K.K. Mathew, J.
1. These appeals are directed against the decree and the judgment in O. S. No. 19 of 1954 of the District Court, Alleppey, subsequently renumbered as O. S. No. 229 of 1956 of the Alleppey Sub-court. The 1st defendant is the appellant in S. A. No. 1120 of 1964 and the 2nd defendant in S. A. No. 1287 of 1964.
2. The suit was for recovery of the amount covered by Ext. P-1, a demand draft, and the interest thereon, from defendants 1 to 3.
3. The plaintiff is the proprietor of a business carried on at Alleppey in the name and style of 'The Pioneer Trades', Kama Prasad Auddy, P. W. 2 carried on a business at Calcutta in the name and style of M/s. Hurry Dass Auddy. M/s. Hurry Dass Auddy was a customer of the New Market branch of the Central Bank of India, Ltd., the 1st defendant.
4. The plaintiff used to purchase goods from M/s. Hurry Dass Auddy from 1953 onwards and pay the price thereof sometimes by purchasing demand drafts from the Alleppey branch of the 1st defendant-Bank on its New Markel branch at Calcutta payable to Hurry Dass Auddy or order and delivering the same to M/s. Hurry Dass Auddy through P. W. 1, a friend of the plaintiff at Calcutta. Ext. P-1 is one such draft purchased by the plaintiff from the Alleppey branch of the 1st defendant-Bank for Rs. 4,000. It was drawn on the New Market branch of the 1st defendant at Calcutta and was payable to 'Hurry Dass Auddy'. It was sent by the plaintiff to P. W. 1 to be delivered over to M/s. Hurry Dass Auddy. It was intercepted during transit, and was presented before the Shambazar branch of the 2nd defendant by the 3rd defendant for collection, with a forged endorsement in his favour purporting to be that of the payee. The 3rd defendant endorsed Ext. P-1 in favour of the 2nd defendant. The 2nd defendant credited the amount covered by Ext. P-1 in the account of the 3rd defendant and cashed it from the New Market branch of the 1st defendant-Bank on 2-11-1953. The plaintiff's case was that (the appearance of) the endorsement on Ext. P-1 draft, purported to have been made by the payee, was sufficient to put the 1st defendant on enquiry, that the payment to the 2nd defendant by the 1st defendant was not a payment in the course, that the 1st defendant is liable to the plaintiff for the amount and the interest thereon, and that defendants 2 and 3 are guilty of conversion of the amounts, and are equally liable to the plaintiff for the amount and interest.
5. The 1st defendant contended that the 2nd defendant presented Ext. P-1 on 2-11-1953 through the clearing house and that the amount was paid in good faith and without negligence in accordance with the apparent tenor of the instrument; and claimed immunity under Section 85A of the Negotiable Instruments Act, 1881 (Act 26 of 1881), hereinafter referred to as the Act. The 2nd defendant contended that the amount covered by Ext. P-1 was collected on behalf of its customer, the 3rd defendant, in good faith and without negligence; and claimed protection under Section 131A of the Act. The 3rd defendant did not contest the case.
6. The trial court held that the payment of the amount to the 2nd defendant by the New Market branch of the 1st defendant-Bank was not a payment in due course, and therefore, the 1st defendant was not protected by Section 85A of the Act. The Court also held that since the 2nd defendant collected the amount on behalf of its customer, the 3rd defendant, in good faith and without negligence, it is entitled to get the protection envisaged by Section 131A of the Act, The suit was therefore decreed as against defendants 1 and 3, but dismissed as; against the 2nd defendant.
7. The correctness of the judgment and the decree was challenged in A. S. No. 235 of 1962 by the plaintiff and by the 1st defendant in A. S. No. 237 of 1962 before the District Court.
8. The District Court agreed with the finding of the learned Subordinate Judge, and held that the 1st defendant is not entitled to claim immunity under Section 85A of the Act as the payment was not in due course, but differed from the finding of the trial court, and found that the 2nd defendant was not entitled to the protection under Section 131A of the Act, and decreed the suit as against it also.
9. Both the courts below have found that M/s. Hurry Dass Auddy is a business concern of P. W. 2, that the concern had a current account in the New Market. branch of the 1st defendant at Calcutta that previous to Ext. P-l, two demand drafts were purchased by the plaintiff' from the Alleppey branch of the 1st defendant on its New Market branch at Calcutta, payable to 'Hurry Dass Auddy,' that they were endorsed by P. W. 2 on behalf of the payee in his capacity as the proprietor of M/s. Hurry Dass Auddy, that the amounts due thereunder were credited in the account of M/s. Hurry Dass Auddy, that the 1st defendant therefore had reason to believe that the payee in Ext. P-1, namely, Hurry Dass Auddy was the business concern known as M/s. Hurry Dass Auddy and that P. W. 2 its sole proprietor, that the 1st defendant, acted without due care and therefore the payment made by it to the 2nd defendant was not a payment in due course.
10. The main contention urged on. behalf of the 1st defendant was that the payment made by the 1st defendant to the 2nd defendant was a payment in due course. In other words, the argument was that 'Hurry Dass Auddy' was the payee under Ext. P-l, that there was an endorsement on the instrument by a person purporting to be the payee, that the 1st defendant had no reason to suspect, that 'Hurry Dass Auddy' was a fictitious person, or that the endorsement on the instrument was not an endorsement made by him, that there was no negligence in its thinking that the signature of payee was genuine and therefore it is entitled to the protection envisaged by Section 35A of the Act.
11. Sections 85 and 85A of the Act read:
'85(1) Where a cheque payable to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course.
(2) Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict or exclude further negotiation.
85A. Where 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 endorsed by or on behalf of the payee, the bank is discharged by payment in due course.'
12. Under the Act, a banker is protected only if he pays the amount in due course, that is, not only in accordance with the apparent tenor of the instrument but also in good faith and without negligence, and to a person, under circumstances not affording a reasonable ground for believing that he is not entitled to receive the payment.
'The corresponding English Section (Section 60) provides that the banker must in order to entitle him to protection pay the cheque in good faith and in the ordinary course of business; and under Section 90 Of the Bills of Exchange Act. a thing is said to be done in good faith where it is done honestly, whether negligently or not. It would seem, therefore, that in English law, however negligent a banker might have been, provided he acts honestly, he is protected if the payment is one made in the ordinary course of business. Negligence does not necessarily preclude the protection of Section 60 of the English Act. In this matter, the law in India seems to be stricter than in England and the protection afforded to the banker is not so wide.' (See the Negotiable Instruments Act by Bhashyam and Adiga --11th Edition -- page 410).
13. The question whether there was regligence in making the payment is question of fact. In Metropolitan Railway Co. v. Jackson. (1878) 47 LJQB 303 at p. 305, Lord Chancellor Cairns said:--
'The Judge has to say whether any facts have been established by evidence from which negligence may be reasonably inferred; the jury has to say whether from those facts, when submitted to them, negligence ought to be inferred.'
14. In Commissioners of Taxation v. English Scottish and Australian Bank Ltd., AIR 1920 PC 88 at p. 91. Lord Dunedin said that the question of negligence is one of fact and that a finding by a Judge is not liable to be interfered with unless it is not supported by any evidence.
15. The concurrent finding of the courts below on the question of negligence is clear. They have found that the branch of the 1st defendant-Bank at New Market, Calcutta, had reason to believe that 'Hurry Dass Auddy' is really the business concern known as 'M/s. Hurry Dass Auddy', that P. W. 2 is its sole proprietor and that the payee in Ext. P-1 is really M/s. Hurry Dass Auddy of which P. W. 2 is the proprietor. That finding, I think, is supported by evidence. The endorsement in Ext. P-1 by the first payee is an endorsement in full. It is partly in manuscript and partly in a rubber stamp impression. It is as follows:
'please pay to Esmitter & Co. Hurry Dass Auddy'.
The words 'please pay to' are in manuscript while 'Esmitter & Co. ere in a rubber stamp impression. How 'Hurry Dass Auddy' got the rubber stamp of 'Esmitter & Co.' of which the 3rd defendant claims to be the proprietor, is something which should normally excite suspicion in the mind of a careful banker. The fact that the endorsement by the 3rd defendant is in the same rubber stamp impression should naturally have put the 1st defendant on enquiry as to how 'Huriy Dass Auddy' got the rubber stamp.
16. Ext. P-20 is the folio of the ledger kept by the New Market branch of the 1st defendant in respect of demand drafts drawn by the Alleppey branch on the New Market branch of the 1st defendant. The demand drafts purchased by the plaintiff in favour of Hurry Dass Auddy are the only drafts included in the folio. Prior to the presentation of Ext, P-1 demand draft two other drafts Nos. 17/1 and 17/2 drawn on 3rd and 21st October respectively had been presented for encashment at the New Market branch of the 1st defendant by Rama Prasad Auddy (P. W. 2), the sole proprietor of the business concern M/s. Hurry Dass Auddy. He was having a current account in the New Market Branch for the last 20 years. P. W. 2 has sworn that he signs cheques and drafts as 'For M/s Hurry Dass Auddy, Ramprasad Auddy, sole proprietor,' and that the two demand drafts drawn in favour of 'Hurry Dass Auddy' had been sent by him to the New Market branch of the 1st defendant for crediting their proceeds in Ext. P-30, the current account of M/s. Hurry Dass Auddy and that the amounts covered by the drafts have been credited. Ext. P-3 is the folio of the telegraphic transfer issue register of the Alleppey branch of the 1st defendant-Bank. From Ext. P-3 it is clear that from 5th August 1953, the plaintiff made remittances of amounts by T. T. to M/s Hurry Dass Auddy, Ext. P-28 is the corresponding T. T. register of the New Market branch of the 1st defendant-Bank. Ext. P-31 series are the T. T. receipts kept by the New Market branch of the 1st defendant-Bank in respect of Ext. P-3 remittances. Some of these receipts would show that the remittances were to 'Hurry Dass Auddy.' In all the receipts, P. W. 2 has signed 'for M/s. Hurry Dass Auddy' describing himself as the sole proprietor. So, by a course of conduct, the New Market branch of the 1st defendant-Bank had come to know that 'Hurry Dass Auddy is the name of the business concern of a customer of theirs, namely, P. W. 2. The 1st defendant's branch at New Market dealt with the two demand drafts drawn prior to Ext, P-1 in the same month. The Bank should therefore have been put on enquiry when they found that the signature of the payee as 'Hurry Dass Auddy'. No person employed in the New Market branch of the 1st defendant has been examined in the case to show the circumstances in which the payment under Ext. P-1 has been made to the 2nd defendant. I think, the 1st defendant has not succeeded in proving good faith and absence of negligence on its part in paying the amount to the 2nd defendant.
17. Then, the further question is whether the 2nd defendant is liable to the plaintiff. The liability of the 2nd defendant, has, to be decided with reference to the provisions of Sections 131 and 131A of the Act. They read:--
'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.
Explanation:-- 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.
131-A. The provisions of this Chapter shall apply to any draft, as defined in Section 85A. as if the draft were a cheque.'
In determining the question whether a collecting Banker has or has not been negligent in a particular case it is necessary to take into consideration many factors, such as the customer, the account and surrounding circumstances.
18. In Brahma v. Chartered Bank. AIR 1956 Cal 399 at p. 409, the Calcutta High Court observed:
'Now in finding out whether a collecting banker has or has not been negligent in a particular case, it becomes necessary to take into consideration many factors * such as the customer, the account and the surrounding circumstances ......'
The burden of proving absence of negligence is on the 2nd defendant. In the above referred case, the Calcutta High Court said:
'The onus of proving 'good faith' and 'absence of negligence' is on the banker claiming protection under Section 131,Negotiable Instruments Act.'
19. In Sanyasilingam v. Exchange Bank of India, AIR 1948 Bom 1, the Court held that the test of negligence under Section 131 is whether the payment, considered in the light of the circumstance antecedent and present, was so much out of ordinary course, that it ought to have aroused doubt in the banker's mind and caused him to make enquiries; and that primarily the enquiry should be to find out whether there is negligence in collecting a cheque and not in opening the account; but if there was any antecedent or present circumstance which aroused the suspicion of the banker then it would be Ms 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. The Court said that where the account of the customer was opened without obtaining a reference and without any enquiry and where the manner in which the account was operated upon was peculiar, and where there was something in the endorsement to the customer which would excite suspicion, then it must be held that the bank failed to prove that it was not guilty of negligence in collecting the amount of the draft.
20. Counsel for the 2nd defendant referred to the decision in AIR 1920 PC 88, and said that there was no negligence on the part of the 2nd defendant.
The facts there were: One A. Friend of Sydney, put a cheque drawn by himself on the Australian Bank of Commerce for 786.13.3 into an envelope, along with, some other cheques drawn by other members of his family, and addressed the envelope 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. person unknown and was never cashed by the Commissioners of Taxation. On the following day a man who gave his name as Stewart Thallon entered the head office of the respondents' Bank at Sydney and1 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 Thallon. On the following day the stolen cheque was handled in by Thallon; and on the next day Thallon withdrew three sums of 483.16.6, 260.10.0, and 50.12.6 by cheques drawn by himself. Thallon was never seen again and it was found that no per- son 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 cheque, and the test of negligence which their Lordships adopted was whether the transaction of paying in 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 bankers' mind and caused them to make enquiry. Their Lordships emphasized that negligence was a question of fact and they rejected the argument of the learned Chief Justice of the Supreme Court that the care that the bankers should take should not be less than a man invited to purchase or cash such a cheque for himself might reasonably be expected to take. Their Lordships thought that it was no part of the business or ordinary practice of individuals to cash cheques which were offered to them, whereas it was part of the ordinary business or practice of a bank to collect cheques for their customers.
The argument that was presented to the Board was that the bank was negligent in collecting the cheques for a customer who was of recent introduction and about whom the bank knew nothing. Their Lordships then pointed out that there was nothing suspicious about the way the account was opened; they were of the opinion that there was nothing suspicious in the fact that a cheque was paid into that account for collection one day after the account had been opened; they further pointed out that if it was laid down that no cheque should be collected without a thorough inquiry as to the history of the cheque, it would render banking business as ordinarily carried on impossible; customers would often be left for long periods without available money. But their Lordships do say that if the cheque had been for some unusually large sum, perhaps suspicion might have been aroused; but whether the cheque is or is not for an unusually large sum is really a question of degree. Their Lordships finally point out that in the cheque presented by Thallon there was no note of alarm or of warning which could have aroused the suspicion of the Bank. Under the circumstances their Lordships dismissed the appeal and held! that the Bank was not negligent.
21. Counsel also strongly relied on the decision of the Bombay High Court in Bapulal v. Nath Bank Ltd.. AIR 1946 Bom 482 and said that the only question for consideration is whether there was negligence on the part of the 2nd defendant in collecting the draft and that the question whether there was negligence in opening an account in the name of the 3rd defendant was immaterial and relied on the observations of Chagla J. (as he then was):
'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 circumstance would be the opening of the account. In certain cases failure to make enquiries as to the integrity of the proposed customer would constitute negligence. But it would depend upon the facts and circumstances attendant upon the opening of an account by the new customer whether an enquiry about him was necessary and called for or not. There is no absolute and unqualified obligation on the Bank to make enquiries about the respectability of the proposed customer. It is true that modern banking practice requires that a customer should be properly introduced and it would be wiser and more prudent for a. Bank not to accept a customer without some reference. But it cannot be suggested that after a Bank has been given a proper reference with regard to the proposed customer and although there are no suspicious circumstances attendant upon the opening of the account it is still incumbent upon the bank to make further enquiries with regard to the customer, and the bank cannot be held to be guilty of negligence in having failed to make any such further enquiries so as to disentitle it to the protection given by Section 131.' (see the headnote).
The question whether negligence could. be inferred from the circumstances in which an account was opened for a customer and the manner in which it was operated upon was considered in Lloyds Bank Ltd. v. Savory & Co., 1933 AC 201 at p. 236 Lord Wright said that:
'It is true that the question of absence of negligence must be considered separately in regard to each cheque, but it is also true that the matter must be considered, as Lord Dunedin says in Commissioners of Taxation v. English, Scottish and Australian Bank Ltd., 1920 AC 683 at 689, in view also of all the circumstances antecedent and present. There may thus be relevant negligence in connection with the opening of the customer's account by the banker. It is now recognised to be the usual practice of bankers not to open an account for a customer without obtaining a reference and without inquiry as to the customer's standing; a failure to do so at the opening of the account might well prevent the banker from establishing his defence under Section 82 if a cheque were converted subsequently in the history of the account: this rule was applied by Bailhache J. in Ladbroke v. Todd, (1914) III LT 43 who on that ground held that the banker had not made out his defence under Section 82. The matter is now so well appreciated by bankers that the appellants have a printed rule saying that no new current account is to be opened without knowledge of or full enquiry into the circumstances and character of the customer.'
The passage would indicate that what goes into an account calls for as much careful scrutiny as what goes out and the circumstances in which an account is opened and operated upon are relevant to the enquiry.
22. In the light of these decisions, let us see whether there was negligence on the part of the 2nd defendant in collecting the draft. The protection under Sections 131 and 131A is afforded only if the Banker has received the payment on behalf of a customer in good faith and with due diligence. Ext. P-1 shows that it is crossed generally. The term 'customer' is not defined in the Act. Broadly speaking, a customer is a person who has the habit of resorting to the same place or person, to do business. So far as banking transactions are concerned he is a person, whose money has been accepted on the footing, that the Banker will honour up to the amount standing to his credit, irrespective of his connection being of short or long standing. The 3rd defendant, in this case, opened an account which the Shambazaar branch of the 2nd defendant-Bank on 27-11-1952. The account was opened by depositing Ra 300. Ext. B is a copy of that account. After the account was opened the 3rd defendant deposited on 29-11-1952 another sum of Rs. 300 by cheque. Thereafter, till the 31st of December, 1952 he withdrew amounts from the Bank in piecemeal. The balance he had to his credit on the 1st of January, 1953 was only Rs. 236. From 28th of April, 1953 the 3rd defendant began to withdraw amounts by cheque for less than Rs. 10. He had only a balance of Rs. 8 on the 31st of December, 1953. The balance to his credit was nil on the 25th November, 1954. Ext. I is the current account rules of the 2nd defendant-Bank, which would show that a current account is to be opened with not less than Rs. 500. It also would show that no agent of the Bank is authorised to open a current account for a sum of less than Rs. 500. The rules are also clear that the balance in the current account should not be allowed to fall below Rs. 300 at any time and that no cheque shall be drawn for a sum of less than Rs. 20 for payment over the counter.
It is clear from the evidence that no less than 12 cheques for less than Rs. 10 were honoured by the 2nd defendant-Bank obviously treating the 3rd defendant as a favoured constituent or customer. All these facts may show that even though the 3rd defendant had a current account with the 2nd defendant-Bank, it is doubtful whether he could be treated as a 'customer' for the purpose of Section 131 of the Act. The current account was opened and operated upon in flagrant violation of the rules of the Bank as embodied in Ext. 1.
The testimony of D. W. 2 would reveal that before Ext. B account was opened, the 3rd defendant was not properly introduced. Ext. C is the application filed by the 3rd defendant for opening Ext. B account The 3rd defendant, who is Sudhir Kumar Mithra as disclosed by Exts. P-20 and P-20(a) has described himself in Ext. C as Sudhir Kumar Mitter. The account was opened in the name of the firm 'Esmitter & Co.' doing Hardware and Chemical business. The person who introduced the 3rd defendant is mentioned in Ext. C application as one K. Chakravarthy. This person was never contacted by D. W. 2 or by any other officer of the 2nd defendant-Bank before the account was opened. The testimony of D. W. 2 would also show that the only person contacted was the brother of the 3rd defendant, Sushil Kumar Mithra, who is said to be a customer of the 2nd defendant-Bank. Barring the statement of D. W. 2, absolutely no record has been produced for making cut that Susil Kumar Mithra was a customer of the 2nd defendant-Bank. It is clear from Ext. C application that the name of Susil Kumar Mithra was not written at the time when the name of Sri K. Chakravarthy was written. The name of Susil Kumar Mithra is written in a different hand and ink. Susil Kumar Mithra also does not figure as a witness in the case. It is difficult therefore to accept the testimony of D. W. 2 when he says that Ext. B account was opened after enquiries with Susil Kumar Mithra. The 3rd defendant, who is Sudhir Kumar Mithra and is also the brother of Susil Kumar Mithra has sworn his name in Exts. C and F as Sudhir Kumar Mitter. Evidently, no satisfactory enquiry regarding this apparent dissimilarity in name was made by D. W. 2 before Ext. B account was opened. Ext. H is a letter written by the 3rd defendant to the 2nd defendant. In Ext. H Esmitter and Co., is described as 'Engineers and Contractors' while in Ext. C application it is described as one carrying on the business in 'hardware and chemicals'. The plaintiff has sworn that the enquiries made by him disclosed that there is no firm in Calcutta of the name 'Esmitter & Co.,' and that the same is only a bogus and fictitious one. It is also clear that no enquiry was made as regards the regularity of the endorsements in favour of 'Esmitter & Co.,' on Ext. P-1. Hurry Dass Auddy, the payee under Ext. P-1, is not admittedly a customer of the 2nd defendant. In the light of these facts, the 2nd defendant should have made an enquiry as to how the 3rd aefendant came into possession of Ext. P-l, and the circumstances under which 'Hurry Dass Auddy' happened to endorse Ext. P-1 in his favour. Such an enquiry was rendered all the more necessary in the face of the endorsement in full purported to have been made by the payee. 'Hurry Dass Auddy,' on the draft partly in writing and partly by using the rubber stamp of the 3rd defendant. The evidence of D. W. 2, would show that in spite of the suspicious circumstances under which the account of the 3rd defendant was opened and the manner in which it was operated upon, no enquiry whatsoever was made before getting Ext. P-1 endorsed in favour of the 2nd defendant: the moment it was presented by the 3rd defendant the amount was credited in the 3rd defendant's account and it was forwarded for collection to the New Market branch of the 1st defendant Bank. I am not saying that the fact that the amount under Ext. P-1 was credited in the account of the 3rd defendant before it was presented to the 1st defendant is of much consequence, for the explanation to Section 131 would indicate that even if credit has been given before a cheque is presented for payment, that would not in any way take away the protection given by the section. Apart from that, I think, the finding of the lower appellate court that the 2nd defendant is not entitled to get the benefit of Section 131A is clearly right.
In the result, the decree of the lower appellate court is confirmed and the appeals are hereby dismissed with costs of the respondent-plaintiff.