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Issues Involved:
1. Whether the 1st Respondent bank acted in good faith and without negligence in handling the cheque. 2. Whether the 1st Respondent bank is protected under Section 131 of the Negotiable Instruments Act. Issue-Wise Detailed Analysis: 1. Whether the 1st Respondent bank acted in good faith and without negligence in handling the cheque: The facts reveal that a cheque for Rs. 1,00,000/- was sent by post by the Appellant but was stolen and altered to be payable to a fictitious person named K. Narayhanan. This person opened an account with the 1st Respondent bank with an initial deposit of Rs. 20/-, subsequently deposited Rs. 80/- to obtain a cheque book, and then deposited the altered cheque of Rs. 1,00,000/-. A sum of Rs. 50,000/- was withdrawn from the account before stop payment instructions were received. The 1st Respondent bank's Branch Manager testified that the account was opened on the introduction of an account holder named Dharman Panicker, but the address provided was vague, and no inquiries were made regarding the creditworthiness or full address of K. Narayhanan. The bank did not investigate the nature of Narayhanan's business or his place of business. Even after discovering the forgery and receiving the stop payment notice, the bank made no inquiries with the introducer and did not lead evidence from the person who introduced the account holder. The court noted that the transaction of opening the account, depositing the exact amount for obtaining a cheque book, depositing the cheque for Rs. 1,00,000/-, and withdrawing Rs. 50,000/- were all part of the same transaction and occurred in close proximity. The facts indicated that the 1st Respondent bank failed to act prudently and in accordance with current banking practices, which constitutes negligence. 2. Whether the 1st Respondent bank is protected under Section 131 of the Negotiable Instruments Act: Section 131 of the Negotiable Instruments Act provides that 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 incur any liability to the true owner of the cheque if the title to the cheque proves defective. The court referred to several precedents, including Indian Overseas Bank v. Bank of Madura Ltd., Syndicate Bank v. United Commercial Bank, and Brahma v. Chartered Bank, which established that the onus of proving "good faith" and "absence of negligence" lies on the banker claiming protection under Section 131. The standard of care expected from a banker includes making proper preliminary inquiries, obtaining references, and following the bank's procedures for opening accounts. In this case, the 1st Respondent bank failed to meet these standards. The bank did not make proper inquiries, did not verify the introducer's details, and did not follow up on the references. The court found that the bank's actions did not demonstrate good faith and were negligent, thus disqualifying it from the protection under Section 131. Conclusion: The court concluded that the 1st Respondent bank did not discharge its burden of proving that it acted in good faith and without negligence. The impugned judgment of the High Court was set aside, and the decree of the trial court was restored, allowing the Appellant's claim for recovery of Rs. 50,000/-. The appeal was disposed of accordingly, with no order as to costs.
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