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2018 (3) TMI 510

nt no. 1/bank and therefore defendant no. 1/bank is liable for conversion and receiving the amount under the forged bank draft and thereafter paying most of the amount to defendant no. 2 - Whether the plaintiff bank is entitled to the relief claimed? - Whether there is any cause of action against defendants? - Whether the defendant no. 1 was negligent in opening the account in the name of Majit Singh Sethi as alleged in the plaint and if so, to what effect? - Whether the plaintiff-bank is entitled to claim interest, if so, at what rate and for what period? - Held that: - Supreme Court in the case of Kerala State Cooperative Marketing Federation [2004 (1) TMI 714 - SUPREME COURT] shows that ordinarily once there is undue haste and lack of proper verification in opening of a bank account, a collecting banker will not be able to seek exemption of its liability by relying upon the provisions of Sections 131 and 131-A of the Negotiable Instruments Act. Want of good faith and negligence of a banker is not only with respect to opening of an account but also with respect to operation of the account and there cannot be large cash transactions in the account immediately after opening of .....

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2018 - Valmiki J. Mehta, J. For the Plaintiff : Mr. Gautam Singhal, Mr. Naveen Kumar and Mr. Rajat Chaudhary, Advocate For the Defendants : Ms. Suruchi Suri, Advocate for D-1/HDFC Bank.D-2 has been proceeded ex- parte ORDER Valmiki J. Mehta, J ( Oral ) 1. This suit is filed by the Indian Overseas Bank/plaintiff for recovery of ₹ 1,35,11,409/- along with interest. There are two defendants in the suit. The first defendant is HDFC Bank Limited (originally Bank of Punjab Limited) and which is the only contesting defendant. Defendant no. 2 Sh. Bhupinder Singh @ Sh. Manjit Singh Sethi though appeared initially and filed written statement thereafter he failed to appear and was proceeded ex-parte. The cause of action in the suit is that the plaintiff/bank paid under a forged bank draft to the defendant no. 1/bank and therefore defendant no. 1/bank is liable for conversion and receiving the amount under the forged bank draft and thereafter paying most of the amount to defendant no. 2. The receipts of moneys by the defendant no. 1/bank is in lack of good faith and with negligence, and hence defendant no. 1/bank cannot take the benefit of provisions of Sections 131 and 131-A of the Nego .....

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ndant no. 2 was opened by defendant no. 1/bank on the same date, allowing large cash withdrawals totaling to ₹ 75,00,000/- out of ₹ 92,45,234/- within two days of opening of the bank account and on the very next date of crediting of the amount of the bank draft in the account of defendant no. 2 with the defendant no. 1/bank. Plaintiff/bank therefore pleads that plaintiff/bank is entitled to recover the amount of the bank draft, inasmuch as, the bank draft was subsequently found to be forged as not having being issued by the Bank of Montreal. In essence plaintiff/bank pleads its entitlement to receive the moneys paid by it to the defendant no. 1/bank on the ground that defendant no. 1/bank is not the owner of the moneys as the bank draft drawn was a forged instrument and therefore there is conversion of the moneys of the plaintiff/bank by defendant no. 1/bank and defendant no. 1/bank is not entitled to protection of provisions of Sections 131 and 131-A of the Negotiable Instruments Act as the defendant no. 1/bank has acted without good faith and did not act with due care and caution for opening of the bank account of defendant no. 2, operation of the bank account of defe .....

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para 11 and the same is reproduced herein below:- 11. The principles governing the liability of a collecting banker have also been extracted in the impugned judgment. They read as follows: "(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 in the event the customer from whom he collects the cheque or draft has not title or a defective title. (2) The banker, however, may claim protection from such normal liability provided he fulfils strictly the conditions laid down in Section 131 or Section 131A of the Act and one of those conditions is that he must have received the payment in good faith and without negligence. (3) It is the banker seeking protection who has on his shoulders the onus of proving that he acted in good faith and without negligence. (4) The standard of care to be exercised by the collecting banker to escape the charge of negligence depends upon the general practice of bankers which may go on changing from time to time with the enormous spread of banking activities and cases decided a few decades ago may not p .....

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ve Marketing Federation's case (supra) which read as under:- "6. In the case of Indian Overseas Bank v. Bank of Madura Ltd the receiving banker was held guilty of negligence and lack of good faith inasmuch as it had allowed the opening of an account with a small amount and shortly thereafter, i.e. within 9 days allowed withdrawal of a sum of ₹ 9,500/-. It was held that the opening of the account, the presentation of the draft and withdrawal of the amount were part of one integral scheme. The fact that the person who introduced the account holder had not been examined in the suit was held against the Bank. 7. In the case of Syndicate Bank v. United Commercial Bank it was held that the Appellant bank had to prove that it had acted in good faith and without negligence. It was held that the fact that the customer had just opened the account and had only one transaction with the bank, namely the encashment of the cheque, showed that the bank had not acted in good faith and without negligence. 8. In the case of Brahma v. Chartered Bank it has been held that the onus of proving "good faith" and "absence of negligence" is on the banker claiming protection .....

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ntegrity and respectability, an omission of which may result in serious consequences not only for the banker concerned, but also for other bankers and the general public." 11. One of the tests of deciding whether the bank was negligent, though not always conclusive, is to see whether the Rules or instructions of the banks were followed or not. We may accordingly consult those instructions. Ex. B-6 contains the general instructions regarding constituent accounts for bank. Mark II deals with opening with opening of accounts. It says : "Except at large branches where the sub-agent or accountant may be authorised to open Current Accounts, no new Current Account shall be opened without the authority of the agent manager who is solely responsible for all Current Accounts being opened in the proper manner. A written application on the appropriate from must be submitted and will be initialled by the agent at the top left corner after he has satisfied himself of the respectability of the applicant(s). It is important that every party must be introduced to the Bank by a respectable person known to the Bank, who must normally call at the Bank and sign in the column specially provide .....

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eceived payment for a customer. It was held that as account was already opened when the cheque was collected, payment had been received for a customer. The drawer thereupon sent another cheque to the real payee and took an assignment of his rights in the stolen cheque and, as holders of the cheque or alternatively as assignees, brought an action against the bank to recover the proceeds collected by the bank as money had and received to their use. Evidence was given that it was the general practice of bankers to obtain a satisfactory introduction or reference. It was held that the banker had acted in good faith, but was guilty of negligence in not taking reasonable precautions to safeguard the interests of the true owner of the cheque and that therefore he had put himself outside the protection of Section 82 of the Bills of Exchange Act, 1882. Bailhache, J. also said that the banker would have been entitled to the protection of the section as having received payment for a customer, but had lost it owing to his want of due care. It was also held that the relation of banker and customer began as soon as the first cheque was handed in to the banker for collection, and not when it was p .....

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from any existing or past customers of the defendant no. 1/bank and the defendant no. 1/bank opened the bank account of the defendant no. 2 only on the basis of a notarized photocopy of the passport of defendant no. 2. In fact, even this notarized photocopy of the passport of defendant no. 2 has not been proved in this case as what has only been filed is a photocopy. Admittedly, however the defendant no. 1/bank only put a notarized photocopy of the passport defendant no. 2 for opening of the bank account and in fact in the cross-examination of the defendant‟s witness DW-1 Ms. Shipra Sharma on 8.10.2015 it was conceded by this witness that the defendant no. 1/bank did not even verify the photocopy of the passport from the original passport of Sh. Manjit Singh Sethi. (iii) Defendant no. 1/bank has purchased the subject bank draft on the very date on which the account was opened of the defendant no. 2, and which defendant no. 2 was not earlier known to the defendant no.1/bank. (iv) There were large cash withdrawals totaling to ₹ 75,00,000/- on the very next date of encashment of the bank draft by defendant no. 2. (v) The two cheques cash withdrawals of ₹ 60,00,000/- .....

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transaction and an integral scheme as held by the Supreme Court in para 10 of the judgment in the case of Kerala State Cooperative Marketing Federation (supra). In view of the aforesaid discussion, I hold that the defendant no. 1/bank cannot take the benefit of the statutory provisions of Sections 131 and 131-A of the Negotiable Instruments Act. 11. Learned counsel for defendant no. 1/bank argued that the defendant no. 1/bank cannot be said to be guilty of negligence because defendant no. 1/bank had taken the photocopy of the immigration form of the defendant no. 2 for opening of the bank account, however I fail to understand as to how even if the photocopy of the immigration form was taken of defendant no. 2 for opening of the account of defendant no. 2 with defendant no. 1/bank would that in any manner make the defendant no. 1/bank any less negligent or that it can't be said that defendant no.1/bank acted in good faith, facts are that inasmuch as, neither existing customer of the defendant no.1/bank had referred for opening of the account of defendant no.2, and nor there was any verification done by the defendant no. 1/bank either of the identity of defendant no. 2 or with re .....

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fact has acted negligently in opening the account of defendant no. 2, the transactions of withdrawal of large amounts of ₹ 75,00,000/- took place within four days of opening of the account of defendant no. 2 by the defendant no. 1/bank etc. All these aspects are all part and parcel of the same integral scheme/transaction showing lack of good faith and existence of negligence of the defendant no. 1/bank in opening the bank account of defendant no. 2. Defendant no. 2 will be also liable with the defendant no. 1/bank because defendant no. 2 has withdrawn the amount of ₹ 75,00,000/- in cash, and defendant no.2 is therefore liable jointly and severally with defendant no. 1/bank for conversion of the moneys of the plaintiff/bank. 16. I may note that the amount of ₹ 17,00,000/- was transferred by the defendant no. 2 to the State Bank of Patiala at Ludhiana, however this amount could not be withdrawn by the defendant no. 2 from the State Bank of Patiala and this amount was in fact received by the plaintiff/bank on superdari. The plaintiff/bank received a total amount of ₹ 17,45,234/- from the defendant no.1/bank as the defendant no. 1/bank was remitted back this am .....

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