Karnataka High Court
Electronic Research Private Ltd vs Canara Bank on 22 December, 2020
Bench: S.Sujatha, Jyoti Mulimani
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF DECEMBER, 2020
PRESENT
THE HON'BLE MRS.JUSTICE S.SUJATHA
AND
THE HON'BLE Ms. JUSTICE JYOTI MULIMANI
R.F.A.No.253/2000
BETWEEN :
ELECTRONIC RESEARCH PRIVATE LTD.,
A COMPANY INCORPORATED
UNDER THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE
AT 17TH K.M., OLD MADRAS ROAD,
BANGALORE - 560049
REP BY ITS MANAGING DIRECTOR
SMT.ANJU NAMBIAR ...APPELLANT
(BY SRI DHANANJAY JOSHI, ADV.)
AND :
1. CANARA BANK
A BANKING COMPANY CONSTITUTED
UNDER THE BANKING COMPANIES
(ACQUISITION & TRANSFER OF
UNDERTAKINGS) ACT, 1970,
HAVING ITS HEAD OFFICE
AT No.112, J.C.ROAD,
BANGALORE -560002
AND A BRANCH OFFICE AT No.88,
M.G.ROAD, BANGALORE - 560001
REP BY ITS MANAGER
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2. UNION OF INDIA
REP BY ITS SECRETARY
MINISTRY OF FINANCE,
DEPARTMENT OF REVENUE,
NEW DELHI
3. THE COLLECTOR OF CUSTOMS
KARNATAKA REGION,
CENTRAL REVENUE BUILDINGS,
QUEEN'S ROAD, BANGALORE - 560001
4. A.W.AKRAM
S/O M ABDUL RASHEED
SINCE DECEASED REP.BY HIS LRS.
4(a) Mrs. ZAHIR UNNISA
W/O LATE A.W.AKRAM,
AGED ABOUT 42 YEARS
R/AT No.5/3, II MAIN,
BEHIND RADHAKRISHNA TALKIES,
MATADAHALLI, R.T.NAGAR POST,
BANGALORE-560032.
4(b) Mr. M.ABDUL RASHEED
FATHER OF LATE A.W.AKRAM,
AGED ABOUT 73 YEARS.
4(c) Mrs. KAHAMRUNNISA
MOTHER OF LATE A.W.AKRAM,
AGED ABOUT 66 YEARS.
4(b) & 4(c) R/AT AT No.141/2,
OMARKHAYAM ROAD, III CROSS,
MYSORE-21.
4(d) Mr. SYED MUSHEER IRFAN,
S/O LATE A.W.AKRAM,
R/AT 5/3, II MAIN,
BEHIND RADHAKRISHNA TALKIES
MATADAHALLI, R.T.NAGAR POST,
BANGALORE-560032.
(CAUSE TITLE AMENDED VIDE
COURT ORDER DATED 05.01.2005.)
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5. M.MURALIDHARAN ALIAS MURALI
S/O BHASKARAN
AGED ABOUT 46 YEARS
R/AT No.57/3, EJIPURAM MAIN ROAD
VIVEKNAGAR, BANGALORE ...RESPONDENTS
(BY SRI UDAYA HOLLA, SENIOR COUNSEL A/W
SMT.PUSHPALATHA G., ADV. FOR SRI N.SHANKARNARAYANA
BHAT, ADV. FOR R-1;
SRI AKASH SHETTY, ADV. FOR SRI N.R.BHASKAR,
CGC FOR R-2 & R-3;
SRI G.C.SHANMUKHA, ADV. FOR R-4(a);
SRI ASHWIN S. HALADY, ADV. FOR R-4(d);
R-4(b), R-4(c) & R-5 ARE SERVED.)
THIS RFA IS FILED UNDER SECTION 96 R/W ORDER 41
RULE 1 OF CPC, AGAINST THE JUDGMENT AND DECREE
DATED 08.10.1999 PASSED IN O.S.NO.6303/1993 BY THE II
ADDITIONAL CITY CIVIL JUDGE, BANGALORE CITY,
DISMISSING THE SUIT FOR RECOVERY OF MONEY WITH
COSTS TO DEFENDANT No.1 ONLY.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON 22.09.2020, COMING ON FOR PRONOUNCEMENT
OF JUDGMENT, THIS DAY, S. SUJATHA, J., DELIVERED THE
FOLLOWING:
JUDGMENT
This appeal by the plaintiff is directed against the judgment and decree dated 08.10.1999 passed in O.S.No.6303/1993 by the learned II Addl. City Civil Judge (CCH-17), City Civil Court, Bengaluru ('Trial Court' for short).
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2. For the sake of convenience, the parties are referred to as per their status before the Trial Court.
3. The plaintiff is a registered company engaged in the business of manufacture and sale of various components of Colour Television sets, Black and White Television sets, Computer Monitors etc., The plaintiff has its factory at 17th K.M. Old Madras Road, Bangalore.
4. The defendant No.1 is a Bank, the defendant No.2 is the Union of India and the defendant No.3 is the Collector of Customs, the defendant Nos.4 and 5 are the employees of the plaintiff's company.
5. The plaint averments are that the plaintiff in the course of its manufacturing activities, imports several components and parts and these imported goods are cleared by the customs authority at Madras port or Bangalore air cargo complex as per the prescribed -5- procedure. The plaintiff submits that sometimes the delivery of the goods imported is taken immediately at the Madras port itself by paying appropriate customs duty. Often, the imported goods are brought from Madras and warehoused in the customs bonded warehouse at Bangalore on the plaintiff filing a Bill of Entry before the Madras Customs and following the prescribed procedure for lodgement under the Customs Act, 1962 and the Rules framed thereunder. One such bonded warehouse was in the plaintiff's premises and was maintained by the Central Warehousing Corporation. The plaintiff depending upon its requirement for production activities, would take steps for debonding such goods as are required. The procedure adopted for clearing/debonding and assessment of duty of the imported goods is briefly explained as under:
An Exbond Bill of entry in five sets is prepared in conformity with the Bill of Entry -6- filed when the goods were imported and bonded, giving full description of the goods required to be debonded, its value, shipment details, port of shipment, country of origin, customs duty and additional duty payable along with other particulars as required under the Customs Tariff Act, 1975 and filed along with a working sheet computing the customs duty, with the Customs Division office at Millers Road, Bangalore. The Customs Division, Bangalore after assessment on verifying the particulars, would return the Bill of entry along with TR-
6 challan (in 4 sets) bearing the endorsement of the Customs Division in the respective column to the Appellant. The duty so assessed, is to be paid under the TR-6 Challans.
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6. The customs duty was being paid by the plaintiff and accepted by the defendant No.1 - Bank on account of the customs authorities at the designated branch of Canara Bank in Bangalore City (defendant No.1) as the said bank was acting as an authorized agent as per the public notice dated 12.03.1986 issued by the defendant No.3. Defendant Nos.2 and 3 would release the goods only on proof of payment of the customs duty through the defendant No.1 - Bank. The said duty was paid by cheques drawn by the Authorized Officer of the plaintiff - company under TR-6 challans. The customs duty was paid by cheques drawn by the authorized officer of plaintiff's company under TR-6 challans. After the cheques being honoured, Bank would retain the challans with receipt of payment endorsed thereon with the Bank stamp and signature of the receiving officer. Two copies would be delivered to the plaintiff - company, one to be retained by the company and the other to be forwarded to the Customs -8- Superintendent who would enter it in the bond register and issue passout order, on handing over the same to the inspector of the warehouse, goods were released. Amongst the two copies of TR-6 challans retained by the bank, one was forwarded to the customs department and the other was retained by the bank for record purpose.
7. The plaintiff was a constituent of the defendant No.1 - Bank for many years and has sanctioned various financial facilities to the plaintiff such as open cash credit; bills discounting; term loans; documentary bills purchase; letter of guarantee and letter of credit etc., Plaintiff - company has several accounts with the defendant No.1 - Bank viz..
(1) Current Account No.971, (2) Current Account No.1734, (3) Current Account No.1814, (4) Open cash credit Account No.5050, (5) Open cash credit Account No.5280. These accounts were being operated by the -9- designated authorized signatories who are authorized by the Board of Directors in terms of the resolutions passed as required by the defendant No.1 - Bank. The plaintiff - company had lodged attested specimen signatures of the persons authorized to operate on its accounts with the defendant No.1 - Bank. Towards payment of customs duty payable in respect of the goods imported and stored in the bonded warehouse which were under the control of defendant No.3 were cleared between 31.07.1987 to 16.08.1990 by the payments made under 143 cheques. All these cheques were accompanied by the relative TR-6 challans and in 96 cheques, the names of the payee was shown as 'Yourselves-037 Customs'. Out of the 143 cheques, in 35 cheques, the payee was indicated as 'Yourselves-DD Payable Collector of Customs'. In case of 12 cheques, the name of the payee was indicated as 'Yourselves'.
Some time in the last week of August 1990, the plaintiff came to know that some irregularities had occurred in
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the defendant No.1 - Bank relating to acceptance of customs duty and issuance of receipted challans. The cheque bearing No.157890 dated 22.8.1989 for Rs.6,64,135/- drawn in favour of 'Yourselves-037 customs' and crossed 'Account payee only' tendered to defendant No.1 - Bank against TR-6 challan for removing goods from the bonded warehouse had not been credited to the said account but instead the defendant No.1 - Bank without plaintiff's due authority and contrary to the mandate in the cheque issued eight demand drafts in favour of 'Reserve Bank of India' A/c Collector of Customs, Bombay.
8. After noticing the said irregularity, plaintiff by its letter dated 30.08.1990 addressed to the Collector of Customs (defendant No.3) about the said irregularity suspecting that one of the employee by name A.W.Akram (defendant No.4) must have had indulged in it and accordingly a complaint was lodged on the same
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day with the jurisdictional police station. On investigation, it was noticed that the bank - defendant No.1 had unauthorisedly issued demand drafts favouring the customs and had even applied proceeds of the cheques for payment to other private parties as well.
9. Thereafter, the plaintiff was served with five notices dated 14.09.1990, 01.10.1990, 30.10.1990, 06.11.1990 and 20.11.1990 from the Collector of Customs, demanding payment from plaintiff towards the remaining unpaid customs duty in respect of goods cleared by the plaintiff aggregating to Rs.3,95,11,321-51 less a sum of Rs.6,64,135/- to which credit had been given. Customs department issued a show-cause notice dated 18.04.1991 calling upon the plaintiff to show cause why they should not be prosecuted for clearing the goods without payment of duty. The said notice was challenged before this Hon'ble Court in W.P.No.14092/1991 wherein, Rule Nisi was issued
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staying further proceedings by the Collector of Customs vide its order dated 14.08.1991.
10. At the relevant time, defendant No.4 was the Assistant Purchase Officer and defendant No.5 was the Accounts Assistant in the plaintiff - company. After noticing the irregularities in the payment towards the customs duty during the period from 31.07.1987 to 16.08.1990, the plaintiff suspected that defendant Nos.4 and 5 in collusion with the officials of the defendant No.1 - Bank must have played illegalities. On the complaint lodged, the police had arrested defendant Nos.4 and 5 and the investigation was transferred to the CBI from the police. It was contended that the gross negligence and disregard of the instructions of the plaintiff as drawer of cheques contained in the cheques demonstrates total disregard of the obligations of the defendant No.1 - Bank as banker, both in relation to the constituent viz., the plaintiff and its own principal viz.,
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customs authorities and the Central Government. The plaintiff cannot be made a victim for the fraudulent acts of the defendant No.1 - Bank officials and/or customs authorities or Government officials in dealing with the plaintiff's account and the amounts credited by it for payment of customs duty to the Government.
11. The sum of Rs.3,88,47,186-51 was collected by the defendant No.1 - Bank as an agent of defendant No.2, as such, defendant Nos.2 or 3 cannot claim the same again. Any such claim has to be only against the collecting agent, the defendant No.1 - Bank.
12. It was contended that the defendant No.1 - Bank having realised their lapses, pending full investigation into the matter, sanctioned a loan of Rupees Three Crores to enable the plaintiff to comply with the demand made by the customs authorities and that amount has been paid to the customs authorities on 01.12.1990 by a pay order issued by the defendant
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No.1 - Bank in favour of the customs authorities. The balance amount was met by the plaintiff from their own accounts with the defendant No.1 - Bank. The plaintiff has executed the promissory note for the amount of Rupees Three crores.
13. On these set of pleadings, the plaintiff has sought for the following reliefs:
i) Directing defendants 2 and 3 to refund to plaintiff the sum of Rs.3,88,47,186-51 (Rupees Three Crores Eighty eight Lakhs Forty Seven Thousand One Hundred Eight Six and paise Fifty one only) collected by them from plaintiff between 9-10-1990 and 14-12-1990 pursuant to their demand notices dated 14-09- 1990, 1-10-1990, 30-10-1990, 6-11-1990 and 20- 11-1990 issued by Defendant No.3, together with interest thereon at 20% per annum form the dates of payment till date of realisation, The amount of interest so far accrued upto the date of suit from the dates of payments works out to Rs.2,95,56,367/- (Rupees Two Crores Ninety five lakhs Fifty six thousand Three hundred & Sixty seven only). Accordingly the total amount which
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plaintiff claims herein from Defendants 2 and 3 is Rs.6,84,03,553-51 (Rupees Six Crores Eighty four Lakhs Three thousand Five hundred & fifty three and Paise fifty-one only).
ii) Directing defendant No.1 bank to pay the plaintiff the sum of Rs.3,88,47,186-51 (Rupees Three Crores Eighty-eight Lakhs Forty Seven Thousand One Hundred Eight Six and paise Fifty one only) which the plaintiff was coerced to pay to Defendants 2 and 3 for the second time pursuant to the demand notices referred to above together with interest thereon at 20% per annum from the dates of payment till date of realisation. The amount of interest so far accrued upto the date of suit form the dates of payment works out to Rs.2,95,56,367/- (Rupees Two Crores Ninety-five lakhs Fifty-six thousand Three hundred & Sixty-seven only). Accordingly the total amount claimed by plaintiff from defendant No.1 is Rs.6,84,03,553-51 (Rupees Six Crores Eighty-four Lakhs Three thousand Five hundred & fifty three and paise fifty-one only)
iii) Directing defendants 4 and 5 to pay to plaintiff the sum of Rs.3,88,47,186-51 (Rupees Three Crores Eighty-eight Lakhs Forty Seven Thousand One Hundred Eight Six and paise Fifty
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one only) and Rs.2,95,56,367/- (Rupees Two Crores Ninety-five lakhs Fifty-six thousand Three hundred & Sixty-seven only) being interest at 20% per annum till date in all Rs.6,84,03,553-51 (Rupees six Crores Eighty-four Lakhs Three thousand Five hundred & fifty three and paise fifty-one only) by reason of their having benefited by the irregularities and illegalities committed by the 1st Defendant bank.
iv) Current and future interest on all the above decretal amounts @ 20% per annum which is the prevalent bank rate of lending form this date to date of realisation;
v) For costs of the suit and current and future interest thereon;
vi) For award of such other or further reliefs as may be just and appropriate, in the circumstances of the case.
14. The defendant No.1 - Bank has filed the written statement denying the allegations made against it. The defence set up was that it was not an agent of the Collector of Customs. The functions of the
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defendant No.1 are governed by the Indian Banking Companies Act, 1949. The plaintiff by his conduct and duty in words and action held out to the third parties including the bank a tangible representation that the defendant No.4 was his authorized person, he had the necessary power incidental to the bonding goods, having regard to the totality of circumstances and which are to be reasonably gathered from the nature of his employment and duties. The plaintiff has ratified and acquiesced the whole transaction as such he is estopped in law from pleading lack of authority in the defendant No.4 in the performance of his duties having presented him as his authorized representative. It was contended that when the assessee like the plaintiff presents the TR-6 challans along with the cheques for payment of customs duties, the concerned officials of the branch verify the particulars mentioned in the TR-6 challans to ascertain to which account, the proceeds of the cheque must be credited and satisfy themselves that
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the cheques are drawn by the authorized persons and for the appropriate amounts as reflected in the TR-6 challans. Thereafter, the said TR-6 challans in quadruplicate would be affixed with the impressions of the bank's rubber seal and the concerned officials put their signatures in token of having received and credited the customs duty to the account of the customs. Issuance of 143 cheques between the period 31.07.1987 to 16.08.1990 towards the payment of customs duty for the release of the goods stored in the bonded warehouse under the control of the defendant No.3 was emphatically denied. Whenever the bank had received cheques drawn in the name of 'Yourselves-037 customs' without presenting them with TR-6 challans in quadruplicate but accompanied by the instructions of the plaintiff to issue demand drafts from the proceeds of the cheques to the customs authority, the bank has issued such drafts. Thus, there is no violation of any mandate by the defendant as alleged. It was contended
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that the word 'Yourselves' in the cheques permit the defendant to draw the amounts from the plaintiff's account mentioned in the cheques and to remit the same to the account of the customs as per express and apparent instructions contained in the instruments presented along with the said cheques.
15. The TR-6 challans used to debond the goods were forged challans. Such challans were never issued by the defendant No.1 with branch rubber stamp seal and the bank has not sent any of the copies of the TR-6 challans to the customs authorities. The rubber stamp impressions, writing and signatures on the TR-6 challans were forged by the defendant No.4 as admitted by him in the statement before the customs authorities and the same has been admitted by the plaintiff in his complaint to the police. It was submitted that under Section 237 of the Indian Contract Act, the plaintiff is bound by the acts of the defendant No.4 and he is liable
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to reimburse the defendant No.1 - Bank for the loss that may suffer as a result of the show-cause notice issued by the customs authorities.
16. Thus, it was submitted that no irregularities were committed by the bank. When the crossed cheques were submitted, the same were not enclosed with TR-6 challans in the prescribed form. On the contrary, there was a request to issue demand drafts. The bank has acted on the instructions given by the plaintiff. In such circumstances, the proceeds of the cheques could not be applied to the credit of the customs authorities as per the cheques mandate. Code No.037 is a code number for customers for payment of customs duty. Therefore, on the representation made by the plaintiff or by his authorized agent, defendant No.4 that the proceeds of the cheques should be used for issue of drafts in favour of Reserve Bank of India account, Collector of Customs, in good faith has issued
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the demand drafts as the beneficiaries under the said drafts were custom authorities themselves.
17. The plaintiff has debonded the goods presenting the forged challans which never originated from the branch of the defendant No.1, as such cannot take advantage of his own fraud committed either by himself or by his agent-defendant No.4.
18. It was submitted that the branch office of the defendant No.1 at Cantonment Branch is classified as an 'Exceptionally Large Branch (ELB)" and it is manned by several officials and whenever the defendant No.1 receives cheques or other instruments with TR-6 challans in quadruplicate or other instruments or drafts for payment of customs or any other duty payable to the Government, the instruments so presented had to pass through more than one official to make consequential or relevant entries in the several appropriate registers maintained for the said purpose and the quadruplicate
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or other challans should be certified by the bank officials and the said challans, must be sent to the custom authorities or other state authorities in addition to delivering two copies of such challans to the assessee. As such, it is not only false but impracticable for any one of the officials of the defendant No.1 - Bank to collude with each other or with strangers or with defendant Nos.4 and 5.
19. It was stated that the defendant Nos.2 and 3 are statutory bodies, they could not have permitted the release of the goods unless they were satisfied that duty in respect of such goods had really been paid or credited by verification and comparison of the challans. The allegations made against the defendant No.1 are baseless and mis-founded. The defendant Nos.2 and 3 cannot have any cause of action against the defendant No.1 for recovery of amount said to have been paid by the plaintiff as alleged. The loan was sanctioned only
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when the plaintiff approached the defendant No.1 - Bank which cannot be misunderstood as the involvement of the bank officials in the fraud.
20. The plaintiff's suit as against the defendant No.1 - Bank is barred by time, as no cause of action has arisen in plaintiff's favour as against this defendant. Admittedly, the plaintiff had not paid any customs duty earlier and the same was paid by it only when the defendant Nos.2 and 3 demanded. The suit being time barred, is liable to be dismissed. Accordingly, prayed to dismiss the suit.
21. Defendant Nos.2 and 3 filed the written statement submitting that the department is bound to collect the duty on imported goods attracting levy of customs, the action initiated by the department is well within the power under the Customs Act and another Enactments. The concern of the department is to ensure that the designated bank has given credit to the
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Government account under the head 037 (verified by receipted TR-6 challans) before allowing clearance of goods for home consumption.
22. The receipted challan produced as proof of payment of customs duty are forged in the eye of law. The omissions and commissions done by the defendant No.1 - Bank are not binding on the department. It was only at the time of negotiations and reconciliation, the department came to know about the fake and forged challans and the same was received from the PAO's office, Bangalore, the involvement of the plaintiff's employees being apparent, the plaintiff cannot disown the illegal acts of its employees on the plea that the said employees are not authorized to deal with the matter. Indeed, the plaintiff was involved in abetment of the offence of forgery and manipulation of challans. Mere fact that the warehoused goods were allowed, clearance cannot regularize the fraud committed by the plaintiff,
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the demand of the department was in accordance with the provisions of Section 28(q) and Section 72 of the Customs Act, 1962. The Government is bound to accept the payment made to Canara Bank if duly credited to its account and not otherwise. Merely crediting the same to the defendant No.1 - Bank, designated as the agent of the customs cannot be held to be the discharge of liability. Defendant Nos.4 and 5 being the employees of the plaintiff, the suspected persons involved in the forgery of challans and diverting the funds, the plaintiff cannot be exonerated from the liability of payment of customs duty. It was the duty of the plaintiff to ensure credit of customs duty to the account of the Government as per law. Plaintiff cannot disown its liability and come with an allegation that double payment has been made towards the customs duty. The refund of the sum of Rs.3,88,47,186-51 claimed is baseless. No duty has been collected for the second time from the plaintiff under coercion, threat of prosecution
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and stoppage of all clearance. The demand was made as per law. No claim of refund would lie against the defendant Nos.2 and 3 since there was no extra payment made by the plaintiff towards customs duty. The department has collected legitimate dues towards the customs duty. There was absolutely no negligence on the part of the department. With the aforesaid statements, defendant Nos.2 and 3 sought for dismissal of the suit.
23. Defendant No.5 appeared through its counsel and filed the written statement denying the plaint averments. It was submitted that the defendant No.5 was employed as an Assistant Accountant in the plaintiff's company. The allegations made against this defendant are baseless and frivolous. This defendant has been falsely implicated by the plaintiff unnecessarily. It was narrated that the said defendant was summoned by the Controller of Finance, Sri. K.B. Ballulaya to his chamber on 12.09.1990, wherein, the
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Sub-Inspector of Police was present, who ordered the other two persons present therein to take this defendant into custody. This defendant was illegally detained by the police for a period two weeks. The Controller of Finance, Sri. K.B. Ballulaya has played an act of mischief to cover up his mischiefs. Later on, this defendant submitted voluntary resignation to the plaintiff's company. The claim made by the plaintiff against this defendant is imaginary, cannot be justified. As this defendant has not remitted any customs duty payment through the Canara Bank and has not collected any customs duty, paid TR-6 challans from the bank, the allegation of misappropriation of the cheques proceeds is baseless. Accordingly, he sought for dismissal of the suit.
24. Defendant No.4 has not filed the written statement though he was represented by a learned counsel.
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25. Based on the pleadings, the Trial Court has framed the issues as under:-
1. Whether the plaintiff proves that defendant Nos.4 and 5 were the employees working under the plaintiff and abandoned their services on 13.09.1990 and 29.8.90 respectively?
2. Whether the plaintiff proves that the first defendant Canara Bank was an agent of the collector of customs?
3. Whether the defendant proves that defendant No.4 and 5 were persons authorized to operate the accounts of the plaintiff with defendant No.1 or to instruct defendant No.1 to deal with the funds of the plaintiff or to negotiate any cheques/instruments issued by the plaintiffs?
4. Whether the defendant No.1 proves that the plaintiff has ratified and acquiesced in the whole transaction and as such the plaintiff is stopped from pleading lack of authority in the fourth defendant?
5. Whether the plaintiff proves that the cheque dated 18.6.90 bearing No.808553 drawn for Rs.13,68,268/- is a forged cheque?
6. Whether the plaintiff proves that it had issued instructions on 4.6.90 to the first
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defendant, to stop the payment pertaining to cheque No.008553?
7. Whether the plaintiff proves that the TR-6 challans are duly receipted by the Bank as contended in paragraph 10 of the plaint?
8. Whether the defendant No.1 proves that the draft charge and commission debited to the account of the plaintiff by the First Defendant, is reflected in the Annual Balance sheet of the plaintiff company?
9. Whether the plaintiff proves that the first defendant proves that the proceeds of cheque bearing No.157020 dt:22.8.89 for Rs.6,64,135/- had not been credited in the plaintiff's amount by the first defendant and on the other hand the first defendant, had issued eight demand drafts in favour of RBI Account collector of customs without the authority of the plaintiff?
10. Whether the plaintiff prove that irregularities detected in the payment of duty and application of the proceedings of the cheques were due to the act of the first defendant bank?
11. Whether the plaintiff proves that the officials of the first defendant bank have colluded with defendant. Nos.4 and 5 and enabled the mis-application of the cheque proceeds?
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12. Whether the plaintiff proves that the plaintiff had to raise the loan of Rs.3 crores as a result of the serious irregularities committed by the first defendant?
13. Whether the defendant No.3 proves that the ware-house goods were got cleared through fake and forged challans?
14. Whether the defendant No.3 proves that the demand was in accordance with the provision of Sec.28(9) and Sec.72 of the Customs Act, 1972?
15. Whether the plaintiff is entitled to get Rs.3,88,47,186.51 Ps refunded from the defendants 2 and 3 together with interest at 20% per annum from the date of payment till realization?
16. Whether the plaintiff is entitled for Rs.2,95,56,367/- being the interest on Rs.3,88,47,186.51 ps from the date of payment of duty for the second time till the date of suit from defendants 2 and 3?
17. If the claim of the plaintiff were to be not held against defendant Nos.2 and 3. Whether the plaintiff proves that the first defendant is liable to pay Rs.3,88,47,186.51 Ps and Rs.2,95,56,367/- being the interest from the date of payment of duty till the filing of the suit?
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18. Whether the plaintiff proves that defendant Nos.4 and 5 are liable to pay Rs.6,84,03,353.51 with court costs and interest at 20% per annum on Rs.6,84,03,553.51 from the date of suit till realization?
19. Whether the plaintiff proves that the liability of the defendants 1 to 5 are joint and several in respect of its claim?
20. To what relief and decree the parties are entitled for?
Additional Issues:
1. Whether the plaintiff proves that he has a cause of action for the suit against the first defendant?
2. Whether the first defendant proves that the court fee paid is insufficient?
3. Whether the plaintiff's suit is not maintainable in law as pleaded by the first defendant?
4. Whether the plaintiff's suit is barred by time?
5. Whether the plaintiff's suit is bad and is liable to be dismissed for misjoinder of cause of action?
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6. Whether the court has no jurisdiction to try this suit in view of Sec.27 sub clause 3 of the customs Act?
26. The plaintiff has examined five witnesses, one witness was examined on behalf of the defendant No.1 - Bank. The officer of the Customs Department was examined as a witness by the defendant Nos.2 and
3.
27. On appreciation of oral and documentary evidence, the Trial Court dismissed the suit with costs to defendant No.1 only. Being aggrieved, the plaintiff has preferred the present appeal.
28. Learned counsel for the plaintiff argued that in the ordinary course of its business, the plaintiff used to import several consignments which would be released to the plaintiff by the defendant No.3 only upon payment of customs duty. Such payments towards customs duty would sometimes be paid by the plaintiff at the port in Chennai and the goods would be released.
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Often the plaintiff would request the defendant No.3 to permit to store the consignments in a bonded warehouse in Bengaluru, which would come under the control of the defendant No.3 and when the plaintiff required the goods, it would pay the duty and get the goods released, the plaintiff would issue cross cheques drawn in favour of "Yourselves-037 Customs" along with TR-6 challans in quadruplicate and submit them to the defendant No.1 - Bank. The bank would endorse payment of the duty on the TR-6 challans and return the duplicate on the triplicate copies of the challans to the plaintiff. The remaining TR-6 challans retained by the bank would be sent to the defendant No.3 at the warehouse. On presenting the endorsed challans to the defendant No.3, on verification the goods would be released to the plaintiff. The defendant No.1 - Bank in collusion with the defendant Nos.4 and 5 committed fraud violating the mandate of the crossed cheques and the accompanying TR-6 challans. The defendant No.1 -
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Bank has returned the endorsed TR-6 challans to the plaintiff without crediting the cheque amount to the customs account which made the plaintiff to believe that the customs duty has been duly paid. The misappropriation of funds came to light in October 1990. On voluntarily bringing to the notice of the customs department, the plaintiff received demand notices from the defendant No.3 alleging no requisite customs duty was paid in getting the goods released from the bonded warehouse. The plaintiff having no choice paid the amount to the customs department as demanded under protest after taking a loan from the defendant No.1 - Bank, which has been subsequently repaid within a short period. The Trial Court has taken the bank's defence at face value without making enquiry into the fraud alleged by the plaintiff. Though twenty issues and six additional issues were framed, the relevant issue Nos.10 and 11 regarding the collusion has been decided against the plaintiff without even
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examining the bank's action in proceeding with the crossed cheques contrary to the mandate set out in the cheques. Eventually the Trial Court has dismissed the suit on the ground that it is barred by limitation and that against the respondent Nos.2 and 3, the suit is not maintainable. The learned counsel argued that the relevant provisions of the Negotiable Instruments Act, 1881 governing the crossed cheques have not been appreciated by the Trial Court.
29. Learned counsel for the plaintiff submitted that the bank is the designated agent of the customs; the bank performs agency functions and the acknowledgment of receipt of customs duty issued by the bank as the effect of binding the principal i.e., customs in discharging the liability towards the customs duty. The payment to the bank by crossed cheques drawn as "Yourselves-037 Customs"
tantamount payment of duty to the defendant No.3
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discharging from the liability. Voluntary action of the plaintiff in informing the department would not be construed as fraud played by the plaintiff, but indeed it was the fraud played by the officials of the defendant No.1 - Bank in collusion with the defendant Nos.4 and
5. The defendant No.1 - Bank realizing the negligence/lapses in dealing with the cheques issued an advance sum of Rs.3,00,00,000/- as loan to the plaintiff and compelled the plaintiff to execute the promissory note. The action of the department in issuing show-
cause notice dated 18.04.1991 calling them to show cause why they should not be penalized and prosecuted for clearing the goods without payment of duty constrained the plaintiff to file W.P.No.14092/1991 before this Court. The writ petition came to be finally disposed of on 13.03.1998 considering the pendency of the present suit O.S.No.6303/1992 with a direction to the Trial Court to dispose of the suit within six months.
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30. The gross negligence of the bank both in relation to its constituent, the plaintiff and its principal
- customs department being apparent, the plaintiff should not be victimized. The customs department's demand and coercive collection of Rs.3,88,46,186-51 is without authority in law, inasmuch as, the duty payable has been fully paid by the plaintiff crediting the same to the defendant No.1 - Bank which was the designated bank in terms of the circular instructions issued by the customs department. The Trial Court grossly erred in holding that the defendant No.1 - Bank was not an agent of the customs department ignoring the effect of the Notification dated 22.06.1990 (Ex.P1) issued by the department whereby Vijaya Bank and State Bank of India were referred to as sub-agents of the defendant No.1 - Canara Bank. The relationship between the bank and the customs department was that of the principal and agent by virtue of the public notification. The Trial Court erroneously held that the relationship of
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the plaintiff with the bank is that of the principal and agent. The Trial Court failed to appreciate that the amount mentioned in the crossed cheque with the mandate "Yourselves-037 Customs" though has been debited from the account of the plaintiff, the demand draft challans said to have been issued relating to the said cheques were contrary to the mandate in the cheques in question. The pass sheets issued by the bank would clearly demonstrate that the plaintiff's account was debited with the cheque amount and does not reflect debit of any draft charges and commission.
31. Learned counsel has referred to the following decisions:-
1. Canara Bank vs. Canara Sales Corporation and others [(1987) 2 SCC 666];
2. Sri. Shivadarshan Balse vs. State of Karnataka [ILR 2017 KAR 2126];
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32. Learned Senior counsel appearing for defendant No.1 submitted that the evidence on record reveals use of TR-6 challans and Demand Drafts obtained by the plaintiff from the bank. The TR-6 challans will be issued by the bank on the very day of submission of the cheques and if Demand Drafts are issued on presentation of the cheques by the company, question of issuing TR-6 challans will not arise as admitted by PW.1. Further he had admitted that the goods had been ex-bonded by the company in respect of TR-6 challans got marked by the plaintiff. Demand Drafts prepared from the bank were rooted through two shipping agents who were the clearing agents of the plaintiff. PW.2 has stated that he does not even know whether the Demand Drafts were presented by these shipping agents on behalf of the plaintiff though he admits that the plaintiff has paid customs duty at Madras through the Demand Drafts procured by bank only. The evidence on record would indicate that TR-6
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challans and the Demand Drafts procured by the employees of the plaintiff and the bank have been utilized for release of goods of the plaintiff - company from the customs authorities. Bank cannot be held responsible, if there has been any misuse of TR-6 challans and Demand Drafts by the officials of the plaintiff. The Trial Court on analyzing the evidence has rightly come to the conclusion that the defendant Nos.4 and 5 were authorized to operate the accounts of the plaintiff and to deal with the funds of the plaintiff and negotiated the cheques, instruments issued by the plaintiff, the plaintiff had full knowledge of the same and is therefore estopped from pleading lack of authority. The very learned judge who delivered the judgment has recorded the evidence as well. The analysis of evidence by the Trial Court has to be given due weightage. On meticulous examination, the Trial Court has rightly come to the conclusion that the goods were debonded on the basis of fake TR-6 challans and
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there has been no double payment of customs duty as alleged by the plaintiff. The TR-6 challans, on the basis of which the goods were debonded were forged, the same has been admitted by PW.3, Managing Director of the plaintiff. The overwhelming evidence on record establishes that the TR-6 challans in question were forged. The allegation of the plaintiff that the bank was negligent and there has been collusion between the officials of the bank and the defendant Nos.4 and 5 are false. The Trial Court though observed that the defendant Nos.4 and 5 would be liable for the suit claim, but the same being barred by limitation, held that the suit cannot be decreed even against them. The judgment and decree of the Trial Court based on the material evidence is unexceptionable.
33. The learned Senior counsel argued that the interpolations in the cheques alleged by the plaintiff is baseless. No one can make out whether the second line
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which the plaintiff now contends is a manipulation was in fact a manipulation or not. Defendant Nos.4 and 5 were only persons interacting with the bank with regard to the remittance of money regarding customs duty, collection of TR-6 challans and Demand Drafts and that was spread over for seven years. Even according to the plaintiff's witnesses, plaintiff used to monitor bank transactions everyday to keep perfect track of financial position of the company. When that is so, it is preposterous to suggest that the defendant Nos.4 and 5 did not have authority to interact with the bank officials to collect TR-6 challans and Demand Drafts etc., If the employees of the plaintiff have misused the TR-6 challans and Demand Drafts bank cannot be made responsible or liable. The blame cannot be put on the bank.
34. Learned Senior counsel submitted that the Trial Court has noticed that for one month Sri. K.B.
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Ballulaya who was the Chief Finance Controller of the plaintiff - company went to the bank with the photocopy machine and collected photo copies of documents. The deposition of the Managing Director of the plaintiff is that the goods were debonded on the fake TR-6 challans.
35. The Trial Court has rightly come to the conclusion that the bank was not an agent or collector of customs as alleged by the plaintiff; the defendant Nos.4 and 5 were persons authorized to operate the accounts of the plaintiff with the bank and to instruct the bank to deal with the funds of the plaintiff.
36. The plaintiff sought for waiver of Rs.955.26 lakhs of principal amount and waiver of Rs.703 lakhs unapplied interest for the period 01.10.2002 to 31.03.2007 and also further interest and to absorb all the legal and other expenses accepting OTS of only Rs.318.42 lakhs. Accordingly, the bank agreed to that
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proposal subject to the plaintiff withdrawing the suit filed against the bank. Giving such concession, the bank assigned the debt in favour Pegasus Asset Reconstructions Pvt. Ltd.,. The plaintiff again approached the bank and sought for extension of time for settlement of debt which had been assigned to Pigasus Asset Reconstructions Pvt. Ltd., which the bank agreed subject to the plaintiff agreeing to withdraw the claim made by the plaintiff against the bank. On the basis of the concession given by the bank, the plaintiff filed a memo dated 29.11.2007 before this Court clearly stating that they have expressly waived their right to claim any amount from the bank even if the amount is decreed against the bank. Under the said circumstances, the plaintiff cannot wriggle out of the memo which has been filed based on the agreement between the parties and enormous concession granted by the bank running in excess of over Rs.16 crores. It was submitted that the judgment and decree of the Trial
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Court being justifiable in all respects, the same requires to be confirmed.
37. Learned counsel for the defendant No.3 - Customs Department submitted that defendant No.1 - Bank has acted as a facilitator to collect the customs duty from the plaintiff and to remit the same to the department, bank has not acted as an agent. The plaintiff has cleared the imported goods from the bonded warehouse submitting the fake TR-6 challans without paying the customs duty. During the course of reconciliation of customs duty receipts for the month of August, 1989 by the Pay and Accounts Officer, Central Excise and Customs, Bengaluru, it was noticed that a credit for Rs.6,64,135/- purported to have been paid by the plaintiff on 24.08.1989 towards customs duty, had not been accounted for and no quadruplicate copy of the TR-6 challans have been received from the Bank. On further investigation made, it was discovered that on the
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strength of fake/forged TR-6 challans the plaintiff had cleared the warehoused goods without payment of import duty. Accordingly, demand was made vide letters dated 14.09.1990, 01.10.1990, 30.10.1990, 06.11.1990 and 20.11.1990 for payment of duty amounting to Rs.3,95,11,321-51 relating to the period from July, 1986 to August, 1990 by issuing a show- cause notice dated 18.04.1991. After considering the reply filed by the plaintiff, order in original has been passed on 15.02.2013 holding that the imported goods are cleared from the bonded warehouse on the strength of fake/forged TR-6 challans, the demand of customs duty amounting to Rs.3,95,11,321-51 has been confirmed which is justifiable in terms of proviso to Section 28(1) and Section 72 of the Customs Act, 1962. Further notices were issued imposing interest of Rs.83,79,935/- and penalty of Rs.3,95,11,321-51 on the plaintiff, Rs.39,50,000/- on Sri. A.W. Akram and Rs.7,90,000/- on Sri. M. Muralidaran under the
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provisions of Section 112(a)(b)(ii) of the Customs Act, 1962. The said order has been challenged by the plaintiff and the appeal is pending for adjudication. Learned counsel submitted that A.W. Akram had conceded the fraud committed by him. Plaintiff being the employer of Sri. A.W. Akram and M. Muralidaran who were involved in the committal of fraud, plaintiff is entitled to discharge liability towards the customs duty. Hence, the fraud wholly committed by the plaintiff being proved, the Trial Court has rightly passed the impugned judgment and decree holding that defendant No.1 - Bank cannot be made liable to pay the demands of the plaintiff.
38. Learned counsel indeed supported the arguments of the learned Senior counsel appearing for the defendant No.1 - Bank submitting that the employees namely A.W. Akram and M. Muralidaran, defendant Nos.4 and 5 respectively had presented the
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cheques along with Demand Draft applications and obtained the Demand Drafts mostly favouring Collector of Customs, Bombay, Madras, Cochin, Calcutta etc., and submitted false TR-6 challans to the department forging the Bank seals and officers' initials. It was submitted that the department was informed by the Collector of Customs, Madras that in respect of 33 Demand Drafts favouring Collector of Madras, the said Demand Drafts were presented by two clearing agents namely M/s South India Shipping Services and M/s. United India Shipping Services and these Demand Drafts had been utilized for payment of customs duty of the plaintiff at Madras. Learned counsel further submitted that even if the fraud committed on the Exchequer is presumed to have not been proved, the liability to make good the customs duty not paid squarely lies on them and the plaintiff cannot escape from the said liability. Learned counsel argued that in terms of Section 147 of the Customs Act, 1962 the
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liability arising out of the acts of their employees rests with the plaintiff, the employer. Learned counsel further submitted that the role of the bank is two fold; firstly as the Banker of the plaintiff and secondly as the Authorized Collection Agent of the Department. The defendant No.1- Bank has played its role as the banker of the plaintiff as they have completed the transaction of issuing Demand Drafts as requested by their clients in terms of the Demand Draft application accompanying the cheque. The role of the bank as an authorized agent of the customs department would have been relevant in case a TR-6 challan was submitted along with the cheque. In such case, on receiving the amount in their account, bank was required to endorse the TR-6 challans and credit the amount to the account of the department. Admittedly, no TR-6 challans were submitted on behalf of the plaintiff, as such the role of the defendant No.1 - Bank as the authorized collection agent for the customs department was not initiated.
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However, in terms of Section 147 of the Customs Act, 1962, the liability of the acts of the employees would rests upon the employer. Under the provisions of the Customs Act, 1962 the liability to discharge the customs duty lies with the person chargeable with duty. Thus, the plaintiff cannot seek for the relief of the customs duty payment to be recovered from any person other than themselves. The plaintiff in order to eschew from the clutches of law has filed the suit more particularly to overcome the punitive action initiated by the department for playing fraud with the State Exchequer. Accordingly, he seeks for dismissal of the appeal.
39. Adverting to the arguments advanced by the learned counsel for the parties, the points that would arise for our consideration are:-
1. Whether the defendant No.1 - Canara Bank acted as an agent of the Collector of Customs - defendant No.3 in
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collecting the revenue (customs duty) from the assessee - plaintiff and to credit the same to the Government Account of defendant No.3 in respect of 143 crossed cheques transactions?
2. Whether the defendant No.1 - Bank acted against the mandate of cheques presented by the plaintiff?
3. Whether the demand of Rs.3,88,47,186-51 made by the defendant No.3 for getting the goods released by the plaintiff through fake and forged TR-6 challans was in accordance with the provisions of the Customs Act, 1962?
4. Whether the suit is barred by limitation?
Re. Point No.1:
40. It is apt to refer to Ex.P1(a), the public notice dated 12.03.1986 issued by the Office of the Collector of Central Excise, Bengaluru and the same is extracted hereunder for ready reference:-
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OFFICE OF THE COLLECTOR OF CENTRAL EXCISE, BANGALORE 560 001.
PUBLIC NOTICE No.21/86 DATED 12-3-86 VERY IMPORTANT/IMMEDIATE SUB: Accounts - Collection of customs and other dues through Public Section Banks - revised scheme - instructions - regarding.
Hitherto the collection of revenue of the Central Board of Excise and Customs (other than Customs Revenues and other dues at the Major Custom House) was being made by the Reserve Bank of India, Branches of the State of India and the each Collectorate. Experience of the working of the Scheme has indicated that with the increase in revenue collections and the large number of bank branches handling the work, delays have often occured in the credit of tax collections to the Government and in the transmission of relevant documents etc. for proper accounting. In order therefore to simplify the banking arrangements for collection of tax dues within objective of affording the facility to the assessees to deposit money at a reasonable level and also to ensure prompt credit of Government revenues to the Government Account, it has been decided to introduce the scheme of "One Bank - One Collectorate", to collect the revenue for Central Board of Excise and Customs.
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i) The scheme of One Bank - One Collectorate will come into force with effect from 1-4-1986.
ii) The Public Sector Bank selected from the Karnataka Customs Collectorate is "Canara Bank" except in the case of Air Cargo Complex, Bangalore and Mangalore Custom House, where the present practice of deposits through State Bank of India will continue.
iii) All the branches of the Canara Bank within the jurisdiction of the Bangalore Central Excise Collectorate and the following branches within the jurisdiction of Belgaum Central Excise collectorate are recognised and authorized for collection of Customs duty.]
1. Karwar
2. Shedigudde, Mangalore
3. Ranibennur
4. Hampanakatta - M'lore
5. Udupi Town Branch
6. Coondapur
7. Honnavar
8. Panambur
9. Hubli - Durgadabail
10. Gulbarga Main (Super Market Complex)
11. Bellary Car Street.
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iv) The traders should deposit Customs duty and
other dues only in the "CANARA BANK
BRANCHES" with effect from 1-4-86.
v) Each assessee should select only one branch of
the Canara Bank convenient to him and deposit revenues only in that branch.
vi) Each assessee should obtain the Code number of the selected branch of the Canara Bank and Focal Point Bank from his respective Range Officers and should invariably note these Code numbers in the challans.
vii) The detailed procedure for payment of dues and accounting etc. will be similar to one which is being followed presently and there will not be any change in the existing procedure as amended from time to time.
viii) It may please be noted carefully that the customs revenues deposited in any bank other than the one selected them will not entitle them to get their goods cleared.
The assessees may contact their respective jurisdictional Assistant Collector (Customs) for any further clarifications in this regard. The contents of this Public Notice may please be brought to the notice of all your constituent members.
Sd/-
DEPUTY COLLECTOR (CUSTOMS)
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41. A reading of this document Ex.P1(a) would indicate that to simplify the banking arrangements for collection of tax dues with twin objective of affording the facility to the assessee to deposit money at a reasonable level and also to ensure prompt credit of Government revenues to the Government Account, the scheme of one bank - one collectorate was introduced whereby the Canara Bank - defendant No.1 was selected except in the case of Aircorgo Complex, Bengaluru and Mangaluru Customs House. Defendant No.1 - Bank as Collectorate was authorized for collections of customs duty.
42. In order to ascertain whether by virtue of this public notice, Section 182 of the Indian Contract Act, 1972 would be applicable to the action of the defendant No.1 - Bank in collecting the revenue towards payment of dues and accounting etc., it is beneficial to refer to the judgment of the Hon'ble Apex Court in the
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case of State of Mysore and another vs. Mysore Spinning and Manufacturing Company Ltd., and others reported in AIR 1958 SC 1002, wherein it has been held that licenced export dealers under the Cotton Textiles (Export Control) Order through whom export was allowed were not termed as agencies, as it was only the mode of exporting the manufactured goods as per the control order.
43. In the judgment of the Hon'ble Apex Court in the case of UCO Bank vs. Hem Chandra Sarkar reported in AIR 1990 SC 1329, the Hon'ble Apex Court has held that acts of collection of bills, remittance, meeting expenses etc., and debiting the same to the current account of the customs do not be construed in the capacity of an agent of the customers. There was neither fiduciary relationship between the parties nor the bank was incharge of goods as trustee or agent.
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44. In the case of Rajeswari Mills Ltd., vs. The State of Madras reported in AIR 1964 Madras 162, it has been observed that an inference of agency should not, however, be drawn from the subsistence of few such rights or liabilities. It is observed that rights and obligations are the legal incidence of relationship but the same is not the resultant of such rights and obligations.
45. In AIR 1959 Andhra Pradesh 352 in the case of State of Andhra Pradesh and others vs. Jayalakshmi Rice Mill Contractors Co. and others, it is observed that the relationship of an agency is a contractual relationship. The mere fact that a person employed to do an act for another does not make the former an 'agent' of the 'latter'. Further the fact that the agreement speaks of an agent is not conclusive evidence of the relationship of principal and agent, for the same if the parties may choose to give transaction cannot be the
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same criteria. The question of agency is a mixed question of law and fact.
46. In the light of these judgments if we analyze the selection of defendant No.1 - Bank under the scheme of one bank - one collectorate to collect the revenue for Central Board of Excise and Customs and even if any turnover commission is paid towards the said services rendered by the bank, the same would not establish the jural relationship of principal and agent between the defendant Nos.3 and 1 as far as the said collection of revenue is concerned. The functions of the bank are governed by Indian Banking Companies Act, 1949 and the relative position of defendant No.1 depends upon the status of accounts of its customer at any particular point of time. It is only an authority given by the statutory body to a corporate body to collect the duty or dues. No agreement of agency has been made between the defendant Nos.1 and 3 to bring the
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authority of the bank to collect revenue as an agent of defendant No.3.
47. As submitted by the defendant No.3, the role of defendant No.1 - Bank to consider it as a collection agent would start only on TR-6 challans being submitted by the assessee - plaintiff along with the cheques. The role of the bank as an authorized collection agent for the customs department has not begun since admittedly no TR-6 challans were submitted on behalf of the plaintiff along with the cheques. The bank has played a role as the banker of the plaintiff in issuing Demand Drafts on the application submitted accompanying the cheques. Unless the revenue collected from the assessee is credited to the account of the Government revenue, there is no payment made by the assessee towards the customs duty payable to the revenue. Merely debiting the amount from the account of the plaintiff in issuing
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Demand Drafts on the instructions of the plaintiff's employees defendant Nos.4 and 5, cannot be considered to be the payment of customs duty liable to be paid by the plaintiff - assessee.
48. Payment of duty or liability by the assessee - plaintiff cannot be resisted on the premise that the fraud has been played by its employees in collusion with the bank officials or for whatever reasons. The public revenue should not suffer on account of fraud said to have been committed by the employees of the plaintiff. Hence debiting from the account of the plaintiff, honouring the cheques/crossed cheques presented by the plaintiff cannot be considered as discharge of duty/liability unless it is credited to the account of the Government revenue.
49. Mere stray admission of DW.2 - G. Sathyanarayana that the bank has acted as an agent of customs and receives commission would not establish
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the jural relationship of principal and agent in the light of Ex.P1(a) and the scheme under which the defendant No.1 - Bank was selected to collect revenue as one bank
- one collectorate.
50. As per Ex.P1(a), clause (vii) the procedure for payment of dues and accounting etc., will be the existing procedure as amended from time to time. As per Ex.D439, Part 'B', Scheme for Collection of Central Excise, Customs and Other Indirect Taxes, Procedure for making payment of Tax is prescribed. Clause 4 of Ex.D439 contemplates the procedure for making payment of tax which reads thus:-
4. Procedure for Making Payment of Tax:
a. The assessee will pay the revenue under the basic document, namely, the challan in Form TR-6.
b. He will present separate challans for payment of dues under each major, head of account (as indicated in para 3 above).
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c. These challans (TR-6) in quadruplicate
should be filled up completely and
correctly by the assessees, indicating both the major and minor head of account and the same is duly signed and the name and address are filled up and date of payment mentioned therein.
d. The assessee should fill up the particulars of cash, cheque or demand draft on the reverse of the challans in the specie provided for the same.
e. Where the payments are made by local cheques/demand drafts, they should be drawn in favour of the Chief Accounts Officer of the collectorate of Central Excise and Customs concerned.
51. Memorandum of Instructions issued by the Reserve Bank of India endorsed with Ex.D439, in clause 12 provides that the assessee will pay the revenue with a challans in form TR-6. He should present separate challans for payment of dues under each major head of account. The challan will be in quadruplicate in all
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cases of payment of revenue. The challans should be correctly filled in all respects so that revenue payable by him is correctly credited to the proper major and minor head of account. The receiving bank will return the duplicate and triplicate copies of the receipted challan to the assessees who on receipt of the challans, will record the particulars of the challan such as the name of the bank, the branch in which the amount has been paid, challan number and date, amount etc., on all copies of the relevant Departmental Assessment Document. He will then attach the duplicate copy of the receipted challan to the copy of the Department Assessment Document meant for the Range Officer. The Range Officer will then allow clearance after satisfying that the duty amount has been paid.
52. It is evident from the record that the crossed cheques were accompanied with the Demand Draft challans not with the TR-6 challans which is sine-quo-
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non for the payment of customs duty. Thus, the defendant No.1 - Bank has not initiated its function as Collectorate. Hence, it cannot be held that it acted as an agent of customs department.
Re. Point No.2:
53. The allegation of fraud is in respect of 143 cheques. As per Annexure - 1A, 96 cheques were issued by the plaintiff drawn in favour of 'Yourselves-037 customs', 35 cheques as per Annexure - 1B drawn in favour of 'Yourselves D.D. payable Collector of Customs', 12 cheques were issued by the plaintiff as per Annexure - 1C drawn in favour of 'Yourselves'. Admittedly, all these cheques were crossed. In order to analyze the effect of crossed cheque it would be beneficial to refer to Sections 123 to 131 of the Negotiable Instruments Act, 1881. ('Act, 1881' for short)
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54. Section 123 of the Act, 1881, reads thus:-
123. Cheque crossed generally.- Where a cheque bears across its face an addition of the words "and company" or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words "not negotiable", that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.
55. Section 123 of the Act, 1881 deals with the general crossing of cheque the implications of general crossing is that any other banker must submit such a cheque to the paying banker/account, payment can only be made by bank account and should not be made at the counter. The banker has to credit the cheque amount to either the owner of the cheque or the payees account.
56. Section 124 of the Act, 1881 defines special crossing and the same reads thus:-
124. Cheque crossed specially.- Where a cheque bears across its face an addition of the
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name of a banker, either with or without the words "not negotiable", that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.
57. In special crossing, the banker's name requires to be added across the face of the cheque. Payment can only be made through bank of the crossing. Specially crossed cheques are not convertible into general crossing.
58. In order to ensure that a cheque will not be encashed by anyone except the rightful owner of the cheque, the words "account payee" are used.
59. Section 126 of the Act, 1881 runs thus:-
126. Payment of cheque crossed generally. - Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker.
Payment of cheque crossed specially.- Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise
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than to the banker to whom it is crossed, or his agent for collection.
60. In terms of Section 126 of the Act, 1881 the paying banker is obligated to make the payment as per the mandate of the crossing on a crossed cheque. The paying banker is not authorized to deviate the proceeds of a crossed cheque to the payer or the cheque holder. The failure by the paying banker to pay a crossed cheque shall be punishable by liability as per Section 129 of the Act, 1881.
61. Section 129 of the Act, 1881 reads thus:-
129. Payment of crossed cheque out of due course. - Any banker paying a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than to the banker to whom the same is crossed, or his agent for collection, being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.
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62. Thus, it is not only obligatory but mandatory on the part of the bank to act on the mandate of the crossed cheque. A banker is not entitled to issue a Demand Draft by ignoring the mandate of the cheque. It is not legally justified to pay the payee in cash over the counter or in any other manner, it has to be paid to the banker/account to which it is crossed. If the paying banker fails to make the payment in accordance with the mandate of the cheque, such payment not made in accordance with the instructions of the drawer is not the payment made in the eye of law. The banker is prevented from debiting the cheque amount on its customers account, as such payment is considered to have been made to the wrong person if it is deviated by issuing the Demand Drafts. Indeed, the paying banker is accountable to the true owner of the cheque. Collecting banker has a duty to credit the money into the account of payee indicated in the crossed cheque and into no other account. Admittedly, 96 cheques
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drawn in favour of 'Yourselves-037 customs' and 35 cheques drawn in favour of 'Yourselves D.D. payable Collector of Customs' are crossed cheques. Defendant Nos.4 and 5 who were acting as the authorized representatives of the plaintiff - assessee have presented the said crossed cheques along with Demand Draft challans and obtained the Demand Draft challans in favour of Customs Madras, Customs Calcutta, Customs Mumbai and in the name of two shipping companies namely, South India Shipping Services and United India Shipping Services who were the clearing agents of plaintiff company at Madras. Issuance of Demand Drafts against crossed cheques drawn in favour of particular account is against the mandate of the cheque and the instructions of the plaintiff. As such, the defendant No.1 - Bank has violated the mandate of the cheque which is against the provisions of the Act. Thus, the banker - defendant No.1 shall be liable to the plaintiff for any loss if may sustain owing to
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the cheque having been so paid by issuing demand drafts. At this juncture, it is apt to refer to the Hon'ble Apex Court judgment rendered in Canara Bank, supra, in paragraphs 24, 42 and 44, it is held thus:-
"24. The relationship between the customer of a bank and the bank is that of a creditor and debtor. When a cheque which is presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amounts covered by such cheques. When a customer demands payment for the amount covered by such cheques, the bank would be liable to pay the amount to the customer. The bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adoption, estoppel or ratification. The principle of law regarding this aspect is as follows: When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount
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covered by the cheque. However, if the signature on the cheque is not genuine, there is no mandate on the bank to pay. The bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which the customer's name as drawer is forged, is a mere nullity. The bank can succeed only when it establishes adoption or estoppel.
42. We adopt the reasoning indicated above with great respect. Unless the bank is able to satisfy the Court of either an express condition in the contract with its customer or an unequivocal ratification it will not be possible to save the bank from its liability. The banks do business for their benefit. Customers also get some benefit. If banks are to insist upon extreme care by the customers in minutely looking into the pass book and the statements sent by them, no bank perhaps
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can do profitable business. It is common knowledge that the entries in the pass books and the statements of account sent by the bank are either not readable, decipherable or legible. There is always an element of trust between the bank and its customer. The bank's business depends upon this trust. Whenever a cheque purporting to be by a customer is presented before a bank it carries a mandate to the bank to pay. If a cheque is forged there is no such mandate. The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques. Inaction for continuously long period cannot by itself afford a satisfactory ground for the bank to escape the liability. The plaintiff in this case swung into action immediately on the discovery of the fraud committed by its accountant as in the case before the Privy Council.
44. This is how this Court understood how a plea of estoppel based on negligence can be successfully put forward. We have seen that there is no duty for a customer to
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inform the bank of fraud committed on him, of which he was unaware. Nor can inaction for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss. Thus the contentions put forward by the bank cannot be accepted to defeat the plaintiff. The various submissions made by the counsel for the bank based on constructive notice in the general law and on other branches of law cannot be extended to relationship between a bank and its customer."
63. PW.1, the purchase officer of the plaintiff has stated that South India Shipping Services and United India Shipping Services were the clearing agents of the plaintiff at Madras. The plaintiff has the details of transactions of these two clearing agents whose services were taken to import goods at Madras. The plaintiff was taking Demand Drafts from the bank drawn on Collector/Assistant Collector of Customs, Madras. The said witness has admitted that he is oblivious of the
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proceeds relating to 12 cheques and only account department person would be able to speak about it. He has admitted that Demand Drafts have been collected against 35 cheques and posted from the company to the Collector of Customs, Madras. Further he has admitted that some of the representatives of the plaintiff company had obtained Demand Drafts from Canara Bank against cheques presented for payment of customs duty favouring 'Yourselves-037 customs'. The testimony of PW.1 would indicate that he was the person who was paying the customs duty at Madras and getting the goods released from Madras port. Demand Drafts were obtained from the bank to pay customs duty at Madras. Many a times he had accompanied along with defendant No.4 to collect Demand Drafts from the bank. After Demand Drafts are issued on presentation of cheques there is no question of issuing TR-6 challans. PW.1 was responsible for correctness of TR-6 challans before and after preparation of the same which used to be signed
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by himself and by Mr. Akram. He was in possession of the office seal of the company. Defendant No.4 and PW.1 used to put the company's seal on the TR-6 challans to authenticate that the same is originated from the company. It has been admitted that Demand Drafts were purchased by him for about 50 or 60 times from the bank and whenever he purchased Demand Drafts from the bank he used to present Demand Draft challans. The counterfoils of Demand Draft challans used to be kept by the PW.1 and subsequently submitted before the accounts department. He categorically admits that the goods have been debounded by the company in respect of TR-6 challans which have been marked by the plaintiff.
64. PW.1 in his cross-examination has admitted that 35 cheques issued were in favour of "Collector of Customs, Madras", 12 cheques were mentioned with words "Yourselves". It is beneficial to extract deposition
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of PW.1. The relevant paragraph Nos.181, 186 and 187 are extracted as under:-
"181. It is not true to suggest that myself, certain employees of the co., and defts.4 and 5 have fabricated the bank's seal and put them on TR-6 challans and debonded the goods, from the customs. I had never cross-checked with the customs Dept. about the total quantum of customs duty paid visa- viz the payment made to bank through cheques in this regard. It is true that debonding of the goods from the warehouse was dependent on the immediate requirement of the company. Therefore there used to be some more goods in the warehouse for which duty was yet to have been paid. We were never making any correspondences in respect of our requirements of goods, with the customs Dept. I was the person who used to ratify the customs duty payable towards the goods that used to be debonded from the warehouse. I used to have the customs duty assessed on the bill of entry by the customs Dept. Approval of the customs authority on
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the ex-bond bill of entry is for the goods intended to be removed from the warehouse. This action of getting the same assessed from the custom authority used to be prior to the payment of customs duty through the bank by way of TR-6 challans and cheque.
186. I admit your suggestion that 96 cheques bearing "Yourselves-037-customs"
and 35 cheques "Yourselves (DD favourable collector of customs" had been issued. The 35 cheques issued were in favour of "Collector of customs, Madras." It is true that 12 cheques were mentioned with words "Yourselves". The above 143 cheques referred to by me in paragraph 185 of my deposition is inclusive of 35 cheques and 12 cheques. I have not collected the DDs in respect of 35 cheques bearing "Yourselves ("DD favourable collector of customs-Madras)". I cannot tell as to who collected the DDs in respect of these 35 cheques. The DDs obtained as against these 35 cheques had been posted from the co., to the collector of customs, Madras. In the normal course either the controller of chief
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controller of finance of the co., could have looked into the DDs obtained as against 35 cheques.
187. We have not obtained any DD in respect of the 12 cheques bearing "Yourselves" only. The 12 cheques drawn with the words "Yourselves" had not been preceded by any requisition by the co., to the bank. Co., had not given instructions subsequent to the presentation of these 12 cheques for appropriation of the amounts mentioned in these cheques in any manner. I do not have any idea as to whether the bank has held the amount in respect of these 12 cheques still in suspense. I cannot say as to what happened to the proceeds of these 12 cheques. Only the accounts Dept. persons will be in a position to speak about the proceeds of these 12 cheques."
65. PW.2 is the Senior Accounts Officer, who has stated that the plaintiff used a machine called 'cheque writer' to type all the cheques pertaining to the transaction and it is his presumption that addition of
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words found in the cheques has been typed with a similar 'cheque writer' from outside and he does not have any proper basis to say that additions were made with separate 'cheque writer' outside. The said witness categorically admits that South India Shipping Services and United India Shipping Services were the agents of the plaintiff and at a later stage of investigation, plaintiff became aware of the Demand Drafts procured from the bank were rooted through these two shipping agencies and does not even know whether Demand Drafts were presented by the shipping agencies to the customs authorities on behalf of the plaintiff or not. 28 Demand Draft challans show the signature of PW.2 and all of them have been affixed with the company's seal. His statement that one Subramanya was the Purchase Officer and the Demand Draft Challans whether were in the handwriting of Subramanya is not identifiable by him, though not with clarity but unequivocally he admits that 60% of the challans are in the handwriting
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of A.W.Akram - defendant No.4. While signing 28 Demand Draft challans he has acted within his authority.
66. PW.4 is the General Manager of BPL, associate company of the plaintiff. He states that Demand Drafts procured from the bank have been used for clearance of several types of imported cars, motorcycles, V.C.Rs., Audio Systems etc., which had been cleared in the name of Basheer Ahamed, Mahamed Pasha, Akram and others. Plaintiff - company was monitoring the bank transactions everyday to keep track of the financial position of the company and the company has been receiving the statements from the bank regularly. For payment of customs duty, TR-6 challans have to be furnished to the bank and if TR-6 challans are not presented there cannot be any payment of customs duty. By the end of September 1990, he
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came to know about the total amount of misappropriation of Rs.390 lakhs.
67. As per the interpolations in respect of 35 cheques, Balakrishna Nayri - PW.2 has stated that any additions found in the cheques are not that of the 'cheque writer' of the plaintiff. However, he admits that he does not have any proper basis to say that the additions in the cheques were made with separate 'cheque writer' outside. It is apparent from the perusal of the cheques that one cannot make out whether second line which the plaintiff now contend is a manipulation was in fact a manipulation or not. Even according to the plaintiff witnesses, plaintiff used to monitor bank transactions everyday to keep perfect track of financial position of the company with the bank and the company was receiving statements from the bank regularly. The testimony of these witnesses were relied upon by the defendant No.1 - bank to contend
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that the allegation against the bank inasmuch as the officials have issued Demand Drafts against the mandate of the bank is not justifiable. Even misuse of authority by the defendant Nos.4 and 5 would not any way assist the defendant No.1 - bank to wriggle out from the clutches of law in issuing Demand Drafts against the mandate of the cheques though Demand Draft challans were presented on behalf of plaintiff company against the crossed cheques. Re. Point No.3.
68. Section 71 of the Customs Act, 1962 contemplates that no goods would be debonded or removed from a warehouse without following the procedure prescribed therein. In terms of clause 1(a) of Section 72 if any warehouse goods are removed from a warehouse in contravention of Section 71, the proper officer may demand, and the owner of such goods shall forthwith pay, the full amount of duty chargeable on account of such goods together with all penalties, rent,
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interest and other charges payable in respect of such goods.
69. Section 27 of the Customs Act, 1962 provides for claim of refund of duty. No refund was sought by the plaintiff if paid in excess. Section 28 of the Customs Act, 1962 empowers the authorities to issue notice for payment of duties, interest etc., when any duty has not been levied or has been short-levied or erroneously refunded, or when any interest payable has not been paid, part-paid or erroneously refunded, the proper officer may serve a notice on the person chargeable with the duty or interest to pay the amount.
70. The demand has been made by the customs authority in view of the imported goods having been removed from the warehouse on the basis of fake TR-6 challans. The plaintiff indeed has deposited the demand of Rs.3,88,47,186-51 though under protest admitting the fraud said to have been played by its employees
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defendant Nos.4 and 5. If any fraud is played by the employees, the customs duty which is liable to be paid by the plaintiff - assessee not being credited to the account of the revenue, the demand has been rightly made. Further on the notice issued by the customs authorities calling upon the plaintiff to make the payment towards interest and penalty etc., the plaintiff had preferred W.P.No.14092/1991 before this Court and the same came to be disposed of on 13.03.1998 observing that the civil suit has been already filed by the plaintiff in respect of the same issue where it has to be determined as to whether the plaintiff was at fault or not. Accordingly, writ petition came to be disposed of directing the Civil Court to dispose of the suit in O.S.No.6303/1993 within a period of six months and till then further proceedings in pursuance of the show- cause notice dated 18.04.1991 shall remain stayed.
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71. The records would reveal that the fraud said to have been played by the defendant Nos.4 and 5 was during the period 1986 to 1990. On noticing the same, the department has issued the notice calling upon the plaintiff to make good the duty liable to be paid by him and the same has been paid. The statements of A.W. Akram recorded by the customs authorities would indicate the modus operandi which was in the personal knowledge of Sri. A.W.Akram. The fraud occurred during October 1986 to June 1990; the show-cause notice came to be issued on 18.04.1991; the civil suit was filed in the year 1993. The statements of A.W. Akram would disclose that to obtain the Demand Draft he would fill in a Demand Draft challan and the Demand Drafts were collected in favour of Collector of Customs, Madras/Bombay/Cochin; he would affix on two copies of TR-6 challans the rubber stamp, which he had with him, forged the signature of the bank official and submitted to customs division along with the
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exbond bill of entry. The fake challans would not find any entry in the duty paid register. The Demand Drafts obtained from the bank would be given to one M. Basha and one L.A.K. Aslam who would utilize the same for purchasing goods from customs department in auctions. For that he would be paid 75% of the Demand Draft amount in cash which he would utilize for himself. The said statements would certainly establish the fraud played by the employee defendant No.4. But the same does not exonerate the employer from its liability.
72. The liability to discharge duty was on the plaintiff chargeable with duty. The fraudulent transaction numbering 143 occurred during the period of October 1986 to June 1990 for about four years during which period the company has finalized its annual accounts. Some of the Demand Drafts purchased in the name of plaintiff from Canara Bank out of the amount purported to have been paid towards
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customs duty at Bengaluru had been utilized for payment of customs duty on their account at Madras by their shipping agents where they are the beneficiaries of the fraud committed in certain cases.
73. K.B. Ballulaya, the Controller of Finance in his letter dated 30.08.1990 Ex.P220 has categorically admitted that A.W. Akram was an employee of the company at the relevant point of time. However, the action on his part was of his own will and did not have the concurrence or approval in any manner of either his superiors of the company. Similarly, it is not disputed that this defendant No.5 was also an employee of the company during the relevant period.
74. Section 238 of the Indian Contract Act, contemplates that if any misrepresentation is made or fraud committed by agents, acting in the course of their business for their principal, have the same effect of agreements made by the agents as if such
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misrepresentations or fraud had been made or committed by the principals but misrepresentation made or frauds committed by agents. The misrepresentation and frauds alleged to have been committed by the employees during the course of their action while working on behalf of the company, a principal, it is within their authority while acting upon and therefore such acts binds the principal employer. Hence, the plaintiff cannot contend that there was no concurrence for the acts committed by the defendant Nos.4 and 5. The plaintiff has instituted the suit only after the show-cause notice dated 18.04.1991 was served on the plaintiff calling upon to pay interest, penalty etc., exercising the power under Section 28 of the Customs Act, 1962. Admittedly, the alleged fraud committed by its employees was discovered by the plaintiff during the last week of August 1990. Master is liable for the fraud committed by the employees whether it was for the benefit of Master or not as held by the
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Hon'ble Apex Court in State Bank of India vs Smt. Shyama Devi reported in AIR 1978 SC 1263.
75. It has been argued that the said misrepresentations and fraud played by the employees of the company - defendant Nos.4 and 5 in collusion with the officials of the bank was informed to the customs department voluntarily by the plaintiff after detecting the same. Pursuant to such discovery K.B. Ballulaya, Controller of Finance of the company has visited the defendant No.1 - bank along with a photocopier machine and has taken photocopies of all the cheques, Demand Drafts challans etc., After conducting a thorough investigation discovered that there was alleged fraud committed by its employees in collusion with bank officials during the period August 1986 to October 1990 and a complaint was lodged to the P.S. Cubbon Park on 26.09.1990 as Ex.D31. In the said complaint, the allegations were made only against
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defendant Nos.4 and 5, not against the defendant No.1 - bank. On issuing the demand notice by the defendant No.3, a loan to an extent of Rs.3 crores has been raised by the plaintiff from the same defendant No.1 - bank to discharge the liability and the same is said to have been repaid. Even during that period no action was initiated against defendant No.1 - Bank.
76. Plaintiff has to own the responsibility for the fraud committed by its employees. Indisputedly, no amount was credited to the Government revenue towards the customs duty liable to be paid on the imported goods which were cleared on the basis of fake TR-6 challans. The customs duty paid on demand made by the department, at any stretch of imagination cannot be held to be double payment. No person can siphon off the Government money and enrich themselves causing loss to the revenue. Indisputably, no credit is made to the account of the Government
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revenue. The primary liability is with the plaintiff - company to discharge the same. For breach of mandate of the cheque, Bank is liable to the plaintiff - company but not to the revenue as the said violation relates the function of the banker with the plaintiff and the banker is liable to the plaintiff - company for any loss sustained owing to the Demand Drafts issued in violation of the mandate of the cheques. Hence, the demand made by the customs department to the tune of Rs.3,88,47,186- 51 is legal. Plaintiff is not entitled to any refund from the defendant Nos.2 and 3.
77. Paragraph No.25 of the plaint would disclose that the cause of action arose on 14.09.1990, 01.10.1990, 30.10.1990, 06.11.1990 and 20.11.1990 when defendant No.3 served notices of demand for payment of duty which according to plaintiff had already been paid and between 09.10.1990 and
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14.12.1990 when plaintiff was coerced actually to make payment in respect of the said notices.
78. It is an undisputed fact that the defendant Nos.4 and 5 and occasionally PW.1 - Ravindranath used to interact with the bank. They were the face of the plaintiff who were transacting on behalf of the plaintiff - bank. That as admitted by PW.4, the plaintiff used to monitor the bank transaction everyday. It is an admitted fact that defendant Nos.4 and 5 were transacting bringing cheques as well as TR-6 challans and also Demand Draft challans and after encashment of the cheques, used to take copies of TR-6 challans duly attested by the bank and the Demand Drafts as the case may be. If it is to be held that defendant Nos.4 and 5 had no authority, the Demand Draft challans presented by the defendant Nos.4 and 5 in all cases also would become without authority, but the same is not the case of the plaintiff. Such question of authority is
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raised only regarding 143 cheques where the committal of fraud has been alleged. Authority of the defendant Nos.4 and 5 as the employees of the plaintiff would be uniform relating to all transactions. If such authority is accepted by the plaintiff company regarding other transactions, the same cannot be gainsaid only as far as 143 cheques are concerned. Hence, the finding of the Trial Court that defendant Nos.4 and 5 were authorized to operate the accounts of the plaintiff or to instruct or deal with the funds of the plaintiff or to negotiate cheques or instruments issued by the plaintiff cannot be faulted with.
79. Learned Senior Counsel for the defendant No.1 - bank has argued that the bank agreed to the proposal of the plaintiff as per its letter dated 26.03.2007 subject to the plaintiff withdrawing the suit filed against the bank. Giving such concessions, the bank assigned the debt in favour of M/s. Pegasus Asset
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Reconstructions Pvt. Ltd., In view of the agreement between the plaintiff and bank, and the letter dated 04.09.2007 of the plaintiff giving an undertaking that in case of any liability to the bank at the time of disposal of the suit which is pending before this Court in present RFA, the same will not be recovered from the bank in view of the settlement and further in view of the memo filed dated 29.11.2007 before this Court stating that the plaintiff has expressly waived their right to claim any amount from the bank even if the amount is decreed against the bank, the plaintiff is estopped from claiming any relief against the bank cannot be countenanced. Any inter-se settlement between the plaintiff - company and the defendant No.1 - bank and the memo filed by the plaintiff - company before this Court would not preclude the Court from arriving at a conclusion on merits of the case. As could be seen, the purpose of filing this suit, O.S.No.6303/1993 is to avoid the legal
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actions initiated by the customs department under Section 28 of the Customs Act, 1962.
80. Any settlement between the parties to defeat the revenue if accepted, the Exchequer would suffer. In the whole process, it would be a premium on misrepresentation. Hence, we are rejecting the memo dated 29.11.2007 filed by the plaintiff - Company which indeed establishes the intention of the plaintiff to defraud the revenue. Thus, it is manifestly clear that the plaintiff has filed the present suit only to get away from the punitive action initiated by the customs department. An order has been passed on 31.01.2013 by the department confirming the demand of customs duty amounting to Rs.3,95,11,326-51 and imposing penalty and interest on the plaintiff amounting to Rs.3,95,11,326-51 and Rs.83,79,935/- respectively, against which an Appeal No.26539/2013 has been filed by the plaintiff under Section 129A(i) of the Customs
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Act, 1962 and the same is pending consideration before the Appellate Authority.
81. Learned counsel has referred to the judgment of the Criminal Court passed in C.C.No.8033/1999 dated 18.12.2007 whereby defendant No.5 has been acquitted, on benefit of doubt whereas the case against defendant No.4 is abated since he was reported dead. The same would not come to the assistance of the plaintiff to eschew from the liability against the department. Moreover, the suit has been dismissed against defendant No.5.
Re. Point No.4
82. Section 17 of the Limitation Act, 1963 postulates that where, in the case of any suit or application for which a period of limitation is prescribed by this Act, the suit or application is based upon the fraud of the defendant or respondent or his agent, the period of limitation shall not begin to run until the
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plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it.
83. A reading of this provision makes it clear that the cause of action would arise only when the victim realises the factum of fraud perpetrated or at a point when the victim could have with reasonable diligence learnt or become aware of the hoax practiced as held by this court in Babulal Vaktaji Shah Vs. Chandabai (RSA No.488/1978 dated 01.07.1988). Thus, it is clear that period of limitation starts from the time when the fraud first noticed by the person affected thereby. The suit has to be filed within three years from the date of knowledge of the fraud.
84. PW.1 has admitted in the cross-examination as under:
"208. I have deposed as "We" in paragraphs 7 and 9 of my deposition. According to me the word "we" refers to company only. It
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does not refers to me individually. In paragraph 167 of my deposition I have stated as "after the company discovered the fraud". I do not know the exact nature of fraud discovered by the company. I cannot say as to who played the fraud and on whom. The fraud was played within the period from August 87 to August 1990."
85. PW.2 has admitted that the discrepancies were found in August, 1990 by the plaintiff-company pursuant to which a letter was written to the defendant No.1 - Bank requesting for accommodating Sri. Ballulaya to verify the bank challans, cheques and scrolls.
86. The evidence of PW4 would be apt to quote and the relevant paras read thus:
"50. As on the date of lodging a complaint the quantum of amount of misappropriation was to the tune of about Rs.10 lakhs. I am not aware of the subsequent complaint lodged by Ballulaya to the police after Ex.P.313. By the end of September 90 I came to know that total amount of
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misappropriate was about Rs.390 lakhs. I did not suggest Ballulaya or the co., authority to lodge a fresh complaint after September 90 as the amount of misappropriation was quite substantial. By the end of Sept.90 I have come to know that the total quantum of misappropriated amount was about Rs.390 lakhs and that many cheques has been materially altered. According to me I came to know by the end of Sept. 90 that Akram and Muralidharan were involved in the misappropriation of this amount. I had also come to know that no TR-6 challans had been submitted along with the cheques. By the end of Sept. 90 I also came to know that DDs had been issued by the Bank on the basis of DD Challans submitted to the bank. I assisted the co.,s advocate in drafting the writ petition along with Ballulaya.
51. Now I am seeing the writ petition copy shown to me by you. I had read the contents of WP after it was drafted by the company's advocate. I have read the contents of plaint after it was prepared. It is true that the knowledge of involvement of D.4 and D.5 in misappropriating the amount, non-production of TR-6 challans and purchasing DDs on the strength of DD challans
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and material alterations of cheques are material factors. ADJOURNED TO 3 P.M."
87. Ex.P.313 is the police complaint lodged on 24.08.1990 in Crime No.267/1990. Mr. Ballulaya, General Manager of plaintiff-company lodged complaint on 26.09.1990. Suit was filed on 20.10.1993 after a lapse of three years. Though fraud vitiates everything, starting point for limitation is the date from which the plaintiff has knowledge of the fraud. In terms of Section 17 of the Limitation Act, 1963, the suit is barred by limitation.
88. In Upendra Nath Mitra's Law of Limitation and Prescription (MLJ Publication), 8th Edition, Volume
- 1, page 287, it is observed thus:
"Under the present Sec.17, sub-section (1), limitation starts running from the time the plaintiff or applicant discovered the fraud or could with reasonable diligence have discovered it. The plaintiff's awareness of his right to relief will preclude his claiming benefit under the
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section. Under the Act of 1908, Sec. 18 had prescribed that where the cause of action of the right to sue was concealed from the plaintiff by the fraud of the defendant, or where the title on which the right to sue was founded was so concealed time ran from the date when the fraud first became known to the plaintiff and not from the time when, with reasonable diligence, it might have been first known or discovered. In that respect the Indian law had differed from Sec. 26 of 3 & 4 Will. IV, c. 27, (See now Sec.26 of the United Kingdom Limitation Act 1939) which made time run from the date when the fraud was or with reasonable diligence might have been first known or discovered. But although want of diligence on the part of the plaintiff did not necessarily deprive him of his privilege under Sec. 18, the Court may yet, from existence of the means of knowledge of the fraud, find as a fact that the plaintiff had actual knowledge of it. Similarly when a thing is openly done, it will be difficult to justify a claim of exemption from limitation on behalf of a person who merely shuts his eyes to it."
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89. In the recent judgment in Rattan Singh and others vs Nirmal Gill and others (Civil Appeal Nos.3681-82/2020, D.D.16.11.2020), the Hon'ble Apex Court has held that for invoking Section 17 of the Limitation Act, 1963, two ingredients have to be pleaded and duly proved. One is existence of a fraud and the other is discovery of such fraud. The period of limitation starts running when the applicants with reasonable diligence have discovered the fraud.
90. For the aforesaid reasons, we are of the considered opinion that the impugned judgment and decree does not suffer from any perversity or illegality in arriving at the conclusion of dismissing the suit. CONCLUSION
1) Trial Court is justified in dismissing the suit against defendant Nos.2, 3 and 5, the same is confirmed.
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2) Plaintiff though succeeds on point No.2 against defendant No.1 - Bank, relating to the violation of the mandate of the crossed cheques presented, fails on the ground of limitation.
3) The finding of the Trial Court inasmuch as defendant No.4 is upheld.
4) In the result, the appeal is dismissed.
Sd/-
JUDGE Sd/-
JUDGE Dvr/PMR