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Bank of Bihar Ltd. Vs. Mahabir Lal and ors. - Court Judgment

LegalCrystal Citation
CourtSupreme Court of India
Decided On
Reported inAIR1964SC377; [1963]33CompCas783(SC); [1964]1SCR842
ActsNegotiable Instruments Act - Sections 85 and 118
AppellantBank of Bihar Ltd.
RespondentMahabir Lal and ors.
Cases ReferredJamnadas v. The Nagar Central Bank Ltd.
Excerpt: held liable for money which did not pass into custody of bank or person who was not agent of bank - money was handed by bank to potdar for paying it to firm - bank wanted to fasten liability on firm for criminal act of its own servant - if third party sustains damage by reason of act of servant he can hold servant liable and also master if servant's act fall within scope of his duties - held, money misappropriated by potdar who was employee of bank so bank to be held liable. - [ b.p. sinha, c.j.,; j.c. shah,; k.c. das gupta,; k. subba rao and; p.b. gajendra, jj.] the petitioner company applied to the chief controller of imports and exports, government of india, new delhi, for five import licences and obtained them from the joint chief controller of imports and exports, bombay,..........of the plaintiff bank (the appellant before us) for a sumof rs. 35,000/-. 2. according to the bank, defendants 1 and 2 carried on business at biharsharif under the name and style of messrs. jogilal prabhu chand. on february17, 1941, they executed a cash credit agreement in favour of the bank underwhich cash credit facilities were sanctioned up to a limit of rs. 50,000/-against cloth bales on certain terms. under that agreement a sum of rs.15,000/- was advanced to the firm on that very day. on august 28, 1947, thefirm executed a promissory note in favour of the bihar sharif branch of thebank for rs. 50,000/- and approached the manager for immediate advance of rs.35,000/- as they required that amount for paying the price of certain clothallotted to them by m/s. manohardas jainarain,.....

Mudholkar, J.

1. This is an appeal by a certificate granted by the Patna High Courtallowing the appeal preferred before it by the defendants 1 and 2 anddismissing the claim of the plaintiff Bank (the appellant before us) for a sumof Rs. 35,000/-.

2. According to the Bank, defendants 1 and 2 carried on business at BiharSharif under the name and style of Messrs. Jogilal Prabhu Chand. On February17, 1941, they executed a cash credit agreement in favour of the Bank underwhich cash credit facilities were sanctioned up to a limit of Rs. 50,000/-against cloth bales on certain terms. Under that agreement a sum of Rs.15,000/- was advanced to the Firm on that very day. On August 28, 1947, theFirm executed a promissory note in favour of the Bihar Sharif Branch of theBank for Rs. 50,000/- and approached the Manager for immediate advance of Rs.35,000/- as they required that amount for paying the price of certain clothallotted to them by M/s. Manohardas Jainarain, wholesale dealers of Patna. Thenaccording to the Bank, an arrangement was entered into between the Firm and theManager of the Bihar Sharif Branch of the Bank under which the Firm was allowedto draw on the security of the promissory note on its agreeing to pledge thebales of cloth as further security after they were received from thewholesalers. On the basis of this agreement, the Firm drew a cheque for Rs.35,000/- on August 29, 1947 in favour of the second defendant, which was,according to the Bank, actually passed for payment by the Manager of the BiharSharif Branch of the Bank and the amount was paid to the second defendant.Further, according to the Bank, on August 30, 1947 a 'false andmischievous' telegram purporting to be from defendant No. 2, Mahabir Lal,was received by the Manager of the Bihar Sharif Branch of the Bank saying thatthe Potdar of the Bank who was sent along with him with the money by theManager, had not deposited it and that the Potdar could not be traced. Thetelegram contained a further request that the amount of Rs. 35,000/- be madeavailable to the firm immediately. On September 1, 1947 the Manager informedthe Firm that the allegations in the telegram were altogether false. OnSeptember 9, 1947 the Manager received a letter signed by Mahabir Lal allegingthat in collusion with the Potdar he, (the Manager) had misappropriated the sumof Rs. 35,000/-. These allegations are said by the Bank to be false and the suitout of which this appeal arises was instituted for the recovery of the amountfor which the cheque was drawn by the Firm on August 29, 1947, and actuallycashed by the Manager.

3. The defendants denied the claim if the Bank as false. According to them,the suit was a counterblast to a criminal case instituted by them against theManager and the Potdar of the Bihar Sharif Branch of the Bank charging themwith misappropriation. While the defendants admitted that they shad madearrangements with the Bihar Sharif Branch of the Bank for a loan of Rs.35,000/- as alleged by the Bank for taking delivery of 42 bales of cloth whichhad been allotted to them by M/s. Manohardass Jainarain, wholesale dealers ofPatna, they contended that the second defendant was informed that under therules the Bank could advance a loan only upon the goods actually kept in thecustody of the Bank. They further alleged that the Manager said that in orderto oblige the Firm he was prepared to advance Rs. 35,000/- provided certain conditionswere fulfilled. Those conditions were : (1) that the Firm should execute a loanbond as well as a promissory note for Rs. 50,000/- as further security; (2)that the firm should draw a cheque for Rs. 35,000/- endorsed to self; (3) thatthe second defendant should further agree that instead of taking the amount incash with himself he should let the amount be sent by the Manager, Mr. Kapur,through Ram Bharosa Singh, Potdar of the Bank for being paid to M/s.Manohardass Jainarain and (4) that after paying the amount the said Potdarwould take delivery of the bales of cloth allotted to the Firm and bring themto the premises of the Bank at Bihar Sharif where they would remain pledgeduntil the loan was repaid.

4. The Firm thus denied that the sum of Rs. 35,000/- was actually paid oradvanced to them by the Manager of the Bihar Sharif Branch of the Bank.According to the Firm, a cheque was drawn at 5.00 a.m. on the next morning andafter it was handed over to Mr. Kapur, he went inside the treasury of the Bankalone with the Potdar and returned with something wrapped in a gamchha and tiedit round the waist of the Potdar and said that the latter would hand over themoney to M/s. Manohardass Jainarain, take delivery of the goods and bring themto the premises of the Bank where they would be kept in pledge. Thereafter, thePotdar and the second defendant, along with one Mahadeo Ram, a servant of theFirm, left for Patna by bus. On reaching the ekka stand of Patna, the Potdarasked the second defendant to proceed to the premises of M/s. ManohardassJainarain saying that as he had to go to the Patna City Branch of the BiharBank, he would follow later. He assured the second defendant that he wouldbring along with in the sum of Rs. 35,000./- The second defendant then went tothe premises of M/s. Manohardass Jainarain and waited for the Potdar to turnup. As he did not come within a reasonable time, he went to the Patna CityBranch of the Bank only to discover that the Potdar was not there either. Itwas after this that the telegram mentioned in the plaint was sent to Mr. Kapurand a report lodged with the police at Patna. The second defendant says that onhis return to Bihar Sharif on August 30, he saw Mr. Kapur and told the wholestory to him whereupon Mr. Kapur said that he should not worry and that hewould see to it that the bales were released soon by M/s. ManohardassJainarain. Nothing, however, happened and, therefore, the defendants filed acriminal complaint against Mr. Kapur as well as the Potdar. Eventually,however, the complaint filed by the defendants failed.

5. In its judgment the trial court has said :

'Moreover even if it be accepted for the sake ofargument that Ram Bharosa Singh went with the money along with Mahabir Lal asalleged according to the term of the contract he would be deemed to be atemporary servant of Mahabir Lal for that purpose which fact is evident fromthe defendants' evidence also as according to their evidence Mahabir Lal metthe cost of his Nashta (breakfast) and fare of the bus.'

6. Apparently, because of this, when the Firm's appeal was being arguedbefore the High Court, the Bank's counsel Mr. B. C. De conceded that RamBharosa Singh, Potdar, did take the money to Patna where he went along with thesecond defendant, which implies that the defendant No. 2 was not actually paidthe amount for which the cheque was drawn by the Firm. In this connection wewould quote the following statement appearing in the judgment of the High Court:

'Mr. B. C. De, who appeared for the plaintiff,conceded at the outset that, in fact, Rambharosa Singh, Potdar, had taken themoney to Patna City to pay to the Firm of Manohardass Jainarain as is the caseof the contesting defendants. He, however, urged that, even then, thedefendants would be liable for the claim of the plaintiff. He urged that Rs.35,000/- had gone out of the coffers of the Bank against the cheque for Rs.35,000 issued by the defendants. The Bank was, therefore, not responsible as towho, in fact, got the money after it was duly presented and honoured by theBank.'

7. The High Court then pointed out that Mr. De placed reliance upon certaindecisions of the Calcutta and Bombay High Courts and s. 85 of the NegotiableInstruments Act. Before us, however, it is urged on behalf of the Bank that nosuch concession was made by Mr. De. The second defendant has filed an affidavitwhich counters the Statement made one behalf of the Bank. In our opinion wherea statement appears in the judgment of a court that a particular thing happenedor did not happen before it, it ought not ordinarily to be permitted to bechallenged by a party unless of course both the parties to the litigation agreethat the statement is wrong, or the court itself admits that the statement iserroneous. If the High Court had proceed on an erroneous impression that Mr. Dehad conceded that the money was taken along with him by Ram Bharosa Singh toPatna, there was nothing easier for the Bank than to prefer an application forreview before the High Court after the judgment was pronounced or if thejudgment was read out in court immediately draw the attention of the court tothe error in the statement. Nothing of the kind was done by the Bank. It is toolate for the Bank no to say that the statement was wrong. It appears to havebeen argued on behalf of the Bank in the trial court alternatively that even onthe assumption that the money was taken to Patna by Ram Bharosa Singh, the suitmust be decreed. We, therefore, see nothing strange in Mr. De making aconcession of the kind attributed to him by the High Court. In thecircumstances we decline to go behind what is contained in the judgment of theHigh Court, quoted earlier.

8. The next question is whether the sum of Rs. 35,000/- could be said tohave been paid by the Bank to the Firm. Upon the admitted position that theamount of Rs. 35,000/- was not actually received by the Firm in the sense thatit was not handed over to the second defendant who had presented the cheque,could it be said that it must be deemed to have been paid to the firm since itwas handed over to the Potdar for taking it to Patna It is no doubt true thatthe Potdar did accompany the second defendant to Patna but it is difficult tohold that he being a servant or an agent of the Bank could also be said to havebeen constituted by the Firm as its agent for carrying the money to Patna. Itis not the Bank's case that it was at the suggestion of the defendant No. 2that the money was handed over to the Potdar. Perhaps it was not the normalduty of a Potdar to carry money on behalf of the Bank for payment to a party atits place of business. But even if it is not, we cannot overlook the fact thatthe arrangement which was arrived at between the Firm and Mr. Kapur was also anunusual one. Mr. Kapur admittedly had no authority to pay Rs. 35,000/- to theFirm before the goods or documents of title relating to the goods were placedin the custody of the Bank. Since Mr. Kapur wanted to help the Firm without atthe sametime breaking the rules of the Bank, what he must have intended inhanding over the money to the Potdar was to constitute him as the agent of theBank for the purpose of paying the money to the Firm of Manohardass Jainarainand taking simultaneously delivery of the goods and the documents of title relatingto the goods from that Firm. There would have been not point in the Potdaraccompanying the second defendant to Patna and carrying money along with him ifhe were not to be the agent of the Bank. It is the Firm's case that the seconddefendant did not go alone to the Bank on the morning of August 29, but that hewent along with his servant Mahadeo. Two of them being together, they couldsurely not have wanted a third person to go along with them just for carryingthe cash. We are therefore, of the opinion that the money not having passedinto the actual custody of the Firm or that of the custody of a person who wasa servant or agent of the Firm, the Firm cannot be held liable for it.

9. In regard to s. 85 of the Negotiable Instruments Act, 1881 (26 of 1881),and the decision of Jagjivandas, Jamnadas v. The Nagar Central Bank Ltd.,I.L.R. (1925) Bom. 118, which is founded on that section upon whichreliance was placed before the High Court, it is sufficient to say that beforethe provisions of s. 85 can assist the Bank, it had to be established thatpayment had in fact been made to the Firm or to a person on behalf of the Firm.Payment to a person who had nothing to do with the Firm or a payment to anagent of the Bank would not be a payment to the Firm. Section 118 of theNegotiable Instruments Act on which also reliance was placed before us does nothave any bearing upon the case at all.

10. It was then urged on behalf of the Bank that even assuming that themoney was misappropriated by the Potdar the Bank could not be held responsiblefor his act because his act was a criminal act. In support of this contentionthe learned counsel relied upon the decisions in Gopal Chandra Bhattacharjee v.The Secretary of State for India I.L.R. (1909) Cal. 647, and Cheshire v.Bailey (1905) 1 K.B. 237.. The rule of law upon which these decisions arebase is that the liability of the master for the misconduct of the servantextends only to the fraud of his servant committed in the course of his employmentand for the master's benefit and that a master is not liable for the misconductof the servant committed for the servant's own private benefit. It is difficultto appreciate how these cases are of any assistance to the Bank. Here, what theBank wants to do is to fasten liability upon the Firm with respect to theamount for which it had drawn a cheque. Before the Firm could be made liable,the amount for which the cheque was drawn had to be shown to have been paid tothe Firm. On the contrary it was handed over by the Bank to its Potdar avowedlywith the object of paying it to the Firm of Manohardass Jainarain, but was notin fact so paid by him. Assuming that the misappropriated the money how can theBank seek to hold the Firm of the defendants liable This is not a case wherethe defendants are seeking to hold the Bank liable for a criminal act of one ofits servants or employees. But it is a case where the Bank wants to fastenliability on the Firm for the criminal act of the Bank's own servant. Such aproposition is insupportable in law. For, vicarious liability may, inappropriate cases, rest on the master with respect to his servant's acts but itcannot possibly rest on a stranger with respect to the criminal acts of aservant of another. The principle on which the master's liability for certainacts of the servants rests is that the servant, when he commits such act, actswithin the scope of his authority. If the servant was not acting within thescope of his authority, the master would not be liable and it is the person whodid the particular act, that is the servant, would alone be liable. If a thirdparty sustains damage or loss by reason of an act of the servant, he can holdthe servant liable and also if the servant's act falls within the scope of hisduties or authority, the master as well. That principle can obviously have noapplication for founding a liability against a stranger from whom the servantcan in no sense be regarded as deriving any authority. We are, therefore, clearthat whether the money had been misappropriated, by the Potdar or by theManager, it is the Bank who is their employer that must bear the loss. Thedrawers of the cheque, that is, the Firm to whom no part of the money was paidby the Bank cannot be held liable to make it good to the Bank. For thesereasons we affirm the decree appealed from and dismiss the appeal with costs.

11. Appeal dismissed.

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