1. The facts of this case are comparatively simple, but the points of law involved are of considerable importance, and the sum at stake is a large one. Defendant 3 Dwijendra Chandra Ghose on 11th May 1939, opened a current account with the defendant bank. A letter addressed to the manager, Mr. Amin, by the defendant Ghose, dated 2nd May 1939, is in evidence, in which the latter announces his intention of opening the account stating that he will be requiring temporary accommodation, which defendant 2 Sailendra Nath Mitter is willing to guarantee. There is an endorsement by the defendant Mitter on the letter stating that he agrees to this arrangement. The defendant Mitter at this time had a cash credit account with the plaintiff bank, whose manager, Mr. Bhagwandas, has given evidence in the case. Mr. Bhagwandas's evidence is that on 13th June 1939, the defendant Mitter brought him two cheques of that date drawn in his favour by the defendant Ghose, one for Rs. 1,40,000, and the other for Rs. 1,35,000. They both bore an endorsement 'good for payment up to 20th June 1939,' signed by Mr. Amin on behalf of the defendant bank.
2. The defendant Mitter gave Mr. Bhagwandas to understand that the defendant bank had undertaken to meet the cheques on 20th June and he asked Mr. Bhagwandas if the plaintiff bank would advance Rs. 2,40,000 against the cheques. Mr. Bhagwandas did not approve of the cheques in the form in which they then were, and said that he wanted a cheque bearing the same date as that on which payment was to be made. The defendant Mitter then left but returned later on the same day bringing a crossed cheque, drawn in favour of the defendant Mitter or order by the defendant Ghose for Rs. 2,75,000, and dated 20th June 1939. This cheque had written accross it 'marked good for payment on 20th June 1939' and this endorsement was signed by Mr. Amin on behalf of the defendant bank. The defendant Mitter endorsed the cheque in blank and made it over to Mr. Bhagwandas. Mr. Bhagwandas thereupon drew a cheque on the defendant bank's account with the Imperial Bank of India in favour of the defendant Mitter. The defendant Mitter's account was debited with the amount of the cheque and it was duly cashed at the Imperial Bank. At the time of drawing the cheque for Rs. 2,40,000 in the defendant Mitters' favour Mr. Bhagwandas required him to address two letters to the plaintiff bank asking them to credit him with the proceeds of the post-dated cheque on due date, and also requesting an over-draft of Rs. 2,40,000 besides the amount previously due on the cash account, and promising to adjust the account on 20th June.
3. It appears that Mr. Amin's superiors about this time had begun to suspect him of irregularities, and on 12th June another of the defendant bank's officers, Mr. Jokhakar, arrived in Calcutta to act as joint manager with Mr. Amin. A third officer, Mr. Sonalkar, arrived on 17th June also for purposes of investigation. On 19th June, in consequence of instructions received from headquarters, Mr. Amin was suspended, and Mr. Jokhakar assumed sole charge. Letters were written on that day to all the banks in Calcutta, including the plaintiff bank, informing them that the power of attorney held by Mr. Amin was revoked. The letter addressed to the plaintiff bank was actually delivered early on the morning of 20th June. Apparently, Mr. Bhagwandas had got wind of the fact that Mr. Amin's activities in the matter of marking cheques 'good for payment' were under investigation, and he had become apprehensive as to the fate of the cheque he held. Accordingly, he had the cheque receipted in anticipation of payment and instructed his accountant and his cashier to present it over the counter as soon as the defendant bank opened their doors on 20th June. This they did, and on Mr. Jokhakar's instructions the cheque was dishonoured by non-payment. The reason given on the accompanying slip for its being returned unpaid is 'not arranged for.' The defendant Ghose's account was on that day in credit to the extent of 7 annas and 3 pies. On 23rd June the plaintiff bank's solicitors wrote letters of demand to all the defendants, and telegraphed a summary of the contents to the defendants bank's head office at Baroda. The defendant bank's solicitors replied that they were instructed to deny that the cheque was marked good for payment by the bank or any authorized officer of the bank or that the sum of Rs. 2,75,000 was due by the defendant bank. Their letter ends:
Before any sum can be said to be due to your clients, they will have to establish in a civil Court that the alleged marking is valid, and that it has the effect of obliging our clients to meet the cheque.
4. The suit was instituted on 31st July 1939. Neither of the defendants Mitter and Ghose has appeared. I should add that criminal proceedings have been commenced against Mr. Amin and these two defendants, and are still pending. The plaint, in addition to setting out the facts, states that the plaintiff bank advanced the sum of Rs. 2,40,000 to the defendant Mitter on the security of a cheque certified by the defendant bank, and/or on the representation made by the defendant bank that the cheque would be honoured in terms of the certificate. There is also a statement that Mr. Amin certified the cheque on behalf of the defendant bank, acting in the course of his employment, and within the scope of his authority as manager of the Calcutta branch. It is also alleged that this certification was in accordance with the custom and/or usage prevailing among the banks in Calcutta, and that the effect of such certification was to show that the cheque was drawn in good faith and on funds sufficient to meet its payment, and to add to the credit of the drawer that of the defendant bank.
5. In the defendant bank's written statement the authority of Mr. Amin to mark and/or certify the cheque is denied, and it is further denied that the defendant bank made the representation alleged, or that the plaintiff bank in making payment to the defendant Mifcter acted on the alleged representation. The custom and/or usage pleaded in the plaint is denied, and it is further stated that the plaint discloses no cause of action. Various issues were settled, but the substantial points argued by the Advocate-General in his address on behalf of the defendant bank, are three in number. He challenges the authority of Mr. Amin as manager of the defendant bank, to certify cheques, and in particular, post-dated cheques. He denies the existence of the custom and/or usage relied on by the plaintiff bank and he argues that the custom pleaded is not one which imposes on a bank certifying cheques any liability in circumstances such as those of the present case. He also argues generally that whatever be the effect of certification by a bank at the request of the drawer, it does not give a right of action against the bank for the amount of the cheque to the payee, or an endorsee for value. Finally he denies that there were any representations on the part of the defendant bank, and he says that, if there was any representations, they do not give rise to a cause of action.
6. Now the question of a manager's authority to certify, and the question of the existence of the custom on which the plaintiff bank rely, and its nature, are to some extent connected. From the evidence it is clear that the banks do in fact certify cheques, although this is not true of the exchange banks, who have a rule among themselves which prohibits them from so doing. Moreover, it is in evidence that the Imperial Bank of India is not in the practice of certifying cheques, and, although there is no evidence to that effect, I have no doubt that the same is true of the Reserve Bank of India. The evidence however clearly shows that a large number of banks certify cheques, and that other banks in Calcutta, Including the exchange banks, rely on such certification, by releasing shipping documents and delivery orders and the like on the strength of certified cheques. It is also abundantly clear that the power to certify, when it is the practice of the particular bank to do so, is within the scope of the manager's powers. The power of attorney, which was held by Mr. Amin until it was revoked on 19th June 1939, contains no provision expressly authorising him to certify cheques. It is however in the widest language. Among other things it authorises him to superintend and conduct the business of the bank, and to give such orders and directions in regard to the conduct and management of the bank as to him should seem expedient. He is also authorised to draw, accept, endorse, negotiate, and sell, bills of exchange and other negotiable instruments, with or without security.
7. It is not suggested that the powers of attorney granted to managers of other banks contain specific reference to certification, and no evidence has been adduced by the defendants to this effect. However, as far as the defendant bank is concerned, the matter is put beyond all doubt by the evidence of Mr. D'Souza, a former accountant of the Calcutta branch of the bank. His attention was drawn to the fact that both he and Mr. Amin had marked certain cheques as 'good for payment,' and, when he was asked if there was anyone else in the bank's employ who had done likewise, he replied 'only we two were authorised to do this but I find that on one or two occasions my assistant has done it.' The Advocate-General argued with considerable greater force that the authority of a manager to certify cheques does not extend to certifying post-dated cheques, with the knowledge that they will be used for the purpose of raising finance by discounting them in the market. All the witnesses have said that a prudent bank manager will not certify a cheque without earmarking funds of the drawer sufficient to meet it. The evidence is that this as a rule is not done by debiting the account, but by a note in the ledger. The only case in which the manager would be justified in certifying when the drawer had no funds, would be where an account was satisfactorily secured in some other way. Now the defendant bank's witnesses go so far as to say that the manager has no authority to certify cheques, except where there are funds to cover the cheques certified, or a credit arrangement of the nature I have indicated. This is probably true in the sense that as a rule a manager who took this responsibility would be acting contrary to the wishes and instructions of his employers, but it does not mean that as against an innocent third party the bank can plead their manager's failure to observe his instructions because, if it did, the bank's certificate would amount to very little and afford practically no protection. Another submission on behalf of the defendant bank is somewhat similar in character.
8. I have already referred to the statement in the plaint that the effect of the certification is to show that the cheque was drawn in good faith on funds sufficient to meet its payment, and to add to the credit of the drawer that of the defendant bank. This language is taken from the judgment of the Judicial Committee in Gaden v. Newfoundland Savings Bank (1899) Ac 281. It is suggested that the certification merely indicates that the drawer has an account with a bank of repute, on which he has drawn his cheque. I can attach very little meaning to the word 'credit,' unless it is a credit which the person who relies on it can legally enforce. With regard to the certifying of post-dated cheques, it cannot be gainsaid that the normal reason why cheques are certified is because the drawer desires to enable the payee to obtain immediate delivery of goods or documents held by a person, who would be unwilling to part with them on the strength of the drawer's signature only.
9. When a cheque is post-dated, it is a reasonable inference to conclude that the customer's object in obtaining certification is to enable himself or the payee to raise money by discounting the certified cheque before due date. Mr. Bhagwandas admits that it is only in rare cases that a customer requests the certification of a post-dated cheque (Q. 247). Of the experienced witnesses called by the plaintiff bank Mr. Bhatacharjee says he has never certified a post-dated cheque, and that he cannot remember later having accepted a post-dated cheque certified by another bank, (q. 42 and 43), but he says later that he does not see why he should not make an advance on such a cheque, and that it would be quite in order to do so (Q. 51). At the end of his evidence, he first says that, if he were asked to discount a post-dated certified cheque, it would not strike him as suspicious (Q. 184). He qualifies this however by saying that the consideration that the customer, if in a position to ask for certification, would also be in a position to obtain a direct over- draft, might occur to him, and, if so, he would try and clear the matter up.
10. Mr. Leaber of the National City Bank of New York says he has never been asked to advance money on a certified cheque. He also says that if a certified post-dated cheque were brought him, and he were asked to discount it, he would not do so. Mr. Wathrich of the Netherlands Commercial Bank says certification of a post-dated cheque is not usual, but the mere fact that a certified cheque was post-dated would not strike him as suspicious. As to the evidence tendered by the defendants none of the witnesses say that the manager Mr. Amin was expressly forbidden to certify post-dated cheques. He was of course expected to conform to the canons of prudent banking, and not to certify any cheque without earmarking funds to meet it, or making equivalent arrangements, but he had authority to certify generally, and that included, as far as third parties were concerned, the power to certify imprudently or irregularly. The submission is made that the defendant bank is exonerated from liability because the plaintiff bank did not act in good faith or with due care or caution. This plea is raised in the written statement and an issue has been framed with regard to it.
11. Now as to want of good faith, there is no evidence which would justify me in finding in the defendants' favour. As to want of due care or caution, I have been referred to no principle which imposes upon persons in the position of the plaintiff bank a duty to take care. Moreover the only way in which Mr. Bhagwandas could have exercised care or caution was by referring to the defendant bank, or, in other words, to Mr. Amin. The directors of the defendant bank undoubtedly believe that Amin and defendants 1 and 2 were conspiring to cheat them and, if this were so, a reference to Amin would merely have produced an assurance that everything was in order. To put it in another way, if there was fraud, the defendant bank's loss has been occasioned by that fraud, and not by the plaintiff bank's lack of care.
12. The position really is this, that the directors believe in the existence of the conspiracy, and they suspect that Mr. Bhagwandas was either a member of it, or abetted it by making an advance to the defendant Mitter on the security on the cheque drawn by the defendant Ghose. Were this proved, it would probably be an answer to the plaintiff bank's claim, but whether the belief and the suspicion are well founded or not, the facts are nowhere alleged or proved. There are only two authorities which deal in any way with certified cheques, and of these only one appears to me to throw any light on the legal position of these documents. That authority is Gaden v. Newfoundland Savings Bank (1899) AC 281. The circumstances were these: The plaintiff had a current account with a bank called the Commercial Bank. She drew a cheque payable to herself or bearer for the full amount then standing to her credit, and this cheque was at the direction of the manager certified by the addition of the ledger-keeper's initials. The plaintiff deposited the cheque with the defendant bank who gave credit for the amount of the cheque in her pass-book. When the cheque was presented it was dishonoured, the Commercial Bank having suspended payment. The plaintiff sued to recover the amount of the cheque from the defendant bank. One of the arguments on the plaintiff's behalf is dealt with in the judgment of the Judicial Committee in the following way:
It was contended on behalf of the appellant that the initialling of the cheque had the effect of making it current as cash. It does not appear to their Lordships in the absence of evidence of such a usage, that any such fact can be attributed to this mode of indicating the acceptance of the 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 certifying is to give the cheque an additional currency by showing 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.
13. The plaintiff's submission was rejected by the Privy Council, and I have set out the passage in the judgment as it is the only statement that exists as to the nature of certified cheques. The Privy Council went on to consider whether in the circumstances of the case the defendant bank by giving credit for the amount of the cheque in the plaintiff's pass-book indicated that they took the cheque with the intention of acquiring title. They came to the conclusion that no such inference could be drawn from what had happened, and reference is made to various English authorities, which show that even when bills have been endorsed in favour of bankers who subsequently become bankrupt, the proceeds of the bills, when realised, are the property of the payee and not of the assignees in bankruptcy of the bankers. Mr. S. M. Bose relies on the judgment, because he says it indicates that, had the defendant bank taken the cheque with the intention of acquiring title, the plaintiff would have succeeded, and the defendant bank would have been relegated to its remedies against the assets of the defaulting bank. This may be so, but it does not appear to me to meet the argument advanced by the Advocate-General to the effect that an endorsee has no cause of action against a certifying bank. I say this because the Advocate-General attaches weight to the proposition, which is indisputable, that the payee of a Scheque has as a rule no cause of action against the banker on which it is drawn. The peculiarity in Gaden v. Newfoundland Savings Bank (1899) AC 281 is that the cheque was a cheque in favour of self or bearer. Therefore if the defendant bank had acquired title, the title would have been that of the drawer of the cheque, and it is, of course, elementary that the drawer has a cause of action against a bank which dishonours his cheque by non-payment, when it has funds of the drawer to meet it.
14. The other case dealing with a certified cheque is (1903) a C id. 2 That was an action for the recovery of money paid by mistake, the facts being that the drawer of a certified cheque for $ 5 subsequently fraudulently altered the amount of the cheque to $ 500. The plaintiff bank which had certified the cheque subsequently by inadvertence paid $ 500 on it to the defendant bank, where the drawer of the cheque had opened an account. It was held by the Privy Council, affirming the decision of the Supreme Court of Canada, that the plaintiff bank were entitled to recover Imperial Bank of Canada v. Bank of Hamilton (1903) 1903 A C 49 from the defendant bank as money paid by mistake, and were not responsible for having certified a cheque, which was drawn in such a way as to facilitate fraud by the drawer. This case appears to have no bearing on the present case, and I merely refer to it because it adopts the observations as to the effect of certifying cheques in the judgment in Gaden v. Newfoundland Savings Bank (1899) Ac 281. All the standard text books recognize that the position of an endorsee of a certified cheque is uncertain. For example, in Grant's Law of Banking, Edn. 7, p. 43, it is said:
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 acceptance by a banker, and that notwithstanding Section 75, Bills of Exchange Act, 1882, a customer who is requested by his banker to mark the cheque cannot countermand its payment.
15. The learned author then describes as 'probably correct' the view expressed by a professional journal that the banker would be bound to honour the cheque on the ground of estoppel if anyone dealt with his client on the faith of the marking and was thereby damnified. Heart's Law of Banking/Edn. 4, vol. I, p. 341 expresses its disapproval of the practice. In Halsbury's Laws of England, Edn. 2, Vol. n, p. 610 there is the following passage:
Occasionally cheques are marked or certified by the bankers on whom they are drawn. Doing so does not convert the banker into an acceptor or make him liable on the instrument, but it does constitute a representation by him on which he may be held liable.
16. Byles on Bills, Edn. 19, p. 21 states:
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. . . . Occasionally a cheque may be marked 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...If the marking satisfies the requirements of Section 17 of the Code, 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. In practice bankers do not allow customers to countermand cheques marked at their instance, and though the practice has never been legally established, it appears to be reasonable.
17. On the other hand strong views are expressed by Sir James Paget in his Law of Banking, Edn. 4, p. 164. In dealing with the question of representation the learned author states:
The stronger argument, however, is that the admission or acknowledgment, if any, is not made to any definite ascertained person so as to qualify him for the plaintiff in the action.
18. Sir James Paget is also clearly of opinion that the marking of a cheque as 'good for payment' is not the equivalent of 'acceptance,' and indeed he seems to think that a banker is probably debarred from 'accepting' a cheque, a view which appears to differ from that expressed in Byles on Bills.
19. The somewhat divergent views expressed in the text books have been relied on by learned Counsel on both sides. Following the passage in Byles on Bills, Mr. S. M. Bose has argued that a cheque is a bill of exchange, being so defined by Section 6, Negotiable Instruments Act, and that, although in the normal course it is not accepted by the drawee banker, there is nothing in the law that forbids him to accept it, in which case he becomes liable to a holder in due course in the same way as any other acceptor. He also relies on the passage where the same learned author expresses the opinion that the signature of the certifying banker is an acceptance. In this I agree with Mr. Bose. It is true that acceptance is not specifically pleaded, but that I consider to be merely a technical objection. The Advocate-General suggests that the instrument being unstamped, could not have been proved. However, although accepted, the instrument still answers the definition of cheque in Section 2 (7), Stamp Act, and therefore requires no stamp under item 21 of Schedule 1 of the Act. 'Acceptor' is defined by Section 7, Negotiable Instruments Act, thus:
After the drawee of a bill has signed his assent upon the bill.... and delivered the same, or given notice of such signing, to the holder or to some person on his behalf, he is called the 'acceptor.'
20. Now it is true that there is no evidence of what happened at the time that the defendant Mitter obtained the certification of the defendant Ghose's cheque for Rs. 2,75,000, but it is I think plain, that either Ghose gave Mitter the cheque, which Mitter took to Mr. Amin, who handed it back to Mitter certified, or Ghose took the cheque to Mr. Amin, who certified and handed it back to Ghose for the purpose of its passing to Mitter. In either set of circumstances there was, in my opinion, a complete acceptance within the meaning of the Negotiable Instruments Act. I would say however that, even if there was no acceptance, the evidence shows that bankers are by usage liable on cheques certified by them when presented by parties entitled to present them.
21. Mr. Leaber says that, when a bank has marked a cheque good for payment, he regards the bank as under an obligation to pay on presentation. Mr. Bhattacharjee says (Q. 132), that, if through inadvertence a bank has permitted a customer's account to be depleted to such an extent that there are not sufficient assets to meet a certified cheque out of it, the bank must nonetheless pay on presentation, and he repeats this more than once (see Q. 140/142). To the question (No. 37), 'if a post-dated cheque is certified by a bank as good for payment the bank is bound to pay?' Mr. Wathrich replied 'yes, naturally.' These are however the plaintiff bank's witnesses. In the circumstances I consider certain admissions made by Mr. Sonalkar of greater importance. I asked him (Q. 165), 'Do you think that Amin, Ghose and Mitter were in a conspiracy?' He answered 'Yes.' I then asked him, 'And the directors of your bank supposed so too?-'Yes.' I proceeded, 'Do you think that if the directors had supposed that Amin had acted in good faith, and by some mistake omitted to earmark funds, they would have defended the suit?' He answered 'No.' This, as I have said before, is I believe the true position. I am convinced it would not occur to the defendant bank or to any other bank to refuse payment of a certified cheque on presentation, either on the ground that it was not arranged for, or that there was no privity between the bank and the holder.
22. I think that the directors of the defendant bank considered that they were entitled to refuse payment because of the relationship, which they inferred or suspected between Bhagwandas, Amin, Ghose and Mitter.' If that relationship had been established, it may be they would have succeeded. As it is however their inferences, and suspicions cannot avail them. I have not overlooked the fact that the paragraph of the plaint where the custom or usage is pleaded does not state that by it the certifying bank must pay the cheque on presentation by the holder in due course. The paragraph could however have been amplified by amendment, and it may fairly be said that the nature of the point which the defendant bank were seeking to make with regard to the suggested absence of a cause of action, was not elaborated until the learned Advocate-General's concluding address. I consider that the plaintiff bank have succeeded in showing that they are entitled to a decree for Rs. 2,75,000 against all the defendants. There will be interest on decree at six per. cent. and an order for costs. As against the defendants, Mitter and Ghose, the costs will be as of an undefended suit. I certify for two counsel.