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Allahbad High Court
SATISHCHANDRA,T.S.MISRA
The State of U.P. - Appellant
Versus
The Hindustan Lever Ltd. - Respondent
Decided On : 02/08/1972
TREASURY - Liability of State Government for embezzlement of money by its officers - State Government is vicariously liable for the tortious acts of its servants, like any other employer, if the tort is committed by the servant in the course of his employment.
Fact of the Case:
The plaintiff, a public limited company, instructed its bank to deposit Rs.50,000/- in the sub-treasury, Ghaziabad, to the credit of the Collector, Central Excise, Allahabad. The bank deposited the money in the sub-treasury and obtained a receipted challan bearing the signatures of the treasurer and the accountant and the seal of the sub-treasury. The accountant and the treasurer colluded and embezzled the deposit of Rs.50,000/-. The plaintiff sued the bank and the State Government for recovery of the money.
Finding of the Court:
The Court found that the bank had duly paid Rs.50,000/- to the treasurer of the sub-treasury and was thereafter not responsible for the manner in which the treasurer handled the money inside the treasury. The fact that the treasurer or the accountant did not enter the money in their own books to the credit of the Collector, Central Excise, was an internal affair of the sub-treasury, for which the defendant bank was not responsible. The defendant bank had discharged its obligations to the plaintiff by making the deposit in accordance with the prevailing practice of the sub-treasury, Ghaziabad. The amount of Rupees 50,000/-deposited by the bank was embezzled by the treasurer in collusion with the accountant of the sub-treasury. The State Government had prosecuted these officers and they were convicted and sentenced.
Issues: 1. Whether the suit was barred by time? 2. Whether the State Government was vicariously responsible for the tortious acts of its officers?
Ratio Decidendi: 1. The Court held that Article 36, Limitation Act, 1908, which governs suit for compensation for any malfeasance, misfeasance or nonfeasance independently of contract, was not applicable to the present suit. The Court also held that Articles 48 and 49 of the Act, which apply to suits relating to specific movable property or compensation for injury or wrongful detention thereof, were not applicable. The Court held that the residuary Article 120 would be applicable and the suit having been filed within six years of the accrual of the cause of action, was within time. 2. The Court held that the State Government was vicariously liable for the embezzlement of the money committed by the treasurer and the accountant. The Court held that the particular banking activity in the course of which the accountant and the treasurer of the sub-treasury committed the defalcation was plainly a commercial activity not referable to the exercise of sovereign power of the State. In this view, the State Government could not validly invoke the doctrine of immunity for the tortious act committed by its servants.
Final Decision: The Court dismissed the appeal filed by the State Government and also dismissed the cross-objection filed by the plaintiff.
SATISH CHANDRA, J. :- This is a defendant's appeal. It arises out of a suit for recovery of money.
2. Hindustan Lever Limited, the plaintiff-respondent, is a public limited company carrying on the business of manufacture and sale of, inter alia, vegetable oil products. It had to pay large amount of excise duty on these products to the Excise Department of the Union of India. In January, 1953, the plaintiff-company obtained sanction of the Assistant Collector, Central Excise, Meerut, to open an account with the Sub-treasury maintained by the State Government of U.P. at Ghaziabad in order to pay excise duty to the credit of the Collector of Central Excise, Allahabad. The plaintiff-company maintained a current account with the Punjab National Bank, defendant No.1. On 14th July, 1955, the plaintiff instructed the defendant bank to deposit on behalf of the plaintiff and to the debit of the plaintiffs current account with the bank, a sum of Rs.50,000/- in the sub-treasury, Ghaziabad, to the credit of the Collector, Central Excise, Allahabad. On 18th July, 1955, the defendant bank addressed a letter to the plaintiff confirming deposit of Rs.50,000/- in the sub-treasury at Ghaziabad to the credit of the Collector, Central Excise, Allahabad. The bank annexed to the letter a challan No.3 in duplicate dated 18th July, 1955, purporting to have issued by the sub-treasury and acknowledging the receipt of Rs.50,000/- on 18th July, 1955. The plaintiff-company forwarded the duplicate of this challan to the Inspector, Central Excise, Ghaziabad, informing him of the payment of Rupees 50,000/- towards Central Excise.
On 28th July, 1955, the Inspector Central Excise, informed the plaintiff that the account of the Collector, Central Excise, at the Sub-treasury does not stand credited with the sum of Rs.50,000/- alleged to have been deposited on 18th July, 1955. Thereafter the plaintiff corresponded with the defendant bank, the Central Excise authorities as well as the Government of U.P. in respect of the payment made into the sub-treasury at Ghaziabad. Since the Central Excise authorities did not acknowledge the payment, the plaintiff-company was forced to pay the Collector, Central Excise, a sum of Rs.50,000/- all over again. Having made this payment, the plaintiff called upon the defendant bank to reimburse them of the sum of Rs.50,000/- and to credit their current account with the bank accordingly. The defendant bank, however, refused to comply on the ground that it had made a valid and effective payment into the sub-treasury, Ghaziabad, and by doing so it had performed its obligations entirely. The challan issued by the sub-treasury bore the seal of the sub-treasury as well as the signatures of the accountant and the treasurer thereof. The challan represented valid deposit of Rupees 50,000/-.
Thereupon the plaintiff company served the statutory notice under Section 80, Civil Procedure Code upon the Union of India as well as the State Government and the Sub-Treasury Officer, Ghaziabad, and on 11th July, 1958, instituted the present suit praying that the defendant bank be ordered to repay to the plaintiff or credit to the plaintiff's current account with the bank Rs.50,000/-as well as Rs.10.9 the incidental charges debited to the plaintiff's account by the bank, and also a sum of Rs.8,935.03 as interest by way of damages on the principal sum at 6 per cent per annum. It claimed future interest at 6 per cent by way of damages till payment. It was also prayed that if it was held that the defendant
bank made a valid payment into the sub-treasury, the State Government be ordered to pay to the plaintiff the sum of Rs.50,000/- together with interest by way of damages at 6 per cent.
3. The defendant bank as well as the State Government contested the suit. The defendant bank pleaded that in accordance with the instructions of the plaintiff company the bank on 18th July, 1955, deposited Rs.50,000/- in the sub-treasury, Ghaziabad. The sub-treasury issue
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