UNIT-IV

4.0 Introduction
4.1 Promissory Note
4.1.1. Promise to pay on demand creates promissory note
4.1.2. When a document is a promissory note
4.1.3. When a document is not a promissory note.
4.2 Consideration presumption
4.2.1. Burden is on the defendant
4.2.2. Presumption is Rebutiable
4.2.3. Unstamped promote is admissible.
4.3 Hoder in !ue course
4.3.1. Holder is due course and holder for collection (difference)
4.3.2. Holder is due course
4.3.3 Cheque-Holder is due course proof of
4.4 Pronote "ond and suits
4.4.1. Pronote and bond (distinction)
4.4.2. !uits.
4.4.3. "iscellaneous Pro#ision
4.4.3. a# !ection $%$
4.4.3. "# !ection $%&
4.$ Important %e&erence 'oo(s
4.0 INT%)!UCTI)N
)ri*in o& Ne*otia"e Instruments
'n ancient times( the routes alon) *hich #ast commerce *as carried on *ere insecure( and merchants
carryin) coins *ere usually robbed of their *ealth ro#in) pirates of sea and by maraudin) robbers on land( 'n the
course of some centuries there came into e+istence an idea of e+chan)e( *hereby ,etters Credit( )enerally called
Bills of -+chan)e from a merchant of one country to his debtor *ho *as a merchant of another country( *ere
issued( requirin) the debt to be paid to a third person *ho carried the letter of credit to the place *here the debtor
resided.
. bill of e+chan)e *as( thus( ori)inally an order to pay a trade-debt( and a system of such bills afforded a
con#enient and facile *ay for the payments or debts in one country due to a person in another( *ithout the dan)er of
encumbrance of carryin) money from one place to another / e.).( . in "adras buys )oods from B *ho is a merchant
of ,ondon( and C( a merchant in ,ondon( o*es . some money( B( on )ettin) the order from . on C for the payment
of that money to himself( can collect the price of his )oods ,ondon *ithout the ris0 or trouble of carryin) the coins
from "adras to ,ondon. 1hus the trouble is sa#ed( dan)er is a#erted( and no time in carryin) the money is lost.
.lthou)h these bills of e+chan)e or letters of credit came into e+istence to effect the transfer of trade-debts of
persons residin) in distant countries( their utility made them applicable to inland debts also.
)ri*in o& ne*otia"e instrument in India
'n 'ndia( there is reason to belie#e that instruments of e+chan)e *ere in use from early times and *e find
that papers representin) money *ere introduced into the country by one of the "uhammadan so#erei)ns of 2elhi in
the early part of the fourteenth century. 1he *ord 3hundi3( a )eneric term used to denote instruments of e+chan)e in
#ernacular is deri#ed from the sans0rit root 3hund3 meanin) 3to collect3 and *ell e+presses the purpose for *hich
instruments *ere utilised in their ori)in. With the ad#ent of British rule in 'ndia( commercial acti#ities increased to a
)reat e+tent. 1he )ro*in) demands for money could not be met by mere supply of coins( and the instruments of
credit too0 the function of money *hich they represented. 1he la* of ne)otiable instruments as pre#alent in -n)land
*as applied by the courts in 'ndia *hen any question relatin) to such instruments arose bet*een -uropeans. When
the parties *ere Hindus or "uhammadans( their personal la* *as held to apply. 1hou)h neither 4he la* boo0s of
Hindus nor those of "uhammadans contain any reference to ne)otiable instruments as such( the customs pre#ailin)
amon) the merchants- of the respecti#e community *ere reco)ni5ed by the courts and applied to the transactions
amon) them. 2urin) the course of time( there had de#eloped in the country a stron) body of usa)e relatin) to
hundis( *hich e#en( the ,e)islature could not( *ithout hardship to 'ndian ban0ers and merchants( i)nore. 'n fact( the
,e)islature felt the stren)th of such local usa)es and thou)ht fit to e+empt them from the operation of the .ct *ith a
pro#iso that such usa)e may be e+cluded alto)ether by appropriate *ords. 'n the absence of any such customary la*(
the principles deri#ed from -n)lish la* *ere applied to the 'ndians as rules of equity( 6ustice and )ood conscience.
'n $&77( the 'ndian ,a* Commission drafted the 8e)otiable 'nstruments Bill *hich *as introduced in the
Council in 2ecember( $&79. 1he Bill *as referred to a !elect Committee. :b6ections *ere raised by the mercantile
community to the numerous de#iations from 4he -n)lish la* *hich it contained. 1he Bill had to be re-drafted in
$&99. .fter the lapse of a sufficient period for criticism by the ,ocal ;o#ernments( the Hi)h Courts and the
chambers of commerce( the Bill *as re#ised by the !elect Committee. 'n spite of this the Bill could not reach the
final sta)e. 'n $&&< by the :rder of the !ecretary of !tate( the Bill had to be referred to a ne* ,a* Commission. :n
the recommendation of the ne* ,a* Commission the Bill *as re-drafted and a)ain it *as sent to a !elect
Committee *hich adopted most of the additions recommended by the ne* ,a* Commission. 1he draft thus
prepared for the fourth time *as introduced in the Council.
+,at s a Ne*otia"e Instrument
1he pro#erb of -n)lish ,a* is =8emo dot q5iod non habet=( i.e.( no person can )i#e to another that of
*hich he *as not the true o*ner. 1hus( if a thief transfers to me for #alue a thin) stolen by him( the true o*ner can
claim it from me e#en thou)h ' paid #alue for it( and had no notice of 4he theft. 1here are certain e+ceptions to this
)eneral rule( of *hich a ne)otiable instrument is one. But *hat is the meanin) of a 8e)otiable 'nstrument > =.
ne)otiable instrument is one( the property in *hich is acquired by one *ho ta0es it bona fide and for #alue(
not*ithstandin) any defects of title in the person from *hom he too0 it? from *hich it follo*s( that any instrument
cannot be ne)otiable unless it is such and in such a state that the true o*ner can transfer the contract or en)a)ement
contained therein by simple deli#ery of the instrument=. 1he latter part of this definition is #ery important. 't means
that the instrument must be complete the time of the transfer.

Trans&er "y mere dei-ery
't *as pointed out abo#e that the latter part of the definition of 8e)otiable 'nstruments is #ery important. 't
means that 4he instrument is in such a state that the contract in it can be transferred by mere deli#ery.
.nybody( e#en if he does not ha#e an indorsement from the holder of the note can )et payment? this is *hat is meant
by =Payable to bearer on 2emand=.3
8othin) more is to be done. . case *ill illustrate this point. 'n Whistler #. @orster a cheque *as dra*n to the order
of the payee. Whistler )a#e the payee full and complete #alue for the cheque( but in the transaction he for)ot to ta0e
the si)nature of the payee( (i.e.( the person to *hom the bill *as payable) *hich *as essential for ne)otiation.
1hereupon Whistler )ot notice from the person *ho dre* the cheque( that it *as obtained by fraud. .fter this notice
he secured the si)nature of the payee. 1he Court laid do*n t*o propositions( #i5./ ($) that the bill *as not( at the
time Whistler too0 it( in such a state that mere deli#ery of it could ha#e transferred the contract in it to him( because
it did not bear the si)nature of the payee( (A) certainly he could ha#e secured the si)nature of the payee after*ards.
But *hen he did it actually( he had notice that it *as fraudulently obtained. 1hus( in this case( *e )et an illustration
of both the parts of the definition.
Ne*otia"e instrument . ordinary c,atte-distinction
'n short a ne)otiable instrument has three characteristics *hich Blifferentia4e it 3from an ordinary chattel. 1hey are/-
(a) the property in the ne)otiable instruments passes to the holder by mere deli#ery. 't is the
o*nership( i.e.( the ri)ht of retainin) it as a)ainst the pre#ious o*ner that passes and not mere
possession. 'n the case of chattels nobody can claim o*nership o#er a thin) as a)ainst its ri)htful
o*ner.
(b) 1he holder in due couBse is not affected by any defects of title on the part of transferor. 1his is not
so in the case of chattels.
(c) 1he holder can sue upon them in his o*n name.
1hese three qualities ma0e up the ne)otiability. . rou)h and ready test of ne)otiability is
=can( a title be made throu)h a thief >= 'f the ans*er is in the affirmati#e( the instrument is
ne)otiable.
'i o& adin*
't is *ell-settled that a Bill of ladin) is ne)otiable e#en thou)h it is not a ne)otiable instrument( in the strict
sense. Ho*e#er 6udicial opinion conflicts on the point of ne)otiability of a rail*ay receipt.
$

/naysis o& de&inition o& ne*otia"e instrument
8o*( let us analyse the definition of a ne)otiable instrument. 1he first clause of it requires that the
instrument must be ta0en bonafide and for #alue. 'f it is so( then the holder of it is an absolute o*ner of it. But *hat
is meant by =bonn fide= > 1his means( that *hen a person ta0es an instrument he must not ha#e any notice of the
defect of title in the person from *hom he ta0es it. 'n this connection *e ou)ht to remember the case of Raphael #.
1he Ban0 of -n)land. !ome Ban0 of -n)land notes *ere stolen. 1he Ban0 )a#e notice of this to Cictor !t. Paul
amon)st others( of this loss. Paul read this notice and filed it. .fter some days a )entleman comes *ith a stolen note
of the Ban0 of -n)land and as0s !t. Paul for payment. !t. Paul had absolutely for)otten of the Ban03s notice of the
loss. He too0 the note and paid for it( quite honestly. He sent that note to Raphael( his a)ent in -n)land( for
collection from the ban0. 1he Ban0 refused payment sayin) that !t. Paul had notice of the theft and ou)ht not to
ha#e paid. 1he House of ,ords decided that a man *ho ta0es a note or a bill of e+chan)e honestly and truly for
#alue( althou)h he has the means at his command of determinin) *hether the note or bill *as one that he ou)ht not
to ta0e( but for the moment for)ot to ma0e use of the 0no*led)e or those means( is entitled to assert himself as the
true o*ner( and to assert his ri)ht a)ainst3De#ery other person. 1hus Raphael *on the case. Ho*soe#er ne)li)ent he
may be at the time of ta0in) the instrument if he really too0 it honestly( he is a bona flde holder.
!octrine o& constructi-e notice-inappica"e
'n considerin) *hether a man is bonaflde holder you are to determine *hat 0no*led)e he has actually( and
not *hat 0no*led)e he mi)ht or ou)ht to ha#e had( or *hat enquiries he ou)ht to ha#e made. 'n short the doctrine of
constructi#e notice does not apply here.
01e2 non co*it ad impossi"iia0
1he rule that =*hen the la* creates a limitation( and the party is disabled to conform to that limitation
*ithout any default in him( and he has no remedy o#er( the la* *ill ordinarily e+cuse him(= is merely an application
of the ordinary ma+im lo+ non co)it ad impossibilia. But this )eneral principle cannot pre#ail a)ainst the e+press
pro#isions of !ection %( ,imitation .ct( any more than principles of equity can pre#ail a)ainst the pro#isions of
statutory la*.3
1he bar of limitation does not destroy the cause of action( if any( but only bars the remedy. 1ruly spea0in)
limitation does not destroy the ri)ht.
. shippin) company a)ainst *hom the claim for non-deli#ery is made may elect to *ai#e a clause in the
contract of carria)e accordin) to *hich the suit should be brou)ht *ithin one year. Hence( it cannot be ar)ued that
by reason of a condition( e+press or implied( in the bill of ladin) issued by the defendant in connection *ith the
instant contract of carria)e( the plaintiff3s remedy by *ay of compensation for non-deli#ery is any *ay lost.
1he payment of time barred debt does not cease to e+ist by !ection % of the ,imitation .ct and the creditor
may appropriate the payment to*ards time barred debt.
Ne*otia"iity and /ssi*na"iity o& 1etters o& Credit
. letter of credit is not a ne)otiable instrument. 'f . steals a letter of credit from the seller and attempts to
ne)otiate it by deli#ery to B( B can acquire no ri)hts a)ainst the issuin) ban0.

.s re)ards the transferability of a letter of credit( a credit can be transferred only on the e+press authority of
the openin) ban0( and the openin) ban0 *ill not authorise transfer unless instructed by its customer to do so.
Consequently in the absence of instructions by the customer to the ban0 to ma0e the credit transferable and the(
subsequent issue by the ban0 of a =transferable= or =assi)nable= credit( a letter of credit is not transferable.

1ransferable credits ha#e no* come into e+istence in order to finance a sale of )oods( not by the actual
supplier or manufacturer( but by a middleman( to the ultimate purchaser.
Position in t,e U3/
'n the United !tates of .merica the transaction( *hich in the United Ein)dom is 0no*n as =1ransfer=( is called
=assi)nment=
&

!ometimes a credit is transferred as to part only( but transfer is al*ays underta0en at the *ritten request of
the prime beneficiary. 't as0s that the transferee be ad#ised and sets out the differences bet*een the terms of the
ori)inal and 4he transferred credits? pro#ides for the substitution of the prime beneficiary3s drafts and in#oices for
those of the transferee and permits the deli#ery of the latter3s to the ban03s principals in the e#ent of the prime
beneficiary3s failin) so to deli#er. 't may pro#ide for the payment to the prime beneficiary of the difference bet*een
the amount of the payment to the transleree and the amount of the main credit. 't may authorise the ban0er to pay
under indemnity and relie#es the ban0er of any responsibility for =the description( quantity( quality or #alue of the
merchandise shipped under the assi)ned letter of credit( or for the correctness( )enuineness or #alidity of the
documents( or for the )eneral or particular conditions stipulated in the documents( or for any other
cause beyond control.=
'an(ers4 ia"iity
1he ban0er is not under any liability to the transferee until he accepts liability( and *here#er the *ord
=di#isible= is used in instruction relatin) to a credit( it should refer to the customer for elucidation of the instruction
to ma0e sure *hether or not part shipments are allo*ed. 't should be remembered that there is a sin)ular lac0 of
unanimity re)ardin) the documentary credit practice of ban0s. thus( there is apparently no a)reement as to the
meanin) of the *ords =transmissible credit=( althou)h they seem to su))est the authorisation of the transfer of the
credit to a place other than that of the domicile of the prime beneficiary.

0%ed cause05 06reen cause0
. form of credit( *hich appears to be confined mainly to the !outh .frican( .ustralian and 8e* Fealand
*ool trades( contains *hat is called a =red clause= *hich authorises the seller to obtain money before shipment by
means of si)ht drafts on the issuin) ban0 on terms set out in the clause( and pro#ides that such ad#ances are to be
deducted from the proceeds of drafts honoured *hen the documents are presented under the credit.A
1he leadin) decision on this matter is Oelhermann v. The National City Bank of New York.
3
'n that case the
beneficiary of the credit maintained *ith the ne)otiatin) ban0 a personal account and art account for his dra*in)s
under the =red clause=. ' us personal account *as in o#erdraft( and he *ithdre* from the =red clause= account
money *hich he deposited in his personal account. 1he *ithdra*als from the =red clause= account *ere ne#er
co#ered by shipments( and the ne)otiatin) ban0 *as reimbursed therefor to the e#entual cost of the buyer.
1hereafter( ho*e#er( the buyer commenced an action a)ainst the ne)otiatin) ban0 on the theory that the ban03s
acceptance of the amount of the =red clause= *ithdra*als *as a fraud on the buyer.
1he court held that the ban0 *as not liable and said/
=1he Red Clause imposed upon the appellant (Ban0) no duty *hatsoe#er in this respect. 1he particular
form of the Red Clause in these instances required the ban0 to )et nothin) more from !mith *hen he desired the
money !mith3s *ithdra*als of the money and later misapplication *as a *ron) to the .ppellees (buyer)( but it is not
a *ron) for *hich ban0 may be held responsible.=
Ho*e#er( in #ie* of more recent decisions( particularly in 8e* Gor0(3 ban0s *hich permit dra*in)s under
a =red clause= should see that the proceeds are not used to reduce an indebtedness of the beneficiary lo them. 1he
holdin) in the :elbermann Case does not )rant absolution to ban0s.
. refinement of the =red clause= is the =)reen clause.= Which is used in credits mainly in the .ustralasian
*ool trade and permits pre-shipment ad#ances and also co#ers stora)e in the name of the ban0.
0'ac( to "ac( credit0
1he benefit of an irre#ocable credit may be transferred *here a prime beneficiary uses it to obtain a credit
in fa#our of his supplier( not necessarily from the intermediary ban0er but from the prime beneficiary3s o*n ban0er.
1his is called a =bac0-to-bac0 credit=. !o far as the documents are concerned( the mechanics of the transaction are
the same? the in#oice and draft of the prime beneficiary must be e+chan)ed for those of the supplier( *hich means
that the former3s ban0er cannot a#ail himself of the security of the ori)inal credit until he (the prime beneficiary)
deli#ers the documents to the intermediary ban0er. 1he ban0er3s security is( of course( the underta0in) embodied in
the ori)inal credit. 't is ob#ious( too( that such a transaction can ta0e place only *here the )oods supplied by the
supplier are those for *hich the buyer has contracted. 'f the prime beneficiary has to do anythin) to the )oods in
order to render them acceptable to the buyer( the documents tendered by the ultimate supplier could not be
acceptable to the intermediary ban0er.%
1his de#ice of secondary or =bac0-to-bac0 credit=( if used carefully( affords the supplier a ma+imum of
security and )reatly enhances the utility of the commercial letter of credit.

Tactica . strate*ic pro"ems-etter o& credit etc.
.ny problem raised by a letter of credit or its #ariations is incidental to the o#er-all credit problem in#ol#ed
in mo#in) )oods. 't is tactical rather than strate)ic. 1he strate)ic problems are those of security and ris0. 1he
balancin) of those t*o factors is a specific challen)e to the in)enuity of ban0ers. 't may be re6ected because of the
difficulty of tactical adaptation. But hope combines *ith commercial history to create the e+pectation that ban0ers
*ill accept the challen)e and that the result *ill be ne* techniques of forei)n and domestic trade.3
1a7 in &orce in 'ritis, India prior to t,e Ne*otia"e Instruments /ct
'n those days if a question arose bet*een parties( *ho *ere -uropeans( on matters relatin) to the ne)otiable
instrument( -n)lish ,a* *as made applicable. 'f the parties *ere Hindus( Hindu ,a* )o#erned? but if they *ere
"ohammedans( "ohammedan ,a* pre#ailed. 'f there *ere no principles a#ailable in these personal la*s( their
respecti#e customs )o#erned. 1hou)h neither the la* boo0s of Hindus nor those of "ohammedans contained any
reference to 8e)otiable 'nstrument as such( the customs pre#ailin) amon)st the merchants of the respecti#e
community *ere reco)nised by the courts( and applied to the transaction amon) them.
/ct not a compete code
1he .ct( as it stands( cannot be said to be e+hausti#e and all comprehensi#e touchin) all ob6ects of the
ne)otiable instruments.

1he .ct re)ulates the issue and ne)otiation of bills( notes and cheques( but does not pro#ide for the
transmission of ri)hts in such instruments by operation of la* or by transfer/3 1he .ct is not a complete code as its
Preamble ma0es it clear that it is to define and amend the la* relatin) to promissory notes( bills of e+chan)e( and
cheques=. 1he .ct is not e+hausti#e and does not co#er either all 0inds of ne)otiable instruments or e#en all matters
relatin) to them. Where#er( therefore the .ct is silent( the la* merchant includin) merchantile usa)e is a rele#ant
consideration.

1he portions of 8e)otiable 'nstruments .ct are le)islations *ithin the field of contract.
1he .ct is not e+hausti#e of all the matters pertainin) to ne)otiable instruments. 1hus( -n)lish -+chequer
and 1reasury Bills( Ban0 notes( Bonds( 2i#idend( Warrants and !hare Warrants ha#e all been held to be 8e)otiable
'nstruments but they are not co#ered by the .ct.
9

Upon their plain lan)ua)e and also upon authority( certain definitions in the .ct( such as that of =ne)otiable
instrument=( =holder= and =holder in due course= are e+hausti#e but it does not necessarily follo* that the .ct is a
compendium of the *hole la* relatin) to the transfer of interest in ne)otiable instruments or the procedure
)o#ernin) actions on them. @or instance( there is no special pro#ision as re)ards the form of a suit by a firm or of
representati#e action( 'f a firm is the holder of a ne)otiable instrument( one has to fall bac0 upon the )eneral rules of
procedure in the CPC for that purpose.
$

'n so far as the modes of transfer of ne)otiable instruments are concerned( the ne)otiable 'nstruments .ct is
not e+hausti#e and does not pre#ent the passin) of property in the note by operation of la*. 1herefore( in proper
cases( it is not necessary for the person suin) on the promissory note to rely only on an endorsement or such other
mode as is pro#ided for in the 8e)otiable 'nstruments .ct( and a suit by a person on *hom the ri)ht de#ol#es by
operation of la* cannot be defeated for absence of the endorsement. Case la* referred to.

.s already indicated( the 8e)otiable 'nstruments .ct deals only *ith transfer by ne)otiation and lea#es
untouched the rules of )eneral la* *hich re)ulate the transmission of ne)otiable instruments by operation of la* or
by le)al de#olution or by assi)nment in *ritin) under section $%< of the 1ransfer of Property .ct and their transfer
as chose in action accordin) to the )eneral la*. Ha#in) re)ard to the pro#isions of section $%9 of the 1ransfer of
Property .ct *hich e+cludes ne)otiable instruments from the pur#ie* of the pro#isions of that .ct relatin) to
transfer of actionable claims( it can be ar)ued on the one hand that no *ritin) as contemplated by section $%< of the
.ct is necessary at all and an oral transfer is possible and on the other that any assi)nment of such instrun%ents is
not possible at all. .ccordin) to 2.@. "ulla( neither #ie* is correct. He obser#es in his treatise on the 1ransfer of
Property .ct( Hth -dition at pa)e 9%I as follo*s/
='f the promissory note is ne)otiable( some early cases supposed that the note could not be assi)ned as an
actionable claim. But later cases ha#e held that e#en if the promissory note is ne)otiable( it may be assi)ned by
instrument in *ritin) althou)h such an assi)nment renders the assi)nee under section $%A sub6ect to the equities to
*hich the assi)nor *as sub6ect=.
%

!ection $%< of the 1ransfer of Property .ct pro#ides for transfers of actionable claims *hich include
ne)otiable instruments also by means of *ritten instruments. !ection $%9 ho*e#er merely e+cludes the ne)otiable
instruments from the operation of section $%<. 1here is nothin) in section $%9 *hich prohibits the transfer of such
instruments by means of separate *ritten instruments. 1he transfer therefore of a promote by means of a re)istered
deed is #alid.
H

/mendment /cts and /daptation )rders
$. 1he 8e)otiable 'nstruments .ct( $&&D (A of $&&D).
A. 1he .mendin) .ct( $&I$ ($A of $&I$).
%. 1he 8e)otiable 'nstruments (.mendment) .ct( $&I9 (7 of $&I9).
H. 1he 2ecentrali5ation .ct( $I$H (H of $I$H).
D. he 8e)otiable 'nstruments (.mendment) .ct( $I$H (D of $I$H).
7. 1he 8e)otiable 'nstruments (.mendment) .ct( $I$I (& of $I$I).
9. 1he 8e)otiable 'nstruments (.mendment) .ct( $IA< (AD of $IA<).
&. 1he 8e)otiable 'nstruments (.mendment) .ct( $IA$ ($A of $IA$).
I. 1he 8e)otiable 'nstruments (.mendment) .ct( $IAA ($& of $IAA).
$<. 1he 8e)otiable 'nstruments ('nterest) .ct( $IA7 (%< of $IA7).
$$. 1he 8e)otiable 'nstruments (.mendment) .ct( $I%< (AD of $I%<).
$A. 1he 8e)otiable 'nstruments (.mendment) .ct( $I%H ($9 of $I%H).
$%. 1he ;o#ernment of 'ndia (.daptation of 'ndia ,a*s ) :rder( $I%9.
$H. 1he 8e)otiable 'nstruments (.mendment) .ct( $IH9 (%% of $IH9).
$D. 1he 'ndian 'ndependence (.daptation of Central .cts and :rdinances) order $IH&.
$7. 1he .daptation of ,a*s :rder( $ID<.
$9. 1he Part B !tates (,a*s) .ct( $ID$ (% of $ID$).
$&. 1he 8otaries .ct( $IDA (D% of $IDA).
$I. 1he 8e)otiable 'nstruments (.mendment) .ct( $IDD (%9 of $IDD).
A<. 1he Jammu and Eashmir (-+tention of ,a*s) .ct( $ID7 (7A of $ID7).
A$. 1he Repealin) and .mendin) .ct( $ID9 (%7 of $ID9).
AA. 1he Ban0in)( Public @inancial 'nstitutions and 8e)otiable 'nstruments 0*s (.mendment) .ct(
$I&& (77 of $I&&).
A%. 1he 8e)otiable 'nstruments (.mendment and "iscellaneous 3re#isions) .ct( A<<A (DD of A<<A).
3tatement o& o"8ects and reasons o& Ne*otia"e Instruments /ct 44mendment and
9isceaneous Pro-isions# /ct5 2002
1he 8e)otiable 'nstruments .ct( $&&$ *as amended by the Ban0in)( Public @inancial 'nstitutions and
8e)otiable 'nstruments ,a*s (.mendment) .ct( $I&& *here in a ne* Chapter KC'' *as incorporated for penalties
in case of dishonour due to insufficiency of funds in the account of the dra*er of the 2iese pro#isions *ere
incorporated *ith a #ie* to encoura)e the culture heques and enhancin) the credibility of the instrument. 1he
e+istin) in the 8e)otiable 'nstruments .ct( $&&$( namely( sections $%& to $HA in Chapter KC'' ha#e been found
deficient in dealin) *ith dishonor of cheques. 8ot only the punishment pro#ided in the .ct has pro#ed to be
inadequate( the prescribed for the Courts to deal *ith such matters has been found to be cumbersome. 1he Courts
are unable to dispose of such cases e+peditiously in
a hound manner in #ie* of the procedure contained in the .ct.
2. . lar)e number of cases are reported to be pendin) under sections $%& to $HA of the 8e)otiable 'nstruments
.ct in #arious courts in the country. Eeepin) in #ie* the lar)e number of complaints under the said .ct
pendin) in #arious courts( a Wor0in) ;roup *as constituted to re#ie* section $%& of the 8e)otiable
'nstruments .ct( $&&$ and ma0e recommendations as to *hat chan)es *ere needed to effecti#ely achie#e
the purpose of that section.
3. 1he recommendations of the Wor0in) ;roup alon) *ith other representations from #arious institutions and
or)anisations *ere e+amined by the ;o#ernment in consultation *ith the Reser#e Ban0 of 'ndia and other
le)al e+perts( and a Bill( namely( the 8e)otiable 'nstruments (.mendment) Bill( A<<$ *as introduced in the
,o0 !abha on AHth July( A<<$. 1he Bill *as referred to !tandin) Committee on @inance *hich made
certain recommendations in its report submitted to ,o0 !abha in 8o#ember( A<<$.
4. Eeepin) in #ie* the recommendations of the !tandin) Committee on @inance and other representations( it
has been decided to brin) out( inter alia( the follo*in) amendments in the 8e)otiable 'nstruments( .ct(
$&&$( namely/-
(i) to increase the punishment as prescribed under the .ct from one year to t*o years?
(ii) to increase the period for issue of notice by the payee to the dra*er from $D days to %< days?
(iii) to pro#ide discretion to the Court to *ai#e the period of one month( *hich has been prescribed for
ta0in) co)ni5ance of the case under the .ct?
(i#) to prescribe procedure for dispensin) *ith preliminary e#idence of the complainant?
(#) to prescribe procedure for ser#icin) of summons to the accused or *itness by the Court throu)h
speed post or empanelled pri#ate couriers?
(#i) to pro#ide for summary trial of the cases under the .ct *ith a #ie* to speedin) up disposal of
cases?
(#ii) to ma0e the offences under the .ct compoundable?
(#iii) to e+empt those directors from prosecution under sectionlHl of the .ct *ho are nominated as
directors of a company by #irtue of their holdin) any office or employment in the Central
;o#ernment or !tate ;o#ernment or a financial corporation o*ned or controlled by the Central
;o#ernment( or the !tate ;o#ernment( as the case may be?
(+i) to pro#ide that the "a)istrate tryin) an offence shall ha#e po*er to pass sentence of imprisonment
for a term e+ceedin) one year and amount of fine e+ceedin) fi#e thousand rupees?
(+) to ma0e the 'nformation 1echnolo)y .ct( A<<< applicable to the 8e)otiable 'nstruments .ct( $&&$
in relation to electronic cheques and truncated cheques sub6ect to such modifications and
amendments as the Central ;o#ernment( in consultation *ith the Reser#e Ban0 of 'ndia( considers
necessary for carryin) out the purposes of the .ct( by notification in the :fficial ;a5ette? and
(+i) to amend definitions of =ban0ers3 boo0s= and =certified copy= )i#en in the Ban0ers3 Boo0s
-#idence .ct( $&I$.
$. 1he proposed amendments in the .ct are aimed at early disposal of cases relatin) to dishonour of cheques(
enhancin) punishment for offenders( introducin) electronic ima)e of a truncated cheque and a cheque in
the electronic form as *ell as e+emptin) an official nominee director from prosecution under the
8e)otiable 'nstruments .ct( $&&$.
:. 1he Bill see0s to achie#e the abo#e ob6ects.
P%)9I33)%; N)T<

4.1. Promise to pay on demand creates promissory note=3ection

2efendant 8os. $ and A are brothers carryin) on business as partners of a firm( 9essrs. Bharat
Hard*are !tores at 1han)al Ba5ar( Imp,a5 and defendant 8o. 3 is the partnership finn. :n 3 $-&-$I7&(
defendant 8o. $ in his capacity as a partner of the firm and on its behalf borro*ed a sum of Rs. I(AH<L-
from the plaintiff and e+ecuted a promissory note (-+t. .Li) promisin) to repay the loan on demand.
2efendant 8o. H stood surety )uaranteein) the repayment of the loan. 1he plaintiff made a demand of the
defendant 8os. $ arid A for the repayment of the loan by re)istered letters dated $%-D-$I7I( a copy *hereof
*as sent to defendant 8o. H. 1he letters *ere refused and no payment *as made suit *as filed.

'n *ritten statement the defendants denied the alle)ed loan. 1hey ho*e#er admitted that defendant
8o. $ recei#ed a sum of Rs. 9(&<&L- payable *ith interest of Rs. $(H%AL-. 1hey( ho*e#er( a#er that by *ay of
ac0no*led)ement of the receipt of the abo#e sum of Rs. 9(&<&L-( the defendant 8os. 1 and A put their
si)natures on a blan0 piece of paper( *hich *as for)ed into the pronote. 't *as a#erred that the sum of Rs.
I(AH<L- had been repaid to the plaintiff.

.fter trial( the learned !ubordinate Jud)e has decreed the suit *ith costs.
1he first submission of the learned Counsel for the appellants( is that -+t. .Li is not a promissory note but a
bond. -+t. .L' *as e+ecuted by defendant 8o. $ on behalf of defendant 8o. %. 't is in the follo*in) terms/

MWe ha#e recei#ed the sum of Rs. I(AH<L- (nine thousand t*o Hundred and forty only) from R of 1han)a
Ba5ar( 'mphal. 1he abo#e amount *ill be repaid on demand. We ha#e recei#ed Rs. I(AH<L- in cash today.N
1he abo#e *ritin) *as follo*ed by four $< P. re#enue stamps on *hich defendant 8o. $ put his
si)nature follo*ed by the e+pression( O@or Bharat Hard*are !tores( "anipurN. Belo* it there is an
endorsement by defendant 8o. H )uaranteein) the repayment of the money. 't *as submitted that in #ie* of
the ac0no*led)ement of the receipt of the amount in -+t. .Li and of the )uarantorPs endorsement. -+t. .L'
*as not a promissory note *ithin the definition.
1he material portion of the definition of promissory note as defined under !ection H of the
8e)otiable 'nstruments .ct( $&&$( to)ether *ith illustration (b) may be quoted
O. Mpromissory noteP is an instrument in *ritin) containin) an unconditional underta0in)( si)ned by the
ma0er( to pay a certain sum of money( only to( or to the order of( a certain person( or to the bearer of the
instrument.N
'llustration (b) O$ ac0no*led)e myself to be indebted to B in Rs. $(<<<L- to be paid on demand( for
#alue recei#ed.N
1he essential in)redients of a promissory note are/ (i) that the promise to pay must be
unconditional( (ii) that the note must be in *ritin) and si)ned by the manner( (iii) that the promise to pay
must be of a certain sum of money( and (i#) that the promise to pay must be to( or to the order of( a certain
person or to the bearer of the instrument. 1he present document -+t. .Li has fulfilled all the abo#e
conditions. 'llustration (b) to the definition sho*s that an ac0no*led)ement of a receipt of the amountdoes
not ta0e a*ay the document from the cateory of a promissory note. 1he document in question is a
promissory note.

1he true import of the *ords Oon demandN is that the debt is due and payable immediately.
1herefore( the instrument in#ol#ed in this case satisfied this test( e#en read alon)*ith the endorsement. 1he
endorsement does not mean that 't 's not payable immediately or *ithout any demand. -#en the *ords on
demand is not necessary to ma0e it on demand because under !ection $I (a) of the 8e)otiable 'nstruments
.ct a pronote in *hich no time for payment is specified is one payable on demand. 'n order to ma0e a
promissory note Oon demandN it must be payable at once( Oforth*ithN or OimmediatelyN. :n the other hand(
if any time limit is fi+ed for payment could be demanded and the amount becomes payable only after that
period and in such a case( the instrument is only one payable other*ise than on demand e#en thou)h the
*ords on demand are there.
A
't *ould not be proper to )o into the nature of the transaction( in #ie* of the a)reement. 1he
a)reement does not su))est by itself that this *as a money-lendin) transaction. 1he a)reement is out and
out a lendin) transaction. Ho*e#er( *hether this *as a money-lendin) transaction at all( could not be
decided on the basis of the a#ailable material and in the absence of any proper e#idence. 1he transaction as
reflected from the a)reement does not prirrtafczcie seem to be a money-lendin) transaction. 1he e+ecution
of the promissory note by itself *ould not ma0e this to be a money-lendin) transaction because the
promissory note could be #ie*ed as a collateral security for ensurin) the re)ular payment of instalments
also. 'n short( 'n the absence of proper e#idence( it could not be strai)ht- *ay held to be a money- lendin)
transaction. 1his defence *ill( therefore( ha#e to be re6ected.
%
1he trial Court pointed out that in the promissory note( the *ords Oon demandN are not found.
1herefore( 't is a promissory note other*ise payable on demand. 1herefore( the trial Court held that the
stamp duty is payable accordin) to .rticle HI (b) of the !tamp .ct. 1hat is not the sub6ect-matter 'n the
present re#ision.
1he promissory note in question is correctly stamped accordin) to the pro#isions containin) 'n
.rticle HI (a) of the !tamp .ct. 'n the decision 'n Sreenjvasajj #. Suarama Sastrikal!" 't *as held that a
promissory note payable on demand 's one payable *ithout any demand and time limit. 1he true 'mport of
the *ords on demand 's that the debt is due and payable immediately. 1herefore( the instrument in#ol#ed in
this case satisfied this test e#en read alon)*lth the endorsement. 1he endorsement does not mean that it is
not payable immediately or *ithout any demand. -#en the *ords on demand is not necessary to ma0e it on
demand because under !ection $I ($) of the 8e)otiable 'nstruments .ct pronote in *hich no time for
payment is specified is one payable on demand. 'n order to ma0e a promissory note on demand it must be
payable at once forth*ith or immediately. :n the other hand if any time limit is fi+ed for payment then
payment could be demanded and the amount becomes payable only after that period and in such a case the
instrument is only one payable other*ise than on demand e#en thou)h the *ords Oon demand are thereN.
$

1. Sur#ltsth$hv. %cirn%atczn Sharma! .'R $I9D ;au $H at pp. $D( $7.
A. Sree Clsalarn Chit &un's (t'. v. T.). *uniar! 11 >1??@# 'C 2$? at p. 2:1.
3. #al$aon %e+rollin$ ,n'ustries (t'. #. The #ayaharat Cre'it (t'.. 11 >1??@# 'C
%A& at p. %%I.
". .'RlI!&'Berl$A.
't is not pleaded in the plaint that the suit documents are promissory notes. ,i0e*ise( no*here 'n the
*ritten statement it is pleaded by the petitioner that they are promissory notes. :n the other hand( it is his specific
plea that they are not ne)otiable instruments. .s discussed abo#e( a promissory note *hich is not intended to be
ne)otiable instrument cannot be construed as a promissory note e#en thou)h it contains an unconditional
underta0in) to pay( unless it falls *ithin the inclusi#e definition of !ection A (AA) of the !tamp .ct. .dmittedly( the
suit documents do not come under that cate)ory.
1he suit documents cannot be construed as promissory notes since they *ere not intended to be ne)otiable
instruments.
A

+,ere t,e endorsement and 7ritin* "eo7 t,e stamp 7as admittedy in t,e ,and-7ritin* o& t,e
e2ecutant5 it 7as a ne*otia"e instrument.=
1he findin) of the Court of appeal belo* that the hand note (-+t. $) is not #alid( nor 't 's for
consideration( also stands #itiated on account of the fact that it has *ron)ly placed the onus on the
plaintiffs. Before startin) *ith the consideration of the e#idence on the point it has obser#ed( OUnder such
circumstances 't 's for the plaintiffs to pro#e that the handnote *as e+ecuted by the defendants and that 't
*as for consideration and for family necessity.N .fter discussin) the plaintiffsP e#idence 't says. O't *as
necessary for the plaintiffs to establish that the handnote (-+t. $) *as really scribed and e+ecuted by
defendant 8os. $ and A 'n the maimer ae*ed in the plaint. But they ha#e not done so( and it has not been
established that the hand-note (-+t. $) *as really e+ecuted for consideration.N 1hen after referrin) to the
e#idence of 2.W. A( one of the defendants( that he did not recei#e any consideration for the handnote it
concludes( OConsiderin) the e#idence adduced on the side of the plaintiffs. 1his Court finds that they ha#e
really failed to sho* that the hand-note (-+t. i) *as e+ecuted for consideration by defendant 8os. $ and A.N
't 's ob#ious from these obser#ations that 't 's not a case *here the Court of appeal belo* has considered
the e#idence of both the parties irrespecti#e of the question of onus and come to a findin). 1he onus in this
case *as on the defendants to pro#e that the hand-note *as not e+ecuted for consideration. 1his Court
e+amined the hand-note itself and the endorsement portion of the hand-note belo* the stamp and up to the
date( *hich is admitted to be 'n the pen of defendant (respondent) 8o( A 's by 'tself a ne)otiable instrument
and 'n the circumstances e#en if the body portfon is not in the pen of respondent 8o. A( that does not ma0e
any difference. :f course( the name of the lender is not mentioned in that e+ecution portion( but 't could be
supplied by the holder 'n due course as pro#ided in !ection A< of the 8e)otiable 'nstruments .ct.
$


1. Sree )tsal am Chit &un's (t'. #. T.V. *uinar! 11>1??@# 'C 113 at pp. 11$5 11:.
A. -okk #o$anna #. .pa'rasta Chaya'evi , >1??A# 'C 1A: at p. $IA.

'ond and promissory note.=
.dmlttedly( the instrument is attested by *itnesses and it is not payable to order or bearer. 1he
document in question 's a bond and not a promissory note. 1he learned Jud)e *as perfectly ri)ht in holdin)
that the document 's a bond.
A
4.1.2 +H<N / !)CU9<NT I3 / P%)9I33)%; N)T<
Promissory note does not c,an*e its nature "y ma(in* endorsements re*ardin* time-imit &or
payment5 interest and 8urisdiction o& Courts.=
'n %. *annusamy #. ). ). *. Samy ari' Co.! Sin$apore!3 the Court stated / .part from the fact that
there 's a difference 'n the number of e+ecutants and the amount( the recitals in both( the instruments are
practically the same. 8o doubt( the preamble portion of the instruments sued upon refers to the )oods sold
and deli#ered to the e+ecutants by the respondent and the amount. Ho*e#er( *hat is important is the recital
to the effect that the e+ecutarits or the e+ecutant( as the case may be( ha#e or has underta0en and promised
to pay the respondent the amounts of &&<9A 2ollars and IHIH$.%I 2ollarsP respecti#ely. 1hus( the petitioner
has unconditionally underta0en to pay the respondent the amounts mentioned therein( *hich are certain.
1here 's no dispute that these instruments ha#e been si)ned by the petitioner in these ci#il re#ision
petitions. 1hus( the 'nstruments in question are in *ritin) and do contain an unconditional underta0in) to
pay the respondent a certain sum of money and ha#e also been si)ned by the e+ecutants. Ho*e#er( there is
a recital 'n the instruments to the effect that it *as sub6ect to certain terms and conditions. 1hey are( that the
amounts mentioned in the instruments should be paid on or before %<-$<-$I&H( and %<-7-$I&H(
respecti#ely( *ith 'nterest on the amounts mentioned 'n the instruments( at $A per cent per annum payable
from %<- $<-$I&A and $-$$-$I&A( till the date of payment and that the Courts of the Republic of !eychelles(
!in)apore and 'ndia shall ha#e 6urisdiction for actions ta0en on the promissory notes.
Whether the aforesaid terms and conditions *ould in any manner affect the unconditional
underta0in) to pay( found in the 'nstruments( may no* be considered. 1he first so-called condition fi+es a
time for payment as %<- $<-$I&H in one case and %<-7-$I&H in the other. 1his does not in any manner affect
the underta0in) contained in the instruments to pay the amount. 1he pro#ision re)ardin) the payment of
interest also does not ha#e any bearin) upon the underta0in) as *ell as the promise to pay the amounts
mentioned in the instruments. 1he further pro#ision re)ardin) the 6urisdiction of the Courts( cannot also in
any manner detract from the unconditional nature of the underta0in) contained in the instruments to pay an
ascertained certain sum of money to the respondent. 1hou)h from the recitals found in the instruments sued
upon( it may appear as if the underta0in) and promise to pay found therein( is sub6ect to certain other terms
and conditions( it is not really so for the other terms do not really 'n any manner affect the underta0in) as
*ell as the promise to pay embodied in the instruments( but only pro#ide for a time-limit for payment(
payment of interest and the 6urisdiction of the Courts( *here actions may be commenced. 1hey do not in
any manner affect the clear underta0in) and promise found incorporated in the instrument in the *ords M'
hereby underta0e and promise to pay to )! the sum of 2ollars. 1he preamble portion referred to already
merely sets out the basis for arri#in) at the amount mentioned 'n the instruments and e#en if the preamble
portion of the instruments sued upon can be construed as an ac0no*led)ment of indebtedness by the
e+ecutants in fa#our of the respondent( yet( M*hen ta0en alon)*ith the other recitals found in the
instrument it is clearly seen that the instruments purport to ac0no*led)e the 'ndebtedness by the e+ecutants
and at the same time contain a clear underta0in) as *ell as a promise to pay the respondent the amount
mentioned therein. 1o such a situation( in #ie* of this Court 'llustration

(b) to !ection H of the .ct *ould apply and the 'nstruments sued upon *ould ne#ertheless be promissory
notes( despite the preamble portion settin) out not only the basis on *hich the amounts ha#e been arri#ed
at( but also containin) an ac0no*led)ment thereof( for there is a clear underta0in) and promise to pay the
amounts mentioned( and that underta0in) or promise 's not 'n any manner made conditional upon anythin)P
else. 1he so-called conditions mentioned( as noticed already( relate only to the time of payment( payment of
'nterest and the place of suin) and they do not affect the underta0in) as *ell as the promise embodied 'n
the instruments. 1he circumstances that time for payment has been fi+ed as %<-$<-$I&H and %<-7-$I&H also
*ould not in any manner render the unconditional underta0in) in the instruments anytheless unconditional.
Q By the terms incorporated in the instruments the time for payment of the amounts had been e+pressed to
be before the lapse of a certain period and that period *as certain to e+pire in the course of ordinary
e+pectation and thus( the fi+ation of time for payment. *ould not render the instruments sued upon
anytheless promissory notes( as defined in !ection H of the .ct. 't *ill also be useful in this connection to
refer to the decision in Theriappa Chettiar #. /n'iappa Chettiar!0 *here the question arose *hether a
pro#ision in a promissory note e+pressed to be payable on the lapse of a certain period( *ould ma0e the
promise as *ell as the underta0in) to pay conditional *ithin the meanin) of !ection H of the .ct. 'n that
case under the terms of the instrument sued upon( the promisor a)reed to repay the amount after t*o years
and the question arose *hether an instrument containin) such a pro#ision( *ould be a promissory note( and
if so *hether it *ould be payable other*ise than on demand. While holdin) that despite the stipulation
re)ardin) time for payment( the 'nstrument *ould be a promissory note( thou)h payable other*ise than on
demand( e#en *ithin the e+tended definition of a promissory note under !ection A(AA) of the !tamp .ct(
the 2i#ision Bench pointed out that 't *ould be so( both under !ection H of the .ct as *ell as under !ection
A(AA) of the !tamp .ct. 1he 2i#ision Bench after referrin) to !ection A(AA) of the !tamp .ct and !ections
H and D of the 8e)otiable 'nstruments .ct( obser#ed as follo*s
1. Bha$watt1rasa'Bha$atv. 1ahil Sun'art! .'R $I7I PatA$D at pp. A$9( A$&.
2. Nookala%amesh%e''yv. 2u'tpu'i%an$aro.o! 1>1??@# 'C 3:3 at p.3:4 >/P#.
%. .$R$I&&"ad%%7.


M1hou)h the amount is payable only after t*o years( 't cannot be said that payment is conditional *ithin the
meanin) of !ection H. 1he document contains an unconditional underta0in). 1herefore( it is a promissory note
*ithin the definition of the 8e)otiable 'nstruments .ct. 1herefore( it 's also a promissory note under !ection A(AA)
of the !tamp .ct.N
Referrin) to !ection $I of the .ct( the 2i#ision Bench pointed out that 't *ill follo* by necessary
implication that( 'f time for payment is specified( 't cannot be said to be payable on demand and( therefore( the
'nstrument may require to be stamped in accordance *ith .rticle HI(b) of the !tamp .ct( as one payable other*ise
than on demand. 1he first contention of the learned Counsel for the petitioner that the instruments sued upon are not
promissory notes cannot( therefore( be accepted.
'llustration (d) of !ection H of the .ct mentioned that the amount should be definite 'n the pronote. 'n that
illustration the *ordin) *as Oand for other sumsN. 't is to be noted that the first defendant is an .d#ocate and
pronotes are 'n the hand*ritin) of the ma0er of the pronotes. Pronotes are #alid and that the plaintiff is entitled to
)et the amount due under those pronotes as a holder 'n due course.
$
Holder 'n due course means any person *ho for consideration became the possessor of a promissory note(
bill of e+chan)e or cheque 'f payable to bearer( or the payee or endorsee thereof( 'f payable to order( before the
amount mentioned in 't became payable and *ithout ha#in) sufficient cause to belie#e that any detect e+isted 'n the
title of the person from *hom he deri#ed his title.
'n the li)ht of the e#idence of PW $ and 2W A( it is conclusi#ely pro#ed that the plaintiff 's a holder 'n due
course. 1hus( he is entitled to claim the amount due under pronotes.
A
1he suit is based on the promissory note for the #alue of Rs. $D(<<<L- out of *hich Rs. $$(H<<L- *as
claimed to ha#e been paid by the defendant. 2ecree for the balance *as sou)ht for in the suit.
't is no* si)nificant to point out that the defendantPs statement tally *ith the claim made by the plaintiff.
1he defendant says that he had paid Rs. $$(H<<L- *hich amount has been )i#en credit( to by the plaintiff in the suit.
't is the further case of the defendant that he *as demandin) to return the promissory note( but that ne#er came to be
done. 'n this #ie* of the admission( the Courts belo* ou)ht to ha#e )ranted decree as prayed for.
$

T,e name o& t,e payee may appear in any part o& t,e instrument.=
1he other )round ur)ed that the documents do not sho* the name of the payee and( therefore( cannot be
treated as promissory notes does not appear to be correct. !ection H of the 8e)otiable 'nstruments .ct only requires
that the document must sho* that the amount is to be paid to or to the order of Oa certain personN. 'f a document
clearly states that it is so payable to a certain person specifically described therein as such in the body of the
document( the matter 's clearly beyond contro#ersy. 1he question of interpretation arises only *here a document 's
not so clearly e+pressed. 't 's true that -+ts. .l( .A and .%9( the body of the documents do not specifically say that
the amount is payable to a particular person. But in these documents the recitals start after mentionin) the name of
plaintiff (in :.!. 8o. $DIL9 $ (e. P.W. $ in the case of .l and .A) and the name of Hth defendant (in :!. 8o. ADAL9A
in the case of -+t. .%9). 'n other *ords( the documents are( so to say( addressed to the respecti#e promisees that is
follo*ed by a promise to pay thou)h the *ord OyouN is not present. . readin) of each of the documents as a *hole
*ould sho* that the person *hose name is *ritten at the top *as intended to be indicated as the payee under the
document. 'n each of the documents( the payee is ascertained by name and the name is )i#en at the top. 1he
instruments definitely and *ith certainty point out the persons *hu are to recei#e the money. .s pointed out by
Bha)*atl( J. (as he then *as) in #a$jivan'as #. 2umanhr.zi!3 that/
O!ection H does not say that the name of the payee must appear in the *ords of the promise nor does 't say
that the payee must be specified 'n any particular part of the 'nstrument. 1he name of the payee may be set out in
any part of the 'nstrument and so lon) as it appears clearly on a readin) of the instrument ta0en as a *hole that the
instrument specifies the payee *ith certainty( the instrument must be held to be a promissory note if the other
in)redients of the definitions are satisfied.N
%

$. #. %anjanna Setty #. 1atel Thfmnie$ow'a. .'R $II& Eant &7 at p. &9.
A. .'R$I79;u6$.
%. *. /. '.ona #. 4,s. -a'a 5aji ,rahlin 5il art 6 Co.! .'R $I&$ Eer &7 at p. &I
Pronote=)n t,e "ac( o& pronote t,ere 7as an endorsement t,at no interest 7as to "e paid in case
payment 7as made 7it,in one mont, =It does not c,an*e t,e nature o& t,e document= It Is sti
paya"e on demand.=
'n this case the *hole difficulty arose because after e+ecution of the promissory note( on the
re#erse side of it( on the same day it *as recorded under the si)natures of both the parties that 'f the amount
is paid *ithin one month it *as decided that interest need not be paid. 't *as for this reason alone that the
trial Court held the promissory note to be one payable other*ise than on demand. 1he learned .d#ocate for
the respondentLdefendant *ould put this as a contemporaneous a)reement postponin) the time for payment
by one month and as such an alteration of the terms of the 'nstrument as held in #oharmal Bekarilal C.
Chettiyar.&irm.0 1he decision is not applicable to the facts of the case. 1he endorsement is independent of
the promissory note and it *as e+ecuted after e+ecution of the pronote. -#en 'f that *as 'ncluded and
e+ecuted as part of the promissory note itself( it *ould not ha#e in any *ay chan)ed the nature of the
pronote as one payable other*ise than on demand. What is )i#en by the endorsement is only a concession
that if the defendant chooses to ma0e the payment *ithin a month he need not pay the interest. 1hat does
not 'n any *ay affect the ri)ht of the plaintiff to ma0e a demand for payment e#en before the e+piry of
concessional period of one month or the liability to pay immediately *ithout demand. :ne month is not an
e+tended period but only a concession period *ithin *hich at any time (immediately or forth*ith) the
amount is payable *ithout interest. 1hat concession does not affect any other a)reement 'n the pronote. :n
the other hand it only reiterates and affirms liability for immediate payment *ith an added inducement for
the same. 'n order to constitute an instrument a pronote payable on demand or other*ise than on demand
liability of the ma0er to pay interest is not an inte)ral part. 1ime for payment is not 'n any *ay postponed
for a period of one month by the endorsement. 1hat concession *as not a#ailed of and the a)reement has
already run out its period and 't does not sur#i#e for any purpose. 16iat a)reement does not in any *ay
affect the terms of the pronote as matters no* stand. @urther 't is an independent transaction si)ned by the
ma0er and payee *hereas the pronote is si)ned only by the ma0er.
'f the promissory note is payable on demand stamp duty payable is under .rticle HI(a) of
!chedule 'to the 'ndian !tamp .ct and if it is payable other*ise than on demand( duty under .rticle HI(b)
's the same as a Bill of -+chan)e (8o. $%). 'n order to ma0e a promissory note Mon demandP( it must be
payable Mat onceP( Mforth*ithP or MimmediatelyP. 1he e+pression Mon demandP( unli0e in ordinary parlance(
has( a technical connotation 'n the la* of ne)otiable instruments. 'f any time 's fi+ed for payment then
payment could be demanded and the amount becomes payable only after that period and in such a case the
instrument is only one payable other*ise than on demand e#en thou)h the *ords Mon demandP are there.
1hat is because payment need be made only on or after that period. /iyap1aflk.tty #. 4athni!0 Thertappa
#. /n'iyappa!3 -evass7a #. Shams uddin( and other decisions relied on *ere concernin) 'nstruments *here
periods *ere fi+ed for payment. When time for payment is fi+ed a promissory note cannot be payable Mon
demandP *hate#er be the *ordin). 'n the case in hand the pronote( ta0en by itself or read alon)*ith the
endorsement( 's payable on demand because 't *as payable immediately *ithout any time-limit at all. .
promissory note payable Mon demandP is one payable *ithout any demand and time-limit. 1he true import
of the *ords Mon demandP is that the debt is due and payable immediately. 1he instrument in#ol#ed 'n this
case satisfied this test e#en read aion)*ith the endorsement. 1he endorsement does not mean that it is not
payable immediately or *ithout any demand. -#en the *ords Mon demandP is not necessary to ma0e it on
demand because under !ection $I of the 8e)otiable 'nstruments .ct a pronote in *hich no time for
payment is specified is one payable on demand.
H

$. $IDH Eer ,1 9&D .'R $IDD 1ray-Co. 7D.
A. .'R $I9$ "ad AI<.
%. $I97Eer,1AH.
". Sreenivasan #. Suarwrur 6istrikul! .'R $I&& Eer $$A at pp. $$%( $$H.

Promissor; note and a*reement=3ections 2-/ and 4.=
.n a)reement is not( as such( defined in the .ct. But( .rticle D of the !chedule of the .ct indicates
that an instrument may fall in the cate)ory of a)reements as distin)uished from bonds. .rticle D consists of
three clauses. @irst clause pertains to a)reement for sale of a bill of e+chan)e. !econd clause relates to sale
of ;o#ernment !ecurity etc. 1he last clause is *orded in such a manner that it has a *ide s*eep as thou)h
it is a residuary clause. When a document cannot be put under any other article it can be brou)ht under the
aforesaid cate)ory since 't says Oif not other*ise pro#ided forN. But the document must ha#e the feature of
an a)reement. What is meant by an a)reement. 1he definition of the *ord Oa)reementN )i#en in the 'ndian
Contract .ct( $&9A is the follo*in)( O-#ery promise and e#ery set of promises formin) the consideration
for each other is an a)reement.N 1hou)h all a)reements are not contracts( e#ery contract *ould contain an
a)reement because an a)reement *hich is enforceable 'n la* is a contract. @or e#ery a)reement( there must
be a promisor and a promisee. When a promise is made and accepted( an a)reement is created. 't is
immaterial *hether the promise relates to any pre-e+istin) liability or obli)ation. 'n the absence of any
other definition 'n the .ct( an a)reement can be understood as one en#isa)ed in the Contract .ct( 1hus a
bond can be distin)uished from an a)reement on the aforesaid promise.
A
9ateria ateration in t,e promissory note.=
Crossin) of the stamps should ha#e been made at the #ery time the process ta0es place and if
stamps are subsequently affi+ed and cancelled by dra*in) lines( the promisee cannot )et any ad#anta)e of
the same because he *ill be( by such an act( ille)ally tryin) to sho* an insufficiently stamped promissory
note as sufficiently stamped. 'n other *ords( he cannot by such an act con#ert the promissory note not
admissible in e#idence into that *hich is admissible. 't *ill amount to a material alteration in the
promissory note.%
9aintaina"iit; o& t,e suit "ased on promissory note.=
1he case of the respondent throu)hout had been that loan amount Ps. H($D(<<<L-. 1he Ealandra
*as re)istered by the Police. Ealandra *as recorded as *hose 'nstance has not come on record *hat *as
stated in the Ealandra not placed on record nor a#erred. Hence( the order of the !2" *herein loan amount
has been mentioned as R. "!89!9990+ cannot be. used as an admission of this amount by the present
respondent. 1hat by itself does not raise any triable 'ssue. 8or it can be inferred that respondent herein
furnished the fi)ure of Ps. H(D<(<<<L- as appearin) 'n the order the !2".

0. */ (ona C. 4:s. 2ada 5a#.raiiiifl 5il oil 6 C9! ;< l*er<= at p <;
A. 4athai 4athew ). *ochukutiy Thwnpi! '' ($IIH) BC %$% at p. %$D (Eer 1'C).
%. Narajan Stn$f(v. 2ur'ev Sfrz$h $($II9) BC HD at p. H9 (PRU).
1hese are separate transactions ha#in) different cause of action. Pronote did not mer)e in the
a)reement and( therfore( the suit based on promissory note *as maintainable under :rder KKKC''( C.P.C.
'n fact petitioners failed to raise any triable issue( hence the trial Court *as ri)ht 'n re6ectin) their
application.
$

Painti&& ,as no "urden 7,en t,e e2ecution o& t,e promissory note 7as admitted.=
1he lo*er appellate Court assumed that e#en 'f there 's a presumption under !ection $$& of the
8e)otiable 'nstruments .ct( it 's only re)ardin) e+ecution and the same *ill not be a#ailable to pro#e the
quantum of consideration. 1he said approach by the lo*er appellate Court is patently incorrect. 1he
plaintiff has no inconsistent case re)ardin) the passin) of consideration. 1he plaintiff has no case that the
consideration paid in the promissory note is different from the real facts. :nly 'n such cases the question
re)ardin) the quantum of consideration merits consideration. 1he defendant has also only one case( namely(
that the document is not supported by consideration( and not that the quantum mentioned therein is
'ncorrect. 'f that be so( the case of the plaintiff cannot be disbelie#ed and under !ection $$& of the
8e)otiable 'nstruments .ct cannot be found as bein) dispro#ed. 1he approach made by the lo*er appellate
Court 's 'lle)al. 1he burden of proof *as *ron)ly cast on the plaintiff for non-suitin) him. 'n fact( the
plaintiff had no burden at all *hen the e+ecution of the promissory note *as admitted and the defendant
had not let in any e#idence to rebut the said presumption. 1he question of la* raised in the memorandum of
appeal are ans*ered in fa#our of the appellant. 1he 6ud)ment of the lo*er appellate Court is. set aside and
that of the trial Court 's restored.
A
4.1.3 +H<N / !)CU9<NT I3 N)T / P%)9I33)%; N)T<
To ma(e a document pronote5 unconditiona underta(in* to pay a certain sum is essentia=/
promise to pay a&ter irri*ation o& a &ied 7as done=!oes not create a promissory note.=
!ection H of the 8e)otiable 'nstruments .ct( $&&$ defines Opromissory noteN as an instrument in
*ritin) (not bein) a Ban0-note or a currency note) containin) an unconditional underta0in)( si)ned by the
ma0er( to pay a certain sum of money only to( or to the order of( a certain person or to the bearer of the
instrument. 1he essential requisite of a promissory note 's certainly as to the person to ma0e the payment(
the person to recei#e it( the time and place of payment( the conditions of liability and also as to the amount
to be paid. 8o particular form of *ords 's essential to constitute a promissory note. 't may be 'n the form of
a letter or 'n any other form of *ords *hich sat'sfy the requirements of !ection H of the .ct and from
*hich the 'ntention to ma0e a promissory note can be discerned. . mere receipt *ith no such promise to
pay 's not a promissory note. 1he question *hether an instrument is a promissory note or not has to be
ascertained by the *ords used in the document. 't cannot be said that the absence of the *ord OpromiseN is
sufficient to declare that the document is not a promissory note. .ny form of e+pression or recitals in the
concerned document from *hich it can be deducted that there *as an underta0in) to pay a certain sum is
sufficient to construe the document as a promissory note. 't has to be ascertained *hether the *ords used in
an instrument import an unconditional underta0in) to pay the amount( 't is not enou)h that the substantial
effect of the instrument is to ma0e the e+ecutant liable to pay money. @or instance( a letter containin) a
confirmation of an underta0in) to pay unconditionally a specified sum to a person *ill not be a promissory
note. . document *hich contains a promise to pay on demand a certain sum to a specified person is a
promissory note thou)h there may be no *ords of ne)otiability. 1he unconditional underta0in) to pay a
specified amount 's the sine 7ua non in a promissory note. 't is essential that the note must be payable at all
e#ents. 1he promise to pay must not be dependent upon a contin)ency. 'f the payment is dependent upon a
contin)ency it *ould definitely amount to uncertainty and the document cannot be construed as a
promissory note.


$. 4oh'. 5at'erv. /'ul *halt7! ' ($II9) BC $&7 at pp. $I<( $I$ (2el).
A. 4eenaksht Sw+ujram #. N. %an$aswwni! ' ($II9) BC $7& at p. $9H ("ad).

1o consider *hether a )i#en document is a promissory note or not the follo*in) tests are helpful

(i) 's the sum to be paid a sum of money and is that sum certain>
(ii) 's the payment to be made to or to order of a person *ho is certain or to the bearer of the
instrument>
(iii) Has the ma0er si)ned the document>
(i#) 's the promise to pay made in the instrument the substance of the instrument> and
(#) did the parties intend that the document should be a promissory note>
'n -+t. .l Rs. 7(<<<L- is stated to be payable on %<th "a0aram. 1he recitals in -+t. .l *ould sho*
that the plaintiff had a)reed to carry out the *or0 of de*aterin) and *aterin) of the paddy field and that
there *as no unconditional underta0in) by the e+ecutants to pay the amount. 't is apparent that the payment
promised could be enforced by the plaintiff only if he had performed his part of the a)reement. .s there
*as no unconditional underta0in) of the payment of the amount by the e+ecutants of -+t. .l it is not
possible to hold that it 's a promissory note. Both the Courts ha#e ri)htly re6ected the appellantPs contention
that -+t. .l is a promis sory note. .s the recitals 'n -+t. .l *ould sho* that the parties ha#e intended to
construe -+t. .l only as a letter and as that intention is patently ob#ious from the document it is indeed
difficult to treat -+t. .l as a promissory note.
$

9ere Impied underta(in* to pay "y use o& t,e 7ord Bde"tC or promote5 t,e document does not
"ecome a promote.=
'n !ection H of the 8e)otiable 'nstruments .ct( a promote is defined as follo*s
MH. MPromissory note>.?/ Mpromissory noteP 's an 'nstrument in *ritin) (not bein) a Ban0 note or a
currency note) containin) an unconditional underta0in)( si)ned by the ma0er( to pay a certain sum of
money only to( or to the order of( a certain person( or to the bearer of the instrument.N
'n Bachan !in)h #. %am /waci.h@ a 2i#ision Bench laid do*n as follo*s
O'n order to find out *hether an 'nstrument is a promissory note or not( 'ts terms must be e+amined.
1here must be an e+press underta0in) to pay the amount mentioned in the instrument before it can
be held to be a promissory note. . mere 'mplied undeta0in)( by the use of the *ord MdebtP or MpronoteP in
the instrument is not sufficient.N
1his 2i#ision Bench 's a clear ans*er to the contention *hich has been raised by the learned
Counsel for the defendant-appellant *ho has placed a )reat deal of reliance on the fact that 'n the body of
the document( the e+pression Mhand noteP has been used. CounselPs contention 'n short is that coupled *ith
the fact that the e+ecutant of the document says that he has borro*ed the sum of Rs. A(<<<L- and has used
the e+pression Mhand noteP( ma0e the document a pronote. 1he instruments *hich considered inA *ere in
these *ords/

O($) $ had borro*ed a sum of Rs. HA bearin) 'nterest at the rate of annas four per cent from B on AIth
"arch. $I%I and ha#e( therefore( e+ecuted this pronote.N
O(A) ' of my o*n free *ill and accord approached 4 and borro*ed from him the sum of Rs. $<<L-
bearin) interest at the rate of annas ei)ht per cent per mensem for the purpose of purchasin)
builoc0s. ' ha#e( therefore( e+ecuted these fe* presents by *ay of a promissory note.N
1he 2i#ision Bench held that the documents *ere merely ac0no*led)ments of the debts
coupled *ith an a)reement to pay 'nterest but they *ere not promissory notes. 1he document 'n
suit stands on a lo*er pedestal than those *hich *ere considered by the 2i#ision Bench 'n .'R
$IHI .ll H%$ Asupra@.
3
$ .'R $IHI.$$H%$.
A. .iR 1?40 .ll 431 Asupra@.
3. B,,# *tshore%ajv. (akhanTewczri! .'R $I9& .ll%$H at pp. %$7( %$9.
4.2 C)N3I!<%/TI)N=P%<3U9PTI)N

'urden is on t,e de&endant to pro-e t,at no consideration passed=3ection 11A5 Ne*otia"e
Instruments /ct.=
Pro#islon of !ection $$&( 8e)otiable 'nstruments .ct raises a presumption that the ne)otiable
instrument is made for the consideration mentioned therein. !ection $$& of the 8e)otiable 'nstruments .ct
raises a statutory presumption that there *as consideration for e#ery ne)otiable instrument. 1he
presumption continues until it is rebutted and only *here it can be rebutted by pro#in) the contrary i.e.,
ne)otiable instrument *as *ithout consideration. !o the onus of pro#in) that there *as no consideration
*as on the defendant 8eedless to mention that in a case based on pronotes( the initial burden lies on the
plaintiffs to pro#e e+ecution of the pronotes and *hen this burden 's dischar)ed then the Court shall raise a
presumption in fa#our of the plaintiffs for holdin) that the pronotes *ere for consideration and it *ill be for
the defendant to rebut that presumption.
$
%aises presumption t,at 7,en e2ecution o& pronote is admitted t,e "urden o& proo& t,at
Consideration did not pass is on t,e e2ecutants section 11A5 Ne*otia"e Instruments /ct. =
1he plaintiffs case is that he is the sole proprietor of the firm OBha)*an Ram Ramra6aramN and he caies on
business in steel furniture( asbestos etc. 1he defendant *as ser#in) as-a salesman under him and *as in char)e of
cash and stoc0. 1he plaintiff *hile chec0in) the accounts of the firm detected shorta)e of cash to the tune of Rs.
H(D<<L- and the defendant admitted to ha#e misappropriated the same and #oluntarily e+ecuted the suit promissory
note 'n his o*n hand on H-$<-$I77 a)ree'n) to repay the !ame :fl demand *ith interest at the rate of $A p.c. p.a.
2urin) the period from D-7-$I7& to D-H-$I7I the defendant paid a sum of Ps. DD<L- by instalments and endorsed the
total amount of payment on the bac0 of the Promissory note on D-H-$I7I. He also ad6usted a sum of Ps. &%<.7D out
of his pay from D-D-$I7I to AI-$<-$I9<( lea#in) a balance of Ps. %($$I.%D.
1he defendant admitted e+ecution of the promissory note but contended that it *as forcibly obtained from
him under threat and coercion. He denied ha#in) aclmo*led)ed his liability undef the promissory note.
!ection $$& of the 8e)otiable 'nstruments .ct is 'mperati#e and the Court is bound to dra* the initial
presumption that the ne)otiable 'nstrument *as made for consideration *hen its e+ecution is pro#ed. it thro*s the
burden of proof of *ant of consideration on the defendant. !imilarly !ection $<A of the -#idence .ct thro*s the
burden of pro#in) *ant of consideration on the defendant for if no e#idence *as produced by either side and the
e+ecution of the document bein) admitted( the plaintiffs claim *ould be decreed. When the Court belo* decided
that the defendant had failed to pro#e that the Promissory note *as obtained from him under threat and coercion it
*as unnecessary to consider *hether the plaintiff had pro#ed Passin) of consideration or not. 1he e+ecution of the
hand-note ha#in) been admitted( it *as not necessary for the plaintiff to pro#e passin) of consideration. 1he
presumption under section $$& of the 8e)otiable 'nstruments .ct( continued in all its ri)our until the contrary *as
pro#ed.
$
PromIssory note=I& si*natures are admitted5 t,e "urden is on t,e de&endant to s,o7 t,at ,e si*ned
on a "an( paper=3ection 11A5 Ne*otia"e Instruments /ct.=
Correct principle is that in a case *here defendant ta0es the plea of si)nature or thumb-impression
on a blan0 paper( burden lies on plaintiff to pro#e e+ecution of promissory note by the defendant *hereafter
onus shifts to the defendant to pro#e that there *as no consideration for such document in #ie* of
presumption of la* under !ection $$&(a) of the 8e)otiable 'nstruments .ct. 2efendant can rebut such
presumption either by direct e#idence or by circumstantial e#idence as has been held in 4ahanta Shri %am
-ayaiu -as Baba6i #.
-ukha #erta.
3
+,ere si*nature on pronote is admitted t,ere is presumption o& consideration ,a-in* passed.=
!ectlon $$&(a) of the 8e)otiable 'nstruments .ct pro#ides that e#ery ne)otiable instrument *as
made for consideration. . promissory note is a ne)otiable instrument. When e+ecution of the promissory
note is admitted or duly pro#ed( the presumption arisin) under !ection $$&(a) of the 8e)otiable
'nstruments .ct is that the hand-note is fully supBorted by the consideration mentioned therein.% .s it is
pro#ed that the defendant had duly e+ecuted the suit promissory note -+t. $( so there is a presumption
under !ection $$&(a) that the same is fully supported by conscideration. .ccordin) to the defendant( none
else *as present *hen he borro*ed the amount under the suit promissory note. .part from the presumption
under !ection $$&(a) of the 8e)otiable 'nstruments .ct a#ailable to the plaintiff( the e#idence of the
plaintiff that on A<-H- $I9D he had ad#anced Ps. $<(<<<L- to the defendant( on the defendant e+ecutin) the
suit promissory note( -+t. $ in his fa#our( has not been sha0en in cross-e+amination and sounds quite
con#incin).
H
Payment t,rou*, Hundies 7,ic, 7ere accepted "ut ater re&used=Transaction "e,ind Hundies
coud not "e *one into.=
.s mentioned abo#e all the 5un'ies in question in these suits *ere dra*n in fa#our of the !tate
Ban0 of 'ndia and *ere endorsed to the respondents by the Ban0. "oreo#er( the respondents ha#e based
their claims on the 5un'ies and ha#e not alternati#ely claimed the prices of the )oods. *hich ob#iously
they could not ha#e done as in the present cases( the option to fall bac0 on the ori)inal contracts *as not
reser#ed. 1he ratio of the decision in -hiraj ,at #. Sir #aco Behreris R !ons(D is( therefore( clearly
applicable to the facts of the present case.

$. %am %aja %am #. -hrua Charart .#eriu. .'R $I&A :il A7H at p. A7D.
A. ',R $I7D Cut HHD? !ri *hetram.ohan %ay #. .'ayanarayczn 1an'a! .'R $II$ :n AD at p. A&.
%. !ee "acian 4ohan #ena #. Srlnath !anal( .'R $I9% :n AA.
H. 4ani Cftaran1ari0$rahv. %a'hama'hcth 1an'e! .'R $II$ :n AH& at p. AD<.
D. .'R 'I%%.$$9H.
'n the ultimate analysis the learned Jud)e spelt out their #ie* of the case as follo*s.

O1he draft *as dra*n in fa#our of the Chartered Ban0( and it *as the Chartered Ban0 *ho had in the first
instance a ri)ht to reco#er the sum due on the draft from the acceptor. Had the Ban0 sued on the acceptance( clearly
the acceptors could not ha#e pleaded that under an a)reement bet*een themsel#es and a third party( namely( the
sellers of the )oods( they had a ri)ht to refer the matter to arbitration. 8o question as to the nature of the )oods arose
bet*een the present appellants and the Chartered Ban0( and there *as no a)reement bet*een them containin) any
clause authorisin) a reference to arbitration. 1he Chartered Ban0 endorsed the bills of e+chan)e to the plaintiffs and
the plaintiffs in brin)in) this suit on the basis of the bills of e+chan)e are in the position of the Chartered Ban0( and(
therefore( entitled to frame their suit accordin)ly. 1heir position in this respect is the same as that of a total stran)er
to *hom the Ban0 mi)ht endorse the bills. . suit brou)ht by them for the price of the )oods *ill brin) into operation
the arbitration clause of the a)reement bet*een themsel#es as sellers and the defendants as buyers. But there is no
arbitration clause *hich can come into force as bet*een the plaintiffs as holders and the defendants as acceptors of
the bills of e+chan)e.N

Presumption o& payment 3ection 11A5 Ne*otia"e Instruments /ct.=
'n this connection learned Counsel for appellant has cited the decision 'n *unclan (al Ballaram #.
Custo'ian. Bvacuee 1roperty.3 1he !upreme Court held that the presumption under !ection $$& of the 8e)otiable
'nstruments .ct 's one of la* and there under a Court shall presume inter alia that the ne)otiable 'nstrument or the
endorsement *as made or endorsed for consideration( 1he burden of proof of failure of consideration is thro*n on
the ma0er of the note or the endorser( as the case may be. 1he e#idence required to shift this burden need not
necessarily be direct e#idence i.e. oral or documentary e#idence or admissions made by opposite-party. 't may
comprise circumstantial e#idence or presumption of la* or fact. 'n the case before the !upreme Court the plaintiff
sued on a promissory note( the consideration of *hich represented the price of )oods sold to the defendant. Plaintiff
*as in possession of the rele#ant account boo0s re)ardin) the sale of )oods. 1he !upreme Court obser#ed that the
burden *as on the plaintiff to produce the said account boo0s and if those boo0s are *ithheld( the Court can dra* a
presumption under !ection $$H of the -#idence .ct to the effect that( if produced( the documents *ould be
unfa#orable to plaintiff. 1he !upreme Court obser#ed that this presumption( ii raised by a Court( can under certain.
Circumstances rebut the presumption of la* raised under !ection $$& of the 8e)otiable 'nstruments .ct. 1he
principle laid do*n by the !upreme Court in the aforesaid decision is not applicable to the present case.
$

$. 4,s. *lshan Swaroop! /shok *wnnrv. 1o'ar 4ills (tc(! $I&7 (%) Born CR $ at p. 10.
2. .'R $I7$ !C $%$7.
1a7 does not reDuire t,at t,e pronote s,oud recite t,e considerationE3ection 11A5 Ne*otia"e
Instruments /ct.=
/ Mpromissory noteP is( therefore( an unconditioual underta0in) and a Mbill of e+chan)eP is on
unconditional order to pay a certain sum of money. 1he la* required that both should be si)ned by the
ma0er. But the la* does not require that a ne)otiable instrument should recite the consideration for *hich it
is made or dra*n. 1he la* does not also require the person suin) on the instrument to alle)e the
consideration for *hich it *as made or dra*n.
A
BUnti contrary is pro-edC=9eanin* o&E3ection 11A5 Ne*otia"e Instruments /ct.=
+anc,oo5 C.F. In 5eerachan' #. #eevraj.3 >supra# a&ter referrin) to the definition of the *ords Mpro#edP
and Mdispro#edP obser#ed (at pa)e H( para $I)/

O.pplyin) this definition to the principle behind the presumption in !ection $$$(a) the principle comes to
this. 1he Court shall presume a ne)otiable 'nstrument to be for consideration unless and until after considerin) the
matters before it( it either belie#es that the consideration does not e+ist or considers the non-e+istence of the
consideration so probable that a prudent man ou)ht( under the circumstances of the particular case! to act upon the
supposition that the consideration does not e+ist.N ('talics supplied).

Wanchoo( C.J. pointed out that 'f the preponderance of probabilities *as to be assessed( the entire
Mcircumstances of the particular caseP had to be considered and the e#idence of the plaintiff and of the defendant
could not be considered in separate M*ater-ti)htP compartments. 't is not permissible to merely re6ect the plaintiffs
case on one side and then separately re6ect the defendantPs case( and a)ain come bac0 to !ection $$&(a). 1hus for the
purpose of the *ords Munless the contrary is pro#edP( 't 's permissible to loo0 into the preponderance of probabilities
and the entire Mcircumstances of the particular case
H

$. ).9. -evassy #. 1erlyar Cre'its! .'R $IIH Eer H<D at p. H$$.
A. 4anyam #anakal aks hint #. "anyam 4a'#iva Rao( .'R $I9% .P $<% at p. $$<.
%. .'R$IDIRaJ$(@B).

:nce the plaintiff pleads consideration different from the one found 'n ne)otiable 'nstrument( the statutory
presumption does not arise. Under !ection $$&(a) of the .ct( until the contrary is pro#ed( presumption shall be made
that e#ery ne)otiable instrument *as made for consideration. :nce there is admission of the e+ecution of the
promissory or the same is pro#ed to ha#e been e+ecuted( the presumption under !ection l$&(a) is raised that it is
supported by consideration. 1hat initial presumption *ill not be a#ailable to the plaintiff in this case.
!ince the respondent had deli#ered possession of % acres HH cents of land and the buildin) to the appellant
*hich is 'n addition to the lands co#ered under a)reement of sale( the possession of land ha#in) been passed 'nto the
hands of the appellant and since in consideration thereof he had e+ecuted promissory note( it is supported by le)ally
enforceable consideration. 1herefore( the decree )ranted by both the Courts belo* in that behalf is not beset *ith
ille)ality *arrantin) 'nterference(
$

BPayment in due courseG-3ection A$ and 11A5 Ne*otia"e Instruments /ct.=
'n re)ard to !ection &D of the 8e)otiable 'nstruments .ct( $&&$ (A7 of $&&$) and the decision of
#ayjiva ##amnajo! #. Na$ar Central Bank (t'!!3 *hich is founded on that section upon *hich reliance *as
placed before the Hi)h Court( it is sufficient to say that before the pro#isions of !ection &D can assist the
Ban0( 't had to be established that payment had 'n fact been made to the firm or to a person on behalf of the
firm. Payment to a person *ho had nothin) to do *ith the firm or a payment to an a)ent of the Ban0 *ould
not be a payment to the firm. !ection $$& of the 8e)otiable 'nstruments .ct on *hich also reliance *as
placed before us does not ha#e any bearin) upon the case at all.
%
'urden o& proo&=3ect8o 11A5 Ne*otIa"e Instruments /ct. =
!ection $$&( 8.'. .ct lays do*n a special rule of e#idence applicable to ne)otiable instruments.
1he presumption is one of la* and thereunder a Court shall presume( inter alia! that the ne)otiable
instrument or the endorsement *as made or endorsed for consideration. 'n effect it thro*s the burden of
proof of failure of consideration on the ma0er of the note or the endorser( as the case may be. 1he question
is( ho* the burden can be dischar)ed > 1he rules of e#idence pertainin) to burden of proof are embodied 'n
Chapter C'' of the -#idence .ct( 1he phrase Oburden of proofP has t*o meanin)sSone the burden of proof
as a matter of la* and pleadin) and the other the burden of establishin) a case? the former is fi+ed as a
question of la* on the basis of the pleadin)s and is unchan)ed durin) the entire trial( *hereas the latter is
not constant but shifts as soon as a party adduces sufficient e#idence to raise a presumption in his fa#our.
1he e#idence required to shift the burden need not necessarily be direct e#idence( (e.! oral or documeny
e#idence or admissions made by opposite-party? it may comprise circumstantial e#idence or presumptions
of la* or fact. Under !ection $$H of the -#idence .ct( O1he Court may presume the e+istence of any fact
*hich it thin0s li0ely to ha#e happened( re)ard bein) had to the common course of natural e#ents( human
conduct and public and pri#ate business( in their relation to the facts of the particular case.N 'llustration ())
to that section sho*s that the Court may presume that e#idence *hich could be and is not produced *ould(
if produced be unfa#ourable to the person *ho *ithholds it. . plaintiff( *ho says that he had sold certain
)oods to the defendant and that a promissory note *as e+ecuted as consideration for the )oods and that he
is in possession of the rele#ant account boo0s to sho* that he *as in possession of the )oods sold and that
the sale *as effected for a particular consideration( should produce the said account boo0s( for he is in
possession of the same and the defendant certainly cannot be e+pected to produce his documents. 'n those
circumstances( if such a rele#ant e#idence is *ithheld by the plaintiff( !ection $$H enables the Court to
dra* a presumption to the effect that( if produced( the said accounts *ould be unfa#ourable to the plaintiff.
1his presumption( if raised by a Court( can under certain circumstances rebut the presumption of la* raised
under !ection $$& of the 8e)otiable 'nstruments .ct. Briefly stated( the burden of proof may be shifted by
presumptions of la* or fact( and presumptions of la* or presumptions of fact may be rebutted not only by
direct or circumstantial e#idence but also by presumptions of la* or fact. 1his Court is not concerned here
*ith irrebuttable presumptions of la*.
$
Payment "y 'undes='asis o& Hundies >contract# not to "e oo(ed into.=
1he decision of the .llahabad Hi)h Court in -irty ,at #. !fr #aco Behrerts R !orts(A is more to
the point. 'n that case the parties had entered into an a)reement 0no*n as MC.l.@.P contract in terms of *hich
the defendant-appellants purchased cloth from the plaintiffs. !e#eral orders *ere placed by the defendant-
appellants *ith the respondents and the respondents despatched )oods after the bills of e+chan)e. dra*n by
the respondents directin) the appellants to pay to the Chartered Ban0 of Ca*npore a sum representin) the
cost of )oods( frei)ht and insurance etc. *ere accepted by the appellants but *hen the time came for
honourin) the accepted bills and ta0in) deli#ery of the )oods the appellants refused to do so and hence the
respondents instituted a suit for reco#ery of the amount due on bills of e+chan)e accepted by the appellants.
1he appellants relyin) on a clause in the a)reement applied under !ection $I of the .rbitration .ct for stay
of the suit. 1he trial Jud)e re6ected the application on #arious )rounds( one of *hich *as that the suit *as
based on accepted bills of e+chan)e and *as not a suit for price of )oods deli#ered( under the contract
*hich contained the arbitration clause.
$. *un'an (al #. Custo'ian! Bvacwe 1roperty! .'R 1?:1 3C 131: at pp. 131A5 $%$I? 5,ralal C.
Bad0ulal( .'R $ID% 3C 22$H Narayana%o.ov. )en#catapayya. .'R 1?3@ "ad 1A2=%eied on.
2. .'R 1?33/11@4.
.s mentioned abo#e all the 5un'ies 'n question in these suits *ere dra*n in fa#our of the !tate
Ban0 of 'ndia and *ere endorsed to the respondents by the Ban0. "oreo#er the respondents ha#e based
their claims on the 5un'ies and ha#e not alternati#ely claimed the price of the )oods( *hich ob#iously they
could not ha#e done as in the present cases( the option to fall lac0 on the ori)inal contracts *as not
reser#ed. 1he ratio of the decision in -hira# (al v. Sir #aco Behrens 6 Sons!0 is( therefore( clearly
applicable to the facts of the present case.
A
1he plaintiffs point is that by #irtue of the separate re)istered sale deed he came to be the holder of
the suit promissory note and( therefore( entitled to a decree. 1here appears to be some misconception 'n the
mind of the Courts belo* that endorsement is the only means by *hich a ne)otiable instrument can be
transferred. 'ndeed Chapter H of the 8e)otiable 'nstruments .ct deals *ith the manner of the ne)otiation of
these instruments. 'n the ordinary *ay under !ection H& of the .ct( a hand-note *ould be ne)otiated by
endorsement and deli#ery thereof? a promissory note endorsed in blan0 or a promissory note to the holder
or bearer( 's ne)otiated in simpter fashion( but the 8e)otiable 'nstruments .ct 'tself does reco)nise that
ne)otiable 'nstruments may be transferred and for consideration other*ise than by ne)otiation. . transfer
of a promissory note by means of a re)istered instrument is #alid. 1hus( *here the holder of a promissory
note sells his ri)ht( title and 'nterest in the note to another but *ithout endorsin) it( the assi)nee 's *ithin
the definition of MholderP in !ection & of the 8e)otiable 'nstruments .ct quoted abo#e. He can( sue in his
o*n name and he is entitled 'n his o*n name to possession( and to recei#e or reco#er the amount due on
the hand-note from the parties thereto. 1he difference bet*een transfer by assi)nment( and a transfer by
endorsement and deli#ery 's( that 'n former case the transfer is sub6ect to all the equities( *hereas in the
latter 't is not.
%

Consideration 7as passed on t,e promissory note=Presumption o&.=
'n order to pro#e e+ecution apart from the e#idence of the plaintiff as P.W. A( the scribe *as
e+amined as P.+. 1 and he *ould state that the consideration *as passed and the defendants subscribed
their si)natures on the promissory note. P.W. 3 attestor *as also e+amined. 1he trial Court has correctly
appreciated that due to misunderstandin) bet*een the brother and the sister 2.W. A deposed a)ainst his
o*n brother. Ha#in) )ot the promissory note from the defendants and assi)ned 'n fa#our of the plaintiff
no* 2.W. A has come for*ard to say that 't *as not supported by consideration. !ince the e+ecution is
pro#ed by all means( the le)al presumption that consideration *as passed on the promissoly note *hen
e+ecution is pro#ed.
$
$. .$R$I%%.$$9H.
A. 4,s. *lshan Swaroop /shok *umar #. 1o'ar 4ills (t'.! .'R $I&9 Born $I& at pp. 393! A<H( A<D ?
Commissioner of ,ncome TaC! Bomay #. O$ale 2lass Dorks! .'R $IDH !c HAI? %uin ,al
:n0armnl &inn #. 4ohwi (a( %ice 6 /tta 4ills! .'R $I7D !c $79IT@ollo*ed ? 1ench )elly
Coal #. ,h'lan Cale Co.! .'R $I9D Cal A&HT2issented from.
%. 2hanashyain -as #. %a$ho Sahu! .'R $I%9 Pat $<< (@B) ? Surath Cho!n'ra Saha #. *rlpanath
Chou'hury! .'R $I%H Cal DHI? Narasln$ha 1an'a #. N. 8arustrn" 4urty! .'R $I77 :n $IH at p.
$ID.
T,ere is a statutory pres7npti)& o& consideration in respect o& promissory note.=
Courts a)ree *ith the findin) of the 1rial Court that the pronote( dated .u)ust A7( $I9$( *as
e+ecuted *ith full consideration. 1he defendants 0no*in)ly and *ith full 0no*led)e had e+ecuted the
pronote. 'n the facts and circumstances of the case( there *as no necessity of )oin) 'nto the question of
no#ation of contract as contemplated under !ection 7A of the 'ndian Contract .ct. 1he defendants had
e+ecuted the pronote and also created an equitable mort)a)e in fa#our of the Ban0 and the pronote itself
contained the endorsement Mfor #alue recei#edP.

1here is also a statutory presumption of consideration in respect of the promissory note under
!ection $$& of the 8e)otiable 'nstruments .ct( $&&$.
A
)nce t,ere is admission o& e2ecution o& t,e promissory note5 t,e presumption 7i "e o& consideration

:nce the plaintiff pleads consideration different from the one found in ne)otiable instrument( the
statutory presurpptiofl! does not arise. Under !ection $$& (a) of the 8e)otiable 'nstruments .ct until the
contrary is pro#ed( presumption shall be made that e#ery ne)otiable instrument *as made for
consideration. :nce there 's admission of the e+ecution of the promissory or the same is pro#ed to ha#e
been e+ecuted( the presumption under !ection $$& (a) is raised that it 's supported by consideration. 1hat
initial presumption *ill not be a#ailable to the plaintiff in this case.
.s seen( the findin)s of the trial Court as *ell as the appellate Court is that #alid consideration
*as passed for a sum of Rs. $.D<L- la0hs. !ince the respondents had deli#ered possession of 3 acres HH
cents of land and the buildin) to the appellant *hich is in addition to the lands the possession of land
ha#in) been passed into the hands of the appellant and since in consideration thereof he had e+ecuted
promissory note( it is supported by le)ally enforceable consideration. 1herefore( the decree )ranted by both
t,e Courts belo* in that behalf is not set aside *ith ille)ality *arrantin) interference
%
:nce 't is admitted that the defendant has si)ned the promissory note( his liability cannot be
denied. 'n Chici.o.rnram #. P.1. PonnusW1tG(H this Court has held that/
Ofrom a readin) of the abo#e section( it is clear that !ection A<
of the 8e)otiable 'nstruments .ct is itself authority to the holder of inchoate stamped and si)ned
instrument to nil up the blan0s and to the ne)otiable instrument( 1he instrument may be *holly blan0 or
incomplete in particular and in either case the holder has the authority to ma0e or complete the 'nstrument
as a ne)otiable oneN.
1he defendant ha#in) admitted in clear cate)orical terms both in the *ritten statement and in the
e#idence that he only si)ned the promissory note the suit must ha#e been decreed by the Court belo*.
$
$. N. /'ul /zeez #. S. 4ohwneC, 5anifa! .'R $II9 "ad $ at pp. A( %.
A. ,n'ian Bank C. *. 8ato.ra6Cl PttlaU( $$($IID) BC AII at p. %<H (!C).
%. *.1.O. "oideert0UttG 5ajee #. 1appu 4arEjooran. .'R $II7 !C %%D7 at pp. %%DI( %%7<.
H. $IID (A) ,a* Wee0ly at pa)e 9$I.
3ections 44 and 4$ o& t,e Ne*otia"e Instruments /ct dea 7it, partia a"sence or &aiure o& money
consideration
!ection IA of the -#idence .ct e+cludes e#idence of oral a)reement. 1he section bars adducin) of
any e#idence( either oral or documentary( *hich contradicts( #aries( adds or substracts from the terms of the
*ritten instrument. But( Pro#iso 'to that section enables a party to the document to pro#e and fact *hich
may in#alidate the document( and one such circumstances is( failure of consideration for the contract or
a)reement. . readin) of !ection IA also ma0es it clear that the e#idence is a bar only if it is in the nature of
any oral a)reement or statement *hich contradicts( #aries( adds or substracts the terms of the *ritten
instrument. 'f the defendant pleads that a particular statement in the document is not correct( that is not a
piece of any oral a)reement or statement. .lon)*lth !ection IA( t*o sections of the 8e)otiable 'nstruments
.ct are also rele#ant in this case. 1hey are !ect'ons HH and HD of the .ct. !ection HH deals *ith partial
absence or failure of money consideration.
1here is also an e+planation to that section *hich deals *ith *ho are immediately parties to the
document. 'n the case of a promissory note( bill of e+chan)e or cheque( the ma0er stands in immediate
relation *ith the payee. !ection HD deals *ith partial failure of consideration not consistin) of money. 'n
this case( Courts are not concerned *ith !ection HD( and hence the same is not dealt *ith. 'n #ie* of the
statutory reco)nition that there can be partial absence or failure of money consideration in a promissory
note and the further reco)nition that a decree *ill be )ranted only for the actual amount recei#ed( it
necessarily follo*s that the defendant *ill be entitled to plead and pro#e that the promissory note( thou)h
e+ecuted for a lar)er amount( is not supported by consideration to the full e+tent and( therefore( there is a
failure of consideration. He can further contend that the plaintiff is entitled to recei#e only the actual
amount paid. 1he question *hether that contention could be accepted or not is a matter for appreciation of
e#idence.
2efendant has no case that the promissory note *as e+ecuted under compellin) circumstances. 'n
the pleadin)s( the only statement made is that thou)h he e+ecuted the promissory note for Rs. $D(<<<L- he
recei#ed only Rs. D(<<<L-. He has not e#en stated that he *as as0ed by the plaintiff to e+ecute such a
document. -#en in the ac0no*led)ement he is not challen)in) the correctness of his statement 'n the
promissory note. When the suit notice *as issued( e#en that *as not replied. When he *as e+amined as
2W- $ his only statement *as that the promissory note *as e+ecuted for Rs. $D(<<<L- ta0in) into
consideration the future interest payable and also accordin) to local custom (fe* *ords in re)ional script).
-#en at the time he *as e+amined( he has no case that there *as no transaction bet*een him and the
plaintiff and his relationship is that of a borro*er and a professional money-lender. 'f the promissory note
*as e+ecuted by him #oluntarily under !ection $$& of the 8e)otiable 'nstrurnents .ct( ta0en alon)*ith the
admission in the promissory note that he has recei#ed Rs. $D(<<<L- it *ill ha#e to be accepted( unless the
admission is found to be *ithdra*n by proper e#idence. 1he burden on the defendant is #ery hea#y. 1hat
burden has not been dischar)ed by any e#idence. 1he e#idence of 2Ws A and % is of no use in so far as that
part of the case of the case of the defendant is concerned(. 1hey cannot ha#e a better case than the
defendant himself and( in fact( they are incompetent to pro#e the factum of consideration. 8o other
circumstance has also been pleaded 'n the this case to in#alidate the case of the plaintiff. 1he lo*er
appellate Court has strained itself to come to the conclusion that the amount of Rs. $D(<<<L- mi)ht ha#e
been 'ncorporated ta0in) into consideration the interest payable at AHV per annum.

1he case *as de#eloped only at the time he *as e+amined( by deposin) that the amount *as
arri#ed include interest and also accordin) to local custom. 1o pro#e the local custom( no attempt *as
made. 2W-A and 2W-% are persons claimin) under the defendant( and 2W-A is really a person employed
by defendant. 1he lo*er appellate Court fully belie#ed their e#idence( *hen the same has not e#en been
placed by the defendant. 'f a circumstance in#alidatin) the document is brou)ht out( it must ha#e been
pleaded initially. Without pleadin)( such e#idence should not ha#e been let in( 'n this case. 1he lo*er
appellate Court acted ille)ally in( acceptin) that part of the e#idence.
1he decree of the lo*er appellate Court is liable to be set aside and that of the trial Court is to be
restored.
$

H.A.A C)N3I!<%/TI)N=P%<3U9PTI)N I3 %<'UTI/'1<
+,ere e2ecution pro-ed or admitted5 "urden to pro-e ac( o& consideration Is on t,e e2ecutant5
7,ic, can "e disc,ar*ed "y preponderance o& circumstances=3ection 11A5 Ne*otia"e Instruments
/ct.=
!ection $$& of the 8e)otiable 'nstruments .ct is mandatory in nature( thou)h it deals *ith a
presumption. . presumption has al*ays a limitation 'n the sense that only in #ery e+ceptional cases( there
*ill be an 'rrebuttable presumption. 't is difficult to say that the presumption in !ection $$& of the
8e)otiable 'nstruments .ct is a presumption a)ainst *hich no e#idence can be adduced in order to ta0e
a*ay the ri)our of the presumption. 'n other *ords( it is a rebuttable presumption but imperati#e in its
terms and so( the presumption under it continues *ith all its ri)our until the contrary is pro#ed. 1he reason
for the presumption is that a ne)otiable instrument passes from hand to hand on endorsement and it *ould
ma0e tradin) #ery difficult and the ne)otiability of the instrument impossible( unless such a presumption
*as made. Passin) of consideration must be presumed in a ne)otiable instrument then alone the instrument
can earn the hall-mar0 of ne)otiability. !uch a presumption has( therefore( to be made. !o the principle 's
embedded as a rule of equity( 6ustice and )ood conscience and it 's said so by Courts e#en *here a
presumption under the .ct as such *as not a#ailable.

When once the Court finds that the defendant has e+ecuted the promissory note( then the burden is
on the defendant to pro#e that there is no consideration. 1rue( the initial burden rests on the plaintiff( *ho
has to pro#e that the promissory note is e+ecuted by the defendant. 'f there is an admission by the
defendant( certainly there is no burden on the plaintiff to pro#e the e+ecution of the promissory note. But( if
the plaintiff dischar)es his burden in re)ard to the e+ecution of the promissory note( then the plaintiff is in
the same position *here the defendant has admitted the e+ecution of the promissory note and the effect and
result 's that the burden to pro#e lac0 of consideration is then *ith the defendant(P
Presumption o& payment o& consideration re"utta"eEE!e&en.. dant ,as ony to pro-e preponderance
o& pro"a"iities t,at consideration did not pass=&u t,en presumption Continued Bunti t,e contrary
Is pro-edC e2paInedEE3ection 11A5 Ne*otia"e Instruments /ct.=
'n the present case( the plaintiff pleaded that the defendant borro*ed a sum of Rs. $<(<<<L- under
one promissory note dt. $-&-$I9A ><2. .-i) and another sum of Rs. D(<<<L- (-+. .-%) on the same day under
another promissory note. 1he plaintiff claimed li0e*ise in the suit notice( -+( .-D( dt. $<-$<-$I9% claimin)
the abo#e sums and another sum of Rs. $(D<<L- said to ha#e been borro*ed earlier. 1he defence *as that no
amounts *ere borro*ed as stated abo#e but that the plaintiff *as a pauper and had no means to lend the
amounts. It *as further contended that the plaintiff and defendant *ere close friends ha#in) 6oint business(
that the defendant *as the financial in#estor and plaintiff *as paid monthly remuneration( that the plaintiffs
parents did not appro#e of the 6ob and( therefore( the plaintiff represented to his parents that his monies
*ere in#ested *ith the defendant and that( therefore( the plaintiff obtained these promissory notes from the
defendant. 1hese notes *ere not supported by any consideration.
!ection $$& of the 8e)otiable 'nstruments .ct insofar as it is material for this discussion states
that Ountil the contrary is pro#edP a presumption shall be made that e#ery ne)otiable instrument *as made
or dra*n for consideration and that e#ery such instrument( *hen it has been accepted( endorsed( ne)otiated
or transferred for consideration.

1. 4artmuthu Kouji4erv. %a'hakrjsjijtaz /I% 1??1 Ier 3? at pp. 405 41.
'n #arraka (akshmfs case($ (supra) the learned Jud)es came to the conclusion that the appellantPs case of
her si)natures bein) ta0en on blan0 papers *as not true but( at the same time( 't *as established that the appellant
*as not in need of money and the plaintiffs case of cash consideration for the pronotes *as not true. But the learned
Jud)es Chinnappa Reddi( J.( (as he then *as) and ..2.C. Reddy. J.( held follo*in) the Bombay rulin) in Tar
4ohammects case(A (supra) decided by Cha)la( C.J. and Bha)*ati( J.( that Muntil it *as pro#ed that there *as no
considerationP the presumption under !ection $$& operated and that unless that *as done( it could not be said that
the Mcontrary *as pro#edP by the defendant. .s the presumption under the section is in fa#our of there bein)
consideration for the promissory note and not that it *as supported by any particular type of consideration( they held
that the presumption pre#ailed-not*ithstandin) the re6ection of the defendantPs story and of the plaintiffs story as
*ell as the suit *as liable to be decreed. 't *as obser#ed that the burden of pro#in) that there *as still( Mno
considerationP continued to be on the shoulders of the defendant.
@ollo*in) the reasonin) )i#en by Wanchoo( C.J. and Caradachariar( J.( and ,ord 2iploc0 in the abo#e cases
as to the meanin) of the *ords Muntil the contrary is pro#edP used in !ection $$& of the 8e)otiable 'nstruments .ct(
this Court holds( on a consideration of !ections %( H( $<$ to $<H of the -#idence .ct that the Court( *hile dealin)
*ith the question as to *hether the contrary( namely the absence of consideration( has been pro#ed by the defendant
shall ha#e to consider not only *hether( it belie#es that consideration does not e+ist( but also *hether it considers
the none+istence of consideration so probable that a reasonable man ou)ht( under the circumstances of the particular
case( to act upon the supposition that the consideration does not e+ist. 1hat is the conclusion *hich this Court comes
to on a consideration of the rele#ant statutory pro#isions.
1he decision of the !upreme Court in Eundan (al #. Custo'ian Bvacuee 1roperty!3 is clear authority for
the proposition that once the defendant sho*s either by direct e#idence or circumstantial e#idence or by use of other
presumptions of la* or fact that the promissory note is not supported by consideration( in the manner stated in the
promissory note or in the manner stated in the suit notice or in the pleadin)( the e#idential burden shifts to the
plaintiff and the le)al burden of the plaintiff is re#i#ed( Le., to pro#e that the promissory note is supported by
consideration and at that sta)e( the presumption of la* co#ered by !ection $$& MdisappearsP and no lon)er subsists.
1his is because the presumption under !ection $ $& raised by the statute initially in fa#our of the plaintiff steps( as it
*ere( into the *itness-bo+ and acts as a substitute for the plaintiffs e#idence. :nce such rebuttal e#idence is )i#en
by the defendant
$. .'R$I9%.P$:%.
A. .'R lIHIBomAD9.
%. .'R $I7$ !c $%$7.
to the satisfaction of the Court! the Court actin) on a preponderance of probabilities and not requirin) an absolute
proof of a ne)ati#e i.e.! absence of all concei#able forms of consideration( the effect of the presumption shiftin) the
initial e#idential burden to the defendant Mdisappears.P

@rom the aforesaid authorities( it may be concluded once the defendant adduces e#idence to the satisfaction
of the Court that on a preponderance of probabilities there is no consideration in the manner pleaded in the plaint or
suit notice or the plaintiffs e#idence( the burden shifts to the plaintiff and the presumption MdisappearsP and does not
haunt the defendant any lon)er.

Ha#in) referred to the method and manner in *hich the presumption under !ection $$& is to be rebutted
and as to ho*( it thereafter MdisappearsP reference may be made to three principles *hich are rele#ant in the conte+t.
1he first one is connected *ith the practical difficulties that beset the defendant for pro#in) a ne)ati#e( namely that
no other concei#able consideration e+ists( 8e)ati#e e#idence is al*ays in some sort circumstantial or indirect( and
the difficulty of pro#in) a ne)ati#e lies 'n disco#erin) a fact or series of facts inconsistent *ith the fact *hich this
Court see0s to dispro#e (;ulson( Philosophy of Proof( And -dition( p. $D% quoted 'n Cross on -#idence( %rd -dn.(
pa)e 9& @n).
'n such situations( a lesser amount of proof than is usually required may a#ail. 'n fact( such e#idence as
renders the e+istence of the ne)ati#e probable may shift the burden on to the other party (Jones( quoted 'n . !ar0ar
on -#idence( $Ath -dition( p. &9<). 1he second principle *hich is rele#ant in the conte+t is the one stated in !ection
$<7 of the -#idence .ct. 1hat section states that *hen any fact is especially *ithin the 0no*Wed)e of any person( the
burden of pro#in) that fact is upon him( 't is #ery )enerally stated that( *here the party *ho does not ha#e the
e#idential burden( such as the plaintiff in this case( possesses positi#e and complete 0no*led)e concernin) the
e+istence of fact *hich the party ha#in) the e#idential burden( such as the defendant in this case( is called upon the
ne)ati#e or has peculiar 0no*led)e or control of e#idence as to such matters( the burden rests on him to produce the
e#idence( the ne)ati#e a#erment bein) ta0en as true unless dispro#ed by the party ha#in) such 0no*led)e or control.
1he difficulty of pro#in) a ne)ati#e only relie#es the party ha#in) the e#idential burden from the necessity of
creatin) a positi#e con#iction entirely by his o*n e#idence so that( *hen he produces such e#idence as 't is in his
po*er to produce( its probati#e effect is enhanced by the silence of the opponent (Corpus Juris( Col. %$. para $$%).
1he third principle that has to be borne 'n mind is the one that *hen both parties ha#e led e#idence( the onus of
proof loses all importance and becomes purely academic. Referrin) to this principle( the !upreme Court stated 'n
Narayan #. 2opal.> as follo*s/
$. .'R $I7< !C $<<.
O1he burden of proof 's of importance only *here by reason of not dischar)in) the burden *hich *as put
upon 't( a party must e#entually fail. Where( ho*e#er( parties ha#e 6oined issue and ha#e led e#idence and the
conflictin) e#idence can be *ei)hed to determine *hich *ay the issue can be decided( the abstract question of
burden of proof becomes academic.N

1hese three principles are 'mportant and ha#e to be borne in mind by the Court *hile decidin) *hether the
initial Me#idential burdenP under !ection $$& of the 8e)otiable 'nstruments .ct has been dischar)ed by the defendant
and the presumption MdisappearedP and *hether the burden has shifted and later *hether the plaintiff has dischar)ed
the Mle)al burdenP after the same *as restored.
Where in a suit on a promissory note! the case of the defendant as to the circumstances under *hich the
promissory note *as e+ecuted is not accepted( it is open to the defendant to pro#e that the case set up by the plaintiff
on the basis of the recitals 'n the promissory note( or the case set up 'n suit notice or in the plaint is not true and
rebut the presumption under !ection $$& by sho*in) a preponderance of probabilities in his fa#our and a)ainst the
plaintiff. He need not lead e#idence on all concei#able modes of consideration for establishin) that the promissory
note is not supported by any consideration *hatsoe#er.
1he *ords Muntil the contrary is pro#edP 'n !ection $$& do not mean that the defendant must necessarily sho* that
the document 's not supported by any form of consideration but the defendant has the option to as0 the Court to
consider the non-e+istence of consideration so probable that a prudent mnou)ht( under the circumstances of the case(
to act upon the supposition that consideration did not e+ist. 1hou)h the e#idential burden is 'nitially placed on the
defendant by #irtue of !ection $$& 't can be rebutted by the defendant by sho*in) a preponderance of probabilities
that such consideration as stated in the pronote( or in the suit notice or 'n the plafnt does not e+ist and once the
presumption is so rebutted( the said presumption MdisappearsP. @or the purpose of rebuttin) the 'nitial e#idential
burden( the defendant can rely on direct e#idence or circumstantial e#idence or on presumptions of la* or fact. :nce
such con#incin) rebuttal e#idence is adduced and accepted by the Court( ha#in) re)ard to all the circumstances of
the case and the preponderance of probabilities( the e#idential burden shifts bac0 to the plaintiff *ho has also the
le)al burden. 1hereafter( the presumption under !ection $$& does not a)ain come to the plaintiffs rescue. :nce both
parties ha#e adduced e#idence( the Court has to consider the same and the burden of proof loses all its importance.
$

Presumption under t,e Ne*otia"e Instruments /ct.=
When once( the e+ecution are either admitted or pro#ed then the presumption arises under the
8e)otiable 'nstruments .ct the promissory notes are supported by consideration( the burden shifts on to the
defendants to pro#e that the promissory notes are not supported by consideration.
$
$. 2. )asuv. Sy'YaseenSatfu''tnFua'r(/l% $I&9.P $%I at pp. $H$( $HA( $H7( $H9( $H&( $HI.
!1."P!
Canceation o& stamps can "e by any means 'n an effectual manner=3ection $A o& 3tamps /ct. =
1he learned Counsel for the And respondent strenuously contended that dra*in) t*o lines across
the stamps is not sufficient cancellation accordin) to la*. !ection $A of the !tamp .ct deals *ith
cancellation. !ection $A(%) of the !tamp .ct reads thus/
O(%) 1he person required by sub-section ($) to cancel an adhesi#e stamp may cancel it by *ritin)
on or across the stamp his name or initials or the name or initials of his firm *ith the true date of his so
*ritin) or in any other effectual manner.N
-#en accordin) to this pro#ision cancellation by *ritin) the si)nature or initials is not the only
*ay of cancellin) the stamp. Cancellation must be done in an effectual manner. Writin) the name or initials
is one such effectual manner 'ndicated in !ection $A(%) of the .ct. 1here could be other effectual *ays 'n
*hich stamps could be cancelled. 1he purpose of cancellation is to see that the stamps are not used a)ain as
is mentioned 'n !ection $A( clauses ($)(a) and (b) of the !tamp .ct( *here it is stated Mcancel the same so
that it cannot be used a)ainN. ,earned Counsel for the second respondent pointed out that *here one or t*o
parallel lines are dra*n across the stamps( it is still possible for somebody to put his si)nature abo#e the
line to ma0e it appear that the stamp *as bein) cancelled for the first time and in such case it cannot be said
to be an effectual cancellation and( therefore( dra*in) a line or t*o 'n that fashion cannot be said to be
effecti#e cancellation. 't is difficult to a)ree *ith this submission. 1he e+pression Oso that it cannot be used
a)ainN only means that it cannot be used a)ain in the normal course *ithout realisin) that the stamp has
already been cancelled. 1he e+pression does not imply that the cancellation must be made in such a *ay as
to ma0e it impossible for any dishonest person to use the same once a)ain fraudulently. 1he test to see if a
stamp has been effectually cancelled is to see *hether an ordinary( honest( la*-abidin) citi5en *ould on
seein) the stamp belie#e that it 's already cancelled and( therefore( refrain from usin) it or *ould belie#e
that it has not already been used and( therefore( *ould proceed to use it once a)ain in the #ie* of the
authorities collected at pa)es $I7 and $I9 of the 'ndian !tamp .ct by E. Erishnamurthy and R.
"athrubutham $I&<( -dn. 1he learned authors refer to #arious decisions in the follo*in) manner/
M:n the other hand( it has been held that the *ords Oso that 't cannot be used a)ainN do not imply
such a de)ree of cancellation as *ould ma0e it impossible for any dishonest person to ma0e thereafter a
fraudulent use of stamp. 1he criterion for determinin) *hether a stamp has been effectually cancelled is
*hether the ordinary conscientious man *ould( on seein) the stamp come to the conclusion that it has been
already used. 1he question 's one that depends on the facts of each case. 1hus cancellation of the stamp by
dra*in) dia)onal lines across 't( their ends e+tendin) to the paper( *ould be sufficient. 2ra*in) lines
across an adhesi#e stamp 's a )ood cancellation pro#ided an intention to cancel 's clear from *hat has been
done. !o also the dra*in) of t*o lines crossin) each other across the face of the stamp. .lso the dra*in) of
t*o parallel lines on the three stamps affi+ed to a promissory note *here a perusal of the note sho*ed that
the intention to cancel *as clear.

Promissory note and Duestion o& correcty stamped.=
1he lo*er Court held that the suit promissory note should be stamped as a bond and bein) a
pronote payable other*ise on demand and not ha#in) been properly stamped( cannot be admitted in
e#idence. :n that #ie*( the petition *as allo*ed. .))rie#ed by the said order( the present ci#il re#ision
petition has been filed before this Court.

. bare readin) of the promissory note *ould clearly sho* that the suit promissory note 's only
payable on demand and that it *ill not come under the definition of .rticle HI (A) of the 'ndian !tamp .ct
and as contended by the re#ision petitioner( for determinin) the issue *hether suit promissory note 's one
payable on demand or other*ise the contents of the promissory note alone ha#e to be loo0ed into and
e+traneous e#idence cannot be let into determine the character of the promissory note.

Under !ection H of the 8e)otiable 'nstruments .ct( a promissory note is an 'nstrument in *ritin)
(not bein) a Ban0 note or a currency note)( containin) an unconditional underta0in)( si)ned by the ma0er(
to pay a certain sum of money only to( or to the order of( a certain person( or to the bearer of the instrument.
'n the present case( no period for demand *as fi+ed under the promissory note. 1herefore( the decisions
relied on and referred to by the Court belo* are not applicable to the facts of the present case. 1he
promissory note in question 's correctly stamped accordin) to the pro#isions contained 'n .rticle HI (a) of
the !tamp .ct.
A

K.A. (ona #. MIs. 2ada Haji ,rahim 5iE an 6 Co.. .'R 1?A1 Eer &7 at pp. ID(I7.
1. Sree Cisalam Chit Funds ,td. #. TV. Kuinar, 11>1??@# 'C 2$? at pp. 2:05 2:1.
Unstamped pronote Is admissi"e.=
1he document is a pronote and *hen the pronote is unstamped( it is 'nadmissible 'n e#idence
under !ection 3$ of the 'ndian !tamp .ct.
When the document is not a promissory note( then such a document can be admissible in e#idence.
1herefore( the trial Court has acted ille)ally and *ith material 'rre)ularity 'n treatin) the document
inadmissible in e#idence for *ant of sufficient stamp and the findin) re)ardin) the nature of the document
to be pronote is set aside.%

$. .'R $I7I!C $A%&.
3. /lert Co+operative Bo.r(k (tC( #. R. 5. Din'sor A,@ Ud.( .'R $I&& Born %DA at p.3$3.
%. 4an$lGal #. ,.RPs of (0 Cho.n'! .'R $IID Ra6 $&I at p. $IA.
H. Choo'o.no.tha Setty #. 2opalachetty! $($II7) BC A%& at p. AH$ (Eant).
/ promissory note ot,er7ise not admissi"e in e-idence &or 7ant o& su&&icient stamps cannot "e
su"seDuenty atered to ma(e It appear to "e admissi"e In e-idence "y addin* stamps.=
't can be said to ha#e been established that a promissory note other*ise not admissible in e#idence
for *ant of sufficient stamps cannot be subsequently altered to ma0e it appear to be admissible in e#idence
by addin) stamps and cancellin) by dra*in) lines. 1he question( therefore( *ill be ho* and *hen the lines
are dra*n and if the lines are dra*n for cancellation at the time of e+ecution of the promissory note( there
can be nothin) a)ainst the plaintiff to hold that the promissory note is not admissible because of the same.
1he e+ecution of the pronote itself beXomes doubtful in #ie* of this suspicious circumstances.
1he promissory note is only mar0ed and it is not e+hibited and. therefore( it cannot be said to ha#e
been admitted in e#idence.
$
1he learned Counsel for the re#ision petitioner submits that he did not dispute that the promissory
note is insufficiently stamped. Ho*e#er( once the document is mar0ed as e+hibit and tendered in e#idence
it is not open to the parties to raise any ob6ections. He relied upon the decision of this Court in 1,.a
Nomsimha Swamy 1atru'u #. Bank of Baro'a!3 to support his contention. 1here cannot be any doubt on the
proposition of
la* set out in the abo#e decision. 1his ratio is rele#ant in support of other document. But in the present case
the document in question bein) a promissory note( the reasonin) )i#en in the abo#e decision is not
applicable. 1he lo*er Court held that it is not disputed that loan is ad#anced simultaneously *ith the
e+ecution of a promissory note and the transact tion forms part of the same action and the plaintiff can sue
only on the promissory note.
1he learned Counsel for the defendant relied on the decision in Bollam )ertkataiah #. ).).%. %e''y!3 *hich
has a direct bearin) upon the facts of the instant case. 'n this decision the 6ud)ment of the @ull Bench of
this Court in (othamasu Sarnasiva %ao #. Tha'warthi Balakotiah!" is follo*ed. 1he learned Principal
2istrict "unsif by relyin) on the 6ud)ment in Bollam )enkataishv. )).%. %e''y *herein it *as held that a
suit based on not duly stamped pronote is not maintainable and dismissed the suit. 't is *ell settled that
*hen the promissory note is sufficiently stamped it could not be loo0ed into for any purpose. 1he @ull
Bench held.

O. plaintiff can lay an action for reco#ery of the amount ad#anced by him basin) on the ori)inal
cause of action *here the suit ne)otiable instrument becomes.inadmissible in e#idence under !ection %D. of
the !tamp .ct pro#ided there is an alle)ation in the plaintiff and proof in e#idence about the fact that the
promissory note did not incorporate all the terms of the contact of loan and that it *as e+ecuted as a
conditional payment or a collateral security. 'f the instrument embodies all the terms of the contract and the
instrument is improperly stamped no suit on the debt *ill lie. 't *ill be barred by !ection I$. -#idence .ct
and !ection %D of the !tamp .ct. 'n such a case *here there is an e+press contract and the document is hit
by the pro#ision of !ection %D( !tamp .ct and !ection I$( -#idence .ct( !ection 9< of the Contract .ct
cannot be in#o0ed on the theories of implied promise money had and recei#ed( quasi contract and 6ust and
reasonable or un6ust enrichment or any other equitable doctrineN.

$. Naranjan Sln$h #. 2ur'ev Sirt$h. $($II9) BC HD at pp. H9. H& (PRH).
A. .'R $I&A.PAHI.
%. .'R $I&D.PA7.
H. .'R $I9% .P %HA.
1hat bein) so( the lo*er Court *as ri)ht 'n not a)reein) *ith the plaintiff on this point.P
1here is absolutely no dispute that pro#iso to !ection %D of the 'ndian !tamp .ct $&II totally prohibits admission of
an unstamped or insufficiently stamped promissory note in e#idence e#en on payment of requisite duty to)ether *ith
penalty thereon.
A
$. *un'uru Setthamrna #. Namana Na$eswara %ao! ' ($II&) BC $97 at p. $99.
A. -okka #o$anna #. .pacl.rasta Chaya'evi! ' ($II&) BC $&7 at p. $&I.
4.3. H)1!<% IN !U< C)U%3<
%. 2untupal. Basavaiczhv. Nalamothu )enkamma! .'R $I79 .P A9D at p. A97.
H. .'R $I7& "ad A7<.
4.3.1 Hoder in due course and ,oder &or coection=!i&&erence= 3ection ?5 Ne*otia"e Instruments /ct.
=
/ holder in due course *ill be entitled to claim better ri)hts than the transferor ce.( any defect in
title of the transferor *ill not affect the ri)hts of the holder 'n due course. 't is only *here the transferee
*ants to claim hi)her ri)hts than the transferor that he must satisfy the requirements of a holder in due
course as laid do*n in !ection I of the 8e)otiable 'nstruments .ct( (e.! for consideration he became the
possessor of the instrument from the payee or endorsee before the amount mentioned 'n 't became payable(
and *ithout ha#in) sufficient cause to belie#e that any defect in the title of the transferor e+isted.
'n the instant case( 't is not the defendantPs contention that the suit amount or any part of it *as
paid to the transferor. 1herefore( the transferor herself *as entitled to reco#er the amount due under the
promissory note that bein) so( the plaintiff-transferee( e#en thou)h be had not parted *ith consideration( is
equally entitled to reco#er that amount. 'f the endorsement is only for collection( and not for consideration(
there *as no need for the plaintiff to ha#e pro#ed that he parted *ith consideration.
%
1e*a representati-es o& t,e endorsee can sue=3ections A and $05 Ne*otia"e Instruments /ct.=
'n *arupiah 1alukki A'ie'@ #. 1eriasamt" the Court said/ 't *as contended in defence that as the
note did not pass to ) for consideration and )s authority ceased on "s death( he could not reco#er the
money *ithout ha#in) obtained ,etters of .dministration or a succession certificate. 1he learned Jud)e
repellin) such a contention held( that the note bein) ne)otiable( its indorsement follo*ed by deli#ery
passed the property 'n it to ) and he became holder of it and that( therefore( the payment had to be made to
him. 1o a similar effect is the ratio in the decision in 4othire''y #. 1othi %e''(0 1here( Chandra Reddy(
C.J.( held a similar #ie* and e+pressed 'n these terms/

O$<. 1hus( payment to the holder of the 'nstrument( *hich 'ncludes an endorsee for collection(
)i#es dischar)e to the ma0er of the promissory note. 1hat bein) the real position( in my #ie*( the ri)ht
based on the endorsement sur#i#es not*ithstandin) the death of the endorser and the endorsee could
continue the suit. 1he endorsement ha#in) been made for a specific purpose( namely( collec tion of the
amount( it *ill be #alid till that purpose is ser#ed.N
-#en other*ise( the sections 'n the 8e)otiable 'nstruments .ct *hich relate to the sub6ect-matter
under consideration( are too clear to sustain the contention of the learned Counsel for the contestin)
petitioners that the ori)inal petitioner in this ci#il re#ision petition did ha#e cause of action to file the suit(
as he. did not*ithstandin) the death of the ori)inal payee or endorsee. !ection & of the 8e)otiable
'nstruments .ct defines a holder of a ne)otiable instrument as follo*s/
O1he holder of a promissory note( bill of e+chan)e or cheque means any person entitled to his o*n
name to the possession thereof and to recei#e or reco#er the amount due 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.N
@rom the definition itself( it is clear that any person( *ho is holdin) a note 'n his name and in his
cust.ody( or possession thereof is a MholderP of such an instrument. !ection D< dealin) *ith the effect of
indorsement pro#ides as follo*s/
OD<. 1he endorsement of a ne)otiable instrument follo*ed by deli#ery transfers to the indorsee the
property therein *ith the ri)ht of further ne)otiation but the indorsement may( by e+press *ords( restrict or
e+clude such ri)ht( or may merely constitute the endorsee an a)ent to indorse the instrument( or to recei#e
its contents for the indorsee or for some other specified person.N
1his section itself contemplates that the endorsement may( by e+press *ords constitute the
endorsee as an a)ent to recei#e its contents. 1herefore( the ori)inal special pro#isions of the 8e)otiable
'nstruments .ct( *hich enables an endorsee to sue on the instrument on the foot of such an endorsement(
create an e+ception to the ordinary la* of a)ency and the principle adumbrated 'n the 'ndian Contract .ct
insofar as a)ency( in )eneral 's concerned and 'n particular !ection A<$ thereto( cannot be telescoped 'nto
this enactment so as to interpret its lntendment.

$. .'R$I7%.P%H%.
4.3.2. Pronote=<ndorsement in &a-our o& / &or consideration=<2ecutor and ori*ina creditor cannot deny
e2ecution and endorsement=3ections 1205 121 and 1225 Ne*otia"e Instruments /ct.=
.ccordin) to the plainiff -+t. .l pronote *as e+ecuted by first defendant in fa#our of the second
defendant on $-%-$I9& and the second defendant on $7-$<-$I9I endorsed it in fa#our of the plaintiff after
acceptin) consideration. Both the defendants disputed the )enuineness of -+t. .l pronote. But( it is
pertinent to note that the second defendant *ho alle)edly endorsed the pronote in fa#our of the plaintiff did
not adduce any e#idence 'n support of his contention. He filed a *ritten statement denyin) the alle)ed
endorsement in fa#our of the plaintiff. He contended that -+t. .l pronote *as concocted by the plaintiff 'n
collusion *ith the first defendant. 1he proceedin)s in this case sho* that the second defendant after filin)
the *ritten statement did not participate in the trial of the suit. 1he plaintiff e+amined t*o *ritnesses. 1he
plaintiff as PW $ deposed that he paid #alid consideration to the second defendant and )ot endorsed -+t. .l
pronote. PW A deposed that he *rote -+t. .l(a) and( thus( -+t. .$(a) is pro#ed. Both PWs $ and A *ere not
cross-e+amined by the second defendant. !o( the e#idence of these t*o *itnesses re)ardin) -+t. .$(a)
endorsement 's unchallen)ed. 1he lo*er appellate Court found fault *ith the plaintiff for not e+aminin)
second defendant as a *itness of the plaintiff. 't is true that in a case *here the indorser supported the
indorsee re)ardin) the e+ecution of the pronote( his e#idence *ould be material. But( this is a case *here
the 'ndorser specifically alle)ed that the pronote is a concocted document and that he did not endorse it in
fa#our of the plaintiff. 1herefore( the non- e+amination of the second defendant( the indorser( 's of no
si)nificance.
$
Hoder in due course=Hoder s,oud act in *ood faith "ut need not enDuire into the transactions
7,ic, resuted in t,e issuance o& ne*otia"e instrument=3ections ? and 11A>*#5 Ne*otia"e
Instruments /ct.=
1he plaintiff Catholic !yrian Ban0 ,td.( is a Ban0in) Company incorporated under the 'ndian
Companies .ct ha#in) its Head :ffice in 1richur and branches at #arious places. 1he first defendant firm
consistin) of defendant 8os. A to H as partners *ho are brothers( *as doin) business in 1ellicherry 'n hill
products and they *ere allo*ed credit facilities by the plaintiff-Ban0( li0e accommodation by *ay of Hundi
discount( 0ey loan and cheque purchases up to a limit of Rs. %D.<<(<<<L-. . promissory note *as e+ecuted
by defendant 8os. A to H in fa#our of their mother( the Dth defendant for an amount of Rs. %D(<<(<<<L- and
the same *as endorsed in fa#our of the plaintiff as security for the facilities )ranted to the first defendant
firm. 1he Dth defendant had also desposited the title deeds of her properties sho*n in the plaint schedule to
create an equitable mort)a)e to secure the repayment of the amounts due from first defendant. 1he first
defendant firm had dealin)s *ith 7th defendant as *ell as others. 1he first defendant firm *as supplyin)
)oods consistin) of hill products and used to recei#e payments by *ay of cheques. :n A7-$<- $I9H( 7th
defendant dre* a cheque on the Union Ban0 of 'ndia( Pai)hat Branch in fa#our of the first defendant
payable to the first defendant firm on order a sum of Rs. A(<<(<<<L- 1he cheque *as purchased by the
plaintiff- Ban0 from the first defendant on %<-$<-$I9H on #alid consideration and proceeds *ere credited
by the Ban0 to the account of the first defendant( !imilarly another cheque *as dra*n on %$-$<-$I9H and
the first defendant endorsed the same to the plaintiff for #alid consideration and the proceeds *ere credited
to the account of the first defendant *ho *ithdre* the amount at #arious dates. 1he plaintiff-Ban0 sent the
cheques for collection but the Union Ban0 of 'ndia returned the same *ith the endorsement Ofull co#er not
recei#edN. 1he defendant 8os. A to D by t*o separate a)reements offered to pay the amounts to the
plaintiff-Ban0 and as per the terms therein they *ere to pay Rs. $(<<<L- per month and the Dth defendant
*as to pay the amount realised by her from the tenants by *ay of rent and they could pay only Rs.
$A(%$%.%D p. 1hereupon after e+chan)e of notices bet*een defendant 8o. 7 and other defendants a suit *as
filed for the reco#ery of the balance amount from defendant 8o. 7 also *ho issued the cheques.
1he trial Court held that the plaintiff is a Mholder in due courseP and as such is entitled to enforce
the liability a)ainst the 7th defendant( *ho is the ma0er of the cheques. 1he trial Court also held that the
defendant 8os. A to H *ere personally liable for the plaint claim and the assets of the first defendant *ould
also be liable if the hypothecation is not sufficient to dischar)e the decree amount.
1he definition ma0es it clear that to be a Mholder in due courseP a person must be a holder for
consideration and the instrument must ha#e been transferred to him before it becomes o#erdue and he must
be a transferee 'n )ood faith and another 'mportant condition 's that the transferee namely the person *ho
for consideration become the possessor of the cheque should not ha#e any reason to belie#e that there *as
any defect 'n the title of the transferor.
'n the 'nstant case( the holder namely defendant 8o. $ made the necessary endorsements 'n the
t*o cheques in fa#our of the plaintiff-Ban0 and the Ban0 endorsed Opayee account credited.N 1he
defendant 8o. $ *ithdre* this amount and there is no dispute about it. 't must also be noted 'n this Yonte+t
that there is no endorsement on the cheque made by the dra*er namely t,e appeant t,at t,e cheques are
not ne)otiable. 'n the absence of the cheques bein) crossed as Onot ne)otiableN nothin) pre#ented the
plaintiff-Ban0 to purchase the cheques for a #aluable consideration and the presumption under !ection
$$&()) comes to his rescue and there is no material *hatsoe#er to sho* that the cheques *ere obtained in
any unla*ful manner or for any unla*ful consideration.

8o* the question is *hether the other requirement of the definition i.e.! OWithout ha#in)
sufficient cause to belie#e that any defect e+isted in the title of the person from *hom he deri#ed his title is
satisfied.
1o appreciate the submission of the learned Counsel it becomes necessary to refer to the #arious
authorities cited by him includin) the te+t boo0s( in the first 'nstance on -n)lish ,a* and then on 'ndian
,a* on the sub6ect. 'n -n)lish ,a*( !ection AI of the Bills of -+chan)e .ct( $&&A defines MHolder in due
courseP. 1he rele#ant part of !ection AI(l)(b) reads thus/

H3;. 5ol'er in 'ue course.T(a) . holder in due course is a holder *ho has ta0en a bill( complete and
re)ular on the face of it( under the follo*in) conditions( namely/
(a) ZZ ZZ ZZ

(b) that he too0 the bill in )ood faith and for #alue( and that at the time the bill *as ne)otiated to him he
had no notice of any defect in the title of the person *ho ne)otiated it.N
!ection I< of this .ct reads as under/

H;9. 2oo' faith.?/ thin) is deemed to be done in )ood faith *ithin the meanin) of this .ct( *here 't is in
fact done honestly( *hether 't 's done ne)li)ently or not.N

1hese pro#isions ha#e been understood and interpreted to mean that the holder should ta0e the bill in )ood
faith and he 's deemed to ha#e acted in )ood faith and if he acts honestly any ne)li)ence *ill not affect his
title(

'n Byles on Bills of -+chan)e( ADth -dn.( pa)e A<7 a passa)e reads thus/

O. *ilful and fraudulent absence of 'nquiry into the circumstances( *hen they are 0no*n to be
such as to in#ite inquiry( *ill (if the 6ury thin0s that the abstinence from 'nquiry arose from a suspicion or
belief that inquiry *ould disclose a #ice in the bills) amount to )eneral or 'mplied notice.N 1here must(
ho*e#er( be somethin) to put the holder on inquiry.N
'n Nelsonv. (o.rholt!0 the defendant recei#ed cheques for #alue dra*n by an e+ecutor in fraud of
the testator. 2ennin)( J.( held that the defendant could not escape liability because he 0ne* or ou)ht to ha#e
0no*n of the e+ecutorPs *ant of authority. 'n Baker #. Barclays Bank (tc(!3 the e+pression OnoticeN
occurrin) 'n !ection AI($)(b) of the Bills of -+chan)e .ct( $&&A 's 'nterpreted to mean actual notice and
there is no question of constructi#e notice.
'n Chitty on Contracts( A7th -c'n.( the learned author states the requirement that must be fulfilled
before a person may be considered a holder 'n due course as under/

$. ($IH&)$EB%%I.
A. ($IDD)A.$$-RD9$.

O@irst( he must ta0e the bill *hen 't is complete and re)ular on 'ts face. !econdly( he must ta0e it
before 't is o#erdue and *ithout notice that 't *as pre#iously dishonoured( if such *as the fact. Eno*led)e
that a bill 's bound to be dishonoured may also be rele#ant. 1hus( a Canadian authority su))ests that a
ho0fer( *ho has ta0en a cheque *ith the 0no*led)e of 'ts ha#in) been countermanded( is not a holder 'n
due course. 1hirdly( he must ta0e it in )ood faith and *ithout ha#in) notice of any defect in the title of the
person *ho ne)otiates the bill to him. 'n particular the title of the person *ho ne)otiates the bill is defecti#e
*hen he obtained the bill or 'ts acceptance by fraud( duress or other unla*ful means( or for an 'lle)al
consideration( or *hen he ne)otiates 't in breach of faith or under circumstances amountin) to fraud.
,astly( a holder in due course must ta0e the bill for #alue i.e.. consideration.N
1he learned author dealin) *ith the presumption of )ood faith has noted in para)raph A9&$ thus/
H1resumption of )ood faith.T-#ery party *hose si)nature appears on a bill is prima facie deemed
to ha#e become a party thereto for #alue. -#ery holder of a bill is prima fa'e! deemed to be a holder 'n due
coUrse( but if the acceptance( 'ssue or subsequent ne)otiation of the bill *as affected *ith fraud( duress or
ille)ality( the burden of proof is shifted( and the holder must pro#e that subsequent to the alle)ed fraud or
ille)ality( #alue *as 'n )ood faith )i#en for the bill. 1hus( once a fraud is pro#ed( the burden of proof is
shifted to the holder *ho must then sho* not only that #alue has been )i#en for the bill( but also that he
too0 the bill 'n )ood faith and *ithout notice of the fraud. 'f the holder can dischar)e this onus he 's a)ain
in the position of a holder in due course.N

1his learned author Chitty in para)raph A99& dealin) *ith the sub6ect M1he Consideration for a
BillP has stated thus
O@or e+ample( 'f a person *hose ban0in) account is o#erdra*n ne)otiates to his Ban0ers a
cheque( dra*n by a third party( to reduce the o#erdraft( the Ban0er becomes a holder for #alue of the
cheque. 1he pre-e+istin) debt of the o#erdraft is a sufficient consideration for the ne)otiation of the cheque
to the Ban0er.N
. consideration of the abo#e passa)es and decisions )oes to sho* that -n)lish la* requires that
the holder in ta0in) the instrument should act in )ood faith and that he had no notice of any defect 'n the
title and if he has acted honestly( he 's deemed to ha#e ated in )ood faith *hether it is ne)li)ently or not.
'n Bhashyam R .di)a on 1he 8e)otiable 'nstruments .ct( $Dth -dn.( at pa)e $9$( the authors
ha#e dealt *ith the position in 'ndian la* and 't is obser#ed that 't *ould be soon that the 'ndian
,e)islature has adopted the older -n)lish la* as laid do*n by .bbott( C.J.( (later ,ord 1enterden) in ;ill #.
Cuitt.0 Relyin) on this passa)e the learned Counsel proceeded to submit that the 'ndian la* is stricter than
-n)lish la* arid requires the person to e+ercise due dili)ence and in this conte+t the 'ndian la* )oes e#en a
step further than -n)lish la* in scrutinisin) the causes *hich )o to ma0e up the belief in the mind of the
transferee. ;illPs case is a case *here a bill of e+chan)e *as stolen durin) the ni)ht( and ta0en to the office
of a discount bro0er early in the follo*in) mornin) by a person *hose features *ere 0no*n( but *hose
name *as un0no*n to the bro0er and the latter bein) satisfied *ith the name of the acceptor( discounted the
bill( accordin) to his usual practice( *ithout ma0in) any enquiry of the person *ho brou)ht it. :n these
facts it *as held that the plaintiff had ta0en the bill under circumstances *hich ou)ht to ha#e e+cited the
suspicion of a prudent and careful man. .bbott( C.J. (later ,ord 1enterden) obser#ed/
M't appears to me to be for the interest of commerce( that no person should ta0e a security of this
0ind from another *ithout usin) reasonable caution. 'f he ta0es such security from a person *hom he
0no*s( and *hom he can find out( no complaint can be made of him. 'n that case he has done all any
person could do. But if it is to be laid do*n as the la* of the land( that a person may ta0e a security of this
0ind from a man of *hom he 0no*s nothin)( and of th*om he ma0es no enquiry at all( 't appears to me
that such a decision *ould be more in6urious to commerce than con#enient for it( by reason of the
encoura)ement it *ould afford to the purloinin)( stealin)( and defraudin) persons of securities of this sort.
1he interest of commerce requires that oria#,rfe and real holders of bills( 0no*n to be such such by those
*ith *hom they are dealin)( should ha#e no difficulties thro*n in their *ay in partin) *ith them. But it is
not for the interest of commerce that any indi#idual should be enabled to dispose of bills or notes *ithout
bein) sub6ect to enquiry.N
'ayey5 F.5 a*reein* 7it, /""ott5 C.F.5 ,o7e-er5 addedJ
O' admit that has been )enerally the case but ' consider it *as parcel of the ona #i'es *hether the
plaintiff had as0ed all those questions *hich( in the ordinary and proper manner in *hich trade is
conducted( a party ou)ht to as0. ' thin0 from the manner 'n *hich my ,ord Chief Justice presented this
case to the consideration of the 6ury( he put 't as bein) part and parcel of the oria#i'es! and it has been so
put in former cases.N
Horoyd5 F.5 ,a-in* a*reed 7it, /""ott5 C.F.5 &urt,er o"ser-ed t,atJ
O1he question *hether a bill or note has been ta0en ona#,'e in#ol#es in it the question *hether it
has been ta0en *ith due caution. 't is a question of fact for the 6ury( under all the circumstances of the case(
*hether a bill has been ta0en ortaf,'e or not/ and *hether due and reasonable caution has been used by
the person ta0in) it. .nd if a bill be dra*n upon parties of respectability capable of ans*erin) it( and
another person discounts 't merely because the acceptance 's )ood( *ithout usin) due caution( and *ithout
inquirin) ho* the holder came by it. 1his Court thin0s that the la* *ill not( under such circumstances(
assist the parties so ta0in) the bill( in reco#erin) the money. 'f the bill be ta0en *ithout usin) due means to
ascertain that it has been honestly come by( the party( so ta0in) on himself the ris0 for )ain must ta0e the
consequence 'f it should turn out that it *as not honestly acquired by the person of *hom he recei#ed it.
Here the person in possession of the bill *as a perfect stran)er to the plaintiff( and he discounted 't( and
made no 'nquiry of *hom the bill had been obtained( or to *hom he *as to apply if the bill should not be
ta0en up by the acceptor. 1hose circumstances tend stron)ly to sho* that the party *ho discounted the bill
did not choose to ma0e inquiry( but supposin) the questions mi)ht not be satisfactorily ans*ered( rather
than refuse to ta0e the bill( too0 the ris0 'n order to )et the profit arisin) from commission and 'nterest.
'n Chalmers on Bills of -+chan)e( $%th -dn.( at pa)e A&% the learned author deals *ith the e+pression
M)ood faithP occurrin) 'n !ection I< of the said .ct and it is stated as under/

HTest of ona fit'es
1he test of orta ficies as re)ards bill transactions has #aried )reatly. Pre#ious to $&A< the la* *as
much as 't no* 's under the .ct( but under the 'nfluence of ,ord 1enterden (.bbott( C.J.( 'n ;ill #. Cuittj
due care and caution *as made the test( and this principle seems to e a'opte' y !ection I of the ,n'ian
Ne$otiale ,ristrwnents /ct.I
1he learned author Parathasarathy in his boo0 MCheques 'n ,a* and Pract'ceP. Hth -dn.( has also
noted this aspect. .t pa)e 9H. a passa)e reads thus/
O1he 'ndian definition 'mposes a more strin)ent condition on the holder 'n due course than does
the -n)lish definition. Under -n)lish la*( he should not ha#e notice of a defect 'n the transferorPs title and
he should ha#e ta0en the instrument 'n )ood faith. Under 'ndian la*( there should be no cause to belie#e
that any such defect e+isted. Hence( it is not sufficient 'f the holder acts 'n )ood faith. He should also
e+ercise due care and caution 'n ta0in) the 'nstrument. Perhaps. the 'ndian definition 's based on ;ill #.
Cubitt.$N
'n %a$hrwji )izpal #. Naran'as 1armanan'as.3 the Bombay Hi)h Court( ho*e#er( held that
ne)li)ence does not affect the title of a person ta0in) the instrument 'n )ood faith for #alue. 't 's obser#ed
thus/

$. $&AH(%)BRCH77
A. ($I<7)&Bom,RIAl.
O1he test of )ood faith 'n such cases is thus / Re)ard to the facts of *hich the ta0er of such 'nstruments had
notice is most material *hether he too0 in )ood faith. 'f there be anythin) *hich e+cites suspicion that there 's
somethin) *ron) in the transaction( the ta0er of the instrument is not actin) in )ood faith if he shuts his eyes to the
facts presented to him and puts the suspicions aside *ithout further 'nquiry.N
't may be mentioned here that there is no reference to ;tlrs case in the abo#e decision. 'n Bhashyam R
.di)a on 1he 8e)otiable 'nstruments .ct( $Dth -dn.( at pa)e $9A( the author ha#in) noticed the ratio in %a$havjf s
case$ obser#ed/
M1he Bombay Hi)h Court quoted the later -n)lish decisions *ith appro#al and applied them to the facts of
the case before them( but the question is not discussed in the li)ht of the *ords of this section( and the decision( is
opposed to the opinion e+pressed by Chalmers in his commentaries on the 'ndian .ct.P
'n -ur$a Shah 4ohrin (al Bankers #. 2overnor 2eneral in Counci,A a di#ision Bench e+amined the
scope of the pro#isions of !ection I of the .ct and held that/
O1he pro#ision that the person must ha#e become possessor of a cheque O*ithout ha#in) sufficient cause to belie#eN
is more fa#ourable to the person *ho claims to ha#e become holder in due course than the *ords Oactin)
ona#,'eI. His claim *ould be defeated only if it is found that there *as sufficient cause for him to belie#e that a
defect e+isted. 'f he fails to pro#e bonaJides or absence of ne)li)ence( it *ould not ne)ati#e his claim. 1here must
be e#idence of positi#e circumstances on account of *hich he ou)ht to ha#e belie#ed that some defect e+isted.N
'n this case also there is no reference to ;illPs case. 1he learned Counsel for the appellant submitted that the
decision 'n %a$hvajis case is in fa#our of the appellant. He( ho*e#er( conceded that the -ur$a !hahPs case is in
fa#our of the respondent Le.. the plaintiff-Ban0. 1his Court may( ho*e#er( note another 6ud)ment of the learned
sin)le Jud)e of the Bombay Hi)h Court in Sun'er'as !obhra6( a f,rm #. (ierty 1ictures! afirm!3 *herein the scope
of !ection I is considered and it is held thus/
O1he rule as laid do*n in !ection I of the 8e)otiable 'nstruments .ct *hich defines Oholder 'n due courseN is
stricter than the rule of -n)lish la* on the sub6ect and a payee or endorsee of a ne)otiable instrument can( under our
la*( prefer a claim to be a holder in due course of the instrument only if he obtained the same *ithout ha#in)
$. $I<7(&)B<m,RIA$.
A. .$R$IDA.$$DI<.
%. .'R $ID7Bom7$&.
sufficient cause to belie#e that any defect e+isted in the title of the person from *hom he deri#ed his title.

. orta ficle holder for #alue *ithout notice is( of course( as already obser#ed( in a different position.N
1he learned sin)le Jud)e has not( ho*e#er( referred to the %a$havfts case. We ha#e already noted that 'n
%a$havfts case reliance *as placed on -n)lish decisions later to the decision in ;Uts case. 1he authors Chalmers(
Bhashyam and .di)a and Parathasarathy ha#e uniformly stated that !ection I of the .ct is based on the ratio 'n
;Uts case. ,earned Counsel appearin) on both sides could not place any other decision directly on the question. 1he
#ie* ta0en by the .llahabad Hi)h Court in -ur$a Shah>s case is more or less 'n accordance *ith the principle laid
do*n in ;ills case.
Ho*e#er( *ith re)ard to the le)al importance of ne)li)ence in appreciatin) the principle of Osufficient
cause to belie#eN a passa)e from ChalmersP boo0 O1he ,a* Relatin) to 8e)otiable 'nstruments in British 'ndiaN Hth
-dn.( may usefully be noted/

O.ll the circumstances of the transactions *hereby the holder became possessed of the instrument ha#e a bearin) on
the question *hether he had Osufficient cause to belie#eN that any defect e+isted. 't is left to the Court to decide( in
any case *here the holder has been ne)li)ent in ta0in) the instrument *ithout close enquiry as to the title of his
transferor( *hether such ne$li$ence is so eCtraor'inary as to lea' to the presumption that the hol'er ha' cause to
elieve that such title was 'efective.I
1his #ie* is more sound and lo)ical. 1he le)al position as e+plained by Chitty may be noted in this conte+t *hich
reads as under/
OWhile the doctrine of constructi#e notice does not apply in the la* of ne)otiable instruments the holder is
not entitled to disre)ard a ORed @la)N *hich has raised his suspicions.N
1his Court( therefore( modifies the #ie* ta0en by the .llahabad Hi)h Court in -ur$a Shah>s case$ to the e+tent that
thou)h the failure to pro#e ona fi'e or absence of ne)li)ence *ould not ne)ati#e the claim of the holder to be a
holder in due course( yet in the circumstances of a )i#en case( if there is patent )ross ne)li)ence on his part *hich
by itself indicates lac0 of due dili)ence( it can ne)ati#e his claim( for he cannot ne)li)ently disre)ard a ORed @la)N
*hich arouses suspicion re)ardin) the title. 'n this #ie* of the matter this Court holds that the decision in %a$hrrvjls
caseA does not lay do*n correct la*. 1his Court a)rees *ith the #ie* ta0en by the .llahabad Hi)h Court *ith abo#e
modification.
@rom the abo#e discussion it emer)es that the 'ndian definition imposes a more strin)ent condition on the holder in
due course than the -n)lish definition and as the learned authors ha#e noted the definition is based on 2ilfs case.$
Under the 'ndian la*( a holder( to be a holder in due course( must not only ha#e acquired the bill( note or cheque for
#aliB.l consideration but should ha#e acquired the cheque *ithout ha#in) sufficient cause to belie#e that any defect
e+isted in the title of the person from *hom he deri#ed his title. 1his condition requires that he should act in )ood
faith and *ith reasonable caution. Ho*e#er( mere failure to pro#e ona#l'e or absence of ne)li)ence on his part
*ould not ne)ati#e his claim. But in a )i#en case it is left to the Court to decide *hether the ne)li)ence on part of
the holder 's so )ross and e+traordinary as to presume that he had sufficient cause to belie#e that such title *as
defecti#e. Ho*e#er( *hen the presumption in his fa#our as pro#ided under !ection $$&()) )ets rebutted under the
circumstances mentioned therein then the burden of pro#in) that he is a holder in due courseP lies upon him. 'n a
)i#en case( the Court( *hile e+aminin) these requirements includin) #alid consideration must also )o into the
question *hether there *as a contract e+press or implied for creditin) the proceeds to the account of the bearer
before recei#in) the same. 1he enquiry re)ardin) the satisfaction of this requirement in#ariably depends upon the
facts and circumstances in each case. 1he *ords O*ithout ha#in) sufficient cause to belie#eP ha#e to be understood
in this bac0)round.
't should( therefore( necessarily be inferred that there is also an implied contract to credit the proceeds of
the cheques in fa#our of defendant 8o. $ to his account before actually recei#in) them. .s a question of fact this
aspect is established by the e#idence on record. 'n such a situation the plaintiff need not ma0e enquiries about the
transactions of supply of )oods etc.( that *ere )oin) on bet*een defendant 8os. $ and 7. -#en if defendant 8o. $
has not supplied the )oods 'n respect of *hich the cheque in question *ere issued by defendant 8o. 7 there *as no
cause at any rate sufficient cause for the plaintiff to doubt the title of defendant 8o. $ nor can it be said that the
plaintiff acted ne)li)ently disre)ardin) MRed @la)P raisin) suspicion. Cie*ed from this bac0)round it cannot be said
that there *as sufficient cause to doubt the title nor there 's scope to infer )ross ne)li)ence on the part of the
plaintiff.
1here is no material *hich amounts to rebuttal of the presumption in his fa#our as pro#ided under !ection
$$&()). :n the other haild( the plaintiff has dischar)ed the necessary burden to the e+tent on him and has pro#ed that
he 's a holder in due course for #alid consideration. 1herefore( this Court holds that he could #alidly maintain an
action a)ainst all the defendants includin) defendant 8o. 7.
A
C,eDue=Hoder In due course=Proo& o&.=
1he first defendant started a metal rollin) mill at Ban)alore. 1he second defendant 's a trader in
metal scraps. 1he plaintiffs and second defendant had se#eral business transactions. @inancial
accommodation *as also bein) pro#ided bet*een them in the matter of pro#idin) stoc0 and arran)in)
finances. .ccordin) to the plaintiffs( the first defendant issued t*o cheques dated $7-H-$I&$( one forRs.
A<(<<<L- and another forRs. DA(<H$L- in fa#our of the second defendant. 1hese cheques *ere endorsed by
the second defendant in fa#our of the plaintiffs for #aluable consideration( the consideration bein) the
ad6ustment of the amounts due from the second defendant to the plaintiffs under the respecti#e accounts.
Ho*e#er( *hen the plaintiffs presented these cheques( they *ere returned by the Ban0. .ccordin) to the
plaintiffs they are the holders in due course and( therefore( entitled to claim the amounts payable under the
t*o cheques. :ne cheque for Rs. DA(<H$L- *as endorsed in fa#our of the first plaintiff and the other cheque
for Rs. A<(<<<L- *as endorsed in fa#our of the second plaintiff. 1he plaint also stated that the second
defendant had sold brass sheet cuttin) scrap to the first defendant( #alue of *hich *as Rs. 9A.<H$. 1he t*o
cheques *ere issued by the first defendant to*ards this amount representin) the #alue of the scrap
purchased by the first defendant from the second defendant.
't is unnecessary to refer to the cheques si)ned by the first defendant( the name of the payee and
the amount in the cheques *ere found in different *ritin)s. 1his should ha#e created suspicion in the mind
of the plaintiffs and the plaintiffs should ha#e held an appropriate enquiry/ this ha#in) been not done by the
plaintiffs( it cannot be held that they *ere holders in due course fallin) *ithin !ection I of the 8e)otiable
'nstruments .ct. 1he trial Court held that !. employed by the first defendant had no authority to issue the
cheques and blan0 cheque lea#es *ere entrusted to him to meet the electricity and other office
establishment bills( includin) the demands of the Commercial 1a+ 2epartment. .ccordin) to the trial
Court( the plaintiffs should ha#e called upon the second defendant to produce the in#oice boo0s to pro#e
that )oods *ere supplied by the second defendant to the first defendant. 1he substance of the reasonin) of
the trial Court *as that the first defendant *as the #ictim of the fraud played upon by his employee and(
therefore( there *as no consideration for the cheques -+s. PH and PD.

1he question to be considered by this Court in this appeal is *hether the plaintiffs *ere the
holders 'n due course.
!o lon) as there is nothin) to e#o0e suspicion in the mind of an indorsee about the )enuineness of
a cheque( he *ill be its holder 'n due course( pro#ided that there *as a consideration for the indorsement.
!ection I of the 8e)otiable 'nstruments .ct reads thus/

H5ol'er in 'ue course.TNH older in due courseN means any person *ho for consideration became the
possessor of a promissory note( bill of e+chan)e or cheque if payable to bearer(

:r the payee or indorsee thereof( if payable to order( before the amount mentioned 'n 't became
payable( and *ithout ha#in) sufficient cause to belie#e that any defect e+isted 'n the title of the person
from *hom he deri#ed his title.N

'f( 'n the instant case( the plaintiffs became the possessors of the cheques for consideration( before
the amount mentioned in the cheques became payable( the plaintiffs could be considered as holders in due
course pro#ided they became the possessors of the cheques *ithout ha#in) sufficient cause to belie#e that
any defect e+isted in the title of the second defendant. 1herefore( the first question 's to find out *hether
any consideration *ent to the And defendant from the plaintiffs for the cheques endorsed in their fa#our and
the second question is *hether there *as any sufficient cause *hich should ha#e made the plaintiffs to
#eriir as to the )enuineness of the title of the second defendant to the cheques.
:n the first question e#en the trial Court has held in fa#our of the plaintiffs. 1he rele#ant accounts
maintained by the plaintiffs in due course of their business *ere mar0ed in e#idence and spo0en to by P.W.
$. 't is clear from -+. P-7 that there *ere prior dealin)s bet*een the plaintiffs and the second defendant.
.mounts *ere bein) ad6usted in the accounts either by receipt of cash or cheques. When -+s. P-H and P-D
*ere 'ndorsed in fa#our of the plaintiffs by the second defendant( in the accounts of the plaintiffs some
amounts *ere due to them by the second defendant. 1he cheques indorsed in fa#our of the plaintiffs *ere
accordin)ly ad6usted to*ards this amount. Ho*e#er( subsequentiy the cheques *ere not honoured by the
Ban0. 1he fact remains that there *ere dealin)s bet*een the plaintiffs and the second defendant and the
outstandin) due to the plaintiffs by the second defendant *ere ad6usted by #irtue of the cheques bein)
indorsed 'n fa#our of the plaintiffs/ 1herefore( it cannot be denied that there *as a #alid consideration for
the endorsement in other *ords the plaintiffs became the holders in due course of the cheques because they
came to possess the cheques for #alid consideration.
$
Trans&er o& pronote "y re*istered document=3ecton A.=
1he plaintiffs point is that by #irtue of the separate re)istered sale-deed he came to be the holder
of the suit promissory note and( therefore( entitled to a decree. 1here appears to be some misconception in
the mind of the Courts belo* that endorsement is the only means by *hich a ne)otiable 'nstrument can be
transferred. 'ndeed Chapter H of the 8e)otiable 'nstruments .ct deals *ith the maimer of the ne)otiation of
these instruments. 'n the ordinary *ay under !ection H& of the .ct( a hand-note *ould be ne)otiated by
endorsement and deli#ery thereof/ a promissory note endorsed 'n blan0 or a promissory note to the holder
or bearer( is ne)otiated 'n simpler fashion( but the 8e)otiable 'nstruments .ct itself doc( i eco)nisc that
ne)otiable instruments may be transferred and for consideration other*ise than by ne)otiation. . transfer of
a promissory note by means of a re)istered instrument is #alid. 1hus( *here the holder of a promissory note
sells his ri)ht( title and 'nterest in the note to another but *ithout endorsin) it( the assi)nee is *ithin the
definition of MholderP inP!ection & of the 8e)otiable 'nstruments .ct quoted abo#e. He can( sue in his o*n
name and he is entitled in his o*n name to possession( nd to recei#e or reco#er the amount due on the
hand-note from the parties thereto. 1he difference bet*een transfer by assi)nment( and a transfer by
endorsement and deli#ery is( that in former case the transfer is sub6ect to all the equities( *hereas in the
latter it is not.
$
BHoder in due courseC and ,oder &or coection=3ection ?5 Ne*otia"e Instruments /ct.
1he trial Court had not understood the difference bet*een a holder for collection and a holder in
due course( *hich is *ell-established in la*. . holder in due course *ill be entitled to claim better ri)hts
than the transferor i.e.! any defect in title of the transferor *ill not affect the ri)hts of the holder in due
course. 't is only *here the transferee *ants to claim hi)her ri)hts than the transferor that he must satisfy
the requirements of a holder in due course as laid do*n in !ection I of the 8e)otiable 'nstruments .ct( i.e.!
for consideration he became the possessor of the instrument from the payee or endorsee before the amount
mentioned in it became payable( and *ithout ha#in) sufficient cause to belie#e that any defect in the title of
the transferor e+isted.A

Pronote and "ond=!istinctIon=-3ection 45 Ne*otia"e Instruments /ct.=
't only ma0es e#ery promissory note comin) under !ect'on " of the 8e)otiable 'nstruments .ct a
ne)otiable 'nstrument for the purposes of that .ct( unless 't contains *ords prohibitin) transfer or
indicatin) an intention that 't shall not be transferable. But if a promissory note fallin) under !ection H of
the 8e)otiable 'nstruments .ct( $&&$( and( therefore( under !ection A(AA) of the 'ndian !tamp .ct( $&II( 's
attested and not made payable to order or bearer 't *ould fall under !ection A(D)(b) of the 'ndian !tamp
.ct( $&II and *ould( therefore( amount to MbondP for the purpose of that .ct. @or the purposes of the 'ndian
!tamp .ct( $&II( a document as it appears on the face of it( has )ot to be considered. '( therefore( hold that
the document( -+. , 's a bond fallin) under !ection A(D)(b) of the 'ndian !tamp .ct( $&II( and not a
promissory note under !ection A(AA) of that .ct.
$
B'ondC=Pron&ssory note=3ections 2 >$# and >23#5 Ne*otIa"e Instruments /ct.=
'f one loo0s to !ection $% of the 8e)otiable 'nstruments .ct( one finds that in the main part of
sub-section ($) a promissory note( bill of e+chan)e or a cheque payable either to order or to bearer is
described as a ne)otiable 'nstrument. !o far as the promissory note and the bill of e+chan)e are concerned(
the definitions themsel#es require that they should be payable to order of the person in *hose fa#our they
are dra*n. 1he e+pression Opayable either to order or to bearerN 'n the main part of sub-section ($) of
!ection $% cannot( therefore( le)itimately refer to a promissory note or a bill or e+chan)e. 1hat e+pression
refers only to the last document( namely( the cheque( *hich is not necessarily payable either to order or to
bearer. 'f this is so( 't appears that the purpose of the -+planation is to treat all pr[missory notes and bills
of e+chan)e as ne)otiable instruments irrespecti#e of the fact *hether the recital to that effect is present on
the face of the document or not unless there are *ords prohibitin) transfer.
A
4.4.2 3UIT3
PromIssory note=1ia"iity o& t,e ma(er=3ection 3$5 3tamps /ct
Promissory notes are of three cate)ories

(i) Promissory notes e+ecuted to e#idence antecedent debts.
(ii) Promissory notes e+ecuted for money lent under it( *here the amount lent and the promissory note
form part and parcel of the same transaction.
(iii) Promissory notes e+ecuted as collateral security.
'n the first cate)ory of cases( *here a promissory note is e+ecuted to e#idence an
antecedent debt( the le)al position is *ell-settled that 'ehors the promissory note the creditor can
sue on the ori)inal consideration.
'n the second cate)ory( of cases( *here the promissory note is e+ecuted for money lent
under it( no further e#idence can be let in if the promissory note is hit by !ection %D( !tamp .ct. 'f
it is the intention of the parties that the debt should be dischar)ed by e+ecution of the promissory
note and the promissory note alone should be treated as constitutin) the contract bet*een the
parties( in other *ords( if there is accord and satisfaction of the debt and the liability is based on
the promissory note( it is clear that the terms of the contract are reduced to a document *ithin the
meanin) of !ection I$( -#idence .ct. 'n such cases( it is not permissible to pro#e the terms of the
contract by any other e#idence e+cept the promissory note and if the promissory note is
inadmissible under !ection %D( !tamp .ct( the suit is bound to fall.
With re)ard to the third of the cate)ories( the promissory note 's independent of and distinct from( the oral
a)reement and the inadmissibility of the document *ill not affect the oral contract *hich may be pro#ed aliunde. 'n
such cases( it is *ell-settled that if the promissory note cannot be pro#ed on account of the bar under !ection %D of
the !tamp .ct and !ection I$ of the -#idence .ct( the creditor can fall bac0 on the ori)inal debt and the passin) of
the consideration thereunder( because thou)h the security falls( the debt remains and !ection I$ of the -#idence .ct
does not come in the *ay. -#en *here the pronote 's e+ecuted simultaneously *ith the ad#ance of loan it 's open to
the party to pro#e that the promissory note *as not re)arded as substitutin) the contract( but only ta0en by *ay of
collateral security. 1he question *hether it *as intended by the parties to reduce the terms of the contract into the
form of a promissory note or *hether the promissory note *as ta0en by *ay of collateral security has to be decided
*ith re)ard to the pleadin) and proof in each case.
'n Chitty on Contracts (1*enty-third -dition)( Colume ' dealin) *ith Opayment by ne)otiable instrumentP(
it 's pointed out in para $$&H at pa)e D7< that Oapart from e+press a)reement( a creditor 's not bound to accept
payment in any *ay e+cept cash( (e.! le)al tender. 'f( ho*e#er( he accepts a ne)otiable instrument( such as a bill of
e+chan)e( promissory note or cheque( it is a questionP of fact dependin) on the intention of the parties( *hether it is
ta0en in absolute satisfaction of the debt or only in conditional satisfaction.N
1his Court *ill no* deal *ith the de#elopment of case-la* in the #arious Hi)h Courts on this topic.
1he earliest case( *hich has been frequently referred to in the later decisions( is Sheikh /kar #. Sheikh
*han!0 ;arth C.J. enunciated t*o propositions
O($) When a cause of action for money is once complete in itself( *hether for )oods sold or for money lent( or
for any other claim( and the debtor( then )i#es a bill or note to the creditor for payment of the money at
future time( the creditor( if the bill or note is not paid at maturity( may al*ays( as a rule( sue for the ori)inal
consideration( pro#ided that he has not endorsed or lost or parted *ith the bill or note. under such
circumstances as to ma0e the debtor liable upon it to some third person. 'n such cases the bill or note is sai
to be ta0en by the creditor on account of the debt and if it is not paid at maturity( the creditor may disre)ard
the bill or note and sue for the ori)inal consideration.
(A) But *hen the ori)inal cause of action is the bill or note itself( and does note e+ist independently of it( as for
instance *hen( in consideration of / depositin) money *ith B. B contracts by a promissory note to repay it
*ith interest at si+ monthsP date( here there is no cause of action for money lent( or other*ise than upon the
note 'tself( because the deposit is made upon the terms contained in the note and no other. 'n such a case(
the note is the only contract bet*een the parties( and if for *ant of a proper stamp or some other reason the
note is not admissible in e#idence( the creditor must lose his money.N
'n !ri ,swar Sri'iuir #ieu Thakw+ #. #ahor (al 4ukhopa'iuja!> a 2i#ision Bench held as follo*s
'n our opinion( the true position is that *here A lends money to B, A can al*ays sue B for the
money as for money lent( *hether there is a promissory note e+ecuted contemporaneously *ith the loan or
at any time thereafter on account of 't. .s bet*een an actual lender and an actual borro*er( a promissory
note can ne#er be anythin) but collateral security( and the lender can( therefore( al*ays sue on the ori)inal
consideration( disre)ardin) the security. 1he promissory note in such a case( containin) as 't does an
e+press promise to repay( cannot *ipe out the promise to repay *hich is implied in the loan itself. 1here
can be no question of any mer)er of the ori)inal consideration in the promissory note so as to ma0e the
promissory note the only a#ailable cause of action.N
1he .llahabad Hi)h Court 'n (akshmi Narain #. 4t. /pama -evz!3 summarises the le)al position
in the follo*in) *ords/
OWhen a promissory note is not ta0en 'n dischar)e of an oral contract of loan but 's ta0en only by
*ay of conditional paymerit or collateral security( as 't *ill be presumed to ha#e been so ta0en unless there
's a contract to the contrary !ection I$ has no application to the case and the terms of the ori)inal contract
or loan can be pro#ed if the promissory note is not admissible 'n e#idence or for any other reason cannot be
pro#ed. 1he facts that the promissory note *as e+ecuted simultaneously *ith the ad#ance of the loan or that
the loan *as ad#anced on the basis of the promissory note or that the promissory note contained all the
tenns of the contract of loan are all 'mmaterial( pro#ided only that the promissory note is not in absolute
dischar)e of the ori)inal contract of loan.
1he #ie* e+pressed by the .llahabad Hi)h Court in the case cited abo#e *as relied upon by this
Court 'n the case of Chan'ra Sekhar 4is hra #. 2oin'a Cho!n'ra -as@ *herein <. E. "isra( J. (as he then
*as) quoted the abo#e passa)e as layin) do*n the correct la* and enunciated the follo*in) proposition.
O1he consideration of the promissory note may b a complete dischar)e or satisfaction of a loan.
1his occurs *hen the contract bet*een the parties 's that the debtor *ould not be liable if the promissory
note could not be enforced. 1he instrument( 'n that case( is ta0en as a substitute of the liability. 'f the
instrument becomes inadmissible in e#idence( the liability cannot be other*ise enforced. 1he acceptance of
the promissory note operates as accord and satisfaction of the debt or the liability. 'llustration (b) to !ection
I$( -#idence .ct co#ers the case of complete dischar)e of satisfaction of the loan.
Promissory note mi)ht be e+ecuted in respect of a consideration *hich constitutes a pre-e+istin)
debt or past liability. 'n such cases( it ordinarily operates as a conditional dischar)e or payment of the loan
or as a collateral security. Conditional dischar)e or payment of loan implies that the plaintiffs remedy for
reco#ery of loan for the time bein) is suspended and his ri)ht to sue is re#i#ed if the instrument turns out to
be *orthless or is not dischar)ed by payment 'n due course. 1he antecedent liability 's not e+tin)uished on
the e+clusion of the promissory note. 't remains suspended and becomes actionable on the inadmissibility
of the promissory note.
Whether a promissory note )i#en by a debtor to a creditor operates one *ay or the other is a
question of fact *hich falls to be determined on e#idence 'n each case. .uthorities a)reeds that 'n respect
of a pronote for pre-e+istin) loan or liability( 'n the absence of all e#idence( the presumption is that it
operates as a conditional payment only. 1he same principle *ould apply to a case of contemporaneous loan.
'n other *ords( if the a)reement bet*een the parties in respect of a contemporaneous loan is that the loan
*ould not be independently actionable( 'f the promissory note becomes inadmissible( no suit on the ori)inal
cause of action *ould lie. 'n other cases the claim on the ori)inal cause of action can succeed.N
'n Sarjoo 1ci #. Sm( %ampyari -e(3 a 2i#ision Bench consistin) of Ramas*amy and !ar6oo
Prasad( JJ.( held as follo*s/
When a promissory note is )i#en by the borro*er to the lender in connection *ith the loan either
at the time *hen the loan is contracted or after*ards the promissory note may be re)arded as )i#en either
as collateral security or as conditional payment. 1he fact that the e+ecution of the promissory note is
contemporaneous *ith the borro*in) cannot e+clude the possibility of the instrument ha#in) been )i#en as
collateral securi# or by *ay of conditional payment. 1he question depends in each case on the intention of
the parties. 'n the former case the lender is entitled to sue upon the ori)inal consideration independently of
the security and *ithout re)ard to any ri)hts he may possess under the ne)otiable instrument. But if the
promissory note or other ne)otiable instrument 's treated as conditional payment of the loan the cause of
the action on the ori)inal consideration 's suspended durin) the currency of the ne)otiable instrument. But
the cause of action to reco#er the amount of the debt re#i#es if the ne)otiable 'nstrument is dishonoured or
the ri)hts thereunder are not enforceable. :n the contrary the cause of action on the ori)inal consideration
is e+tin)uished *hen the amount due under the ne)otiable instrument is paid or if the lender by ne)otiatin)
the instrument or by laches or other*ise has made the bill his o*n and thus accepted the ne)otiable
instrument in accord and satisfaction of the borro*erPs liability on the ori)inal consideration
1he matter *as considered by a @ull Bench of the "adras Hi)h Court in 1erumal Chettiar #.
*amakshj/mmaj> and the ma6ority of the Jud)es held/
O'f the promissory note embodies all the terms of the contract and the 'nstrument 's 'mproperly
stamped( no suit on the debt *ill lie. !ection I$( -#idence .ct( and !ection %D( !tamp .ct( bar the *ay. But
'f it does not embody all the terms of the contract( the true nature of the transaction can be pro#ed and
*here an 'nstrument has been )i#en as collateral security or by *ay of conditional payment( a suit on the
debt *ill lie. 1he fact that the e+ecution of the promissory note is contemporaneous *ith the borro*in)
cannot e+clude the possibility of the instrument ha#in) been )i#en as collateral security or by *ay of
conditional payment. Whethr a suit lies on the debt apart from the instrument( therefore( depends on the
circumstances under *hich the 'nstrument *as e+ecuted
1his decision *as follo*ed 'n a recent decision of the "adras Hi)h Court in the case of &tnn of
Shoinicil an' Co. #. %aja$opala Chettiar.
3
. @ull Bench of the .ndhra Pradesh Hi)h Court consistin) of se#en Jud)es in Samasj %ao #. T.
Balakotiak3 upheld the #ie* e+pressed in .'R $I%& "ad 9&D (@B).
'n /naj+>a 8am6eo #. 1un'aljk Tuicaram!" a 2i#ision Bench enunciated the la* as follo*s/
M'n e#ery case 't becomes a question of fact *hether the promissory note *as 'ntended to
constitute the contract or ser#e some collateral purpose. 'n the former case !ection I$( -#idence .ct *ould
preclude proof of the contract other*ise than by the document itself. 'f it is inadmissible for any reason( the
contract cannot be pro#ed by any e+traneous oral e#idence 'n the latter case the promissory note is
independent of and distinct from the oral a)reement and the inadmissibility of the document *ill not affect
the oral contract *hich may be pro#ed aliunde.N
'n Brij %a# #. %aja %ain!0 the Court held as follo*s/
O1he trend of authorities( therefore( leads to this principle that in a contemporaneous promissory
note *ith loan there is a presumption of conditional payment. 1he fact that the loan and the promissory
note are contemporaneous does not rule out the payee from pro#in) the e+istence of an obli)ation to pay
the amount ad#anced as a loan. 't may also be obser#ed that merely because the ad#ancin) of the loan arid
the e+ecution of the promissory note are contemporaneous this circumstances does not necessarily ne)ati#e
the inference that the promissory note *as e+ecuted as a collateral security or by *ay of conditional
payment and it is clear that 'f a promissory note has been )i#en by *ay of collateral security or conditional
payment a suit *ould lie on the debt apart from the promissory note.N
'n 4anik (al # -hiren'.ra Chnn'ra.3 't *as held that unless there are circumstances or e#idence
to sho* the contrary( a promissory note is al*ays )i#en as a conditional payment and hence a suit on the
debt *ould lie.
'n 2art$arain #. *eshriva -eo.3 the Court accepted the principle of an implied contract 'n e#ery
loan. 'n a later decision in Champalc' #. Sali$ram!" the Court held that *here a promissory note is not
pro#ed to ha#e been )i#en in absolute dischar)e of a debt it can be treated as a conditional payment of the
debt and a suit on the debt *ould lie.
'n *rishnaji Narayan #. %a#mal 4anikchanc(8 the Court held that there *as an implied contract
'n e#ery loan *hich can be pro#ed. 1his decision *as follo*ed in the case of Sornahai #. *alyanha(
=

'n Narainclas #. #assomal!J 't *as held as follo*s/
1he question *hether a loan *as )i#en and ta0en( can 'n certain cases( such as those of collateral security(
be distin)uished from the question of the terms of the loan and of its repayment. Where 't can be so distin)uished( 't
has been held by the Hi)h Courts of Calcutta( Bombay and .llahabad that( e#en 'f the document embodyin) the
terms 's 'nadmissible( the lender may fall bac0 and sue upon the loan itself and pro#e it by other e#idence. .nd in
such a case to quote the *ord of Patheram( C.J.( 1here can be no doubt that an implied contract to repay money lent
al*ays arises from the fact that the money is lentP.N
$. .'R $ID9 Hyd %D.
A. .'R $ID91r$ pA&.
%. .'R $I7:RaJ':.
H. .'R $I7$ Ra6 A%D.
D. ($I<<) ',R AH Born %7<.
7. .'R $I%& Born A&7.
9. .'R $IA$ !ind &:.
't *ould( thus( appear that in a cateria of authorities the princi$y' has been *ell reco)nised that e#ery loan
carries *ith it a contract to re-pay( and if a promissory note e+ecuted by *ay of collateral security cannot be
accepted in e#idence for some reason or other( there 's nothin) in la* to pre#ent the plaintiff from $ivin$ other
e#idence as re)ards the loan and that if he can satls$r the Court as re)ards the truth of his #ersion( there 's no reason
*hy he should not be able to obtain a decree in his fa#our.

T,e day &rom 7,ic, period ,as to "e rec(oned s,a "e e2cuded
1here 's no dispute that the suit promissory note 's dated I-A-$I97 and on the date of e+ecution of
the pronote( .ct $DL97 *as in force *hich barred the filin) of the suit from $D-$- $I97 to $H-$-$I99. 1here
*as a subsequent 2ebt Relief .ct %L99 *hich *as in force from
$D-$-$I99 to $H-9-$I99 and it *as follo*ed by another .ct $L99 *hich *as 'n force from $D-9-$I99 to $H-
$-$I9&. 1here *as also another .ct AL9& *hich *as 'n force from $D-$-$I9& to $H-9-$I9& barrin) the
filin$ of the suit for money. 1herefore( it *ould not ha#e been open to the plaintiff to file the suit till $H-9-
$I9& as the filin) of money claim *as barred till $H-9-$I9&. 1he suit *as filed on $D-9-$I&$. 1he
pro#isions of !ection $A of the ,imitation .ct( $I7% postulate e+clusion of certain time 'n le)al
proceedin)s and it pro#ides that in computin) the period of limitation for suit( appeal or application( the
day from *hich such period has to be rec0oned shall be e+cluded. 1here is no dispute that !ection $A of the
,imitation .ct applies to the facts of the case and if !ection $A is applied( the day on *hich the promissory
note *as e+ecuted has to be e+cluded and 'f that day is e+cluded( the suit fl'ed on $D-9- $I&$ is *ithin
time. 1he abo#e position is *ell-settled by an earlier decision of this Court in 2anapati #. Sithararncj!3
*herein it *as held that the period of limitation be)ins to run only from that date *hich must be e+cluded
from the computation under !ection $A of the ,imitation .ct (KC of $&99) (correspondin) to !ection $A of
the ,imitation .ct( $I7%).
Bombay Hi)h Court in the case of )in.ayak #. *asaa(3 has also ta0en the same #ie* that the
first day on *hich the pronote *as e+ecuted has to be e+cluded for the purpose of computin) the period of
limitation of three years. 1he abo#e decision of this Court as *ell as the decision of Bombay Hi)h Court
ma0es 't clear that the date on *hich the promissory note *as e+ecuted has to be e+cluded and if that is
e+cluded( the suit filed on $D-9-$I&$ is *ell *ithin the time prescribed in the ,imitation .ct and both the
Courts belo* ha#e come to the correct conclusion in holdin) that the suit *as in time.
$
3uit on promissory note e2ecuted In ieu o& pre-ious transactons=Promssorynote not admissi"e in
e-idence=Painti&& cannot caim decree on t,e "asis o& pre-ious transactions=)rder VU5 %ue @5
C.P.C.=
1here cannot be any doubt that if the transaction of loan is anterior to and 'ndependent of the
e+ecution of the promissory note( the creditor is entitled to fall bac0 on the ori)inal consideration 'n the
e#ent of the promissory note bein) found inadmissible in e#idence for the reason that promissory note is
not stamped or insufficiently stamped or that there is failure to cancel stamps. 1his question *as considered
by a 2i#ision Bench of this Court in !affta *lmthoon #. *unharnu.3 1his Court said/
O't is clear that the promissory note had been e+ecuted by $!t defendant only in ac0no*led)ment
of the loan that had already been ad#anced to him by the plaintiff( thereby ma0in) it clear that the
transaction of loan *as anterior to and independent of the e+ecution of the promissory note. 1he le)al
position is *ell established that in such c'rcuristances the creditor is entitled to maintain a suit for reco#ery
of the debt based on the ori)inal contract of loan in case the promissory note 's found to be defecti#e in any
respect.N
%
<ndorsee o& a ne*otia"e Instrument >promissory note in t,is
C case# can sue one 7,o is not a party to t,e instrument=3ection 5, Ne*otia"e Instruments /ct. =
. e+ecuted a promissory note in fa#our of 1s father *ho endorsed it in fa#our of 1. @ather died
lea#in) 1 and his three brothers( in *hose fa#our he made a *ill bequeathin) all his property to them. 1
them made an enforcement in the promissory note in his and
his three brothersP fa#our. !uit *as filed by 1 a)ainst / and his minor
sons as also a)ainst official Recei#er. Plea of the sons *as that since they
*ere not parties to the instrument and the debt *as not for le)al necessity(
they *ere not liable. Plea *as also ta0en that the suit *as not maintain abl a)ainst / as the lea#e of the
insol#ency Court to sue / *as not ta0en. 1he Court held that as the sons *ere not e+ecutants of the
pronote( they *ere not liable.
1he Court said / 1he only question that *ill ha#e to be decided is *hether the debt e#idenced by
-+. .% can be enforced by *ay of suit not
only a)ainst the $st defendant( *ho is the sole e+ecutant( but also a)ainst
his sons *ho are non e+ecutants. 't is useful to recapitulate as to ho* the
t*o Courts dealt *ith this question. 1he trial Court *as of the opinion
that the ori)inal endorsement e#idenced by -+. .% is merely a transfer
endorsement for collection of the\ debt due under the promissory note and does not transfer the ori)inal
debt incurred by the $st defendant. By the time the re-endorsement too0 place under -+. .H( the ori)inal
payee died and so there *as no re-endorsement 'n his favour. Consequently( the trial Court felt that *hen
the endorsee for collection re-endorsed the promissory note to the heirs of the ori)inal payee( no suit on the
foot of the promissory note can be filed a)ainst the sons of the e+ecutant *ho did not 6oin 'n the e+ecution
of the promissory note. 1he #ie* of the appellate Court( ho*e#er( 's different. 1hat Court appears to ha#e
been under the 'mpression that the debt e#idenced by .A itself *as transferred. 'n other *ords there *as an
assi)nment of the debt by the ori)inal payee to the plaintiff. Consequently the *ill by the payee could not
)o#ern this asset( because it did not form part of his estate. 1he re-endorsement (-+. .-H) *as only in
fa#our of the four !ons of the payee and *as not 'n fa#our of all the heirs. !uch an endorsement cannot be(
'n la*( an endorsement in fa#our of the ori)inal payee *ith the result that no suit can be filed a)ainst the
non-e+ecutants.
$. *. %arnakrishna (o.n'a *athir #. Narayanswainy! .'R 1??A 9ad 20$ at p.A<7.
A. $I99Eer,1HH&.
%. M1P. Chan'.ri #. *arnrath *anarakutty! .'R 1??0 Ier 122 at p. 123.
't 's a fundamental principle of the la* relatin) to ne)otiable instruments that no one *hose name
does not appear 'n the 'nstrument can be held liable thereon( and there is no pri#ity of contract bet*een the
endorsee arid the ma0er or acceptor. 1herefore( the ri)ht of the endorsee of the promissory note 's limited
to his remedy a)ainst the e+ecutant of the note. Ho*e#er( 'f the endorsement is so *orded as to transfer the
debt as *ell as the stamp la* is complied *ith( the endorsee can sue the non- e+ecutant coparceners on the
)round of their liability under the Hindu la*( 'f the debt 's not transferred arid the stamp la* is not
complied *ith( an endorsee cannot sue the non-e+ecutant coparceners 1his is the position *ell-settled by
the @ull Bench decision of the "adras Hi)h Court in 4aruthojnuthu #. *a'ir Bacisha %owther.
0
)ne o& t,e ,eirs o& ,oder o& a pronote cannot sue aone on t,e )round o& arran*emente0 @A5
Ne*otIa"e Instruments /ct5EE
'n Sin$heshwar 4arwial #. Smt. 2ita -eu(3 the Court said / .dmittedly in this case the handnote
in question 's not indorseci in fa#our of the plaintiff nor does the recital in any *ay indicate the intention of
the creditor for the payment of the ultimate dues by the debtor to the plaintiff. 1he term OHolderN has been
defined in !ection & of the ne)otiable 'nstruments .ct( accordin) to *hich the holder of a promissory note(
inter alio.! means a person entitled in his o*n name to the possession thereof and to recei#e or reco#er the
amount due thereon from the parties thereto. .dmittedly( therefore( the plaintiff does not ans*er any of the
descript6ons mentioned abo#e and the defendant *as not bound to ma0e the payment to her of the dues in
question and as such the plaintiff has no ri)ht to institute the suit( 't 's not a case either of any transfer of
this debt or claim *hich under the pro#isions of the 1ransfer of Property .ct *ould be an Oactionable
claimN by the father to the plaintiff. 'n #ie* of the pro#isions of !ection $%< of the 1ransfer of Property .ct
the transfer of an actionable claim has to be effected only by the e+ecution of an 'nstrument 'n *ritin)
si)ned by the transferor or his duly authorised a)ent and only thereafter the ri)hts and remedies of the
transferor is to #est 'n the transferee. 1he learned .dditional !ubordinate Jud)e( therefore( *as not ri)ht in
referrin) to any other mode of supposed arran)ement by the father of the plaintiff and the different
members of the family *hich did not ans*er this requirement of la*. Reference may be made to a decision
of the Calcutta Hi)h Court in 5arkishore Barua #. ;ura 4ia Chow'hry.> .s the pro#isions of the
enactments referred to abo#e themsel#es are clear( 't is not necessary to cite any further authority in support
of my #ie*s.
Promissory note=+,ere promissory note Is e2ecuted "y se- era promissors5 eac, one is ia"e e-en i&
consideration Is *i-en to one o& t,em=3ection 45 Ne*otia"e Instruments /ct=3ections 12@ and 12A5
Contract /ct.=
1he suit *as filed a)ainst defendant 8os. $ and A( *ho are no other than father and son
respecti#ely( for the reco#ery of a sum of Rs. %(<&(HDA.9H p. 1he basis of the suit( as stated in the plaint(
*as that the defendants are .b0arl contractors( and the first defendant J approached the pihintiff- Ban0 for
certain facilities for the purpose of the .b0arl contract. 1he plaintiff-Ban0 sanctioned and paid in the first
in stanc a sum of Rs. $(7D(<<<L- *hich is to be paid *ith interest at 7V per annum o#er the Ban0 rate of
interest *ith a minimum of $DV per annum. @irst defendant deposited title-deeds in respect of the
immo#able property situated at Hyderabad *ith the laintiff-Ban0 on $&-I-$I97 *ithan intention to create a
mort)a)e( securin) the payment of the loan
amount. !ubsequently( a memorandum statin) that the title deeds *ere deposited *ith the Ban0 at an
anterior date *as e+ecuted on A%-I-$I97. 't *as alle)ed in the plaint that defendant 8os. $ and A also
e+ecuted a promissory note a)reein) to repay the loan amount of Rs. $(7D(<<<L- *ith
interest as mentioned abo#e. !ubsequently( $st defendant( on his request *as )ranted another loan amount
of Rs. %$(D<<L- on the same terms and conditions for *hich both the defendants e+ecuted another
promissory note on AI-I-$I97. 'n spite of repeated reminders( the loan amount *as
not repaid and the account *as not re)ularised. 't *as held that the second defendant *as also personally
liable to dischar)e the entire amount payable to the plaintiff-Ban0 'n #ie* of the fact that he e+ecuted t*o
promissory notes.
A
3uit on Hundi maintaina"e a*ainst acceptor o& t,e Hundi aone=3ection 325 Ne*otia"e Instruments
/ct.=
Under pro#isions of the 8e)otiable 'nstruments .ct( the defendants as acceptors of the suit bill of
e+chan)e are liable thereunder as principal debtors and as such(
the suit filed merely a)ainst the acceptors of the suit bill of e+chan)e is maintainable 'n la* e#en thou)h a
separate suit has been filed by the plaintiffs a)ainst the dra*ers of the suit bill of e+chan)e on the basis of
the suit bill of e+chan)e alon)*lth other reliefs claimed therein.
$
+,ere pronote Is e2ecuted su"seDuenty to t,e oan "ein* *ranted5 I& t,e pronote &as &or some
reasonE.it can "e "ased on ori*ina transactonE.3ection 3$5 3tamps /ct. =
1here are sufficient a#erments in the plaint that the suit is based on ori)inal cause of action. .s the
promissoiy note *as e+ecuted by the defendant only in ac0no*led)ment of the loan he had obtained from
the plaintiff( the Court cannot re6ect the claim in the suit solely on the )round that the promissory note i!
inadmissible 'n e#idence. 'n para)raph i of the plaint it is stated that the defendant recei#ed the amount as
loan and the promissory note *as e+ecuted only as a document in support of the loan. P.W. lPs e#idence
sho*s that the defendant obtained the amount from the plaintiff and only at the time *hen they parted the
promissory note *as e+ecuted. 1he note *as e+ecuted after the defendant obtained the loan. /s the note
*as e+ecuted by the defendant :nly 'n ac0no*led)ement of the loan( it is apparent that the loan *as
anterior to and 'ndependent of the e+ecution of the promissor note. 'n a case *here a promissory note *as
e+ecuted by the defendant only in ac0no*led)ement of the loan he had already obtained from the plaintiff(
the suit for reco#ery of the debt based on the ori)inal cause of action cannot be dismissed on the )round
that the promissory note is defecti#e and 'nadmissible in e#idence.
A

+,ere de&ence ta(en 7as t,at t,ere 7as &aiure o& consideration5 su"seDuent pea cannot "e ta(en
t,at Hundi 7as 7it,out consderatIon.... ecUon 435 Ne*otia"e Instrunents /ct.=
:n the pleadin)s of defendant 8o. D and in #ie* of the documents produced by the parties( 'ssue
8o. 7 *as restricted to the question *hether 5un'ies -+hibits P. AH and P. A% are *ithout consideration(
and 'f so( t] *hat effect. .t the trial( ho*e#er( defendant D tried to shift its defence on the )round of failure
of consideration on the plea that )oods supplied by the firm *ere re6ected and returned to 't. :n this
)round( learned Counsel for defendant 8o. D has contended that his client *as under no obli)ation to pay to
the Ban0 any amount Claimed on the basis of the t*o 5unches. He has relied upon !ection H% of the
8e)otiable 'nstruments .ct( $&&$( hereinafter referred t$ as the .ct( and on /rnir+ Chjin" #. *rishna Char+
icier Bhowmjk3 and *. *. *arart #. T. Tara Ba(" 't is pertinent to note that the case pleaded by defendant
8o. D 'n 'ts *ritten statement 's that no )oods *ere purchased y it from the finn( that the 5un'ies *ere
dra*n on and accepted by it alto)ether *ithout Consideration and merely to pro#ide financial assistance to
the @irm. 'n other *ords( defendant 8o. D has denied the initial conclusion( and e#en the a initio e+istence(
of any contract *ith the firm. 'ndeed( 't has been pleaded 'n clear terms that there *as no commercial
transaction bet*een the parties. 1his plea is ob#iously false. 1he plea of failure of consideration( *hich has
been raised at the hearin)( presupposes the e+istence of a duly concluded contract *ith consideration( and
subsequent failure of consideration #itiatin) the contract. .lthou)h( !ection H% of the .ct pro#ides for a
common consequence of a ne)otiable 'nstrument made( dra*n and accepted etc.( if it is *ithout
consideration( or for a consideration *hich falls( yet the t*o causes en#isa)ed therein are different( each
arises 'n different circumstances( and really contradicts the other. 't cannot be said in respect of any
transaction for a consideration( *hich fails later( that 't *as *ithout consideration( ,i0e*ise( in a
transaction *ithout consideration( there can ne#er be failure of consideration. 1herefore( the plea of failure
of consideration contradicts the defence pleaded by defendant 8o. $ that the transaction *as *ithout
consideration. !uch a contradictory plea cannot be raised. 't has to be re6ected.
$
/ dre7 Hundes on 'an( ' accepted "y C='an( ' presented Hundies to C &or payment=+,ic,
7ere dis,onoured='an( ' endorsed 'undes In &a-our o& / &or -aue recei-ed=/ presented
Hundes to C &or payment=C re&used to pay=In a suit "y / on C5 caimed to de&end on merits=
Kuestion 7as 7,et,er ,e coud "e permitted to pead=3ection ?5 Ne*otia"e Instruments /ct.=
1he Court held / .t the heartn)( learned Counsel for the plaintiff cited a decision of the House of
,ords in 8o#a A#ersey@ *nit (t'. #. *amm$am Spinnerei 2.4.B.5. (A for the proposition that a claim for
unliquidated dama)es could not be raised by *ay of defence( set off or counter-claim to an action on a bill
of e+chan)e.
,earned Counsel for the defendant 8o. $ cited #a'e ,nternational Steel Stahi .n' Bisen 2am 5.
R Co. *. 2. #. %oert Nicholas Steels (t'.3 'n this case the plaintiff sold to the defendants a quantity of
steel to be deli#ered in t*o consi)nments and dre* a bill of e+chan)e payable on the defendants for the
price of the first consi)nment. 1he bill *as accepted by the defendants. 1he plaintiff discounted the bill
*ith their Ban0 *hich *as thereafter discounted *ith t*o other Ban0s. 1he first consi)nment of steel *as
deli#ered to the defendants. 1he defendants did not honour the bill on the )round that the first consi)nment
deli#ered *as substandard. 1he bill traced 'ts course bac0 to the plaintiff-Ban0 *hich debited the plaintiffs
account for the amount and returned the bill to the plaintiff. 1he plaintiff brou)ht an action a)ainst the
defendants and applied for a summary 6ud)ment. 1he defendant alle)ed that they had )ood defence by *ay
of a counter-claim and applied for lea#e to defend. 'n the Court of the first 'nstance lea#e *as not )ranted
to the defendants to defend the action on the )round that in an action on a bill of e+chan)e defence by *ay
of counter-claim could be put up lithe action *as bet*een immediate parties to the bill. 1he plaintiffs
ha#in) discounted the bill they *ere not immecliate parties to it and they deri#ed their title to it throu)h the
holders in due course. 1he appeal Court sustained the said order.
!ection I of the 8e)otiable instruments .ct( $&&$ reads as follo*s/
OMHolder in due courseP means any person *ho for Consideration became the possessor of a promissory
note( bill of e+chan)e or cheque if payable to bearer( or
the payee or indorsee thereof( if payable to order before the amount mentioned in it became
payable( and *ithout ha#in) sufficient cause to belie#e that any defect e+isted in the title of the person from
*hom he deri#ed his title.N
1he plaintiff cannot claim to be the holder in due course of the said 5ctn'ies under the said
section as the same are not payable to bearer and as the Ban0 endorsed the same in fa#our of the plaintiff
after the amount mentioned in the 5un' ies became payable and also after the 5un'jes *ere dishonoured 'n
that #ie* the counterclaim of the defendants can be a sufficient defence to the claim of the plaintiff( it need
not e+press any final :pinion on the disputes raised as to the #alidity or sufficiency of the stamps at this
sta)e. in CourtPs #ie* the defendant 8o. $ has raised triable issues and is entitled to defend the suit.
$
KuestIon o& trans&er o& actiona"e cams.=
1here cannot be any assi)nment of promissory note thou)h there can be assi)nment of debt. 1he
intention is )athered from the *ords actually used in the endorsement on the bac0 of pronotes.
1hey indicate that the the party intended only to endorse but not assi)n the amounts Co#ered by
the promissory note. 1here is no question of transfer of actionable claims attracted by !ection $%< of 1.P.
.ct.
1he lo*er Court considered all these aspects and ri)htly came to the conclusion that it is only
endorsement and not assi)nment and the promissory notes do not require any stamp duty for the urpose of
admittin) them in e#idence. 1he re#ision petition is dismissed.
A
3<CTI)N 1315 N<6)TI/'1< IN3T%U9<NT3 /CT
'f the duty is that of the dra*ee-Ban0 to e+amine the instrument before ma0in) payment( *hy did the
plaintiff-Baa fall to do so in the instant case 's not e+plained by P.W. $. What *as done at a later sta)e by the
plaintiff-Ban0 in ha#in) the instrument e+amined under ultra #iolet rays could ha#e been done before ma0in)
payment( more so in #ie* of the fact that no ad#ice had been recei#ed from its branch at 1inippur *hich issued the
draft. Besides( in #ie* of the non-receipt of ad#ice( the plaintiff-Ban0 could ha#e contracted its branch at 1iruppur
on telephone to ascertain the )enuineness of the draft
$
't is a normal feature of the present day to obtain a draft *hen lar)e amounts are to be paid *here#er
cheques are accepted( they are dra*n and issued. 1hese are made Oaccount payeeN to ensure that payees alone
encash them. 1herefore( Ban0s ha#e a )reat responsibility *hile openin) ne* accounts by unfamiliar persons.
:penin) of a Ban0 account cannot be equated to a routine acti#ity( e#en by the Ban0.
'f at the time of openin) the account and subsequently *hile the account is bein) operated( any conduct of
the customer 'n relation to the account is sufficient to e#o0e suspicion of the account holderPs credibility or of his
acti#ity( Ban0 shall ha#e to be alert to the situation and ta0e remedial steps immediately. 1he duty and care to be
ta0en by the Ban0 do not stop at the openin) of the account by a person. 1he duty and care required of a Ban0 runs
throu)h e#ery operation affectin) the said account each time( an account payee cheque or a draft is presented( the
Ban0 o*es a duty to see *hether there is any inherent defect in the 'nstrument or in the manner in *hich 't is sou)ht
to be credited for collection. 2raft dra*n as payable to O"s. 1.I cannot be collected for and credited to the account
of ! *ithout noticin) the difference( solely on the )round that the Ban0 *as bus in dealin) *ith se#eral customers
*hen the said instrument *as )i#en for collection or subsequently and 't cannot be a #alid defence for the Ban0(
that( on earlier occasions also similar cheques or drafts had been accepted and amounts had been credited to %>s
account( e#en thou)h( in the instruments( payee *as "s. %. 'n such a situation( the fact that the Ban0 acted 'n )ood
faith is entirely 'rrele#ant. ,ac0 of )ood faith is not the same as bein) ne)li)ent? t*o are different concepts
alto)ether. .n utterly ne)li)ent person( actin) ne)li)ently can be said to be actin) in )ood faith? still( he *ould be
ans*erable to the consequences of his ne)li)ence.
A
3<CTI)N 13A5 N<6)TI/'1< IN3T%U9<NT3 /CT
>3ee aso C,.: !is,onour o& C,eDue#

Notice un'er Section "#$. Ne$otiale ,nstruments .ctTRe)ardin) the first submission in Para)raph 7 of
the complaint( it is stated as follo*s/
O1he complainant sent a notice *ithin $D days of the receipt of notice of dishonour to the accused
callin) upon him to ma0e the payment of the said amount. 1he accused deliberately e#aded to recei#e the
notice and it *as returned(N
1hus( there are necessary alle)ations to meet the requirement of the pro#iso to !ection $%& of the
8e)otiable 'nstruments .ct. !imply because the date of sendin) of the statutory notice is not mentioned in
the com plaint( it cannot be stated that it is infirm( 't cannot be quashed on that )round.P
:4. Compaint on 2nd cause o& action not maintaina"e=3ection 13A5 Ne*otia"e Instruments /ct.=
1his Court has already pointed out that the ri)ht to present the cheque at any number of times
durin) the #alidity period is not the sole criterion to decide this question. 'n *umaresan>s case the 2i#ision
Bench of this Court has ne#er said that the cheque can be presented only once. 't can( of course( he
presented on any number of times durin) the period of #alidity. 'ut once the offence *as complete *ith the
failure to pay the amount *ithin the prescribed period after ma0in) demand in *ritin)( a subsequent
presentation of the cheque for encashment is of no use so far as !ection $%& of the .ct is concerned. 1hat is
precisely the ratio in *umaresart>s decision.
A
't is not in dispute that the cheque *as issued by the first petitioner as "ana)in) Partner of "Ls.
E.!. "uthu Constructions for the liability to the complainant. 1he learned Counsel relyin) upon certain
decisions of the Eerala Hi)h Court( *ould contend that *hen the Court had ta0en co)ni5ance of the offence
a)ainst a partner it *ill not affect the proceedin)s for the failure to ftnplead the other accused includin) the
Company. 'n /leC #. )ayan!3 the Eerala Hi)h Court has held that *hen the "ana)in) Partner of a firm
*ere prosecuted under !ection $%&( 8e)otiable 'nstruments .ct for the dishonour of the cheque issued by
the "ana)in) Partner and *ithout impleadin) the partnership( the partners alone *as prosecuted the
complaint is maintainable a)ainst the partners alone. @ollo*in) this decision( the same Court in ,7alv.
.thaman!" also repeated the same #ie* that the complaint a)ainst the partners is maintainable *ithout
impleadin) the company under !ection $%&( 8e)otiable 'nstruments .ct. 'n 1lywoo' 5ouse #. Doo'craft
1ro'ucts (tc(!8 the Eerala Hi)h Court has a)ain held that *hen the "ana)in) Partner *as prosecuted for
the offence under !ection $%&( 8e)otiable 'nstruments .ct *ithout impleadin) the partnership( the
partnership can be impleaded subsequently also as *hen once the co)ni5nce of the offence *as ta0en by
the Court( the subsequent impleadment of another person as accused( *ould not affect the 6udicial process
as it has already commenced by ta0in) co)ni5ance. But these #ie*s of the Eerala Hi)h Court ha#e not been
accepted by this Court in a series of decisions and this Court has ta0en a consistent #ie* that a complaint
under !ection $%&( 8e)otiable 'nstruments .ct is not sustainable *ithout complyin) *ith the mandatory
pro#isions viz.! !ection $H$( 8e)otiable 'nstruments .ct *ithout impleadin) the company or the
partnership and *hen there *as defect e#en in the initial sta)e in the initiationof the proceedin)s itself( that
cannot be cured by impleadin) the company or partnership subsequently.
$
:$. Paint to discose t,at dis,onour o& c,eDue 7as due to paucity o& &unds=3ection 13A5 Ne*otia"e
Instruments /ct.=
.nne+ure-B( complaint does not contain an alle)ation to the effect that the cheque *as
dishonoured due to insufficiency of fund in the account of the petitioner. 1he alle)ations therein are not
capable of brin)in) out such a contention e#en by necessary implication. 1herefore( .nne+ure-2 complaint
and the proceedin)s thereunder are liable to be quashed. But the learned Counsel for the second respondent
made reliance on the decision in Thomas )ar$hese #. #erome!3 to contend that irrespecti#e of the
endorsement by the Ban0( the complaint is maintainable. 't *ill be noticed that the said decision did not
deal *ith the question as to the necessity of alle)ation re)ardin) the in)redients of the offence. 1he
question dealt *ith *as *hether the endorsement by the Ban0 is decisi#e in decidin) *hether the offence
under !ection $%& of the .ct is made out.
%
::. InterpretatIon = 3ection 13A5 Ne*otia"e Instruments /ct.=
1he question that. arises for consideration of the Court is( in #ie* of aforesaid scheme of the .ct(
*hen the dra*er of the cheque has sufficient notice after his attention is 'n#ited to the dishonour of the
cheque( *hether endorsement of Orefer to dra*erN or Oinsufficiency of fundsN or Ofunds are not arran)edN
or Oaccount is closedN *ould ma0e any difference > 'n CourtPs opinion( 'n the li)ht of specific scheme of
!ection $%& of the .ct return of a cheque by the Ban0er *ith any of the aforesaid endorsements ultimately
connotes dishonourin) of cheque on account of fault on the part of person *ho has issued the cheque in not
pro#idin) sufficient funds or in not arran)in) for the funds or in closin) the account. 1he dra*ee of the
cheque himself is prima facie ans*erable as dishonourin) of cheque is ultimately referable to insufficiency
of funds. -#en if the dra*er of the cheque has any other e+planation to offer *ith respect to such
endorsement made by the Ban0 *hile returnin) the cheque( it once a)ain becomes matter of e#idence
*hich is to be adduced by the dra*er of the cheque in support of his e+planation to such endorsement. 't
cannot( therefore( be said that in case *here the cheque is returned( by the Ban0er *ith endorsement Orefer
to dra*erN or Oinsufficiency of fundsN or Oaccount closedP the pro#isions of !ection $%& of the .ct are not
at all attracted. 1he *ords Orefer to dra*erN in their ordinary meanin) amount to the statement by the
Ban0N this Court is not sayin)( )o bac0 to dra*er( and as0 him *hyN or else O)o bac0 to dra*er and as0
him to payN. 'n CourtPs opinion( therefore( the endorsement by the Ban0er Orefer to dra*erN necessarily( in
the ban0in) parlance( mean that Othe cheque has been returned for *ant of funds in the account of the
dra*er of the chequeN or the endorsement Oaccount closedN *ould also mean that Othou)h the account *as
in operation *hen the cheque *as issued( subsequently the account 's closedN( *hich act prirnafacie is
referable to Ointention of dra*er not to ma0e( paymentN. 'n the scheme of the .ct( the ,e)islature has
pro#ided an opportunity to the dra*er to e+plain the endorsement made by the Ban0er( and( therefore(
*hen the complaint is filed based on any such endorsement( it cannot be said that such complaint is not
maintainable or tenable under !ection $%& of the .ct as 'n CourtPs opinion it is al*ays open to the dra*er
of the cheque to e+plain and establish that dishonourin) of cheque *as not referable to 'nsufficiency of
funds of his not ma0in) pro#ision of necessary funds. !uch a complaint is not( therefore( liable to be
quashed as one not fulfillin) the in)redients of !ection $%& of the .ct
$
.
:@. CornpanyG=Personsin..c,ai*e o& company ia"e=3ection 13A5 Ne*otia"e Instruments /ct.=
!ection $H$ of the .ct pro#ides that if the person committin) an offence under !ection $%& is a
Company( e#ery person *ho at the time of the offence *as committed *as in char)e of( and *as
responsible to the Company for the conduct of the business of the Company as *ell as the Company shall
be deemed to be )uilty of the offence and shall be liable to be proceeded a)ainst and punished accordin)ly.
1he e+planation to that section pro#ides that the Company means and includes a firm also.A
:A. !e&ence=3ection 13A5 Ne*otia"e Instruments /ct.=
1here is no denial of the fact that the cheque *as issued by the petitioners nor this fact has been
contro#erted that the cheque *as dishonoured as the amount of money standin) to the credit of the account
of the petitioners *as 'nsufficient to honour the cheque. 1his fact is also not assailed that *ithin $D days of
the receipt of information by the respondent from the Ban0 re)ardin) the return of the cheque *as unpaid( a
notice *as sent to the petitioners accordin) to the pro#isions of sub- section (b) of !ection $%& of the .ct.
.dmittedly( the amount *as not paid by the petitioners on receipt of the notice *'thin $D days. "ain
contention of the learned Counsel for the petitioners *as that *hen the cheque *as 'ssued there *as no
debt or other liability *hich *as le)ally enforceable a)ainst the petitioners. 'n fact( the cheque *as 'ssued
on $Hth January( $II$ *hile the food *as to be supplied by the respondent on A<th January( $II$. 1his
contention of the learned Counsel does not hold )ood. 1he cheque *as 'ssued as an order *as placed *ith
the respondent to supply food and accordin) to the respondent this obli)ation *as fulfilled and the amount
became due. 1he cheque *as presented to the Ban0 after the function had been held and at that time the
liability *as le)ally enforceable. Whether the food *as supplied accordin) to specifications or not is a
question to be decided after e#idence is led( but at this sta)e it cannot be said that in)redients of the offence
*ere missin) and the petitioners *ere not e#en prirnafacie liable.
$
:?. Notice=3ectIons 13A and 1425 Ne*otia"e Instruments /ct.=
@rom a con6oined readin) of !ection $HA (b) and clause (c) of the pro#iso to !ection $%& of the
.ct( it *ould be clear that the cause of action *ould arise on the e+piry of $D days from the date of receipt
of the statutory notice issued as per !ection $%&( pro#iso (b). 1his Court *ill no* consider the rele#ant
alle)ations made in the complaint *ith re)ard to an offence under !ection $%& of the .ct for *hich the
impu)ned complaint *as lod)ed. 1he rele#ant Para)raph 7 in the complaint reads as follo*s/
O1he complainant sent a le)al notice on $-%-$II% to the #ery same address as the pre#ious notice
and the notice *as returned on $A-%-$II% as Onot foundN. 1he complainant submits that the accused is still
operatin) at the #ery same address and in order to cheat the complainant the accused is not acceptin) the
notice.N
'n A.B. Steels #. 4is. Coramart'al Steel 1ro'ucts!3 it is held that *hen the alle)ations in the
complaint made 't clear that the accused *as quite a*are of the sendin) of the notice by the complainant
and deliberately a#oided the receipt of the same( 't cannot but amount to constructi#e ser#ice of notice. 'n
;. )asu'evan #. %ajammal!3 't *as held that deliberate e#asion to recei#e notice *ould amount to
constructi#e ser#ice of notice. 1he abo#e rulin)s *ould apply to the facts of this case. 'n Para)raph 9 of the
complaint it 's stated that he is filin) this complaint *ithin the stipulated time. :n the alle)ations made in
the complaint *ith re)ard to the cause of action *hich arose on the date of e+piry of $D days from the date
of constructi#e of ser#ice( this complaint 's filed 'n time.
H
@0. Notice-3ection 13A >cG#5 Ne*otia"e Instruments /ct.=
. con6oint readin) of clause (c) of the pro#iso to !ection $%& of the .ct and clause (b) of !ection
$HA of the .ct *ould sho* that the cause of action *ould arise on failure on the part of the payee to pay the
amount *ithin $D days of the receipt of the said notice. 8o*here 't is contemplated that notice 'ssued by
the dra*er of the cheques should prescribe the period of $D days.
.ll that has been made obli)atory 's that the payee of the holder 'n due course of the cheque( as
the case may be( ma0es a demand for the payment of the said amount of money by )i#in) a notice is
*ritin) to the dra*er of the cheque( *ithin fifteen days of the receipt of 'nformation by him from the Ban0
re)ardin) the return of the cheque as unpaid. 8either clause (c) to section $%& nor clause (b) to !ection $HA
of the .ct prescribes that the notice sent by the payee or the holder in due course must specifically state that
fifteen days time is )i#en. !o( it is clear that the first submission made by learned Counsel for the
petitioner( cannot hold )ood and hence this Court is not acceptin) the same)
@1. Trust not a 8uristic person=C,eDue issued "y C,airman o& trust dis,onoured=C,airman not ia"e
to "e prosecuted=3ection 13A5 Ne*otia"e Instruments /ct.=
@urther( as ri)htly ur)ed by learned Counsel for the respondent( unli0e a Company re)istered
under the 'ndian Companies .ct( the 1rust is not a 6uristic person ha#in) a separate le)al entity. 't can act
only throu)h its trustees. !o( *hen the petitioners came to issue the impu)ned cheques and that has resulted
in his committin) an offence under !ection $%& of the 8e)otiable 'nstruments .ct( he is liable to be
proceeded a)ainst. 1he failure to describe him in the rele#ant complaint as the trustee of Cellammal 1rust is
no consequence. !o ' find no merit in the contention of the petitioner.A
@2. Paint to ae*e t,at non-payment 7as due to paucity o& &und=3ection 13A5 Ne*otia"e Instruments
/ct.=

Complainant did not state in the complaint that dishonour of the cheque *as either due to
insufficiency of amount in the account or due to *ant of arran)ement *ith the Ban0. 8or did the
complainant )i#e any e#idence on that aspect. 1he e+pression Orefer to dra*erN used by Ban0s While
returnin) cheques unpaid need not necessarily be a communication to the effect that the cheque is bounced
due to insufficiency of amount in the account. . 2i#ision Bench of this Court has held in Thornns )ar$hese
#( #erome!3 that the offence under section cannot depend on the endorsement made by the Ban0er *hile
returnin) the cheque. 1he endorsement made by the Ban0er *hile returnin) the cheque cannot be the
decisi#e factorN. Complainant did not adduce e#en formal e#idence to sho* that the cheque *as returned
dishonoured due to insufficiency of amount in the account.
H
@3. Cause o& action-3ections 13AL1425 Ne*otia"e Instruments /ct.=
1he settled principle of la* that the dra*in) of the cheque( handin) o#er the same follo*ed by the
presentation and dishonourin) by the Ban0 do not amount to or )i#e rise to the cause of action amountin)
to an offence but( ho*e#er( the non- compliance of the demand to pay the amount due( namely debt( *ithin
the time stipulated( clearly amounts to the omission mulcted *ith the criminai liability( as enunciated in
!ections $%& and $HA of the .ct.
D

@4. /ppica"iity o& 3ection $ o& t,e 1imitation /ct in presentin* t,e compaint "eyond t,e period o& one
mont, prescri"ed under 3ection 142 >"# o& t,e Ne*otia"e Instruments /ct.=
@rom areadin) of !ection $HA of the 8e)otiable 'nstruments .ct it is abundantly clear that unless
the conditions stipulated therein are satisfied( the "a)istrate cannot ta0e co)ni5ance of the offence. :ne of
the conditions stipulated is that the complaint has to be lod)ed *ithin one month from the date on *hich
the cause of action arose under clause (c) of the pro#iso to !ection $%&. 1he pro#iso (c) to !ection $%&
reads thus
O1he dra*er of such cheque fails to ma0e the payment of the said amount of money to the payee
or as the case may be( to the holder in due course of the cheque( *ithin fifteen days of the receipt of the
said noticeN.
.s soon as $D days e+pire from the receipt of the notice issued by the dra*ee( the offence is said
to ha#e been committed. Under those circumstances( the ,e)islature 'ntended that the complaint should be
filed *ithin one month from the date of arisin) of cause of action. 1he ob6ect *ith *hich the time is fi+ed is
*ith a #ie* to enhance the acceptability of the cheques in settlement of liabilities by ma0in) the dra*er
liable for penalties in case of bouncin) the cheques due to insufficiency of funds 'n the accounts or for the
reason that it e+ceeds the arran)ements made by the dra*er( *ith adequate safe)uards to pre#ent
harassment of honest dra*ers. Chapter KC'' of the .ct also does not ma0e any mention of application of
!ection D of the ,imitation .ct( under those circumstances it is crear #ie* that the ,e)islature intended that
the complaint should be filed *ithin one month from the date of accrual of cause of action and the
application of !ection D of the ,imitation .ct *as not made applicable to this complaint.
$

@$. - Person competent to compain=3ection 13A5 Ne*otia"e Instruments /ct.=
1o consider this point( the rele#ant alle)ations in the complaint need be stated. 'n the first
Para)raph of the complaint( it is stated that the second accused( son of the first accused( and the first
accused are runnin) the business that first accused is the proprietor and second accused 's the authorlsed
si)natoiy of "Ls. Pushpanchali. 'n Para)raph A of the complaint( it is stated( under particulars of cheques(
that cheques *ere dra*n by the second accused. 1his Court *ill immediately refer to !ection $%& of the
.ct *hich states that *here any cheque dra*n by a person( on an account maintained by him *ith a Ban0er
for payment of any amount of money to another person from out of that account for the dischar)e( in *hole
or in part( of any debt or other liability( *as dishonoured for in sufficient funds or for e+ceedin) the
arran)ement( the said person shall deemed to ha#e committed an offence. 'n this case( the dra*er of the
cheque 's the second accused. @irst accused *as the proprietor of the concerns for *hose liability his son(
the second accused had issued the cheque and so criminal liability cannot be fastened on the first accused.
!o( it 's clear that the first accused cannot be made liable for an offence under !ection $%& of the .ct in
anyone of the these complaints. Re)ardin) the liability of the second accused( the submission of learned
Counsel for the petitioners *as that the complaints ha#e not been laid by the payee or the holder in due
course of the cheques and hence( the complaints are not 'n order. 'n the complaint in C.C. 8o. I of $IIA the
complainant 's described as follo*s/
"r. !. sb E "ana)er( "Ls. ;2. 'nternational( 8arayan 8a)ar( !alem $7
'n first Para)raph it is stated that the complainant herein is the manufacture of hi)h class #ariety of
e+port fabrics( that the accused had purchased hi)h class #ariety of e+port fabrics from the complainant and
that to*ards part payment cheques *ere 'ssued. !imilar alle)ations *ere made 'n other complaints. 'n
Para)raph H of the complaint 't 's stated that the person *ho has si)ned and #erified the complaint is duly
authorised to file the comlaint and he has )ot personal 'mo*led)e about the entire transaction.
@:. /e*atIon t,at non-payment 7as due to paucity o& &unds to "e made In t,e compant=3ection 13A5
Ne*otia"e Instruments /ct.=
'n the instant case the complainant has specifically stated that the cheque *as dishonoured as
payment *as stopped by the dra*er. 8o*here did the complainant say that the cheque *as dishonoured
due to *ant of sufficient amount in the account. ,earned Counsel made a bid to sho* that the 'n)redients
can be discarded from 'mplications 'n the complaint. 1his Court finds it e+tremely difficult to deduce from
the complaint a case of dishonour of the cheque due to *ant of amount in the account. .#erment in the
complaint are totally bereft of such a case.
A
@@. Ino7ed*e o& ds,onour=3ecton 13A5 Ne*otia"e Instruments /ct.=
1he question is *hether the a#erment Oto the 0no*led)e of the defendant 8o. $N is sufficient
compliance *ith the requirements of the statute. 'nstead of statin) that notice of dishonour *as )i#en to
defendant 8o. $ 't 's stated that defendant 8o. $ had 0no*led)e of the dishonour by non-payment. 1he
purpose of notice( ho*e#er( is to ma0e a person a*are of a fact. 'n that #ie* of the matter the difference in
the e+pressions seems to be of little consequence. .)ain 't 's to be noted that the defendant 8o. $ *hile
dealin) *ith Para)raph D of the plaint no*here has challen)ed this assertion by the plaintiff. 't 's not denied
in Para)raph $< of the *ritten statement *hich deals *ith Para)raph D of the plaint that the defendant 8o. $
had no 0no*led)e of the dishonour of the non-payment. 'n fact it is because the a#erment *as not tra#ersed
that no issue *as raised. -! ho*e#er( *as entitled to ar)ue( if he could that in the absence of the essential
pleadin)s the suit *as bound to fail. But *hat the ar)ument amounts to is that the pleadin) for the
0no*led)e of defendant 8o. $ is not the same thin) as )i#in) notice to defendant 8o. $ is not the same
thin) as )i#in) notice to defendant 8o. $. . suit certainly should not fail or be defeated by such narro*
technicality. 1he plaintiff should not be pre6udiced merely because the facts are 'mperfectly stated in some
respects. 't may be quoted *ith respect the obser#ations of Jen0ins( ,.J. in the case of )ine -. National
-ock (aour Boarc(0 O't *ould be a sad day if liti)ants *ere bound hand and foot by e#ery ill-ad#ised
phrase or ar)ument or submission( that may find 'ts *ay 'nto their pleadin)s as settled by Counsel.N 1he
contentions of -! therefore( must fall.
A
/CIN)+1<!6<9<NT C)N3TITUT<
@A. +,et,er a etter ac(no7ed*in* receipt o& a sum 7it, re-enue stamps a&&i2ed=/ ne*otia"e
InstrumentM=3ection 4 Ne*otia"e Instruments /ct.=
1he plaintiff filed the present suit for reco#ery of a sum of Rs. $D(<<<L- from the defendant
alle)in) that there *as a family settlement bet*een the plaintiff and brothers on .pril I( $I&9 and in the
course of that family settlement( certain documents *ere e+ecuted in *hich one of the document 's the
disputed document. .ccordin) to the plaintiff( as a result of the family settlement amon)st other
documents( the defendant e+ecuted a receipt for Rupees $D(<<<L- ac0no*led)in) that he has recei#ed
consideration thereof. 1he receipt *as scribed by -! brother-in-la* of plaintiff and defendants and si)ned
by defendant. 1he defendant 'n his *ritten statement denied the e+ecution of the said document. He also(
pleaded that document 's a promissory note and is insufficlenly stamped. 1he te+t of said document is
reproduced belo*/
.ccordin) to the learned Counsel the aforesaid document amounts to a receipt in the form of a
letter and nothin) more. 't *as not intended to be a ne)otiable 'nstrument. He further contends that *hether
a document *as e+ecuted as a receipt of promissory note( it has to be construed in accordance *ith the
primary intention of the parties *hether they 'ntended instrument to be promissory note or a receipt. He
further contends that merely because a instrument *hich *as intended by the parties to act as a receipt also
contains a promise to pay( it does not ma0e the document a promissory note.
:n the other hand 't *as contended by the learned Counsel for the defendant that the aforesaid
document has all the in)redients and contents of the promissory note and( therefore( one need not loo0
beyond the document for 'ts construction. .ccordin) to him( this 's a document for payment of a specific
sum of money to a certain person by a fi+ed date. !ince it contains promise to pay a specific sum of money
to a specific person( it amounts to a promissory note *ithin the meanin) of !ection H of the 8e)otiable
'nstruments .ct( and under !ection $% of the .ct( there bein) no condition to the contrary in the document(
it is presumed to be ne)otiable also. 1herefore( document if a promissory note is admittedly insufficiently
stamped cannot be taicen 'n the e#idence e#en on payment of deficit stamps and penalty thereon. 't may be
obser#ed here that the document *hich is in the form of a letter ac0no*led)in) a receipt of Rs. $D(<<<L- is
affi+ed *ith A< paisa re#enue stamp as per the photo copy of it( produced by the plaintiff alon)*ith plaint.
,earned Counsel for the petitioners further relied on a @ull Bench decision of this Court passed 'n
Nan$a #. -hanna (a,!0 for the proposition that a document besides fulfillin) the requirements as laid do*n
in !ection H of the 8e)otiable 'nstruments .ct must also be intended by the parties at the time of its
e+ecution to be a promissory note as understood by commercial *orld 'n its popular sense.
' ha#e )i#en my careful consideration to the ri#al connection raised before me.
't *ould be profitable to quote here the rele#ant pro#isions of the 8e)otiable 'nstruments .ct.
!ection H. 1romissory note.?/ Opromissory noteN is an instrument in *ritin) (not bein) a Ban0-note or a
currency-note) containin) an unconditional underta0in)( si)ned by the ma0er to pay a certain sum of
money only to( or to the order of( a certain person( or to the bearer of the 'nstrument.
!ection $%. Ne$otiale ,nstrument.?Al@ . One)otiable instrumentN means a promissory note( bill of
e+chan)e or cheque payable either to order or to bearer.

BCplanation (<.T. promissory note( bill of e+chan)e or cheque is payable to order *hich 's e+pressed to
be so payable or *hich is e+pressed to be payable to a particular person( and does not contain *ords
prohibitin) transfer or indicatin) an intention that it shall not be transferable.
(i) to (A)
:n analysis( the aforesaid pro#isions 'ndicate that in order that a document should fall *ithin the
definition of Opromissory noteN( it must conform to the follo*in) conditions viz.
($) 't should be 'n *ritin).
(A) 't must contain an unconditional underta0in) by the ma0er of the document.
(%) !uch unconditional underta0in) must be to pay certain sum of money only.
(H) that such underactin) to pay certain sum of money must be to a certain person or to the order
of that person or to the bearer of the instrument.
-+planation ($) to !ection $%( ho*e#er( en#isa)es that if the document conforms to the aforesaid
conditions and if the document bears no *ords prohibitin) transfer or indicatin) of the intention that 't *ill
not be transferred( the document must be deemed to be ne)otiable. 8o specific form is needed e+cept that
the document should be 'n such a form that it should be ordinarily acceptable by a man of commerce to be
a promissory note( intended to be ne)otiable.
@or the purposes of !tamp .ct( promissory note has been defined under !ection A (AA) as under/
1romissory note 3 A33@.?I1romissory noteN means a promissory note as defined by the 8e)otiable
'nstruments .ct( $&&$
it also includes a note promisin) the payment of any sum of money out of any particular fund
*hich may or may not be a#ailable( or upon any condition or contin)ency *hich may or may not be
performed or happen?
@rom the perusal of abo#e definition( it appears that the definition of a promissory note in the
!tamp .ct for the purposes of stamp duty is *ider than the definition )i#en in !ection H of the 8e)otiable
'nstruments .ct but 't 's only to the e+tent that in order to fall *ithin the e+tended meanin) a document
should be a promissory note in all respects e+cept for the contin)encies affectin) the payment in the t*o
cases en#isa)ed in the pro#iso to the ordinarily mercantile sense. 1he e+tended meanin) only e+tends to a
document (i) *hich includes a promise to pay the sum named out of particular funds and such amount may
or may not be a#ailable *ith the fund or (ii) *here promise to pay a sum depened upon happenin) of
condition or contin)ency *hich may or may not happen. When payment is not dependent upon any
condition en#isa)ed abo#e( the inclusi#e definition does not become operati#e.
'n Nawa 4ajor Sir 4oharrtma' /kar *ho.n #. /ttar Sin$h@ their ,ordshlps obser#ed as under/
O'f this document is other*ise *ithin the definition of a promissory note( 't *ould seem that it
must be ne)otiable for there appear to be no *ords prohibitin) transfer( or indicatin) an intention that it
should not be transferable.N
M1heir ,ordshlps prefer to decide this point on the broad )round that such a document as this 's
not( and could not be. 'ntended to be brou)ht *ithin a definit'on relatin) to documents *hich are to be
ne)otiable instruments. !uch documents must come 'nto e+istence for the purpose only of recordin) an
a)reement to pay money and nothin) more( thou)h( of course( they may state the consideration. Receipts
and a)reements )enerally are not intended to be ne)otiable( and serious embarrassment *ould be caused in
commerce if the ne)otiable net *ere cast too *ide. 1his document plainly is a receipt for money(
containin) the terms on *hich it is to be repaid. 't is not *ithout si)nificance that the defendants *ho dra*
it( and *ho *ere e+perienced moneylenders( did not dra* it on paper *itlU an impressed stamp( as they
*ould ha#e had to if the document *ere a promissory note and that they affi+ed a stamp *hich is sufficient
if the document is a simple receipt. Bein) primarily a receipt e#en if coupled *ith a promise to pay( it is not
a promissory note.N
@rom the aforesaid decision( it is apparent that not*ithstandin) that a document contains a
promise to pay but if 't is primarily intended to be a receipt and not intended to be ne)otiable in the
ordinarily mercantile sense( the document does not become a promissory note *ithin the meanin) of
8e)otiable 'nstruments .ct. 'n the said case affi+in) of a stamp sufficient for a receipt by man of business
*as ta0en to be a rele#ant consideration of )reat 'mportance 's )atherin) the intention of the parties.
.)ain in (ain *aram Chrin' #. &irm 4ian 4ir /hma' /ziz /hmac(> the Board reiterated the #ie*
ta0en in 4ohr( /kar *hari>s case.A .fter ta0in) notice of the fact that a document to be quoted
hereinafter contains a promise to pay and that there is stron) current of 'ndian .uthorities to the effect that
such document comes *ithin the mischief of !ection %D of the !tamps .ct( obser#ed as under/
!ince the 6ud)ment of the Judicial CommissionerPs Court( a decision of this Board( ($I%7) 7% 'nd
.pp A9I / .'R $I%7 PC $9$( has made it clear that the shado* restin) upon these e+hibits throu)hout the
case *as unreal ? that documents of this nature *hich *ere clearly ne#er intended to be ne)otiable
'nstruments at all are not promissory notes and are not( therefore( for *ant of a stamp( inadmissible in
e#idence.N
1he rele#ant e+tract of document in question *as readin) as under
ORecei#ed from you this Dth day of .su6( $I&7( !ambat correspondin) to 21t, !eptember( $IAI a cheque
for Rs. $<(<<<L- dra*n by you on "essrs. ;rindlay R Co.( ,td.( Pesha*ar. 1he amount *ould be repaid
*ith interest thereon at the rate of Rs. $$-H-< p.c. 1ime ten months. 1he principal amount *ill be paid *ith
'nterest after ten months from this date.
Recei#ed from you this A%rd of .su6( $I&7( !ambat correspondin) to &th :ctober( $IAI( cheque
8o. D<A&H( dated &th :ctober for Rs. $<(<<<L- dra*n on the 'mperial Ban0 of 'ndia( ,imited( Pesha*ar.
1he amount to be paid bac0 *ith 'nterest at the rate of Rs. $$.H.<. p.c. after ten months.

1his principal amount *ith interest thereon to be repaid after ten months from this date.N

1he Court held that the document not to be a promissory note but merely receipt.
Without multiplyin) the number of decisions on the point( it *ill be
rele#ant to refer to the t*o decisions of this Court enunciatin) the )eneral
@ principles in this re)ard after detailed re#ie* of earlier decision of the
Courts in -n)land as *ell as in 'ndia includin) the t*o decisions referred
to abo#e.
. 2i#ision Bench of this Court 'n 2orcthansin$h #. Suwalal an' *atyanuC> *ith reference to !ection H of
the 8e)otiable 'nstruments .ct( held as under
O't *ill be seen that in order that a document may fall *ithin the definition of Opromissory noteN contained
in the 8e)otiable 'nstru ment .ct( it is necessary that there should be
(i) an unconditional underta0in) to pay?
(ii) the sum should be a sum of money and should be certain?
(iii) the payment should be to or to the order of a person *ho i certain( or to the bearer of the instrument(
and
(i#) the ma0er should si)n it.N 1he Court further *ent on to obser#e as under *ith reference to the
requirements under !tamps .ct/ But besides fulfillin) the terms of the definition( the
instrument must pass three further testsT
>1# the promise to pay must be the substance of the instrument.
(A) there must be nothin) else inconstant *ith the character of the instrument as substantially
a promise to pay( and
(%) the instrument must be intended by the parties to be a promissory note.N 1o this
conclusion( the Court had arri#ed at after re#ie* of a lar)e
number of decisions includin) the Pri#y Council decisions in 4ohr( /kar *han>s
case.3
1he question a)ain cropped up before a @ull Bench of this Court in Nan$av. -ho.nna(al!3 Justice
Bhar)a#a( *ith *hom the other t*o learned Jud)es concurred in their separate 6ud)ment stated the la* as
under (at p. 99 of .'R)
O'( am( therefore( of the #ie* that a promissory note besides fulfillin) the requirements as laid
do*n in !ection H of the 8e)otiable 'nstruments .ct must also be intended by the parties at the time of its
e+ecution to be a promissory note as understood by commercial persons in its popular sense *hich means
that unless( it falls *ithin the e+ception pro#ided in the *ider definition of the !tamp .ct( or is other*ise
e+pressly or by implication made not transferable instrument( if the 'nstrument does not fall *ithin the
abo#ementioned e+ceptions and does not stand the test of ne)otiability( 't *ill not be a promissory note
e#en thou)h it contains an unconditional underta0in) to pay money.N
@rom the abo#e( it 's clear that 'n order to find out *hether a particular document is a promissory
note or not( the intention of the parties at the time of e+ecution of the document is to be loo0ed into *ith
reference to the substance of the document( the surroundin) circumstances in *hich the document has been
e+ecuted and its ne)otiability in the popular sense( *hether the document *as intended to be a promissory
note or *as intended to be a mere ac0no*led)ment of a debt or receipt of consideration.
1hus( it is the question of fact in each case *hether a particular document is primarily an
ac0no*led)ement of debt or receipt of a promise to pay the certain amount.
'f the document in question is to be read in the li)ht of the principal enunciated abo#e( it *ill be
seen that it is in a form of a letter *hich opens *ith ac0no*led)in) receipt of Rs. $D(<<<L- on .pril I( $I&9
by the defendant. 1he recipient further states that the amount shall be paid by him on "ay I( $I&9 and *ill
not be 0ept beyond that date. 't *as affi+ed *ith a stamp of A< paise as *as payable on a receipt. 1he
surroundin) circumstances in *hich the document *as alle)ed to ha#e been e+ecuted is that as a result of
certain family settlements bet*een the parties concernin) the family properties on .pril I( $I&9( the
document *as *ritten in ac0no*led)ement of receipt of consideration containin) an a)reement to repay
the amount *ithin the time stated in the document by the e+ecutant. 1he document *as 0ept in the custody
of parties father because the formalities ha#e not been completed 'n respect of family settlement that has
ta0en place on .pril I( $I&9. 1he rece'pt *as 0ept *ith the father of the parties until the completion of such
formalities and it is because of this reason the plaintiff alle)es that main receipt is not in his possession and
't has either been destroyed or has come in possession of the defendant. He *as in possession of only the
photo-copy of the document *hich has been produced. 1he defendant has not denied the factum ol family
settlement on .pril I( $I&9. He merely states that e+act date of settlement he does not remember. He has
denied the e+ecution of document by him. 'n these circumstances( for the present purposes( it has to be
assumed( that if the document is pro#ed to be e+ecuted by defendant( it *as e+ecuted as a part of process of
family settlement. 1he parties in these circumstances could not ha#e intended to brin) 'nto e+istence a
ne)otiable 'nstrument in commercial sense. 8or it is the document in the form in *hich a document
ordinarily intended to be a ne)otiable in the popular commercial sense by a common mercantile man is
*ritten. "oreo#er( thou)h affi+in) of a particular stamp 's not a conclusi#e proof of nature of document(
but 's a rele#ant consideration about the intention of the parties as to *hat the parties intended the
document to be. 1ue parties are members of a business community. 1he document bears a stamp of A< palse
*hich is requisite for a receipt. By affi+in) a stamp of A< palse in a document *hich starts *ith recital of
receipt of consideration *ith a promise to pay Rs. $D(<<<L- by "ay I( $I&9( promise *hich is other*ise
'nherent in e#ery receipt of amount as a loan or deposits( )i#es a stron) clue to the 'ntention of the parties
that the parties *ere a*are *ith the stamp la* and their primary intention *as to e+ecute the document as
an e#idence of receipt of Rs. $D(<<<L- only by the e+ecutant *ith an a)reement to pay the amount *ithin
the stipulated time( and not beyond( by the e+ecutant and *as not intended to be ne)otiable instrument.
'n 4oh'.. /kar *hun>s case($ the Pri#y Council has also laid )reat stress on the fact of aff'+'n)
stamp sufficient for receipt on the document by the e+ecuta^t 's a stron) circumstance to dra* inference
that the person *ritin) the document 'ntended it to be as a receipt and not as a promissory note thou)h 't
may incidentally contained a promise to pay. 1he Court of .ppeal applied the principle enunciated in
4oh'. /kar>s case(A 'n Clay'on #. Bra'ley!3 to a document *hich reads as Orecei#ed from "r. and "rs.
1. Claydan the sum of $<(<<< (1en thousand pounds) as a loan to be paid bac0 'n full by $st July( $I&% *ith
interest at the rate of A<V (t*enty per cent) per annum Oby holdin) the document to be merely a receipt
*hich *as not 'ntended to be ne)otiable.
'n the totality of circumstances( this Court is of the opinion( that the document 'n question quoted
abo#e( cannot be treated as a promissory note( but has been *ritten by the e+ecutant primarily as a receipt
of cons'deration *ith an a)reement to repay the same by a fi+ date and not later. .pplyin) the test of
primary intention of the parties as to substance of document( 't must be held to be a receipt *ith an
a)reement to pay the amount *ithin the stipulated time.
H