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Judgment
T. Sathiadev, J.—Defendants 1 and 2 in O.S. No. 1760 of 1971 on the file of the City Civil. Court, Madras, are the appellants. Plaintiff and
defendants 3 to 7 are the six respondents herein. Defendants 4 to 7 remained absent and they were set ex parte in the suit. The suit was laid for
recovery of a sum of Rs. 14,210 with future interest and costs.
It was claimed in the plaint as follows: Defendants 2 to 7 are partners in the first defendant firm. For the valuable consideration received at
Bombay, first defendant gave to one Meenakshi a cheque for Rs. 14,000 on 24.11.1970, drawn on Canara Bank. On presentation of the cheque
for encashment, the bank returned it stating ""refer to the drawer"". Thereafter, on 10.12.1970, she had endorsed the cheque in favour of her brother
the plaintiff for valuable consideration. Plaintiff demanded payment of the amount as per the cheque from defendants, and they having neglected to
pay the suit has been filed.
Defendants 1 and 2 contested this claim by stating that first defendant firm did not owe anything to Meenakshi and never issued the cheque as
claimed and it has come into existence under mysterious circumstances, and therefore, not supported by consideration. The suit is had for non-
joinder of Meenakshi and that the City Civil Court has no jurisdiction to entertain the suit. In any event plaintiff being not ''bona fide'' holder in due
course, he cannot maintain the suit based on a dishonoured cheque.
Third defendant did not dispute the suit claim.
The trial Court decreed the suit as prayed for, and on the learned Judge confirming it in AS. No. 616 of 1974, this letters Patent Appeal is
preferred only by defendants 1 and 2. Plaintiff was served on 3.10.1980 and there is no representation on his behalf in this appeal.
Mr. Udairaj Gulecha, learned Counsel for the appellants-defendants 1 and 2, submits that the crucial point involved is whether the alleged
cheque was negotiable after being dishonoured, and whether the brother of Meenakshi who has filed the suit could be a holder in due course as
defined in Section 9 of the Negotiable Instruments Act.?
It is the admitted case of the plaintiff that when the cheque (Ex.A1) was presented to Canara Bank by Meenakshi, in whose favour it had been
issued, it had been returned with the remark ''refer to drawer''. Though Meenakshi had not been impleaded, she had been examined as the sole
witness for the plaintiff. She stated that she had deposited a sum of Rs. 6,900 with a firm known as Arakchand and Coichand at Madras in or
about August, 1961, and in November, 1970 a sum of Rs. 14,000 was due to her, and that first defendant firm undertook to pay the amount and
passed the cheque dated 24.11.1970 under Exhibit A.11 in her favour. Third defendant was one of the partners of the said firm. That firm had
been wound up, and the first defendant firm being the Head Office, undertook the liability and according to her, that was the reason why Exhibit
A.1 came to be issued on 24.11.1970. Defendants 1 and 2 pleaded that there was no connection with the firm Arakchand and Coichand and they
have disowned their liability. It is the firm case of P.W.1, that when she presented Exhibit A.1 for encashment it was returned by Canara Bank with
a memorandum Exhibit A.3 dated 30.11.1970 and only after the cheque had been dishonoured, she had assigned it in favour of her brother the
plaintiff for valuable consideration under Exhibit A.4, it is not the claim of the plaintiff that he had ever presented the cheque thereafter for
encashment. Therefore, based on a dishonoured cheque, he could not have filed the present suit because by the endorsement made in his favour
with full knowledge, that it is a dishonoured cheques, Exhibit, A.1 has lot its negotiability. The suit is filed by the plaintiff, as a holder in due course.
Section 9 of the Negotiable Instruments Act 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 payment
to bearer or the payee or endorsee himself, if, (payable to order), before the amount mentioned in it becomes payable and without having sufficient
cause to believe that any defect existed in the title of the person from whom be derived his title.
Mr. Udairaj Gulecha, learned Counsel for defendants 1 and 2, relies upon the decision in Ram Sarup Vs. Hardeo Prasad, . It was a case in
which a cheque dated 5.6.1926, drawn on Allahabad Bank Ltd., by one Ramswarup in favour of Ram Saran or order, on being, presented to the.
Bank on 10.6.1926 was dishonoured, because no funds to the credit of the drawer were available with the Bank. On 26.9.1926, the cheque was
again presented and it was dishonoured on two grounds, and one of them being lack of funds. By referring to Section 9 of the Negotiable
Instruments Act, it was pointed out that no one can be a holder in due course, unless he takes it ''before the amount mentioned in it became
payable''. A cheque is payable on demand and the amount becomes payable when the cheque is presented for payment by the drawee. Even if the
endorsee had taken the cheque in good faith without notice of dishonour, it was a stale cheque and hence the holder of it is not a holder in due
course.
In the instant case, plaintiff as the brother of Meenakshi, was fully aware that the cheque had been dishonoured, and the endorsement in his
favour was only after it had been returned by the Bank. Therefore, Exhibit A.1 had lost its negotiability. Hence he cannot be a holder in due
course. This essential characteristic having not been comprehended and more so, when the cheque had never been thereafter presented to the
Bank for encashment the suit, as laid, could not have been decreed at all. Hence the decree passed as against defendants 1 and 2 is hereby set
aside, and this decision will have no impact on whatever relief the plaintiff might choose in enforcing the decree against defendants 3 to 7, who have
not chosen to oppose the suit claim.
Hence this Letters Patent Appeal is allowed with costs.