Pre-condition for protection for payment by paying-bank.

These appeals are directed against the decree and the judgment in O.S. No. 19 of 1954 of the District Courts, Alleppey, subsequently renumbered as O.S. No. 229 of 1956 of the Alleppey Sub-Court. The 1st defendant is the appellant in S.A. No. 1120 of 1964 and the 2nd defendant in S.A. No. 1287 of 1964.

The suit was for recovery of the amount covered by Exhibit P-1, a demand draft, and the interest thereon, from defendants 1 to 3.

The plaintiff is the proprietor of a business carried on at Alleppey in the name and style of “The Pioneer Trader.” Rama Prasad Auddy, P.W. 2 carried on a business at Calcutta in the name and style of M/s. Hurry Dass Auddy. M/s. Hurry Dass Auddy was a customer of the New Market branch of the Central Bank of India, Ltd., the 1st defendant.

The plaintiff used to purchase goods from M/s. Hurry Dass Auddy from 1953 onwards and pay the price thereof sometimes by purchasing demand drafts from the Alleppey branch of the 1st defendant-bank on its New Market branch at Calcutta payable to Hurry Dass Auddy or order and delivering the same to M/s. Hurry Dass Auddy through P.W. 1, a friend of the plaintiff at Calcutta. Exhibit P-1 is one such draft purchased by the plaintiff from the Alleppey branch of the 1st defendant-bank for Rs. 4,000. It was drawn on the New Market branch of the 1st defendant at Calcutta and was payable to ‘Hurry Dass Auddy.‘It was sent by the plaintiff to P.W. 1 to be delivered over to M/s. Hurry Dass Auddy. It was intercepted during transit, and was presented before the Shambazar branch of the 2nd defendant by the 3rd defendant for collection, with a forged endorsement in his favour purporting to be that of the payee. The 3rd defendant endorsed Exhibit P-1 in favour of the 2nd defendant. The 2nd defendant credited the amount covered by Exhibit P-1 in the account of the 3rd defendant and cashed it from the New Market branch of the 1st defendant-bank on 2nd November, 1953. The plaintiff's case was that (the appearance of) the endorsement on Exhibit P-1 draft, purported to have been made by the payee, was sufficient to put the 1st defendant on enquiry, that the payment to the 2nd defendant by the 1st defendant was not a payment in clue course, that the 1st defendant is liable to the plaintiff for the amount and the interest thereon, and that defendants 2 and 3 are guilty of conversion of the amounts, and are equally liable to the plaintiff for the amount and interest.

The 1st defendant contended that the 2nd defendant presented Exhibit P-1 on 2nd November, 1953 through the clearing house, and that the amount was paid in good faith and without negligence in accordance with the apparent tenor of the instrument; and claimed immunity under section 83-A of the Negotiable Instruments Act, 1881 (Act XXIV of 1881), hereinafter referred to as the Act. The 2nd defendant contended that the amount covered by Exhibit P-1 was collected on behalf of its customer, the 3rd defendant, in good faith and without negligence; and claimed protection under section 131-A of the Act. The 3rd defendant did not contest the case.

The trial Court held that the payment of the amount to the 2nd defendant by the New Market branch of the 1st defendant-bank was not a payment in due course, and therefore, the 1st defendant was not protected by section 85-A of the Act. The Court also held that since the 2nd defendant collected the amount on behalf of its customer, the 3rd defendant, in good faith and without negligence, it is entitled to get the protection envisaged by section 131-A of the Act. The suit was therefore decreed as against defendants 1 and 3, but dismissed as against the 2nd defendant.

The correctness of the judgment and the decree was challenged in A.S. No. 235 of 1962 by the plaintiff and by the 1st defendant in A.S. No. 237 of 1962 before the District Court.

The District Court agreed with the finding of the learned Subordinate Judge, and held that the 1st defendant is not entitled to claim immunity under section 8