Karnataka High Court
Kotak Mahindra Bank vs State Bank Of India on 26 September, 2019
Author: H.B.Prabhakara Sastry
Bench: H.B.Prabhakara Sastry
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF SEPTEMBER, 2019
BEFORE
THE HON'BLE Dr. JUSTICE H.B.PRABHAKARA SASTRY
R.F.A.No.955 OF 2010
BETWEEN:
Kotak Mahindra Bank
Having its Regd. Office at:
ING VYSYA HOUSE
No.22, M.G. Road
Bangalore - 560 001.
And its Branch Office at
Netkallappa Circle,
Bangalore - 560 004.
Represented by its Branch Manager,
Sri.A. Om Prakash.
...Appellant
(By Sri. Akhilesh J.K. for
Sri. K.V. Satish, Advocate)
AND:
1. State Bank of India
A Bank constituted under
the provisions of the State
Bank of India ACT, 1955 and
Having its Corporate Centre at
Madame Cama Road, Nariman Point
Mumbai - 400 021. and a Local Head
Office at No.16,
St. Marks Road,
Bangalore - 560 001 and a branch
R.F.A.No.955/2010
2
at State Bank Road,
Bangalore-560 001.
Represented by its Chief Manager
(Accounts), Sri.P.D. Fernandes.
2. Sri. Anand Mohan Sharma
Prop: M/s. A.K. Traders
No.36, Surveyor Street,
Basavanagudi,
Bangalore - 560 004.
...Respondents
(By Sri. S. Krishnaswamy, Advocate for R-1;
Notice to R-2 is dispensed with vide order dt.06-06-2012)
****
This Regular First Appeal is filed under Section 96 of
the Code of Civil Procedure, 1908, against the judgment
and decree dated:19-02-2010 passed in
O.S.No.4168/2002 on the file of the X Additional City Civil
Judge at Bangalore, decreeing the suit of the plaintiff.
This Regular First Appeal coming on for Hearing, this
day, the Court delivered the following:
JUDGMENT
This is a first defendant's appeal. The present respondent No.1 - Bank as a plaintiff had instituted a R.F.A.No.955/2010 3 suit against the present appellant and the present respondent No.2, arraigning them as defendants No.1 and 2 respectively in O.S.No.4168/2002 in the Court of the X Additional City Civil Judge at Bangalore (hereinafter for brevity referred to as "Trial Court") for recovery of a sum of `6,32,480/- with interest thereupon.
2. The summary of the case of the plaintiff in the Trial Court was that, the first defendant (as it was then called as "The Vysya Bank Limited") had presented five Demand Drafts purported to have been issued by the plaintiff- State Bank of India (hereinafter for brevity referred to as "Bank") at its Middleton Row Branch, Calcutta, payable to the second defendant with the following dates and amounts shown against them:-
R.F.A.No.955/20104
Demand Draft Amount (` `) Paid on 11.08.1999 94,000/-
11.08.1999 96,000/-
13.08.1999 95,000/-
13.08.1999 92,000/-
13.08.1999 95,000/-
Total: 4,72,000/-
All those Demand Drafts were shown to have been drawn in favour of one M/s. A.K. Traders.
Among the above five Demand Drafts, first two Demand Drafts were paid in the clearing house of plaintiff - Bank on 11-08-1999 and the remaining three Demand Drafts were paid in the clearing house of the plaintiff on 13-08-1999. It was reported that several of the blank MICR Demand Draft forms were reported lost by the State Bank of India in Patna Local Head Office and they were reported to have been stolen from their Parwalpur Branch. The present five Demand Drafts were also among those stolen Demand R.F.A.No.955/2010 5 Draft forms which came to the knowledge of the plaintiff - Bank subsequent to their encashment as aforesaid. The fraud was detected only after the Reconciliation Department at the Central Office of the State Bank of India informed the plaintiff - Bank by fax message on 15-10-1999. All the five Demand Drafts that were presented by the first defendant - collecting Banker with the plaintiff - Bank through clearance were all found to be forged. These Demand Draft leaves were stolen from the Parwalpur Branch and utilised by defrauding the Bank by forging the signatures of the Bank officials.
It is further the case of the plaintiff - Bank that by its letter dated 16-10-1999, they had called upon the first defendant - collecting Banker to make good the value of the five Demand Drafts in total amounting R.F.A.No.955/2010 6 to `4,72,000/-. Since the first defendant as a collecting Banker had failed to exercise proper precaution in collecting and forwarding the fraudulent drafts for payment, there has been a negligence on the part of the first defendant. The first defendant - collecting Banker thereafter revealed to the plaintiff - Bank that the second defendant opened a Current Account with them on 04-08-1999 and deposited those Demand Drafts for crediting to his newly opened account.
The plaintiff -Bank contended that the first defendant - Collecting Banker allowing huge deposits to be credited to the newly opened account of the second defendant by proceeds of fraudulent drafts and allowing withdrawal without verifying the antecedents of the second defendant has not exercised due diligence.
R.F.A.No.955/20107
The plaintiff further contended that the Dahisar Police Station, Mumbai, by their letter dated 07-09-1999 intimated the first defendant - Collecting Banker which was received by them on 15-10-1999 that they have registered a case against (1) Shravan Kumar Uma Kanth Mishra (2) Ashok Kumar Ramanjunaya Vallan Das for the offences punishable under Sections 380, 420, 467, 468 and 371 read with Section 24 of the Indian Penal Code, 1860. The said Police also intimated that the said Shravan Kumar Umakanth Mishra has opened an account with the first defendant in the name of Anand Mohan Sharma claiming to be the proprietor of M/s.A.K. Traders.
The plaintiff further contended that it was also brought to the notice of the first defendant - collecting Banker that, Mr. Ashok Mohan Sharma claiming to be R.F.A.No.955/2010 8 the proprietor of several Companies namely M/s. Ajay Traders, Sri. Yash Enterprises, M/s. Balaji Construction, M/s. Abhiram Enterprises, Sri. Sai Exports, and M/s. A.K. Traders has been opening accounts with other Banks and all these Concerns are bogus. It was also mentioned in their letter that the Demand Drafts entrusted to the first defendant - Collecting Banker for collection were the blank Demand Drafts forms stolen from the State Bank of India, Parwalpur Branch. The plaintiff - Bank has claimed an amount of `4,72,000/- towards the value of five Demand Drafts paid by it in the Clearing House and interest on the said amount at the rate of `16.25% till the date of suit amounting to a sum of `1,16,480/-. Thus, in total, it claimed a sum of `6,32,480/- from the defendants jointly and severally. R.F.A.No.955/2010 9
3. In response to the summons served upon them, the defendant No.1 - collecting Banker alone appeared through its counsel and filed its Written Statement. The second defendant had remained ex- parte.
4. The first defendant - collecting Banker in its Written Statement admitted that defendant No.2 by name Sri. Ashok Bhavan Sharma claiming to be the proprietor of M/s. A.K. Traders had approached it and opened a Current Account with it on 04-08-1999 with an initial deposit of a sum of `5,000/-. The defendant No.2 had complied the norms of the defendant No.1 - collecting Banker in that regard.
The defendant No.1 - collecting Banker also contended that on 12-08-1999 and 17-08-1999, the defendant No.2 deposited two and three Demand R.F.A.No.955/2010 10 Drafts respectively which in total amounted to `4,72,000/- for the credit of his account. After those Demand Drafts were realised in the Clearing House, the second defendant has withdrawn the said amount. Hence, it is the responsibility of the paying Bank i.e. the plaintiff - Bank to look into the genuineness of their instrument.
The defendant No.1 - collecting Banker further contended that it received a letter dated 15-01-1999 from Senior Inspector of Police, Dahisar Police Station, Mumbai, stating that M/s. A.K. Traders is a bogus firm and asked the defendant No.1 to freeze his Account. The defendant No.1 - collecting Banker also received a letter from the plaintiff - Bank stating that the above five Demand Drafts presented by the defendant No.2 were all bogus and forged ones. However, defendant R.F.A.No.955/2010 11 No.1 contended that it was the duty of the plaintiff - Bank to verify the genuineness of their instruments before their payment.
The defendant No.1 - collecting Banker also contended that it also received a letter from Cubbon Park Police Station, Bengaluru, calling for the copy of the Account opening form, specimen signature card, photo of the applicant (defendant No.2) and accordingly the defendant No.1 - collecting Banker has complied with all the requirements on 21-10-1999 as required by the said Police. With this, the defendant No.1 contended that it was the prime duty of the plaintiff i.e. the payee Bank to verify the genuineness of the drafts before their clearance and issue instructions to the defendant No.1 - collecting Banker not to release the payments/give credit to the R.F.A.No.955/2010 12 Account of defendant No.2, whereas the plaintiff - Bank has not taken abundant precaution to do the same, as such, it cannot fasten the liability against the defendant No.1 - collecting Banker and sought for dismissal of the suit.
4. Based on the pleadings of the parties, the Trial Court framed the following issues for its consideration:-
"1] Whether the plaintiff bank proves that five demand drafts amounting to `4,72,000/- in total were fraudulently misused by defendant No.2?
2] Whether the plaintiff bank proves the first defendant as a Collecting Banker has acted negligently and thus he is liable to make good the suit claim along with the first defendant?
3] Whether plaintiff proves that the defendants 1 and 2 are jointly and severally R.F.A.No.955/2010 13 liable to pay the suit claim of `6,32,480/- to the plaintiff together with interest?
4] what order?"
In support of its suit, the plaintiff - Bank got examined one Sri. U.P. Padiyar as PW-1, however, due to his alleged transfer, since he could appear for his further evidence in the Court, his evidence was discarded. Thereafter the plaintiff - Bank got examined one Sri. A. Subramanya Bhat, its Manager of the Bengaluru Branch as PW-2. The documents from Exs.P-1 to P-14 were got produced and marked from the plaintiff's side.
On behalf of the defendant No.1 - collecting Banker, one Sri.D.S. Surendranath, its Branch Manager, Netkallappa Circle, Bengaluru, was examined as DW-1 and documents at Exs.D-1 and D-2 were got produced and marked.R.F.A.No.955/2010 14
5. After hearing both side, the Trial Court answered issues No.1 and 2 in the affirmative and decreed the suit of the plaintiff - Bank, holding that the defendant Nos.1 and 2 are jointly and severally liable to the tune of `4,72,000/- and defendant No.2 alone is liable for additional sum of `1,60,480/-. It further decreed the current and future interest at `16.25% p.a. on the suit claim from the date of suit till realisation against second defendant only. It is against the said judgment and decree of the Trial Court, the first defendant - collecting Banker has preferred this appeal.
6. In response to the notice served upon the respondents/defendants in this appeal, the respondent No.1/plaintiff-Bank alone has appeared through its R.F.A.No.955/2010 15 counsel. Vide order dated 06-06-2012, notice to respondent No.2/defendant No.2 was dispensed with.
7. The Lower Court records were called for and the same are placed before this Court.
8. Heard the arguments of the learned counsel for appellant/defendant No.1 - collecting Banker, the learned counsel for respondent No.1/ plaintiff - Bank and perused the material placed before this Court including the memorandum of appeal and the impugned judgment.
9. For the sake of convenience, the parties would be henceforth referred to with the ranks they were holding before the Trial Court respectively.
10. Learned counsel for the appellant/defendant No.1 in his argument submitted that the plaintiff - R.F.A.No.955/2010 16 Bank being the drawer Bank itself was negligent and when the defendant No.1/appellant - Bank admittedly was only a collecting Banker who has only forwarded the Demand Drafts lodged with it for realisation, cannot be fastened with the liability on account of the alleged negligence on its part.
He further submitted that, PW-2 in his cross- examination has admitted that no alleged fraud or tampering can be able to be noticed from a bare look at those Demand Drafts. As such, the defendant No.1 as a collecting Banker has taken all precautionary measures including opening of the account through a proper introduction, as such, the appellant/defendant No.1 is entitled for protection under Section 131 of Negotiable Instruments Act, 1881 (hereinafter for brevity referred to as "N.I. Act").
R.F.A.No.955/201017
In his support, he relied upon few judgments of various Courts which will be discussed at a later stage of this judgment at an appropriate place.
11. Learned counsel for the respondent No.1/plaintiff-Bank in his argument submitted that the appellant/defendant No.1 as a collecting Banker has not at all taken proper care and that it was negligent in opening the account of the defendant No.2 with it. Therefore, since the opening of the account and depositing of five Demand Drafts by the defendant No.2 with it are in a single transaction, the defendant No.1/appellant - collecting Banker was negligent, as such, it was not entitled for protection under Section 131 of the N.I. Act.
12. After hearing the learned counsel for the appellant/defendant No.1 - collecting Banker, learned R.F.A.No.955/2010 18 counsel for respondent No.1/plaintiff- Bank and on perusal of the materials placed before this Court, the points that arise for my consideration in this appeal are:
1] Whether the appellant/defendant No.1 is entitled for protection under Section 131 of the Negotiable Instruments Act, 1881?
2] Whether the judgment and decree under appeal warrants any interference at the hands of this Court?
13. It is not in dispute that defendant No.2 - Sri. Ashok Mohan Sharma claiming to be the proprietor of one M/s. A.K. Traders had opened a Current Account with defendant No.1 - collecting Banker on 04-08-1999 with an initial deposit of a sum of `5,000/-. It is also not in dispute that the said defendant No.2 deposited five Demand Drafts with defendant No.1 - collecting Banker, among which, two R.F.A.No.955/2010 19 Demand Drafts bearing Nos.OL00003.679753 and OL00003.679753 for a sum of `94,000/- and `96,000/- respectively and both dated 16-07-1999 for realisation with the defendant No.1/collecting banker on 11-08-1999. It is also not in dispute that the very same defendant No.2 deposited three more Demand Drafts bearing Nos.OL00003.679756, OL00003.679758 and OL00003.679760 dated 17-07-1999, 20-07-1999 and 22-07-1999 for a sum of `95,000/-, `92,000/- and `95,000/- respectively. Thus it is an admitted fact that the first defendant as a collecting Banker had presented the above said five Demand Drafts on behalf of the defendant No.2 for their realisation with the plaintiff - Bank and that the plaintiff - Bank had in its clearing House honoured those five Demand Drafts. It is also not in dispute that after the realisation of those five Demand Drafts, R.F.A.No.955/2010 20 the defendant No.2 had withdrawn the amount from his Current account with the first defendant. The evidence of PW-1 and DW-1 in this regard is not in dispute. However, the only point of dispute between the parties is about the alleged negligence alleged to be involved in this case.
14. According to plaintiff - Bank, it was the negligence of defendant No.1 - collecting banker which made it to suffer a loss to a tune of `4,72,000/-. On the contrary, the contention of the defendant No.1
- collecting Banker is that the plaintiff - Bank was negligent and as a collecting Banker, the defendant No.1 had acted bona fide and in a prudent manner.
In that regard, what is required to be found out is, whether the defendant No.1 who claims that as a R.F.A.No.955/2010 21 collecting Banker, it is protected under Section 131 of the N.I. Act, is entitled for such a protection?
Section 131 of N.I. Act reads as below:-
"Section 131: Non-liability of banker receiving payment of cheque.- A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the 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 I - A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of the cheque before receiving payment thereof.
Explanation II - It shall be the duty of the banker who receives payment based on an R.F.A.No.955/2010 22 electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care."
A reading of the above Section goes to show that in order to claim protection under Section 131 of the N.I. Act, a Bank is required to have acted in good faith and without negligence and the payment received by it for a customer should have been done in a manner which can be called as an act done in good faith. It is in such circumstance, the said collecting Banker may not incur any liability to the true owner of the cheque by reason only of it having received such payment.
15. In that regard, the judgment of the Hon'ble Apex Court in the case of Indian Overseas Bank Vs. Industrial Chain Concern reported in (1990) 1 R.F.A.No.955/2010 23 Supreme Court Cases 484 can be looked into. In paragraph 25 of the said judgment, the Hon'ble Apex Court was pleased to observe as below:-
"25. To enable a bank to avail the immunity under Section 131 as a collecting banker he has to bring himself within the conditions formulated by the section. Otherwise he is left to his common law liability for conversion or for money had and received in case of the person from whom he took the cheques having no title or defective title. The conditions are :
(a) that the banker should act in good faith and without negligence in receiving a payment, that is, in the process of collection, (b) that the banker should receive payment for a customer on behalf of him and thus acting as a mere agent in collection of the cheque and not as an account holder (c) that the person for whom the banker acts must be his customer and R.F.A.No.955/2010 24
(d) that the cheque should be one crossed generally or especially to himself. The receipt of payment contemplated by the section is one from the drawee bank. It is settled law that the onus of bringing himself within the section rests on the banker........"
In the instant case, it is not in dispute that the defendant No.1/appellant enabled the defendant No.2 to open a Current Account with it and also had forwarded five Demand Drafts deposited by him, for realisation to the plaintiff - Bank. Further, after the realisation of those five Demand Drafts and credit of the proceeds amounting to `4,72,000/- to the Account of the defendant No.2, it allowed the said defendant to withdraw the amount. It is this act, the appellant/defendant No.1 -collecting banker contends R.F.A.No.955/2010 25 that was done in good faith and without any negligence.
16. Per contra, the first respondent/plaintiff - Bank contends that, it is an act of negligence done without taking due care, which the first defendant was required to have taken as a prudent Banker.
17. The argument of the learned counsel for the respondent No.1/plaintiff - Bank is that, at the time of opening of the account, the defendant No.1/appellant has not taken proper precaution like enquiring regarding the bona fideness about the introducer to the account which had enabled the second defendant to open a Current Account with the first defendant.
18. The first defendant - collecting Banker, both in its Written Statement as well in its evidence through DW-1 has clearly stated that the Current R.F.A.No.955/2010 26 Account of the second defendant was opened as per the Banking norms and only after an existing account holder introduced the customer/defendant No.2 to it. In that regard, the defendant No.1 through DW-1 has also got produced and marked the specimen signature card of second defendant and also the original account opening form at Exs.D-1 and D-2 respectively. A perusal of Ex.D-2 would go to show that the account of the second defendant in the name of Mr. Anand Mohan Sharma, Proprietor of M/s. A.K. Traders, was introduced by an existing current account holder with the name and style, G. Sridhar and Associates, a Chartered Accountant with the Current Account No.13783. Thus, it was with the proper introduction of an existing current account holder, the account of defendant No.2 was opened with the plaintiff - Bank. R.F.A.No.955/2010 27
19. The contention of the respondent No.1/plaintiff - Bank was that in the said process of opening of the account, the defendant No.1 - collecting Banker should have examined the customer who intended to open an account with it.
In his support, he relied upon a judgment of the Hon'ble Apex Court in the case of Kerala State Co- operative Marketing Federation Vs. State Bank of India and others reported in (2004) 2 Supreme Court Cases 425 wherein, at para-9 of its judgment, the Hon'ble Apex Court was pleased to refer to an observation made by it in its previous judgment in the case of Indian Overseas Bank Vs. Industrial Chain Concern (supra) and reproduced an extract from the judgment as below:-
"9. What is the standard of care to be taken by a bank in opening an account? In the R.F.A.No.955/2010 28 Practice and Law of Banking by H.P. Sheldon, 11th Edn., in Chapter 5 at p.64 it is said:
"Before opening an account for a customer who is not already known to him, a banker should make proper preliminary inquiries. In particular, he should obtain references from responsible persons with regard to the identity, integrity and reliability of the proposed customer.
If a banker does not act prudently and in accordance with current banking practice when obtaining references concerning a proposed customer, he may later have cause for regret."
In the very same judgment and referring its previous judgment, the Hon'ble Apex Court further relied upon a comment of M.L. Tannan in his work on Banking Law and Practice in India, which is reproduced herein below.
R.F.A.No.955/201029
"M.L. Tannan in Banking Law and Practice in India, 18th Edn., at p.198 says:
" Before opening a new account, a banker should take certain precautions and must ascertain by inquiring from the person wishing to open the account, if such person is unknown to the banker, as to his profession or trade as well as the nature of the account he proposes to open. By making necessary inquiries from the references furnished by the new customer, the banker can easily verify such information and judge whether or not the person wishing to open an account is a desirable customer. It is necessary for a bank to inquire, from responsible parties, given as references by the customer, as to the latter's integrity and respectability, an omission of which may result in serious consequences not only for the banker concerned, but also for other bankers and the general public."R.F.A.No.955/2010 30
The Hon'ble Apex Court in the very same judgment at para-11 while laying down the principles governing the liability of a collecting Banker has observed as below:-
"11. The principles governing the liability of a collecting banker have also been extracted in the impugned judgment. They read as follows:
(1) As a general rule the collecting banker shall be exposed to his usual liability under common law for conversion or for money had and received, as against the `true owner' of a cheque or a draft, in the event the customer from whom he collects the cheque or draft has no title or a defective title.
(2) The banker, however, may claim protection from such normal liability provided he fulfils strictly the conditions laid down in Section 131 or Section 131-A of the Act and one of those conditions is that he R.F.A.No.955/2010 31 must have received the payment in good faith and without negligence.
(3) It is the banker seeking protection who has on his shoulders the onus of proving that he acted in good faith and without negligence.
(4) The standard of care to be exercised by the collecting banker to escape the charge of negligence depends upon the general practice of bankers which may go on changing from time to time with the enormous spread of banking activities and cases decided a few decades ago may not probably offer an unfailing guidance in determining the question about negligence today.
(5) Negligence is a question of fact and what is relevant in determining the liability of a collecting banker is not his negligence in opening the account of the customer, but negligence in the collection of the relevant cheque unless, of course, the opening of the account and depositing of the cheque in question therein form part and R.F.A.No.955/2010 32 parcel of one scheme as where the account is opened with the cheque in question or deposited therein so soon after the opening of the account as to lead to an inference that the depositing the cheque and opening the account are interconnected moves in a integrated plan.
(6) Negligence in opening the account such as failure to fulfill the procedure for opening an account which is prescribed by the bank itself or opening an account of an unknown person or a non-existing person or with dubious introduction may lead to a cogent, though not conclusive, proof of negligence particularly if the cheque in question has been deposited in the account soon after the opening thereof.
(7) The standard of care expected from a banker in collecting the cheque does not require him to subject the cheque to a minute and microscopic examination but disregarding the circumstances about the cheque which on the face of it give rise to a suspicion may amount to negligence on the part of the collecting banker.R.F.A.No.955/2010 33
(8) The question of good faith and negligence is to be judged from the standpoint of the true owner towards whom the banker owes no contractual duty but the statutory duty which is created by this section and it is a price which the banker pays for seeking protection, under the statute, from the otherwise larger liability he would be exposed to under common law.
(9) Allegation of contributory negligence against the paying banker could provide no defence for a collecting banker who has not collected the amount in good faith and without negligence."
20. From the above judgment, what it can be considered so far as the present case under consideration is concerned is, whether the appellant/ defendant No.1 as a collecting Banker was negligent and did not exercise due diligence either while opening the account of the defendant No.2 or while acting as a R.F.A.No.955/2010 34 collecting Banker in forwarding the five Demand Drafts for realisation.
21. In the instant case, the defendant No.1/appellant - collecting Banker has undisputedly not opened the account of defendant No.2 without any customer's introduction, but it is after obtaining the introduction of none else than the then existing current account holder who was incidentally a Chartered Accountant also. Further, DW-1 in his cross-examination has stated that the defendant No.1
- collecting Banker has taken all precautions before opening the Current Account of the defendant No.2 with it. The guidelines like Know Your Customer (KYC) and a customer requiring to furnish any I.D and address proof were all introduced by the Reserve Bank of India (RBI) after the year 2001. Earlier to the said R.F.A.No.955/2010 35 year, there was no practice of taking any I.D. proof or address proof. The said un-denied evidence of DW-1 would clearly go to show that as at the year of opening of the account which was on 04-08-1999, there was no practice to insist on any documentary proof for the identity or address of the person opening the Account. However, on the account opening form itself, as prescribed and as a prudent Banker, the first defendant - collecting Banker has obtained a proper introduction by an existing Current Account holder before opening the account of defendant No.2. As such, the argument of the learned counsel for the respondent No.1/plaintiff that the appellant/defendant No.1 was negligent while permitting the defendant No.2 to open a Current Account with it, is not acceptable.
R.F.A.No.955/201036
22. The second point of argument that was canvassed before this Court by the learned counsel for respondent No.1/plaintiff - Bank was that, the first defendant - collecting Banker ought not to have allowed the defendant No.2 to deposit and for withdrawal of the Demand Drafts amounts which was a huge amount as on the said date and that should have necessarily created a suspicion in the mind of defendant No.1.
He further contended that opening of the account and depositing of the demand drafts and withdrawal of the amount were all part and parcel of a single transaction.
23. The said argument was vehemently opposed by the learned counsel for the appellant/defendant No.1 who contended that opening of an account and R.F.A.No.955/2010 37 depositing of the five Demand Drafts by the defendant No.2 with it which was on a subsequent date of different transactions, as such, they cannot be called as a single transaction.
He also submitted that as a customer, that too, in a Current Account, when a person has deposited Demand Drafts and withdrawn the amount only after its realisation, it gives no scope for suspicion by a prudent Banker.
24. Learned counsel for the respondent No.1/plaintiff - Bank contending that opening of an account and depositing of five Demand Drafts have constituted a single transaction, has relied upon a judgment of the Division Bench of this Court in the case of Syndicate Bank Vs. Jaishree Industries and others reported in AIR 1994 Kar.315.
R.F.A.No.955/201038
He drew the attention of this Court to paragraph 44 sub-para.3 of the said judgment which reads as below:-
"The question whether the Bank had acted with negligence in the opening of the account will, however, be relevant under S. 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 whether 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."
A reading of the said judgment would go to show that the facts and circumstances of the said case were entirely different from the one on hand. R.F.A.No.955/2010 39
25. In the said case, the first defendant- collecting Banker opened an account in the name of a Limited Company by its proprietor (the third defendant). The very nomenclature of the applicant to open an account with the statement that 'it is represented by its proprietor' being some thing irregular in nature, the Court observed that, it should have caused the Bank to stop and examine the applicant's credentials. Further, the original application was found to be in the name of the concern by its Proprietor as if it is a proprietary concern, whereas the actual opening of the account was in the name of a Limited Company by its proprietor. The same was held to be a negligent act by the Bank. Further, the Court also observed that the Bank has shown hastiness in disbursement of the cheque amount to the customer beyond the office hours and even after the clerk of the R.F.A.No.955/2010 40 branch had noted peculiar feature of the cheque being issued by a Limited concern by its Proprietor and had conveyed his opinion to the Manager of the Bank. Considering and confining to the facts before it, the Court held that there was negligence and carelessness on the part of the Bank, as such, it was not entitled to immunity under Section 131 of N.I. Act. However, in the said case, no where the Court expressed that opening of an account and depositing of the cheque/demand draft in the said account would, in any manner, constitute a single transaction.
26. On the contrary, in a judgment in the case of Axis Bank Vs. Punjab National Bank and another reported in 2015 SCC Online Del. 8287 which case was relied upon by the learned counsel or appellant/defendant No.1 - collecting Banker, a R.F.A.No.955/2010 41 Division Bench of Delhi High Court in its judgment at paragraph 42 was pleased to observe as below:-
"42. It needs to be noted that the appellant bank gave credits and allowed withdrawal of the money only after receiving the credits from PNB. With no input available to the collecting bank as to the possibility of forgery, there was no reason for it to be abnormally suspicious/or to question the customer as to his title to the money represented by the demand drafts. In receiving the demand drafts from the customer and in presenting it to the bank on which they purported to have been drawn, it was only acting in the course of its banking business as the agent for such customer. In absence of any nexus between the two stages of the process, negligence cannot be attributed to the appellant in the context of collection of the money against the forged instrument only on the basis of the fact that there had been negligence on its part in allowing the account to be opened."R.F.A.No.955/2010 42
27. In the case of State Bank of India Vs. M. Vishweshwaraiah and others in R.F.A.No.652/2010 decided by a single Bench of this Court on 14-08-2013, in clear terms, a co-ordinate bench of this Court in paragraph No.7 of its judgment was pleased to observe that, "the mere opening of an account cannot be treated as part of the subsequent act of collecting the amount covered under the draft or cheque from the payee Bank. These are two distinct stages and are to be addressed separately while considering the question of good faith or the lack of it and negligence or the absence of the same."
28. The Hon'ble Apex Court in the case of Industrial Chain Concern (supra) was also pleased to observe that, Bank's obligations while opening of an account is different from its obligation in collection of the cheque/Demand Draft.
R.F.A.No.955/201043
29. In the instant case, undisputedly, the second defendant opened his current account with the first defendant on 04-08-1999 with an initial deposit of a sum of `5,000/-. As such, the said current account was not opened in the form of deposit of any of the alleged five forged Demand Drafts. Admittedly, all those five Demand Drafts were deposited in the said account only after a week of the opening of the account. As such, the first defendant - collecting Banker had no occasion or opportunity to suspect as at the time of opening of the account that, the said account holder (defendant No.2) may in future misuse the account opened with it.
30. In addition to the above, even according to PW-2, it was not possible for the first defendant - collecting Banker to know about the forged nature of R.F.A.No.955/2010 44 the document when those Demand Drafts were presented. To this effect, PW-2 in his cross- examination has clearly stated as below:-
"At the time of presentation it may not have been possible for the first defendant banker to know about the forged nature of the document at that time."
He has also stated in the very same cross- examination as below:
"It is true that it was not possible for the first defendant Bank to know that the documents have been created on the stolen forms".
By such express statements made by none else than the plaintiff - Bank itself through PW-2, it is crystal clear that the defendant No.1 - collecting Banker admittedly had no reason to suspect the R.F.A.No.955/2010 45 genuineness of any of the five Demand Drafts when they were lodged with it by defendant No.2 for their realisation. As such, as a collecting Banker, the first defendant had exercised due diligence and care what it was expected to take in the circumstances of the case.
31. The above view is further corroborated by the evidence of none else than PW-2 who in his cross- examination has further admitted a suggestion as true that the collecting Banker would not be able to identify the signature on the draft. The same witness has further admitted a suggestion as true that a duty is cast upon the plaintiff - Bank to safeguard the forms pertaining to the Bank. Therefore, it is very clear that the defendant No.1 as a collecting Banker whose role was only to transmit the instrument/s deposited with R.F.A.No.955/2010 46 it for its realisation to the concerned drawer Bank, had no occasion or opportunity to compare the signatures of the officers of the Bank who had signed the demand drafts. Further, admittedly even according to the plaintiff - Bank and their own plaint averment as well the Exhibits, the alleged theft of the empty demand draft forms nearly five thousand in numbers from one of its branches at a distant place i.e. Parwalpur Branch came to its notice only after the five demand drafts in question were realised and the proceeds were credited to the account of defendant No.2.
32. As such, when the drawer Bank itself could not able to identify the alleged forgery of its own instrument even after having the said instrument in its hand, then it is unreasonable to expect a mere collecting Banker i.e. defendant No.1 to be diligent R.F.A.No.955/2010 47 and also suspicious about its customer and his transactions, that too, when the account of the said customer was opened by following due procedure as prevailing at the relevant point of time. Therefore, it cannot be said in the instant case that the defendant No.1 - collecting Banker was negligent in its act.
32. Learned counsel for the respondent/plaintiff in his argument as a last point relied upon an unreported judgment of the Hon'ble High Court of Delhi in the case of Jammu and Kashmir Bank Limited Vs. State Bank of India dated 31-01-2011 rendered in R.S.A.No.18/2011 and CMs. 2062- 064/2011.
Incidentally the said case is also with respect to the very same stolen case of several blank forms of Demand Drafts from Parwalpur Branch of Bihar State R.F.A.No.955/2010 48 of the plaintiff - Bank. In a suit instituted by the State Bank of India, the Trial Court had decreed the suit which was challenged before the Lower Appellate Court. The said Lower Appellate Court also concurred with the finding given by the Trial Court and affirmed its judgment. The matter was taken up before the Delhi High Court in a Regular Second Appeal. There, the High Court noticed that the account of the customer was not opened with the introduction of any previous existing account holder and there was a clear violation of the RBI guidelines. Noticing that there was negligence on the part of the defendant No.1 in opening the account and there was clear violation of the RBI guidelines, the suit was decreed in favour of the State Bank of India(plaintiff therein). R.F.A.No.955/2010 49
33. Whereas in the case on hand, as observed above, the account of the defendant No.2 has been opened with due introduction by an existing current account holder, that too, by a Chartered Accountant. Further, no averment has been made in the plaint about not following the guidelines by the defendant No.1 while opening the account. It is for the first time such a contention has been taken up in the arguments.
Even otherwise, as already observed above, since it is established that the account of the second defendant was opened only after following the requirement as was prevailing at that particular point of time, the defendant No.1 - collecting banker cannot be fastened with any negligence or carelessness at the time of opening of the account of defendant No.2. R.F.A.No.955/2010 50
34. Further, as observed above, the act of the defendant No.1 as a collecting Banker clearly shows that it had been diligent and no negligence can be attributed on its part.
35. Though the defendant No.2 had deposited five Demand Drafts within two days amounting to `4,72,000/- in total, but by that itself, it cannot be said that the same led to any suspicious circumstance.
It is also for the reason that the current account was opened as a 'proprietor' of a business concern. When a customer claims himself to be a businessman, he depositing demand drafts in his current account opened for business purpose, that too, for the said quantum of amount, cannot be considered as creating a suspicion in the mind of the collecting Banker. R.F.A.No.955/2010 51
As such also, the argument of the learned counsel for the respondent No.1/plaintiff - Bank that there was negligence on the part of the first defendant/appellant - collecting banker, as such, is not entitled for immunity under Section 131 of the N.I. Act, is not maintainable.
35. On the other hand, the argument of the learned counsel for the appellant/defendant No.1 - collecting banker that the defendant No.1 has shown itself to be diligent and careful not just as a collecting Banker, but also has been at the time of opening of the account of defendant No.2 with it, requires to be accepted.
36. However the Trial Court, without appreciating these aspects in its proper perspective and without analysing the evidence and materials R.F.A.No.955/2010 52 placed before it in its proper perspective, was carried away by the mere fact that the introducer of the defendant No.2 to open a current account i.e. Sri.G. Sridhar, a Chartered Accountant, with it was not examined and that no other documentation regarding identity was collected, by itself proceeded to hold that, the defendant No.1 - collecting banker was negligent and not entitled for immunity. It also failed to notice that, due to the span of time gap between the opening of the account and depositing of five Demand Drafts, the two acts of opening of the account and collection of demand drafts as a collecting Banker has also remained two different acts, was not properly appreciated by the Court below. The same has resulted in decreeing the suit of the plaintiff - Bank. R.F.A.No.955/2010 53
37. Since the said finding of the Trial Court in respect of defendant No.1 - collecting banker in the suit is now proved to be erroneous, the impugned judgment and decree limiting to defendant No.1 deserves to be set aside and the suit deserves to be dismissed.
Accordingly, I proceed to pass the following:-
ORDER [i] The appeal is allowed;
[ii] The judgment and decree dated 19-02-2010 passed in O.S.No.4168/2002 by the learned X Additional City Civil Judge at Bangalore, is hereby set aside only in so far as it relates to the present appellant (defendant No.1 in the Trial Court);R.F.A.No.955/2010 54
[iii] The suit of the plaintiff in O.S.No.4168/2002 is dismissed as against the present appellant (defendant No.1 in the suit);
Registry to transmit a copy of this judgment along with the Lower Court records to the concerned Trial Court, without delay.
Sd/-
JUDGE BMV*