Judgment

K.N. SAIKIA, J.-This defendants appeal by special leave is from the judgment of the High Court of Judicature at Madras, dated October 1, 1981 passed in Appeal No. 516 of 1977 dismissing the appeal and affirming the decree in O.S. No. 7667 of 1975.

2. The respondent - Industrial Chain Concern as plaintiff filed Original Suit No. 7667 of 1975 in the City Civil Court, Madras for recovery of Rs 26,383.49 together with interest and costs, being the total amount of loss sustained by it on account of the alleged negligence and conversion on the part of the defendant - Indian Overseas Bank having its central office at 151, Mount Road, Madras-2, hereinafter referred as the Bank, by negligently allowing one Sethuraman, Manager of the plaintiff firm at Madras, to open a fictitious account in the name of Industrial Chain Concern as its proprietor and helping him to pay in stolen drafts and cheques drawn in favour of the plaintiff and collecting the same and paying to Sethuraman the proceeds thereof and closing the account thereafter. It was the case of the plaintiff that it was doing extensive business in Steel Roller Chains and Sprockets with leading industries and government undertakings. Its head office was situate at 36, Linghi Chetti Street, Madras-1. It had supplied goods to seven parties who sent to it drafts and cheques in its name amounting to Rs 26,383.49 and those drafts and cheques had been received by Sethuraman, its Manager, who after opening the fictitious account in the Banks Nungambakkam Branch paid in the stolen drafts and cheques and the Bank collected those arid allowed Sethuraman to withdraw the same defrauding the plaintiff. The plaintiff averred that the Bank was negligent and guilty of conversion in opening of the account, collection of the cheques and drafts and allowing Sethuraman to withdraw the same and therefore, it was liable to make good the plaintiffs loss.

3. The appellant Bank as defendant resisted the suit contending, inter alia, that it was not negligent in allowing Sethuraman to open the account inasmuch as approaching the Bank Sethuraman represented that he, as proprietor, had started a firm under the name and style of "Industrial Chain Concern" and proposed to open an account in that name. Since the Manager of the Bank at Nungambakkam Branch was erstwhile classmate of Sethuraman he (the Manager) knew him and gave the introduction relying on which the current account was opened and after opening the account, which was a real account and not a fictitious account as alleged, various cheques and drafts had been paid into the account by the customer for collection and the Bank in good faith and without negligence, in course of its business, collected them and credited the account and Sethuraman as customer withdrew money from his account, and that neither at the time of opening the account nor at the time of paying in and collection of the cheques, nor at the time of allowing money to be withdrawn there was anything to arouse any suspicion regarding the bona fides of the representation made by Sethuraman. Later on the customer having expressed a desire to close the account because, as he said, he was winding up his business, the account was closed. There was, therefore, no negligence on the part of the Bank acting in good faith and it was not liable for conversion.

4. At the trial the plaintiff firm examined its Manager D.R. Murthy (PW 1) while the defendant Bank also examined its Manager S.P. Muthukrishnan (DW 1). The trial court decreeing the suit held that the defendant Bank had acted in good faith but not without negligence in opening the account and operating the same and in the process of collection of the cheques and drafts and it was not entitled to invoke the protection of Section 131 of the Negotiable Instruments Act and, consequently, it was liable to make good the loss with interest as claimed by the plaintiff. The Bank having appealed therefrom, the High Court agreed with the findings o