M. George and Brothers and Another vs K.C. Cherian and Others

K.G. Balakrishnan, J.—Defendants Nos. 1 and 2 in a suit for realisation of money are the appellants. The plaintiff filed the suit alleging that he is a holder in due course in respect of exhibits A-1 and A-2 cheques drawn on the Kozhen-cherry Branch of the Federal Bank Ltd. The first defendant firm issued two post-dated cheques in favour of the third defendant who endorsed it in favour of the fourth defendant and who in turn discounted the same on February 1, 1977, and received the entire amount due thereunder. The plaintiff later presented these cheques for collection. The cheques were dishonoured by the bank stating that payment was stopped by the drawer. According to the plaintiff, the first defendant being the drawer and defendants Nos. 3 and 4 being the endorsees are jointly and severally liable to the plaintiff for the amount due under the two cheques.

Defendants Nos. 1 and 2 filed a joint written statement, wherein they urged the third defendant used to get the post-dated cheques from the first defendant with the specific understanding that the cheques will not be endorsed to any one or discounted. These cheques were without any consideration. There was a further understanding between the first defendant and the third defendant to the effect that the latter would pay to the first defendant the amount shown in the cheque in case it is presented for collection. This practice was known to the plaintiff. The third defendant being a businessman was having several transactions and huge amounts were due to him from various parties and he too was also liable to pay amounts to others. The post-dated cheques were issued by the first defendant to the third defendant as a security for payment of amounts due to him. Defendants Nos. 1 and 2 also contended that the cheques were not negotiable and the plaintiff is not a holder in due course. The third defendant filed a written statement stating that there was no money dealing between himself and defendants Nos. 1 and 2 and that the fourth defendant obtained these cheques in the name of the third defendant. The third defendant would also contend that he signed the cheques at the instance of the fourth defendant and that he was not aware of the discounting of the cheques. The fourth defendant mainly contended that there was no proper notice of discounting. The court below decreed the suit against defendants Nos. 1 to 4 with interest at 6% per annum.

The main contention urged by learned counsel for the appellants is that exhibits A-1 and A-2 cheques are not negotiable instruments within the definition of Section 13 of the Negotiable Instruments Act. The appellants'' contention is that at the time when these two cheques were issued, the drawer of the cheque, viz., the first defendant, scored off the word "bearer", thereby indicating that the intention of the drawer is that it shall not be transferable and, therefore, it is not a negotiable instrument as defined in the Negotiable Instruments Act (for short, "the Act"). The question to be considered is whether the mere scoring off of the word "bearer" will make the instrument non-transferable and the endorsee therein will not become a holder in due course.

The term "cheque" has been defined in Section 6 of the Act as follows :

"A ''cheque'' is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand."

A bill of exchange has been defined in Section 5 of the Act. Explanation (i) to Section 13 of the Act is very important. It is to the following effect:

"13. ''Negotiable instrument''. -- (1) ...

Explanation (i).--A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable."

In the instant case, there are no words in exhibits A-1 and A-2 cheques which expressly prohibit transfer or indicate an intention that they shall not be transferable. I am unable to accept the contention of the appellants'' counsel that the scoring off of the word "bearer" is sufficient to spell out the intention of the drawer that the instrument shall not be transferable. DW-1 deposed that at the time when exhibits A-1 and A-2 cheques were issued, there was an understanding between the third defendant and the first defendant that the cheque will not be endorsed in favour" of others. The plaintiff is not bound by any such understanding between the first defendant and the third defendant. The plaintiff cannot be attributed with the knowledge of such an understanding between the first defendant and the third defendant The two cheques issued by the first defendant could only be construed as cheques payable to order and hence they are negotiable instruments as defined in the Act. If the first defendant wanted to make the cheque not negotiable, he should have indicated his intention by crossing the cheque and writing "not negotiable". The drawer could have made the instrument not negotiable by writing "payable only to the payee" named therein. The first defendant is a banking concern and it cannot be assumed that the first defendant intended to make the document not negotiable by merely scoring off the word "bearer". Learned counsel for the appellants contended that there are no specific words in the cheque "to the order of" and, therefore, the instrument is not "payable to order". This contention cannot be accepted in view of Explanation (i) to Section 13. In the case of a pronote, a question of similar nature came up for consideration in Kuruppath Ummer''s son Arakkal Kuruppath Hameed Haji Vs. Keezhepadath Ramandi''s son Appukutti and Another, It was held that the absence of the expression "or to the order of" does not render the document any the less a promissory note. The decision in Jagjivandas Bhikhabhai Vs. Gumanbhai Narattamdas, also took the same view. In that case, the promissory note contained the words "whenever you demand". The court held that this did not restrict its negotiability and it was a pronote within the meaning of Section 4 of the Act.

The finding of the court below that the two cheques are negotiable instruments and the plaintiff is a holder in due course is correct and the suit has been rightly decreed by the court below. The appeal is without any merit and the same is dismissed with costs.