1. This appeal arises out of a suit on a promissory note. The note in question was executed by the appellant in favour of one Aiyasami Naicken on 30th July, 1931 for a sum of Rs. 1,000 of which Rs. 500 was advanced in cash at the time of the execution, and the balance represented a payment towards interest on an earlier mortgage, Ex. Ill in favour of one Rangasami Naicken. In February, 1936 the note was assigned to the plaintiff by an endorsement. The trial Court held that the defendant was entitled to plead Act IV of 1938 and that, to the extent to which the note was in discharge of interest on the prior mortgage, the principal was liable to be reduced to the sum actually advanced in cash. He gave credit for a payment of Rs. 100 made towards principal, passed a decree for Rs. 400, scaling down the interest under the Act, The lower appellate Court, without going into the question whether to the extent of the payment towards the prior mortgage, the promissory note was a renewal, came to the conclusion that the endorsee of the promissory note was not a creditor under Act IV of 1938 and that the debtor was barred by Section 120 of the Negotiable Instruments Act from pleading the defects in the note or the transaction. It seems to us that on both these points the learned District Judge is clearly in error. Section 120 of the Negotiable Instruments Act only prevents the maker of the note from denying the validity of the instrument as originally made or drawn. It does not bar any defence which is independent of a plea that the instrument as originally made or drawn was invalid. Section 3 of Act IV of 1938 defines a creditor as including his assigns and there can be no doubt that the endorsee of a promissory note is the assign of the original promisee even though he has greater rights than an assign by deed in that he is a holder in due course. It has been suggested on behalf of the respondent, relying on observations in the judgment of the Federal Court, Subramanyam Chettiar v. Muthuswami Goundan : (1941)1MLJ1 , that Act IV of 1938 must be deemed to be invalid in so far as it affects the rights of holders in due course of negotiable instruments; or, alternatively, that it must be deemed that this Act does not affect such rights. It seems to. us that these are questions which, so far as we are concerned, are governed by the decision of the Full Bench in Nagaratnam v. Seshayya (1939) 1 M.L.J. 272: I.L.R. (1939) Mad. 151 (F.B.) which went fully into the effect of Act IV upon negotiable instruments and decided that the provisions of Act IV were not invalid even though they may affect the rights of parties under the Negotiable Instruments Act. In this Court therefore, the contention of the respondent cannot succeed. But we certify with reference to Section 205 of the Government of India Act, 1935 that the case involves a substantial question of law as to the interpretation of the Government of India Act.
2. The Courts below have not considered the question whether the portion of the principal of the promissory note which consists of interest due on the earlier mortgage can be deemed to be interest under the explanation to Section 8, having regard to the fact that the mortgagee under Ex. Ill was one Rangaswami Naicker whereas the promisee under the promissory note was Aiyaswami Naidu. It may be that there are facts which would enable the defendant to plead that the interest under the mortgage was due to the same creditor as the creditor under the promissory note. That is a matter which will have to be gone into in the lower appellate Court. We therefore allow the appeal and remand the case to the lower appellate Court for fresh disposal in the light of this judgment. The costs of the second appeal will abide by the result. Court-fee on the second appeal will be refunded.