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Union Bank of India Vs. Sales Tax Officer, Enforcement Branch, Greater Bombay and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberSpecial Civil Application No. 1884 of 1972
Judge
Reported in[1979]49CompCas615(Bom)
ActsNegotiable Instruments Act, 1881 - Sections 10 and 1082; General Clauses Act, 1897 - Sections 3(22); Indian Penal Code (IPC), 1860; Bombay Sales Tax Act, 1959 - Sections 39; Code of Criminal Procedure (CrPC) , 1898 - Sections 94; Constitution of India - Article 226
AppellantUnion Bank of India
RespondentSales Tax Officer, Enforcement Branch, Greater Bombay and ors.
Appellant AdvocateKhershadji Bhabha, Adv.
Respondent AdvocateC.J. Sawant, Adv.
Excerpt:
company - remuneration - sections 10 and 108 (2) of negotiable instruments act, 1881, section 3 (22) of general clauses act, 1897, indian penal code, 1860, section 39 of bombay sales tax act, 1959, section 94 of criminal procedure code, 1898 and article 226 of constitution of india - petition filed seeking to quash and set aside notice of demand and order issued by second and third respondent respectively and writ of mandamus restraining and prohibiting respondents, their successors-in-office and their servants and agents from taking any further steps or proceedings - jurisdiction of second respondent under challenge - petitioner bank on receipt of notice under section 39 had not shown any material to account of dealer - case of petitioner-bank can be characterised as one of after-thought.....aggarwal, j.1. the petitioner-union bank of india is a nationalised bank. the 1st respondent is the sales tax officer, enforcement branch, greater bombay. the 2nd respondent is the collector of bombay for recovery of sales tax. the 3rd respondent is the presidency magistrate, 16th court, ballard pier bombay. the petitioner seeks to quash and set aside the notice of demand dated 11th august 1972, issued by the 2nd respondent and the order dated 10th march, 1972, passed by the 3rd respondent and a writ of mandamus restraining and prohibiting the respondent, their successors-in-office and their servants and agents from taking any further steps or proceedings. 2. a firm called messrs. pioneer traders opened a current account with the petitioner-bank on 24th july, 1971, at its bazaar gate.....
Judgment:

Aggarwal, J.

1. The petitioner-Union Bank of India is a nationalised bank. The 1st respondent is the Sales Tax Officer, Enforcement Branch, Greater Bombay. The 2nd respondent is the Collector of Bombay for recovery of sales tax. The 3rd respondent is the presidency Magistrate, 16th court, Ballard Pier Bombay. The petitioner seeks to quash and set aside the notice of demand dated 11th August 1972, issued by the 2nd respondent and the order dated 10th March, 1972, passed by the 3rd respondent and a writ of mandamus restraining and prohibiting the respondent, their successors-in-office and their servants and agents from taking any further steps or proceedings.

2. A firm called Messrs. Pioneer Traders opened a current account with the petitioner-bank on 24th July, 1971, at its Bazaar Gate Street Branch, Bombay. One L. M. Jhaveri represented himself to be the proprietor of Messrs. Pioneer Traders, to the petitioner-bank for the purpose of opening the said account No. 226045. The said L. M. Jhaveri operated the said account from time to time. From the ledger account produced before us at the hearing, the state of account as on September 21, 1971, was that there was a credit balance of Rs. 6,338.24 and on the same day two sums of Rs. 25,000 and Rs. 3,582 were deposited and a sum of Rs. 4,500 was withdrawn 'To self' by Cheque No. 268. Thus, at the closing of the date of September 21, 1971, there was a credit balance of Rs. 30,420.24. On September 23, 1971, a sum of Rs. 25.000 was withdrawn by Cheque No. 269 'To self' and on the same day two sums of Rs. 3,315 and Rs. 8,965 were deposited, thus leaving a balance of Rs. 17,700.24 as reflected in the said account. The so-called withdrawal of Rs. 25,000 on September 23, 1971, is the bone of contention leading to the present petition. The said Cheque bearing No. 269 drawn by Messrs. Pioneer Traders was a bearer cheque as understood in law under the Negotiable Instruments Act, 1881. The word' self appears to be in the hand of the drawer. The words 'pay' or bearer 'are printed on the cheque. This cheque was presented for payment at the petitioner's Bazaar Gate branch by one K. J. Pendharkar. Against the said cheque, Pendharkar was given token No. 8. But before Pendharkar could receive payment, he was arrested at the instance of the 1st respondent for abetting the said L. M. Jhaveri in the commission of the offences under the Bombay Sales Tax Act, 1959, and also under the Indian penal code, as, according to the sales tax department, L. M. Jhaveri who claimed to be the proprietor of Pioneer Traders was issuing bills and invoices to various merchants claiming to be a registered dealer under the Sales Tax Act, 1959, and that his registration certificate bearing No. NIA-6264 dated April 17, 1971, was still in force. On making enquiries, it was found that no such sales tax registration number was ever issued by the office of the sales tax. The place of business of Pioneer traders at the given address was also visited. After making further enquiries, the sales tax authorities were unable to trace the said L. M. Jhaveri and it was revealed to the department that the said L. M. Jhaveri was operating accounts in different names by giving bogus addresses and had defrauded the sales tax department by making use of the false registration certificate No. NIA-6264 dated April 17, 1971.

3. In the circumstances narrated so far, it is apparent that although the petitioner-bank had accepted the cheque for payment, yet since the token with the petitioner, did not turn up, the cash amount of Rs. 25,000 remained with the petitioner-bank. It seems that the same position continued on 24th, 25th and 26th September, 1971. According to the petitioner-bank, on September 27, 1971, the amount of Rs. 25,000 was credited to Sundry Deposits, Sundry Creditors Cash Account and particularised as 'By T. No. 8 drawn by Pioneer Traders'. (This has been corrected from the original produced at the hearing, as Ex. A (collectively) to the petition is not correct)

4. In the meantime, on September 25, 1971, the agent of the Bazaar Gate Street branch of the petitioner-bank received from the 3rd respondent a summons dated September 24, 1971. By this summons as averred by the petitioner in para. 4 of the petition, 'the said agent was informed that an application was made before the 3rd respondent to the effect that the said L. M. Jhaveri had or was suspected to have committed an offence under s. 63 (1) (a) of the Bombay sales Tax Act, 1959. It appeared to the 3rd respondent that it was desirable for the purposes of the enquiry that the amount standing in the current account No. 26045 of Messrs. Pioneer Traders be produced before him'. On September 27, 1971, the said agent also received a letter dated September 25, 1971, from the 1st respondent, in which the 1st respondent referred to the summons issued by the 3rd respondent. Along with the said letter a copy of the application dated September 24, 1971, filed by the 1st respondent before the 3rd respondent was also forwarded. The said application sets out the circumstances in which the said L. M. Jhaveri was supposed to have defrauded the sales tax department by making use of a bogus registration certificate and evaded the payment of sales tax dues. This application was made under s. 94 of the old Code of Criminal Procedure, 1898, and the 1st respondent had prayed for the production of the amount of Rs. 42,700.24 which, according to the 1st respondent, was still outstanding to the credit of Pioneer Traders, and that he apprehended that it was likely that it might be withdrawn at any time. This application came up for hearing before the 3rd respondent. The petitioner-bank was represented by an advocate. The 3rd respondent, by a communication dated October 7, 1971, addressed to the agent of the Bazaar Gate Street Branch of the petitioner-bank, brought to his notice the order made by him in notice No. 709/Misc/71. The said communication, inter alia, states that the sales tax department had been defrauded to a large amount and that whether amount was lying to the credit of Pioneer Traders be kept until the investigation was complete and if charge-sheet was filed, until the case was decided. It further says :

'The agent of the bank, Shri Mukund Narsingrao Padukone, on behalf of the bank is submitting to the orders of the court. It is no use bringing the cash amount in court or by cheque and then to credit it to the court's account. The amount may lie in safe custody of the bank, i.e. Rs. 17,700.24 and Rs. 25,000 and the future credits if any on the undertaking furnished by the agent of the bank that no amount from the said account shall be withdrawn without the order of the court and until further orders ...'

5. It appears that on October 29, 1971, the sales tax department assessed the said L. M. Jhaveri and fixed his sales tax liability at Rs. 56,604. Thereupon the 1st respondent addressed a letter dated November 17, 1971, to the agent of the petitioner's Bazar Gate Street Branch, requiring him under s. 39 of the Bombay Sales Tax Act, 1959, to pay to him forthwith any amount including the sum of Rs. 42,700 or interest thereon held by him on account of Messrs. Pioneer Traders. It was further brought to the notice would be deemed to have been made under the authority of the dealer, namely, M/s. Pioneer Traders, and that the Sales Tax Officer's receipt would constitute a good and sufficient discharge of his liability to the said dealer. The said agent was further warned that if he discharged any liability to the said dealer after receipt of the notice, he would personally be held liable to the Commissioner of Sales Tax. It was also brought to the notice of the said agent that if he failed to make payment in pursuance of the notice, further proceedings might be taken by the Revenue Collector for recovery of the amount as arrears of land revenue. The Sales tax Officer also gave an opportunity to the agent to prove to prove to his satisfaction within 21 days of the receipt of the notice or within the further time that might be granted on request that the sum demanded or any part there of was not due to the dealer, namely, Pioneer Traders, or that he did not hold any money for or on account of the said dealer, and if he did so, nothing contained in the notice shall require him to pay any such or part thereof. The said letter also indicated that the Sales Tax Officer was contemplating to move the court for the release of the amount for the purpose of recovery of sales tax dues.

6. It is pertinent to note that the agent did not choose to send any reply to the letter dated November 17, 1971, much less he came forward to prove that he was not holding any money for or on account of the said dealer or that he was holding only a sum of Rs. 17,700.24 as agitated in this petition. Thereafter, the 1st respondent made an application No. 890/N of 1971 on December 2, 1971 (Ex. E to the petition) to the 3rd respondent praying to cancel or vacate the order passed on October 7, 1971 whereby the agent of the petitioner-bank was allowed to keep in safe custody Rs. 17,700 24 and Rs. 25,000. It seems that this application was not heard in the month of December, 1971. In the month of January, 1972, one Jamnadas Vithaldas Mody made an application No. 72/N of 1972 (Ex. G to the petition) to the 3rd respondent, claiming that he knew one L. M. Jhaveri, the sole proprietor of Pioneer Traders, and that on September 20, 1971, the said L. M. Jhaveri approached him at his office and earnestly requested him that he was badly in need of Rs. 25,000 as he had to pay customs duties and other charges to the Port Trust in respect of the goods which had arrived in the docks and it was represented to him that it was the last date to clear the goods, otherwise he would have to pay heavy demurrages. According to Jamnadas Mody, the said L. M. Jhaveri told him that he would make arrangement to return the said amount within 3 days and offered him a cheque dated September 23, 1971, drawn on the Union Bank of India, Bazaar Gate Branch, Bombay, for the amount of Rs. 25,000 and also paid him in advance in cash a sum of Rs. 62.50 as and by way of interest for the said amount, and that relying upon these representations he paid him Rs. 25,000 in cash, for which L. M. Jhaveri passed a receipt. On the due date, according to Jamnadas Mody, Keshav Jyoti Pendharkar who often did odd jobs for him came to his office and asked him whether he had any asked him whether he had any work for the day and he then handed over the said cheque for Rs. 25,000 which he had received from L. M. Jhaveri and instructed Pendharkar to get it cashed. According to Jamnadas Mody, Pendharkar went to the bank and presented the cheque and received token No. 8 and was asked to wait and he waited for a considerable time. When he was not called at thee counter to receive payment, Pendharkar made enquiries and he was informed that there was some trouble in respect of the said cheque and while Pendharkar was talking to the man at the counter, some sales tax officers contacted him and after questioning him took him to the sales tax office and subsequently he was put under arrest for offence under the Sales-Tax Act. According to Jamnadas Mody, he received no news at all from Pendharkar and became anxious and started making enquiries and tried to contact L. M. Jhaveri, but he was not available. Subsequently, he learnt that Pendharkar was arrested and released on bail and that an order was obtained from the court not to pay the amount of Rs. 25,000 on presentation of the token in respect of the said cheque. According to Jamnadas Mody, he personally went to the bank and was told these facts and that unless and until he obtained an order from the court, the amount would not be available to him. In these circumstances, Jamnadas Mody sought cancellation of the order and a direction to the Agent of the Bazaar Gate Street Branch of the petitioner-bank to make the payment of Rs. 25,000 to him as the said amount was not involved in the proceedings.

7. Both the applications Nos. 890/N of 1971 and 72/N of 1972 were heard and decided by the 33re respondent on 10th March, 1972. The 3rd respondent granted the application of the 1st respondent and dismissed the application of Jamnadas Mody by the same order. The bank was discharged from its undertaking given by it when it submitted to the orders of the court. This is one of the impugned orders and the controversy revolves round the final order on which, according to the petitioner-bank, it had acted in good faith in making the payment to Jamnadas Mody and, therefore, its effect will be considered hereafter.

8. Coming back to the narration of facts, Jamnadas Mody wrote a letter dated 11th March, 1972, to the petitioner-bank asking the bank to issue a draft in his name in respect of the bearer cheque No. 30/A/0270269 dated September 23, 1971, drawn by Pioneer Traders for Rs. 25,000 in respect of token No. 8 as per the court's 0order and forwarded a copy of the court's order. It may be mentioned that Jamnadas Mody also stated in this letter that his letter dated 9th December, 1971, was written under mistake and that he had no claim against the bank and the said letter was withdrawn. Mr. Bhabha, learned counsel appearing for the petitioner-bank, clarified that the, letter dated December 9, 1971, was a notice given by Jamnadas Mody through his advocate threatening to take proceedings if the amount of Rs. 25,000 was not paid to him. The said order of the court dated March 10, 1972, is in these terms :

'On an application in C.C. No. 72/N of 1972, made by Jamnadas Vithaldas Mody, this court has passed the following order :

'Parties present. For the reasons separately recorded, this application No. 890/N of 1971 is allowed. The order passed on 5-10-1971 against the Union Bank of India, Bazaar Gate Branch, is hereby vacated. The undertaking, if any, furnished is hereby discharge. Application No. 72/N/72 stands dismissed.'

The seal of Presidency

Magistrate, Greater

Bombay.

(Sd.) for Presidency Magistrate,

16th Court, Ballard Estate,

Bombay.'

On the same day, a P/O (pay order) for Rs. 25,000 was issued by the petitioner-bank and an entry was made in the Sunday Deposits Sundry Creditors Cash Account. Since the entry in Ex. A (collectively) to the petition is not correctly reflected, it is necessary to state the correct particulars of the entry dated 11th March, 1972. It says : 'To amount of Cash Cheque dated 27th September, 1971, of CD a/c. Pioneer Traders T. No. 8-Pay Order issued as per court order.'

9. Thereafter, the 1st respondent, by his letter dated 27th March, 1972, addressed to the agent of the petitioner-bank, pointed out that the payment of Rs. 42,700 was not made so far and requested him to pay the entire amount into the Treasury and to produce the chalan on or before April 3, 1972. The petitioner-bank by its law officer's letter dated 4th April, 1972, addressed to the 1st respondent, pointed out that the 3rd respondent had vacated the order passed against the bank and the undertaking given by the bank was also discharge and further stated :

'On 11th March, 1972, Mr.Pendharkar informed us that he has presented the aforesaid cheque on behalf of Mr. Jamnadas Vithaldas Mody and requested for payment against the token issued by the bank. Since the court had vacated the order and since the cheque was paid by us in due course on 23-9-1971 to the debit of the subject account, we have paid the said sum of Rs. 25,000 to Mr. Jamnadas Vithaldas Mody against token No. 8 issued by the Bank.'

10. The bank showed its readiness to deposit the balance of Rs. 17,700.24. It was further stated that in the absence of specific directions from the court not to hand over the sum of Rs. 25,000 to the token-holder, the bank could not have possibly withheld the amount when the token was presented to them for receiving the payment. This letter was delivered to the 1st respondent on 13th April, 1972, as pointed out by Mr. Sawant, learned additional Government Pleader, from the original.

11. The 1st respondent by his letter dated 5th April, 1972, once again asked the agent of the petitioner-bank to pay the entire amount of Rs. 42,700 into the Treasury. The 1st respondent by his letter dated 25th April, 1972, addressed to the law officer of the petitioner-bank, drew his attention to the order passed by the 3rd respondent and pointed out that the agent of the bank was present in court and, therefore, there was no question of any specific directions from the court not the hand over the sum of Rs. 25,000 to the token-holder. Thereafter, further correspondence ensued between the 1st respondent issued the impugned recovery order date August 11, 1972, under s. 267 of the Maharashtra Land Revenue Code (Maharashtra Act No. XLI of 1966). The petitioner-bank by their letter dated 9th September, 1972, addressed to the 2nd respondent challenged his jurisdiction and contended that the order was illegal. Hence, the present petition.

12. The first contention raised on behalf of the petitioner-bank by their learned counsel, Mr. Bhabha, was that as soon as there was a debit entry in the account of Pioneer Traders, the account-holder ceased to have any right, title or interest in the sum of Rs. 25,000 and that the petitioner bank held the said sum sin trust for the token-holder No. 8 and, therefore, the payment made by the petitioner-bank was valid. In order to substantiate his argument, Mr.Bhabha strongly relied upon the entries in the current deposit account of Pioneer Traders and the entry in the Sundry Deposits Sundry Creditors Cash Account. According to Mr. Bhabha, as mentioned in ground (a) of para. 15 of the petition, the amount of Rs. 25,000 was debited to the account of Pioneer Traders on September 23, 1971, when Pendharkar on behalf of Jamnadas Mody, but inasmuch as the holder of token No. did not on behalf of Pioneer Traders. Mr. Bhabha contended that the petitioner was not liable to pay the said sum of Rs. 25,000 to any one expect the token-holder. It may be mentioned that Mr. Bhabha did not contend before us that Jamnadas Mody was the holder in due course.

13. Mr. Sawant, learned additional Government Pleader, appearing for all the respondents, contended that having regard to the provisions of s. 82 of the Negotiable Instruments Act, 1881, which provides for discharge from liability of the maker, acceptor or enforcer of a negotiable instrument, the liability can be discharged by cancellation or by release or by payment. All the parties to a negotiable instrument would be discharge by payment under clause (c) of s. 82 if the instrument is payable to bearer or has been endorsed in bank and such maker, acceptor or endorser makes payment in due course of the amount due thereon. In support of his contention, Mr. Sawant cited a decision of the Assam High Court in the case of Mohanlal Jogani Rice and Atta Mills v. Ramanlal Onkarmal Firm [1958] 28 Com Cas 468; AIR 1957 GAU 133, and submitted that a mere debit entry in the account of the bank does not necessarily amount to payment unless the facts show that the payment has been actually made. On behalf of the petitioner, Mr. Sawant's contention was sought to be controverted by reference to a passage of Paget's law of Banking, 7th edn., at page 316.

14. In order to appreciate these rival contentions, to it is necessary to know what is the tenor of the cheque for Rs. 25,000 dated September 23, 1971. It says, 'Pay to self or bearer Rs. 25,000 dated September 23, 1971. It says, 'Pay to self or bearer Rs. 25,000'. The drawer of the cheque is Pioneer Traders' proprietor. L. M. Jhaveri. It is common ground that on the reverse of the cheque there is the signature of one Pendharkar who in law was the holder of this bearer cheque. He presented the cheque and received token No. 8. It is also not in dispute that the petitioner's Bazaar Gate Street Branch accepted the said cheque, but Pendharkar was disabled by the sales tax authorities from collecting the payment against token No. 8 by being put under arrest. The question that arises for consideration is whether, in these circumstances, the petitioner became the trustee of Pendharkar because he was the token-holder No. 8. The other question which confronts us so what is the value of this token No. 8. Pendharkar did not turn up, in the firsts place, for three days to collect Rs. 25,000 against his token and thereafter the bank was compelled to keep the moneys in the Sundry Deposits Sundry Creditors Cash Account and held that money is sundry account until March 11, 1972. In so far as the 'token' is concerned, the Negotiable Instruments Act does not take this metallic piece into consideration. The act speaks of negotiable instruments so other instruments, promissory notes, bills of exchange, cheque. but not of tokens. Mr. Bhabha did not point out to us if the token has any part of play in the context of a negotiable instrument. If we go by common experience of Indian banking, the metallic piece is given by a bank against a cheque which is accepted for payment subject to various its and buts until the cheque is verified at various stages in the bank and reached the hands of the cashier for payment where the token-holder is expected to appear, produce the token and receive the money.'Token', therefore, in our view. Signifies a kind of identity between the bank and the person who gives a cheque for encashment and receives a token in return until various formalities are completed and the cheque is cleared for payment. It also signifies that the token-holder has a right to receive payment and the bank creates a kind of an obligation of honour it. We would, therefore, say that the 'token' is only a kind of workable arrangement which seems to be followed by all banks in transaction their business. Wharton's Law Lexicon, 14th edn., throws some light on the work 'token'. It gives two meanings, (i) a sign of the existence of a fact, and (ii) private money. In our view, the 'token' is evidence or proof of having rendered a particular cheque by a token-holders and that on presenting the same he would receive payment. 'Token' is not an instrument which can be negotiated in the sense in which the Negotiable Instruments Act contemplates.

15. In understanding Mr. Bhabha's contention that the bank became the trustee of Pendharkar, holder of token No. 8, to the extent of Rs. 23,000, it is to be borne in mind that the tenor of the cheque was 'Pay self'. While drawing the cheque, the drawer indicated by using the word 'self' that the money is drawn for himself. 'Self' would be herself, himself, itself, myself or to oneself. Even when the tenor of the cheque shows 'pay self', the cheque still remains a bearer cheque. Pendharkar failed to collect the amount against this nearer cheque. According to the petitioner-bank, on 11th March, 1972, Pendharkar informed the bank that he had presented the aforesaid cheque on behalf of Jamnadas Vithaldas Mody and requested for payment against the token issued by the bank. As quoted above, it is manifestly clear that the petitioner-bank did not issue the pay order in favour of Pendharkar but in favour of Jamnadas Vithaldas Mody, whose application had been rejected by the 3rd respondent on the previous date, viz., 10th March, 1972. We could have understand if the bank had ventured to pay the amount of Rs. 25,000 to Pendharkar. If Mr.Bhabha's contention or submission that the bank was the trustee of Pendharkar, the holder of token No. 8, is accepted, we fail to see how the payment was made to Jamnadas Mody. The law recognizes 'payment in due course'. 'Payment in due course' is defined by s. 10 of the Negotiable Instruments Act and means payment in accordance with the apparent tenor of the instrument in good faith and without negligence so any person in position thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein believing that he is not entitled to receive payment of the amount therein mentioned. Thus, in order that a payment should be held to one made in due course, it should be, firstly, in accordance with the apparent tenor of the instrument; thirdly, payment must be good faith and without negligence; and, fourthly, while making the payment, care should be taken to see that no circumstances exist which afford a reasonable ground for believing that the instrument holder is not entitled to receive payment of the amount mentioned din the instrument. Mr. F. Sawant pointed out several circumstances, to which reference will be made hereafter, which show that there was compete lack of good faith in making the payment to Jamnadas Mody. What is good faith is not defined under the Negotiable Instruments Act. We, therefore, can turn to the General Clauses Act, 1897. Section 3(22) defines 'good faith'. A thing shall be deemed to be done in 'good faith' where it is in fact done honestly, whether it is done negligently or not. It seems to us in fact done honestly, whether it is done negligently or not. It seems to us that in view of the definition of the words 'good faith' in s, 3 (22), the Legislature took care to add the words 'without negligence' because otherwise the words 'good faith' would only require a fact to be done honestly, whether it was done negligently or not. By using the words 'without negligence' in s. 10 of the Negotiable Instruments Act, the Legislature intended that payment in due course will be considered valid if made in good faith and without negligence and not in good faith alone. Therefore, what is required is that there should not only be a sense of honestly in making the payment but there must also be absence of negligence.

16. Mr. Bhabha contended that the petitioner-bank made payment to Jamnadas Mody in good faith on the basis of his letter dated 11th March, 1972, accompanied by the sealed order of the court. The bank was discharged from its undertaking given earlier on October 7, 1971. Mr. Bhabha further contended that there were no specific directions from the court not to hand over the sum of Rs. 25,000 to the token-holder and, therefore, the presented to the bank for receiving the payment. The 3rd respondent, submitted Mr. Bhabha, should have taken the trouble to issue prohibitory order against Jamnadas Mody prohibiting him from receiving the payment of Rs. 25,000. We do not find any substance in these contentions. There are overwhelming circumstances which in unmistakable terms demonstrate lack of good faith and apparent negligence on the part of the bank in making the payment to Jamnadas Mody.

17. The bank was well aware that Pendharkar had been arrested by the police in connection with offences under the Bombay Sales Tax Act. The 1st respondent had made it clear more than once that the payment was not to be made to L. M. Jhaveri, the sole proprietor of Pioneer Traders, and that the money was to be paid to the sales tax authorities in payment of the sales tax liability of L. M. Jhaveri. The 1st respondent had taken out proceedings under s. 94 of the old Cr. P.C. for production of the moneys in court. The bank's agent had submitted to the order of the court and had not taken the stand which is taken before us, or after making the payment to Jamnadas Mody on March 11, 1972, that the bank held the money in trust on behalf of token-holder No. 8. It was in view of the initial fair attitude of the bank to submit to the orders of the court coupled with the undertaking to produce the amount that the bank was allowed to retain the money in its custody for and on behalf of the court. The Sales Tax Officer had issued an order under s. 39 of the Sales Tax Act calling upon the bank to pay the money to them and to the satisfaction of the Commissioner of Sales Tax that the sum demanded or any part thereof was not due to the dealer, viz., L. M. Jhaveri or Pioneer Traders, or that the bank did not avail of any money for and on account of the dealer. The bank did not avail of any opportunity nor did it put forth before the competent authority its case that it was the trustee of Pendharkar, token-holder No. 8. When the 1st respondent's application for vacating the order dated October 5, 1971, and Jamnadas Mody's application made in January, 1972, came up for hearing on March 10, 1972, it does not appear from the order of the court that the bank made any submission that it was the trustee of the money on behalf of Pendharkar. The 3rd respondent in his order has observed :

'The amount is lying in the said bank till now claimant came forth to claim either the amount of Rs. 31,200 or Rs. 25,000 until when the Sales Tax Officer made this application No. 890/N of 1971 to cancel the order of withholding the amount by the bank and to release the bank from the undertaking. There is no objection to release the amount which was detained by the court under the order in application No. 709/N of 1971. Accordingly, the application filed by Mhaiskar (respondent No. 1) in 890/N of 1971 is allowed. The order passed on 5th October, 1971, against the Union Bank of India, Bazaar Gate Branch, is vacated and the undertaking furnished by the bank is discharged.'

18. It is further observed :

'Now, therefore, the order dated 5th October, 1970, has been vacated and the amount is released for being credited to the Government Treasury as desired by the sales tax department. That is how the application No. 890/N of 1971 is allowed.'

19. The learned Magistrate (3rd respondent) had disbelieved the version of Jamnadas Mody in laying claim upon Rs. 25,000. We have gone through the order and we find that he has given cogent and unassailable reasons for the same. Moreover, Mr. Bhabha for the petitioner-bank made no attempt to show that there was any error in that order. The record shows that the petitioner's agent was present in court when the order dated March 10, 1972, was passed. This agent is Mukund Narsingrao Padukone who has verified the petition. From the verification clause to the petition, it appears that all the material facts were to his personal knowledge. The learned additional Government Pleader pointed out that Jamnadas Mody's letter dated March 11, 1972, was directly delivered to the agent and that the normal practice of affixing the bank's rubber stamp showing the receipt of the letter by the bank was not followed in the present case. He also pointed out that the copy of the sealed order is not a certified copy of the order, though it bears the seal of the court, and that the bank displayed mighty hurry to pay the amount on March 11, 1972, itself. Before making the payment, the bank should have applied its mind to the order dated March 10, 1972. Even otherwise, the agent, Mukund Narsingrao Padukone, who was present in court at the time of passing of the order must have known that the application of the sales tax authorities was allowed and that of Jamnadas Mody was dismissed, and thereby the sales tax authorities were permitted to recover the moneys towards their dues and the claim of Jamnadas Mody over the sum of Rs. 25,000 was disallowed. The petitioner-bank's agent or other officers or servants also overlooked the past circumstances relating to the failure on the part of Pendharkar, token-holder No.8, to turn up to collect the amount against the token. Having regard to the fact that L. M. Jhaveri was found to be a fictitious or non-existing person, the fact that even the firm of Kamal Corporation who introduced L. M. Jhaveri for the purpose of opening the account of Pioneer Traders was found to be an equally fictitious concern, and the fact that Pendharkar, token-holder No. 8, was arrested in the premises in connection with the offences arising under the Bombay Sales Tax Act and the Indian Penal Code, all theses circumstances were sufficient to excite the suspicion of the bank authorities and they were sufficient to put the bank on guard or to put the bank on enquiry before making the payment to Jamnadas Mody. There is considerable force in the argument of the learned additional Government pleader that the bank showed great hurry in making the payment to Jamnadas Mody on March 11, 1972, in the manner done by the bank. The aforesaid chain of circumstances and the manner in which Jamnadas Mody had laid claim to the sum of Rs. 25,000 on the basis of the alleged transaction of finance on September 23, 1971 also should have put the back on enquiry rather than being taken in at the mere statement of Jamnadas Mody contained in his letter dated March 11, 1972, and the accompanying sealed order of court. If the transaction between the fictitious or non-existing L. M. Jhaveri and Jamnadas Mody was a genuine one, Jamnadas as a financier would not have accepted the cheque, the tenor of which indicated that it was 'pay self'. If Pendharkar was really the collecting agent of Jamnadas Mody on September 23, 1971, Jamnadas could not have remained a silent spectator for several months. If the story of Jamnadas Mody that he had deputed Pendharkar to collect the huge sum of Rs. 25,000 from the bank on September 23, 1971, was genuine, he made no attempt to contact the bank authorities on the same day or the next day or any other time until the conveniently chosen time some time in December, 1971, when the sales tax authorities had moved the court for vacating the order dated October 5, 1971, and for delivery of the sum of Rs. 25,000 into the treasury. It was only for the first time that Jamnadas Mody appears to have put for the claim against the bank by his advocate's letter dated December 9, 1971, to which reference is made in Jamnadas Mody's letter dated March 11, 1972. Mr. Bhabha, in order to complete the record, had produced the letter dated December 9, 1971. A person like Jamnadas Mody who was supposed to advance a sum of Rs. 25,000 on 20th September, 1971, for a period of three days to L. M. Jhaveri and had collected from him in advance his interest of Rs. 62.50, could not have been sitting pretty from September 23, 1971, till December 9,1971. He not only was losing his interest but his principal sum had also disappeared. All these circumstances were sufficient to show that Pendharkar, token-holder No.8, could not have been his agent. The letter dated March 11, 1972, addressed by Jamnadas Mody for payment of Rs. 25,000 to him makes no mention about Pendharkar. However, after the moneys had been paid to Jamnadas Mody and the sales tax authorities had confronted the bank's agent with the order of the court, the bank seems to have taken an inconsistent and conflicting stand in the correspondence which ensued thereafter. We propose to place no importance to that conflicting stand of the bank, inasmuch as we are confining ourselves to the circumstances as existing between September 23, 1971, and March 11, 1972.

20. The learned additional Government pleader emphasises another circumstance which, according to him, is a cock and bull story. The bank's agent has taken a stand that after the order dated March 10, 1972, was passed, a meeting took place between the 1st respondent and the bank's agent in court. It may be made clear at the cost of repetition that the agent is the said Mukund Narsingrao Padukone and this stand is averred in para. 11 of the petition and M. N. Padukone has solemnly verified this fact as to his personal knowledge. According to him, after the earned Presidency Magistrate had vacated his earlier order, the 1st respondent asked him to pay a sum of Rs. 17,000 and odd into the Government Treasury, and from the talk which he has with the 1st respondent he was given to understand by the 1st respondent that the remaining amount, namely, Rs. 25,000 should be paid to the token-holder of the said token No. 8 and that the petitioner was at liberty to deal with it as he liked. The 1st respondent has denied the correctness of this statement. For the reasons which we will presently show, we are inclined to accept the statement of the 1st respondent as truthful. This stand of the agent, submitted the learned additional Government Pleader, shows that the agent had the full knowledge that Jamnadas Mody 's applications and the nature of the claim put forth by him had been rejected and he had understood the order date March 10, 1972, as not authorising the bank to make the payment of Rs. 25,000, as otherwise there was no question of the agent seeking any authority or clarification from the 1st respondent for making the payment of Rs. 25,000 to the token-holder No. 8. Secondly, the stand of the agent is that he made the payment with the approval or consent of the 1st respondent. This stand belies or destroys the case of the 1st respondent. This stand or destroys the case of the bank that the payment was made to Jamnadas Mody on the understanding of the sealed order forwarded by Jamnadas Mody along with his letter. It is highly improbable that the 1st respondent who has been diligently pursuing the matter and belongs to the enforcement branch of the sales tax department and who had taken various other steps to have the amount of Rs. 25,000 paid into the treasury, would take a complete summersault in the court after the order had been passed in favour of the department and agree to the release of Rs. 25,000 in the purported manner suggested by the bank's agent. There is no material on record which impeaches the conduct of the 1st respondent that he would give any understanding to the bank's agent to pay the money. It is in theses circumstances that we are not inclined to attach any value to the bank's agent's stand contained in para. 11 of the petition. In our opinion, all the aforesaid circumstances show beyond doubt that the payment of Rs. 25,000 was not made in due course as contemplated under s. 10 of the Negotiable Instruments Act. The payment was not made with honest intention and without negligence and the circumstances existed which afforded a reasonable ground to believed that Jamnadas Mody was not entitled to receive the payment of the amount of been made in complete disregard of the order dated March 10, 1972.

21. The plea that the payment was made on the basis of the sealed order forwarded by Hamnadas Mody cannot be accepted. In reading the order, the bank's agent seems to have closed his eyes to the earlier and the later part of the order which clearly stated that the application of the sales tax department had been allowed and that of Jamnadas Mody had been dismissed. He relied only on the sentences that 'the order passed on October 5, 1971, against the Union Bank of India, Bazaar Gate Branch, is hereby vacated. The undertaking, if any, furnished by the bank is hereby discharged'. That part of the order could not have been ready divorced from the context in which it was mentioned. The agent of the bank was aware that he had submitted to the orders of the court, and the court instead of bringing the moneys into the court had, on the undertaking of the bank, allowed the moneys to be retained. The agent of the bank must have known that the purpose and object of the application of the sales tax authorities to cancel the order dated October 5, 1971, was to have the moneys released for payment into the Treasury. In our view, the order has been deliberately misread in order to make way for making the payment to Jamnadas Mody and that constitutes payment with conscious negligence.

22. This takes us to Mr. Bhabha's contention that the amount of Rs. 25,000 had been debited to the account of L. M. Jhaveri on September 23, 1971, when the bearer cheque was tendered for encashment and token issued against it and, therefore, as and from that date the amount of Rs. 25,000 was not held by the bank. Now a debit entry does not constitute payment in law. A mere debit entry is no conclusive evidence of payment. Having regard to the requirements of the provisions of the Negotiable Instruments Act, in order that the bank can claim a discharge from liability, it is required by s. 82 as well as by sub-s. (2) of s. 85 that the payment be made in due course, i.e., as contemplated under s. 10. Therefore, by merely making a debit entry, the bank was not discharged form its liability.

23. The decision of the Assam High Court in the case of Mohanlal Jogani Rice and Atta Mills v. Ramanlal Onkarmal Firm [1958] 28 Com Cas 468; AIR 1957 GAU 133, cited on behalf of the respondents, shows that a mere debit entry in the account of the bank does not necessarily amount to payment unless the facts show that the payment has been actually made by the bank on which the cheque had been drawn. We do not think that it is necessary to refer to this decision in detail as, in our view, ion the present case, the bank had not made the payment in due course as discussed above.

24. Mr. Bhabha further contended that the notice dated November 17, 1971, issued under s. 39 of the Bombay Sales Tax Act, 1959, had no application to the sum of Rs. 25,000 as on November 17, 1971, the Bank held only a sum of Rs. 17,700.24 on account of Messrs. Pioneer Traders and the sum of Rs. 25,000 was already paid on September 23, 1971, and that sum was held by the bank for and on behalf of token-holder No. 8. Section 39 is in these terms :

'39. Notwithstanding anything contained in any law or contract to the contrary, the Commissioner may, at any time or from time to time, by notice in writing, a copy of which shall be forwarded to the dealer at his last address known to the Commissioner, require -

(a) any person from whom any amount of money is due, or may become due to a dealer on whom notice has been served under sub-section (4) of section 38, or

(b) any person who holds or may subsequently hold money for or on account of such dealer, to pay to the Commissioner, either forthwith upon the money becoming due or being held or at or within the time specified in the notice (but not before the money becomes due or i s held as aforesaid), so much of the money as is sufficient to pay the amount due by the dealer in respect of the arrears of tax, penalty and sum forfeited under this Act, or the whole of the money when it is equal to or less than that amount.

Explanation. - For the purposes of this section, the amount of money due to a dealer from, or money held for or on account of a dealer by, any person, shall be calculated after deducting therefrom such claims (if any) lawfully substituting, as may have fallen due for payment by such dealer to such person.

25. The Commissioner may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice.

26. Any person making any payment in compliance with a notice under this section shall be deemed to have made the payment under the authority of the dealer, and the receipt of the Commissioner shall constitute a good and sufficient discharge of the liability of such person, to the extent of the amount referred to in the receipt.

27. Any person discharging any liability to the dealer after receipt of the notice referred to in this section, shall be personally liable to the Commissioner to the extent of the liability discharged, or the extent of the liability of the dealer for tax, penalty and sum forfeited, whichever is less.

28. Where a person to whom a notice under this section is sent proves to the satisfaction of the Commissioner that the sum demanded or any part thereof is not due to the dealer or that he does not hold any money for or on account of the dealer, then, nothing contained in this section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, to the Commissioner.'

29. The expression 'notwithstanding anything contained in any law' has the effect of overriding the provisions contained in any law which could affect the operation of s. 39 and if any conflict arises between that law and the provisions of s. 39, the latter will prevail, and to that extent the provisions of the conflicting law would be deemed to have been abrogated. This section overrides contracts between the parties. The nature of the contracts which are sought to be abrogated are enacted by clause (a) : (i) contract where under money is due to a dealer. The word 'dealer' is defined under s. 2(11) and means any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State as elaborated thereunder; (ii) contract whereunder money may become due in future. Clause (b) is general in nature and covers and person who holds money for or on account of such dealer or who may subsequent to the service of the notice under s. 39 hold money for or on account of such dealer. In order to protect commercial transactions, the first part of the Explanation provides safeguards to the claims lawfully subsisting between on account of a dealer. In calculating the amount due to the dealer or held for or on account of the dealer. In calculating the amount due to the dealer or held for or on account of the dealer, deduction is permitted to be made in respect of claims lawfully subsisting and fallen due for payment by the dealer to such person. It also gives an opportunity to satisfy the Commissioner that the amount demanded is not due to the dealer or that he does not holder any money for or on account of the dealer, and if such proof is given to the satisfaction of the Commissioner, then nothing is deemed to require such a person to pay the amount to the Commissioner.

30. On the facts of the present case, we have noticed that the petitioner bank on receipt of the notice under s. 39 had not shown any material to account of the dealer. As stated earlier, if the case of the petitioner-bank on receipt of the notice under s. 39 had not shown any material to the Commissioner to satisfy him that it did not hold any money for or on account of the dealer. As stated earlier, if the case of the petitioner-bank that it was holding money in trust for token-holder No. 8 was true, it would have taken the earliest opportunity to come out with that case. That case was not put before the 3rd respondent when the order dated October 5, 1971 was passed, nor after the receipt of the notice under s. 39 of the Bombay Sales Tax Act, nor at any time even till the passing of the impugned order dated March 10, 1972. We specifically asked the learned counsel for the petitioner as to when the stand now taken of holding the money in trust for token-holder No. 8 was disclosed. The learned counsel fairly stated that, for the first time, intimation was given in the communication dated April 4, 1972. This indicates that the case of the petitioner-bank can be characterised as one of after-thought. Moreover, the 3rd respondent has held, although in a summary enquiry, that no consideration existed for the possession of the cheque by Jamnadas Mody and that he was acting under a thin veil operating the bank account perhaps in the name of Laxmichand Manchubhai Jhaveri for himself and that he was trying to squeeze the amount from the bank account to bring the total to zero. This order dated March 10, 1972, remains operative so far as that enquiry is concerned, and we will presently show that the contention on behalf of the petitioner-bank that the order dated March 10, 1972, is illegal, is without force. Pendharkar, token-holder No. 8, in the circumstances of the case, could not be said to be the representative of Jamnadas Mody, who could have been deputed by him for collection of the amount against the bearer cheque. In our view, therefore, even as on November 10, 1971, the amount of Rs. 25,000 was held by the petitioner bank for and on behalf of the dealer, L. M. Jhaveri, and the provisions of s. 39 of the Bombay Sales Tax Act, 1959, were attracted to the facts of the present case and, therefore, the notice dated November 17, 1971, was validly issued.

31. Mr. Bhabha cited the case of Sampatraj Chhogalalji v. V. S. Patel, Sales Tax Officer [1966] 17 STC 29 (Guj). In that case, a firm having become involved in financial difficulties, assigned and transferred to the petitioners, under a deed of arrangement, the stock-in-trade, assets and properties belonging to the firm and its partners upon trust to dispose of the properties and to pay out of the sale proceeds ratably the creditors of the debtor firm. The petitioners disposed of the stock-in-trade of two firms belonging to the partners and deposited the sale proceeds in a bank. The question was whether the Sales Tax Officer could, by issuing a notice under s. 39 of the Bombay Sales Tax Act, 1959, demand from the bank the amount of sales tax due and payable by the two firms. The effect of the assignment was to create a valid title in the trustees and a valid and enforceable trust for the benefit of the creditors as soon as the deed had been executed and the creditors had assented to it. Under the deed, the petitioners as trustees became the legal owners of the properties assigned to them, and they had to sell the properties and distribute the sale proceeds ratably among the various creditors. The trustees were to holding the sale proceeds which they deposited with the bank in a separate account in their names as agents of the two firms or any one of them, nor were they the transferees of or successors to those businesses. In the background of these facts, the court held that the bank was not holding the moneys lying in the account for or on account of the firms who were the dealers. The bank was also not a person from whom any amount of money was due to any one of the firms. Therefore, the Sales Tax Officer was not entitled to issue a notice upon the bank under s. 39. This decision has no relevance to the facts of the present case. In the case before us, the payee (dealer) of the 1st respondent, was entitled to issue a notice under s. 39 upon the bank.

32. In the second case of Patel Laxmidas Karman v. State of Gujarat [1968] 22 STC 497 (Guj), it was held that the enquiry which the Commissioner is authorised to hold under s. 39 is a summary enquiry, and that too in rather an informal manner, and it is not open to the Commissioner to enter upon the determination of the liability as between an assessee and a mortgagee to whom the assessee has mortgaged his business for his indebtedness. This case has no application to the facts of the present case.

33. Mr. Bhabha further contended that the learned Presidency Magistrate (3rd respondent) had no jurisdiction to decide civil issues and, therefore, the order is liable to be set aside. We are not impressed by this argument. Under s. 94 of the old Criminal Procedure Code, the 1st one between the sales tax authorities and Jamnadas Mody and not between extraordinary jurisdiction under art. 226 of the Constitution. As indicated above, no other vice or infirmity has been pointed out on behalf of the petitioner-bank in the impugned order dated 10th March, 1972.

34. In view of the above discussion, the petition fails and the rule is discharged. The petitioner to pay to the respondents costs of this petition in one set.


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