BUSINESS LAW F.Y.B.M.

S-A

CONTENTS:

 Negotiable Instruments Act, 1881. 2.

 Endorsements. 3.

 Essentials of a valid endorsement. 3.

 Effects of endorsements. 5.

 Kinds of endorsements. 6.

Case study:
 13.
Chavali Kameswara Sarma v. Mahankali
Rajaratnam.

 Case study: 21.

P. K. Murugan v. Vallabhan Kantan Styled
Kunhanunni.

 Case study: 29.

Voruganti Seshireddi v. Vanka Venkata Subbayya.

 Bibliography. 33.

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BUSINESS LAW F.Y.B.M.S-A

NEGOTIABLE INSTRUMENTS ACT,

1881
The law relating to negotiable instruments is
contained in the Negotiable Instruments Act, 1881. The Act is
based upon the English Common Law relating to promissory
notes, bills of exchange and cheques. The act came into force on
1st March 1882. This Act was enacted with an object to define
and amend the law relating to promissory notes, bills of
exchange and cheques. The Act extends to the whole of India.

 WHAT IS A NEGOTIABLE INSTRUMENT?

Section 13 of the Negotiable Instruments Act, 1881,

defines a negotiable instrument as: “A negotiable instrument
means a promissory note, bill of exchange or cheque payable
either to order or to bearer.”
‘Negotiable’ literally means ‘transferable.’ ‘Instrument’
means a ‘document.’ Therefore, negotiable instrument means ‘a
transferable document.’ However, it does not mean that an
instrument in order to be valid must be negotiable. Instruments
may be marked ‘not negotiable’ yet they are valid instruments
and governed by the provisions of the Act.
It may be noted that though the Act mentions only three
kinds of negotiable instruments, viz., bills of exchange,
promissory note and cheques, yet instruments by usage or
custom may possess the characteristics of negotiability. In the
absence of any custom or usage governing such instruments,
provisions of the Act will be extended to such other instruments,
for example, hundis, bill of lading, railway receipts, etc.

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ENDORSEMENTS

When the maker or holder of a negotiable instruments

signs the same , otherwise than as such maker , for the purpose
of negotiation , on the back or face thereof or on a slip of paper
annexed thereto , or so signs for the same purpose a stamped
paper intended to be completed as a negotiable instrument , he is
said to endorse the same , and is called an endorser .(sec
15 ).
When the maker or holder signs the instrument –
(i) on the back or face of the instrument ; or
(ii) on a slip of paper called állonage’ if no space is left
on the instrument ; or
(iii) signs a stamped paper for the same purpose , but not
on a copy of the instrument , he is said to have made
a valid endorsement .
The person who so signs the instrument is called the
endorser .The person to whom the instrument is indorsed is
called the endorsee . Endorsements thus means , writing any
thing on the face or on the back of the instrument , for the
purpose of negotiation .Such a writing must be signed by the
endorser . Simple signature without any words will also
constitute endorsement . No particular form of words is
necessary for an endorsement . Any amount of endorsements
may be made on the instrument . If there is no space , slip of
paper may be used for further endorsement . This slip of paper is
called allonage .

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 ESSENTIALS OF A VALID
ENDORSEMENT
The endorsement of a promissory note , bill of
exchange or cheque I completed by delivery , actual or
constructive . Delivery to be effectual must be made by the party
endorsing the instrument , or by a person authorized by him in
that behalf (sec.46.).
Endorsement constitutes a contract between the endorser
and the endorsee . Endorser can be liable to the endorsee if
endorsement is complete . Endorsement is complete only when
–
(i) the holder writes and / or signs on the face or back
of the instrument or on a separate slip of paper ; or
on a stamped paper;
(ii) the instrument is delivered to the endorsee;
(iii) the instrument is endorsed and delivered with an
intention to transfer the property in the instrument.

WHO MAY ENDORSE AND NEGOTIATE:

The maker or holder of a negotiable instrument may

endorse , otherwise than as such maker . Every sole maker ,
drawer , payee or endorsee or all of several joint makers ,
drawers , payees or endorsees of a negotiable instrument may ,
if the negotiability of such instrument has not been restricted or
excluded endorse and negotiate the same .
The maker or drawer shall endorse or negotiate any
instrument only when he is in lawful possession or is holder
thereof . Similarly , a payee or endorsee shall endorse or
negotiate an instrument only when he is the holder thereof .
Therefore , a thief cannot endorse the instrument .
ILLUSTRATION :
A bill is drawn payable to A or order . A endorses it to B , the
endorsement not containing the words or order or any
equivalent words . B may negotiate the instrument .

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Instrument may thus be negotiated by endorsement by

all or any of the following persons :
(i) Sole maker , when the instrument made is drawn
payable to his own order .
(ii) Drawer , when the instrument is made or drawn
payable to his own order .
(iii) Payee or endorsee .
(iv) All of several joint makers , drawers , payees or
endorsees .
(v) A partner of trading firm may endorse on behalf of
the firm .
(vi) By all payees or endorsees , who are not partners ,
unless one payee or endorsee has been authorized by
all payees or endorsees .
A stranger cannot endorse a negotiable instrument . If he
so indorses , he may be held liable as surety or guarantor.
Instrument that is negotiated by endorsement
:
A promissory note , bill of exchange or cheque payable to
order is negotiable by the holder by endorsement and delivery
thereof (sec.48.).

EFFECTS OF
ENDORSEMENT(SEC.50.)

The endorsement of a negotiable instrument followed by

delivery transfers to the endorsee, the property therein with the
right of further negotiation. The endorsement may, by express
words, restrict or exclude such right, or may merely constitute
the endorsee an agent to endorse the instrument, or to receive its
contents for the endorser or for some other specified person.

ILLUSTRATION :

B signs the following endorsement on different negotiable

instruments payable to bearer:

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a.)“Pay the contents to C only.”

b.)“Pay C for my use.”
c.)“Pay C or order for the account of B.”
d.)“The within must be credited to C.”

These endorsements exclude the right of further negotiation by

C.

e.)“Pay C.”
f.) “Pay C value in account with the Oriental Bank.”
g.)“Pay the contents to C being part of the consideration in a
certain deal of assignment executed by C to the endorsers
and others.”

These endorsements do not exclude the right of further

negotiation by C.
ENDORSEMENT THUS ASSURES –

1.)Transfer of ownership in the instrument to the endorsee;

2.)Right of further negotiation to anyone;
3.)Gives the right of action to the endorsee against all parties
whose name appears on the instrument; and
4.)That the instrument was genuine and all prior
endorsements are genuine.

It is fundamental principle of law relating to the negotiable

instruments that no one whose name does not appear in the
instrument can be held liable thereon as there is no privity of
contract between the endorsee and the maker or the acceptor.

It must be noted that above effects results when the endorsement

is unconditional. Endorsement can be conditional.

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 KINDS OF ENDORSEMENTS
There are 7 kinds of endorsements:
a.)Endorsement in blank.
b.)Endorsement in full.
c.)Partial endorsement.
d.)Conditional or qualified endorsement.
e.)Restrictive endorsement.
f.) Facultative endorsement.
g.)Forged endorsement.

a.) ENDORSEMENT IN BLANK: (SECS. 16 & 54)

If the endorser signs his name only, the endorsement is

said to be ‘in blank’ (Sec.16). A blank endorsement is also
called a ‘general endorsement’. The name of endorsee is
left blank. The endorser finds the instrument. Instrument
so endorsed is like an instrument payable to bearer. The
property in the instrument passes by mere delivery of the
instrument. Therefore, where the holder of the instrument
does not mention the name of any party but merely signs
his name without any words, the instrument is said to be
endorsed in blank (Sec.16). A blank endorsement specifies
no endorsee. The negotiable instrument endorsed in blank
is payable to the bearer thereof even though originally
payable to order (Sec.54). If it is delivered to any person,
property therein passes. It is negotiable by mere delivery
and the bearer is entitled to its payment.

b.) ENDORSEMENT IN FULL: (SEC. 16)

If the endorser signs his name and adds a direction to pay

the amount mentioned in the instrument to, or to the order
of a specified person, the endorsement is said to be ‘in
full’. The person so specified is called ‘endorsee’ of the
instrument (Sec.16).

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Where one person specifies the name of the other person

to whom money is to be paid and finds the instrument, it is
case of ‘endorsement in full’, i.e. the endorser directs a
specific person to whom money is to be paid. Endorsement
in full is also known as ‘special endorsement’. No
particular form of words is necessary. Intention to transfer
the document to a particular person should be sufficient to
make it a valid endorsement.

Conversion of endorsement in blank into endorsement in

full: (Sec.49)

The holder of a negotiable instrument endorsed in blank

may without signing his own name, by writing about the
endorser’s signature a direction to pay any other person as
endorsee, convert the endorsement in blank into
endorsement in full. The holder does not thereby incur the
responsibility of an endorser.

Any holder of an instrument may put his own or someone

else’s name above the signature of the endorser an convert
the endorsement in blank into endorsement in full. As the
holder does not put his signature, he incurs no liability.

Effects of an endorsement in blank when converted into

full: (Sec.55)

If a negotiable instrument, after having been endorsed in

blank is endorsed in full, the amount of it cannot be
claimed from the endorser in full except by the person to
whom it has been endorsed in full, or by one who derives
the title through such person (Sec.55)

The parties to the instrument cannot claim the amount

from the endorser in full, but the person who is bearer of
the instrument can claim the amount from drawer, acceptor or
the endorser of that instrument in blank.

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Thus, a negotiable instrument endorsed in blank, even

after being converted in full, remains the bearer instrument
and is negotiable by delivery thereof.

c.) PARTIAL ENDORSEMENT:

No writing on a negotiable instrument is valid for the

purpose of negotiation if such writing purports to transfer
only a part of the amount appearing to be due on the
instrument. But, where such amount has been partly paid,
a note to that effect may be endorsed on the instrument,
which may then be negotiated for the balance.

As a rule, where part of the amount due on the negotiable

instrument is to be transferred by an endorsement, such
endorsement is a partial endorsement and is invalid. This
is because a personal contract cannot be apportioned. Only
when the amount is partly paid; and such fact is noted on
the instrument, the balance can be negotiated by
instrument.

ILLUSTRATION :

The maker of a promissory note for Rs.5000 pays Rs.2000

and the fact is noted on the instrument. The holder can
negotiate the note for the balance amount of Rs.3000.

But take a case like this:

A is the holder of a bill of Rs.1000. A endorses it thus;

“Pay B or order Rs.500”. This is a partial endorsement and
invalid for the purpose of negotiation.

d.) CONDITION OR QUALIFIED ENDORSEMENT:

(SEC.52)

The endorser of a negotiable instrument may, by express

words in the endorsement, exclude his own liability

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thereon, or make such liability or the right of the endorsee

to receive the amount due thereon, depending upon the
happening of a specified event, although such event may
never happen. Where and endorser so excludes his liability
and afterwards becomes the holder of the instrument, all
the intermediate endorsers are liable to him.

ILLUSTRATION:

a.)The endorser of a negotiable instrument signs in

name adding words “without recourse” or “sans
recourse”. Upon this instrument he incurs no
liability.
b.)A is payee and holder of a negotiable instrument.
Excluding personal liability by an endorsement
“without recourse” he transfers the instrument to B,
and b endorses it to C, who endorses it to A. A is not
only reinstated in his former rights, but has the rights
of an endorsee against B and C.

Thus , the endorser by express words can exclude or

limit his liability on the instrument, or make his liability
conditional upon the happening of the specified event, though
such event may never happen. The liability of the endorser is,
therefore, extinguished if the event never happens or becomes
impossible. Though endorser is not liable, all prior parties will
continue to be liable to the endorsee.

It would be interesting to know that the drawer cannot draw bill

conditionally. The acceptor can make his acceptance
conditional, but cannot exclude his liability altogether or make
his liability conditional.

The endorser can exclude his liability by adding the words to his
endorsement ‘without recourse’ or ‘sans recourse’ as given in
illustration a.) above.

NEGOTIATION BACK:

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When an endorser excludes his liability and subsequently the

instrument comes back in his hand, i.e. the instrument is
negotiated back to him, by virtue of which he again becomes the
holder of the instrument, all the intermediate parties will be
liable to him. He cannot however, sue any intermediate party to
whom he was previously liable by reason of his prior
endorsement. The object of this is to prevent circuity of action.
One cannot sue a person to whom he himself is liable. There is
no principal by which a man can be at the same time plaintiff
and defendant. But, where the prior endorsement was ‘without
recouse’ the holder can enforce payment against all the
intermediate parties. This is called ‘Negotiation Back’.

TAKING UP A BILL:

Where a prior party gets back the instrument by ‘negotiation

back’, he may further negotiate the bill. Such a transaction is
called taking up a bill. When he further negotiates the bill he
may not cancel the endorsement of all the intermediate parties.
He may also maintain a suit against parties antecedent to him, to
whom he is not liable by virtue of his earlier conditional
endorsement, by adding the words “without recourse”.

e.) RESTRICTIVE ENDORSEMENT:

Restrictive endorsement prohibits pr restricts further negotiation

of an instrument.
The endorsement may, by express words, restrict or exclude the
right of further negotiation, i.e. it puts an end to negotiability.
The last endorsee can sue upon the instrument. An endorsement
may not restrict further transfer of an instrument though it may
prohibit further negotiation. Restrictive endorsement may entitle
the holder to receive the money on the instrument for the
endorser or for some other specified person i.e., the endorsement
may merely constitute the endorsee an agent to endorse the

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instrument, or to receive its contents for the endorser or for

some other specified person.

The effects of restrictive endorsement can be summarized as

under:

1.)It prohibits further negotiation,

2.)It may constitute endorsee an agent to:
(a.) receive its contents for the endorser; or
(b.) receive its contents for some other specified
person.

ILLUSTRATIONS:

(a.) Pay the contents to C only.

(b.) Pay C for my use.

f.) FACULTATIVE ENDORSEMENT:

When the endorser abandons some right or increases his

liability under an instrument, the endorsement is called
“Facultative”. For e.g., the endorser may by an endorsement
waive notice of dishonour as given in the illustration below:

ILLUSTRATION:

Pay A or order. Notice of dishonour waive.

g.) FORGED ENDORSEMENT:

Forgery is nullity. Where an instrument is negotiated by a

forged endorsement, no person can acquire the rights of a holder
in due course even if he has obtained the instrument for value in
good faith.

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AIR 1977 ANDHRA PRADESH 60

SAMBASIVA RAO, J.

Chavali Kameswara Sarma, Appellant v. Mahankali

Rajaratnam and others, Respondents.

(A) Negotiable Instruments Act (1881), Section 50 –

Promissory Note – Right of endorsee – Whether
endorsee can sue non-executant coparceners of the
executant also along with him.
It is a fundamental principal of the law relating to Negotiable
Instruments that no one whose name does not appear in the
instrument can be held liable thereon, and there is no privity
of contract between the endorsee and the maker or acceptor.
Therefore the right of the endorsee of the promissory note is
limited to his remedy against the executant of the note.
However if the endorsement is so worded as to transfer the
debt as well and the stamp law is compiled with, the endorsee
can sue the non-executant coparceners on the ground of their
liability under the Hindu Law. If the debt is not transferred
and the stamp law is not compiled with, an endorsee cannot
sue the non-executant coparceners.

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(B) Negotiable Instruments Act (1881), Section 50 –

Promissory Note – Endorsement for transfer of debt –
No stamp fixed under the endorsement – Effect.
Though the transfer of the debt was clearly indicated in the
endorsement, the provisions of the stamp law were not
compiled with. In fact, there was no stamp affixed under the
endorsement.
Held that the assignment of the debt was therefore,
ineffective and the transfer was only transfer for collection.

(C) Negotiable Instruments Act (1881), Section 53 –

Promissory note debt – Suit by re-endorsee against
executant and non-executants – Maintainability.
A executed a promissory note in favour of ‘B’ in respect of
some debt. ‘B’ transferred
the debt to his son, the plaintiff by endorsement. But as no
stamps were affixed under the endorsement, the transfer of
the debt was held as only transfer for collection. Therefore
the promissory note debt continued to be asset of the original
payee. The original payee (i.e. father of the plaintiff) had also
left a will bequeathing all his property not mentioned in the
will to his four sons (i.e. Plaintiff and defendants 7 to 9).
After death of ‘B’, the plaintiff made a re-endorsement in
favour of himself and his three brothers who were also
residuary legatees under the will also. A had been adjudicated
insolvent. So the plaintiff filed a suit claiming promissory
note debt, against A (defendant No.1) and his 4 sons
(defendants 2 to 5). Plaintiff also added his three brothers as
defendants 7 to 9 on the ground that they were entitled to a
share in the promissory note debt.
Held that after re-endorsement by the plaintiff in favour of
himself and his brothers, they all were in the place of the
original payee (their father) and therefore they could sue not
only the executant but also his sons. Hence the suit was
maintainable.

JUDGEMENT:-

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1) A question of some consequence in the law of Negotiable

Instruments arises in this Second Appeal. The question is
whether a suit can be filed not only against the executant
of a promissory note but also his coparceners who are non-
executants, when there has been a re-endorsement of the
debt by the endorsee in favour of the heirs of the original
payee under the promissory note.

2) This is a plaintiff’s second appeal. He has been un-

successful in both the courts. He filed the suit to recover a
sum of Rupees 1922/25 ps. being the principal and interest
due on a promissory note dated 7-7-1964 (Ex. A-2)
executed by the 1st defendant in favour of the plaintiff’s
father. Defendants 2 to 5 are the sons of the 1st defendant
who had been adjudicated insolvent. The 6th defendant is
the official Receiver. Defendants 7 to 9 are the brothers of
the plaintiff. They have been added on the ground that they
are also entitled to a share in the promissory note amount
as per endorsement of transfer Ex. A-4 on the promissory
note Ex. A-2.

3) Defendants 1 and 6 to 9 remained ex parte. Defendants 2

to 5 were minors and were represented by their mother.
The debt under Ex. A-2 was transferred to the plaintiff by
an endorsement marked Ex. A-3. Subsequently the father
died having left a will. Under the will all the properties not
mentioned therein were bequeathed to the four sons. Viz.
the plaintiff and defendants 7 to 9. the defence to the claim
came from defendants 2 to 5. On their behalf many
contentions were raised. Inter alia it was contented that the
suit against the 1st defendant is not maintainable because
the leave of the insolvency Court under Section 28(2) of
the Provincial Insolvency Act is not obtained for filing the
suit, that the suit debt was not incurred for family necessity
or benefit and was not binding on the sons. The debt was
liable to be scaled downunder the Madras Agriculturists’
Debt Relief Act. Another contention is that the plaintiff

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and defendants 7 to 9 are the transferees of the suit

promissory note and not entitled to sue the non-executants
of the promissory note i.e. defendants 2 to 5. The last plea
was that they and their father the 1st defendant were
devided by metes and bounds on 25-12-1964 under the
partition deed Ex. B. 1. Properties worth about Rs.
37,000/- were allotted to the share of the 1st defendant for
discharge of the suit debt and other debts, while property
worth Rs.15,000/- was allotted to the share of all the
defendants 2 to 5 put together. Therefore plaintiff and
defendants 7 to 9 should proceed against the share of the
1st defendant only to recover the debt.
4) The trial court found that the suit promissory note Ex. A-2
was true and supported by consideration. Its another
finding is that in the partition no reasonable and proper
provision was made for discharge of the suit debt. The trial
court also held that the endorsement evidenced by Ex. A-3
on Ex. A-2 effected only a transfer of the promissory note
for collection. The plaintiff being the transferee of the
promissory note cannot seek to enforce the instrument
against the non-executants-defendants 2 to 5. It further
held that the plaintiff is a holder in due course of the suit
promissory note. The will set up by the plaintiff was also
found to be true. The court also found that the suit debt
was properly scaled down and that the suit was not
maintainable even against the 1st defendant as the leave of
the Insolvency Court was not obtained. In view of the
crucial findings on issues 1 and 6, the trail court dismissed
the suit.

5) In appeal preferred by the plaintiff, the Subordinate

Judge’s court, Tanuku held that the suit is maintainable
even without the leave of the insolvency court. It had also
rejected the defendants’ case that the partition between
defendants 2 to 5 on one hand and their father on the other
was bona fide one. It also held that on the basis of the
provision in the partition deed, the plaintiff could not be

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forced to proceed against the 1st defendant alone. So far the

view taken by the appellate Court is in the favour of the
plaintiff, however the lower appellate Court was of the
view that the endorsement Ex. A-4 does not entitle the
plaintiff and the defendants 7 to 9, to make the non-
executants liable to the extent of their shares, because the
re-endorsement is not made in favour of all the legal
representatives of the original payee. In the view of that
Court the will cannot operate in respect of the suit
promissory note as it has ceased to be testator’s property
the moment it was endorsed in favour of the plaintiff as
per Ex. A-3.

6) In the light of the findings of the appellate Court, the

question that will have to be decided is whether the debt
evidenced by Ex. A-3 can be enforced by way of suit not
only against the 1st defendant, who is the sole executant,
but also against his sons who are non-executants. It is
useful to recapitulate as to how the two courts dealt with
this question. The trial court was of the opinion that the
original endorsement evidenced by Ex. A-3 is merely a
transfer endorsement for collection of the debt due under
the promissory note and does not transfer the original debt
incurred by the 1st defendant. By the time the re-
endorsement took place under Ex. A-4, the original payee
died and so there was no re-endorsement in his favour.
Consequently the trail court felt that when the endorsee
for collection re-endorsed the promissory note to the heirs
of the original payee, no suit on the foot of the promissory
note can be filed against the sons of the executant who did
not join in the execution of the promissory note. The view
of the appellate Court, however, is different. That court
appears to have been under the impression that the debt
evidence by A-2 itself was transferred. In other words
there was an assignment of the debt by the original payee
to the plaintiff. Consequently the will by the payee could

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not govern this asset, because it did not form part of his
estate. The re-endorsement (Ex. A-4) was only in favour of
the four sons of the payee and was not in favour of all the
heirs. Such an endorsement cannot be, in law, an
endorsement in favour of the original payee with the result
that no suit can be filed against the non-executants.
Mr. M. S. R. Subrahmanyan, the learned counsel, for the
appellant challenges this view. The gist of his argument can
be analyzed in the following manner (1) Under Ex.A-4 there
was a transfer of debt Ex.A-3 evidences an assignment of
debt and not merely transfer for collection. (2) Under the will,
all the residuary assets would go to the four sons and so the
re-endorsement could be only in favour of the four sons and
not in favour of all the heirs of the original payee. (3)
Consequently a suit wherein the our sons of the original
payee are re-endorsees and parties to the suit a claim can be
made not only against the executant but also the non-
executant sons of the executant.

7) It is a fundamental principal of the law relating to

Negotiable Instrument that no one whose name does not
appear in the instrument can be held liable thereon, and
there is no privity of contract between the endorsee and the
maker or accepter. Therefore the right of the endorsee of
the promissory note is limited to his remedy against the
executant of the note. However if the endorsement is so
worded as to transfer the debt as well and the stamp law is
complied with, the endorsee can sue the non-executant
coparceners on the ground of their liability under the
Hindu Law. If the debt is not transferred and the stamp law
is not compiled with, an endorsee cannot sue the non-
executant coparceners. This is the position well settled by
the Full Bench decision of the Madras High Court in
Maruthamuthu v. Kadir Badsha Rowther.

8) Now in regard to the nature of the endorsement under Ex.

A-3 there was a difference of opinion between the trail
court and the appellate court. The trial Court holds that it

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is merely a transfer for collection while the appellate court

found that the debt itself was transferred. It is very easy to
resolve this difference of opinion by referring to the
language of Ex. A-3 itself. In Ex. A-3 the original payee
stated in clear terms that the debt under the promissory
note was transferred to his son, the plaintiff. He proceeded
to say that the transferee could collect all the amount due
under the debt and enjoy it. The expressions “transfer of
the debt” and “enjoyment of the amount collected” are
clearly indicative of the transfer of the debt itself. The
endorsement concluded with saying that the endorsee
himself should bear the profit or loss arising out of the
promissory note debt. There cannot be a clearer statement
of the intention of the original payee to transfer the debt
itself.

9) There is, however a hurdle, that too a serious hurdle, in the

way of holding that there is in law a transfer or assignment
of the debt. Though the transfer of the debt is clearly
indicated in the endorsement, the provisions of the stamp
law are not compiled with. In fact there is no stamp affixed
under the endorsement. Consequently the assignment of
the debt is ineffective. This result once again follows from
the Full Bench decision in Maruthamuthu v. Kadir Badsha
Rowther. Therefore the inescapable conclusion on the
basis of the law is that the transfer is only transfer for
collection.

10) Now if it is transfer for collection what is the

position? Although the endorsee of the promissory note
would not be entitled to recover the debt from the
coparceners in the family, yet if the endorsee retransfers
the promissory note in favour of the original payee, a suit
can be filed against the executant and the other members
of the family to recover the debt of all the members. This
is exactly what has happened in this case. As I have held,
the transfer of the promissory note under Ex. A-3 is in law

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effective only as a transfer for collection with the result the

promissory note debt there under continued to be the asset
of the original payee. There is no dispute that in the will
left by him, the testator categorically provided that all the
assets or properties that were not mentioned in the will
should go to his four sons viz. the plaintiff and the
defendants 7 to 9. after the death of the father, this is to
say, after the will came into force, the plaintiff made a re-
endorsement under Ex.A-4 in favour of himself and his
three other brothers who are the residuary legatees under
the will if the payee. I have no doubt whatever, whether
the re-endorsement is in the favour of the payee or in
favour of his legal heirs, the suit filed by the re-endorsees
would have the same amplitude as the suit filed by the
original payee if he were himself the re-endorsee. On no
principle of law could the heirs be denied the right of the
payee, particularly when he made them residuary legatees
by virtue of which the promissory note and the debt there
under went to them. Therefore the plaintiff and defendants
7 to 9 come in the place of the original payee and therefore
can sue not only the executant but also his sons. Had the
original payee filed the suit, there is little doubt that he
could have filed it not only against the executant father,
but also the non-executant sons. The same thing should
apply when there is re-endorsement in favour of the sons
who become his residuary legatees under the will. I am
therefore of the opinion that the suit, as filed by the
plaintiff adding the other three endorsees as defendants 7
to 9, is maintainable against the 1st defendant as well as
defendants 2 to 5.

11) Since all the other contentions of the defendants were

repelled by the lower appellate court and found in favour
of the plaintiff, it follows that there shall be a decree in
favour of the plaintiff and the defendants 7 to 9 as claimed
in the suit. The plaintiff will have his costs from the
contesting defendants 2 to 5of the trial court as well as the

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appellate Court. Since the respondents though served are

absent, I make no order as to costs in the Second Appeal.
No leave.

Appeal allowed.

GOVINDA MENON AND RAMASWAMI JJ.

(9-7-1954)

P.K.Murugan, Appellant v. Vallabhan Kantan Styled

Kunhanunni and another, Respondents.

Negotiable Instruments Act (1881), S.16-Endorsement,

under-Use of word ‘assign’ or Malayalam word ‘Theera’–
Effect – (Stamp Act (1899), S.2(10))

Where the words “made over” or the word “assign” are used the
intention of the parties has to be looked into and that is whether
the parties wanted to have an endorsement of the promissory
note and not an assignment. If an endorsement contains words
equivalent to a direction to pay, though there may not be the
actual words connoting the direction, it would amount to a
direction to pay and would be ‘an endorsement’ within the
meaning of S. 16, Negotiable Instruments Act.

Thus, where a promissory note was endorsed in English as

“contents received with interest upto date. Please pay to Shri
M.-(Sd) S V” and below it was written in Malayalam “As
written above the promissory note has been assigned to Shri. M
without recourse – (Sd) S V” using the word ‘theera’ and it was
contended that the Malyalam endorsement amounted to a
conveyance in favour of M within S. 2(10) of the Stamp Act;

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Held that because the word ‘theera’ was used it could not be
said that it must necessarily be a conveyance of the rights under
the document under S.2, sub-s. (10) of the Stamp Act.

That the Malayalam writing was not tantamount to any

conveyance or assignment as contemplated in S.2, sub-s. (10),
Stamp Act. It amounted only to an endorsement in full within
S.16,Negotiable Instruments Act and did not require any stamp.

GOVINDA MENON J:

1.) O.S. No.42 of 1951 on the file of the court of the

Subordinate Judge of Ottapalam was a suit filed by the
appellant, petitioner against the two respondents-defendants for
the recovery of a sum of Rs.8542-8-0 from the first defendant
personally and from the income of his stanom properties. The
amount was made up of principal and interest on two
promissory notes, the first dated 6-6-1950 for Rs.5000 and
another dated 9-6-1950 for Rs.3000 executed by the first
defendant in favour of one S.V.Gopalakrishna Iyer and endorsed
to the plaintiff on 28-7-1951. The second defendant has been
impleaded in the suit as the first defendant under a document
dated 10-8-1951 authorised the second defendant to make
collections of the rents due to him from the various tenants of
his and has therefore made it difficult for the plaintiff to have
recourse to those rents for the realisation of the amounts due to
him under two promissory notes.

2.) Pending the suit I.A.No.1291 of 1951 was filed before the
lower court under O.38, R.5, C.P.C., for attachment before
judgment of the rents due to the first defendant which the
second defendant was authorised to collect under the deed dated
10-8-1951 which the plaintiff impugns as an invalid document
brought about with the object of defeating his legitimate claims.

3.) The contention of the first defendant in the suit was that the
two promissory notes were executed by him owing to coercion

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and undue influence of the plaintiff in the name of one

Gopalakrishna Iyer whom he did not at all know and that the
promissory notes were not supported by consideration. Such
being the case it was alleged that as the plaintiff was not a
holder in due course he has obtained no valid right to sue on the
two promissory notes. At the time of the hearing of I.A.No.1291
of 1951 the plaintiff produced the two promissory notes on the
foot of which the suit had been laid. The learned Subordinate
Judge after examining them came to the conclusion that on the
face of the promissory notes there had been assignments of them
in favour of the plaintiff and since those assignments are not
properly stamped as required under Art.23, Stamp Act, until the
proper stamp duty and penalty were paid it was held that the
plaintiff had no right to claim any relief.

The learned Subordinate Judge also went into the question as to

whether there was any justification for the application of the
provisions of O.38, R.5, C.P.C., for attachments of the rents
before judgment on the merits and found that such a course was
not justified and so dismissed the application. But he impounded
the two documents and sent them to the Collector for levying
proper stamp duty and penalty. This was done on the application
by the plaintiff under Ss.10 and 151 and O.17, R.1, C.P.C., for
staying the trail of the suit. On that the learned Judge held that
the stamp duty and penalty should be paid in accordance with
the finding he gave in I.A.No.1291 of 1951 within two weeks
from 16-1-1952and if that was not done the documents would be
impounded and sent to the Collector. A further order was made
on 4-2-1952 that in default by the plaintiff of the payment of
stamp duty and penalty the documents would be impounded and
sent to the Collector.

4.) C.M.A. No.655 of 1951 is against I.A.No.1291 of 1951

dismissing the application for attachment before judgment and
C.R.P. No.367 of 1952 has been preferred against the
impounding of the documents and sending them to the Collector
for collection of stamp duty and penalty. The main question

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argued by Mr.N.Sundara Iyer for the appellant is not that at this

time there is any justification for setting aside the order of the
learned Judge refusing to issue the attachment before judgement
but that the finding of the learned Judge that the two promissory
notes in question were assigned over and not endorsed in favour
of the plaintiff is without jurisdiction and should therefore be
reversed. It may be mentioned that it was not the case of the first
defendant in the Court below nor is it the case here that the
documents were not endorsed and therefore, Mr. Krishna Variar
contends that even if we were to hold that it was by proper
endorsements that the plaintiff as come forward with the suit
still there can be no basis for making the first defendant liable
for any cost in this Court.

Mr.Sundara Iyer has not advanced any argument before us to

show that the learned Judge in the Court below has not
exercised his discretion judicially in refusing to issue the
attachment before judgment. Moreover more than two years
have now elapsed since the order of the lower Court was made
and the crops sought to be attached at that time have all been
harvested and disposed of. In these circumstances we feel that
the order of the learned Subordinate Judge refusing to issue an
order of attachment before judgment under O.38, R.5, C.P.C., is
just on the merits. C.M.A. No. 655 of 1951 is therefore
dismissed with costs.

5.) C.R.P. No.367 of 1952: We have now to see how far the
lower Court was justified in holding that there was no proper
endorsement on the face of the promissory notes. The
endorsements in the two promissory notes are in English which
are to the following effect:
“Contents received with interest upto date. Please pay to Shri
P.K.Murkan son of Kunchan, pazhancheripat house, Mannur
Amsom. Sd. S.V.Gopalakrishna Iyer, 28-7-1951.”
Immediately following each of the endorsements in the two
promissory notes we have another statement in Malayalam
which is as follows:

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BUSINESS LAW F.Y.B.M.S-A

6.) The translation of the Malayalam endorsement is

“As written above this promissory note has been assigned to
Shri P.K.Murugan without recourse. (sd.) S.V.Gopalakrishna
Iyer, 28-7-1951.”
According to the learned subordinate Judge the writing in
Malayalam is not an endorsement but is a conveyance as
contemplated under S.2, sub-s (10) of the Stamps Act and as
such it is not admissible in evidence until proper stamp duty and
penalty are paid. He also finds that the earlier writing in English
does not amount to an endorsement because it was not clear that
as a result of that endorsement the two promissory notes were
handed over to the plaintiff.

7.) the conclusion therefore come to by the learned Subordinate

Judge was that Gopalakrishna Iyer purported to transfer the two
promissory notes to the plaintiff not by the endorsements written
in English but by the alleged assignments which followed the
endorsements. The question, therefore, is whether the second
writing in each of these two promissory notes amounts to a
conveyance as defined in S.2, sub-s. (10) of the Stamps Act or is
it merely an endorsement. No doubt the word used in
Malayalam is ‘Theera’ meaning assignment. But the question is
what is meant by that expression. It is common ground that there
is no term of art in the Malayalam language corresponding to
the English term “endorse”. Ordinarily in documents written in
Malayalam where the word “endorse” has to be used, the
English word itself is used. It is seen that the expression “made
over” is also used but where the word Theera is used while
transferring the rights under promissory notes does it necessarily
mean that it should be deemed to be a conveyance and not an
endorsement? In common parlance it is well known that when
persons whose mother tongue is Malayalam intended to convey
the idea of transferring the rights under promissory notes by
means of endorsements they employ the word Theera generally
and in our opinion it cannot be said that because the word
“theera” is used must necessarily be a conveyance of the rights

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under the document under S.2, sub-s.(10) of the Stamps Act

where the word is defined as follows:
“‘Conveyance’ includes a conveyance on sale and every
instrument by which property. Whether moveable or
immoveable, is transferred ‘inter vivos’ and which is not
otherwise specifically provided for by schedule 1 or by schedule
1-A as the case may be.”

So if there is an endorsement then it is taken out of the term

“conveyance” and under Art.62 of the schedule I of the Stamps
Act certain exemptions is with regard to bills of exchange,
cheques or promissory notes in respect of payment of stamp
duty. In other respects the second column of that article gives
the proper stamp duty payable. In the Madras Stamp Manual
issued by the Government of Madras as part of the instructions
to the Subordinate officers who are authorised to collect stamp
duty we find the Board’s proceedings dated 22-1-19904 and 15-
5-1907 in the following terms:
“The expression ‘transfers by endorsement’ occurring in the
exemption to Art.62 is not restricted to transfers made in the
manner described in Ss. 15 and 16 and in the illustration to S.50
of the Negotiable Instruments Act”.

8.) Under S.16, Negotiable Instruments Act, if the endorser

signs his name only, then the endorsement is said to be “in
blank” but where he adds a direction to pay the amount
mentioned in the instrument to or, to the order of a specified
person the endorsement is said to be “in full”; and the person so
specified is called the “endorsee” of the instrument. Where no
specific words are mentioned to denote how the direction to pay
should be made out it has to be said that when in a promissory
note the endorser used the word “assign” it should be
understood as a direction to pay the amount mentioned in the
instrument to or to the order of a specified person. Looked at in
this way the authority conferred on the plaintiff to realize the
amount can be said to be an “endorsement in full.” In Stroud’s

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Judicial Dictionary, Vol.2, the following is the meaning given to

the word “endorse”:
“Endorsement is that, that is written upon the back of a deed as
the condition of an obligation is said to be endorsed for that that
is written on the back of the obligation.”
We cannot say that the Malayalam writing is tantamount to any
conveyance or assignment as contemplated in S.2, sub-s. (10) of
the Stamp Act.

9.) It is not as if the point did not arise previously for

consideration for we find in a case reported in –
‘Sivaramakrishnan v. Mangalaseri Kunhu’, 33 Mad 34 (A),
practically analogous terms has been used in the endorsement at
page 34. The endorsement in question read as follows:
“I have this day received in cash from you Mangalasheri Kunhu
Moidu Mosaliar . . . . Rs.1169 made up of Rs.1000 being
principal due under this note and of Rs.169 interest accumulated
upto date and assigned to you this note with power to recover
the amount due under it, b showing the same.”
The learned Judges, Munro and Abdur Rahim JJ. held that since
S.16, Negotiable Instruments Act, did not lay down any specific
form of words to be used for the endorsement the entry
“assigned” on the promissory note in the above term amounted
to an endorsement in full on the promissory note and that the
endorsee was entitled as holder in due course to sue on the foot
of the promissory note. As contended by Mr. Krishna Variar for
the respondent the question as to whether the word “assign”
there amounted to a conveyance as contemplated in S.2, sub’s
(10) of the Stamp Act was not specifically considered but we
find the two eminent lawyers of Madras, namely, the late
Mr.T.R.Ramachandra Iyer and Mr.J.L.Rosario appeared for the
parties and both of them were fully conversant with the
Malayalam language in which the endorsement was written. If
there had been any substance in the contention that because the
word Theera was used the translation should amount to a
conveyance then those learned lawyers would certainly have
taken that point. In those circumstances it seems to us that even

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where the word “assign” is used it should be understood as an

endorsement under S.16, Negotiable Instruments Act.

10.) In a later case in – ‘Srinivasa Pillai v. Kannan’, 24 Mad LJ

296(B). The endorsement on the promissory note was in the
following terms “On 31-3-1906 the pronote was assigned to
Pagalmedi Srinivasa Pillai.” But this form of endorsement
appears only in the statement of facts though in the body of
judgement Miller J. has extracted the endorsement thus: “this
note has been made over to so and so. On 31st March.” From this
it was contended that the observations of Miller J. cannot afford
any substantial help to the petitioner in the present case for the
words used are “made over” and not “assigned”. In the very
nature of things we are not in a position to refer to the original
promissory note but where the words “made over” or the word
“assign” are used the intention of the parties has to be looked
into and that is whether the parties wanted to have an
endorsement of the promissory note and not an assignment. If an
endorsement contains words equivalent to a direction to pay,
though there may not be the actual words connoting the
direction it would amount to a direction to pay within the
meaning of S.16, Negotiable Instruments Act. In these
circumstances the Court has to look into the substance and see
whether there was a direction by the holder of the note when the
endorsement was made to pay the money due under the note to
somebody else. It cannot for a moment be doubted that
Gopalakrishna Iyer gave the direction that the amount due under
the promissory notes should be paid over to Shri.P.K.Murugan.
The finding of the learned judge that the Malayalam writing
amounts to a conveyance is untenable and is without jurisdiction
and is therefore set aside. The order impounding the two
promissory notes and sending them to the collector for levy of
proper stamp duty and penalty to be cancelled. The suit will
proceed on the merits. We are not to be understood as
expressing any opinion as to whether the notes are supported by
consideration at all or whether the plaintiff is a holder in due
course. There will be no order as to costs.

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A.I.R 1953 MADRAS 840

VENKATARAMA AIYAR J .

Voruganti Seshireddi, Appellant v Vanka Venkata

Subbayya and others , Respondents .

(a) Negotiable Instruments Act (1881), S . 51 --

Endorsement by payees on different dates .
The section does not require that all the payees should endorse
at the same time ; endorsements on different dates is valid .

(b) Negotiable Instrument Act (1881), S . 48 –

Endorsement and delivery.
Where a promissory note is endorsed and delivered by only one
of the payees there is no valid endorsement and delivery of the
note is ineffectual to operate as negotiation of the note . It is
therefore open to the other payees at any time thereafter to make
a fresh and valid endorsement and negotiation .

JUDGEMENT : -

This second appeal raises a question under S.51,

Negotiable Instrument Act. The first defendant is the appellant .
On 23-10-1943, he executed a promissory note for Rs 2500
(Ex. P-1) in favour of the fourth defendant Illuri Yallamanda

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BUSINESS LAW F.Y.B.M.S-A

Reddi and his sons , defendants 5 and 6 and one Koti Reddi
since deceased .The plaintiff sued as endorsee of this promissory
note , to recover the balance of the amount due thereunder .The
appellant resisted the suit on various grounds . But the only
defence that is now material is that there was no proper
endorsement or negotiation of the promissory note in favour of
the plaintiff and that in consequence , on action is maintainable
thereon . This contention is based on the fact that on 17-4-1944,
the 4th defendant alone made the endorsement (Ex. P-3) and
redelivered the promissory note to the plaintiff and that the other
payees Koti Reddi and defendants 5 and 6 endorsed (Ex. P-4)
and redelivered the note to the plaintiff on 29-12-1945 . The
contention is that u/s .51, Negotiable Instrument Act where there
are several payees, all of them should endorse and deliver the
instrument and there having been one endorsement and delivery
by the 4th defendant on 17-4-1944 and another by his sons on
29-12-1945 , the requirements of the section have not been
complied with.

(2) Section 51 , Negotiable Instruments Act :

This section requires that where there are several

payees, all of them should endorse the instrument . Here, there is
an endorsement by all the payees , though on different dates .
The, section, however , does not require that all of them should
endorse at the same time. In ‘Muhammad Khumarali v
Rangarao ‘, 24 MAD 654 (A) , the defendant had executed a
promissory note in favour of the plaintiff and one Maligiri Rao .
The latter endorsed it to the plaintiff who sued to recover the
amount due on the note . It was held that to operate as a valid
endorsement u/s. 51, it must have been endorsed by all the
payees and that the plaintiff could not recover as the endorsee of
the instrument.

(3)It was next contented that in any event there was no valid
negotiation of the promissory note in favour of the

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BUSINESS LAW F.Y.B.M.S-A

plaintiff as there was no delivery of the instrument by

defendants 5 and 6 and Koti Reddi on 29-12-1945 .

Section .48 , Negotiable Instruments Act :

The section requires both endorsement and

delivery for a valid negotiation and what is argued that as the
promissory note had been delivered by the 4th defendant to
the plaintiff on 17-4-1944, there was o 29-12-1945 only an
endorsement by defendants 5, 6 and Koti Reddi and no
delivery by them and that therefore there was no valid
negotiation . The decision in AIR 1922 Mad 210 (B) on
which the respondent relied was distinguished on the ground
that the delivery of the promissory note by the 3rd defendant
in that case was not to the plaintiff but to his joint endorsees
defendants 4 and 5 and that when the latter endorsed and
delivered the note to the plaintiff, the requirements of Ss. 48
& 51 , Negotiable Instruments Act were complied with
whereas in the present case there was a delivery to the
plaintiff by the 4th defendant on 17-4-1944 without a valid
endorsement as required by the law and an endorsement in
favour of the plaintiff on 29-12-1945, by defendants 5,6 and
Koti Reddi without delivery of the instrument. The plaintiff
did not therefore acquire a valid title as endorsee. That is the
contention .
But the delivery of the promissory note on 17-4-1944
by the 4th defendant cannot be held to be a delivery
constituting negotiation of the instrument as that could be
done only if there was a valid endorsement . If on 17-4-1944,
there was no valid endorsement and this was because it was
only by the defendant – the delivery of the promissory note
by the latter to the plaintiff could not be regarded as delivery
vesting in him the title to the promissory note as a negotiable
instrument . Each delivery being ineffectual to operate as a
negotiation of the promissory note , it was open to the payees
at any time thereafter to make a fresh and valid endorsement
and negotiation . then the other payee decided on 29-12-

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BUSINESS LAW F.Y.B.M.S-A

1945 ,to {-------} in the endorsement and the promissory note

was handed over by the plaintiff to them for that purpose,
they had the right to make an endorsement in accordance with
S. 51 of the act and deliver the promissory note to the
plaintiff.
Therefore , when defendants 5, 6 and Koti Reddi made
the endorsement on 29-12-1945 and then delivered the
promissory note to the plaintiff , there was a valid
endorsement and negotiation of the promissory note to the
plaintiff so as to vest the title in him as holder. There is the
further fact found in this case that the endorsement dated 29-
12-1945 was made by defendants 5, 6 and Koti Reddi under
the directions of the 4th defendant . It must therefore be held
that the requirement of the statute as to endorsement and
delivery have been satisfied and the plaintiff is entitled to
recover as endorsee of the promissory note . In this view , it
is unnecessary to discuss the question whether the
endorsements could operate as assignment of choses in action
.

(4) In the result , the second appeal fails and is dismissed

with costs. No leave .
Appeal dismissed.

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BIBLIOGRAPHY

1.) BUSINESS LAW-- K.R.BULCHANDANI .

2.) NEGOTIABLE INSTRUMENTS ACT – DR.AVATAR

SINGH.

3.) ALL INDIA REPORT ,1955 , MADRAS 53

(VOL.42, C.N.12 )

4.) ALL INDIA REPORT ,1977, ANDHRA PRADESH 60

5.) ALL INDIA REPORT , 1953 , MADRAS 840

(VOL.40 , C.N. 323 )

33