marwari by a registered sale deed. Ghanshyam Das Marwari then sued the debtor for recovery of the value of the hand-note, basing his suit on the hand-note and also on the debt which had been transferred to him with the hand-note by means of the registered instrument. A plea of partial payment was put forward at the trial by the defendant which the Small Cause Court Judge disbelieved; and he would have decreed the suit except for the fact that he regarded the decision of this Court in Peary Pasi v. Gauri Lal AIR 1934 Pat 382 as prohibiting the transfer of a hand-note or of the debt based on it by any other means than by endorsement and delivery as described in the Negotiable Instruments Act. The case originally came before a Single Judge who referred it to a Division Bench. The Division Bench, doubting the correctness of part of the decision in Peary Pasi v. Gauri Lal AIR 1934 Pat 382, asked for a reference to a larger Bench.

In Peary Pasi v. Gauri Lal AIR 1934 Pat 382 the hand-note was executed not in favour of the person who advanced the consideration but in the name of a benamidar. The assignment, was made, not by the benamidar whose name appeared upon the note, but by the person who claimed to be the beneficial owner; and although it is to be noted that the benamidar expressly agreed to the assignment, it is also to be noted that in the case before the Bench, he alleged that the debt of which the note was evidence had been discharged. There is a current of decisions to the effect that where a hand-note is executed in favour of a benamidar, it is not open to the defendant to assert that the holder of the note is not the beneficial owner: Subba Narayan Vathiyar v. Ramaswami Aiyar (1907) 30 Mad 88; and conversely that if a suit is to be based on the hand-note it must be instituted by the holder whose name appears on the note, not by another person who alleges that the original holder is his benamidar and that he is the beneficial owner: Ram Das Sahu v. Chhota Lal Mander AIR 1928 Pat 24 and Harkishore Barua Vs. Gura Mia Chowdhry and Another, . In the case Peary Pasi v. Gauri Lal AIR 1934 Pat 382, if the benamidar had endorsed the hand-note to the beneficial owner before transfer, or if the benamidar had himself executed a deed of transfer, the plaintiff''s position would have been different. The transfer in that case was actually made not by the person whose name appeared upon the note but by the person who claimed to be the beneficial owner; but it appears that the rule regarding the manner in which negotiable instruments can be transferred was stated somewhat too broadly in the decision of that case, so that in the present case the learned Small Cause Court Judge considered that he was incapable of acting upon the transfer by a registered instrument which was executed by the original holder. We have to determine whether such a transfer confers upon the transferee the right to sue.

In Muthar Sahib Maraikar v. Kadir Sahib Maraikar (1905) 28 Mad 544 the Acting Chief Justice of the Madras High Court held that an assignment of promissory notes by a registered instrument gave the assignee the right to sue upon them in his own name, though the assignee in such circumstances acquired only the right, title and interest of his assignor, whereas the endorsee would have all the rights of a holder in due course. In 1912, in Muthukrishnier v. Veeraraghava Iyer AIR 1915 Mad 1031, Sir Arnold White, presiding over a Special Bench of the Madras High Court, held that where a promissory note had been mortgaged to the plaintiffs of that case without endorsement, the transferee was entitled to sue upon the note and was actually the only party entitled to sue. In Benode Kishore Goswami v. Ashutosh Mukhopadhya 16 CWN 666, where a promissory note had been transferred by a registered deed of gift, the transfer was held to be a valid assignment. It has been decided in Burma and in the Punjab that such an assignment could be made in more informal fashion and yet be effective. The Burma Chief Court in Palawan v. B.K. AIR 1921 LB 92 held that a negotiable instrument could be transferred so as to enable the transferee to maintain a suit thereon even without endorsement or a written assignment. In the Punjab it had been held by the Chief Court in Panna Lai Lachhman Das v. Hargopal Khubi Ram AIR 1919 Lah 85 that endorsement was not the only mode by which a negotiable instrument could be transferred; it can be assigned otherwise and the assignee could sue in his own name, the only difference being that the assignee would have only the right, title and interest of the assignor, while the endorsee would have all the rights of a holder in due course, following the decision in Muthar Sahib Maraikar v. Kadir Sahib Maraikar (1905) 28 Mad 544 to which reference has been made.

I do not think that it can be held in view of these authorities that endorsement is the only means by which a negotiable instrument can be transferred. Ch. 4, Negotiable Instruments Act, deals with the manner of the negotiation of these instruments. In the ordinary way, u/s 48 of the Act, a hand-note such as we have before us in the present case would be negotiated by endorsement and delivery thereof; a promissory note endorsed in blank or a promissory note to the holder or bearer is negotiated in simpler fashion. But the Negotiable Instruments Act itself does recognise that negotiable instruments may be transferred and for consideration otherwise than by negotiation, because Section 118(a) of the Act provides that until the contrary is proved, when a negotiable instrument has been negotiated or transferred, it shall be presumed that it was negotiated or transferred for consideration.

In the case now before us the promissory note was transferred by means of a registered instrument; and we have not to consider the question of whether the transfer by less formal means other than by endorsement would or would not be valid. Section 130 T.P. Act, provides that a transfer of an actionable claim shall be effected only by the execution of an instrument in writing; but Section 137 of the Act provides that nothing in Section 130 shall apply to negotiable instruments. Section 137 of the Act excludes negotiable instruments from the operation of the rule which requires that transfer shall be made by a written instrument, because they are ordinarily transferred by negotiation. Nothing in Section 137 prohibits the transfer of negotiable instruments by means of separate written instruments; but the question of whether in the present instance the transferee was entitled to sue as the holder of the hand-note and also as the assignee of the debt of which the hand-note was evidence does not arise in this case, because he did in fact institute his suit in each of those capacities, and when his claim to recover the amount of the debt was proved he was entitled to succeed. The defendants pleaded part payment; but the finding of the Court was that payment had not been made and that the debt claimed in the plaint was due. The Small Cause Court Judge would have decreed the suit if he had felt that he was able to hold that the mode of transfer employed entitled the plaintiff to sue; and in the circumstances, I would allow this application, set aside the decree of the Small Cause Court Judge and decree the plaintiff''s suit with costs throughout: hearing fee three gold mohurs.

Courtney-Terrell, C.J.

I entirely agree. My statement of opinion in Peary Pasi v. Gauri Lal AIR 1934 Pat 382, to the effect that a transfer of a hand-note could not be made otherwise than by endorsement and delivery was not necessary for the decision of the case, and moreover I am now convinced that it was erroneous. I was misled by the wording of Section 48, Negotiable Instruments Act, and did not notice that the transfer of a negotiable instrument is not by that section restricted to the operation of endorsement.

Mohamad Noor, J.

I agree.

Dhavle, J.

I agree.

Varma, J.

I agree.