IMPORTANT POINT
Section 131 of Negotiable Instruments Act protects the banker who encashed crossed cheque in respect of which its client had no title provided banker has acted in good faith and without negligence.

JUDGMENT

S.N. Variava, J.-This Appeal is against a Judgment dated 5th October, 1995.

2. Briefly stated the facts are as follows:

The Appellant received a cheque for Rs. 1,00,000/- from the 3rd Respondent. The cheque was drawn on the 2nd Respondent Bank. The Appellant sent the cheque by post along with some other cheques. However, the cheque in question was stolen in post and was altered to read as if it was payable to Shri K. Narayhanan. A person calling himself K. Narayhanan opened a bank account with the 1st Respondent Bank on 24th December, 1982. The account was opened with a sum of Rs. 20/-. The customer then asked for a cheque book and was informed that the minimum balance had to be Rs. 100/- to obtain a cheque book. He therefore put in Rs. 80/- into the account. He was then issued a cheque book. Thereafter on 29th December, 1982 the cheque for Rs. 1,00,000/- was deposited into the account and the same was collected by the 1st Respondent on behalf of its client. On 30th December, 1982 a sum of Rs. 50,000/- was withdrawn from the account just prior to stop instructions being received.

3. The said K. Narayhanan turned out to be a fictitious person. He was never traced again. The remaining balance of Rs. 50,000/- was ultimately returned to the Appellant. When the Appellants claimed the sum of Rs. 50,000/- from the 1st Respondent they claimed protection of Section 131 of the Negotiable Instruments Act.

4. The Appellant thus filed a Suit for recovery of the sum of Rs. 50,000/-. The Suit was decreed by the trial Court. However, the High Court has allowed the Appeal of the 1st Respondent, set aside the decree of the trial Court and dismissed the Suit. Hence this Appeal.

Section 131 of the Negotiable Instruments Act reads as follows:

"131. Non-liability of banker receiving payment of cheque.-A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment."

It is thus to be seen that a banker, who encashes a cheque, in respect of which his client had no title, would become liable in conversion or for money had and received. However, Section 131 of the Negotiable Instruments Act protects the banker, provided he has received payment in good faith and without negligence of a cheque crossed generally or specially.

5. In the case of Indian Overseas Bank vs. Bank of Madura Ltd. reported in (1992) Vol. 75 Company Cases 481, the receiving banker was held guilty of negligence and lack of good faith inasmuch as it had allowed the opening of an account with a small amount and shortly thereafter, i.e. within 9 days allowed withdrawal of a sum of Rs. 9,500/-. It was held that the opening of the account, the presentation of the draft and withdrawal of the amount were part of one integral scheme. The fact that the person who introduced the account holder had not been examined in the suit was held against the Bank.

6. In the case of Syndicate Bank vs. United Commerical Bank reported in (1991) 70 Company Cases 48, it was held that the Appellant bank had to prove that it had acted in good faith and without negligence. It was held that the fact that the customer had just opened the account and had only one transaction with the bank, namely the encashment of the cheque, showed that the bank had not acted in good faith and without negligence.

7. In the case of Brahma vs. Chartered Bank reported in AIR 1956 Calcutta 399, it has been held that the onus of proving "good faith" and "absence of negligence" is on the banker claiming protection under Section 131 of the Negotiable Instruments Act. It is held that in deciding whether a collecting banker has or has not been negligent it becomes necessary to take into consideration many factors such as the customer, the account and the surrounding circumstances. It is held that if the cheque