MEHRUNNISA BEGUM Vs. SHAIK CHAND BI

JUDGEMENT

(1.) The substantial questions of law which are to be answered in this second appeal are : "(1) Whether Ex. A-1 is a promissory note which is negotiable or is only a collateral security. (2) Whether the endorsement of transfer, Ex. A-2, is valid and confers any right on the plaintiff ? (3) Whether the plaintiff is a holder in due course ? (4) Whether Ex. A-1 can be enforced de hors the liability of the chit fund company to run the chit for the full period ?

(2.) The brief facts which give rise to this second appeal may be set out. The defendants are the appellants and the plaintiff is the respondent. On 3/12/1969, the defendants executed a promissory note in favour of M/s. Safire Trading Co. ("chit fund company", for short) and received consideration undertaking to repay the same with interest at 12 percent. per annum. The said promissory note was transferred for consideration to the plaintiff on 30/09/1972, who filed a suit against the defendants as they committed default in payment of the instalments to the chit fund company; he is a holder in due course and he is not aware of any defects in the promissory note.

(3.) The defence was that the suit promissory note was never intended to be a negotiable instrument. It was executed to serve as a collateral security for the due payment of the instalments payable by the first defendant as per the rules of the chit fund company in a chit fund transaction of 40 months, that the first defendant happened to be a prized subscriber, that defendants Nos. 2 and 3 signed the document only as sureties, that the rules of the company do not provide for transfer of the security provided in the shape of the promissory note, that dividends were not deducted till 29/07/1970, and that, therefore, the first defendant is not bound to pay the amount covered by the promissory note. Further, after 29/09/1970, the company ceased to hold auction and, consequently, there was no determination and collection of the monthly instalments, that the company is not entitled to transfer the promissory note which is intended to be a collateral security, the alleged signature under the endorsement of transfer on the back of the suit promissory note of D. B. Prasad, said to be of the chairman of the chit fund company, is a forgery and the plaintiff does not acquire any right by the said endorsement of transfer as she is not a holder in due course. The person who is said to have endorsed the transfer has no authority to do so and, therefore, it is invalid which does not bind the first defendant. Also averred is the case that the endorsement of transfer is only an assignment to the amount payable under the promissory note which is not enforceable under law. For all these reasons the plaintiff is not a holder in due course. As the company stopped its business after 29/07/1970, and no collection was made, it cannot collect the promissory note amount.