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Maturi Sanyasilingam Vs. the Exchange Bank of India and Africa, Ltd. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 1712 of 1945
Judge
Reported in(1947)49BOMLR309
AppellantMaturi Sanyasilingam
RespondentThe Exchange Bank of India and Africa, Ltd.
Excerpt:
negotiable instruments act (xxvi of 1881), sections 131, 85a-cheque-bank draft drawn by itself on its head office whether such draft amounts to cheque-negligence of bank-conversion.;the plaintiff obtained a bank draft for rs. 4,400 from the vizianagram branch of the imperial bank of india, ltd., drawn by it on its head office in bombay, in favour of s, and sent it by ordinary post to his agent in bombay for collection. before the draft could reach the addressee, it was intercepted by n, who indorsed it to 'nagindas premchand shaha,' and paid it into the defendant bank with whom he had opened a current account in his assumed name of 'nagindas premji shah.' the account of n had been opened in the defendant's book with a cash payment of rs. 300 without proper introduction contrary to an..........premji shah to withdraw a sum of rs. 5,300 from that account.3. it appears that the defendant bank opened a branch at jhaveri bazar, bombay, on october 26, 1943. on that day according to the evidence of sadanand anand bastodkar there was a rush to open accounts and he opened accounts of several applicants. one n.p. shah also applied on the same day and presented to him with the application form which is marked exhibit no. 1 in this suit a sum of rs. 300 in cash. it appears there was no name on the form against the column 'introduced by'. one of the rules of the bank on the application form states that a current account will he opened for approved parties only on an initial deposit of rs. 300 or more. it is the evidence of sadanand that he opened this account as the party looked.....
Judgment:

Coyajee, J.

1. The plaintiff has filed this suit against the defendants who are a bank carrying on business in Bombay for conversion of the proceeds of a draft in the following circumstances.

2. The plaintiff who carries on business at Vizianagram sends drafts to his commission agents in Bombay as well as hundies and other documents in payment of goods forwarded to him by his commission agents from Bombay. Pursuant to this practice of his the plaintiff on March 10, 1944, sent from Vizianagram a demand draft for Rs. 4,400 which was purchased by him from the Imperial Bank of India at Vizianagram, being draft No. AV 08020, and he sent the said draft which was drawn in favour of one Shantilal Lalchand Shah or order to his commission agents by ordinary post. It appears that the plaintiff's commission agents in Bombay to whom he was forwarding the same did not receive the said document. By his letter of March 14, 1944, the plaintiff informed his commission agents about the same but he was informed by Shantilal Lalchand Shah that they had not received the said draft or hundies enclosed with the draft. Inquiries were made thereafter and it appears that the said draft was stolen. This position is not contested by the defendants, namely, that the draft was stolen. On March 14, 1944, the draft was delivered to the defendants for collection by one of their customers, Nagindas Premji Shah, in whose name there appears to be a current account with the defendants' branch office at Jhaveri Bazar in Bombay. The branch office realised the draft from the Imperial Bank of India and having obtained the payment for the same credited that amount to the account of Nagindas Premji Shah on March 16, 1944, The branch office thereafter allowed the customer Nagindas Premji Shah to withdraw a sum of Rs. 5,300 from that account.

3. It appears that the defendant bank opened a branch at Jhaveri Bazar, Bombay, on October 26, 1943. On that day according to the evidence of Sadanand Anand Bastodkar there was a rush to open accounts and he opened accounts of several applicants. One N.P. Shah also applied on the same day and presented to him with the application form which is marked exhibit No. 1 in this suit a sum of Rs. 300 in cash. It appears there was no name on the form against the column 'introduced by'. One of the rules of the bank on the application form states that a current account will he opened for approved parties only on an initial deposit of Rs. 300 or more. It is the evidence of Sadanand that he opened this account as the party looked respectable, but he made no inquiry in connection with the party. Be admits that there is a special rule of the bank that a current account will be opened for approved parties only and the rule says that applications for new accounts must be made on the bank's own forms. The witness admits that there is a rule for safety among banking circles that an account should normally be opened on a proper introduction of the applicant. He says in this instance in spite of the recognised practice he opened the account because the applicant did not present a cheque but cash, and he says that he had not been instructed by the manager or by the directors to open an account without a reference if the applicant deposited cash, although the party was not known to him before the day of his application nor was he known to any officer of the bank, and he says that the first rule printed on the back of this application form had not been complied with in this instance. A copy of the account of Nagindas Premji Shah has been tendered in evidence and marked exhibit No. 3. It appears from this that after depositing a sum of Rs. 300 the party withdrew amounts from time to time leaving a balance of Rs. 16-8-0 on December 30, 1943. Thereafter a further withdrawal of Rs. 10 left a balance of Rs. 6-8-0 on January 10, 1944, after which there is a deposit of Rs. 100 in cash. After this comes the amount of the proceeds of the draft in suit, namely Rs. 4,400 on March 14, and on the same day a deposit of Rs. 1,000 was made, and it appears that within twenty four hours thereafter there is a withdrawal of Rs. 5,300 by a cheque in favour of one Chhaganlal Vishram leaving a balance of Rs. 106-14-0, which amount is still held by the bank unclaimed by Nagindas Premji Shah. It appears that the draft was drawn in favour of one Shantilal Lalchand Shah. It purports to be signed by Shantilal Lalchand Shah and it is directed that the same he paid over to Nagindas Premchand Shaha which is spelt as Shaha and not Shah. So that comparing the applicant's name and the endorsement it appears that there is on the face of the endorsement a clear difference, namely, the name of the applicant-the client of the defendant bank is Nagindas Premji Shah whilst the party's name on the document Ex. M is Nagindas Premchand Shaha. There is evidence before the Court that during the investigation a certain photograph was recognised by the witness Sadanand at the C.I.D. office as that of the party who had opened a bank account with the defendants under the name of Nagindas Premji Shah, which according to the police-officer giving evidence was a party known on the records of the police by the name of Nanalal Narbheram Bhudtani. I shall discuss the evidence in this connection when I come to the questions involved in this case.

4. Two questions arise in this suit, and the first question is whether the document exhibit M a draft is under the Negotiable Instruments Act a cheque and therefore the defendants are entitled to claim protection under Section 131 of the Negotiable Instruments Act, 1881. The second question is whether the defendants prove to the satisfaction of the Court that they dealt with this document bona fide and without negligence.

5. The first question was argued when the case was opened by Mr. Purshottam and has been further argued by Mr. Desai who appears now on behalf of the defendant bank. The argument in short is this. The document sued upon according to the defendants although called a draft is on a reading of different sections of the Negotiable Instruments Act a cheque and therefore the defendants are protected under Section 131 of the Negotiable Instruments Act. My attention has been drawn first to Section 6 of the Act which defines a cheque, namely, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Section 5 defines a bill of exchange as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. It is argued on this that the draft which was drawn by the Vizianagram branch of the Imperial Bank of India on its head office in Bombay is also a bill of exchange and being crossed and payable on demand on presentation amounts to a cheque within the meaning of Section 6 of the Negotiable Instruments Act, and therefore the defendants are entitled to protection under Section 131 of the Act, In this connection it is necessary to look at the scheme of the whole Act and the manner in which the Legislature has amended the Act from time to time in connection with drafts, bills of exchange and cheques. First of all I shall refer to Chap. VII of the Negotiable Instruments Act which refers to discharge from liability on notes, bills and cheques. Under that chapter there is Section 85 which says that where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due coarse. This section was followed by an amendment by Act XXV of 1930 whereby Section 85A was enacted, under which it is provided that where any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course. Now Section 85 refers to discharge from liability under a cheque, and if a draft of the nature set out under Section 85A was a cheque as contended for under Sections 5 and 6 of the Act, the amendment would have been redundant. The distinction I make is this. A bank draft may be a bill of exchange of the nature as contended for by counsel for the defendants if it is drawn by bank A on bank B. But it is not a bill of exchange or cheque in my opinion where it is drawn by bank A on its branch or by the branch on bank A. The reason for this distinction is to be found in the judgment of Lord Justice Lindley in Capital and Comities Batik v. Gordon; London City and Midland Bank v. Gordon [1903] A.C. 240 Lord Justice Lindley points out that the third class of documents the Appeal Court was considering consisted of four drafts of the appellant bank and not crossed. He then stated that he agreed with the Court of Appeal in thinking that the bank which was both drawer and drawee of these instruments was (p. 250) :-

not entitled to treat them as bills of exchange as defined in Section 3 of the Bills of Exchange Act, although a holder may sue the bank upon them, and treat them either as bills of exchange or as promissory notes : see. 5 Sub-section (2). An instrument on which no action can be brought by the drawer can hardly be a bill of exchange within Section 3 of the Act, whatever it may be called in ordinary talk.

In other words the test is whether the drawer can at any time bring an action on that instrument against the drawee. Mr. Desai who argued this matter with his usual ability pointed out to the Court that the words used under Section 5 of the Negotiable Instruments Act show that the direction was to 'a certain person' to pay a certain sum of money, that therefore there was a sufficient indication as to who the drawee was and that the words used under the corresponding section of the English Act are 'third parties or third person'. The answer to that is that the words 'a certain person' are not used in Section 5 in that sense, because if a reference is made to Section 4 of the Act, it will appear that there also the same words are used in connection with a promissory note 'a certain person'. Now under Section 4 there could be no doubt that the other party to the promissory note was bound to be a third person. In this connection Mr. Desai has drawn my attention to the judgment of Mr. Justice Bailhache in Ross,' v. London County Westminster and Parr's Bank, Ltd. [1919] 1 K.B. 678 where contentions were advanced on this point by eminent counsel and Mr. Justice Bailhache in a short reference to the argument at p. 687 says as follows:

One of the instruments in question was drawn upon a bank by that bank itself, and it was said on behalf of the plaintiff that an instrument so drawn was not a 'cheque' within the meaning of the Bills of Exchange Act, 1882, and therefore that Section 82 did not apply to it. I think that instrument was a cheque, and for this purpose comes within the same category as the others.

The manner in which the learned Judge has: dealt with this point is short and no reasons are assigned how the learned Judge came to that conclusion, and it appears that the decision of the House of Lords which I have already referred to, namely, Capital and Counties Bank v. Gordon, was evidently not cited nor discussed by the learned Judge. It is true that as far as the English law is concerned an amendment has been introduced there whereby the law has now been brought in accordance with the view taken by Mr. Justice Bailhache and not in accordance with the view taken by the House of Lords, and that the effect of that amendment is that the principle laid down in Boss' case is recognised now in practice though hitherto believed to be wrong in law. That is a matter of statutory amendment in England. This Court is bound to consider the position as it stands under the Negotiable Instruments Act. I have pointed out above how Section 85A has been deliberately enacted by the Legislature for the purpose of giving protection as regards discharge of bills, notes and cheques to the collecting bank in connection with the drafts drawn by the bank on its own branch, That is as regards discharge only. The Legislature has not thought fit to further amend the Act by adding to Section 131 a rider to the effect that the protection given under Section 131 shall be extended to drafts of the nature I have discussed above, namely, one drawn by a bank upon its own branch office, as was the case with reference to Section 85.

6. In these circumstances the position appears to be that as regards such drafts collected by banks in India there is no statutory protection. In the absence of statutory protection common law must apply, and any party converting to its own use or on behalf of its client, the customer, the proceeds of a draft in the circumstances stated above would be liable. As there is no statutory protection, the defendant bank would be liable to the plaintiff for the amount of the draft collected by them and no further consideration of the case would have been necessary. But I shall proceed to consider the other question also as the trial Court should give its finding on the evidence before it also, namely, had there been a statutory protection under the Act whether the defendants have proved to the satisfaction of the Court that they had not been guilty of negligence.

7. On the question of negligence each case is an authority for itself looking to the facts and circumstances that may be recorded in evidence before a Court of law. The question before me is whether there were any suspicions circumstances connected with the opening of the account, the operation of the account by deposits and withdrawals of large amounts. As regards the opening of the account it is clear on the evidence before me that there was no introduction of the applicant by any party known to the bank nor was he known to Sadanand or to any officer of the defendant bank personally. There is a well known principle adopted by banks, namely, that an applicant should' be introduced. Further this bank has an express printed rule at the back of the application form saying 'Current Account will be opened for approved parties only.' This rule was not complied with and the witness Sadanand admitted that he had done this on his own initiative without any directions from the manager or from the, directors of the bank to suspend such a rule on that particular day. The witness admitted that he was aware of the general recognised practice amongst bankers not to open an account without a reference, but he says that on that particular day when the branch office was opened he did not comply with that practice. The second point as regards this transaction is that the state of the account was peculiar, namely, it was opened with an amount of Rs. 300, a part of which amount was withdrawn leaving a balance of Rs. 6-8-0, after which there is only one deposit of a sum of Rs. 100 and after that a large cheque for Rs. 4,400 was paid into the account on March 14, together with another sum of Rs, 1,000, and within two days thereafter Rs. 5,300 were withdrawn. It has been argued before me that my brother Mr. Justice Chagla has laid down in Bapulal Premchand v. Nath Bank Ld. (1945)48 Bom. L.R. 393 that where an account was opened against cash, then the non-obtaining of a reference does not amount to such a failure on the part of the bank as to amount to negligence, I have not the least hesitation in agreeing with the learned Judge on that point that if a party conies with cash the bank may open his account without a reference. But as pointed out by the English cases this is an antecedent circumstance which though per se does not amount to negligence, it should be taken into account by Courts of law, namely, if the account is operated in the manner in which this account was operated, then in my opinion the bank was put upon an inquiry when large amounts were paid in and withdrawn in the manner as set out in the account exhibit No. 3. That is not all. The third point is that the draft has been endorsed over to one Nagindas Premchand Shaha. It is true that the customer of the defendant bank Nagindas gave his specimen signature as N.P. Shah and his full name as Nagindas Premji Shah. But there is a clear difference in the two names Nagindas Premji Shah and Nagindas Premchand Shaha and the bank was in my opinion definitely negligent in not having checked the endorsement with the application form of the party. It turned out that the person in whose name the account stood was known to the police as one Nanalal Narbheram Bhudtani. In these circumstances it appears to me that the Court is entitled to take all the circumstances together, namely, the opening of the account in this manner, further the manner in which this account was operated upon and the manner in which the defendant bank certified the draft as belonging to their customer without having compared and cheeked the signature on the reverse of the draft with the application form or compared the signatures. The question before me therefore is whether the cumulative effect of all this is or is not that the bank has failed to satisfy the Court that they were not guilty of any negligence.

8. In the case of Commissioners of Taxation v. English, Scottish and Australian Hank [1920] A.C. 683 it was held that the negligence referred to in Sub-section (1) of Section 88 is negligence in collecting the cheque, not in opening the account. The test is whether the paying in of any given cheque, coupled with the circumstances antecedent and present, was so much out of the ordinary course that it ought to have aroused doubt in the banker's mind, and caused him to make inquiries. The standard of care required is that derived from the practice of bankers. In that case Lord Dunedin remarked that (p. 688) :

It is not a question of negligence in opening an account, though the circumstances connected with the opening of an account may shed light on the question of whether there was negligence in collecting a cheque.

Thereafter the learned Law Lord quoted with approval a passage from Commissioners of State Savings Bank v. Permewan, Wright & Co. 19 C.L.R. 457 as follows (p. 478) :

'Apart from the well-established rule that whether or not the evidence establishes that a person acts without negligence is a question of fact, the legal principles found in Morison v. London County and Westminster Bank, Limited [1914] 3 K.B. 356 and relevant to the present, are (1) that the question should in strictness be determined separately with regard to each cheque; (2) that the test of negligence is whether the transaction of paying in any given cheque was so out of the ordinary course that it ought to have aroused doubts in the bankers' mind, and caused them to make inquiry.'

If there be inserted after the words 'given cheque' the words 'coupled with the circumstances antecedent and present,' their Lordships think this is an accurate statement of the law.

These observations made use of by Lord Dunedin were again reiterated by Lord Justice Serutton in Lloyds Bank v. The Chartered Bank of India, Australia and China [1929] 1 K.B. 40 and the quotation being set out at p. 59. Lord Justice Serutton in the case of E.B. Savory & Co. v. Lloyds Bank, Ltd. [1932] 2 K.B. 123 poses a question at p. 130 as to what amounts to negligence, It may be noted that in all these decisions the question of negligence is approached from the negative point of view and the question always was-Does the bank prove that they acted without negligence? He further quotes the authority of Hannan's Lakeview Central, Limited v. Armstrong & Co. (1900) 5 Com. Cas. 188 as follows (p, 191) :

The only question is, Did they act without negligence What does 'without negligence mean It means, I take it, without want of reasonable care in reference to the interests of the true owner, the principal whose authority the customer purports to have.

I shall finally refer on this point to Lloyds Bank v. E.B. Savory & Co. [1933] A.C. 201. In that case Lord Buckmaster remarked as follows (p. 211) :

The question therefore is whether, in the circumstances, the appellants received payment of the cheques, without negligence and the proof lies upon them.

The risk of banking accounts being used for dishonest purposes is well known and realised by the banks. The appellants have a book of rules designed to afford protection against this. misuse of their facilities.

Thereafter at p. 214 Lord Buckmaster quotes the evidence to show what is the nature of inquiry the bank managers ought to make in different circumstances. Lord Wright also refers to a certain special printed rule addressed by the bank to their employees and thereafter he again quotes Lord Dunedin in the case of Commissioners of Taxation v. English; Scottish and Australian Bank to show that the matter should be separately considered in connection with each cheque and also after taking into consideration all the circumstances antecedent and present. Lord Wright thereafter remarked as follows (p. 231):-

There may thus be relevant negligence in connection with the opening of the customer's account by the banker. It is now recognised to be the usual practice of bankers not to open an account for a customer without obtaining a reference and without inquiry as to the customer's standing; a failure to do so at the opening of the account might well prevent the banker from establishing his defence and Section 82 if a cheque were converted subsequently in the history of the account...The matter is now so well appreciated by bankers that the appellants have a printed rule saying that no new current account is to be opened without knowledge of or full inquiry into the circumstances and character of the customer.'

9. In the circumstances it appears to me that it is the duty of the banker at common law to take care that they do not convert moneys belonging to the true owner as between whom and their client there is no contractual liability, and the statute itself does not provide an absolute immunity to the collecting bank unless it brings itself within the conditions formulated by Section 131 of the Negotiable Instruments Act, that is, has acted bona fide and without negligence in the process of recovery of moneys. Mr. Desai has cited to me the judgment of Mr. Justice Chagla in Bapulal Premchand v. The Nath Bank Ld. I have had the benefit of the discussion by the learned Judge in that judgment and the benefit of the manner in which the learned Judge made his observations on the judgments in leading English cases on the question of negligence. This judgment has been relied upon by the defendants very strongly in their favour. At p. 400 Mr. Justice Chagla observes:

According to the Privy Council, as I read the judgment, if a customer opens an account with cash and there is nothing suspicious about the manner in which the account is opened, the fact that the bank made no inquiries about the customer would not disentitle the bank to the protection given to it by Section 131 of the Negotiable Instruments Act.

That is a statement of the learned Judge on which the defendants rely. I entirely accept the observations of the learned Judge on the point, but the learned Judge does indicate in his judgment that this per se may not be a fact on which the banker would be disentitled to the protection of the Act, but as. pointed out in the judgment cited by me above it is an antecedent fact which may be taken into consideration with other facts and circumstances for the purpose of weighing whether the bank has proved that it has not been negligent. In fact I am reminded in this very connection of the observation of Mr. Justice Chagla at p, 401:.it is always dangerous to rely on observations of Judges torn from their context or read without reference to the facts of the case which necessitated the particular observation.

All that Mr. Justice Chagla has stated has been summarised by him in this connection at p. 403 where he says that 'In his opinion there is no absolute and unqualified obligation on a bank to make inquiries about a proposed customer.' Thereafter the learned Judge agrees that modern practice require that a customer should be properly introduced or, in other words, that the bank should act on the reference of some one whom it could trust. Therefore perhaps in most cases it would be wiser and more prudent for a bank not; to accept a customer without some reference.

10. Having considered the authorities and the evidence before me and looking to the manner in which the account was opened without a reference coupled with the manner in which the account was operated upon and most important of all the manner in which the draft was not scrutinised and compared with the application form, taking all this into consideration the sum total in my opinion comes to this and I hold that the defendant bank has failed to prove that they were not guilty of negligence in collecting the amount of this draft from the Imperial Bank and crediting the same to the account of their own customer.

11. As regards this issue (No. 4) although it has been raised, I find no difficulty in holding that there is no negligence on the part of the plaintiff and even if the plaintiff had been remiss in not sending it by registered post, that does not entitle the defendants to rely upon such a plea. In this connection I may again refer to the observation of Mr, Justice Chagla at p, 404 where he says:

However negligent the true owner may be, it can be no answer by the person who converts the article that he should be let off from his liability because of the negligence of the true owner.

12. There will therefore be a decree for the plaintiff against the defendants for a sum of Rs. 4,400 together with interest thereon from November 14,. 1945. till judgment together with coats and interest on judgment at six per cent. costs of this suit at Rs. 3,000 including costs of the summons.


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