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In Re: Calcutta National Bank Ltd., Ex Parte: Daruwala Brothers and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata High Court
Decided On
Judge
Reported inAIR1955Cal91,58CWN783
ActsContract Act, 1872 - Section 201
AppellantIn Re: Calcutta National Bank Ltd., Ex Parte: Daruwala Brothers and ors.
Advocates:R. Chaudhuri, Adv.
Cases ReferredAlliance Bank of Simla Ltd. v. Amritsar Bank
Excerpt:
- .....12 all 541 (b).4. if in the absence of any instruction from the principal the banker remits the money by draft, the principal may accept the draft as a conditional payment. if the draft is honoured and the money is paid, the business of the agency is completed; if not, the original obligation of the banker to pay the money is revived and the agency continues.5. the parties may agree that the banker may use the money collected for his own purposes under an obligation to repay an equivalent to the principal instead of remitting the money to the. principal in cash. so soon as the banker be-comes entitled to use the moneys as his own, a' debt is created and the fiduciary obligation and the agency terminate.6. thus if the banker is employed to collect a cheque and to credit the proceeds in.....
Judgment:
ORDER

Bachawat, J.

1. This judgment is intended to deal with several claims on account of bills collected by the Banking Company in liquidation.

2. A banker employed to collect and remit money is under a fiduciary obligation to account for and to pay the money to his principal according to directions.

3. Ordinarily, the agency does not terminate on collection but continues until payment: --'W. Rule Pink v. Buldeo Dass', 26 Cal 715 (A); --'Babu Ram v. Ram Dayal', 12 All 541 (B).

4. If in the absence of any instruction from the principal the banker remits the money by draft, the principal may accept the draft as a conditional payment. If the draft is honoured and the money is paid, the business of the agency is completed; if not, the original obligation of the banker to pay the money is revived and the agency continues.

5. The parties may agree that the banker may use the money collected for his own purposes under an obligation to repay an equivalent to the principal instead of remitting the money to the. principal in cash. So soon as the banker be-comes entitled to use the moneys as his own, a' debt is created and the fiduciary obligation and the agency terminate.

6. Thus if the banker is employed to collect a cheque and to credit the proceeds in the current account of the principal with the banker the agency terminates and the ordinary relationship of a banker and a customer is created so soon as the proceeds are credited in the current account.

7. Again, if the banker is employed to collect money and to issue a draft for the amount collected, the business of the agency terminates as soon as the draft is issued. By the express direction of the principal, the banker then may issue the draft in lieu of making payment in cash. By the issue of the draft, in such circumstances, the banker accounts for the money collected to the satisfaction of the principal. The fiduciary obligation to account for and to pay the amount collected ceases and henceforth, the banker is under an obligation to honour and pay the draft according to the tenor thereof.

8. If the banker issues a draft contrary to instructions or in the absence of instructions or does not issue a draft at all, the agency continues until the money collected is paid to the principal.

9. In each case the question is: has the agency terminated or does it continue?

10. In -- 'Alliance Bank of Simla Ltd. v. Amritsar Bank', AIR 1915 Lah 214 (C), the Alliance Bank of Simla sent two bills for collection to Amritsar Bank and directed the latter to send 'your drafts on realisation' after deducting the usual charges. The Amritsar Bank realised the money, made a small deduction for charges and remitted the balance by two drafts on the Peoples Bank. Before the drafts could be cashed both Peoples Bank and Amritsar Bank went into liquidation,

11. The Court observed:

'The appellant bank distinctly asked the Amritsar Bank to send drafts on Delhi and this direction was fully carried out. We consider that as soon as the drafts in accordance with the instructions were despatched, the special business, for which the agency had been created, was completed. The agency then ipso facto terminated (vide Section 201, Companies Act) and the fiduciary relationship came to an end. Henceforward the appellant bank was simply a creditor of the Amritsar Bank, and if the drafts were dishonoured, the remedy was for the recovery of the debt due on these drafts.'

This decision was followed by Sinha J. in --'Noakhali Union Bank Ltd., In re:, 54 Cal WN 744 (D) and by Banerjee J. in -- 'Calcutta Commercial Bank Ltd., In re:', 54 Cal WN 747 (E).

12. The last two decisions establish that where there is express direction by the principal to issue a draft & a draft is actually issued in compliance with such direction the principal becomes an ordinary creditor although the draft which is issued is a draft drawn by one branch of the bank upon another branch or upon the head office of the same bank.

13. The decision of Sinha J., in -- 'First National Bank Ltd. V. Pioneer Commercial Bank', : AIR1951Cal34 , illustrates the point that the fiduciary obligation of the Bank does not cease if the draft is issued contrary to instructions. In that case, the instruction was to send the proceeds by 'a Lahore draft', whereas the draft which was issued was a draft drawn on the Calcutta office of the bank.

14. The decision of Banerjee J. in -- 'Tripura Modern Bank Ltd., In re;', D/- 13-6-1951 (Cal) (G) shows that the principal does not become an ordinary creditor on the issue of the draft where his instruction is 'to collect the money and remit it.'

15. In 54 Cal WN 744 (D), Sinha J., observed:

'In cases where the bank has collected moneyand issued a draft or drafts in compliance withthe instructions of the party or in accordancewith the ordinary course of business, the payeeof the draft should be treated as ordinarycreditor (See AIR 1915 Lah 214 (C) ).'

The instructions of the principal to issue thedraft may be express. It may also be implied fromthe course of dealings between the banker andthe principal. In the absence of such instructionseither express or implied the fiduciary obligationof the banker to account for and pay the moneydoes not terminate on the issue of the draft andcontinues until the draft is honoured and the money is paid. On a careful consideration of the matter I am of the opinion that the issue of, a draft in the absence of such instructions does not terminate the agency simply because the draft is said to be issued in the ordinary course of business. I do not think that Sinha J., really intended to lay down anything to the contrary.

16. During the continuance of the agency the, money collected is held by the agent in a fiduciary capacity and in the event of the bank-ruptcy or winding up of the agent may be follow-ed and recovered as long as it may be traced to a specific fund.

17. Mr. Chowdhury has expressly stated that in these cases there is no difficulty of tracing the collections to a specific fund.

18. All the claims are on account of bills collected by the bank as agent for the claimants. The bank issued drafts drawn by one branch of the bank upon another branch or the head office of the bank. The drafts have been dishonoured on presentation. The claimants did not give any express instructions for the issue of the draft. The proved facts do not warrant a finding that the claimants impliedly gave Intimation to send the drafts.

19. 'Claim of Daruwala Brothers' : I declare that the sum of Rs. 577/7/3 is held by the banker in trust and/or in a fiduciary capacity on behalf of the claimant.

20. 'Claim of Delhi Pharmaceutical Works' : I declare that the sum of Rs. 243/13/6 belonging to the claimant is held by the Banker in trust and/or in a fiduciary capacity on behalf of the claimant.

21. 'Claim, of Krishna Type Foundry' : I declare that the sum of Rs. 148/1/- belonging to the claimant is held in trust and/or in a fiduciary capacity by the Banker on behalf of the claimant.

22. 'Claim of General Radio & Appliances Ltd.' : I declare that the sum of Rs. 1034/- belonging to the claimant is held by the Banker in trust and/or in a fiduciary capacity on behalf of the claimant.

23. 'Claim of Eastern Cycle Co. Ltd.' : There was express instruction in writing by the claimant to send the proceeds of the collection. I declare that two sums of Rs. 3513/- and Rs. 656/4/- belonging to the claimant are held by the Banker in trust and/or in a fiduciary capacity on behalf of the claimant.

24. 'Claim of Ganeshram Bardanwalla'There was oral instruction by the claimant toremit the proceeds of the collection. I declarethat the sum of Rs. 1428/- belonging to theclaimant is held by the banker in trust and/or ina fiduciary capacity on behalf of the claimant.


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