1. Plaintiff No. 1 is a pleader at Akola and plaintiff No. 2 is his wife. The plaintiffs were the owners of three Government Promissory Loan Notes of the face value of Rs. 1,000 each. The notes were payable to plaintiff No. 1 or plaintiff No. 2 or order. One Acharya forged the signature of plaintiff No. 1 to endorsements on the back of the Promissory Loan Notes, purporting to transfer them to one R.V. Thakur or order. Thakur is believed to be a fictitious person. This fictitious person then purported to endorse the notes in favour of Acharya and Acharya endorsed them in favour of the Bank of India. The Bank of India got new Promissory Loan Notes issued in their favour and gave up the old promissory notes to the Public Debt Office, and the old promissory notes were thereupon cancelled.
2. The plaintiffs filed this suit against the Secretary of State for India in Council for a declaration, that they were the owners of, and were entitled to possession of, the said three notes and for an order that they may be delivered up to them.
3. The defences in the written statement of the defendant are based on the negligence of the plaintiffs or their agent in handing over the said notes to Acharya in April, 1932, on an alleged false representation made by him, and on their further negligence in not reporting the matter to the Public Debt Office and in not lodging a complaint with the police in respect of the said three notes against the said Acharya. The defendant contends that the plaintiffs and their agent were guilty of negligence and inexcusable laches, and that the plaintiffs are estopped from setting up the alleged forgery in their favour.
4. In the middle of January, 1932, plaintiff No. 1 sent to one Kelkar Rs. 5,000 from Akola to be invested in Government Securities. On or about January 18, 1932, Kelkar paid to Acharya Rs. 4,616-6-6 for the purchase of five per cent. 1935 promissory notes of Rs. 5,000 in five pieces of Rs. 1,000 each. Acharya did not hand over any notes to Kelkar until about the middle of February, 1932, when he handed over the said three notes to him. He did not hand over the remaining two notes, but told Kelkar that he would give those two notes after some time. According to Kelkar, Acharya told him in April, 1932, that he had received the said two notes but he said that they Secretary were purchased from the estate of some minor, and as an order of the Court op State had not been obtained, the notes were required to be produced in a Court in the Travancore State. Acharya gave Kelkar to understand that the Bank had got the notes renewed for the estate of some minor. Kelkar, thereupon, handed over the three Notes to Acharya. Acharya seems to have forged the signatures of plaintiff No. 1 shortly thereafter, as it appears from the notes themselves, and it is not disputed, that they were cancelled on April 22, 1932, and fresh notes were issued in favour of the Bank of India. According to Kelkar, he asked Acharya for the notes from time to time but Acharya evaded him. by saying that they had not been received back from the Travancore Court.
5. Ultimately on August 22, 1932, Acharya gave Kelkar a letter (exhibit B) addressed to plaintiff No. 1 stating that he had delivered notes of Rs. 3,000,. but before he could deliver the remaining notes it was found that the Government Paper purchased for plaintiff No. 1 were involved in some minor's estate in the Travancore State and that the Papers were required there for inspection by the authorities of the State, and that, therefore, he had taken the three pieces and sent all the five pieces to the authorities by registered post. He added that he held an acknowledgment for the same and was prepared to show the acknowledgment as well as the correspondence in respect, of the transaction to plaintiff No. 1 or to Kelkar. Before the notes were so handed over to Acharya by Kelkar in April, 1932, interest on the three pieces, had been realised by plaintiff No. 2. She signed the interest warrant which was attested by Kelkar and by another gentleman of the name of Gogate. The interest was credited in the joint account which plaintiff No. 2 had with the Central Bank of India.
6. Acharya was arrested on September 15, 1932, in connection with some other fraud and forgery, and thereupon Kelkar complained to the police about his conduct in respect of the five Government Promissory Loan Notes. Acharya; was ultimately tried and convicted inter alia in respect of these Promissory Loan Notes.
7. Plaintiff No. 1 was arrested in Akola on January 25, 1932, in connection with the Civil Disobedience movement, and on January 29, 1932, he was sentenced to one year's imprisonment. He was released from jail on November 6, 1932.
8. Although an issue was raised as to whether plaintiff No. l's signature was; forged on the endorsements on the Promissory Loan Notes, that issue was not seriously pressed. Plaintiff No. 1 was not cross-examined on this point and' the learned Advocate General who appeared for the defendant ultimately said that he did not dispute the forgery. From the facts stated above, it is obvious that the second and third grounds of negligence are hardly maintainable. It was not until Acharya was arrested that, according to Kelkar, he entertained a suspicion on the matter, and immediately on Acharya being arrested he complained to the police.
9. What is really urged on behalf of the defendant is that the conduct of Kelkar in handing over the three notes to Acharya in the middle of April, 1932, constituted negligence of a kind which gave rise to an estoppel preventing the plaintiffs from setting up the forgery against the defendant. It was urged that Kelkar had reason to suspect Acharya when he failed to hand over the two notes, after they were purchased in the middle of January, 1932, and that Secretary though he failed to hand over those notes for three months after the price State was paid to Acharya, he ought not to have handed over the notes in April, 1932, to Acharya, the notes being required for a reason which no prudent man should have believed. But, according to Kelkar he had known Acharya for eighteen or nineteen years prior to that, although he had no money dealings or transactions with him, and he trusted Acharya and his suspicions were not aroused until Acharya was arrested. I believe the evidence of Kelkar. It may be said that Kelkar was very credulous, but the question in the case is, whether Kelkar as an agent of the plaintiffs was guilty of such negligence as to enable the defendant to set up estoppel.
10. In order to succeed on the plea of estoppel the defendant must establish that there was a duty on the part of the plaintiff and his agent to use due care towards the party or towards the general public of which he is one. Further, the negligence must be in the transaction itself, and the negligence must not only be calculated to have the misleading effect attributed to it but must be the proximate or real cause of that result.
11. Most of the cases bearing on this point are reviewed in London Joint Stock Bank v. Macmillan and Arthur  A.C. 777.
12. In this case there is no contractual relationship between the parties such as exists between a banker and his customer. The facts which would constitute negligence in a case between a bank and its customer and a case like the one here would be very different. The negligence must be such as to impose upon a party a liability for the subsequent forgery and it is a question of fact, whether there has been such negligence or not.
13. For the defendant to succeed on the plea of estoppel, the fraud must have flowed as a natural and uninterrupted sequence from the negligent act.
14. In my opinion, in the present case, it was not the negligence but the subsequent forgery which was the immediate cause of the loss.
15. In The Governor and Company of the Bank of Ireland v. Trustees of Evans' Charities in Ireland (1855) 5 H.L.C. 389 stock belonging to Evans charities registered in the Bank of Ireland had been transferred under a power-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 the seal. It was decided by the House of Lords that this afforded no answer to the claim of the trustees to the stock.
16. In Lewes Sanitary Steam Laundry Co. v. Barclay and Cp., Ltd (1906) 95 L.T. 444 it was held that the appointment by a company of a secretary known to have once committed forgery and trusting him with the company's books who takes advantage of his position to forge a cheque on the company's bankers was not sufficiently in the transaction and was not the proximate cause of the bank's parting with its money so as to give rise to an estoppel.
17. In Arnold v. Cheque Bank evidence as regards the negligence in the custody and transmission by post of a draft, which had afforded facilities for its being stolen by one Hecht, who forged an endorsement of the plaintiff and obtained payment, was rejected on the ground that the alleged negligence was collateral only to the transaction.
18. There will be a decree for the plaintiffs against the defendant for Rs. 3,444-15-0 with interest at five per cent, on Rs. 3,000 from September 15, 1935, till judgment. Costs of the suit and interest on judgment at six per cent, per annum till payment.