Kerala High Court
Indian Bank vs Aluminium Industries Ltd. on 24 February, 1987
Equivalent citations: [1990]69COMPCAS427(KER)
JUDGMENT Chettur Sankaran Nair, J.
1. This appeal by the defendant is against a judgment on remand, decreeing the suit.
2. The plaintiff, the Aluminium Industries, Kundara (called "the company" hereinafter), obtained a licence under the I. D. A. Scheme to import aluminium ingots. The company, by exhibit D-2 letter dated February 4, 1966, requested the defendant, Indian Bank (called "the bank" hereinafter) to execute an undertaking to the foreign supplier Alooa International, to effect the import Accordingly, the bank issued exhibit D-18, dated February 21, 1966, undertaking to make remittances to the foreign supplier, Two consignments of 350 tonnes and 300 tonnes were to be imported, one at the port of Cochin, and the other at the port of Calcutta respectively. By exhibit D-1 letter dated May 10, 1966, after placing the funds with the bank, the company requested them to remit the rupee equivalent of U. S. $ 165, 853.97 to the Government for the Cochin consignment. The letter also stated that the Hirakud. office was placing the funds with the bank for remitting to the Government the rupee equivalent of U, S. $ 145, 447.50 for the Calcutta consignment. This was paid to the head office of the bank at Madras on May 23, 1966. Despite this, the bank made the remittance only on June 10, 1966, i.e., 30 days after the amount for the Cochin consignment was received and 18 days after the amount for the Calcutta consignment was received. The company avers that there was an unjustifiable delay on the part of the bank necessitating additional payments, consequent on intervening devaluation. If the bank had been diligent, they would have made the remittances long before June 10, 1966. It is averred that the remittance for the Cochin consignment at least could have been made as soon as the amount therefor was received on May 10, 1966. The bank itself chose the treasury at Delhi for remittance instead of Madras where their head office was situated, or Cochin. The treasury declined to accept the remittance, as columns 3 and 6 of the chalan were not filled up though all the requisite details were available with the bank in exhibit D-2 dated February 4, 1966, The company would also point out that strong rumours about possible devaluation were afloat, as seen from exhibits P-4 to P-23. This should have made the bank more alert. The company would say that the bank, as its agents, did not exercise due care, skill and diligence required of an agent, in remitting the amount with the result that the company had to expend an additional amount of Rs. 8,78,286.23 by reason of the devaluation of the currency in the meanwhile. The suit was for recovery of the said amount.
3. The bank would contend that a period of 120 days was available to them to make the remittance, that on receipt of exhibit D-1 dated May 10, 1966, the Cochin branch addressed the head office at Madras, and that the head office acted promptly. According to them, the delay was due to the treasury refusing to accept the remittance for want of particulars. The bank then had to make a reference to Cochin, entailing some delay. They also say that the delay was "due to incomplete particulars given by the plaintiff (company)" (para 10 of the written statement). The Government of India should have been impleaded in the suit, the bank would say.
4. The suit was decreed and on appeal, by judgment in A. S. 278 of 1980, this court found that the court below had not considered "what exactly was the duty of the bank under the arrangement entered into" and remanded the case for fresh disposal, also affording an opportunity to the parties to adduce additional evidence.
5. The Subordinate Judge, Ernakulam, considered the matter afresh and found that "there was considerable delay in depositing the amount in the treasury and that the bank is guilty of lack of promptness and negligence". The suit was decreed for Rs. 5,78,286.32 with 6 % interest from November 10, 1967, till date of realisation. This is challenged in the appeal.
6. The central issue in the case is whether there was delay on the part of the bank in making the remittance and whether the bank acted with due care and diligence consistent with normal trade practices, and expected of an agent with the requisite expertise.
7. Before we consider this question, we shall advert to another contention urged in the court below, but only faintly urged before us. The Government of India should have been made a party to the suit, according to the bank, as their decision to devalue the currency necessitated additional payments. We think that it was for the plaintiff to decide against whom they should seek reliefs. The decision to devalue was a high policy decision taken by the Government in the exercise of its sovereign functions. A cause of action cannot be found on this, particularly when no promise had been held out by the Government in this regard. The Government is not a proper or necessary party to the suit, and the contention must fail.
8. We shall now consider the understanding between the parties, the normal trade practices, whether the bank had acted with the reasonable care and diligence expected of an agent, and as to who between the parties was responsible for inviting the consequences of devaluation.
9. The company obtained a licence to import aluminium ingots. An undertaking from a bank was required to effect the import and foreign exchange had to be paid through accredited channels. For this purpose, by exhibit D-2 letter dated February 4, 1966, the company approached the bank. By exhibit D-18, dated February 21, 1966, the bank issued a letter of undertaking. While requesting for a letter of undertaking, the company had mentioned the licence number, details of the two consignments, for the ports at Cochin and Calcutta, and the procedure to be followed in making remittances. The company had also indicated its desire for early action. In exhibit D-18, the bank itself had incorporated the details of the cargo to be imported and the number of the licence and the head of account. That "part shipments are allowed" is also stated in exhibit D-18. Thus, the company had placed all the relevant details and the bank was aware of them. Early action was requested. The bank refers to exhibit D-18 to suggest that 120 days was available to them to make the remittance. We do not understand the recitals in exhibit D-18 as yielding any such inference. It says :
"At the request of Aluminium Industries Ltd., Kundara, Kerala State, we hereby establish a letter of undertaking No. 16498 in your favour available to the aggregate sum of US Dollars equivalent of Rs. 15,16,000 is US $315,176.000 (US Dollars three lakhs, fifteen thousand and one hundred and seventy-six only) by your drafts on them at 120 days' sight without recourse for 100 % of invoice value of shipment purporting to be."
10. On receipt of the "draft", 120 days was available to the company to retire the documents. "Draft", in this context, means the relevant documents. A draft agreement was furnished by the U. S. supplier on which exhibit D-18 was modelled. From the phraseology of it, the bank has made an ingenious attempt to invest it with a meaning that does not inhere in it. That apart, there is another aspect to be reckoned. It is most unlikely that a business house will concede four months time to make a simple remittance. No understandable reason therefor can be thought of. A commercial venture will normally be anxious to ensure that its capital is not locked up or kept unutilised. The anxiety will be to put capital to maximum use, with all possible despatch, to earn returns. The company would not have intended to keep its funds idle for 120 days, nor could the bank have thought that it could keep its customers' funds, without rhyme or reason, for 120 days before making a remittance. Such strange uses are alien to commercial practices. The contention deserves to be repelled. We hold that the bank could not have understood that 120 days was available to them to make the remittance.
11. The company was acting with expedition. Even at the time of exhibit D-2 on February 4, 1966, they requested "for early action". Fluctuations are known in trade and any reasonable person would act with expedition to avoid uncertainties. By exhibit D-1, dated May 10, 1966, the company informed the bank that remittance for the Hirakud consignment was being made, so that the bank could get ready to make the remittance. Exhibit D-24, counselled prompt action. It states :
"Payments along with the receipted challan for cash deposit of bank guarantee should be promptly sent to the Ministry of Finance, Department of Economic Affairs, Economic Aid Branch, New Delhi (attention of P. C. Jain)".
12. This is yet another circumstance indicating urgency. Exhibit D-1 letter to the bank contains an endorsement to the Hirakud office to remit the cost of the consignment for Calcutta Port by Tee Tee' (telegraphic transfer). These are conclusive circumstances showing that the understanding was that the deal should be made with expedition.
13. We shall advert to the manner in which the bank acted. They did not act with reasonable speed or diligence. The delay in making the remittance was solely due to the way the bank arranged its business. They could have made the remittance at Cochin, Madras (where their head office was) or at Delhi. They could have made the remittance in the treasury/State Bank/ Reserve Bank. The choice was theirs and it was for them to make the right choice. Incidentally, exhibit P-28 would show that similar remittances had been made at Cochin. The bank chose Delhi. By itself, there was nothing wrong in this, though considerations of expediency should have persuaded them to make the remittance at Madras where their head office was or at Cochin. The value for one consignment was with them at least by the 12th of May, almost a month before the actual remittance. The value for the Calcutta consignment was with them by the 23rd May, i.e., 18 days before the actual remittance. The questions to be considered are, did the bank need so much time and what was the reason for taking so much time. We should think that 18 days or one month was not reasonably necessary to make a remittance to the treasury. We say so, because the process does not involve a complicated procedure. We say so also because a reasonable person would transact work in such a way as to avoid keeping capital idle or unutilised. There is yet another reason --the trade practices. P. W. 6, a former officer of the Chartered Bank and Secretary of Foreign Exchange Dealers Association of India, with about 35 years' experience says that four days' time would be necessary to make such a remittance and that banks were doing so. In the circumstances of the case and having regard to the practices of the trade, we are of the opinion that the time taken by the bank was much more than was necessary. There was unjustifiable delay on the part of the bank.
14. We shall now consider the manner in which the bank performed its duties. Though the bank had the licence number, head of account and other details, even in February, the remittance was refused by the Treasury for want of particulars. Exhibits D-18 and P-24 incorporated all material particulars. Exhibit P-24 stressed the need for prompt action, mentioning even the name of the officer to whose attention the matter was to be brought If the head office of the bank at Madras did not send exhibit P-24 or the other details to Delhi branch, it was only due to their negligence. Negligence is also evident from the manner in which the particulars needed for columns 5 and 6 of the challan were gathered. Instead of getting these by telegram or over phone, a prolonged correspondence was started by the Delhi branch and ultimately a fresh challan was filled up from Cochin. Exhibit D-26 letter of the head office is proof that they had the details. By exhibit D-4 dated May 12, 1966, the Cochin branch had sent all the details to Madras. Still, while forwarding the mail transfer under exhibit D-19, dated May 23, 1966, to Delhi, the head office did not furnish the details. The head office of a bank, with a foreign exchange department, expected to be familiar with the operations, should certainly have known that without details, no treasury or bank would accept remittances. There was delay in sending exhibit D-19 too. Thereafter, the Delhi branch made its contribution to further delay, as already indicated. Eventually, when PW-1, Liaison Officer of the company at Delhi was contacted by PW-1 (which also he could do earlier), the amount could be remitted in ten minutes. What could have been done in ten minutes thus took almost a month to be done. DW-1 sent only a messenger to make the remittance. He made no effort to find out what was wrong or how to put it right. The Delhi branch acted without care or diligence, and with laxity, in dealing with the money of its customers. That the bank took so many days to do a simple thing, ultimately done in ten minutes, would also show that they were not only negligent but unfamiliar with the procedure and ill-equipped to carry out the task undertaken. The bank contended that devaluation was an unforeseeable event. We agree. But, it was due to the inordinate delay that devaluation intervened and the bank cannot make a defence of this for covering up their laches. A financial institution like the bank should have avoided delays normally, and more so in view of the speculation regarding devaluation in the financial columns. Another contention put forward by the bank in para 10 of its written statement is that the delay was "due to incomplete particulars given by the plaintiff (company)". Exhibits D-2, D-18 and D-24 show that all relevant particulars were with the bank since February, 1966. The contention is opposed to facts ; we are unhappy that an institution like the bank should have taken umbrage under such a frivolous defence.
15. The law governing the duties of an agent to the principal in such circumstances has to be appreciated. Both sides rely on Sections 211 and 212 of the Indian Contract Act to support their respective contentions. The bank would say that in the absence of directions given by the principal, they acted in consonance with the custom prevalent. Admittedly, directions were not given by the principal. The question then is, whether the bank acted in a manner consistent with prevailing business or commercial practices. According to the company, the bank did not. Section 212 enjoins an agent to act with skill and diligence, generally possessed by persons in similar business. He is liable to compensate his principal for the direct consequences of his neglect, want of skill or misconduct. The company would say, and rightly too, that the bank committed breach of its obligations, acting negligently and without the skill possessed by persons in similar business. It is further contended that the case on hand offers close analogy to illustration (a) to Section 212. The loss resulted only because the bank took much more time than any diligent person should have taken to do a simple thing like making a remittance in the treasury.
16. In Firm Pannalal Jankidas v. Sohanlal, AIR 1951 SC 144, the Supreme Court considered the scope of Sections 211 and 212 of the Contract Act and held that an agent who failed to insure goods in time was liable to compensate the principal whose property was destroyed in the meanwhile by an explosion. The court found that the damage that ensued was, a direct result of negligence or want of skill on the part of the agent. The case on hand is similar. It was due to the delay or failure to make the remittance in time that loss resulted to the company by the intervening devaluation. The rule in Pannalal's case governs the instant case. In Kesharichand v. Shillong Banking Corporation Ltd. [1965] 35 Comp Cas 514 ; AIR 1965 SC 1711, the court considered the scope of the duty a bank owed to its customer, and observed (at page 519 of 35 Comp Cas) :
"The banker is also bound to use reasonable skill and diligence in presenting and securing payment of the cheque and placing the proceeds to his customer's accounts and in taking such other steps as may be proper, to secure the customer's interests,"
17. The Calcutta High Court in Gambhirmull Mahabirprasad v. Indian Bank Ltd., AIR 1963 Cal 163, considered a case where the goods entrusted for shipment were lost, as the port of shipment fell to alien powers. The delay on the part of the agent to ship the cargo led to the loss, and the agent was held liable to compensate. The court observed (at page 176) :
"In these cases, although the misconduct or negligence of the agent is not the direct and immediate cause of the loss, yet it is held to be sufficiently proximate, to entitle the principal to recover for loss or damage ; for, otherwise the principal would ordinarily be without remedy for such loss or damage, since the same objection would apply in almost all cases of this sort. The law disregards such subtleties and niceties, as to causes and possibilities, and it acts upon the intelligible ground, that, where there has been misconduct or negligence in the agent, all losses and damages occurring afterwards, to which the property would not be exposed but for such misconduct or negligence, are fairly attributable to it, as a sufficiently proximate cause, although not necessarily the immediate or nearest cause of the loss or damage. The doctrine, too, may be vindicated upon the broader ground of public policy, that no wrongdoer ought to be allowed to apportion or qualify his own wrong."
18. Bowstead on Agency (15th edition, at page 146), states the position :
"An agent employed for the purpose of effecting a contract between the principal and a third party must use due skill and care in making that contract. Thus, a broker is under a duty not to sell goods at less than the best obtainable price and an estate agent must use reasonable care to ascertain the general solvency of tenants. . . . Not only must they be adequately qualified ; they must take reasonable care to keep themselves up to date with current developments in their profession. ... An insurance broker is bound to exercise reasonable and proper care, skill and judgment in obtaining a policy to cover his principal's interests and protecting his principal generally in relation to the underwriters. (O' Connor v. B. D. B. Kirby and Co. [1972] 1 QB 90 (CA) ). . . . He must act with due speed in obtaining insurance cover. (Turpin v. Bilton [1843] 5 Man & G 455)".
19. In Halsbury's Law of England, 4th edition, volume 34, para 5, the law is thus stated :
". . . those carrying on professional or other skilled callings owe a duty to their clients."
20. In para 12, it is further observed :
"When a person has held himself out as being capable of attaining standards of skill either in relation to the public generally, or in relation to some person for whom he is performing a service, he is required to show the skill normally possessed by persons doing that work . . . The obligation to exercise that skill is based on the ground that a reasonable man who owes a duty of care would exercise the care of a skilled man in doing the operation in those circumstances".
21. According to Chitty on Contract, 24th edition, volume II, para 2096 :
"One who acts as agent for another without reward is said to be bound to display such skill as he actually possesses and exercise such care as he would in his own affairs. An agent for reward is under a more extensive obligation; he must exhibit such a degree of skill and diligence as is appropriate to the performance of the duties that he has accepted. In particular, a professional agent must show the degree of care to be expected of those in his profession".
22. Judged in the light of these principles, we think that the bank which was required to possess expertise, instead of exercising expertise or care, acted with carelessness, in performing a simple act of making a remittance to the treasury, the particulars for which were available with them as soon as the arrangement was entered into under exhibit D-18. It is not an unforseeable event like devaluation which was directly responsible for the loss. We may also refer to The Law Relating to Banking, T. G. Reeday, 4th edition, at page 64 :
"The agent has a duty to carry out his appointed tasks with reasonable skill and diligence. Reasonable here means appropriate to the circumstances -- an agent must normally show no less diligence than he would have shown had he been dealing with his own affairs, and if he professes any special skill which is requisite to the function he has been appointed to perform, then he must display this skill, or he will be liable to indemnify his principal for any resultant damage even though he has done his best."
23. The bank contends that, in the absence of instructions, they could use discretion. The proposition is beyond reproach. But, discretion is not caprice. It must be exercised with care and diligence that behoves the appointed task. It is neither unqualified, nor unlimited ; and must be informed by practices of trade, and supported by care and diligence. The principal cannot be mulcted with the consequences flowing from the agent's breach of obligations or neglect. The degree and character of care would depend on the nature of services rendered, and a bank as indicated in Kesharichand's case [1965] 35 Comp Cas 514 ; AIR 1965 SC 1711 has to secure the customer's interest. Thus viewed, the bank did not exercise its discretion properly. Instead, it acted without care, without circumspection and with negligence. The loss suffered by the company was the direct result of the conduct of the bank, and negligence or lack of diligence was the proximate cause for the loss. We are of the opinion that the court below was right in its conclusions.
24. In the result, the judgment and decree of the court below are confirmed and the appeal is dismissed. There will be no order as to costs.