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TMI Blog2004 (1) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... was collected by the 1st Respondent on behalf of its client. On 30th December, 1982 a sum of ₹ 50,000/- was withdrawn from the account just prior to stop instructions being received. The said K. Narayhanan turned out to be a fictitious person. He was never traced again. The remaining balance of ₹ 50,000/- was ultimately returned to the Appellant. When the Appellants claimed the sum of ₹ 50,000/- from the 1st Respondent they claimed protection of Section 131 of the Negotiable Instruments Act. The Appellant thus filed a Suit for recovery of the sum of ₹ 50,000/-. The Suit was decreed by the trial Court. However, the High Court has allowed the Appeal of the 1st Respondent, set aside the decree of the trial Court and dismissed the Suit. Hence this Appeal. Section 131 of the Negotiable Instruments Act reads as follows: 131. Non-liability of banker receiving payment of cheque.- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Indian Overseas Bank vs. Industrial Chain Concern reported in (1990) 1 SCC 484. In this case, on the basis of evidence lead by the bank (evidence of the Manager and the accountant of the bank) the bank was exonerated. However, principles which governed such cases were noted from various decisions. The relevant portion reads as follows: 9. What is the standard of care to be taken by a bank in opening an account ? In the Practice and Law of Banking by H. P. Sheldon, 11th edn., in chapter 5 at page 64 it is said : Before opening an account for a customer who is not already known to him, a banker should make proper preliminary inquiries. In particular, he should obtain references from responsible persons with regard to the identity, integrity and reliability of the proposed customer. If a banker does not act prudently and in accordance with current banking practice when obtaining references concerning a proposed customer, he may later have cause for regret. 10. M. L. Tannan in Banking Law and Practice in India, 18th edn. at page 198 says : Before opening a new account, a banker should take certain precautions and must ascertain by inquiring from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Form F.S. 5 and sign it in his personal Name and also affix his signature on behalf of he concern as proprietor in the space provided. If the banker was negligent in following up the references given at opening of account and subsequently cheques etc. are collected for the customer paid into that account and those happened to be of someone else the Bank may be liable for conversion, unless protected by law. In the instant case, Sethuraman having been known to the Manager who gave the introduction, there was no violation of any instruction or rules. 13. It was held in Commissioners of Taxation v. English, Scottish and Australian Bank (1920 AC 683), that a negligence in collection is not a question of negligence in opening an account, though the circumstances connected with the opening of an account may shed light on the question whether there was negligence in collecting a cheque. 14. In Ladbroke and Co. v. Todd ((1914) 30 TLR 433 : (1914) 111 LT 43 : 19 Com Cas 256), the plaintiff drew a cheque and sent it to the payee by post. The letter was stolen and the thief took it to the defendant, a banker, and used it for the purpose of opening an account for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wner' of a cheque or a draft, in the event the customer from whom he collects the cheque or draft has not title or a defective title. (2) The banker, however, may claim protection from such normal liability provided he fulfils strictly the conditions laid down in S. 131 or S. 131A of the Act and one of those conditions is that he must have received the payment in good faith and without negligence. (3) It is the banker seeking protection who has on his shoulders the onus of proving that he acted in good faith and without negligence. (4) The standard of care to be exercised by the collecting banker to escape the charge of negligence depends upon the general practice of bankers which may go on changing from time to time with the enormous spread of banking activities and cases decided a few decades ago may not probably offer an unfailing guidance in determining the question about negligence today. (5) Negligence is a question of fact and what is relevant in determining the liability of a collecting banker is not his negligence in opening the account of the customer but negligence in the collection of the relevant cheque unless, of course, the opening of the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Account Opening Form the address is given only as Kaniyarath P.O., Kallisseri . Thus an absolutely vague address was given. The Bank made no enquiries as to the credit worthiness of the said K. Narayhanan or as to his full address or even about his telephone number. Thereafter even though initially the account was opened with only ₹ 20/- the exact amount of ₹ 80/- was deposited for purposes of receipt of a cheque book. The 1st Respondent bank does not seem to have put on its guard, even when a cheque for a very large amount i.e. ₹ 1,00,000/- was deposited soon thereafter. In cross-examination the Branch Manager admits that in the Account opening form neither the name nor the occupation of the person introducing had been filled up. He admits that no enquiry was made regarding the nature of business of K. Narayhanan or where the place of business was. Even after it was found out that that a cheque had been forged and stop payment notice had been issued, no enquiry was made by the Bank with the introducer. When asked why no enquiries were made, the answer given was that the bank has no responsibility to look into it. Another factor which mitigates against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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