TMI Blog2022 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... have no application in the present case. Section 8 states that payment would be in full discharge when payment is made in accordance with the foregoing provisions of the GSC Act, that is, payment, where the certificate is held by or on behalf of the minor, in terms of Section 5 and payment on the death of a holder in terms of Section 7. The expressions minor , his parent or guardian in Section 8 of the GSC Act are persons referred to in Section 5 of the GSC Act and the word nominee and any other person are persons referred to in Section 7 of the GSC Act - sub-section (1) to Section 8 would come to the aid of the respondents only when the payment is made where the savings certificate is held by or on behalf of the minor and to the nominee or to a person mentioned in sub-section (5) of Section 7 on death of the holder. It is not a provision of general or universal application and does not discharge the respondents of their liability when Sections 5 and 7 of the GSC Act do not apply. Section 8(1) does not protect payments not covered and governed by Sections 5 and 7 of GSC Act. Sections 5 and 7 do not apply to the present case. To decide whether the KVPs were simple bearer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld liable for the acts of M.K. Singh during the course of his employment. Respondent Nos. 1 to 4 would be jointly and severally liable to pay the maturity value of the KVPs as on the date the KVPs were presented to the post office for encashment, along with 7% simple interest per annum from the said date till the date of payment - the appellants would be entitled to a compensation of ₹ 1,00,000/- and costs of ₹ 10,000/- - appeal allowed - decided in favor of appellant. - CIVIL APPEAL NOS. 8775-8776 OF 2016 - - - Dated:- 7-2-2022 - ( JUSTICE L. NAGESWARA RAO), (JUSTICE SANJIV KHANNA) And (JUSTICE B.R. GAVAI) For the Appellant : Mr. Aditya Kumar Choudhary, Adv Mr. Gurmehar Vaan Singh, Singh, Adv Mr. Rajesh Singh Chauhan, Adv Ms. Namita Choudhary, AOR For the Respondent : Mr. Gurmeet Singh Makker, AOR Mr. Kedar Nath Tripathy, AOR JUDGMENT SANJIV KHANNA, J. The aforementioned civil appeals preferred by Pradeep Kumar and Raj Rani (hereinafter wherever required referred to as the appellants ) assail the judgment dated 15th May 2015 passed by the National Consumer Disputes Redressal Commission, New Delhi, the NCDRC for short, whereby their compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firming receipt of the KVPs. 4. Rukhsana did not on her own revert to the appellants and when contacted had assured them apropos the transfer. Meanwhile, appellant No.1, i.e. Pradeep Kumar, had to leave Lucknow to join the official duty in Motihari, Bihar. Raj Rani, the second appellant, remained in touch with Rukhsana, who had informed that the process was taking time. 5. In June 2000, the appellants learnt that Rukhsana had cheated several investors and had been arrested by the police. Thereupon, the appellants made enquiries and discovered that the KVPs had been encashed from the Yahiyaganj Post Office and Lal Bagh Post Office. A sum of ₹ 25,54,000/- was paid in cash to Rukhsana, who had pocketed the entire amount. The appellants state that their enquiries reveal involvement of M.K. Singh, Sub-Post Master, Post Office, Yahiyaganj, the fourth respondent before us, who, contrary to the rules, had paid the maturity proceeds in cash and not by cheque in the names of the appellants. Underpinning the argument are the Kisan Vikas Patra Rules, 1988, 1988 Rules for short, and the Post Office Saving Bank Manual (Volume II), which we will refer to and delineate later. 6. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the KVPs were given to an unknown agent. The appellants, having done so, acted with open eyes and at their own peril and risk. The claim that the KVPs were handed over to Rukhsana without transfer application is unbelievable as appellant No.1 is a well-educated person. The appellants had remained silent for three months and did not make enquiries from the Post Office, Yahiyaganj located merely 800 metres from their residence. The appellants being negligent, the complaint against the respondents, including the fourth respondent, was dismissed. Rukhsana, being a service provider, was held liable to pay ₹ 25,54,000/- with interest @ 9% per annum from the date of release of amount from the post office till the date of realisation by the appellants. Rukhsana was also liable to pay ₹ 1,00,000/- as compensation and ₹ 10,000/- as litigation expenses. If the appellants are unable to recover the amounts due from Rukhsana, they (the appellants) were at liberty to sue the state government for its omission and commission in appointing Rukhsana as an agent. 10. Rukhsana has neither entered appearance before us to contest this appeal nor has challenged the judgment allowing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be so payable or which is expressed to be payable to a particular person but does not contain words prohibiting transfer or indicate an intention that the instrument shall not be transferable. It is an accepted position that KVPs are negotiable instruments in terms of Section 13 of the NI Act. Sections 15 and 16 of the NI Act define indorsement , indorsee , indorser and indorsement in blank and in full . Indorsement for the purpose of negotiation is made by the maker or holder of the negotiable instrument when he signs on the back or face of thereof, on a slip of paper annexed thereto or on a stamp paper for the purpose of negotiation. The person signing is called the indorser. If the instrument is signed by the indorser in his name only, it is an indorsement in blank. If the indorser also specifies the person to whom payment is to be made, the indorsement is said to be in full , and the person so specified is called the indorsee. 13. Sections 78 and 82 of the NI Act read: 78. To whom payment should be made.-Subject to the provisions of section 82, clause (c), payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder as: 8. Holder .-The holder of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction. The requirements of Section 8 are two-fold, and both requirements have to be satisfied. A holder means a person (i) entitled to possession of a promissory note, bill of exchange or a cheque, and (ii) entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due thereon in his name In the context of the present case, we need not examine the controversy and difference of opinion on the issue of Benami owner, which aspect and issue have been the subject matter of several. decisions, including Subba Narayana Vathiyar and Others v. Ramaswami Aiyyar (1907) 30 Mad. 88 (F.B.), Bacha Prasad v. Janki Rai and Others, AIR 1957 Pat. 380 and Bhagirath v. Gulab Kanwar, AIR 1956 Raj. 174.We express no opinion in the regard. Thus, a person who is in possession of the instrument but has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is presumed to be a holder in due course . But the proviso qualifies the presumption, where the instrument has been obtained from its lawful owner or a person in lawful custody thereof by means of an offence or fraud or has been obtained from the maker or acceptor thereof by means of an offence or fraud or by an unlawful consideration. In such cases the burden of proving that the holder is a holder in due course lies on the person claiming to be so. 17. This brings us to Section 10 of the NI Act, which defines the expression payment in due course and reads as follows: Payment in due course means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. When payment is made in accordance with the apparent tenor of the instrument in good faith and without negligence to a person in possession thereof, it is payment in due course. The requirement in Section 10 that the payment should be in both good faith and without negligence is cumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rules or instructions of the bank are followed or not, though this may not always be conclusive. Till an account is opened, banker and customer relationship is not created, but once the account is opened contractual relationship is created. Moreover, mutual rights and obligations between the banker and customer are also created under law. In case of fraudulent encashment of cheques, the collection and payment embraces the bank s duty to the real owner, if the customer happens not to be the real owner. In such cases, the bank s liability is protected on the satisfaction of the conditions mentioned under Section 131 of the NI Act and not otherwise. This is so because the drawer of the cheque is not the customer of the bank while the payee is. Consequently, if there is anything to arouse suspicion regarding the cheque and the ownership of the customer, the bank may find itself beyond the protection of Section 131 of the NI Act. Suspicion may arise when the amount is very large, credibility and identity of the customer is pied etc. Further, negligence may be established when collection and payment is made contrary to the tenor of the instrument. Carelessness occurs when there is fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which may change from time to time, further with the enormous spread of banking activities and cases decided a few decades ago may not probably offer unfailing guidance in determining the question of negligence at a later point of time. The standard of care expected from a collecting banker does not require him to subject the cheque to a minute and microscopic examination, yet disregarding circumstances about the cheque, which on the face of it gives rise to suspicion, may amount to negligence on the part of the collecting banker. Further, the question of good faith and negligence is to be judged from the standpoint of the true owner towards whom the banker owes no contractual liability but statutory duty by these provisions. It is a price that the banker pays for seeking protection under the statute from otherwise more extensive liability the bank would be exposed to under the common law. Another significant observation is that the allegation of contributory negligence against the paying banker could provide no defence for the collecting banker who has not collected the amount in good faith and without negligence. The aforesaid observations regarding Sections 131 and 131A of the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While the doctrine of constructive notice does not apply in the law of negotiable instruments the holder is not entitled to disregard a red flag which has raised his suspicions. We, therefore, modify the view taken by the Allahabad High Court in Durga Shah case to the extent that though the failure to prove bona fide or absence of negligence would not negative the claim of the holder to be a holder in due course, yet in the circumstances of a given case, if there is patent gross negligence on his part which by itself indicates lack of due diligence, it can negative his claim, for he cannot negligently disregard a red flag which arouses suspicion regarding the title. In this view of the matter we hold that the decision in Raghavji case does not lay down correct law. We agree with the view taken by the Allahabad High Court with above modification. xx xx xx 17. From the above discussion it emerges that the Indian definition imposes a more stringent condition on the holder in due course than the English definition and as the learned authors have noted the definition is based on Gill case. Under the Indian law, a holder, to be a holder in due course, must not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearer instruments. The respondent can claim discharge under Section 82(c) of the NI Act by showing that they had complied with the requirements of Section 10, that is, they had acted in good faith and without negligence. 23. 1988 Rules have been issued in terms of the power conferred on the Central Government under Section 12 of the Government Savings Certificate Act, 1959 (for short, the GSC Act ). The section states that the Central Government can make rules to carry out the purposes of the GSC Act and in particular the rules can be framed for issue and discharge of such certificates, and transfer and conversion of saving certificates and fees to be levied in respect thereof. The holder as defined in clause (a) in Section 2 in the GSC Act means an individual who holds the savings certificate in accordance with the provisions of this Act and any rules made thereunder. Clause (d) to Section 2 defines transfer as a transfer inter vivos and does not include a transfer by operation of law. 24. Section 4 of the GSC Act deals with holding of the savings certificates by or on behalf of the minors; Section 5 deals with payment where savings certificate is held by or on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (5) to Section 7 of the GSC Act, which reads as under: 7. Payment on death of holder. xx xx xx (5) Nothing contained in this section shall be deemed to require any person to receive payment of the sum due on a savings certificate before it has reached maturity or otherwise than in accordance with the terms of the savings certificate. 26. Thus, sub-section (1) to Section 8 would come to the aid of the respondents only when the payment is made where the savings certificate is held by or on behalf of the minor and to the nominee or to a person mentioned in sub-section (5) of Section 7 on death of the holder. It is not a provision of general or universal application and does not discharge the respondents of their liability when Sections 5 and 7 of the GSC Act do not apply. Section 8(1) does not protect payments not covered and governed by Sections 5 and 7 of GSC Act. Sections 5 and 7 do not apply to the present case. 27. Similarly, Section 11 protects any officer of the Government or any prescribed authority in respect of anything done or intended to be done under the GSC Act. The subject matter of the present proceedings does not relate to anything wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to sue to recover the amount from the maker of the instrument. The respondents as the maker of KVPs have not discharged the liability in terms of Section 78 as payment to Rukhsana was not made to the holder of the KVPs. To repeat, Rukhsana was not entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due thereon in her name. The KVPs were not indorsed in favour of Rukhsana. 29. To decide whether the KVPs were simple bearer instruments or a bearer instrument with conditions, it is essential to glean the relevant 1988 Rules. These Rules are also relevant when we examine the question of good faith and negligence. Rule 11 of the 1988 Rules, which relates to the place of encashment, postulates as under: 11. Place of encashment:- A certificate shall be encashable at the Post Office of its issue: - Provided that a certificate may be encashed at any other Post Office if the officer-in-charge of that Post Office is satisfied on production of identity slip or on verification from the Post Office of issue that the person presenting the certificate for encashment is entitled thereto. Rule 11 refers to the identity slip which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignature should be given his present address. The particulars of the certificate shall be verified by the Postmaster from the original certificate which shall be returned to the holder for presentation after about a week. The application thus obtained shall be date-stamped and sent to the office of registration for verification and return within 3 days. The office at which payment is desired by the holder should remind the office of registration if no reply is received within a week. In the meantime enquiries may be made at the local address about the identity of the applicant. On receipt back of the application from the office of registration, the holder will be informed of the fact and requested to present the certificate for encashment. For revised procedure in such cases see rule 31. The certificate to be encashed should be examined to see: (a) whether the period of non-encashability has expired. In the following circumstances, however, a certificate may be encashed before the expiry of the period of non-encashability :- (i) On the death of the holder or both of the holders in case of joint holders; (ii) On forfeiture by a pledgee being gazetted, Government Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove points, he will calculate the amount payable and then ask the holder to sign the endorsement on the certificate Received payment of Rs.............. in words and figures in his presence. If the certificate is presented for encashment through a messenger, the endorsement should have been signed already and the certificate accompanied by a letter of authority containing the specimen signature of the messenger. It should be seen whether the signature below the endorsement and the letter of authority if any, agrees with that on the application or the identity slip. The certificate will then be placed before the Postmaster who will satisfy himself about the authenticity of the certificate and the title of the holder. He will also ensure that the examination of the certificate has been carried out in the manner prescribed and that the amount payable as noted on the certificate is correct. He will then pass order 'Pay' under his signature at a suitable place above the place for the holder's signature to authorize payment. Payment will then be made by the counter Assistant. When payment is made to a messenger, his signature or thumb impression must be taken in addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of Kisan Vikas Patras if it is ₹ 20,000/- or more should be paid by cheque only by the post offices as provided in Section 269-T of the Income Tax Act. [D.G Posts letter No. 5-20/UP-06/2000-INV dated 28/29.8.2001] . Relying on this circular, the NCDRC held that the aforesaid stipulation had come into force with effect from 28/08/2001-29/08/2001. Impugned judgment does not refer to the letter No. 95-8/98-SP dated 18.08.1999 quoted above. To ascertain the correct position, we had asked the learned counsel appearing for the respondents to state whether the mandate issued vide letter No. 95-8/98-SB dated 18.08.1999 that the payment for the discharge value of KVPs, if such value is ₹ 20,000/- or more, should be by cheque rather than by cash is correct. The learned counsel for the respondents took time but has not reverted, which we treat as an acknowledgement that the stand taken by the appellants is correct. 32. At this stage, it would be relevant to refer to Rules 14 and 15 of the 1988 Rules, which read as under: 14. Discharge of certificate. (1) The person entitled to receive the amount due under a certificate shall, on its encashment, sign on back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e KVPs were not presented for encashment at the post office of its issue. In terms of Rule 11, the KVPs could have been encashed at a post office other than the post office which issued them, only when the Officer-in-charge of the post office is satisfied, on the production of the identity slip or on verification from the post office of issue, that the person presenting the KVPs for encashment is entitled thereto. (iv) The KVPs, when presented, were without the identity slip of the appellants. As per the mandate of Rule 9, identity slip had to be surrendered at the time of discharge of the certificate or in case of loss, a declaration of such loss had to be furnished to the post office. No declaration was furnished. (v) There is nothing on record to suggest that the Officer-in-charge of the post office was satisfied on the production of the identity slip or on verification from the post office of issue that the person presenting the certificate for encashment, namely Rukhsana, is entitled thereto. Thus, there was violation of Rules 9 and 11 of the 1988 Rules. It also follows that Rukhsana was not the holder . (vi) There is also violation of Clauses 23(1) and 23(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine the issue and question of contributory negligence. Legal position on contributory negligence has been stated in Kerala State Co-operative Marketing Association (supra). Exhaustive discussion on the said aspect is to be found in Canara Bank v. Canara Sales Corporation and Others, (1987) 2 SCC 666 which was a case where forged cheques were encashed and the customer had raised a claim amongst others against its banker. The bank had raised the plea of negligence of the customer. On the aspect of civil obligation of a customer in terms of banking contract and in tort law, this decision approves the following observations made by the Privy Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. and Others: (1985) 2 All ER 947. 37. Then the Privy Council proceeded to consider the weightier submissions advanced by the bank (1) a wider duty on the part of the customer to act with diligence which must be implied into the contract and alternatively that such a duty arises in tort from the relationship between banker and customer. The Privy Council parted company with the observation by the Court of Appeal here and repelled the plea that it was necessary to imply into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , estoppel or rectification on the customer s part. On the aspect when negligence constitutes estoppel, it was held: 29 For negligence to constitute an estoppel it is necessary to imply the existence of some duty which the party against whom estoppel is alleged owes to the other party. There is a duty of sorts on the part of the customer to inform the bank of the irregularities when he comes to know of it. But by mere negligence one cannot presume that there has been a breach of duty by the customer to the bank. The customer should not by his conduct facilitate payment of money on forged cheques. In the absence of such circumstances, mere negligence will not prevent a customer from successfully suing the bank for recovery of the amount. On the question of acquiescence on part of the customer, Canara Bank (supra) holds: 30. A case of acquiescence also cannot be flourished against the plaintiff. In order to sustain a plea of acquiescence, it is necessary to prove that the party against whom the said plea is raised, had remained silent about the matter regarding which the plea of acquiescence is raised, even after knowing the truth of the matter. As indicated above, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee of the Post Office. Post Office, as an abstract entity, functions through its employees. Employees, as individuals, are capable of being dishonest and committing acts of fraud or wrongs themselves or in collusion with others. See Punjab National Bank v. Smt. Durga Devi and Others (1977) SCC Online Del 93 Such acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office. Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties. 38. This Court in State Bank of India (Successor to the Imperial Bank of India) v. Smt. Shyama Devi (1978) 3 SCC 399 held that for the employer to be liable, it is not enough that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle II of Memo of Charges. The Enquiry Officer in his enquiry report has suspected whether the payment of KVP was made to the investor or not. Thus it was against the provision of Rules 3(1)(i) and 3(1)(iii) of CCS (Conduct) Rules 1974 as mentioned in article-II of Memo of charges. 40. On behalf of the respondents, it is urged that the aforesaid observations are limited and confined to only one KVP. In our opinion, this contention would not help the respondents since it is apparent to us that the respondents were faced with a difficult position as they wanted to act against M.K. Singh, and at the same time also protect themselves against any liability and claims of the appellants. Faced with this dilemma, the respondents acted half-heartedly and took action in the proceedings initiated against M.K. Singh, while they wanted to protect their commercial interests and defend themselves against claims made by the appellants. The findings recorded in the inquiry report, which became the basis for the order of dismissal, which punishment was subsequently converted to compulsory retirement, would, in our opinion, equally apply to the encashment of all the KVPs. No valid distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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