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TMI Blog2022 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ents') has been dismissed, albeit allowed and decreed against Rukhsana. 2. The appellants during the years 1995 and 1996 had purchased Kisan Vikas Patras, 'KVPs' for short, in joint names from various post offices located in the State of Uttar Pradesh in different denominations and with varying dates of maturity. The combined face value on maturity was Rs. 32.60 lacs; however, the KVPs were encashable at the post offices before the maturity date at a lower value after the stipulated/lock-in period of holding. 3. As per the appellants, in the last week of February 2000, they had approached the Post Master, Head Post Office Chowk, Lucknow, with the request to transfer the KVPs to the Chowk Post Office, Lucknow. The appellants were asked to apply with the Chowk Post Office. They were informed that the transfer request would be allowed after due verification of the KVPs and the identity/signatures on the transfer application from the record with the issuing post office. The process, they were forewarned, being time-consuming and cumbersome would require several visits to the post office. The Post Master, Head Post Office Chowk, Lucknow had recommended that they take services of Rukhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- on account of the mental agony and harassment along with interest @ 10% per annum and Rs. 10,000/- by way of litigation expenses. 7. The respondents in the written statement contested the complaint. They had inter alia pleaded that the appellants, having signed the KVPs in token of receipt of the discharge value, cannot complain. Rukhsana was not an agent appointed by the post office. The contract and understanding were between the appellants and Rukhsana, and the fraud having been committed by Rukhsana in her individual capacity, the respondents are not vicariously liable. Reference was made to the instructions issued by the Ministry of Finance, Government of India vide letter No. F3/37/91-NS II dated 8th November 1993, which we would allude to subsequently. M.K. Singh, Sub-Post Master, Post Office, Yahiyaganj, Lucknow filed a separate written statement pleading that the complaint was not maintainable as he had paid the amount to the right person and there was a valid discharge. He had not violated the law. M.K. Singh referred to a criminal case already pending against him and that the consumer complaint was not maintainable. 8. Rukhsana, after entering appearance, did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office savings bank is a banker under the NI Act. 12. KVPs issued by the post office are a promissory instrument as defined by Section 4 4. "Promissory note."-A "Promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. of the NI Act, as it is an unconditional undertaking signed by the maker to pay a certain sum of money to, or to the order of a certain person, or the bearer of the instrument. In the present case, we are not required to examine whether a KVP would be a 'bill of exchange' in terms of Section 5 of the NI Act. Section 13 13. "Negotiable instrument".- (1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation (i).-A promissory note, bill of exchange or cheque is payable to the order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words, prohibiting transfer or indicating an intention that it shall not be transferable. Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise discharges such maker, acceptor or indorser, and to all parties deriving title under such holder after notice of such discharge; (c) by payment.-to all parties thereto, if the instrument is payable to bearer, or has been indorsed in blank, and such maker, acceptor or indorser makes payment in due course of the amount due thereon." 14. Section 78 states that when payment is to be made to the 'holder' of the instrument, which would include his accredited agent such as a banker acting as an agent for collection, See Maddali Tirumala Ananta Venkata Veeraraghavaswami v. Srimat Kilambi Mangamma and Another, AIR 1940 Mad. 90 and Raghubir Mahto v. Ramasray Bhagat, AIR 1939 Pat.347 and also pg. 533 of Bhashyam & Adiga on The Negotiable Instruments Act, 22nd Edition (2019). the maker or acceptor is discharged from liability. However, Section 78 is subject to and does not apply to payments covered under clause (c) to Section 82 of the NI Act. Clause (c) to Section 82 applies to an instrument payable to the bearer or has been indorsed in blank, and in such cases the maker, acceptor or indorser of a negotiable instrument is discharged from liability when such maker, acceptor or indorser ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined in Section 9 in the following manner: "9. "Holder in due course".-"Holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if Subs. by Act 8 of 1919. s. 2, for "payable to, or to the order of, a payee," [payable to order,] before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title." As per Section 9, a 'holder in due course' is a person who for consideration has become a possessor of the instrument if payable to a bearer or if payable to the order to the person mentioned, i.e. the payee, or becomes the indorsee thereof. Holder in due course means the original holder or a transferee in good faith, who has acquired possession of the negotiable instrument for consideration, without having sufficient cause to believe that there was any defect in the title of the person from whom he has derived the title. Negotiation in case of transfer should be before the amount mentioned in the negotiable instrument becomes payable. Clause (g) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable ground for believing that the person to whom payment is made is not entitled to receive payment of the amount mentioned. Bank of Maharashtra v. M/s. Automotive Engineering Co., (1993) 2 SCC 97 While it would not be advisable or feasible to strait-jacket the circumstances, albeit value of the instrument, other facts that would raise doubts about the reliability and identity of the person entitled to receive payment and genuineness of the instrument in the payer's mind are relevant considerations. 18. Elucidation on the aspect of care required to be exercised by the bankers to seek statutory protection under Section 131 131. Non-liability of banker receiving payment of cheque.- 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. Explanation I.- A banker receives payment of a crossed cheque for a customer within the meaning of this section notwithstanding that he credits his customer's account with the amount of the cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks are not required to be amateur detectives, albeit they can be attributed the degree of intelligence ordinarily required from a person in their position. Therefore, microscopic examination of the cheque paid in collection may not ordinarily be necessary, but this may be required when facts are sufficient to raise reasonable ground to suspect that there may be a wrongdoing. 19. Explanation II to Section 131 of the NI Act inserted with effect from 6th February 2003 states that it is the duty of every banker who receives payment based on an electronic image of a truncated cheque to verify the prima facie genuineness of the cheque, and exercise due diligence and ordinary care to verify fraud, forgery or tampering apparent on the face of the instrument. Therefore, the bank can escape only when the banker acts in good faith and without negligence. The latter is the sine qua non for a banker to get absolved under Section 131 of the NI Act. Hence, to claim statutory protection the bank will have to meet the statutory conditions, and the courts will not accept any attempt to override and get over the obligation. 20. The judgment in Kerala State Co-operative Marketing Federation v. Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in good faith. When he has no knowledge of the defect in the title and acts honestly, whether he is negligent or not, he is deemed to have acted in good faith. Indian law is stricter than the English law and requires the person to exercise due diligence, which means no person should take a security of this kind from another without using reasonable caution. Delving on the words "sufficient cause to believe" The expression "sufficient cause to believe" has been used in Section 9 of the NI Act. where lack of good faith and negligence is alleged, reference is made to Bhashyam and Adiga on the Negotiable Instruments Act (15th Edition at page 171), which quotes a passage from Chalmer's book 'The law relating to Negotiable Instruments in British India' (4th Edition) and the legal position explained by Chitty. The relevant passages and the conclusion drawn by the Court in U. Ponnappa Moothan Sons, Palghat (supra) are as under: "13. However, with regard to the legal importance of negligence in appreciating the principle of "sufficient cause to believe" a passage from Chalmers' book "The Law Relating to Negotiable Instruments in British India" (4th Edn.) may usefully be noted: "All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to presume that he had sufficient cause to believe that such title was defective. However, when the presumption in his favour as provided under S.118(g) gets rebutted under the circumstances mentioned therein then the burden of proving that he is a 'holder in due course' lies upon him. In a given case, the Court, while examining these requirements including valid consideration must also go into the question whether there was a contract express or implied for crediting the proceeds to the account of the bearer before receiving the same. The enquiry regarding the satisfaction of this requirement invariably depends upon the facts and circumstances in each case. The words "without having sufficient cause to believe" have to be understood in this background." The Court also affirmed that the enquiry regarding satisfaction of the requirements invariably depends upon the facts and circumstances of each case. 22. In our opinion, the presumption under clause (g) to Section 118 would not apply as Rukhsana is not an indorsee and the instrument was in the name of the appellants. Further, Rukhsana is not a 'holder in due course', for she had, and the respondents accept, obtained possession of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominee or to any other person shall be a full discharge from all further liability in respect of the sum so paid. (2) Nothing in sub-section (1) shall be deemed to preclude any executor or administrator or other representative of a deceased holder of a savings certificate from recovering from the person receiving the same under section 7 the amount remaining in his hands after deducting the amount of all debts or other demands lawfully paid or discharged by him in due course of administration. (3) Any creditor or claimant against the estate of a holder of a savings certificate may recover his debt or claim out of the sum paid under this Act to any person and remaining in his hands unadministered, in the same manner and to the same extent as if the latter had obtained letters of administration to the estate of the deceased. xx xx xx 11. Protection of action taken in good faith.-- No suit or other legal proceeding shall lie against any officer of the Government or any prescribed authority in respect of anything which is in good faith done or intended to be done under this Act." In our opinion, Sections 8 and 11 of the GSC Act have no application in the present case. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce, no transfer of the savings certificate shall be valid unless it is made with previous consent in writing of the 'prescribed' authority. The word 'prescribed' defined in Section 2(b) 2(b) "prescribed" means prescribed by rules made under this Act; means prescribed by the rules under the GSC Act. 28. Before we advert to the aspect of standard of care required to be exercised by the post office under the 1988 Rules while encashing KVPs or other instruments, we would like to briefly consider whether the KVPs in question were bearer instruments or payable to order. It appears to be the stand of the respondents, though not specifically stated and argued, that the KVPs were bearer instruments and hence encashable by the bearer of the instrument. This stand of the respondents, in our opinion, is partially correct as KVPs are encashable in terms of the 1988 Rules. KVPs are bearer instruments with conditions to be satisfied before payment is made to the 'physical holder' and presenter of the instrument for encashment, an aspect we would elaborate. The respondents are not under an obligation to honour KVPs unless the conditions specified are satisfied. However, once we accept the posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after the KVPs are issued. The holder/holders have to sign the identity slip. Sub-rule (2) to Rule 9 states that the identity slip shall be surrendered at the time of final discharge of the certificate, or in case of loss, a declaration of the said loss shall be furnished to the post office. Rule 11 states that a certificate shall be encashable at the post office which issued it. However, a KVP can also be encashed at any other post office if the Officer-in-charge of that post office is satisfied, on production of the identity slip or on verification from the post office of issue, that the person presenting the certificate for encashment is entitled to encashment. Thus, it cannot be said that the KVPs are simple bearer instruments payable to anyone who presents the same for encashment and discharge. 30. Rule 13 deals with premature encashment and prescribes in the table the amount payable, albeit we need not reproduce the said rule, for even in such cases, Rule 11 read with Rule 9 will apply. Significantly, the respondents have issued Post Office Bank Manual (Volume II), which vide clauses 23(1) and 23(2) mandate as under: "ENCASHMENT OF CERTIFICATE 23(1) A certificate may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not been attached by a Court of law; (e) That the identity slip if issued to the holder is surrendered, and it is in prescribed form. In case the identity slip is one on which the specimen signature of the holder is pasted, it should be carefully scrutinized to see that the specimen signature is not a substituted one and the stamp impression on it is intact; (f) That the certificate is not the one in lieu of which a duplicate has been issued; (g) If full maturity value is claimed, the correctness of the date of maturity should be verified with reference to the Date Stamp and the date of issue noted on the certificate and the application or the identity slip; and (h) That the certificate has not been reported at any time by the holder as having been lost, stolen or destroyed. In such cases procedure laid down in Note 2 below Sub-Rule(2) of Rule 43 will be followed. Note: Procedure for encashment of saving certificates accompanied by Identity Slips in office other than the office of registration :- In case the holder presents Identity Slip, prior verification from the office of registration is not necessary. A reference may be made to the office of registration/issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Magistrates (including honorary Magistrates) and Judges; (iii) Members of Parliament or a Legislative Assembly/Council, Presidents of Municipalities Local Bodies and Sarpanches of Panchayats; (iv) Principals of colleges and Head of high schools recommended by the Education Secretary or Directors of Public Institutions; (v) A Government officer under his seal of office; and (vi) A Postal identity card, a passport or any other identity card containing holder's photograph issued by a proper authority. The particulars of such a proof having been produced should be recorded on the certificate under the signature of the supervising officer. The attestation should be in the following terms: "The applicant is known to me and has signed/his thumb impression has been taken in my presence". The date of discharge and payment of interest of each certificate will be entered against the entry relating to the certificate on the reverse of the application under the dated initials of the Postmaster." 31. Letter No. 95-8/98-SB dated 18.08.1999 issued by the Director General, Postal Services, states that any payment exceeding Rs. 20,000/- is to be made by cheque. It reads:- "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the encashment of the certificate, shall sign on the back thereof in token of having received the payment. It prescribes a procedure for discharge of the instrument and the requirement of signature on the back of the certificate by the person receiving the amount in token of having received the payment. It is not the case of the respondents that the appellants had received the payment. Rule 14(1), to our mind, has nothing to do with the question of good faith and negligence on the part of the banker, that is, the Post Office. Rule 14(1) would not absolve the Post Office from the statutory obligation and consequent liability in terms of clause (c) to Section 82 read with Section 10 of the NI Act. Rule 15 states that the Post Office shall not be responsible for any loss caused to the holder if any other person obtains possession of the certificate and fraudulently encashes the same. Rule 15 does not absolve the respondents in case of negligence or absence of good faith. It applies when the post office otherwise acts in accordance with law in good faith and without negligence. Rule 15 would not protect when an officer of the post office is involved or a perpetrator of the fraud. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his present address. In the present case, no written application was made by the appellants and filed along with the certificates presented for encashment by Rukhsana. Rukhsana, as noticed above, is not the 'holder' of the instrument which was issued in the name of the appellants who were entitled to payment. (vii) Clause 23(1) prescribes a detailed procedure for verification by the post master when a KVP, not accompanied by identity slip, is presented for encashment at the post office other than the registered post office. It mandates that the presenter shall make an application which shall be date stamped. After one week, the post master would return the original certificate to the holder for presentation. The verification exercise includes ascertaining the authenticity of the signature on the application with the signature of the person in whose name the certificate was issued. In case of a mismatch, a detailed procedure for authentication of signature is prescribed. (viii) The KVPs were in the name of the appellants. Rukhsana was an agent appointed by the State of Uttar Pradesh for facilitating the customers/holders of the savings instruments. Payment of huge amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he functions of the banks in the following words: (All ER p. 956) "One can fully understand the comment of Cons JA that the banks must today look for protection. So be it. They can increase the severity of their terms of business, and they can use their influence, as they have in the past, to seek to persuade the legislature that they should be granted by statute further protection. But it does not follow that because they may need protection as their business expands the necessary incidents of their relationship with their customer must also change. The business of banking is the business not of the customer but of the bank. They offer a service, which is to honour their customer's cheques when drawn on an account in credit or within an agreed overdraft limit. If they pay out on cheques which are not his, they are acting outside their mandate and cannot plead his authority in justification of their debit to his account. This is a risk of the service which it is their business to offer. The limits set to the risk in the Macmillan and Greenwood cases can be seen to be plainly necessary incidents of the relationship. Offered such a service, a customer must obviously take care i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no one would like to lose money to a stranger. Necessarily, we would accept that the appellants had remained in touch with Rukhsana but were given the impression that the exercise is complex and would take time. Further they had belief that the post office would take care of their interest, act in good faith and would not be negligent. 36. In the light of the aforesaid discussion, it can be concluded that the payment was made in violation of the statutory mandate of Section 10 of the NI Act and, therefore, there is no valid discharge under clause (c) to Section 82 of the NI Act. Further, as held above, Rukhsana not being a 'holder', payment to her is not a valid discharge under Section 78 read with Section 8 of the NI Act. The respondents would have avoided the liability and claimed valid discharge if they had accepted the KVPs with the identity slip In which case, Rukhsana would be a 'holder' under Section 8 of the NI Act and on the KVPs being indorsed in her favour, the respondents could not have denied payment to her under Section 78 of the NI Act. or if they had made payment by cross cheque, in which case, they would have satisfied the condition that they had made payment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "I have gone through the records of the case, enquiry report and other related documents of the case and have come to conclusion that the charged official Shri M.K. Singh utterly failed to observe the Rule 23(1) of PO S.B. Manual Volume-II, i.e., procedure for encashment of certificates purchased from other than the office of issue. The Enquiry Officer has also agreed in enquiry report that the procedure outlined in Rule-23(1) of PO SB Manual Vol-II was not followed. The Enquiry Officer has also agreed that the investor has not given any application NC-032 for transfer of KVPs as provided in Rule 37 (1) and Rule 37(5) of PO SB Manual Volume II and Rule 3(1) (ii) of CCS (Conduct) Rules 1964 as mentioned in Article-I of Memo of Charges. The Enquiry Officer in his enquiry report has agreed that the investor is a literate person and thus the endorsement of investor at the time of payment of KVPs should have been obtained in the handwriting of investor as provided in Rule 23(2) of SB Manual Vol-II. Otherwise if it was encashed through messenger (NS Agent) / authority letter should be produced. The Enquiry Officer has also agreed that the endorsement on KVPs at the time of payment was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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