K. Jayachandra Reddy, J. - (1.) In this appeal an important question touching upon the interpretation of Section 9 of the Negotiable Instruments Act, 1881 ('Act' for short) defining 'holder in due course falls for consideration. The appeal is directed against the judgment of the High Court of Kerala confirming the judgment of the Subordinate Judge, Tellicherry in Original Suit No. 74 of 1975. To appreciate the question involved it becomes necessary to state the relevant facts and while stating so we shall refer to the parties as arrayed in the suit for convenience sake.
(2.) The plaintiff Catholic Syrian Bank Ltd. is a banking company incorporated under the Indian Companies Act having its Head Office in Trichur and branches at various places. The first defendant firm consisting of defendants Nos. 2 to 4 as partners who are brOTHERS was doing business in Tellicherry in hill products and they were allowed credit facilities by the plaintiff Bank, like accommodation by way of Hundi discount, key loan and cheque purchases up to a limit of Rs. 35,00,000/-. A promissory note was executed by defendants Nos. 2 to 4 in favour of their mother, the 5th defendant for an amount of Rs. 35,00,000/- and the same was endorsed in favour of the plaintiff as security for the facilities granted to the first defendant firm. The 5th defendant had also deposited the title deeds of her properties shown in the plaint schedule to create an equitable mortgage to secure the repayment of the amounts due from first defendant. The first defendant firm had dealings with 6th defendant as well as others. The first defendant firm was supplying goods consisting of hill products and used to receive payments by way of cheques. On 26-10-74, 6th defendant drew a cheque on the Union Bank of India, Palghat Branch in favour of the first defendant payable to the first defendant firm on order a sum of Rs. 2,00,000/ -. The cheque was purchased by the plaintiff Bank from the first defendant on 30-10-1974 on valid consideration and proceeds were credited by the Bank to the account of the first defendant. Similarly another cheque was drawn on 31-10-1974 and the first defendant endorsed the same to the plaintiff for valid consideration and the proceeds were credited to the account of the first defendant who withdrew the amount at various dates. The plaintiff Bank sent the cheques for collection but the Union Bank of India returned the same with the endorsement "full cover not received". The defendants Nos. 2 to 5 by two separate agreements offered to pay the amounts to the plaintiff Bank and as per the terms therein they were to pay Rs. 1,000/- per month and the 5th defendant was to pay the amount realised by her from the tenants by way of rent and they could pay only Rs. 12,313,35 P. Thereupon after exchange of notices between defendant No. 6 and other defendants a suit was filed for the recovery of the balance amount from defendant No. 6 also who issued the cheques.
(3.) The defendant No. 6 who is the appellant herein contended that the cheques were issued to the first defendant on their representation that they would supply a large consignment of pepper, dry ginger etc. and the understanding was that the cheques would be presented only after the consignment was despatched. Since the first defendant failed to despatch the goods, the 6th defendant could not pay the money in the Bank and therefore the cheques were not honoured. He also pleaded that he would not admit the purchase of cheques by the plaintiff and that plaintiff was only a collection agent and there was no consideration for purchase and therefore the plaintiff was not a holder in due course. It was also contended that plaintiff acted negligently and in disregard of the provisions of law, therefore there was no valid cause of action against the defendant. It may not be necessary for us to refer to the stand taken by the other defendants. The trial Court held that the plaintiff is a holder in due course and as such is entitled to enforce the liability against the 6th defendant, who is the maker of the cheques. The trial Court also held that the defendants Nos. 2 to 4 were personally liable for the plaint claim and the assets of the first defendant would also be liable if the hypothecation is not sufficient to discharge the decree amount. The 6th defendant alone filed an appeal in the High Court and the others figured as respondents. The High Court con firmed the findings of the trial Court but modified the decree holding that immoveable properties described in the Schedule to the plaint would be proceeded against in the first instance and if the entire decree amount cannot be realised by the sale of those properties, the plaintiff-Bank would proceed against the assets of the first defendant-firm, and for the balance, if any, the decree-holder would proceed against defendants Nos. 2 to 4 and 6 and the liability of the 5th defendant is restricted to the extent of immovable properties mortgaged by her. Aggrieved by the said judgment and decree, the 6th defendant has preferred this appeal.;