2018 (10) TMI 906 - HC - Indian Laws

Forgery - purchase of vehicle - draft book was lost/stolen from the Branch and the alleged draft was prepared by forgery - Held that - Reading of Section 8 & 9 of the N.I. Act together and the principles when are translated in the facts of this case would show that the respondent Ramesh Kumar placed a draft with the appellant which was routed through for collection by the bank of appellant namely Allahabad Bank to the Punjab National Bank on whom the draft was drawn. Section 9 of the N.I. Act does not use the word good faith. It provides that the holder should have received the instrument without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. Only, therefore, to defeat the title of a holder for value, the evidence must be on record that when he took the instrument he had cause to believe that there was something wrong in the instrument. Cause to believe denotes the different reasons means the suspicion in the kind of some illegality effecting the instrument. Plain reading of Section 9 do not say so that the Court has to go beyond the holders mind and see the care and caution in such eventuality bill of exchange may lose its efficacy at the whims of the person with whom it is negotiated. The bank as a body corporate for the negligence of its officers, who did not discharge their duties properly cannot be allowed to recover the amount from the holder in due course i.e. the appellant. It is not a case that the draft though was negotiated and the payment was withheld to the appellant on the ground that it was outcome of fraud, but instead the amount was paid by the bank with all smile and thereafter instead of catching hold of their officers who negligently paid the same, the recovery suit was filed to cover up their own wrong from the appellant as also the person namely Ramesh Kumar. Therefore, the bank cannot be allowed to take advantage of their own wrong and pass the bucks to others as the buck stopped at the Bank. The appellant will be protected and enveloped by virtue of Section 9 of the N.I. Act as the Act itself permits payment of the draft to the holder in due course - the appellants are holder in due course and amount received by them cannot said to be illegal. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legitimacy of the demand draft.
2. Responsibility of the bank for clearing a forged draft.
3. Entitlement of the appellant as a holder in due course under the Negotiable Instruments Act, 1881.
4. Negligence of the bank officials.
5. Liability of the appellant to repay the amount to the bank.

Issue-wise Detailed Analysis:

1. Legitimacy of the Demand Draft:
The case revolves around a demand draft purportedly issued by Punjab National Bank, Dhaniyawa Branch, which was later found to be forged. The draft was used by defendant No.1 to purchase a vehicle from J.M.A. Stores Pvt. Ltd. The draft was deposited in Allahabad Bank and subsequently cleared by Punjab National Bank, Bilaspur. However, upon verification, it was revealed that the draft was not issued by the Dhaniyawa Branch and was instead prepared through forgery using stolen draft papers.

2. Responsibility of the Bank for Clearing a Forged Draft:
The plaintiff, Punjab National Bank, argued that the draft was forged and, therefore, J.M.A. Stores Pvt. Ltd. was not entitled to the amount. The bank contended that the draft book was reported stolen, and the information was circulated by the head office. Despite this, the Bilaspur branch cleared the draft, leading to the delivery of the vehicle. The trial court held the bank responsible for the negligence in clearing the draft without proper verification.

3. Entitlement of the Appellant as a Holder in Due Course:
The appellant, J.M.A. Stores Pvt. Ltd., argued that they were bona fide holders in due course under Section 9 of the Negotiable Instruments Act, 1881. They contended that the draft was received in good faith and deposited for clearance, and the amount was credited to their account. The court examined Sections 8 and 9 of the N.I. Act, which define "holder" and "holder in due course." The court concluded that the appellant received the draft without any cause to believe that it was defective, thereby qualifying as a holder in due course.

4. Negligence of the Bank Officials:
The court found that the bank officials were negligent in clearing the draft despite having prior knowledge of the stolen draft book. The evidence showed that the bank had circulated information about the stolen drafts, yet the Bilaspur branch failed to verify the authenticity of the draft before clearing it. The court noted that the bank's negligence in this regard was evident, and the responsibility for the loss rested with the bank.

5. Liability of the Appellant to Repay the Amount:
The court held that the appellant, being a holder in due course, was entitled to the amount received from the draft. The bank's negligence in verifying the draft's authenticity before clearing it meant that the appellant could not be held liable to repay the amount. The court emphasized that the bank could not recover the amount from the appellant to cover up its own negligence.

Conclusion:
The court concluded that the appellant, J.M.A. Stores Pvt. Ltd., was a holder in due course under Section 9 of the Negotiable Instruments Act, 1881, and was entitled to the amount received from the draft. The bank's negligence in clearing the forged draft without proper verification was the primary cause of the loss. Therefore, the recovery suit against the appellant was not sustainable. The judgment and decree passed by the trial court were set aside, and the appeal was allowed.