1. This is an appeal by defendant No. 1 against the concurrent Judgments of both the Courts below decreeing the plaintiff's suit. The plaintiff filed the suit for recovery of a sum. of Rs. 1,047 from defendant No. 1 on the foot of a handnote dated 4-1-46 (Ex. 1). This handnote was executed by defendant No. 1 in favour of defendant No. 2. The plaintiff is the son of defendant No. 2. Defendant No. 2 died during the pendency of the appeal in the Court below and his widow, Mst. Rohini Pandiani, was impleaded as respondent No. 2. Defendant No. 1 is the son-in-law of an agnate of defendant No. 2.
The plaintiff's case was that defendant No. 1 borrowed the sum of Rs. 900 from defendant No. 2 on 4-1-46 and executed the suit-pronote promising to pay on demand. Defendant No. 2 subsequently endorsed this Ex. 1 in favour of his son on 6-9-48 (Ex. 1-A). As defendant No. 1 failed to pay in spite of repeated demands, plaintiff filed the present suit. Defendant No. 2 though served with notice did not appear when the suit was called. Defendant No. 1's defence, however, was that he did not borrow any money from defendant No. 2 and the document, Ex. 1 is not promissory note and further defendant No. 2 had not the capacity to advance the loan in question to him, he himself being a debtor to several other persons at the relevant date.
On the date of the execution of the handnote, i.e., 4-1-46, defendant No. 2 executed a sale-deed (Ex. C) in favour of defendant No. 1 for a sum of Rs. 1,700 in respect of one pie gountic right with appurtenant Bhogra lands covering an area of 2.50 acres. Out of this Rs. 1,700, defendant No. 2 kept in deposit Rs. 900 with defendant No. 1 for which he passed a receipt which is now described as a pro-note (Ex. 1). In about February 1946, defendant No. 2 requested defendant No. 1 to deposit that sum of Rs. 900 with one Madhusudan Panda (D.W. 6). This D.W. 6 on receipt of the said amount passed a receipt in favour of defendant No. 2 and his wife.
Therefore whatever liability the defendant No. 1 had, was thus discharged. Ex. 1 was not returned though the money was paid on the ground that it was misplaced somewhere, and defendant No. 1 being a relation of the family believed in the words of defendant No. 2 and did not press for it. A few months after the execution of the deed of sale, defendant No. 2 and his son trespassed into the land sold under (Ex: 1-C) and cut and carried away the paddy crops raised thereon, which necessitated the filing of a Title Suit (No. 3/47) in the Court of the Subordinate Judge of Sambalpur by defendant No. 1 for recovery of possession and for mesne profits; which suit was decreed on 17-12-47. On account of this, defendant No. 2 transferred Ex. 1 in spite of the payment to D.W. 6 in favour of his son and thereafter he had filed the present suit.
2. The learned Subordinate Judge who heard the suit at the first instance, came to the conclusionthat defendant No. 1 did not borrow Rs. 900 under Ex. 1. But he held Ex. 1 to be a promissory note. He accepted the defence version that defendant No. 1 had paid Rs. 900 to D.W. 6 at the direction of defendant No. 2 and D.W. 6 in his turn executed a receipt in favour of defendant No. 2 and his wife. He further found that the plaintiff had no knowledge of this deposit with D.W. 6 and he was a holder of the promissory note in due course'.
He further found that defendant No. 1 failed to prove that the deposit with defendant No. 6 was the amount covered by Ex. 1. He also came to the finding that there was no evidence that the endorsement was without consideration and accordingly he decreed the suit. The learned District Judge on appeal concurred with all the findings of the learned Subordinate Judge stated above; but disbelieved the story of deposit with D.W. 6 by defendant No. 1 and accordingly dismissed the appeal. It is against this Judgment that the present second appeal is directed.
3. Mr. G. K. Misra, learned counsel appearing on behalf of the appellant, contended that Ex. 1 is not a promissory note within the meaning of the Negotiable Instruments Act, nor is it an acknowledgment of debt with agreement to pay. His second contention was that assuming Ex. 1 to be a promissory note, the plaintiff is not a holder in due course, and therefore he is not entitled to bring the suit on the foot of Ex. 1 and Ex. (A). His third contention was that the liability, if any, of the defendant No. 1, stood discharged and therefore even if it was an actionable claim it was not enforceable in law. I will take up the points one by one.
4. With regard to the first point, Mr. Misra contended that it is not a promissory note within the meaning of the Negotiable Instruments Act (Act XXVI of 1881) hereinafter referred to as 'the Act'. Before dealing with the provisions of the Act, I would first of all like to refer to the terms of the document itself, because the character of the document can only be decided by reference to the words employed therein. Thus the words used in the document are:
'Nashata Tanka Adya Jama Rakhilu. Ukata Tanka Apala Chahinba Matre Ambhe Asula Debu''; the English rendering of which would be: 'Today I am keeping the sum of Rs. 900 in deposit with me, and I will make over the said amount to you as soon as you require the same.' Section 4 of the Act defines 'promissory note' to be an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. Thus, there must be an express undertaking to pay in the instrument itself before it can be held to be a promissory note.
A mere implied undertaking would not render the document a promissory note. It is a settled principle of law that a memo stating a particular sum of money deposited, to be returned on demand, is not a promissory note. Mr. H. Sen, learned counsel for the respondents, however, contended that Ex. 1 is a promissory note because there is an unconditional promise to pay and the internal evidence existed therein, that is the affixture of four one-anna stamps to the document coupled with the language used therein. He further contended that D.W. 2 who isthe scribe of the document said that he understood Ex. i to be a promissory note.
As I have stated above, the document having used the words 'the amount is kept in deposit' cannot render it to be a promissory note, just for the fact that defendant No. 1 promised to return the money as soon as wanted. Mr. Misra in this connection relied upon a recent decision of the Supreme Court reported in Annamalai v. Veerappa, (S) AIR 1956 SC 12 (A), The document concerned in that case was a cadjan voucher and was as follows:
'Credit to Kandanur Veerappa Chetty, Shan-mukham-Debit to VY. A. of the above place.Your mother's Stridhanam money, 'Eadu pon Kalutturu' money and sundry jewels, etc., money, inclusive of interest is Rs. 1,310. We shall pay the said sum of rupees one thousand three hundred and ten together with interest thereon at 1/2, 1/16, 1/32 (19/32) per cent, per mensem, by calculating (and adding) interest once in 12 months. To this effect. (Signed in Tamil) Ramanathan.'
It was contended in that case that this cadjan voucher was a promissory note. Their Lordships of the Supreme Court held that whether a transaction is a transaction of loan or deposit, does not depend merely on the terms of the document, but has got to be judged from the intention of the parties and alt the circumstances of the case.
Their Lordships after taking into consideration the circumstances held that the mere use of the words 'we shall pay the said sum'' did not make any difference in the position even though the transaction was a transaction of deposit as above stated, and the deposit can be coupled with an agreement that it would be payable on demand. Such an agreement can be implied or express; and if an express agreement was recorded in the document in terms of the above, the transaction of deposit could not thereby be converted into a promissory note; in other words 'we shall pay the said sum' could not convert the document into a promissory note.
In the present case, the mere fact that the document bore four one-anna stamps and the impression of the scribe would not make it a promissory note when it clearly states that the amount was kept in deposit. Relying upon the decision of their Lordships of the Supreme Court, I would hold that the document in question cannot be said to be a promissory note.
5. With regard to the second contention of Mr. Misra that even assuming the document to be a promissory note, whether the present plaintiff would be considered to be a 'holder in due course'. The term 'holder in due course' is defined in Section 9 of the Act, and it reads as follows:
''Holder in due course' means any person who for consideration became the possessor of a promissory note, bill of exchange 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 without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.'
The present plaintiff is the holder of the document Ex. 1, by virtue of the endorsement made by defendant No. 2, his father (Ex. 1-A). According to Section 16 of the Act, the endorsement may be 'in blank' or 'in full'. Section 16 reads as follows:
'Section 16 (1) If the indorser signs his name only, the indorsement is said to be 'in blank' and if he adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person the indorsement is said to be 'in full' and the person so specified is called the 'indorsee' of the instrument.
(2) The provisions of this Act relating to a payee shall apply with the necessary modifications to an indorsee.'
Thus, under Section 9, in order to be a 'holder in due course', three conditions are necessary, viz.,
(1) that the endorsee becomes the holder in duelcourse when it is for consideration.
(2) he can he an indorsee before the amount mention-ed in the promissory note became payable; and
(3) without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
The document. Ex. I/A, itself states that Ex. 1 is being transferred to Puma Chandra Panda, that is, the plaintiff, and all rights thereunder were sold to him by defendant No. 2 his father, Dayssagar Panda. In this connection, it would be pertinent to refer to the evidence of P.W. 1 himself in order to see whether the endorsement was for consideration or not. P.W. 1 himself had stated in his deposition that he had paid some money before the actual date of the transfer, and some other amount after that; but he stated in unmistakable terms that no money whatsoever was paid on that date of the endorsement.
Ex. 1/A appears to have been sold and does not appear to be an endorsement in terms of Section 16 either 'in blank' or 'in full'. Further, the evidence regarding the passing of consideration not having been proved, it cannot be said that the 1st condition under Section 9 had been complied with. Mr. Sen, however, contended that the endorsement having been signed by defendant No. 2, the presumption under Section 118 of the Act ought to apply. He further contended that under Clause (g), the holder of a negotiable instrument is a holder in due course; provided that where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.
In this case, I must hold that the burden has not been discharged at all. Mr. Sen in this connection referred to Section 53 of the Act. Section 53 states that a holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that holder in due course. Therefore, if the conditions as laid down under Section 9 are fulfilled, Section 55 will undoubtedly come into play. But as I have held above, the first condition regarding consideration under Section 9 has not been complied with. Therefore, Section 53 will have no application.
Now coming to the second condition, that the indorsee can only be a holder in due course when it is endorsed before the amount became payable. The amount under a promissory note becomes payable either on demand or at maturity. Therefore, in this connection it will have to be considered whether there was demand before the endorsement was made. The document was executed on 4-1-46, and theendorsement was made on 6-9-48. It is stated in para. 2 of the plaint that 'defendant No. 1 promised to pay the amount borrowed on demand, but defendant No. 1 failed to pay anything to defendant No. 2 in spite of repeated demands........ ....' Therefore, the plaintitf's very allegation in the plaint was that the 1st defendant failed to pay anything to defendant No. 2 in spite of repeated demands. Defendant No. 2 cannot make any demand after 6-9-48, nor can the plaintiff make any demand before that date. Therefore, according to the plaintiff himself, the demand was made by defendant No. 2 before the endorsement in favour of the plaintiff was made. The plaintiff had filed the suit on 29-10-48, that is, a little over a month after the endorsement was made in his favour.
Thus, from the facts stated above, it is obvious that the endorsement was made after the amount became payable. With regard to the third condition, viz., whether or not the plaintiff had sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. The defence was that it is according to the instructions of defendant No. 2, the 1st defendant made the payment of this Rs. 900 to one Madhu Sudan Panda, D.W. 6 and D.W. 6 in his turn executed a receipt in favour of defendant No. 2 and his wife, who was impleaded after the death of defendant No. 2; defendant No. 2 having died during the pendency of the appeal before the lower appellate Court.
Thus, it cannot be said that the third condition under Section 9 has been fulfilled in this case. In this connection, Mr. Misra relied upon a decision of the Allahabad High Court reported in Ratan Singh v. Pirbhu Dayal, AIR 1931 All 302 (B). In that case, their Lordships referred to the document in question which reads as follows:--
'On 25th June 1924, Rs. 2,341 were found due from me to Pirbhu Dayal about bahikhatta dated 27th February, 1923, and as the money cannot be given at present hence it has been agreed upon that I would pay interest at 1 per cent, per mensem. Therefore, this pronote, payable on demand (ruqquin-dal talab) has been executed, so that it may serve as evidence and may be useful in time.'
Prom the above, it is obvious that the expression 'Ruqqu' was used in the document itself, and their Lordships held that where a document described in the body as a pronote, recites the fact that Rs. 2,341 arc due from the defendant to the plaintiff and thereafter records the fact that as the defendant was at that time unable to pay the amount, he agreed to pay the interest specified in the document, it merely amounts to an acknowledgment of debt coupled with an agreement to pay interest. It is not a promissory note as it contains no unconditional undertaking to pay a certain sum of money.
The mere fact that any person chooses to give a certain title to a document by no means makes it that document; and their Lordships held that the document in question was not a promissory note within the meaning of the Statute.
6. Now coming to the third contention of Mr. Misra that even if it is a valid endorsement, it cannot amount to a transfer of an actionable claim. The repayment of the aforesaid amount is not a new story set up by the 1st defendant. The 1st defendant had to bring a suit, as I have stated above, for recoveryof possession and mesne profits in the Court of the Subordinate Judge, Sambalpur, in title suit No, 3 of 1947. In that suit, defendant 2 and his son filed a written statement which was marked as Ex. G. This question of repayment was mooted therein.
In spite of demand, the defendant No. 2 did not file the receipt granted by D.W. 6 into Court. In the present suit, defendant No. 2 though alive, during the trial, did not appear to deny the repayment, nor did he file the receipt executed by D.W. 6. Accordingly, if the defence version is accepted, even it it is an actionable claim within the meaning of Section 130 of the Transfer of Property Act, it will not be enforceable. D.W. 6 has pledged his oath, and has taken the liability upon himself. D.W. 1, the 1st defendant, deposed to the1 same effect and had specifically called upon defendant No. 2 to produce the document, but it was not produced.
Mr. Sen, however, contended that even if the defence version is accepted, it would at best amount to a novation of the contract, and the said contract cannot be a legal contract; and therefore, even if any payment is made by defendant No. 1 to D.W. 6, it cannot amount to a legal discharge of the debt under Ex. 1.
In this connection, he referred me to two decisions of the Madras High Court reported in Venkata-ratnam v. Kanakasundara Rao, AIR 1936 Mad 879 (C) and Gopalan v. Lakshminarasamma, AIR 1940 Mad 631 (D). In AIR 1936 Mad 879 (C), it was held that where the finding of the Court that the plaintiff is not a holder in due course, is based on the fact that he did not go into the witness box and did not prove that he had paid consideration for the endorsement, and is not based on any evidence showing that the plaintiff did not act in good faith and did not pay consideration for endorsement, the finding is vitiated by a material error of law on account of omission by the Court to bear in mind the presumptions contained in Clauses (a), (c) and (g) of Section 118.
Their Lordships further held that where an endorsee of a promissory note payable on demand is not aware that the promissory note has been discharged or that any demand was made, he must be deemed to be a holder in due course, even if as a matter of fact the endorsement in his favour was made after the discharge. In the case reported in AIR 1940 Mad 631 (D), their Lordships held that in the case of a promissory note which is payable on demand, it does not become payable until the demand is made.
On the demand being made it falls due immediately. Where a maker of a promissory note payable on demand has before there being any demand made by the payee paid the amount without asking for the return of the promissory note and the note is endorsed by the payee to a third person without latter's knowledge of the fact of payment, the endorsee is entitled as holder in due course, to sue the maker on the promissory note. In view of my above findings, under Section 9 of the Act, the plaintiff cannot he held to be a holder in due course.
In this connection, it would be necessary to mention that defendant No. 2 did not return the document after the payment was made to D.W. 6 on the ground that it was mislaid; and defendant No. 1 being the son-in-law of the agnate of defendant No. 2, believed in him and did not press for the returnof the same. The relationship of the father and theson between the endorser and the endorsee thus assumes great importance. Accordingly the decisions relied upon by Mr. Sen are of little avail to him.
7. All the contentions raised by Mr. Misra arewell-founded, and I have no hesitation in holdingthat the document, Ex. 1, was not a promissory noteand that even if it were so, the plaintiff was not theholder in due course, and that the transfer in thecircumstances by means of an endorsement cannotbe held to be an actionable claim enforceable inlaw. Accordingly, I would set aside the Judgmentof the Courts below and dismiss the plaintiff's suit.In the result, the appeal succeeds, and is allowedwith costs throughout.