Canara Bank vs Vijaya Bank

Abdul Hadi, J.—This appeal by the plaintiff-Canara Bank is against the dismissial of its suit O.S. No. 6148 of 1979, on the file of the Fourth

Assistant Judge, City Civil Court, Madras, claiming a sum of Rs. 46,486.25 from the defendant-Vijaya Bank.

The plaintiff averments are briefly as follows :

The defendant presented to the plaintiff''s branch at Madras a draft bearing No. 970, dated June 2, 1975, drawn by the plaintiff''s Vaniyambadi

branch, purported to have been drawn in favour of one N. Krishnamurthy, for Rs. 14,500, for clearance. Since the said draft was presented for

payment by a banker, notwithstanding the fact that the advice had not been received by the plaintiff from its branch, the payment was made to the

defendant by the plaintiff on June 3, 1975, without further scrutiny, according to the apparent tenor of the instrument. When the plaintiff did not

receive any advice, it made enquiries with its Vaniyambadi branch and came to know that the said branch had not issued any such draft. On further

enquiry and screening of the draft, it was found that the draft with No. 910 issued by the said Vaniyambadi branch for Rs. 40 in favour of one N.

Krishnan, drawn on Bangalore, and not on Madras, was materially altered and forged through chemical process. In a similar manner, the defendant

presented at the plaintiff''s branch at Madras, another draft bearing No. 6152, dated June 9, 1975, drawn by the plaintiff''s Tirunelveli town

branch, purported to be in favour of one N. Krishnamurthy, for a sum of Rs. 16,570 for clearance. Since the draft was presented for payment by a

banker, notwithstanding the fact that the advice had not been received by the plaintiff from its Tirunelveli town branch, the payment was made to

the defendant, without proper scrutiny, according to the apparent tenor of the instrument, on June 11, 1975. On enquiry, it transpired that the draft

was dated June 7, 1975, for Rs. 50 drawn on Madurai in favour of one Krishnaswamy, and it has been forged materially by chemical process. The

plaintiff by its letter dated July 1, 1975, enquired of the defendant about the above-said facts and pointed out the negligence of the defendant in

opening a current account in the name of Krishnamurthi without introduction and demanded the return of both the above-said sums, that is, in all

Rs. 31,070. The defendant denied negligence on its part. But the defendant had been negligent in allowing the opening of a current account by an

unknown person without proper introduction and it was found later that the place of address mentioned by the said person was not of the place of

his residence. Since the payments were received under forged instruments, which are void, no right is created under the said instruments in favour

of the defendant. Consequently, the defendant is bound to return the above-said sums with interest at 16.5 per cent.

The averments in the written statement of the defendant may be summarised as follows :

The loss sustained by the plaintiff could have averted and it would not at all occurred if the plaintiff had exercised the elementary and obligatory

precaution of screening the draft with the available sophisticated instrument before payment and awaited the receipt of advice from its Vaniyambadi

and Tirunelveli branches. The loss in question is not in any way due to the negligence on the part of the defendant. If the drafts in question had been

so clearly forged as to defy detection by the plaintiff, it is equally so for the defendant who was a collecting banker.

The defendant was not negligent in allowing the opening of the current account when there was nothing to evoke any suspicion. If the had acted

prudently and alerted the defendant, the loss would have been averted. The plaintiff is not entitled to claim any interest on damages.

On the above pleadings the following issues were framed :

(1) Was the loss sustained by the plaintiff due to any negligence or misconduct of the defendant ?

(2) Could not the plaintiff have averted the loss in question by taking precaution set out in para 3 of the written statement ?

(3) Was not the loss due to negligence and/or non-diligence of the plaintiff ?

(4) Is the defendant liable as a collecting banker ?

(5) Is the plaintiff entitled to interest ?

(6) To what reliefs ?

The court below held that the loss sustained by the plaintiff was not due to the negligence of the defendant and that the plaintiff could have

averted the loss by taking precautions mentioned in the written statement and that the loss due to the negligence of the plaintiff alone. Therefore, the

suit was dismissed.

Before us, learned counsel for the plaintiff-appellant, Mr. V. S. Subrahmanyan, pointed out that before the trial court, both the drafts, exhibits A-3

and A-4, were placed under ultra violet lamp in open court and that both counsel saw the entries on the draft and agreed that they were originally

issued as stated in the plaint. So, the parties are agreed that both the drafts were forged ones and hence void altogether. So, as in the court below,

here also, the submission by the appellant is that since the defendant-bank was negligent in opening current account in the name of the above-said

Krishnamurthi without proper introduction, it should make good the loss caused to the plaintiff and that, therefore, it cannot get protection u/s 131

read with section 131A of the Negotiable Instruments Act (hereinafter referred to as ""the Act""). Learned counsel for the appellant further

submitted that the court below erred in not following the decision in Indian Bank Vs. Catholic Syrian Bank Ltd., cited before it, on the ground that

the facts in the abovesaid decision were distinguishable from the facts in the present case.

In the above-referred case of Indian Bank Vs. Catholic Syrian Bank Ltd., , a Division Bench of this court held that where a bank :

(i) allowed a customer to open an account on the recommendation of a customer who could not be said to be respectable and without testing the

credentials of the person desirous of opening the account, and

(ii) sent a crossed demand draft drawn on another bank for a big amount in favour of the new customer and put into account only a few days after

the opening of the account, for realisation, and

(iii) in consequence, the bank on which the draft was drawn was put to loss as the draft was a forged one, the bank opening the account could not

be considered to have acted without negligence even if it might have acted in good faith and consequently, the bank was not entitled to the benefit

of sections 131 and 131A and the paying bank which honoured the draft could not be said to be guilty of contributory negligence merely because it

failed to make enquiries from its branch which issued the draft, before the same was cleared and the amount thereof was credited to the account of

the new customer and he withdrew it.

Learned counsel for the appellant further relied on the following passage in Paget''s Law of Banking, Ninth Edition, at page 325 :

The principal risk run by a banker in collecting cheques and other orders to pay is the risk of conversion. It is a risk against which he is protected

by statute, providing - and the proviso is onerous - that he acts without negligence. The protection was hitherto to be found in section 82 of the

Bills of Exchange Act, 1882 .... But today resides in section 4 of the Cheques Act, 1957 ....

Corresponding to said section 82 of the English enactment, section 131 of our Negotiable Instruments Act provides the law verbatim same, as

follows :

Non-liability of banker receiving of cheque. - A banker who has in good faith and without negligence received payment for a customer of a

cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the

cheque by reason only of having received such payment.

Further, section 131A of the Act provides, inter alia, the section 131 of the Act shall to any draft also. Further, it has also been held that the

expression ""received payment for a customer"" appearing in section 131 of the Act is not restricted to the actual receipt of payment only, but it

includes the whole transaction from the taking of the cheque to the receipt and disposition of the money. (vide Bharat Bank Ltd. v. Kishinchand

Chellaram, [1954] 24 Comp Cas 67; [1954] 1 MLJ 560.

Learned counsel for the appellant then drew our attention to Thackwell v. Barclays Bank, [1986] 1 All ER 676 where it was held that the onus

of proof under the above-said section 4 of the 1957 Act was on the collecting bank to establish that it had received payment of the cheque in good

faith and without negligence. Learned counsel also relied on Corpenters Co. v. British Mutual Banking Co. Ltd. [1937] 3 All ER 811 , where it

was held that as a receiving bank the defendant bank had been guilty of conversion, and that, as it had been found to have acted negligently, it was

not protected by the Bills of Exchange Act, 1882, section 82. Learned counsel also relied on a similar decision in Lloyds Bank Ltd. v. E. B.

Savory and Co. [1932] All ER 106; [1933] 3 Comp Cas 218 Then, learned counsel for the appellant also relied on Kanyalal Thakurdas, Bankers

Vs. The Bombay Cycle Importing Company, Cycle dealers, , where it has been held that section 131 protection is not available to a banker unless

he can bring himself within the conditions formulated in the said section 131. It further observed that, broadly speaking, the banker must exercise

the same care and foresight in the interests of the true owner, with regard to cheques paid by the customer, as a reasonable businessman would

bring to bear on similar business of his own. The Division Bench has further observed that the alleged contributory negligence on the part of the

true owner"" (i.e., the person who was entitled to demand the money represented by it) can be no answer by the person who converted the article

that he should be let off from his liability because of the negligence of the true owner.

In the light of the abovesaid decisions, learned counsel for the appellant submitted that the defendant bank had not discharged its onus of proof

regarding its non-negligence in the present case. He reiterated that unless the said non-negligence was proved, the defendant could not have the

protection u/s 131. He further submitted that the defendant examined only one witness, viz., D.W. - 1, who did not personally know about the

taking of the above-said drafts for collection in June, 1975. D.W. - 1 was not the bank manager at that time. The person who was the branch

manager at that time has not been examined and so, according to him, the above-said onus has not been discharged by the defendant.

On the other hand, learned counsel for the respondent pointed out that D.W. - 1 specifically deposed that the branch manager, who was

working in 1975, had resigned and his address was not known. Therefore, only he could not be examined, learned counsel submitted. Learned

counsel for the respondent then very much relied on the decision in Indian Overseas Bank v. Industrial Chain Concern [1990] 67 Comp Cas 255,

where the Supreme Court observed as follows (at pages 269 and 270) :

To enable a bank to avail of the immunity u/s 131 as a collecting banker, he has to bring himself within the conditions formulated by the section.

Otherwise, he is left to his common law liability for conversion or for money had and received in case of the person from whom he took the

cheques having no title or defective title. The conditions are : (a) that the banker should act in good faith and without negligence in receiving a

payment, that is in the process of collection; (b) that the banker should receive payment for a customer on behalf of him and thus acting as a mere

agent in collection of the cheque and not as an account holder; (c) that the person for whom the banker acts must be his customer; and (d) that the

cheque should be one crossed generally or especially to himself.

The receipt of payment contemplated by the section is one from the drawee bank. It is settled law that the onus of biringing himself within the

section rests on the banker .... We have already observed that the principle enunciated in Commissioners of Taxation v. English, Scottish and

Australian Bank Ltd. [1920] AC 683, is that the opening of the account is material as shedding light on the question whether there was negligence

in collecting a cheque does bring out the true position that there must be sufficient connection established between the opening of the account and

the collection of the cheque before a defence u/s 131 could be held to be barred. The question would then be one of fact as to how far the two

stages can be regarded as so intimately associated as to be considered as one transaction. We have already found that in the instant case there was

no evidence to show that the opening of the account and the collection of the cheque before a defence u/s 131 could be held to be barred. The

question would then be one of fact as to how far the two stages can be regarded as so intimately associated as to be considered as one

transaction. We have already found that in the instant case there was no evidence to show that the opening of the account and the collection of the

cheques and drafts formed part of the same transaction ..... Where the protection attaches, it covers the receipt of the cheque and every step taken

in the ordinary course of business and intended to lead up to the receipt of payment. Even if there was negligence in opening of the account that act

ipso facto would not result in loss to the true owner of the cheque collected.

From the abovesaid observations of the Supreme Court, the first thing that is clear is no doubt that the onus of bringing himself within the

abovesaid section 131 rests on the defendant- respondent herein. That is why learned counsel for the plaintiff- appellant laid very much emphasis

that the above said onus had not been discharged by the respondent and, hence, the respondent could not claim protection u/s 131 of the Act and

so, the respondent was liable to pay the suit amount as per the general law of conversion. However, in this connection it was also to be noted that

if the entire evidence has been adduced by both the parties and the court feels it can make up its mind as to the truth of the version of either party,

then the ultimate decision of the court will not turn upon the burden of proof. The Supreme Court has also observed in Paras Nath Thakur v.

Mohani Dasi, AIR 1959 SC 1204, that ""onus of proof loses much of its importance where both the parties have adduced their evidence."" Further,

to come under the protection u/s 131, the banker in question had no doubt to establish that he was not negligent, that is, he has to prove a negative

fact. In this connection, the following observation of a Division Bench of this Court in M. Krishnaswami Naidu Vs. The Right Honourable the

Secretary of State for India in Council and Others, , could also be usefully referred to (at page 18) :

.... but when a negative fact has to be proved, it may be that in a large number of cases no more than prima facie evidence, as to the non-

existence of the fact that is alleged not to have existed, is available or can be adduced, and in such cases, a plaintiff can be expected to do nothing

more than produce such evidence to substantiate his allegations prima facie.

Anyway, in the present case, the only plea in the plaint regarding the negligence of the respondent, so as to disentitle it to the protection

afforded u/s 131, is as follows (as stated in paragraph 7 of the plaint) :

..... the negligence of the defendant in opening a current account in the name of N. Krishnamurthy without proper introduction ....

But, this allegation is met in the written statement of the defendant by saying

The loss in question was not in any way due to any negligence on the defendant''s part, either proximately or remotely. But, it was entirely due to

plaintiff''s negligence or non-diligence ... The defendant was not negligent in allowing the opening of the current account when there was nothing to

evoke any suspicion.

As found by the trial court, there was a similar allegation and denial in exhibit A-8 notice dated July 1, 1975, by the plaintiff to the defendant

and exhibit A-9 reply dated July 18, 1975, by the defendant to the plaintiff, respectively. In fact in exhibit A-9, it is also mentioned :

In the normal course of business, we sent them for collection in clearing. The very fact that the same were paid by you in the usual course shows

that alterations in the wordings or figures in the said draft, if any, were of such nature as not to make even the drawee bank probe at the time of

payment.

As against these rival pleadings, when we look to the abovesaid observations of the Supreme Court, we find that it has observed that even if

there was negligence in the opening of the account, that ipso facto would not result in loss to the true owner of the cheque collected. So, the

abovesaid plea in the plaint, by itself, is not sufficient to hold that the defendant was not entitled to the protection u/s 131 of the Act. Unless the

plaintiff has also made the plea that there was ""sufficient connection established between the opening of the account and the collection of the

cheque."" the defence u/s 131 could not be held to be barred. In other words, only when there is such a plea of the abovesaid connection, the court

would go into the question about the sufficiently of the said connection between the between the opening of the account and the collection of the

cheque, that is, in the words of the Supreme Court, ""then only, the court would go into the question"" ""as to how far the two stages can be regarded

as so intimately associated as to be considered as one transaction"". But, in the present case, as already stated, there is no such plea regarding the

abovesaid connection. Even in the above-referred case of Bharat Bank Ltd. [1954] 24 Comp Cas 67 : [1954] 1 MLJ 560, it was observed as

follows (at page 75 of 24 Comp Cas) :

It might happen that even when an account is opened without a proper enquiry, it might continue to be operated upon satisfactorily for some time

but long afterwards a cheque might be put into the account which might turn out to be forged. In such a case it cannot be laid down as an

inexorable rule that negligence in the opening of an account must be treated as negligence in the receipt of the amount of the cheque. In all the

decisions in which negligence in opening the account was held to preclude a defence u/s 82 of the English Act, the opening of the account and the

deposit of the cheque were contemporaneous or so close in point of time as to be regarded as one transaction.

But, as already stated, the above-referred material fact of both the above-said acts being ""contemporaneous or so close in point of time as to

be regarded as one transaction"", has not been pleaded at all. So, it cannot be held that the respondent is not entitled to the protection u/s 131 of

the Act. This plea is absolutely necessary and when there is no such plea, even if there is evidence to that effect, it cannot be looked into. But, in

the present case, learned counsel for the appellant did not bring to our notice any evidence, at least regarding the above said connection, either in

what P.W. - 1 deposed or in any document. In such a situation, it cannot be said that the respondent has not discharged the above-said onus of

proof on it.

Even in the above-said referred passage extracted from the Supreme Court decision, it has been specifically stated that in case ""there was no

evidence to show that the opening of the account and the collection of the cheques and drafts formed part of the same transaction"". But, in the

above-referred case, Indian Bank Indian Bank Vs. Catholic Syrian Bank Ltd., , there was such evidence, as discussed in paragraph 8 of the said

judgment. That is why, after referring to the abovesaid decision in Bharat Bank Ltd. [1954] 24 Comp Cas 67; [1954] 1 MLJ 560, this court, in

the abovesaid case, Indian Bank Vs. Catholic Syrian Bank Ltd., , came to the conclusion as follows (at page 135) :

As regards the ruling in Bharat Bank Ltd., Madras Vs. Kishinchand Chellaram, , it is no doubt true that Desai''s account was not opened with

exhibit A-1 itself, but the draft had been put into the account so shortly after the opening of the account as to lead to the inference that it forms part

of the opening of the account, and consequently, the negligence in the matter of opening the account has to be treated as negligence in the matter of

realisation of the cheque as well.

Further, it has also been observed there as follows :

It is well known that for determination of the question of negligence a universal test or an inviolable formula cannot be laid down or prescribed. As

pointed out in Commissioners of Taxation v. English, Scottish and Australian Bank Ltd. [1920] AC 683; AIR 1920 PC 88, it is really impossible

to lay down rules which will determine ''what is negligence and what is not'' and ''each case must be determined on its circumstances'' Therefore,

we have to judge the charge of negligence levelled against the officers of the appellant with reference to the evidence available in the case.

Therefore, we have to infer that in Indian Bank Vs. Catholic Syrian Bank Ltd., , there was the said ""charge of negligence"" in the form of

requisite plea and that there was evidence to prove the same. That is why, in the said decision, the conclusion was reached as stated above.

Thus, Indian Overseas Bank Vs. Industrial Chain Concern, , and Indian Bank Vs. Catholic Syrian Bank Ltd., , are distinguishable and in the

present case, since there is no requisite plea by the appellant-plaintiff as stated above or at any rate no evidence was brought to our notice to

establish the said requisite plea, we hold that the defendant-respondent is protected u/s 131 of the Negotiable Instruments Act.

On the other hand, it can be concluded that the plaintiff-bank was negligent. The relevant payments were made by the plaintiff even before it

received advice from its respective branches at Vaniyambadi and Tirunelveli regarding the drawing of the relevant drafts. P.W. - 1 strangely stated

that despite the non-receipt of the said advice, no suspicion arose and the suspicion arose after a week only. No doubt, in the abovesaid case,

Indian Bank Vs. Catholic Syrian Bank Ltd., , it has been observed as follows (at page 137) :

When the draft was sent for collection, no duty was cast on the respondent bank to first obtain clearance from the Singanallur branch of the bank

and then pay the amount covered by the draft to the collecting bank.

But, in the present case, the drafts are for huge amounts and in such cases, it is admitted by P.W. - 1 that they have to scrutinise the drafts

under ultra violet rays. Yet, it was not done. The Supreme Court, in the above-referred decision also pointed out that one of the tests of testing

whether the bank was negligent, though not always conclusive, is to see whether the rules or instructions of the bank were followed or not. In this

connection, learned counsel for the respondent requested learned counsel for the appellant to produce before us the memorandum of instructions

followed by the appellant-bank in honouring the cheques or drafts. He very much stressed that if those instructions are before the court, the court

would see that the appellant-bank definitely did not follow the said instructions. But, learned counsel for the appellant could not produce the same.

However, it is also not clear whether the respondent at least gave notice to the appellant in the court below to produce the said memorandum of

instructions or made any attempt to summon it through the process of court. Anyway, as already stated, P.W. - 1 has admitted that if the draft is

for a huge amount, they have to scrutinise it under ultra violet rays. Yet such scrutiny was not done despite the fact that the ultra violet lamp was

available with the appellant. So, we think we can safely conclude that the appellant was negligent. Further, if only the plaintiff had taken the

necessary care expected of it, it could have averted the abovesaid loss sustained by it. In fact, at the final stage of honouring the cheque or draft,

greatest care must be taken.

In the result, there is no reason for interfering with the judgment and decree of the trial court and hence the appeal is dismissed. However, in

the circumstances of the case, no costs.

We may also add that in the wake of increasing frauds, banks in this country should exercise greater care and exhibit greater diligence in their

dealings.

We also find that in many cases, the depositions recorded by the subordinate courts are not legible. In fact in the present case it was very

difficult for both counsel as well as for ourselves to decipher most of the passages recorded by the court below. The evidence recorded is not a

lengthy one and yet it has not been recorded legibly. Greater care must be taken by the subordinate courts in writing out the depositions. It is

needless to say that justice should not fall on the mere ground that what has been recorded as evidence is not legible.

We may also add one another unhelpful trend. In many first appeals, we find that necessary steps as provided under Order 8 of the Appellate

Side Rules have not been taken for the preparation of the record in the appeals against original decrees of the subordinate courts. In the present

case, for example, neither the documents, nor the oral evidence have been cyclostyled through court, pursuant to the relevant rules in Order 8 of

the Appellate Side Rules. Rule 20 of the said Order no doubt says - ""At the hearing of an appeal, the court may refuse to permit either party to

refer to, or rely on, any paper not included in the record prepared in accordance with the rules."" However, we normally do not refuse to grant the

permission contemplated therein in our anxiety to see that justice does not fail on that account. Even when the abovesaid rules are not complied

with, we even take the trouble of looking to the originals them selves, at times with great difficulty and spending more time. In this regard, we very

much seek the assistance of the members of the Bar in a greater measure by themselves conforming to the Rules.