K.M.K. Subbaraya Chettiar vs Abirami Ammal and Another

(1) This second appeal by the second defendant has to be allowed as the question raised by him is concluded by authority in his favour. That

defendant executed a promissory not on 15-2-1954, for a sum of Rs 6000 in favour of the first defendant. On 14-2-1957, the plaintiff, who is the

first respondent in this court, sued for a declaration that she was the beneficial owner of the promissory note and for a decree for the amount

covered by the promissory note against both the defendants. The suit was resisted by the second defendant on the ground that such a suit did not

lie. The trial court accepted that defence and dismissed the suit in so far as it related to the second defendant. The trial court, however, granted a

declaration in favour of the plaintiff to the effect that she was the beneficial owner of the promissory note. On appeal by the plaintiff, the lower

appellate court reversed the decree of the trial court and decreed the suit against the second defendant, affirmed the declaration granted against the

first defendant, and dismissed the cross-objections filed by that defendant. The second defendant alone has come up to this court in second

appeal.

(2) The point strenuously and forcibly argued by Mr. M. S. Venkatarama Aiyar is that the lower appellate court entirely misconceived the true

position of the law as to the maintainability of the suit in respect of the second defendant. He contends that the plaintiff could in no sense be

described as a holder of the promissory note, and the suit, so far as his client was concerned, being wholly rested on the promissory note, she

could not, in the absence of an endorsement or transfer of the promissory note in her favour, maintain the suit against the second defendant and

recover on the basis of the promissory note. I accept this contention. No stranger to a contract can sue upon it. That is a basic principle of law.

This principle is applied to Negotiable Instruments Act, which is but a part of the law of Contract. Apart from that, S. 8 of the Negotiable

Instruments act clearly defines a holder as a person entitled, be it noted, in his own name to the possession of the promissory note and to receive

or recover the amount due thereon from the parties thereto. The rights of an endorsee to sue on the promissory note are rested on special statutory

provisions. Though the plaintiff''s case was that she was the beneficial owner of the promissory note as the consideration therefore proceeded from

her, in as much as she was not the holder of the promissory note, it would follow that she could not, on the basis of merely being the beneficial

owner thereof, sue to recover the money due on the promissory note.

(3) This point was decided by Venkatarama Reddiar and Another Vs. Valli Akkal and Others, , Varadachariar J. speaking for the Full Bench,

while holding that the beneficial owner could not, on the strength of that title, maintain a suit on a promissory note, observed further:

It may be that even upon getting a declaration to this effect (that he is the beneficial owner), the beneficiary will not directly be able to sue upon the

promissory note; but that does not mean that a declaration of this kind will be futile. Under other provisions of the Trusts Act, the beneficiary can

sue for the execution of the trust by compelling the trustee to take the necessary steps and have a Receiver appointed in the course of such

proceedings so that the receiver may sue for the debt, or the beneficiary may also insist upon the trustee conveying the legal title to himself and after

such transfer there will be no difficulty in his suing upon the promissory note in his own name.

(4) This decision is clear authority for the proposition that even after getting a declaration, by the beneficial owner of this status as such, he could

not sue upon the note unless he got a transfer of it in his name in a suit to compel the promise to effect a transfer or he filed a suit on the strength of

the declaration to enforce the trust in an appropriate manner. This principle has been followed in Chinnakuzhandai Ammal Vs. Kuzhandai

Veerasami Mudaliar and Another, and Maddali Tirumala Ananta Venkata Veeraraghavaswami Vs. Srimat Kilambi Mangamma and Another, in

both of which the facts were more or less similar, Walsh J. in the earlier case did not make particular reference to Venkatarama Reddiar and

Another Vs. Valli Akkal and Others, but referred to an obiter in Subba Narayana Vathiar v. Ramaswami Iyer, ILR 30 Mad 88 and ruled that in

circumstances, as in the present case, the suit by the beneficial owner to enforce the promissory note would not be maintainable. The same view

Kunhi Raman J. took in the second of the cases.

(5) Mr. M. R. Narayanaswami for the plaintiff first respondent rather ingeniously pressed that where there is transfer of a promissory note by

operation of law, the transferee of the note by that means would well be entitled to sue on the note and that when a declaration that the plaintiff was

the beneficial owner was granted, it could operate in his favour as a transfer in law and on that basis he should be in a position to recover on the

note in the same suit. The learned counsel, in support relies upon Muthuveeran Chetty Vs. Govindan Chetty, . In that case Full Bench of this court

was concerned with the question whether a member of a joint Hindu family to whom a promissory note had been, at a partition, allotted for his

share could maintain a suit on the note and recover monies due thereunder. The learned Judges were of the opinion that the partition and allotment

of the promissory note to the share of one of the members of the joint family operated as a transfer in law in favour of such a member, so that he

would be competent, on this basis, to maintain a suit on the note. It seems to me, with due respect, that a partition of joint properties into severalty

does not necessarily involve a transfer in the sense of a conveyance. All that happens at a partition is that, what is held jointly by the members of a

joint Hindu family is converted into severalty. In other words, what is in joint possession is converted into separate possession. In a sense it may be

that this process involves a kind of transfer. But the basis of the decision, as it seems to me, is that when a promissory note is taken in the name of

the manager of a Hindu joint family, it is really owned by the family in common, and, in that sense, when it is, at a partition allotted to one of the

members of the joint family, he is the owner thereof. Whether this kind of transfer would satisfy the definition of a ''holder'' under the Negotiable

Instruments Act, it does not appear to have been argued before the Full Bench. In my opinion, Muthuveeran Chetty Vs. Govindan Chetty, is not,

therefore, of assistance to the first respondent. The case of a son succeeding to the father and on the basis of succession and transfer of title suing

on a promissory note, is a different one. So, too, as it seems to me, is the case of a receiver, where there is a transfer to him of the assets put in his

charge for purposes of administration.

(6) In a declaration, as is rightly contended by Mr. M. S. Venkatarama Aiyar, there is no transfer of the property in the note. Beneficial ownership

does not carry with it legal title to the property concerned. A declaration that a person is the beneficial owner, does not take the matter further and

leaves unaffected the legal title in the person in whom it inheres and it rests there only until it is transferred to the beneficial owner. It was perhaps

on that basis Varadachariar J. in Venkatarama Reddiar and Another Vs. Valli Akkal and Others, considered that a beneficial owner would not be

competent, merely on the basis of a declaration to that effect to sue on a promissory note and that in order to render him competent to do so, there

must be a transfer in his favour. I am therefore unable to accept the contention of Mr. M. R. Narayanaswami that on the basis of a declaration

granted to the first respondent she would be competent to recover on the promissory note.

(7) It was contended for the appellant that even assuming that a declaration of beneficial ownership would make it competent for the beneficial

owner to sue on the note for purposes of limitation the suit to recover should be regarded as having been instituted only on the date when the

declaration was given and on that basis the present suit of the first respondent would be barred against the second defendant. In the view I have

taken of the effect of a declaration that the plaintiff was the beneficial owner, it will, I think, be unnecessary to consider this aspect of the matter.

(8) I hold that the suit, framed as it was, was not maintainable in so far as it related to the second defendant. The second appeal is allowed and the

judgment and decree of the lower appellate court against the second defendant are set aside and the suit against him will stand dismissed. The

parties will bear their own costs throughout. Leave granted.

(9) Appeal allowed.