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Bank of Baroda Ltd. Vs. Punjab National Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1942Cal562
AppellantBank of Baroda Ltd.
RespondentPunjab National Bank Ltd. and ors.
Cases ReferredForster v. Mackreth
- .....signed by him, in which case, of course, it will amount to an acceptance. 12. the practice of banks marking in this fashion cheques drawn on them has been observed at different times in different parts of the world where cheques are used. in calcutta it is clear from the evidence that some banks do mark cheques so that the drawers can take them to merchants to obtain delivery of goods or to other banks to obtain securities and other documents of title. the 'exchange' banks in calcutta and in particular the imperial bank of india, however, do not so mark cheques, but some of them issue to the customer their own 'pay orders' for the same purpose. we have not been referred to any indian case on the effect of such marking. in england at one time the practice just referred was to some.....

Derbyshire, C.J.

1. The appellants appeal from a decree made against them on 28th June 1940 See : AIR1941Cal372 by Panckridge J. in favour of the respondents for Rs. 2,75,000 with interest at 6 per cent, per annum. The facts are shortly as follows: One Ghose was a customer of the Baroda Bank and one Mitter purported to guarantee his account there. One Amin was the manager or agent of the Baroda Bank in Calcutta. Mr. Bhagwandas was the manager of the Calcutta branch of the Punjab Bank where Mitter had an account which in June 1339 was overdrawn. On 13th June 1939 Mitter took to the Punjab Bank two cheques drawn by Ghose on the Baroda Bank both in favour of Mitter and both dated 13th June 1939; both cheques were marked on the face of them 'good for payment upto 20th June 1939' and signed by Amin on behalf of the Bank of Baroda, Limited. One was for Rs. 1,40,000 and the other for Rs. 1,35,000.

2. Mitter asked Mr. Bhagwandas if he could allow him to draw Rs. 2,40,000 against them. Mr. Bhagwandas said he wanted a cheque the date of which should be the same as the date on which payment was to be made. Thereupon, Mitter went away taking the two cheques and returned a little while after on the same day with one cheque dated 20th June 1939 drawn on the Bank of Baroda by Ghose in favour of Mitter or order for Rs. 2,75,000. The cheque was crossed '/ /& Co.' and on the face of it were written crosswise these words: 'Marked good for payment on 20-6-39 for the Bank of Baroda, Limited, M.P. Amin, Manager.' It is not denied that the signature was that of Amin, the Manger of the Bank of Baroda, Ltd., at Calcutta. There is no direct evidence as to how this cheque came to be so marked, because Ghose, Mitter and Amin were prosecuted by the Baroda Bank for fraud, etc, but not, we are told, in respect of this particular transaction. Ghose has since been discharged, but the prosecution of the two others--Amin and Mitter --is still going on. Mitter endorsed this cheque generally, handed it over to Mr. Bhagwandas and wrote two letters to the Punjab Bank. The first asked the Punjab Bank to credit the Rs. 2,75,000 to his account 'on realisation on due date.' The second requested 'an overdraft of Rs. 2,40,000 besides the previous balance which I promise to adjust on 20th June 1939.' The Punjab Bank the same day drew a cheque on the Imperial Bank of India at Calcutta for Rs. 2,40,000 in favour of Mitter who cashed it the same day. There were certain transactions by Mitter with another person who about the same time paid a large sum of money into his (that other person's) account with the Bank of Baroda, but these matters have not been pursued in this case and we are not concerned with them.

3. Shortly before 13th June, the head management of the Baroda Bank at Bombay had become suspicious of Amin's doings and on 12th June, a Mr. Jokhakar arrived at the Calcutta branch to assume joint managership with Amin. Mr. Jokhakar, however; had nothing to do with the above marking and did not know of it at the time. On 19th June, the head management caused letters to be written to all the big Calcutta banks stating that Amin's power of attorney (the authority under which he managed the Calcutta branch) had been terminated. The Punjab Bank at Calcutta received this notice the next day, 20th June, early after opening. In the meantime evidently Mr. Bhagwandas got anxious about the cheque and after endorsing it 'payment received for the Punjab National Bank, Ltd., D.P. Bhagwandas, manager' sent his accountant and his cashier to present it over the counter as soon as the Baroda Bank opened its doors. The cheque was dishonoured; the reasons given were 'not arranged for.' There is a bankers' clearing house in Calcutta, but it will be noted it was not presented there. The Punjab Bank sued the Bank of Baroda together with Ghose as drawer and Mitter as endorser of the cheque. Ghose and Mitter did not defend the suit, but the Bank of Baroda did. Panckridge J. gave judgment against all three defendants for the amount of the cheque Rs. 2,75,000. The Bank of Baroda denied that Amin had authority to mark the cheque, but the learned Judge on an examination of the evidence and, in particular, Amin's power of attorney rejected this defence.

4. The Bank of Baroda also alleged that the Punjab National Bank did not act with due care or caution and did not act in good faith. The trial Judge on the evidence decided these two issues against the defendants and I agree with him for the reasons he has given. The Judge found that the marking amounted to an acceptance of a bill of exchange and that the Bank of Baroda were liable as acceptors. Further he said 'I would say however that even if there were no acceptance the evidence shows that bankers are by usage liable on cheques certified by them when presented by parties entitled to present them.' On appeal, the contest was substantially on the two issues last mentioned. Apart from the words 'marked good for payment on 20th June 1939 for the Bank of Baroda, Ltd., M.P. Amin, Manager', it was not contended that the Bank of Baroda could be liable on the instrument. The facts as found are within a small compass. The relevant provisions of law also appear to be short. The Negotiable Instruments Act of 1881 defines 'bill of exchange' in Section 5 thus:

An instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument:A promise or order to pay is not 'conditional', within the meaning of this section and Section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

5. Section 6 provides : 'A 'cheque' is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.' Section 7 provides : 'The maker of a bill of exchange or cheque is called the 'drawer;' the person thereby directed to pay is called the 'drawee.' Also 'after the drawee of a bill has signed his assent upon the bill.....and delivered the same or give notice of such signing to the holder or to some person on his behalf, he is called the 'acceptor.''

6. The cheque in question although dated 20th June was clearly drawn and 'marked' on 13th June 1939. It was a post dated cheque as every one concerned knew. Although there is no provision in the Negotiable Instruments Act specifically allowing post dated cheques, like Section 17(2) of the English Bill of Exchange Act of 1882, there is nothing forbidding them, and para. 2 of Section 5 contemplates (as indeed it must) the making of a bill of exchange payable at a future date. The cheque as drawn, therefore, was a cheque in proper form and, therefore, a bill of exchange within the meaning of the Negotiable Instruments Act. If the marking was a representation that the Bank of Baroda would pay the cheque on 20th June, there would seem to be no reason why such marking should not be an acceptance within the meaning of Section 7. There is no Indian case on the point, and the difficulty in coming to a decision has arisen because of certain dicta of English text book writers. Grant on Banking, Edn. 7 at p. 43 states:

In the absence of English authority it is difficult to say what is the exact legal effect in this country of marking cheques; but it is submitted that such marking is not equivalent to an acceptance by the banker, and that notwithstanding Section 75, Bills of Exchange Act, 1882, the customer who has requested his banker to mark a cheque cannot countermand its payment. It has been suggested that 'the banker would be bound to honour the cheque on the ground of estoppel, if any one dealt with his client on the faith of the marking and were thereby damnified.' It is submitted that this view is correct.

7. Hart on Banking, Edn. 4, Vol. 1 at p. 341 dealing with marked cheques states:

At Common law there is no objection to the acceptance of a cheque, if the holder likes to take it in lieu of payment, but the Bank Charter Acts would in many cases render this illegal.

However, a custom has grown up among bankers themselves of marking cheques as good for the purposes of clearance, by which they become bound to one another. As between the bankers themselves accordingly, this marking has an effect analogous to that of the acceptance of a bill, but it does not give the holder of the cheque a right against the banker who has marked it.

8. Halsbury's Laws of England, Edn. 2, Vol. 2 at page 610 states:

Occasionally cheques are marked or certified by J the bankers on whom they are drawn. Doing so does not convert the banket into an acceptor of make him liable on the instrument, but it does constitute a representation by him, on which he may be held liable, that the cheque will be paid as drawn if presented within a reasonable time.

9. In Paget on Banking, Edn. 4 at page 164 the learned author devotes a short chapter to the subject of marking cheques. He treats the case in Gaden v. Newfoundland Savings Bank (1899) 1899 A.C. 281 as a case from a country where the law of marking or certifying cheques cannot be assumed to be the same as in England. He says:

And in any event marking is, neither in form nor effect, an acceptance of which the payee or holder can avail himself. Nor does such marking, at the instance of the customer, render the bank liable to the payee or holder for money received to his use.

10. Sir Malcolm Chalmers in his book 'the Bills of Exchange Act, 1882,' Edn. 9 at p. 291 dealing with marking cheques and Gaden's case (1899) 1899 A.C. 281 says:

It is clearly not an acceptance that the holder can take advantage of: see Section 17, Sub-section (2).' Then he mentions that under the New York Negotiable Instruments Law, 'the certification of a cheque is equivalent to an acceptance, but when procured by the holder, discharges the drawer and indorsers. It further operates as an assignment of funds.

11. In Byles on Bills, Edn. 20 at p. 21 the learned author writes:

Cheques, being intended for immediate payment on presentment are never in the ordinary course accepted, though, as being bills of exchange, they are capable of being accepted if the banker so chooses. In practice however cheques may be marked as good by the banker on whom they are drawn. There is a usage amongst bankers of so marking cheques for the purposes of clearance, the banker on whom the cheque is drawn becoming bound, by marking it, to the collecting banker, and this usage has been judicially recognized. Occasionally a cheque may be marked as good at the instance of a customer, the object of the marking being to show on the face of the cheque that there are sufficient funds in the banker's hands to meet it. It was formerly the practice in this country to use marked cheques for making payments against documents of title, but, though the practice cannot be said to be obsolete, it is more usual at the present day to make such payments by means of transfer-cheques on the Bank of England, or bankers' drafts. If the marking satisfies the requirements of Section 17, Bills of Exchange Act, it will amount to an acceptance, and the banker will be liable to the holder of the cheque accordingly. If, however, the marking is not an acceptance, it is difficult to see upon what grounds the banker can be held liable. No usage in favour of the holder of a marked cheque has ever been established in this country; and the marking, if intended to be a binding representation as to the drawer's credit will not impose any liability upon the banker, unless signed by him, in which case, of course, it will amount to an acceptance.

12. The practice of banks marking in this fashion cheques drawn on them has been observed at different times in different parts of the world where cheques are used. In Calcutta it is clear from the evidence that some banks do mark cheques so that the drawers can take them to merchants to obtain delivery of goods or to other banks to obtain securities and other documents of title. The 'exchange' banks in Calcutta and in particular the Imperial Bank of India, however, do not so mark cheques, but some of them issue to the customer their own 'pay orders' for the same purpose. We have not been referred to any Indian case on the effect of such marking. In England at one time the practice just referred was to some extent used, because on 7th December 1905, the Committee of London Clearing Bankers resolved:

That this Committee strongly recommend the Clearing Bankers to discontinue the practice of marking or certifying at the request of a customer his cheques or drafts upon themselves, and to adopt instead the practice of issuing to each customer in exchange for his cheque their own transfer cheque on the Bank of England. This resolution does not in any way affect the existing practice of marking after business hours cheques presented by another clearing bank.' (Hart on Banking, Edn. 4, Vol. 1, page 341.)

13. The exception clause of the resolution just quoted evidently refers to a practice noticed in 1810 by Lord Mansfield C.J. in Robson and Vaugh v. Bennet (1810) 2 Taunt 388. The facts are interesting and the remarks of Lord Mansfield are helpful. The plaintiff sold coals to the defendant who gave in payment a cheque (check) for the balance of the account. The cheque was drawn on Bloxam B., the defendant's bankers. The plaintiff took the cheque to his own bankers Harrisons at once who took it to the bankers' clearing house after the usual time for payment--four o'clock in the afternoon. The clerk of Bloxams marked the cheque and in accordance with usage, Harrisons took it to the clearing house next day for payment, but Bloxams were absent -- they had failed. The plaintiffs then sued Bennett the drawer of the cheque for payment of the goods. Lord Mansfield gave a judgment which I will quote in full:

The whole question amounts merely to this : a man who has bought goods and given a draft on a banker, contends that he has paid for those goods, though the plaintiff has never received the money. A draft was drawn on 11th September : on that day it was carried to the house of the drawee, and, in the language of those persons, was marked : the effect of that marking is similar to the accepting of a bill; for he admits thereby assets, and makes himself liable to pay. It is the practice of bankers not to pay bills of this description which are presented after four o'clock, but to mark them; and it is usual that bills marked on one day, are carried to the clearing house where their clerks meet, and paid there on the next day. Therefore it is the same thing as if a banker had written on a check, -- We pay this tomorrow at the clearing house. On the next day after marking the cheque the banker stops payment : the holder's clerk goes to the clearinghouse, where no clerk attends from Messrs. Bloxams, and the bill is not paid; and the first question is, whether there is any laches as to the time of presentment : as to that, the case of Appleton v. Sweetapple B.R. M. 23 G 3 decides, that a cheque need not be presented on the day on which it is drawn; now this bill was in fact presented and accepted on the very day on which it was drawn : the reason of that haste probably was, in order to fix the banker, lest the drawer should be insolvent before the next day, bankers being usually persons of great substance; whereas the drawer may be of less credit. The mark on the cheque is an engagement to pay at a particular place : is not then the presenting it at that place equivalent to presenting at the banking house? It seems that it is, and that it therefore is no laches; consequently, the surplus of the money for the coals remains due, and judgment must be entered for the plaintiff.

14. This is the only English case bearing on the point I have been able to discover. Cockburn C.J. referred to the same practice in his judgment in Goodwin v. Roberts (1875) 10 Ex. 337 3 at pp. 351 to 352. In Gaden v. Newfoundland Savings Bank (1899) 1899 A.C. 281 the Privy Council considered a Canadian case where a marked cheque was in question. The plaintiff had an account with the Commercial Bank at St. John's, Newfoundland. One Saturday she drew a cheque for 3850 dollars (the balance of her account) in favour of herself or bearer, presented it to the ledger keeper, who, by direction of the manager of the bank, certified it in the usual manner by writing his initials across it, and delivered it thus initialled to the plaintiff. The cheque was charged to the appellant's account in the books of the bank, and her account at the Commercial Bank balanced. The plaintiff immediately took this cheque to the Savings Bank and there, without endorsing it deposited it. The Savings Bank entered 3850 dollars in the plaintiff's account as a deposit. The same day the Savings Bank deposited the cheque with the Union Bank who presented it to the Commercial Bank on the following Monday. The Commercial Bank by then, having failed the cheque was dishonoured. The plaintiff demanded the 3850 dollars from the Savings Bank who refused to pay it; she thereupon sued for it as money deposited with the Savings Bank and credited to her by such bank. She failed in her suit in Canada and in her appeal to the Privy Council. The Privy Council held' that the cheque was presented within a reasonable time. Then followed this passage in the judgment delivered by Sir Henry Strong:

It was contended on behalf of the appellant that the initialing of the cheque had the effect of making it current as cash. It does not, however, appear to their Lordships, in the absence of evidence of such a usage, that any such effect can be attributed to this mode of indicating the acceptance of a cheque by the bank on which it is drawn. A cheque certified before delivery is subject, as regards its subsequent negotiation, to all the rules applicable to' uncertified cheques. The only effect of the certifying is to give the cheque additional currency by shewing on the face that it is drawn in good faith on funds sufficient to meet its payment, and by adding to the credit of the drawer that of the bank on which it is drawn.

15. The real ratio decidendi in the ease appears to be given on pp. 286 and 287, and is summed up at the bottom of page 287 in these words : 'The cheque had never-ceased to be the property of the appellant, i. e., the plaintiff.' The dictum of Sir Henry Strong quoted above was cited and affirmed by the Privy Council in the later Canadian case in Imperial Bank of Canada v. Bank of Hamilton (1903) 1903 A.C. 49. A decision of the Supreme Court of the United States of America--Merchants National Bank of Boston v. The State National Bank of Boston (1870) 10 Wallace 604 contains an interesting statement of the American law in this matter. The facts of the case are involved and need not be dealt with here. Swayne J. delivered the opinion of the Court and at p. 647 said:

By the law merchant of this country, the certificate of the bank that a cheque is good is equivalent to acceptance. It implies that the cheque is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the cheque is presented for payment. It is an undertaking that the cheque is good then and shall continue good and that this agreement is as binding upon the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume....

16. This view of the marking of cheques by the drawee bank appears to have been embodied in the New York Negotiable Instruments Law above referred to. In England the practice of marking cheques by drawee bankers has largely been discontinued for many years (except in clearing houses) and that probably accounts for the lack of English decisions on the question as well as the attitude of English text book writers. In Robson and Vaugh v.Bennet (1810) 2 Taunt 388 Lora Mansfield had no hesitation in speaking of the initialling of a cheque by the drawee bank at the clearing house as being the acceptance of the cheque. In Canada today (or at any rate reoently) the initialling of the cheque by the drawee bank was described by Sir Henry Strong as 'the mode of indicating the acceptance of a cheque by the bank on which it is drawn.' In America as Swayne J. said above 'the certificate of the bank that a cheque is good is equivalent to acceptance.' The marking of cheques by drawee banks in England is not practised much outside bankers' clearing houses whereas it is in Calcutta outside the 'exchange' banks. The conditions so far as they prevail in Calcutta in this respect are more similar to those in Canada and the United States of America, and I see no reason to regard the opinion of the English text book writers, written with respect to English conditions, as a bar to holding the certification or marking of cheques as 'good' by the drawee bankers in Calcutta to be acceptances provided the nature of the marking or certifying and the accompanying circumstances warrant it.

17. In the present case the marking of the cheque by the Baroda Bank was clearly intended to give the cheque a value beyond what it had when originally drawn, and it clearly did give it such additional value because the Punjab Bank advanced Mitter (who was already overdrawn with them) Rupees 2,40,000 on the cheque being deposited with them.

18. Was such additional value added to the cheque because the words of the marking meant that seven days after the date of marking Ghose would have Rs. 2,75,000 to his credit at the Bank of Baroda or because the words meant that seven days later the Bank of Baroda would definitely pay Rs. 2,75,000 to the holder of the cheque on presenting it I am of the opinion that the latter is the correct view. The words of the marking are 'marked good for payment.' It is the bank that makes payment, and it was the bank that marked it good for payment. If there is any doubt as to the meaning of the words, those words must be construed against the Bank of Baroda which used them. I am therefore of opinion that the words 'marked good for payment on 20th July 1939 for the Bank of Baroda, M.P. Amin, Manager' meant that the Bank of Baroda would pay the amount stated in the instrument, i. e., Rs. 2,75,000 on 20th June 1939. I therefore hold that the Bank of Baroda as the drawee of the bill of exchange signed its assent upon the bill. I draw the inference from the known facts as to the drawing of the cheque and the certifying thereof and the handing of the same after certification to the drawer Ghose and/or Mitter that the Bank of Baroda delivered the bill of exchange to the holder or some person on his behalf within the meaning of Section 7, Negotiable Instruments Act, and became on 13th June 1939, the acceptor of the bill of exchange.

19. At the time of acceptance the instrument in question which was in form a post-dated cheque was in law a bill of exchange at seven days date, which on 20th June, became a bill of exchange payable on demand and so a cheque : see Forster v. Mackreth (1867) 2 Ex. 163 at pp. 166 and 167. Having regard to the view I have arrived at, viz., that the marking or certification in this case was an acceptance by the Bank of Baroda, the question of usage does not arise, Before agreeing with the learned Judge that a usage such as he mentions has been established I should require further evidence. The usage alleged was alleged in respect of scheduled banks in Calcutta. It was stated in argument that there are 22 scheduled banks in Calcutta, some of which are 'exchange' banks. Four witnesses were called by the plaintiffs to prove usage, and of those two were from 'exchange' banks, which do not certify cheques whilst a third was Mr. Bhagwandas. The defendants' witnesses were from the defendant bank. It is true that Mr. d'Souza, one of the defendants' witnesses said that he had never heard of another case where a bank which had certified a cheque had not paid it. I prefer to regard the evidence as showing that banks in Calcutta which certify and mark cheques regard the certification or marking as being an acceptance which makes them legally liable to pay the amount thereof and that they honour their obligations. The instrument in question was not stamped in any way. By the Stamp Act cheques are not required to be stamped but bills of exchange are to be stamped ad valorem., The appellants have contended that as the instrument was, when accepted, a bill of exchange, it ought to have been stamped 'before or at the time of execution' as provided by Section 17, Stamp Act, that as it has never been stamped it was inadmissible in evidence by reason of Section 35, Stamp Act, and therefore the plaintiffs' case must fail. It must be noted that no objection to the instrument's admissibility was ever taken at the trial. The answer to this contention of the appellants is to be found in Section 36, Stamp Act, which provides that:

Where an instrument has been admitted in evidence, such admission shall not, except as provided in Section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped.

20. Section 61 provides for the payment under an order of Court of the duty escaped, and for the punishment of deliberate evasion. However in the proviso to Section 61 it is specifically provided that ''except for the purpose of such prosecution no declaration made under this section shall affect the validity of any order admitting any instrument in evidence.' The appellants' contention as to the admissibility of the cheque therefore fails. For the above reasons I am of the opinion that the Bank of Baroda, Ltd., were legally liable to the Punjab National Bank, Ltd., as acceptors of a bill of exchange or cheque for Rs. 2,75,000 and that this appeal fails and must be dismissed. The appeal will be dismissed with costs. Certificate for two counsel.

McNair, J.

20. I agree.

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