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TMI Blog1961 (11) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ess on the evening of the 8th August, 1960, on the appointment of a provisional liquidator. Before that, the various offices of the bank had, in the ordinary course, issued demand drafts, most of them on other offices of the bank, but a few on other banks with whom it had agency arrangements. These applications are by the holders of such drafts who were unable to present them and obtain payment before the bank closed down and who therefore submitted proof to the liquidator claiming payment in full on the ground that the bank was only an agency employed by them for the transmission of money from one place to another and payable at the other end to their nominee or his order. Therefore, their relationship with the bank was not that of an ordinary debtor and creditor, but something more; and the bank held the money paid by them for obtaining the draft in a fiduciary capacity. The liquidator, however, held that the relationship was that of an ordinary debtor and creditor and nothing more and, denying the applicants the preferential payment they claimed, ranked them with the ordinary creditors. Hence, these applications under section 460(6) of the Companies Act read with rule 164 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is this something more. A large number of cases, New Bank of India, In re [1949] 19 Comp. Cas. 255; AIR 1949 EP. 373 , Noakhali Union Bank, In re [1950] 54 CWN 744 ; Suganchand Co. v. Brahmayya Co. [1951] 21 Comp. Cas. 224; AIR 1951 Mad. 910; Traders Bank Ltd. v. Kalyan Singh [1953] 23 Comp. Cas. 441; AIR 1953 Punj. 194; Birbhum Central Co-operative Bank v. Pioneer Bank Ltd. AIR 1956 Cal. 615; Girish Bank Ltd., In re AIR 1956 Cal. 762 and Gulzari Lal Devi Dayal v. Punjab Kashmir Bank Ltd. [1962] 32 Comp. Cas. 10; AIR 1960 Punj. 281; to mention only a few of those directly in point, have been cited at the bar. But so far as I can see all of them with one exception to which I shall presently refer, from In the matter of the New Bank of India 1 , which maybe regarded as the most favourable to the applicants, down to Gulzari Lal Devi Dayal v. Punjab and Kashmir Bank Ltd. [1962] 32 Comp. Cas. 110; AIR 1960 Punj. 281, which may be regarded as the least favourable, lay down the same principles, the differences lying only in the application of these principles to the particular facts. I think the principles may best be summarised in the words of Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific purpose of the transmission of the money to the place where the draft was made payable. Provided a contract of that kind and so understood by both parties is made out, it is possible to say that a person paying money to a bank under such a contract and on such terms is not in the position of an ordinary creditor, but is rather in the position of a trustor who entrusts the bank with money to be applied to a specific purpose, viz ., the purpose of its being carried to the other end and paid out there to the trustor himself or a nominee of his or to his order." The one exception is State v. J . C. Gammon Ltd. [1952] KLT 521; AIR 1953 TC 45 There the question arose only in an incidental way and has been considered at pages 526 and 527 of the report. The decision seems to proceed on the footing that the money paid for the purchase of a draft is money paid for transmission, that the bank stands in the relationship of an agent to the purchaser and hence acts in a fiduciary capacity, and that, consequently, if the bank fails the holder of the draft would be entitled to get the whole amount covered by the draft from the liquidator. All the cases except the last mentioned case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be implied by the usage of a trade and that even when a contract is reduced to writing such usage can by implication annex incidents and terms not expressly mentioned in the writing, proof of such terms being permissible under proviso (5) to section 92 of the Evidence Act. The statement of affairs submitted by the general manager of the bank, an experienced officer of the State Bank of India, under section 454 of the Companies Act shows the amounts due on unpaid drafts among preferential payments placing them on the same footing as monies collected by the bank on bills and other documents as mere agent. This lends considerable support to the case of the applicants, for although the statement is, of course, of no value as a statement of the law, it indicates that, as a question of fact, according to the practice followed by this particular bank, it holds the money paid to it by the purchase of a draft more or less as an agent. I have also examined two witnesses to ascertain the general banking practice in this country as also the practice of this particular bank. C.W. 1 is now the group agent of the Central Bank of India at Cochin and has 26 years' banking experience, having wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fts earn no interest and there are also the charges to be paid. The purchase of demand drafts is only a convenient mode of sending money from one place to another ...." Cross-examined by applicants: "... No interest is paid by a bank on the amount of a draft issued by it because essentially the transaction is not one of deposit but one of transmission of money from one place to another, a charge being levied for the service. I might not go to the extent of saying that when a person purchases a draft he enters into a contract with the drawer bank for the carriage of the money to the other end for a remuneration by way of commission; but I would say this, that to the knowledge of both (parties) the purchase is intended for the transmission of money from one place to the other, the bank getting a remuneration for its services in the shape of the commission .... The issue of a draft implies an obligation to effect an immediate transfer of the money to the drawee bank, albeit by book entries and, although advice thereof is sent only by post, advice is sent the same day." Cross-examined by the liquidator: "When a person purchases a draft from a bank there is usually, in the absen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d manner for its being payable to order. Doubtless, if the draft stood by itself; its negotiability would emphasise its character as a chattel, something which has been bought for the money paid and which the purchaser has taken as his money's worth. But yet, if, as the evidence here shows, the real agreement is for the transmission of money, I do not follow why the token or receipt given for the money should not take the form of a negotiable instrument which the payee can at his will endorse for collection or for value (in which latter case the endorsement transfers title to the money covered by the instrument) according to his convenience. That the draft is negotiable, that it can, as it were, be bought and sold, does not necessarily mean that the draft itself represents the value of the money, for, what is bought and sold is the title to the money covered by the draft. It would seem from the evidence of C. Ws. 1 and 2 that the technical phrase "purchase of a draft", used in banking parlance is a misnomer and that the draft is not really something taken in exchange for the money paid, but is only a token to enable the payee named therein to draw the money at the other end. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement is express since the application made by the payer is for the transfer of the money paid by him to some other place: See in this connection In re Travancore National and Quilon Bank Ltd. AIR 1940 Mad. 139 , where it was held that when a person, even if he be a customer, pays money to a bank for transfer, the bank receives the money as a mere agent with the result that, in winding up, the debt is entitled to priority. This is only consistent with the principles laid down in the several decisions to which reference has already been made. In the case of the purchase of a draft, the agreement to transmit the money is implied. The only difference, it would appear, is that in the case of a transfer the payer is only given a receipt which is not a document of title to the money, whereas, in the case of a purchase of a draft, he is given a negotiable instrument on the presentation of which alone the money is paid. It should not be thought that I am confusing between the object which the parties might have in mind when entering into a contract, and the terms of the contract, a confusion akin to that sometimes made in criminal cases between motive and intention. Whatever ..... X X X X Extracts X X X X X X X X Extracts X X X X
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