Negotiable Instruments Act, 1881 - Section 131 -
Non-liability of banker receiving payment of cheque.
Section 131 of the Act applies when the true
owner of the crossed cheque initiates proceedings against the collecting bank
that had received payment on behalf of their customer/client. This
customer/client would be a third person and not the true owner who has sued the
collecting bank. The collecting bank that has credited or made payment to the
customer/client can defend the proceedings initiated against them by the true
owner by showing that they had acted in good faith and were not negligent when
they had credited and made payment to their customer/client. Strictly, Section
131 of the Act applies when the collecting bank is sued by the true owner and
not when the collecting bank sues its customer/client to recover the amount
paid. Section 131 of the Act is a protection and shield meant for the
collecting bank that had received and had made payment. Since the collecting
bank acts as an agent of its customers/clients, it is not expected to take
direct responsibility for the cheque crossed, generally or specially, to the
true owner when it acts in good faith and without negligence. In such cases the
collecting bank is not liable to the true owner by reason of only having
received payment.
Held:- In the present case, we do not find any
circumstance or reason which could have caused any doubt in the mind of a
prudent bank to initiate inquiries, rather the facts of the case demonstrate
that the respondent-bank and the petitioners were in the same position. The
mere fact that the collecting bank has made a payment to its customer who
deposited the tampered cheque does not raise an estoppel against the paying
bank if later on it is found that the cheque is forged. The respondent-bank was
not called upon to be overtly suspicious. The standard of care expected from a
banker in collecting the cheque did not require him to subject the cheque to a
minute and microscopic examination. The collecting bank has its remedies
against its clients for indemnification by asking them to return the money. In
turn the clients, i.e., the petitioners have remedies against the drawer of the
cheque or her customer to recover the amount from them as per law. [Para 37]
Negotiable Instruments Act, 1881 - Section 131 -
Non-liability of banker receiving payment of cheque - A collecting bank, in order
to avail of the statutory protection of Section 131 of the Act, must show and
establish that it had acted in good faith and no negligence can be attributed
to it at the time of "receiving" the payment. The test to determine
and decide whether the bank had acted in good faith and with due diligence,
depends upon general practice of the banks. In some cases it could extend to
opening of accounts in which the cheque was deposited. However, the bank is not
required to subject the cheque to minute and microscopic examination. On the
face of it, the instrument should give rise to suspicion.
Negotiable Instruments Act, 1881 - Section 131 -
Non-liability of banker receiving payment of cheque - Test of negligence for
the purpose of Section 131 of the Act is whether the transaction of paying in
any given cheque, coupled with the circumstances antecedent and present is so
out of the ordinary circumstances, that it ought to arouse doubts in the
bankers' mind and cause him to make enquiries.
We are unable to find any material to
demonstrate lack of good faith or failure to exercise due diligence or ordinary
care when the cheque was presented for collection. Impugned order reveals that
the drawer of the cheque had earlier tampered a cheque, which fact was known to
the petitioners. The petitioners were aware given the past conduct that there
was a probability that the cheque in question could be tampered. They should
have been more vigilant and should have exercised care before exporting rice.
This was the risk taken by the petitioners. The respondent-bank could not have
entertained any doubts as to the genuineness of the cheque at the time of
receiving the cheque from the petitioners or for making it over to the drawee
bank for collection. The tampering could not have been deduced by the
respondent-bank. The petitioners had presented the instrument as the true
owners. [Para 31]
IN THE HIGH COURT OF DELHI AT NEW DELHI
CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR.
JUSTICE CHANDER SHEKHAR
Date of Decision: 16th October, 2018
W.P. (C) No. 6778/2016 & C.M. No.27868/2016
M/S ADYA GLOBAL EXPORT INC. & ANR ..... Petitioners Through:
Mr.Hashmat Nabi and Ms.Farah Naaz, Advocates. versus CANARA BANK .....
Respondent Through: Mr.Vivek Kumar Tandon and Ms.Mamta Tandon, Advocates
CHANDER SHEKHAR, J.
1. This writ petition assails the order dated 09.10.2014 passed by the
Debts Recovery Appellate Tribunal, Delhi („Appellate Tribunal‟, for short) in
Appeal No.185/2014 arising from O.A. No.08/2010 (DRT-III), Delhi.
2. Briefly stated, case of the petitioners is that the petitioner No.1, „M/s
Adya Global Export Inc.‟, is proprietorship concern of petitioner No.2, Mrs.
Sweety Kumari and was engaged in the business of exporting basmati rice.
3. On 12.10.2007, the petitioner No.2 had opened a current account with
Canara Bank, the respondent-bank, at 433, Behra Enclave, Paschim Vihar branch.
4. The petitioners, on 31.10.2008, had deposited with the respondent-bank Cheque
No.375380 dated 24.10.2008 for US$ 62,400 issued by the Jacques Admiralty Law
Firm, P.C. 645 Griswold, Swite 1370, Detroit, Michigan, USA and drawn on Bank
of America, Troy, Michigan, USA. On 08.12.2008, Rs.31,45,696/- was credited in
the current account of the petitioners with the respondent-bank.
5. Petitioners state and claim that the aforesaid cheque was for export of
rice to a party based in Uganda. Satisfied with credit of Rs.31,45,696/-, the
petitioners had exported the consignment of rice to the customer in Uganda on
08.01.2009.
6. Subsequently, on 25.08.2009, the petitioners were served with the legal
notice issued on behalf of the respondent-bank to remit/refund Rs.31,45,696/-
as they had been intimated by their Foreign Department that the corresponding/collecting
bank in USA vide letter dated 05.08.2009 had informed that the cheque was
"Altered Cheque". Accordingly, payment of Rs.31,45,696/- was
reversed. Petitioners had contested the notice stating and highlighting the
above facts and also asserted that Foreign Inward Remittance Certificate
(“FIRC”) had been issued on 27.02.2009 by the respondent-bank.
7. On 31.10.2009, a criminal complaint was lodged by the respondent-bank
against the petitioners with the Economic Offence Wing, New Delhi stating that
the aforesaid cheque was returned as "Altered Cheque" and that
earlier another cheque had been returned being a "Counterfeit
Cheque".
8. On 31.12.2009, the respondent-bank filed Original Application
No.08/2010 before the Debt Recovery Tribunal-III, Delhi („Tribunal‟ in short)
for recovery of Rs.31,95,860/- with pendente lite and future interest
against the petitioners. Original Application was allowed vide the order dated
10.05.2013 by the Tribunal directing the petitioners to pay Rs.31,45,696/- to
the respondent-bank within a period of 30 days with simple interest @ 14% p.a. from
the date of filing of the Original Application till its realization.
9. Aggrieved, the petitioners preferred Appeal No.185/2014 before the
Appellate Tribunal along with an application under Section 21 of Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 seeking waiver of
pre-deposit of 75% of the awarded amount.
10. On 21.03.2014, the Appellate Tribunal had directed the petitioners to
pre-deposit 40% of the amount awarded by the Tribunal. Aggrieved, petitioners
had filed WP(C) No.2886/2014 before this High Court. Without commenting on
merits, a Division Bench of this Court vide order dated 09.05.2014 had set
aside the direction to pre-deposit 40%, with the direction to the Appellate
Tribunal to hear the appeal on merit.
11. The Appellate Tribunal heard the Appeal No.185/2014 on merits and vide
the impugned order has dismissed the appeal.
12. The petitioners had challenged the impugned order by filing Writ
Petition No.1429/2015 before this Court along with an application for stay of
proceeding before the Recovery Officer. By the order dated 08.04.2015,
proceedings pending before the Recovery Officer were stayed. However, vide the
order dated 29.02.2016, the writ petition was withdrawn due to deficiency in
pleadings with liberty to file a fresh writ petition.
13. It is in these facts that the petitioners have preferred the present
writ petition. We have heard learned counsel for the parties and have gone
through the record of the case.
14. Learned counsel for the petitioners submits that the Appellate Tribunal
had not taken into account the fact that the petitioners were informed by the
respondent-bank that the cheque was doctored or altered after approximately 10
months of deposit. The amount was credited in the account of the petitioners by
the respondent-bank on 08.12.2008. If the respondent-bank had informed the petitioners
about the altered cheque well in time, the petitioners would not have
shipped/exported the goods to the party in Uganda.
15. Learned counsel for the petitioners also relies on Section 131 of the
Negotiable Instruments Act, 1881 („Act‟, for short). It is submitted that the
cheque deposited with the respondent-bank was sent to the corresponding/
collecting bank in the USA and that the respondent-bank was under an obligation
to take “due diligence” and “ordinary care”. This care and diligence is also
enunciated and mandated by the Reserve Bank of India in relation to such
transactions. Even after the amendment of the Act, introducing Explanation II
in Section 131, the onus was on the respondent-bank to show that it acted in
good faith and without negligence and, therefore, the respondent bank was
liable and not entitled to recover the amount.
16. To buttress his arguments, learned counsel for the petitioners relies
on United Bank of India v. M/s. AT Ali Hussain & Co. a firm & Ors.,
AIR 1978 Cal 169 and Indian Overseas Bank v. Industrial Chain Concern,
(1990)1 SCC 484.
17. Learned counsel for the respondent-bank refutes the said contentions
and submits that the respondent-bank had acted in good faith as well as with
due care and diligence and states that there was no negligence on its part and
thus claims protection under Section 131 of the Act.
18. Section 131 of the Act reads:
“131. Non-liability of banker receiving payment of
cheque.—A banker who has in good faith and without negligence received payment
for a customer of a cheque crossed generally or specially to himself shall not,
in case the title to the cheque proves defective, incur any liability to the
true owner of the cheque by reason only of having received such payment. WP(C) No.6778/2016 Page 5 of 22
Explanation I.—A banker receives payment of a crossed
cheque for a customer within the meaning of this section notwithstanding that
he credits his customer‟s account with the amount of the cheque before
receiving payment thereof. Explanation II.—It shall be the duty of the banker
who receives payment based on an electronic image of a truncated cheque held
with him, to verify the prima facie genuineness of the cheque to be truncated
and any fraud, forgery or tampering apparent on the face of the instrument that
can be verified with due diligence and ordinary care.”
19. Section 131 of the Act applies when the true owner of the crossed
cheque initiates proceedings against the collecting bank that had received
payment on behalf of their customer/client. This customer/client would be a
third person and not the true owner who has sued the collecting bank. The
collecting bank that has credited or made payment to the customer/client can
defend the proceedings initiated against them by the true owner by showing that
they had acted in good faith and were not negligent when they had credited and
made payment to their customer/client. Strictly, Section 131 of the Act applies
when the collecting bank is sued by the true owner and not when the collecting
bank sues its customer/client to recover the amount paid. Section 131 of the
Act is a protection and shield meant for the collecting bank that had received
and had made payment. Since the collecting bank acts as an agent of its
customers/clients, it is not expected to take direct responsibility for the
cheque crossed, generally or specially, to the true owner when it acts in good
faith and without negligence. In such cases the collecting bank is not liable
to the true owner by reason of only having received payment.
20. In the present case, payment was made and credited to the account of
the petitioners. The petitioners are not aggrieved by the credit and payment
made. They accepted and admitted that the credit was to the petitioner's
benefit. They are defending the recovery proceedings initiated by their bank.
Further, as elucidated below the cheque in question was an altered one and the
name of the holder as well as the amount was changed and altered as payable to
the petitioners. Clearly the petitioners were not the true owners.
21. Assuming that Section 131 of the Act applies, we would examine the
expressions "good faith" and "without negligence" and
consider whether the respondent-bank was liable and cannot recover the money paid
to the petitioners under the forged cheque presented to them for payment by the
petitioners. The said elucidation would be also relevant when we consider the
contention of the petitioners that even if Section 131 of the Act was not
applicable, the petitioners were entitled to defend the proceedings for
recovery initiated by the respondent-bank on the ground of negligence and lack
of due diligence on the part of the respondent-bank.
22. In Brahma Shum Shere Jung Bahadur and Another v. Chartered Bank
of India, Australia and China and others, AIR 1956 Cal 399, an
account-holder had brought a suit for recovery, inter alia against his
own banker for the wrongful loss suffered as a result of the account having
been debited against a cheque presented by another person after its fraudulent
alteration into a cheque for a large sum of money. The bank contested the claim
essentially claiming protection under Section 131 of the Act, also seeking to
attribute the negligence of the customer. Claim against the bank was rejected
holding that it was entitled to debit the amount from the account of the
plaintiff since the cheque at the time of presentation for encashment did not
disclose any traces of alterations or obliterations, payment being in due
course and according to the apparent tenor of the cheque, the mere circumstance
of a different handwriting appearing in the body of the cheque not being one
“which could have aroused suspicion in the minds of the officials of the bank”,
it was observed, in the context of Section 131, as under:-
"73. The section therefore makes it clear that
when a banker receives from its customer a cheque crossed in its favour for
collection and received payment of the amount in its customer's behalf, the fact
that the customer's title to the cheque is defective does not render the banker
liable to the true owner, (see „Morison v. London County and Westminster Bank
Ltd.‟, (1914) 3 KB 356 (R). 74. But the section affords protection to the
banker if the banker has received payment in good faith and without negligence,
otherwise the bank which receives payment on a forged cheque or a cheque to
which the customer has no title or only defective title is liable in action for
conversion to the true owner, „Matheissen v. London & County Bank‟, (1879)
5 C.P.D. 7 (S), See also Paget-Banking, 5th Edn. (1947) - pages 229-2301 and
cases to footnote (g), at page 230). See also (1924) 1 K.B. 775 (D)."
23. The Calcutta High Court in the above-mentioned case, further added that
the question as to whether a bank is guilty of negligence depends on the
particulars of each case, albeit the onus of proving good faith and
absence of negligence is on the banker. 24. In Indian Overseas Bank v.
Industrial Chain Concern (supra), which has been relied upon by the
petitioners on the issue of “standard of care”, the Supreme Court has held as
under:
“23. In Capital and Counties Bank v. Gordon 1903 AC 240, the House
of Lords accepted the position that a bank acts basically as a mere agent or
conduit pipe to receive payment of the cheques from the banker on whom they are
drawn and to hold the proceeds at the disposal of its customer. Unless crossed
the banker himself is the holder for value. He may be a sum collecting agent or
he may take as holder for value or as holder in due course. As an agent of the
customer for collection he is bound to exercise diligence in the presentation
of the cheques for payment within reasonable time. If a banker fails to present
a cheque within a reasonable time after it reaches him, he is liable to his
customer for loss arising from the delay. A banker receiving instruments paid
in for collection and credit to a customer's account may collect solely for a
customer or for himself or both. Where he collects for the customer he will be
liable in conversion if the customer has no title. However, if he collects in
good faith and without negligence he may plead statutory protection under
Section 131 of the Act. ….
25. To
enable a bank to avail the immunity under Section 131 as a collecting banker he
has to bring himself within the conditions formulated by the section. Otherwise
he is left to his common law liability for conversion or for money had and
received in case of the person from whom he took the cheques having no title or
defective! title. The conditions are: (a) that the banker should act in good
faith and without negligence in receiving a payment, that is, in the process of
collection, (b) that the banker should receive payment for a customer on behalf
of him and thus acting as a mere agent in collection of the cheque and not as
an account holder (c) that the person for whom the banker acts must be his
customer and (d) that the cheque should be one crossed generally or especially
to himself. The receipt of payment contemplated by the section is one from the
drawee bank. It is settled law that the onus of bringing himself within the
section rests on the banker. In Capital and Counties Bank v. Gordon, (supra) as
we have seen, the conception of a collecting banker was that of “receiving the
cheque from the customer, presenting it and receiving the money for the
customer, and then, and not till then, placing it to the customer's credit,
exercising functions strictly analogous to those of a clerk of the customer
sent to a bank to cash an open cheque for his employer.” If the bank performs
these functions in course of his business, in good faith and without negligence
he will be within Section 131 of the Act.”
25. Learned counsel for the petitioners has also relied upon United
Bank of India v. M/s. AT Ali Hussain & Co. a firm & Ors.
(supra), wherein it was held as under:
“14. Upon the consideration of the principles of law
as noticed above, it seems to us that so long as the status quo is maintained
and the payee has not changed his position to his detriment be must repay the
money back to the payer. If, however, there has been a change in the position
of the payee who, acting in good faith, parts with the money to another without
any benefit to himself before the mistake is detected, he cannot be held
liable. Equity disfavours unjust enrichment. When there is no question of
unjust enrichment of the payee by reaping the benefit of an „accidental
windfall‟ he should not be made to suffer, for he would be as innocent as the
payer who paid the money acting under a mistake. 15. In the instant case, the
defendant bank was merely a „conduit pipe‟ through which money was passed to
the defendant No. 1. After the money was received by the defendant bank it
intimated about the same to the defendant No. 1 who, in his turn, delivered the
goods to the alleged representatives of the Metal Alloy Co., acting on a bona
fide belief that the cheque was a genuine one, for otherwise it would not have
been encashed by the plaintiff bank. Both the defendant No. 1 and the defendant
No. 2 changed their position for worse before the mistake was detected by the
plaintiff and communicated to them. Neither the defendant No. 1 nor the
defendant No. 2 can be said to have derived any benefit from the mistake
committed by the plaintiff bank.”
26. In Kerala State Co-operative Marketing Federation v. State Bank
of India & Ors., II (2004) BC 1 (SC), the Supreme Court had
on the principles governing the liability of a collecting banker held:-
"(1) As a general rule the collecting banker
shall be exposed to his usual liability under common law for conversion or for
money had and received, as against the 'true owner' of a cheque or a draft, in
the event the customer from whom he collects the cheque or draft has no title
or a defective title. WP(C)
No.6778/2016 Page 11 of 22
(2) The banker, however, may claim protection from
such normal liability provided he fulfils strictly the conditions laid down in
Section131or Section 131A of the Act and one of those conditions is that he
must have received the payment in good faith and without negligence.
(3) It is the banker seeking protection who has on his
shoulders the onus of proving that he acted in good faith and without
negligence.
(4) The standard of care to be exercised by the
collecting banker to escape the charge of negligence depends upon the general
practice of bankers which may go on changing from time to time with the
enormous spread of banking activities and cases decided a few decades ago may
not probably offer an unfailing guidance in determining the question about
negligence today.
(5) Negligence is a question of fact and what is
relevant in determining the liability of a collecting banker is not his
negligence in opening the account of the customer but negligence in the
collection of the relevant cheque unless, of course, the opening of the account
and depositing of the cheque in question therein from part and parcel of one
scheme as where the account is opened with the cheque in question or deposited
therein so soon after the opening of the account as to lead to an inference
that the depositing the cheque and opening the account are interconnected moves
in a integrated plan.
(6) Negligence in opening the account such as failure
to fulfill the procedure for opening an account which is prescribed by the bank
itself or opening an account of an unknown person or non-existing person or
with dubious introduction may lead to a cogent, though not conclusive, proof of
negligence particularly if the cheque in question has been deposited in the
account soon after the opening thereof.
(7) The standard of care expected from a banker in
collecting the cheque does not require him to subject the cheque to a minute
and microscopic examination but disregarding the circumstances about the cheque
which on the face of it give rise to a suspicion may amount to negligence on
the part of the collecting banker.
(8) The question of good faith and negligence is to be
judged from the stand point of the true owner towards whom the banker owes no
contractual duty but the statutory duty which is created by this section and it
is a price which the banker pays for seeking protection, under the statute,
from the otherwise larger liability he would be exposed to under common law.
(9) Allegation of contributory negligence against the paying banker could
provide no defence for a collecting banker who has not collected the amount in
good faith and without negligence."
27. Thus, a collecting bank, in order to avail of the statutory protection
of Section 131 of the Act, must show and establish that it had acted in good
faith and no negligence can be attributed to it at the time of
"receiving" the payment. The test to determine and decide whether the
bank had acted in good faith and with due diligence, depends upon general
practice of the banks. In some cases it could extend to opening of accounts in
which the cheque was deposited. However, the bank is not required to subject
the cheque to minute and microscopic examination. On the face of it, the
instrument should give rise to suspicion. Lastly, contributory negligence it
has been observed is of no consequence.
28. It is pertinent to note that in Indian Overseas Bank v.
Industrial Chain Concern (supra), the Supreme Court, while holding the
bank to be “not negligent”, had observed as under:-
"37. ..that expansion of the banker's liability
and corresponding narrowing down of the banker's protection under the provision
of Section 131 of the Act may make the banker's position so vulnerable as to be
disadvantageous to the expansion of banking business under the ever expanding
banking system. This is because a commercial bank, as distinguished from a
Central bank, has the following characteristics, namely (a) that they accept
money from, and collect cheques for, their customers and place them to their
credit; (2) that they honour cheques or orders drawn on them by their customers
when presented for payment and debit their customers accordingly; and (3) that
they keep current account in their books in which the credits and debits are
entered. The receipt of money by banker from or on account of his customer
constitute it the debtor of the customer. The bank borrows the money and
undertakes to repay it or any part of it at the branch of the bank where the
account is kept during banking hours and upon payment being demanded. The
banker has to discharge this obligation and normally the banker would not
question the customer's title to the money paid in. Applying the above
principles of law to the facts of the instant case we are not inclined to hold
that the Bank was negligent either in collecting the cheques and drafts or
allowing Sethuraman to withdraw the proceeds."
29. In London Joint Stock Bank, Limited v. Macmillan & Arthur,
[1918] A.C. 777, it was held by the House of Lords that if the customer chooses
to dispense with ordinary precautions because he has complete faith in his
clerk's honesty, he cannot claim to throw upon the banker the loss which
results. No one can be certain of preventing forgery, but it is a simple thing
to take reasonable and ordinary precautions while drawing a cheque against
forgery. If owing to the neglect of such precautions a dishonest person
indulges in forgery, the customer must bear the loss as between himself and the
banker. The banker is bound to make inquiries when there is anything to arouse
suspicion that the cheque is being wrongly dealt with while being paid into the
customer‟s account. The banker, however, is not called upon to be “abnormally
suspicious” as was held in Penmount Estates Limited v. National
Provincial Bank Limited; Stanley Moss & Pilcher (Third Party) 5
LDAB 418.
30. The Appellate Tribunal, while relying on Section 72 of the Indian
Contract Act, 1872, has held that the Section makes no distinction between the
mistake of facts or mistake of law. Money paid under a mistake induced by fraud
of third party may be recovered. The legislative object of Section 72 of the
Contract Act is to prevent unjust enrichment and ensure restitution. The
principle of unjust enrichment requires that the defendant has been enriched by
the receipt of the benefit and that the enrichment is at the expense of the
plaintiff, and lastly, that retention of enrichment is unjust. In the present
case, there is no doubt that the payment was made to the petitioners under a
mistake of fact, that it was due when actually it was not due. The
respondent-bank did not know that the cheque was altered. The petitioners have
certainly been enriched at the expense of the respondent-bank and the retention
of this enrichment is unjust. The payment in the present case was made by
mistake due to fraud. Since respondent-bank was merely a collecting agent, what
is to be considered in such a case is whether there was any negligence on its
part in making the payment and what was the cause of delay, and legal effect of
the delay.
31. Test of negligence for the purpose of Section 131 of the Act is whether
the transaction of paying in any given cheque, coupled with the circumstances
antecedent and present is so out of the ordinary circumstances, that it ought
to arouse doubts in the bankers' mind and cause him to make enquiries. We are
unable to find any material to demonstrate lack of good faith or failure to
exercise due diligence or ordinary care when the cheque was presented for
collection. Impugned order reveals that the drawer of the cheque had earlier
tampered a cheque, which fact was known to the petitioners. The petitioners
were aware given the past conduct that there was a probability that the cheque
in question could be tampered. They should have been more vigilant and should
have exercised care before exporting rice. This was the risk taken by the
petitioners. The respondent-bank could not have entertained any doubts as to
the genuineness of the cheque at the time of receiving the cheque from the
petitioners or for making it over to the drawee bank for collection. The
tampering could not have been deduced by the respondent-bank. The petitioners
had presented the instrument as the true owners.
32. The Appellate Tribunal has relied upon the judgment of Kelly v.
Solari, (1841) 9M and W54, wherein it was observed as under:
"I think that where money is paid to another
under the influence of a mistake, that is, upon the supposition that a specific
fact is true, which would entitle the other to the money, but which fact is
untrue, and the money would not have been paid if it had been known to the
payer that the fact was untrue, an action will lie to recover it back, and it
is against conscience to retain it; though a demand may be necessary in those
cases in which the party receiving may have been ignorant of the mistake. The
position that a person so paying is precluded from recovering by laches, in not
availing himself of the means of knowledge in his power, seems, from the cases
cited, to have been founded on the dictum of Mr. Justice Bayley, in the case of
Milnes v. Duncan and with all respect to that authority. I do not think it can
be sustained in point of law. If, indeed, the money is intentionally paid,
without reference to the truth or falsehood of the fact, the plaintiff meaning,
to waive all Inquiry into it, and that the person receiving shall have the
money at all events, whether the fact be true or false, the latter is certainly
entitled to retain it; but if it is paid under the impression of the truth of a
fact which is untrue, it may, generally speaking, be recovered back, however
careless the party paying may have been, in omitting to use due diligence to
inquire into the fact. In such a case the receiver was not entitled to it, nor
intended to have it."
33. In Imperial Bank of Canada v. Bank of Hamilton, 1903 AC
49, the Privy Council has followed the rule laid down in Kelly's case
(supra). In this case, cheque for a certain amount certified by the bank's
stamp was fraudulently altered to a bigger amount and paid by the respondent to
the appellant, a holder for value under a mistake of fact, which was not
discovered till the next day. Privy Council held that the respondent was
entitled to recover from the appellant-bank. Thus the rule laid down in Kelly's
case (supra) is that if a person acting under a mistake pays money to
another, the latter must repay the same.
34. On the question whether the respondent-bank was negligent on account of
delay in intimating the petitioners that the cheque given by the foreign party
was an altered cheque and consequently on credit of Rs.31,45,969/- the
petitioners had exported the consignment of the rice to the foreign party, the
Appellate Tribunal has observed as under:-
“Having considered the submissions made before me, I
am clear in mind that apparently no negligence neither is being attributed nor
can be attributed to the bank. The respondent in this case acting as a
collecting agent of the appellants for the cheque they have deposited. The
submission by the counsel for the appellants that on an earlier occasion the
bank had pointed out certain defects in a cheque which was given by the same
importers on 3.9.2008 for an amount of Pound 89000 which was deposited with the
bank on 15/16.9.2008. This cheque was found counterfeit cheque and the same was
received back within 20 days of its deposit. The appellants contend that
accordingly they had never exported the goods. The counsel would plead that if
the bank had been vigilant enough to detect any alteration in the present
cheque, the present situation could have been avoided. This can equally and
truly apply to the conduct of the appellants as well. The appellants was also
well aware that the same importer had earlier given them a counterfeit cheque
which they had deposited with the bank, when it was found to be counterfeited
one and returned. This would have been enough for the appellants to put
themselves to a proper notice, but still they continued to deal with the same
importer. This time cheque was not found counterfeit, but had been altered.
This was for an amount of US$ 59.29 and was altered to $62400.Once the
appellants had received the cheque they were also required to ensure that this
was a genuine one and could have easily detected If any alteration was visible
to naked eye for which they are holding the bank responsible. The mere fact
that the cheque was encashed and the money received would show that there,
perhaps, could not be any negligence on the part of the bank. It is
subsequently that the alteration was detected and the amount which was received
was called back. Under such circumstances, the appropriate remedy for the
appellants is to take action against the importer to whom rice had been
exported. In equity or law no reasons can be made out for which the bank can be
asked to suffer this loss. The respondent bank was only a collecting agent and
certainly is not required to bear this heavy loss on account of fraud having
been played which may be by the importer or even could be on the part of the
appellants as well. The counsel for the bank is justified in pleading that so
far as the appellants had not taken any action against the importer for
alteration of the cheque either to recover this amount or to proceed against
him for any other liability in accordance with law. The bank has on its part
has not only sought recovery of this amount, but has also filed a complaint
with the Economic Wing which statedly is in process.
The other submission made by the counsel for the
appellants that the amount sought to be recovered by the bank is not covered
under the definition of „debt' was never raised before the Tribunal below and
is being raised for the first time in the appeal at the stage of arguments.
Though in support counsel has made reference to the judgment passed by this
Tribunal in Axis Bank Ltd., Satna vs. Bhanu Oil and Dal Mills &Ors., III
(2013) BC 8(DRAT) where it is observed that transaction of wrong clearance of
cheque cannot be said to be a debt. These observations were made by the
Tribunal in the facts of the said case where amount recovered during the course
of business activities was held to be not falling within the definition of
debt. Present one is not a case of any wrong payment and the liability in this
case arises in the course of business activities between the bank and the
appellants. In my view, the wide definition of „debt‟ contained in section 2(g)
of the RDDBFI Act would cover such transaction as well. I, therefore find no
merit in the appeal and would dismiss the same.”
35. To decide the controversy, the following facts have to be noticed.
Cheque bearing No.375380 for US$ 62,400 drawn on Bank of America was sent by
the respondent bank for collection through their Foreign Department. The cheque
was thereafter sent to the United State of America and presented for encashment
through J.P. Morgan Chase Bank. Thereafter, funds were received by the Foreign
Department in US value on 17.11.2008. In these circumstances, after the waiting
period was over, the respondent bank had credited proceeds of Rs.31,45,696/- in
the current account of the petitioner on 8.12.2008. Subsequently, on 21.1.2009,
Bank of America had written and forwarded their claim to J.P. Morgan Chase
stating that the cheque in question was an altered one. Firstly, the name of
the original payee Genaro G. Mautinez had been altered to Adya Global Export
Inc. i.e. the petitioner No.1. Secondly, the original amount of US$ 59.29 had
been altered to US$ 62,400. The Bank of America had enclosed letter of Jaques
Admiralty Law Firm regarding cheque fraud claim with an affidavit regarding
altered status of the cheque. The Bank of America, therefore, had issued
certificate dated 21.1.2009 for adjustment/recovery to J.P. Morgan Chase Bank
through whom the cheque was presented for encashment. J.P. Morgan Chase Bank
had thereupon made payment of US$ 62,400 to the Bank of America as per Article
4-208 of the Uniform Commercial Code. J.P. Morgan Chase Bank had stated that
they had accepted the item for deposit and presented it for payment under
certain warranties, which had been breached. Thereafter, the Foreign Department
had informed the respondent bank and letter dated 5.8.2009 was issued for
remission of Rs.31,45,696/-.
36. It is clear from the aforesaid correspondence placed on record that
initially the cheque was not objected to by the foreign bankers and credit was
made/forwarded. Accordingly, the payment was credited to the account of the
petitioners. Subsequently, it came to light that the cheque was altered in
respect of the name of the payee as well as the amount payable. Consequently,
Bank of America had raised the claim, which was forwarded to J.P. Morgan Chase
Bank and then to the Foreign Department of the respondent-bank. The cheque was
altered and this had come to light and knowledge after the Bank of America had
made claim vide letter dated 21.1.2009. Clearly, the respondent-bank was not
negligent when they had credited Rs.31,45,696/- to the account of the
petitioners earlier on 08.12.2008. It is also pertinent to note that the
respondent-bank had only credited the amount after clearance from its Foreign
Department. The respondent-bank would have acted contrary and against the law
if they had not credited Rs.31,45,696/-. Subsequently and in terms of the
international banking norms, US$ 62,400 had to be refunded/paid back to the Bank
of America in view of the claim made on 21.01.2009. Therefore, the petitioners
were liable to refund and repay the amount credited and now debited. The
respondent-bank cannot be held liable/responsible for the payment/credit.
Notably, the petitioners did not suspect that the cheque in question was
altered and tampered with. Neither had the respondent-bank noticed the alleged
tampering. Indeed, even the foreign bankers had no reason to suspect
alteration. In these circumstances, we would hold that the petitioners would be
liable, and the liability cannot be transferred and fastened on the respondent-bank,
which had acted as an agent to collect the money. The respondent-bank had acted
as per the banking norms, rules and regulations and it was for the petitioners
to familiarise themselves with the norms.
37. In the present case, we do not find any circumstance or reason which
could have caused any doubt in the mind of a prudent bank to initiate
inquiries, rather the facts of the case demonstrate that the respondent-bank
and the petitioners were in the same position. The mere fact that the collecting
bank has made a payment to its customer who deposited the tampered cheque does
not raise an estoppel against the paying bank if later on it is found that the
cheque is forged. The respondent-bank was not called upon to be overtly
suspicious. The standard of care expected from a banker in collecting the
cheque did not require him to subject the cheque to a minute and microscopic
examination. The collecting bank has its remedies against its clients for
indemnification by asking them to return the money. In turn the clients, i.e.,
the petitioners have remedies against the drawer of the cheque or her customer
to recover the amount from them as per law. The judgments relied upon by
learned counsel for the petitioners, as discussed hereinabove, are of no help to
the petitioners, in view of the factual matrix.
38. In view of the aforesaid
discussions, we do not find any flaw or infirmity in the impugned order passed
by the Appellate Tribunal. Hence, we do not find any merit in the writ petition
and the same is dismissed. Pending application is also dismissed. However, the
parties are left to bear their own costs.
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