A.P. Srivastava, J.
1. This is a plaintiff's appeal that arises out of a suit to recover Rs. 6,300/- from the defendant.
2. On the 10th of September 1947 the plaintiff paid in the sum of Rs. 6,000/- to the defendant bank at its Nayaganj Branch in the city of Kanpur for the preparation of a draft in the name of one Dr. Ram Narain of Lucknow, A draft bearing No. 56/47 was prepared for Rs. 6,000/- and was handed over to the plaintiff. The plaintiff retained the draft with himself and did not hand it over to Sri Ram Narain. He informed the defendant that the draft should be cancelled and the money paid back to him. He also offered to furnish an indemnity bond for the amount though he contended that it was not necessary. The defendant bank, however, refused to pay the amount to the plaintiff. The plaintiff therefore sought to recover Rs. 6,000/- the amount originally deposited by him for the purchase of the draft and Rs. 300/- interest thereon at the rate of six per cent, per annum. The total amount claimed was thus Rs. 6,300/-.
3. The suit was contested by the defendant who admitted that the plaintiff had paid in Rs. 6,000/- for the purchase of the draft and that the draft having been prepared in the name of Sri Ram Narain Shukla had been handed over to the plaintiff. It, however, contended that the plaintiff had no authority to cancel the instructions already acted upon and that it was only Sri Ram Narain in whose name the draft had been prepared who could claim the amount. The plaintiff, it was urged, had no right left and could not get the amount or any interest thereon. It was denied that the plaintiff had at any time gone to the defendant with the draft in question or had notified his intention to cancel it. It was also pleaded that Sri Ram Narain was in any case a necessary party and the suit could not proceed without his being impleaded.
4. The suit was tried by the Additional CivilJudge of Kanpur. He relying on the case of Malik Barkat Ali v. Imperial Bank of India, Calcutta, AIR 1945 Lah 213 took the view that though the plaintiff had purchased the draft the only person who could claim its amount and give a discharge to the bank in respect of it was Sri Ram Narain Shukla, the person in whose favour the draft had been prepared and it was not open to the plaintiff to cancel the draft or to stop its payment.
The plaintiff in the opinion of the learned Civil Judge could not give a valid discharge and the defendant was therefore not liable to pay the amount claimed to the plaintiff. He also held that Ram Narain Shukla was a proper party but the plaintiff could not be forced to implead him. The plaintiff could in this suit get the rights between himself and the defendant adjudicated even in the absence of Ram Narain Shukla. On the basis of his first finding, however, the learned Civil Judge dismissed the suit.
5. The plaintiff has now come up in appeal. The interesting point which his learned counsel has raised for consideration is whether in the circumstances of the present case the plaintiff who was the purchaser of the draft could cancel it and claim from the defendant the amount he had paid for getting the draft.
6. So far as the facts are concerned they are clear. It is common ground that it was the plaintiff who paid Rs. 6,000/- in defendant's branch at Nayaganj for the purchase of a draft and that he instructed the defendant to prepare the draft in the name of Dr. Ram Narain Shukla. It is also admitted that the draft was prepared and handed over to the plaintiff., It also appears that the draft remained all along with the plaintiff and was never delivered by him to Dr. Ram Narain Shukla. The learned Civil Judge was not prepared to believe that the draft was given to Dr. Shukla or his wife and his view on the point appears to be quite correct. Though the draft was current for six months it was never presented for payment by Dr. Ram Narain Shukla.
On the contrary soon after it had been purchased the plaintiff approached the defendant and requested that the draft be cancelled and the amount be paid to him., A letter of the plaintiff dated the 8th of November 1947 containing that request has been referred to in Ex. 3 a reply sent by the defendant on the 18th of November 1947. In that reply the defendant advised the plaintiff to obtain a letter from Dr. Ram Narain Shukla that he did not want to utilise the amount of the draft and that the same may be refunded to the plaintiff. It also wanted the plaintiff to fill in and sign an indemnity bond.
As the amount was not paid, on the 29th of January 1948 the plaintiff sent a letter Ex. 8 to the defendant and expressly requested it to cancel the draft and to pay the amount to him. In its reply dated the 25th of February 1948 Ex. 6 the defendant said that it was prepared to pay the amount of the draft to the plaintiff on his executing an indemnity bond and furnishing a respectable surety known to the bank. Subsequently, however, the defendant changed its attitude and on the 29th of March 1948 it informed the plaintiff by Ex. 4 that it had received a letter from Ram Narain demanding payment of the draft in question and that the plaintiff should settle the matter with him, The payment of the amount having thus been refused the suit was filed on the 15th of July 1948.
7. On the above facts it is contended on behalf of the plaintiff-appellant that he was the purchaser of the draft and had retained it all along. Though the draft had been prepared in the name of Dr. Ram Narain Shukla it had never been delivered to him and his right to claim the amount of the draft had therefore not arisen. Having paid the money to thedefendant for the purchase of the draft the plaintiff was entitled to get back the money if for certain reasons he had changed his mind and had decided not to hand over the draft to Dr. Ram Narain Shukla.
As a result of the purchase of the draft the relationship between the plaintiff and the defendant became that of a creditor and debtor and it was therefore not open to the defendant to refuse to cancel the draft and to pay the money back to the plaintiff on the excuse that the draft had been prepared in the name of Dr. Ram Narain Shukla and that he was likely to claim it. Though the draft had been prepared in the name of Dr. Ram Narain Shukla it had not been delivered to him and without such delivery no rights could accrue to Dr. Shukla in respect of the amount of the draft. He was not in a position to present the draft to the branch of the defendant to which it was addressed, and without such presentation no amount could be claimed by him. As the draft had not been delivered to Dr. Shukla there was nothing to prevent the plaintiff from countermanding its payment or requesting the defendant to cancel it.
8. The contention of the defendant on the other hand is that the plaintiff paid Rs. 6,000/ to the defendant for the purchase of the draft. The draft was prepared as requested by him and was handed over to him. There the transaction was finished, and the defendant no longer remained liable in any way to the plaintiff. It Became liable to pay the amount of the draft to the payee i.e. Dr. Ram Narain Shukla, when he presented the same to the office to which the draft was addressed. After issuing the draft and handing it over to the plaintiff the defendant did not remain the debtor of the plaintiff. After the draft had been purchased its payment could not be stopped. It was not possible for the plaintiff to give a valid discharge to the defendant. That discharge could be given only by Dr. Shukla in whose favour the draft had been prepared. In the absence of consent of Dr, Shukla therefore the defendant was not liable to pay the amount of the draft to the plaintiff.
9. The issue of demand drafts is now an established practice of banking. It is one of the most convenient methods of transmission of amounts from one place to another particularly if the person who is to get the amount at the other end (be he the sender himself or his nominee) has no banking ac-count of his own. The person who takes the draft is called the purchaser of the draft. He either pays the amount to the bank in cash or gets the amount debited to his own account. He also pays the necessary charges. On getting the money the bank issues an order on itself or on one of its own branches for the payment of the amount to the person named as the payee or to his order. The draft is handed over by the bank to the purchaser. It is then presented to the bank to which it is addressed by the payee or any endorsee on his behalf. If the bank is satisfied about the identity of the presenter and about the endorsement in his favour if he is an endorsee, the amount is paid. If it is a crossed draft the amount is collected through a bank and credited to the account of the person entitled to the money.
10. At one time there was a doubt as to whether a draft was a negotiable instrument. In view of the fact that by the very definition of the term 'bill of exchange' in the English Bill of Exchange Act a bill of exchange was required to be addressed by one person to another it was held in England that a draft could not be a bill of exchange as it was not addressed by one person to another but was addressed by a bank either to itself or toone of its branches. It therefore became necessary in England to amend the Bill of Exchange Act and to make a draft a bill of exchange for certain purposes. The definition of the term 'bill of exchange' in Section 5 of the Indian Negotiable Instruments Act (Act XXVI of 1881) is, however, different in this respect from the definition of the term in the English Act. As defined in the Indian Act
'A 'bill of exchange' is 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.'
By this definition therefore it is not required that bill of exchange should be a direction from one person to a different person. The only thing necessary is that the direction should be to a 'certain' person. That person may either be the very person who is issuing the direction or may be another person. A draft could not therefore be taken out of this definition on the ground that it was a direction by one person to himself and not to another person. The other essential requirements of the definition of a bill of exchange are all present in a draft. It is an instrument in writing.
It contains an: unconditional order. It is signed by the maker. It directs a certain person to pay a certain amount either to a particular person or to his order or to the bearer. According to the definition of the term in India therefore there can be no doubt that a draft is a bill of exchange and if it is a bill of exchange it becomes a negotiable instrument as defined in Section 13 of the Negotiable Instruments Act. To remove all doubts on the point the Legislature added Section 85A to the Act which makes a specific reference to drafts and brings them at par with bills of exchange.
11. Judicial opinion in this country also appears to be almost unanimons that a draft is a bill of exchange and as such a negotiable instrument. Reference may be made in this connection to In the matter of New Bank of India Ltd., Amritsar, AIR 1949 East Punjab 373, Suganchand and Co. v. Brahmayya and Co. : AIR1951Mad910 , Mo-hanlal Jogani Rice and Atta Mills v. Ramlal On-karmal Firm, (S) AIR 1957 Assam 133 and Birbhum Central Co-operative Bank Ltd. v. Pioneer Bank Ltd. : AIR1956Cal615 .
12. Though a demand draft is a bill of exchange and shares in certain respects the characteristics of a cheque there are other respects in which it is essentially different from a cheque. The main point of difference between a cheque and a draft lies in the fact that while a cheque is an order by the drawer on his own agent the bank for the payment of a certain sum of money to the bearer or the order of the person in whose favour the cheque is drawn a draft is not an order by a private person to his own agent. On the contrary, it is an order by a bank to itself or to one of its branches for the payment of a certain amount.
A draft must therefore necessarily be drawn by a bank on another bank or on one of its own branches and cannot be drawn by a private individual like a cheque. If a person orders his agent to pay a certain amount to another person it is clearly open to him to stop the payment and to direct his agent not to make the payment provided of course the payment has not already been made. The payment of a cheque can therefore be very easily stopped. Only a direction has to be issued to a bank and if it is received before the payment is actually made the direction is bound to be carried out.
If in the meantime the cheque has been endorsed in favour of a holder in due course and a dispute arises between such a holder and the maker, the bank, is outside that dispute because in stopping payment it had only carried out the orders of its principal. A draft cannot, however, be countermanded so easily because having issued the draft the bank does not necessarily remain the agent of the purchaser. By issuing it the bank undertakes a liability which it is bound to discharge at the instance of the person in whose favour it has issued the draft or a person claiming through him.
If therefore the payee of the draft or his endorsee satisfies the bank to which the draft is addressed about his own identity and about the correctness of the endorsement on which he relies and presents the draft so as to be able to give an effective discharge the bank is bound to pay the money even if it has received instructions from the purchaser requesting it to stop the payment.
13. But it does not follow from the above that a draft cannot be countermanded or its payment stopped in any circumstances. The difficulty in countermanding or stopping payment of the draft can arise only when the draft had already passed into the hands of the payee or had been endorsed in favour of another person. Delivery is one of the essential ingredients of the making, acceptance or endorsement of a negotiable instrument. The contract on a negotiable instrument is without delivery incomplete and revocable. It is therefore only after delivery that the payee of the draft can claim any rights in respect of it and become entitled as a holder to receive or recover its amount.
Without getting the draft the payee will not! be in a position to present it and without presenting it he cannot give an effective discharge to the bank to which it is addressed. Before the draft is delivered to the payee therefore it is open to the purchaser to get the draft cancelled and to ins-truct the bank not to pay the amount to any one else but to return it to him. Before the draft is handed over to the payee as long as it is retained by the purchaser in his own hands the purchaser can treat the bank which issued the draft as his own debtor and can as a creditor demand the amount from the bank and the bank would be liable to satisfy the demand.
The only thing it can insist on is that the draft should be handed back to it so that there may be no chance left of any other person making a claim on its basis. It is only after the draft has been delivered to the payee and his rights have come in that the purchaser's right to claim the money and to stop the payment becomes disputable. At that stage the bank can reasonably say that in order to have an effective discharge from liability it is necessary to have the consent of the payee before the amount can be paid to the purchaser.
14. The case of AIR 1945 Lah 213 (supra) on which the learned Civil Judge has placed reliance in support of his view that after a draft had been Issued by the bank it is not open to the purchaser to stop its payment does not really go to that length and does not lay down that a person cannot stop the payment of a draft even before it has been delivered to the payee. In that case Malik Nawazish Ali, son of Malik Barkat Ali, had accepted a job of the Manager of a tea company and had been required to furnish a security of Rs. 5,000/-.
Malik Barkat Ali, his father, obtained a draft for the amount from the Imperial Bank of India at Lahore. The draft was in favour of the Crown Brand Tea Company and had been addressed to the branch of the Imperial Bank at Dacca, The draft was issued by the Imperial Bank at Lahore and was delivered to the payee. When Malik Nawazish Ali went to Dacca to join his duties he found that the company was really a bogus one. He therefore sent a telegram to his father asking that the payment of the draft should be stopped somehow.
Malik Barkat Ali who had purchased the draft telegraphed to the Dacca Branch of the Imperial Bank asking to stop its payment. He also went to the Lahore Branch which had issued the draft and asked the Manager to arrange that the payment was stopped at the Dacca Branch. After the telegram of Malik Barkat Ali had been received by the Dacca Branch but before any instructions could be received from the Lahore Branch the draft which had by that time been endorsed in favour of the Comilla Banking Corporation by the payee was presented for payment at the Dacca Branch.
The Manager of that branch satisfied himself about the identity of the presenter and the correctness of the endorsement in his favour. He felt that he could not stop payment simply on the basis of telegraphic instructions received from Malik Barkat Ali. The Dacca Branch therefore paid the amount to the endorsee, the Comilla Banking Corporation. Malik Barkat Ali then sued the Imperial Bank at Lahore for the recovery of the money of the draft.
It was in those circumstances that it was held that having issued the draft and delivered it to the payee the only thing which the purchaser could expect from the bank was that it should not pay the amount to a wrong person and if the bank had taken the necessary precautions in that respect the purchaser could not make it liable for negligence. It was also remarked that the purchaser was not entitled to ask the bank to stop payment on other grounds such as matters relating to the consideration in respect of which the draft had been issued at his instance as that would be putting the bank in an impossible position.
While considering the effect of this decision it should not be forgotten that the draft in that case had been handed over to the payee and had in fact been endorsed by that payee in favour of another person who had presented it for payment. The position would not have been exactly the same had Malik Barkat Ali retained the draft in his own hands and had not sent it to the payee. The case is therefore not an authority for the proposition that a purchaser cannot stop the payment of the draft and get back the amount even if the draft has not passed out of his hands and delivered to the payee.
15. The contention that after the draft has been, issued by the bank and handed over to the purchaser the transaction so far as the purchaser is concerned is over and there is no relationship left between him and the bank so as to entitle him to claim back the amount does not appear to be tenable. The question has been considered in several cases in connection with claims made by purchasers on the basis of drafts obtained by them where the bank concerned had gone in liquidation before the draft could be presented for payment by the payee, e.g. In the matter of Travancore National and Quilon Bank Ltd. : AIR1940Mad101 AIR 1949 EP 373, : AIR1951Mad910 , Traders Bank Ltd v Kalyan Singh, AIR 1953 Punj 195 and : AIR1956Cal615 .
In all such cases the claim of the purchaser to get back the money has been upheld and he hadbeen held to be in the position of an ordinary creditor of the bank though his claim to have a preferential treatment has been negatived except in those cases in which the draft was obtained only for transmission of the money from one place to another.
16. In all these cases a distinction has been made between cases in which a draft was purchased in the ordinary course of banking business & cases in which a draft was taken with the sole object of transmitting the money from one place to another and for the express purpose of being paid to the purchaser himself or to some nominee of his. In the latter kind of cases it was held that the bank continued to be the agent of the purchaser of the draft till the amount was actually paid and on this account the relationship between the purchaser and the bank was the fiduciary relationship of a principal and agent.
In such cases therefore the purchaser could not only claim the amount but could also claim preference over the claims of ordinary creditors. In the former kind of cases, however, the right of the purchaser to get the amount of the draft as a creditor was recognised and his claim was held to be entertainable by the Liquidator but it was held that he could not claim a preferential treatment.
17. Had the correct position in law been that after the draft had been issued the purchaser had no more connection left with the amount and could not claim it back at all in any circumstances the purchasers of the drafts in some of the above mentioned cases would not have been held to be the creditors of the Bank entitled to make a claim before in liquidation. It would be noted that in some of the claims made in the case of AIR 1949 EP 373 (supra) and also in the case of : AIR1956Cal615 (supra) the drafts had been issued not in the names of the purchasers themselves but in the names of some other persons and the claims were being made by the purchasers.
18. Learned counsel for the defendant, however, relied on the case of (S) AIR 1957 Assam 133. But that case does not appear to be of much help to him and does not support the contention put forward by him. In that case a sum of Rs. 9,000/- and odd was due from the defendant No. 1 to the plaintiff. For the payment of that amount the defendant gave a cheque drawn by Nathuram Jai Dayal of Sibasagar on the Tripura Modern Bank at Sibasagar in favour of the defendant No. 1. The cheque was duly endorsed in favour of the plaintiff.
The plaintiff sent it to the Calcutta Commercial Bank at Gauhati for collection. That bank sent it to the Tripura Modern Bank at Sibasagar for payment. The latter bank instead of paying the amount in question sent a demand draft for the amount of the cheque deducting commission but instead of issuing the draft in favour of its branch at Gauhati it addressed the draft to its Calcutta Office. The demand draft was sent to the Calcutta Commercial Bank at Gauhati and that bank sent it for collection to its own head office at Calcutta.
That head office closed its business and before the cheque could be presented for payment to the office of the Tripura Bank at Calcutta to which it was addressed that office also had closed its doors. The demand draft was thereupon returned to the plaintiff as dishonoured. The plaintiff then filed a suit claiming the amount and impleading the Calcutta Commercial Bank as well as the Tripura Modern Bank as defendants besides the original defendant No. 1 who was principally liable for theamount. Two of the grounds on which the suit was contested were:
1. That the bank became immune from liability as soon as it issued the draft. It had been paid the money only for that purpose and after the draft had been issued nothing remained for it to do.
2. That when the draft was issued the amount was debited to the account of the person at whose instance the draft was being issued. On the basis of the debit entry the defendant became free from liability.
19. These grounds appear to be analogous to the grounds on which the defendant wants to resist the plaintiff's claim in the present case. The learned Judges of the Assam Court, however, rejected both the grounds. Dealing with the first the learned Judges observed that except when it was intended otherwise the issuing of a cheque was only a conditional payment and the liability was extinguished only when the cheque was cashed. A banker's draft was in that respect analogous to a cheque and was also in the nature of a conditional payment and if the creditor was unable to obtain satisfaction of the draft he could fall back upon the original consideration and recover the amount from the debtor. They thus recognised that the relationship between the purchaser of the draft and the bank issuing it was that of a creditor and a debtor and the mere issuing of the draft could not absolve the bank from liability for the amount it had received.
20. In respect of the second contention about the debit entry they said:
'Normally, when a draft is issued by a bank payable on its branch at some other place or on some other bank, a debit entry is made in the accounts of the issuing bank in advance in anticipation of the fact that the draft would be cashed and payment made to the holder at the bank on which it is issued. But, if actually no such payment is made and the draft encashed, then the debit entry is accordingly corrected.
This usually happens when drafts aie taken for transmission of the money payable from one place to another. It, therefore, follows 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 or other liabilities incurred by the bank in respect of the draft, so as to preclude the holder of the draft from recovering the amount.'
The case is therefore not an authority for the proposition advanced by the learned counsel for the defendant that the bank ceased to be liable for the refund of the amount to the purchaser of the draft simply because it had issued it or because it had made a debit entry in its books.
21. The position taken up by the defendant in this case was therefore not tenable in law. The sum of Rs. 6,000/ for which the draft had been issued had been paid by the plaintiff. Unless the amount was actually paid to the person to whom the plaintiff wanted it to be paid the defendant was bound to refund it to the plaintiff. Till the payment or refund was made the defendant remained the debtor in respect of the amount and the plaintiff remained the creditor. As the draft was never actually delivered to Dr. Ram Narain Shukla in whose favour it had been issued no rights accrued in favour of Dr. Shukla. Before the delivery of the draft to him there was nothing to debar the plaintiff from countermanding its payment and from directing the defendant to cancel the draft and to pay back its amount to him. It could not be said to the circumstances of the case that when the draft was handed over to the plaintiff it was being given to him as the agent of Dr. Shukla and not in his capacity as the purchaser of the draft. If the draft was never delivered to Dr. Shukla there could be no question of the plaintiff having found it after it had been lost or stolen. It was therefore not necessary for the plaintiff to secure the consent of Dr. Shukla before claiming the payment of the money from the defendant. If Dr. Shukla has any claim against the plaintiff in respect of the money it is for him to sue the plaintiff for the amount. Before the suit was filed the six months' period for which the draft was current had expired and Dr. Shukla had not presented it for payment. In fact he could not have presented it because the draft had remained all along with the plaintiff and had never been handed over to him. The defendant could not therefore apprehend that any claim would be made against it on the basis of the draft by Dr. Shukla and that it would have to pay the amount over again to him after it had paid it to the plaintiff. In these circumstances it appears to me that the defendant was not justified in refusing to pay the amount of the draft to the plaintiff. The claim of the plaintiff was therefore well founded and its dismissal cannot be upheld.
22. The appeal is consequently allowed. The suit of the plaintiff is decreed with costs in both the Courts together with pendente lite and future interest at three per cent per annum.