TMI Blog1976 (1) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 payment and use the stolen accounts office copies of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 condition by the consignee in which case the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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, exhibit PX/3, for collection. The D.A.G. (I S) passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Government of India Gazette dated 1st of February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 converted the cheques, property in which and in the sums paid under which, always remained vested in the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal 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 been followed or not as alleged in paras. 2 and 3 of the written statement ? If so, to what effect ? (There seems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of cancellation on the inspection notes. The dishonest intention of the person has, therefore, to be assumed, as the cancellation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund 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 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 ₹ 22,384 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egligence 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 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 kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke 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 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 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 defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount-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 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 (th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 Ltd. v. Union of India, , 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 ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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