B.U. Wahane, J.
1. This appeal is directed against the Judgment and order dated 27th November, 1981, passed by the Civil Judge, Senior Division, Nagpur in a Special Civil Suit No. 315 of 1977, allowing the claim of the respondent No. 1-plaintiff against the appellants and the respondent No. 2/original defendant. No. 1.
2. The facts giving rise to this appeal are as follows:
The respondent No. 1-plaintiff is a banking concern incorporated under the State Bank of India Act, 1955, having it's Branch Office at Kingsway, Nagpur. The appellant No. 1/original defendant No. 2 is also a banking company, having it's registered office at New Delhi. The appellant No. 2/original defendant No. 3 is a Branch Office at Nagpur, of the defendant No. 2.
On 15th October, 1976, the defendant No. 3 has sent a draft No. DB 691125 to the plaintiff through clearance for payment of Rs. 40,557.28/-. According to the bank practice, the payment under the draft has to be made or refused on the very day before 1.30 p.m. otherwise the Collecting Bank would presume that the draft has been passed for payment and would accordingly give credit to its customers for the amount of that draft. The defendant No. 1/respondent No. 2 Rajnibhai J. Patel is a customer of the appellant No. 2/defendant No. 3 Bank. The plaintiff Bank having received the demand draft (Exh. 47) through clearance, passed it for payment and accordingly the defendant No. 3 Bank credited the amount of the draft in the account of Rajnibhai J. Patel which was opened in the trade name of "Bright Corporation".
The plaintiff State Bank of India, there after came to know that the draft (Exh. 47) was forged one and accordingly brought this fact to the notice of the defendant No. 3 on 18th October, 1976. However, according to the defendant No. 3, it was brought to their notice on 25th October 1976. After getting the report from the plaintiff, the defendant No. 3 made an endorsement "stop payment" in the account of the defendant No. 1 Rajnibhai J. Patel. Thereafter, there was exchange of notices between the plaintiff and the defendant No. 3 for refund of the amount.
The defendant No. 1 Rajnibhai J. Patel, opened his account with the defendant No. 3 Bank on 11th October, 1976. A draft (Exh. 47) bearing No. DB 691125 was issued by the plaintiff Branch at Tiruputtur Branch in North Arcot District on 6th September 1976. The draft was for Rs. 1,557.28/-. It is alleged by the plaintiff that the purchaser of this draft gave report to Tiruputtur Branch that it was lost and hence a duplicate draft was subsequently issued by the said Branch. This duplicate draft bore No. 691985, dated 12th October 1976. It is a specific case of the plaintiff that the defendant No. 3 with whom the account of the defendant No. 1 Rajnibhai J. Patel was, did not act in good faith in sending this draft for collection of the amount through clearance. It is further alleged that the defendant No. 3 negligently put the cross marks across the writing of the draft, so as to mutilate the contents thereof. It is also alleged that since the draft (Exh. 47) was tendered to it for payment through clearance with due certificate by the defendant No. 3, the payment thereunder was ordered "ex-advice" meaning thereby that the payment was made even without waiting for the advice from the issuing Branch viz. Tirupttur Branch of the plaintiff. The plaintiff alleges that as the defendant No. 3 did not receive the amount under this draft in good faith, it is liable to reimburse the loss caused by the plaintiff Bank. According to the plaintiff, it would not have paid the amount, but for the certificate of the defendant No. 3 on the draft (Exh. 47), the amount was paid "ex-advice", as per the usual banking practice. According to the plaintiff, it is entitled to claim interest on the amount of Rs. 40,557.28/- at the rate of 16% per annum from 15th October, 1976 till 18th September 1977, and, therefore, claimed interest of Rs. 6,019.88/-. Thus, the plaintiff valued the suit claim at Rs. 46,577.16/-. The defendant No. 1 Rajnibhai J. Patel was not traceable and hence a public notice in Newspaper was issued in his name, but he did not appear and he was proceeded ex parte. In appeal also, as the notice was not served upon the respondent No. 2 Rajnibhai J. Patel, this Court allowed substitute service in daily Newspaper published from Nagpur vide order dated 18.3.1985. None filed the power for the respondent No. 2 and also none was present at the time of hearing the appeal on behalf of him.
The defendant Nos. 2 an 3 denied the claim by filing their written statement (Exh. 29). They denied that while forwarding the draft (Exh. 47) for payment to the plaintiff through clearance, they acted with negligence or that they did not exercise due care. According to the defendants, they presented the draft in the normal course of banking business through clearance. The draft was properly drawn and from its perusal one could not raise any suspicion with regard to its genuineness. According to the defendants, the defendant No. 1 Rajnibhai J. Patel opened an account with the defendant No. 3 on 11th October, 1976, in the name of "Bright Corporation" with the initial deposit of Rs. 500/-. Rajnibhai J. Patel was introduced by its customer. The draft (Exh. 47) was deposited with the defendant No. 3 on 15th October, 1976 for realisation of the amount therein and in the usual course of business, it was sent to the plaintiff through clearance for payment. They denied that the defendant No. 3 lacked in good faith in receiving the payment of the said draft. According to them, after the incident, the defendant No. 3 made enquiry about the defendant No. 1 Rajnibhai J. Patel and learnt that he has left his address and he could not be traced further. They contended that the certificate given by the defendant No. 3 on the draft Exh. 47 was given in the usual course of business and that the action was bona fide. They contended that there was no mala fide on the part of the defendant No. 3, and therefore, they are protected under section 131 of the Negotiable Instruments Act and as such the suit should be dismissed with costs.
3. The learned trial Court framed issues at Exh. 13 and after considering the evidence and the documents on record, decreed the claim of the plaintiff against the defendants holding that they jointly and severally liable to pay Rs. 46,577.16/- with costs.
4. The appellants claimed protection under section 131 of the Negotiable Instruments Act, 1881 and, therefore, the same is reproduced as under:
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".
5. However, on the contrary, Shri Modak, the learned Counsel for the respondent No. 1-plaintiff submitted that the question of negligence depends upon the facts and circumstances of each case. To prove the negligence the Court may take into account the manner in which the account was operated, the manner in which the defendant Bank i.e. the Collecting Bank certified the draft as belonging to the customer without having compared and checked the customer's signature on the reverse of the draft with the application form and specimen signatures and then to arrive at a finding considering the cumulative effect of all the factors. It is further submitted by the learned Counsel that the onus of proving "good faith" and "absence of negligence" is on the banker claiming protection under section 131 of the Negotiable Instruments Act, 1881. A reliance has been placed on the case of Maturi Sanyasilingam v. The Exchange Bank of India and Africa Ltd., reported in A.I.R. 1948 Bom. 1 ; Bharat Bank Ltd. Madras v. Kishinchand Chellaram, and Brahma Shum Shere Jung
Bahadur & another v. Chartered Bank of India, Australia and China & others, .
6. It is alleged by the plaintiff-respondent No. 1 that the draft bearing No. DB 691125 was for Rs. 1,557.28/- in favour of the "Bright Corporation" and it was not issued on the plaintiff's Branch at Nagpur but on the State Bank of India, Bombay Branch. The draft was issued on 6th September 1976. Thus, there is a interpolation of word Nagpur in place of Bombay. Though the draft was issued by the Issuing Bank for Rs. 1,557.28/- in favour of "Bright Corporation", words "Forty" in the words "Forty Thousand Fifty-five" is interpolated and thereby the word one is converted into "Forty". Similarly, in the figure there is also interpolation as 1 has been made into figure 4 and 0 has been added. Similarly, on the reverse of the draft Exh. 47, for "Bright Corporation", the proprietor signed as R.J. Patil while the name of the proprietor as per the account with the defendant No. 3 is Rajnibhai J. Patel. The witness Shriram Ghandekar who was the Junior Officer with the plaintiff stated that on 15.10.76, he was working as a Manager, Accounts Division. All the instruments which were received through clearance were dealt by the Accounts Division. On 15.10.76 he received the draft Exh. 47 through clearance for payment by New Bank of India, the defendant No.3. According to him, when the draft is presented by the Bank through clearance, as per the practice he verified if it is valid and is "in order" in all respects by verifying the name of the payee, the amount shown therein and the name of the Branch and who is payee. He also verified the details regarding the stamp of the clearing Branch, discharge certificate by claiming bank, discharge certificate by the beneficial i.e. person in whose name it is received and amount in words and figures to see that it is in order. There was clearing stamp of the Bank which indicates that the clearing bank has claimed that amount in behalf of the customer and, therefore, he paid the amount safely. When the draft is tendered through clearing bank, we do not have any material at that time from the issuing bank. The issuing Branch forwards its advice to the Payee Bank. Such advice reaches the payee Bank in about five to eight days which is required for transit through post. We do not wait for such advice to effect clearing of the draft because the draft commands payment "on demand".
He further deposed that:
"At about 12.30 p.m. I used to receive drafts through clearing. As per practice I was expected to clear the drafts before 1.30 p.m. on the very day or to return it to the clearing department by 1.30 p.m. if payment thereunder is refused for any reasons. The decision regarding payment or non-payment is to be taken immediately because if the draft is not returned by 1.30 p.m. on the very day after refusal to pay, the Bank which claims clearing will presume that the draft has been cleared for payment and accordingly pay that amount to its customer. This is the Banking Procedure followed in all branches of all Banks in India".
After verification of the clearing stamp of the clearing Bank, discharge certificate by the beneficiary and the discharge certificate by the clearing Bank, I cleared that draft for payment. At that time, I did not suspect any alteration in the amount shown in the words and figures. So I put the stamp "pay ex-advice". Except this stamp by me, all other rubber stamps on the printed draft are made by the defendant No. 3. Any crossing mark has to be put on the top of the draft and not on the letters showing the amount in words. On draft Exh. 47 the crossing mark is on the letters showing the amount in words. According to the Bank Practice the Bank claiming clearing of the instrument, should affix only clearing stamp and no crossing mark is put".
This witness further deposed that;
"On 15.10.1976 itself immediately he sent a telegram to Tiruputtur Branch for confirmation of this draft Exh. 47. That branch telegraphically informed that they had issued the draft bearing No. 691125 for Rs. 1557.28/- on State Bank of India, Bombay Main Branch. After receiving the said information he immediately wrote a letter to the defendant No. 3 informing that our Tiruputtur Branch had not issued such draft Exh. 47 on this Nagpur Branch and requested not to pay the amount of Exh. 47 to the beneficiary. Thereafter, he issued a letter on 13.12.1976 to the defendant No. 3, demanding the amount paid to it by his Branch under the draft Exh. 47. As there was no compliance on the part of the defendant No. 3, on 7.1.1977, he issued another letter demanding the payment of the amount of the draft Exh. 47. Exh. 48 is the office copy of the notice. Exh. 49 is the reply sent by the defendant No. 3. on 25.7.1977, the plaintiff gave a registered notice to the defendant Nos. 1 and 3. Exh. 50 is the office copy.
In cross examination the witness deposed that;
"It is the duty of the paying Bank to verify the genuineness of the instrument. Before ordering payment under Exh. 47, I did not notice that draft Exh. 47 was tampered with. I had tested this draft before I ordered payment. On bare perusal of Exh. 47, one could not suspect that it is tampered with. The Collecting Bank has also to verify if the draft is in order in all respects, except the signature of the Agent of the draft issuing Branch. According to banking practice any crossing mark should be placed at the top of the instrument".
7. Shri Choudhari, the learned Counsel for the appellants submitted that the duty casts on the drawee bank or payee bank to satisfy before making payments. It is the duty of the drawee bank to check the signatures, over-writings etc. before making payments. The drawee bank used to make the payments after confirming or satisfying the genuineness of the cheque or draft before payment. It is the issuing bank who has to send the letter to the drawee bank about the issue of draft and after receiving such letter which is known as 'advice letter' the payment is to be made by the drawee bank. In fact, the appellant Bank being the collecting agent or the collecting bank on behalf of its customers after satisfying the general requirements has to forward the draft to the clearing bank and thereafter to payee bank. It being the negligence on the part of the plaintiff, no mala fide has to be ascribed to the defendants 2 and 3 and, therefore, the appellants are absolved of their liability.
8. The defendant No. 3 examined Shri Rajesh Chopra who was working with the defendant No. 3 at the relevant time. He deposed that while forwarding any instrument for collecting money to another Bank, the collecting Branch certify's, on the reverse "Received payment through clearing office payee account credit". As per the practice of the Reserve Bank of India, Nagpur, unless the instrument is received in the clearing office by 2.30 p.m. on the very day, it is presumed that the instrument has been passed for payment and that amount is credited to the credits of the Collecting Branch by Reserve Bank of India.
He further deposed that it is the duty of the paying Bank to verify the genuineness of the instrument. That is done by the paying Bank in between 1 p.m. and 1.30 p.m. on the very day. In the cross-examination he admitted the fact that the Collecting Banker has much better knowledge of its customer when he presents the instrument for collection. When any instrument reaches the paying Bank through clearing house, that Branch has to do the following:-
i. Verify the clearing stamp with date which the Collecting Bank put.
ii. Certificate of discharge by the collecting Bank has to be verified.
iii. See the date of the instrument to ensure its validity.
iv. Verification of crossing mark on the draft to verify the negotiability.
v. To verify the amount in words and figures.
In cross-examination, further he admitted the fact that the Collecting Bank puts a special crossing stamp in between two lines indicating the name of the Collecting Bank. Such special crossing must not be done on the instrument so as to mutilate the writing thereon. The endorsement "payee's account credited" is never put on the face of the instrument but is always put on its reverse. This endorsement is called as discharge certificate by the Collecting Branch. It is not customery to put the normal crossing line payee's account only across the instrument, as appears to have been made on Exh. 47. I would not have put such a normal crossing so as to mutilate the writings on the instrument as has been done in Exh. 47.
8-A. From the above evidence, it is crystal clear that the plaintiff Bank after verifying the clearing stamp, certificate of discharge by the Collecting bank, verifying the crossing mark on the draft (Exh. 47) and as the instrument came from the clearing bank, there was no other material with the plaintiff Bank to satisfy the genuineness of the draft (Exh. 47). In fact the collecting Bank has more material including the signature of the customers, amounts at his credit, etc.. It is pertinent to note that the name of the proprietor of the "Bright Corporation" is Rajnibhai J. Patel while the signature on the reverse of the draft Exh. 47 is R.J. Patil. Similarly, before putting various stamps, the writing on the instrument was clear for the officers of the Collecting Bank i.e. the appellant No. 2 The precaution is to be taken while affixing the stamp on the instruments not to mutilate the writing thereon. These usual norms not being observed, it shows that the appellants have not taken the bona fide care and thus did not act in good faith in sending the draft (Exh. 47) for clearance and payment.
9. Exh. 55 is the extract of account of the defendant No. 1 with the defendant No. 3. It shows that this account was opened by the defendant No. 1 Rajnibhai J. Patel by initially cash deposit of Rs. 501/-. Then follows the next entry for deposit of Rs. 40,557.28/- under the draft (Exh. 47). The receipt of such a huge amount would have raised suspicion in the mind of the defendant No. 3. The defendant No. 1 Rajnibhai J. Patel was introduced to the defendant No. 3 by it's customer Shri Shamsundar Choudhari as deposed by the witness Rajesh Chopra. Thus the officers of the defendant No. 3 had no clear idea about the prestige and status of the defendant No. 1 who had opened the account with a meagre amount of Rs. 501/- and therefore the duty cast on the officers of the defendant No. 3 to verify if really the defendant No. 1 is in a position to get Rs. 40,000/- and odd at one time. Similarly, the officer of the collecting bank who dealt with the draft (Exh. 47) on 15.10.1976 was not examined in the Court. This circumstance is showing derelication of duty on the part of the defendant No. 3.
10. Both the learned Counsel have informed me about the procedure to be adopted in the clearing house. The clearing house is maintained by the Reserve Bank of India as it being the function of the Reserve Bank of India. Where, there is no clearing house maintained by the Reserve Bank of India, the duty is entrusted to the State Bank of India. The representatives of every Bank used to assemble to exchange their instruments i.e. cheques, drafts, bills of exchange etc. The representatives of every Bank used to sit twice a day i.e. at 11.30 a.m. and at 1.30 p.m.. The instruments are brought by the Banks in the clearing house, the Collecting Bank used to deliver the instruments to the representatives of the concerned Bank. The transactions which used to take place are registered and maintained by the Reserve Bank of India. After receiving the instruments, the representatives of the concerned Bank go back to their bank with instruments. If the instrument is not entertained or refused, then the representative comes back at about 1.30 p.m. and thereby to change the entry in the register maintained by the Reserve Bank of India. If there is no refusal, it is to be presumed that the instrument is accepted as genuine one.
11. Considering the oral and documentary evidence discussed in the preceding paras, the collecting Bank did not pay the proper attention to the various procedures to be adopted while sending the instruments to the clearing Bank. It is admitted by the defendant Nos. 2 and 3 that the defendant No. 1 Rajnibhai J. Patel, the proprietor "Bright Corporation" is the constituent. However, the signature on the reverse of Exh. 47 is that of R.J. Patil which is admittedly is not of the proprietor of "Bright Corporation". No evidence either in rebuttal or asserting the fact that R.J. Patel and R.J. Patil is one and the same person has been adduced by the appellants. It means the Collecting Bank failed to pay the proper attention, even to tally the signature. This glaring defect is more eloquent to spell out the negligence of the bank officials of the defendant No. 3. Having regard to all these circumstances on record, without any hesitation, I hold that the plaintiff has proved that the defendant No. 3 did not receive the payment under the draft (Exh. 47) in good faith and its officials (defendant No. 3) exhibited negligence in collecting the amount of Rs. 40, 557.28/- under the draft (Exh. 47). Once it is held that the defendant No. 3 is not entitled to protection under section 131 of the Negotiable Instruments Act, it follows that since the bank has received the payment under the draft (Exh. 47) it must reimburse that amount to the plaintiff Bank.
12. Shri Choudhari, the learned Counsel for the appellants submitted that the plaintiff has not proved that the issuing bank i.e. Tiruputtur Branch of the plaintiff has issued the draft on the Bombay Branch and not on the Nagpur Branch and that draft was for Rs. 1,557.28/-. No document has been placed on record of the Issuing Bank. Though, it is mentioned that the plaintiff received telegraphic message from the issuing Bank, no document being placed on the record, an adverse inference under section 114 of the Indian Evidence Act, be drawn against the plaintiff Bank. Similarly, the plaintiff bank has not proved Exh. 47 as a forged document by examining an expert. Therefore, it is not proved that Exh. 47 is a forged document. The protection under section 131 of the Negotiable Instruments Act, 1881, could only be denied to the appellants if the document Exh. 47 is proved to be forged one. As the plaintiff fails to prove the instrument Exh. 47 as forged one, the protection available under section 131 of the Negotiable Instruments Act, 1881, cannot be denied and the only inference is to be drawn that the defendant No. 3 has acted in good faith.
13. The plaintiff Bank placed the document Exh. 48 on record which is dated 7th January, 1977 wherein it is specifically mentioned that the Issuing Branch had drawn the draft on Bombay Branch and the amount of the draft was Rs. 1,557.28/- and that the same was reported lost. The draft was fraudulently altered for a larger amount. The reply was sent to this letter on 24.2.77 vide Exh. 49/1. I found that there is no denial to this fact. Again a notice was issued on 25.7.1977 to the defendant No. 3 and the defendant No. 1 Rajnibhai J. Patel and in para 2 of its communication it is made clear that the Issuing Bank has issued the draft bearing No. DB 691125 at Bombay and it was for Rs. 1,557.28/- only. In para 3 of the communication it is further made clear that the alterations in the amount in figures on the demand draft were made chemically and were not visible to the naked eye, the date, amount in figures and the name of the drawee branch was perforated.This notice was replied by the defendant No. 3 vide reply dated. 13th August, 1977 vide Exh. 51/1 wherein they denied their liability and denied that they were in any way a party to the fraud alleged with regard to the said draft. It is, thus, amply proved by the plaintiff that the draft was forged document. Therefore, there is no substance in the contentions raised by Shri Choudhari, the learned Counsel for the appellants.
14. Shri Choudhari, the learned Counsel for the appellants submitted that the transaction between the plaintiff and the defendant Nos. 2 and 3 not being the commercial transaction, the plaintiff Bank is not entitled to any interest much less @ 16% per annum. Section 34(1) Explanation II of the Code of Civil Procedure, 1908, speaks about the commercial transaction and liability of interest. Explanation II of section 34(1) of the Code of Civil Procedure, 1908, reads as under:
"For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability".
If the transaction is not a commercial transaction, then the plaintiff Bank is at the most entitled for the interest @ 6% per annum. Similarly, the plaintiff led no evidence to the fact that it caused loss at the rate of 16% per annum.
Shri Modak, the learned Counsel for the respondent No.1-plaintiff submitted that section 34 of the Code of Civil Procedure, 1908, is not applicable because the plaintiff is a commercial Bank and the amount received from the plaintiff Bank by the collecting Bank being definitely used for the commercial purposes, the interest @ 16% per annum is admissible and the learned trial Court has rightly awarded the same. There is considerable force in the submissions of Shri Modak, the learned Counsel for the respondent No.1- plaintiff and therefore, I uphold the findings of the learned trial Court in respect of the interest granted @ 16% per annum from the date of the suit till it's realisation.
15. In the result, there being no substance in the appeal, the same is dismissed. No order as to costs.