Rawal and Another v Singh (Civil Appeal No. 5 of 1956) [1956] EACA 22 (1 January 1956)

APPELLATE CIVIL

Before SIR KENNETH O'CONNOR. C. J.

N. S. RAWAL AND ANOTHER, A FIRM, Appellants

ν.

RATTAN SINGH THAKKAR SINGH, Respondent

Civil Appeal No. 5 of 1956

Dishonoured cheque—Endorsement after notice of dishonour to endorsee with notice of dishonour-Whether endorsee can sue drawer on the cheque-Bills of Exchange Ordinance, section 36 (1) (5), section 38, section 30 (1)— Presumption of value—Notice of dishonour, sections 49 and 55 (1) and section 50 (2) $(c)$ (iv).

The appellants claimed Sh. 350 from the respondent on a cheque drawn by the respondent payable to cash or bearer. The cheque was given by the respondent to one Mohan Singh who gave it to one Hari Chand. Hari Chand presented the cheque to the bank and it was dishonoured and returned marked "Refer to drawer". Hari Chand gave the cheque so marked back to Mohan Singh, who referred to the drawer, the respondent, Rattan Singh. The respondent said that he had no funds to meet the cheque. Some weeks later Mohan Singh (who had, at the time, notice of its dishonour) endorsed the cheque to the appellants allegedly for value. The appellants noticed, at the time they took the cheque, that it had "Refer to drawer" written upon it and that it was a dishonoured cheque.

*Held* (21-8-56).—(1) The appellants were holders of the cheque, but not holders in due course.

(2) Applying the presumption in section 30 (1) of the Bills of Exchange Ordinance. the appellants were holders for value.

(3) The appellants being endorsees for value with notice of the dishonour of the cheque, took it subject to any defect of title attaching thereto at the time of dishonour; but, subject to this, could sue on the cheque in their own names (Bills of Exchange Ordinance, sections 36 (1) and 38), Hornby v. McLaren, (1908) 24 T. L. R. 494, followed.

(4) Notice to a drawer of dishonour of a cheque is not necessary where the dishonour is due to lack of funds in the banker's hands or where payment has been countermanded. (Bills of Exchange Ordinance, section 50 (2) (c) (iv).)

(5) Appeal allowed and judgment entered for appellants.

Authority cited: Chalmers on Bills, 12th edn., p. 121, 157; Byles on Bills, 20th edn., p.

17.

D. D. Doshi for the appellants (original plaintiffs).

K. I. Joshi for the respondent (original defendant).

JUDGMENT.—In this case the appellants claimed Sh. 350 from the respondent on a cheque drawn by the respondent payable to cash or bearer. The cheque was given by the respondent to one Mohan Singh who gave it to one Hari Chand. Hari Chand presented the cheque to the bank and it was dishonoured and returned marked "Refer to drawer". Hari Chand gave the cheque so marked back to Mohan Singh who referred to the drawer, the respondent, Rattan Singh. The respondent said that he had no funds to meet the cheque. Some weeks later Mohan Singh (who had, at the time, notice of its dishonour) endorsed the cheque to the appellants allegedly for value. The appellants noticed, at the time they took the cheque, that it had "Refer to drawer" written upon it and that it was a dishonoured cheque.

In the Court below the learned magistrate framed four issues:—

(1) Are the plaintiffs holders in due course?

- (2) Are the plaintiffs the holders? - (3) Are the plaintiffs holders for value? - (4) Are the plaintiffs entitled to sue when they had notice of the defect?

As to issue (1) learned counsel for both parties were agreed that the plaintiffs were not holders in due course. This, indeed, is obvious.

As to issue (2), the learned magistrate found that the plaintiffs were "holders" of the cheque within the definition of section 2 of the Bills of Exchange Ordinance (Cap. 291) and with that finding I agree.

As regards the third issue, the learned magistrate said: "Upon the third issue, having regard to the evidence before the Court, I am not satisfied that valuable consideration was given and accordingly the plaintiffs were not holders for value." With respect, the learned magistrate seems to have ignored the provisions of section 30 (1) of the Bills of Exchange Ordinance, under which every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value (see also Indian Evidence Act, section 114, illustration (c)). The plaintiffs' signature does not appear upon the cheque. In any event provided that value was given or must be deemed to have been given by Mohan Singh, it does not seem very material whether the plaintiffs gave value or not.

The learned magistrate dealt with the fourth issue as follows:—

"The fourth issue goes to the root of the case. The cheque was clearly marked 'Refer to drawer' and the plaintiffs accepted the cheque with full knowledge of this. Whatever rights vested in Mohan Singh against the defendant in respect of the cheque could not in the circumstances be transferred to the plaintiffs by merely endorsing the dishonoured cheque over to the plaintiffs. Accordingly, the answer to the fourth issue is in the negative. The plaintiffs' suit is dismissed with costs."

With respect, I do not think that this is correct. Mohan Singh could, notwithstanding the dishonour of the cheque by endorsement, transfer his rights to the appellants. What he could not do, having regard to the fact that the plaintiffs took the cheque with notice of its dishonour, was to transfer a better title than he, Mohan Singh, himself had or than the holder had at the time of the dishonour. The appellants took the cheque "subject to any defect" of title attaching thereto at the time of dishonour" (section 36 (5), Bills of Exchange Ordinance). But that is not to say that a dishonoured cheque cannot be endorsed after dishonour so as to confer rights upon an endorsee with notice of the dishonour. The endorsee with notice takes it subject to any defect of title attaching thereto at the time of dishonour; but, subject to this, may sue on the cheque in his own name: Bills of Exchange Ordinance, section 36 (1) and (5); section 38; Chalmers, 12th Edition, page 121, illustration (ii); Hornby v. McLaren, (1908) 24 T. L. R.

494.

The important point which should have been dealt with adequately in the pleadings and evidence was whether or not there was a defect of title attaching to the cheque at the time of dishonour.

The plaint is silent as to whether value was given by Mohan Singh to the drawer (the respondent) for the cheque (though it avers that the cheque was endorsed for value after dishonour) and the defendant in his defence ignores this vital point in his case altogether and contents himself with pleading that the plaintiffs were not holders in due course (the plaintiffs had not alleged that they were) and that the plaintiffs having had notice of the dishonour, were not

entitled to sue on the cheque. Some evidence was led showing a failure of consideration moving from Mohan Singh for the drawing of the cheque; but, as this allegation had not been pleaded in the defence, the evidence was struck out. The respondent has, therefore, himself to thank for the position in which he now finds himself.

In the circumstances, I am forced back on the presumption raised by section 30 (1) of the Ordinance, that value given by Mohan Singh whose signature appears on the cheque and there appears to be uncontradicted evidence (if this be necessary) that Hari Chand gave value (a credit in account) to Mohan Singh for the cheque. There is no evidence, therefore, of any defect of title attaching to the cheque at the time of its dishonour by which the appellants were affected. They were entitled to sue the drawer on the cheque and to recover.

The only substantial argument raised by counsel for the respondent was that the cheque was discharged as against the drawer by failure to give notice of dishonour within due time, and counsel relied on the proviso to section 49 and section 55 (1) of the Ordinance. He alleged that whereas the cheque was dishonoured on 30th July, notice of dishonour was not given till 3rd August; the notice of the second dishonour (if such notice was necessary) was also out of time. Notice to a drawer of dishonour of a cheque is not, however, necessary where the dishonour is due to lack of funds in the banker's hands or where payment has been countermanded: Byles, 20th Edition, page 17; Bills of Exchange Ordinance, section 50 (2) (c) (iv); Chalmers, 12th Edition, page 157, illustration 3. This argument, therefore, fails.

Accordingly, the appeal must be allowed and judgment must be entered for the appellants for Sh. 350 with interest at 6 per cent from 19th October, 1955, to date of payment with costs both here and below, to be taxed. Costs already paid to be refunded.