Amberson Marten, Kt., C.J.
1. This appeal raises one of those difficult questions where one of two innocent parties has to suffer for the fraud of a third, On the evidence before us it is clear that the plaintiff has been defrauded by his trusted agent one Fernandes, who has forged the endorsements on certain Improvement Trust debentures entrusted to his charge and has since absconded. The modus operandi of the fraud was as follows. Taking the old debenture No. 2483 as an example, this debenture (which was transferable by endorsement) wan originally issued on September 29, 1903, by the Trustees for the Improvement of the City of Bombay in favour of the Bank of Bombay or order. Subsequently by endorsement this debenture became payable to the plaintiff or order. Fernandes at a later stage forged the signature of the plaintiff so as to make the debenture payable to himself (Fernandes) or order. Then subsequently after a transaction with the Bank of India, he endorsed the debenture in favour of the Alliance Bank of Simla, and they in their turn renewed the debenture by giving it up together with a companion debenture No. 2484 and receiving in lieu of those two debentures a new debenture No. 5286, dated December 13, 1918, and payable to the Alliance Bank of Simla or order for Kb. 1,000 the aggregate amount of the two old debentures.
2. An important point to notice is that the Alliance Bank thus became possessed of a new debenture. They in their turn endorsed the new debenture over for value to the Mercantile Bank or order, who are the 3rd defendants and the present appellants. Subsequently, the plaintiff discovered Fernandes' fraud, and he brought this suit against Fernandes and the Alliance Bank and the Mercantile Bank. Fernandes, as I have already said, absconded and did not appear at the hearing. The Alliance Bank have been struck out of the proceedings, and the remaining defendant is the Mercantile Bank.
3. The plaint was framed on the basis that the plaintiff was the owner of the thirty-one old debentures as well as of the twelve new ones. He, accordingly, claimed inter alia that the Mercantile Bank might be ordered to transfer and hand over to him all those debentures or alternatively to pay him Rs. 14,800 being the value thereof together with all interest thereon. The defence of the Mercantile Bank is really set out in their solicitors' letter of December 22, 1924, where they say that the renewed debentures were issued to the Alliance Bank,
and by that Bank endorsed to our clients who obtained possession of them for value without notice of any irregularity or fraud. They claim to hold them as security for the amount owing to them by Mr. Fernandes, and they are therefore unable to admit the right of any party to take delivery of the debentures until the amount owing to them by Mr. Fernandes has been paid of.
In other words, the Bank claim to be bona fide holders for value without notice. Their transactions with Fernandes, I will deal with later.
4. The learned Judge has decided the case in favour of the plaintiff, and he has held in particular that the renewal of the debentures can make no difference where the title to the old bonds depends on a forged endorsement: and that each renewal is regarded in law merely as the fruit of the original bond: and that consequently the Mercantile Bank must fail having regard to the forged endorsements on the old debentures. In this connection the learned Judge's judgment in the other two suits Nos. 342 and 340 of 1925 should also be considered.
5. As to this, I will first say a word as to these so-called debentures. They are issued under the City of Bombay Improvement Act 1898. Section 52 gives the board of trustees power to borrow. Section 55 provides for a sinking fund, and inter alia contains provisions as regards debentures purchased by the Board for the purposes of that sinking fund. Then Section 58(1) says:
When money is raised by the Board on debentures, the debentures shall be in the form of Schedule B, or in such other form as the Board, with the previous consent of Government, shall from time to time determine.
Sub-section (2) provides that the holder of any debenture-
may obtain in exchange there for, upon such terms as the Board shall from time to time determine, a debenture in any other form so authorized.
Sub-section (3) states :-
Every debenture issued by the Board shall be transferable,-
(a) if it is in the form of Schedule B, by endorsement, and
(b) if it is in any other form, in such manner as shall be therein expressed.
6. Sub-section (4) :-
The right to sue in respect of the moneys secured by debentures issued under this section shall vest in the respective holders thereof for the time being, without any preference by reason of some of such debentures being prior in date to others.
7. Then there are certain provisions in Section 58A as regards payment to the survivor when the debenture is payable to one or more persons jointly, which I need not detail. The debentures in the present case are 'in the form of Schedule B,' and if one turns to the debentures themselves, they will be found in effect to be promissory notes. They are payable to the payee or order, and on the back there are provisions for some fifteen years' payment of interest, and there is another column for endorsement?. There is also a provision for renewal in this form : 'Received in lieu of this New Debenture' for X rupees. Then there is a note: 'This debenture can be renewed at any time at the option of the holder ;.n payment' of the prescribed fee. The debentures are payable on August 20, 1963. They contain no charge on any property.
8. I may also note in passing that so far as the new debenture No. 5286 is concerned, as is also the case with other renewed debentures, there is some reference to the old debentures. Thus in this new debenture there is written at the top 'No. 2484,' which refers to one of the two old debentures, There is also written in the bottom corner the word 'Consolidation.' But each new debenture has its own new number. Across the body of each old debenture is now stamped the word 'cancelled.'
9. To complete the facts, I may mention that Fernandes had an account with the Alliance Bank of Simla, and that at some time prior to 1918 he pledged the debentures in question as security for his own over-draft. On December 13, 1918, the Alliance Bank obtained from the Improvement Trust the renewed debentures. In May 1921 Fernandes opened an account with the Mercantile Bank, and they paid the Alliance Bank the then over-draft owing by Fernandes, and took from them the securities which Fernandes had lodged with the Alliance Bank (see Exhibit 9). Fernandes also passed a promissory note and letter of hypothecation in favour of the Mercantile Bank which was renewed in May 1924 (see Exhibit 10).
10. That is the connection of the Mercantile Bank with Fernandes. But there is nothing in the case to suggest any ground for suspicion as regards the dealings by the Mercantile Bank with Fernandas, He appears up to the time of this fraud to have been a gentleman of respectability and responsibility who was trusted by his own compatriots and others. There is no suggestion here that the Mercantile Bank ware in any way aware, or could haves been aware, that a fraud had been committed on the true owners of the old debentures. In other words, apart from the question of the effect of the forgery, the Mercantile Bank would be holders in due course 01 the new debentures within the meaning of Section 9 of the Negotiable Instruments Act. Further, it was admitted by counsel for the plaintiff at the trial as follows: 'Taraporewalla does not dispute that the bonds were reissued to Alliance Bank and transferred to Mercantile Bank.'
11. Now I think it important, in the first place, to arrive clearly at what sort of document this so-called debenture is. As a result of the discussion at the bar, it is now common ground that this debenture is a promissory note and therefore a negotiable instrument within the meaning of the Negotiable Instruments Act (see Sections 4 and 13). In ray judgment this is clearly the right view to take of the document; and I can see nothing in the City of Bombay Improvement Act 1898 which militates against this view.
12. Therefore, we have to consider a case where the document in question is a negotiable instrument. That clears the ground to some extent. Further, there is nothing before us to show that there is any register of debenture-holders kept by the Improvement Trust, or that there is anything in the nature, so far as the suit debentures are concerned, of registration of transfers or anything of that sort. On the contrary, the Act says that the debentures are to be transferable by endorsement. Therefore, the class of case where corporations have been held liable in England for acting on forged transfers and have been ordered to replace stock do not strictly apply here. In other words, we have to deal here with a negotiable instrument, and not with the more ordinary case of shares or debentures transferable by and registered in a share or debenture register.
13. I will, therefore, only note in passing that in Sheffield Corporation v. Barclay  A.C. 392 Lord Davey states the principles on which the corporations in those particular cases have been held liable, He says (p. 399):-
I think that the appellants haven statutory duty to register all valid transfers, and on the demand of the transferee to issue to him a fresh certificate of title to the stock comprised therein. But, of course, if is a breach of their duty and a wrong to the existing holders of stock for the appellants to remove their names an register the stock in the name of the supposed transferee if the latter has, in fact, no title to require the appellants to do so.
14. But he adds at p. 403:-
I am also of opinion that the authority keeping a stock register has no duty of keeping the register correct which they owe to those who come with transfers. Their only duty (if that be the proper expression) ia one which they owe to the stockholders who are on the register.
15. Then he cites Lord Justice Cotton in Simm v. Anglo-American Telegraph Company (1879) 5 Q.B.D. 188 where Lord Justice Cotton says (p. 214):-
The duty of the company is not to accept a forged transfer, and no duty to make inquiries exists towards the person bringing the transfer It is merely an obligation upon the company to take care that they do not get into difficulties in consequence of their accepting a forged transfer, and it may be said to be an obligation towards the stockholder not to take the stock out of his name unless he has executed a transfer; but it is only a duty in this sense, that unless the company act upon a genuine transfer, they may be liable to the real stockholder.
16. Let us consider then the position in the present case on the basis which we hold to be the true one, viz., that each old or new debenture was a negotiable instrument. That being so it would be clear (apart from a certain argument on Section 58 of the Negotiable Instruments Act which I will mention later) that a forged endorsement being no endorsement, all subsequent endorsements would be inoperative and invalid. Consequently the true owner could sue the drawer 'of the promissory note. Further, if the drawer had chosen to pay somebody else on this forged endorsement, then prima facie he would have to pay over again to the true owner of the document. This is because a case of forgery-at any rate under English law-is an exception from the ordinary rule laid down in Goodwin v. Robarts (1876) 1 App.Cas. 476, viz., that where you have a negotiable instrument transferable in that particular case by delivery, then the mere fact that the true owner has been deprived of that document by fraud will not prevent a subsequent bona fide holder for value from being entitled to sue upon it. Consequently it was there held that the banker being a bona fide holder for value was not liable to the original owner either in trover for the scrip itself or in assumpsit for the value received upon it.
17. That case was followed by Mr. Justice Kennedy, as he then was, in Bechuanaland Exploration Co. v. London Trading Bank  2Q.B. 658. There the secretary of the company had in fraud of his masters taken the debentures from the safe of which he had the key, and had pledged them with the bank for his personal advances. It was there held that the bank were entitled to the debentures as against the plaintiff's on the ground that the debentures wore negotiable instruments transferable by delivery.
18. If then in the present case we had only one document, viz., the old debenture and. the bank were endorsees after the forgery, then it would be clear, as far as English law goes, that the bank could not hold it against the plaintiff, having regard to the Bank forgery. Consequently up to this point I agree with the learned Judge.
19. But this brings me to what I regard as the crux of the case, viz., the effect of the renewal of the old debentures. What we have here in every case is that the old debenture has been given up to the Improvement Trust who have purported to cancel it and who have issued in its place a debenture not for the same amount but for a different amount. It is true that in the aggregate the amount payable on the new debentures equals the amount payable on the old debentures. But nevertheless we have in terms at any rate a new contract for payment by the Improvement Trust, and instead of it being in its inception to the original payees, viz., to the Bombay Bank or order it is to be paid to the Alliance Bank or order. Indeed the only thing on the new debenture to suggest that it has anything to do with any former transaction is the additional number written in ink at the top and the word 'consolidation' in the bottom corner.
20. We have listened attentively to the arguments that have been addressed to us on both sides. It was contended for the plaintiff that this renewal merely amounted to a substitution of one piece of paper for another, that nobody's rights were really affected as the same aggregate amount was payable on the same ultimate date and at the same aggregata interest. It was further said that the right to sue the prior endorsees on the old debenture would still remain and that the mere fact that the old debenture was left in the custody of the Improvement Trust really made no difference. But in my judgment this is not the true view to take. It may be that if we wore only concerned with the Alliance Bank, who were the last apparent endorsees on the old debenture, and the first payees on the new debenture, the situation might be different. I say nothing as to that. But we have to deal with a case where it is sought to claim from the endorsees of the new debenture, viz., the Mercantile Bank, the document in question.
21. In the view I take, the effect of the renewal was that the two earlier contracts for Us. 500 each were determined, and there was a new contract by the Improvement Trust to pay the consolidated sum of Rs. 1,000. In my judgment the Mercantile Bank were not put upon enquiry by reason of the reference number to one of the old debentures, nor from the use of the word 'Consolidation.' I think that they were entitled to treat the new debenture as being what it purports to be, viz., an actual promise by the Improvement Trust to pay on a future date the sum. of Rs. 1,000 to the Alliance Bank or order.
22. That being so, it follows that in my judgment the Mercantile Banks are holders In due course of the new debenture, and it being a distinct document from the old debenture they are in no way concerned with any invalidity of the old debenture, nor with any invalidity affecting the surrender by the Alliance Bank to the Improvement Trust of the old debenture. With respect, therefore, I am enable to agree with the view of the learned Judge that the new debenture was merely the fruit of the old one, and that therefore the parties under the new debenture stood in exactly the same position as under the old one. For that purpose he has relied on a decision of Mr. Justice Russell in Hunsraj v. Ruttonji I.L.R (1899) Bom. 65: 1 Bom. L.R. 734. There, after holding in that particular case that the plaintiff was entitled to recover certain shares and debentures and Government promissory notes which had been stolen and in respect of which there had been forged endorsements, Mr. Justice Russell went on at p. 74 to deal with two Government promissory notes which had been renewed, and he there held that the fact of their renewal and the fact of their having come into the hands of assignees for value made no difference. For the reasons above given, I am unable to agree with that decision, though I quite appreciate that Mr. Justice Kemp, sitting as a Judge of first instance, felt himself bound by it.
23. The learned trial Judge also relied on another case of Lee v. Zagury (1817) 8 Taunt 114. as being an authority in England for the same proposition. Now that case requires careful reading, and, if that is done, I. think it will be seen that it is not an authority for the proposition in question, but that it depends on its own particular facts. What happened there was that a bill was drawn by defendant on C which at the time of its dishonour was held by D who sent it to E to be forwarded to F as agent for collection from defendant. F fraudulently endorsed it in favour of one Vidal. Now at that time the bill was over-due, and therefore Vidal took it subject to all equities. Vidal then went to defenddant and obtained in substitution a second bill drawn on A and payable to himself, Vidal then endorsed this second bill over to his agent the plaintiffs. It was held that the second bill was the property of defendant No. 1 and that the plaintiffs were not entitled to recover the amount from the defendant. I think that the ground of this decision was that as Vidal took the first bill subject to all equities he was in effect in the position of a trustee of the first bill for D inasmuch as it had been endorsed in fraud of D by F. Consequently Vidal being in the position of a trustee with notice of a breach of trust, the mere fact that he surrendered that bill and obtained another one could make no difference for the trust property could be identified and followed. So, too, the fact that Vidal endorsed the second bill over to his own agents the plaintiffs, that also made no difference for they would stand in his shoes. Consequently, in that case the Court was not concerned, as we are here, with an endorsee of a current bill without notice of any illegality or fraud.
24. Then there is another case of Banku Behari Sikdar v. Secretary of State for India I.L.R (1908) Cal. 239. But there, again, the Court had not to consider the rights of the endorsees of another bill.
25. In the view then which I take, this present case depends on the consequences of our finding that the new debentures were separate negotiable instruments from the old debentures. So far as the new debentures are concerned there was no forgery and there was no fraud of which the Alliance Bank or the Mercantile Bank had notice. The result is that in my judgment the Mercantile. Bank are entitled to retain these new debentures, and consequently the plaintiff's claim against them must fail. I need not, therefore, consider the bank's alternative argument under Section 58 of the Negotiable Instruments Act to the effect that they are thereby protected against forgery as well as other kinds of fraud under Indian as opposed to English law.
26. I wish to add this. We have not got the Improvement Trust before us, and therefore I will say nothing definitely as to whether the plaintiff has any remedy against the Improvement Trust, But we have asked for an explanation as to why the plaintiff did not sue the Improvement Trust upon the old debentures. The only answer that we have been given is that the plaintiff framed his present case in reliance on the decision of Mr. Justice Russell in Hunsraj v. Ruttonjee. In giving then our present decision in favour of the bank we by no means decide that the plaintiff has necessarily lost his money by the fraud of his agent Fernandas. It may be that he has only mistaken his remedy, and that the true persons who ought to pay him are the Improvement Trust, and that the latter in their turn may have remedies over against other parties, if and when they are called upon by the present plaintiff to pay up the old debentures.
27. The result will be that the appeal of the Mercantile Bank will be allowed and the decree of the trial Court varied accordingly and the suit dismissed as against the Mercantile Bank, As regards costs, we will first hear counsel before deciding.
28. I agree. I cannot regard Lee v. Zagury (1817) 8 Taunt 114. as an authority for the wide proposition stated in the judgment of the learned trial Judge in Suit No. 404 of 1925, Appeal No. 33 of 1927, that a renewal of a bill is regarded in law merely as the fruit of the original bill. The question whether the renewal of a bill ought to be regarded merely as the fruit of the original bill must depend on the circumstances of each particular case, As was pointed out by Mr. Justice Dallas in the course of the argument in Lee v. Zagury, that case was a very special case, and the decision given upon it by the Court would never touch any other case but its parallel. In Lee v. Zagury, Vidal took the original bill when it was over-due. Vidal, therefore, took it subject to all the equities to which it was then liable. The further negotiation of that bill could properly have been objected to by the person who was then the real owner, namely, Sebag. Accordingly, inasmuch as a new bill was given to Vidal in place of the original bill, Sebag would clearly in my judgment have been entitled to intervene, if necessary by action, to restrain Vidal from dealing in any shape or form with the new bill. To that extent and on those facts the new bill might properly be described as the fruit of the original bill.
29. It is, however, important to observe that in Lee v. Zagury there was no negotiation of the new bill which was taken by Vidal in place of the overdue bill. But in the present case, as has been pointed out by the learned Chief Justice, whatever might have been the rights of the plaintiff as regards the Alliance Bank, with which we are not concerned and as to which it is unnecessary to express any opinion, the Alliance Bank negotiated to the Mercantile Bank documents which on the face of them were negotiable. That being the case, it cannot, in my judgment, be said that the renewals of the original debentures, which were so negotiated, ought in law to be treated as the fruit o-f the original debentures. In my opinion the plaintiffs have no cause of action whatever against the Mercantile Bank. Speaking for myself, I think that when the Alliance Bank handed in to the Improvement Trust the old debentures for the purpose of obtaining new debentures, they contemplated the cancellation by the Improvement Trust of the old debentures, and were content to take the new debentures which were issued to them in discharge of all rights which they might have had under the old debentures. Be that as it may, the Improvement Trust having issued, as they were entitled to do, new debentures which on the face of them were negotiable instruments, the moment those instruments got into the hands of holders in due course, it became, in opinion, impossible for the plaintiffs to claim any rights to them. The Mercantile Bank, having become holders in due course, under the Negotiable Instruments Act obtained an indefeasible title to those instruments. The claim made to them by the plaintiffs is, therefore, entirely inconsistent with the title to them which the law confers upon the Mercantile Bank. For these reasons I agree with the judgment of the learned Chief Justice that the appeal of ths Mercantile Bank must be allowed.
Amberson Marten, Kt., C.J.
30. (on costs), As regards costs we think that the plaintiff must pay the costs of the appeal, and also the costs of the bank in the Court below except on the issues on which the bank failed in the lower Court and have not appealed, viz., the issues as to whether the plaintiff was the owner of the old debentures and as to whether his signature had been forged on the old debentures and as to whether the plaintiff is estopped. As to those latter issues the bank will pay the plaintiff's costs and there will be a set-off as to costs. The formal decree of the trial Court will require some alteration. As far as the declaration is concerned there will be a declaration to the effect that the plaintiff is not entitled to the new debentures therein mentioned as against the Mercantile Bank. As regards the direction in the decree that the bank should hand over those new debentures, that direction will of course be discharged.