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1994 Supreme(Kar) 15
Karnataka High Court
Syndicate Bank - Appellant
Versus
Jaishree Industries - Respondent
Decided On : 01-20-94
R.F.A. : 35 of 1986
G.NAGARAJULU NAIDU, J.JESHTAMAL, S.G.SUNDARA SWAMY
The main legal point established in the judgment is that the bank's duty of care in opening and operating an account extends to taking necessary precautions while accepting cheques for collection or payments, and the bank can be held liable for negligence in such matters.
Headnote:
Negligence - Bank's Duty of Care - Negotiable Instruments Act - Sections 131, 7 - Summary of Acts and Sections: Negotiable Instruments Act, Section 131 - The court discussed the duty of care owed by the bank in opening and operating an account, the negligence in allowing the account to be operated for encashment of the cross drafts drawn in favor of the Limited concern, and the bank's failure to take necessary precautions while accepting the cheques for collection or payments. The court held that the bank acted negligently and was not entitled to the protection of Section 131 of the Act.
Fact of the Case:
The plaintiff firm sued the defendants for recovery of a sum of Rs. 3,19,000 being the value of the draft for Rs. 2,51,125 and certain interest thereon. The plaintiff alleged that the first defendant bank was negligent in opening the account and in collecting the draft and making the payment to the third defendant, who was suspected of cheating. The trial court held the bank liable and decreed the amount in favor of the plaintiff.
Finding of the Court:
The trial court found the bank negligent in opening the account and in collecting the draft and making the payment to the third defendant. The court affirmed the trial court's decree and dismissed the appeal.
Issues: The issues included whether the plaintiff proved the negligence of the bank in opening the account and collecting the draft, whether the bank acted in good faith, and whether the bank was entitled to the protection of Section 131 of the Negotiable Instruments Act.
Ratio Decidendi: The court held that the bank acted negligently in opening the account and in allowing it to be operated for encashment of the drafts drawn in favor of the Limited concern by the third defendant. The court found that the bank failed to take necessary precautions while accepting the cheques for collection or payments and was not entitled to the protection of Section 131 of the Act.
Final Decision: The court affirmed the trial court's decree and dismissed the appeal, holding the bank liable for the amount in favor of the plaintiff.
( 1 ) THE first defendant in the suit is the appellant herein. The parties are referred to with reference to their rankings in the trial Court hereafter.
( 2 ) THE plaintiff sued defendants for recovery of a sum of Rs. 3,19,000/- being the value of the draft for Rs. 2,51,125/- and certain interest thereon. It is stated in the plaint that the plaintiff is a partnership firm. The business of the plaintiff was of manufacturing and selling Super Enamelled Aluminium Winding Wires at Ahmednagar. The plaintiff firm requires aluminium coils for the purpose of its business. The third defendant approached the partners of the plaintiff firm stating that he is a recognised Government auctioneer attached to the Defence Department of Government of India and that third defendant told the said partners that a lot of aluminium coils weighing 24. 5 tonnes were available at a floor price of Rs. 10. 25 Ps. per Kg. at Bangalore. The third defendant was entitled to brokerage of 10% on entire deal. The third defendant persuaded the plaintiffs partners to believe that aluminium coils were available at Bangalore with M/s. Axle Conductor Industries Ltd. (hereinafter referred to as "ltd. concern") which according to the third defendant was a Government of India undertaking belonging to its Defence Department. The third defendant also persuaded the partners of the plaintiff firm to agree to purchase the available aluminium coils for a sum of Rs. 2,51,125/ -. A draft was purchased by the partners of the firm at Ahmednagar payable to M/s. Axle Conductor Industries Ltd. , at Bangalore. The draft was purchased from State Bank of India.
( 3 ) THE two partners of the plaintiff-firm along with third defendant came to Bangalore and they reached Bangalore on 5-10-1979. They had purchased, as already noted, draft for a sum of Rs. 2,51,125/- on 3-10-1979. According to the plaintiff, the third defendant told the partners of the firm that an agreement shall have to be executed by them on Rs. 5/-stamp paper in favour of the Defence Director, Conductor Industries Ltd. , Government Ordinance Factory Unit, AIR Craft Shed, Bangalore, and accordingly the agreement was prepared and the said agreement along with the bank draft was kept in an envelop bearing the alleged emblem of the said Ltd. concern. The envelop was closed by the third defendant, but instead of returning the said envelop he managed to handover a similar envelop to the partners which was not noticed by the said partners at that time. The partners were further told that the factory was under inspection and therefore the goods would be available only on 8-10-1979. The third defendant and the two partners went outside the Bangalore and returned on 8-10-1979, since 6th and 7th October were holidays being Saturday and Sunday.
( 4 ) ON 8-10-1979 the third defendant seems to have made a telephonic call and then told these partners of the firm that the goods will be available only on 10-10-1979 as the factory was closed on the said date due to the demise of Jayaprakash Narayan. Accordingly the third defendant and the said partners went tot he transport office to book for the transportation of the consignment and thereafter on 10-10-1979 the third defendant left the two partners stating that he would meet them at the office of the transport company at 4. 00 p. m. so that all of them can proceed to the factory to collect the goods. In the meanwhile all of them had made arrangements for return journey to Ahmednagar and Hyderabad respectively. However on 10-10-1979 the partners or the plaintiff firm could not meet the third defendant even though they waited for him till late in the evening and only at the late hour in the evening they realised that the third defendant had absconded or was not traceable. On the next day i. e. , on 11-10-1979 the partners went in search of the Axle Conductor Industries Ltd. and the Defence building but they could not find the location of these establishments. They re
