S. Maruthamuthu Naicker vs P. Kadir Badsha Rowther and Others

Alfred Henry Lionel Leach, C.J.—This is a reference under Order 46, Rule 1 of the Code of Civil Procedure, by the Subordinate Judge of

Tanjore in a suit on a promissory note. The note was executed by the first and second defendants in favour of one Ponnusami Naicker who

indorsed it to the plaintiff. The two sons of the second defendant who constitute with him an undivided family have been made defendants, as it is

sought to make them liable on the ground that the debt was incurred for family purposes by the second defendant in his capacity of managing

member. The sons having raised the plea that the plaintiff as the indorsee is not entitled to sue them on the strength of the indorsement of the

instrument, the Subordinate Judge has referred to us this question:

Whether an indorsee of a promissory note executed by the managing member is entitled to recover the debt from the property of the non-

executant coparceners on the ground of their liability under the Hindu Law or whether he is limited to the remedy available on the note.

It is a fundamental principle of the law relating to negotiable instruments that no one whose name does not appear on the instrument can be held

liable thereon, but this principle has unfortunately been lost sight of in some of the cases which have come before this Court. Before examining the

reports which have been quoted to us in the course of the arguments I wish to refer to a decision of the Privy Council and to two English cases as

the law is to be found there clearly stated. The decision of the Judicial Committee is that in Firm of Sadasuk Janki Das v. Sir Kishan Pershad

(1918) 36 M.L.J. 429 : L.R. 46 IndAp 33 : ILR 46 Cal. 663 (P.C.) which was an appeal arising out of a suit on a hundi. Lord Buckmaster in

delivering the judgment observed:

It is of the utmost importance that the name of a person or firm to be i charged upon a negotiable document should be clearly stated on the face or

on the back of the document, so that the responsibility is made plain and can be instantly recognised as the document passes from hand to hand.

Later in the judgment, Lord Buckmaster said:

Their Lordships'' attention was directed to Sections 26, 27 and 28 of the Negotiable Instruments Act of 1881, and the terms of these sections

were contrasted with the corresponding provisions of the English Statute. It is unnecessary in this connection to decide whether their effect is

identical. It is sufficient to say that these sections contain nothing inconsistent with the principles already enunciated, and nothing to support the

contention, which is contrary to all established rules, that in an action on a bill of exchange or promissory note against a person whose name

properly appears as party to the instrument, it is open either by way of claim or defence to show that the signatory was in reality acting for an

undisclosed principal.

In Lewin v. Edwards (1842) 9 M. & W. 720 : 152 E.R. 304, it was held that where the drawer of a bill indorses it in blank, and delivers it to

another, who passes it without a fresh indorsement to a third person, the latter cannot maintain an action of debt against the drawer. The contract

transferred by the delivery of the bill being only the contract on the bill the holder could not sue the drawer with whom he had no privity of

contract. In In re Soltykoff : Ex parte Margrett (1891) 1 Q.B.D. 413, Lord Esher, M.R., had to consider the claim of an indorsee of bills of

exchange accepted by a minor. It was said that the bills were accepted for necessaries supplied to the minor. Lord Esher in deciding that the

petitioner was not entitled to hold the minor liable said:

He supplied no necessaries to the infant; he is only the indorsee of some bills of exchange accepted by him. As regards an indorsee of a bill of

exchange it is immaterial whether there was any consideration for the bills as between the drawer and the acceptor; he can sue the acceptor as the

indorsee of the bills, and nothing else. The question, therefore, whether necessaries were supplied to the infant by the drawer of the bill, is

immaterial.

From these decisions it will be observed that there are two principles to be borne in mind. The first is the principle which I have already stated,

namely, that no one whose name does not appear on a negotiable instrument can be sued on it. The second is that there is no privity of contract

between an indorsee and the maker or acceptor.

Turning now to the cases quoted to us, in Ramasami Nadan v. Ulaganatha Goundan (1898) 8 M.L.J. 312 : ILR 22 Mad. 49, a Full Bench of

this Court consisting of Shephard, Subramania Aiyar, Benson and Moore, JJ., held in a suit brought by a creditor of a Hindu family in respect of

debts which were said to have been incurred for the benefit of the family that the plaintiff could have prosecuted his claim against the sons in that

suit and have obtained a decree, making their shares in the family property liable for the debts of the father. There was no negotiable instrument

here and the correctness of the decision is, therefore, not open to question. In Krishna Aiyar v. Krishnaswami Aiyar ILR (1900) Mad. 597,

Shephard, Subraraania Aiyar and Davies, JJ., had to consider a suit on a promissory note, in which the plaint was sufficiently widely drawn to

cover a claim on the debt as well. In this case a member of an undivided Hindu family had borrowed moneys from the plaintiff to purchase lands

for the benefit of his family and executed a promissory note in respect of the loan. It was sought to make the other members of the family also

liable, and it was held that they were, Davies, J., dissenting. It is clear, however, from the judgments of Shephard and Subramania Aiyar, JJ., that

the non-executant members of the family were held liable because as against them the suit could be regarded as being on the debt and not on the

instrument. In the course of his judgment, Shephard, J., said:

It is argued that the present suit was strictly confined to a demand for payment of the note and that the plaint did not include a demand in respect of

the original debt. It appears to me on reading the plaint that it contains all the allegations that are needed in order to charge the appellants with

liability. The charge is that the debt was incurred for the expenses of the family and that they are bound to discharge it. There can be no doubt that

the Courts below as well as the appellants understood fully the case which the plaintiff was seeking to establish.

Davies, J., dissented because he considered that the suit as framed was on the note alone, which did not allow the non-executant members of

the family to be held liable. While it is manifest that Shephard and Subramania Aiyar, JJ., did not hold that where a promissory note has been

signed by the managing, member of the family alone the other members of the family can be made liable on the instrument itself, it has unfortunately

been interpreted in the contrary sense. The case which I have at present in mind is that of Nataraja Naicken v. Ayyasami Pillai (1916) 32 M.L.J.

354 where Ayling and Seshagiri Aiyar, JJ., held that an indorsee of a promissory note executed by a member of a joint Hindu family could sue not

only the maker, but the other members of the family on the instrument. The learned Judges here not only failed to appreciate the real nature of the

decision in Krishna Aiyar v. Krishnaswami Aiyar ILR (1900) Mad. 597 but also misunderstood the judgment of the Judicial Committee in Karmali

Abdulla Allarakhia v. Vora Karimji Jiwanji (1914) 28 M.L.J. 515 : L.R. 42 IndAp 48 : ILR 39 Bom. 261 (P.C.) which they considered to decide

that on a negotiable instrument executed by one member of a partnership the other members can be held liable.

Their Lordships did not so hold. A perusal of the judgment shows that they treated the suit as being one for an account embracing mercantile

transactions between the parties.

In Nachiappa Chetty v. Dakshinamurthy Servai (1915) M.W.N. 217, Wallis, C.J., and Hannay, J., held that in a suit upon a promissory note

against a Hindu father and his sons the cause of action was the same as the cause of action against the father and it was not necessary for the

holder of the note to prove that the debt was incurred for family purposes. The sons could be joined in order to give them an opportunity of

showing that the debt was not binding on them. The learned Judges regarded the decision in Krishna Aiyar v. Krishnaswami Aiyar ILR (1900)

Mad. 597 being the authority for this. The case cannot be interpreted as deciding that the sons could be sued on the note. In Thankammal v.

Kunhamma (1918) 37 M.L.J. 369, however, Sadasiva Aiyar, J., sitting with Spencer, J., went much further and held that a creditor could not join

two separate causes of action in the same suit, one on the debt and one on the note, and that the junior members could be held liable on a

promissory note executed by the manager for proper debts. This is going too far, and we must express our dissent. The maker alone can be sued

on the note and the fact that under Hindu Law sons are liable in respect of debts incurred on behalf of the family or by the father for his own

purposes, provided that they are not incurred for illegal or immoral purposes, does not affect the principle involved. We are not in this reference

called upon to decide whether the decision of the Privy Council in Firm of Sadasuk Janki Das v. Sir Kishan Pershad (1918) 36 M.L.J. 429 : L.R.

46 IndAp 33 : ILR 46 Cal. 663 (P.C.) affects the decisions in Krishna Aiyar v. Krishnaswami Aiyar ILR (1900) Mad. 597 and Nachiappa Chetty

v. Dakshinamurthy Servai (1915) M.W.. 217 as these were not suits by indorsees.

Where the indorsement is in blank it only operates to transfer the property in the instrument and not as an assignment of the debt, as was

pointed out by Madhavan Nair, J., in Periakaruppan Chetti v. Mottayya Mudali (1934) 69 M.L.J. 30. An endorsement may operate to assign the

debt as well when it is so worded and the requirements of the law with regard to stamping are complied with, but unless there is an indorsement 01

this nature the indorsee has rights merely on the instrument. In Muhammad Khumaralli v. Ranga Rao ILR (1901) Mad. 654, Shephard and

Bashyam Aiyangar, JJ., decided in a case where a promissory note had been made in favour of two payees, one of whom indorsed it to the other,

that the indorsee could not sue on the note in the capacity of indorsee or in the capacity of one of two joint payees, but he could maintain a suit for

the sum due under the instrument as the assignee of the chose in action by reason of the other joint payee having transferred his interest therein to

him. The plaintiff there sued a person whose name appeared on the face of the instrument as the maker which is quite a different matter. We are

concerned here merely with a case in which an indorsee is seeking to make liable persons whose names do not appear on the instrument. This he

clearly cannot do. Accordingly, we answer the reference in this way: - The indorsee of a promissory note executed by the managing member of a

Hindu family is limited to his remedy on the note, unless the indorsement is so worded as to transfer the debt as well and the stamp law is complied

with, and therefore, in the case of an ordinary endorsement the indorsee cannot sue the non-executant coparceners on the ground of their liability

under the Hindu Law. It follows from this that we consider that Nataraja Naicken v. Ayyasami Pillai (1916) 32 M.L.J. 354 was wrongly decided

and it is overruled.

The costs of this reference will be costs in the cause.

Varadachariar, J.

I concur in the above answer. I only wish to add that in his capacity as assignee of the debt the transferee will be governed by the principles

laid down in Chapter VIII of the Transfer of Property Act and will not be entitled to all the privileges of an endorsee under the Negotiable

Instruments Act. Section 137 must be deemed to exclude these principles in the case of negotiable instruments only to the extent that they are dealt

with and are sought to be enforced as such instruments. I have elsewhere dealt with Nachiappa Chetty v. Dakshinamurthy Servai (1915) M.W.

217 and reserve my opinion on the point dealt with therein.

Mockett, I.

I agree with my Lord the Chief Justice.