Gujarat High Court
Sanjay Hiralal Shah vs H D F C Bank Ltd on 24 November, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Vipul M. Pancholi
C/FA/3136/2011 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
FIRST APPEAL NO. 3136 of 2011
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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1 Whether Reporters of Local Papers may be allowed to see the NO
judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of the judgment ? NO
4 Whether this case involves a substantial question of law as to the NO
interpretation of the Constitution of India, 1950 or any order made
thereunder ?
5 Whether it is to be circulated to the civil judge ? NO
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SANJAY HIRALAL SHAH....Appellant(s)
Versus
H D F C BANK LTD....Defendant(s)
================================================================
Appearance:
MR MEHUL S SHAH, ADVOCATE for the Appellant(s) No. 1
MR ANIP A GANDHI, ADVOCATE for the Defendant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 24/11/2014
Page 1 of 19
C/FA/3136/2011 JUDGMENT
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) This appeal is filed by the original plaintiff, whose Special Civil Suit No. 202 of 2001 was dismissed by the learned 3 rd Additional Senior Civil Judge, Vadodara by the impugned judgment dated 30th March 2011. The central question, which calls for consideration in this appeal is, whether the six negotiable instruments issued by the officers of the Charotar Nagrik Sahkari Bank Ltd. (hereinafter to be referred to as `the Charotar Bank') were in the nature of demand drafts or account payee cheques. Answer to this short question would decide the fate of the appeal. This question arises in the following background.
2. The appellant-plaintiff filed a summary suit against the Charotar Bank and its office bearers, who were defendants Nos. 1 to 6, the H.D.F.C. Bank was defendant No.7, for a decree of Rs.7,08,10,040/-. It was alleged that the plaintiff was engaged in the business of financial consultant. The officials of the Charotar Bank entrusted the task of procuring deposits worth Rs.200 cr. to the plaintiff upon promise for payment of commission at the rate of 6% of the total deposits. The plaintiff contacted various prospective investors, including Mineral Corporation of India, New Delhi and Coal India Limited, Calcutta. Page 2 of 19
C/FA/3136/2011 JUDGMENT Eventually the plaintiff procured such deposits worth more than Rs.200 cr. for Charotar Bank. The plaintiff was, therefore, entitled to receive a sum of Rs.7 crores from the Charotar Bank. After deducting T.D.S. at the rate of 5%, he would receive a total of Rs.6.65 cr. For payment of such commission, the Charotar Bank issued banker's cheques, six in number, all dated 6th December 1999, total payment under which would come to Rs.6 cr.
3. According to the plaintiff, these cheques were in the nature of demand drafts, and were delivered to the plaintiff at Vadodara with an assurance by the defendants that upon presentation, H.D.F.C. Bank would pay the amounts mentioned therein without any demur. The plaintiff deposited such drafts before its banker, namely, Union Bank of India, M.G. Road Branch, Vadodara. Such drafts were returned by the H.D.F.C. Bank with instructions that the same would be realized only at H.D.F.C. Bank, New Delhi Branch. When presented at New Delhi, the same were returned with an endorsement "payment stopped by drawers". The plaintiff thereupon after serving statutory notice filed the complaint for dishonour of cheques under Section 138 of the Negotiable Instruments Act, 1881 (for short `the Act') against the Charotar Bank and its officers.
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C/FA/3136/2011 JUDGMENT
4. During the pendency of the summary suit, the Charotar Bank went into liquidation. The Civil Court passed an exparte decree against the defendant No.7, H.D.F.C. Bank, on 15th September 2003 for payment of the entire suit amount with interest. H.D.F.C. Bank thereupon filed application for recall of the order, which was allowed by the court by an order dated 15th June 2009 and H.D.F.C Bank was granted unconditional leave to defend. Against this order, the plaintiff filed a revision petition before the High Court. Learned Single Judge by judgment in the case of Sanjay Hiralal Shah Vs. H.D.F.C. Bank Ltd. reported in 2008 (2) GLR 1491 dismissed the revision petition by a detailed judgment. We were informed that the Special Leave Petition against such judgment was also dismissed. A review petition came to be filed before the learned Single Judge which was disposed of with certain observations, however, without any change in the final order. The suit was thus treated as a long cause suit. Parties were allowed to lead evidence.
5. We may record that even after passing the decree in the Summary Suit against defendant No.7, the trial court had directed that the suit may proceed against the rest of the defendants. Whatever be efficacy of this order, even while the application of the H.D.F.C. Bank for recalling the decree against the Bank was pending, the plaintiff filed a purshish (Exh.66) before the trial court on 7th October 2003, and declared that Page 4 of 19 C/FA/3136/2011 JUDGMENT Charotar Bank had gone into liquidation. Decree is already passed against the H.D.F.C. Bank. Under such circumstances, the plaintiff does not wish to proceed against Charotar Bank and its office bearers. He, therefore, sought permission to delete the defendants Nos. 1 to 6. Such permission was granted by the trial court by an order dated 7 th October 2003.
6. The defendant No.7-H.D.F.C. Bank had filed a written statement dated 25th April 2001 in response to the Summary Suit filed by the plaintiff. In such written statement, it was contended that the Charotar Bank maintained and operated a current account with the H.D.F.C. Bank at its Vadodara Branch, and had issued the cheques in question to the plaintiff on such account. The said defendant categorically denied that the cheques were demand drafts payable at any of the H.D.F.C. Bank branches to be realized without any demur as alleged by the plaintiff.
7. After permission was granted to H.D.F.C. Bank to defend the suit, a detailed written statement came to be filed on 1 st September 2009 contending that the Charotar Bank had opened a current account with H.D.F.C. Bank. After presenting necessary papers for opening such account, H.D.F.C. Bank had issued cheque books containing transaction Code No. 19 printed on such cheques. It was pointed out that as per the Page 5 of 19 C/FA/3136/2011 JUDGMENT Reserve Bank of India guidelines different banking instruments such as account payee cheques, cheques drawn on current and savings accounts, demand drafts and banker's cheques are categorised under different codes, and such instruments must carry the respective code number assigned to it under such guidelines. According to such guidelines, transaction code No. 19 is prescribed for `on par current account cheques'. Whereas for the demand draft, code No. 16 is prescribed. According to H.D.F.C. Bank, thus, the cheques issued by Charotar Bank were MICR cheques and not demand drafts. It is further stated that the plaintiff himself was aware about this clear distinction, despite which, in the plaint, he maliciously described such instruments as demand drafts, and thereby tried to mislead the court. It is further stated that the H.D.F.C. Bank was instructed by the Charotar Bank to stop payment of the cheques, upon which, the plaintiff had, in fact, initiated proceedings under Section 138 of the Act against Charotar Bank and its officers.
8. The trial court framed the following issues:-
"(1) Whether the plaintiff proves that the defendant No.2 to 4 are Directors and the defendant No.5 & 6 are the Branch Manager of the Defendant No.1 Bank?
(2) Whether the plaintiff proves that on 3/11/1999 it was agreed between the plaintiff and defendants at Vadodara to pay professional service and charges and deposit of Rs.200 Crores available to the defendant because of expertise knowledge of the plaintiff?Page 6 of 19
C/FA/3136/2011 JUDGMENT
(3) Whether the plaintiff proves that the defendants were agreed to pay
amount of Rs.4.50 Crores to Sachdeva and Rs.7 Crores to the plaintiff for Professional Service Charge?
(4) Whether the plaintiff proves that after deducting 5% as TDS, the defendants have issued drafts of balance amount of Rs.6.65 Crores? (5) Whether the plaintiff is entitled to get the interest @ 18% p.a. From 6/12/1999 to 6/12/2000, amounting to Rs.1,08,00,000.00 from the defendants?
(6) Whether the plaintiff proves that the plaintiff is entitled to recover the charge for return of the cheque amounting to Rs.10,040,00 from the defendants?
(7) Whether the defendant No.7 H.D.F.C. Bank Ltd. proves that the plaintiff has committed fraud by deliberately misrepresenting the Court by labeling cheques of Current Account of defendant No.1 as Demand Draft or Banker's Cheque?
(8) Whether the defendant No.7 H.D.F.C. Bank Ltd. proves that as there is no privity of Contract between plaintiff and defendant No.7, the suit deserves to be dismissed?
(9) Whether the plaintiff is entitled to recover the suit amount of Rs.7,08,10,040.00 from the defendant No.7 H.D.F.C. Bank Ltd.? (10) Whether the plaintiff is entitled to get the interest @ 18% p.a. On decretal amount from the date of filing the suit till its realization from the defendant No.7 H.D.F.C. Bank Ltd.?
(11) Whether the plaintiff is entitled to get the relied as sought for? (12) What order and decree?"
9. The issues were answered in the following manner:-
"(1) In affirmative.
(2) In negative.
(3) In negative.
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C/FA/3136/2011 JUDGMENT
(4) In negative.
(5) In negative.
(6) In negative.
(7) In affirmative.
(8) In affirmative.
(9) In negative.
(10) In negative.
(11) In negative.
(12) As per final order.
10. Learned Judge held that the instruments were cheques, and were not demand drafts. The plaintiff could not prove that the instruments contained wrong transaction code. In the statutory notice as well as criminal complaints filed by the plaintiff under Section 138 of the Act, he described the instruments as cheques and not demand drafts. It showed that he was from the beginning aware that the instruments in question were cheques, since no complaint for cheque bouncing would lie if the instruments were in the nature of demand drafts. Interalia on such grounds, the suit was dismissed.
11. Learned advocate Mr. Mehul S. Shah for the plaintiff painstakingly took us through the evidence on record. On the basis of such evidence oral as well as documentary, the counsel vehemently contended that the instruments in question were demand drafts and not account payee cheques as contended by the H.D.F.C. Bank. The plaintiff had an Page 8 of 19 C/FA/3136/2011 JUDGMENT agreement with Charotar Bank for payment of commission for procuring sizeable amounts of investments. To discharge such liability Charotar Bank had issued demand drafts. It would thereupon not open for the H.D.F.C. Bank to stop payment, even on instructions from Charotar Bank, if any, were issued.
12. He placed heavy reliance on the deposition of the plaintiff (Exh.219) to contend that the instruments in question were in the nature of demand drafts. Counsel drew our attention to Sections 6 and 85A of the Negotiable Instruments Act to canvas that there is a clear distinction between a cheque and a demand draft. Counsel further submitted that the Charotar Bank had an authority to issue such demand drafts on behalf of the H.D.F.C. Bank as per their bilateral relations. Merely because the instrument carried a certain code by itself would not establish the nature of such instrument. Counsel further submitted that the H.D.F.C. Bank did not lead any rebuttal evidence. No documents were produced. No witness was examined.
13. In support of his contention, counsel relied on the decision in the case of Vidhyadhar Vs. Manikrao and other reported in AIR 1999 SC 1441 and Prem Sagar vs Shri Darbari Lal And Ors reported in AIR 1999 SC 1341 to contend that in view of no rebuttal evidence on the part Page 9 of 19 C/FA/3136/2011 JUDGMENT of the H.D.F.C. Bank the court should draw an adverse inference. The defence raised by the Bank was not genuine.
14. Reliance was placed on the decision of the Supreme Court in the case of Ramlal Onkarmal Firm and another v. Mohanlal Jogani Rice and Atta Mills reported in AIR 1965 SC 1679 to contend that in case of a demand draft, it is not open for the payee bank to refuse to pay the amount indicated.
15. Decision in the case of Raghavendrasingh Bhadoria v. State Bank of Indore and others reported in AIR 1992 M.P. 148 was cited, in which the Division Bench of the Madhya Pradesh High Court had highlighted the distinction between a demand draft and a cheque.
16. On the other hand, learned counsel Shri Anip Gandhi for the H.D.F.C. Bank opposed the appeal contending that the trial court had appreciated the evidence on record correctly, and come to the conclusion that the plaintiff had attempted to mislead the court by trying to establish that the instruments were demand drafts, and were in fact to the knowledge of the plaintiff MICR cheques. He submitted that the Reserve Bank of India guidelines are binding on all Banks. The code No. 19 contained in the cheques indicated that they were not demand drafts. He Page 10 of 19 C/FA/3136/2011 JUDGMENT further submitted that the H.D.F.C. Bank was under instructions to stop payment from Charotar Bank, the drawer of the cheques. The plaintiff himself has described such instruments as cheques in his notices and complaints for dishonour of the cheques under Section 138 of the Negotiable Instruments Act.
17. Few things are quite clear and possible of a summary discussion. Firstly, it is undisputed that the Charotar Bank issued six different instruments in favour of the plaintiff. Total payment amount covered under such instruments came to be Rs.6.00 cr. They were drawn on H.D.F.C. Bank. Such instruments on presentation at Baroda Branch of the plaintiff's Bank were returned with instructions that they are payable only at New Delhi. When presented at New Delhi, the H.D.F.C. Bank refused to pay the amounts indicated on the ground that the drawer, i.e. Charotar Bank, had instructed the H.D.F.C. Bank to stop payment.
18. It is true that the H.D.F.C. Bank has not led any evidence by either examining witness or proving the documents. According to H.D.F.C. Bank, by the time the instruments were presented at New Delhi by the plaintiff, H.D.F.C. Bank received notification from Charotar Bank instructing it to stop payment. Proof of these allegations would have been vital, and it would have been necessary to go into the reasons why Page 11 of 19 C/FA/3136/2011 JUDGMENT the Charotar Bank asked the H.D.F.C. Bank to stop payment, or in fact, more fundamentally, whether Charotar Bank at all so instructed the H.D.F.C. Bank. However, the plaintiff has never questioned this part of the stand of the H.D.F.C. Bank. The plaintiff has never contended in any proceedings or his evidence that even if the instruments were in the nature of cheques, in absence of any instructions from Charotar Bank to H.D.F.C. Bank to stop payment, or for such any other reason, the H.D.F.C. Bank could not have refused to pay up the amounts indicated in such instruments. It was, therefore, that the trial court did not raise any issue on this aspect. In fact, right from the inception, the stand in the plaintiff's summary suit has been that the instruments were in the nature of demand drafts, and therefore, it would simply not be open to H.D.F.C. Bank to refuse to pay the same, notwithstanding any contrary instructions from Charotar Bank. We will have to, therefore, test the plaintiff's entire argument on such basis. In other words, as stated in the very beginning, the plaintiff must fail or succeed on the question whether the instruments in question were in the nature of cheques or demand drafts. If such instruments are established to be cheques, the H.D.F.C. Bank owed no duty to the plaintiff to release the amounts in the face of the unquestioned instructions from the Charotar Bank, which aspect the plaintiff has never questioned. On the other hand, if the instruments are shown to be demand drafts, the H.D.F.C. Bank could not have stopped payment, even Page 12 of 19 C/FA/3136/2011 JUDGMENT under the instructions from the Charotar Bank. The plaintiff cannot succeed on the H.D.F.C. Bank not leading any evidence. The Bank cannot be expected to prove what was not at issue. The plaintiff must stand on his strength of evidence.
19. There is a clear distinction between a cheque and a demand draft beyond any dispute. Section 6 of the Act defines cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and includes electronic image of a truncated cheque and cheque in the electronic form. On the other hand though there is no formal definition of demand draft under the Act, Section 85A thereof pertains to drafts drawn by one branch of a bank on another payable to order. It provides that where any draft, that is an order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be endorsed by or behalf of the payee, the bank is discharged by payment in due course. This Section highlights the principle that once the Bank issues a demand draft, it is obliged to pay the amount covered under such instrument, and qua the drawer of the demand draft, the Bank would be discharging in due course upon such payment. The distinction between the two instruments was succinctly brought out by the Madhya Pradesh High Court in its judgment in the case of Raghavendrasingh Bhadoria Page 13 of 19 C/FA/3136/2011 JUDGMENT (Supra). In such decision, it was observed as under:
"6. Examining the petitioner's case in the light of the aforesaid legal position, we find that on the ground that the drafts were lost, the petitioner was entitled to get the payment of drafts stopped as against strangers. He could not, however, ask the Bank not to pay even the payee or any other holder in due course. The Marwadi Road Branch of State Bank of Indore was, therefore, right in refusing to stop payment when the drafts were presented by the payee. The decision of the Supreme Court in M/s. Hyderabad Commercials (supra) has no application to the facts of this case. In that case a huge amount was transferred unauthorisedly by the Bank from account of one customer to another. In paragraph 5 of the judgment it was observed as follows:--
"Since the basic facts regarding the unauthorised transfer of the disputed amount from the appellant's account as well as the Bank's liability was admitted, there was no justification for the High Court to direct the appellant to file suit on ground of disputed question of fact. The respondent Bank is an instrumentality of the State and it must function honestly to serve its customers."
Thus the basic facts that the transfer was unauthorised and the Bank was liable were admitted in that case. In the present case, the petitioner started with loss of drafts and did not explain as to how the payee could be stopped from enforcing payment on the basis of drafts drawn in his favour. The case has, therefore, no application to the present one."
20. In this context, therefore, we may assess the evidence on record. The plaintiff was examined at Exh.219. In his sworn affidavit, he stated that Charotar Bank had issued the demand drafts drawn on H.D.F.C. Bank towards the payment of the office bill dated 20 th November 1999. Page 14 of 19
C/FA/3136/2011 JUDGMENT He is, therefore, entitled to such payments from the H.D.F.C. Bank. Though such demand drafts were issued by the Charotar Bank, the same was done under an authority given to Charotar Bank by the H.D.F.C. Bank. The H.D.F.C. Bank had illegally stopped the payment of the demand drafts when presented. He stated that Charotar Bank had no authority to instruct H.D.F.C. Bank to stop payment. He tried to point out that in number of cases the directions of the Reserve Bank of India for specific code numbers is not maintained by different Banks. He was cross-examined at length by the advocate of the H.D.F.C. Bank.
21. One Prashant Purohit, witness No.2 was examined at Exh.235. His evidence was confined to the question of correct code numbers of different banking instruments. For the same purpose, the plaintiff also examined one Nitin Jain, an Officer of the Reserve Bank of India.
22. The instruments in question were produced at Exhibit 184 onwards. If we peruse the instrument at Exh.184 more closely, it shows that at the top following words are typed, "PAYABLE AT PAR AT ALL BRANCHES OF HDFC BANK". On the left hand top corner, it carries an endorsement "A/C PAYEE". It shows an A/c No. 0060269234008. It carries a code No. 019. It is signed on behalf of Charotar Nagarik Sahakari Bank Ltd. These features are common in all instruments. Page 15 of 19
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23. This in a nutshell is the relevant evidence out of the bulky evidence produced before the court below. From the outset, the plaintiff has been contending that these instruments are demand drafts. It is stoutly opposed by the H.D.F.C. Bank, which, with equal vehemence, contends that the instruments are in the nature of MICR cheques. Though at an isolated place here or there in the pleadings, H.D.F.C. Bank has referred to the instruments as drafts, this must be viewed as mere slip of pen, and would in no manner is conclusive of the nature of the instruments nor in the face of its repeated assertion from the very beginning can be stated to be an admission. Equally, merely because the plaintiff has along with filing a summary suit also instituted proceedings under Section 138 of the Negotiable Instruments Act, 1881 against Charotar Bank and its office bearers, would be conclusive of his opinion that the instruments were cheques. Even if the prime contention of the plaintiff was that the instruments were demand drafts, he cannot be left with no remedy if ultimately it is held that the instruments were cheques and not demand drafts, and by the time this finding is arrived at, his option under Section 138 of the Act would have long become time-barred. His following two parallel remedies was in the nature of an alternative available to him under law, and cannot be stated as an estoppel or admission on his part. Page 16 of 19
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24. Though the plaintiff has, in the suit as well as in his deposition, contended that the instruments were demand drafts, in our opinion, he completely failed to establish this fact. From the very face of it, the instruments were in the nature of cheques. They were drawn by the Charotar Bank payable at par on all branches of the H.D.F.C. Bank. The cheques were specifically made account payee. Cheques were drawn on an account number, which, as pointed out by H.D.F.C. Bank, was a current account opened by the Charotar Bank. The instruments do not contain any description that they are demand drafts.
25. Quite apart from the statutory distinction between a cheque and a demand draft, which would emerge from the comparison of Section 6 and 85A of the Negotiable Instruments Act by virtue of directives of the Reserve Bank of India, the practice and procedures followed by different Banks consistently, and the conventions emerging over a period of time that the trade and business people using banking facilities, a clear distinction between an account payee cheque and a bank draft has come to be recognized. A demand draft is issued by the Bank payable to the person indicated in the instrument, and is usually non-transferable. It is issued by the bank upon recovery of the full amount of demand draft and therefore realisation of it does not depend on the balance of the account holder. A cheque on the other hand is drawn by the account holder on the Page 17 of 19 C/FA/3136/2011 JUDGMENT cheque issued by the bank, clearance of which depends on the availability of balance in the account of the drawer of the cheque. In the present case, there is no indication whatsoever why such instruments should be treated as a demand draft. As noted earlier, the same is described as an instrument payable to account payee at par at all branches of the H.D.F.C. Bank. It is drawn by the Charotar Bank, and not by the H.D.F.C. Bank. It is issued from the account number, which is a current account, which Charotar Bank had opened with the H.D.F.C. Bank. Though not conclusive, additional feature is that it contains code No. 19, where the code No.16 is stated to be prescribed for demand drafts. These instruments also carried specific cheque numbers.
26. Reliance is placed by the counsel for the appellant on the provisions of Section 26 and 27 of the Act on the question of alleged authority of the Charotar Bank to issue such demand drafts, in view of the above discussion, becomes redundant. Section 26 of the Act provides that every person capable of contracting, according to the law to which he is subject, may bind himself, and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. Section 27 in turn provides that every person capable of binding himself or of being bound, as mentioned in section 26, may so bind himself or be bound by a duly authorised agent acting in his Page 18 of 19 C/FA/3136/2011 JUDGMENT name. It was on this ground, counsel for the appellant had contended that the Charotar Bank was authorised by H.D.F.C. Bank by virtue of their bilateral relations to draw the demand draft directly. Since we hold that the instruments in questions were not demand drafts, the question of who could have drawn such instruments becomes insignificant.
27. For the reasons stated above, we do not find that the trial court committed any error in dismissing the suit. For the reasons which we have independently recorded, we confirm the judgment of the trial court and dismiss the appeal. Record and Proceedings to be transferred to the trial court.
(AKIL KURESHI, J.) (VIPUL M. PANCHOLI, J.) sndevu Page 19 of 19