P L D 1953 Lahore 117 (PLP)

KAIKAUS, J.‑--This is an appeal against the decree of the learned Senior Civil Judge, Lahore, dismissing the suit of the plaintiff bank on a preliminary issue. The allegations in the plaint are as follows:‑ A. L. Rallia Ram, defendant No. 1, drew a cheque for Rs. 5,000 in favour of defendant No. 2 on the Lloyds Bank, Limited, Calcutta, on the 16th December 1946. Defendant No. 2 endorsed the cheque to defendant No. 3 who had an account with the plaintiff Bank. Defendant No. 3 sent the cheque to the plaintiff Bank on the 17th December 1946 and the plaintiff after discounting the cheque, credited the dis counted amount in the account of defendant No. 3, the same day. Defendant No. 3 withdrew the amount of the cheque from the 17th December 1946 to some date in January 1947. The cheque was dishonoured by the Lloyds Bank as 'not arranged for' on the 28th December 1946, though information regarding this reached the plaintiff on the 2nd January 1947. The plaintiff sent notices of dishonour to defendant No. 3 with copies to the other defendants. On the 17th March 1947, the defendants wrote a joint letter to the plaintiff giving an assurance that the amount would be paid by the 10th April 1947 without fail. No payment, however, was made. The suit was defended by defendant No. 1 alone. He pleaded inter alia that a notice of dishonour in accordance with section 30 of the Negotiable Instruments Act was not given to him, and, therefore, the suit was not maintainable. He admitted that he had drawn the cheque and he admitted too the authenticity of the letter of the 7th March 1947, but added that he had signed that letter only to recommend that time be granted for payment to defendants Nos. 2 and

3. The plaintiff in his replication relied on section 93 of the Negotiable instruments Act and stated that a notice of dishonour was not necessary in law though in fact it had been given. The learned senior Civil Judge, who tried the suit, framed the follow ing preliminary issues:‑ (1) Is the suit maintainable without a notice of dishonour to defendant No. 1? (2) Was the notice served in fact? The learned Judge found on the first issue that under section 30 of the Negotiable Instruments Act a notice was essential before a holder of a cheque could sue the drawer. On the question of fact he held that the giving of a notice was not proved and in any case notice was given very late and, as the law requires immediate notice section 30 was not complied with. On these finding he has dismissed the suit. It will be observed that section 30 of the Negotiable In struments Act relates to the holder of a cheque or a bill of exchange. The parties as well as the learned Senior Civil Judge have proceeded on the assumption that the plaintiff is a holder of the cheque. If we were to make the same assump tion in appeal it will not at all be difficult to decide the question of notice. By his letter dated the 17th March 1947, defendant No. 1 agreed to pay the amount sued for. He says now that he signed only to recommend grant of time to the other defendants. But it is enough to look at that letter to reject his explanation. The letter says `we will adjust and there are only two persons who signed it, i.e., H. Raj and defendant No.

1. The distinction which defendant No. 1 alleges finds no place in the letter and I would hold without hesitation that he did agree to make payments of the amount in question. Section 98 of the Negotiable Instruments Act provides for cases where a notice of dishonour is necessary and it seems to me that more than one clause in that section would cover the present case and in any case defendant No. 1 waived notice. But section 30 or section 98 applies only to `holders' and at the hearing it appeared to us that the first question to decide was whether the plaintiff was a holder or not. The question was argued before us, the parties having agreed that they had no further evidence to offer on the point and that the question may be decided on the record as it is, I proceed, therefore, to consider whether the plaintiff is a holder of the cheque. It will be convenient to quote here the relevant sections of the tact: "Section

8. The "holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount sued thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction." "Section

14. When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated." "Section

46. The making, accepting or endorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive. As between parties standing in immediate relation, de livery to be effectual must be made by the party making accepting or indorsing the instrument or by a person autho rised by him in that behalf. As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of transferring abso lutely the property therein. A promissory note, bill of exchange or check payable to bearer is negotiable by the delivery thereof. A promissory note bill of exchange or cheque payable to order is negotiable by the holder by endorsement and delivery thereof." According to the definition of `holder' in section 8, he is the person entitled to possession of the instrument as well as its amount with the qualification that the right exists in his own name. Section 14 provides that whenever a person is by transfer of bill if exchange etc., constituted its holder the instrument is said to be negotiated. The effect of this section is very important for deciding the question before us. Ac cording to this section of a transferee has become the holder of an instrument by transfer, the transfer must be a negotia tion. It follows automatically that the only transfer that can make a person a holder is negotiation. If it is claimed that a person has, by a transfer, become a holder, what we have to do is to find out whether the transfer falls within the defini tion of negotiation or not. Methods of negotiation are pro vided by the Negotiable Instruments Act. The preamble of the Act shows that it defines the law and it is, therefore, a consolidating Act, and there can be no method of negotiation outside its provisions. So far, as I have been able to find out it has never been contended in any decided case that an instrument can be negotiated by a method other than that provided by section 46 of the Act. Section 46 provides that an instrument payable to order can be negotiated by endorse ment and delivery thereof, while one payable to bearer is negotiable by delivery. It is only when section 46 of the Act is complied with that a holder will come into being. In the present case the cheque is payable to order. It could be negotiated only by endorsement and delivery. It is not even argued by learned counsel for the appellant that there has been any nego tiation in favour of the appellant. From the wording of the above sections only I would have no hesitation in coming to a conclusion that the plaintiff is not a holder. It has been urged by the learned counsel for the defendant -respondent that as the plaintiff is not a holder at all the suit should be dismissed without further trial for none but the holder has a right to sue on a negotiable instrument. To decide whether the suit is liable to be dismissed forthwith we have first to consider what exactly is the position of the plaintiff if he is not a holder, has he any rights in the cheque or is he a person to whom the cheque was sent merely for collection? Were any rights transferred to him at all? The facts on the record which are relevant for the present purpose are that on the 17th December 1946, defendant No. 3 delivered the cheque to the plaintiff, the plaintiff discounted the cheque, presumably with the consent of defendant No. 3 and on the same day made a earlier entry in the account of defendant No. 3 of the discounted amount of the cheque. Accounts filed show that on the 17th December 1946, defend ant No. 3 had only Rs. 499‑1‑0 in the bank and that on the same day he withdrew Rs. 4,250 by cheque on self. He kept on withdrawing amounts from the bank and on the 2nd Janu ary 1947, there was in his account only a sum of Rs.

178. On the 13th March 1947, he was debited with Rs. 5,089 on account of the dishonoured cheque and on the 31st March 1947, the account was in debt to the extent of Rs. 5,

160. In order properly to appreciate the bearing of the facts on the question of transfer, it will be convenient to refer to the nature of the instrument involved and the methods of its transfer. Negotiable instruments are a part of the credit machine of the commercial world and are used as a species of paper currency or to use the name given to them by writers on English law "Chattel", passing freely from hand to hand. They are at the same time debts or chooses in action. As stated in Halsbury, (Second Edition, Volume II, page 661, paragraph 914):‑ "Although bills and notes in their negotiable quality partake so largely of the nature of money, yet they retain also their innate character of chattels and chooses in action. They will, therefore, pass as chattels under a will. As chattels they may be bought or sold. As chooses in action they may be assigned. In all these cases the persons taking them acquires the same title as that of the person from whom he took them." They are transferable in each of their capacities though the method of transfer and the effect will be different. As is observ ed by Chalmers in his well known work on Bills of Exchange 'A bill is chattel. It may be sold as chattel. A bill is a chose in action. It may be assigned as a chose in action. " The Negoti able Instruments Act, 1881, which embodies, with slight modifications, the law merchant of England provides a method of transfer called negotiation by which a transferee has special rights which an ordinary transferee of a chose in action does not enjoy. The Act leaves, however, the ordinary laws of transfer and devolution untouched. In section 118 (a), the Act itself refers to negotiation as well as to transfer of negoti able Instruments and it is well settled that they may be transfer red as they could have been before the passing of the Act as chooses in action, the only difference being that the transferee well only get the rights of his transferor, vide, Muthar Sahib Maralkar v. Kadir Sahib Muraikar and others (I L R 28 Mad. 544 (D. B.)), Ghanshyam Das Marwari v. Ragho Sahu and others (A I R 1937 Pat. 100 (F. B.)), T. A. R. A. R. M. Chetty Firm v. S. E. Solomon (55 I C 718), Akhoy Kumar Pal v. Hari Das Basak (A I R 1914 Cal. 566), Lacha Ram v. Hem Raj and others (A I R 1932 Lah. 30), Panna Lal Lachman Das v. Hargopal‑Khubi Ram (29 P R 1919), Ram Rattan v. Gobind Ram (A I R 1939 Lah. 501), Gopalu Pillai v. N. N. Kothandaram Ayyar and others (A I R 1934 Mad. 529), Muhammad Khumarali v. Ranga Rao (I L R 24 Mad. 654) and Chandana Vencatadri v. Majati Lakshminarasimha Row and others (8 I C33). I will consider now whether a transfer of the cheque to the plaintiff took place. When a customer delivers a cheque to the bank he may intend either drat it should be paid into his account after it has been cashed or that it should be credited into his account forthwith, so that he is able to draw the amount. In the latter case he is delivering the cheque as an equivalent of money. A cheque can be delivered in payment of a debt and if accepted will discharge the debt though only conditionally. If a customer has an overdraft from the bank and gives the bank a cheque to meet that overdraft the pro perty in the cheque would pass to the bank. Similar would be the case where though there is no overdraft the intention of the customer is that he should be given credit at once. If a customer pays cash into the bank in his account the cash be comes at once the property of the bank and in respect of that sum the customer becomes a creditor of the bank, Folley v. Hill (2 H L C 28). If Instead of cash the customer delivers a cheque with the intention that it be received as money the result would not be different unless the bank refused to accept it as such. The cheque would become the property of the bank and the bank would become indebted to the customer to that extent. Defendant No. 3 had in this case the full benefit of the transfer. He received on the same day a sum of Rs. 4,250 and in a few days exhausted the amount of the cheque. It was obviously his intention that the amount be credited at once into his account and that he should get at least the major part of the amount the same day. These considera tions would by themselves be sufficient in the absence of any indication to the contrary to raise a presumption that transfer of the cheque had taken place but there is another matter which is even more important and in fact decisive of the point and that is the discounting of the cheque by the bank. The rule is thus stated in Halsbury, (Edition II, Volume I, page 852, paragraph 1383). "A banker discounts a bill, as opposed to taking it for collection or as security for advances, when he takes it definitely and at once as transferee for value." The end of the same paragraph runs "Where the transaction is really one of discounting, the banker is of course at liberty to deal with the bill as he pleases, re‑discounting or transferring it." When a cheque is discounted the credit in the account becomes available to the customer and "the fact that bills dis counted for the customer are not yet due does not render credit balance on current account not available", (page 825 of the same Volume). Similarly at page 649, paragraph 893 of Volume II, it is stated that "any person who discounts an instrument, or to whom an instrument is negotiated for the purpose of being discounted, is a holder of the instrument for its full value". Paget in his treatise on Banking deals with the matter thus:‑ "If a banker gives cash for a cheque over the counter, he takes it as transferee. Great Western Railway Company v. London and County Bank ((1901) A C 414). If it is paid in for the express purpose of reducing an ascertained overdraft, the banker takes it as transferee, the consideration being the pre‑existing debt. If it is paid in on the express understanding that it may be drawn against at once, and is so drawn against, the banker takes it as transferee. So again where, by course of business, an implied agreement is established to the effect that all cheques may be drawn against as soon as paid in, the banker presumably takes them as transferee, independent of their being actually drawn against." In The London Financial Association v. Kelk (53 L J Ch. 1025), the difference between 'discounting' and `lending' is thus explained. "The difference between advancing and lending money and discoun ting is distinct and palpable. Discounting is purchasing, not lending. The discounter, whether of a bill, exchange or bond, or any other security, becomes the owner. If the thing bought turns out when realised to be less value than the price paid for it, the loss falls upon the purchaser or discounter." In The Governor of the Bank of England v. Newman (92 E R 957), defendant bad discounted a bearer bill with the bank without endorse ment. The acceptor of the bill having failed the bank sued the defendant for the money it had paid. It was held that there had been a sale of the bill to the bank and that the defendant was not liable to pay back the money. I may also refer to 21 E R 1113, where apart from the question of discounting property in a bill was held to have passed to the bank as the bank had given a receipt for it, though the bill which was payable to order had not yet been endorsed in its favour. There are also a large number of cases holding that a bank which credits the customer with the amount of the cheque before receiving payment becomes a holder for value, but I will hat refer to those cases as there the bills had been endorsed in favour of the bank though for collection only and the line of reasoning may be different. In view of what has been stated above I would hold that property in the cheque as debt did pass to the plaintiff bank. The Transfer of Property Act is not in force in Punjab (except to a limited extent which is here irrelevant), and there is no bar to the passing of the cheque even by an oral transaction, vide Ram Rattan v. Gobind Ram and another (A I R 1939 Lah. 501). The position of the plaintiff then is that though he is not a holder he is a transferee of the chose in action from defen dant No.

3. If defendant No. 3, was the owner of chose in action that has passed to him. The question then would be whether the person who is a owner of chose in action but not a holder can file a suit on the basis of the instrument. As stated above, the negotiable instruments have a dual aspect which should be constantly kept in mind if confusion is to be avoided. In their negotiable aspect they are similar to paper currency or chattel and in the other aspect they are debts or chooses in action. The provisions of the Negotiable Instruments Act are such that the owner of the instrument 'in its negotiable' quality and the owner of the chose in action, need not be and in many cases will not be the same. According to section 8, it is only the holder who is entitled to the money due on and the posses sion of the instrument according to section 78 it is the holder who can give a discharge for the amount and it is he alone who according to section 48 can negotiate it. The property in the instrument vests in him though the owner of the debt be another Harkishora Baru v. Guru Mia Choudhry and another (A I R 1931 Cal. 387). Negotiation is not necessarily accompanied by the transfer of the chose in action. It follows from the above that if a suit be brought on the instrument it is only the holder who can sue. The owner of the debt has no title to the instrument as such. There are a number of cases laying down that only a holder can sue on the instrument of which I may mention Subba Narayana Vathiyar and others v. Ramaswami Aiyar (I L R 30 Mad. 88 (F. B.)), Harkishore Barua v. Guru Mia Cho wdhry and another (A I R 1931 Cal. 387), Virappa Andandaneppa Manvi and another v. Mahadevappa Basappa Katti and another (A I R 1934 Bom. 356), Bishabkumar Mohanlal v. Singai Morilal Kasturchand (A I R 1949 Nag. 21), and Lachmi Chand v. Madanlal Khemka (A I R 1947 All. 52). There is one case in which it has been stated that a suit on an instrument will have sometimes to be brought by a non‑holder, and the instance is given of a holder who is dead. The argument assumed that a legal representative of the holder is not a holder. Reference to section 57 of the Act will show that the legal representative of a deceased holder is regarded as a holder. This statement is not inconsistent with what I have held already, i.e., that a holder by transfer can be created only by a negotiation. I was there referring only to holders who are so by means of a transfer and not those who come into existence by operation of law. Also it can be very well argued that really the legal representative of a deceased is claiming only in the right of the deceased and merely represents him. I would hold, therefore, that a suit on the cheque as such does not lie by the present plaintiff. However, the true question that would settle the fate of this case is whether an owner of a debt who was not a holder can sue on the debt which an instrument represents. Prima facie if a person be the owner of a right he is entitled to sue upon it when, it is infringed. Every right presumes a remedy. The suit, therefore would lie on the debt unless there was some provision which barred it. Express bar there is none in the Negotiable Instruments Act. Is there then an implied bar? It has been held in some cases, Harkishore Barua v. Guru Mia Chowdhry and another (A I R 1931 Cal. 387) and Virappa Andandaneppa Manvi and another v. Mahadevappa Basappa Katti and another (A I R 1934 Bom. 356) that section 78 of the Act creates such a bar, for according to that section it is only the holder of the note who can give a discharge. It is argued that a decree in favour of the debt would expose the judgment‑debtor to a double payment for he would still be liable to the holder. But this consideration need not bar the suit itself and all that would be necessary is to afford proper protection to the defendant. If the maker has already paid the holder he is deemed to have been discharged and no decree can be passed against him in a suit on the debt. If the holder has not yet realised the money he could be made a party to avoid double payment. It may be remembered than if the holder were to realise the money and the transferee of the chose in action sues him alone there would be no defence to the suit, arid the owner will be entitled to the amount. As against other parties too there should be no bar to the suit pro vided appropriate provision is made for the protection of the person liable. There are a number of cases where suits had been allowed by the true owner on the instrument if either the holder was made a party or the plaintiff was able to get a discharge from him vide I L R 53‑A 5, A I R 1945 Cal. 268, 1943 Pat. 79 and 1 941 Nag.

207. The rights of a person to whom a bill payable to order has been transferred but not yet endorsed are thus stated in Halsbury, (Volume 11, page 654, Paragraph 901) :‑‑‑ "Where the holder of a bill payable to order transfers it for value without indorsing it, the transfer gives the transferee such title as the transferor had in the bill and the, transferee in addition acquires the right to have the endorsement of the transferor. In such a case the date when the instrument is indorsed is deemed to be the true date of negotiation; and until the endorsement takes place the position of the trans feree is no better than that of the assignee of an ordinary chose in action. He is affected by any notice of fraud received by him prior to the endorsement. He cannot sue on the instrument except in the name of the transferor, and he cannot negotiate it to another party. If he writes on the bill the name of transferor, it is an unauthorised signature and, as such, wholly inoperative" statement of law has now been incorporated in section 31 of the (English) Bills of Exchange Act which runs:‑ "(1) A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill. (1) A bill payable to bearer is negotiated by delivery. (3) A bill payable to order is negotiated by the endorse ment of the holder completed by delivery. (4) Where the holder of a bill payable to his order transfers it for value without indorsing it, the transfer gives the transferee such title as the transferor had in the bill and the transferee in addition acquires the right to have the endorse ment of the transferor. (5) Where any person is under obligation to indorse a bill in a representative capacity, he may indorse the bill in such terms as to negative personal liability". It would be observed that such transferee can force the transferor by suit to make an endorsement in his favour and till the endorsement is made he has all the rights of a transferee of chose in action. The statement in the above paragraph from Halsbury that. "He may not sue on the instrument" does not exclude the right of suit on the debt. In the present suit also the plaintiff could ask for a decree against defendant No. 3 to make an endorsement in his favour and after the endorsement he would have a right to sue as holder. I would respectfully agree with the learned Judges who stated in Venkatarama Reddiar and another v. Valli Akkal and another (A I R 1935 Mad. 181 (F. B.)) that the general law will continue regulating claims in respect of negotiable instruments except to the extent that it is excluded by necessary implication. I have already quoted a number of cases where it was held that a negotiable instrument can be assigned as a chose in action. They are all cases in which a right of suit was recognised. I would hold, therefore, that a suit by the transferee of a chose in action would lie on the debt but a decree will be passed in such a suit if and in so far as it will not be inconsistent with any of the provisions of the Negotiable Instruments Act. If the relief as prayed for will involve a conflict with the provisions of the Act the decree should be so framed as to avoid that conflict. The result is that if the suit is one on the note it is not maintainable. If on the other hand it is on the original debt it is maintainable. When I look at the plaint I find that the debt is nowhere relied upon and the plaint is based on the cheque alone. In the circumstances ordinarily the suit would not be able to proceed without a proper amendment of the plaint. But there are two reasons in this case why I would not dismiss the suit at this stage. The first is that it is possible to the plaintiff to apply for an amendment of the plaint by relying in the alternative upon his right as a transferee of the debt. After all this appeal has come to us only on the preliminary issue relating to the notice of dishonour. I have dealt with the maintainability of the suit because of the plea put forward by the counsel for the respondent that as the plaintiff is not a holder the suit should be dismissed without further trial. The second reason why I do not dismiss the suit is that defendant No. 2 had agreed in his letter of the 17th March 1947 that he will pay the amount in the suit. The effect of that promise too has yet to be considered. There is one matter which I would clarify. I have not definitely held that the plaintiff is a transferee of a chose in action. All that I have held is that he had the rights of defend. ant No. 3 as regards the debt. If defendant No. 3 was the owner of the chose in action, the plaintiff too is its owner. But as I have explained above the holder of a cheque and the owner of the chose in action need not be the same, and the question whether defendant No. 3 was the holder will have to be tried. I have discussed this question because counsel for the respon dent argued that the suit should be dismissed and I had to consider whether it was possible that a suit might lie. My conclusions are:‑

1. The plaintiff is not the holder of the cheque and cannot sue on the cheque.

2. The present suit is one based on the cheque and not on the debt which it represents.

3. The plaintiff is a transferee of whatever rights defen dant No. 3 had as owner of the debt, (not his rights as a mere holder, for those rights are creation of a statute and can pass only by negotiation).

4. There was no necessity for a notice of dishonour and the suit cannot fail on that ground. I would, therefore, accept this appeal and remand the case to the Senior Civil Judge, Lahore, for a trial and decision in the light of the above‑mentioned findings. M. KHURSHID ZAMAN, J.‑

I agree. A. H. Case remanded.