Kerala High Court
State Bank Of India vs South Indian Bank Ltd on 20 January, 2020
Author: V Shircy
Bench: V Shircy
A.S.222/2002
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MRS. JUSTICE SHIRCY V.
MONDAY, THE 20TH DAY OF JANUARY 2020 / 30TH POUSHA, 1941
AS.No.222 OF 2002(C)
AGAINST THE JUDGMENT AND DECREE IN OS 201/1999 DATED 31-03-2001
OF I ADDITIONAL SUB COURT, KOZHIKODE
APPELLANTS/1ST DEFENDANT:
STATE BANK OF INDIA,MAIN BRANCH,
CALICUT-1, REPRESENTED BY ITS, ASST. GENERAL
MANAGER.
BY ADVS.
SRI.GEORGE THOMAS (MEVADA)(SR.)
RESPONDENTS/PLAINTIFF/2ND DEFENDANT:
1 SOUTH INDIAN BANK LTD
REPRESENTED BY ITS BRANCH MANAGER,
MAHE BRANCH.
2 ISMAIL AHAMMED ALI DEYABE
FATHER'S NAME NOT KNOWN, AGED ABOUT 35 YEARS,
ROOM NO.205, HOTEL MUGAL, M.M. ALI RAOD, CALICUT.
R1 BY ADV. SRI.GEORGE VARGHESE MANACHIRACKEL
R1 BY ADV. SRI.P.R.MILTON
THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 18-11-2019,
THE COURT ON 20-01-2020 DELIVERED THE FOLLOWING:
A.S.222/2002
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JUDGMENT
Dated this the 20th day of January 2020 The main Branch of State Bank of India, Calicut (hereinafter referred to as 'SBI' ) is challenging the judgment and decree in O.S. No. 201 of 1999 on the file of the Subordinate Judge, Kozhikode, filed by the Mahe Branch of South Indian Bank.
2. The plaint averment unfurls that the 2 nd defendant ,a foreign national, opened a Savings Bank Account in SBI in the year 1996. Later he presented five Demand Drafts issued by Abu Dhabi Commercial Bank for collection. The South Indian Bank had foreign exchange facility with the Abu Dhabi Commercial Bank and the drafts were encashed by the South Indian Bank and credited to the account of the 2nd defendant . Later it was informed by the South Indian Bank to SBI that fraud was committed by the foreign national. By that time major portion of the amount was withdrawn by the 2nd defendant.
3. It was alleged by the plaintiff that the SBI had opened the account without making proper enquiries and formalities to be observed in opening an account and the genuineness of the passport of the 2nd defendant was not even verified before opening the account. Thus negligence was committed by the Bank and hence, the plaintiff, A.S.222/2002 3 the South Indian Bank had claimed an amount of Rs.2,15,000/- with interest from the defendants.
4. Per contra, the SBI contended that the account was opened after complying with the required formalities .The two Demand Drafts tendered by the 2 nd defendant issued by the Abu Dhabi Commercial Bank were for Rs.45,000/- (18.3.1996) and Rs.10,000/- (14.3.1996) respectively. SBI accepted it as collection bank and forwarded to South Indian Bank as the bank was having drawing arrangements with Abu Dhabi Commercial Bank and when the proceeds were credited to the account the 2 nd defendant had withdrawn Rs.35,000/- from the account, leaving a balance of Rs.20,000/-. Thereafter, on 8.5.1996, two more Drafts for Rs.50,000/- each were also tendered by the 2nd defendant and those Drafts were sent for collection to South Indian Bank and the proceeds were credited to the account of the 2 nd defendant on 10.5.1996. Thereafter, the 2nd defendant had withdrawn a sum of Rs.1,10,000/-. Then, another draft for Rs.60,000/- was also presented for collection and that was also honoured and the proceeds were credited in the account of the 2 nd defendant on 25.3.1996. Thereafter, on 31.7.1996, SBI received a letter from the South Indian Bank informing that the Drafts were fraudulent drafts and requested to freeze the account of the 2 nd defendant. Immediately, on receipt of A.S.222/2002 4 the letter the account was frozen with a balance of Rs.69,813/-. The present balance with the interest accrued was Rs.80,105.71. In fact, the drafts presented had nothing to suspect on the face of the instrument and hence they were sent for collection. SBI as the collecting Bank had acted in good faith and hence not liable to pay the amount demanded by the South Indian Bank. It was also contended that the plaint claim is barred by limitation.
5. The 2nd defendant, the foreign national, who opened the account in SBI remained ex parte.
6. Before the court below, on behalf of the plaintiff, PW 1 was examined and Exts. A1 to A7 were marked. For SBI, DW1 was examined. After evaluation of the evidence on record, the court below decreed the suit in favour of the plaintiff on the finding that SBI was negligent in opening account for the 2 nd defendant and hence directed the defendants to pay a sum of Rs.3,54,312/- with interest at the rate of 12% from the date of suit till realization. Being aggrieved by the said verdict, SBI has preferred this appeal contending that the Bank is not responsible for the forgery committed by the 2 nd defendant, the account holder. The allegation of negligence in opening an account for him was also denied by the SBI.
A.S.222/20025
7. Heard Adv. Rathish Vijayendran, the learned counsel for the SBI, the appellant and Adv. George Varghese Mecheril, the learned counsel for the 1st respondent, the South Indian Bank.
8. The factual matrix of the case would show that the 2 nd defendant opened an SB Account in the 1st defendant Bank and produced one Demand Draft dated 18.3.1996 for a sum of Rs.45,000/- and another draft dated 14.3.1996 for a sum of Rs.10,000/- on 23.4.1996 immediately after opening the SB Account. The Demand Drafts were forwarded for collection to South Indian Bank , the drawee bank as it was having drawing arrangements with Abu Dhabi Commercial Bank and the proceeds were credited to the account of the 2nd defendant. On 6.5.1996 an amount of Rs.35,000/- was withdrawn by the 2nd defendant leaving a balance of Rs.20,000/- and thereafter, two more drafts were tendered for Rs.50,000/- each and the proceeds were credited in the account of the 2nd defendant on 10.5.1996. An amount of Rs.1,10,000/- was withdrawn by the 2nd defendant and another draft for Rs.60,000/- was also tendered and the proceeds were credited by the South Indian Bank on 25.3.1996. Thereafter, the South Indian Bank intimated that fraudulent Demand Drafts were submitted by the 2 nd defendant for collection. By that time, except an amount of Rs.69,813/-, all the amounts had been withdrawn by the 2 nd defendant and the balance A.S.222/2002 6 with accrued interest in the Bank was Rs.80,105.71.
9. The suit was filed on 16 th June, 1999. The intimation regarding the presentation of the fraudulent draft and request to freeze the account was made by South Indian Bank on 31.7.1996. Hence, the contention raised by the 1 st defendant that the plaint claim is barred by limitation, is without merits .
10. South Indian Bank,the plaintiff had filed the suit for realization of money from SBI the 1 st defendant on the ground that SBI was negligent in opening the account for the 2 nd defendant. Per contra, the SBI denied the allegation of negligence and is seeking protection under Section 131 of the Negotiable Instruments Act.
11. DW 1, the then Deputy Manager of SBI, testified that the 2nd defendant, a foreign national, approached the Bank with a request to open the account on 23.4.1996 stating that he had secured admission in the Regional Engineering College, Kozhikode (REC). He presented his original passport, visa etc and in compliance of QA 22, account was started in compliance of the directions of the Bank. The entire details required had been furnished by the 2 nd defendant with his permanent and local address and after verifying the documents produced by the 2nd defendant and that too after proper verification of the Emigration seal, the account was opened. DW 1 had further A.S.222/2002 7 deposed that QA 22 account is maintained for foreign nationals and it is not merely for encashment of draft. Therefore, the entire documents submitted by 2nd defendant were verified by SBI in compliance with the formalities for opening account for foreign nationals and with good faith the said account was opened in his name. At the time of opening the account, it was informed by the 2 nd defendant that his brother, who was working in Abu Dhabi, was providing financial assistance to him to pursue his studies in REC, Kozhikode. So the first two Drafts were forwarded to South Indian Bank and they in turn credited the proceeds in the account of 2 nd defendant and he had withdrawn the amount. Later, two more drafts were tendered and those drafts were also forwarded to the South Indian Bank, Mahe Branch and the proceeds were credited in his account. Thereafter, another draft was presented and the proceeds were credited by the South Indian Bank, Mahe Branch. He further testified that there was no arrangements or facilities to verify the draft by SBI the collecting bank , as such facilities were available only with the drawee branch where the signatory code, specimen signature etc were available to verify the same with the draft and normally only after verifying the specimen signature, signatory code etc., encashment will be effected. On receipt of the proceeds in the account of the 2 nd defendant he had withdrawn the amount but immediately on receipt of intimation from South Indian Bank on 31.7.1996, SBI freezed the A.S.222/2002 8 account and thereafter the 2nd defendant was not permitted to withdraw the amount and thus with interest a sum of Rs.69,813/- is available in the account of the 2 nd defendant. So, the definite case of the 1st defendant is that the account was opened after complying with all the formalities required for a foreign national to open an account in a Bank in India and the Bank had acted in good faith and no suspicious circumstance was found in the drafts tendered by the 2 nd defendant for collection. As the collecting Bank SBI had acted in good faith and there was absolutely no negligence in permitting the 2 nd defendant to open the account or to withdraw the amount in the drafts tendered by him on various dates. In short, the definite contention taken by the SBI was that they were not at all negligent in the above transaction and they had no equipments, details or data available with them to verify the drafts tendered by the 2nd defendant and prima facie they were satisfied with the drafts tendered by him as no suspicious circumstance was apparently found when the drafts were tendered by the 2nd defendant. In this backdrop, it is necessary to refer Section 131 of the NI Act which reads as under:
"131. Non-liability of banker receiving payment of cheque A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself, shall not, in case the title to the cheque proves A.S.222/2002 9 defective, incur any liability to the true owner of the cheque by reason only of having received such payment.
Explanation I : A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of the cheque before receiving payment thereof.
Explanation II: It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care."
12.The legal principles governing the liability of a collecting banker are settled by the Apex Court in Kerala State Co- operative Marketing Federation v. State Bank of India [2004(1) KLT 1117 (SC)] and held as follows in para no.16 "16. The principles governing the liability of a collecting banker have also been extracted in the impugned judgment. They read as follows:
"(1) As a general rule the collecting banker shall be exposed to his usual liability under common law for conversion or for money had and A.S.222/2002 10 received, as against the 'true owner' of a cheque or a draft, in the event the customer from whom he collects the cheque or draft has no title or a defective title.
(2) The banker, however, may claim protection from such normal liability provided he fulfils strictly the conditions laid down in S.131 or S.131A of the Act and one of those conditions is that he must have received the payment in good faith and without negligence.
(3) It is the banker seeking protection who has on his shoulders the onus of proving that he acted in good faith and without negligence.
(4) The standard of care to be exercise by the collecting banker to escape the charge of negligence depends upon the general practice of bankers which may go on changing from time to time with the enormous spread of banking activities and cases decided a few decades ago may not probably offer an unfailing guidance in determining the question about negligence today.
(5) Negligence is a question of fact and what is relevant in determining the liability of a collecting banker is not his negligence in opening the account of the customer but negligence in the collection of the relevant cheque unless, of course, the opening of the account and depositing of the cheque in question therein form part and parcel of one scheme as where the account is opened with the cheque in question or deposited therein so soon after the opening of the account as to lead to an inference that the depositing the cheque and opening the account are interconnected moves in a integrated plan.A.S.222/2002
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(6) Negligence in opening the account such as failure to fulfill the procedure for opening an account which is prescribed by the bank itself for opening an account of an unknown person or non-existing person or with dubious introduction may lead to a cogent, though not conclusive, proof of negligence particularly if the cheque in question has been deposited in the account soon after the opening thereof.
(7) The standard of care expected from a banker in collecting the cheque does not require him to subject the cheque to a minute and microscopic examination but disregarding the circumstances about the cheque which on the face of it give rise to a suspicion may amount to negligence on the part of the collecting banker.
(8) The question of good faith ad negligence is to be judged from the stand point of the true owner towards whom the banker owes no contractual duty but the statutory duty which is created by this section and it is a price which the banker pays for seeking protection, under the statute, from the otherwise larger liability he would be exposed to under common law.
(9) Allegation of contributory negligence against the paying banker could provide no defence for a collecting banker who has not collected the amount in good faith and without negligence."
After evaluation of the entire facts involved held that the Bank has not discharged the burden which lay upon it to show that it had acted in good faith and without negligence.
A.S.222/200212
13. A Division Bench of Delhi High Court (Axis Bank v. Punjab National Bank) ( LAWS (DLH) 2015 (3) 238) considered a similar case where an account was opened to a customer by Axis Bank and draft of Punjab National Bank presented by him were forwarded to for encashment was found as forged after the amount was credited and withdrawn by the customer, and resisted the claim claiming protection under Section 131 of the Negotiable Instruments Act, relying on the principles governing the liability of a collecting banker laid down by the Apex Court in Kerala State Co-operative Marketing Federation's case (supra ) and held in para No 37 as follows:
"37. Both the DRT and DRAT have returned concurrent findings of fact that the appellant bank had been negligent at the stage of allowing the account to be opened by the second respondent. No introduction from a known customer of the bank was obtained. It appears that the documents submitted as proof of identity were not verified. They have turned out to be fake. Clearly, there was no due inquiry as to the identity or genuineness of the person who opened the account. The plea that the bank, as per the practice adopted, had taken care not to issue the cheque book till the customer appeared with the original letter of thanks sent to the declared address is insubstantial. This, by no stretch of reasoning, can be accepted as due inquiry at the threshold for entertaining a A.S.222/2002 13 new customer."
In paragraphs 41 to 44 it was held as follows:
"41. Whilst we agree that the appellant had been negligent in allowing account to be opened, we are unable to locate on the record any material to show that it had failed to exercise due care in presenting the two demand drafts for collection to PNB. There is no proximate connection between the opening of the account or the deposits of the forged instruments so as to treat the said events as intimately associated with each other. There is no undue hurry shown by the fraudster in making the withdrawals. It is not the case of PNB that the forgery could have been detected by the collecting bank from the face of the instruments. The fact that the forgery could not be detected by the Centralized Draft Payable Centre of PNB itself shows that the collecting bank could not have entertained any doubts as to the genuineness at the time of receiving the drafts from the customer or for making them over to the drawee bank for collection. The DRAT has found PNB also to have been negligent in these transactions. There is reference to evidence indicating that draft forms had been lost by PNB in some incident of dacoity. With this as the backdrop, the officials at the clearing house representing the PNB would have been on guard and, thus, clearly neglected their responsibility of due scrutiny. The hurried manner in which remittances were made to the appellant bank on the same date as of the respective presentation of the two forged instruments speaks A.S.222/2002 14 volumes as to the failure of claimant PNB to exercise appropriate standards of care.
42. It needs to be noted that the appellant bank gave credits and allowed withdrawal of the money only after receiving the credits from PNB. With no input available to the collecting bank as to the possibility of forgery, there was no reason for it to be abnormally suspicious or to question the customer as to his title to the money represented by the demand drafts. In receiving the demand drafts from the customer and in presenting it to the bank on which they purported to have been drawn, it was only acting in the course of its banking business as the agent for such customer. In absence of any nexus between the two stages of the process, negligence cannot be attributed to the appellant in the context of collection of the money against the forged instrument only on the basis of the fact that there had been negligence on its part in allowing the account to be opened.
43. In the result, we are of the view that the petitioner bank has been wrongly denied the benefit of immunity as a collecting banker under Section 131 of the Negotiable Instruments Act. We find the conclusions reached by the two authorities below on the question of complicity of the petitioner bank in wrongful loss suffered by the first respondent to be perverse. The findings to such effect rendered by the two forums below, and the liability fastened on the petitioner in wake thereof are manifestly erroneous and, A.S.222/2002 15
43. thus, liable to be set aside. We order accordingly. Needless to add that the DRT shall appropriately rectify the recovery certificate in light of this result.
44. Before we part, we must add that the authorities below have failed to take note of the fact that there is a possibility of part of the loss suffered by the first respondent being made good from out of the outstanding balance in the bank account opened by the second respondent with the petitioner bank on the basis of fake identity. The said account was frozen, upon intimation of the forgery, on 27.12.2001. As per the material on record, on the date of the account being frozen, there was an outstanding balance of Rs. 1,96,351/- lying therein. The said amount would have earned interest over the period. The said money forms part of the money wrongfully obtained in the said account. It rightfully belongs to the first respondent. The bank is directed to remit the outstanding balance in the said account (inclusive of up-to-date interest) to the first respondent forthwith, under intimation to the DRT (and Recovery Officer)."
14. On a meticulous evaluation of the facts involved in this case, in the light of the principle laid down by the Apex Court in Kerala State Co-operative Marketing Federation's case (supra) and decision rendered (Axis Bank's case ( LAWS (DLH) 2015 (3) 238) by the Division Bench of Delhi High Court in a similar case, I find that the findings entered by the court below that SBI, the collecting Bank A.S.222/2002 16 was negligent and hence responsible to compensate the South Indian Bank and thereby, liable to pay Rs.3,54,312/- with 12% interest, is liable to be interfered with. The evidence of DW1 would clearly indicate that reasonable care and vigilance was taken by SBI and no input was available to check the possibility of forgery in the drafts presented. There was also no reason to be abnormally suspicious to doubt the customer or to question him with respect to the title of the drafts presented by him. It is also important that the amount was allowed to be withdrawn only after receiving the credits from South Indian Bank. As the collecting bank is the agent for collection and acted in good faith, is definitely entitled to get protection under 131 of the Negotiable Instruments Act. But on the other hand South Indian Bank as the drawee branch had all the details including the signatory code, specimen signature and other details to verify the correctness of the draft but, it appears that such an exercise was not performed before crediting the amount in the account of the 2 nd defendant. Normally only after verifying the specimen signature, signatory code etc, encashment will be effected. It needs to be noted that ,the burden to prove that the South Indian Bank have verified all the inputs or details before encashment of the drafts, was not seen discharged. Therefore,negligence can be attributed on the side of South Indian Bank.
A.S.222/200217
15. However, the amount of Rs.80,105.71 and interest now in the account of SBI is the money of the South Indian Bank and no doubt ,it has to be returned to the true owner.
In the result, the judgment and decree under challenge are set aside and the appeal is allowed. The amount of Rs.80,105.71 with up-to-date interest shall be returned to the plaintiff, the South Indian Bank, within one month of receipt of the copy of this judgment. The parties shall bear their respective costs.
Sd/-
SHIRCY V. JUDGE sb