9911796707
TMI Blog2018 (11) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... lty Law Firm, P.C. 645 Griswold, Swite 1370, Detroit, Michigan, USA and drawn on Bank of America, Troy, Michigan, USA. On 08.12.2008, Rs. 31,45,696/- was credited in the current account of the petitioners with the respondent-bank. 5. Petitioners state and claim that the aforesaid cheque was for export of rice to a party based in Uganda. Satisfied with credit of Rs. 31,45,696/-, the petitioners had exported the consignment of rice to the customer in Uganda on 08.01.2009. 6. Subsequently, on 25.08.2009, the petitioners were served with the legal notice issued on behalf of the respondent-bank to remit/refund Rs. 31,45,696/- as they had been intimated by their Foreign Department that the corresponding/collecting bank in USA vide letter dated 05.08.2009 had informed that the cheque was "Altered Cheque". Accordingly, payment of Rs. 31,45,696/- was reversed. Petitioners had contested the notice stating and highlighting the above facts and also asserted that Foreign Inward Remittance Certificate ("FIRC") had been issued on 27.02.2009 by the respondent-bank. 7. On 31.10.2009, a criminal complaint was lodged by the respondent-bank against the petitioners with the Economic Offence Wing, Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers by the respondent-bank on 08.12.2008. If the respondent-bank had informed the petitioners about the altered cheque well in time, the petitioners would not have shipped/exported the goods to the party in Uganda. 15. Learned counsel for the petitioners also relies on Section 131 of the Negotiable Instruments Act, 1881 ('Act', for short). It is submitted that the cheque deposited with the respondent-bank was sent to the corresponding/ collecting bank in the USA and that the respondent-bank was under an obligation to take "due diligence" and "ordinary care". This care and diligence is also enunciated and mandated by the Reserve Bank of India in relation to such transactions. Even after the amendment of the Act, introducing Explanation II in Section 131, the onus was on the respondent-bank to show that it acted in good faith and without negligence and, therefore, the respondent bank was liable and not entitled to recover the amount. 16. To buttress his arguments, learned counsel for the petitioners relies on United Bank of India v. M/s. AT Ali Hussain & Co. a firm & Ors., AIR 1978 Cal 169 and Indian Overseas Bank v. Industrial Chain Concern, (1990)1 SCC 484. 17. Learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner by reason of only having received payment. 20. In the present case, payment was made and credited to the account of the petitioners. The petitioners are not aggrieved by the credit and payment made. They accepted and admitted that the credit was to the petitioner's benefit. They are defending the recovery proceedings initiated by their bank. Further, as elucidated below the cheque in question was an altered one and the name of the holder as well as the amount was changed and altered as payable to the petitioners. Clearly the petitioners were not the true owners. 21. Assuming that Section 131 of the Act applies, we would examine the expressions "good faith" and "without negligence" and consider whether the respondent-bank was liable and cannot recover the money paid to the petitioners under the forged cheque presented to them for payment by the petitioners. The said elucidation would be also relevant when we consider the contention of the petitioners that even if Section 131 of the Act was not applicable, the petitioners were entitled to defend the proceedings for recovery initiated by the respondent-bank on the ground of negligence and lack of due diligence on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners on the issue of "standard of care", the Supreme Court has held as under: "23. In Capital and Counties Bank v. Gordon 1903 AC 240, the House of Lords accepted the position that a bank acts basically as a mere agent or conduit pipe to receive payment of the cheques from the banker on whom they are drawn and to hold the proceeds at the disposal of its customer. Unless crossed the banker himself is the holder for value. He may be a sum collecting agent or he may take as holder for value or as holder in due course. As an agent of the customer for collection he is bound to exercise diligence in the presentation of the cheques for payment within reasonable time. If a banker fails to present a cheque within a reasonable time after it reaches him, he is liable to his customer for loss arising from the delay. A banker receiving instruments paid in for collection and credit to a customer's account may collect solely for a customer or for himself or both. Where he collects for the customer he will be liable in conversion if the customer has no title. However, if he collects in good faith and without negligence he may plead statutory protection under Section 131 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney acting under a mistake. 15. In the instant case, the defendant bank was merely a 'conduit pipe' through which money was passed to the defendant No. 1. After the money was received by the defendant bank it intimated about the same to the defendant No. 1 who, in his turn, delivered the goods to the alleged representatives of the Metal Alloy Co., acting on a bona fide belief that the cheque was a genuine one, for otherwise it would not have been encashed by the plaintiff bank. Both the defendant No. 1 and the defendant No. 2 changed their position for worse before the mistake was detected by the plaintiff and communicated to them. Neither the defendant No. 1 nor the defendant No. 2 can be said to have derived any benefit from the mistake committed by the plaintiff bank." 26. In Kerala State Co-operative Marketing Federation v. State Bank of India & Ors., II (2004) BC 1 (SC), the Supreme Court had on the principles governing the liability of a collecting banker held:- "(1) As a general rule the collecting banker shall be exposed to his usual liability under common law for conversion or for money had and received, as against the 'true owner' of a cheque or a draft, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory duty which is created by this section and it is a price which the banker pays for seeking protection, under the statute, from the otherwise larger liability he would be exposed to under common law. (9) Allegation of contributory negligence against the paying banker could provide no defence for a collecting banker who has not collected the amount in good faith and without negligence." 27. Thus, 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. 28. It is pertinent to note that in Indian Overseas Bank v. Industrial Chain Concern (supra), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Provincial Bank Limited; Stanley Moss & Pilcher (Third Party) 5 LDAB 418. 30. The Appellate Tribunal, while relying on Section 72 of the Indian Contract Act, 1872, has held that the Section makes no distinction between the mistake of facts or mistake of law. Money paid under a mistake induced by fraud of third party may be recovered. The legislative object of Section 72 of the Contract Act is to prevent unjust enrichment and ensure restitution. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact, the plaintiff meaning, to waive all Inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it." 33. In Imperial Bank of Canada v. Bank of Hamilton, 1903 AC 49, the Privy Council has followed the rule laid down in Kelly's case (supra). In this case, cheque for a certain amount certified by the bank's stamp was fraudulently altered to a bigger amount and paid by the respondent to the appellant, a holder for value under a mistake of fact, which was not discovered till the next day. Privy Council held that the respondent was entitled to recover from the appellant-bank. Thus the rule laid down in Kelly's case (supra) is that if a person acting under a mistake pays money to another, the latter must repay the same. 34. On the question whether the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the bank can be asked to suffer this loss. The respondent bank was only a collecting agent and certainly is not required to bear this heavy loss on account of fraud having been played which may be by the importer or even could be on the part of the appellants as well. The counsel for the bank is justified in pleading that so far as the appellants had not taken any action against the importer for alteration of the cheque either to recover this amount or to proceed against him for any other liability in accordance with law. The bank has on its part has not only sought recovery of this amount, but has also filed a complaint with the Economic Wing which statedly is in process. The other submission made by the counsel for the appellants that the amount sought to be recovered by the bank is not covered under the definition of 'debt' was never raised before the Tribunal below and is being raised for the first time in the appeal at the stage of arguments. Though in support counsel has made reference to the judgment passed by this Tribunal in Axis Bank Ltd., Satna vs. Bhanu Oil and Dal Mills &Ors., III (2013) BC 8(DRAT) where it is observed that transaction of wrong clearance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the cheque was not objected to by the foreign bankers and credit was made/forwarded. Accordingly, the payment was credited to the account of the petitioners. Subsequently, it came to light that the cheque was altered in respect of the name of the payee as well as the amount payable. Consequently, Bank of America had raised the claim, which was forwarded to J.P. Morgan Chase Bank and then to the Foreign Department of the respondent-bank. The cheque was altered and this had come to light and knowledge after the Bank of America had made claim vide letter dated 21.1.2009. Clearly, the respondent-bank was not negligent when they had credited Rs. 31,45,696/- to the account of the petitioners earlier on 08.12.2008. It is also pertinent to note that the respondent-bank had only credited the amount after clearance from its Foreign Department. The respondent-bank would have acted contrary and against the law if they had not credited Rs. 31,45,696/-. Subsequently and in terms of the international banking norms, US$ 62,400 had to be refunded/paid back to the Bank of America in view of the claim made on 21.01.2009. Therefore, the petitioners were liable to refund and repay the amount credited ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
