Talla Lingamurthi vs Siddani Peda Mallayya and Others

Venkatasubba Rao, J.—Mr. V. Suryanarayana has raised an interesting question as to the import of the expression ""holder in due course

occurring in the Negotiable Instruments Act. The respondents are not represented but Mr. Suryanarayana has fairly placed before me all the

relevant considerations. The petitioner (the plaintiff) is the assignee of the promissory note executed by the first and the second defendants. The

lower Court has found as a fact that the payee of the note, that is, the plaintiff''s assignor agreed to hold the first defendant alone liable and

relinquished his claim as against the second defendant. There is a further finding of fact that when the note was assigned to the plaintiff, he was

aware of this arrangement. Mr. Suryanarayana contends that the petitioner is nevertheless a holder in due course and is not affected by the infirmity

attaching to th,e person from whom he took the transfer. The point to decide therefore is, is the petitioner entitled to a decree against the second

defendant also? There is a very early decision of Innes and Muthuswami Aiyar, JJ., which lends apparent support to the learned Counsel''s

argument Harry Van Ingen v. Dhunna Lall Lallah (1881) M.L.J.: ILR 5 Mad. 108. The note there marked Ex. C was executed by the defendant in

favour of one Alfred Arathoon. The finding was that there was an agreement to which the payee was a party, that a certain new firm was to take

over and discharge the debts of the defendant, including that under Ex. C; in other words, that the payee agreed to discharge the defendant in

consideration of the new firm (for which the payee was also a partner) having made itself liable for the debt. In short, there was an arrangement

between Alfred Arathoon and the defendant that the latter should be released from his liability under the note. There was a further finding in the

case that Ex. C was an overdue note; the transferee would therefore normally take it subject to all the objections it was liable to in the hands of the

transferor. But the learned Judges held that the indorsee of an overdue note is liable to such equities only as attach on the bill or note itself and not

to claims arising out of collateral matters. So holding, they decided that the plaintiff, there (the assignee from Alfred Arathoon) was entitled to a

decree against the defendant on the note. What is the effect of this decision? The maker being discharged but the note being alive - this is an

infirmity that does not attach to the note; therefore the assignee of the note gets a better title than the assignor had. On the analogy of this case, the

learned Counsel here contends that the agreement between the original payee and the second defendant is not an equity attaching to the note, in

other words, not such an infirmity, as to deprive the assignee with notice of the protection the law extends to a ""holder in due course"". Whatever

my own view may be, sitting as a single Judge, I am undoubtedly bound by the decision cited; but the question is, is that decision to be regarded as

one on the point now raised? The Negotiable Instruments Act is an enactment of 1881 and the decision was given prior to that Act. The

expression ""equity attaching to the bill"" is to be found in the decided cases previous to the (English) Bills of Exchange Act, 1882. Neither in the

Indian nor in the English Act does that expression occur; in its place are substituted the words ""defect of title"" and it is difficult to hold that the two

expressions, so widely different mean identically the same thing. What were the equities attaching to the bill and what were not? These were

questions that fell to be decided prior to the passing of the two Acts, and why should it be assumed that the Legislature, while adopting a different

phraseology, intended to enact the identical law as had prevailed before? Turning for a moment to Section 29 of the English Act, Clause (2)

enumerates the ""defects in title"". Release of the maker has not been specially mentioned, but the list, as the very wording of that clause implies,

does not purport to be, and is not, exhaustive Chalmers on Bills of Exchange, 10th Edition, p. 111). As to the interpretation of the statute, I may

quote with advantage the valuable observations of Chalmers, in his introduction to the third edition on his work. The learned author says:

The cases decided before the Act are only law in so far as they can be shown to be correct and logical deductions from the general propositions of

the Act.

As the learned author observes, the Act should be left to speak for itself. According to Mr. Suryanarayana, when a discharge puts an end td the

life of an instrument, there arises an ""equity attaching to the bill""; but when the instrument is kept alive, one party alone being released from liability,

such an equity does not arise. This may or may not be so, as in my opinion that is a perfectly irrelevant factor. I see no reason to depart from the

plain and natural meaning of the words employed. There was here a clear defect in the assignor''s title, that is to say, he was precluded from suing

the second defendant. That this defect is a vital one cannot be gainsaid as it affects his very right to sue; indeed, it puts an end to his claim as

against the second defendant. That in my opinion is essentially a matter of title. The plaintiff then having taken the note with knowledge of that

defect, can acquire no better title than what the assignor had. The contention of the learned Counsel therefore fails and the Civil Revision Petition is

dismissed.