BANK OF BARODA, LIMITED vs PUNJAB NATIONAL BANK, LIMITED

Headnote Court Copy Facts Arguments Court observation Judicial Analysis Case Map Category Hierarchy Table of Content

1944 Supreme(SC) 11

PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT MAUGHAM, LORD MACMILLAN AND LORD WRIGHT.
BANK OF BARODA, LIMITED - Appellant
Versus
PUNJAB NATIONAL BANK, LIMITED - Respondents
On appeal from the High Court of Calcutta.
Decided On : May. 18. 1944.

Important Points

Certification of a cheque is not an acceptance under the Negotiable Instruments Act and does not create a negotiable liability. A bank manager lacks ostensible authority to certify post-dated cheques, and such certification does not create an enforceable contract or estoppel regarding future funds.

Subject

Banking Law - Negotiable Instruments

Act Referred

INSTRUMENTS ACT: S.7

Headnote

(A) Negotiable Instruments Act, 1881 - Sections 6 and 7 - Certification of a cheque - Whether certification constitutes an acceptance of a bill of exchange - A cheque is a bill of exchange payable on demand and is not intended to be accepted; certification is neither in form nor in effect an acceptance that creates a negotiable liability. (Paras 39-42)

(B) Custom and Usage - Evidence of occasional laxity in banking practices is insufficient to establish a legally binding custom that would make a bank liable for certifying cheques. (Paras 43-44)

(C) Estoppel and Contract - A representation that funds will be available on a future date is a promise, not a representation of existing fact, and thus cannot support a claim of estoppel; furthermore, in the absence of privity and consideration, no enforceable contract exists between the certifying bank and a third-party holder. (Paras 44-45)

(D) Ostensible Authority - The ostensible authority of a bank manager does not extend to the certification of post-dated cheques. (Para 46)

Facts of the case:
A bank manager marked a post-dated cheque as "good for payment" on the date specified. A third-party bank, relying on this certification, advanced funds to the holder of the cheque. Upon presentment on the due date, the drawee bank refused payment as the drawer's account lacked sufficient funds. The holder bank sued the drawee bank, claiming liability as an acceptor, or alternatively, based on custom and estoppel.

Findings of Court:
The certification of a cheque is not an acceptance under the Negotiable Instruments Act. No binding custom was established regarding the certification of post-dated cheques. The claim based on contract or estoppel failed due to lack of privity, consideration, and the fact that the representation concerned future rather than existing facts. The manager acted without actual or ostensible authority.

Issues: Whether the certification of a post-dated cheque constitutes an acceptance under Section 7 of the Negotiable Instruments Act, 1881; whether a binding custom exists making banks liable for such certifications; and whether the bank is liable under the doctrines of contract or estoppel.

Ratio Decidendi: Certification is fundamentally different from acceptance and does not create a negotiable liability. A manager's authority does not normally extend to certifying post-dated cheques. A representation of future funds is a non-negotiable gratuitous promise and not a representation of existing fact required for estoppel.

Result: Appeal allowed; judgment for the respondent set aside and action dismissed.

Legal Category Hierarchy

Advocates:
Solicitors for appellants :Sanderson, Lee & Co. Solicitors for respondents: Douglas Grant & Dold.

Judgement

Appeal (No. 11 of 1943) from a judgment and decree of the High Court at Calcutta in its appellate jurisdiction (March 17, 1942), which had affirmed a judgment and decree of that court in its ordinary original civil jurisdiction (June 28, 1940).

The following facts are taken from the judgment of the Judicial Committee The appellant was a company doing banking business, established in the State of Baroda, under the Baroda Companies Act, 1896-7, and having its registered office in Baroda, with branches in British India. The respondent was a bank incorporated under the Indian Companies Act. Both banks had branches in Calcutta. M. P. Amin was manager of the Calcutta branch of the appellant bank. Bhagwan Das was manager of the Calcutta branch of the respondent bank. One Mitter (respondent No. 2) became a customer of the appellant bank at Calcutta. In May, 1939, one Ghose (respondent No. 3) opened an account with the appellant bank on the understanding that he should be allowed " temporary accommodation from time to time." That account was guaranteed by Mitter. On June 13, 1939, Ghoses account with the appellant bank showed an opening debit balance of Rs. 1,26,339, reduced during the course of the day to Rs. 89,274. On the same date Mitters account with the respondent bank was overdrawn to the extent of about Rs. 35,000. On that day, Mitter brought to the respondent bank two cheques drawn by Ghose on the appellant bank, both in favour of Mitter and both dated June 13, 1939 ; both cheques were marked on their face with the words " Marked " good for payment up to 20th June, 1939," and signed by Amin on behalf of the appellant bank. One cheque was for Rs. 1,40,000, and the other for Rs. 1,35,000. Mitter informed Bhagwan Das that the cheques would not be paid until June 20, 1939, and asked to be allowed to draw Rs. 2,40,000 against them. Bhagwan Das said he wanted a cheque the date of which was the same as that on which payment was to be made. Mitter then took away the cheques and returned a little later on the same day with one cheque dated June 20, 1939, drawn by Ghose on the appellant bank in favour of Mitter or order, for Rs. 2,75,000. The cheque was crossed " & Co.," and on the face of it were written crosswise the words " Marked good for payment on 20.6.39. For the Bank " of Baroda, Limited, M. P. Amin, Manager." It had not been questioned that the signature was that of Amin. Mitter endorsed the cheque generally and handed it to Bhagwan Das, with two letters, in which he asked the respondent bank to credit Rs. 2,75,000 to his account u on realization on due " date," and also requested an overdraft of Rs. 2,40,000, besides the previous balance, which he promised to adjust on June 20, 1939. The respondent bank on the same day gave Mitter its cheque for Rs. 2,40,000, on the Imperial Bank of India at Calcutta, which Mitter duly cashed. The respondent bank debited Mitters account with the amount.

Meantime, the appellant bank had become suspicious of the conduct of Amin, and had sent two senior officials to keep Amin under observation. On June 19 Amin was suspended, and early next day a notice was sent to the respondent and other banks that Amins power of attorney had been cancelled and another branch manager appointed. On June 20, the respondent bank, who, though they had not yet received the notice, had become apprehensive, sent their cashier and their accountant to the appellant bank, as soon as it opened for business that morning, to present the cheque marked as above which Bhagwan Das had endorsed generally for Rs. 2,75,000, over the counter for payment. Ghoses account was then in credit to the extent of annas 7 pies 3 only. The appellant bank refused payment, and returned the cheque with a memorandum attached " not arranged for." After some

Law. Rep. 71 Ind. App. 124 ( 1943- 1944) Bank of Baroda, Limited V. Punjab National Bank, Limited

correspondence the respondent bank, on July 31, 1939, commenced the present suit ag