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1962 Supreme(AP) 129
Andhra Pradesh High Court
Judges : CHANDRASEKHARA SASTRI, UMAMAHESWARAM
Bezonji Byramji and Co., Jalna - Appellant
Versus
Central Bank of India Ltd., Bombay - Respondent
Decided On : 07-30-62
A principal is liable for the fraud of his agent acting within the scope of his authority, whether the fraud is committed for the benefit of the principal or for the benefit of the agent.
Headnote:
NEGOTIABLE INSTRUMENTS ACT - ACCOMMODATION BILLS - BANK'S DUTY TO INFORM PRINCIPAL OF DISHONOURED BILLS - AGENT'S FRAUD - PRINCIPAL'S LIABILITY - POWER OF ATTORNEY - AGENT'S AUTHORITY - BANK'S RELIANCE ON POWER OF ATTORNEY - DRAWER'S LIMIT - WAIVER BY BANK.
Fact of the Case:
Messrs. Bezonji Byramji and Co. (1st defendant) had a branch (2nd defendant) at Guntakal. The 2nd defendant appointed Minocher Rustomji as agent under a power of attorney to carry on business. Rustomji drew or endorsed hundies on behalf of the 2nd defendant, which were discounted by the Central Bank of India (plaintiff). Some of the hundies were dishonoured, and the plaintiff sued Messrs. Bezonji Byramji and Co. and Rustomji and Sons (3rd defendant) as the drawers and endorsers, respectively.
Finding of the Court:
The court held that accommodation bills are recognized by law and that the plaintiff was justified in discounting them. The court also held that the plaintiff was not negligent in discounting the hundies even though some of them had been dishonoured, as the drawers or endorsers were paying the amounts. The court further held that the agent's fraud did not absolve the principal from liability, as the agent was acting within the scope of his authority. The court also held that the plaintiff was entitled to rely on the power of attorney granted to the agent and that the drawer's limit was not applicable to the hundies in question.
Issues: 1. Whether accommodation bills are recognized by law and whether the plaintiff was justified in discounting them? 2. Whether the plaintiff was negligent in discounting the hundies even though some of them had been dishonoured? 3. Whether the agent's fraud absolved the principal from liability? 4. Whether the plaintiff was entitled to rely on the power of attorney granted to the agent? 5. Whether the drawer's limit was applicable to the hundies in question?
Ratio Decidendi: 1. Accommodation bills are recognized by law, and the plaintiff was justified in discounting them. 2. The plaintiff was not negligent in discounting the hundies even though some of them had been dishonoured, as the drawers or endorsers were paying the amounts. 3. The agent's fraud did not absolve the principal from liability, as the agent was acting within the scope of his authority. 4. The plaintiff was entitled to rely on the power of attorney granted to the agent. 5. The drawer's limit was not applicable to the hundies in question.
Final Decision: The court modified the decree of the lower court and held that defendants 1 and 2 (Messrs. Bezonji Byramji and Co.) were also liable to pay the amount prayed for by the plaintiff.
( 2 ) THE case of the plaintiff, the Central Bank of India Limited, was that as the hundies which were issued by Messrs. Bezonji Byramji and Co. , as the drawer or the endroser were dishonoured, the Bank was entitled to proceed against Messrs. Bezonji Byramji and Co. , either as the drawer or the endorser. The learned Subordinate Judge accepted the contention of the plaintiff that in all the cases the liability of Messrs. Bezonji Byramji and Co. , as the drawer or the endorser arose. He held that consequently the plaintiff was entitled to a decree in O. S. Nos. 86 and 87 of 1953. So far as O. S. No. 84 of 1953 was concerned, the learned Subordinate Judge took the view that the drawers limit was exceeded and that consequently the Bank was not exceeded to recover the amount from Messrs Bezonji Byramji and Co,
( 3 ) FOR the purpose of understanding the contentions of the parties, it is necessary to set out a few relevant facts. Messrs. Bezonji Byramji and Co. , the 1st defendant was carrying on business at Jalna. The 1st defendant had a branch by name Messrs Bezonji Byramji and Co. , at Guntakal. Though it was disputed in the court below that the 1st defendant had no connection with the 2nd defendant, the court below held that the 2nd defendant was a branch of the 1st defendant-firm. The learned Advocate General did not question that finding but conceded that the 2nd defendant was a branch of the 1st defendant.
( 4 ) THE 2nd defendant appointed one Mino-cher Rustomji as the agent under a power of attorney to carry on the business of the 2nd defendant-firm at Guntakal. The power of attorney runs in the following terms :"i/we authorise Mr. Minocher Rustomji whose specimen signature is given below to make, draw, accept or otherwise sign any bill of exchange or other negotiable instrument and to discount the same with your bank or otherwise and to also endorse cheques or other negotiable instruments of any description. I/we undertake to pay the bank all such sums due together with all charges if any of such bills remains unpaid. This authority shall Continue in force until I/we shall have expressly revoked it by notice in writing delivered to you. "acting on this authority, the agent Minocher Rustomji was either drawing hundies or enforcing hundies in favour of the Central Bank. The hundies which form the subject-matter of the three suits fall into three categories. Exs, A-42, A-43, A-44, and A-45 were hundies forming the subject matter of O. S. No. 86 of 1953 and were drawn by Michocher Rustomji as the Agent oi Messrs Bezonji Byramji and Co. , in favour of the Central Bank of India payable by Valji Jatha-bhai and Co. , and Kanji Ganji and Co. , respectively. As the drawee did not honour the hundies and pay the amounts, the Central Bank of India gave notice of dishonour to Messrs Bezonji Byramji and Co. , and O. S. No. 86 of 1953 was instituted for recovery of the sums payable in respect of those four hundies. Exhibits A-49, A-5o and A-5i form the subject-matter of O. S. No. 87 of 1953. Those hundies were issued by M. Rustomji and Sons, the 3rd defendant, of
