Skip to content


Union of India (Uoi) Vs. National Overseas and Grindlays Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtDelhi High Court
Decided On
Case NumberSuit No. 706 of 1967
Judge
Reported in[1978]48CompCas277(Delhi)
ActsNegotiable Instruments Act, 1931 - Sections 131
AppellantUnion of India (Uoi)
RespondentNational Overseas and Grindlays Bank Ltd.
Appellant Advocate J.P. Chopra, Adv
Respondent Advocate P.L. Vohra, ; Mohinder Narain and ; Manju Malhotra, Adv
Cases ReferredJohnson v. Rex
Excerpt:
(i) banking - application - section 131 of negotiable instruments act, 1931 - section 131 requires 'good faith and without negligence' in receipt of payment for customer of cheque - both at stage of realisation of cheque and at later stage there should be good faith and absence of negligence - extent of care banker must exercise in interest of true owner while receiving payment to be ascertained - manner in which account opened and operated by defendant does not show any absence of negligence - defendant entitled to protection under section 131. (ii) fraudulent - 'x' had neither any contract with government nor supplied any goods - 'x' had no right, title or interest in inspection notes - no right to receive payment from government - receiving payment by withdrawal of amounts from account.....s.s. chadha, j. 1. the plaintiff has instituted the present suit for the recovery of rs. 1,85,784.86 comprising of rs. 1,27,373 as principal and rs. 58,411.46 as interest by way of damages against the defendant bank in the following circumstances.2. a contract for the supply of ground-sheets was entered into on october 1, 1945, between the late department of supply of the dominion of india and one rati lal kameshwar lal bhatt of bombay, who has been carrying on business under the name and style of m/s. r.k. bhatt, by acceptance of tender no. sy/43488/sup-i/r-2/1194. the quantity of the ground-sheets was reduced to 31,450 by letter dated april 21, 1947, the price whereof amounted to rs. 2,34,892-3-0. the contractor m/s. r.k. bhatt obtained payment of the full price payable in respect of.....
Judgment:

S.S. Chadha, J.

1. The plaintiff has instituted the present suit for the recovery of Rs. 1,85,784.86 comprising of Rs. 1,27,373 as principal and Rs. 58,411.46 as interest by way of damages against the defendant bank in the following circumstances.

2. A contract for the supply of ground-sheets was entered into on October 1, 1945, between the late Department of Supply of the Dominion of India and one Rati Lal Kameshwar Lal Bhatt of Bombay, who has been carrying on business under the name and style of M/s. R.K. Bhatt, by acceptance of tender No. SY/43488/SUP-I/R-2/1194. The quantity of the ground-sheets was reduced to 31,450 by letter dated April 21, 1947, the price whereof amounted to Rs. 2,34,892-3-0. The contractor M/s. R.K. Bhatt obtained payment of the full price payable in respect of 31,450 ground-sheets supplied by him under the said contract between April 28, 1947, and August 6, 1947.

3. It is alleged in the plaint that one Mohinder Pal Singhal who was employed at the relevant time as auditor in the stores section of the office of the Deputy Accountant-General of Industries and Supplies, New Delhi (hereinafter referred to as D.A.G. (I & S) ), audited the bills of M/s. R.K. Bhatt and in doing so, he fraudulently with dishonest intent omitted to make the requisite endorsement of cancellation giving a reference to the entry in the bill register on all or some of the accounts office copies of inspection notes submitted by the contractor in support of the bills. It is, thereafter, averred that Mohinder Pal Singhal entered into a criminal conspiracy with one Manak Chand Jain of Delhi to cause wrongful loss to the Government of India by dishonestly and fraudulently obtaining from the Government of India, payment of price of goods to which they had no title and which had already been made to the rightful person. The modus operandi was that Mohinder Pal Singhal made over to Manak Chand Jain the accounts office copies of two inspection notes which had been submitted by the contractor with his bills audited by Mohinder Pal Singhal and which he had left un-cancelled and thereupon Manak Chand Jain was to submit false and forged bills for payment and use the stolen accounts office copies of the two inspection notes in support of such bills to obtain payment to which he had no legal title and claim. The case set up in the plaint is that in pursuance of the conspiracy Mohinder Pal Singhal made over to Manak Chand Jain, the un-cancelled accounts office copies of inspection notes relating to acceptance of 15,619 and 3,330 ground-sheets. In furtherance of the conspiracy Manak Chand Jain opened a current account with the defendant on December 30, 1947, with an initial cash deposit of Rs. 125 in the assumed name of R.K. Bhatt (Rebinder Kumar Bhatt). On 2nd of January, 1948, Manak Chand Jain presented to the defendant a bill dated December 28, 1947, purporting to be drawn by R.K. Bhatt for Rs. 22,384 for 90% price of 3,330 ground-sheets accompanied by one of the stolen inspection notes. The bill was sent by the defendant on 2nd January, 1948, to the D.A.G. (I & S) for collection in the account of R.K. Bhatt. The payment of the bill was sanctioned and the cheque for Rs. 22,384 drawn on the Reserve Bank of India in favor of the defendant was forwarded. The defendant collected the cheque on January 14, 1948, and credited it after deducting the bank charges in the account of R.K. Bhatt. Similarly, on 2nd of February, 1948, another bill dated 31st January, 1948, for Rs. 1,04,989 for 90% price of 15,619 ground-sheets was presented to the defendant who forwarded the same to the D. A. G. (I & S) for sanction and payment. A sum of Rs. 1,04,989 was sent to the defendant through cheque dated February 11, 1948. An amount of Rs. 1,04,923-6-0 (after deducting bank charges) was, thereforee, credited in the account of R.K. Bhatt. Out of the credit, the account holder withdrew the entire amount between 15th January, 1948, and 1st March, 1948, leaving a balance of Rs. 51-6-0. The plaintiff alleges that by collecting the two cheques and by disposing of the proceeds by payment to Manak Chand Jain, the defendant converted the cheques, property in which and in the sums paid under which always remained vested in the Dominion of India. The defendant is accordingly liable to refund the amount or in the alternative liable to the plaintiff for money had and received to the plaintiff's use.

4. At the outset it is necessary to state here the facts as emerge out of the pleadings of the parties and as are clearly established on the record. The acceptance of tender No. SY/43488/Sup. I/R-2/1194, dated 1st October, 1945, is exhibit PCW-2/1 (and exhibit P-1) and shows that the contract for the supply of ground-sheets was entered into between the late department of supply (purchase branch) of the then Government of India and one R.K. Bhatt Esq. According to Clause 9 of exhibit PCW-2/1, the bills for the stores to be supplied in compliance with this contract must be prepared in the special bill form obtainable from the said office and submitted in strict accordance with the instructions on the reverse of the bill form quoting the number and date of the acceptance of tender. The schedule attached to the said acceptance of tender mentioned the quantity and the rates. Clause 13 of the schedule (special notes) provided that 90% of the price of each consignment will be paid on proof of dispatch of stores to the consignee from a railway station or a port in India after inspection. A copy of the railway receipt or bill of lading under which the goods charged for in the bill are dispatched should be sent along with the bill. The balance of 10% will be paid on receipt of the consignment in good condition by the consignee in which case the consignee's receipt should be submitted with the extractor's bill. The total quantity in A/T, exhibit PCW-2/1, was modified by letter dated 21st of April, 1947, exhibit PCW-2/2, and reduced to 31,450 numbers. The total cost thus came to Rs. 2,34,892-3-0. A copy of the inspection note, exhibit PCW-2/15, shows the acceptance of 15,619 ground-sheets. A copy of inspection note, exhibit PCW-2/16, shows the acceptance of 3,330 sheets. A copy of inspection note, exhibit PCW-2/17, shows the acceptance of a total of 31,450 ground-sheets. Statement of PCW-1, Shri Harishwar Kashinath Raut, Clerk, Accounts Branch, State Bank of India, Bombay, establishes that Shri Ratilal Kameshwarlal Bhatt had an account with the Imperial Bank, Appollo Street, Head Office, Bombay.

5. He produced the certified copy of the ledger, exhibit PCW-1/1, pertaining to the aforesaid account of Shri R.K. Bhatt. The account shows a credit of :--

Rs

1,77,794

on

28-4-1947

33,609

on

9-5-1947

23,489

on

6-8-1947

6. In the statement of Shri Ratilal Kameshwarlal Bhatt on oath as PCW-2, he admits the duplicate copy of the acceptance of tender, exhibit PCW-2/1. He states that he submitted the bills to the Government after receiving inspection notes, copies exhibits PCW-2/13 to PCW-2/17. He further admits having received cheques for the payment of his bills (marked for identification purposes A, B, C and D) and deposited it with the Imperial Bank at Bombay in his account. He admits, exhibit PCW-1/1, copy of his account with the aforesaid bank, is correct. It is thus established that Shri R. K. Bhatt, contractor, received the full payment of Rs. 2,34,892 against supplies of 31,450 ground-sheets under A/T, exhibit PCW-2/1 (as modified by exhibit PCW-2/12) by August 6, 1947.

7. On December 30, 1947, an account was opened with a cash deposit of Rs. 125 as R.K. Bhatt account-holder with the Grindlays Bank Ltd., at its Chandni Chowk, Delhi Branch. The account opening form is exhibit PCW-3/5 (certified copy exhibit PCW-2/19). R.K. Bhatt, account-holder, addressed a letter dated 2nd January, 1948, exhibit PCW-3/3 (certified copy exhibit PCW-2/2), to the defendant enclosing a bill for Rs. 22,385 to be sent to the D.A.G. (I & S) for Realizing and crediting into his account. With the letter dated January 2, 1948, addressed to the D.A.G. (I & S) the defendant enclosed the bill along with the inspection note No. 19615 'A/C Mr. R.K. Bhatt' for collection. The certified copy of the letter is exhibit PX-2. The bill was accepted and a cheque for Rs. 22,384 was issued by the D.A.G. (I & S) drawn in favor of the defendant on the Reserve Bank of India and sent to the defendant. The defendant realised the amount of the cheque and credited the sum of Rs. 22,328 (less bank charges) on January 14, 1948, in the account of R.K. Bhatt, account-holder. The copy of the statement of account of R.K. Bhatt, account-holder, exhibit PX/1, shows the withdrawals of Rs. 4,000 on 15th January, 1948, Rs. 4,800 on 17th January, 1948, Rs. 3,525 and Rs 4,000 on 20th January, 1948, and Rs. 4,000 and Rs. 2,000 on 22nd January, 1948. Similarly, R.K. Bhatt, account-holder, presented another bill dated 31st January, 1948, along with the inspection note and handed over the same to the defendant on 2nd February, 1948, along with the letter, exhibit PCW-3/4 (copy exhibit PCW-2/20). Similarly, the defendant presented the bill along with the inspection note to the D.A.G. (I & S) on 2nd February, 1948, vide letter, exhibit PX/3, for collection. The D.A.G. (I & S) passed the bill and sent a cheque for Rs. 1,04,989 drawn in favor of the defendant on the Reserve Bank of India. The amount of the cheque was realised and Rs. 1,04,923-6-0 credited (less bank charges) in the account of R. K. Bhatt, account holder, on 16th February, 1948. The statement of account, exhibit PX/1, shows the proceeds of Rs. 1,04,923-6-0 credited on 16th February, 1948. The statement of account further shows the withdrawals of Rs 9,000 and Rs. 8,000 on February 17, 1948, Rs. 10,000 and Rs. 3,000 on February 18, 1948, Rs. 10,000 on February 19, 1948, Rs. ,3,000 and Rs. 7,000 on February 20, 1948, Rs. 10,000 and again Rs. 10,000 on February 24, 1948, Rs. 10,000 on February 25, 1948, Rs. 3000 on February 26, 1948, Rs. 10,000 on February 27, 1948, Rs. 1,900 on February 28, 1948, and Rs. 10,000 on March 1, 1948. This leaves a total credit (including the debit of Rs. 5 as bank charges) to Rs. 46-6-0. There is not much of dispute as regards these facts except about the identity of R.K. Bhatt, account holder, as the allegations about the acceptance of the tender and the earlier payments to R. K. Bhatt, contractor, are denied by defendant for want of knowledge, but the defendant had admitted in the written statement that on 30th December, 1947, a current account was opened with the Chandni Chowk Branch of the Grindlays Bank Ltd. in the name of R.K. Bhatt (Rabinder Kumar Bhatt), that the account holder sent to the defendant a bill for Rs. 22,384 drawn by himself along with an inspection note bearing No. 19615 for collection from the D.A.G. (I & S), that the said bill and inspection note was sent to D.A.G. (I & S), that the D.A.G. (I & S) sent to the defendant, a cheque drawn in favor of the defendant on the Reserve Bank of India, that the cheque was collected by the defendant and a sum of Rs. 22,328, the proceeds thereof less bank charges, was credited to the account on 14th January, 1948, and that the withdrawals were made by the account-holder as mentioned in the statement of account. Similar averments have been made with regard to the submission of the bill for Rs. 1,04,989, receipt of the cheque, crediting the proceeds thereof and payments to the account-holder. With the narration of these facts, I will now proceed to determine issue-wise.

Issue No. 1:

' Is the plaint properly signed, verified and presented by a duly authorised person. '

8. The original plaint of the suit is signed by Shri H.C. Daga, Officer on Special Duty (Litigation). It is verified by Shri P.S. Sundaram, Officer on Special Duty (Accounts). The last amended plaint is signed by Shri V. Subramaniam, Director of Supplies, Directorate-General of Supplies and Disposals. Shri V. Subramaniam has appeared as PW-4 and made a statement on oath that the plaint in the suit is signed by him and also verified by him and that he did so in his capacity as a director of supplies in the office of the Directorate-General of Supplies & Disposals. Under Order 27, Rule 1 of the Code of Civil Procedure, in any suit by the Government, the plaint shall be signed by such person as the Government may, by general or special order, appoint in this behalf and shall be verified by any person whom the Government may so appoint and who is acquainted with the facts of the case. In exercise of the powers conferred by Rule 1 of Order 27 of the Code of Civil Procedure, the Central Government by notification S.R.O. 351 dated 1st February, 1958, published in the Government of India Gazette dated 1st of February, 1958, appointed the officers specified in the schedule, annexed thereto, as persons by whom plaints and written statements in the suits in any court of civil jurisdiction by or against the Central Government shall be signed and verified. Under item XIX of this Schedule, under the Ministry of Works, Housing and Supply, several officers in the Directorate General of Supplies & Disposals have been specified. Director of Supplies and Officer on Special Duty (Litigation) are specifically specified amongst these officers. Thus, I hold that the plaint of the suit has been signed and verified by a duly authorised person. The plaint of the suit was duly presented by the counsel for the Union of India and his presence is recorded before the Senior Sub-Judge, Delhi. In fact, no serious objection has been raised about the presentation o7f the plaint on behalf of the plaintiff. Issue No. 1 is held in favor of the plaintiff.

Issue No. 24:

' Whether the suit claim is a 'right' within the meaning of Article 294(b) of the Constitution of India and whether such alleged right devolved on the plaintiff ?'

9. Articles 294 and 295 of the Constitution of India deal with the question of succession to the property, assets, rights, liabilities and obligations of the Government which existed before the coming into force of the new Constitution. Article 294(a) relates to 'property and assets' and Article 294(b) relates to 'rights, liabilities and obligations whether arising out of contract or otherwise ', The word ' otherwise ' has been inserted by the framers of the Constitution with the sole object of giving succession with regard to rights arising out of any source whatsoever and not necessarily out of a contract. The Constitution is not to be construed in any narrow or pedantic sense. A broad and liberal spirit should inspire those whose duty it is to interpret it. Articles 294 and 295 deal with the question of succession and it secures the rights. It is my duty to give the meaning to the words 'rights arising out of the contract or otherwise ' as to attain the ends proposed. These words have to be interpreted according to its true purpose and intent. The widest possible interpretation has to be given to the succession whenever a right is vested in the Government of the Dominion of India. The right which is claimed in the suit is with respect to parting of money by the cheques dated 12th January, 1948, for Rs. 22,304 and 11th February, 1948, for Rs. 1,04,989 issued by the Deputy Accountant-General on behalf of the Government of the Dominion of India on the representation of the defendant bank that it was collecting the bills for M/s. R.K. Bhatt who was the person truly and lawfully entitled to the payment thereof. It is pleaded that the defendant did not acquire any title thereto that no property in and the right of the possession to the cheques vested in the defendant bank, that the defendant bank converted the cheques under property in which and in the sums paid which always remained in the Dominion of India and that the bank is liable to refund the amount. I am unable to agree with the contention of the learned counsel for the defendant and that the action of conversion is an action in personam and dies with death of the person and could not be succeeded to by the Government of India. The right claimed in the suit is that by collecting the cheques and by disposing of the proceeds by payment to Manak Chand Jain, the defendant converted the cheques, property in which and in the sums paid under which, always remained vested in the Dominion of India, and the defendant is liable to refund the amount so collected to the Dominion of India. An action can be brought for the taking or conversion of any corporeal property. Negotiable instruments though not chattels are considered as corporeal property. The piece of paper called the cheque might be converted and an action in conversion would be maintainable for its value. The Dominion of India had the right to bring an action in respect of the value of the cheque, if unlawfully converted and detained. The cause of action arose as and when the defendant collected the proceeds of the cheques in which the property vested in the Dominion of India. The right, thereforee, relates to the property and not in personam, and could be succeeded. This is the right arising otherwise than out of a contract and is covered by the provisions of Articles 294(b) of the Constitution of India. I, thereforee, hold issue No. 24 against the defendant and in favor of the plaintiff.

Issue No. 25:

'Is not the suit within time'. The cause of action is alleged to have arisen in favor of the plaintiff on 14th January, 1948, and 14th February, 1948, when the cheques were converted by the predecessor of the defendant. The present suit was instituted on 27th July, 1959. Article 149 of the Limitation Act of 1908 provides the period of limitation of 60 years in any suit by or on behalf of the Central Government. The present suit is, thereforee, clearly within time.

Issue No. 26:

' Is Article 149 of the Limitation Act ultra virus being repugnant to Article 14 of the Constitution?'

10. In Nav Rattanmal v. State of Rajasthan : [1962]2SCR324 . Ayyangar J., who spoke for the court, after referring to the various decisions upholding the validity of the special provisions for the recovery of the Government's claim held that there is a rational basis for treating the Government differently as regards the period of limitation and, thereforee, Article 149 does not offend Article 14 of the Constitution. In view of the law laid down by the Supreme Court, I hold issue No. 26 against the defendant.

Issue No. 2 :

' Whether the Department of Supply of the Government of India entered into a contract with Ratilal Kameshwar Lal Bhatt of Bombay for supply of ground sheets on October 1, 1945, as alleged in para 1 of the plaint and on what terms? '

11. Shri C. L. Dingra, P. W. 2, brought the original file No. ST/SY/43488/ RII/1194 of 1946 of the Department of Industrial Supplies. The record copy of the acceptance of tender dated 1st October, 1945, was identified as having been signed by Shri D.K. Sen and was proved as exhibit P-1. Shri Katilal K. Bhatt of Bombay appeared as PCW-2 and stated that he had seen the duplicate of acceptance of tender and can say that this is the correct duplicate of the order placed on him. The document was exhibited again as PCW-2/1 though exhibited as exhibit P-l earlier. This acceptance of tender was stated to have been modified by letter dated 21st April, 1947, by exhibit PCW-2/12. The terms for the supply of the ground sheets are thus contained in exhibit P-l (exhibit PCW-2/1). I hold this issue in favor of the plaintiff.

Issue No. 3 as recast on 21st July, 1960, reads as follows :

' Was the defendant-bank at all material times not aware of the procedure or duties of the officials of the plaintiff as detailed in the plaint nor it had any occasion to ascertain the same or to verify whether the alleged procedure had been followed or not as alleged in paras. 2 and 3 of the written statement If so, to what effect '

(There seems to be a typographical error; it should be plaint and not written statement).

12. The only evidence on this issue is contained in the statement of PW-1, Shri T.S. Samayajulu, who stated about the procedure and duties of the officials in the matter of processing the bills of the contractors for payment. However, in cross-examination the witness admitted that the procedure for the issuing of cheques is prescribed in the Supply Audit Manual, which is a Government publication and that it is not available to the public. The Supply Audit Manual has not been placed on the record. If the procedure for issuing of the cheques is prescribed in Supply Audit Manual and is not available to the general public, then I fail to understand how the defendant could be made aware of the procedure of the duties of the officials of the plaintiff, as detailed in paras. 2 and 3 of the plaint. There is, however, no evidence on the record to show that the defendant at any stage tried to ascertain the same or to verify whether the procedure for issuing of the cheques had been complied with by the Deputy Accountant-General. The bills were presented along with the inspection notes to the D.A.G. (I & S) for collection and in due course the defendant got two cheques. I do not see any occasion for the defendant to ascertain whether the procedure had been followed or not before issuing the cheques, and none has been pointed out by the learned counsel for the plaintiff. The issue is accordingly held against the plaintiff.

Issue No. 4 :

' Did Mahinder Pal Singhal fraudulently or with dishonest intention omit to make endorsement of cancellation on the questioned Inspection Notes in question '

Issue No. 5:

'Did Mahinder Pal Singhal enter into a criminal conspiracy with Manak Chand Jain to cause wrongful loss to the Government of India and did he obtain payment of price of goods dishonestly and fraudulently from the Government of India ?'

Issue No. 9 :

' Were the inspection notes stolen or removed by Mahinder Pal Singhal from the office records in his possession after payment '

13. These issues are inter-connected and I will deal with them together.

14. There is no direct evidence on the record of the suit that Mahinder Pal Singhal entered into any criminal conspiracy with Manak Chand Jain to cause wrongful loss to the Government by omitting to make an endorsement of cancellation on the inspection notes or by stealing or removing the inspection notes from the records in his possession after payment and handing them over to Manak Chand Jain. However, there is evidence to show that two un-cancelled inspection notes were used by Manak Chand Jain in obtaining the price of goods fraudulently from the Government. I have already referred to the evidence of PCW-1 and PCW-2 which establishes that the price of ground sheets supplied under the acceptance of tender, exhibit PCW-2/1, and based on the accounts office copies of the inspection notes (copies exhibits PCW-2/13 to PCW-2/17), amounting to Rs. 2,34,892 had been received by Shri R.K. Bhatt, the contractor, by 6th of August, 1947. It is obvious that had the accounts office copies of inspection notes been cancelled, the inspection notes would have borne an endorsement of cancellation on it. The fact that the two bills along with the un-cancelled inspection notes were presented by Manak Chand Jain through the defendant shows that some one omitted to make endorsement of cancellation on the inspection notes. The dishonest intention of the person has, thereforee, to be assumed, as the cancellation of the inspection notes is one of the requirements of the procedure laid down before passing a bill for payment. The intention to cause wrongful loss to the Government is clear as the two bills were presented by Manak Chand Jain for payment based on those un-cancelled inspection notes. Those un-cancelled inspection notes must have been removed by someone from the office records after the payment had been made to Shri R.K. Bhatt, contractor. Manak Chand Jain did not supply the goods under acceptance of tender, exhibit PCW/1, and had no right, title or interest to claim the price of the goods supplied under the said tender. The fact that he did obtain the payment of Rs. 22,384 and Rs. 1,04,989 shows that he obtained the payment of price of goods dishonestly and fraudulently from the Government. It is thus reasonable to hold that the two inspection notes were fraudulently or with dishonest intention omitted to be endorsed of cancellation, that they were dishonestly extracted, removed or stolen from the Government record with a view to using them again for the purpose of recovering money from the Government, and that Manak Chand Jain obtained d760258payment of the price of goods dishonestly and fraudulently from the Government of India.

Issue No. 6 :

' Did Manak Chand Jain masquerading as R. K. Bhatt open a currentaccount with Chandni Chowk Branch of the Grindlays Bank Ltd. in thefalsely and fraudulently assumed name of Rabindra Kumar Bhatt '

Issue No. 8 :

' Was the said account opened by Manak Chand Jain with any ulterior motive or to cause wrongful loss or to defraud the Government by dishonest or fraudulent design to obtain payment of money to which the account holder had no title '

15. These issues are being dealt with together.

16. The original account opening form dated 30th of December, 1947, exhibit PCW-3/5, specimen signatures dated 30th of December, 1947, exhibit PCW-3/6 ; the original cheque for Rs. 10,000 dated 1st March, 1948, exhibit PCW-3/7; the original cheque dated 15th January, 1948, for Rs. 4,000, exhibit PCW-3/8; original letter dated 2nd January, 1948, exhibit PCW-3/3 and original letter dated 2nd February, 1948, exhibit PCW-3/4, all of R.K. Bhatt, account holder, were sent to the handwriting expert, Shri M.B. Dixit, Nagpur, for comparison along with certain comparative material and exhibit PCW-3/12 and 13, the natural writings of Manak Chand Jain, who is alleged to have opened the account with the defendant. Shri M.B. Dixit stated on oath as PCW-3 that he examined the documents in original as well as with the aid of photographic enlargements and compared them with the comparative material and that he was of the opinion that all the documents were written by one and the same person. The detailed reasons have been given in his deposition as well as in his report, exhibit PCW-3/2. Mr. Dixit is a Government examiner of questioned documents for Central Provinces and Berar, Nagpur, and is an independent witness. His testimony is worthy of great credence and has to be relied on, even though in the cross-examination he admitted that he had made the statement with the help of notes prepared by him from the copy of the deposition made by him in the Magistrate's Court. It is significant to note that the report, exhibit PCW-3/2, is dated 28th September, 1949, and the deposition in this case was made on 13th April, 1968. The witness wanted to refresh his memory with the help of his report and from the copy of the deposition made by him earlier. Under Section 159 of the Indian Evidence Act, 1872, a witness may refresh his memory by referring to any writing made by him at the time of the transaction concerning which he is questioned, or soon afterwards. The natural writings of Manak Chand Jain are exhibits PCW-3/12 and 13. No cross-examination was directed by the defendant that exhibit PCW-3/12 and 13 are not the natural writing of Manak Chand Jain. Mr. R. K. Bhatt has appeared as PCW-3 and made a statement on oath that these documents, exhibits PCW-3/3 to PCW-3/8, are not signed by him. There is no rebuttal evidence of the defendant about the identity or the signatures of Manak Chand Jain on the above disputed documents, exhibits PCW-3/3 to PCW-3/8. It is thus established on the record that the current account was opened by Manak Chand Jain masquerading as R. K. Bhatt and it was he who was operating that account with the defendant. I hold that Manak Chand Jain masquerading as Shri R.K. Bhatt opened the current account with the Chandni Chowk branch of the Grindlays Bank Ltd., in the falsely and fraudulently assumed name of Shri R.K. Bhatt (Rabindra Kumar Bhatt). The motive of opening the account is clear from the presentation of the two bills for collection through the defendant. The foundation of the two bills was the two inspection notes, which had been left un-cancelled by certain officials of the plaintiff and were utilised by Manak Chand Jain. Manak Chand Jain had neither had any contract with the Government nor supplied any goods and thus no right, title or interest in the said two inspection notes. He had no right to receive the payment from the Government. The fact that he had received the payment by withdrawal of the various amounts from the account of R.K. Bhatt, account holder, shows the clear intention to cause a wrongful loss to, or to defraud, the Government. The opening of the account was thus with this ulterior motive and I hold accordingly.

Issue No. 11:

' Were the withdrawals from the bank made by Manak Chand Jain '

17. I have already referred to the withdrawals made by R. K. Bhatt, account holder, and are contained in the certified copy of the account, exhibit PX/1. PCW 2, Shri R.K. Bhatt, has made statement on oath that he has seen the cheques, i.e., the original of exhibit PCW-2/18 and it does not bear his signatures, that he has seen the original of exhibit PCW-2/19 and as this also does not bear his signatures, that the originals of exhibit PCW/22-40 do not bear his signatures and that he never opened an account or submitted any bill through the defendant. From the evidence of PCW-3, Shri M.B. Dixit, it is clearly established that R.K. Bhatt, account holder, was Manak Chand Jain. Two of the disputed cheques were also examined by Shri M.B. Dixit with the natural writing, exhibits PCW-3/ 12-13 of Manak Chand Jain, and he expressed the opinion that they were written by one and the same person. I, thereforee, hold that the withdrawals from the defendant bank were made by Manak Chand Jain.

Issue No. 10:

' Did not the bank act as an agent for collection of its account holder and were not the cheques received by the bank as such agent '

Issue No. 13 :

' Was Manak Chand Jain the bank's principal '

18. The case set up in the plaint is that the cheques dated 12th of January, 1948, for Rs. 22,384 and February 11, 1948, for Rs. 1,04,989 were issued by the Deputy Accountant-General on behalf of the Government of the Dominion of India on the representation of the defendant that it was collecting the bills for M/s. R.K. Bhatt who was the person truly and lawfully entitled to payment thereof. The letters dated 2nd of January, 1948, and 2nd of February, 1948, written by the bank show that they had enclosed the accompanying remittances for collection as per particulars mentioned therein. In the particulars, it is mentioned that the documents or bills along with the inspection notes are sent in ' A/c R.K. Bhatt '. The case set up in the written statement by the defendant also is that this is clear from these letters of the bank that it was acting merely as an agent for collection. It is thus the common case between the parties that R.K. Bhatt (Manak Chand Jain masquerading as R. K. Bhatt) was a constituent of the bank and the bank acted as his agent for collection. Even on the material on the record, it is established that the defendant was merely acting as an agent for collection and collected the proceeds of the two cheques issued by the plaintiff and credited the same to the account of R.K. Bhatt, account holder. I, thereforee, hold issues Nos. 10 and 13 accordingly.

Issue No. 12:

'Were the cheques for Rs. 22,384 dated 12-1-48 and for Rs. 1,04,989 dated 11-2-48 issued by the Deputy Accountant General on the representation of the bank that it was collecting the bills for M/s. R.K. Bhatt '

Issue No. 14:

' Were the two bills in question paid under mistake caused by fraud practiced on the concerned officials of the Deputy Accountant-General '

Issue No. 15:

' Were the said officials deceived into issuing the cheques in favor of the bank by reason of the belief fraudulently induced in their minds that the bank was collecting the bills for M/s. R.K. Bhatt ?'

Issue No. 16:

' Did the bank induce any belief fraudulently or otherwise, in the minds of the concerned officials or make any representation to them.'

19. All these issues are inter-connected and may be taken up together.

20. Exhibits PX-2 and PX-3 are the copies of the letters of the defendant addressed to the D.A.G. (I & S) enclosing bills along with the inspection notes for collection. It is specifically mentioned in the said letters that the name of the account holder is ' A/c R.K. Bhatt '. It is thus clear that the defendant represented to the plaintiff in letters, exhibits PX-2 and PX-3, that it was collecting the bills in the account of 'R.K. Bhatt'. This representation of the defendant is clearly incorrect as the constituent of defendant is not the real R.K. Bhatt, but Manak Chand Jain masquerading as R.K. Bhatt. R.K. Bhatt, account holder, obtained the two un-cancelled inspection notes by practicing fraud or by conspiracy with certain officials of the plaintiff or obtained otherwise and presented them for payment through the defendant. As already held, full payment had been received by Sari R.K. Bhatt, contractor, on the basis of the said two inspection notes and nothing was due to Shri R.K. Bhatt. The two un-cancelled inspection notes and the two bills did not represent any title in it for being paid. The plaintiff while scrutinising and passing the two bills for payment, had no contracting mind as the two inspection notes presented along with the bills were null and void. It is the common case of the parties that cheques for Rs. 22,384 dated 12th of January, 1948, and Rs. 1,04,989 dated 11th of February, 1948, were issued by D.A.G. (I & S). Whether the representation in the letters is responsible for issuing the cheques, there is no evidence. Although allegations have been made in the plaint that the concerned officers in the Office of the Deputy Accountant-General (Industries & Supplies) who were deceived into the issuing of the cheques in favor of the bank by reason of the belief fraudulently induced in their minds that the bank was collecting the bills for the person truly entitled to their payment, namely, M/s. R.K. Bhatt, and that the payment was due and issues were framed based on the said plea, yet no evidence has been led by the plaintiff how the mind of the officers of the D A.G. (I & S) was influenced by the representation made by the defendant. No evidence has been led of the officials, who processed the bills and ultimately issued the cheques, to prove the belief induced in their minds that the defendant was collecting the bills for the person truly entitled to their payment or that the payment was due. There is also no evidence on the record that the defendant induced any belief fraudulently in the minds of the concerned officials or made any such representation to them. The only representation made by the defendant is contained in exhibits PX-2 and PX-3 when the two bills were presented for collection along with the inspection notes for and on behalf of R.K. Bhatt, account-holder. It appears to me that the defendant was only acting as an agent for collection on behalf of the account-holder, when it presented the two bills for collection.

21. PW-1 has detailed an elaborate procedure about the processing of the bills. The procedure is that the bills are straightaway received in the routine section, where they are diarized in a register, called Bill Register. The bill register is passed on to the section concerned, wherein the bills were distributed to different individual clerks dealing with the respective series of acceptance of tender. The clerks receive the bills from the bill register, check them up with the relevant A/T concerned and put up to the Superintendent for check. The Superintendent sends the bills to the Gazetted Officer for review. When the Gazetted Officer finally admits bills he signs bills and records his initials in the audit register and the bills are sent back to the section concerned. The clerks concerned take back their bills, prepare cheque memos according to the amounts relating to the firm and hand over the cheque memos to the Assistant Superintendent. The Assistant Superintendent checks these cheque memos and signs on the cheque memos. Thereafter, the cheque memos are passed on to the delivery clerk who enters then in the delivery register. The delivery register is again checked by the Assistant Superintendent and then the register is sent to the cheque section. The cheque section issues cheques in favor of the parties mentioned in the cheque memos, which corresponds to the address given on the bill and the same are dispatched to the addressee by post. The cancellation of the inspection notes is not the basic thing for issuing of cheque. The cancellation of the inspection note indicates payment of the bill. The cancellation of the inspection note is done before the issuing of the cheque.

22. The record is not clear whether the said procedure for issuing the two cheques in dispute was followed by the officials of the D.A.G. (I & S). The detailed procedure prescribed for issuing the cheque shows that it is not dependent on the representation made by the parties in the bills submitted that are alone responsible for the issue of the cheque for payment of these bills. The cheques are issued for the payment due in performance of a contract under a particular acceptance of tender. The basic documents, thereforee, are the acceptance of tender, the proof regarding the performance of the contract and the fact of the payment due under the contract. The representation of the defendant in the letters alone, thereforee, could not be responsible for the issue of the cheques. Whether the officials of D. A. G. (I & S) were put off their guard by the representation made by the defendant that it was collecting the bills on behalf of the real Shri R.K. Bhatt and the amount in fact was due, there is no evidence. There is no evidence again to the extent of belief induced in the minds of the concerned that the payment had not been made to the contractor in respect of the supplies of the two un-cancelled inspection notes.

23. I, thereforee, hold issue No. 12 against the plaintiff that the two cheques issued by the D. A. G. (I & S) were on the representation of the defendant that it was collecting the bills for M/s. R. K. Bhatt. It is, however, clear that the two bills in dispute were paid but whether they were paid under mistake caused by fraud practiced on the concerned officials of the Deputy Accountant-General (I & S), there is no evidence and I hold issue No. 14 against the plaintiff. There is no evidence on the record that the said officials were deceived in issuing the cheques in favor of the defendant by reason of belief fraudulently induced in their minds that the bank was collecting the bills for M/s. R.K. Bhatt and I hold issue No. 15 against the plaintiff. There is also no evidence that the defendant induced the belief fraudulently or otherwise in the minds of the concerned officials and I decide issue No. 16 against the plaintiff.

Issue No. 17 as recast:

' Whether the particulars of the fraud as given by the plaintiff in the plaint are incomplete and whether the plea of fraud is legally sustainable for want of particulars '

24. No arguments have been addressed by the Counsel for the defendant on the lack of particulars of fraud, obviously, because no evidence has been led by the plaintiff of any fraud having been committed by the defendant on the plaintiff or its officials. This issue, thereforee, does not call for any determination. Issue No. 18:

'Did the bank convert the cheques by collecting them and paying off their proceeds to its principal '

Issue No. 19 :

' Did the property in the cheques or in the sums paid there under remain vested in the Union of India ?'

Issue No. 22:

' Whether the bank is legally liable to refund the amount collected to the plaintiff?'

Issue No. 27 :

' Is the plaintiff entitled to the relief claimed or any other relief notwithstanding that the bank paid the monies collected from the Government to its account holder before any sort of claim whatsoever in respect thereof was made by the plaintiff on the basis or, as a result of the alleged conspiracy or fraud or otherwise '

Issue No. 28:

' Is the plaintiff entitled to any relief against the bank having elected not to sue the parties who according to it entered into the alleged conspiracy to defraud and/or cause wrongful loss to the Union of India '

Issue No. 29 :

' Is the claim against the defendants competent or sustainable in law particularly when no claim is made against officers, servants or agents of the plaintiff.'

25. All these issues are inter-twined and I would do well to express my opinion together. There is also not much of the dispute about the legal position. A conversion is a wrongful interference with goods, as by taking, using or destroying them, inconsistent with the owner's right of possession. The plaintiff had issued cheques dated 12th of January, 1948, for Rs. 22,384 and 11th of February, 1948, for Rs. 1,04,989. Admittedly, these cheques were drawn on the Reserve Bank of India in favor of defendant or order and crossed generally or account payee. Admittedly, the defendant collected one cheque on 14th January, 1948, and credited Rs. 22,328 (less bank charges) as the proceeds to the account of R.K Bhatt, account-holder. Admittedly, the defendant received and collected the other cheque of Rs. 1,04,989 similarly drawn on the Reserve Bank of India in favor of the defendant. The defendant collected the proceeds of Rs. 1,04,989 and credited the same less 1he bank charges to the account of R.K. Bhatt, account-holder. R.K. Bhatt, account-holder, has withdrawn the entire amount and there is only a balance of Rs. 46-6-0 in the account. I have already held that the plaintiff had issued the two cheques in which R. K, Bhatt, account-holder, had no title. The title in the two cheques remained vested in the plaintiff. At one stage it was felt that no action will lie in conversion in respect of money as a person has no property in specific coins. It was also felt that the conversion could be only with respect to chattels and not with respect to a piece of paper called the cheque. To get over this difficulty the theory has been adopted that the piece of paper called the cheque might be treated as converted and an action in conversion would be maintained for its value. [See A. L. Underwood Ltd. v. Bank of Liverpool and Martins [1924] 1 KB 775.

26. The receipt of the cheques by the defendant and receiving the proceeds of the cheque can be treated as conversion of the two cheques and an action thus could be maintained for its value. ' Any person who, however, innocently, obtains possession of the goods of a person who has been fraudulently deprived of them, and disposes of them, whether for his own benefit or that of any person, is guilty of a conversion '. (See Hollins v. Fowler [1875] LR 7 HL 757. There is no doubt that the plaintiff is the true owner of the two cheques, one for Rs. 22,384 and the other for Rs. 1,04,989 and that R.K. Bhatt, account holder, had no title to the cheques. The cheques had been drawn in the name of the defendant and the proceeds realised by it. It is clear that as against the true owner, the defendant is guilty of conversion. No arguments have been addressed by the learned counsel for the defendant on issues Nos. 27 to 29. If the defendant is guilty of conversion, then I see no valid defense that it is not liable because anyone who is also liable in law, has not been imp leaded or amount claimed from them.

27. In Marfani & Co. Ltd. v. Midland Bank Ltd. [1968] 1 WLR 956 it was held :

' At common law, one's duty to one's neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour's interest in the goods. This duty is absolute ; he acts at his peril.

A banker's business, of its very nature, exposes him daily to this peril. His contract with his customer requires him to accept possession of cheques delivered to him by his customer, to present them for payment to the banks upon which the cheques are drawn, to receive payment of them, and to credit the amount thereof to his own customer's account, either upon receipt of the cheques themselves from the customer or upon receipt of actual payment of the cheques from the banks upon which they are drawn. If the customer is not entitled to the cheque which he delivers to his banker for collection, the banker, however innocent and careful he might have been, would at common law be liable to the true owner of the cheque for the amount of which he receives payment, either as damages for conversion or under the cognate cause of action, based historically upon assumpsit, for money had and received. '

28. Unless the defendant can show some excuse in law, he is otherwise guilty of conversion or liable to refund the money collected from the plaintiff. I hold issue No. 18 against the defendant, I hold issue No. 19 in favor of the plaintiff. Issue Nos. 22, 27, 28 and 29 are held in favor of the plaintiff, subject to my above observation.

Issue No. 7:

' Was there anything unusual to the manner of the opening of the account as regards initial deposit or reference or address of the account holder '

Issue No. 20:

' Was the defendant bank duty bound to enquire whether or not the delivery of cheques was made in pursuance of the contract and whether the bank had notice of the alleged fact that it was not so made? '

Issue No. 21 :

' Was the bank negligent or acted in breach of its duties in opening the account, receiving the cheques or in paying off the proceeds to its principal '

Issue No. 30:

'Is the plaintiff estopped from claiming any amount from the defendant?'

29. The crucial question for determination in this case under these issues is whether the defendant in opening the account, then in submitting the two bills for collection along with the inspection notes, thereafter receiving the two cheques from the D.A.G. (I & S) and collecting the proceeds of the cheques, and then paying off the proceeds to R.K. Bhatt, account holder, acted in good faith and without negligence or reasonable care in reference to the interest of the plaintiff, the true owner of the two cheques. The other question for determination is whether there is in law any estoppel by negligence against the plaintiff. A banker who deals with the cheques contrary to the right of the true owner is liable for conversion. But a protection is afforded to the bankers under Section 131 of the Negotiable Instruments Act, 1881. Section 131 reads as follows :

' 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. '

30. Though the said section requires ' good faith and without negligence ' in the receipt of the payment for a customer of the cheque, it is to be seen whether it is only at the stage of the realisation of the cheque or even earlier or later that there should be good faith and absence of negligence. It has also to be ascertained as to what is the extent of care or foresight the banker must exercise in the interest of the true owner when receiving the payment for a customer of the cheque.

31. I may now examine the evidence as to how the account was opened by R.K. Bhatt, account holder. Exhibit P-y is the copy of the rules of business in India of the Grindlays Bank Ltd. (the predecessor of the defendant). According to it, current deposit accounts are opened in the names of persons known to the bank or producing reliable references. Exhibit PCW-3/5 (certified copy, exhibit PCW-2/18) is the original account opening form of Manak Chand Jain masquerading as R.K. Bhatt. It shows that a sum of Rs. 125 was deposited in cash at the time of opening of the current account on 30th of December, 1947, In the column meant for 'introduced by ' it is mentioned ' M/s. Khyber Cycle Store of Peshawar'. In the column ' Previous Bankers ', it is mentioned ' nil. ' The particulars of the account holder are given as R.K. Bhatt (Rabindra Kumar Bhatt), Business, Government Contractor. The address is given as c/o Grindlay's Bank, Chandni Chowk, Delhi. The specimen signatures were obtained on 30th of December, 1947, and are countersigned by the sub-accountant. As I have already mentioned, the initial deposit was only Rs. 125. The rules, exhibit P-y, do not prescribe any minimum limit of deposit either at the time of opening of the current account or during the currency of the account. I am, thereforee, unable to agree with the contention of the learned counsel for the plaintiffs that a minimum of Rs. 500 should have been deposited as an initial deposit at the time of opening the account. The address of R.K. Bhatt, account holder, is mentioned as c/o Griudlays Bank, Chandni Chowk, Delhi. There is no evidence on the record as to there being anything unusual in respect of the address of the account holder. The address of the constituent, c/o the bank, by itself is not sufficient to attribute any negligence to the defendant in opening the account. But the giving of the address c/o the bank should have aroused some suspicion in the mind of bank's official to ascertain the correct identity of the prospective account holder. The rules of the bank require the production of reliable references. There is no evidence on the record to show whether M/s. Khyber Cycle Store of Peshawar is a reliable party produced before the bank at the time of opening of the current account. There is no evidence on the record whether the bank made any reference to M/s. Khyber Cycle Store of Peshawar about R.K. Bhatt, account holder, either in writing or orally whether at the time of opening of the current account or subsequently. On these facts, Mr. Chopra, learned counsel for the plaintiff, contends that all care and caution was thrown to the winds by the defendant in accepting the application of a stranger who was neither introduced by one of its old customers nor any enquiries made about him.

32. The modern banking practice requires that a constituent should either be known to the bank or should be properly introduced. The bank owed a duty to make enquiries directed to discover whether a new constituent might use the account for any fraudulent purposes. The underlying object of the bank insisting on producing reliable reference is only to find out, if possible, whether the new constituent is a genuine party or an impersonator or a fraudulent rogue. ' Producing reliable references ' in exhibit P-y indicates that the reliable reference has to be more than one. It was thus the requirement of the rules of the defendant that the prospective account holder should produce trustworthy references. The bank normally acts on reliable or trustworthy references. However, there is no evidence on the record about the extent of the enquiries made at the time of opening of account of R.K. Bhatt, account holder. I am not persuaded to agree with the learned counsel for the defendant to hold that from the fact that the account was opened, it should be inferred that it must have been done after R.K. Bhatt, account holder, had produced reliable references. Shri S.N. Aggarwal, sub-officer of the defendant, was produced as PDW-1 but stated nothing in the examination-in-chief about the opening of the account by R. K. Bhatt, account holder. In cross-examination, the witness admitted that there used to be one Mr. K.B.N. Swamin and one Mr. Gulab Chand who were in charge of the opening of new accounts in the years 1947-48 and 1948-49 and that they had retired. No effort was made by the defendant to produce them as witnesses or to procure their attendance. The defendant did not lead any evidence to show that the whereabouts of these two witnesses were not known to the bank. The burden of establishing good faith and absence of negligence is on the defendant. The bank has to establish that they acted without negligence not only in the receipt of the payment of the cheque amount but even earlier at the time of opening the account. It is negligence not to make enquiries at all as to a customer upon opening an account and collecting a cheque for him. The bank has failed to produce any evidence to show that they acted without negligence in opening the account on the recommendation of any reliable reference. In Bharat Bank Ltd. v. Kishinchand Chellaram : AIR1955Mad402 , it was held that a negligence not merely at the stage of encashment but at the prior stages from the receipt of the cheque in question would also be relevant. It was held (page 75) :

' The position in law may thus be summarised : when in an action in conversion a defense is raised under Section 131, Negotiable Instruments Act, the primary question for determination is whether in the matter of realisation of the cheque the collecting bank had acted without negligence--negligence not merely at the stage of encashment but at the prior stages from the receipt of the cheque in question.

The question whether the bank had acted with negligence in the opening of the account will, however, be relevant under Section 131 to this extent that if the opening of the account and the deposit of the cheque are really part of one scheme, as where the account itself is opened with the cheque in question or where it is put into the account so shortly after the opening of the account as to lead to the inference that it is part of it, then negligence in the matter of opening the account must be treated as negligence in the matter of realisation of the cheque.'

33. The Privy Council in Commissioners of Taxation v. English Scottish and Australian Bank Ltd., AIR 1920 PC 88, laid down the principle which ought to guide the courts in considering the question whether a bank is guilty of ' conversion in having been negligent in collecting a cheque on behalf of a customer which in fact did not belong to him. In that case one A. Friend of Sydney put a cheque drawn by himself on the Australian Bank of Commerce for 786-18-3 into an envelop, along with some other cheques drawn by other members of his family, and addressed the envelop to the Commissioners of Taxation, George Street North, Sydney. This cheque was in payment of an assessment for income-tax. It was crossed with the word ' bank ', that is to say, generally not specially. This cheque was stolen by some other person unknown and was never cashed by the Commissioners of Taxation. On the following day a man who gave his name as Stewart Thallen entered the head office of the respondents' bank at Sydney and stated that he wished to open an account. The accountant took his name and address which this man gave at certain well-known residential chambers in Sydney. He then handed in a sum of 20. The accountant filled up the ' paid in ' slip and the account was duly opened and a cheque book issued to Thallen. On the following day the stolen cheque was handed in by Thallen, and on the next day Thallen withdrew three sums, of 483-16-6, 260-10-0 and 350-12-6 by cheques drawn by himself. Thallen was never seen again and it was found that no person of that name lived at the address he had given. The Commissioners of Taxation then filed an action from which the appeal went to the Privy Council against the bank for conversion of the cheque. The Supreme Court for New South Wales held that the bank was not guilty of negligence. In discussing the question of negligence, their Lordships of the Privy Council are at pains to point out that the negligence with which the court was concerned was not in opening the account but ' in collecting the cheque ' though the circumstances connected with the opening of an account may shed light on the question whether there was negligence in collecting the cheques and the test of negligence which their Lordships adopted was whether the transaction of paying any given cheque coupled with the circumstances antecedent and present was so out of the ordinary course that it ought to have aroused doubts in the banker's mind and caused them to make inquiry.

34. Great reliance is placed by Mr. Mahinder Narain, learned counsel for the defendant, on Marfani & Co. Ltd. v. Midland Bank Ltd. [1968] 1 WLR 956. It was contended that one is always able to be wise after the event, but the banker's duty fell to be performed before it and the duty which he owed to the true owner ought not to be considered in isolation. At the relevant time the banker was entitled to take into consideration the interests of his customer who, be it remembered, would in all probability turn out to be honest, as most men are, and his own business interests, and to weigh these against the risk of loss or damages to the true owner of the cheque in the unlikely event that he should turn out not to be customer himself. It was urged that it does not constitute any lack of reasonable care to refrain from making enquiries which are unlikely to lead to detection of a potential customer's dishonest purposes, if he is dishonest, and which are calculated to offend him and may drive away his customer if he is honest. Reference was made to Diplock L.J.'s speech at page 975, wherein it was held :

'It is to be borne in mind that, whatever inquiries it might be prudent for the bank to make for their own purposes, the only inquiries which they were under any duty to the plaintiff company to make were inquiries directed to discovering whether their new customer might use the account for the fraudulent purpose of cashing cheques belonging to other people. The purpose of such inquiries would be (a) to find out whether the customer was a fraudulent rogue, and if so, (b) whether he would be likely to have opportunities of dishonestly obtaining other people's cheques, in particular those of the plaintiff company. As a matter of common sense, a person who is opening a bank account for a dishonest purpose is unlikely himself wittingly to give any information calculated to disclose his dishonest purpose. He will be prepared with appropriate answers to lull suspicion. It may be that a searching interrogation would reveal inconsistencies or improbabilities in his story, but a bank cannot reasonably be expected to subject all prospective customers to a cross-examination which cannot fail to give the impression that the bank doubts their honesty, and which would be understandably resented by the 999 honest potential customers, on the off-chance of detecting the thousandth dishonest one. If there is some other independent and apparently trustworthy source from which the honesty of the potential customer may be verified, then to rely upon that source of information is not only less likely than interrogation of the customer himself to damage the bank's own business by driving away honest customers but is also more likely to result in the successful detection of the occasional dishonest one.'

35. The facts of that case have been summarised in the head note and are these :

' Having as instructed drawn a crossed cheque for 3,000 in favor of E. with whom this plaintiff company had business dealings, and having got it signed by the company's Pakistani managing director, who then went abroad, K. the Pakistani office manager of the company, went to a branch of the defendant bank where considerable business was done with Pakistanis. He called himself E. and sought to open a new account in that name. He told the security officer, who had authority to open new accounts, that he was thinking of going into business as a restaurateur, signed the particulars required by the bank with the name of E., and gave two restaurateurs as referees. He paid in 80 on January 21, 1966, to open the account and said that the majority of the funds would come later and the following day he paid in the 3,000 cheque, which he had endorsed (unnecessarily) in the name of E. together with 35 9s. 6d. in cash. The bank had the cheque specially cleared the same day, without being asked to, and credited the proceeds to the new account in E's name although they would not have allowed the account to operate without a satisfactory reference. On January 26, 1966, the bank was visited by Mr. Ali, one of the referees (the other did not reply to the bank's inquiry), a Pakistani who had been known to the bank since about 1961, had an account with them for some years and had previously introduced satisfactory Pakistani customers to the bank. He told the bank's branch manager that E. (as K. was known to both of them) had been known to him ' for some time ' (he was not asked how long) that he, Mr. Ali, believed that E. intended starting a restaurant and that in Mr. Ali's opinion he (i.e., K. known as E.) was all right for the conduct of a bank account. Mr. Ali had in fact known K. for only a month as a customer at his restaurant and was in no position to vouch for his trustworthiness or even his identity. Payments out of the account started at the end of January, 1966, viz., a few days after Mr. Ali's reference was given. All the money in K's account was withdrawn in the course of the first week of February, 1966, and he left for Pakistan. The plaintiff company brought an action for conversion of the 3,000 cheque against the defendant bank.'

36. On the evidence produced in that case the question arose : were the defendant bank acting prudently in relying on what Mr. Ali told them about their new customer who called himself, Eliaszade. Facts established in that case were that the defendant's new customer was a Pakistani, a close community who in England keep themselves to themselves, that the most reliable source of information about him would be likely to be a fellow Pakistani whom the defendant bank could reasonably regard as trustworthy, that Mr. Ali was a Pakistani of substance, a restaurateur and thus likely to know about other Pakistanis in the same line of business that he had been a valued customer of the defendant bank for some six years, that he had introduced a number of other Pakistanis as customers, and all of these had proved satisfactory and that the defendant bank had no reason to doubt Mr. Ali's honesty, conscientiousness or can dour, or to suppose that he would vouch for the trustworthiness of a customer unless he had reasonable grounds for doing so. It was thus found that Mr. Ali was a valued customer, the bank had experience on him as a reliable reference for Pakistani customers, and the bank had no reason to suppose that Mr. Ali would vouch for the trustworthiness of a customer unless he had reasonable grounds for doing so. It was also found that 'K' had already established a false identity as Eliaszade with Mr. Ali whom he had planned to use as a reference to the bank. When an enquiry was made from Mr. Ali the bank was told that he had known Eliaszade 'sometimes ' and the bank manager did not ask Ali for how long he had known him. It is on those facts that it was held that the bank in acting without further probe on the information given to them by Mr. Ali as to their customer's trustworthiness were not in any breach of their duty to take reasonable care in relation to the plaintiff's cheque. In the case before me, there is complete absence of any inquiry from M/s. Khyber Cycle Stores of Peshawar about the identity or trustworthiness of R.K. Bhatt, account holder, at the time of opening of the current account. The prospective account holder was not known to the bank or any official. No enquiries at all were made to discover whether its new customer might use the account for the fraudulent purpose of cashing cheques belonging to other people. No evidence has been led on record at to who this M/s. Khyber Cycle Stores of Peshawar is or whether any reliance was placed earlier on the introduction by this party. In my opinion the defendant has failed to make enquiries which it should have made at the time of opening the account. In such case a heavy burden lies on the defendant to show that enquiries, if made, could not have led to any action which would have protected the interest of the true owner. There is no material on the record to discharge that burden. I am unable to agree with Mr. Mahinder Narain that it was not necessary to make any further enquiries from M/s. Khyber Cycle Stores of Peshawar, because it would have led to no result. I would not conjecture the result of enquiry. If the defendant fails to make requisite enquiries which it should have, then a very heavy burden lies on him before he can avail of the protection under Section 181 of the Act.

37. Relying on Bapulal Premchand v. Nath Bank Ltd. [1946] 16 Comp Cas 133 ; AIR 1946 Bom 483, it was contended by learned counsel for the defendant that there was no absolute duty cast on the bank to make inquiries about any intending customer. In that case, the evidence of the manager of the bank was that the bank opened accounts only of such persons as were known to any member of the staff or to any outsider who was known to the bank. The rules of the bank provided that the proposed customer should be properly introduced. The evidence of the manager was that when he saw the application form for opening the account and he saw that the new customer was introduced by Modi he sent for Modi and asked about the new customer and Modi told the manager that he knew the new customer well and he was a broker and also knew that he had effected transaction with Dave. The manager stated that after he had this discussion with Modi, who was a member of the staff of the bank, he passed the form and initialled it for opening an account. The bank manager further stated that he followed the same practice with regard to the other customers introduced by Modi. It is on these facts that Chagla J. found that there was no negligence in opening the account. In that case also it was observed that primarily enquiry as to negligence must be directed in order to find out whether there is negligence in collecting the cheque and not in opening the account ; but if there is any antecedent or present circumstance which aroused the suspicion of the banker then it would be his duty before he collects the cheque to make the necessary enquiry and undoubtedly one of the antecedent circumstances would be the opening of the account. It was also observed that failure to make enquiries as to the integrity of the proposed customer would constitute negligence. In the case before me even though in the account opening form it is mentioned that R.K. Bhatt, account-holder, was introduced by M/s. Khyber Cycle Stores of Peshawar, yet no inquiry was made from them about the respectability of R.K. Bhatt, account holder. The fact that the new customer had no previous bankers and was giving the address, c/o the bank, should have aroused the suspicion of the bank to make the enquiries about the respectability of R.K. Bhatt, account-holder. It is negligence not to make any enquiries at all as to a new customer upon opening an account. The question whether the bank acted with negligence in the opening of an account by a new customer would certainly be relevant under Section 131 of the Negotiable Instruments Act, 1881.

38. The learned counsel for the defendant further contended that the defendant bank could not be said to have acted with negligence merely because its officers had failed to observe the rules of the bank for the conduct of their business in opening the current account in the name of R.K. Bhatt, account holder. Reliance is placed on the judgment of B.C. Misra J. in Suit No. 246 of 1967 (Sylvan Star Investment Company (Pvt.) Ltd. v. Central Bank of India Ltd., etc.) wherein it was held that 'so far as the second defendant is concerned, I do no find that the plaintiff had succeeded in establishing any case against it. The irregularity alleged in the opening of the account of Paramjit consisted only in having a smaller initial deposit than required by the rules and in being introduced to the bank through a small old constituent of the bank and not any other respectable customer. These are matters for internal arrangement of the bank and hardly constitute any negligence or participation in fraud on the part of the bank. The bank acted in due course of business and is not liable to the plaintiff. I, thereforee, hold that the second defendant is not liable.' The facts of that case are entirely different. The irregularity alleged in the opening of the account consisted only in having a smaller initial deposit than required by the rules and in being introduced to the bank through a small old constituent of a bank. The acceptance of a small initial deposit was entirely at the bank's discretion. The bank could rely on the introduction of any old customer. Whether the old customer was big or small constituent was relevant for the satisfaction of the bank about the trustworthiness of the new customer. If the bank bona fide acted on the reference of a small customer then it may avail of the protection under the said Section 131. But when there is negligence in the opening of the current account so as to affect the rights of the true owners of cheques, then the protection afforded under Section 131 of the Act cannot be availed of by the bank. The rules of the bank required that reliable reference may be of a small old constituent.

39. The absence of negligence could only be established if in the case before me the bank had led evidence to show that M/s. Khyber Cycle Store of Peshawar was a respectable constituent of the bank, that they had earlier introduced some new customers w ho had proved satisfactory and that they acted bona fide on the recommendations of M/s. Khyber Cycle Stores, Peshawar. The opening of an account without a reliable reference is entirely on a different footing. The facts of the case as established on the record are that Manak Chand Jain masquerading as R.K. Bhatt opened the account on 30th of December, 1947, and mentioned introduction by M/s. Khyber Cycle Stores of Peshawar. There is no evidence on the record to show whether M/s. Khyber Cycle Stores of Peshawar was a constituent of the bank or was otherwise a reliable reference. The operation of the account shows that R.K. Bhatt, account holder, enclosed a bill for Rs. 22,384 for collection with his letter dated 2nd of January, 1948. The defendant forwarded the bill to the D. A. G. (I & S) for collection and received a cheque dated 12th of January, 3948. The proceeds of the cheque were credited on 14th of January, 1948. Then there is the withdrawal of almost the entire amount between 15th of January, 1948, to 22nd of January, 1948. R.K. Bhatt, account holder, then enclosed the second bill for Rs. 1,04,989 for collection along with the letter dated 2nd of February, 1948. The defendant presented the bill to the D. A. G. (I & S) on 2nd of February, 1948, and received the cheque dated 11th of February, 1948, for the amount. The proceeds of the cheque were credited on 16th of February, 1948. R. K. Bhatt, account-holder, withdrew almost the entire amount between 17th of February, 1948, to 1st of March, 1948. It is significant to note that no other cheque or bill was deposited or account operated. All the facts bring out the true position that the initial opening of the account was intimately connected with the ultimate collection of the two bills by submission along with two un-cancelled inspection notes and by obtaining two cheques and then the withdrawal of the amount. The account was opened by Manak Chand Jain with the ulterior motive to obtain payment of money on the strength of two un-cancelled inspection notes to which he had no title. The manner in which the account was opened by the defendant and operated, does not show the absence of negligence to entitle the defendant to avail of the protection under Section 131 of the Act.

40. The next question which falls for consideration is whether the plaintiff is estopped from claiming any amount from the defendant. This issue is based on the plea of the defendant that the plaintiff made payments on the basis of the said two bills and inspection notes, submitted to them through the bank and caused the bank to believe that the payment was due to its principal. In the replication there is a mere denial of this averment.

41. It was contended by the learned counsel for the defendant that the conduct of the plaintiff in passing the bills submitted by R.K. Bhatt, account-holder, and the act of the Government drawing cheques for amount of bills in favor of the defendant are the proximate cause of loss to the plaintiff and the defendant. The act, neglect and default of the plaintiff in not looking into the papers and records of the contract with such care and caution which is expected of the plaintiff and its officials has in reality caused or permitted the defendant to believe that the claim made by R.K. Bhatt, account-holder, was genuine and thus the defendant acted upon such belief when the defendant after receipt of the cheques sent the cheques for clearance, received the proceeds thereof from the plaintiff and made the payments to R.K. Bhatt, account-holder.

42. I may recall the evidence of PW-1 who has detailed the procedure about the processing of the bills. The first step after the receipt of the bills is the check with the relevant acceptance of tender and is put by the clerk concerned to the superintendent who in turn submits it to the Gazetted Officer for review. When the Gazetted Officer finally admits the bills he signs the bills and records his initials in the audit register, and then the bills are sent back to the section concerned for preparing cheque memos. The cheque memos are prepared by the clerks concerned and put up to the assistant superintendent who checks these cheque memos and signs on the cheque memos. The cheque memos are entered in the delivery register by the delivery clerk who submits it to the assistant superintendent. The delivery register is again checked by the assistant superintendent and then the register is seat to the cheque section. The cheque section issues cheques in favor of the party. The cancellation of the inspection notes is done before the issuing of the cheques. The cancellation of the inspection notes indicates the payment of the bill. The cancellation of the inspection notes is not the basic thing for issuing a cheque It would thus be seen that the contractor's bills are subjected to a detailed scrutiny by various officials in the office of the D.A.G. (I & S). Except for the fraud or dishonest intention of Mohinder Pal Singhal omitting to make the requisite endorsement of cancellation on the inspection notes submitted by R.K. Bhatt, contractor, there is no other allegation of fraud or conspiracy of the other officials including other clerks, assistant superintendent, superintendent and gazetted officers who were instrumental in the processing of the bills. The defendant acting as an agent for collection on behalf of R.K. Bhatt, account-holder, submitted the two bills for collection along with letters, exhibits PX-2 and PX-3. I have already held that the representation of the bank in the letters could not be alone responsible for the issue of the cheques. The cheques are issued for payment due in performance of the contract. The defendant had no means, machinery or material to scrutinise whether the bills and the inspection notes on which the two bills were based, were a forgery or the two un-cancelled inspection notes were obtained by R.K. Bhatt, account-holder, by means of fraud. It was the plaintiff who had the means of knowledge to ascertain whether the inspection notes accompanying the two bills were fraudulently kept as un-cancelled and whether or not any payment was due under the particular acceptance of tender. The procedure for the issue of cheques is prescribed in the Supply Audit Manual, a copy of which has not been placed on the record and in its absence reliance can only be placed on the statement of PW-1 who admits in examination-in-chief that 'the cancellation ' of the inspection note is not the basic thing for issuing a cheque. The basic documents thus would be the acceptance of the tender (the contract between the Government and the contractor), the proof regarding the performance of the contract (such as the inspection notes) and the fact that payment is due under the contract. If the acceptance of the tender, exhibit PCE-2/1 (and exhibit P-l) as modified by exhibit PCW-2/12 showed that the contract was only for the supply of 31,450 ground sheets and full payment of Rs. 2,34,892 against these supplies had been received by the contractor by August 6, 1947, then nothing was due under the said A/T. It was the duty of the plaintiff to take care that no payment is made unless due under a contract. This information would be available in the records of the D.A.G. (I & S). The plaintiff was bound to know whether any payment was due under the acceptance of the tender or not. It was not the ordinary course of the affairs of the bank to make enquiries from its constituent whether he had in fact entered into a contract with the plaintiff, whether he had performed any part of the contract and whether any payments are in fact due under the contract. No banker could hesitate to collect the bills as came to it for collection in the normal course of banking business. And this is all that the defendant did in presenting the two bills to the plaintiff for collection along with letters, exhibits PX-2 and PX-3. The plaintiff issued the two cheques in favor of the defendant and clearly represented that the amount was due under the said two bills. The defendant collected the proceeds of the two cheques and in due course paid to the account holder. If the plaintiff misled, however innocently, the bank by issuing the two cheques in favor of the defendant in pursuance of the two bills submitted, and although the plaintiff was himself deceived by their fraud which had been committed in keeping the two inspection notes un-cancelled and/or negligence of the officials of the plaintiff in scrutinising the bills, I think the plaintiff and not the bank ought to bear the loss. The defendant acted in good faith upon the representation made in the two cheques and according to the ordinary course of business the defendant collected the proceeds of the cheque and payment made to R.K. Bhatt, account-holder, and a loss in consequence has occurred which would not have happened if the representation had been true, in my opinion, that is a loss which the plaintiff ought to suffer. Of the two innocent persons, the plaintiff must suffer by his negligence the proximate cause of the loss. The negligence being of the plaintiff is in issuing the said two cheques on the basis of the bills presented by the defendant. It is the plaintiff who has enabled R.K. Bhatt, account-holder, to occasion the loss, and must sustain it. The negligent conduct of the plaintiff is the real cause of the loss, and he is, thereforee, estopped. The negligence of the plaintiff is in the transaction itself as being the proximate cause of loss so as to constitute estoppel by negligence. My conclusions are in accordance with the law laid down by the Supreme Court as to when a plea of estoppel on account of negligence can be available to a party.

43. In New Marine Coal Co. (Bengal) Private Ltd. v. Union of India : [1964]2SCR859 , it was held :

' ...... that when a plea of estoppel on the ground of negligence is raised, negligence to which reference is made in support of such a plea is not the negligence as is understood in popular language or in common-sense ; it has a technical denotation. In support of a plea of estoppel on the ground of negligence, it must be shown that the party against whom the plea is raised owed a duty to the party who raises the plea. Just as estoppel can be pleaded on the ground of miss-presentation or act or omission, so can estoppel be pleaded on the ground of negligence ; but before such a plea can succeed, negligence must be established in this technical sense. As Halsbury has observed, 'before any one can be estopped by a representation inferred from negligent conduct, there must be a duty to use due care towards the party misled, or towards the general public of which he is one.' There is another requirement which has to be proved before a plea of estoppel on the ground of negligence can be upheld and that requirement is that ' the negligence on which it is based should not be indirectly or remotely connected with the misleading effect assigned to it, but must be the proximate or real cause of that result'. Negligence, according to Halsbury, which can sustain a plea of estoppel must be in the transaction itself and it should be so connected with the result to which it led that it is impossible to treat the two separately. '

44. Plaintiff owes a duty while dealing with the public exchequer that payment is made only when due. The plaintiff has been guilty of this special duty to take care while drawing the two cheques. This has been the proximate cause of loss and thus the plea of estoppel must succeed.

45. Thus I hold under issue No. 7 that the defendant has been negligent in opening the account as regards reference and the address of account holder. There was no duty of the defendant to make enquiries--subject-matter of issue No. 20. I hold under issue No. 21 that the bank was negligent and is not entitled to the protection under Section 131 of the Negotiable Instruments Act.

46. I, thereforee, hold issue No. 30 in favor of the defendant that the plaintiff is estopped from claiming any amount from the defendant.

Issue No. 32

' Is the plaintiff entitled to claim any interest from the defendant '

47. Interest is recoverable both at law and in equity on money obtained by fraud or conversion and retained by a defendant. The interest Act is not exhaustive of all claims as to interest and it is open to the courts to award interest in cases not coming strictly within the purview of the said Act on principles of equity, justice and good conscience.

48. In Albert Birmingham Miller, Official Assignee of the court for the relief of Insolvent Debtors at Calcutta v. Thomas Barlow [1871] 14 MIA 209 it was held (pages 232, 233) :

' On this point it is material to observe that, in the account which was drawn up between Barton Baynes & Co. and the defendant as official assignee, interest is charged and it, thereforee, appears that by the wrongful act of the defendant the plaintiff has been deprived of money which was actually making interest, and their Lordships are of opinion that, under these circumstances, a court of equity would clearly be disposed to give interest; and it is by no means clear that, even in a court of law, although the ordinary rule is, that in actions for money had and received interest is not given, the fact of the defendant having received interest would not be a sufficient ground for making the defendant liable to pay interest; and as the High Court have the powers both of a court of equity and a court of law, their Lordships are of opinion that interest has been properly given.'

49. In Trojan & Co. v. RM. N.N. Nagappa Chettiar : [1953]4SCR789 it was held :

' The next point canvassed in the courts below was in respect of the claim of the plaintiff regarding interest on the amount found due to the plaintiff from 5-4-1937 to the date of the suit. It was contended that no interest could be allowed on damages because to do so would amount to awarding damages on damages which is opposed to precedent and principle. Clark J., however, awarded interest by placing reliance on certain English decisions which enunciate the rule that an agent who receives or deals with the money of his principal improperly and in breach of his duty or who refused to pay it over on demand is liable to pay interest from the time when he so receives or deals with the same or from the time of the demand. We think it is well settled that interest is allowed by a court of equity in the case of money obtained or retained by fraud. As stated in article 423 of Vol. I of Halsbury, the agent must also pay interest in all cases of fraud and on all bribes and secret profits received by him during his agency. Their Lordships of the Privy Council in Johnson v. Rex [1904] AC 817 observed as follows: 'In order to guard against any possible misapprehension of their Lordship's view they desire to say that in their opinion there can be no doubt whatever, that money obtained by fraud and retained by fraud can be recovered with interest, whether the proceedings be taken in a court of equity, or a court of law, or in a court, which has jurisdiction both equitable and legal.' '

50. No serious argument has been addressed by the learned counsel for the defendant about the power to grant interest on the money obtained by conversion. I have already expressed my opinion that there is estoppel by negligence. Even otherwise the facts of this case do not justify the grant of interest, assuming that the defendant is liable for the amount of the two cheques. The bank has not retained the money of the two cheques but passed it on to R.K. Bhatt, account holder, soon after its receipt. The loss has occasioned to the parties because of the negligence of the plaintiff in the transaction itself. As such I would not grant interest to the plaintiff. I hold under Issue No. 32 that the plaintiff is not entitled in any case to claim any interest from the defendant.

Issue No. 23:

'Is the bank liable to the plaintiff in the sum claimed or any other sum by reason of any negligence or breach of duty or as for money had and received to the plaintiff's use '

Issue No. 31:

' Is the plaintiff entitled to the amount claimed or any other amount from the defendant on account of principal? '

51. As there is estoppel by negligehce, the plaintiff is not entitled to claim any amount from the defendant and I hold issues Nos. 23 and 31 against the plaintiff.

52. The result of the above discussion is that the suit fails and is dismissed. On the peculiar facts of this case. I have to leave the parties to bear their own costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //