V.S. Deshpande, J.
(1) This is a blatant case of fraud practiced on banks by their officials to the prejudice of the banks as well as the customer or the drawer of a cheque. The liability of the banks to the customer was never in doubt. But the further question how banks should deal with the bank officials who defraud both the banks and their customers also deserves to be considered.
(2) The appeal is by the Punjab National Bank which was Defendant 1 in the suit filed by Durga Devi, Respondent 1 herein. Respondents 2 and 3. the National and Grindlays Bank Limited and Shri Satya Pal Madan were Defendants 2 and 3 in the suit. A decree for Rs. 18,000 against the National and Grindlays Bank has been passed but the said Bank has not appealed against it. The Punjab National Bank and S. P. Madan have been held to be jointly and severally liable with the National and Grindlays Bank to pay these Rs, 18,000. Further, they are also held liable to pay. Rs. 2.835 as interest on these Rs. 18,000. The decree was in favor of the plaintiff.
(3) Plaintiff Durga Devi wanted to keep Rs. 18,000 in fixed deposit in the State Bank of India. She, thereforee, issued a crossed cheque No. 821064 for Rs. 18.000.00 in favor of the State Bank of India on her Savings Bank Account No. 683 with the Jangpura Branch of the Punjab National Bank. Certain procedural difficulties stood in the way of State Bank of India in issuing the fixed deposit receipt to the plaintiff. S. P. Madan, thereforee, undertook to get over the procedural difficulties. He was, thereforee, entrusted with the cheque by the plaintiff. Madan had an account w:th the National and Grindlays Bank. He filled in the pay-in-slip and gave the cheque to the National and Grindlays Bank for the collection of the money from the Punjab National Bank and for deposit of the same into his own account at the National and Grindlays Bank. The cheque which was given by him to the National and Grindlaya Bank was, however, materially altered by the substitution of the words 'Shri Salya Pal Madan' in place of the words 'The State Bank of India'. The date and the amount which had been written with a thin pen were also overwritten with the same thick pen and ink which had been used to overwrite the words 'Shri Satya Pal Madan' on the words 'The State Bank of India'. The whole cheque except the signature of Durga Devi was, thereforee, materially altered when presented for collection to the National and Grindlaya Bank. The forgery and the material alterations were so obvious at the very sight of the cheque that it is surprising how it was accepted for collection by the National and Grindlays Bank. It is only if the official accepting it for collection was in collusion with Madan that the cheque could pass muster. To pursuade the National and Grindlays Bank to accept the cheque for collection, Satya Pal Madan procured a certificate from Durga Devi on 14th June, 1967 to the effect that he was the son-in-law of Durga Devi and that she desired to endow him with the sale proceeds of the cheque. Madan wag not Durga Devi's son-in-law and she did not want to endow the money to him. But the certificate was obtained from her by fraud. He also made a statement to the collecting bank on 17th June, 1967 that he was a Central Government employee with 15 long years of service and it was imperative on him to keep secrecy of the amount received by him from his mother-in-law. After the amount was collected by the National and Grindlays Bank from the Punjab National Bank and deposited in Madan's account, Madan closed the account in June, 1967. He had first withdrawn Rs. 1,000 from his account on 15th June, 1967 and then withdrew the amount of Rs. 17,005 from his account on 17th June, 1967.
(4) What is even more surprising is that the concerned officials of the Punjab National Bank honoured the forged and materially altered cheque and paid the amount of Rs. 18,000 to the collecting bank.
(5) The fraud was discovered soon and the suit was filed by the plaintiff against the two banks and Madan. The plaintiff went into the witness-box and proved how the cheque in favor of the State Bank of India was given to Madan for obtaining a fixed deposit receipt. Plaintiff's daughter Public Witness . 6 Mrs. Sushma Nangia stated that it was she who had written out the cheque in favor of the State Bank of India for Rs. 18,000 and who obtained her mother's signature on the same. Since the defendants had no personal knowledge in whose favor the cheque was originally drawn up and as it is obvious from even a cursory reading of the cheque that it was drawn up in favor of the State Bank of India, this fact had been proved beyond doubt.
(6) It is also undisputed that the cheque as presented to the two banks purported to be in favor of Shri Satya Pal Madan and that it was given to the National and Grindlays Bank by him. The forgery and the overwriting is, thereforee, proved to have been done while the cheque was in the custody of Madan. He was, thereforee, responsible in law for the consequence of the forgery and overwriting.
(7) The Punjab National Bank would have been protected from liability if it had paid these Rs. 18,000 to the National and Grindlays Bank as 'payment in due course' which means, under section, 10 of the Negotiable Instruments Act, 'payment in accordance with the apparent tenor of the instrument in good faith and without negligence'. It is true that section 3(22) of the General Clauses Act, 1897 says that 'a thing shall be deemed to be done in 'good faith' where it is in fact done honestly, whether it is done negligently or not'. It is also true that a learned author, Paget, has observed 'it is difficult to conceive, still more to formulate, conditions involving absence of good faith on the part of a corporation,, such as a joint stock bank, with relation to paying cheques'. But in our view, the question of good faith arises not against an abstract entity like a corporation or a bank but with the concrete officials of the bank. These officials being human, are certainly capable of being dishonest an,d, thereforee, lacking in good faith. Unfortunately for the banks, acts of fraud or collusion by the bank officials with a view to benefit a person presenting a forged or materially altered cheque result in payment being made by the bank against such cheque. Such an act of the bank employees, being within the course of their employment, is binding on the bank at the instance of the person who is damnified by the fraud of the officials of the bank. The only remedy of the bank is against the officials. But this is between the bank and the officials. The third party who suffers the loss due to the fraud practiced by the bank officials is entitled to hold the bank liable for the loss caused to him by the fraud of the officials of the bank. It cann,ot be said that the officials of the Punjab National Bank who received the cheque for encashment from Madan and of the National and Grindlays Bank who presented it to the Punjab National Bank for payment acted in good faith. Without fraud and collusion on their part, they could not have accepted the cheque for payment. Secondly, there was total negligence on the part of the officials of the Punjab National Bank and, thereforee, on the part of that bank itself in refusing to see the blatant forgery and material alteration of the cheque and in accepting the cheque for payment and in making payment of it. Since the action of the Punjab National Bank was contrary to section 10 of the Negotiable Instruments Act, 1881, the said bank has been rightly held liable to pay to the plaintiff the amount of the cheque, namely, Rs. 18,000.
(8) The trial Court has held the National and Grindlays Bank as being also under obligation to act in good faith and without negligence in receiving payment for a customer in view of section 131 of the Negotiable Instruments Act and has decreed the claim for Rs. 18,000 against the said bank. No appeal has been filed by the said bank against that part of the decree which operates against it. The staff of the said bank also must have colluded with Madan and acted against the interests of the said bank before the altered and the forged cheque submitted by Madan was accepted for collection in the name of 'the said bank and forwarded to the Punjab National Bank.
(9) Section 87 of the Negotiable Instruments Act states the effect of material alteration of a negotiable instrument which includes a cheque. It makes the cheque void as against anyone who is a party thereto and who does not consent to it. The forgery and the material alteration of the cheque, thereforee, made it void against the plaintiff. The payment of the cheque did not, thereforee, bind the plaintiff. The Punjab National Bank also could have refused to make payment of the cheque as it had become void against the said bank, also.
(10) The liability of the Punjab National Bank to the plaintiff arises out of a breach of contract. For, the Punjab National Bank owed a duty of care to the plaintiff in dealing with a cheque drawn upon it by the plaintiff. Since the bank is in breach of the duty of care, it is liable to pay damages to the plaintiff. These damages would be the amount of Rs. 18,000 as the payment of this amount by the bank ignoring the forgery and the material alteration caused that much loss to the plain,tiff. A notice of demand was given by the plaintiff to' the Punjab National Bank and was replied to by the said bank. Under the Interest Act, the plaintiff became entitled to charge interest on the amount of Rs. 18,000 from the bank from the date on which the bank received the notice. The grant of interest by the trial Court was, thereforee, justified.
(11) Satya Pal Madan has absconded after receiving the money. He was of course liable for the deceit which he practiced upon the plaintiff. His liability as also the liability of his agent, the National and Grindlays Bank, to the plaintiff was in tort for having comitted the tort of fraud or deceit.
(12) We are distressed to find that employees of banks collude with cheats and forgers and by passing forged and altered cheques for payment cause loss to the banks. Such instances come to notice frequently and pose a problem for consideration. The banks are put in a dilemma when such a fraud on the part of their employees comes to their notice. On, the one hand, the banks feel that to protect their commerical interests they must defend themselves against claims made on them by their customers who are defrauded and demnified by such fraud or forgery. On the other hand. they have to take action against those employees who have acted against the interests of the bank and who have comitted fraud. Unfortunately, such action by the banks against their employees is often postponed till the litigation between the bank and the customer comes to an end. For, the banks feel that disciplinary proceedings taken against their employees would disclose that the employees had acted fraudulently and would make the banks liable to the customers. In our view, this is a deplorable state of affairs. We think that banks are public institutions, more so those which are nationalised banks. They owe a duty of fairness to their customers. Once the banks are convinced that their employees have acted fraudulently in relation lo a customer, the banks should at once acknowledge liability turn such fraud to the customers. They should not needlessly deny a just claim of the customer on frivolous grounds. So much of time. energy and money of the banks and the customers is wasted in finding out such a litigation to the benefit of no one. It is a public scandal that the litigation like the present one should have at all been necessitated by the willful refusal of the banks to acknowledge liability to a customer like the plaintiff, the justice of whose claim must have been immediatelv apparent to the bank. No one who sees the cheque dated 8-6-1967 can fail to perceive 'that it has been forged and materially altered. And yet the officials of the bank and the so-called handwriting experts come into the witness-box and make bold to say that the forgery and the material alterations were not immediately apparent to the view. This is degrading to the dignity of those who come into the witness-box to say such patent falsehoods. This also brings the respectable banks into disrepute. In our view, it is totally unnecessary for the banks to eschew can dour and fairness in such matters. On the contrary. like the Government, the banks should also set up an example of fair dealing with their customers. Just as the Government does not deny liability if it is convinced that the claim against it is just and fair, the banks or insurance companies or other such institutions which have dealings with the public and which deserve to be trusted by the public should not set such had examples by driving the members of the public into unnecessary litigation and to waste the resources of the country by such fruitless litigation. Shri M. L. Vachhar, learned counsel for the appellant bank, very candidly and fairly reframed from concealing the blame which so obviously attaches to the attitude taken up by the appellant bank. The Punjab National Bank and the National and Grindlays Bank should never have denied liability in this case. They were ill-advised to think that for some reason or the other, they were required to deny this liability and not to pay the claim of the plaintiff except in pursuance of a judgment of a court of law. It is not that justice can be done only by court of law. Such obvious justice which is apparent to the banks and which needs no proof in a court of law could have been done by the banks themselves.
(13) A general question of policy is raised by this case for the consideration of all banks particularly the nationalised banks. This question is whether once the bank is convinced of the justice of the claim, it should immediately admit the claim without dragging the customers to litigation. Simultaneously, it should take action against its erring employees. The practice of postponing action against the erring employees or shielding them against an. honest customer should be abandoned. We think, it would be worthwhile if the question is considered as one of general policy by the Department of Banking, Ministry of Finance, Government of India and by the Reserve Bank of India who would be able to place it before a representative body of all the Indian, banks for consideration. They would be rendering national service if they would persuade the banks to change the present practice and to adopt the general policy of frankly admitting a just claim of a customer and avoiding such unnecessary litigation thereby.
(14) With the above observations, the appeal is dismissed with costs.