Holder in due course rights upheld where endorsement and delivery transferred title; no fraudulent preference was proved.

Endorsement and delivery of the bond, coupled with valuable consideration, transferred property in the instrument and made the applicant a holder in due course and owner of the bond. The right accrued on endorsement and delivery, not only on dishonour of the post-dated cheques. The transaction was also held not to be fraudulent preference, because mere preference is insufficient without proof of a dominant intention to prefer and absence of good faith. On the stated facts, the bond title was upheld and the accrued interest was directed to be released in the applicant's favour, despite the winding-up and regulatory objections.

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Issues: (i) Whether the applicant became the holder in due course and owner of the bond by endorsement and delivery on 15-1-1997. (ii) Whether the transaction amounted to fraudulent preference under section 531 of the Companies Act, 1956.

Issue (i): Whether the applicant became the holder in due course and owner of the bond by endorsement and delivery on 15-1-1997.

Analysis: The bond was treated as a promissory note and therefore a negotiable instrument. The endorsement in favour of the applicant, coupled with delivery and consideration, satisfied the requirements of a holder in due course. Under the law governing negotiable instruments, endorsement followed by delivery transfers property in the instrument and carries the right of further negotiation unless restricted. The right in the bond therefore accrued when the bond was endorsed and delivered, and was not created for the first time on dishonour of the post-dated cheques.

Conclusion: The applicant became the holder in due course and owner of the bond on 15-1-1997.

Issue (ii): Whether the transaction amounted to fraudulent preference under section 531 of the Companies Act, 1956.

Analysis: Fraudulent preference requires more than a mere preference in favour of one creditor. The transaction must be shown to have been made with a view to giving favoured treatment, and the absence of good faith must be established by cogent evidence. Here, the bond was endorsed contemporaneously with the advance of the ICD, valuable consideration was proved, and there was no material showing any dishonest motive or want of good faith. The transaction was genuine and predated the winding up proceedings.

Conclusion: The transaction did not constitute fraudulent preference.

Final Conclusion: The applicant's title to the bond was upheld, the restrictive effect of the winding up and RBI notification was rejected as against the applicant's accrued rights, and the bond and accrued interest were directed to be released in its favour.

Ratio Decidendi: Endorsement and delivery of a negotiable instrument for valuable consideration transfers property to the endorsee and makes the endorsee a holder in due course, and a transaction is not fraudulent preference unless a dominant intention to prefer and lack of good faith are established.

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