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N.M.N. Duraiswami Chettiar Vs. the Dindigul Urban Co-operative Bank Ltd. and anr. - Court Judgment

LegalCrystal Citation
CourtChennai High Court
Decided On
Case NumberA.A.O. No. 181 of 1955
Reported inAIR1957Mad745
ActsCode of Civil Procedure (CPC) , 1908 - Order 35, Rule 5
AppellantN.M.N. Duraiswami Chettiar
RespondentThe Dindigul Urban Co-operative Bank Ltd. and anr.
Appellant AdvocateK.S. Desikan and ;V.C. Srikumar, Advs.
Respondent AdvocateC.A. Seshagiri Sastri and ;P.S. Sarangapani Iyengar, Advs.
DispositionAppeal dismissed
Cases ReferredSeammon v. Kimball
Excerpt: an effort to define what exactly constitutes banking. even the best authorities have found it rather a hard nut to crack, mostly on account of the multifarious functions and services, e. instead of the money being set apart in a safe room, it is replaced by a debt due from the..........of the money being set apart in a safe room, it is replaced by a debt due from the banker. the money deposited with him becomes his property and is absolutely at his disposal, and, save as regards the following of trust funds into his hands, the receipt of money by a banker from or on account of bis customer constitutes, him merely the debtor of the customer with the superadded obligation to honour his customer's cheques, drawn upon his balances, in so far as the same was sufficient and available: (1848) 2 hlc 28 (d). to the same effect. see dharamdas v. gangadevi, ilr 29 all 773 (r); subramania chettiar v. kadiresan, ilr 39 mad 1p81: air 1917 mad 916 (s); ichha v. natha, ilr 13 bom 388 (t); ishur v. jiban, ilr 16 cal 25 (u); official assignee, madras v. smith, ilr 32 mad 68 (v);.....

Ramaswami, J.

1. This appeal is directed against the decree and judgment of the learned Subordinate Judge of Dindigul in A. S. Nos. 70 and 71 of 1954 reversing the decree and judgment of the learned District Munsif of Dindigul in O. S. No. 50 of 1954.

2. The facts are: The plaintiff is the Dindigul Urban Co-operative Bank Ltd., through principal officer and secretary, Sri Nagalswami. The first defendant deposited a sum of Rs. 2000, on 19-12-1952 Wider the savings bank account with the said bank end a pass book had been issued to the first defendant. As per rules, whenever withdrawals are made, the pass book should be produced before the Bank for necessary entries. The first defendant wanted to withdraw the entire amount with interest without surrendering the savings bank account pass boot.

In the. meantime, the minor second defendant, who is the brother of the first defendant, issued a notice to the plaintiff informing the bank that there had been a partition in the family and that the amount to the credit of the first defendant with the bank had been allotted to his share and that the bank should not repay the amount to the first defendant. Since a dispute had arisen between the defendants inter se as regards the ownership of the amount, the plaintiff filed this interpleader suit.

3. The learned District Munsif disposed of the suit on the preliminary issue whether an. Interpleader suit was maintainable. He dismissed the suit on the ground that in regard to this deposit the relationship between the bank and the first defendant was that of principal and agent and that Order XXXV, Rule 5 C. P. C., lays down that nothing in Order XXXV shall be deemed to enable agents to sue their principals. For this conclusion the learned District Munsif relied upon the decisions in New Field Co. by its sole proprietor K.L. Khuller V. James Voce Pirrie, Cyril Gill and Stanley Goodwin : AIR1940Mad139 and Dharambal Animal v. James Voce Pierrie, Cyril Gill and John Stanley Goodwin : AIR1940Mad98 and Santosh Kumar v. King : AIR1952Cal193 .

4. But the bank preferred an appeal and the learned Subordinate Judge held that a perusal of the decisions cited above would show that the relationship between the bank and the depositor was that of a debtor and creditor respectively and not agent and principal. Therefore, he set aside the decree and judgment of the learned District Munsif and remanded the suit for disposal afresh on merits. The first defendant has preferred this appeal against the said order of remand.

5. In order to understand the relationship between a banker and customer, it is necessary to comprehend the legal meaning of these two terms. The term 'banker'' until the passing of the Indian Companies Amendment Act of 1936, had no statutory definition in India, and the legal decisions on its interpretations, were by no means harmonious. The term 'customer' has never been defined in any statute and the Indian Judicial decisions on this point have not also been very helpful.

6. Tannan in his Banking Law and Practice in India, 7th Edn. at page 25, has well pointed out that much time, ink and paper have been consumed in an effort to define what exactly constitutes banking. Even the best authorities have found it rather a hard nut to crack, mostly on account of the multifarious functions and services, e.g., dealings in stocks and shares, etc., which modern banks perform, in addition to or in conjunction with what is distinctive .and characteristic banking business.

7. Dr. H.L. Hart in his Law of Banking, Vol. I, 4th Edn. 1931, page 1 says :

'A banket is one who in the ordinary course of his business, honours cheques drawn upon by him by persons from and for whom he receives money on current accounts.'

This definition is based upon the dicta given in a number of decisions, beginning with Foley v. Hill, (1948) 2 HLC 28 (D), Joachimson v. Swiss Bank Corporation, (1921) 3 KB 110 (E) etc. According to this definition, the essential function to enable a person, firm, or institution, to be regarded as a banker or a bank, is that of receiving current deposits against which cheques may be drawn. (For an analysis of Foley and Hill, Joachimson etc., bearing on the relationship of Banker and customer see pages 1 to 16 of Lord Chorley and Smarts' Leading Cases in the Law of Banking, 1953 (Pitman and Sons) Ltd.

8. This definition is reinforced by Sir John Paget in his Law of Banking, 5th Edn. page 5, who reviewing the Birkbeck Building Society v. Birkbeck, (1913) 29 TLR 218 (F) writes :

''It is a fair deduction that no person or body corporate or otherwise, can be a banker who does not (1) take deposit accounts, (2) take current accounts, (3) issue and pay cheques and (4) collect cheques crossed and uncrossed, for his customers.'

Sir John further adds that one claiming to be a banker must profess himself to be one, and the public must accept him as such; his main business must be that of banking, from which generally he should be able to earn his living. This definition is fairly exhaustive, although it makes no mention of many Other important functions of the present day banker, which may be put under two heads (1) agency services, comprising the collection of bills, promissory notes, coupons, dividends, payment of subscriptions and insurance premiums, and acting as a trustee, attorney or executor of his customers, and (2) general utility services, e.g., issue of credit instruments, the transaction of foreign exchange business, the safeguarding of valuables and documents against fire, theft, etc. There seems to be no doubt that according to English law, a person claiming to be treated as a banker, should perform the functions as given by Sir John.

9. 7 American Jurisprudence defines 'bank' as follows in Section 2:

''Strictly speaking, the term 'bank' implies a place for the deposit of money. In its more enlarged sense a bank may be defined as an institution, generally incorporated, authorised to receive deposits of money; to lend money and issue promissory notes, usually known by the name of 'bank notes'; or to perform some one or more of these functions.

A bank has also been defined as a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or to be remitted upon draft, check, or order; or where money is advanced or loaned on stocks, bonds, or bullion, and bills of exchange; or where promissory notes are received for discount or for sale. Accordingly, banks, in the commercial sense, are of 'three kinds : (i) of deposit (ii) of discount and (iii) of circulation.'

Dunn v. State, 13 GA A 314: 79 SE 170 (G); Auten v. V.S. National Bank, (1889) 174 US 125 (H); Oulton v. German Savings Society, (1873) 84 US 109: 21 Law Ed. 618 (I).

10. 7 Corpus Juris page 473 tersely defines the nature and characteristics of a bank as follows (Sec. 1):

'While the term 'bank' has received a number of definitions differing considerably in language, but all expressing of course the same fundamental ideas, and the sense in which it is intended to be used is largely determined by its connection with other language, perhaps the most concise and at the same time complete definition to be found in the books is that a bank is 'an association or corporation whose business it is to receive money on deposit, cash cheques or drafts, discount commercial paper, make loans, and issue promissory notes payable to bearer called 'bank notes'.

The term is also used to designate the buildings apartment, or office where such business is. transacted.' A bank is usually, but not necessarily, an incorporated institution; and while it has been said that a bank is an institution of a quasi public character, it is nevertheless true that, where, as is usually the case, the stock is owned by individuals, a bank is a private corporation.'

11. Turning to the definition of 'customer' there is yet no statutory definition of 'customer' either in England or in India. H.P. Sheldon in his 'The Practice and Law of Banking' at page 75 states: that it would seem that any person keeping an account current or deposit is entitled to the description of 'customer' and that it would appear from the judicial decisions that if a banker renders to a person advices incidental to, but not peculiar to, the business of banking, he does not thereby constitute that person a customer; Great Western Rly. Ltd., v. London and County Banking, 1901 AC 414 (J).

The question whether a first transaction with a person is sufficient to constitute that person a customer has now been set at rest by the English decisions of Ladbroke v. Todd, (1914) 30 TLR 433 (K); Commr. of Taxation v. English,. Scottish and Australian Bank, 1.920 AC 683: AIR 1920 PC 88 (L); Savory and Co. v. Lloyd's Bank Ltd., (1932) 48 ILR 344(M). The older view was that to constitute a customer there must be some recognisable course or habit of dealing in the nature or regular banking business and that it is difficult to reconcile the idea of a single transaction with that of a customer and. that the word surely predicates even grammatically, some minimum of custom antithetic to an, isolated act: Mathews v. Williams, Brown and Co., (1894) 10 ILR 386 (N).

This duration theory has been exploded in the aforesaid three decisions of which Sir John Paget in his Law of Banking was the exponent and the present view is that the word 'customer' signifies a relationship in which duration is not of the essence and that tin's relationship of banker and customer begins as soon as the first transaction is entered into. The contract as Lord Dunedin said in 1920 AC 683: AIR 1920 PC 88 (L), is not between a habitual and a new comer, but between a person for whom the bank performs a casual service such as for instance cashing a cheque for a person introduced by one of their customers and a person who has an account of his own at the bank. It may bo noted finally that a bank can itself be the customer of another bank: Importer and Co. Ltd. v. West Minster Bank, 1927 2 KB 297 (O).

12. In this case we are concerned with that phase of banking activities relating io depositing of money in a savings bank account. The mere opening of an account current with a banker and the banker's acceptance thereof involved a contractual relationship by application. In doing so, it is now the universally accepted view that the relationship between the banker and the depositor is not of a mere depositor or trustee or agent. 'The legal relation, of a banker and a customer in their ordinary dealings in money is simply that of a debtor and creditor. If the bank makes advances qr grants overdrafts the banker is the creditor; on the other hand if the customer opens an account and deposits money the customer is the creditor. But neither of these relations has any fiduciary character, nor does either bear an analogy to the relation between principal and agent.' Grants Law of Banking 6th Edn. Vol. 1, page 3; (1948) 2 HC 28 (D) etc.; Smith v. Levan, 1863 2 De GJ & S 1 (9), per Knight Bruck L. J., at page 5; in re Agra and Masterman's Bank, (1866) 36 LJ Ch 151 (Q), (cited). '

13. The relation of banker, as pointed out by Sir John Paget, is primarily that of debtor and creditor, the respective positions being determined by the existing state of the account. Instead of the money being set apart in a safe room, it is replaced by a debt due from the banker. The money deposited with him becomes his property and is absolutely at his disposal, and, save as regards the following of trust funds into his hands, the receipt of money by a banker from or on account of bis customer constitutes, him merely the debtor of the customer with the superadded obligation to honour his customer's cheques, drawn upon his balances, in so far as the same was sufficient and available: (1848) 2 HLC 28 (D). To the same effect. See Dharamdas v. Gangadevi, ILR 29 All 773 (R); Subramania Chettiar v. Kadiresan, ILR 39 Mad 1P81: AIR 1917 Mad 916 (S); Ichha v. Natha, ILR 13 Bom 388 (T); Ishur v. Jiban, ILR 16 Cal 25 (U); Official Assignee, Madras v. Smith, ILR 32 Mad 68 (V); London Joint Stock Bank v. Macmillan, 1918 AC 777 (W).

14. H.P. Sheldon in his 'Practice and Law of Banking', (ibid) page 20.1 sets out this relationship as follows :

'The banker when he receives money from a customer does not hold the money in a fiduciary capacity. To say that money is 'deposited' with a banker is likely' to cause misapprehension. What really happens is that the money is not deposited with, but lent to, the banker, and all that the banker engages to do is to discharge the debt by paying over an equal amount when called upon. The true relationship between the two parties was admirably described by Lord Cottenham in (1848) 2 HLC 28 (D). 'Money' said his Lordship 'when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.

The money paid into the banker's is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker's money; he is known to deal with it as his own; he makes what profits he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places..... That being established to be the relative situation of banker and customer, the banker is not an agent or factor, but he is a debtor,'

15. Halsbury's Laws of England , (Simonds Edn.), Vol. 2, p. 166 : The receipt of money by a banker from or on account of his customer constitutes him the debtor of the customer: (1S48) 2 HLC 28 (D).

16. 7 American Jurisprudence discussing the relation between Bank and General depositor has the following to say (Section 444):

'It is a fundamental rule of banking law that in the case of a general deposit of money in a bank,this moment the money is deposited it becomes theproperty of the bank, and the bank and the depositor assume the legal relation of debtor and creditor. The legal effect of the transaction is that ofa loan to the bank upon the promise and obligation,usually implied by law, to pay or repay the amountdeposited, usually upon demand; there is nothing ofa trust or fiduciary nature in the transaction, noranything in the nature of a bailment in the transaction or relationship, or in the nature of any right tospecific moneys deposited.....''

Dakin v. Bayley, (1933) 290 US 143 (X); Blakey v. Brinson, (1932) 286 US 254 (Y); United States v. Butterworth, (1925) 267 US 387 (Z); Engel v. O'Malley, (1911) 219 US 128 (Z1); Burton v. United States, (1903) 196 US 283 (Z2); Leather Manufacturers National Bank v. Merchants National Bank, (1888) 128 US 26 (Z3); Flancence v. Brown, (1888) 124 US 385 (Z4); Alien v. Saint Louis, (1887) 120 US 20 (Z5); Leather Manufacturers National Bank v. Morgan, (1886) 117 US 96 (Z6); Pheoni Bank v. Risley, (1884) ,111 US 125 (Z7); Central National Bank v. Connectional, (1881) 104 US 54 (Z8); Seammon v. Kimball, (1876) 92 US 362 (Z9).

17. 7 Corpus Juris gives the following information (Section 326):

'The contract between a bank and a depositor is not materially different from any other contract by which one person becomes bound to take charge of and repay another's funds, and there is no trust relation between a bank and a general depositor. The relations between a bank and a depositor may be dual in character, the bank being the depositor's debtor with respect to one thing and his agent with respect to another, or his debtor at one time and his agent at another; and while the relation between the bank and a depositor in respect to a general deposit is generally regarded as that of a debtor and creditor, yet in another sense the depositor is the owner of the deposit, in that be can demand repayment at any time. It is competent for a bank, of deposit to enter into a collateral agreement with the depositor with reference to the disposition of the proceeds of deposits.....''

18. Bhashyam and Adiga's Negotiable Instruments Act, 10th Edn. revised 1956, the local Classic on the subject (published by Law Weekly) at page 417 states :

'The relationship of a banker and customer is that of a creditor and debtor with the superadded obligation of honouring customer's orders on the funds in his hands.'

Sunderly Davis Law and Practice of Banking, 5th Edn. Ch. VIII, page 201 has the following to say: The relations between a banker and customer are usually that of a debtor and creditor. The money deposited with a banker is not given to him on trust but the same is lent to him.

19. The learned Subordinate Judge was therefore right in holding that in regard to this deposit in the savings hank account the relationship between the bank and the first defendant was not as principal and agent but as debtor and creditor.

20. On that conclusion it follows hat the decree and judgment of the learned Subordinate Judgeis irreprochable. This appeal has got to be and ishereby dismissed with costs of respondent 1. Noleave.

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