Sarat Chunder Dutt vs Kedar Nath Dass and others

This appeal arises out of a suit brought by the Plaintiff-Appellant to recover a certain sum of money due on a promissory note, on the allegation that the first Defendant Kedar Nath Dass executed the note on receipt of consideration in favor of the second Defendant Bhabani Churn Dutt, promising to pay the amount of the note to him or his order; that Bhabani Churn Dutt, on receipt of consideration from the Plaintiff, endorsed the note in favor of the 3rd Defendant, Lalit Mohun Seal; that a suit on the promissory note was brought by Lalit Mohun Seal, but the Defendant having raised the objection that he was only a benamidar, that suit was dismissed; that the Plaintiff has got the note endorsed to him by Lalit Mohun Seal; and that as the principal Defendant, that is Defendant No. 1, notwithstanding repeated demands, has not paid the money due, the Plaintiff is obliged to institute this suit. The defence of the principal Defendant, that is Defendant No. 1, was, that the Plaintiff has no cause of action, that the note was not made for consideration but had been fraudulently obtained from the answering Defendant by Defendant No. 2, and that the Plaintiff was not a bond fide holder of the note for value.

The first Court found for the Plaintiff and gave him a decree. In appeal, the lower Appellate Court, while considering that "Kedar''s impeachment of the note as one that he is not bound to meet is absurd," has reversed that decree and dismissed the suit, holding that the Plaintiff is only a benamidar for Bhabani Churn Dutt, and is not entitled to maintain this suit.

In second appeal, it is contended on behalf of the Plaintiff-Appellant, that the lower Appellate Court is wrong in holding that the Plaintiff was not entitled to maintain this suit, whereas, even upon the facts found, it ought to have held that the Plaintiff, as the holder of the note within the meaning of sec. 8 of the Negotiable Instruments Act, was the person entitled to sue upon it.

On the other hand, it is argued for the principal Defendant-Respondent, that the Plaintiff was not a holder of the note within the meaning of the law; that even if a benamidar could be a holder, the Plaintiff, who, according to the finding of the lower Appellate Court, never had the note delivered to him, could not claim to be a holder of it, the endorsement in his name not having been completed by delivery; and that the Plaintiff having sued as a bond fide holder for value, could not, when that case failed, succeed as a mere holder of the note.

After considering the provisions of the Negotiable Instruments Act, and the arguments on both sides, we are of opinion that the Appellant is entitled to succeed.

If a benamidar is a holder of a note within the meaning of the law, the fact of the Plaintiff having made an untrue allegation in the plaint that he was a holder for value, cannot stand in his way. Nor do we think that there is any clear finding in the judgment of the lower Appellate Court that there was no delivery of the note by Bhabani Churn Dutt to Lalit Mohun Seal and by Lalit Mohun Seal to the Plaintiff. On the other hand, the fact of the note having been filed in the suit of Lalit Mohun Seal by him, and in the present suit by the Plaintiff, goes to show that the note had been delivered to the successive endorsees. The question for decision, therefore, reduces itself to this, namely, whether the Plaintiff to whom the promissory note was endorsed as the lower Appellate Court has found, without consideration and for the purpose of enabling him to sue as benamidar for the real owner of the note, can, as such, sue on it.

Sec. 50 of the Negotiable Instruments Act provides that the endorsement of a negotiable instrument followed by delivery transfers to the endorsee the property therein with the right of further negotiation. Sec. 15 defines endorsement as being the signing of a negotiable instrument by the maker or holder otherwise than as maker, for the purpose of negotiation. And sec. 14 enacts that when a promissory note is transferred to any person so as to constitute that person the holder thereof, the instrument is said to be negotiated, so that there must be an endorsement within the meaning of the law, to transfer to the endorsee the property in the note; a signing for the purposes of negotiation, to constitute an endorsement; and a transfer to a person so as to constitute him the holder, in order to effect negotiation. And thus the answer to the question stated above depends upon whether the successive endorsees, Lalit Mohun Seal and the Plaintiff became holders of the note within the meaning of the law.

Now, a holder of a promissory note is defined in sec 8 as "any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto." This definition may at first sight seem to limit the term to a de jure holder as distinguished from a de facto holder; and it was contended for the Respondent that the Legislature has advisedly used the term in that limited sense following the case of Lloyd v. Howard 15 Q. B. 995 in preference to later cases such as Ancona v. Marks 7 H. & W. 686. But a little consideration will show that though the definition is not a very clear one, it must, as has been pointed out by a learned commentator (Mr. Chalmers), include, for many purposes at least, a mere de facto holder. Thus, in the very next section, namely, sec. 9, a "holder in due course" is defined as a person who for consideration became the endorsee of a note " before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title." But to become an endorsee he must receive the note by endorsement from its previous holder, and the definition evidently implies that such holder is not a de jure holder. Whatever the exact effect of the definition of the term holder in sec. 8 may be, in other respects, we think the use of the words "entitled in his own name" clearly brings within the definition persons in the position of Lalit Mohun Seal and the Plaintiff, who have been found by the lower Appellate Court to be persons to whom the note in dispute has been successively endorsed by, or with the consent of the owner for the purpose of enabling them to sue for the amount due on it.

This view which derives some support from the cases of Lawe v. Parnell 7 C. B. N. S. 285 and Ancona v. Marks 7 H. & W. 686 is fully in accordance with, and in no way opposed to, the principles of justice and the convenience of trade. That being so, we think the Plaintiff was entitled to maintain this suit. And as the lower Appellate Court has found the plea of the principal Defendant that he is not bound to pay the amount covered by the note to be untenable, and the only reason for its dismissing the suit is that the Plaintiff being a benamidar is not entitled to maintain it, this appeal must be decreed, the decree of the lower Appellate Court reversed, and that of the first Court restored, with costs in this Court and the Court below.