1. These two appeals arise out of the judgment of the learned Temporary Additional District Judge, Kottayam, in O. S. No. 146 of 1124. A. S. No. 367of 1954 is by the plaintiff against the disallowance of costs by the learned District Judge. A. S. No. 437 of 1954 is by the defendant, the Catholic Bank of India Ltd., against the main decree passed by the District Judge.
2. O. S. No. 146 of 1124 was filed by Woodbriar Estate Ltd., against the Catholic Bank of India Ltd., for recovery of two sums of Rs. 10,000 and Rs. 5,000 together with interest thereon. Plaintiff's case was that in pursuance of contracts entered into with Mody and Company, Bombay, the latter company, as purchasers, had sent two demand drafts on 16-3-1946 and 20-3-1946, payable on certain banks at Kottayam. Krishnan-kutty and Veloo (India) Ltd., were the managing agents for the plaintiff company and one Mr. Veloo was the Managing Director of the Managing Agents Co.
The two drafts for Rs. 10,000 and Rs. 5,000 were endorsed by the Managing Director, Mr. Veloo, and delivered for collection to the defendant Bank. The defendant Bank instead of collecting the amounts and paying the same to the plaintiff company, credited the same to the personal account of Mr. Veloo in the name of Wilson and Company. Veloo appears to have drawn the amounts and misappropriated the same. The plaintiff's case was that the said payment by the defendant Bank to Veloo was unauthorised and that the plaintiff is in law entitled to recover the said two amounts covered by the two drafts on the ground of conversion and wrongful detention.
3. The defendant Bank contested the claim on the ground that they paid over the amount to Mr. Veloo under his instructions and that they had acted in good faith and in due course of business and as such there was no liability in law for refunding the amounts to the plaintiff, especially as the amounts had already been paid over to the Managing Director of the Managing Agents, Mr. Veloo.
4. The learned District Judge on a consideration of the relevant sections of the Negotiable Instruments Act and also on the evidence placed before him came to the conclusion that the defendant Bank cannot be said to have acted in good faith and without negligence. In particular, the learned Judge has also referred to the actual endorsement on the two drafts and held that that endorsement clearly puts the defendant Bank on notice that the amount has to be paid only for the plaintiff company and not to Veloo in his individual capacity. In this view, the learned Judge held that the payment of the amounts covered by the two drafts to Mr. Veloo was wrongful in law and as such he passed a decree against the defendant Bank for the amount claimed. The learned Judge directed the parties to bear their own costs and this aspect of the matter is considered by him in paragraph 20 of the judgment.
5. As stated earlier, the defendant Bank has filed A. S. No. 437 of 1954 and A. S. No. 367 of 1954 is filed by the plaintiff.
6. Mr. P. Govindan Nair, the learned counsel for the defendant-appellant has raised two main contentions before us. They are (i) that the learned Judge's finding that the defendant has not acted in good faith and without negligence is wrong and that the learned Judge has not properly applied the correct legal principles regarding the duties of a collecting Bank; and (ii) that in any event, the learned Judge erred in treating the defendant Bank as a collecting Bank and that heshould have treated the said Bank as a Bank which has paid value for the drafts, and as suchhe should have applied different legal principles applicable to such paying Banks.
7. Regarding the first contention, we are to state that we are unable to agree with the learned counsel, Mr. Govindan Nair. In our view, the learned Judge has come to a correct finding on the evidence adduced in the case. The duties of a collecting banker have been considered in the decisions in Bapulal Premchand v. Nath Bank, AIR 1946 Bom 482 (A); Sanyasilingam v. Exchange Bank of India, AIR 1948 Born 1(B); Brahma Shum Shere Jung Bahadur v. Chartered Bank, (S) AIR 1956 Cal 399 (C) and Madras Provincial Cooperative Bank Ltd. v. South Indian Match Factory, Ltd., AIR 1945 Mad 30 (D).
In construing Sections 85 and 131 of the Negotiable Instruments Act these decisions have laid down that whether a Bank is guilty of negligence depends on the particular facts of each case. The onus of proving 'good faith' and 'absence of negligence' is on the banker claiming protection under the Act. It is also laid down that in finding out whether a collecting banker has or has not been negligent in a particular case it becomes necessary to take into consideration any factorssuch as the customer, the account and the surrounding circumstances.
8. In this case there is no dispute that the two demand drafts, Ex. F and Ext. A, were in the name of M/S. Woodbriar Estate Ltd. Ex. F dated 10-3-1946 for Rs. 10,000 was a draft in favour of M/s. Woodbriar Estate Ltd., by the Indo Mercantile Bank Ltd., Bombay, on its branch at Kottayarn. The next draft for Rs. 5,000 dated 20-3-1946 marked Ex. A in the case was by the Central Bank of India Ltd., in favour of the plaintiff company payable on the Bank's branch at Kottayam. Both these drafts were endorsed as follows :
'For Woodbriar Estate Ltd.,',
'For Krishnankutty and Veloo (India) Ltd,
Sd/- V. N. Veloo,
Managing Director, Managing Agents'.
These endorsements are enough to put the defendant Bank clearly on notice that the amount is payable only to Woodbriar Estate Ltd., and not to anybody else. The learned Judge has set out the evidence of Mr, John, D. W. 1 who was the Agent of the defendant Bank at Kottayam. The evidence extracted, by the learned Judge clearly shows that it could not be said that the Bank has acted in good faith and without negligence.
When Mr. Veloo asked the defendant Bank to collect the proceeds of the drafts to his company, Wilson and Company, the bank officials have never cared to find out what exactly is the connection between the plaintiff company and Wilson and Company and whether the plaintiff company had authorised the payment of the amount to Wilson and Company. The evidence adduced in the case clearly justifies the finding of the learned District Judge that the Bank cannot be said to have acted in good faith and without negligence in paying over the amount to Wilson and Company. Therefore, we accept the finding of the learned District Judge on this point.
9. Then Mr. Govindan Nair contended that the defendant bank should be considered to be not a collecting Bank but a paying bank in the sense that they had paid for the drafts and as such they have no liability in law for refunding the amounts. It must be stated at the outset that such a defence has not been raised in the written statement of the Bank. The main contention was that they had no liability to pay the amounts to anybody other than the person who presented the draft endorsed by the payee and that as it was Mr. Veloo who presented the drafts to them they were entitled to pay the amounts to Mr. Veloo and they were so paid to the account of M/s. Wilson and Company under directions from Mr. Veloo.
Based on this reasoning they contended that they had paid the amounts in good faith and in due course of business. That they have paid value for the drafts and that they acted as a paying Bank has not been mentioned at all in the written statement. In fact such a plea, if it had been laised, would require evidence as to the exact time when the drafts were given to them, when they paid cash for the same and when they collected the proceeds of the drafts. That such a contention was not raised even before the learned District Judge is clear from what is stated in paragraph 6 of the judgment. The learned Judge observes as follows :
'That defendant was acting only in the capacity of a collecting bank is not disputed.'
Further, lower down, the learned Judge again observed in the same paragraph,
'No argument was made for the defendant on the basis that Veloo was a holder and/or that defendant paid value.'
The principles applicable to a paying banker have been summarised in 'Banking Law and Practice in India' by Mr. M. L. Tannan, 1954, 8th Edition, at page 215. In this connection reference also can be made to the decision reported in Baker v. Barclays Bant Ltd., 1955-2 All ER 571 (E), where the principles applicable to such a case have been laid down. But we feel that it is unnecessary to embark on this branch of the argument because it is clearly seen from Ex. II, copy of the current account of Wilson and Company with the defendant bank that Ex. F, the draft for Rs. 10,000 dated 18-3-1946 was collected by the defendant bank on 21-3-1946 and credited to the account of Wilson and Company on that date.
On the same day and on subsequent days Mr. Veloo has drawn practically the whole amount, The said Ex. II also shows that the second draft, Ex. A, dated 20-3-1946 for Rs. 5,000 was collected by the defendant bank on 29-3-1946 and credited on the same day to the account of Wilson and Company. The said amount along with other amounts is drawn by Mr. Veloo on 30-3-1946.
The dates given above will clearly show that the defendant bank cannot be considered to be a paying Bank. The entries in their own accounts extracted above prove that it was only after the drafts were collected that they paid the amount to Mr. Veloo. It cannot be considered that the defendant bank occupies the position of a paying bank who has paid value for the drafts even before realising the same from third party bankers. In this view, even the second contention raised by Mr. Govindan Nair fails.
10. In the result, the decree and judgment of the learned District Judge are confirmed and A. S. No. 437 of 1954 is dismissed with costs.
11. A. S. No. 367 of 1954 is filed by theplaintiff against the disallowance of costs by thelearned District Judge. Mr. Rama Iyer, the learned counsel for the appellant contends, that thelearned Judge erred in not awarding costs to hisclients. Mr. Govindan Nair, the learned counselfor the defendant, has contended that the order othe lower Court regarding costs can be supportedin view of the Travancore Act 12 of 1124. It isunnecessary for us to go into the provisions of thesaid Act as we are satisfied that the order passedby the learned District Judge cannot be said to bewrong. The learned Judge has exercised his discretion properly and disallowed costs to the plaintiff. We see no reason to interfere with the saidorder and accordingly A. S. No. 367 of 1954 willalso stand dismissed, but in the circumstances, theparties will bear their costs in this appeal,