P.V. Rajamannar, C.J.
1. This is an appeal by the plaintiff in O. S. No. 55 of 1951, in the court of the Subordinate Judge of Madurai and is confined to the portion of the claim which was disallowed by the learned Judge. The plaintiff is the Tanjore Permanent Bank Ltd., Tanjore. The suit was for recovery of Rs. 12,553-14-6 duo from the first defendant on dealings up to 4th December, 1950. The first defendant was a constituent of the Madurai branch of the plaintiff bank.
He had a current account with that branch and he was also granted facilities for discounting bills. The amount claimed is the balance alleged to be due from the first defendant in respect of his current account which was overdrawn. The first defendant had executed a registered memorandum of equitable mortgage on 30th October, 1957, by deposit of title deeds of some of his properties in Madurai for securing overdraft accommodation to the extent of Rs. 15000.
The second defendant was the manager of the Madurai branch during the material period and a decree was claimed against him on the ground that without the sanction of the head office, in collusion with the first defendant, he granted large amounts of overdrafts to the first defendant. The plaintiff prayed for a personal decree against de-fendanls 1 and 2 and a mortgage decree in respect of the properties covered By the equitable mortgage.
The first defendant denied that the sum claimed by the plaintiff was due from him and pleaded that on a proper taking of account a sum of Rs. 51-12-5 would be due to him from the bank. He also denied that the equitable mortgage could be enforced to recover the suit amount. He therefore prayed that the suit may be dismissed, The second defendant denied any collusion between him and the first defendant and pleaded that he was not personally liable to any extent.
The learned Subordinate Judge who tried the suit passed a decree in favour of the plaintiff as against the first defendant for Rs. 3215-6-7 and interest thereon at six per cent per annum from the date of suit. In respect of this amount there was a preliminary mortgage decree. The suit as against the second defendant was dismissed. The subject matter of the appeal is the difference between the amount claimed in the suit and the amount actually decreed by the lower court.
2. In this appeal Mr. K. Bhashyam Aiyangar, learned counsel for the plaintiff-appellant, dealt with only two of the items in the account between the plaintiff bank and the first defendant, namely, the sums of Rs. 7600 and Rs. 4200 debited against the first defendant as moneys paid as per two cheques bearing Nos. 225033 and 225032 on 24th July, 1947 and 5th August, 1947 respectively. The first defendant denied his liability for these two sums.
He did not deny that the two cheques in question were signed by him. His case briefly was as follows : He wanted a sum of Rs. 16000 from the bank. He was asked by the second defendant, the then manager, to send three blank cheques to enable the money being drawn. Actually, however, the total sum of Rs. 16000 was drawn from the bank on one of the three blank cheques, namely, 225034.
According to the first defendant, the other two blank cheques which were not really necessary were not returned to him but they were used by the bank officials to fill them up and draw Rs. 7600 and Rs. 4200 respectively. In the cheque for Rs. 7600 (Ex. B. 80) the payee's name as found is K.R. Subbaranian, admittedly one of the clerks of the first defendant. In the other cheque (Ex. B. 81) the payee's name is shown as Ramachari, another clerk of the first defendant. On the back of the two cheques the names of the respective payees are found.
The first defendant, however, denied that the signatures were those of Subbaraman and Ramachari. In the third cheque the payee's name was also K.R. Subbaraman and the first defendant admitted that it was Subbaraman who signed on the back of that cheque. The case developed at the trial was that the accountant, Nallaperumal, filled up the two blank cheques and presumably drew the money for his own benefit.
3. There is no reliable evidence as regardsseveral important matters. Except the evidence ofthe first defendant himself there is nothing on record to show that the first defendant sent withhis clerk Subbaraman three blank cheques in accordance with the instructions of the second defendant. The second defendant himself denied thathe ever asked the first defendant to send him threeblank cheques. The first defendant departed fromhis original case that the second defendant instructed him to send the three blank cheques andthat he was responsible for the unauthorised collection of moneys.
Nallaperumal, the accountant, was put forward as the villain of the piece. P. W. 3 the Inspector of plaintiffs branches admitted that the two impugned cheques are in the handwriting of Nallaperumal, Except the entry in the plaintiffs ledger, there is no other evidence of actual payment of the two sums of Rs. 7600 and Rs. 4200. Subbaraman was dead by the time of the trial. Ramachari was alive but was not called; nor was Nallaperumal.
4. It is, therefore, impossible to say who actually got the benefit of the money represented by the two cheques. The utmost that can be presumed is that money was paid by the bank to some one on the two cheques. The first defendant deposed in his evidence that he knew about these two cheques being filled up and cashed by some one only during the criminal case which was launched against defendants 1 and 2, Nallaperumal and others.
The first defendant did not produce his pass book with the plaintiff-bank. He said that he gave the pass book to the second defendant as he wanted to check the entries some time in December, 1947 but it was not returned to him. It is to say the least most surprising that the first defendant should have reconciled himself so easily to the loss of the pass book. In any event one would have expected him to ask for a duplicate pass book.
The importance of the pass book lies in this, that it would have shown the two debits in respect of the two impugned cheques and the first defendant, if his case is true, would have immediately set about making enquiries. Actually it is only four years later that the first defendant is attacking the said debits. The learned Subordinate Judge held that Nallaperumal, the accountant of the Madurai branch, forged the two cheques, filled them up himself and passed them for payment to himself and misappropriated the two amounts of Rs. 7600 and Rs. 4200. Therefore he held that the first defendant could not be debited with these two amounts. He practically exonerated the second defendant from the fraud.
Throughout his discussion on this point the learned Judge assumed that Nallaperumal had passed the cheques for payment to himself. But we are unable to find any evidence to support this assumption. Even assuming that Nallaperumal filled up the body of the cheques over the first defendant's signature, he might have done so on instructions of the first defendant's clerk. One can speculate on several possibilities, like for instance, one of the first defendant's clerks himself drawing the amounts and misappropriating them.
5. Though it is true that Nallaperumal certified that necessary funds were available and passed the cheques for payment, there is no proof that he received the moneys by cashing the cheques or in any other way. We cannot, therefore, accept the conclusion of the learned Subordinate Judge merely on the ground that Nallaperumal must have misappropriated the amounts, and being an official of the bank, the bank should bear the loss. The question, therefore, which falls for decision is whether the bank could lawfully sustain the two debits made by it against the first defendant or whether the loss should fall on the bank for any other reason.
6. Mr. Bhashyam's main contention was that it any loss was sustained by the first defendant in respect of the two cheques in question, it was entirely due to his own negligence and the opportunity which he afforded by handing over cheques signed by him but otherwise blank. He stronglyrelied on the decision of the House of Lords inLondon Joint Stock Bank v. Macmillan and Arthur,1918 AC 777. The facts in that case were as Sol-lows :
A film who were customers of a bank entrust-ed to a confidential clerk the duty to fill in their cheques for signature. The clerk presented to one of the partners of the firm for signature a cheque drawn in favour of the firm or bearer. There was no sum in words written on the cheque in the space provided for the writing but there were the figures '2-0-0' in the space intended for figures. The partner signed the cheque. The clerk subsequently added the words 'one hundred and twenty pounds' in the space left for words and wrote the figures '1' and '0'' respectively on each side of the figure '2', which was so placed as to leave room for the interpolation of the added figures.
The clerk presented the cheque for payment at the firm's hank and obtained payment of 120. The bank debited the firm's account with the full amount of the cheque as presented to them. The firm, brought an action against the bank claiming a declaration that the bank was not entitled to debit their account in respect of the cheque beyond the amount for which it was originally drawn.
The learned trial Judge found that there was no negligence on the part of the firm and decreed the suit. The Court of Appeal confirmed this decision. On appeal the House of Lords reversed the judgment of the Court of Appeal and 'dismissed the action of the firm. Lord Finlay L. C. thus summed up the legal position:
'It is beyond dispute that the customer is bound to exercise reasonable care in drawing the cheque to prevent the banker being misled. If he draws the cheque in a manner which facilitates fraud, he is guilty of a breach of duty as between himself and the banker, and he will he responsible to the hanker for any loss sustained by the banker as a natural and direct consequence of this breach of duly ..... As the customer and the banker are under a contractual relation in this matter, it appears obvious that in drawing a cheque the customer is bound to take usual and reasonable precautions to prevent forgery. Crime, is indeed, a very serious matter, but every one knows that crime is not uncommon. If the cheque is drawn in such a way as to facilitate or almost to invite an increase in the amount by forgery if the cheque should get into the hands of a dishonest person, forgery is not a remote but a very natural consequence of negligence of this description.' Dealing with the actual case before him the noble Lord Chancellor said thus : 'The question whether, there was negligence as between banker and customer is a question of fact in each particular case, and can be decided only on a view of the cheque as issued by the drawer, with the help of any evidence available as to the course of dealings between the parties or otherwise. If the existence in a cheque of blank spaces of an unusual nature and such as to facilitate interpolation is declared to be no evidence of a breach of duty as between customer and banker, the duty would have little left to operate upon. To recognise the duty of care by the customer in drawing cheques and then to lay down as a matter of law that there is no breach of that duty by leaving such blank spaces in the cheque is in effect to eviscerate the duty.'
The following observations have a direct bearing on the case before us.
'But, further, it is well-settled law that if a customer signs a cheque in blank and leaves itto a clerk or other person to fill it up, he is bound by the instrument as filled up by his agent.' The decision of the House of Lords in this case-has been understood to have demolished the earlier ruling of the Privy Council in Colonial Bank, of Australasia Ltd. v. Marshall, 1906 AC 559, where it was held that the mere fact that a cheque is drawn with spaces which can he utilised for the purpose of fraudulent alteration is not by itself any violation of duty by a customer to his banker.
7. As a pronouncement of the House of Lords, the decision is certainly entitled to the greatest weight; but it has been pointed out in leading text books like that of Paget's Law of Banking (5th Edn, p. 277) that this case
'must not be pressed so as to impugn the principle that the banker cannot set up an estoppel against the customer where his own negligence has contributed to the loss, as where the alteration was obvious and discoverable by the exercise of reasonable care, or where the state of the cheque raised fair suspicion of its having been tampered with and payment was made without inquiry.'
As the Lord Chancellor expressly said in the Macmillan case, the question or negligence as between banker and customer is a question of fact in each particular case. Now the undisputed facts here are that the two cheques in dispute were filled in by Nallaperumal, an official or the bank. No doubt the cheques were drawn in favour of two of the clerks of the first defendant and purport to be signed by them on the back of the cheques. But the first defendant denied the genuineness of the signatures and there was no evidence to the contrary.
The learned trial Judge came to the conclusion that Nallaperymal, the accountant of the plaintiff's bank at Madurai, forged these two cheques filling them up himself and passing them for payment himself. He further found that he misappropriated those amounts. Having regard to these facts, it cannot he said that the loss was sustained on account of the negligence of the first defendant. Even if there was negligence on his part, the proximate cause of the loss was the fraud committed by one of the officers of the-bank.
We are of the opinion that the principle of the Macmillan case was not applicable to the facts of the present case. That particular farts can lake a case out of the scope of the rule in the Macmillan case is clear by the decision in Sligsby v. District Bank Ltd., 1931 2 KB 588.
In that case the plaintiffs drew a cheque in favour of a company of stock brokers John Prust and Co, and handed over the cheque to a partner of a firm of solicitors called Cumberbirch and Potts. Cumberbich took the cheque and altered it by writing after the payee's name the words 'per Curberbirch and Potts' and signing it with his own name paid the cheque into the account at that bank of a company of which he was chainnan, as a payment on his own private account. Obviously neither the cheque nor the proceeds of it went to John Prust and Co. In an action by the customers, the bank sought to rely on the ruling in the -1918 AC 777, but Wright J. held that the principle would not apply to the facts of the case because the forgery as the one which had been committed by Cumberbirch was not one which the plaintiffs could reasonably anticipate or be expected to guard against.
Therefore there was no breach of duty by the plaintiffs towards the hank. In the present caseit might well be said that the first defendant could not have contemplated an official of the bank committing forgery and misappropriating the moneys.
8. Mr. Bhashyam Aiyangar also referred us to Section 20 of the Negotiable Instruments Act. It runs thus ;
'Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India, and either wholly blank or having written thereon an incomplete, negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp, the person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount : Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.'
The short answer to this is that in no sense can Nallaperumal be deemed to be the 'holder' of the two cheques. The cheques were actually delivered over, according to the first defendant, to his clerk Subbaraman, and it is not the case of any one that the two blank cheques were converted by Subbaraman. On the other hand there is the positive finding of the court below that it was Nallaperumal who converted the cheques.
9. Mr. Desikachari who appeared for the first defendant-respondent also relied on another circumstance as relieving him of all liability in respect of the two cheques. The two cheques on their face contain material alterations in the nature of corrections. In respect of the cheque for Rs. 7600, there are two corrections; but they have not been initialled by the drawer, and in the other cheque there is a correction of the figure and words without any initials of the drawer.
What was originally Rs. 1200 was changed into Rs. 4200. Under Section 89 of the Negotiable Instruments Act, where a cheque has been materially altered but does not appear to have been so altered, payment thereof by a banker liable to pay, and paying the same according to the apparent tenor thereof at the time of payment and other-wise in due course, shall discharge such banker from all liability thereon. The question is whether the alterations in these two cheques were apparent or not. After looking at the cheques we are of the opinion that there are clear indications of material alteration. We accept the following statement of the law in Bhashyam and Adiga'9 Negotiable Instrument Act, 10th Edn :
'The bank has also to see whether there are any alterations in the cheque, and whether they have been properly authenticated. Therefore, where an alteration in a cheque is initialled not by all the drawers but only some of them, the bank will be paying the amount on the said cheque at its own risk. In this connection it is necessary to notice that under Section 89 protection is afforded to the bank paying a cheque where the alteration is not apparent.'
We see great force in this contention of Mr. Desikachari. Except the entry in the bank's accounts, there is no evidence to show that the money under the two cheques in question was actually paid over to Subbaraman and Ramachari respectively. This lacuna assumes importance in the light of the other circumstances of the case particularly the fact that it was Nallaperumal who filled in the blank cheques.
10. We hold that the loss sustained by the first defendant was not due to his own negligence as the proximate cause, that the loss was really due to the fraudulent conduct on the part of one of the bank's officials, and that there is no evidence that the moneys under the two cheques were paid over to the ostensible payees. It follows that the first defendant cannot be held liable for the two amounts debited against him in respect of the two cheques in question.
11. The appeal fails and is dismissed; but inview or the fact that it was the initial action ofthe first defendant in handing over blank chequesto his clerk that led to the further happenings. Wewill make no order as to costs. The memorandumof cross-objections which was not pressed is dismissed. No costs.