Subba Narayana Vathiyar and Others vs K. Ramasami Aiyar

This is an appeal u/s 15 of the Letters Patent from an order of this Court refusing to revise the appellate judgment of the District Court in a suit

on a promissory note. The suit being of a small cause nature, no written statement was filed by the defendant, but it appears from the judgment of

the District Judge that the question before him was whether the defendant was entitled to give evidence to show that the promissory note was not

really executed in the plaintiff''s favour, although he was the payee named in the note, in support of a plea that the note had been discharged by

payment to the person really interested. The District Judge held the evidence admissible and dismissed the plaintiff''s suit. In this Court there was* a

difference of opinion, Subrahmania Aiyar, J., holding that the District Judge was right, while Davies, J., considered that the defendant was

precluded by the terms of the Negotiable Instruments Act from denying the payee''s right to sue. The question whether it is open to the defendant

in a suit on a negotiable instrument to plead that the payee named in the instrument, or that indorsee as the case may be, is a mere benamidar and

not entitled to sue is one of considerable importance, and must in the first place be considered with reference to the terms of the Negotiable

instruments Act which, if applicable, are, of course, decisive. In our opinion Sections 78 and 8 are clearly applicable, and it depends on the

construction of these sections whether the question is concluded by the Act. Section 78 provides that subject to the provisions of Section 82 (c)

which do not apply here, "" payment of the amount due on a promissory note must, in order to discharge the maker, be made to the holder"". ''These

provisions are imperative and, in our opinion, preclude the maker when sued on the instrument from, pleading discharge by payment to any one but

the holder."" "" Holder"" is defined in as "" any person entitled in his own name to the possession of the note and to receive or recover the amount

due thereon from parties thereto."" Having regard to the prevalence of benami transactions in this country, that is, to the practice of acquiring

property or rights in the name of another, we consider the use of the words "" entitled in his own name "" in the definition of "" holder "" most

significant, and that they were inserted by the Legislature for the purpose of preventing any one from claiming the rights of a "" holder"" under the Act

on the ground that the ostensible holder was a mere benamidar. The respondent''s vakil"" has been unable to suggest any other meaning for the

words ""in his own name"" which would not render them wholly superfluous. We find that the same construction has been put upon these words in

Calcutta in Sarat Chunder Dutt v. Kedar Nath Dass 2 C.W.N. 286, decided by Banerjee and Bampini, JJ., a case which is not referred to in the

judgments of our learned brothers and does not seem to have been cited before them. It was there held on a consideration of the language of

Section 8 that it was not open to the defendant in a suit by the indorsee on a negotiable instrument to set up that the indorsee was a mere

benamidar,, and this Court has come to a similar conclusion but without discussing the language of Section 8 in Bojjamma v. Venkataramayya ILR

M. 30, and other cases to which we shall refer later. In connection with the words "" entitled in his own name"" in Section 8 we may refer to the use

of the words "" in his name"" in Section 27 which provides that "" every person capable of binding himself of being bound on a negotiable instrument

may so bind himself or be bound by a duly authorized agent acting in his name"". It is of the essence of a Code that it should be exhaustive, and we

think that the effect of this section is that the principal can only be made liable through his agent on a negotiable instrument when the agent acts as

here prescribed in his (the principal''s) name, that is, when he signs as '' agent'', and that, as held by this Court in an unreported case decided under

the Act, Section A. No. 182 of 1891, an undisclosed principal cannot be sued on a negotiable instrument.

Another reason for referring to Section 27 as well as to Sections 8 and 78, is that in our opinion these sections reproduce the pre-existing law,

as was to be expected in a codifying Act. We think. that, before the passing of the Act, negotiable instruments were governed in this country as in

England by the Law Merchant, and as stated in Leake on Contracts, 4th edition, page 337, "" according to the Law Merchant no person could be

sued unless he appeared as partly by name or designation on the face of the instrument ; nor could any person sue unless he were named therein as

payee promisee or unless he had become entitled as indorsee or bearer."" We cannot find any English case in which an undisclosed principal has

attempted to sue on a negotiable instrument, and we think that the decisions clearly established than an undisclosed principal could not be sued. In

Miles Claim (1865) L.R. 1 Q.B. 97, Lord Justice James said that ""it had always been the law in England that no body is liable upon a bill of

exchange unless his name or the name of some partnership or body of persons of which he is one appears on the face or on the back of the bill,

and Lord Justice Mellish shows that Edmunds v. Bushell (1865) L.R. 1 Q.B. 97 is not in any way opposed to this rule. Lindus v.Brawell (1848) 5

C.B. 583, where a husband acknowledged his wife''s signature has been treated, we think rightly, as a case of signature by the husband in an

assumed name, and does not warrant the proposition that an undisclosed principal may be sued on a negotiable instrument. The rule that

undisclosed principals could not sue or be sued on bills or notes was, as pointed out by Leake, an exception from the-rule which allowed an

undisclosed principal to sue and be sued on contracts not under seal made by"" the agent in his own name, We think this rule was not extended to

bills and notes not so much because of their analogy to deeds as because they were governed by the Law Merchant representing the usage of

merchants throughout the western world, and because in the case of instruments intended to he negotiable and to pass from hand to hand usage

and policy alike required that the real contract should appear on the face of the instrument. We do not think that the general provisions of the

Indian Contract Act, 1872, as to the rights and liabilites of undisclosed principals were intended to alter well established rules as to negotiable

instruments which in our opinion continued to be governed by the Law Merchant based on general mercantile usage.

The provision of the Bills of Exchange Act, 1882, also appears to be in accordance with the view we have taken, u/s 59 a bill is discharged by

payment in due course which by the section is payment to a holder,"" and ""holder"" is denned in Section 2 as ""che payee or indorsee of a bill or note

who is in possession of it or the bearer thereof,"" while as regards the payee, Section 7(1) provides that in ""a bill not payable to bearer, the payee

must be named or otherwise indicated therein with reasonable certainty."" On the other hand, the non-liability of an undisclosed principal on a bill or

note is expressly provided for by Section 23.

In America the new Negotiable Instruments Law, printed in the appendix to Mr. Daniell''s work on negotiable instruments which has been

adopted by twenty states of the American Union, including New York, Massachusetts and Pennsylvania appears to reproduce in this, as in most

other respects, the provision of the Bill of Exchange Act, and may, in our opinion, be regarded as representing the preponderance of authority in

America ; see Sections 2, 37, 148, 200,. With regard to American case law, paragraphs 1187 and 1188 of Daniell''s work referred to by our

learned brother appear to go no further than to say that when the payee on the face of the bill is described thereon as agent, the principal may sue,

nor do the decisions in the two cases cited by our learned brother appear to go further. On the other hand, we have been referred to paragraph 80

of Mr. Daniell''s work, where it is said to have been held that parol evidence is not admissible to show that a note was to be paid to some other

person than the payee, and to paragraph 93, where it is said that the maker of a note is estopped from showing that the payee was not the real

party in interest at the time the note was executed.

We come now to the Madras dacisions since the passing of the Act. In the unreported case, S. A. No. 182 of 1891, as already stated, it was

held, we think rightly, that an undisclosed principal cannot be sued on a negotiable instrument. In Ganapati Naiken v. sminatha Pillai C.R.P. 578 of

7 M.L.J. 64, it was held that a benamidar cannot sue on a negotiable instrument, and in Gurumurti v. Sivayya I.L.R1887) M. 391, it was held (but

without referring to the terms of the Act) that an infant was entitled to sue by his next friend on a note taken by his mother in her own name on

account of his estate. These decisions have not, been followed until the present case and must, in our opinion, be overruled. On the other hand, it

was held in Bojjamma v. Venkatramayya I.L.R(1897) M. 30 dissenting from C.R.P. 578 of 1895, that it was not open to the defendant to plead

that the payee or indorsee was a mere benamidar, and quite recently it has been held, we Jhink rightly, in Bamanja Aiyangar v. Sadagopa Aiyangar

I.L.R(1904) M. 205, that a minor cannot sue on a promissory note taken in the name of his adoptive mother. The decision in Krishna Aiyar v.

Krishnasavii Aiyar I.L.R(1900) M. 597, as to the liability of the other members of a joint family on a bill accepted by the managing member

proceeded upon considerations of Hindu Law and does not affect the present question. We think it unnecessary to discuss the more recent

decisions of this Court holding that the assignee of a negotiable instrument to whom it has been assigned otherwise than by indorsement, may, when

in possession of the instrument, sue in his own name, as there are considerations in such a case which do not arise here.

In the result we allow the appeal and reverse the judgments of the lower courts, and give judgment, for the plaintiff''s representatives with costs

in this and the lower courts.