Madras High Court
United Bank Of India, Madras vs Bank Of Baroda, Madras on 9 February, 1996
Equivalent citations: AIR1997MAD23, AIR 1997 MADRAS 23, (1997) 2 BANKLJ 145 (1998) BANKJ 183, (1998) BANKJ 183
JUDGMENT
1. The above Second Appeal has been filed against the judgment and decree of the learned I Additional District Judge, City Civil Court, Madras dated 25-8-1982 in A. S. No. 48 of 1982, made by way of referring the judgment and decree of the learned IV Assistant Judge, City Civil Court, Madras dated 14-4-1981 in O.S. No. 8148 of 1978. The defendant Bank, which succeeded before the trial Court, but failed before the lower appellate Court, has come up before this Court with the above second appeal.
2. The case of the plaintiff was that the defendant-Bank presented to the plaintiff bank for realisation and payment a demand draft purported to be drawn on the plaintiff-bank and purported to be for Rs. 11,260/- and purported to be payable to one Mr. A. N. Rangarajan. Having regard to the fact that the draft was presented for payment by a collecting banker, the plaintiff claims to have immediately honoured the payment, without further scrutiny and even before the receipt of the advice from the issuing office, namely, Udaipur branch of the plaintiff-bank. As and when the information from Udaipur branch came necessitating the further examination of the bank draft under ultra violet lamp, it was found that the instrument presented for payment to the plaintiff was completely a forged one and all the writings on the instrument have been chemically erased and the amount of Rs. 11,260/- was inserted in favour of A. N. Rangarajan. In view of the above, according to the plaintiff, since the defendant has taken the payment under a forged instrument no right is created under the said document and the defendant is liable to return the benefit received under the forged document. Since the defendant had the use of the money from 20-8-1975, according to the plaintiff, it is liable to pay interest also. The plaintiff has also averred that according to its information, the said Rangarajan, was not a person, who was properly introduced to the defendant and the collection of the draft is not also a proper one, according to law and therefore, the defendant would not be entitled to any protection as a collecting banker. The plaintiff, after issuing a notice of demand to the defendant-bank, has filed the suit for recovery of the sum of Rs. 16,759.10, being the amount said to be due in respect of the forged demand draft collected by the defendant from the plaintiff for Rs. 11,260/- on 20-8-1975 and for interest on Rs. 11,260/- at 15 per cent per annum from the date of plaint till payment.
3. The defendant filed a written statement contending that A. N. Rangarajan, an account-holder of the defendant-bank deposited with them on 20-8-1975 a draft bearing No. 0045467 drawn on the plaintiff-bank in his favour for Rs. 11,260/- that it was deposited by him with the defendant for clearance and credit to his savings bank account: that the proceeds of the draft, which was cleared through the clearing house, was credited to his savings bank account and the account holder thereafter drew a sum of Rs. 9,000/- on 22-8-1975 and another sum of Rs.2,000/- on 25-8-1975 and it was only on 13-9-1975, two persons representing themselves to be the officers of the plaintiff-bank informed the defendant that the draft in question presented by the defendant-bank for clearance on behalf of A. N. Rangarajan has been materially altered and it was completely a forged document. After ad verting to the fact that a reply to the notice issued by the plaintiff was sent, the defendant contended that they were totally unaware of the alleged fabrication or forgery of the instrument, that in good faith, believing the instrument as a genuine one, the defendant-bank collected the proceeds and credited the same to the account of the account holder and had the plaintiff-bank informed the defendant-bank about the non-receipt of the advice and advised them not to make the payment, the defendant-bank would not have made the payment at all and having allowed, the payment, pursuant to the clearance allowed, it was too late for the plaintiff bank to say that the amount paid was under a draft, which was a void one. The defendant further contended that they had not derived any benefit from the said document and they are not having the money with them and that the money has already been paid over to the account holder and the account-holder was properly introduced by an officer of the defendant-bank. The plaintiff, it was contended by the defendant, had no sufficient, cause of action against the defendants.
4. With these claims and counter-claims, the suit was tried and the parties on either side adduced oral and documentary evidence. Finally, the learned trial Judge, dismissed the suit on the ground that the defendant-bank acted in routine and normal course, when it forwarded for clearance to the plaintiff-bank the draft without any suspicion and therefore, they cannot be said to have acted negligently in forwarding the draft for clearance. The learned trial Judge also held that the handling of the matter by the plaintiff-bank was also not with due vigilance; but indicative of negligence on their part also and that since, in the view of the learned trial Judge, the defendant was not guilty of any negligence and has acted only in the normal course as a banker, the plaintiff cannot succeed with their claim against the defendant and consequently dismissed the suit, but without costs.
5. Aggrieved, the plaintiff-bank pursued the matter on appeal before the first appellate Court. The learned first appellate Judge has considered the matter afresh, in the light of the materials, by reappreciating the evidence on record, as it was before him and in the light of certain earlier judgments of more than one Division Bench of this Court and applying the ration laid down therein, reversed the judgment and decree of the trial Court, by allowing the appeal and decreeing the suit we prayed for. The learned first appellate Judge was of the view that the defendant-bank is not entitled to protection under Sections 131 and 131-A of the Negotiable Instruments Act, 1881 (Act No. 26 of 1881 -- hereinafter referred to as 'the Act'), inasmuch as according to the first appellate Judge, the account in the name of A. N. Rangarajan was opened without due care or caution and proper enquiry, as was expected of the defendant-bank and the defendant-bank therefore could not absolve itself of the liability to reimburse the plaintiff-bank of the amount and paid to the defendant by the plaintiff-bank. It was also considered by the learned first appellate Judge that on the facts and in the circumstances of the case, the account appears to have been opened by A.N. Rangarajan in this case was only with the sole object of encashing the forged bank draft and inasmuch as the defendant has acted without due diligence or care or caution, but acted negligently, they are not entitled to the benefit of the prosecution visualised under Sections 131 and 131-A of the Act. The learned first appellate Judge placed strong reliance upon the decisions (Indian Bank v. Catholic Syrian Bank Ltd.) and (Bharat Bank v. K. Chellaram), in addition to various other decisions of our Court adverted to by it.
6. Aggrieved, the defendant-bank has filed the above second appeal.
7. The substantial question of law that was considered to arise in this second appeal is as to whether the appellant-bank was not entitled to the protection under Sections 131 and 131-A of the Act.
8. The learned counsel appearing for the appellant vehemently contended, by relying upon some of the earlier decided cases, to which reference will be made hereinafter that the facts and circumstances of the case would go to show that all necessary care and caution were taken, while opening an account in the name of A.N. Rangarajan and that there was absolutely no negligence whatever on the part of the defendant bank, who trusted very much and relied upon the recommendation of one of the officers of the bank itself, who introduced the said account-holder for opening an account with the defendant-bank and that having regard to the fact that the bank had no reason to suspect the account holder, when the came to open the account and all relevant circumstances were taken into account and the defendant-bank has borne in mind the standard of reasonable care of taking precautions in the context of the development bank prevailing in this country, and the learned first appellate Judge ought to have held that the defendant-bank cannot be denied of the protection secured under Section 131 of the Act. It was also further contended that the suit having been laid by the defendant-bank for recovery of the sum said to have been paid on mistake of fact cannot have recourse to the provisions contained in the Act and if at all, the claim of the plaintiff ought to have been considered and substantiated with the four corners of the Indian Contract Act and that the lower Appellate Court committed an error in dealing with the matter otherwise. The learned counsel further contended that the lower appellate Court has failed to see that the defendant-bank was not in any manner benefited by the transaction in question and that it had acted in the normal course of the account of the account holder and the lapse on the part of the plaintiff-bank is such and sufficiently to disentitle it to get any relief of the nature in question against the defendant bank in the suit.
9. I have carefully considered the submissions of the learned counsel appearing on either side. Before analysing the claims made and the contentions raised on behalf of the appellant, it would be useful and necessary to refer to some of the decisions relied upon by the learned counsel appearing on either side.
10. The earliest of the decisions of this Court touching the point in issue is the one (Bharat Bank v. K. Chellaram). A Division Bench of this Court, had an occasion to deal with the scope of Section 131 of the Act and it was held therein as follows (At Pp. 405-406):--
"The position in law may thus be summarised. When in an action in conversion a defence is raised under S. 131 of the Negotiable Instruments Act, the primary question for determination is whether in the matter of realisation of the cheque the collecting bank had acted without negligence -- negligence not merely at the stage of encashment but at the prior stages from the receipt of the cheque in question. 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 where 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. It might happen that even when an account is opened without a proper enquiry it might continue to be oprated upon satisfactorily for sometime but long afterwards a cheque might be put into the account which (night turn out to be forged. In such a case it cannot be laid down as an inexorable rule that negligence in the opening of an account must be treated as negligent in the receipt of the amount of the cheque. In all the decisions in which negligence in opening the account was held to preclude a defence under S. 82 of the English Act, the opening of the account and the deposit of the cheque were contemporaneous or so close in point of time as to be regarded as one transaction. The observations in Commissioners of Taxation v. English, Scottish and Australian Bani, (1920) AC 683 : (AIR 1920 PC 88), that the opening of the account is material as shedding light on the question whether there was negligence in collecting a cheque does, with respect, bring out the true position that there must be sufficient connection established between the opening of the account and the collection of the cheque before a defence under S. 131 could be held to be barred.
The question would then be one of fact as to how far the two stages can be regarded as so intimately associated as to be considered as one transaction. On the facts of this case, no difficulty arises as to the true position. The account was opened on 6th December, 1943 with cash : the cheque was put into the account on the same date and drawn by cheques dated 6th; 7th and 9th December. All these clearly form parts of a single scheme and negligence at the stage of opening the account must accordingly be held to deprive the bank of the benefit of S. 131.
Mack, J., further held that the endorsements on the cheque were suspicious and sufficient to put the bank on enquiry and as no enquiry was made that would also be negligence which would prevent the bank from relying on S. 131. The points to be noticed in connection with these endorsements are these : the cheque was made payable to the plaintiff's firm at Banaras and it is a matter for suspicion that it should have been presented for collection at Madras. While the issue of the cheque by the plaintiff's firm bears its stamp, the endorsement by the same firm at Banares is without stamp. There are three endorsements ostensibly by three different persons but all of them would appear to be in the same handwriting and a remarkable feature about them is that in all of them the word "proprietor', describing the signatory, is spelt as 'proprietor'. How, three writs jumped on an error is a matter which must have excited suspicion and provoked enquiry but no enquiry whatever was made. There cannot, therefore, be any doubt that the bank had acted, negligently in not scrutinising the endorsements.
But it is argued for the appellants that the cheque is made payable to bearer and that in such a case there is no need to examine the endorsements because the bank is bound to pay the amount to whoever was its holder. Reference was also made to S. 85(2) of the Negotiable Instruments Act which enacts that the drawer of a bearer cheque is discharged by payment in due course to the bearer and it argued in view of that section there is no obligation cast upon the bank to examine the endorsements in bearer cheques. Reliance is also placed on the evidence of D.W. 1 that endorsements on bearer cheques are never looked into. But this contention proceeds on a misapprehension of the true position. S. 85(2) applies to a paying bank and has no bearing on the rights of a,collecting bank which must be determined in accordance with the provisions of S. 131. If a claim were to be made by the plaintiff against the chartered bank of India, Australia and China for refund of the amount of the cheque, then S. 85(2) will come into operation and that bank can plead discharge under that section. But in an action in conversion against the collecting bank where the defence is based on S. 131 the endorsement becomes material as an element in determining whether the bank had acted without negligence. If there had been no endorsement at all it might be that no inference of negligence could be made; but if in fact there is one and that conveys a warning that all it, not well with the title of the holder it will be negligence not to need to it and pursue the matter. In fact the evidence is that when the holder presents a bearer cheque at the counter he is asked to sign it before receiving payment and that was also done in this case and if at that stage the bank shuts its eyes to what plainly appears on the back of the cheque it would clearly be negligence, such as will deprive it of the protection under S. 131.
"To sum up, the bank was negligent in opening an account in the name of Matha Prasad Gupta without making an enquiry: the cheque came to the possession of the bank as part of the opening of the account and the endorsements on the cheque are sufficiently suspicious to put the bank on enquiry. On these facts, it must be held mat the bank had acted with negligence at all states of this matter and they are not entitled to rely on S. 131 in answer to the claim."
11. In (Vysya Bank Ltd. v. Indian Bank, Madras), a Division Bench of this Court, on an identical situation to deal with and while adverting to the earlier decisions on the subject, including (Bharat Bank v. K. Chellaram) and AIR 1981 Mad 120; (Indian Bank v. Cathelic Syrian Bank Ltd.) held as hereunder (at paragraphs 13, 14 and 16). Learned counsel for the appellant argued that the standard of care of a banker in collecting cheques cannot be put at a very high pedestal since there cannot be a rule that a bank should not collect cheques without a thorough enquiry as to the history of such cheques. According to him. if a bank was acted without apparent negligence, he could discharge his liability and his action must be protected under Sec. 131 of the Negotiable Instruments Act. In support of his contention, learned counsel relied on the decision reported in Commr. of Taxation v. E.S. and A. Bank, AIR 1920 PC 88, wherein the following principle was laid:--
"Negligence is a question of fact and each case must be decided on its own merits. And the standard of care of a banker in collecting cheques is not that of an individual invited to purchase or cash such cheques for it is no part, of the business or ordinary practice of individuals to cash cheques, while it is the business and ordinary practice of Bank to collect cheques.
To lay down that no cheque should be collected without a thorough enquiry as to the history of the cheque would render banking business impossible and that the fact in this case of a cheque being paid into the account, the next day after the account was opened being in no way unusual was not such as to put the Bank on enquiry and there was no negligence on the part of the bank in collecting that cheques."
The principle was followed in the decision reported in Bapulal Premchand v. Nath Bank Ltd., 1LR (1947) Bom 238 : AIR 1946 Bom 482, wherein it was held that under Sec. 131 of the Negotiable Instruments Act, if a banker in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself, then in case the title to the cheque proved defective the bank was not liable to the true owner by reason only of having received such payment and that the negligence with which the Court was concerned was not in opening the account but in collecting the cheque. In that case, on the facts of the case, the Court found that there was no note of warning or alarm on the cheque itself and therefore the bank could not be held to be negligent in collecting the amount of the cheque which on the face of it did not arouse any suspicion. Then the learned counsel for the appellant submitted that the opening of the account by the said Ramanathan with the defendant bank by itself cannot amount to negligence unless it is shown that it was done as part of the fraud. In this case, the Branch of the defendant-bank was opened at Thiagarayanagar on 18-3-1974, and the account was opened on 21-8-1974, on which date the disputed drafts did not come into existence. In support of his contentions, he relied on the decision of this Court reported in Bharat Bank v. Kishinchand Chellaram, , wherein it was held as follows (at p. 405 of A1R):-
"The question whether the bank had acted with negligence in the opening of the account would, however, be relevant under S: 131 to this extent that, if the opening of the account and the deposit of the cheque were really part of the scheme, as where the account itself was opened with the cheque in question or where it was put into the account so shortly after the opening of the account as to lead to the inference that it was part of it, the negligence in the matter of opening the account must be treated as negligence in the matter of realisation of the cheque."
11A. The true legal position that emerges regarding the liability of a banker and the protection available under S. 131 of the Negotiable Instruments Act, from the various decisions of the Privy Council and the Courts of India are as follows:--
"S. 131 of the Negotiable Instruments Act does not provide an absolute immunity to the collecting banker, and unless he can bring himself within the conditions formulated by this section, he is left to his common law liability for conversion or for money had and received, in the event of the person from whom he takes the cheque having no title or a defective title. Since the statutory duty contemplated under this section takes the form of a qualified immunity from a strict liability at common law, the onus of showing that he did take such reasonable care lies upon the defendant banker. Where the customer is in possession of the cheque at the time of delivery for collection, and appears upon the face of it to be the holder i.e., the payee or the indorsee or the bearer, the bank is entitled to assume the customer is the owner of the cheque unless there are facts which are known, or ought to be known, to the banker which would cause a reasonable banker to suspect that the customer is not the true owner. The essential condition, that is, the duty to take care is purely one imposed by the statute on the Banker for the benefit of the true owner, as between whom there is no contractual relation giving the rise to a duty. It is the price which the banker pays for the protection afforded by the statute. It is therefore from the stand point of the true owner, that the question of good faith and absence of negligence has to be considered. Broadly, speaking, the banker must exercise the same care and forethought in the interest of the true owner with regard to the cheques paid in by the customer, as a reasonable businessman would bring to bear on similar business of his own. It is no excuse to say that it is probable that the exercise of care would not have enabled him to discover the defective title of the customer, for any person who does not exercise reasonable care is outside the section altogether. The negligence must relate to the collection of the cheque and not to any antecedent act, such as opening an account, though circumstances connected with it may shed light on the question of negligence. Thus if a customer opens an account with cash and there is nothing suspicions about the manner in which the account is opened, the fact that the bank made no enquiries about the customer would not disentitle the Bank to protection under the section. But, the omission may, however, be taken with other facts and circumstances, for the purpose of weighing the question whether the Bank has proved that it has not been negligent. Hence where the account of a customer was'opened without obtaining a reference and without any enquiry and the manner in which the account was operated upon was peculiar, and the name as indorsed on the demand draft collected by the bank did not tally with the name of the customer as given in the application form and the specimen signature, it was held, taking all the circumstances, into account that the bank failed to prove that it was not guilty of negligence. The question whether the bank had acted with negligence in the opening of the account will, however, be relevant under Sec. 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 where it is put into accounts, accounts, so shortly after the opening of the account as to lead to the inference that it is part of it, then negligenqe in the matter of opening the account must be treated as negligence in the matter of realisation of the cheque. It might happen that even where an account is opened without a proper enquiry it might continue to be operative upon satisfactorily for some time, but long afterwards a cheque might put into the account which might turn out to be forged. In such a case it cannot be laid down that on an inexorable rule that negligence in the opening of an account must be treated as negligence in the receipt of the amount of the cheque. The question would then be one of fact as to how for two stages can be regarded as so intimately associated as to be considered as one transaction. The question should however in strictness be determined separately with regard to the collection of such cheque. The duty of care owed by the banker to the true owner of the cheque does not arise until the cheque is delivered to him by his customer. It is then, and then only that any duty to make inquiries can arise. What enquiries the Banker should make, and what facts are sufficient to cause him reasonably suspect that the customer is not the true owner, must depend upon current banking practice and change as that practice changes. Cases decided 30 years ago, when the use by the general public of banking facilities was much less widespread, may not be a reliable guide to what duty of a careful banker is in relation to enquiries, and as to facts which should give rise to suspicion is today. If the bank has failed short of its own requirements of care as revealed to its written instructions, it would go a long way to establish negligence; it cannot be taken always as a universal rule.
Conversely, proof by the Bank that its rules had been observed by its officers could not be an answer to a claim in conversion though that would be a relevant factor to show that the Bank had acted without negligence. The principle which should guide the court in deciding the question of banker's negligence are four in number:-
1. The standard of care required of bankers is that to be derived from the ordinary practice of bankers: 2. The standard of care required of bankers does not include the duty to subject an account to microscopic examination. 3. In considering whether a Bank has been negligent in receiving a cheque and collecting the money for it, it has presumably to scrutinise the circumstances in which a Bank accepts a new customer and opens a new account and 4. The onus is upon the Bank to show that it acted without negligence.
11B. .....
11C. One other point that was raised by the learned counsel for the appellant is that the defendant bank alone is not responsible in this case, as the paying bank which are the Branches of the plaintiff bank arc also not absolved of their responsibility in paying the amounts shown in the converted drafts. They have not taken proper care in issuing the drafts and paying the amounts due under them. Usually the drafts are written in such a way as there are carbon impressions on the bank of the drafts, ensuring safety from forgery. Apart from that, the drafts are subjected to infra red rays for detecting forgery. Admittedly, these precautions have not been taken by the paying banks and, therefore, they have substantially contriuted to the negligence, if any, on the part of the defendant bank. The plea of contributory negligence cannot be invoked in a case of this nature. As held in the decision in Kanyalal Thankurdas v. Bombay Cycle Importing Co., (1972) 1 Mad LJ 412 and in Bapulal Premchand v. Nath Bank Ltd., ILR (1947) Bom 236 : AIR 1946 Bom 482, the contributory negligence on the part of the true owner can be no answer by the person, who converts the Article, that he should be let off from his liability because of the negligence of the true owner. The true position regarding the responsibility of a banker in opening the accounts and regarding the plea of contributory negligence by the playing banks has been elaborately considered by a Bench of this court consisting of Natarajan and Padmanabhan JJ., in the decision reported in Indian Bank v. Catholic Syrian Bank Ltd., , and they have held as follows:--
"Where a bank allowed a customer to open an account on the recommendation of a customer who could not be said to be respectable and without testing the credentials of the person desirous of opening the accounts and sent a crossed demand draft drawn and another bank for a big amount of new customer put into account only a few days after opening of the account for realisation and in consequence, the bank on which the draft was drawn was put to loss as the draft was a forged one, the Bank opening the account could not be considered to have acted without negligence even it if might have acted in good faith. Consequently, the Bank was not entitled to benefit of Ss. 131 and 131-A. In such a case, the bank which honoured the draft could not be said to be guilty o"f contributory negligence merely because it fails to make enquiries from its branch which issued the draft before the same was cleared and the amount thereon was credited to the account of the new customer and he withdrew it.
We are in respectfully agreement with the reasonings of the learned Judge in the said decision. Therefore, we are of the opinion that the plaintiff bank has not acted negligently in the matter of issuing drafts and making payment for the same. It is to be noted in this connection that the paying Banks mainly acted on the protective endorsement made by the defendant bank who were acting on behalf of its customer. Therefore, there was no scope for the paying banks to make an enquiry about the genuineness of the drafts at the time of payment unless the forgery is apparent on the fact of the drafts themselves or there are other patent facts showing forgery. However, in this case, it is admitted that at the time of payment, the original writing in the drafts were not visible for a naked eye and that the same became visible only some time later. In these circumstances, the paying banks were justified in making payment for the drafts. But there is one aspect which has to be noticed in this connection. The paying banks were also not vigilant in detecting the conversion of the drafts at the earliest point of time. If only they had verified the reconciliation statement earlier, they could have detected the conversion without much delay. We are not able to appreciate the manner in which the Branches at Imbur and Vaniyambadi have acted in dealing with the payments for these drafts.
There is absolutely no explanation why the conversion was not detected for nearly 65 days when the banks are expected to verify the reconciliation statements at the earliest point of time. This is indicated by us solely with a view to warn the banks so that they may avoid recurrence of similar forgeries in future....."
12. (1989) 2 Mad LW 437 (SC) (Indian Overseas Bank v. Industrial Chain Concern) is a case wherein the suit was filed by a commercial concern for recovery of the loss claimed to have been sustained by it on account of the alleged negligence and conversion on the part of the defendant -- a nationalised bank, who was the appellant before the apex court, by negligently allowing. the manager of the plaintiff - firm to open a 'fictitious account' in the name of the plaintiff as its proprietor and helping him to pay the stolen drafts and cheques drawn in favour of the plaintiff and collecting the same and paying to the manager through his fictitious account proceeds thereof and closing the account thereafter. Though the trial court decreed the suit and the same was confirmed on appeal, the apex court reversed the same on the ground that on the facts and materials available on record, the bank cannot be said to have acted negligently in collecting the cheques and drafts of the plaintiff concern and allowing the manager to withdraw the proceeds. Though certain observations have been made therein about the current banking practice in coming to the conclusion that the appellant bank in that case was not negligent, their Lordships of the Supreme Court were very much convinced of the enquiry's said to have been made by the Manager, which was held to be sufficient, in the view of their Lordships of the Supreme Court, and that inasmuch as the appellant-bank in that case acted in good faith without negligence, the protection under Section 131 enures to the benefit of the appellant bank in that case. Though the learned counsel for the appellant herein tried to bank much upon some of the general observations made therein, in my view, such observations found in the decision cannot come to the rescue of the appellant-bank in this case, having regard to the fact-
situation presented in this case, for the reason that the decision of the Supreme Court does not dispense causes with the diligent steps to be taken by a banker while opening of an account and thereafter acting for such an account-holder. As a matter of fact, in paragraph 26 of the reported decision, it was observed that the scope or ambit of possible suspicion will depend on various situations that may have prevailed between the drawer of the cheque and the customer and it is only in the context of such a fact situation, the appellant-bank would succeed in substantiating that it acted bona fide. The observations in paragraph 29 of their Lordships in that judgment would go to show the onerous responsibilities cast upon a bank also and the principles which have to be kept in mind.
13. In (1994) 2 Banking Cases 19 (Vijaya Bank v. Nedungadi Bank Ltd.) a learned single Judge of the Karnataka High Court has held that on the facts and circumstances of the case dealt with by the learned Judge, the protection under Section 131 of the Act was available. The learned single Judge, apart from dealing with the legal aspect to highlight the extent of protection given to a bank under Section 131 of the Act, also dealt with the evidence on record in that case elaborately to come to the conclusion that dehors the negligence, if any, on the part of the defendant-bank, the plaintiff-bank also was guilty of serious laches and therefore, that was not a case for fastening liability on the defendant-bank alone, in view of the negligence of the plaintiff-bank. Some of the observations made therein, with reference to the peculiar facts and circumstances of that case cannot be construed to be the general principles of law for universal application. Even assuming for the purpose that the learned single Judge purported to lay down such principles, in view of more than one Division Bench judgments of this Court, taking a different line of view, I cannot place any reliance upon the said decision of the learned single -Judge of the Karnataka High Court in dealing with the case on hand. Even that apart, on going through the same, I am unable to subscribe to some of the observations made therein in the teeth of the binding judgments of our own High Court.
14. The decision in 1933 All England Law Reports -- Reprint 106 (Lloyds Bank v. Savory and Co.) had dealt with the case of stolen cheques paid into the customer's account being cleared and realised without knowing the infirmities in the cheques. It was held therein that observations as to safeguards against fraud which banks should provide, namely, (a) where the cheque of a customer is paid in stone branch to the credit of his account at another branch; (b) in opening an account for a new customer, by way of making inquiries as to the position and the employers of the new customer; and (c) in accepting for payment into a customer's account a cheque drawn in favour of a third person, it was also observed in the said decision that a business practice which is inconsistent with provident precautions against a known risk is not, because it is a common practice and alone long -- established, a sufficient, justification for an act which would otherwise be negligent.
15. In 1914-1915 All England Law Reports -- Reprint 1134 (Ladbroke and Co. v. Todd), it was held that a banker is guilty of negligence towards the drawer of a cheque crossed 'account payee only', if he opens an account for the person presenting the cheque and collects the money for it without making any inquiries concerning the respectability of the customer by requiring references or otherwise.
16. The principles adumberated in the Division Bench judgments of this Court also adopt the same line, as in the above two decisions referred to.
17. The learned counsel for the appellant also invited my attention to the decision reported in AIR 1951 Nag 372 (Nagorao v. G. G. In Council): AIR 1923 Mad 17 (K.M.P.R. Firm v. K. Ponniah Chetty) and (1896) 1 Queen's Bench 7 (London and River Plate Bank v. Bank of Liverpool).
(a) The decision in AIR 1923 Mad 17 (K.M.P.R. Firm v. K. Ponniah Chetty) is on the scope of Section 72 of the Contract Act and similarly, the decision in AIR 1951 Nag 372 (Nagorao v. G. G. in Council) is one pertaining to the scope of a claim referable to Section 72 of the Contract Act. In my view these decisions will have no relevance whatever in the context of the roll of the plaintiff and the defendant as bankers.
(b) The decision in (1896) 1 Queen's Bench 7 (London and River Plate Bank v. Bank of Liverpool) is a case where it was held that when a bill becomes due and is presented for payment, and is paid in good faith and the money is received in good faith, if such an interval of time has elapsed that the position of the holder may have been altered, the money paid cannot be recovered from the holder, although endorsements on the bill were subsequently found to be forgeries. The ratio of this decision would show that it proceeded on the vital premise and basis that the money was paid in good faith and received also in good faith.
18. So far as the case on hand is concerned, good faith or otherwise of the defendant-bank would very much depend upon the extent to which it has adhered to the obligations cast on the defendant-bank to avail of the protection of Sections 131 and 131A, while opening an account.
19. The case on hand, if analysed and considered in the light of the above principles laid down by more than one Division Bench judgments of this Court, in my view, no exception could be taken to the well-merited findings recorded by the lower appellate Court. Apart from the legal aspects involved, the learned first appellate Judge has adverted to the entire evidence on record and came to the correct conclusions on an appreciation of such oral and documentary evidence that the defendant-bank has not acted with due diligence, care or caution, as is expected of it, when opening the bank account. The very case of the defendant was that the account holder was introduced by an officer of the bank itself and that therefore, the bank trusted the person. Though the said officer, who was stated to have recommended the name of the account-holder, was still in the service of the bank, at the time of trial of the suit he has not been examined by the defendant-bank to support the claim that they have acted reasonably and carefully. Nor has the bank takes steps to examine the Manager who opened the account to show that he has taken all reasonable care. The facts as to what extent, the recommending officer was acquainted with the said A. N. Rangarajan, for whom the account has been opened and on what basis the Manager has formed his opinion or the nature of the enquiry conducted by the bank to cross-verify the above, before opening the account has not been placed before the Court by the defendant bank and these serious omissions or lapses have been taken into account by the learned first appellate Judge to come to the conclusion -- in my view justifiable -- that the defendant-bank has not acted with due care and caution. This finding of fact recorded, on a careful analysis of the evidence on record and on the due and proper appreciation of the materials placed before the Court -- as also the serious omissions and lapses on the part of the defendant-bank to discharge its burden have not been shown to be vitiated by any patent error of law or perversity of approach. While that be the position, it is not given to this Court to interfere with such factual findings recorded on the evidence by the first appellate Court, about the serious lapse on the part of the defendant-bank in opening the account without due care and caution as is expected of the same.
If the said finding of fact remains without being successfully dislodged- in the second appeal, the learned first appellate Judge cannot be found fault with for allowing the appeal and decreeing the suit as prayed for.
20. On going through the evidence on record, which has been adverted to by the learned first appellate Judge particularly the materials adverted to and the consideration in paragraphs 10, 15 to 17 of the judgment. I am satisfied that the defendant bank was not only negligent, but cannot be said to have taken the required care and caution in opening the account and allowing the deposit of the cheque for realisation. As a matter of fact, the learned first appellate Judge, while appreciating the evidence, in the case on hand, has recorded specific finding that the evidence on record would goto show that the opening of the account and the deposit of the cheque appear to be reapy part of one's scheme and therefore, the negligence in the matter of opening of the account would constitute equal negligence in the matter of realisation of the draft. Though the learned counsel for the appellant tried to project the appellant's case, that the defendant bank acted reasonably and carefully, I am unable to agree that the said factual finding recorded by the first appellate Judge either suffers, any infirmity of total lack of evidence or can be said to be the result of perversity of approach. In my view, the principles laid down by the decision reported in the three Division Bench Decisions of this Court referred to supra would squarely apply to the case on hand and judged in the light of those principles, the case before me, the findings of fact recorded and the judgment rendered by the learned first appellate Judge do not call for any interference. The defendant-bank in this case, has, in my view, failed to take reasonable precautions required of it to protect not only themselves; but to protect other bankers and customers from becoming victims of fraud committed as in this case. In the absence of the defendant-bank being qualified for the immunity secured under Sections 131 and 131-A of the Act, their liability to the plaintiff-bank cannot be avoided and in my view, the suit has been rightly decreed.
21. The attempt on the part of the learned counsel for the appellant to contend that since the amount is sought to be regarded as one paid on account of a mistake, the claim has to be adjudged only in the context of Section 72 of the Contract Act has no meaning. The plaintiff and the defendant are both banking institutions. A perusal of the plaint would go to show that the very grievance of the plaintiff-bank is that the defendant-bank has not acted with reasonable care and caution and though the provisions of Section 131 have not been specifically referred to, the fact the plaintiffs have made a grievance about the lack of care and caution in opening the account and seeking to fix on the defendant the responsibility and liability for the suit claim and the defence taken also in the written statement that they have taken such care as.is expected of a banker would go to show that their liability has to be adjudged not merely on the basis of one act or the other but, at any rate, has to be in the light of the provisions contained in the Act. The grounds of appeal filed and the question of law formulated by the appellant bank also is using reference to Ss. 131 and 131A. That the provisions of Negotiable Instruments Act applies to the case admits of no doubt for the simple reason that the case on hand really deals with the handling of a negotiable instrument only and the plaintiff-bank cannot therefore avoid its liability by taking such plea or by contending that they are neither the beneficiary of the amount, nor that the amount is still with them. Once the Court found as of fact that the defendant-bank has not taken the required care and caution and has been, on the other hand, found to be negligent in opening the account and being mainly responsible to have the draft realised and make the plaintiff-bank to part with its money, the claim that they are not themselves the beneficiaries or that the money of the plaintiff-bank is not still with the defendant-bank is no answer in law.
22. For all the reasons stated above, this second appeal is devoid of merits and no case has been made out to interfere with the judgment of the learned first appellate Judge in decreeing the suit. The second appeal shall stand dismissed; but, in the circumstances of the case, with no costs.
23. Appeal dismissed.