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Andhra Pradesh High Court
CANARA BANK LIMITED - Appellant
Versus
GOVIND RAM RAJINDER KUMAR - RESPONDENT
Decided On: 09-25-80
A collecting bank is liable to the true owner of a cheque if it receives payment without negligence and in good faith. A drawee bank is not liable to the true owner of a cheque if it pays the cheque in due course, even if the endorsement on the cheque is forged.
Headnote:
NEGOTIABLE INSTRUMENTS ACT - SECTION 131 - SECTION 85-A - CONVERSION - ENDORSEMENT - NEGLIGENCE - BANKER'S LIABILITY - CROSSED CHEQUE - COLLECTION OF DRAFT - CONFIRMATION OF ENDORSEMENT - GOOD FAITH - DUE COURSE - INTEREST.
Fact of the Case:
Plaintiffs, a firm, purchased a draft from Bank of Baroda (defendant No. 2) in favor of another firm (plaintiff No. 3). The draft was crossed and sent to plaintiff No. 3, but it was never received. Plaintiff No. 3 informed Bank of Baroda to stop payment, but the draft had already been cashed by Canara Bank (defendant No. 1) on the same day. Plaintiff No. 3 alleged that the endorsement on the draft was forged and that both banks were negligent in handling the transaction. The plaintiffs filed a suit against both banks and a bogus firm (defendant No. 3) for conversion.
Finding of the Court:
The trial court found that the endorsement on the draft was forged and that both banks were negligent. It decreed the suit against both banks and defendant No. 3 for the value of the draft, but dismissed the claim for interest. Both banks appealed, and the plaintiffs filed cross-objections claiming interest.
Issues: 1. Whether Canara Bank was negligent in confirming the endorsement on the draft without proper verification? 2. Whether Bank of Baroda was negligent in paying the draft without proper verification of the endorsement? 3. Whether the banks are liable to the plaintiffs for conversion? 4. Whether the plaintiffs are entitled to interest on the amount of the draft?
Ratio Decidendi: 1. The court held that Canara Bank was negligent in confirming the endorsement on the draft without proper verification. The endorsement was in Urdu, and the bank manager who confirmed it did not know Urdu. The bank also failed to verify the authority of the person who made the endorsement. 2. The court held that Bank of Baroda was not negligent in paying the draft, as it relied on the confirmation of the endorsement by Canara Bank. The court noted that the law does not demand the same care and caution from a drawee bank when a draft is presented for collection through a collecting bank. 3. The court held that both banks were liable to the plaintiffs for conversion, as they had both acted negligently in handling the transaction. 4. The court dismissed the plaintiffs' claim for interest, as it found that the banks had acted in good faith and without negligence.
Final Decision: The court dismissed the appeals of both banks and dismissed the plaintiffs' cross-objections. The decree of the trial court was modified to the extent that the suit against Bank of Baroda was also dismissed.
( 1 ) THIS order will dispose of R. F. As. 325 and 459 of 1970- The first appeal is filed by Canara Bank Limited, defendant No. 1, and the otheappeal has been filed by Bank of Baroda, defendant No. 2.
( 2 ) THE appeals are directed against the judgment and decree passed by the learned Subordinate Judge, 1st Claas, Delhi, dated 9th January, 1970 whereby the learned Subordinate Judgp had passed a money decree or recovery of Rs. 10,000 against the appellants (defendants 1 and 2) and M/s. Universal Traders, defendant No. 3, on a suit filed by the plaintiffs for conversian. The plaintiffs in the suit were M/s. Govind Ram Rajinder Kumar, Bareilly (plaintiff No. 1),. M/s. Govind Ram and Sons, Bareilly (plaintiff No. 2) and M/s. Mithan Lal Mangal Sain, Delhi (plaintiff No. 3 ). Plaintiff No. 2 is a branch of plaintiff No. 1.
( 3 ) PLAINTIFF No. 2 used to purchase cloth from plaintiff No. 3 on credit and used to pay for the goods supplied by plaintiff No. 3 at their convenience.
( 4 ) THE plaintiff No. 2 on 6th December, 1965 wanted to remit Rs. 10,000 to plaintiff No- 3 and for that purpose approached the Bareilly branch of Bank of Baroda (defendant No. 2) and purchased a draft for Rs. 10,000 in the name of M/s. Mithan Lal Mangal Sain (plaintiff No. 3 ). The draft was a crossed one. The draft was sent by plaintiff No. 2 to plaintiff No. 3 but since plaintiff No. 3 approached plaintiff Nos. 1 and 2 at Bareilly again on 11th December, 1965 and were informed that they have not received the aforesaid draft sent to them plaintiff No. 3 also wrote to Bank of Baroda (defondant No. 2) about stopping payment of the said draft.
( 5 ) DEFENDANT No. 2, however, informed the plaintiff by their letter dated 14th December, 1965 that the said draft was presented to them for encashment on 9th December, 1965 through Canara Bank, Delhi defendant no. 1) and was cashed on the same day. The plaintiff No. 3 was also informed that the draft has been endorsed in favour of defendant No. 3 and the endorsements were confirmed by Canara Bank. (defendant No. 1 ).
( 6 ) IT was then alleged in the plaint that on an enquiry made by the plaintiffs, it was revealed that one Ram Chand opened the account in the name of M/s. Universal Traders, Lal Kuan, Hauz Qazi, Delhi, describing himself as proprietor of M/s. Universal Trader (defendant No. 3) with Canara Bank (defendant No. 1) and the said Shri Ram Chand was introduced to defendant No. 1 by M/s. Shambu Nath and Co. (defendant No. 4 ).
( 7 ) PLAINTIFF No. 3 never received the draft in question and never endorsed the same in favour of M/s. Universal Traders. It was averred that the alleged endorsement by plaintiff No. 3, M/s. Mithan Lal Mangal Sain, in favour of M/s. Universal Traders, (defendant No. 3) was illegal, ultra vires, and was made by some interested person of the defendants who know all about the issue of the draft and had collected the same. It was also stated that the endorsement on the drafts shows that the signatory is one Manga) Sen. Mangal Sen whose name also appears in the name of plaintiff No. 3, died long back. The status of Mr. Mangal Sen in relation to the payee s firm was not indicated in the endorsement. The endorsement is highly irregular and should not have been acted upon by either Canara Bank Ltd. , or Bank of Baroda Lmited. The circumstances of-the endorsement and their confirmation in themselves are obviously doubtful and should have been noticed by the concerned banks, and defendant No. 2 ought not to have. paid on said endorsement.
( 8 ) IT was then alleged that Canara Bank Ltd. , is liable to the plaintiffs or. any of them on account of their negligence in confirming the alleged endorsement of plaintiff No. 3 in favour of defendant No. 3 without knowing whether the endorsements were made by correct persons. Bank of Baroda was alleged to be liable for negligence in encashing the draft without complying with the rules and regulations regarding endorsement on the draft and
