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TMI Blog1976 (1) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... by him under the said contract between April 28, 1947, and August 6, 1947. 3. It is alleged in the plaint that one Mohinder Pal Singhal who was employed 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the outset it is necessary to state here the facts as emerge out of the pleadings of the parties and as are 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 dispatc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his account. With the letter dated January 2, 1948, addressed to the D.A.G. (I S) the 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 Rs. 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 Rs. 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 Rs. 4,000 on 15th January, 1948, Rs. 4,800 on 17th January, 1948, Rs. 3,525 and Rs 4,000 on 20th January, 1948, and Rs. 4,000 and Rs. 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 2n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Government of India Gazette dated 1st of February, 1958, appointed the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,304 and 11th February, 1948, for Rs. 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 converted the cheques, property in which and in the sums paid under which, always remained vested in the Dominion of India, and the defendant is liable to refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial 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 been followed or not as alleged in paras. 2 and 3 of the written statement ? If so, to what effect ? (There seems to be a typographical error; it should be plaint and not written statement). 12. The on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 of cancellation on the inspection notes. The dishonest intention of the person has, Therefore, to be assumed, as the cancellation of the inspection notes is one of the requirements of the procedure laid down before passing a bill for payment. The intention to caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 refresh his memory with the help of his report and from the copy of the deposition made by him earlier. Under Section 159 of the Indian Evidence Act, 1872, a witness may refresh his memory by referring to any writing made by him at the time of the transaction concerning which he is questioned, or soon afterwards. The natural wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 22,384 and February 11, 1948, for Rs. 1,04,989 were issued by the Deputy Accountant-General on behalf of the Government of the Dominion of India on the representation of the defendant that it was collecting the bills for M/s. R.K. Bhatt who was the person truly and lawfully entitled to payment thereof. The letters dated 2nd of January, 1948, and 2nd of February, 1948, written by the bank show that they had enclosed the accompanying remittances for collection as per particulars mentioned therein. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 Rs. 22,384 dated 12th of January, 1948, and Rs. 1,04,989 dated 11th of February, 1948, were issued by D.A.G. (I S). Whether the representation in the letters is responsible for issuing the cheques, there is no evidence. Although allegations have been made in the plaint that the concerned officers in the Office of the Deputy Accountant-General (Industries Supplies) who were deceived into the issuing of the cheques in favor of the bank by reason of the belief fraudulently induced in their minds that the bank was collecting the bills for the person truly entitled to their payment, namely, M/s. R.K. Bhatt, and that the payment was due and issues were framed based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issued for the payment due in performance of a contract under a particular acceptance of tender. The basic documents, Therefore, are the acceptance of tender, the proof regarding the performance of the contract and the fact of the payment due under the contract. The representation of the defendant in the letters alone, Therefore, could not be responsible for the issue of the cheques. Whether the officials of D. A. G. (I S) were put off their guard by the representation made by the defendant that it was coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legal position. A conversion is a wrongful interference with goods, as by taking, using or destroying them, inconsistent with the owner's right of possession. The plaintiff had issued cheques dated 12th of January, 1948, for Rs. 22,384 and 11th of February, 1948, for Rs. 1,04,989. Admittedly, these cheques were drawn on the Reserve Bank of India in favor of defendant or order and crossed generally or account payee. Admittedly, the defendant collected one cheque on 14th January, 1948, and credited Rs. 22,328 (less bank charges) as the proceeds to the account of R.K Bhatt, account-holder. Admittedly, the defendant rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, exposes him daily to this peril. His contract with his customer requires him to accept possession of cheques delivered to him by his customer, to present them for payment to the banks upon which the cheques are drawn, to receive payment of them, and to credit the amount thereof to his own customer's account, either upon receipt of the cheques themselves from the customer or upon receipt of actual payment of the cheques from the banks upon which they are drawn. If the customer is not entitled to the cheque which he delivers to his banker for collection, the banker, however innocent and careful he might have been, would at common law be liable to the true owner of the cheque for the amount of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 examine the evidence as to how the account was opened by R.K. Bhatt, account holder. Exhibit P-y is the copy of the rules of business in India of the Grindlays Bank Ltd. (the predecessor of the defendant). According to it, current deposit accounts are opened in the names of persons known to the bank or producing reliable references. Exhibit PCW-3/5 (certified copy, exhibit PCW-2/18) is the original account opening form of Manak Chand Jain masquerading as R.K. Bhatt. It shows that a sum of Rs. 125 was deposited in cash at the time of opening of the current account on 30th of December, 1947, In the column meant for introduced by it is mentioned M/s. Khyber Cycle Store of Peshawar . In the column Previous Bankers , it is mentioned nil. The particulars of the account holder are given as R.K. Bhatt (Rabindr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reliable or trustworthy references. However, there is no evidence on the record about the extent of the enquiries made at the time of opening of account of R.K. Bhatt, account holder. I am not persuaded to agree with the learned counsel for the defendant to hold that from the fact that the account was opened, it should be inferred that it must have been done after R.K. Bhatt, account holder, had produced reliable references. Shri S.N. Aggarwal, sub-officer of the defendant, was produced as PDW-1 but stated nothing in the examination-in-chief about the opening of the account by R. K. Bhatt, account holder. In cross-examination, the witness admitted that there used to be one Mr. K.B.N. Swamin and one Mr. Gulab Chand who were in charge of the opening of new accounts in the years 1947-48 and 1948-49 and that they had retired. No effort was made by the defendant to produce them as witness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cheque was stolen by some other person unknown and was never cashed by the Commissioners of Taxation. On the following day a man who gave his name as Stewart Thallen entered the head office of the respondents' bank at Sydney and stated that he wished to open an account. The accountant took his name and address which this man gave at certain well-known residential chambers in Sydney. He then handed in a sum of 20. The accountant filled up the paid in slip and the account was duly opened and a cheque book issued to Thallen. On the following day the stolen cheque was handed in by Thallen, and on the next day Thallen withdrew three sums, of 483-16-6, 260-10-0 and 350-12-6 by cheques drawn by himself. Thallen was never seen again and it was found that no person of that name lived at the address he had given. The Commissioners of Taxation then filed an action from which the appeal went to the Privy C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unlikely himself wittingly to give any information calculated to disclose his dishonest purpose. He will be prepared with appropriate answers to lull suspicion. It may be that a searching interrogation would reveal inconsistencies or improbabilities in his story, but a bank cannot reasonably be expected to subject all prospective customers to a cross-examination which cannot fail to give the impression that the bank doubts their honesty, and which would be understandably resented by the 999 honest potential customers, on the off-chance of detecting the thousandth dishonest one. If there is some other independent and apparently trustworthy source from which the honesty of the potential customer may be verified, then to rely upon that source of information is not only less likely than interrogation of the customer himself to damage the bank's own business by driving away honest customers but is also more likely to result in the succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Facts established in that case were that the defendant's new customer was a Pakistani, a close community who in England keep themselves to themselves, that the most reliable source of information about him would be likely to be a fellow Pakistani whom the defendant bank could reasonably regard as trustworthy, that Mr. Ali was a Pakistani of substance, a restaurateur and thus likely to know about other Pakistanis in the same line of business that he had been a valued customer of the defendant bank for some six years, that he had introduced a number of other Pakistanis as customers, and all of these had proved satisfactory and that the defendant bank had no reason to doubt Mr. Ali's honesty, conscientiousness or can dour, or to suppose that he would vouch for the trustworthiness of a customer unless he had reasonable grounds for doing so. It was thus found that Mr. Ali was a valued customer, the bank had experience on him as a reliable reference for Pakistani custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence 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 provided that the proposed customer should be properly introduced. The evidence of the manager was that when he saw the application form for opening the account and he saw that the new customer was introduced by Modi he sent for Modi and asked about the new customer and Modi told the manager that he knew the new customer well and he was a broker and also knew that he had effected transaction with Dave. The manager stated that after he had this discussion with Modi, who was a member of the staff of the bank, he passed the form and initialled it for opening an account. The bank manager further stated that he followed the same practice with regard to the other customers introduced by Modi. It is on these facts that Chagla J. found that there was no negligence in opening the account. In that case also it was observed that primarily enquiry as to negligence must be directed in order to find out whether there is negligence in collecting the cheque and not in opening the account ; but if there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of a small initial deposit was entirely at the bank's discretion. The bank could rely on the introduction of any old customer. Whether the old customer was big or small constituent was relevant for the satisfaction of the bank about the trustworthiness of the new customer. If the bank bona fide acted on the reference of a small customer then it may avail of the protection under the said Section 131. But when there is negligence in the opening of the current account so as to affect the rights of the true owners of cheques, then the protection afforded under Section 131 of the Act cannot be availed of by the bank. The rules of the bank required that reliable reference may be of a small old constituent. 39. The absence of negligence could only be established if in the case before me the bank had led evidence to show that M/s. Khyber Cycle Store of Peshawar was a respectable constituent of the bank, that they had earlier introduced some new customers who had proved satisfactory and that they acted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 was due to its principal. In the replication there is a mere denial of this averment. 41. It was contended by the learned counsel for the defendant that the conduct of the plaintiff in passing the bills submitted by R.K. Bhatt, account-holder, and the act of the Government drawing cheques for amount of bills in favor of the defendant are the proximate cause of loss to the plaintiff and the defendant. The act, neglect and default of the plaintiff in not looking into the papers and records of the contract with such care and caution which is expected of the plaintiff and its officials has in reality caused or permitted the defendant to believe that the claim made by R.K. Bhatt, account-holder, was genuine and thus the defendant acted upon such belief when the defendant after receipt of the cheques sent the cheques for clearance, received the proceeds thereof from the plaintiff and made the payments to R.K. Bhatt, account-holder. 42. I may recall the evidence of PW-1 who has detailed the procedure about the processin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 tender. The procedure for the issue of cheques is prescribed in the Supply Audit Manual, a copy of which has not been placed on the record and in its absence reliance can only be placed on the statement of PW-1 who admits in examination-in-chief that the cancellation of the inspection note is not the basic thing for issuing a cheque. The basic documents thus would be the acceptance of the tender (the contract between the Government and the contractor), the proof regarding the performance of the contract (such as the inspection notes) and the fact that payment is due under the contract. If the acceptance of the tender, exhibit PCE-2/1 (and exhibit P-l) as modified by exhibit PCW-2/12 showed that the contract was only for the supply of 31,450 ground sheets and full payment of Rs. 2,34,892 against these supplies had been received by the contractor by August 6, 1947, then nothing was due under the said A/T. It was the duty of the plaintiff to take care that no payment is made unless due under a contract. This information woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ltd. v. Union of India [1964] 2 SCR 859 , it was held : ...... that when a plea of estoppel on the ground of negligence is raised, negligence to which reference is made in support of such a plea is not the negligence as is understood in popular language or in common-sense ; it has a technical denotation. In support of a plea of estoppel on the ground of negligence, it must be shown that the party against whom the plea is raised owed a duty to the party who raises the plea. Just as estoppel can be pleaded on the ground of miss-presentation or act or omission, so can estoppel be pleaded on the ground of negligence ; but before such a plea can succeed, negligence must be established in this technical sense. As Halsbury has observed, 'before any one can be estopped by a representation inferred from negligent conduct, there must be a duty to use due care towards the party misled, or towards the general public of which he is one.' There is another requirement which has to be proved before a plea of estoppel on the ground of negligence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that in actions for money had and received interest is not given, the fact of the defendant having received interest would not be a sufficient ground for making the defendant liable to pay interest; and as the High Court have the powers both of a court of equity and a court of law, their Lordships are of opinion that interest has been properly given. 49. In Trojan Co. v. RM. N.N. Nagappa Chettiar [1953] 4 SCR 789 it was held : The next point canvassed in the courts below was in respect of the claim of the plaintiff regarding interest on the amount found due to the plaintiff from 5-4-1937 to the date of the suit. It was contended that no interest could be allowed on damages because to do so would amount to awarding damages on damages which is opposed to precedent and principle. Clark J., however, awarded interest by placing reliance on certain English decisions which enunciate the rule that an agent who receives or deals with the money of his principal improperly and in breach of his duty or who refused to pay it over on demand is liable to pay interest from the time when he so receives or deals with the same or from the time of the demand. We think it is well settled that interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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