Back
HIGH COURT OF CALCUTTA
Bachawat
CALCUTTA NATIONAL BANK LTD. , EX PARTE: DARUWALA BROTHERS - Appellant
Versus
STATE - Respondent
. Of .
Decided On : FEBRUARY 19, 1954
BANKING - AGENCY - COLLECTION OF BILLS - FIDUCIARY OBLIGATION - TERMINATION OF AGENCY - ISSUE OF DRAFT - EXPRESS OR IMPLIED INSTRUCTIONS - TRACING OF COLLECTIONS TO SPECIFIC FUND.
Fact of the Case:
The Banking Company in liquidation collected bills as an agent for various claimants. The bank issued drafts drawn by one branch of the bank upon another branch or the head office of the bank. The drafts were dishonoured on presentation. The claimants did not give any express instructions for the issue of the draft.
Finding of the Court:
The court held that the agency of the bank did not terminate on the issue of the draft in the absence of express or implied instructions from the claimants. The bank continued to hold the collections in a fiduciary capacity and the claimants were entitled to trace the collections to a specific fund.
Issues: Whether the agency of the bank terminated on the issue of the draft in the absence of express or implied instructions from the claimants.
Ratio Decidendi: Ordinarily, the agency of a banker employed to collect and remit money does not terminate on collection but continues until payment. The agency may terminate if the banker is instructed to issue a draft and a draft is actually issued in compliance with such direction. However, the agency does not terminate if the draft is issued contrary to instructions or in the absence of instructions.
Final Decision: The court declared that the sums collected by the bank on behalf of the claimants were held in trust and/or in a fiduciary capacity and the claimants were entitled to trace the collections to a specific fund.
( 1 ) THIS judgment is intended to deal with several claims on account of bills collected by the Banking Company in liquidation.
( 2 ) A banker employed to collect and remit money is under a fiduciary obligation to account for and to pay the money to his principal according to directions.
( 3 ) ORDINARILY, the agency does not terminate on collection but continues until payment: --'w. Rule Pink v. Buldeo Dass', 26 Cal 715 (A); --'babu Ram v. Ram Dayal', 12 All 541 (B ).
( 4 ) IF in the absence of any instruction from the principal the banker remits the money by draft, the principal may accept the draft as a conditional payment. If the draft is honoured and the money is paid, the business of the agency is completed; if not, the original obligation of the banker to pay the money is revived and the agency continues.
( 5 ) THE parties may agree that the banker may use the money collected for his own purposes under an obligation to repay an equivalent to the principal instead of remitting the money to the. principal in cash. So soon as the banker be-comes entitled to use the moneys as his own, a' debt is created and the fiduciary obligation and the agency terminate.
( 6 ) THUS if the banker is employed to collect a cheque and to credit the proceeds in the current account of the principal with the banker the agency terminates and the ordinary relationship of a banker and a customer is created so soon as the proceeds are credited in the current account.
( 7 ) AGAIN, if the banker is employed to collect money and to issue a draft for the amount collected, the business of the agency terminates as soon as the draft is issued. By the express direction of the principal, the banker then may issue the draft in lieu of making payment in cash. By the issue of the draft, in such circumstances, the banker accounts for the money collected to the satisfaction of the principal. The fiduciary obligation to account for and to pay the amount collected ceases and henceforth, the banker is under an obligation to honour and pay the draft according to the tenor thereof.
( 8 ) IF the banker issues a draft contrary to instructions or in the absence of instructions or does not issue a draft at all, the agency continues until the money collected is paid to the principal.
( 9 ) IN each case the question is: has the agency terminated or does it continue?
( 10 ) IN -- 'alliance Bank of Simla Ltd. v. Amritsar Bank', AIR 1915 Lah 214 (C), the Alliance Bank of Simla sent two bills for collection to Amritsar Bank and directed the latter to send "your drafts on realisation" after deducting the usual charges. The Amritsar Bank realised the money, made a small deduction for charges and remitted the balance by two drafts on the Peoples Bank. Before the drafts could be cashed both Peoples Bank and Amritsar Bank went into liquidation,
( 11 ) THE Court observed:"the appellant bank distinctly asked the Amritsar Bank to send drafts on Delhi and this direction was fully carried out. We consider that as soon as the drafts in accordance with the instructions were despatched, the special business, for which the agency had been created, was completed. The agency then ipso facto terminated (vide Section 201, Companies Act) and the fiduciary relationship came to an end. Henceforward the appellant bank was simply a creditor of the Amritsar Bank, and if the drafts were dishonoured, the remedy was for the recovery of the debt due on these drafts. "this decision was followed by Sinha J. in --'noakhali Union Bank Ltd. , In re:, 54 Cal WN 744 (D) and by Banerjee J. in -- 'calcutta Commercial Bank Ltd. , In re:', 54 Cal WN 747 (E ).
( 12 ) THE last two decisions establish that where there is express direction by the principal to issue a draft and a draft is actually issued in compliance with such direction the principal becomes an ordinary creditor although the draft which is issued is a draft drawn by one branch of the bank upon another branch or upon the head offi
AI
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
