Indian Overseas Bank vs Bank of Madura Ltd.

Bellie, J.—The defendant, Indian Overseas Bank (represented by its chairman) 151, Mount Road, Madras-2, is the appellant against whom

the suit claim for money has been decreed.

The plaintiff, Bank of Madura Limited, represented by its manager of its Godown Street branch has filed the suit on the allegations that on

October 1, 1974, the plaintiff''s branch at Avenue Road, Bangalore-2, issued a demand draft, bearing No. 660529/3442/74 for Rs. 26 in favour

of one A.K. Traders payable at the plaintiff''s branch at Shevpet, Salem, at the instance of one Raju of Chikpet, Bangalore-4. This demand draft

has been fraudulently altered as if it is drawn in favour of one Masood Ahamed and payable at the plaintiff''s branch at Godown Street, and

amount payable is Rs. 12,605, and it has been presented for collection at the Sowcarpet branch of the defendant-bank. The said Sowcarpet

branch of the defendant''s bank has sent it for collection to the plaintiff''s Godown Street branch and that branch has sent the said sum of Rs.

12,605 to the defendant''s Sowcarpet branch. Subsequently the plaintiff-bank came to know about the alteration of the draft and the deception.

When the draft was received from the defendant''s Sowcarpet branch no tampering with the payee''s name or the amount or the name of the

branch was visible to the naked eye and the plaintiff''s employees had no reason to suspect about the genuineness of the draft and, acting in good

faith bona fide believing the endorsement of guarantee by the defendant''s Sowcarpet branch, it paid the amount. This was immediately intimated to

the defendant''s Sowcarpet branch and a lawyer''s notice also was sent to the defendant''s Sowcarpet branch demanding payment of the said

amount of Rs. 12,605 but the defendants sent a reply denying the liability. The defendant, as the collecting banker, is liable to reimburse the plaintiff

as the plaintiff-bank had paid the draft amount only on account of the fact that the draft came through clearance and was endorsed by the

defendant''s Sowcarpet branch. It is further alleged that the defendant had not used the usual care and caution and had acted negligently in

operating the account of Masood Ahamed. Hence the defendant is liable to pay the suit claim of Rs. 12,605 with interest thereon.

As against this, the defendant-bank filed a written statement contending that its Sowcarpet branch opened an account bearing No. 3912 on

September 24, 1974, in the name of S. Masood Ahamed after proper introduction. On presentation in that branch of the draft in question which

had been generally crossed on October 3, 1974, the amount found therein was collected from the plaintiff''s Godown Street branch and was

credited to the said account of Masood Ahamed in the ordinary course of business. The account-holder withdrew two sums of Rs. 1,000 and Rs.

8,500 on October 5, 1974, and another sum of Rs. 3,000 on December 7, 1974. On May 6, 1975, the defendant received a letter dated May 3,

1975, from the plaintiff''s bank informing about the alterations, etc., in the draft. The defendant sent a reply on May 22, 1975, stating that they

acted, in collecting the amount noted in the demand draft, in good faith and without negligence in the ordinary course of business. For nearly seven

months the plaintiff had not suspected the bona fides of the transaction. There was absolutely no occasion for the defendant to suspect the

genuineness of the draft. Therefore, the defendant cannot be made liable. The defendant is entitled to protection u/s 131 of the Negotiable

Instruments Act. On these contentions, the defendant prayed for dismissal of the suit.

Evidence has been let in by both sides. The trial court, on consideration of the evidence, came to the conclusion that it was only due to the

negligence on the part of the defendant that the plaintiff sustained loss and, therefore, the defendant is liable to pay the suit claim.

Mr. V. Narayanaswami, learned counsel for the appellant-defendant in this appeal, contended that the defendant had acted with all care and

caution and that there was absolutely nothing to show that it was negligent or careless in any way and that it is protected by section 131 of the

Negotiable Instruments Act and, therefore, the finding that the defendant is liable to pay the suit claim is wrong. But on a careful scrutiny of the

evidence and the circumstances in the case, it appears to me that the finding of the trial court is correct.

The evidence let in clearly shows and it is not in dispute also that draft No. 660529/3442/74 issued by the plaintiff''s Bangalore branch was only

for Rs. 26 and it was in favour of A.K. Traders payable at the Shevpet branch, Salem, and that has been fraudulently altered into one for Rs.

12,605 and in favour of one Masood Ahamed and payable at Godown Street branch, and that draft is exhibit A-5. This was presented at the

defendant''s Sowcarpet branch and it was endorsed by that bank and sent for collection and payment was received from the plaintiff''s Godown

Street branch. Learned counsel for the appellant-defendant contends that, to the naked eye, no correction is visible at all in exhibit A-5 and the

defendant''s Sowcarpet branch acted in good faith and without any negligence and, therefore, they are entitled to protection u/s 131131 of the

Negotiable Instruments Act. Learned counsel further submits that exhibit A-8 endorsement made by the bank, viz., ""Received payment through

Madras Clearing House, Payee''s account credited, Indian Overseas Bank, Sowcarpet"" has been made in a routine manner and this will not imply

lack of good faith or negligence on the part of the defendant-bank, and the court below has decreed the suit only on account of this endorsement.

That may be so but, from the other circumstances in the case, I am able to discern that the defendant-bank either did not act in good faith or acted

negligently.

It is the case of the defendant-bank that one Masood Ahamed was introduced to the bank by one Sunder and he opened an account on

September 24, 1974. It is not in evidence as to what was the amount with which he opened the account. But, considering the draft amount of Rs.

12,605 and the withdrawal of Rs. 12,500 and the balance amount in the account of Rs. 205.85 as seen from the evidence, it is beyond doubt that

he should have opened the account for only Rs. 100. Thus the account was opened with a small amount on September 24, 1974. The draft dated

October 1, 1974, was presented on October 3, 1974, i.e., shortly after i.e., within nine days of opening the account. Then, immediately after, i.e.,

within two days, viz., on October 5, 1974, he withdrew two amounts of Rs. 1000 and Rs. 8,500 totalling to Rs. 9,500 a fairly big amount. From

these particulars, it appears that the opening of the account and presentation of the draft and withdrawal of the amounts would appear to be one

integral scheme. Here it is very important to note that the introducer of Masood Ahamed who is said to be one Sunder has not been examined at

all. It is not the defendant''s case that Masood Ahamed had any account with the defendant''s bank any time earlier and, according to them, he was

a stranger. There is absolutely no evidence let in by the defendants as to who is that Sunder and where he is living, or why he has not been

examined especially when the said Masood Ahamed is absconding. It appears, according to the defendant that the papers relating to the

introduction are with the police in connection with a criminal case registered in this connection. That may be so but nothing prevented the defendant

from examining the said Sunder and summoning the said papers from the police for this case. Here, the smallness of the amount for which the

account was opened by Masood Ahamed assumes considerable importance in the sense that it is quite manifest that it is only for the purpose of

presenting the crossed draft that the account has been opened. It is stated that that Sunder was an account-holder in the Triplicane branch of the

defendant-bank. But that is not sufficient. May be even that account has been opened for a fraudulent purpose as in this case. Considering these, it

appears quite possible that there are more than one person involved in this fraudulent affair; even an official of the defendant-bank could be one

among them. These would clearly indicate that the defendant-bank either has not acted in good faith or has not acted with care and caution. To

seek protection u/s 131 of the Negotiable Instruments Act, the burden is on the defendant to prove that it acted in good faith and without

negligence. But, considering the circumstances stated above, it can be safely held that this burden has not been discharged. But for the defendant''s

endorsement exhibit A-8, the plaintiff-bank would not have parted with the amount of Rs. 12,605 seen in exhibit A-5. Hence, there is no doubt

that the defendant-bank is liable to pay the suit claim. Mr. V. Narayanaswami, learned counsel for the appellant-defendant, in support of his

contention, cites a decision of the Supreme Court in Indian Overseas bank v. Industrial Chain Concern [1989] 4 JT 334; [1990] 67 Comp Cas

But, on going through that decision, I find that the facts there are entirely different from the facts in the instant case. That was not a case where

even the introducer for opening an account in the defendant-bank for the person who presented the draft has not been examined and the account

opened was for a negligible sum whereas the draft in question was for a large sum.

In the result, therefore, the appeal is dismissed. No costs.