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Indian Bank Vs. Catholic Syrian Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberAppeal No. 47 of 1976 and Memorandum of Cross Objections
Judge
Reported inAIR1981Mad129
ActsNegotiable Instruments Act, 1881 - Sections 131 and 131A
AppellantIndian Bank
RespondentCatholic Syrian Bank Ltd.
Appellant AdvocateAiyar and ;Dolia, Advs.
Respondent AdvocateK. Parasaran and ;C. Lakshmi Narain, Advs.
Cases ReferredKanyalal Thankurdas v. Bombay Cycle Importing Co.
Excerpt:
the respondent-bank filed a suit to recover a sum of money wrongly paid over to the appellant-bank in discharge of a forged demand draft presented for collection and clearance by the appellant-bank on behalf of a customer. the trial court decreed the suit with a remission of certain amount for the respondent's negligence. the appellant-bank appealed to the high court against the judgment and decree of the trial court and the respondent-bank also filed in the high court cross- objections against he claim disallowed by the trial court.; *appeal no. 47 of 4976.; the question that arose for consideration was whether the appellant-bank is entitled to the protection under section 131 and 131-a of the negotiable instruments act and the principles and provisions of the indian contract act; held,.....natarajan, j.1. this appeal has been preferred by the defendant in o.s.no. 517 of 1969, on the file of the court cd the subordinate judge, salem, while the memorandam, of cress objections has been filed by lue plaintiff therein.i the suit, out of which this appeal has arisen, was instituted by the respondent for recovery of a sum of rs. 29,000, wroney paid over to the appellant in discharge of a forged demand draft presented for conversion by it on behalf of an alleged customer of it. 2. the learned subordinate judge sustained the case of the respondent but, however, found contributory negligence in the respondent as well and hence he disallowed a sum of rs. 4,000 and decreed the suit for the balance of rs25000. the appeal is directed against the decree for rs. 25,000, while the.....
Judgment:

Natarajan, J.

1. This appeal has been preferred by the defendant in O.S.No. 517 of 1969, on the file of the Court cd the Subordinate Judge, Salem, while the memorandam, of cress objections has been filed by Lue plaintiff therein.I The suit, out of which this appeal has arisen, was instituted by the respondent for recovery of a sum of Rs. 29,000, wroney paid over to the appellant in discharge of a forged demand draft presented for conversion by it on behalf of an alleged customer of it.

2. The learned Subordinate Judge sustained the case of the respondent but, however, found contributory negligence in the respondent as well and hence he disallowed a sum of Rs. 4,000 and decreed the suit for the balance of Rs25000. The appeal is directed against the decree for Rs. 25,000, while the memorandum of cross objections is directed against the disallowance of a sum of Rs. 4000.

3.The respondent's suit came to be filed in the following circumstances: On 6-6-1969 one Shanthilal Manilal Desai (hereinafter referred to as S. M. Desai) opened a current account with the Indian Bank Ltd., Main Office, Salem (hereinafter referred to as, the appellant bank). On 12-6-1969, me Mohamed Hussain obtained a demand, draft for Rs. 20 from the branch at Singanallur of the Catholic Syrian Bank (hereinafter referred to as the respondent Bank). The draft was drawn on the branch office of the same bank at Cochin in favour of Messrs. Desai and Co. This draft was, however, altered by means of clever forgery to make it appear that it was a draft for Rs. 29,000, drawn on the Salem branch of the respondent bank in favour of S. M. Desai. The forged draft was presented at the main office, at Salem, of the appellant bank on 11-6-1949, by the above named S. M. Desai, for being credited to his account.

4. Acting as banker for the said S. M. Desai, the appellant bank sent the draft on the very same day to the respondent bank for clearance. The said Bank unsuspectingly paid the draft amount of Rs. 29,000 to the Salem branch of the appellant bank by means of a cheque on the State Bank in due course. However, on 14-6-1969, the Salem Branch office of the respondent bank came to know from its Singanallur branch that the Singanallur branch had issued a draft only for a sum of Rs. 20 and that too, drawn in favour of one Desai and Co., and payable by the branch office at Cochin and no draft for a sum of Rs, 29,000 had been issued. At once, the respondent bank at Salem got in touch with the Agent of the Salem branch of the appellant bank and informed him of the fraud that had been committed. But, unfortunately, by then, the appellant bank had already paid a large part of the draft amount to its customer Desai under a self cheque. The respondent then came forward with the suit against the appellant for recovery of a sum of Rs. 29,000 on the ground that the appellant had been negligent while opening a current account to the name of Desai and by reasons of its negligence and want of good faith, the forged draft had come to be wrongly converted. The respondent also claimed interest at six per cent per annum on the sum of Rs. 29,000.

5. The appellant resisted the suit and averred in its written statement that it had not exhibited negligence or want of good faith in either opening the current account in the name of Desai or in accepting the draft presented by him for encashment or in sending the draft for realisation to the Respondent Bank at Salem. The appellant alleged that the demand draft did not contain. any deflect or suspicious features as to rouse its suspicion or curiosity. It was further stated that the respondent's branch at Salem did not also notice any defect in the draft and had therefore passed the draft for payment. In such circumstances, the conversion of the draft and the payment out to S. M. Desai of the proceeds of the draft were bona fide acts performed by the appellant in discharge of its duties as banker. The further defence of the appellant was that if the transaction had resulted in loss to the respondent, it was solely due to the negligent act of the respondent's branch at Salem in paying the draft amount without receiving advice' from the drawer branch, viz., Singanallur branch. The appellant, therefore, alleged that its actions were squarely protected by Section 131 of the Negotiable Instruments Act and the relevant provisions of the Indian Contract Act.

6. On the basis of the pleadings of the parties, the learned Subordinate Judge framed the following issues for consideration in the trial of the suit:-

1. Whether the defendant is entitled to the protection under Sections 131 and 131A of the Negotiable Instruments Act and the principles and provisions of the Indian Contract Act?

2. Whether the suit as framed is not maintainable?

3. Whether the suit is bad for nonjoinder of parties alleged by the defendant? And

4. To what relief or relief if any is the plaintiff entitled?

In support of its case, the respondent examined two witnesses viz., Thiru Anthony, Accountant 'of the respondent bank's branch at Singanallur and Thiru Mathachan the agent of the respondent's branch at Salem. By way of documentary evidence, the respondent filed Exs. A. 1to A. 26. The appellant examined there witnesses on its side. D. W. 1, Thiru Viiayaraghavan and D W 3, Thiru Jothipandian, were respectively the Accountant and Agent of the main office Salem branch of the appellant bank, at the relevant time, the suit transaction took place. D.W. 2, Jayaraman is a customer of the appellant bank at Salem and it was he who introduced Desai, who had presented the forged draft, to the appellant bank. The appellant filed Exs. B 1 to B. 17 on its side. After an elaborate consideration of the case of the parties, the Subordinate Judge held under issue No. 1 that the appellant is not entitled to protection under Sections 131 and 131-A of the Negotiable Instruments Act and the principles and provisions of the Indian Contract Act and was, therefore, liable to pay the sum of Rs. 29,000 to the respondent. But he, however, gave remission to the appellant in a sum of Rupees 4,000 on the ground that the respondent too had been negligent in~ paying the amount for the draft before receiving advice from the Singanallur branch. Under issues 2 and 3, he rendered findings in favour of the respondent bank and eventually, under issue No. 4 he decreed the suit for a sum of Rs. 25,000 together with interest at. 6 per cent per annum from 12-4-1969 till the-date of the filing of the aft, at 64 per cent per annum from the date of institution of the suit till the date of the decree and at 6 per cent per annum from the date of decree till realisation. To the above said effect, the Subordinate Judge rendered judgment and decree on 31-10-1975. As already stated, the appellant has filed the appeal to dispute its liability in a sum of Rupees 25,000 while the respondent has filed the memorandum of cross objections to press for a decree for the disallowed amount as well.

7. From what has been stated above, it may be seen that the facts are not in controversy. It is proved beyond doubt by the evidence of PW 1 that the Singanallur Branch of the respondent bank had issued only two drafts on 12-6-1969. One draft was for a sum of Rs. 14-20 payable to the Life Insurance Corporation and the draft was drawn in favour of the Salem Branch of the respondent Bank. The second draft, with which we are now concerned, w for a sum of Rs. 20 made in favour of the Cochin branch of the respondent , bank. The money was payable to M/s. Desai, and Co. This draft has been cleverly tampered with and altered so as to make it appear that it was issued for a sum of Rs. 29,000, and made payable to S. IL Desai by the Salem branch of the respondent bank. It was the forged draft which was presented on 13-6-1969 at the Salem branch of the appellant bank for being collected and credited in the account of S. M. Desai. The draft has been marked as Ex. A-1 in the case. It is conceded by Mr. K. Parasaran, learned counsel for the respondent, that Ex. A.L does not contain any tell tale features of alteration or correction as to make any one including an employee of the bank to suspect, by mere sight, the genuineness of the draft, We have ourselves perused Ex. A-1 and we find that the forgery of the draft has been very cleverly and skillfully done. No doubt, on a very close scrutiny of Ex. A.1, we can find some difference in the writing of the words 'nine thousand only' when compared with the other words 'Rupees twenty'; but, inasmuch as our scrutiny of the draft was done with the knowledge that it is a forged one, we are able to perceive the difference in the writing. It therefore follows that if the draft was perused by any one without knowledge of the forged nature of the instrument, it is likely to pass the test of normal scrutiny. That apart, we have already stated that even the respondent's counsel admits that the draft has been tampered with so skillfully that it does not suffer from any patent defect Therefore we cannot attribute any blame to this, officers of the appellant bank at Salem for having received , the draft without demur. Notwithstanding this fact, the case of the respondent is, the totality of the circumstances establishes beyond doubt that the officers of the Salem branch of the appellant bank had acted negligently in opening a current account in the name of S. M. Desai and giving him the status of a genuine operator of Bank account and in collecting the amount due under the draft presented for collection and handing over the proceeds of the draft after it was encashed by the respondent branch at Salem. After the fraud committed by S. M. Desai was detected, a complaint was made to the police authorities. They had eventually arrested the said person -and filed a charge-sheet against him for offences such as cheating, forgery etc., and the case had ended in conviction, Therefore, it goes without saying that the respondent had been deprived of and thereby had incurred a loss of Rs. 29000. In the action brought by the respondent for realisation of the amount from the appellant, the defence of-the latter is that it is protected by Sections 131 and 131-A of the Negotiable Instruments Act. Section 131 of the Negotiable Instruments Act is as follows:

banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally 11 to himself shall not, in case, 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 omitted)

Section 131-A reads-

'The provisions of this chapter (Chapter XIV) shall apply to any draft, as defined in Section 85A as if the draft were a cheque'.

Therefore, what we have to see is whether the appellant bank had acted without negligence and in good faith in acting as banker for S. M. Desai and in encashing the draft presented by him and paying over the proceeds to him subsequently. For determining this question, we have to scan the evidence of D. Ws. 1 to 3.

8. S. According to D. Ws. 1 t6 3, D. W. 2 is a carpet and cloth merchant of SalAem and his shop is situated in door Nos. 170-171, First Agraharam, Salem. D.W. 2 claims to have properties worth Rupees 75,000 and also to be assessed to sales tax and income-tax. He was having an account with the appellant bank and earlier in Salem bank which was subsequently amalgamated with the appellant bank. He has said that the average turnover of his business was Rupees 1 lakh per year. In June, 1969, S. M. Desai had met him and told him that he was the proprietor of a concern known as Desai and Co., and that he was doing trade in carpets and he had come over to Salem to purchase carpets. Desai placed an order with D. W. 2 for supply of carpets for Rs. 1,800. He then wanted D. W. 2 to help him in opening an account with a Bank at Salem and, in order to help him D. W. 2 took him to D. W. 3, the Bank agent, and introduced him. D. W. 3 claims to have questioned Desai and satisfied himself that he was a bona fide customer and thereafter to have allowed him to open a current account in the bank. D. W 1, it may be recalled, was the former accountant in the Salem branch of the appellant bank and he has also spoken to Desai being introduced to the Bank by D. W. 2 and Desai opening an account in the bank by remitting a sum of Rupees 330. The account was opened on 6-6-1969. On 9-6-1969 Desai drew a sum of Rs. 200 and consequently there was a balance of only Rs. 100 in the account. On 13-6-1969 Desai presented Ex. A. 1 draft which was for a sum of Rs. 29,000 Since Ex. A. 1 did not contain any patent defects and since it appeared to be a genuine draft, D. W. 1 made the necessary entries in the registers and sent Ex. A. 1 to the respondent Bank at Salem for encashment. The same day the respondent Bank remitted the amount by means of a State Bank cheque to the appellant bank. On the next day, i.e., 14-6-1969 Desai issued a cheque for Rs. 225 in favour of one Panneerselvam. About half an hour later, Desai presented a self cheque and withdrew a sum of Rs. 27,500. It was thereafter P. W. 2, the agent of the respondent bank, phoned to D. W. 3 and informed him that Ex. A. 1 was a forged draft. But nothing could be done since, by then, Desai had withdrawn the major portion of the draft amount and disappeared from the scene.

9. Placing reliance on the evidence of D. Ws. 1 to 3 as well as the fact that Ex. A, 1 draft had been passed for payment by P. W. 2, without any hesitation, Mr. Somayaji learned counsel appearing for the appellant, argued that the officers of the appellant had undoubtedly acted in good faith and without negligence and, therefore, it must beheld that the appellant was fully protected by Section 131 of the Negotiable Instruments Act and absolved of the liability to make good any sum to the respondent for the loss sustained by it on account of the encashing of the forged draft. While advancing such an argument, learned counsel laid stress upon the events that took place at the branch office of the respondent bank at 'Salem when Ex. A. 1 was sent for payment. P. W. 2 has stated that as soon as Ex. A. 1 and two other drafts and a cheque together with a covering letter were brought to his bank by a messenger of the Indian Bank, Salem it was brought to his notice by his clerk, one Murugesan that no advice had been received from the Singanallur branch regarding the issue of Ex. A. 1, and, in such circumstances, his instructions were needed as to what was to be done. Thereupon P. W. 2 is said to have compared the signature of P. W. 1 in Ex. A. 1 with the specimen signature of P. W. 1 kept in the bank records and after being satisfied that the signatures tallied, he instructed his officers to make payment for Ex. A. 1. P. W. 2 has further stated that the writing in Ex. A. I did not contain any trace of alteration or tampering and therefore he felt satisfied, after comparing the signatures of P. W. 1 in Ex. A. 1 with his specimen signatures, that it was a genuine draft. Having regard to these admissions, the appellant's counsel submitted that when Ex. A. 1 had been accepted by the respondent's officers themselves as a genuine draft, it would be hardly fair to penalise the appellant bank for its officers having accepted Ex. A. 1 for collection and sending it to the respondent bank for realisation instead of making a minute scrutiny of Ex. A. 1, and rejecting it on the ground that it was a forged one. In support of his arguments Mr. Somayaji placed reliance on certain decisions, where the circumstances under which, and the extent to which, a banker can successfully project a defence of statutory protection on the ground he bad acted in good faith and without negligence, have been considered. The first of the cases is Commr. of Taxation v. E. S. and A. Bank, AIR 1920 PC 88. That was a case where a man gave a false name and opened a bank account on the 7th June, 1917, and, on the very next day he sent in a cheque for ..483 16s-6d. issued by one A friend and pay able to bearer. Subsequently, the said person drew out the amount in deposit by means of various cheques. Sometime thereafter, it was found that the cheque had been issued by Mr. Friend in payment of assessment for income-tax. The Commissioner of Taxation sought recovery of the amount from the Bank on the footing that the Bank had acted negligently and without good faith and should therefore make good the money to the true owner of the cheque. The Bank raised the defence. that it was protected by Section 88 of the Bills of Ex change Act, 1909 (Commonwealth of, Australia) and the defence was sustained by the Board. The Privy Council held that though the person who had played fraud had become a constituent of the Bank only a day earlier, yet he must be deemed to be a customer and, as such, the bank was bound to honour cheques up to the amount standing to his credit. In the matter of scrutiny of cheques the Board differed from the view taken by the Chief Justice of the High Court of Australia and held that since it is part of the ordinary business or practice of a Bank to collect cheques for their customers, the standard that can reason ably be expected by the Banks would be 'the standard to be derived from the ordinary practice of bankers, not individuals.' The next case cited was Bapu lal v. Nath Bank Ltd., : AIR1946Bom482 . That was a case where one Nem chand Amichand Gandhi opened an ac count in the bank on 26-1-1945 by paying Rs. 300 in cash to the credit of the account. Gandhi subsequently withdrew a sum of Rs. 275 in two instalments and on 7-2-1945, he paid in into the account a cheque for Rs. 4,000. This cheque had been drawn in favour of the plaintiff.The Bank credited the proceeds of the cheque to the account of Gandhi and subsequently allowed him to withdraw a sum of Rs. 3,800. Later, it was found that the cheque was drawn in favour of Kantilal Mangalal Shah or bearer and had been endorsed by R. H, Desai. When the fraud was detected, the plaintiff sued the Bank for return of the- money Chagla, J. (as he then was), held that if faith and without negligence, he cannot be called upon to make good the loss to the true owner of the cheque. Dealing with the question as to what enquiries a banker should make of a proposed customer, the the banker had acted in good. learned Judge gave his opinion as follows -

'In my opinion, there is no absolute and unqualified obligation on a banker to make enquiries about a proposed customer. I agree that modern banking practice requires that a customer, should be properly introduced or, in other words, that the bank should act on the reference of some one whom it could trust. Therefore, perhaps, in most cases, it would be wiser and more prudent for a bank not to accept a customer without some reference. But I am not prepared to go so far as to suggest that after a bank has been given a proper reference with regard to a 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.'

The third case that was cited is Bharat Bank Ltd. v. Kishinchand Chellaram, : AIR1955Mad402 . The relevant portion in the judgment on which reliance was placed occurs in page 564 and runs as follows -

'The position in law may thus be summarized When in an action in conversion, a defence is raised under Section 131 of the 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.'

From what has been stated above, it may be seen that the bed rock of the appellant's case is that there had been no negligence on the part of its officers and as suck the statutory protection afforded by Section.. 131 read with Section 131A of thi:.. , Negotiable: Instruments Act should not be denied to the appellant. It is well known that for determination of the question of negligence Universal test or an inviolable formula cannot be laid down or prescribed. As pointed out in Commissioner of Taxation v. E. S. and A Bank, AIR 1920 PC 88, 'it is really impossible to lay down rules which will determine what is negligence and what is not', and 'each case must be determined on its own circumstances,. Therefore, we have to judge the charge of negligence levelled against, the officers of the appellant with reference to the evidence available in the case. According to the appellant, there was no negligence because the culprit, S. M. Desai, had been introduced by a well known customer of the bank, viz., D.W. 2 and further more D. W. 3, the agent, had made such enquiries as are normally expected by a tank agent to be made, before giving permission to S. M. Desai to open an account. In view of this stand, it becomes necessary to have a close look at the evidence of D. Ws. 1 to 3. Though it is claimed that D. W. 2 had been a well known customer of the Bank, we find the evidence does not lend support to this statement. D. W. 2 was not a leading merchant of Salem and he does not appear to have had large volume of business in 1969, when he introduced Desai to D. W. 3. No doubt, Exs, B. 1, B. 3 and B. 4, show that D. W. 2 had an account with the Salem Bank and had also some fixed deposits and Ex. B. 17 shows that he had an account with the Indian Bank after it had taken over the Salem Bank. But, even so, the transactions are for petty amounts and the amount standing to the credit of D. W. 2 at the end of 1970 was only Rs. 192.57 P. He does not appear to have had fixed deposits with the Indian Bank. Ex. B. 5 is a certified copy of the ledger entries regarding the account of D. W 2 with the Salem Bank Ltd. But, the entries relate only to the period 1958 to 1962. It is, therefore, difficult to accept the contention of the appellant that on account of D. W. 2 being a well known customer of the Bank and on account of his introduction of S. M. Desai D. W. 3 had no reason to suspect the bona fides or credentials of Desai. As a matter of fact, D. W.- 2, when he took Desai to the Bank, was asked to authenticate his signature by affixing his business seal and he had to go home and bring the rubber stamp and authenticate his signature. Such a course would not have been followed if D. W. 2 was a well known customer of the Bank. Some Income-tax demand notices, 'viz., Exs. B. 9 to B. 12, And income-tax payment challans, Ex. B. 13 and B. 14, have been filed to show that D,W. 2 was a respectable merchant of 0 . But these relate to 1970-71 and later years. Notwithstanding these features, let us see whether D. W. 2's introduction of Desai could have been treated by D.W. 3 as an acceptable one. It is admitted by D. Ws. 2 and 3' that Desai told them that he hailed from Indore in Madhya Pradesh. He had come to Salem for the first time and he had met D. W. 2 just then. He had placed an order only for Rs. 1,800 with D. W. 2 for supply of carpets and even for that amount, he could not give cash to D. W. 2. D. W. 2 has stated that he wanted Desai to give him cash and Desai told him that he may be helped to open a Bank account and after the account was opened he would give a cheque and that D. W. 2 can supply the carpets after the cheque was honoured. It is only after such a brief meeting D. W. 2 had taken Desai to the Bank for being introduced as an acceptable customer. D. W. 2 does not say in his evidence that he told D. W. 3 that Desai was a respectable person and that he may be permitted to open an account. D.W. 1 would however say that D.W. 2 represented that Desai was known to him for a long number of years and that Desai was purchasing carpets and sending them to North India. This - is obviously an embellishment, because even D. W. 3 does not say that D. W. 2 gave such a reference for Desai. Thus. it becomes clear that all that D. W. 2 had done was to take Desai to the Bank and inform D. W. 3 that he was a man from Indore and that he wanted to open a bank account to enable him to purchase carpets at Salem. Beyond that, he had done nothing and he had not given any assurance that Desai was known to him or that they had long standing business association and that Desai was a bona fide customer and an account can be safely opened in his name. In such circumstances, what should have been the conduct of D. W. 3? He should have independently questioned Desai about -his business and his creditworthiness bef6re allowing him to open an account But, what we find is that D. W. 3 had only perfunctorily questioned Desai.then Desai, stated that he had come from Indore, D. W. 3 had not even cared to find out his permanent address. It may be stated here that in his application for opening a bank account, Desai had given the address of D. W. 2 as his address. It passes our comprehension how D. W. 3 could have accepted such a statement from Desai and felt satisfied with his credentials. In fact, D. W. 3 admits that Desai told him that he had not opened a Bank account till then and for the first time he was going to open an account with the Indian Bank. That again should have put any banker on the alert. Because it is, inconceivable a man coming all the way from Indore to Salem to do business would not have opened a Bank account till then. We are therefore not in the least persuaded by the argument of the appellant's counsel that S. N. Desai had been introduced by a respectable customer of the Bank and Desai's credentials had been tested by D. W. 3 before he was permitted to open an account. No doubt, we agree that a banker should not play the role of a master defective and subject a prospective customer to a gruelling examination about his status, creditworthiness, business experience etc., before permitting him to open an account, but even so, when a man from a different part of the country wants to open a Bank account for the first time in his life and when he is introduced by a casual acquaintance of his, even though the introducer may be, known to the Agent, we would still, rightly, expect the Banker to make more enquiries than usual to test the credentials of the prospective customer - before allowing him to open an account. In the light of this conclusion, if we examine the authorities cited by the appellant's counsel, we find they cannot come to the aid of the appellant in any manner. The view taken in Commrs. of Taxation v, E. S. and A Bank, AIR 1920 PC 88 that cheques presented by a customer, though one of short standing, have to be accepted by the Bank, cannot be adopted in this case, because the opening of the account had been done negligently. Moreover, the circumstances connected with the opening of the account shed light, on the question whether there was negligence in collecting the draft (Ex. A. 1). As regards the ruling in Bharat Bank Ltd. v. Kishinchand Chellaram, : AIR1955Mad402 it is no doubt true that Desai's account was not opened with Ex. A. 1 itself, but the draft had been put into the account so shortly after the opening of the account as to lead to the inference that it forms part of the opening of the account and, consequently, the negligence in the matter of opening the account has to be treated as negligence in the matter of realisation of the cheque as well.

10. Turning to the collection of the draft itself, it must be remembered that the account was opened on 7-6-1969, with a small sum of Rs. 300. The very next day, a sum of Rs, 200 had been drawn and only a sum of Rs. 100 was left as balance in the account. On 13-6-1969, a draft for a considerable large amount, viz., Rs. 29,000 was presented for collection. As pointed out in Commissioners of Taxation v. E. S. and A Bank, AIR 1920 PC 88, the presentation of this draft for a large sum should have certainly aroused the suspicion of D. Ws. 1 and 3. They have, however, treated the matter very casually and sent the draft for encashment. The paying Bank must naturally have thought that the Indian Bank would have opened the account for the customer, on whose behalf the draft was sent for collection, after making due enquiries and , after being satisfied that he was a bona fide customer. It was for the appellant Bank to have exercised diligence and used its discretion before sending the draft for collection and in making the payment the very next day after the draft was presented in the Bank. If the totality of events that had taken place in quick succession is borne in mind, then the only conclusion to be reached is that the appellant Bank has not acted without negligence even though it may have acted in good faith, As pointed out in Marfani and Co. Ltd. v. Midland Bank Ltd., 1968 2 All ER 573; 'what the Court has to do is to look at all the circumstances at the time of the acts complained of, and to ask itself were those circumstances such as would cause a reasonable banker possessed of such information about his customer as a reasonable banker would possess, to suspect that his customer was not the true owner of the cheque'. In the instant case there is an additional factor which places the appellant Bank in a more disadvantageous position. What Desai presented was not a bearer cheque, but a crossed draft. The position as regards crossed cheques and crossed drafts is somewhat different compared to the presentation of a bearer cheque. The difference has been succinctly set out in Carpenters Co. of City of London V. British Mutual Banking Co. Ltd., 1938 1 KB 511 ,. The passages run as follows:-

'The effect of the statutes.-and authorities thus appears to be that a banker on whom a crossed cheque is drawn is not protected if he pays it otherwise than in the ordinary course of business, or otherwise than to a banker, or in other circumstances importing negligence on his part; and a banker who receives payment on behalf of a customer of a crossed cheque to which the customer has no title is not protected if he does so negligently' (P. 517)

'There is a great difference between the Position of a Bank acting under Section 60 of the Bills of Exchange Act, 1882, when a cheque of a customer is brought to them for payment and the position of a Bank under S. 82. when they collect payment from another bank for a customer. In the latter case if the cheque is stolen the collecting bank obtains no title' (Page 519).

It therefore follows that the appellant bank cannot take the stand that even if it had exhibited negligence at the time of opening of the account, it had not exhibited any such negligence when it accepted Ex. A 1 and sent it for collection and hence it is entitled to invoke the protection afforded by Section 131 and 131A of the Negotiable Instruments Act.

11. We are fortified in our conclusion by the following view taken in one of leading cases on the subject, viz., Lloyds Bank Ltd. v. Savory and Co., 1932 All ER Reprint 107, 117:-

'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 Commrs. of Taxation v. English, Scottish and Australian Bank Ltd., 1920 AC 683 AIR 1920 PC 88 '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 bank. 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 (Bills of Exchange Act 1882) if a cheque were converted subsequently in his history of the account' (vide also Halsbury's Laws of England, Fourth Edn. Vol. 3, page 32, para 39).

We therefore hold that as a collecting Bank, the appellant Bank cannot invoke Sections 131 and 131A of the Negotiable Instruments Act, to its aid, especially when it is found that the opening of the account for Desai was not done without negligence and the presentation. of Ex. A. 1 draft for collection was done so proximately as would suggest a close nexus with the opening of the account itself.

12. Learned counsel for the appellant argued in vainA that the respondent bank too is guilty of contributory negligence. Though this contention lias found acceptance with the trial Judge in some measure, we are of opinion that the plea of contributory negligence cannot be sustained. It has been held in Bapulal v. Nath Bank Ltd., : AIR1946Bom482 , and by a Division Bench of this Court in Kanyalal Thankurdas v. Bombay Cycle Importing Co. : (1972)1MLJ412 that contributory negligence on the part of the true owner can be no answer by the person, who converts the article ' that he should be let off from his liability because of the negligence of the true owner. As a matter of fact, the evidence does not warrant the acceptance of the appellant*s contention that the respondent bank had also been negligent in passing Ex. A. 1 for payment.' When the draft was sent for collection, no duty was cast on the respondent bank to first obtain clearance from the Singanallur branch of the Bank and then pay amount collecting by the draft to the collecting bank. Merely because the respondent Bank had contacted the Sigannallur branch Agent on 14-6-1969 and acquired intelligence that Ex. A. 1 draft had not been issued by that branch for Rs. 29,000 it does not follow that the respondent bank should not have paid the proceeds of the draft before receipt of advice frorn the Singanallur branch.

13. We therefore affirm the finding of the Subordinate Judge, that the appellant Bank had not acted without negligence, though it may have acted in good faith, in the opening of the account and acting as collecting banker for the draft and, consequently, it ,will not be entitled to !he protection afforded by Sections 131 and 131A of the Negotiable Instruments Act. We further hold that the finding of the trial Judge that the respondent had been guilty of contributory negligence cannot be sustained. Accordingly, we dismiss the appeal but allow the memorandum of cross objections, and declare the respondent's suit decreed for the entire sum of Rs. 29,000 Interest on the said sum will be paid at the rate mentioned by the trial Judge for the different periods. The respondent will be entitled to its costs in the appeal as well as in the memorandum of cross objections.

14. Order accordingly.


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