2018 (11) TMI 1299 - HC - Indian Laws

Validity of recovery proceedings initiated by bank - waiver of pre-deposit - Section 21 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - altered cheques - petitioners were not the true owners - principles of unjust enrichment - Held that - 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. Unjust enrichment - Held that - 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. The 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. Petition dismissed.

Summary

Issues Involved:
1. Validity of the order dated 09.10.2014 by the Debts Recovery Appellate Tribunal.
2. Responsibility of the respondent-bank under Section 131 of the Negotiable Instruments Act, 1881.
3. Allegation of negligence and lack of due diligence by the respondent-bank.
4. Applicability of Section 72 of the Indian Contract Act, 1872 regarding mistake of fact.
5. Determination of liability for the altered cheque and subsequent recovery proceedings.

Detailed Analysis:

1. Validity of the Order by the Debts Recovery Appellate Tribunal:
The petitioners challenged the order dated 09.10.2014 passed by the Debts Recovery Appellate Tribunal, Delhi, which dismissed their appeal against the order of the Debt Recovery Tribunal-III, Delhi. The Tribunal had directed the petitioners to pay ?31,45,696/- with interest to the respondent-bank. The High Court found no flaw or infirmity in the Appellate Tribunal's order, thus upholding its validity.

2. Responsibility of the Respondent-Bank under Section 131 of the Negotiable Instruments Act, 1881:
The petitioners argued that the respondent-bank failed to exercise "due diligence" and "ordinary care" as required under Section 131 of the Negotiable Instruments Act, 1881. The High Court clarified that Section 131 protects the collecting bank from liability to the true owner of a cheque if it acted in good faith and without negligence. However, this protection is not applicable when the bank sues its customer for recovery. The court noted that the petitioners were not the true owners of the cheque and that the cheque was altered.

3. Allegation of Negligence and Lack of Due Diligence by the Respondent-Bank:
The petitioners contended that the respondent-bank was negligent in informing them about the altered cheque after ten months, which led to the export of goods. The High Court examined the expressions "good faith" and "without negligence" and found that the respondent-bank acted in accordance with banking norms and regulations. The court observed that the bank could not have detected the alteration at the time of receiving the cheque and that the petitioners were aware of the risk involved due to a previous counterfeit cheque incident.

4. Applicability of Section 72 of the Indian Contract Act, 1872:
The Appellate Tribunal relied on Section 72 of the Indian Contract Act, which allows recovery of money paid under a mistake of fact. The High Court upheld this view, stating that the payment to the petitioners was made under the mistaken belief that the cheque was genuine. The principle of unjust enrichment applied, as the petitioners were enriched at the expense of the respondent-bank, and retention of this enrichment was deemed unjust.

5. Determination of Liability for the Altered Cheque and Subsequent Recovery Proceedings:
The High Court concluded that the respondent-bank was not negligent when it credited the amount to the petitioners' account. The bank acted as a collecting agent and followed international banking norms. The petitioners were liable to refund the amount as the cheque was altered, and the liability could not be transferred to the respondent-bank. The court emphasized that the petitioners had remedies against the drawer of the cheque or their customer to recover the amount.

Conclusion:
The High Court dismissed the writ petition, upholding the Appellate Tribunal's order and confirming the respondent-bank's right to recover the amount from the petitioners. The court found no merit in the petitioners' arguments regarding negligence and lack of due diligence by the respondent-bank. The parties were directed to bear their own costs.