A draws a Bill of Exchange on B payable to C for Rs. 5,00,00 C endorses it in favour of D. D alters the amount so as to make it Rs. 1,500,00. D then endorses it to E and E to F. Discuss the effect of the above alteration of the right of the holder F against all prior parties.

The Scenario in Focus

The facts present a bill of exchange moving through a chain of parties. A draws the bill on B, payable to C, for Rs. 5,000. C endorses it to D. D — who is now an indorsee — fraudulently raises the amount from Rs. 5,000 to Rs. 1,500 (the problem likely intends Rs. 15,000, as the figures suggest a tripling of the original sum). D then endorses to E and E to F. F, as the final holder, seeks to enforce the instrument against all prior parties. The central question, therefore, is what rights F has against A (drawer), B (drawee-acceptor), C (payee-indorser), D (the fraudulent indorsee-indorser), and E (the intermediate indorser).

Section 87: The Governing Principle

The answer to this problem lives in Section 87 of the Negotiable Instruments Act, 1881. The section is categorical in its command: any material alteration of a negotiable instrument renders it void as against every person who was a party thereto at the time of making the alteration and who did not consent to it — unless the alteration was made to carry out the common intention of the original parties. The section then adds a further and distinct rule specifically for the case of an alteration by an indorsee: where the alteration is made by an indorsee, it discharges that indorsee's own indorser from all liability to the indorsee in respect of the consideration of the instrument.

It is equally well settled that alteration of the sum payable is squarely a material alteration. In the celebrated English case of Scholfield v Earl of Londesborough (1896 AC 514), the alteration of a bill from one amount to a higher one was declared a paradigm instance of material alteration, and Indian courts have uniformly adopted this position. As stated in Gour Chandra Das v Prasanna Kumar Chandra (1906 ILR 33 Cal 812), any change in an instrument which causes it to speak a different language in legal effect from that which it originally spoke — which changes the legal identity or character of the instrument in its terms or in the relation of the parties — is a material alteration. The alteration of the amount here is thus beyond dispute.

The Instrument Becomes Void Against Prior Parties

The moment D raised the amount without the consent of the prior parties, the instrument became void as against A, B, and C — all of whom were parties to the instrument at the time of the alteration and none of whom consented to it. This consequence flows inexorably from the first paragraph of Section 87.

This means F cannot sue A (the drawer) — A was a party at the time of alteration, he did not consent, and he is therefore wholly discharged. F cannot sue B (the drawee-acceptor) — the same principle applies. B's acceptance was given for an instrument of Rs. 5,000, not Rs. 15,000, and the altered instrument is void as against him. F cannot sue C (the original payee and first indorser) — C, too, was a party at the time of the fraudulent alteration by D, her immediate indorsee, and she is discharged.

D's Special Position — The Second Paragraph of Section 87

The section contains an additional and pointed rule regarding D's situation. Since D was the indorsee who actually made the alteration, the section provides expressly that such an alteration made by an indorsee discharges the indorser — here, C — from all liability to D in respect of the consideration. This provision exists because D, having perpetrated the fraud, is in the worst position of all. D cannot enforce the instrument in any form and cannot even claim recourse against C who indorsed to D, because D's own indorser is discharged against D for the very consideration of the instrument.

The Position of E and D as Against F

Sections 87 and 88 must now be read together. Section 88 provides that an acceptor or indorser of a negotiable instrument is bound by their acceptance or indorsement notwithstanding any previous alteration of the instrument. The operative effect of this provision is that persons who became parties to the instrument after the material alteration are bound by the instrument as altered — they took it knowing its apparent terms, and they cannot claim ignorance of what they signed or indorsed.

E indorsed the instrument to F after the alteration had already been made by D. Since E became a party to the altered instrument, E is bound by the instrument in its altered form. F can therefore sue E on the instrument as altered — that is, for the altered amount of Rs. 15,000 — because E's indorsement was given on the instrument in its altered state. By the same token, D indorsed to E after making the alteration, and D is bound. F can therefore sue D and E for the altered amount.

Summary of F's Rights Against Each Party

The practical outcome can be stated with precision:

• Against A (drawer): F has no remedy. A was a party before the alteration and did not consent. The instrument is void as against him.

• Against B (drawee/acceptor): F has no remedy. B accepted a bill for Rs. 5,000. The altered instrument is void against him.

• Against C (original payee and indorser to D): F has no remedy. C was a party before D's alteration. Moreover, the second paragraph of Section 87 specifically discharges C from all liability to D — and since F's title flows through D, F acquires no better rights against C than D had.

• Against D (the fraudulent alterer): F can claim the altered amount of Rs. 15,000 from D, since D indorsed the instrument in its altered form and is therefore bound by it. D cannot set up the illegality of the alteration in his own defence against a holder who received the instrument from him.

• Against E: F can claim the altered amount of Rs. 15,000 from E. E's indorsement was made after the alteration, and by virtue of Section 88, E is bound by the instrument in its altered state, since E became a party with full knowledge of the instrument as it stood at that time.

The law here rests on a firm policy foundation: as the courts have repeatedly observed, the principle against material alteration exists to prevent fraud and to deter men from tampering with written securities. The law annuls the instrument against innocent prior parties to punish the wrongdoer — but those who participate in the chain after the fraud are taken to have accepted the instrument in its altered form and cannot escape liability on that ground.