U. PONNAPPA MOOTHAN SONS, PALGHAT versus CATHOLIC SYRIAN BANK LTD. AND OTHERS

Citation: [1990] SUPP. 1 S.C.R. 542 · Decided: 18-09-1990 · Supreme Court of India · Bench: J.S. VERMA, K. JAYACHANDRA REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
U. PONNAPPA MOOTHAN SONS, PALGHAT 
v. 
CATHOLIC SYRIAN BANK LTD. AND OTHERS 
SEPTEMBER 18, 1990 
B 
[J.S. VERMA AND K. JAYACHANDRA REDDY, JJ.] 
c 
D 
E 
G 
H 
Negotiable Instruments Act, 1881-Section 9---'Holder in due 
course' -No defect in the title of the transferor-Requirement of. 
What is the true meaning and scope of the expression 'holder in 
due course' as defined in Section 9 of the Negotiable Instruments Act, 
1881, was the question that arose for consideration in this appeal. 
Consequent upon the pleading of promissory note and other title 
deeds relating to her property by Defendant No. 5, (mother of Defen-
dants 2 to 4) in favour of the respondent Bank as security, thereby 
creating an equitable mortgage, the respondent Bank allowed credit 
facilities like accommodation by way of Hundi discount, Key loan and 
cheque purchases upto a limit of Rs.35,00,000 to Defendant No. I, a 
fir"! consisting of defendants Nos. 2 to 4 as partners. The first defendant 
firm had business dealings with the appellant defendant No. 6. In 
course of business it was supplying goods consisting of hill products and 
used to receive payment by way of cheques from defendant No. 6. 
Defendant No. 6 issued two cheques drawn on the Union Bank of India, 
Palghat, in favour of the first defendant payable to the first defendant 
firm on order. The cheques were purchased by the Respondent-bank 
and proceeds thereof,were credited by the bank to the account of first 
defendant: on valid consideration. The first defendant withdrew the 
amount at various dates. When the respondent-bank sent the ·cheques 
for collection; the Union Bank of India returned the cheques with the 
endorsement "full cover not received". Defendants 2 to 5 agreed to pay 
the amounts to the Bank but could not pay the full amount, with the 
result the Bank filed a suit for recovery of the balance amount from 
Defendant No. 6 also who had issued the cheques in question. At ·the 
trial, Defendant No. 6 contended that since the firm (defendant No. I) 
did not supply the goods, it could not pay the money in the bank. 
According to Defendant No. 6, the appellant, did not admit the pur-
chase of cheques by the respondent-bank for valid consideration and 
hence denied that the bank was 'holder in due course'. The trial court 
held that the respondent-bank is a 'holder in due course' and as such 
entitled to enforce the liability against the appellant-defendant No. 6. 
542 
( 
•
PONNAPPA SONS v. C.S.B. 
543 
The triai court also held defendants 2 to 4 personally liable for the plaint A 
claim. Against the ·order of the trial court the appellant-defendant No. 6 
alone appealed to the High Court. The High Court affirmed the findings 
of the trial court but modified the decree holding that the immovable 
properties mentioned in the schedule to the plaint would first be pro-
ceeded against and in case the entire amount 'of decree is not realised by 
the sale of those properties, the Bank would 'proceed against the assetS B 
of the firm-defendant No. 1 and for the balance, if any, the decree-
holder would proceed against the defendants Nos .. 2'4 and 6. Aggrieved 
by the said order of the High Court, the 6th defendant has preferred 
·, 
this appeal. 
· 
' 
Dismissing the appeal, this Court, 
HELD: Indian Law is stricter, and is not satisfied merely with the 
honesty of the person taking the instrument, but requires the person to 
exercise due diligence, and goes a step further than English Law in 
scrutinising the causes which go to make up the belief in the mind of the 
transferee. [3598] 
In the instant case, the holder namely defendant No, 1 made the 
necessary endorsements in the two cheques in favour of the· plaintiff 
Bank and the Bank endorsed "payee account credited". The defendant 
c 
D 
No. 1 withdrew this amount and there is no dispute about it. It must 
also be noted in this context that there is no endorsement on the cheque 
E 
made by the drawer namely' the appellant that cheques are not negoti-
able. In the absence of the cheques being crossed "not negotiable" 
nothing prevented the plaintiff Bank to purchase the cheques for a 
valuable consideration and the presumption under Section 118(g) comes 
to his rescue and there is no material whatsoever to show that the 
cheques were obtained in any unlawful manner or for any unlawful F 
consideratiOn. [358E-G I 
· 
In a given case it is left to the court to decide whether the 
negligence on part of the holder is so gross

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