Appeal No 183 of 1984
From the Judgment and Order dated 23101982 of the Kerala High Court in AS No 309 of 1977
Dr YS Chitale Aseem Mehrotra Mukul Mudgal RK Aggarwal SK Aggarwal and Sudhir Gopi for the Appellant
545 G Viswanatha Iyer and PK Pillai for the Respondents
The Judgment of the Court was delivered by K JAYACHANDRA REDDY J
In this appeal an important question touching upon the interpretation of Section 9 of The  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
The plaintiff Catholic Syrian Bank Ltd is a banking company incorporated under the Indian Companies having its Head Office in Trichur and branches at various places
The first defendant firm consisting of defendant Nos 2 to 4 as partners who are brothers was doing business in Telli cherry in hill produces and they were allowed credit facili ties by the plaintiff Bank like accommodation by way of Hundi discount key loan and cheque purchases upto a limit of Rs3500000
A promissory note was executed by defend ants Nos 2 to 4 in favour of their mother the 5th defend ant for an amount of Rs3500000 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 defend ant
The first defendant firm had dealings with 6th defend ant as well as others
The first defendant firm was supply ing goods consisting of hill products and used to receive payments by way of cheques
On 261074 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 Rs200000
The cheque was purchased by the plaintiff Bank from the first defendant on 30101974 on valid consideration and proceeds were credited by the Bank to the account of the first defendant
Similarly anoth er cheque was drawn on 31101974 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 defendant Nos 2 to 5 by two sepa rate agreements offered to pay 546 the amounts to the plaintiff Bank and as per the terms therein they were to pay Rs 1000 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 123 1335 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
The defendant No 6 who is the appellant herein con tended 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 ho noured
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 defendant 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 confirmed the findings of the trial court but modified the decree holding that immovable 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 defendantfirm 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
Dr Chitale learned counsel appearing for the appellant submitted that respondent No 1 herein namely the plaintiff Bank is not a holder in due course  and therefore cannot maintain any legal action 547 against the appellant ie defendant No 6 who had drawn the cheques
His main submission is that the plaintiff Bank acted negligently and did not act in good faith in paying the amounts due under the cheques to the defendant firm without making any enquiries regarding the title of the person namely defendant No 1 from whom the Bank claims to have purchased the cheques for consideration
It is submit ted that the cheques were issued by defendant No 6 the appellant with the understanding that the goods would be supplied and the plaintiff Bank without making any enquiries whether the goods were supplied or not and without any verification from the Union Bank of India paid the amounts to the payee namely defendant No 1 within few days in a hasty and negligent manner
Therefore according to the learned counsel the necessary ingredients of the definition of holder in due course  in the case of plaintiff are not satisfied and consequently the plaintiff Bank can not main tain any claim against the appellant
Section 9 of the which defines holder in due course  reads as under Holder in due course means any person who for considera tion became the possessor of a promissory note bill of exchange or cheque if payable to bearer or the payee or indorsee thereof if payable to order before the amount mentioned in it became payable and with out having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title
 The definition makes it clear that to be a holder in due course  a person must be a holder for consideration and the instrument must have been transferred to him before it becomes overdue and he must be a transferee in good faith and another important condition is that the transferee namely the person who for consideration became the possessor of the cheque should not have any reason to believe that there was any defect in the title of the transferor
It is beyond dispute that the plaintiff bank credited the proceeds to the account of the first defendant who also withdrew the amount on various dates
Therefore it has been rightly held that the plaintiff purchased the cheques for valid consideration after the necessary endorsement by the bearer before they became overdue
In this con 548 text the learned counsel
however contended that the plaintiff was only a holder and was only a collection agent as per the endorsement made by the defendant No 1
Section 8 defines holder  as a person entitled in his own name to the possession of a cheque or bill of exchange or a promis sory note and to receive or recover the amount due thereon from the parties thereto
Section 118 of the which deals with the presumptions as to negotiable instruments provides in clause g that the holder of a negotiable instrument shall be presumed as a holder in due course
Section 118g reads as under 118
Until the contrary is proved the following presump tions shall be made XX XX XX XX XX XX g that the holder of a negotiable instrument is a holder in due course provided that where the instrument has been obtained from its lawful owner or from any person in lawful custody thereof by means of an offence or fraud or has been obtained from the maker or accept or thereof by means of an offence or fraud or for unlawful consideration the burden of proving that the holder is a holder in due course lies upon him
 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 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 made by the drawer namely the appellant that the cheques are not negotiable
In the absence of the cheques being crossed as not negotiable nothing prevented the plaintiff Bank to purchase the cheques for a valuable consideration and the presumption under Section 118g comes to his rescue and there is no material whatsoever show that the cheques were obtained in any unlawful manner or for any unlawful consid eration
Now the question is whether the other requirement of the definition ie without having sufficient cause t9 believe that any defect existed in the title of the person from whom he derived his title is satisfied
It is contended on behalf of the appellant that the cheques were issued on the representation that the defendant No 1 would 549 supply the goods and that the cheques would be presented after the despatch and delivery of the goods but defendant No 1 failed to despatch the goods and that plaintiff with out any enquiries about the title of the payee could not have purchased the cheques because there was sufficient cause to believe that the title of the bearer was not free from defects
According to the learned counsel the Indian Law is stricter and is not satisfied merely with the hones ty of the person taking the instrument but requires the person to exercise due diligence
and goes a step further then English Law in scrutinising the causes which go to make up the belief in the mind of the transferee
To appreciate the submission of the learned counsel it becomes necessary to refer to the various authorities cited by him including the text books in the first instance an English law and then on Indian Law on the subject
In Eng lish Law Section 29 of the Bills of Exchange Act 1882 defines holder in due course 
The relevant part of Section 291b reads thus 29
Holder in due course a A holder in due course is a holder who has taken a bill complete and regular on the face of it under the following conditions
namely a xx xx xx b that he took the bill in good faith and for value and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negoti ated it
 Section 90 of this Act reads as under 90
Good faith A thing is deemed to be done in good faith within the meaning of this Act where it is in fact done honestly whether it is done negligently or not These provisions have been understood and interpreted to mean that the holder should take the bill in good faith and he is deemed to have acted in good faith and if he acts honestly and negligence will not affect his title
In Byles of Bills of Exchange 25th Edn
Page 206 a passage reads thus 550 A wilful and fradulent absence of inquiry into the circum stances when they are known to be such as to invite in quiry will if the jury thinks that the abstinence from inquiry arose from a suspicion or belief that inquiry would disclose a vice in the bills amount to general or implied notice
 There must however be something to put the holder on inquiry In Nelson vs Larholt the defendant re ceived cheques for value drawn by an executor in fraud of the testator
Denning J held that the defendant could not escape liability because he knew or ought to have known of the executor s want of authority
In Baker vs Barclays Bank Ltd the expression notice occur ring in Section 21b of the Bills of Exchange Act 1882 is interpreted to mean actual notice and there is no ques tion of constructive notice
In Chitty on Contracts 26th Edn
the learned author states the requirement that must be fulfilled before a person may be considered a holder in due course as under First he must take the bill when it is complete and regu lar on its face
Secondly he must take it before it is overdue and without notice that it was previously disho noured if such was the fact
Knowledge that a bill is bound to be dishonoured may also be relevant
Thus a Canadian authority suggests that a holder who has taken a cheque with the knowledge of its having been countermanded is not a holder in due course
Thirdly he must take it in good faith and without having notice of any defect in the title of the person who negotiates the bill to him
In particular the title of the person who negotiates the bill is defective when he obtained the bill or its acceptance by fraud duress or other unlawful means or for an illegal consideration or when he negotiates it in breach of faith or under circum stances amounting to fraud
Last a holder in due course must take the bill for value ie consideration
 The learned author dealing with the presumption of good faith has noted in paragraph 2781 thus Presumption of good faith
Every party whose signature appears on a bill is prima facie deemed to have become a 551 party thereto for value
Every holder of a bill is prima facie deemed to be a holder in due course but if the ac ceptance issue or subsequent negotiation of the bill was affected with fraud duress or illegality the burden of proof is shifted and the holder must prove that
subsequent to the alleged fraud or illegality value was in good faith given for the bill
Thus once a fraud is proved
the burden of proof is shifted to the holder who must then show not only that value has been given for the bill
but also that he took the bill in good faith and without notice of the fraud
If the holder can discharge this onus he is again in the position of a holder in due course emphasis supplied The learned author Chitty in paragraph 2778 dealing with the subject The Consideration for a Bill  has stated thus For example if a person whose banking account is overdrawn negotiates to this bankers a cheque
drawn by a third party to reduce the overdraft the banker becomes a holder for value of the cheque
The pre existing debt of the overdraft is a sufficient consideration for the negotiation of the cheque to the banker
 A consideration of the above passages and decisions goes to show that English law requires that the holder in taking the instrument should act in good faith and that he had no notice of any defect in the title and if he has acted hon estly he is deemed to have acted in good faith whether it is negligently or not
With the above background of English Law
we shall now examine the Indian law on the subject
In Bhashyam  Adiga on the  15th Edn
at page 171 the authors have dealt with the position in Indian law and it is observed that it would be Seen that the Indian Legislature has adopted the older English law as laid down by Abbott
CJ later Lord Tent erden in Gill vs Cubitt English Reports 107 King s Bench 806
Relying on this passage the learned counsel proceeded to submit that the Indian law is stricter than English law and requires the person to exercise due diligence and in this context the Indian law goes even a step further than English law in scrutinising the causes which go to make up the belief in the mind of the transferee
Gill s case supra is a case where a bill of exchange was stolen during the night
and taken to the office of a discount broker early in the following 552 morning by a person whose features were known but whose name was unknown to the broker and the latter being satis fied with the name of the acceptor discounted the bill according to his usual practice without making any enquiry of the person who brought it
On these facts it was held that the plaintiff had taken the bill under circumstances which ought to have excited the suspicion of a prudent and careful man
Abbott
CJ later Lord Tenterden observed It appears to me to be for the interest of commerce that no person should take a security of this kind from another without using reasonable caution
If he takes such security from a person whom he knows and whom he can find out no complaint can be made of him
In that case he has done all any person could do
But if it is to be laid down as the law of the land
that a person may take a security of this kind from a man of whom he knows nothing and of whom he makes no enquiry at all it appears to me that such a decision would be more injurious to commerce than convenient for it
by reason of the encouragement it would afford to the purloin ing stealing and defraudingpersons of securities of this sort
The interest of commerce requires that bona fide and real holders of bills known to be such by those with whom they are dealing should have no difficulties thrown in their way in parting with them
But it is not for the inter est of commerce that any individual should be enabled to dispose of bills or notes without being subject to inquiry
 Bayley J agreeing with Abbott CJ however added admit that has been generally the case but I consider it was parcel of the bona fides whether the plain tiff had asked all those questions which in the ordinary and proper manner in which trade is conducted a party ought to ask
I think from the manner in which my Lord Chief Justice presented this case to the consideration of the jury he put it as being part and parcel of the bona fides and it has been so put in former cases
 Holroyd J having agreed with Abbott CJ further ob served that 553 The question whether a bill or note has been taken bona fide involves in it the question whether it has been taken with due caution
It is a question ofact for the jury under all the circumstances of the case
whether a bill has been taken bona fide or not and whether due and reasonable caution has been used by the person taking it
And if a bill be drawn upon parties of respectability capable of answering it and another person discounts it merely because the acceptance is good without using due caution and without inquiring how the holder came by it I think that the law will not under such circumstances assist the parties so taking the bill in recovering the money
If the bill be taken without using due means to ascertain that it has been honestly come by the party so taking on himself the risk for gain
must take the consequence if it should turn out that it was not honestly acquired by the person of whom he received it
Here the person in possession of the bill was a perfect stranger to the plaintiff and he discounted it and made no inquiry of whom the bill had been obtained or to whom he was to apply if the bill should not be taken up by the acceptor
I think those circumstances tend strongly to show that the party who discounted the bill did not choose to make inquiry but supposing the questions might not be satisfactorily answered rather than refuse to take the bill took the risk in order to get the profit arising from commission and interest emphasis supplied In Chalmers on Bills of Exchange 13th Edn
at page 283 the learned author deals with the expression good faith  occur ring in Section 90 of the said Act and it is stated as under Test of bona fides The test of bona fides as regards bill transactions has varied greatly
Previous to 1820 the law was much as it now is under the Act
But under the influence of Lord Tenterden Abbott CJ in Gill vs Cubbitt due care and caution was made the test and this principle seems to be adopted by Section 9 of the Indian  emphasis supplied The learned author Parathasarathy in his book Cheques in Law and 554 Practice 
4th Edn has also noted this aspect
At page 74 a passage reads thus The Indian definition imposes a more stringent condition on the holder in due course than does the English definition
Under English law he should not have notice of a defect in the transferor s title and he should have taken the instru ment in good faith
Under Indian law there should be no cause to believe that any such defect existed
Hence it is not sufficient if the holder acts in good faith
He should also exercise due care and caution in taking the instrument
Perhaps the Indian definition is based on Gill vs Cubbit  In Raghavji Vizpal vs Narandas Parmanandas Bombay Law Reporter Vol
VIII 1906 921 the Bombay High Court howev er
held that negligence does not affect the title of a person taking the instrument in good faith for value
It is observed thus The test of good faith in such cases is thus Regard to the facts of which the taker of such instruments had notice is most material whether he took in good faith
If there be anything which excites suspicion that there is something wrong in the transaction the taker of the instrument is not acting in good faith if he shuts his eyes to the facts presented to him and puts the suspicions aside without further inquiry emphasis supplied We may also mention it here that there is no reference to Gill s case in the above decision
In Bhashyam  Adiga on the  15th Edn
at page 172
the author having noticed the ratio in Raghavji s case observed The Bombay High Court quoted the later English decisions with approval and applied them to the facts of the case before them but the question is not discussed in the light of the words of this Section and the decision is opposed to the opinion expressed by Chalmers in his commentaries on the Indian Act
 In Durga Shah Mohan Lal Bankers vs Governor General in Council  Others AIR 1952 Allahabad 590 a Division Bench examined the scope 555 of the provisions of Section 9 of the Act and held that The provision that the person must have become possessor of a cheque without having sufficient cause to believe is more favourable to the person who claims to  have become holder in due course than the words acting bona fide
His claim would be defeated only if it is found that there was sufficient cause for him to believe that a defect existed
If he fails to prove bona fides or absence of negligence it would not negative his claim
There must be evidence of positive circumstances on account of which he ought to have believed that some defect existed emphasis supplied In this case also there is no reference to Gill s case
The learned counsel for the appellant submitted that the deci sion in Raghavji s case is in favour of the appellant
however
conceded that the Durga Shah s case is in favour of the respondent ie the plaintiff Bank
We may however note another judgment of the learned Single Judge of the Bombay High Court in Sunderdas Sobhraj a firm vs Liberty Pictures a firm AIR 1956 Bombay 618 wherein the scope of Section 9 is considered and it is held thus The rule as laid down in section 9 of the which defines holder in due course is stricter than the rule of English law on the subject and a payee or endor see of a negotiable instrument can under ourlaw
prefer a claim to be a holder in due course of the instrument only if he obtained the same without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title
A bona fide holder for value without notice is of course
as I have already observed
in a different position
 The learned Single Judge has not
however
referred to the Raghavji s case
We have
already noted that in Raghavji s case reliance was placed on English decisions later to the decision in Gill s case
The authors Chalmers
Bhashyam  Adiga and Parathasarathy have uniformly stated that Section 9 of the Act is based on the ratio in Gill s case
Learned counsel appearing on both sides could not place any other decision directly on the question
The view taken by the Allahabad High Court in Durga Shah s case is more or less in accordance 556 with the principle laid down in Gill s case
However with regard to the legal importance of negli gence in appreciating the principle of sufficient cause to believe a passage from Chalmers  took The Law Relating to Negotiable Instruments in British India 4th Edn
may use fully be noted All the circumstances of the transactions whereby the holder became possessed of the instrument have a bearing on the question whether he had sufficient cause to believe   that any defect existed
It is left to the Court to decide in any case where the holder has been negligent in taking the instrument without close enquiry as to the title of his transferor
whether such negligence is so extraordinary as to lead to the presumption that the holder had cause to believe that such title was defective emphasis supplied This view is more sound and logical
The legal position as explained by Chitty may be noted in this context which reads as under While the doctrine of constructive notice does not apply in the law of negotiable instruments the holder is not entitled to disregard a red flag which has raised his suspicions
therefore
modify the view taken by the Allahabad High Court in Durga Shah s case to the extent that though the failure to prove bona fide or absence of negligence would not negative the claim of the holder to be a holder in due course
yet in the circumstances of a given case
if there is patent gross negligence on his part which by itself indicates lack of due diligence
it can negative his claim
for he can not negligently disregard a red flag which arouses suspicion regarding the title
In this view of the matter we hold that the decision in Raghav
ii s case does not lay down correct law
We agree with the view taken by the Allahabad High Court with above modification
Before we apply the above principles to the facts of this case we would like to advert to another submission of the learned counsel Dr Chitale
He urged that in the in stant case the plaintiff Bank has not acted in good faith and with due diligence in crediting the proceeds to 557 the account of the defendant No 1 inasmuch as there is no authority either by way of express or implied contract between them and the defendant No 1
In support of this submission he relied on certain passages in Halsbury s Laws of England
In Halsburv s Law of England 4th Edn
in para graph 22 1 page 186 the author says Bank as holder for value
A banker who is asked by a cus tomer to collect a cheque and who
pursuant to a contract express or implied to do so
credits the customer forthwith with the amount of the cheque before the proceeds are re ceived in fact receives the sum for himself and not for the customer but he has the same statutory protection in such circumstances as if he had received payment of the cheque for the customer
XX XX XX Every holder is deemed to be a holder in due course but
if the instrument is shown to be affected by fraud
a banker dealing with it must show that he gave value in good faith subsequent to the fraud
The status of holder for value may be claimed by the bank where cash has been given for the cheque over the counter where the cheque is paid in intro duction of an overdraft
where the cheque is paid in on the footing that it may be at once drawn against whether in fact it is drawn against or not or where the cheque is subject to a lien
However the mere existence of an over draft
though the banker s lien in respect thereof makes him a holder for value to the extent of that lien would not preclude the protection
XX XX XX A banker who gives value for
or has a lien on a cheque payable to order which the holder derives to him for collec tion without endorsing it as such if any rights as he would have had if upon delivery the holder has endorsed the cheque in blank
A banker taking such a cheque is the holder thereof and
if the requisite conditions are present a holder for value or in due course
It is not essential that the cheque be credited to the account of the holder
 Yet another important passage in paragraph 222 reads as under 222
Crediting as cash
The mere fact that the banker has 558 credited the cheque in his customer s account before receiv ing the proceeds does not deprive him of protection against the true owner in the event of his customer having no title
or a defective title to the cheque
Crediting the custom er s account does not of itself alter the position of the banker from that of agent for collection to that of holder for value
It is a question of fact in each case
In order to constitute the banker a holder for value on his ground there must be a contract express or implied that the customer should be entitled to draw against the amount of the cheque before it is cleared
If the banker becomes a holder for value
he may
in the absence of a forged endorsement and unless the cheque is crossed not negotiable  sue upon a cheque in his own name as a holder in due course and may debit the customer if the cheque is dishonoured
 He may apparently plead that he is a holder for value as against the person claiming as true owner except where the endorsement is forged or the cheque is marked not negotiable  emphasis supplied The above two passages indicate that the Banker who is asked to collect a cheque can credit the customer with the amount before the proceeds are received and if he has acted in good faith he has the necessary statutory protection and credit ing the customer account does not by itself alter his posi tion but that however is a question of fact in each case namely whether there was such a contract express or implied that the customer should be entitled to draw against the amount of cheque before it is cleared
In AL Underwood Ltd vs Bank of Liverpool and Martins Same vs Barclays Bank at page 241 Atkin LJ dealing with the protection that can be availed by a banker in such case observed as under It is sufficient to say that the mere fact that the bank
in their books
enter the value of the cheques on the credit side of the account on the day on which they receive the cheques for collection
does not without more
constitute the bank a holder for value
To constitute value there must be in such a case a contract between banker and customer
express or implied
that the bank will before receipt of the 559 proceeds
honour cheques of the customer drawn against the cheques
Such a contract can be established by course of business and may be established by entry in the customer s pass book communicated to the customer and acted upon by him
Here there is no evidence of any such contract emphasis supplied To the same effect is the ratio laid down in Baker vs Bar clays Bank Ltd After applying the dictum of Atkin LJ in Underwood s case it is observed therein that it was not enough to show merely that the bank had entered the value of the cheques on the credit side of the account on which the bank received the cheques
To constitute value there must be in such a case a contract between banker and customer express or implied that the bank will before receipt of the proceeds honour cheques of the customer drawn against the cheques
 We find another passage in the above decision at page 581 which reads thus What is suggested is that the bank did not give value
and the question arises which often arises in cases of this sort
namely whether when a cheque is given to a bank in these circumstances the bank takes the cheque giving value for and then becoming a holder in due course or whether the bank takes the cheque merely to collect the amount of the cheque for someone else
That is a question of fact
The true relationship has to be inferred from the acts of the parties emphasis supplied From the above discussion it emerges that the Indian definition imposes a more stringent condition on the holder in due course then the English definition and as the learned authors have noted the definition is based on Gill s case
Under the Indian law a holder to be a holder in due course must not only have acquired the bill note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title
This condition requires that he should act in good faith and with reasonable caution
However mere failure to prove bona fide or absence of negligence on his part would not negative his claim
But in a given case it is left to the 560 Court to decide whether the negligence on part of the holder is so gross and extraordinary as to presume that he had sufficient cause to believe that such title was defective
However
when the presumption in his favour as provided under Section 118g gets rebutted under the circumstances mentioned therein than the burden of proving that he is a holder in due course  lies upon him
In a given case the Court
while examining these requirements including valid consideration must also go into the question whether there was a contract express or implied for crediting the proceeds to the account of the bearer before receiving the same
The enquiry regarding the satisfaction of this requirement invariably depends upon the facts and circumstances in each case
The words without having sufficient cause to believe have to be understood in this background
In the instant case there is sufficient evidence estab lishing the fact that the defendants were allowed credit facilities upto a limit of Rs3500000 by the Bank and this fact is not in dispute
The pledging of the title deed by 5th defendant of her properties with the bank with an inten tion to create an equitable mortgage to secure the repayment of the amounts due from 1st defendant and the fact that a pronote for an amount of Rs3500000 executed by defendant Nos
2 to 4 in favour of the 5th defendant was endorsed in favour of the plaintiff Bank would establish that there was an express contract for providing the credit facilities
It should therefore necessarily be inferred that there is also an implied contract to credit the proceeds of the cheques in favour of defendant No 1 to his account before actually receiving them
As a question of fact this aspect is estab lished by the evidence on record
In such a situation the plaintiff need not make enquiries about the transactions of supply of goods etc
that were going on between defendants Nos 1 and 6
Even if defendant No 1 has not supplied the goods in respect of which the cheque in question were issued by defendant No 6 there was no cause at any rate sufficient cause for the plaintiff to doubt the title of defendant No 1 nor can it be said that the plaintiff acted negligently disregarding red flag  raising suspicion
Viewed from this background it cannot be said that there was sufficient cause to doubt the title nor there is scope to infer gross negli gence on the part of the plaintiff
There is no material which amounts to rebuttal of the presumption in his favour as provided under Section 118g
On the other hand
the plaintiff has discharged the neces sary burden to the extent on him and has proved that he is a holder in due course for valid consideration
Therefore we hold that he could validly maintain an action 561 against all the defendants including defendant No 6
There fore we affirm the judgments of the courts below and dis miss the appeal
In the circumstances of the case parties are directed to bear their own costs throughout
Y Lal Appeal dismissed


Summary:
Item 14 E of the First Schedule to the at the relevant time dealt with patent or proprietary medicines not containing alcohol opium Indian hemp or other narcotic drugs or narcotics
Explanation I thereto defined patent or proprietary medicines  to mean any drug or medicinal preparation in whatever form for use in the internal or external treatment of or for the preven tion of ailments In human beings or animals
Item 68 dealt with all other goods not elsewhere specified but excluding alcohol opium Indian hemp and other narcotic drugs and narcotics
The Central Government by a notification dated February 28 1982 exempted certain goods falling under Item 68 from the levy of central excise duty
Entry at section No 10 in the schedule annexed thereto read animal feed including com pound livestock feed
The said notification was superseded by notification dated November 1 1982 which also provided the same exemption
This notification was again amended by notification dated February 15 1984
Entry at section No 10 in the schedule thereto read animal feed including compound livestock feed animal feed supplement and animal feed concentrates
A question arose as to whether Bifuran Supplement Neftin 50 and Neftin 200 manufactured by the appellant were chargeable to excise duty as patent or proprietary medicines under Item 14 E or could be classified as animal feed supplement under Item 68 and exempted from payment of excise duty
The Assistant Collector of Central Excise held that the said formulations were classifiable under Tariff Item 14 E
His order was however set aside by the Collec tor of Central Excise Appeals who held that the said products were animal feed supplements which merited classi fication only under the erstwhile Tariff Item 68 and not under Tariff Item 14 E
On appeal by the Department the Tribunal held that the aforesaid three products manufactured by the 443 appellant were patent and proprietary medicines as defined in Tariff Item 14 E inasmuch as they have therapeutic and preventive use in respect of the specific ailments in ani mals that if the products satisfied the requirements of Tariff Item 14 E there was no question of considering their classification under Tariff Item 68 which was a residuary item
In this appeal under section 35 L of the Act it was stated on behalf of the appellant that since the use of Bifuran Sup plement was to promote growth rate weight gains and feed conversion efficiency in growers and broilers by keeping coccidiosis away during growing period it could be regarded as a preventive medicine falling under Tariff Item 14 E
However in respect of Neftin 50 and Neftin 200 it was urged that these were manufactured for use as animal feed supple ment and not for use as medicines and therefore they should have been classified as animal feed supplement under Tariff Item 68 and exempted from payment of excise duty under notification dated February 15 1984
It was further contended that the appellant had been subjected to arbitrary and hostile discrimination as similar products of other manufacturers were being exempted from payment of excise duty under the said notification
For the respondent it was contended that Neftin 50 contains Furazolidone 5 ww and Neftin 200 contains Furazolidone 20 ww that Furazolidone is used as an aid in the prevention of coccidiosis as well as for treatment of coccidiosis that Furazolidone is a patent drug and in England it is sold to the public on the prescription of a registered practitioner only that the finding that these two products were patent and proprietary medicines failing under Tariff Item 14 E was essentially a finding of fact based on the materials placed before the excise authorities and the said finding was not normally open to challenge in appeal that the other manufacturers whose products were exempted were located at different places and were assessable to excise duty by different authorities and that the relevant notifications have been wrongly applied to those manufacturers by the concerned authorities
Dismissing the appeal the Court HELD 1
Item 68 of the Excise Tariff was a residuary entry which dealt with all other goods not elsewhere speci fied
A product which is found to be covered by the other items of the Schedule of the Excise Tariff would be outside the ambit of Item 68
260F Dunlop India Ltd vs Union of India  Ors  and Collector of Central Excise Kanpur vs Krishna Carbon Paper Co   referred to
444 2
What is required for purposes of Item 14 E is that the product must be a preparation for use in the treatment or prevention of ailments in human beings or animals
Furaz olidone is an antibacterial antifungal and antiprotozoal compound
It is used for prevention and treatment of coccid iosis as well as histomoniasis in poultry
In England itis a veterinary drug and it can be sold or supplied to the public on a practitioner s prescription only
Furazolidone is thus a drug or medicinal preparation used for treatment and prevention of ailments in poultry
Since Neftin 50 and Neftin 200 contain only Furazolidone the said products are also drugs or medicinal preparations for use in the treat ment and prevention of ailments in poultry
They have therefore to be regarded as patent and proprietary medi cines chargeable to excise duty under Item No 14 E 262E G Annapurna Carbon Industries Co vs State of AP   referred to
The exemption under notification dated November 1 1982 as amended by notification dated February 15 1984 was confined in its application to specified goods which fell under Item 68
The said notification did not grant exemption in respect of a product failing in any other entry of the excise tariff
It could not be construed as transferring a product from an entry other than Item 68 to Item 68
The insertion of animal feed supplement  in Entry No 10 in the schedule to the notification dated November 1 1982 by the notification dated February 15 1984 would not mean that a product which was liable to payment of excise duty under Item 14 E prior to such insertion would cease to be so liable and would become exempt from such payment of duty by virtue of that notification
Prior to the notification dated February 15 1984 the appellant was paying excise duty on Neftin 50 and Neftin 200 as patent and proprietary medicines failing under Item 14 E
In the absence of any notification granting exemption in respect of products falling under Item 14 E Neftin 50 and Neftin 200 could not be claimed to be exempt from Central Excise duty as animal feed supplement
263F H 264A B 4
It was not the case of the appellant that the same authority had passed orders discriminating between the appellant and other producers of similar products
Nor it is said that there has been intentional and systematic discrim ination in favour of the producers other than the appellant
The discrimination complained of arose on account of orders passed by different excise authorities acting quasi judi cially
Merely because on account of difference in the interpretation of the relevant notifications by the excise authorities in other regions other manufac 445 turers of similar products in those regions were enjoying exemption from payment of such duty the same exemption could not be extended to it
The appellant could not obtain such an exemption in disregard of the law by invoking the right to equality before the law and equal protection of the laws guaranteed under Article 14 of the Constitution
264G H 265A B Narain Dass vs The Improvement Dust Amritsar  Anr AIR 1972 SC 865 referred to
Cumberland Coal Co vs Board of Revision 76 Law Edn 147 Iowa Des Moines National Bank vs ER Bennett 76 Law Edn
265 Vishnudas Hindumal vs State of Madhya Pradesh  Ors  and Ramnath Verma vs State of Rajasthan   distinguished