Yogeshwar Dayal, J.
(1) This order will dispose of R.F.As. 325 and 459 of 1970- The first appeal is filed by Canara Bank Limited, defendant No. 1, and the other appeal has been' filed by Bank of Baroda, defendant No. 2.
(2) The appeals are directed against the judgment and decree passed by the learned Subordinate Judge, 1st Claas, Delhi, dated 9th January, 1970 whereby the learned Subordinate Judge had passed a money decree or recovery of Rs. 10,000 against the appellants (defendants 1 & 2) and M/s. Universal Traders, defendant No. 3, on a suit filed by the plaintiffs for conversian. The plaintiffs in the suit were M/s. Govind Ram Rajinder Kumar, Bareilly (plaintiff No. 1),.M/s. Govind Ram & Sons, Bareilly (plaintiff No. 2) and M/s. Mithan Lal Mangal Sain, Delhi (plaintiff No. 3). Plaintiff No. 2 is a branch of plaintiff No. 1.
(3) Plaintiff No. 2 used to purchase cloth from plaintiff No. 3 on credit and used to pay for the goods supplied by plaintiff No. 3 at their convenience.
(4) The plaintiff No. 2 on 6th December, 1965 wanted to remit Rs. 10,000 to plaintiff No- 3 and for that purpose approached the Bareilly branch of Bank of Baroda (defendant No. 2) and 'purchased a draft for Rs. 10,000 in the name of M/s. Mithan Lal Mangal Sain (plaintiff No. 3). The draft was a crossed one. The draft was sent by plaintiff No. 2 to plaintiff No. 3 but since plaintiff No. 3 approached plaintiff Nos. 1 & 2 at Bareilly again on 11th December, 1965 and were informed that they have not received the aforesaid draft sent to them plaintiff No. 3 also wrote to Bank of Baroda (defendant No. 2) about stopping payment of the said draft.
(5) Defendant No. 2, however, informed the plaintiff by their letter dated 14th December, 1965 that the said draft was presented to them for encashment on 9th December, 1965 through Canara Bank, Delhi defendant 'No. 1) and was cashed on the same day. The plaintiff No. 3 was also informed that the draft has been endorsed in favor of defendant No. 3 and the endorsements were confirmed by Canara Bank. (defendant No. 1).
(6) It was then alleged in the plaint that on an enquiry made by the plaintiffs, it was revealed that one Ram Chand opened the account in the name of M/s. Universal Traders, Lal Kuan, Hauz Qazi, Delhi, describing himself as proprietor of M/s. Universal Trader (defendant No. 3) with Canara Bank (defendant No. 1) and the said Shri Ram Chand was introduced to defendant No. 1 'by M/s. Shambu Nath & Co. (defendant No. 4).
(7) Plaintiff No. 3 never received the draft in question and never endorsed the same in favor of M/s. Universal Traders. It was averred that the alleged endorsement by plaintiff No. 3, M/s. Mithan Lal Mangal Sain, in favor of M/s. Universal Traders, (defendant No. 3) was illegal, ultra vires, and was made by some interested person of the defendants who know all about the issue of the draft and had collected the same. It was also stated that the endorsement on the drafts shows that the signatory is one Manga) Sen. Mangal Sen whose name also appears in the name of plaintiff No. 3, died long back. The status of Mr. Mangal Sen in relation to the payee's firm was not indicated in the endorsement. The endorsement is highly irregular and should not have been acted upon by either Canara Bank Ltd., or Bank of Baroda Lmited. The circumstances of-the endorsement and their confirmation in themselves are obviously doubtful and should have been noticed by the concerned banks, and defendant No. 2 ought not to have. paid on said endorsement.
(8) It was then alleged that Canara Bank Ltd., is liable to the plaintiffs or.any of them on account of their negligence in confirming the alleged endorsement of plaintiff No. 3 in favor of defendant No. 3 without knowing whether the endorsements were made by correct persons. Bank of Baroda was alleged to be liable for negligence in encashing the draft without complying with the rules and regulations regarding endorsement on the draft and defendants No. 3 and 4 were alleged to be liable because defendant No. 3 had actually received the amount and defendant No. 4 have introduced the said party to Canara Bank knowing fully well that no such party actually existed and defendant No. 3 was a bogus man and defendant No. 4 was introducing a Bogus party, who would defraud the Bank-
(9) Thus the sum of Rs. 10,000.00 . i.e. the value of the draft is claimed from all the four defendants on the ground 'of conversion.
(10) The sum of Rs. 500.00 was also claimed as interest from 6th December, 1965 to 28th May, 1966 i.e. the date of the filing of the suit @ I per mensem and 'thus the total claim was Rs. 10.500.00 .
(11) It may be mentioned that no written statement was filed by defendant No. 3 and it remained ex-parte during trial. The suit was contested by both the banks, the collecting bank i.e. Canara Bank Limited as well as by the payee bank i.e. Bank of Baroda Limited. The suit was also contested by M/s. Shambu Nath & Co. (defendant No- 4) who introduced the defendant No. 3 when the latter opened the account in Canara Bank Limited.
(12) I need not be concerned with the defendant No. 4 since the learned trial court dismissed the suit against it.
(13) Both the banks contested the suit. The plea of Canara Bank Limited, which was the collecting bank, was that defendant No. 3 had opened an account on 13th October, 1965 i.e. much before the purchase of the draft by plaintiff No. 2 and its dispatch to plaintiff No. 3. It was also pleaded that the endorsement' made in 'favor of defendant No. 3 on the back of the draft was verified by defendant No.' 3 and they had acted in good faith and without negligence in receiving the payment for their customer.
(14) The plea of Bank of Baroda was that the draft was. received by them for encashment from Canara Barik Limited and Canara Bank had confirmed the endorsement audit was in lieu of the confirmation on the endorsement by Canara Bank Limited that they bad made the payment in due course.
(15) The learned trial court, on consideration of the evidence, took the view that the alleged endorsement on the draft on behalf of M/s. Mithan Lal Mangal Sain was a fictitious endorsement and was not made by plaintiff No. 3 in favor of M/s. Universal Traders, defendant No. 3. It also found that the endorsenient, purporting to have been signed by one Mangal Sen on behalf of M/s. Mithan Lal Mangal Sain was in Urdu and Mangal Sen had nothing to do with the firm M/s. Mithan Lal Mangal Sain. It also found that Mangal Sen had died in about 1942 and thus the endorsement was a forgery. It also found that Mangal Sen while purporting to act on behalf of M/s. Mithan Lal Mangal Sain never disclosed his authority or capacity to act on behalf of M/s. Mithan Lal Mangal Sain and thus even the forged endorsement was also doubtful and of irregular character. The learned trial court also found that the collecting Bank i.e. Canara Bank Limited had acted with negligence while sending the cheque for collection and could not claim the protection of Section 131 of the Negotiable Instruments Act. The learned trial Court also took the view that Baroda Bank Ltd., while making payment of the draft, did not act in due course as contemplated by Section 85-A of The Negotiable Instruments Act, and thus decreed the suit against defendants 1 to 3 to the extent of Rs. 10,000.00 but refused to pass the decree as to the claim for interest in favor of the plaintiffs.
(16) It is against this decree that both the Banks have filed the two appeals separately and the plaintiffs have filed cross- objections claiming interest as claimed in the suit as well as interest pendente lite and future interest.
(17) Before I deal with the submissions of the learned counsel for the parties, it will be useful to notice the contents of the draft in dispute, Ext. P-l. The draft was issued by the Bareilly Branch of defendant No. 2 and was in favor of Mithan Lal Mangal Sain or their order. The draft was payable at the Delhi branch of Bank of Baroda Limited.
(18) On the reverse of the draft appears an endorsement marked 'A' in Urdu in favor of M/s. Universal Traders. This endorsement in Urdu is again made on behalf of M/s- Mithan Lal Mangal Sain and the endorsement is signed in Urdu by one Manual Sen. Below this endorsement appears an endorsement with the Rubber Stamp:
'FOR Universal Traders, signed. Ram Chand, Proprietor'. and above this rubber stamp of Universal Traders appears an endorsement in English: 'Joint payees endorsement confirmed'. Thus, the effect of this endorsement is that the endorsement made by Mangal Sen on behalf of Mithan lal Mangal Sain is being confirmed on behalf of Universal Traders (defendant No. 3) by Ram Chand. Another endorsement thereafter appears . by Manager of Chandni Chowk Branch of the Canara Bank. This endorsement reads: 'Endorsement Confirmed'.
(19) It is clear from the body of the draft that it was payable to Mithan Lal Mangal Sain and was payable on demand to their order and it suggests that the draft was in favor of the firm. The 'endorsement on the reverse of the draft purporting to be of M/s. Mithan Lal Mangal Sain is signed by one Mangal Sen. This endorsement had been found by the learned trial court to be fictitious and not to have been made by plaintiff No. 3.
(20) It also appears from this endorsement that it docs not disclose the status or authority of Mangal Sen to act for Mithan Lal Mangal Sain and it is this endorsetaent, of alleged Mangal Sen in favor of Universal Traders which is confirmed by Ram Chand as proprietor of Universal Traders. Govind Ram Rajinder Kumar
(21) During trial, defendant No. I had examined Shri K. P. Pai, (DI.W2). Shri Pai stated that he was working as an Accountant of the Canara Bank and he knew defendant No. 4 as he was their client. He also produced the account opening form of defendant No. 3 as well as the introduction form. Mr. Pai also produced Ext. D3, certified copy of the statement of account of defendant No. 3. He stated that the draft was deposited in their Bank: on behalf of Universal Traders by Ram Chand, Proprietor of Universal Traders had confirmed the endorsement. The draft was cashed by the bank in the usual course of business. The draft was not cashed in negligent manner and Ram Chand had withdrawn the amount of the draft from their Bank.
(22) In cross-examination, Mr. Pai stated that the endorsement by the Bank on the draft is signed by their Manager. The Manager was not produced. Mr. Pai did not state that he ever dealt with the draft. He also stated that neither he nor the Manager knew Urdu language in which the endorsement appeared on behalf of Mithan Lal Mangal Sain in favor of M/s. Universal Traders.
(23) It appears from the account that the account was opened on or about 14th October, 1965 by deposit of Rs. 300 in cash. On 18th October, 1965 a sum of Rs. 200 was paid in cash to one Mohan Lal. On 26th October, 1965 another sum of Rs. 200 was deposited and on 7th December, 1965 a sum of Rs. 200 was again withdrawn and on 9th December, 1965 the present draft in dispute was presented and on the same date the account was credited by Rs. 10,000 and on 10th December, 1965 the amount of Rs. 10,000 was withdrawn. The account was not operated upon in November and apart from two deposits one of Rs.-300 and other of Rs. 200 and two withdrawals of Rs. 200 each, the account was practically dormant. However, the learned trial court did not find anything in the history of this account, to connect it with the conversion of this draft by defendant No. 3 though for such a substantial amount the Universal Traders had not dealt with the Canara Bank Limited.
(24) This is the entire defense so far as the defense of Canara. Bank Limited, defendant No. I is concerned.
(25) Mr. K. N. Kataria, learned counsel for Canara Bank Limited submitted that their defense in the written statement was that their Bank collected the amount of the draft without negligence and good faith since they confirmed the endorsement in view of the endorsement made by their customer M/s. Universal Traders who confirmed the endorsement .allegedly made by M/s. Mithan Lal Mangal Sain. Thus the plea of the learned counsel was that the account had been opened by their customer defendant No. 3 much before the presentation of this draft in October and this draft was presented in normal course on 9th December, 1965 and since their customer had confirmed the endorsement purporting to have been made according to the payees mentioned on the draft they acted without negligence and in good faith. Section 131 of the Negotiable Instruments Act reads as under:
'131.A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment. Explanationn A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of the cheque before receiving payment thereof.'
(26) The Division Bench of the Kerala High Court in Central Bank of India Ltd. vs. Gopinathan Nair 1972(1) Klt 518, had occasion to deal with the aforesaid provision. The Division Bench observed as under :
'THEthree aspects or circumstances to be considered in deciding the question whether a collecting bank has discharged its responsibility to come within S. 131 are: (1) the opening of the account by its customer- whether that was allowed after proper enquiry; (2) the operating of the account by him whether there was anything peculiar or out of the ordinary to in operating the account to have aroused the suspicion of a careful banker; and (3) the endorsement leading to the collection of the draft whether there is anything suspicious in it.'
(27) The question whether the collecting Bank received the payment in good faith and without negligence is a question of fact. The question whether the collecting banker has or has not beer. negligent depends upon the aforesaid factors 'and that the mere fact that the customer had no title to the cheque does not render the banker liable to the true owner of the cheque'.
(28) Chagla J. in Bapulal Prem Chand v. Nath Bank Ltd. AIR 1946 Born. 482) (2) observed that the expression 'without negligence' means 'without want of reasonable care in reference to the interests of the true owner, the principal whose authority the customer purports to have'. Thus the expression without negligence in Section 131 is really meant for the protection of a true owner. If the endorsement had been proper and did not have any suspicious circumstances attending thereto, there would have been no occasion for the collecting banker to make any enquiry. But if the endorsement was doubtful or suspicious it called for enquiry by the collecting Bank.
(29) In the present case the fact remains that the endorsement was in Urdu whereas the contents of the draft were in English. Again, the Manager who confirmed the endorsement never knew Urdu. Mr. Pai who appeared on behalf of Canara Bank Limited stated that two other employees of their branch knew Urdu but they have had no chance to deal with the draft. Mangal Sen, who purports to have endorsed the draft on be- half of M/s. Mithan Lal Mangal Sain in favor of defendant No. 3, never disclosed, his status in the firm Mithan, Lal Mangal Sain. He did not even mention that he was a partner. A partner has an implied authority to endorse cheque on behalf of the firm to which he is a partner. But in the endorsement Mangal Sen never disclosed the status vis-a-vis M/s. Mithan Lal Mangal Sain and thus the authority of Mangal Sen to make the endorsement on behalf of the firm mentioned in the draft was missing. This infact itself casts a doubt on the title of then: customer.
(30) In the written statement the plea of the Canara Bank was that their Bank Manager endorsed the endorsement in favor of Universal Traders in view of the verification of their customer. This is really no Verification. Once an endorsement was found to be suspicious the Manager of the Bank should have been immediately on his guard and he should have verified the endorsement from independent source.
(31) In Sheldon's Practice and Law of Banking, Tenth Edition the learned author observed on pages 116 and 117 as under:-
'A cheque payable to 'Smith, Jones & Co.' may be indorsed 'Smith Jones & Co.', or 'Smith Jones & Co., H. Brown, Partner.' The last endorsement would generally be accepted, because partners have implied authority to indorse by the name of the firm only, but if the word 'Partner' is omitted, the endorsement would require confirmation, as the, endorsement contains no indication that Brown has authority to sign.'
(32) It is clear from the endorsement in the present case that Mangal Sen did not mention that he was a partner. The endorsement by Mangal Sen would require confirmation. The confirmation by the customer was no confirmation as he was out to cheat the collecting Bank itself. The same learned author at page Iii while dealing with the question of endorsement in characters other than Latin characters observed as under :
'IF a bill or cheque is presented indorsed in characters other than Latin characters, e.g. Russian or Arabic, Sir John Paget considered, that the paying banker is entitled to return the instrument with the answer 'Endorsement illegible,' or 'Endorsement requires confirmation,' unless he is satisfied 'that the Oriental characters represent the equivalent of the name of the person whose endorsement is necessary.' A notarially certified translation would be acceptable in lieu of a banker's confirmation.'
(33) It is thus clear that according to their own case, the Manager of Canara Bank Limited could not read the endorsement nor did he make any enquiry from -anybody,,and merely relied upon the confirmation of their own customer for confirming the endorsement made by one Mr. Mangal Sen acting for M/s. Mithan Lal Mangal Sain. The verification contemplated by 'Sheldon' in the aforesaid treatise as to the status of Mangal Sen was the verification independent of the customer who is presenting the draft for collection. In United Australia, Ltd. v. Darelaya Bank, Ltd. 1940(4) All E.R. 20 Lord Atkin observed as .under :
'THE third cheque, which is the one in question, was indorsed as follows: 'Pay to the order of the M.F.G. Trust, Ltd., for and on behalf of United Australia, Ltd., A.H. Emons, Secretary. How it reached M.F.G. Trust, Ltd., is not disclosed, but it was indorsed 'for and on behalf of M.F.G. Trust, Ltd., J.C. Gould, Accountant,' and was paid into the defendant bank by someone not identified in evidence on a paying-in slip dated November, 12. 'The teller not unnaturally referred the matter to the manager, endorsing the paying-in-slip to that effect. In these days, every bank clerk sees the red light when a company's cheque is indorsed by a company's official into an account which is not the company's. The manager, however, made no inquiries.' The cheque was collected and the proceeds placed to the customer's account. Though the bank pleaded the provisions of the Bills of Exchange Act, 1882, which by Sect. 82 protects them if they receive payment of a crossed cheque for a customer in good faith and without negligence, they called no evidence, and that section passes out of the case.'
Similarly the endorsement in the present case should have made the Bank Manager 'see the red light'. Admittedly, no enquiry whatsoever was made by the collecting bank and it cannot be thereforee said that they acted 'without negligence'. J, thereforee, confirm the finding of the learned trial court that the appellant Canara Bank Limited is .not entitled to the protection of Section 131 of the Negotiable Instruments Act.
(34) Coming to the case of Bank of Baroda to whom the draft was sent for collection, the question arises whether they are entitled to the protection of Section 85-A. Section 85-A has to be read with Section 10 and they are reproduced herebelow :
'85-AWhere any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be indorsed by or on behalf of the payee, the bank is discharged by payment in due course.'
'10.'Payment in due course' means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to- receive payment of the amount therein mentioned.'
(35) Had there been no confirmation of endorsement by the collecting bank on the reverse of the draft there can be no doubt that the payee bank, namely Bank of Baroda would also have not been entitled to the protection of Section 85A. But it appears to me that they are protected in view of the endorsement of the collecting bank. When the collecting bank confirms the endorsement in favor of Universal Traders the payees bank i.e. Bank of Baroda would be naturally entitled to assume that the collecting bank had performed his duty without negligence. The drawee bank would rely upon the fact that the collecting bank could have discharged his duty of scrutinizing and satisfying about the title to the draft of its customer. In fact the Division Bench in the aforesaid case of Central Bank of India Limited at page 521 observed :
'WHAT we wish to emphasise is that, when a draft is being presented for collection before the drawee bank by the collecting bank on behalf of one of its customers, the drawee bank can rely on and rest assured that the collecting bank would have discharged its duty of scrutinising and satisfying itself about the title to the draft of its own customer. In other words, in such a case, the law does not demand the same care and caution that is expressed of a drawee bank in a case where the draft is produced for encashment at the counter by an unknown person. Otherwise, crossing of a draft and paying it through a collecting bank become pointless.'
I am, thereforee, of the view that the decision of the learned trial Court regarding the liability of Bank of Baroda Limited, defendant No. 2 is erroneous.
(36) I would, thereforee, dismiss the appeal filed on behalf of Canara Bank Limited (R.F.A. No. 325 of 1970) with costs. The costs shall be payable to respondents I to 3 of this appeal.
(37) The appeal of Bank of Baroda Limited (R.F.A. No. 459 of 1970) is accepted and the decree passed by the learned Subordinate Judge against it is set aside and the suit of the plaintiff against it is dismissed.
(38) We are now left with the cross-objections field on behalf of the plaintiffs. The learned trial court had dismissed the claim of interest of the plaintiffs without assigning any reason. So far as the defendant No. I against whom I have confirmed the decree passed by the trial Court is concerned, they have themselves been victims of fraud by their customer and they were sent notice dated 19th February, 1966 and the claim was made from them for payment of the amount of draft collected from them. This notice was sent on 19th February, 1966 and interest was claimed therein at the rate of I per cent per mensem. I would have been inclined to grant interest against M/s. Universal Traders, defendant No. 3 who actually made use of the draft but Universal Traders remained ex-parte in the trial court and have also not appeared to oppose the cross-objections. The Canara Bank Limited had, soon after the decree, deposited the amount in Court. Looking at the entire facts of the case they came to know about the cheating only when the trial court found that the endorsement was not made by the plaintiff No. 3 in favor of their customer.
(39) I do not, thereforee, find it a fit case to award interest before the suit or during the pendency of the suit. As stated earlier the deposited amount was paid to the plaintiffs soon after it was deposited, No purpose will be served in awarding interest against defendant No. 3 whom the plaintiffs have not been able to trace till today. The result is that cross-objections fail and are dismissed.
(40) Thus, the decree of the learned trial Court is modified to the extend that the suit against the Bank of Baroda Limited, the defendant No. 2 is also dismissed.