M. Arunachalam vs V. Rajaram Reddiar

There was one suit namely, O.S.No. 9 of 1983 on the file of the Sub-Court at Cuddalore. That suit was filed to recover a sum of Rs. 96,820

made up of Rs. 49,995 towards principal and the balance sum towards interest. The suit was decreed on merits by the learned trial Judge by

judgment dated 18.10.1985. Under the decree the plaintiff gets a sum of Rs. 46,060 only together with interest at the rate of 6% p.a. thereon as

against the claim made by him in the plaint. Aggrieved over that portion of the claim in respect of which the plaintiff was non-suited, the plaintiff is

before this Court in A.S.No. 108 of 1986, to which the defendant in that suit is the respondent. Aggrieved over that portion of the decree which

was passed against the defendant, the defendant is before this court in A.S.No. 858 of 1986 as the appellant therein and the plaintiff in that suit is

the respondent in this appeal. It is the correctness of the judgment referred to above in the original suit, that is being questioned in these two

appeals. In this order the parties to the proceedings will hereinafter be referred to as the plaintiff and the defendant.

Two minimum facts that are necessary to dispose of these two appeals are stated hereunder:

The promissory note on which the suit is laid is dated 29.11.1968. It is stated to have been executed by the defendant in favour of one Subramania

Reddiyar. The plaintiff relies upon three payments made by the defendant to the promisee in respect of which endorsements have been made on

the reverse of the promissory note itself. The plaintiff also relies upon two payments namely, one for a sum of Rs. 250 dated 19.12.1979 and the

other for a sum of Rs. 500 dated 27.1.1980 stated to have been made by the promisor to the promisee. The promissory note had been made over

by the promisee to the plaintiff by an endorsement dated 5.10.1982 and therefore he is a ""holder in due course"". A notice of demand was issued

on behalf of the plaintiff to the defendant, which met with a reply. Thereafter the suit came to be filed.

The sum and substance of the defence is as follows:

The plaintiff has no right to sue and he is not a ""holder in due course"". The plaintiff is fully aware of the defects in title. The defendant denies the

truth and validity of the assignment and the assignment is not genuine. Since it is a bogus assignment, the lower court has no jurisdiction. The

plaintiff is only an agent of the promisee and hence the lower court has no jurisdiction. The defendant admitted the execution of the promissory note

as well as the two payments evidenced by endorsements dated 1.11.1971 and 1.10.1974 respectively on the promissory note. The third payment

on 21.9.1977 and the endorsement in respect of the same were denied. Two cash payments of Rs. 250 and Rs. 500 stated to have been made on

19.12.1979 and 27.1.1980 were also denied. The defendant further stated that he was the owner of a bus bearing Registration No.MDM 5150.

As the said bus was running at a loss, the defendant approached the promisee for help, during which time the price of the bus was fixed at Rs.

79,000. The promisee suggested that out of the said sum of Rs. 79,000, a sum of Rs. 50,000 would be adjusted towards the money due under the

promissory note, to which the defendant agreed. Accordingly the said sum of Rs. 50,000 was adjusted and the defendant was paid only a sum of

Rs. 29,000. Therefore the entire principal money due under the promissory note stands to fully discharged. Some years later the defendant wanted

to have the bus re-sold to him. At that time the promisee sent a statement of account written by him to the defendant showing a total expenditure of

Rs. 1,48,419.10 spent by the promisee in running the said bus. The promisee wanted the said payment as a condition for re-sale of the bus to the

defendant. The statement of account sent by the promisee to the defendant contains a credit entry for a sum of Rs. 50,000, which represents the

money adjusted from and out of the sale proceeds in respect of the bus sold by the defendant to the promisee.

The plaintiff filed a reply statement meeting the case of the defendant in the written statement. This was followed by an additional written

statement of the defendant and a further reply statement by the plaintiff. The learned trial Judge framed the following issues:

(a) Whether the court has territorial jurisdiction to try the suit?

(b) Whether the assignment in favour of the plaintiff is true and valid?

(c) Whether the plaintiff is a ""holder in due course"" of the promissory note on which the suit is laid?

(d) Whether the payment made on 21.9.1977 is true and valid?

(e) Whether the letters dated 19.12.1979 and 27.1.1980 are true and binding on the defendant?

(f) Whether the discharge pleaded by the defendant is true?

(g) To what amount the plaintiff is entitled to?

On the side of the plaintiff four witnesses were examined including the promisee as P.W.2 and the plaintiff as P.W.3. The defendant examined

himself as D.W.1. On the side of the plaintiff 13 exhibits were marked namely, Exs. A1 to A. 13 and on the side of the defendant two exhibits

were marked namely, Exs.B.1 and B.2. On issue No.1 the learned trial Judge found that he has jurisdiction to try the suit. On Issue No.2 the

learned trial Judge found that the assignment was valid and legal. On issue No.3 the learned trial Judge found that the plaintiff is a ""holder in due

course"". Issue Nos. 4 and 5 were also answered in favour of the plaintiff. On issue No. 6 the learned trial Judge found that the defendant had paid

a sum of Rs. 50,000 as reflected under Ex.B.1. On issue No. 7 the teamed trial Judge found that the plaintiff is entitled to the amount prayed for in

the plaint less the sum of Rs.50,000, which had been paid already. As already stated it is the correctness of the judgment referred to above, that is

being questioned in these two appeals.

Heard the learned counsel on either side. The learned counsel for the plaintiff would contend that the learned trial Judge had committed an error

both in law and on facts in holding that the defendant had established the payment of the sum of Rs. 50,000, while in fact there is no legal evidence

to support such a finding. The learned counsel would also contend that the credit entry for the said sum as reflected under Ex.B.1 does not relate

to the defendant and it relates to somebody else and therefore the defendant cannot rely upon it. The learned counsel for the plaintiff would further

contend that inasmuch as the burden is heavy on the defendant to plead and prove the discharge of his liability under the promissory note, a duty is

cast upon him to place independent evidence on this aspect, which he has not done and it is not open to him at this stage in the absence of such an

evidence to rely upon Ex.B.1 and contend that the defendant had established the payment. As far as the connected appeal is concerned, the

learned counsel for the plaintiff would contend that the plaintiff is a ""holder in due course"" as set out u/s 9 of the Negotiable Instruments Act and

therefore he is entitled not only to maintain the suit, but also recovery the money due from the defendant. Therefore according to the learned

counsel for the plaintiff the suit should have been decreed as prayed for. The learned counsel would also contend that the lower court has

jurisdiction to try the suit, inasmuch as the assignment in favour of the plaintiff gives a cause of action to him to file a suit before the lower court

concerned in this case. However the learned counsel for the defendant would contend that the assignment will not confer on the plaintiff the status

of a ""holder in due course"". Admittedly for the assignment there is no consideration and to be a ""holder in due course"" the holder must establish that

there was a valid consideration for the assignment being made in his favour. In this case there is no consideration at all for the assignment in favour

of the plaintiff. Therefore the plaintiff cannot maintain the suit much less recover the money due from the defendant. The learned counsel for the

defendant would contend that the learned trial Judge had erred in decreeing the suit for the stated amount (interest), which according to her, is not

in accordance with law. Inasmuch as the finding is in favour of the defendant that the principal amount had been paid long before, if at all the

defendant is liable to pay interest, then his liability must come to an end on the date on which the principal amount had been re-paid and the plaintiff

would not be entitled to have any interest for the period subsequent to the payment of Rs. 50,000. The learned counsel for the defendant would

also contend that if the plaintiff is not a ""holder in due course"", then he has no right to maintain the suit in the lower court concerned and even

assuming that he has a right to file a suit, it can be only within the jurisdiction of the court where either the whole of the cause of action or a part of

the cause of action an the promissory note arose. The assignment in favour of the cause of action or part of the cause of action arising within the

jurisdiction of the court concerned now.

In the light of the arguments advanced by the learned counsel on either side, I carefully went through the entire pleadings as well as materials

available on record. The issues that have been been framed by the learned trial Judge also arise for consideration in these appeals. First let me

consider as to whether the plaintiff is a ""holder in due course"". I perused the endorsement found in Ex.A.1 made by the promisee in favour of the

plaintiff. It is dated 5.10.1982. The endorsement is in Tamil. It was in favour of the plaintiff residing at Pahandi Village, Panruti Taluk and made by

the promisee residing at Iruvalpatti Village, Tirukovilur Taluk. The endorsement as made therein authorises the recovery of the entire principal and

interest due under the promissory note and for payment. The assignment does not spell out any other consideration in favour of the plaintiff. u/s 9 of

the Negotiable Instruments Act a ""holder in due course"" means any person, who for consideration became the possessor of the promissory note

etc...... Admittedly in this case there is no consideration for the plaintiff coming into possession of the promissory note. Therefore the plaintiff would

not be a ""holder in due course"". But the matter does not end there. According to me even without being a ""holder in due course"", the plaintiff can

still be a ""holder"" as defined u/s 8 of the Negotiable Instruments Act. The ""holder"" of a promissory note is defined u/s 8 of the Negotiable

Instruments Act. Under that section the ""holder"" of a promissory note is defined to mean ""any person entitled in his own name to the possession

thereof and of receive or recover the amount due thereon from the parties thereto."" In this case the plaintiff had been expressly authorised by the

promisee to recover the money due under the promissory note. In contrast to section 9 of the Negotiable Instruments Act, section 8 of the said

Act does not provide for any consideration for a person to be a ""holder"" of an instrument. From the tenor of the endorsement found on the

promissory note, there cannot be any doubt that the plaintiff is a person entitled in his own name to the possession of the said instrument. Therefore

there cannot be any difficulty in holding that the plaintiff is a ""holder"" of the instrument. The question that follows then is whether a ""holder"" can

maintain a suit on the promissory note to recover the money due?

The rights of a ""holder"", who has been expressly authorised only to recover the money due under the instrument had been considered and

decided in the following judgments:

(a) Kadir Moideen Rowther and Others Vs. Asiaru, ; (b) Visweswara v. Pushpavati, AIR 1942 Mad 743; (c) Srinivasa v. Muthaya, AIR 1956

Mad 365 ; (d) Bommareddi Mothireddi Vs. Bhimavarapu Pothireddi, ; (c) Kunju Pillai and Others (L.Rs.) Vs. Periasami, ; Mrs. Rahmath Bi Vs.

Angappa Raja (petitioning creditor) and Others, .

In the first judgment referred to above, the facts are as follows: Kadir Moideen Rowther and Others Vs. Asiaru,

The plaintiff brought the suit as an endorsee of a promissory note dated 4.9.1924 by the defendant in favour of one Fathima Bi. It was endorsed

in favour of the plaintiff on 3.6.1925. One of the issues framed in the suit was ""whether the plaintiff is a bona fide holder in due course""? The suit

was decreed. On an appeal by the defendant, the suit was remanded on the issue whether the promissory note was supported by consideration.

The finding returned was that the promissory note was supported by consideration. The appeal thereafter was allowed on the appellate court

finding that the plaintiff was not a ""holder in due course"" and that the endorsement was not supported by consideration. The matter came up before

this court by way of a second appeal at the instance of the plaintiff. This Court while disposing of that appeal in favour of the plaintiff held that the

defendant is not entitled to go into the question of consideration as between Fathima Bi and the plaintiff and even if the plaintiff had been a mere

assignee for collection, the defendant could not resist his claim on the ground that there was no consideration for the assignment.

The above judgment in my respectful opinion recognises the ""holder"" of an instrument to initiate proceedings for recovering the money due under

the instrument, over which he has possession as a ""holder"".

In the second judgment referred to above the facts are as follows: Visweswara v. Pushpavati, AIR 1942 Mad 743

The suit was filed by the appellants before this court for recovery of the principal and interest due on a promissory note executed by one ""G"" -

respondent No.3 in that appeal, since dead, in favour of the mother of the appellants 2 to 4. The appellants obtained a succession certificate in

respect of the suit debt and endorsed the promissory note to their husband, appellant No.1 for collection of the amount due thereunder. Appellant

No.1 thereupon brought the suit and appellants 2 to 4 were subsequently joined as co-plaintiffs. The suit was decreed by the trial court against the

promisor personally and against the family properties in the hands of his sons namely, respondents I and 2. On an appeal the decree against

respondents 1 and 2 was reversed holding that the suit having been brought by appellant No.1 as endorsee of the note he was not entitled to ask

for the relief against any other person on the basis of the debt evidenced by the note, the endorsee having obtained no other right under the

endorsement apart from the property in the note.

On those facts the learned Judge of this Court held that the said preposition is no doubt correct in the case of an ordinary endorsee as held by this

court in the judgment reported in Viraraghavalu Naidu v. Chinnarajalingam, 1939 M.W.N. 774. The learned single Judge, in the second case

referred to above also found that the judgment reported in Viraraghavalu Naidu v. Chinnarajalingam, 1939 M.W.N. 774 proceeded on the basis

that the endorsement on the promissory note was of ordinary kind. Thereafter the learned single Judge proceeded to state that the said decided

case has no application, as the endorsement itself purports to assign the note expressely for the purpose of collection of the amount due on the

note. Such an endorsement, according to section 50 of the Negotiable Instruments Act, has the effect merely of constituting the endorsee an agent

of the payee, and if the latter could have sued the other persons on the debt there is no reason why the endorsee for collection should be restricted

only to the remedy on the note. On that basis the learned Judge allowed the appeal making respondents 1 and 2 also liable.

In the third judgment referred to above, two learned Judges of this court have held as follows: Srinivasa v. Muthaya, AIR 1956 Mad 364

It is well established that even an endorsee of a promissory note for collection only can maintain a suit by himself on the promissory note, though

he may not be beneficially entitled to the amount due thereunder. In that case the suit was filed on a promissory note dated 1.11.1937 executed by

one ""B"" in favour of one ""L"". On 25.1.1942 ""L"" assigned the promissory note in favour of ""M"". ""M"" brought the suit on 27.10.1943 in his name as

the assignee of the promissory note. There was some dispute between ""M"" and ""L"" at a later stage, which resulted in ""L"" also being brought on

record as the second plaintiff.

Only in the context of those facts, the learned Judges laid down the law as referred to above. The learned Judges also held on ""L"" being made as a

party as follows:

Where during the pendency of a suit on a promissory note by the assignee of the note the original payee is added as the second plaintiff as a

person entitled to beneficial interest in the amount beyond time, which would not render the suit originally filed by the assignee incompetent.

In the fourth judgment referred to above it has been held as follows: Bommareddi Mothireddi Vs. Bhimavarapu Pothireddi,

Thus payment to the holder of the instrument, which includes an endorsee for collection, gives a discharge to the maker of the promissory note.

That being the real position, in my view, the right based on the endorsement survives notwithstanding the death of the endorser and the endorsee

could continue the suit. The endorsement having been made for a specific purpose namely, collection of the amount, it will be valid till that purpose

is served.

The facts in that case are that the defendant in the suit executed a promissory note on 26.7.1956 in favour of one ""C"". ""C"" endorsed the

promissory note in favour of the plaintiff for collection. The endorsee filed the suit and the endorser died later on. It was defended that the death of

the endorser results in the termination of the authority of the plaintiff to continue the suit. In view of the categorical pronouncements of law in the

judgments referred to above, there cannot be any difficulty for me to hold that the endorsee for collection only, can always maintain a suit on the

basis of the said endorsement and recover the money due under the instrument. Therefore on the facts and circumstances of this case, I hold that

the plaintiff is not a ""holder in due course"", but he is definitely a ""holder"" and he is legally entitled to file a suit and recover the money due under the

promissory note.

In the fifth judgment referred to above, it has been held as follows: Kunju Pillai and Others (L.Rs.) Vs. Periasami,

It cannot be held that a holder of a negotiable instrument who secures the same by endorsement for purposes of collection in a manner known to

law loses his right of action by reason of the death of the original payee. In fact by such an endorsement, he secures the title to the instrument,

which title is enforceable by him in a manner ordinarily known to law. Such a title so vested in him cannot be divested by reason only of the fact

that the original payee died soon after such an endorsement and that the suit itself was brought on the foot of such an endorsement by the endorsee

after the death of the original payee.

The special provisions of the Negotiable Instruments Act, which enables an endorsee to sue on the instrument on the foot of such an endorsement

creates an exception to the ordinary law of agency and the principle adumbrated in the Indian Contract Act in so far as agency in general, is

concerned and in particular section 210 therein, cannot be telescoped into this enactment so as to interpret its intendment.

If the original petitioner had in him and in eye of law, the right to institute the suit as a regular holder and as a person in whom the title in the

promissory note or the negotiable instrument vested under the special law, such a cause of action on the foot of which, the original petitioner came

to court survives on his death to his legal representatives, under the common law.

In that decided case the revision petitioner instituted the suit against the defendant on the foot of a promissory note on which he secured an

assignment from the original payee. It was noticed in that case that the assignment, however, was for purposes of collection and that was not in

dispute. The original payee died after such endorsement in favour of the petitioner. The suit was instituted after the death of the original payee on

the foot of the assignment. The defence was that on the date of the original payee the endorsee has no further cause of action, as the agency which

was expressely created by such an endorsement should be deemed to have been terminated by the death of the original payee. Only in the back

drop of those facts the above judgment came to be delivered.

In the sixth judgment referred to above, it has been held as follows: Kandaswamy Gounder Vs. K.P. Sivasubramania Iyer,

An endorsee of a promissory note for collection, who has not paid any consideration for the same, has locus standi to file an insolvency petition

against the maker of the promissory note; there is nothing in sections 8, 46, 50 and 78 of the Negotiable Instruments Act to restrict the right of the

endorsee filing an insolvency petition against the maker of the promissory note; on the contrary the reason and the thing requires that the endorsee

should have the right of filing an insolvency petition for realising the money.

Though this relates to insolvency proceedings, yet I am of the respectful opinion that it applies on all force to the case on hand as well.

On this position namely, the plaintiff being a ""holder"" the question that follows is whether the Sub-Court at Cuddalore has jurisdiction to try the

suit or not. If the plaintiff is the ""holder in due course"" as contemplated u/s 9 of the said Act, then the assignment having been made for

consideration within the jurisdiction of that court, it can be definitely said that a part of cause of action had arisen within the jurisdiction of that court

and therefore the suit filed before the said court is definitely well within it''s jurisdiction. Inasmuch as I have held that the plaintiff is not the ""holder in

due course"", I have to necessarily state that the cause of action that was stated to have been available to the plaintiff as the ""holder in due course

relying upon the assignment in his favour, is no longer available to him in view of the finding rendered by me that the plaintiff is not the ""holder in due

course"" but only a mere ""holder"". Therefore in my opinion the Sub-Court at Cuddalore would have no jurisdiction at all and at best the plaintiff

would only be an agent of the promisee to initiate action on the basis of the promissory note and take necessary steps in regard thereto. The

promisor and the promisee to the promissory note were residing within the jurisdiction of Tirukovilur Taluk on the date when the document was

executed. The consideration had also passed between the parties only within the jurisdiction of Tirukovilur Taluk. The promissory note does not

specify the place for payment. It is needless to state that the place of suing on a promissory note must be determined with reference to the

provisions of section 20 of the Code of Civil Procedure. The promissory note does not indicate any particular place, as already noticed, as the

place for payment of the money due under the promissory note. In any event it is clear that the place of payment is not specified to be a place

within the jurisdiction of the Sub-Court at Cuddalore. The place of residence of the promisor and the promisee; the place of execution of the

promissory note and the place of where consideration passed under the promissory note between the promisor and the promisee falls outside the

jurisdiction of the Sub-Court, Cuddalore. A Full Bench of the Madhya Bharat High Court in the judgment reported in J.N. Sahni v. Madhya

Bharat State, 1954 M.B 189 has held as follows:

The common law rule that the debtor must find out his creditor, is not applicable to the case of a negotiable instrument and that a promissory note

payable on demand which does not specify the place of payment is payable at the place where the maker of the promissory note resides or carries

on business.

Therefore the mere endorsement in the promissory note enabling the plaintiff to recover the money due under the promissory note and the fact

that the plaintiff is a resident of a place within the jurisdiction of the Sub-Court at Cuddalore, would not mean that the said court has jurisdiction to

try the suit. Inasmuch as the entire cause of action for the suit promissory note arose within the jurisdiction of Tirukovilur Taluk; the consideration

having been passed within that jurisdiction and both the promisor and the promisee residing within that jurisdiction, there cannot be any difficulty at

all in upholding the argument of the learned counsel for the defendant that the Sub-Court at Cuddalore would have no jurisdiction at all.

As a result of the foregoing discussions, I hold as follows:

The Sub Court at Cuddalore has no territorial jurisdiction to try the suit. Consequently the finding rendered by the learned trial Judge on Issue

No.1 framed by him is set aside. I also hold that the plaintiff is not a ""holder in due course"", but he is only a ""holder"", who is entitled to maintain the

suit. Accordingly the finding rendered by the learned trial Judge on Issue No.3 is also set aside. In view of my decision on Issue No.1 referred to

above, all the findings rendered by the learned trial Judge on Issue Nos.2, 4, 5, 6 and 7 are set aside. The suit will stand remitted back to the

appropriate court for a de novo trial on Issue Nos. 2, 4, 5, 6 and 7 as framed by the learned trial Judge in the judgment under challenge. The

learned Sub-Judge at Cuddalore is directed to transmit the entire records on his file, on receipt of the same from this court to the file of the learned

District Judge at Villupuram. On receipt of the records so sent by the Sub-Court, Cuddalore, the learned District Judge, Villupuram is directed

either to dispose of the case by himself or if he so chooses, assign the case for disposal of the same to any competent court of jurisdiction,

subordinate to him. The parties are at liberty to raise any additional pleadings; if additional pleadings are raised, the learned trial Judge is directed

to frame additional issues within a time frame. The parties are at liberty to let in fresh evidence on all issues except the two issues decided by this

court and referred to above in this judgment. Accordingly both the appeals are disposed of on the lines indicated above with no costs throughout.