Name: Himanshi Yadav

Roll No.: 1891

Semester: III

Subject: Commercial Transactions

Total Pages: 21 (including this page)

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Answer 1:

The court stated in Sundaram Finance Ltd vs State of Kerala and Others that a hire-purchase
agreement is one in which an owner hires goods to a third party known as the hirer and agrees
that the hirer will have the option to purchase the chattel once he has paid a certain sum or
when the hire-rental payments have reached the hire-purchase price stipulated in the agreement.
Furthermore, in K. L. Johar and Company versus Deputy Commercial Tax Officer, the court
held that a hire buy agreement contains two parts, as the name implies. There is an aspect of
bailment of the goods pursuant to the hire purchase agreement, and then there is an element of
sale, which occurs when the intending purchaser exercises the option to purchase, which is
frequently a term of hire purchase agreements.

Hire Purchase Agreement:

As a result, hire purchase is nothing more than a hiring arrangement with the option to purchase.
There should be an option to convert it to a sale; if the buying option is not used, the transaction
would be treated as a bailment, and the goods will have to be returned. In addition, a hire
purchase must always be paid in instalments rather than in one lump sum. The agreement must
also be in writing; nevertheless, under some circumstances, oral hire buy agreements might be
considered lawful, but their validity must be demonstrated. Last but not least, the hire buy
should only be for moveable commodities.

There are also some distinctions between a Sale and a Hire Purchase Transaction:

1. In a sale, the property and products are transferred immediately, whereas in a hire
purchase, the property and goods are transferred once the last instalment is paid and the
option to purchase is exercised.
2. In a sale, the buyer is the owner of the goods, whereas in a hire purchase, the buyer is
the bailee.
3. In a sale, the buyer cannot cancel the contract and must pay the full amount, whereas
in a hire, the hirer may cancel the contract by returning the goods and is not obligated
to pay the remaining instalment.
4. In a sale, the seller assumes the risk of any loss caused by the buyer's insolvency;
however, this is not the case in a hire purchase.
5. While the buyer in a Sale can convey excellent title to a Bonafede purchaser, the hirer
in a Hire Purchase cannot pass any title to a Bonafede purchaser.

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India’s legal position regarding this:

In its seventh report on the Sale of Goods Act, the law commission suggested that a separate
legislative regulate hire-purchase transactions. Because there were no rules in place to control
hire buy transactions, a second statute called the Hire Purchase Act 1972 was enacted. The Hire
Purchase Act of 1972 was enacted to regulate hire-purchase legislation; however, it was
repealed in 2005 owing to redundancy.

The Hire Purchase (Repeal) Act 2005 stated that the mathematical formula provided in the
Act and the formula recommended by the Commission for calculating hire-purchase charges
were too mathematical for a common man to understand, and that the hire-purchase charges
and rate of interest should be left to market conditions in the changed economic scenario,
because loans are available from banks and financial institutions on borrower-friendly terms.

The laws governing hire purchase agreements are thus established by higher court decisions as
well as two Indian statutes, namely the Indian Contract Act of 1872 and the Sale of Goods Act
of 1939.

Analysis:

In Transport and General Credit Corporation Ltd. v. Morgan, Simonds, J. stated: "It is
important to remember that hire-purchase agreements now play a significant role in the
community's commercial and social life, and that the financing of those agreements is a huge
business, both in London and elsewhere. It appears to me that financiers and dealers are
working together to make the entire business of hire-purchase agreements possible, which is
now, for better or worse, a vital component of our social life. As I previously stated, it is an
abuse of language to regard one party to that common venture, which is now a recognised
mercantile service, as carrying on the business of a money-lender."

Indeed, the aforementioned is correct; hire buy agreements have become an integral aspect of
the commercial world's social service. It allows those with limited financial resources to afford
the necessities of life that modern technological advancement delivers. A vehicle, a refrigerator,
furniture, cooking equipment, and, in fact, any utility item can be purchased under such an
arrangement. It enables the hirer to have the object of his choice by paying in convenient
instalments, and it enables the merchant to supply it for profit without taking any risks. In India,
it has become a common and well-known commercial social service instrument.

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Originally, hire purchase agreements were made between a dealer and a customer, with the
dealer extending credit to the buyer, but with the passage of time, bankers have come to play a
larger part in such transactions. The Supreme Court reiterated in Surya Pal Singh v Siddha
Vinayak Motors that under a hire-purchase agreement, the financer is the owner of the vehicle
and the person who takes the loan retains the vehicle only as a bailee/trustee, so the financier's
right to take possession of the vehicle for non-payment of an instalment has always been upheld.

The only owner and the hirer were the parties in a dual-party agreement known as a hire
purchase transaction. However, over time, these agreements evolved into a tri-partite
agreement in which the financier is included as a third party and plays an important role in the
relationship between the other two sides. When a financier is involved, the Court in Sundaram
Finance Ltd vs State of Kerala and Others classified the hire purchase into two types: first,
when the owner is unwilling to look to the purchaser of goods to recover the balance of the
price, and the financier who pays the balance undertakes the recovery; and second, when the
owner is unwilling to look to the purchaser of goods to recover the balance of the price, and
the financier who pays the balance undertakes the recovery.

In this case, the financier buys items from the dealer and obtains a hire-purchase agreement
from the consumer, under which the latter becomes the owner of the products after paying all
of the prescribed hire instalments and exercising his option to buy the goods for a nominal fee.
Second, goods are purchased by the customer, who retains possession of the goods in exchange
for signing a hire purchase agreement and related documents, subject to liability to pay the
amount paid by the financier on his behalf to the owner or dealer, and the financier obtains a
hire-purchase agreement that gives him the right to seize the goods if the customer fails to
comply with the terms of the agreement.

Answer 3:

(A) "The purpose of enacting section 138 of the Negotiable Instruments Act of 1881 is to
include faith in the efficacy of banking operations as well as credibility in transacting business
on negotiable instruments."

1. The given statement is CJI K.G. Balakrishnan's observation in Damodar S. Prabhu vs

Sayed Babalal H. The court did not go into the facts or legal issues of the case because
the parties reached an agreement under Section 147 of the Negotiable Instruments Act,
1881. (NI Act). The court made this observation, however, in light of some larger issues
that can be addressed in the context of this case.

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 2. This amendment was enacted to improve the acceptability of cheques in the settlement
of liabilities by making the drawer liable for fines if a cheque bounces due to the
drawer's insufficient arrangements, with safeguards in place to protect honest drawers.
The drawer faces up to two years in prison, a fine up to double the amount of the cheque,
or both if the cheque is not honoured due to a complete lack of funds in the drawer's
account or because it exceeds the amount arranged to be paid from that account, as was
also observed in the case of SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC
89.
3. It's worth noting that when the offence was first codified in 1988, it carried a maximum
sentence of one year in prison, which was later increased to two years after the Act was
amended in 2002.
4. The legislative intent was to provide a clear criminal penalty in order to deter the
alarmingly high rate of check fraud. While the possibility of up to two years in prison
serves as a deterrent, the provision that allows for a fine of up to twice the amount of
the check serves as a compensatory measure.
5. It's worth noting that check dishonour is a regulatory infraction aimed at safeguarding
the public interest by ensuring the trustworthiness of financial instruments. As held in
the case of C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555, the
consequences of this crime are typically limited to private persons engaged in
commercial operations.
6. In criminal law, committing a crime is one thing, but prosecuting it is another. Section
138 of the Act governs the commission of an offence. As stated in the case of William
Rosario Fernandes v. Cabral & Co., 2006, prosecution is governed by Section 142 of
the Act. In the case of Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 248,
it was held that while Section 138 makes dishonour of a cheque an offence punishable
by imprisonment and fine, it also provides for safeguards to protect drawers of such
instruments where dishonour may occur for reasons other than those arising out of
dishonest intentions.
7. As held in Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375, it envisages
serving a notice on the drawer of the instrument directing him to make the payment
covered by the cheque, and permits prosecution only after the statutory period has
expired and the drawer has failed to make the payment within the said period.

Constitutional Validity of Section 138:

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The following cases examined the constitutional validity of Section 138 in light of the novel
concept of criminal punishment for what appears to be a civil offence. The main points of
discussion were that determining mens rea in these cases is difficult, and that a stronger
message to society is required to prevent widespread cheque dishonour.

1. M. Mohan Krishna v. Union of India (1996), High Court of Andhra Pradesh

2. Smt. Ramawati Sharma v. Union of India (2004), High Court of Andhra Pradesh
It was argued that the laws governing cheques and promissory notes are inequitable,
arguing that criminal liability exists for cheques but not for promissory notes. On the
basis of the special privilege accorded to cheque dishonour, a writ petition challenging
the law on the basis of violations of Articles 14 and 21 of the Indian Constitution was
filed. The Supreme Court ruled that Section 138 complies with due process of law as
established by the legislature, and that Article 21 is not violated. In no way is the law
intended to be discriminatory. The Supreme Court went on to say that Chapter 17 is
constitutionally valid, citing the purpose of promissory notes and cheques, as well as
the motivations and objectives that underpin them.
3. Rajendar Steel vs. Union of India - Criminal LJ 2000 - The appellant argued that by
introducing this chapter, the legislature has taken away an important defence from the
accused, and as a result, the entire chapter is unconstitutional as a violation of Article
21, because the element of mens rea has not been considered to impose a criminal
penalty. Someone who takes a loan from a bank or financial institution has no protection
because we can imprison him for two years and fine him even if he has no criminal
intent. The court, on the other hand, rejected this argument, stating that the Chapter
assigns strict liability in order to prevent creditors from pursuing debtors indefinitely.
These provisions are in place to maintain vigilance and prevent check drawers from
being rash when it comes to releasing debt or cheque liability. The exclusion of mens
rea is meant to protect the general public by reducing instances of dishonesty and
increasing the trustworthiness of commercial transactions.

The purpose and practicality of a four-time amendment to the Act should be scrutinised,
because check fraud is still widespread (both SC and parliament use this term). The first and
most important consideration is the necessity of Chapter 17, for which we have an
understanding of the situation prior to the inclusion of such provisions. In the pre-chapter 17
era, it was nearly impossible for a drawer to prove the cheating element in dishonour because
of a combined understanding of civil remedy provisions and IPC cheating and fraud provisions.

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The procedural law for Alternative Dispute Resolution in India is laid out in Section 89 of the
Code of Civil Procedure, 1908. However, there are a few disadvantages to this as well:

a) Parties' consent is required because imposing a mandatory nature on them would defeat
the purpose of consensual dispute resolution.
b) ADR mechanisms can sometimes lack finality, and an appeal to the court, whether in
the HC or SC, may be necessary.
c) Courts provide better legal protection – This is because an offence of dishonour does
not occur until after the dishonour has occurred. The notice period is 30 days long, and
the payment period is 15 days long. As a result, since the defendant has been given
reasonable time to respond, there is a legitimate basis for filing an offence.
d) Emphasis on term arbitration only - These calls into question the Chapter 17 provisions'
validity and constitutionality. The court concluded that the clause was invalid because
the party was not given adequate choice - known as the Scott vs Avery clause.
e) The Indian Law, on the other hand, takes a very erratic stance, declaring that the Scott
vs Avery clause is sometimes valid and sometimes invalid. Any change that has been
made for necessary or mandatory ADR will take away the parties' choice of mode of
dispute resolution, which is the very first tenet of ADR.
f) Justification for criminal liability - Why should a person not be punished if he writes a
check knowing full well that he will not be able to pay it? Furthermore, the defendant
is not immediately classified as a criminal; there is a grace period of 30+15 days, the
notice requirement is met, and due process is followed. As a result, imposing criminal
liability is perfectly legal under natural justice principles.
g) The Supreme Court has ruled that Chapter-17 is constitutionally valid. The Special
Court, on the other hand, has failed to implement this chapter in letter and spirit, despite
the fact that it contains a mandatory provision that the dispute must be resolved within
the specified time frame. There is a deadline for bringing the dispute to court, but there
is no deadline for redressing the dispute or resolving the matter.

B)
Material Facts of the case
1. On October 30, 2006, the respondent sent the appellant a number of post-dated cheques,
two of which were dated 1-4-2007 and 7-6-2007, in payment of a debt.

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 2. On December 7, 2006, the respondent wrote to the appellant denying his liability to pay
the amounts due under the said cheques, claiming that the cheques were issued in error
and requesting that the appellant treat the cheques as invalid.
3. The drawee bank was then instructed by the respondent to stop paying the said cheques.
4. The cheques were presented for payment after the due date had passed, and they were
then returned unpaid.
5. Following service of a statutory notice, the appellant filed a complaint against the
respondent before the Judicial Magistrate of the First Class under Section 138 of the
Negotiable Instruments Act.
In this case, there are a few things to think about.
i. Whether the elements of Section 138 are met in order to convict the respondent under
Section 138, assuming the answer to the preceding question is "Yes."
ii. Whether post-dated cheques are considered "cheques" under Section 138 of the
Negotiable Instrument Act of 1881.
iii. Can the respondent use the defence that he issued the checks in the mistaken belief that
he was liable?
Arguments presented by the appellant
Before the Court, the appellant humbly submits that the post-dated cheques are 'cheques' within
the meaning of Section 138. In the case of Anil Kumar Sawhney v Gulshan Rai, the Appellant
relies on the correct line of interpretation provided by the Supreme Court.
In this case, the Supreme Court held that when a Post-Dated cheque is written or drawn, it is
only a bill of exchange. When it becomes payable on demand, however, it becomes a check.
The main ingredients of the offence under Section 138 of the Act, according to the court, is the
bank's unpaid return of the check. No offence under Section 138 is committed until the bank
returns the check as unpaid.
The provisions of Section 138 only apply when the post-dated cheque becomes a "cheque" with
effect from the date shown on the face of the said cheque.
As a result of the discussion, a post-dated cheque is still considered a bill of exchange until the
date written on it. The said cheque becomes a "cheque" under the Act as of the date shown on
the face of the said cheque, and the provisions of Section 138(a) are squarely attracted.
According to the appellant, all of the requirements are met, as follows:
a) The respondent had a check drawn on a bank account that he controlled.
b) The liability has been discharged by issuing the check.

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 c) The check was properly presented to the bank for payment after the due date had
passed.
d) In accordance with Section 138, the statutory notice was sent (b)
e) The respondent failed to make the payment within a 15-day period.

Furthermore, it is argued that under Section 139 of the NI Act, 1881, the holder is presumed to
have received the cheque of the nature referred to in Section 138 for the discharge in whole or
in part of any debt or liability. The next critical question is whether the respondent can assert
the defence that he issued the checks in the mistaken belief that he was liable.
This can be interpreted using Section 120 of the Negotiable Instrument Act, which provides
for Estoppel against denying the instrument's original validity. The maker of a note, the drawer
of a bill or cheque, and the acceptor for honour of the drawer are all prohibited from contesting
the validity of the instrument as originally made or drawn under this section. By their respective
agreements, the maker and the drawer are directly responsible for bringing these documents
into existence, and they should not be allowed to claim that the instrument was not valid as
originally made or drawn by them.
As a result, the defendant is unable to assert the defence.

Arguments from the Respondent's Side:

On behalf of the respondent, it is respectfully submitted to this learned Court that the appellant's
contention that a post-dated check is subject to Section 138 of the Negotiable Instrument Act,
1881 is incorrect and unsound. In M/S Indus Airways Pvt. Ltd and Ors vs M/S Magnum
Aviation Pvt Ltd, the respondent relies on a Supreme Court division bench decision. Justice R.
M. Lodha and Shiva Kirti Singh's opinion reflects the correct legal position regarding post-
dated cheques.
In this case, the court determined that the Section 138 explanation clarifies the meaning of the
term "debt or other liability" for the purposes of Section 138. This term refers to a legally
enforceable debt or other obligation. If the cheque was issued to discharge any debt or other
liability, Section 138 considers it a criminal offence.
It held that the explanation proves beyond a shadow of a doubt that a legally enforceable debt
or other liability must exist on the date of the check's drawal to constitute an offence under
Section 138. To put it another way, drawing the check in satisfaction of an existing or past
adjudicated liability is a pre-requisite for committing an offence under Section 138.

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If a cheque is issued as an advance payment for the purchase of goods, and the purchase order
is not carried through to its logical conclusion for any reason, including cancellation, and the
material or goods for which the purchase order was placed are not supplied, the cheque cannot
be held to have been drawn for an existing debt or liability, in our opinion. Payment by check
in the form of an advance payment indicates that there was no existing liability at the time the
check was drawn.
As a result, the respondent contends that, because no legal liability existed at the time of the
cheque's draw, post-dated cheques cannot be said to fall within the scope of Section 138 in this
case.
The next question is whether all of the requirements of Section 138 have been met in order to
convict the respondent. The respondent denies that certain elements must be present in order
for an offence under Section 138 of the Act to be committed.
As a result, the respondents should not be convicted under Section 138, it is argued.

NOTICE
Ref.: Dated:-
Proforma of Legal Notice U/s 138 Negotiable Instrument Act.
To
(Name of the Person and Address)
Sub:- Legal Notice issued under section 138 of the Negotiable Instruments Act and section 420
of the Indian Penal Code, as modified to date.

Sir, Under the instructions and authority of my client (His name), (Father's name), (Age),
(Address), I hereby serve you with the following legal notice: -

1. A description of the matter, including how and why the money was supplied, as well as
why the accused individual owes the complaint money.
2. The moment when the money was provided with the guarantee that it would be returned.
3. When the check was issued in response to a request.
4. When the Check was Delivered?
5. What happened if the check was returned unpaid?
6. Is there a date on the bank's memo stating the reason for the cheque's dishonour?
7. A Section 138 notice can be issued if the account is closed, funds are inadequate, or the
drawer of the Cheque has stopped payment.

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As a final option, you are thus summoned to make the payment of Rs./- (Rs) seized from my
client and for the discharge of which the cheque in question was issued, which was eventually
returned unpaid and dishonoured by your bank through this legal notice.

As a result, you've been told to clear your debt. My client will be forced to take legal action
against you under section 138/141 of the Negotiable Instrument Act, 1881 read with section
420 of the Indian Penal Code within fifteen days of receiving this notice, i.e. the amount of the
cheque, failing which my client will be forced to take legal action against you before a
competent court of law under section 138/141 of the Negotiable Instrument Act, 1881 read
with section 420 of the Indian Penal Code, which provides that the person committing the
offence A copy of this legal notice is being given to you under REGD AD Cover to assure
service upon you, and a copy is being kept in the office for subsequent proceedings and action.

Advocate (SIGNATURE)

Answer 4:

A)

In Section 8 of the Negotiable Instruments Act of 1881, the term "holder" is defined. A
holder of a negotiable instrument, such as a promissory note, bill of exchange, or cheque, is
defined as a person who is entitled to possession of the instrument in his own name and is
entitled to collect the amount due in the instrument from the parties thereto, according to
Section 8. Payment must be provided to the bearer of the Negotiable Instrument in order to
discharge the maker or acceptor, according to Section 78.

Inconsistencies in the Definition:

There are a number of difficulties in the act's meaning, which has resulted in a number of
challenges and judicial battles. The wording "persons entitled in his own name to ownership of
the instrument and to collect and reclaim the sum" is ambiguous, according to the Law
Commission's findings.

Another source of ambiguity is the term "entitled," which has a wide variety of connotations.
The Allahabad High Court held in Parsotam v BankeLal that this section only applies to a
maker, drawer, payee, indorser, and bearer, and that a transferee or assignee is entitled to
recover due amount not because he is a holder under this section, but because he is an owner
who can give a valid debt discharge.

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The Law Commission's Recommendations to Resolve Ambiguities:

Following debates, the Law Commission's research and report suggested a new definition of
the holder as well as a number of additional actions to be done, which are as follows:

1. According to the proposed revised definition, a "Holder" is "the payee or indorsee of

an instrument who is in possession of it or the bearer of it, but not a beneficial owner
claiming through a benamidar."
2. The phrases "and to collect or reclaim the sum payable thereon from the parties
thereto" should be inserted in a separate section outlining the holder's rights.
3. To avoid any confusion concerning a beneficial owner's right to make a claim through
a benamidar, the term must expressly exclude him. The Act's objective was to prevent
the benamidar from profiting from it.
4. The phrase "entitled" should be deleted from the definition, and only real entitled people,
such as payee and indorsee, should be indicated. This will determine whether or not
assignees and transferees should be included in the definition of holder.

B)

A holder in due course is a person who accepts a negotiable instrument in a value-for-value

exchange without cause to dispute its authenticity in commercial law. A holder first becomes
a holder in due process by purchasing the bill, note, or check for a legitimate consideration and
without having reasonable grounds to think that the title of the person from whom he obtained
his title was defective. As a result, he must have behaved in good faith and with prudence.

In time, a holder gets the right to sue the instrument's creator and intermediate holders for the
instrument's worth. In order to be the holder in due course, a person must meet the following
qualifications, according to S.9:

• He must become a holder in order to be considered.

• He must get the instrument prior to reaching adulthood.
• He must get the item in a trustworthy manner.

The method of determining good faith in Indian and English law differs significantly. Miller v
Race (1758): a bandit stole a banknote that had been mailed by public mailing. It was taken in
the ordinary course of business for significant consideration by the plaintiff. The plaintiff was
said to have acted in good faith because he obtained the NI in a legitimate manner.

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Plaintiffs reduced a bill for 500 in the ordinary course of business for an unknown individual
in John Lawson v Weston (1801). While the defendants argued on the requisite degree of
reasonable care, Lord Kenyon dismissed the argument, stating, "to adopt the defence concept
would immediately stop the circulation of all the paper in the kingdom, and with it all its trade."

The idea of appropriate care and caution triumphed over the good faith doctrine in England for
a brief period between 1824 and 1836, ushered in by key decisions like Gill v Cubitt and
Goodman V Harvey. However, after 1836, English law expressly stated that simply "good
faith" was necessary.

"A thing is regarded 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," says S.90 of the Act.

Law in India:

Unlike the Indian Act, which requires good faith as well as appropriate care and caution, the
English Act just needs good faith in due process.

The subjective test involves the court attempting to determine the holder's own thoughts. "Did
he take the instrument honestly?" is the sole question.

In the objective test, the court must look outside the holder's thoughts to see if he acted with
the care that a reasonable person would. "Did he use due care and caution?" is also a question.

Catholic Syrian Bank Ltd v. U Ponnappa Moothan Sons (1991 SC)

Indian courts examine whether the individual acted with reasonable care and caution, based on
the classic English case law Gill v. Cubbit. In comparison to the current English stance, there
is a stricter obligation on the holder in due course. It's crucial to note, however, that his claim
would not be void if he couldn't establish he wasn't negligent. The court must assess whether
his error was sufficiently egregious that he had reasonable grounds to suspect the title was
defective.

U. Ponnappa Moothan Sons, Palghat v. Catholic Syrian Bank Ltd.

It was argued in the case as well as others - In comparison to the English term, the Indian
concept puts a more strict condition on the holder in due course. He should not have been aware
of a fault in the transferor's title, and he should have accepted the document in good faith,
according to English law. There should be no reason to suppose that such a flaw exists under
Indian law. As a result, the holder's good faith is insufficient. In addition, he should take the

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instrument with care and carefully. It's possible that the Indian concept is based on the case of
Gill v. Cubbit.

In comparison to the English term, the Indian concept puts a stricter condition on the holder in
due course. To be a holder in due process in Indian law, a holder must not only have acquired
the bill, note, or check for legitimate consideration, but also without having reasonable cause
to suspect that any flaw in the title of the person from whom he got his title existed. He must
behave in good faith and with reasonable prudence under this situation.

C)

'A holder's inability to show his bona fides or lack of carelessness does not invalidate his claim
to be holder in good faith.'

This declaration addresses Holder's requirements in order for him to qualify as a Holder in due
time and enjoy the benefits afforded to him by the law. To be a Holder in due process, one must
meet the following qualifications, according to Section 9 of the Negotiable Instruments Act:

i. He must be a holder in accordance with Section 8 of the Negotiable Instruments Act.

ii. He must become a holder in order to be considered.
iii. He must get the instrument before to reaching adulthood.
iv. He must get the item in a trustworthy manner.

According to the fourth criterion, the instrument must be received in good faith. Good faith
must be evaluated by assessing whether the holder took appropriate care and diligence,
according to the ruling in U. Ponappa Moothan Sons v. Catholic Syrian Bank Ltd., which
was based on the classic English case of Gill v. Cubitt. According to S.9, the instrument must
be obtained "without adequate grounds to believe that any flaw in the title of the person from
whom he gained his title exists."

The Court held in Durga Shah Mohan Lal Bankers v. Governor General in Council & Others
that this phrase is more favourable to the person who claims to be the Holder in due course
than the phrase 'acting bona fide,' because in the former case, the person's claim would only be
defeated if it could be demonstrated that the person had reasonable grounds to believe that the
title being passed to him was defective. His claim will be impacted if he fails to show his
innocence or the lack of fault. This viewpoint was slightly altered in the case of U. Ponappa
Moothan Sons v. Catholic Syrian Bank Ltd. Although the Court agreed that a failure to prove
his bona fides or the absence of negligence would not affect his claim, it added a caveat that in

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the event of negligence, the Court has the discretion to determine whether the negligence was
so gross and extraordinary that the holder in due course had reasonable grounds to believe the
title of the instrument so transferred was defective.

As a result, it is accurate that "a holder's inability to show his bona fides or lack of culpability
would not undermine his claim to be holder in due course." The court may, in its discretion,
infer that the holder had reasonable grounds to suspect that the instrument being transferred to
him was faulty if the carelessness was sufficiently egregious that the holder had reasonable
reasons to believe that the instrument being transferred to him was defective.

D)

A negotiable instrument connects the two parties, the maker/indorser and the
payee/holder/indorsee, in the same way that a carrier connects the shipper and the consignee.
However, unlike a carrier, which transports luggage from the shipper to the consignee and
serves as a medium for connecting the shipper and the consignee, a negotiable instrument does
not transport the actual luggage, i.e., money, As a result, a negotiable instrument acts as a
carrier by conveying an obligation to pay the amount rather than real money.

Answer 5:

ARGUMENTS FROM THE BUYER'S SIDE:

According to Section 38 of the Sale of Goods Act of 1930, each instalment of a delivery
should be treated as a distinct contract. There is also a right of repudiation with the buyer in
the event of a fundamental violation. Repudiation is also possible if there is a recurring breach.

In the case of K.H. Rao v. Union of India, it was stated that "where it can be demonstrated
that the breach results in destroying the very spirit of the contract, the breach would result in
total repudiation, not just a damages action." The question of whether the breach reaches to
the heart of the contract must be resolved based on the facts and circumstances of the case. The
failure to fulfil must be a fundamental violation of the contract. Genuine reasons for rejection
include things that do not match the description or sample, are of poor quality, or are unfit for
purpose. Furthermore, pursuant to Section 17 of the Act, the bulk is required to match the
sample. In this scenario, the vendor had showed the buyer samples and orally declared his raw
silk to be pure while meeting with the buyer. However, the buyer eventually discovered that
the silk was unclean and unsuited for his purposes. Even if the silk matched the description on

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the surface, it was unsuited for use by the customer, and so the buyer had the right to reject and
also repudiate the contract by cancelling the three remaining payments.

ARGUMENTS FROM THE SELLER’S SIDE:

Each instalment in any contract for instalment delivery will be treated as a distinct contract.
The failure to pay one payment cannot result in the contract being repudiated as a whole. Also,
even if the buyer has a right to examine and reject under Section 41, the buyer must inform the
seller of his or her decision. In the event of rejection, the prospective buyer's responsibility is
to notify the seller of the refusal and request that the items be lifted.

It was ruled in the case of City and Industrial Development Corp. of Maharashtra Ltd. v.
Nagpur Steel and Alloys (P) Ltd that "this unqualified acceptance of the material amounted to
waiver of the requirement." If the complaint had been lodged sooner, the vendor would have
readily replaced the products. There was no intention of treating the breach of condition as a
breach of warranty. In any event, no such intention was ever disclosed to the seller, either orally
or in writing, and this constituted waiver.

In the case of Bohre Brij Kishore v. Firm Shripatram Chironji Lal, the Court found that the
plaintiff was required to provide the defendant notice in order for him to explain whether or
not the quality offered by him was consistent with the sample. If he wished to, he should have
been given the chance to return the products and restore the money he had received from the
plaintiff. He was likewise turned down for this opportunity. It should also be noted that the
plaintiff has failed to establish what the transaction's real loss was.

In the case of Head v. Tattar Sale, the court found that if the products are damaged while lying
with the potential buyer, the fault must be identified (defined under Section 2[5] of the Act).
Under the bailee's responsibilities, the potential buyer is responsible for taking reasonable care
of the items (Sections 151, 159 of the Indian Contract Act, 1872).

As a result, in this example, the buyer was responsible for informing the seller of the rejection,
and because the products are now damaged as a result of his negligence, he must reimburse the
seller.

Furthermore, the seller had already prepared to deliver the following three payments in order
to fulfil the contract, and the buyer should compensate him for the loss he suffered as a result
of the cancellation.

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Conclusion:

The buyer is responsible for the seller's losses since he neglected to notify the seller of the
rejection. Furthermore, because the seller had made considerable measures to fulfil the
following three payments, he was now bound by promissory estoppel. He should have been
given the option of returning the merchandise and refund the money he received from the
consumer if he so desired. He was also turned down for this position. As a consequence of the
buyer's carelessness, the seller is entitled to damages from the sale since he has suffered losses
as a result of the transaction.

Answer 6:

B)

A bill of lading is a document that evidences a contract of transport by sea and the carrier's
taking over or loading of the goods, and by which the carrier agrees to deliver the goods in
exchange for the document's surrender. Such an endeavour is created by a provision in the
agreement stating that the items will be delivered to the order of a named person, or to order,
or to bearer. The following is what a Bill of Lading represents:

• Proof of carriage contract

• Transaction receipt in writing
• Taking control- The items have been taken over by the carrier. It also specifies who is
responsible for loading and unloading the products.

It is an order instrument when the consignee's name is mentioned, and it is a bearer instrument
when it is not mentioned. The carrier's undertaking is also reflected in the Bill of Lading. A
Bill of Lading must be written, and the Bill's transferability is presumed.

The different types of Bills of Lading are as follows:

1. Charter Party Bill of Lading: This contract hires the complete vessel. However, if the
person does not have enough cargo, he may use freight brokers to invite cargo. Except
for the fact that a Bill of Lading clause can be incorporated as per Article 15, all of the
Charter Party rules apply here. The shipowner is known as the shipowner, the charterer
is known as the charterer, and the consignee is known as the person to whom goods are
to be sent. Based on the principle of negotiability: Bills of Lading can be of two types.

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 • Negotiable Bill of Lading- These bills can be further negotiated or indorsed.
Bearer bill of lading, for example.
• Non-negotiable Bill of Lading- These bills are non-negotiable. For instance, a
simple bill of lading
2. Received for shipment Bill of Lading and Shipped Bill of Lading- A Bill of Lading
is provided by the charterer/agent to the shipper in the case of a received for shipment
Bill of Lading. The carrier's signature on the bill certifies that the items have been
received for transportation by the carrier, but it does not certify that the products have
been put onto the stated vessel. A shipped Bill of Lading is issued once the cargo is
loaded onboard. It establishes direct contact between the shipowner and the shipper.
Shipped bill of lading is more certain than received bill of lading because it is known
that the goods have been shipped. On the other hand, there is a risk of misappropriation
in the event of received for shipment, because it says nothing about the commencement
of navigation and only indicates the receipt of goods.
3. Clean and Claused/Dirty Bill of Lading- A clean Bill of Lading indicates that the
cargo was loaded into the ship in apparent good order. Such a bill must be free of any
notation that plainly states that the items or their packaging have a fault. The antithesis
of a clean bill of lading is a dirty/claused bill of lading. It indicates that the goods were
received in less-than-ideal condition by the carrier, and it may include a claused Bill of
Lading as a statement.
4. Liner Bill of Lading is a bill of lading that contains a shipping line's terms and
conditions of carriage.
5. Stale Bill of Lading- A stale bill of lading is one that was placed with the presenting
bank at a later period, preventing the bank from delivering it to the consignee before
the goods arrived at the destination port. To put it another way, the bank fails to check
if the paperwork has arrived before the shipment arrives at the destination port.
6. Order/Straight Bill of Lading- This bill is issued to a specific specified consignee and
expressly states that it is non-negotiable, meaning that it cannot be transferred further.
The indorsee can't get a greater title than the indorser because of this. Non-negotiable
bill of lading is another name for it.
7. Bearer Bill of Lading says that delivery will be made to the person who owns the bill.
A bill of this nature can be negotiated by physically handing it over to the bearer.
8. Electronic Bill of Lading- This sort of Bill of Lading is issued in digital/electronic
format, as the name implies.
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D)

According to Section 15 of the Negotiable Instruments Act, when the maker or holder of a
negotiable instrument signs it, other than as such maker, on the back or face thereof or on a slip
of paper annexed thereto for the purpose of negotiation, or when he signs a stamped paper
intended to be completed as a negotiable instrument for the same purpose, he is called the
"indorser."

In most cases, indorsement refers to the act of writing one's name on the front or back of a
document with the goal of conveying the rights contained within. It could be be on a piece of
paper or a slip that is linked to the instrument. Allonge is the name given to this situation.
According to S. 15, the holder's signature or the signature of a person authorised on the holder's
behalf might also be considered indorsement. Except if an indorsement has a date beyond
maturity in the bill, S. 15 must be interpreted in conjunction with S. 118 of the Negotiable
Instruments Act, which states that every indorsement is prima facie presumed to have been
executed before the bill was overdue.

Who has the authority to endorse?

The holder or producer of a certain instrument can indorse it, according to Section 15 of the
Negotiable Instruments Act.

The term "holder" is defined in Section 8 of the Negotiable Instruments Act. The term "holder"
refers to a person who is entitled to possession of a promissory note, bill of exchange, or cheque
in his own name and who is entitled to receive the amount due in the instrument from the parties
thereto.

Every solitary maker, drawer, payee, or indorsee, or all of several joint makers, drawers, payees,
or indorsees, may indorse and negotiate a Negotiable Instrument if the negotiability has not
been restricted, according to Section 51 of the Negotiable Instruments Act.

A maker can also be deemed an indorser if the instrument has been drawn by his authorised
agent and he signs it to ensure the instrument's authenticity.

Indorsements come in a variety of shapes and sizes. According to Section 16 of the Negotiable
Instruments Act, there are two types of indorsement: indorsement in blank and indorsement in
full.

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BLANK INDORSEMENT OR GENERAL INDORSEMENT:

Indorsement in blank or general indorsement occurs when the indorser does not provide the
name of the indorsee at the moment of indorsement. It comprises of the indorser's bare
signature, and the bill is payable to the bearer.

If the holder simply signs an order instrument without mentioning his name, it becomes a bearer
instrument, and anyone in possession of the instrument can claim money under Section 8 of
the Negotiable Instruments Act. Blank indorsed negotiable instruments are transferred in the
same way as if they were initially drawn payable to bearer, according to Section 54 of the
Negotiable Instruments Act. Even if the instrument was originally formed as an order
instrument, if the last indorsement is blank, it will be payable to bearer. The result is that the
instrument is converted to payable to bearer as if it were drawn payable to bearer.

FULL INDORSEMENT OR SPECIAL INDORSEMENT:

Indorsement in full or special indorsement occurs when the indorser not only signs the
instrument but also indicates the person to whom or whose direction the instrument is payable,
according to Section 16 of the Negotiable Instruments Act.

It is also possible to convert a blank indorsement to a full indorsement. When a person receives
a negotiable instrument indorsed in blank, he may write over it the directions making it payable
to another person on his order and indorses the same, the indorsement becomes a special
indorsement, according to S. 49 of the Negotiable Instruments Act.

Indorsement can be used to transfer the rights attached to a certain instrument. Indorsement can
also be used to collect the attribute associated with a specific instrument.

As a result, indorsement might have two impacts. They're -

• Allows the indorsee to make additional transfers;

• The indorsee's right can be limited during this indorsement by applying express
provisions in that particular instrument. When something like 'pay to the order of B
only' is said, it means that it can't be indorsed any further.

Other provisions include:

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Partially indorsement is prohibited under Section 56. Negotiable instruments cannot be sold
for a fraction of their value. If a portion of the payment has already been made, a note to that
effect can be indorsed on the instrument, which can then be indorsed to a third party.

The goal is to prevent an instrument from being moved from person to person for the sole
purpose of receiving a specific sum when it is due. Whatever amount is present, it must be
transmitted in its whole.

S. 57 anticipates a circumstance in which a person has indorsed a certain instrument and then
dies, leaving only delivery as the only condition, yet a legal representative cannot complete the
deceased's indorsement by simply delivering the instrument. He can, however, transfer it on
his own liability if he so desires. The term "facultative indorsement" refers to indorsements in
which the indorser expressly relinquishes some rights or raises his obligations.

Forged indorsement entails forging someone's signature and indorsing the instrument, as the
term implies. It is not permitted. If the holder, on the other hand, forges someone's signature
and then transfers it, the holder will eventually receive a title free of faults.

S. 130 of the Transfer of Property Act allows for assignment.

A written document signed by the transferer must be used to make an assignment, and this is
true whether the instrument is a bearer or an order instrument. There are a few distinctions
between an endorsement and an assignment, which are listed below:

• There is no presumption of consideration in the case of an assignment, and the

transferee bears the burden of proving that the transfer was for consideration.
• In the event of an assignment, the person who will make the payment must be notified.
• When a debt is assigned, it is susceptible to all faults and equities that may exist in the
assigner's title. There are no exceptions to nemo dat quod non habet.
• Payment of stamp duty is required under S. 130 of the TPA when an assignment is
made.

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