Kerala High Court
Kannur District Co-Operative Bank Ltd. vs Kerala State Co-Operative Marketing ... on 21 January, 2003
Equivalent citations: II(2003)BC274, [2004]118COMPCAS383(KER), 2003(1)KLT734, [2003]46SCL96(KER)
JUDGMENT R. Rajendra Babu, J.
1. The 1st defendant, the Cannanore District Co-operative Bank Ltd., Cannanore Branch, in O.S. No. 339/83 before the Sub Court, Tellicherry, is the appellant. The plaintiff, Kerala State Co-operative Marketing Federation, Kochi, filed the suit for realisation of money due under two cheques. The court below decreed the suit. Aggrieved by the above judgment and decree, the 1st defendant filed this appeal.
2. The plaintiff Co-operative Marketing Federation was supplying fertilizers to defendants 2 and 3 viz. Pattannur Service Co-operative Bank Ltd., Pattannur, and Aichoor Service Co-operative Bank Ltd., Aichoor, respectively. Towards the value of the fertilizer, the 2nd defendant had issued a cheque for Rs. 19003.42 and the 3rd defendant for Rs. 9970.76 in favour of the plaintiff. Defendants 2 and 3 were having accounts with the 1st defendant bank and both the above cheques were drawn on the 1st defendant bank. The plaintiff received both the cheques. When those cheques were forwarded to their head office by post, the above cheques were stolen and the name of the payee was defaced and altered and forged in the name of the 4th defendant viz. K.S. Marar. The 4th defendant was holding an account with the 1st defendant. The above two cheques were encashed by the 4th defendant through the 1st defendant. It was alleged that the above defaced and forged cheques were encashed by the 4th defendant only because of the negligence on the part of the 1st defendant and hence the plaintiff filed the suit claiming the amount covered by those two cheques with interest thereon from the 1st defendant.
3. The 1st defendant in the written statement contended that both the cheques were issued in the name of K.S. Marar and there was no evidence of any defacement or forging of the cheques and as such the above cheques had been collected in the account of the 4th defendant and was encashed by him. There was no apparent alteration or forging of the cheque which could be detected. The allegation that K.S. Marar was a fictitious person was incorrect and an account was opened in the name of K.S. Marar as he had been introduced by K.P. Madhavan, Secretary of Puzhathi Service Co-operative Bank, and the above society was a customer of the 1st defendant. The 1st defendant had taken due care and caution and had made reasonable scrutiny and had acted in good faith without any negligence and as such the 1st defendant was not liable for the plaint claim. It was further contended that the plaintiff should have been more careful in handling the cheques and the defendant was not guilty of any negligence in encashing the cheques.
4. Defendants 2 and 3 filed separate written statements contending that they had issued the cheques in favour of the 1st defendant and not in favour of Sri. K.S. Marar. The amounts due to the plaintiff towards the value of the fertilizer supplied by the plaintiff was paid by crossed cheques and the cheques had been defaced and altered or forged in the name of the 4th defendant.
5. The summons issued to the 4th defendant Sri. K.S. Marar was returned with an endorsement that the addressee was not known and even after paper publication the 4th defendant did not enter appearance. It appears, the 4th defendant is a fictitious person. The court below had framed five issues. P.W. 1 was examined and Exts. A1 to A14 were marked on the side of the plaintiff. On the side of the 1st defendant D.Ws. 1 and 2 were examined and Exts. B1 to B5 were marked. Exts. X1 to X4 were also marked. After considering the entire evidence the court below found that the 1st defendant was negligent in opening an account in the name of the 4th defendant and encashing the cheques and the 1st defendant was not entitled to the protection under Section 131 of the Negotiable Instruments Act and accordingly the suit was decreed.
6. Heard the learned counsel for the appellant and the 1st respondent.
7. The only point for consideration is whether the appellant bank was entitled to the protection under Section 131 of the Negotiable Instruments Act. The plaintiff (for the sake of convenience the parties are referred to as plaintiff and defendants as arrayed in the plaint) was supplying fertilizers to defendants 2 and 3 societies and towards the value of the same defendants 2 and 3 had issued Exts. X1 and X2 cheques respectively. Defendants 2 and 3 contended that the above cheques (Exts. X1 and X2) were issued in the name of the plaintiff, but the above cheques were defaced and forged in the name of the 4th defendant one K.S. Marar. On going through the above cheques, by a perusal it is not possible to find out or suspect any defacement or alteration. But the evidence let in by the plaintiff and the counterfoils of those cheques would reveal that those cheques were drawn in the name of the plaintiff and the plaintiff received the above cheques. But later, when those cheques along with other cheques were sent to the head office by ordinary post, those cheques were stolen and defaced and forged in the name of the 4th defendant K.S. Marar and those were presented by K.S. Marar before the 1st defendant bank. Defendants 2 and 3 were having their accounts with the 1st defendant and the 1st defendant was the drawee bank in respect of both the cheques. The 4th defendant was having an account with the 1st defendant and the 4th defendant presented the above forged cheques for encashment and the 1st defendant collected the amount and the amount was withdrawn by the 4th defendant. Though the 1st defendant-appellant claimed protection under Section 89 of the Negotiable Instruments Act, I do not think that Section 89 can have any application in the present case, as both the cheques were crossed cheques. It was not a case of paying the amount on presentation of the cheques, but it was a case where the amount had been collected by the collecting bank and then encashed.
8. The learned counsel for the appellant argued that the appellant bank was entitled to the protection under Section 131 of the Negotiable Instruments Act. Section 131 of the Negotiable Instruments Act reads:
"Non-liability of banker receiving payment of cheque.- A banker who was in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment."
Admittedly the defacement and forgery were not easily ascertainable by a perusal of the cheques. Only through careful verification under ultra violet rays the defacement could be detected. Admittedly such an examination under ultra violet rays was not adopted before collecting the amount covered by the cheques. Prima facie there was no reasons for suspecting any alteration and defacement and hence the 1st defendant bank had collected the amount and credited in the account of the 4th defendant. It was a case where the drawee bank as well as the collecting bank of the 4th defendant was the same. So the 1st defendant had only to verify the accounts of defendants 2 and 3 and to make book entries and credit the amount in the account of the 4th defendant.
9. The court below had found the 1st defendant liable for the amount mainly on the ground that the 1st defendant was negligent in permitting the 4th defendant, a fictitious person, to open an account in the bank without proper care and introduction. When a defence under Section 131 of the Act was raised, the primary question for consideration was whether in the matter of realisation of the cheque the collecting bank had received the payment in good faith and acted without negligence. The question whether the bank had acted with negligence in the opening of the account would also be relevant under Section 131 of the Act to the extent that if the opening of the account and the deposit of the cheque were really part of one scheme as where the account itself was opened with the cheque in question or whether the cheque was put into the account so shortly after the opening of the account. The learned counsel for the 1st defendant-appellant placed reliance on a decision of this Court in State Bank of India v. Kerala State Co-op. Marketing Federation (1995 (2) KLJ 621). That was a case where a cheque issued in favour of the same plaintiff viz. the Kerala State Co-operative Marketing Federation had been stolen, defaced and forged in the name of one Narayanan and presented for collection and the amount was collected and a portion of the amount had been withdrawn by the aforesaid Narayanan. In the above case this court held that the collecting bank was entitled to the protection under Section 131 of the Negotiable Instruments Act as the bank had acted in good faith and without negligence. There also an account was opened in the name of Narayanan who had been introduced by an account holder. After five days of the opening of the account, Narayanan presented a cheque for Rs. 1 lakh and the collecting bank had collected the amount and Narayanan had withdrawn Rs. 50000/- from the account. Later it was revealed that the above cheque was a defaced and forged one and that Narayanan was a fictitious person. But in the above case the opening of the account and the presentation of the cheque after five days was not treated as part of the same scheme and therefore the bank was found entitled to the protection under Section 131 of the Act. In the present case the facts are different. One K.S. Marar filed Ext. Bl application before the 1st defendant bank on 29.12.1982 for opening an account. The name K.S.Marar and the address had been written in capital letters. His signatures on the application, in fact, differed from his specimen signatures. In the column "introduced by", the name of one M.P. Madhavan, Puzhathi, Secretary, was shown. Neither the address of M.P. Madhavan nor his account number had been mentioned in the application. No evidence was there to show that M.P. Madhavan was present and he introduced Sri. K.S. Marar. "Marar" is not the name of a person. The 1st defendant did not care to get or ascertain the full name of the 4th defendant. Even without ascertaining his full name and without proper introduction, an account was allowed to be opened. When the application filed by K.S. Marar was not complete in all respects, the 1st defendant should have made an enquiry regarding his identity. On the next day itself K.S. Marar produced Exts. X1 and X2 cheques for a huge sum of money. Immediately the amounts covered by the cheques were collected and disbursed to K.S. Marar. In the nature of the procedure adopted by the 1st defendant, it cannot be said that the 1 st defendant acted in good faith and without negligence. The opening of the account and the presentation of the cheques on the next day in fact formed part of the same scheme and as such the 1st defendant should have been more cautious in collecting the amounts due as per the cheques and disbursing to K.S. Marar. The learned counsel for the plaintiff placed reliance on the decision of the Madras High Court in Bharat Bank Ltd. v. Kishinchand Chellaram (AIR 1955 Madras 402) wherein it was held:
"When in an action in conversion a defence is raised under Section 131, the primary question for determination is whether in the matter of realisation of the cheque the collecting bank had acted without negligence - negligence not merely at the stage of encashment but at the prior stages from the receipt of the cheque in question.
The question whether the bank had acted with negligence in the opening of the account will, however, be relevant under Section 131 to this extent that if the opening of the account and the deposit of the cheque are really part of one scheme, as where the account itself is opened with the cheque in question where it is put into the account so shortly after the opening of the account as to lead to the inference that it is part of it, the negligence in the matter of opening the account must be treated as negligence in the matter of realisation of the cheque."
The above decision had been relied on by a Division Bench of this Court in Central Bank of India Ltd. v. Gopinathan Nair (1972 KLT 518) where it was held:
"We are, therefore, of the same opinion as the one expressed by Venkatarama Aiyar, J. in the Madras Division Bench ruling cited above regarding the opening of the account, namely, that, if there is a connection between the cashing of the cheque and the opening of the account, to that extent alone the defect in the opening of the account should reflect on the cashing of the cheque - not otherwise. We however, make it clear that the opening of the account and the peculiarity of operating the same may also reflect on the cashing of the cheque, but how far should depend upon the circumstances of each case. And we also repeat the observation of Lord Dunedin in the case noted above that "if it was laid down that no cheque should be collected without a thorough enquiry as to the history of the cheque it would render banking business as ordinarily carried on impossible; customers would often be left for long periods without available money."
The above decision was again relied on by a Division Bench of the Madras High Court in The Vysya Bank Ltd. v. Indian Bank (AIR 1988 Mad. 256). There it was held that the question whether the bank had acted with negligence in opening an account would be relevant under Section 131 to the extent that if the opening of the account and the deposit of the cheque were really part of one scheme as where the account itself was opened with the cheque in question or where it was put into the account so shortly after the opening of the account as to lead to the inference that its part of it. Then negligence in the matter of opening of the account must be treated as negligence in the matter of realisation of the cheque.
10. An argument was advanced by the learned counsel for the 1st defendant that the plaintiff also was equally negligent in sending the cheques by ordinary post instead of sending them by registered post. It is true that there was negligence on the part of the plaintiff also. But contributory negligence is not a defence open to the 1st defendant and as such the above contention cannot be accepted. Here, the 1st defendant was negligent in permitting the 4th defendant to open an account without proper introduction and immediately after the opening of the account, two cheques for pretty large amount had been presented. The 1st defendant without taking due care and caution collected the amount and allowed the 4th defendant to encash. Hence there was negligence on the part of the 1st defendant and the 1st defendant was not entitled to the protection under Section 131 of the Negotiable Instruments Act. The court below had considered the evidence and circumstances and properly held that the 1st defendant was not entitled to protection under Section 131 of the Act and accordingly the suit was decreed. I find no reasons to interfere with the above findings or the judgment and decree and as such this appeal has only to be dismissed.
In the result this appeal is dismissed. Considering the nature and circumstances, the parties shall bear `their respective costs.