Delhi District Court
Punjab National Bank vs State Bank Of India Ors on 30 September, 2024
IN THE COURT OF
DISTRICT JUDGE-01 ( CENTRAL), THC,DELHI
CS NO. 618354/2016
CNR NO. DLCT01-001877-2013
PUNJAB NATIONAL BANK
HEAD OFFICE 7, BHIKAJI CAMA PLACE
AFRICA AVENUE, NEW DELHI .....PLAINTIFF
VERSUS
1. STATE BANK OF INDIA
THOUGH CHIEF MANAGER
MADAME CAMA MARG, NARIMAN POINT
MUMBAI 400021.
2. STATE BANK OF INDIA
SERVICE BRANCH
THROUGH CHIEF MANAGER
PARLIAMENT STREET, NEW DELHI.
3. STATE BANK OF INDIA
THROUGH BRANCH MANAGER
ANAJ MANDI BRANCH, SHAHDARA, DELHI.
4. SH. SUMIT KUMAR
S/O. C.P. VARMA
P.O- TILAK NAGAR, GEGUSARAI,
BIHAR-851101.
5. SH. UMA KANT BEHRA
R.O D 47/3, RAJPUR COLONY
DELHI 110064. .....DEFENDANT S
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 1/22
JUDGMENT
1. The plaintiff filed the present suit seeking recovery of Rs. 5,00,000/- alongwith pendente lite interest pleadings inter alia as under :-
i. That the plaintiff is a body corporate duly constituted under the Banking Companies Act, 1970 (Acquisition and Transfer of Undertaking Act) having its Head Office at 7, Bhikaji Cama Place, New Delhi.
ii. That during the course of its normal business i.e. on 29.01.2010, the defendant bank presented the cheque bearing no. 369062 dated 15.02.2010 for Rs. 5 Lacs purportedly issued by one of the account holders of the plaintiff bank namely Sh. Uma Kant Behra/defendant no. 5 in favour of one of the account holders named Sh. Sumit Kumar of the defendant's bank having account no. 30353911768. iii. That under the Cheque Truncating System, the plaintiff bank as a paying banker deal with the image of instrument on the implied undertaking of the presenting banker that they have ensured, verified and checked the genuineness authenticity of instrument held by them and that the plaintiff bank as a paying banker can only verify and cross check the signatures and cheque number which in this case was found matching with the original signatures and bearing valid unpaid cheque number issued in favour of the said account holder.
iv. That upon receipt of the above mentioned cheque, the plaintiff bank as a matter of banking practice, verified and cross checked the signatures and cheque number and upon finding the same matching with the record available with the plaintiff bank and on a bonafide belief that the defendant bank as a part of its legal obligation, must have done adequate pre-presentation due diligence to ensure genuineness of the said cheque.
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 2/22 v. That the plaintiff bank was surprised to receive a letter from its said account holder vide letter dated 02.03.2010 informing the plaintiff bank that that Rs. 5 Lacs has been fraudulently withdrawn from his account as he has not issued the cheque in question to anybody.
vi. That the plaintiff bank wrote to the defendant bank communicating that the defendant banks have facilitated a fraudulent transaction by not properly verifying the genuineness of the said cheque before presenting the truncated image of the same to the plaintiff bank.
vii. That vide fax letter dated 17.03.2010, the defendant bank instead of admitting their negligence, wrote in a vague manner that "there does not appear to be any material alteration on the instrument and prima facie the instrument appears to be genuine and in order and there has been no negligence on the part of the collecting branch".
viii. That upon receipt of the above response from the defendant bank, the plaintiff bank reiterated its request vide its letter dated 19.03.2010 asking the defendant bank to provide original instrument to it for further action; but till date the defendant bank has not provided the original instrument to the plaintiff bank. ix. That despite requesting the defendant several times to refund the amount and provide the original cheque, the defendant did not pay any heed to the said requests and thus the plaintiff bank was left with no other alternative but to issue a legal notice dated 15.02.2013 calling upon the defendant bank to refund the amount with interest and on the basis of the aforesaid pleadings, the plaintiff had filed the present suit.
WRITTEN STATEMENT
2. The defendant no. 1 to 3 filed their joint written statement reiterating the contents of the plaint as follows :-
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 3/22 i. That the present suit is not maintainable and is liable to be dismissed as the plaintiff has concealed the material facts from the court. ii. That the present suit is not maintainable and is liable to be dismissed against the answering defendants on the ground that the liability to check and verify the signature/tenor of the cheque vests with the paying bank/plaintiff. iii. That the present suit is liable to be dismissed since the plaintiff in its complaint dated 27.04.2010 at page no. 9-10 of the documents of the paper book has alleged that the original cheque of the same number is in the possession of the defendant no. 5/account holder.
iv. That the suit is not maintainable in its present form and is liable to be dismissed. v. On Merits, the facts stated in the preliminary objections has been reiterated and the case set up by the plaintiff has been denied.
3. No replication was filed by the plaintiff to the written statement as filed by the defendant no. 1 to 3.
ISSUES
4. The court vide order dated 09.12.2015 had framed the following issues for adjudication :-
1. Whether the plaintiff is entitled to a decree of Rs. 5,00,000/- as prayed for? OPP
2. Whether the plaintiff is entitled to the interest, if so, at what rate and for what period? OPP
3. Whether the plaintiff has got no cause of action for filing the present suit? OPD
4. Whether the suit of the plaintiff is not maintainable, as there was no negligence on the part of the defendant no. 1 to 3? OPD
5. Relief.
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 4/22 EVIDENCE
5. The plaintiff, in order to prove its case, examined one Sh. Pramod Kumar Dubey as PW-1 who tendered his evidence by way of affidavit as Ex. PW1/A and he relied upon the following documents :-
S.No Exhibit/ Document
Mark
1. PW1/1 Copy of Authorization letter/GPA of the
(OSR) deponent.
2. PW1/2 GPA of Sh. P.K Pathak.
3. Mark A Customer's complaint dated 02.03.2010.
4. PW1/4 Copy of letter dated 08.03.2010.
5. PW1/5 Copy of letter dated 19.03.2010 and
(Colly) 20.04.2010.
6. PW1/6 Written complaint dated 27.04.2010.
7. PW1/7 Copy of letter dated 22.04.2010 and
(Colly) 18.05.2011.
8. PW1/8 Copy of legal notice dated 15.02.2013,
(Colly) letter dated 17.04.2013 as well as postal
receipts.
9. PW1/8A Not on record.
10. PW1/9 Blank original cheque bearing no. 369062.
11. PW1/10 Fax massage dated 17.03.2010.
12. Mark C Truncated image of the cheque.
6. The said witness was duly cross-examined and vide order dated 27.03.2023, PW-was discharged and vide separate statement, PE stood closed on the same date.
7. The defendant, in order to prove its case had examined one Sh. Chetan Kannoujia, Branch Manager of SBI, Anaaj Mandi, Shahdara as DW-1 who tendered his evidence by way of affidavit Ex. DW1/A and relied upon the following documents :-
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 5/22 S.No Exhibits Documents
1. Mark A Copy of complaint dated 29.11.2011
2. Mark X Copies of account opening form (Colly) and copy of identity card
3. Mark Y Printout of the statement of accounts in respect of the account bearing no.
30353911768.
4. DW1/3 Reply dated 06.05.2013 to the legal notice dated 15.02.2013.
8. The said witness i.e. DW-1 was duly cross-examined vide order dated 31.10.2023 and vide separate statement, DE was closed on the same date. Thereafter the matter was listed for final arguments.
FINDINGS Issue no. 1 : Whether the plaintiff is entitled to a decree of Rs. 5,00,000/- as prayed for? OPP Issue no. 2 : Whether the plaintiff is entitled to the interest, if so, at what rate and for what period? OPP Issue no. 3: Whether the plaintiff has got no cause of action for filing the present suit? OPD Issue No 4: Whether the suit of the plaintiff is not maintainable, as there was no negligence on the part of the defendant no. 1 to 3? OPD
9. The onus to prove the aforesaid issues was upon the plaintiff. PW-1 in his testimony has contended that during the course of its normal business i.e. on 29.01.2010, the defendant bank presented the cheque bearing no. 369062 dated 15.02.2010 for Rs. 5 Lacs purportedly issued by one of the account holders of the plaintiff bank namely Sh. Uma Kant Behra/defendant no. 5 in favour of one of the account holders of the Defendant's Bank namely Sh. Sumit Kumar having account CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 6/22 no. 30353911768 and also that under the Cheque Truncating System, the plaintiff bank as a paying banker deal with the image of instrument on the implied undertaking of the presenting banker that they have ensured, verified and checked the genuineness authenticity of instrument held by them and that the plaintiff bank as a paying banker can only verify and cross check the signatures and cheque number which in this case was found matching with the original signatures and bearing valid unpaid cheque number issued in favour of the said account holder. It has also been contended by PW-1 that upon receipt of the above mentioned cheque, the plaintiff bank as a matter of banking practice, verified and cross checked the signatures and cheque number and upon finding the same matching with the record available with the plaintiff bank and on a bonafide belief that the defendant bank as a part of its legal obligation, must have done adequate pre-presentation due diligence to ensure genuineness of the said cheque. It was further stated by the PW-1 that the plaintiff bank was surprised to receive a letter from its said account holder vide letter dated 02.03.2010 i.e. Ex. PW1/3 informing the plaintiff bank that that Rs. 5 Lacs has been fraudulently withdrawn from his account as he has not issued the cheque in question to anybody. It was further being contended by PW-1 that the plaintiff bank wrote to the defendant bank vide Ex. PW1/4 communicating that the defendant banks have facilitated a fraudulent transaction by not properly verifying the genuineness of the said cheque before presenting the truncated image of the same to the plaintiff bank. It was also stated in the testimony of PW-1 that vide fax letter dated 17.03.2010 i.e. Ex. PW1/10, the defendant bank instead of admitting their negligence, wrote in a vague manner that "there does not appear to be any material alteration on the instrument and prima facie the instrument appears to be genuine and in order and there has been no negligence on the part of the collecting branch". It was also contended that upon receipt of the above response CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 7/22 from the defendant bank, the plaintiff bank reiterated its request vide its letter dated 19.03.2010 and 20.04.2010 i.e. Ex. PW1/5 (Colly) asking the defendant bank to provide original instrument to it for further action; but till date the defendant bank has not provided the original instrument to the plaintiff bank. PW-1 further contended that despite requesting the defendant several times to refund the amount and provide the original cheque, the defendant did not pay any heed to the said requests and thus the plaintiff bank was left with no other alternative but to issue a legal notice dated 15.02.2013 calling upon the defendant bank to refund the amount with interest within 15 days from the date of receipt of the legal notice. However, the defendant vide letter dated 05.03.2013 informed the plaintiff that the cheque no. mentioned in the legal notice was incorrect and accordingly vide letter dated 17.04.2013, the correct cheque number was provided to the defendant. On the basis of the aforesaid facts, the plaintiff has filed the present suit on 09.05.2013.
10. The PW-1 was duly cross-examined by the defendant and in the cross- examination, the witness has stated that he cannot tell whether the cheque in question was from the cheque book issued to defendant no. 5 by the plaintiff bank. A suggestion was however put to the witness that the defendant bank had presented the cheque in question in accordance with the banking norms and that the defendant was not negligent in presenting the cheque in question nor guilty of deficiency of service. In view of the aforesaid testimony, it has been duly proved by the plaintiff the fact that it received the complaint dated 02.03.2010 (Ex. PW1/3) whereby the account holder of the plaintiff has informed the plaintiff bank that an amount of Rs. 5,00,000/- has been withdrawn from his account. The PW-1 has also been able to prove the fact that defendant no. 5 has handed over the original unissued and undated blank cheque bearing no. 369062 Ex. PW1/9. Thus the plaintiff has been able to prove the fact that a forgery has been committed with defendant no. 5 from CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 8/22 whose bank account an amount of Rs. 5 lacs were fraudulently withdrawn through defendant no. 1, 2 and 3 who had presented the impugned forged cheque for payment to the plaintiff bank and the plaintiff bank acting upon the truncated cheque having been sent to it and trusting the implied undertaking of the presenting banker to the effect that the cheque presented for payment is genuine had paid an amount of Rs. 5 Lacs upon verification and cross checking the signatures and cheque number in favour of the account holder i.e. defendant no. 4.
11. Thus the plaintiff has been able to prove that in fact fraudulent transaction has taken place whereby the account holder of the plaintiff was defrauded. In the present case, the entire onus to prove the fact that defendants no. 1 to 3 had exercised due diligence on their part rested squarely on the shoulders of the defendants since the plaintiff as per the pleadings and in terms of the testimony of PW-1 has been able to show and prove on record that there existed a duty to take care by the defendant no. 1 to 3 in favour of the plaintiff.
12. In order to better understand the issue in hand and to adjudicate as to whether the conduct of the Defendants No 1-3 was negligent, it would be relevant to note the Reserve Bank of India practice and guidelines with respect to Cheque Truncation System (CTS) since it is not in dispute that the truncated image of the cheque was sent to the Plaintiff Bank.
13. In the traditional banking system of cheque clearance, one has to present a cheque to his bank, which will send that cheque to a clearing house, upon clearance of drawee bank, the money was credited to account. It usually took 3 days on an average to clear cheques as it involved physical movement of cheques. Cheque truncation is the conversion of a physical cheque into a substitute electronic form for transmission to the paying bank. Cheque truncation eliminates cumbersome physical presentation of the cheque and saves time and processing costs.
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 9/22
14. Clearance by cheques truncation system (CTS) is to avoid delay & physical movement of cheques. As per procedural guidelines for Cheque Truncation System (Version 2.0) laid down by Reserve Bank of India, Chapter III, Guideline 3.1 lays down procedure at the Presenting Branch, it says "As the payment processing is done on the basis of images, the onus of due diligence shifts to the Presenting Bank, as provided under explanation II to Section 131 of Negotiable Instruments Act. The member banks have to enforce KYC (Know Your Customer) norms in letter and spirit. The banks should observe all precautions which a prudent banker does under normal circumstances, e.g., to check the apparent tenor of the instrument, physical feel of the instrument, any tampering visible to the naked eye with reasonable care, etc. For enhanced attention, based on exceptions, the banks may employ suitable risk management techniques like scrutiny of high value transactions, limit based checking by officials, new accounts alerts, etc. The presenting bank takes full responsibility for collecting on behalf of the intended payee and exercises due diligence as per the conditions laid down in the amended Negotiable Instruments Act. So presenting Bank is required to enforce KYC and make precautions like to check the apparent tenor of the instrument, any tampering visible to the naked eye with reasonable care, etc."
15. It is also provided in practice guidelines that all cheques received for collection over the bank's counters are required to be branded with the bank's special crossing stamp prior to scanning. The images of all cheques is to be captured along with MICR data using scanners set up for the purpose. Presenting bank has to ensure proper systems and procedures in place to see that the rejects of the MICR line are appropriately repaired and presenting Banks is required to pass on the value in the MICR repair tag for any correction / changes / rejects on the MICR band of the cheques in the capture files. At the time of scanning the instruments, the reader sorter / scanner will print a single line endorsement on the back of each instrument which shall be the unique identifier for the instrument. The printing of the CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 10/22 endorsement implies that the collecting bank undertakes to credit the payee's account on realisation of the cheque and that the instrument deposited is a genuine one and is being collected for a bonafide customer of the bank. At the time of scanning of a cheque data captured by the banks' capture system should be validated using the CHM generated by the CHI to avoid rejection at the CHI. The master table information, of each bank such as sort codes, transaction codes, branch codes, bank codes, city codes, calendar, and designated branches, etc., of the capture system should be synchronized with that of Clearing House Master Table. Beside all these precautions presenting bank needs to perform IQA validations at the capture system. Each image shall have an IQA indicator tag indicating the outcome of the IQA test carried out by the capture system. The banks are required to take care to synchronize the IQA parameters at the capture system, to avoid excessive rejection at the CHI. So all the above mentioned precautions are to be carried out while scanning the cheque to bring into truncated from, to avoid any possibility of fabrication.
16. Thus it is clear from the above that it is not sufficient to state that presenting bank's responsibility is restricted only to check "apparent tenor" and "physical feel"
of instrument or to check any tampering visible by naked eyes. Above discussion of guidelines, first of all require that each of the member bank have to enforce KYC norms, moreover, beside checking apparent tenor and physical feel of the instrument, suitable risk management techniques are to be applied/ The electronic image of cheque is to be captured with MICR (magnetic ink corrector recognition) data using scanner. Collecting-bank is required to pass on the value in MICR. Moreover, each electronic image of cheque also have IQA indicator and collecting bank is required to take care that at the time of scanning of cheque it synchronize the IQ parameter.
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 11/22
17. In the present case it has not come in the cross-examination of PW-1 that all the precautions were taken by defendant No. 1. Even in the evidence of DW-1 Chetan Kannoujia it is not even stated that all the precautions were ensured for cheque in question were being scanned. If electronic image of cheques was generated, what was the MICR value of such image nor a single line endorsement, which normally generate at the time of scanning of instrument, has been placed on record to show that all the norms mentioned in guideline No. 3.1 were followed. There is nothing in the evidence of DW-1 that whether scanning of the cheque was performed with IQA validation at the capture system/scanning machine. If it was done what was the IQA value which was required to be forwarded along with the electronic image of the cheque in question. Although DW-1 in his evidence has stated that the KYC norms were fulfilled however no evidence of the same has been filed on record. As per the testimony of DW-1, it is clear that the account of Defendant No 4 was opened by the Defendant No 1-3 bank on the basis of Identity card of Defendant No 4 ( Mark X) which is an I-card issued by the Bar Association and does not even contain the address of Defendant No 4. Moreover although DW-1 in his evidence has stated that he has filed the pan card of Defendant No -4, however the same has neither been placed on record or proved by Defendant No 1-3.
18. Merely to state that no negligence was committed by defendant No. 1 bank as there was no difference in apparent tenor of electronic image and of truncated cheque does not absolve the Defendant bank of the allegation of negligence as alleged. RBI guidelines does not confine itself to just state that there was no difference in apparent tenor and physical feel of the instrument. At noted above scanning machine is having inbuilt MICR data, moreover, at the time of scanning cheque, data captured by the electronic image is required to be validated by using CHM which contain all the master information regarding each of the bank, code, CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 12/22 transaction code, branch code, city code etc. Such electronic image was required to be synchronized with clearing house master table (CHM). It is nowhere stated by DW-1 in his evidence or even in his pleadings that when electronic image of cheques in question were generated, whether information generated from such image was checked from CHM table or not and what was the IQA test value of that image. These tests are to be carried out by collecting bank. In the present case such precautions were required to be carried out by defendant No. 1 & 2 bank.
19. DW-1 in his evidence has not even whispered that the Defendant Bank has any system for the verification of genuineness of cheques and has merely stated that there was no tampering apparent on the face of the cheque and that the same had been verified with due diligence and ordinary care. This in itself clear show that RBI guidelines were not followed.
20. The law with respect to the liability of a collecting bank is contained in section 131 of the Negotiable Instrument Act. Section 131 is reproduced as under:-
131. Non-liability of banker receiving payment of cheque.
A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.
Explanation 1. 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.
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 13/22 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.
21. Under this section, a collecting bank has protection only if the collecting bank, in good faith and without negligence, receives payment of the customer by a cheque, i.e. if there is negligence in receiving of a cheque on behalf of the customer, the collecting bank would be liable for negligence. The law in this regard is contained in the decision of the Supreme Court in the case of Indian Overseas Bank v. Industrial Chain Concern, 1990 (1) SCC 484. The relevant paragraphs of this judgment are paras 9 to 11 and 33 which read as under:
"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.
22. Sh. 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 CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 14/22 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."
23. Thus, 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. The Supreme Court in Indian Overseas Bank v. Industrial Chain Concern 1990 (67) Company Cases 255 laid down the law as under:--
"To enable a bank to avail of the immunity under Section 131 of the Negotiable Instruments Act, 1881, as a collecting banker, he has to bring himself within the conditions formulated by the section. 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, (c) that the person for whom the banker acts must be his customer, and (d) that the cheque should be one crossed generally or specially 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. As a general rule, a banker before accepting a customer, must take reasonable care to satisfy himself that the person in question is of good reputation; and if he fails to do so, he will run the risk of forfeiting the protection given by Section 131 of the Act, but 'reasonable care' will depend on the facts and circumstances of the case. The test of negligence for the purpose of Section 131 of the Act is whether the transaction of paying in any given cheque coupled with the circumstances antecedent and present are so out of the ordinary that they ought to arouse doubts in the banker's mind and cause him to make inquiries. Disregard to the bank's own regulations may be evidence of negligence. While dealing with a customer for collecting a cheque, there is no contractual relation between the collecting banker and the true owner. The duty is implied by law. A conduct beneficial to the customer at the expense of the true owner, when the bank acts in good faith and without negligence is no breach of that duty."
24. 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-
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 15/22 operative Marketing Federation vs. 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 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 form part and parcel of one scheme as where the account is opened with the cheque in question or deposited therein so soon after the opening of the account as to lead to an inference that the depositing the cheque and opening the account are interconnected moves in a integrated plan.
(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 CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 16/22 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 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."
25. 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 forged cheque or forged bank draft and if payment is collected under such a bank draft by 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 CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 17/22 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 without negligence.
26. In the facts before the Supreme Court in the case of Kerala State Co- operative Marketing Federation (supra) the Supreme Court held that the collecting banker was liable/responsible by making the following observations in para 14 of the judgment:
"14. The 1 Respondent's Branch Manager gave evidence. From his evidence it is clear that the person who called himself K.Narayhanan opened an account on the introduction of an account holder by name Dharam Panicker. In the Account Opening Form the address is given only as "Kaniyarath P.O.Kallisseri". Thus an absolutely vague address was given. The Bank made no enquiries as to the creditworthiness of he said K.Narayjanan or as to his full address or even about his telephone number. Thereafter even though initially the account was opened with only 20/- the exact amount of 280/- was deposited for purposes of receipt of a cheque book. The 1st Respondent bank does not seem to have put on its guard, even when a cheque for a very large amount i.e. ₹1,00,000/- was deposited soon thereafter. In cross-examination the Branch Manager admits that in the Account opening form neither the name or the occupation of the person introducing had been filled up. He admits that not enquiry was made regarding the nature of business of K.Narayhanan or where the place of business was. Even after it was found out that a cheque had been forged and stop payment notice had been issued, no enquiry was made by the Bank with the introducer. When asked why no enquiries were made, the answer given was that the bank has no responsibility to look in to it. Another factor which mitigates against the 1st Respondent Bank is that it made no attempt to lead the evidence of the person who had introduced the account holder."
27. Thus in order to get protection against any liability the collecting bank has to show that it acted in good faith and without negligence. If we again revert back to CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 18/22 evidence of DW-1, it is merely deposed by the said witness that they have exercised due diligence and ordinary care before proceeding for the collection of the amount covered by the subject cheque. DW-1 has stated that the aforesaid due diligence and ordinary care was exercised by the bank by verification that there existed no tampering or material alteration apparent on the face of the subject cheque. The witness has nowhere stated that the subject cheque in question as collected by the Defendant Bank was subjected to any ultraviolet examination nor has contended that any other guidelines as laid down by reserve bank of India had been complied by it before sending the truncated image of the cheque in question to the Plaintiff. From the aforesaid testimony where the defendant has merely contended that since the cheque in question did not contain any tampering or material alteration on the face of it, does not go to prove that in fact due diligence and ordinary care had been exercised by the defendant bank given the fact that elaborate guidelines stood laid by the Reserve Bank of India.
28. Moreover given the fact that despite repeated requests as made by the plaintiff to the defendant bank for the supply of information with respect to balance available in the account, date of opening of the account of defendant no. 4, status of compliance of KYC norms, freezing of the account, availability of CCTV footage and also the supply of the original cheque made vide Ex. PW1/4, Ex. PW1/5 neither the said details were provided to the plaintiff nor the plaintiff was supplied with the original cheque which was presented with the defendant bank. However, bare perusal of Mark X which is the account statement of defendant no. 4 goes to show that there are only 14 entries in the same and the average balance in the account is meagre and the same in itself raised doubt with respect to such a huge transaction being effected in the bank account of defendant no. 4 which ought to have put the defendant bank at an extra caution as the same in itself aroused suspicion. Moreover CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 19/22 there is nothing on record that confirms that KYC norms were in fact complied with by the Defendant Bank or any attempt was made to verify the address of Defendant No 4 in whose Identity Card his address has not been mentioned. The Defendant bank neither despite various requests and reminders failed to provide the details as sought by the Plaintiff nor has even during the entire proceedings of the suit has produced the subject cheque nor has at any place mentioned any reason for the non- production of the cleared cheque which was presented to it.
29. Accordingly, in view of the aforesaid factual and legal analysis, it can be thus, concluded that the defendant bank was clearly negligent and has thus failed to perform its duty which it owed to the Plaintiff bank.
30. However, the moot question involved in the present suit is as to whether the plaintiff has been able to prove its entitlement to a decree for an amount of Rs. 5 Lac. The plaintiff in the entire plaint nor in the evidence of PW-1 nor the documents relied upon by it, proved on record nor had contended at any place whatsoever, that it paid an amount of Rs. 5 lacs to defendant no. 5 or that any loss has been suffered and sustained by it. The plaintiff in its letter dated 08.03.2010 (Ex. PW1/2) which has been proved on record has demanded the payment of Rs. 5 Lacs for crediting the amount of defendant no. 5. Nowhere in the entire chain of communications as proved on record by the Plaintiff, it has been averred that the plaintiff has made the payment of Rs. 5 lacs to defendant no. 5 and which is sought to be recovered from the defendant. PW-1 in his cross examination has clearly stated that he is not aware whether Defendant No -5 had taken any action against the Plaintiff Bank and/or Defendant No 4 after the letter dated 2.03.2010. Thus, the plaintiff thus has not been able to prove the fact that it suffered any loss due to the negligence on the part of the defendant hence it can be said that there exists no cause of action in favour of the Defendant No 1-3 bank since the entire loss has been suffered by Defendant No-
CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 20/22 5 who from the available record has not been shown to have taken any action for the recovery of the alleged loss sustained and suffered by him. Accordingly in view of the aforesaid, all the issues are decided against the plaintiff and in favour of the defendants.
31. Before parting, it is deemed appropriate to return a finding on the aspect of the present suit having been filed within the period of limitation which is a legal issue and has to be considered by the court irrespective of the fact that no issue has been framed to that effect. From a bare perusal of the plaint, documents filed with plaint and the correspondences exchanged between the parties, it is the case of the plaintiff that the defendant bank had presented the cheque in question on 15.02.2010 for payment in favour of one of its account holders and had forwarded the image of the instrument vide cheque truncating system. The plaintiff after verifying the signatures and the cheque number, released the payment to the bank account of the customer of the defendant no. 1 to 3 bank. Thereafter, a complaint dated 02.03.2010 was received by the plaintiff bank intimating that a fraud has been committed upon its account holder and thereafter the payment was demanded from the defendant bank for the purposes of crediting the same to the affected account holder of the plaintiff bank on 08.03.2010. The defendant refused the aforesaid demand as made by the plaintiff bank on 17.03.2010 on the ground that there was no negligence on the part of the collecting bank. Thus, on the refusal of the defendant bank in releasing the payment as demanded, the cause of action arose in favour of the plaintiff who was required to file a suit within three years from the date of the cause of action having been arisen. The present suit has been filed only on 09.05.2013 which is clearly beyond the period of 3 years as prescribed under Article 23 of the Indian Limitation Act. The mere fact of repeated communications would not extend the period of limitation once the same has begun to run which in the CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 21/22 present case happen on the first refusal made by the Defendant Bank on 17.03.2010 and the present suit having been filed on 09.05.2013 is thus clearly time barred .
32. In view of the aforesaid, the present suit is dismissed.
33. Decree sheet be prepared accordingly.
Digitally signed by SACHIN SACHIN SOOD Announced in the Open Court on SOOD Date: 2024.09.30 30th September, 2024 Sachin Sood 18:00:54 +0530 DJ-01, Central THC (This Judgment contains 22 pages) CS No. 618354/2016 Punjab National Bank vs. State Bank of India and ors Page no. 22/22