Madras High Court
Canara Bank vs Vijaya Bank on 1 October, 1991
Equivalent citations: (1992)1MLJ636
JUDGMENT Abdul Hadi, J.
1. This appeal by the plaintiff-Canara Bank is against the dismissal of its suit O.S. No. 6148 of 1978 on the file of the 4th Assistant Judge, City Civil Court, Madras, claiming a sum of Rs. 46,486.25 from the defendant-Vijaya Bank.
2. The plaint averments are briefly as follows: The defendant presented, to the plaintiffs branch at Madras, a draft bearing No. 970, dated 2.6.1975 drawn by the plaintiffs Vaniyambadi branch, purported to have been drawn in favour of one N.Krishnamurthy for Rs. 14,500, for clearance. Since the said draft was presented for payment by a banker, notwithstanding the fact that the advice had not been received by the plaintiff from its branch, the payment was made to the defendant by the plaintiff on 3.6.1975, without further scrutiny, according to the apparent tenor of the instrument. When the plaintiff did not receive any advice, it made enquiries with its Vaniyambadi branch and came to know that the said branch had not issued any such draft. On further enquiry and screening of the draft, it was found that the draft with No. 910 issued by the said Vaniyambadi branch for Rs. 40 in favour of one N. Krishnan drawn on Bangalore and not on Madras, was materially altered and forged through chemical process. In a similar manner, the defendant presented at the plaintiffs branch at Madras another draft bearing No. 6152, dated 9.6.1975 drawn by the plaintiffs Tirunelveli town branch, purported to be in favour of one N. Krishnamurthy for a sum of Rs. 16,570, for clearance. Since the draft was presented for payment by a banker, notwithstanding the fact that the advice had not been received by the plaintiff from its Tirunelveli town branch, the payment was made to the defendant, without proper scrutiny, according to the apparent tenor of the instrument, on 11.6.1975. On enquiries, it transpired that the draft was dated 7.6.1975 for Rs. 50 drawn on Madurai in favour of one Krishnaswami and it has been forged materially by chemical process. The plaintiff by its letter dated 1.7.1975 enquired the defendant about the abovesaid facts and pointed out the negligence of the defendant in opening a current account in the name of Krishnamurthy without proper introduction and demanded the return of both the abovesaid sums, that is, in all Rs. 31,070. The defendant denied negligence on its part. But, the defendant had been negligent in allowing the opening of a current account by an unknown person without proper introduction and it was found later that the place of address mentioned by the said person was not of the place of his residence. Since the payments were received under forged instruments, which are void, no right is created under the said instruments in favour of the defendant. Consequently, the defendant is bound to return the abovesaid sums with interest at 161/2 per cent.
3. The averments in the written statement of the defendant may be summarised as follows:
The loss sustained by the plaintiff could have been averted and it would not at all have occurred if the plaintiff had exercised the elementary and obligatory protection of screening the draft with the available sophisticated instrument before payment and awaited the receipt of advice' from its Vaniyambadi and Tirunelveli Branch. The loss in question is not in any way due to the negligence on the part of the defendant. If the drafts in question had been so clearly forged, as to defy detection by the plaintiff, it is equally so, for the defendant who was a collecting banker. The defendant was not negligent in allowing the opening of the current account when there was nothing to evoke any suspicion. If the plaintiff had acted prudently and alerted the defendant, the loss would have been averted. The plaintiff is not entitled to claim any interest on damages.
4. On the above pleadings the following issues were framed:
(1) Was the loss sustained by the plaintiff due to any negligence or misconduct of the defendant?
(2) Could not the plaintiff have averted the loss in question by taking precautions set out in para.3 of the written statement? .
(3) Was not the loss due to negligence and or diligence of the plaintiff?
(4) Is the defendant liable as a collecting banker?
(5) Is the plaintiff entitled to interest?
(6) To what reliefs?
5. The court below held that the loss sustained by the plaintiff was not due to the negligence of the defendant and that the plaintiff could have averted the loss by taking precautions mentioned in the written statement and that the loss was due to the negligence of the plaintiff alone. Therefore the suit was dismissed.
6. Before us, the learned Counsel for the plaintiff-appellant Mr. V. S. Subramaniam, pointed out that before the trial court, both the drafts Exs. A-3 and A-4 were placed under ultra violet lamp in open Court and that both the counsel saw the entries on the draft and agreed that they were originally issued as stated in the plaint. So, the parties are agreed that both the drafts were forged ones and hence void altogether. So, as in the Court below, here also, the submission by the appellant is that since the defendant-bank was negligent in opening current account in the name of the abovesaid Krishnamurthy without proper introduction, it was negligent and hence it should make good the loss caused to the plaintiff and that, therefore, it cannot get protection under Section 131 read with 131-Aof the Negotiable Instruments Act (hereinafter referred to 'as 'the Act'). The learned Counsel for the appellant further submitted that the Court below erred in not following the decision in Indian Bank (Ltd.) v. Catholic Syrian Bank (reported briefly in 1980 T.L.N.J. 23) cited before it, on the ground that the facts in the abovesaid decision were distinguishable from the present facts.
7. In the above referred to India Bank (Ltd.) v. Catholic Syrian Bank , a Division Bench of. this Court held that where a bank (i) allowed a customer to open an account on the recommendation of a customer, who could not be said to be respectable and without testing the credentials of the person desirous of opening the account, and
(ii) sent a crossed demand draft, drawn on another bank for a big amount in favour of the new customer and put into account only a few days after the opening of the account, for realisation, and (iii) in consequence, the bank on which the draft was drawn was put to loss as the draft was a forged one, the bank opening the account could not be considered to have acted without negligence even if it might have acted in good faith and consequently, the bank was not entitled to benefit of Sections 131 and 131-A and the paying bank which honoured the draft could not be said to be guilty of contributory negligence merely because it failed to make enquiries from its branch which issued the draft, before the same was cleared and the amount thereof was credited to the account of the new customer and he withdrew it.
8. The learned Counsel for the appellant further relied on the following passage in Paget's Law of Banking, Ninth Edition at page 325:
The principal risk run by a banker in collecting cheques and other orders to pay is the risk of conversion. It is a risk against which he is protected by statute, providing- and the proviso is onerous-that he acts without negligence. The protection was hitherto to be found in Section 82 of the Bills of Exchange Act, 1882....But to-day resides in Section 4 of the Cheques Act, 1957....
Corresponding to the said Section 82 of the English enactment, Section 131 of our Negotiable Instruments Act provides the law verbatim same, as follows:
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 defective, incur any liability to the true owner of the cheque by reason only of having received such payment.
Further, Section l31-A of the Act provides inter alia that Section 131 of the Act shall apply to any draft also. Further, it has also been held that the expression "received payment for a customer" appearing in Section 131 of the Act is not restricted to the actual receipt of payment only, but it includes the whole transaction from the taking of the cheque to the receipt and disposition of the money. (Vide: Bharat Bank Ltd. v. Kishinchand Chellaram (1954)1 M.L.J. 560).
9. The learned Counsel for the appellant then drew our attention to Thackwell v. Barclays Bank (1956)1 All. E.R. 676, where it was held that the onus of proof under the abovesaid Section 4 of the 1957 Act was on the collecting bank to establish that it had received payment of the cheque in good faith and without negligence. The learned Counsel also relied on Carpenters Company v. Brit. Mut. Banking Company (1937)3 All. E.R. 811, where it was held that as a receiving bank the defendant bank had been guilty, of conversion, and that, as it had been found to have acted negligently, it was not protected by the Bills of Exchange Act, 1882, Section 82. The learned Counsel also relied on a similar decision reported in Lloyds Bank v. Savory & Company (1932) All. E.R. 106. Then, the learned Counsel for the appellant also relied on Kanyalal Thakurdas v. Bombay Cycle Importing Company , where it has been held that Section 131 protection is not available to a banker unless he can bring himself within the conditions formulated in thesaid Section 131. It further observed that broadly speaking, the banker must exercise the same care and foresight in the interests of the true owner, with regard to cheques paid by the customer, as a reasonable businessman would bring to bear on similar business of his own. The Division Bench has further observed that the alleged contributory negligence on the part of the "true owner" (i.e., the person who was entitled to demand the money represented by it) can be no answer by the person who converted the article that he should be let off from his liability because of the negligence of the true owner.
10. In the light of the abovesaid decisions, the learned Counsel for the appellant submitted that the defendant bank had not discharged its onus of proof regarding its non-negligence in the present case. He reiterated that unless the said non-negligence was proved, the defendant could not have the protection under Section 131. He further submitted that the defendant examined only one witness, viz., D.W.I, who did not personally know about the taking of the abovesaid drafts for collection in June, 1975. D.W.I was not the bank manager at that time. The person, who was the branch manager at that time has not been examined and so, according to him, the abovesaid onus has not been discharged by the defendant.
11. On the other hand, the learned Counsel for the respondent pointed out that D.W.I specifically deposed that the branch manager, who was working in 1975, had resigned and his address was not known. Therefore only, he could not be examined, the learned Counsel submitted. The learned Counsel for the respondent then very much relied on the decision in Indian Overseas Bank v. Industrial Chain Concern (1990)1 S.C.C. 484, where the Supreme Court observed as follows:
To enable a bank to avail the immunity under Section 131 as a collecting banker he has to bring himself within the conditions formulated by the section. Otherwise he is left to his common law liability for conversion or for money had and received in case of the person from whom he took the cheques having no title or defective title. The conditions are: (a) that the banker should act in good faith and without negligence in receiving a payment, that is in the process of collection,
(b) that the banker should receive payment for a customer on behalf of him and thus acting as a mere agent in collection of the cheque and not as an account holder;
(c) that the person for whom the banker acts must be his customer; and
(d) that the cheque should be one crossed generally or especially to himself. The receipt of payment contemplated by the section is one from the drawee bank, it is settled law that the onus of bringing himself within the section rests on the banker....We have already observed that the principle enunciated in the Commissioners of Taxation v. English, Scottish and Australian Bank 1920 AC. 683, is that the opening of the account is material as shedding light on the question whether there was negligence in collecting a cheque does bring out the true position that there must be sufficient connection established between the opening of the account and the collection of the cheque before a defence under Section 131 could be held to be barred. The question would then be one of facts as to how far the two stages can be regarded as so intimately associated as to be considered as one transaction.
We have already found that in the instant case there was no evidence to show that the opening of the account and the collection of the cheques and drafts formed part of the same transaction....Where the protection attaches, it covers the receipt of the cheque and every step taken in the ordinary course of business and intended to lead up to the receipt of payment. Even if there was negligence in opening of the account that act ipso facto would not result in loss to the true owner of the cheque collected.
[emphasis supplied]
12. From the abovesaid observations of the Supreme Court, the first thing that is clear is no doubt that the onus of bringing himself within the abovesaid Section 131 rests on the defendant-respondent herein. That is why, the learned Counsel for the plaintiff-appellant laid very much emphasis that the abovesaid onus had not been discharged by the respondent and hence, the respondent could not claim protection under Section 131 of the Act and so, the respondent was liable to pay the suit amount as per the general law of conversion. However, in this connection it was also to be noted that if entire evidence has been adduced by both the parties and the Court feels it can make up its mind as to the truth of the version of either party, then the ultimate decision of the Court will not turn upon the burden of proof. The Supreme Court has also observed in Paras Nath v. Mohani Dasi A.I.R. 1959S.C. 1204, that "onus of proof loses much of its importance where both the parties have adduced their evidence." Further, to come under the protection under Section 131, the banker in question has no doubt to establish that he was not negligent, that is, he has to prove a negative fact, In this connection, the following observation of a Division Bench of this Court in Krishnaswami Naidu v Secretary of State for India (1942)2 M.L.J. 431, could also be usefully referred to:
....but when a negative fact has to be proved, it may be that in a large number of cases no more than prima fade evidence, as to the non-existence of the fact that is alleged not to have existed, is available or can be adduced, and in such cases, a plaintiff can be expected to do nothing more than produce such evidence to substantiate his allegations prima facie.
13. Anyway, in the present case, the only plea in the plaint regarding the negligence of the respondent, so as to disentitle it to the protection afforded under Section 131, is as follows:- (as stated in paragraph 7 of the plaint) ...the negligence of the defendant in opening a current account in the name of N. Krishnamurthy without proper introduction....
But, this allegation is met in the written statement of the defendant by saying "The loss in question was not in any way due to any negligence on the defendant's part, either proximately or remotely. But, it was entirely due to plaintiffs negligence or non-diligence....The defendant was not negligent in allowing the opening of the Current Account, when there was nothing to evoke any suspicion. "(As found by the trial court, there was similar allegation and denial in Ex.A-8 notice dated 1.7.1975 by the plaintiff to the defendant and Ex:A-9 reply dated 18.7.1975 by the defendant to the plaintiff, respectively. In fact in Ex. A-9, it is also mentioned "In the normal course of business, we sent them for collection in clearing. The very fact that the same were paid by you in the usual course shows that alterations in the wordings or figures in the said draft, if any, of such nature as not to make even the drawee bank probe at the time of payment.)" As against these rival pleadings, when we look to the abovesaid observations of the Supreme Court, we find that it has observed that even if there was negligence in opening of the account, that ipso facto would not result in loss to the true owner of the cheque collected. So, the above (sic) the plaint, by itself, is not sufficient to hold that the defendant was not entitled to the protection under Section 131 of the Act. Unless the plaintiff has also made the plea that there was "sufficient connection established between the opening of the account and the collection of the cheque", the defence under Section 131 could not be held to be barred. In other words, only when there is such a plea, of the abovesaid connection, the court would go into the question about the sufficiency of the said connection between the opening of the account and the collection of the cheque, that is, in the words of the Supreme Court, "then only, the court would go into the question" "as to how far the two stages can be regarded as so intimately associated as to be considered as one transaction". But, in the present case, as already stated, there is no such plea regarding the abovesaid connection. Even in the above referred to Bharat Bank Ltd. v. Kishinchand Chellaram (1954)1 M.L.J. 560, it was observed as follows:
It might happen that even where an account is opened without a proper enquiry it might continue to be operated upon satisfactorily for some time, but long afterwards a cheque might be put into the account which might turn out to be forged. In such a case it cannot be laid down as an inexorable rule that negligence in opening the account was held to preclude a defence under Section 82 of the English Act, the opening of the account and the deposit of the cheque were contemporaneous or so close in point of time as to be regarded as one transaction.
But, as already stated the above referred t6 material fact of the abovesaid both the acts being "contemporaneous or so close in point of time as to be regarded as one transaction", has not been pleaded at all. So, it cannot be held that the respondent is not entitled to the protection under Section 131 of the Act. This plea is absolutely necessary and when there is no such plea, even if there is evidence to that effect, it cannot be looked into. But, in the present case, the learned Counsel for the appellant did not bring to our notice any evidence, at least regarding the abovesaid connection, either in what P.W.I deposed or in any document. In such a situation, it cannot be said that the respondent has not discharged the abovesaid onus of proof on it. 14. Even in the above referred to passage extracted from the Supreme Court decision, it has been specifically stated that in that case there was no evidence to show that the opening of the account and the collection of the cheques and drafts formed part of the same transaction." But, in the above referred to Indian Bank (Ltd) v. Catholic Syrian Bank A.I.R. 1981 Mad. 129, there was such evidence, as discussed in paragraph 8 of the said judgment. That is why, after referring to the abovesaid decision in Bharat Bank Ltd. v. Kishinchand Chellaram (1954)1 M.L.J. 560, this court, in the abovesaid Indian Bank (Ltd.) v. Catholic Syrian Bank A.I.R. 1981 Mad 129, came to the conclusion as follows:
As regards the ruling in Bharat Bank Ltd v. Kishinchand Chellaram (1954)1 M.L.J. 560 : A.I.R. 1955 Mad 402, it is no doubt true that Desai's account was not opened with Ex.A-1 itself, but the draft had been put into the account so shortly after the opening of the account as to lead to the inference that it forms part of the opening of the account, and consequently, the negligence in the matter of opening the account has to be treated as negligence in the matter of realisation of the cheque as well.
Further, it has also been observed there as follows:
It is well known that for determination of the question of negligence a universal test or an inviolable formula cannot be laid down or prescribed. As pointed out in Commissioner of Taxation v. English, Scottish and Australian Banks A.I.R. 1920 P.C. 88, it is really impossible to lay down rules which will determine what is negligence and what is not' and 'each case must be determined on its own circumstances'. Therefore, we have to judge the charge of negligence levelled against the officers of the appellant with reference to the evidence available in the case.
Therefore, we have to infer that in Bharat Bank Ltd v. Kishinchand Chellaram , there was the said "charge of negligence", in the form of requisite plea and that there was evidence to prove the same. That is why, in the said decision, the conclusion was reached as stated above.
15. Thus Indian Overseas Bank v. Industrial Chain Concern and Indian Bank (Ltd.) v. Catholic Syrian Bank , are distinguishable and in the present case, since there is no requisite plea by the appellant-plaintiff as stated above or at any rate no evidence was brought to our notice to establish the said requisite plea, we hold that the defendant-respondent is protected under Section 131 of the Negotiable Instruments Act.
16. On the other hand, it can be concluded that the plaintiff-bank was negligent. The relevant payments were made by the plaintiff even before it received advice from its respective branches at Vaniyambadi and Tirunelveli regarding the drawing of the relevant drafts. P.W.I strangely stated that despite the non-receipt of the said advice, no suspicion arose and the suspicion arose after a week only. No doubt, in the abovesaid Indian Bank (Ltd) v. Catholic Syrian Bank , it has been observed as follows:
When the draft was sent for collection, no duty was cast on the respondent bank to first obtain clearance from the Singanallur branch of the bank and then pay amount covered by the draft, to the collecting bank.
But, in the present case, the drafts are for huge amounts and in such cases, it is admitted by P.W.1 that they have to scrutinise the drafts under ultra violet rays. Yet, it was not done. The Supreme Court, in the above referred to decision also pointed out that one of the tests of testing whether the bank was negligent, though not always conclusive, is to see whether the rules or instructions of the bank were followed or not. In this connection, the learned Counsel for the respondent requested the learned Counsel for the appellant to produce, before us the memorandum of instructions followed by the appellant bank in honouring the cheques or drafts. He very much stressed that if those instructions are before the court, the court would see that the appellant-bank definitely did not follow the said instructions. But the learned Counsel for the appellant could not produce the same. However, it is also not clear whether the respondent at least gave notice to the appellant in the Court below to, produce the said memorandum of instructions or made any attempt to summon it through the process of Court. Anyway, as already stated, P.W.I has admitted that if the draft is for huge amount, they have to scrutinise it under the ultra violet rays. Yet such scrutiny was not done, despite the fact that the ultra violet lamp was available with the appellant. So, we think we can safely conclude that the appellant was negligent. Further, if only, the plaintiff had taken the necessary care expected of it, it could have averted the abovesaid loss sustained by it. In fact at the final stage of honouring the cheque or draft, greatest care must be taken.
17. In the result, there is no reason for interfering with the judgment and decree of the trial court and hence the appeal is dismissed. However, in the circumstances of the case, no costs.
18. We may also add that in the wake of increasing frauds, banks in this country should exercise greater care and exhibit greater diligence in their dealings.
19. We also find that in many cases, the depositions recorded by the subordinate courts are not legible. In fact in the present case it was very difficult for both the counsel as well as for ourselves to decipher most of the passages recorded by the Court below. The evidence recorded is not a lengthy one and yet it has not been recorded legibly. Greater care must be taken by the Subordinate Courts in writing out the depositions. It is needless to say that justice should not fail on the mere ground that what has been recorded as evidence is not legible. 20. We may also add one another unhelpful trend. In many first appeals, we find that necessary steps as provided under Order 8 of the Appellate Side Rules have not been taken for the preparation of the record in the appeals against original decrees of the subordinate Courts. In the present case, for example, neither the documents, nor the oral evidence have been cyclostyled through-Court, pursuant to the relevant rules in Order 8 of the Appellate Side Rules. Rule 20 of the said Order no doubt says - "At the hearing of an appeal, the Court may refuse to permit either party to refer to, or rely on, any paper not included in the record prepared in accordance, with the rules". However, we normally do not refuse to grant the permission contemplated therein, in our anxiety to see that justice does not fail on that account. Even when the abovesaid rules are not complied with, we even take the trouble of looking to the original themselves, at times with great difficulty and spending more time. In this regard, we very much seek the assistance of the members of the Bar in a greater measure by themselves conforming to the Rules.