Delhi District Court
Punjab National Bank vs Uco Bank And Ors on 10 September, 2025
Punjab National Bank Vs. UCO Bank & Ors.
IN THE COURT OF SH. JITEN MEHRA, DISTRICT JUDGE-10,
CENTRAL DISTRICT, TIS HAZARI COURTS: DELHI.
CNR No. DLCT01-001635-2021
CS DJ NO.111/2021
PUNJAB NATIONAL BANK.
A Body Corporate Constituted under the Banking Companies
(Acquisition & Transfer of UndertakinDLCT01-001635-2021g Act,
1970)
Having its Head Office at:
Plot No.4, Sector 10, Dwarka, New Delhi.
Branch Office at:
Service Branch at Paharganj,
New Delhi.
Through its Authorized Representative
Sh. Anil Kumar Gupta
......Plaintiff
Versus
1. UCO Bank
Through its Chief Manager:
Service Branch
5, Parliament Street,
New Delhi-110001.
2. Sh. Shisam Chaudhary
Through UCO Bank
Service Branch
5, Parliament Street,
New Delhi-110001.
3. Sh. Chhotey Lal
138, Prem Nagar,
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.1/42
Punjab National Bank Vs. UCO Bank & Ors.
Khub Ram Park,
Block-A, Kirari Suleman,
Delhi-110041.
.....Defendants
Date of institution: 03.02.2021
Date on which reserved for judgment: 14.08.2025
Date of decision : 10.09.2025
SUIT FOR RECOVERY OF RS.3,33,618/- (RUPEES THREE
LAKHS TWENTY THIRTY THREE THOUSAND SIX HUNDRED
EIGHTEEN ONLY)
JUDGMENT:
1. This is a suit for recovery of Rs.3,33,618/- filed by the plaintiff bank against the defendants no.1-3.
PLAINTIFF'S VERSION AS PER THE PLAINT:
2. The plaintiff, Punjab National Bank, is a body corporate constituted under the Banking Companies (Acquisition & Transfer of Undertaking Act, 1970), whereas, the defendant no.1, UCO Bank, is a Government of India undertaking.
3. The defendant no.2 Sh. Shisam Chaudhary is the account holder of one of the branch of defendant no.1. The defendant no.3 Sh. Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.2/42
Punjab National Bank Vs. UCO Bank & Ors.
Chhotey Lal is the account holder of the plaintiff bank having account No.0649000100541602, which is being maintained at it's Branch office Shakurbasti, Sainik Vihar, Delhi-110034 and is a proforma party in this suit.
4. The defendant no.1 presented a truncated image of two cheques, i.e. Cheque bearing no. GEN 270462, dated 28.02.2020 for an amount of Rs.1,50,000/- and another Cheque bearing no. GEN 270464 dated 27.02.2020 for an amount of Rs.1,50,000/- through Cheque Truncation System (CTS) and on the basis of the truncated image, the same was encashed and credited in the account of defendant no.2 by debiting the account of defendant no.3 account holder of Branch office Shakurbasti, Sainik Vihar, Delhi-110034.
5. Later on, the defendant no.3 made a complaint to the Branch office of the plaintiff bank at Shakurbasti, Sainik Vihar, Delhi-110034 that both the said cheques had been wrongly debited from his account, whereas, the original cheques were lying with him and also intimated that the said cheques were never issued by him in favour of defendant no.2 and also raised claim for unauthorized debit from his Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.3/42 Punjab National Bank Vs. UCO Bank & Ors.
account.
6. On 17.03.2010, the plaintiff was informed by the Manager, BO Shakurbasti, Sainik Vihar, Delhi-110034 about the aforementioned complaint. The matter was immediately taken up with the defendant no.1 vide email/letter dated 17.03.2020 and a complaint was also lodged for an amount of Rs.3,00,000/-. The plaintiff bank also asked the defendant no.1 bank for the original cheques and requested to freeze the account of defendant no.2. The plaintiff also asked for date of the opening the account of the defendant no.2, KYC compliance of the account of defendant no.2 and also for the CCTV Footage available with the defendant bank.
7. The plaintiff bank after detection of fraud, immediately lodged a criminal complaint with the Deputy Commissioner of Police, Economic Offence Wing, Mandir Marg, New Delhi.
8. However, the defendant no.1 has failed to remit the amount and also did not provide the required information. Due to the lackadaisical attitude of defendant no.1, the claim amount has been wrongly debited Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.4/42 Punjab National Bank Vs. UCO Bank & Ors.
from the account of defendant no.3 and credited in the account of defendant no.2.
9. In the absence of any reply from the defendant no.1, the plaintiff bank has settled/credited the fraudulent withdrawal amount ie. Rs.3,00,000/- in the account of defendant no.3 on 27.05.2020. It is submitted that the defendant no.1, while dealing with the opening of account of defendant no.2 for the collection of cheques and its payments, did not care to be cautious and has dealt with the whole affair in a routine manner.
10. It is submitted that since cash was withdrawn without authorization by defendant no.2, who was the customer of defendant no.1, hence defendants no.1 & 2 have liability to refund the above- said amount. It is the case of the plaintiff bank that the defendant no.3 never issued the cheques to the defendant no.2 and the defendant no.1 should have taken all the precaution before crediting the account of defendant no.2, which was not done by defendant no.1. The said cheques were forged instruments and therefore, there was no mandate from defendant no.3 to pay the amount.
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.5/42
Punjab National Bank Vs. UCO Bank & Ors.
11. The plaintiff requested the defendant no.1 to pay the above- said amount on account of the fraud committed by the account holder of the defendant no.1. However, despite several requests and reminders, failed to pay the said amount. The plaintiff bank served a legal notice dated 13.08.2020 which was duly served but they failed to make payment of the said amount, though, preferred to give reply dated 24.08.2020. Hence the present suit for recovery of Rs. 3,00,000/- towards the principal Rs.3,33,618/- with pendente lite and future interest @ 18% per annum w.e.f. 02.01.2021 till its realization along-with cost of the suit.
WRITTEN STATEMENT OF THE DEFENDANTS Written statement of the defendant no.1/ UCO Bank
12. The defendant no.1 raised the preliminary objections that the answering defendant is a Service Branch and is the Collecting Banker of the cheques tendered at two of it's branches and claimed that it was protected under section 131 of the Negotiable Instruments Act, 1881 (NI Act).
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.6/42
Punjab National Bank Vs. UCO Bank & Ors.
13. It was further submitted that the defendant no.1 collected the crossed cheque from the defendant no.2 in good faith and without negligence. Further, there was no reason to believe that the cheque in question was forged or that the drawer's signatures on the same were also forged. The cheques presented seemed to be genuine and were also verified through Ultra Violet Lamp (UV Lamp) and the defendant no.1 was not in a position to verify the signatures of the drawer/defendant no.3.
14. It was further submitted that the account of the defendant no.2 was KYC compliant and had been opened much prior to the collection of the cheques. Further, the said account of the defendant no.2 had been opened only after the verification of the Aadhar card from the website of the UIDAI and verification of the PAN card from the website of the Income Tax Department. It was only upon the counter- checking of the documents of the defendant no.2, that the account was opened. Hence, the actions of the defendant no.2 were in good faith and without any negligence.
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.7/42
Punjab National Bank Vs. UCO Bank & Ors.
15. It is further submitted that at the time of payment of the cheques in question, the plaintiff bank must have tallied the signatures on the presented cheques, with the signatures of the defendant no.3 available with them and only then would have passed the cheque for payment. In case there was any doubt, the plaintiff bank should have asked for the original cheques from the defendant no.1 or should have returned the said cheques. However, the plaintiff bank did neither and instead chose to make the payment and hence has confirmed the genuineness of the cheque as well the signatures of the defendant no.3. In case the plaintiff bank has paid the amounts on the cheque without tallying the signature of the defendant no.3, it amounts to gross negligence on their part. Hence, there is no liability on the part of the defendant no.1.
16. It is further submitted that the plaintiff bank is relying upon clause 3.1 of the procedural guidelines for Cheque Truncation System but has completely overlooked its own responsibility in terms of the legacy system of payment of the cheques as well as the stipulation of the payment processing in which it is clearly mentioned that "The Banks shall do the payment processing based on images of the Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.8/42 Punjab National Bank Vs. UCO Bank & Ors.
instruments following all the prudent practices". In the present case, the plaintiff bank had completely ignored the prudent practices of payment and with a malafide and ulterior motive wanted to shift the burden upon the defendant no.1.
17. It is further submitted that even if the cheque was subsequently found to be forged, the defendant no.1 was protected under section 131 of the NI Act and not liable to refund any amount to the plaintiff.
18. The defendant no.1 has further relied on the following facts, which were apparent on the face of the record itself:
(a) The plaintiff bank admits that the cheque in question was forged.
(b) The plaintiff bank informed the defendant no.1 about the incident by way of their e-mail dated 17.03.2020, to which immediate action was taken and a debit-freeze was placed on the account of the defendant no.2 and a lien was also marked on his account. Further, the statement of account, Account Opening Form and the KYC documents of the defendant no.2 were also shared with the plaintiff. It was also informed to the plaintiff Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.9/42 Punjab National Bank Vs. UCO Bank & Ors.
bank that the account of the defendant no.2 had been opened on 26.11.2019.
(c) Vide letter dated 25.03.2020, the defendant no.1 also informed the plaintiff bank it would provide the remaining document as soon as they were received from it's branch. Further, as soon as the original cheques were received from it's branch, the plaintiff was intimated to collect the same.
(d) The defendant no.1 also replied to the legal notice of the plaintiff bank, vide it's reply dated 24.08.2020.
(e) The defendant no.1 was protected as per sections 10 and 131 of the NI Act and there was no apparent alteration in the cheques in question.
(f) The plaintiff bank is actually at fault, since it had not verified the signature of it's customer and proceeded to pay the amounts in question.
(g) The plaintiff bank had not approached the Court with clean hands and the defendant no.1 relied on the judgments of Dalip Singh vs State of UP and Ors, (2010) 2 SCC 114; Amar Singh vs UOI, (2011) 7 SCC 69; State of Uttaranchal vs Balwant Singh, (2010) 3 SCC 402 and Kishore Samrite vs State of UP, Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.10/42 Punjab National Bank Vs. UCO Bank & Ors.
bearing C.A. No. 1406/2012 decided on 18.10.2022.
(h) The plaintiff bank was cast with the duty to ensure the appearance of VOID pantograph in case of the cheque being a CTS 2010 standard complaint. Further, that the cheque in question was within the series issued to the defendant no.3. That the signature on the cheque tallied with the signature of the defendant no.3 on its record. The plaintiff bank had failed in discharging the duty cast on its shoulders.
19. In the reply on merits, the defendant no.1 submitted that the present suit had not been filed through an authorized person. The defendant no.1 reiterated that it was protected under section 131 NI Act and had collected the cheque in good faith and there was no negligence on it's part and had fully co-operated with the plaintiff bank as well. It was submitted that the defendant no.1 had opened the account of the defendant no.2 by following all the extant guidelines. It was submitted that the cheques in question were verified by UV Lamp and no visible alteration was revealed with the naked eyes as well to indicate that the cheques in question were forged/fake. In fact, the plaintiff bank itself had not verified the signatures of their customer Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.11/42 Punjab National Bank Vs. UCO Bank & Ors.
and as per section 64(2) r/w section 131 NI Act did not even demand any further information from the defendant no.1 or the cheques in question for verification. It was submitted that by the time the defendant no.1 was informed of the incident on 17.03.2020, the defendant no.2 had already withdrawn the amount in question.
20. The defendant no.1 bank thus denied any liability on it's part and sought for the dismissal of the present suit with costs. Written statement of the defendants no.2 and 3
21. No written statement was filed by the defendants no.2 and 3 despite service.
REPLICATION OF THE PLAINTIFF
22. Replication/rejoinder was filed by the plaintiff to the written statement of the defendant no.1 reiterating the averments of the plaint as true and correct and denying the averments of the written statement of the defendant no.1. It was submitted that the defendant no.1 had not observed the safeguards for collection of the cheque for a huge amount in a newly opened account. The defendant no.2's account had Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.12/42 Punjab National Bank Vs. UCO Bank & Ors.
been opened without any proper introduction and the amount was also withdrawn soon after it's collection shows that that it was all part of one scheme/one set of transactions, which made the defendant bank liable to pay the amount of the cheque. The defendant no.1 has only filed the account opening form of the defendant no.2 on record but had not placed on record the KYC documents of the defendant no.2. Further, the account of the defendant no.2 had been opened without any introduction by an existing account holder. ISSUES FRAMED
23. On the basis of the pleadings of the parties, following issues were framed in the present matter by the ld. Predecessor of the Court vide order dated 19.04.2023:
1. Whether the plaintiff is entitled to recovery of Rs.3,33,618/-
with pendente lite and future interest of @ 18% per annum w.e.f. 02.01.2021? (OPP)
2. Whether the defendant no.1/collecting banker is protected under Section 131 NI Act? (OPD 1)
3. Relief.
EVIDENCE ADDUCED BY THE PLAINTIFF Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.13/42 Punjab National Bank Vs. UCO Bank & Ors.
22. Plaintiff bank examined Sh. Udit Narayan Singh Manager/AR posted at PNB, Service Branch, Paharganj, New Delhi as PW-1 who tendered his evidence by way of affidavit Ex.PW1/A on 13.12.2023, in which the contents of the plaint were reiterated and he relied upon the following documents:
a. Copy of GPA as Ex. PW-1/1 (OSR).
b. Copies of truncated images of the cheques as Mark A. c. Copy of complaint (mentioned as Ex. PW-1/2 in the affidavit was de-exhibited as the same was a photocopy) as Mark B. d. Original cheques as Ex. PW-1/3.
e. Print out of email as Ex. PW-1/4 along-with Certificate u/sec. 65B of the Indian Evidence Act, 1872.
f. Office copy of complaint as Ex. PW-1/5.
g. Statement of accounts as Ex. PW-1/6.
h. Copy of legal notice as Ex. PW-1/7.
i. Reply of defendant as Ex. PW-1/8.
23. During his cross-examination dated 13.12.2023, the said witness deposed that prior to clearing of cheques, they used to verify name of drawee, date of the instrument, signature of the drawer, payee name, account cheque number, amount in words and figure. In case of any difference in the above-mentioned information/details, they did not pay the tendered cheque. He deposed that he was not aware Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.14/42 Punjab National Bank Vs. UCO Bank & Ors.
whether features of cheque were provided to the defendant no.1 bank by the plaintiff bank. He denied the suggestion that they did not verify any of the particulars of the cheques before paying them and volunteered to state that as per CTS-2010, there were some common features which were present in the cheques which was to be verified by the collecting bank.
Evidence adduced by the Defendant
24. On the other hand, DW-1 Sh. Pankaj Kumar Sharma, Chief Manager from UCO Bank Service Branch, Branch Office at 5, Sansad Marg, New Delhi tendered his evidence by way of affidavit as Ex.DW1/A on 13.03.2024 in which the contentions as raised in the written statement were reiterated0. He placed reliance upon the following documents:
1. Copy of Common Board Resolution mentioned as Mark D-1.
2. Copy of the subject cheques as Ex. DW-1/2 (colly).
3. Copy of reply dated 25.03.2020 as Mark D-2.
4. Copy of the email dated 30.05.2020 as Mark D-3.
5. Copy of letter dated 24.08.2020 as Ex. DW-1/5 (OSR).
6. Copy of Account Opening Form along-with KYC Documents of defendant no.2 as Mark D-4. (wrongly marked as D-3 in the judicial record and presently corrected to Mark D-4) Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.15/42 Punjab National Bank Vs. UCO Bank & Ors.
7. Copy of Certificate u/sec. 65B of the Indian Evidence Act, 1872 as Ex. DW-1/7.
25. In his cross-examination dated 13.03.2024, he deposed that he was well aware of the CTS system. The cheques in question marked as Ex. DW-1/2 (also marked as Mark A in the statement of PW-1) were collected by the concerned branches of defendant no.1 and presented by the service branch. He admitted that he had not verified the genuineness of the instruments/cheques in question as it was verified by the concerned branches of the presenting bank and that UCO Bank was the presenting bank and admitted that it was the responsibility of the presenting bank to verify the genuineness of the cheque, to inspect the cheques under UV Light, water-droplet tester, whether the payee was KYC compliant or not and any material alteration on the cheque. He admitted that prior to sending the cheque for collection, the cheque is passed through the scanner.
26. On being specifically asked as to what was the role of scanner in verification of cheques, he replied that the scanner records the image of the cheque and it also checks MICR band. He affirmed that scanner rejects the cheques while scanning in case there is any Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.16/42 Punjab National Bank Vs. UCO Bank & Ors.
alteration in the MICR band or wrong MICR code was mentioned. He stated that no rejection report is generated because it is a digital process. On being asked, when there is rejection by scanner, whether a report IQA is generated, to which he replied that he was not aware about IQA report. He denied the suggestion that he was not aware about the CTS system and for that reason, he was not aware about the IQA report.
27. DW-1 further admitted that the responsibility to verify the genuineness of cheque, apparent tenor and physical feel is upon the presenting bank. On being asked specifically as to whose responsibility was to verify the apparent tenor of electronic image of cheque and truncated cheques, he replied that it was the responsibility of the presenting bank.
28. He further deposed that he had not verified the electronic image of cheque and truncated cheques as it was the duty of the concerned officer who had scanned and presented the cheque for collection.
29. He was categorically asked about the process of presentation of Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.17/42 Punjab National Bank Vs. UCO Bank & Ors.
cheques in case of rejection of cheque by scanner, he replied that the said cheque was re-scanned because sometimes scanner gives false report. He admitted that in case of rejection by scanner, they used to send IQA report along with the truncated image to the clearing bank. He stated that as per the judicial file, there is no IQA report and it is presumed that the cheque was not rejected by the presenting bank.
30. He further deposed that the KYC norms were enforced by the concerned branch of the defendant no.1 bank where the account had been opened. On being shown the document Mark D-4 and asked whether the account was introduced by any person, the witness stated that as per RBI KYC/AML guidelines, the requirement for an introducer has been done away with. He was further asked whether he had verified the address of defendant no.2 by sending any postal, letter/document, he deposed that this was done by the concerned branch where the account is opened.
31. He was further asked whether he had applied the suitable risk management technic like scrutiny of high value transaction, limit based checking, new account alert etc., he answered that the policy Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.18/42 Punjab National Bank Vs. UCO Bank & Ors.
was applied by the concerned branch where the account is opened. He denied the suggestion that he was not aware about the verification of the suitable risk management technic like scrutiny of high value transaction, limit based checking, new account alert etc or not. He admitted that at the time of scanning of a cheque, the data captured by the bank capture system which has to be validated by using CHI Rejection System. On being asked whether he have verified the CHI rejection system in the present case, he replied that since he had not presented the cheques, hence, he had not verified the same, but, seemed to be verified by the concerned branch of the bank who had presented the cheque for clearing. He denied the suggestion that he was not aware of the facts of the present case or that he had not collected the data from the relevant concerned branch before deposing in the present case.
Arguments of the parties
32. Ld. Counsel for the plaintiff Sh. Ajay Shanker has argued that the plaintiff bank has duly proved it's case against the defendants. The defendant no.1 bank has failed to prove that it had discharged the obligations cast upon it as per the Cheque Truncation System and Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.19/42 Punjab National Bank Vs. UCO Bank & Ors.
various RBI circulars to verify the genuineness of the cheque in question. Infact, the defendant no.1 did not even examine any official from the concerned branch who presented the said cheque as a witness and the official examined as DW-1 was not personally aware of the facts in the present case. Ld. Counsel for the plaintiff relied upon the decision of Corporation Bank vs PNB, bearing RFA no. 490/2004, decided by the Hon'ble High Court of Delhi on 11.05.2012.
33. On the other hand, Sh. C.M.L. Das, ld. Counsel for the defendant no.1 has argued that it had discharged the duty of good faith and due diligence cast upon it under section 131 NI Act and further, no additional information was sought by the drawee bank as per section 64(2) NI Act.
34. I have heard the arguments of the ld. Counsels for the parties and gone through the judicial record carefully as well. Issue-wise findings and reasons Issue no.2
35. I shall first decide issue no.2, which is reproduced below for the sake of convenience:
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.20/42
Punjab National Bank Vs. UCO Bank & Ors.
2. Whether the defendant no.1/collecting banker is protected under Section 131 NI Act? (OPD 1)
36. At the outset, it would be useful to reproduce Section 131 of the NI Act, which provides as follows:
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 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.
(Emphasis supplied)
37. Section 131 NI Act provides that a banker who has received payment in good faith and without negligence is not liable to incur any liability in case the title to the cheque proves to be defective. Vide the 2002 amendment to the NI Act, with effect from 06.02.2003, Explanation II was added to the section 131, whereby a duty was cast on the banker who received payment on the basis of an electronic Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.21/42 Punjab National Bank Vs. UCO Bank & Ors.
image of a truncated cheque held with him, to verify the prima facie genuiness of the cheque along with any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.
38. In the present case, at dispute between the parties are two cheques totaling Rs. 3,00,000/-, bearing no. GEN 270462, dated 28.08.2010, for an amount of Rs. 1,50,000/- ,and cheque No. GEN 270464, dated 27.02.2010, also for an amount of Rs. 1,50,000/-, allegedly issued by the defendant no.3 Chhotey Lal in favour of the defendant no.2 Shisham Chaudhary. The truncated image of which has been led in evidence as Mark A. The document Mark A is not in dispute between the parties, having been admitted by the defendant no.1 in its affidavit of admission and denial dated 08.03.2021. It is also not in dispute that the cheques in question were forged cheques as the original of the same has been produced by the plaintiff bank as Ex. PW-1/3.
39. The defendant no.2 opened his account with the defendant no.1 through his account opening form dated 26.11.2019, Mark D. A Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.22/42 Punjab National Bank Vs. UCO Bank & Ors.
perusal of the document Mark D reveals that crucial columns of the same, which would properly establish the identity of the applicant have been left blank. The applicant claims to be a graduate with a monthly income of between Rs. 1,50,000/- to Rs. 5,00,000/-. However, under the column of 'Name & Address Of Employer" only the name of the applicant/defendant no.2 is mentioned, without any further details. Further under description of occupation, the "Employed with" column, simply "Others (specify)" has been ticked, without offering the required details. In the nomination form as well, one 'Rupa Chaudhary' has been mentioned as the nominee as the mother of the applicant/defendant no.2 with her address simply given as 'Sitapur', without any further details. Hence, it is apparent that the Account opening form and KYC form has been accepted by the defendant no.1 bank, without much scrutiny. Further, there is no evidence on record that the defendant no.1 bank had physically verified the address of the defendant no.2 at the time of opening of the account as well. There is no evidence to suggest that any letter was issued by the defendant no.1 at the address of the defendant no.2 to verify the same. No attempt has been made by the defendant no.1 bank to verify the employment details of the defendant no.2 as well. Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.23/42
Punjab National Bank Vs. UCO Bank & Ors.
40. Further, in the accompanying 'Know Your Customer (KYC)' form as well, the applicant/defendant no.2's date of birth is declared as 14.09.2025, which would make him just a few months over 18 years of age at the time of the application, i.e. on 26.11.2019. The applicant/defendant no.2 has also listed his occupation type as 'Private Sector' and Self Employed'. The applicant has also submitted his aadhar card and PAN card as supporting documents. It is also immediately suspicious that an 18 year old claims to be employed with an extremely high monthly salary of Rs.1,50,000/- to Rs. 5,00,000/-. The bank has also displayed negligence in opening the account without demanding any proof of employment or monthly income as claimed by the defendant no.2.
41. The defendant no.2 has only examined one witness, namely its Chief Manager, UCO Bank Service Branch, New Delhi as DW-1 and no official from the concerned branch was examined as a witness. In his evidence by way of affidavit, Ex. DW-1/A, he has asserted that the defendant no.1 had collected the cheques in question in good faith and without negligence and there was no reason to believe that the Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.24/42 Punjab National Bank Vs. UCO Bank & Ors.
cheques were forged or that the signatures on the same were also forged. He stated that the cheques seemed genuine and were also verified through UV lamps and there was no alteration in the cheques as well. He also asserted that he was fully conversant with the facts and circumstances of the case. However, during his cross-examination dated 13.03.2024, he stated that he had only recently joined the service of the defendant no.1 since June, 2023. He admitted that he had not verified the genuineness of the instruments/cheques in question, which had been verified by the concerned branch of the defendant no.1. He also admitted that it was the responsibility of the defendant as a presenting bank to inspect the cheques under UV light and subject them to water-droplet test (used to determine whether it contained security 'fugitive ink') or whether there was any material alteration in the cheque or not. It was also admitted that it was the responsibility of the defendant no.1 as the presenting bank to verify the genuineness of the cheque from it's apparent tenor and physical feel as well. Since the was not posted in the said branch or had even joined the service of the defendant no.1 at the relevant time, he was not competent to depose with respect to whether the defendant no.1 had discharged it's duty to prima facie examine and verify the Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.25/42 Punjab National Bank Vs. UCO Bank & Ors.
genuineness of the cheque in question or whether the defendant bank had acted with due diligence and ordinary care to rule out any fraud, forgery or tampering apparent on the face of the cheque itself.
42. On the issue of negligence in opening of account by a bank, the Hon'ble Apex Court has held in Kerala State Coop. Marketing Federation v. State Bank of India, (2004) 2 SCC 425 : (2004) 118 Comp Cas 546 : 2004 SCC as follows:
"5. Section 131 of the Negotiable Instruments Act reads as follows:
"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 defective, incur any liability to the true owner of the cheque by reason only of having received such payment."
It is thus to be seen that a banker, who encashes a cheque, in respect of which his client had no title, would become liable in conversion or for money had and received. However, Section 131 of the Negotiable Instruments Act protects the banker, provided he has received payment in good faith and without negligence of a cheque crossed generally or specially.
6. In the case of Indian Overseas Bank v. Bank of Madura Ltd. [(1992) 75 Comp Cas 481 (Mad)] the receiving banker was held guilty of negligence and lack of good faith inasmuch as it had allowed the opening of an account with a small amount and shortly thereafter i.e. within nine days allowed withdrawal of a sum of Rs 9500. It was held that the opening of the account, the presentation of the draft and withdrawal of the amount were part of one integral scheme. The fact that the person who introduced the account-holder had not been examined in the suit was held against the Bank.
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.26/42
Punjab National Bank Vs. UCO Bank & Ors.
7. In the case of Syndicate Bank v. United Commercial Bank [(1991) 70 Comp Cas 748 (Kant)] it was held that the appellant Bank had to prove that it had acted in good faith and without negligence. It was held that the fact that the customer had just opened the account and had only one transaction with the Bank, namely, the encashment of the cheque, showed that the Bank had not acted in good faith and without negligence.
8. In the case of Brahma Shum Shere Jung Bahadur v. Chartered Bank of India [AIR 1956 Cal 399] it has been held that the onus of proving "good faith" and "absence of negligence" is on the banker claiming protection under Section 131 of the Negotiable Instruments Act. It is held that in deciding whether a collecting banker has or has not been negligent, it becomes necessary to take into consideration many factors such as the customer, the account and the surrounding circumstances. It is held that if the cheque is of a large amount, then the bank has to be more careful unless the customer was a customer of long-standing, good repute and with great personal credit and was one who regularly deposited and withdrew cheques of large amounts.
9. The same principles are reiterated in the cases of Central Bank of India Ltd. v. Gopinathan Nair [1972 KLT 518] and Indian Bank v. Catholic Syrian Bank Ltd. [AIR 1981 Mad 129].
10. This Court has also considered this question in the case of Indian Overseas Bank v. Industrial Chain Concern [(1990) 1 SCC 484] . In this case, on the basis of evidence led by the Bank (evidence of the Manager and the accountant of the Bank), the Bank was exonerated. However, principles which governed such cases were noted from various decisions. The relevant portion reads as follows: (SCC pp. 492-94, paras 9-15):
"9. What is the standard of care to be taken by a bank in opening an account? In the Practice and Law of Banking by H.P. Sheldon, 11th Edn., in Chapter 5 at p. 64 it is said:'Before opening an account for a customer who is not already known to him, a banker should make proper preliminary inquiries. In particular, he should obtain references from responsible persons with regard to the identity, integrity and reliability of the proposed customer.
If a banker does not act prudently and in accordance with current banking practice when obtaining references concerning a proposed Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.27/42 Punjab National Bank Vs. UCO Bank & Ors.
customer, he may later have cause for regret.'
10. M.L. Tannan in Banking Law and Practice in India, 18th Edn., at p. 198 says:
'Before opening a new account, a banker should take certain precautions and must ascertain by inquiring from the person wishing to open the account, if such person is unknown to the banker, as to his profession or trade as well as the nature of the account he proposes to open. By making necessary inquiries from the references furnished by the new customer, the banker can easily verify such information and judge whether or not the person wishing to open an account is a desirable customer. It is necessary for a bank to inquire, from responsible parties, given as references by the customer, as to the latter's integrity and respectability, an omission of which may result in serious consequences not only for the banker concerned, but also for other bankers and the general public.'
11. One of the tests of deciding whether the bank was negligent, though not always conclusive, is to see whether the rules or instructions of the banks were followed or not. We may accordingly consult those instructions. Ex. B-6 contains the general instructions regarding constituent accounts for bank. Mark II deals with opening of accounts. It says:
'Except at large branches where the sub-agent or accountant may be authorized to open current accounts, no new current account shall be opened without the authority of the agent manager who is solely responsible for all current accounts being opened in the proper manner. A written application on the appropriate form must be submitted and will be initialled by the agent at the top left corner after he has satisfied himself of the respectability of the applicant(s). It is important that every party must be introduced to the Bank by a respectable person known to the Bank, who must normally call at the Bank and sign in the column specially provided for the purpose in the account opening form. In all cases his signature must be verified with the specimen lodged and attested. The agent or accountant may introduce constituents to the Bank provided they are known to him personally and in such cases he should sign the application form at the appropriate place in his personal capacity. When the introduction of any other member of the staff is accepted, the agent must invariably make independent inquiry and record his findings on the account opening form for future reference if the need arises.'
12. Mark IV deals with accounts of proprietary concerns. It says:'An Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.28/42 Punjab National Bank Vs. UCO Bank & Ors.
individual trading in the name of concern should fill in Form F.S. 5 and sign it in his personal name and also affix his signature on behalf of the concern as proprietor in the space provided.' If the banker was negligent in following up the references given at opening of account and subsequently cheques etc. are collected for the customer paid into that account and those happened to be of someone else the bank may be liable for conversion, unless protected by law. In the instant case, Sethuraman having been known to the Manager who gave the introduction, there was no violation of any instruction or rules.
13. It was held in Comms. of Taxation v. English, Scottish and Australian Bank [1920 AC 683 : 89 LJPC 181 : 123 LT 34 (PC)] , that a negligence in collection is not a question of negligence in opening an account, though the circumstances connected with the opening of an account may shed light on the question whether there was negligence in collecting a cheque.
14. In Ladbroke and Co. v. Todd [(1914) 30 TLR 433 : 111 LT 43 : 19 Comp Cas 256] the plaintiff drew a cheque and sent it to the payee by post. The letter was stolen and the thief took it to the defendant, a banker, and used it for the purpose of opening an account for the purpose of which he forged the payee's endorsement. The defendant accepted believing him to be the payee. He was not introduced to the bank and no references were obtained. The defendant opened the account and the cheque was specially cleared at the request of the thief, and he drew out the proceeds on the next day. On the discovery of the fraud the plaintiff brought an action against the defendant for conversion. One of the main questions raised was whether the account having been opened by payment in all the cheques to be collected the defendant could be properly regarded as having received payment for a customer. It was held that as account was already opened when the cheque was collected, payment had been received for a customer. The drawer thereupon sent another cheque to the real payee and took an assignment of his rights in the stolen cheque and, as holders of the cheque or alternatively as assignees, brought an action against the bank to recover the proceeds collected by the bank as money had and received to their use. Evidence was given that it was the general practice of bankers to obtain a satisfactory introduction or reference. It was held that the banker had acted in good faith, but was guilty of negligence in not taking reasonable precautions to safeguard the interests of the true owner of the cheque and that therefore he had put Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.29/42 Punjab National Bank Vs. UCO Bank & Ors.
himself outside the protection of Section 82 of the Bills of Exchange Act, 1882. Bailhache, J. also said that the banker would have been entitled to the protection of the section as having received payment for a customer, but had lost it owing to his want of due care. It was also held that the relation of banker and customer began as soon as the first cheque was handed in to the banker for collection, and not when it was paid.15. In Turner v. London and Provincial Bank [(1903) 2 Legal Decisions Affecting Bankers 33 : (1903) 24 Journal of Institute of Bankers 220] evidence was admitted as proof of negligence, that the customer had given a reference on opening the account and that this was not followed up."
11. 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 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 fulfills strictly the conditions laid down in Section 131 or Section 131-A 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 exercised 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 Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.30/42 Punjab National Bank Vs. UCO Bank & Ors.
the account are interconnected moves in a integrated plan. (6) Negligence in opening the account such as failure to fulfill the procedure for opening an account which is prescribed by the bank itself or opening an account of an unknown person or a 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 and negligence is to be judged from the standpoint 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."
43. The Hon'ble High Court of Delhi in the decision of Canara Bank v. CITI Bank N.A., 2011 SCC OnLine Del 3445 : (2011) 125 DRJ 350, while referring to aforementioned decision of the Apex Court in Indian Overseas Bank has held as follows:
"8. A reference to the decision in the case of Indian Overseas Bank (supra) shows that a bank which opens an account is required to follow up the reference given at the opening of the account. The bank which opens an account is also required to meticulously examine the address of the customer which he gives at the time of opening of the account. Further, it is necessary for the bank depending on each individual's case to determine the authenticity of the customer who is opening the account.
9. A single Judge of the Kerala High Court in the case of Central Bank Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.31/42 Punjab National Bank Vs. UCO Bank & Ors.
of India Ltd. v. V. Gopinathan Nair, AIR 1970 Kerala 74 has exhaustively dealt with the earlier judgments with respect to Section 131 including the decisions of the Bombay High Court in the cases of Sanyasilingam v. Exchange Bank of India, AIR 1948 Bombay 1 and Bapulal Pemchand v. Nath Bank Ltd., AIR 1946 Bombay 482 while dealing with the point of the negligence of a bank at the time of opening and operation of the account. While referring to the case of Sanyasilingam (supra), the learned single Judge of the Kerala High Court had approved the ratio that where the payment which is made by a bank in an account is or is not without negligence has to be considered in the light of the facts and circumstances of the case as to whether such payment is out of the ordinary course so as to cause the banker to make an inquiry. While referring to the decision of the privy council in the case of Commissioners of Taxation v. English Scottish & Australian Bank, AIR 1920 PC 88, a reference is made to the fact that a bank must sit up and take notice when suspicion is caused on account of cheques of unusual large sums being credited and withdrawn from the account."
44. The Hon'ble High Court of Delhi has culled out the liability of the collecting banker under section 131 NI Act in the decision of Corporation Bank vs. Punjab National Bank, 2012 SCC OnLine Del 2780 : (2012) 130 DRJ 299 as follows:
"6. The law with respect to the liability of the collecting banker, considering the provisions of Sections 131 and 131A of the Negotiable Instrument Act, 1881, is contained in the judgment of the Supreme Court reported as Kerala State Co-operative Marketing Federation v. State Bank of India, 2004 (2) SCC 425. Relevant para of the judgment where the law has been stated is para 11 and which reads as under:
"11. 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 received, as against the 'true owner' of a cheque Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.32/42 Punjab National Bank Vs. UCO Bank & Ors.
or a draft, in the event the customer from who 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 fulfills strictly the conditions laid down in Section 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 exercised by the collecting banker to escape the charge of negligence depends upon the general practice of banker 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 from part and parcel 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. (6) Negligence in opening the account such as failure to fulfill the procedure for opening an account which is prescribed by the bank itself or 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.
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.33/42
Punjab National Bank Vs. UCO Bank & Ors.
(8) The question of good faith and 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 clause provide no defence for collecting banker who has not collected the amount in good faith and without negligence."
7. A reference to the aforesaid principles culled out by the Supreme Court in the judgment of Kerala State Co-operative Marketing Federation (supra) shows that there is never any mandate to pay under a forged cheque or forged bank draft and if payment is collected under such a bank draft by a bank, such bank is liable for conversion and therefore is bound to make payment of the amount of the forged cheque/bank draft. The collecting banker can only avoid its liability provided it strictly fulfills the conditions laid down under Sections 131 and 131A of the Negotiable Instruments Act, 1881 i.e. it must show that the payment has been received by it in good faith and without negligence. Supreme Court has further observed that though negligence is towards collecting of the instrument however the opening of the account is closely related to the deposit of the instrument and encashment thereof will give indication of the lack of good faith on behalf of the collecting banker. Supreme Court has also observed that the duties of a bank has changed over a period of time and the duty of a collecting banker has to be seen from today's standpoint of the requisite facts for opening of account and collection of the instrument inasmuch as there is a considerable development with respect to the banking practices. Finally and most importantly, Supreme Court has held that allegation of contributory negligence against the paying banker (and which is the respondent/plaintiff bank in this case) does not provide a defence for a collecting banker who has not collected an instrument in good faith and without negligence." (Emphasis supplied)
45. Again, in the decision of Indian Overseas Bank vs. HDFC Bank and Anr, 2018 SCC OnLine Del 13617, it has been held as follows: Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.34/42
Punjab National Bank Vs. UCO Bank & Ors.
"6. Before summarizing the aforesaid principles as stated in para 11 of the judgment in Kerala State Cooperative Marketing Federation's case (supra) Supreme Court has dealt with various fact situations as to when and whether there would be or there would not be any want of good faith or existence of negligence by the collecting banker and this is observed in paras 6 to 10 of the judgment in Kerala State Cooperative Marketing Federation's case (supra) which read as under:
"6. In the case of Indian Overseas Bank v. Bank of Madura Ltd. the receiving banker was held guilty of negligence and lack of good faith inasmuch as it had allowed the opening of an account with a small amount and shortly thereafter, i.e. within 9 days allowed withdrawal of a sum of Rs. 9,500/-. It was held that the opening of the account, the presentation of the draft and withdrawal of the amount were part of one integral scheme. The fact that the person who introduced the account holder had not been examined in the suit was held against the Bank.
7. In the case of Syndicate Bank v. United Commercial Bank it was held that the Appellant bank had to prove that it had acted in good faith and without negligence. It was held that the fact that the customer had just opened the account and had only one transaction with the bank, namely the encashment of the cheque, showed that the bank had not acted in good faith and without negligence.
8. In the case of Brahma v. Chartered Bank it has been held that the onus of proving "good faith" and "absence of negligence" is on the banker claiming protection under Section 131 of the Negotiable Instruments Act. It is held that in deciding whether a collecting banker has or has not been negligent it becomes necessary to take into consideration many factors such as the customer, the account and the surrounding circumstances. It is held that if the cheque is of a large amount, then the bank has to be more careful unless the customer was a customer of long standing, good repute and with great personal credit and was one who regularly deposited and withdrew cheques of large amounts.
9. The same principles are reiterated in the cases of Central Bank of India Ltd. v. Gopinathan Nair and Indian Bank v. Catholic Syrian Bank Ltd.Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.35/42
Punjab National Bank Vs. UCO Bank & Ors.
10. This Court has also considered this question in the case of Indian Overseas Bank v. Industrial Chain Concern. In this case, on the basis of evidence lead by the bank (evidence of the Manager and the accountant of the bank) the bank was exonerated. However, principles which governed such cases were noted from various decisions. The relevant portion reads as follows:
"9. What is the standard of care to be taken by a bank in opening an account? In the Practice and Law of Banking by H.P. Sheldon, 11th Edn., in chapter 5 at page 64 it is said:
"Before opening an account for a customer who is not already known to him, a banker should make proper preliminary inquiries. In particular, he should obtain references from responsible persons with regard to the identity/integrity and reliability of the proposed customer.
If a banker does not act prudently and in accordance with current banking practice when obtaining references concerning a proposed customer, he may later have cause for regret."
10. M.L. Tannan in Banking Law and Practice in India; 18th edn. at page 198 says:
"Before opening a new account, a banker should take certain precautions and must ascertain by inquiring from the person wishing to open the account, if such person is unknown to the banker, as to his profession or trade as well as the nature of the account he proposes to open. By making necessary inquiries from the references furnished by the new customer, the banker can easily verify such information and judge whether or not the person wishing to open an account is a desirable customer. It is necessary for a bank to inquire, from responsible parties, given as references by the customer, as to the latter's integrity and respectability, an omission of which may result in serious consequences not only for the banker concerned, but also for other bankers and the general public."
11. One of the tests of deciding whether the bank was negligent, though not always conclusive, is to see whether the Rules or Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.36/42 Punjab National Bank Vs. UCO Bank & Ors.
instructions of the banks were followed or not. We may accordingly consult those instructions. Ex. B-6 contains the general instructions regarding constituent accounts for bank. Mark II deals with opening with opening of accounts. It says:
"Except at large branches where the sub-agent or accountant may be authorized to open Current Accounts no new Current Account shall be opened without the authority of the agent manager who is solely responsible for all Current Accounts being opened in the proper manner. A written application on the appropriate from must be submitted and will be initialled by the agent at the top left corner after he has satisfied himself of the respectability of the applicant(s). It is important that every party must be introduced to the Bank by a respectable person known to the Bank, who must normally call at the Bank and sign in the column specially provided for the purpose in the account opening form. In all cases his signature must be verified with the specimen lodged and attested. The agent or accountant may introduce constituents to the Bank provided they are known to him personally and in such cases he should sign the application from at the appropriate place in his personal capacity. When the introduction of any other member of the staff is accepted, the agent must invariably make independent inquiry and record his findings on the account opening form for future reference if the need arises..."
12. Mark IV deals with accounts of proprietary concerns. It says:
"An individual trading in the name of concern should fill in Form F.S. 5 and sign it in his personal Name and also affix his signature on behalf of he concern as proprietor in the space provided." If the banker was negligent in following up the references given at opening of account and subsequently cheques etc. are collected for the customer paid into that account and those happened to be of someone else the Bank may be liable for conversion, unless protected by law. In the instant case, Sethuraman having been known to the Manager who gave the introduction, there was no violation of any instruction or rules.
13. It was held in Commissioners of Taxation v. English, Scottish and Australian Bank, that a negligence in collection is not a question of negligence in opening an account, though the circumstances Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.37/42 Punjab National Bank Vs. UCO Bank & Ors.
connected with the opening of an account may shed light on the question whether there was negligence in collecting a cheque.
14. In Lad broke and Co. v. Todd the plaintiff drew a cheque and sent it to the payee by post. The letter was stolen and the thief took it to the defendant, a banker, and used it for the purpose of opening an account for the purpose of which he forged the payee's endorsement. The defendant accepted believing him to be the payee. He was not introduced to the bank and no references were obtained. The defendant opened the account and the cheque was specially cleared at the request of the thief, and he drew out the proceeds on the next day. On the discovery of the fraud the plaintiff brought an action against the defendant for conversion. One of the main questions raised was whether the account having been opened by payment in all the cheques to be collected the defendant could be properly regarded as having received payment for a customer. It was held that as account was already opened when the cheque was collected, payment had been received for a customer. The drawer thereupon sent another cheque to the real payee and took an assignment of his rights in the stolen cheque and, as holders of the cheque or alternatively as assignees, brought an action against the bank to recover the proceeds collected by the bank as money had and received to their use. Evidence was given that it was the general practice of bankers to obtain a satisfactory introduction or reference. It was held that the banker had acted in good faith, but was guilty of negligence in not taking reasonable precautions to safeguard the interests of the true owner of the cheque and that therefore he had put himself outside the protection of Section 82 of the Bills of Exchange Act, 1882. Bailhache, J. also said that the banker would have been entitled to the protection of the Section as having received payment for a customer/but had lost it owing to his want of due care. It was also held that the relation of banker and customer began as soon as the first cheque was handed in to the banker for collection, and not when it was paid.
15. In Turner v. London and Provincial Bank evidence was admitted as proof of negligence, that the customer had given a reference on opening the account and that this was not followed up."
7. A reading of the aforesaid paras of the judgment of the Supreme Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.38/42 Punjab National Bank Vs. UCO Bank & Ors.
Court in the case of Kerala State Cooperative Marketing Federation (supra) shows that ordinarily once there is undue haste and lack of proper verification in opening of a bank account, a collecting banker will not be able to seek exemption of its liability by relying upon the provisions of Sections 131 and 131-A of the Negotiable Instruments Act. Want of good faith and negligence of a banker is not only with respect to opening of an account but also with respect to operation of the account and there cannot be large cash transactions in the account immediately after opening of the account and it it is so found then the collecting banker would have to be held guilty of negligence and want of good faith and thereby disentitled to avoid its liability by taking the defence under Sections 131 and 131-A of the Negotiable Instruments Act. Supreme Court has also held that the opening of account, presentation of the bank draft and withdrawal of the amount can also, depending on facts of each case, be treated as a part and parcel of one integral scheme if within a short period the bank account is opened, amount is credited in the bank account in terms of a banking instrument and operation of the bank account thereafter permitted including by allowing large cash withdrawals.
8. While referring to the judgment of the Supreme Court in the case of Indian Overseas Bank v. Industrial Chain Concern, (1990) 1 SCC 484 : 1989 (SLT Soft) 430, as per para 10 of Kerala State Cooperative Marketing Federation's case (supra) Supreme Court has approved the ratio that a banker before opening of an account must make proper preliminary inquiries by taking appropriate references of responsible persons so as to confirm the identity, integrity and reliability of the proposed customers."
(Emphasis supplied.)
46. Accordingly, I find that in the present case, the defendant no.1 has acted with negligence in opening the account of the defendant no.2 without any proper preliminary enquiry. No efforts have been made to ascertain the employment status of the defendant no.2 or his suspicious claim of earning an extremely high monthly salary of Rs. 1,50,000/- to Rs. 5,00,000/- per month despite being aged just a few Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.39/42 Punjab National Bank Vs. UCO Bank & Ors.
months above 18 years at the time. No documentary proof of his employment or employer has been insisted upon by the defendant no.1. No efforts have been made to physically verify the address of the defendant no.2 as well. Further, there is no evidence led by the defendant no.1 that prior to the presentation of the cheques, efforts were made by it with due diligence and ordinary care to prima facie establish their genuineness or that they were free from any fraud, forgery or tampering apparent on its face. The defendant no.1 bank has not examined any witness from the concerned branch to depose whether the cheques in question had been inspected under UV Lamp or subjected to any water droplet test or whether the scanner image produced any objection with respect to MICR bank. Further no one has stepped into the witness box to depose that even the look, feel and physical attributes of the cheque appeared to be free from doubt.
47. In such circumstances, the defendant no.1 bank has failed to prove that it was entitled to the statutory protection under section 131 of the Negotiable Instruments Act, 1881. Accordingly, the issue no.2 is decided against the defendant no.1.
Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.40/42
Punjab National Bank Vs. UCO Bank & Ors.
Issue no.1
48. I shall next decide issue no.1, which is reproduced below for the sake of convenience:
1. Whether the plaintiff is entitled to recovery of Rs.3,33,618/- with pendente lite and future interest of @ 18% per annum w.e.f. 02.01.2021? (OPP)
49. It is not in dispute between the parties that the cheques in question bearing no. 270464 and 270462 presented by the defendant no.2 were forged cheques as the original cheques have been placed on record by the plaintiff as Ex. PW-1/2. Further, it is also not in dispute that the plaintiff bank has reimbursed the account of the defendant no.3 by Rs. 3,33,618/- (i.e. Rs. 3,00,000/- along with interest @ 13.60% for 9 months and 27 days). The issue no.1 already stands decided against the defendant no.1 and the statutory exemption from liability section 131 NI Act has been held to be not available to it. Accordingly, I find that the plaintiff is entitled to recover the amount of Rs. 3,33,618/- from the defendants no.1 and 2 jointly and severally.
50. With respect to the interest claimed, the plaintiff bank has claimed an interest of 18% p.a., which I find to be excessive and Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.41/42 Punjab National Bank Vs. UCO Bank & Ors.
usurious. Accordingly, the interests of justice will be met, if the plaintiff bank is held entitled to interest @ 9% p.a. from the date of filing of the suit till its realization.
Relief:
51. The suit of the plaintiff is decreed in its favour. The plaintiff is held entitled to recover a sum of Rs.3,33,618/- from the defendants no.1 and 2, jointly and severally, along with interest @ 9% p.a. from the date of filing of the suit till its realization. The costs of the suit are also awarded in favor of the plaintiff.
Decree sheet be drawn up accordingly. File be consigned to the record room after due compliance. Judgment be uploaded forthwith.
Digitally signed by JITEN JITEN Date:
MEHRA MEHRA 2025.09.10 Announced in the open court (Jiten Mehra) 16:24:40 +0530 on 10.09.2025 DJ-10/Central/THC Delhi.Suit No. 111/2021 PNB Bank Vs. UCO Bank & Ors. Page No.42/42