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The Punjab National Bank Ltd. Vs. Ishwarbhai Bhai Lalbhai Patel and Co. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtMumbai High Court
Decided On
Case NumberSecond Appeal No. 431 of 1962
Judge
Reported inAIR1971Bom348; 1971MhLJ9
ActsIndian Contract Act, 1872 - Sections 191, 192, 193 and 194; Code of Civil Procedure (CPC), 1908 - Order 1, Rule 10 - Order 6, Rule 17
AppellantThe Punjab National Bank Ltd.
Respondentishwarbhai Bhai Lalbhai Patel and Co.
Appellant AdvocateP.P. Deo and ;W.G. Deo, Advs.
Respondent AdvocateJ.M. Thakar, Adv.
Excerpt:
indian contract act (ix of 1872), sections 194, 191-193plaintiff lodging in his bank cheque for encashment -- bank sending cheque to drawee bank for collection -- drawee bank failing to make payment -- plaintiff suing his bank for amount of cheque -- whether bank liable to make good amount.;a cheque for a certain amount was drawn by a firm in favour of the plaintiff on the l-bank at its bhandara branch. the plaintiff handed over the cheque to the gondia branch of the defendant bank where he had an account, directing it to credit the amount of the cheque in his account after realisation. in due course the defendant bank sent the cheque to the gondia branch of the l-bank for collection and the latter sent it to the bhandara. branch of the l-bank. on receiving an intimation from the bhandara.....padhye, j.1. this second appeal had earlier come up for hearing before a single judge mr. justice nain and2. the suit was by the present respondent for recovery of an amount of rs. 5,000/- from the appellant defendant. the facts leading to the said claim are as under:--the plaintiff is a firm dealing in tobacco and also bidi leaves. the firm of chhotabhai karsandas had drawn a cheque of rs. 5,000/- on the laxmi bank limited, bhandara branch, in favour of the plaintiff on 16-5-1960. the defendant is a branch of the punjab national bank at gondia. the plaintiff had an account with the gondia branch of the defendant bank and on 20th of may 1960 the plaintiff handed over this cheque to the defendant directing it to credit the amount under that cheque in the account of the plaintiff after its.....
Judgment:

Padhye, J.

1. This second appeal had earlier come up for hearing before a Single Judge Mr. Justice Nain and

2. The suit was by the present respondent for recovery of an amount of Rs. 5,000/- from the appellant defendant. The facts leading to the said claim are as under:--

The plaintiff is a firm dealing in tobacco and also bidi leaves. The firm of Chhotabhai Karsandas had drawn a cheque of Rs. 5,000/- on the Laxmi Bank Limited, Bhandara Branch, in favour of the plaintiff on 16-5-1960. The defendant is a branch of the Punjab National Bank at Gondia. The plaintiff had an account with the Gondia branch of the defendant Bank and on 20th of May 1960 the plaintiff handed over this cheque to the defendant directing it to credit the amount under that cheque in the account of the plaintiff after its realization. The plaintiff alleges that on the cheque being handed over to the defendant-Bank, the amount of the cheque must have been credited in its account as according to the Plaintiff, the defendant became the holder of the cheque and it was the sole responsibility of the defendant-Bank to collect the amount from the Laxmi Bank and credit the same in the account of the plaintiff. The case further put up by the plaintiff by way of amendment to the plaint as disclosed in paragraph 2 (a) of the plaint was that the defendant was not the agent of the plaintiff, nor was the Gondia branch of Laxmi Bank an express or implied agent of the plaintiff and when the cheque was given to the defendant, the defendant became the holder of the cheque. It was further pleaded that when the cheque was handed over to the defendant, the plaintiff became entitled to the amount from the defendant as it meant that the amount was lying with the defendant in the account of the plaintiff, and the plaintiff ceased to have any relation either with M/s. Chotabhai Karsandas, the drawer, of the Laxmi Bank on whom the cheque was drawn. It was also pleaded that the defendant having become the holder of the cheque was solely responsible for the realization of the amount from the Laxmi Bank and the defendant was deemed to have virtually appropriated the amount lying with the Laxmi Bank till called for.

3. The defendant admitted the fact of receiving the crossed cheque of Rs. 5,000/- drawn by Chhotabhai Karsandas in favour of the plaintiff on the Bhandara branch of the Laxmi Bank Limited. According to the defendantas seen from the better particulars supplied by it, it was handed over to it on 20-5-1960 and it was to be credited to the plaintiff's account after realization. This cheque was entered in the outward Demand Bills for collection on Saturday, the 21st May 1960, This cheque was then sent by the defendant to the Gondia Branch of the Laxmi Bank Limited for collection on 23rd of May 1960 which was a Monday. It appears that this cheque was then sent by the Gondia Branch of the Laxmi Bank to the Bhandara Branch of the Laxmi Bank. An intimation was received by the Gondia Branch of the Laxmi Bank from the Bhandara Branch to issue a payment order for Rs. 4996-88 P. to the defendant directing the defendant to receive the amount in cash by presenting the payment order at the counter of the Laxmi Bank Limited, The payment order was for this amount after deducting the commission of Rs. 3.12 P. This payment order was, according to the defendant, received by it on Saturday, the 28th May 1960, 29th of May 1960 was a Sunday and a closed day for the Banks. According to the defendant, it duly presented the payment order to the Gondia Branch of the Laxmi Bank on Monday the 30th of May 1960, but no payment was made by the Laxmi Bank, Gondia, on that day on one pretext or the other. The payment order was again presented on 31st May 1960 by the defendant-Bank to the Laxmi Bank, Gondia and no payment was made even on that day as by that time the Bank had suspended the payment.

4. On the 1st of June 1960 the plaintiff presented a cheque for withdrawing the amount of Rs. 5,000/- from the defendant-Bank and if the amount of the cheque in question had been credited with the defendant-Bank, then there was no difficulty in the plaintiff's cheque for withdrawal being honoured by the Punjab National Bank, the defendant. However, without this amount the balance to the credit of the plaintiff with the Punjab National Bank was not enough to honour the said cheque and hence payment was refused. After the refusal of this payment, the plaintiff gave to the defendant-Bank a notice of dishonour and has subsequently filed this suit for recovery of the amount of Rs. 5,000/- from the defendant-Bank.

5. One more plea of the plaintiff in paragraph 2 (a) of the plaint needs to be noticed and that plea is, that the defendant by its inability to collect the amount from the Laxmi Bank either on account of the delay in presenting the cheque or laches of the Laxmi Bank in not making the pay-ment to the defendant cannot absolve itself from its liability to make the payment to the plaintiff. This plea, however, has to be read with what has been said earlier in the said paragraph.

6. Both sides examined witnesses. The evidence however, appears to be very cryptic and the details which were necessary to be brought out have not been brought out in this evidence. The defendant has also filed some extracts of the local Cheques Registers maintained by it on 30th May and 31st May 1960 to show that the payment order was presented to the Laxmi Bank on the 30th and 31st of May of 1960 and that those payment orders have been received back.

7. The learned trial Judge after considering the evidence and the law on the point dismissed the suit of the plaintiff. The learned trial Judge took the view that the defendant-Bank was a mere agent for collection and was not liable to credit the amount in the account of the plaintiff unless the proceeds of the cheque had been received by it and as it had not received ' the amount of the cheque, it was not liable to credit the amount in the account of the plaintiff with its bank. The learned trial Judge further took the view that no implied authority to appoint the Laxmi Bank, Gondia as agent for collection of the amount of the cheque could be presumed in favour of the defendant-Bank and the Laxmi Bank, Gondia did not become the agent of the plaintiff. According to the learned trial Judge the defendant was not liable for the plaintiff's claim. The decree of the trial Judge was reversed by the learned District Judge and the claim of the plaintiff for an amount of Rs. 5,000/- has been decreed.

8. During the pendency of the appeal, the plaintiff had filed the application for joinder of the drawer Chhotabhai Karsandas and the Official Liquidator representing the Laxmi Bank in liquidation as parties to the suit under Order 1, Rule 10, Civil Procedure Code. It also filed an application to amend the plaint under Order 6, Rule 17, Code of Civil Procedure. It may be noted that the Laxmi Bank had gone into liquidation before the suit was filed. These applications were opposed not only by the defendant Punjab National Bank, but also by the parties proposed to be joined as parties. These applications were rejected by the learned District Judge by separate orders passed on those applications. The orders on these applications have not been challenged by the respondent and we are not required to consider those matters in this appeal.

9. The defendant has examined Sub-Accountant of the State Bank of India Narayan Ganesh Sonar (D. W. 1) who has stated that the banking transactions take place upto 2.30 P. M. on every working day. He has further stated that on 30-5-1960 cheques of the value of Rs. 6317.90 P. were received from the Punjab National Bank and they were received before 2-30 P. M. There is no cross-examination of this witness. Then there is the evidence of Lilakrishna Lala Parmanand (D. W. 2) a Supervisor of the Punjab National Bank, Gondia. He has stated that the Punjab National Bank has no office at Bhandara and the cheque was gent for collection to the Laxmi Bank Branch, Gondia and on 28-5-1960 pay order was received from the Laxmi Bank, Gondia. He has further stated that this pay order was sent to the Laxmi Bank, Gondia on 30-5-1960 for receiving the payment and this was presented to the bank at about 2 P. M. This payment order was returned on 30-5-1960 without any payment. He has also stated that he had sent Rup-singh with this order along with other cheques. He has further stated that it was again sent on 31-5-1960, but on that day the payment was suspended, Bupsingh (D. W. 3) who is a peon in the Punjab National Bank had gone with the two cheques in Laxmi Bank, Gondia, on 30-5-1960 sometime before 2.30 P. M., but the payment was not made and he was asked to come the next day. Then Kisangopal Lala Lekhraj, who is the Accountant of the Punjab National Bank has been examined as D. W. 4. He has supported what Rupsingh has stated in his evidence. It may be stated that there is no issue about any negligence on the part of the Punjab National Bank either in presenting the cheque to the Laxmi Bank, Gondia on its receipt from the plaintiff or in presenting the payment order to the Laxmi Bank, Gondia, on its receipt on 28th May, 1960 and it appears that this aspect was not considered by the trial Court. For the first time, we find a ground taken by the plaintiff in ground No. 4 before the first appellate Court, the ground being that the defendant Punjab National Bank was liable for breach of duty even as a collecting bank and was responsible to compensate the plaintiff for the loss caused to it on account of gross and culpable negligence of its officers and employees as also for its laches and delay in collecting the amount of the cheque in question. This ground also is somewhat vague and does not state as to where was the negligence, that is, whether the negligence in not presenting the cheque ina reasonable time to the Laxmi Bank, Gondia, for collection or in not presenting the payment order within a reasonable time to the Laxmi Bank, Gondia, for its collection. The learned District Judge has not in fact found as a fact that the defendant was negligent either in presenting the cheque or the payment order to the Laxmi Bank, Gondia, but on the view of law he took, lie held that the defendant-bank must be deemed to have received the amount through its sub-agent, that is, the Laxmi Bank, Gondia and the laches and negligence on the part of the Sub-Agent of the defendant-Bank, that is, the Laxmi Bank, Gondia, cannot affect the rights of the principal, namely, the plaintiff. On this view, the learned District Judge held that the amount having been recovered by the defendant-Bank through its Sub-Agent on the 28th May 1960, the defendant-Bank was bound to credit this amount to the account of the plaintiff in its own Bank and the defendant-Bank was, therefore, liable to pay the amount to the plaintiff.

10. We may state at this stage that though the plaintiff-respondent is trying to spell out a case of negligence on the part of the defendant-Bank from paragraph 2 (a) of the plaint, we do not think that the pleadings in that matter are in any sense clear and unambiguous and we are unable to make out such a case from the facts pleaded in paragraph 2 (a) of the plaint. In the first place, there are no specific allegations as to which inaction on the part of the defendant constituted negligence on its part, whether it was the first act of presenting the cheque to the Laxmi Bank, Gondia Branch or whether it was a second act of presenting the payment order to the Gondia Branch of the Laxmi Bank. The case of negligence must be specifically put so that the opponent must be in a position to squarely meet such a case and all the particulars of such a case must be given. We do not find from these pleadings any case of negligence which should have been put in the forefront in the plaint itself. Secondly, on reading the last portion of paragraph 2 (a) of the plaint along with the earlier portion, the case of the plaintiff seems to be that the defendant merely by accepting the cheque for realisation had become the holder of the cheque and had at once become responsible for crediting the amount to the plaintiff and to make payment thereof to the plaintiff whenever demanded. Read in this context, the plea which is now sought to be made as one of negligence only amounts to this that whether the defendant realises the amount from theLaxmi Bank or not, since the cheque was received by the defendant, it at once became liable to the plaintiff for that amount and it was no concern of the plaintiff whether the defendant acted with due deligence or acted negligently in collecting the amount from the Laxmi Bank, either on account of the delay in presenting the cheque or the laches of the Laxmi Bank in not making prompt payment and this could not be made a ground for the defendant to absolve itself from the liability to pay to the plaintiff. This cannot be construed to mean the pleading of negligence on the part of the defendant in collecting the amount from the Laxmi Bank. Apart from that, we do not find any evidence whatsoever worth the name to arrive at the finding that there was any negligence on the part of the defendant-Punjab National Bank in collecting the amount from the Laxrni Bank, As the events show, the cheque was handed over on the 20th of May 1960. It was entered into the books of the defendant on 21st May 1960. 22nd was a Sunday. It was sent to the Laxmi Bank, Gondia, for collection on Monday, the 23rd May 1960. The Gondia Bank then sent it to its Bhandara Branch, which, in turn, made an entry in the register and intimated to the Gondia Branch that the payment order in respect of the amount be made and given to the defendant-Bank. On the 27th May 1960 payment order was prepared and it was handed over to the defendant-Bank on the 28th May 1960. It is not known as to when this payment order was received by the Punjab National Bank on the 28th. It may be noted that the business hours on Saturday are shorter than the business hours on other days. 29th May 1960 was a Sunday and on the 30th the payment order was presented by the defendant-Bank to the Laxmi Bank, Gondia for collection and as the evidence shows, it was presented before the due time. From this evidence, it cannot be spelled out that the defendant-Bank acted negligently and not like an ordinary reasonable and prudent man would have done. Though therefore, the lower Courts have not recorded a specific finding on this question, we do not find that there is any such negligence on the part of the defendant.

11. The learned District Judge has accepted this position in paragraph 7 of his judgment that the defendant became an agent of the plaintiff for the purposes of collecting the amount under such cheque, and further took the view that because of this relationship, the liability of the defendant will arise vis-a-vis the plaintiff when thedefendant collects the amount and posed a question whether the defendant had collected this amount. The learned District Judge further took the view that the defendant had received the payment order from the Laxmi Bank, Gondia Branch for collecting the amount, which meant that the Laxmi Bank, Gondia Branch had received the amount and the further question which according to him, arose was for whom was the Laxmi Bank, Gondia Branch, holding this amount and answered the question by holding that the defendant had no implied authority to name a person to act for the plaintiff in the absence of agency entrusted to it and the defendant had also no implied authority to appoint the Laxmi Bank, Gondia Branch, its substitute agent for collecting the amount of the cheque. The learned District Judge further took the view that the appointment of the Laxmi Bank, Gondia Branch, by the defendant was its own affair and the Gondia Branch of the Laxmi Bank became a sub-Agent of the defendant-Bank and there was no privity of contract between the plaintiff and the Laxmi Bank, Gondia, and as such the defendant-Bank which was the aaent of the plaintiff was alone responsible to the plaintiff who was the principal.

12. Now Mr. P.P. Deo, learned counsel for the appellant-defendant, has challenged this decision on two alternative grounds. In the first place, it is contended that the defendant-appellant had implied authority to appoint or name another person as an agent to act for the principal and though there is no privity of contract between this named person and the principal as such, the provisions of Section 194 of the Contract Act make that person the agent of the principal for such part of that business of agency as was entrusted to the defendant and if for any reason, the person named by the defendant does not pay the amount, then the defendant is not liable to make any payment to the plaintiff. According to him, this business or the transactions are such which must be done through somebody else and for that purpose, even if there may be no express authority, there is an implied authority to name another person to act for the principal so as to bind the principal by the act of such named person. The contention is that the defendant-Bank has no branch at Bhandara, nor has it any account either with the Bhandara Branch or the Gondia Branch of the Laxmi Bank and since the cheque has been given to the defendant at Gondia for collection from the Laxmi Bank, Bhandara Branch where the drawerhad an account, it had in the ordinary course of the business to take the assistance of the Laxmi Bank, Gondia for realizing the said amount, as the Bhandara Branch is also the branch of the Laxmi Bank. It could not be possible for the defendant-Bank to send a messenger to a different place for collecting the amount and it appears to us that in the normal course of business the method adopted by the defendant in handing over the cheque to the Gondia Branch of the Laxmi Bank for collection was the proper method and no exception could be taken to such a course adopted by the Punjab National Bank. The plaintiff also must have known when it presented the cheque to the defendant that the defendant would have to take recourse to such a method for collecting the amount of the cheque. In fact, the plaintiff has also not stated that there was anything wrong in the course adopted by the defendant-Bank in presenting the cheque to the Laxmi Bank, Gondia Branch, for collecting the amount of the cheque. If such is the nature of the business, then the defendant-Bank who is constituted an agent of the plaintiff for the realisation of the amount of the cheque must be taken to have the implied authority to name another person to act for the principal, that is, the plaintiff, for getting the amount of the cheque since the defendant could not have realised the amount conveniently without adopting such a course. If, therefore, the Laxmi Bank. Gondia, has been named by the defendant to get the amount from the Laxmi Bank, Bhandara Branch and in turn, to pay it to the defendant, then under the provisions of Section 194 of the Contract Act, the Laxmi Bank, Gondia Branch would not be a sub-agent as is understood in Section 191 of the Contract Act and would be an Agent of the principal that is, the plaintiff, for the purposes of collecting the amount of the cheque from the Bhandara Branch of the Laxmi Bank. This is on the assumption that the Bhandara Branch and the Gondia Branch of the Laxmi Bank are different and distinct entities and are different juridical persons,

13. The learned counsel for therespondent contends that the Gondia Branch of the Laxmi Bank would be a sub-agent of the defendant-Bank and the said sub-agent would be liable to its immediate principal, namely, the defendant-Bank, and the defendant-Bank in its turn, would be liable to the plaintiff and the plaintiff would have no concern with the sub-agent, that is, the Laxmi Bank, Gondia Branch. He relies for this proposition on the provisions of Sections 191 to 193 of the Contract Act. It is true that under Section 192 of the Contract Act, where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent and is bound by and responsible for his acts as if he were an agent originally appointed by the principal. However, the agent is responsible to the principal for the acts of the sub-agent and the sub-agent is responsible for his acts to the agent but not to the principal except in cases of fraud or wilful wrong. Now, to our mind, this is not a matter which falls under these provisions and this is a matter which, in our view, will fall under Section 194 of the Contract Act. Here the nature of the business is such, which is one of agency, namely, an agency to collect the amount on behalf of a constituent, that the Bank in the position of the defendant-Bank has to appoint another person for the purpose of realisation and in this case, had to name the Gondia Branch of the Laxmi Bank for that purpose as the Bhandara Branch was a part and parcel of the main Bank, that is Laxmi Bank and the collection of the amount could be facilitated by appointing the local Bank at Gondia. The defendant, therefore, must be taken to have an implied authority to appoint the Gondia Branch of the Laxmi Bank for this purpose and the Gondia Branch of the Laxmi Bank would be a substitute agent and not a sub-agent as understood by Sections 191 to 193 of the Contract Act of the plaintiff, the principal and if that is so, then the acts of the said substitute would be binding on the plaintiff-principal and the defendant-Bank would not be responsible to the plaintiff unless it has received the amount in its hands and credited the same to the account of the plaintiff. There is no doubt that the Bhandara Branch to whom the cheque was sent has on verification of the cheque found that, that the amount of the cheque was payable and it is because of that it gave an intimation to the Gondia Branch to make the payment to the defendant who had presented the cheque to the Laxmi Bank, Gondia and it is on the basis of such an intimation from the Bhandara Branch that the payment order was issued by the Gondia Branch in favour of the defendant-Bank. The issuance of the payment order, however, does not amount to a payment to the person entitled under the payment order unless the amount has actually been paid to that person. It is nobody's case that the amount has actually been received by the defendant-Bank from the Gondia Branch of the Laxmi Bank. On the other hand,the evidence is clear that in spite of the presentation of the payment order on the 30th and 31st of May 1960 payments were not made by the Gondia Branch of the Laxmi Bank to the defendant-Bank, We may, therefore, take it that the amount had remained with the Laxmi Bank Gondia which was under a duty to pay the amount to the holder of the payment order, in this case, the defendant-Bank, for the plaintiff and if the Laxmi Bank, Gondia Branch, did not pay the amount against the payment order, then it would be the Laxmi Bank which would be_ liable to pay the amount to the plaintiff and would be directly responsible for such payment to the plaintiff as the Laxmi Bank Gondia Branch is constituted a substitute agent of the plaintiff in this transaction.

14. It was, however, urged on behalf of the respondent-plaintiff that Section 194 of the Contract Act would not be attracted because, in the first place, there was no privity of contract between the plaintiff and the Laxmi Bank, Gondia, and in the second place, the Laxmi Bank, Gondia could not be taken to be an agent of the plaintiff in this transaction because it had no direct or indirect relation with the said Bank and could not have called upon the said branch at Gondia to pay the amount to himself as the payment order was in the name of the defendant-Bank and it was the defendant-Bank who alone was in a position to collect the amount and even if the plaintiff were to ask the amount of the cheque from the Laxmi Bank, Gondia Branch, the said Bank would not have paid any amount to the plaintiff- Perhaps that may be so; but the plaintiff had already appointed the defendant-Bank as its agent for collection of the said amount and the Laxmi Bank, Gondia Branch was holding the amount on behalf of the plaintiff which the defendant as an agent had only to collect from the Laxmi Bank or rather the Laxmi Bank had to pay the amount to the Punjab National Bank which, in turn, would have credited the amount in the account of the plaintiff. If there is a failure on the part of the Laxmi Bank, Gondia Branch, to pay the amount to the defendant-Bank, then for such failure the Laxmi Bank, Gondia Branch is responsible to the plaintiff and not the defendant-Bank unless it is established that the defendant acted so carelessly or negligently that it was on account of the act of the defendant that the said amount could not be received, That has not been established in the present case.

15. There is also another aspect of the matter. The question iswhether the two branches of the Laxmi Bank, one at Gondia and the other at Bhandara, should be said to be two distinct and separate entities or they constitute only one concern. The banking business was done by a company known as Laxmi Bank Limited with its head office at Akola and it had several branches at different places. The Gondia and Bhandara branches were two such branches. It is no doubt true that each branch had its own constituents and accounts were maintained by those branches for their respective constituents. But even so these branches could not be said to be independent of the main bank and all the funds and the transactions must be taken to be that of the Laxmi Bank itself and not of the individual branches-It is the main business concern which is an entity which can sue or be sued and is responsible for all the acts done by its branches. These branches have no separate and independent existence apart from the main concern and these branches must be taken to be a part of the same unit and not different entities as contended on behalf of the plaintiff. If that is so, then the position is quite different. The question whether the different branches of a Bank are different and separate entities or they are one unit came up for consideration in several decisions and it has been held that they constitute but one unit and are not separate and independent units. The learned appellate Judge has referred to a decision of this Court in Bank of India v. Official Liquidator : AIR1950Bom375 , but the learned counsel for the appellant has brought to our notice a later decision of this Court which has overruled the earlier decision in : AIR1950Bom375 , which was a decision of a single Judge. There are also other decisions which have been brought to our notice to which we shall presently refer.

16. The usage in the banking business of appointing sub-agents for the collection of the amounts on cheques etc. is described in Corpus Juris Secundum, Volume IX, paragraph 228 under the heading 'Sub-agents and Correspondents.' It is described thus:

'Where paper is deposited in a bank located in one city, but is collectable in another city, it is said that the depositor must realize that the bank cannot economically send an agent or officer to the other city to effect the collection, and, therefore, the mere deposit of out-of-town paper impliedly authorises the bank of deposit to select a suitable collecting agency at or near the place where the paper Is payable, and to make any necessary or customary agreement with respect to the collection. If a suitable sub-agent has been selected, and there isanother agency more conveniently located, the deposit of paper authorizes the sub-agent to forward the paper to another, and more conveniently located sub-agent.'

The position of a 'sub-agent' vis-a-vis the principal where the agent has an implied authority to appoint a sub-agent has also been considered in Aggarwal Chamber of Commerce v. Ganpat Rai Hira Lal : [1958]33ITR245(SC) . In this case, the appellant which was a nonresident company entered into forward transactions on behalf of the respondent at Hapur in which there was a considerable amount of profit. The appellant engaged the services of the Hapur firm for the transactions and made profits. Out of the profits it paid a certain amount on account of the income-tax for and on behalf of the respondent. The respondent contended that it was not liable for the said income-tax as there was no privity of contract between it and the Hapur firm. There was no dispute that the Hapur firm was employed by the Appellant for forward transaction business of the respondent which had accepted the transactions entered into as also the amount of the profit accruing on those transactions and was only disputing the amount of income-tax deducted, retained and paid on those profits. It was held by the Supreme Court.

'Under the law, the Hapur firm would be an agent of the respondent for that part of the business of the agency as was entrusted to it and ' 'privity of contract arises between the principal and the substitute' Section 194 of the Contract Act.'

17. The point arose again in another case before the Supreme Court in Union of India v. Amar Singh : [1960]2SCR75 . In this case some goods were entrusted by the plaintiff to himself as consignee from Quetta in Pakistan to New Delhi in India. The receiving railway was the Pakistan Railway which ended at the Pakistan frontier. The goods were then taken over by the Indian Railway which was the forwarding railway and came safely upto New Delhi. The goods however, were not delivered to the plaintiff-consignee. The plaintiff made a claim against the forwarding railway, that is, the Indian Railway, for compensation for non-delivery of the goods entrusted to the said railway and as the demand was not complied with he instituted a suit against the Dominion of India. The forwarding railway, that is, Indian Railway, disputed its liability. One of the grounds urged was that there was no privity of contract between the plaintiff-respondent and the forwarding Railway, that is, the Indian Railway and if he had any claim, it was only against thereceiving railway. The Supreme Court took the view that the Indian Railways were liable to the plaintiff as being in the position of an agent to the plaintiff-consignor. It relied on a passage from the judgment of Thesiger L.J. in De Bussche v. Alt, (1878) 8 Ch. D. 286, which is to the following effect:

'But the exigencies of business do from time to time render necessary the carrying out of the instructions of a principal by a person other than the agent originally instructed for the purpose, and where that is the case, the reason of the thing requires that the rule should be relaxed, so as, on the one hand, to enable the agent to appoint what has been termed 'a sub-agent' or 'substitute'; and, on the other hand, to constitute, in the interests and for the protection of the principal, a direct privity of contract between him and such substitute.'

The Supreme Court then observed:

'The aforesaid facts clearly indicate that the respondent appointed the Receiving Railway as his agent to carry his goods on the Railway to a place in India with whom Pakistan had no treaty arrangement in the matter of through booked traffic. In that situation the authority in the agent must necessarily be implied to appoint the forwarding Railway to act for the consignor during that part of the journey of the goods by the Indian Railway: and, if so, by force of the said section, the Forwarding Railway would be an agent of the consignor.'

On the basis of these authorities it would thus be clear that by the usage of trade or business, the defendant-Bank would have an implied authority to name or appoint another bank, such as the Laxmi Bank, Gondia Branch to collect the amount of the cheque deposited by the plaintiff with the defendant-Bank and the Laxmi Bank would then be the substitute agent of the plaintiff and by virtue of the provisions of Section 194 of the Contract Act, there would be a privity of contract between the plaintiff and the Laxmi Bank and the Punjab National Bank would not be responsible, if the Laxmi Bank failed to pay the amount.

18. The learned counsel for the appellant-defendant, however, urged that the two branches of the Laxmi Bank, namely, one at Bhandara and the other at Gondia, are not in fact two separate and independent banks and they are one and the same, namely, the Laxmi Bank, wherever its branches may be. It is urged that if the two branches of the Laxmi Bank are taken to be one and the same and not distinct and independent units and the defendant-Bank has not received the amount of the cheque from the Laxmi Bank, then there is no liability on the defendant-Bank of the plaintiffsince the Punjab National Bank had not been able to collect the amount from the Laxmi Bank as by that time the Laxmi Bank had gone under liquidation. Reliance was placed by the lower appellate Court on the decision of Tendolkar J. in : AIR1950Bom375 , for the proposition that the two branches are independent units. It was observed in that case in paragraph 6:

'It is contended for the claimants that the bank and its branches are one; and the receipt of money by the branch is receipt by the bank in liquidation. On the other hand, it is contended on behalf of the Official Liquidator that for this purpose the bank in liquidation and its branch must be treated as if they were distinct banks. Now, while there is no doubt that a branch is an agency of the head office, it is well established that for certain special purposes of banking business they may be treated as different banks. Thus, for example, the obligation to honour a cheque of a customer rests on the branch on which the cheque is drawn and on no other. Similarly, where different branches of a bank are endorsers of a negotiable instrument, notice of dishonour must be given to each branch in succession.'

19. This decision came up for consideration before a Division Bench of this Court in Velaja Govinda Saravanabavananthan v. Exchange Bank of I & A, : AIR1958Bom100 . The question there was: where a bank collects the amount of the cheque on behalf of its customer, does it hold the amount in trust for the customer or only as a creditor of the customer, the relationship between the banker and the customer being that of the creditor and the debtor? It was held that in the absence of any specific directions from the customer the amount collected becomes a part of the general funds of the Bank and the relationship that is created is of a creditor and debtor and the bank does not hold the amount in trust for the customer. On this matter, this Division Bench decision differed from the decision of Tendolkar J. in : AIR1950Bom375 . The contention that is raised on behalf of the appellant defendant is that the two branches of the Laxmi Bank are in fact one and the same and when the Laxmi Bank Bhandara Branch gave intimation to the Laxmi Bank, Gondia Branch to issue a payment order to the defendant-Bank, the amount was not actually transferred from one branch to another but the funds remained where they were, namely, with the Laxmi Bank as such, and no amount was in fact collected by the Laxmi Bank, Gondia Branch from the Laxmi Bank, Bhandara Branch. There was no question therefore of the Laxmi Bank, Gondia Branch hold-ing the amount of this cheque in trust for the customer either the defendant or the plaintiff, but it was only as a debtor of the plaintiff and if before this amount could be realised by the defendant-Bank, the Laxmi Bank went into liquidation, the amount could be realised by the plaintiff in the liquidation proceedings and the defendant-bank could not in any way be responsible for the claim of the plaintiff.

20. A decision of the Calcutta High Court in Bengal Bank v. Satyendra Nath Das : AIR1952Cal385 is more in point. In this case one Basanta Kumar Nag drew a cheque in favour of the plaintiffs Satyendra Nath Das and Prithwiraj Das on the Economic Bank Limited, Sonamukhi Branch. The plaintiffs sent the cheque to the Bengal Bank Ltd. for collection and credit to their account. The Bengal Bank sent the cheque to the Bankura Branch of the Economic Bank Limited for realisation. The Bankura branch realised the amount from the Sonamukhi Branch, but did not make over the sum realised to the Bengal Bank on account of some internal trouble and asked for time. Thereafter the Economic Bank Limited went into liquidation and the Bengal Bank limited could not realise the money. The question was whether the Bengal Bank Limited could be held liable as a collecting agent to the plaintiff for having not paid the amount to them. It was the contention of the plaintiffs in that case that the Bengal Bank Limited was liable on the ground that the money was not realised owing to the default of the agents of the Bengal Bank Limited, their agents being the Bankura Branch of the Economic Bank. The contention on behalf of the drawer of the cheque was that the failure to collect the money was due to the laches of the Bengal Bank Limited and that, therefore, the Bengal Bank Ltd. was liable. It was pointed out that at the time the cheque was issued the defendant, had money enough in the Sonamukhi Branch of the Economic Branch Limited to pay the sum. It was also pointed out that the Sonamukhi Branch actually paid the sum to the Bankura Branch who were the agents of the Bengal Bank Limited. If the Bengal Bank Limited had directly sent the cheque to the Sonamukhi Branch they would have realised the money because at that time the Bank had not gone into liquidation. The learned Judge in dealing with this question held that the liability of the Bengal Bank Limited could only arise if the money was paid by the Economic Bank by honouring the cheque. If the Economic Bank failed to pay the money, it could not be held that the Bengal Bank Limited was liable. The learned Judge further observed:

'The Bengal Bank can only be made liable if it can be shown that under the law it has prevented itself from taking the defence that it has taken. The cheque was presented by the Bengal Bank within time. The cheque was dishonoured. The learned Judge seems to think that the cheque was not dishonoured because one branch of the Economic Bank paid the money to the other bank, The liability to pay the amount of the cheque is in the juridical person, the Economic Bank Limited. It is true that for convenience branch accounts are opened at different banks and the branches make the payment. Payments are always made on behalf of the Bank, the branch not being a juridical person, and the liability lies with the bank if branch does not pay.'

On the view taken in this decision, the liability of the defendant-Bank would not arise if the amount of the cheque was not actually collected by the defendant-Bank unless it is alleged and proved that the defendant was in any way negligent in doing its duty.

21. The question whether the different branches of a banking Corporation are separate and distinct banks came up also for consideration in Jyoti Prosad Singh Deo Bahadur v. Chota Nagpur Banking Association : AIR1929Pat193 . Reliance had been placed in that case on a decision of Prince v. Oriental Bank Corporation (1878) 3 AC 325, where it was decided that the two branches of the Bank were not separate and distinct Banks, but branches of one and the same banking corporation or establishment and that they were separate agencies, although agencies of one principal, that principal being the corporation of the Oriental Bank. The matter arose in this way:

The defendant Bank had branches at three different places Sydney, Murrumburrah and Young. Messrs. Hopkins and Gate were store-keepers at Young and had a banking account at the defendant's bank at Young. They gave a promissory note to the plaintiff for a certain sum of money payable not at Young, but at Murrumburrah; but at Murrumburrah it appeared they had no banking account. The note fell due on 3rd April 1875. The plaintiff in whose favour the note was made out lodged it with their bank for collection. The plaintiff's bank handed it over to the Sydney Branch of the defendants' Bank for collection. The Sydney Branch transmitted it to the Murrumburrah Branch which stamped the note as having been paid and then sent a transfer draft to Sydney for the amount of the note for payment to the plaintiff's bank. So far as the books of account of the Murrumburrah Branch were concerned they showed that theamount had been paid to the plaintiffs Bank and it appeared they actually debited the Young Branch with the amount for which the transfer draft had been sent. It appeared, however, that on 4th April 1875, Messrs. Hopkins and Gate's store at Young was destroyed by fire and on 5th April the Manager of the Marrumburrah branch wrote to the Manager of the Sydney branch requesting him to cancel the transfer draft in favour of the plaintiff's Bank. This was done and the plaintiff sued the defendants' Bank for recovery of the money as money had and received to his use. The whole case of the plaintiff rested upon the foundation that the different Branches were to be treated for the purpose of payment as if they were separate and independent Banks. The Judicial Committee came to the conclusion that the Banks were not separate and distinct Banks but branches of one and the same banking corporation or establishment and that they were separate agencies, although agencies of one principal, that principal being the corporation of the Oriental Bank. In this view, they came to the conclusion that the defendant-Bank was not liable as they had not received the money nor anything equivalent to money from any source outside their own establishment. The facts in (1878) 3 AC 325 are very similar to the facts in the case before us, Here also the defendant-Bank admittedly had not received any amount from the Laxmi Bank and as such it could not be held liable for that amount to the plaintiff. Of course, as we have said, different considerations would arise if the plaintiff had alleged and proved that there was any culpable negligence on the part of the defendant-Bank in collecting the said amount from the Laxmi Bank. We have already said earlier what actions were taken by the defendant in collecting the amount. There are no pleadings on behalf of the plaintiff to show any negligence on the part of the defendant during the period 20th May 1960 to 28th May 1960 or on the 30th or 31st May 1960. The evidence shows that the defendant-Bank took all the necessary steps as were expected from an ordinary prudent man and if the defendant-Bank was not able to collect the said amount in spite of reasonable care, it could not be held liable for not realising the amount. There is evidence to show that soon after the payment order was received by the defendant-Bank from the Laxmi Bank, Gondia Branch, it was presented for encashment on the 30th May 1960 during office hours, 29th being a Sunday. But the amount could not be realised and that when it was again presented on 31st May 1960, the payment was suspended by the Laxmi Bank for which the defendant-Bank cannot be held responsible. The case of negligence, therefore, having not been specifically alleged, nor proved by the plaintiff, the defendant-Bank could not be held liable for the plaintiff's claim, since as a fact, the defendant-Bank had not received any amount from the Laxmi Bank from which it was to collect the same. On this view also, the plaintiff is not entitled to get any decree against the defendant-Bank.

22. In either view, therefore, the plaintiff was not entitled to claim a decree against the defendant-Bank. The plaintiff had not joined the drawer in the first Court and it was only in the first appellate Court that such an attempt was made, but the request was refused. That order has also not been challenged in this Court and we do not say anything as to the liability of the drawer to the plaintiff.

23. There is no dispute that theLaxmi Bank Limited has been orderedto be wound up and an Official Liquidatorhas been appointed to go into the claimsin respect of the affairs of the LaxmiBank Limited. We are told that thedefendant-Punjab National Bank hasput up a claim before theOfficial Liquidator in respect ofthe amount of the cheque in dispute. Since the cheque was drawn onthe Laxmi Bank, Bhandara Branch, theLaxmi Bank was bound to honour thesaid cheque and was bound to pay theamount on the aforesaid cheque. Sincethe Punjab National Bank was thecollecting agent for and on behalf of theplaintiff, it was entitled to collect theamount from the Laxmi Bank and afterreceiving the same to credit thesame in the plaintiff's account.There is no doubt that if and when theamount or any part of it is received bythe defendant-Bank from the OfficialLiquidator, the same would be creditedby the Defendant-Bank in the plaintiff'saccount and will be paid to the plaintiffon demand being made.

24. In the result, the judgment and decree of the appellate Court will have to be set aside and the judgment and decree of the trial Court dismissing the plaintiff's suit restored. Accordingly the plaintiff's suit stands dismissed and the appeal is allowed with costs.

25. Appeal allowed.


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