9911796707
TMI Blog1976 (1) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... mployed at the relevant time as auditor in the stores section of the office of the Deputy Accountant-General of Industries and Supplies, New Delhi (hereinafter referred to as D.A.G. (I & S) ), audited the bills of M/s. R.K. Bhatt and in doing so, he fraudulently with dishonest intent omitted to make the requisite endorsement of cancellation giving a reference to the entry in the bill register on all or some of the accounts office copies of inspection notes submitted by the contractor in support of the bills. It is, thereafter, averred that Mohinder Pal Singhal entered into a criminal conspiracy with one Manak Chand Jain of Delhi to cause wrongful loss to the Government of India by dishonestly and fraudulently obtaining from the Government of India, payment of price of goods to which they had no title and which had already been made to the rightful person. The modus operandi was that Mohinder Pal Singhal made over to Manak Chand Jain the accounts office copies of two inspection notes which had been submitted by the contractor with his bills audited by Mohinder Pal Singhal and which he had left un-cancelled and thereupon Manak Chand Jain was to submit false and forged bills for payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clearly established on the record. The acceptance of tender No. SY/43488/Sup. I/R-2/1194, dated 1st October, 1945, is exhibit PCW-2/1 (and exhibit P-1) and shows that the contract for the supply of ground-sheets was entered into between the late department of supply (purchase branch) of the then Government of India and one R.K. Bhatt Esq. According to Clause 9 of exhibit PCW-2/1, the bills for the stores to be supplied in compliance with this contract must be prepared in the special bill form obtainable from the said office and submitted in strict accordance with the instructions on the reverse of the bill form quoting the number and date of the acceptance of tender. The schedule attached to the said acceptance of tender mentioned the quantity and the rates. Clause 13 of the schedule (special notes) provided that 90% of the price of each consignment will be paid on proof of dispatch of stores to the consignee from a railway station or a port in India after inspection. A copy of the railway receipt or bill of lading under which the goods charged for in the bill are dispatched should be sent along with the bill. The balance of 10% will be paid on receipt of the consignment in good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he defendant enclosed the bill along with the inspection note No. 19615 "A/C Mr. R.K. Bhatt" for collection. The certified copy of the letter is exhibit PX-2. The bill was accepted and a cheque for ₹ 22,384 was issued by the D.A.G. (I & S) drawn in favor of the defendant on the Reserve Bank of India and sent to the defendant. The defendant realised the amount of the cheque and credited the sum of ₹ 22,328 (less bank charges) on January 14, 1948, in the account of R.K. Bhatt, account-holder. The copy of the statement of account of R.K. Bhatt, account-holder, exhibit PX/1, shows the withdrawals of ₹ 4,000 on 15th January, 1948, ₹ 4,800 on 17th January, 1948, ₹ 3,525 and ₹ 4,000 on 20th January, 1948, and ₹ 4,000 and ₹ 2,000 on 22nd January, 1948. Similarly, R.K. Bhatt, account-holder, presented another bill dated 31st January, 1948, along with the inspection note and handed over the same to the defendant on 2nd February, 1948, along with the letter, exhibit PCW-3/4 (copy exhibit PCW-2/20). Similarly, the defendant presented the bill along with the inspection note to the D.A.G. (I & S) on 2nd February, 1948, vide letter, exhibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue-wise. Issue No. 1: " Is the plaint properly signed, verified and presented by a duly authorised person. " 8. The original plaint of the suit is signed by Shri H.C. Daga, Officer on Special Duty (Litigation). It is verified by Shri P.S. Sundaram, Officer on Special Duty (Accounts). The last amended plaint is signed by Shri V. Subramaniam, Director of Supplies, Directorate-General of Supplies and Disposals. Shri V. Subramaniam has appeared as PW-4 and made a statement on oath that the plaint in the suit is signed by him and also verified by him and that he did so in his capacity as a director of supplies in the office of the Directorate-General of Supplies & Disposals. Under Order 27, Rule 1 of the Code of Civil Procedure, in any suit by the Government, the plaint shall be signed by such person as the Government may, by general or special order, appoint in this behalf and shall be verified by any person whom the Government may so appoint and who is acquainted with the facts of the case. In exercise of the powers conferred by Rule 1 of Order 27 of the Code of Civil Procedure, the Central Government by notification S.R.O. 351 dated 1st February, 1958, published in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Dominion of India. The right which is claimed in the suit is with respect to parting of money by the cheques dated 12th January, 1948, for ₹ 22,304 and 11th February, 1948, for ₹ 1,04,989 issued by the Deputy Accountant-General on behalf of the Government of the Dominion of India on the representation of the defendant bank that it was collecting the bills for M/s. R.K. Bhatt who was the person truly and lawfully entitled to the payment thereof. It is pleaded that the defendant did not acquire any title thereto that no property in and the right of the possession to the cheques vested in the defendant bank, that the defendant bank converted the cheques under property in which and in the sums paid which always remained in the Dominion of India and that the bank is liable to refund the amount. I am unable to agree with the contention of the learned counsel for the defendant and that the action of conversion is an action in personam and dies with death of the person and could not be succeeded to by the Government of India. The right claimed in the suit is that by collecting the cheques and by disposing of the proceeds by payment to Manak Chand Jain, the defendant converte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1945, as alleged in para 1 of the plaint and on what terms? " 11. Shri C. L. Dingra, P. W. 2, brought the original file No. ST/SY/43488/ RII/1194 of 1946 of the Department of Industrial Supplies. The record copy of the acceptance of tender dated 1st October, 1945, was identified as having been signed by Shri D.K. Sen and was proved as exhibit P-1. Shri Katilal K. Bhatt of Bombay appeared as PCW-2 and stated that he had seen the duplicate of acceptance of tender and can say that this is the correct duplicate of the order placed on him. The document was exhibited again as PCW-2/1 though exhibited as exhibit P-l earlier. This acceptance of tender was stated to have been modified by letter dated 21st April, 1947, by exhibit PCW-2/12. The terms for the supply of the ground sheets are thus contained in exhibit P-l (exhibit PCW-2/1). I hold this issue in favor of the plaintiff. Issue No. 3 as recast on 21st July, 1960, reads as follows : " Was the defendant-bank at all material times not aware of the procedure or duties of the officials of the plaintiff as detailed in the plaint nor it had any occasion to ascertain the same or to verify whether the alleged procedure had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into any criminal conspiracy with Manak Chand Jain to cause wrongful loss to the Government by omitting to make an endorsement of cancellation on the inspection notes or by stealing or removing the inspection notes from the records in his possession after payment and handing them over to Manak Chand Jain. However, there is evidence to show that two un-cancelled inspection notes were used by Manak Chand Jain in obtaining the price of goods fraudulently from the Government. I have already referred to the evidence of PCW-1 and PCW-2 which establishes that the price of ground sheets supplied under the acceptance of tender, exhibit PCW-2/1, and based on the accounts office copies of the inspection notes (copies exhibits PCW-2/13 to PCW-2/17), amounting to ₹ 2,34,892 had been received by Shri R.K. Bhatt, the contractor, by 6th of August, 1947. It is obvious that had the accounts office copies of inspection notes been cancelled, the inspection notes would have borne an endorsement of cancellation on it. The fact that the two bills along with the un-cancelled inspection notes were presented by Manak Chand Jain through the defendant shows that some one omitted to make endorsement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were sent to the handwriting expert, Shri M.B. Dixit, Nagpur, for comparison along with certain comparative material and exhibit PCW-3/12 and 13, the natural writings of Manak Chand Jain, who is alleged to have opened the account with the defendant. Shri M.B. Dixit stated on oath as PCW-3 that he examined the documents in original as well as with the aid of photographic enlargements and compared them with the comparative material and that he was of the opinion that all the documents were written by one and the same person. The detailed reasons have been given in his deposition as well as in his report, exhibit PCW-3/2. Mr. Dixit is a Government examiner of questioned documents for Central Provinces and Berar, Nagpur, and is an independent witness. His testimony is worthy of great credence and has to be relied on, even though in the cross-examination he admitted that he had made the statement with the help of notes prepared by him from the copy of the deposition made by him in the Magistrate's Court. It is significant to note that the report, exhibit PCW-3/2, is dated 28th September, 1949, and the deposition in this case was made on 13th April, 1968. The witness wanted to refre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xhibit PCW-2/18 and it does not bear his signatures, that he has seen the original of exhibit PCW-2/19 and as this also does not bear his signatures, that the originals of exhibit PCW/22-40 do not bear his signatures and that he never opened an account or submitted any bill through the defendant. From the evidence of PCW-3, Shri M.B. Dixit, it is clearly established that R.K. Bhatt, account holder, was Manak Chand Jain. Two of the disputed cheques were also examined by Shri M.B. Dixit with the natural writing, exhibits PCW-3/ 12-13 of Manak Chand Jain, and he expressed the opinion that they were written by one and the same person. I, therefore, hold that the withdrawals from the defendant bank were made by Manak Chand Jain. Issue No. 10: " Did not the bank act as an agent for collection of its account holder and were not the cheques received by the bank as such agent ? " Issue No. 13 : " Was Manak Chand Jain the bank's principal ? " 18. The case set up in the plaint is that the cheques dated 12th of January, 1948, for ₹ 22,384 and February 11, 1948, for ₹ 1,04,989 were issued by the Deputy Accountant-General on behalf of the Government of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the plaintiff in letters, exhibits PX-2 and PX-3, that it was collecting the bills in the account of "R.K. Bhatt". This representation of the defendant is clearly incorrect as the constituent of defendant is not the real R.K. Bhatt, but Manak Chand Jain masquerading as R.K. Bhatt. R.K. Bhatt, account holder, obtained the two un-cancelled inspection notes by practicing fraud or by conspiracy with certain officials of the plaintiff or obtained otherwise and presented them for payment through the defendant. As already held, full payment had been received by Sari R.K. Bhatt, contractor, on the basis of the said two inspection notes and nothing was due to Shri R.K. Bhatt. The two un-cancelled inspection notes and the two bills did not represent any title in it for being paid. The plaintiff while scrutinising and passing the two bills for payment, had no contracting mind as the two inspection notes presented along with the bills were null and void. It is the common case of the parties that cheques for ₹ 22,384 dated 12th of January, 1948, and ₹ 1,04,989 dated 11th of February, 1948, were issued by D.A.G. (I & S). Whether the representation in the letters is respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cheque memos to the Assistant Superintendent. The Assistant Superintendent checks these cheque memos and signs on the cheque memos. Thereafter, the cheque memos are passed on to the delivery clerk who enters then in the delivery register. The delivery register is again checked by the Assistant Superintendent and then the register is sent to the cheque section. The cheque section issues cheques in favor of the parties mentioned in the cheque memos, which corresponds to the address given on the bill and the same are dispatched to the addressee by post. The cancellation of the inspection notes is not the basic thing for issuing of cheque. The cancellation of the inspection note indicates payment of the bill. The cancellation of the inspection note is done before the issuing of the cheque. 22. The record is not clear whether the said procedure for issuing the two cheques in dispute was followed by the officials of the D.A.G. (I & S). The detailed procedure prescribed for issuing the cheque shows that it is not dependent on the representation made by the parties in the bills submitted that are alone responsible for the issue of the cheque for payment of these bills. The cheques are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to its principal ? " Issue No. 19 : " Did the property in the cheques or in the sums paid there under remain vested in the Union of India ?" Issue No. 22: " Whether the bank is legally liable to refund the amount collected to the plaintiff?" Issue No. 27 : " Is the plaintiff entitled to the relief claimed or any other relief notwithstanding that the bank paid the monies collected from the Government to its account holder before any sort of claim whatsoever in respect thereof was made by the plaintiff on the basis or, as a result of the alleged conspiracy or fraud or otherwise ? " Issue No. 28: " Is the plaintiff entitled to any relief against the bank having elected not to sue the parties who according to it entered into the alleged conspiracy to defraud and/or cause wrongful loss to the Union of India ? " Issue No. 29 : " Is the claim against the defendants competent or sustainable in law particularly when no claim is made against officers, servants or agents of the plaintiff." 25. All these issues are inter-twined and I would do well to express my opinion together. There is also not much of the dispute about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, had no title to the cheques. The cheques had been drawn in the name of the defendant and the proceeds realised by it. It is clear that as against the true owner, the defendant is guilty of conversion. No arguments have been addressed by the learned counsel for the defendant on issues Nos. 27 to 29. If the defendant is guilty of conversion, then I see no valid defense that it is not liable because anyone who is also liable in law, has not been imp leaded or amount claimed from them. 27. In Marfani & Co. Ltd. v. Midland Bank Ltd. [1968] 1 WLR 956, 970, 971 (CA) it was held : " At common law, one's duty to one's neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour's interest in the goods. This duty is absolute ; he acts at his peril. A banker's business, of its very nature, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two cheques. The other question for determination is whether there is in law any estoppel by negligence against the plaintiff. A banker who deals with the cheques contrary to the right of the true owner is liable for conversion. But a protection is afforded to the bankers under Section 131 of the Negotiable Instruments Act, 1881. Section 131 reads as follows : " 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. " 30. Though the said section requires " good faith and without negligence " in the receipt of the payment for a customer of the cheque, it is to be seen whether it is only at the stage of the realisation of the cheque or even earlier or later that there should be good faith and absence of negligence. It has also to be ascertained as to what is the extent of care or foresight the banker must exercise in the interest of the true owner when receiving the payment for a customer of the cheque. 31. I may now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to M/s. Khyber Cycle Store of Peshawar about R.K. Bhatt, account holder, either in writing or orally whether at the time of opening of the current account or subsequently. On these facts, Mr. Chopra, learned counsel for the plaintiff, contends that all care and caution was thrown to the winds by the defendant in accepting the application of a stranger who was neither introduced by one of its old customers nor any enquiries made about him. 32. The modern banking practice requires that a constituent should either be known to the bank or should be properly introduced. The bank owed a duty to make enquiries directed to discover whether a new constituent might use the account for any fraudulent purposes. The underlying object of the bank insisting on producing reliable reference is only to find out, if possible, whether the new constituent is a genuine party or an impersonator or a fraudulent rogue. " Producing reliable references " in exhibit P-y indicates that the reliable reference has to be more than one. It was thus the requirement of the rules of the defendant that the prospective account holder should produce trustworthy references. The bank normally acts on reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and the deposit of the cheque are really part of one scheme, as where the account itself is opened with the cheque in question or where it is put into the account so shortly after the opening of the account as to lead to the inference that it is part of it, then negligence in the matter of opening the account must be treated as negligence in the matter of realisation of the cheque." 33. The Privy Council in Commissioners of Taxation v. English Scottish and Australian Bank Ltd., AIR 1920 PC 88, laid down the principle which ought to guide the courts in considering the question whether a bank is guilty of ' conversion in having been negligent in collecting a cheque on behalf of a customer which in fact did not belong to him. In that case one A. Friend of Sydney put a cheque drawn by himself on the Australian Bank of Commerce for 786-18-3 into an envelop, along with some other cheques drawn by other members of his family, and addressed the envelop to the Commissioners of Taxation, George Street North, Sydney. This cheque was in payment of an assessment for income-tax. It was crossed with the word " bank ", that is to say, generally not specially. This cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wner of the cheque in the unlikely event that he should turn out not to be customer himself. It was urged that it does not constitute any lack of reasonable care to refrain from making enquiries which are unlikely to lead to detection of a potential customer's dishonest purposes, if he is dishonest, and which are calculated to offend him and may drive away his customer if he is honest. Reference was made to Diplock L.J.'s speech at page 975, wherein it was held : "It is to be borne in mind that, whatever inquiries it might be prudent for the bank to make for their own purposes, the only inquiries which they were under any duty to the plaintiff company to make were inquiries directed to discovering whether their new customer might use the account for the fraudulent purpose of cashing cheques belonging to other people. The purpose of such inquiries would be (a) to find out whether the customer was a fraudulent rogue, and if so, (b) whether he would be likely to have opportunities of dishonestly obtaining other people's cheques, in particular those of the plaintiff company. As a matter of common sense, a person who is opening a bank account for a dishonest purpose is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een known to the bank since about 1961, had an account with them for some years and had previously introduced satisfactory Pakistani customers to the bank. He told the bank's branch manager that E. (as K. was known to both of them) had been known to him " for some time " (he was not asked how long) that he, Mr. Ali, believed that E. intended starting a restaurant and that in Mr. Ali's opinion he (i.e., K. known as E.) was all right for the conduct of a bank account. Mr. Ali had in fact known K. for only a month as a customer at his restaurant and was in no position to vouch for his trustworthiness or even his identity. Payments out of the account started at the end of January, 1966, viz., a few days after Mr. Ali's reference was given. All the money in K's account was withdrawn in the course of the first week of February, 1966, and he left for Pakistan. The plaintiff company brought an action for conversion of the 3,000 cheque against the defendant bank." 36. On the evidence produced in that case the question arose : were the defendant bank acting prudently in relying on what Mr. Ali told them about their new customer who called himself, Eliaszade. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as failed to make enquiries which it should have made at the time of opening the account. In such case a heavy burden lies on the defendant to show that enquiries, if made, could not have led to any action which would have protected the interest of the true owner. There is no material on the record to discharge that burden. I am unable to agree with Mr. Mahinder Narain that it was not necessary to make any further enquiries from M/s. Khyber Cycle Stores of Peshawar, because it would have led to no result. I would not conjecture the result of enquiry. If the defendant fails to make requisite enquiries which it should have, then a very heavy burden lies on him before he can avail of the protection under Section 181 of the Act. 37. Relying on Bapulal Premchand v. Nath Bank Ltd. [1946] 16 Comp Case 133 ; AIR 1946 Bom 483, it was contended by learned counsel for the defendant that there was no absolute duty cast on the bank to make inquiries about any intending customer. In that case, the evidence of the manager of the bank was that the bank opened accounts only of such persons as were known to any member of the staff or to any outsider who was known to the bank. The rules of the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current account in the name of R.K. Bhatt, account holder. Reliance is placed on the judgment of B.C. Misra J. in Suit No. 246 of 1967 (Sylvan Star Investment Company (Pvt.) Ltd. v. Central Bank of India Ltd., etc.) wherein it was held that "so far as the second defendant is concerned, I do no find that the plaintiff had succeeded in establishing any case against it. The irregularity alleged in the opening of the account of Paramjit consisted only in having a smaller initial deposit than required by the rules and in being introduced to the bank through a small old constituent of the bank and not any other respectable customer. These are matters for internal arrangement of the bank and hardly constitute any negligence or participation in fraud on the part of the bank. The bank acted in due course of business and is not liable to the plaintiff. I, therefore, hold that the second defendant is not liable." The facts of that case are entirely different. The irregularity alleged in the opening of the account consisted only in having a smaller initial deposit than required by the rules and in being introduced to the bank through a small old constituent of a bank. The acceptance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount-holder, withdrew almost the entire amount between 17th of February, 1948, to 1st of March, 1948. It is significant to note that no other cheque or bill was deposited or account operated. All the facts bring out the true position that the initial opening of the account was intimately connected with the ultimate collection of the two bills by submission along with two un-cancelled inspection notes and by obtaining two cheques and then the withdrawal of the amount. The account was opened by Manak Chand Jain with the ulterior motive to obtain payment of money on the strength of two un-cancelled inspection notes to which he had no title. The manner in which the account was opened by the defendant and operated, does not show the absence of negligence to entitle the defendant to avail of the protection under Section 131 of the Act. 40. The next question which falls for consideration is whether the plaintiff is estopped from claiming any amount from the defendant. This issue is based on the plea of the defendant that the plaintiff made payments on the basis of the said two bills and inspection notes, submitted to them through the bank and caused the bank to believe that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the requisite endorsement of cancellation on the inspection notes submitted by R.K. Bhatt, contractor, there is no other allegation of fraud or conspiracy of the other officials including other clerks, assistant superintendent, superintendent and gazetted officers who were instrumental in the processing of the bills. The defendant acting as an agent for collection on behalf of R.K. Bhatt, account-holder, submitted the two bills for collection along with letters, exhibits PX-2 and PX-3. I have already held that the representation of the bank in the letters could not be alone responsible for the issue of the cheques. The cheques are issued for payment due in performance of the contract. The defendant had no means, machinery or material to scrutinise whether the bills and the inspection notes on which the two bills were based, were a forgery or the two un-cancelled inspection notes were obtained by R.K. Bhatt, account-holder, by means of fraud. It was the plaintiff who had the means of knowledge to ascertain whether the inspection notes accompanying the two bills were fraudulently kept as un-cancelled and whether or not any payment was due under the particular acceptance of tend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. The defendant acted in good faith upon the representation made in the two cheques and according to the ordinary course of business the defendant collected the proceeds of the cheque and payment made to R.K. Bhatt, account-holder, and a loss in consequence has occurred which would not have happened if the representation had been true, in my opinion, that is a loss which the plaintiff ought to suffer. Of the two innocent persons, the plaintiff must suffer by his negligence the proximate cause of the loss. The negligence being of the plaintiff is in issuing the said two cheques on the basis of the bills presented by the defendant. It is the plaintiff who has enabled R.K. Bhatt, account-holder, to occasion the loss, and must sustain it. The negligent conduct of the plaintiff is the real cause of the loss, and he is, therefore, estopped. The negligence of the plaintiff is in the transaction itself as being the proximate cause of loss so as to constitute estoppel by negligence. My conclusions are in accordance with the law laid down by the Supreme Court as to when a plea of estoppel on account of negligence can be available to a party. 43. In New Marine Coal Co. (Bengal) Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47. Interest is recoverable both at law and in equity on money obtained by fraud or conversion and retained by a defendant. The interest Act is not exhaustive of all claims as to interest and it is open to the courts to award interest in cases not coming strictly within the purview of the said Act on principles of equity, justice and good conscience. 48. In Albert Birmingham Miller, Official Assignee of the court for the relief of Insolvent Debtors at Calcutta v. Thomas Barlow [1871] 14 MIA 209 it was held (pages 232, 233) : " On this point it is material to observe that, in the account which was drawn up between Barton Baynes & Co. and the defendant as official assignee, interest is charged and it, therefore, appears that by the wrongful act of the defendant the plaintiff has been deprived of money which was actually making interest, and their Lordships are of opinion that, under these circumstances, a court of equity would clearly be disposed to give interest; and it is by no means clear that, even in a court of law, although the ordinary rule is, that in actions for money had and received interest is not given, the fact of the defendant having received interest would not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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