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Wasudev Ramchandra Vs. National Savings Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtMumbai High Court
Decided On
Case NumberO.C.J. Suit No. 3542 of 1947
Judge
Reported inAIR1953Bom209; (1952)54BOMLR765
ActsPublic Debt (Central Government) Act, 1944 - Sections 11, 11(2), 11(3), 16(2), 18 and 19; Negotiable Instruments Act, 1881 - Sections 50 and 58; Code of Civil Procedure (CPC), 1908 - Sections 35; Indian Securities Act, 1920
AppellantWasudev Ramchandra
RespondentNational Savings Bank Ltd.
Appellant AdvocateM.R. Parpia and ;R.D. Chadda, Advs.
Respondent AdvocateM.P. Amin, Adv. General, ;Tilak, ;K.K. Desai, ;M.P. Laud, ;M.B. Rao, ;P.R. Vakil, ;N.A. Mody and ;S.V. Desai, Advs.
Excerpt:
public debt (central government) act (xviii of 1944), sections 11(2)(3), 19 - securities act (x of 1920), section 16(2)--negotiable instruments act (xxvi of 1881), section 50---government promissory note owned by plaintiff--signature of plaintiff forged on note--note lodged with reserve bank of india and renewed promissory note received by defendant--suit by plaintiff claiming renewed note or its price from defendant--whether plaintiff entitled to renewed note--liability of government or reserve bank to pay value of note to plaintiff---restrictive endorsements under section 50, negotiable instruments act--whether section applicable where endorsee wishes to prove orally that he was endorsee for particular purpose only--costs--circumstances under which costs payable by unsuccessful.....(1) this is a suit by the owner of a government promissory note, which has been negotiated by 3 forged endorsement, against the endorsers and endorsees of the promissory note, claiming that the said note, or the new note into which it was converted, or the value thereof, may be given to him. the facts, which are not in dispute, and are taken to have been admitted by the parties, are that a government promissory note for rs. 10,000, which had been duly endorsed over to the plaintiff, was endorsed to the first defendant bank. the first defendant bank took delivery of this promissory note on behalf of their constituent one istiwarlal joshi. the first defendants in their turn endorsed over the promissory note to the second defendant bank who received it on behalf of their constituents, the.....
Judgment:

(1) This is a suit by the owner of a Government promissory note, which has been negotiated by 3 forged endorsement, against the endorsers and endorsees of the promissory note, claiming that the said note, or the new note into which it was converted, or the value thereof, may be given to him. The facts, which are not in dispute, and are taken to have been admitted by the parties, are that a Government promissory note for Rs. 10,000, which had been duly endorsed over to the plaintiff, was endorsed to the first defendant bank. The first defendant bank took delivery of this promissory note on behalf of their constituent one Istiwarlal Joshi. The first defendants in their turn endorsed over the promissory note to the second defendant bank who received it on behalf of their constituents, the fourth defendants, in a loan account of the fourth defendants with them. That was on 20-9-1945. On 18-10-1945, the second defendant bank endorsed over the said note to the third defendants under instructions from the fourth defendants, who had sold the note to the third defendants. On 30-1-1940, the third defendants resold the note to the fourth defendants and endorsed it over to the fourth defendants who again endorsed it over to the second defendants as his bankers. On 30-1-1946, the fourth defendant instructed his bankers the second defendants to surrender the note and get it converted into a new note. Accordingly the second defendants lodged the note with the Reserve Bank of India and received a renewed promissory note on 14-2-1916. It is the case of the plaintiff that the endorsement by which the note was purported to be endorsed over to the first defendants was a forged endorsement and, therefore, no title to the said note passed to any of the defendants at any time. Since admittedly the original note has been converted into a new note, there can be no question of any order directing that the old note, which has been cancelled by the Reserve Bank of India and is lying with it, be handed over to the plaintiff. The only reliefs which the plaintiff can ask for are a return of the renewed note or its value.

(2) Now, none of the defendants admit that the plaintiff was the owner of the note, nor do they admit that the endorsement purporting to be by. the plaintiff is a forged endorsement. All of them deny their liability to the plaintiff either for the return of the converted note or for paying its value. The defendants other than the first defendants also plead that the plaintiff was guilty of negligence, which enabled someone to forge the endorsement; and that, therefore, in any event, they are absolved from liability by reason of such negligence.

(3) Three third party notices have also been taken out in these proceedings; one by the first defendants against their constituent Ishwarlal Joshi; another by the second defendant bank against the first defendant bank and the fourth defendants; and the third by the fourth defendants against the first defendants who are the prior endorsers.

(4) Now, the first question to determine is whether the plaintiff was the owner of this promissory note. On that issue the plaintiff himself gave evidence. He stated that he purchased the promissory note of the face value of Rs. 10,000 through one Ketkar, who was a sub-broker of Messrs. K. S. V. Barve, and that he paid a sum of Rs. 10,238-4-9 as the purchase price of the same. A receipt for this amount signed by Barve has been produced by the plaintiff and accepted as his receipt by Barve, who has also given evidence. As the receipt shows this payment was made on 11-7-1945; but according to the plaintiff He took no steps to obtain possession of this promissory note for some considerable length of time. It appears that he addressed a letter to the said Barve on 7-5-1946, (a fact which Barve in his evidence corroborates), but the letter has not been preserved and is not forthcoming. A reply to this letter, however, dated 8-5-1946. has been produced and acknowledged by Barve in the witness box as his reply. That reply states that the promissory note was delivered to Mr. Ketkar on 25-7-1945, and he also gives the number of the promissory note for the purposes of identification. I accept the evidence of the plaintiff and Barve on this point and I have no hesitation in holding that the plaintiff was the owner of the said promissory note No. By. 070786. The cancelled note has been produced in Court by the Reserve Bank of India.

(5) The next question that I have to deter- mine is whether the endorsement of the plaintiff on the promissory note is a forged endorse ment. On that, the plaintiff in the witness box has stated that the signature 'Vasiidev Ram- chandra Kale' at the back of this promissory note is not his signature nor was it made by any person under his authority or with his knowledge. I accept that statement of the plaintiff. There is no evidence led on behalf of any of the defendants that the signature is his in fact; and I have, therefore, no hesitation in holding that the first endorsement was forged, with the result that no title passed to any subsequent endorsees. That brings me to the question as to what relief, if any, the plaintiff is, entitled to in this suit and against whom.

(6) Turning first to the relief that the defend dants should be ordered to deliver up to th, plaintiff the renewed note, it appears to me that the matter is covered by a decision of their Lordships of the Privy Council, and on the facts of this case the plaintiff is not entitled to any such relief. The decision of their Lordships of the Privy Council is -- 'Mascarenhas J. v.J Mercantile Bank of India' that case debentures issued by the Bombay-'. Improvement Trustees, which were negotiable instruments, were transferred to the bank by forged endorsements as security for a loan account. Subsequently the trustees issued new debentures in exchange for the old, which they cancelled. in a suit by the true owner of the debentures for return of the new debentures to him their Lordships of the Privy Council held that the new debentures constituted new contracts between the trustees and the bank and the true owner of the original debentures had no cause of action in respect of the delivery of such new debentures. Sir George Lowndes in delivering judgment observed as follows (page 24) :

'.....the suits, so far as the respondents were concerned, were misconceived. On the original debentures the Improvement Trustees were, no doubt, bound to the appellants, and the forged endorsements in favour of Fer-nandes would not, prima facie, affect their title. If these debentures had come into the possession of the respondents, the appellants might well have been entitled to recover them. But what the appellants claimed to have transferred and made over to them were instruments to which they never had a title and with which their Lordships think they had no concern. They were not in any sense mere appendages to or continuation o the original securities. They may be called 'renewals', but they were in form and in substance new and independent obligations in substitution for those under the surrendered instruments, and entered into by them with the Alliance Bank and their transferees.'

(7) These observations of their Lordships would apply equally to the new promissory note in suit. Moreover, in the case of Government Promissory Loan Notes the Public Debt Act, 1944, Section 11(3) in terms provides

'that a duplicate security or a new security issued to any person shall be denied to constitute a new contract between the Central Government and such person and all persons deriving title thereafter through him.'

I have, therefore, no hesitation in holding that the plaintiff is not entitled to an order that this flew promissory note which the second defendants have obtained from the Reserve Bank should be handed over to him. I might add that in point of fact even this new promissory note has since been converted, as Government converted all 3| per cent, paper into 3 per cent, notes; and, therefore, even the new promissory note is not now in existence. But that really does not affect the situation.

(8) The next question that I have to consider is whether the plaintiff is entitled to recover the vaiue of the promissory note, which belonged to him, from the defendants or any of them. Now, what is urged on behalf of the defendants in this connection is that the remedy of the plaintiff, if any, is against the deserve Bank of India and not against any of the defendants. The contention put forward on behalf of the defendants in this connection is that if the original promissory note belonging o the plaintiff bore a forged endorsement, it could not have been validly converted by any subsequent endorsee into a renewed pro-note, and if the Reserve Bank of India allowed an endorsee to surrender the old note and issued a tresh promissory note after cancelling the original promissory note, the cancellation docs not affect the rights of the plaintiff and he could still compel the Reserve Bank of India to pay the- price of the promissory note. Now, there is no doubt that under the Indian Securities Act, 1920, which applied to Government secu-itics until it was repealed by the. Public Debt Act, 1944, S. 16 (2) in terms provided that no renewal or conversion shall affect the rights as against the Government of any other person to the security renewed or converted and S. 18 (c) provided that Government shall be discharged from all liabilities in respect of renewal or conversion after the lapse of six years from the date of such issue. Therefore, it is quite obvious that under the Indian Securities Act, if a Government promissory note which had a forged endorsement on it was converted or renewed by Government, the true owner of the old promissory note would have had a right of action against Government which was in terms conferred upon him by S. 16 (2). Such rights appear to have been enforced against Government in the past and Government in their turn have successfully sued the party who obtained the renewal or conversion. See the case reported in -- 'Secretary of State v. Bank of India, Ltd.', AIR 1037 Bom 145. But, it appears to me that the position under the Public Debt Act has substantially been altered. There is in this Act no Section corresponding to S. 1C (2), Indian Securities Act, 1920. On the other hand there is S. 19 which is in these terms:

'No recognition by the Bank of a person as the holder of a Government security, and no order made by the Bank under this Act shall be called in question by any Court so far as such recognition or order affects the relations of the Central Government or the Bank with the person recognised by the Bank as the holder of & Government security or with any person claiming an interest in such security; and any such recognition by the Bank of any person or any order by the Bank vesting a Government security in any person shall operate io confer on that person a title to the security subject only to a personal liability to the rightful owner of the security for money had and received on his account.'

Now, the first part of the section, in so far as it relates to the proceedings before me, in terrms provides that no order mads by the Bank under the Act shall be called in question by any Court, so far as such order affects the relations ol the Central Government with any person claiming an interest in such security. Now, under S. 11 (2), Public Debt Act, the Reserve Bank has been authorised to cancel an old security and to order the issue of a new one. Such an ordsr is an order made under the Act and it cannot be called in question before me by any person claiming an interest in the security on the ground that there was a forged endorsement on the security which is purported to be cancelled and in lieu of which a new security has been issued. The result of this, in my opinion, is that there is in the true owner of such security no right against the Government or the Reserve Bank of India for the price of such security. This is, in my opinion, further emphasized by the latter half of S. 19 which provides that the Ordar made by the bank vesting a Government security in any person shall operate to confer on that person a title to the security subject only to a personal liability to the original owner of the security for money had and received on his account.

It is urged on behalf of the defendants that the words 'subject only to a personal liability to the rightful owner of the security for money had and received on his account' refer to the claim of the true owner against the. Government or the bank. I am unable to read the section in that manner. The words 'subject only to a personal liability to the rightful owner of the security for money had and received on his account' in my opinion, clearly qualify the words 'title to the security' and affect only the person who has obtained title to the security by virtue of the order of the Reserve Bank and nobody else. The only remedy of the true owner, therefore, that has b en saved by S. 19] is a remedy against the person who has a title to the security as a result of the order of the bank. Therefore, th contentrn of the defen-dants that the plaintiff should have sued either the Reserve Bank or the Government is, in my I opinion, untenable in the present state of the law, whatever may have been the position before the Public Debt Act, 1944, was enacted.

(9) Now, from the in term-elation that I have placed on S. 19 Public Debt Act, it is clear that the right of the rightful Owner to enforce the personal liability for money had and received on his account as against the person on whom the Reserve Bank of India by its order conferred titie has been kept intact. But such right must exist outside this Act. Now. the second defendant bank was the parly who presented this note for conversion and as observed by Beaumont C. J. In the course of arguments in the case of -- 'AIR 1937 Bom 145, 'the consideration for the new note was the handing over of the old note'. The second defendant therefore, used the note belonging to the plaintiff to which the second defendant had acquired no title whatever and thereby obtained the new promissory note in its place. In my opinion, therefore, he became liable to pay to the plaintiff the value of the Government promissory note belonging to him which has been effectively lost to the plaintiff, subject to the plea of negligence. That value would be as of the date of the renewal of the note viz., 14-2-1946.

(10) Now, with regard to the plca that the plaintiff was guilty of negligence in respect of the said promissory note, the facts established disclose that the plaintiff had allowed the note to remain either with Barve or with Ketkar without making any inquiries for almost a year after the date of the purchase. That was undoubtedly an act of an imprudent man; and there is no doubt that this facilitated the commission of the forgery. But the question is whether negligence of this kind absolves the second defendants from liability. Now, in tha old English case of -- 'Young v. Grote', (1827) 4 Bing 253, it was held that a customer of a bank owes a duty to the bank not to be negligent, and if by his negligence forgery takes place in a cheque the customer is liable for the loss. Byles on Bills (Edn, 20) on p. 25 points out that :

'Much difficulty has however been caused by reason of the speculations in later cases as to what underlay or was supposed to underlie this decision. As a result of these speculations--'Young v. Grote', came to be regarded as a -case of doubtful authority, and in the Privy Council decision of -- 'Colonial Bank of Australasia v. Marshall', (1903) AC 559, was treated as no longer law. The authority of the case has now, however, been fully reestablished by the decision of the House of Lords in the case of -- 'London Joint Stock Bank v. Maemjllan and Arthur', (1918) AC 777, where it was held, 'confirming the view expressed in the seventeenth edition of this book, that the decision in -- 'Young v. Grote (C)', was sound in principle.'

(11) in so far as this Court is concerned it would be bound by the decision of the Privy Council in--'The Colonial Bank of Australasia v. Marshall (D)', where the Privy Council held that -- 'Young v. Grote (C)', was no longer good law. The subsequent decision of the House of Lords would not be binding on this Court although their Lordships have taken a contrary view and, therefore, negligence on the part of the plaintiff would not save the second defendants from liability. But this is not all. Even assuming that the later decision of the House of Lords in -- 'London Joint Stock Bank v. Macmillan (E)'. Is good law, that also is a case of a customer's duty to his bankers. It is in the first instant not free from doubt whether the original owner of a negotiable instrument owes any general duty to the public at large not to be negligent. But assuming that any such duty exists, the negligence that would absolve other parties to the instrument from liability must be such that it is proxi-matsly connected with the forgery which caused the loss. This is made abundantly clear by several passages in the judgment of Finlay L. C. In -- 'London Joint Stock Bank v. Macmillan and Arthur (E)', (supra). Thus at page 796 in. referring to the case of -- 'Bank of Ireland v. Trustees of Evan's Charities in Ireland', (1855) 5 HLC 339, the learned Lord Chancellor observed as follows :

'In that case stock belonging to Evan's Charities registered in the Bank of Ireland had been transferred under powers of attorney to which the seal of the trustees of the charities had been fraudulently affixed by the secretary. The jury found that the trustees had contributed to the loss by their negligence in allowing the secretary to have control of tha seal, and it was decided by the House of Lords that this afforded no answer to the claim of the trustees to the stock. -- 'Young v. Grota (C)', was much discussed in the course of the argument in their Lordships' House. Parke B., delivering the opinion of all the judges, says, that negligent custody of the seal was not enough, and that the negligence which would deprive the plaintiff of his right to insist that the transfer was invalid must be negligence in or immediately connected with the transfer itself.....'

Then again at p. 798 referring to the case of -- 'Swan v. North British Australasian Co.', (1862) 7 H N 603, the learned Lord Chancellor observes as follows :

'.....The four Judges before whom the hearing took place were agreed that negligence to operate as an estoppel must be the proximate cause of the loss, but differed in their opinion as to the particular case before them.'

At p. 800 the learned Lord Chancellor referred to the case of -- 'Mayor, etc., of Merchants of the Staple of England v. Bank of England', (1887) 21 QBD 160 and observed that:

'.....Lord Esher himself explains -- 'Young v. Grote (C)', as a case in which the negligence was in or immediately connected with that which happened, and said that the negligence must be approximately connected with the result.'

Following that ratio. I do not think it is possible to contend in this ease that the negligence of the plaintiff in allowing this note to remain with his broker or sub-broker for almost a year directly contributed to the forgery; and therefore the second defendant bank is not saved from liability by reason of such negligence. It is, therefore, liable to pay the value of the promissory note to the plaintiff.

(12) The plaintiff may conceivably have claimed interest on this amount from the date of the renewal; but unfortunately for him no such claim appears to have been made in the plaint. It is urged on his behalf that the value of the note 'as of May 1946' has been claimed in prayer (c) and that would include interest from that date. I am afraid that I cannot accept that contention. Defendants or any of them might have been liable to pay subsequent interest provided there were in the plaint sufficient averments to show who received the interest if at all; but no such averments appear in the plaint and I do not know whether any interest has been received and if so by whom.

(13) The next question that I have to determine is whether any of the other defendants are liable to the plaintiff in respect of the value of the said promissory Rote. The other defendants are prior endorsers of this note. They all became endorsees after there was a forged endorsement on the note. Therefore, they acquired no title to the note. Quite conceivably a claim in conversion may have been made against them. Mr. Parpia for the plaintiff sought to raise an issue in the following terms:

'Whether the defendants or any of them are liable in conversion to the plaintiff in respect of the said pro-note?'

But I disallowed the issue as in my opinion the cause of action in the plaint is not conversion. Paragraph 3 of the plaint sets out that the plaintiff had come to know that Kctkar had forged the signature of the plaintift' and delivered the said note to the first defendants, who negotiated it to the second defendants, who in their turn negotiated it to the third defendants, who subsequently endorsed it over to the fourth defendants who ultimately negotiated it to the second defendant. The plaintiff then proceeds to say in para 11 :

'The plaintiff says that the defendants have obtained the Government promissory note under the forged signature of the plaintiff with the result that no title to the said note passed to any of the defendants. The plaintiff submits that under the circumstances he is entitled to recover the said note or the converted note from the defendants or the value thereof to be ascertained On the basis of the value of the security in May 1946.'

I, therefore, took the view that conversion has not been pleaded. Apart from conversion, counsel for the plaintiff has not been able to point out to me what claim he has against the other defendants direct. it was the second defendants who got the original note renewed and are therefore liable to the plaintiff to pay him the value of the note which had been lost to him by reason of the cancellation of the note consequent upon the renewed promissory note being issued. The claim against the. other defendants must therefore fail.

(14) This leaves me with the third party notices that have been taken out in these proceedings. Since as a result of my finding there shall be a decree against the second defendants for the sum of Rs. 10,330-7-8 with costs and interest on judgment at four per cent., the first third party notice that I have to consider is that taken out by the second defendants against the first and the fourth defendants. The fourth defendants admit their liability to the second defendants and there will therefore be a decree in favour of the second defendants against the fourth defendants for the amount of the decree passed against the second defendants in favour of the plaintiffs and for the second defendants' costs of the suit as well as of the third party notice.

(15) The first defendants contest their liability on this third party notice and the contrition advanced on their behalf is that although they are prior endorsers of the note and would ordinarily have been liable on a warranty of title on the said promissory note, they are not so liable because they became endorsees merely as the agents of Ishwarlal Joshi for,the purpose of endorsing the note or receiving its contents. Reliance is placed on S. 50, Negotiable Instruments Act, which is as follows :

'The indorsement of a negotiable instrument followed by delivery transfers to the indorsee the property therein with the right of further negotiation; but the indorsement may, by express words, restrict or exclude such right, or may merely constitute the indorsee an agent to indorse the instrument or to receive its contents for the indorser, or for some other specified person.'

Now, it is admitted in this case that the first defendants became endorsees in the first instance on behalf of their constituent Ishwarlal Joshi. But there is nothing whatever in the endorsement on the note itself, which has been produced before me, to indicate that the first defendants were constituted agents merely to endorse the instrument or to receive its contents. Section 50 deals with what are known as restrictive, endorsements which in express words restrict or exclude the right of the endorsee and cannot be made applicable to cases where the endorsee wishes to satisfy the Court by oral evidence, that he was endorsee for a particular purpose only. On the face of the in-strument the first defendant bank, after having become the endorsees, endorsed it over to the second defe-ndants. In doing so they warranted their title to the note. As in fact they had no title, they are liable to make good to the second defendants the loss caused to them by reason of the first defendants having had no title. There will, therefore, be a decree in favour of the second defendants also against the first defendants on the third party notice taken out by the second defendants for the amount of the decree passed against the second defendants in favour of the plaintiff and for the costs of the second defendants of the suit and of their third party notice.

(16) That brings me to the third party notice taken out by the fourth defendants against the first defendants. This liability stands on the same footing as the liability of the first defendants to the second defendants. The fourth defendants are the subsequent endorsees and tha first defendants are liable upon a warrantee of title to make good the loss caused to the fourth defendants. There will, therefore, be a decree in favour of the fourth defendants against the first defendants for the whole amount of the decree passed against the fourth defendants in favour of the. second defendants and for the fourth defendants' costs of the suit and of the third party notice.

(17) That brings me to the last third party notice and that is the one taken out by the first defendants against their constituent Ishwarlal Joshi. He has appeared in person and stated that in the event of the first defendants being held liable he admitted his liability to the first defendants on the third party notice. There will, therefore, be a decree in favour of the first defendants against the said Ishwarlal Joshi for the amount of the decree passed against the-first defendants in favour of the second defendants as also in favour of the fourth defendants.

(18) in the event of the second defendants executing the decree against the first defendants, satisfaction for that amount would have to be entered up on the decree in favour of the fourth defendants against the first defendants also. Similarly, satisfaction would also have to be entered up on the decree in favour of the second defendants against the fourth defendants.

(19) I held over the question of costs so far as the first, third and fourth defendants are concerned until I had concluded my judgment, because I desired to hear counsel for the plaintiff before making any order as to costs. Ordinarily as a result of my judgment that the suit fails against these defendants costs would follow the event, and the suit would have to be dismissed with costs against these defendants. But Mr. Parpia has urged that his claim against these defendants was in the alternative & that he reasonably joined all of them as defendants in the suit on the knowledge which ha had at the time when he filed the plaint; and, therefore, the costs of the successful defendants should not fall upon the plaintiff but should be ordered to be paid by the unsuccessful defendants, namely the second defendants. Now, it is true that in a proper case the Court may order the unsuccessful defendant to pay in ad-dition to the costs payable by him to the plaintiff the costs of the successful defendants where the claim against the defendants is in the alternative and the Court is of ths opinion that the defendants were not unreasonably joined as parties. In this case, however, all the facts which were relevant for the determination of the liability of the parties were apparently known to the plaintiff because they are set out in para. 8 of the plaint. As I have held that these (acts do not give rise to a claim against the first, third and fourth defendants, I am unable to hold that the plaintiff reasonably joined these defendants as parties to the suit and made a claim against them. I must, therefore, dismiss the suit as against the first, third and fourth defendants with costs.

(20) Parties having no objection, I direct that the cancelled note should be returned to the Reserve Bank of India.

(21) Suit dismissed.


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