Yogeshwar Dayal, J.:— This order will dispose of RFAs 325 and 549 of 1970. The first appeal is filed by Canara Bank Limited, Defendant 1, and the other appeal has been filed by Bank of Baroda, Defendant 2.

2. The appeals are directed against the judgment and decree passed by the learned Subordinate Judge, 1st Class, Delhi dated 9-2-1970 whereby the learned Subordinate Judge had passed a money decree or recovery of Rs 10,000 against the appellants (Defendants 1 and 2) and M/s Universal Traders, Defendant 3, on a suit filed by the plaintiffs for conversion. The plaintiffs in the suit were M/s Govind Ram Rajinder Kumar, Bareilly (Plaintiff 1), M/s Govind Ram and Sons, Bareilly (Plaintiff 2) and M/s Mithan Lal Mangal Sain, Delhi (Plaintiff 3). Plaintiff 2 is a branch of Plaintiff 1.

3. Plaintiff 2 used to purchaser cloth from Plaintiff 3 on credit and used to pay for the goods supplied by Plaintiff 3 at their convenience.

4. The Plaintiff 2 on 6-12-1965 wanted to remit Rs 10,000 to Plaintiff 3 and for that purpose approached the Bareilly branch of Bank of Baroda (Defendant 2) and purchased a draft for Rs 10,000 in the name of M/s Mithan Lal Mangal Sain (Plainitff 3). The draft was a crossed one. The draft was sent by Plaintiff 2 to Plaintiff 3 but since Plaintiff 3 approached Plaintiffs 1 and 2 at Bareilly again on 11-12-1965 and were informed that they have not recived the aforesaid draft sent to them, Plaintiff 3 also wrote to Bank of Baroda (Defendant 2) about stopping payment of the said draft.

5. Defendant 2, however informed the plaintiff by their letter dated 14-12-1965 that the said draft was presented to them for encashment on 9-12-1965 through Canara Bank, Delhi (Defendant 1) and was cashed on the same day. The Plaintiff 3 was informed that the draft has been endorsed in favour of Defendant 3 and the endorsements were confirmed by Canara Bank. (Defendant 1)

6. It was then alleged in the plaint that on an enquiry made by the plaintiffs, it was revealed that one Ram Chand opened the accountant in the name of M/s Universal Traders, Lal Kuan, Hauz Qazi, Delhi, describing himself as proprietor of M/s Universal Traders (Defendant 3) with Canara Bank (Defendant 1) and the said Shri Ram Chand was introduced to Defendant 1 by M/s Shambu Nath and Co. (Defendant 4)

7. Plaintiff 3 never received the draft in question and never endorsed the same in favour of M/s Universal Traders. It was averrd that the alleged endorsement by Plaintiff 3, M/s Mithan Lal Mangal Sain, in favour of M/s Universal Traders, (Defendant 3) was illegal, ultra vires, and was made by some interested person of the defendants who know all about the issue of the draft and had collected the same. It was also stated that the endorsement on the drats shows that the signatory is one Mangal Sen. Mangal Sen whose name also appears in the name of Plaintiff 3, died long back. The status of Mr Mangal Sen in relation to the payee's firm was not indicated in the endorsement. The endorsement is highly irregular and should have been acted upon by either Canara Bank Ltd., or Bank of Baroda Limited. The circumstances of the endorsement and their confirmation in themselves are obvilously doubtful and should have been noticed by the concerned banks, and Defendant 2 ought not to have paid on said endorsement.

8. It was then alleged that Canara Bank Ltd., is liable to the plaintiffs or any of them on account of their negligence in confiring the alleged endorsement of Plaintiff 3 in favour of Defendant 3 without knowing whether the endorsements were made by correct persons. Bank of Baroda was alleged to be liable for negligence in encashing the draft and Defendants 3 and 4 were alleged to be liable because Defendant 3 had actually received the amount and Defendant 4 have introduced the said party to Canara Bank knowing fully well that no such party actually existed and Defendant 3 was a bogus man and Defendant 4 was introducing a Bogus party, who would defraud the Bank.

9. Thus the sum of Rs 10,000 i.e the value of the draft is claimed from all the four defendants on the ground of conversion.

10. The sum of Rs 500 was also claimed as interest from 6-12-1965 to 28-5-1966 i.e the date of the filing of the suit @ 1 per mensem and thus the total claim was Rs 10,500.

11. It may be mentioned that no written statement was filed by Defendant by both the banks, the collecting bank i.e Canara Bank Limited as well as by the payee bank i.e Bank of Baroda Limited. The suit was also contested by M/s Shambhu Nath and Co. (Defendant 4) who introduced the Defendant 3 when the latter opened the account in Canara Bank Limited.

12. I need not be concerned with the Defendant 4 since the learned trial court dismissed the suti against it.

13. Both the banks contested the suit. The plea of Canara Bank Limited, which was the collecting bank, was that Defendant 3 had opened an account on 13-10-1965 i.e much before the purchase of the draft by Plaintiff 2 and its despatch to Plaintiff 3. It was also pleaded that the endorsement made in favour of Defendant 3 on the back of the draft was verified by Defendant 3 and they had acted in good faith and without negligence in receiving the payment for their customer.

14. The plea of Bank of Baroda was that the draft was recived by them for encashment from Canara Bank Limited and Canara Bank had confirmed the endorsement and it was in lieu of the confirmation on the endorsement by Canara Bank Limited that they had made the payment in due course.

15. The learned trial court, on consideration of the evidence, took the view that the alleged endorsement on the draft on behalf of M/s Mithan Lal Mangal Sain was a fictious endorsement and was not made by Plaintiff 3 in favour of M/s Universal Traders, Defendant 3. It also found that the endorsement, purporting to have been signed by one Mangal Sen on behalf of M/s Mithan Lal Mangal Sain was in Urdu and Mangal Sen had nothing to do with the firm M/s Mithan Lal Mangal Sain. It also found that Mangal Sen had died in about 1942 and thus the endorsement was a forgery. It also found that Mangal Sen while purporting to act on behalf of M/s Mithan Lal Mangal Sain never disclosed his authority or capacity to act on behalf of M/s Mithan Lal Mangal Sain and thus even the forged endorsement was also doubtful and of irregular character. The learned trial court also found that the collecting Bank i.e Canara Bank Limited had acted with negligence while sending the cheque for collection and could not claim the protection of S. 131 of the Negotiable Instruments Act. The learned trial Court also took the view that Baroda Bank Ltd., while making payment of the draft, did not act in due course as contemplated by S. 85-A of The Negotiable Instruments Act, and thus dereed the suit against Defendants 1 to 3 to the extent of Rs 10,000 but refused to pass the decree as to the claim for interest in favour of the plaintiffs.

16. It is against this decree that both the Banks have filed the two appeals separately and the plaintiffs have filed cross-objections claiming interest as claimed in the suit as well as interest pendente lite and future interest.

17. Before I deal with the submissions of the learned counsel for the parties, it will be useful to notice the contents of the draft in dispute, Ext. P-1. The draft was issued by the Bareilly Branch of Defendant 2 and was in favour of Mithan Lal Mangal Sain or their order. The draft was payable at the Delhi branch of Bank of Baroda Limited.

18. On the reverse of the draft appears an endorsement marked ‘A’ in Urdu in favour of M/s Universal Traders. This endorsement in Urdu is again made on behalf of M/s Mithan Lal Mangal Sain and the endorsement is signed in Urdu by one Mangal Sen. Below this endorsement appears an endorsement with the Rubber Stamp:

“For Universal Traders, signed, Ram Chand, Proprietor”, and above this rubber stamp of Universal Traders appears an endorsement in English:—

“Joint payees endorsement confirmed”.

Thus, the effect fo this endorsement is that the endorsement made by Mangal Sen on behalf of Mithan Lal Mangal Sain is being confirmed on behalf of Universal Traders (Defendant 3) by Ram Chand. Another endorsement thereafer appears by Manager of Chandni Chowk Branch of the Canara Bank. This endorsement reads:—

“Endorsement Confirmed”.

19. It is clear from the body of the draft that it was payable to Mithan Lal Mangal Sain and was payable on demand to their order and it suggests that the draft was in favour of the firm. The endorsement on the reverse of the draft purporting to be of M/s Mithan Lal Mangal Sain is signed by one Mangal Sen. This endorsement had been found by the learned trial court to be fictitious and not to have been made by Plaintiff 3.

20. It also appears from this endorsement that it does not disclose the status or authority of Mangal Sen to act for Mithan Lal Mangal Sain and it is this endorsement of alleged Mangal Sen in favour of Universal Traders which is confirmed by Ram Chand as proprietor of Universal Traders.

21. During trial, Defendant 1 had examined Shri K.P Pal, (D1 W1). Shri Pai stated that he was working as an Accountant of the Canara Bank and he knew Defendant 4 as he was their client. He also produced the account opening form of Defendant 3 as well as the introduction form. Mr Pai, also produced Ext. D-3, certified copy of the statement of account of Defendant 3. He stated that the draft was deposited in their Bank on behalf of Universal Traders by Ram Chand, Proprietor of Universal Traders had confirmed the endorsement. The draft was cashed by the bank in usual course of business. The draft was not cashed in negligent manner and Ram Chand had withdrawn the amount of the draft from their Bank.

22. In cross-examination, Mr Pai stated that the endorsement by the Bank on the draft is signed by their Manager. The Manager was not produced. Mr Pai did not state that he ever dealth with the draft. He also stated that neither he nor the Manager knew Urdu language in which the endorsement appeared on behalf of Mithan Lal Mangal Sain in favour of M/s Universal Traders.

23. It appears from the account that the account was opened on or about 14-10-1965 by deposit of Rs 300 in cash. On 18-10-1965 a sum of Rs 200 was paid in cash to one Mohan Lal. On 26-10-1965 another sum of Rs 200 was deposited and on 7-12-1965 a sum of Rs 200 was again withdrawn and on 9-12-1965 the present draft in dispute was presented and on the same date the account was credited by Rs 10,000 and on 10-12-1965 the amount of Rs 10,000 was withdrawn. The account was not operated upon in November and apart from two deposits—one of Rs 300 and other of Rs 200 and two withdrawals of Rs 200 each, the account was pratically dormant. However, the learned trial court did not find anything in the history of this account to connect it with the conversion of this draft by Defendant 3 though for such a substantial amount the University Traders had not dealt with the Canara Bank Limited.

24. This is the entire defence so far as the defence of Canara Bank Limited, Defendant 1 is concerned.

25. Mr K.N Kataria, learned counsel for Canara Bank Limited submitted that their defence in the written statement was that their Bank collected the amount of the draft without negligence and good faith since they confirmed the endorsement in view of the endorsement made by their customer M/s Universal Traders who confirmed the endorsement allegedly made by M/s Mithan Lal Mangal Sain. Thus the plea of the learned counsel was that the account had been opened by their customer Defendant 3 much before the presentation of this draft in October and this draft was presented in normal course on 9-12-1965 and since their customer had confirmed the endorsement purporting to have been made according to the payees mentioned on the draft they acted without negligence and in good faith. S. 131 of the Negotiable Instruments Act reads as under:—

“131. 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 and liability to the true owner of the cheque by reason only of having received such payment.

Explanation—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 cheque before receiving payment thereof.”

26. The Divison Bench of the Kerala High Court in Central Bank of India Ltd. v. Gopinathan Nair, 1972 KLT 518(1), had occasion to deal with the aforesaid provision. The Division Bench observed as under:—

“The three aspects or circumstances to be considered in deciding the question whether a collecting bank has discharged its responsibility to some within S. 131 are: (1) the opening of the account by its customer—whether that was allowed after proper enquiry; (2) the operating of the account by him—whether there was anything peculiar or out of the ordinary to in operatiing the account to have aroused the suspicion of a careful banker; and (3) the endorsement leading to the collection of the draft—whether there is anything suspicious in it.”

27. The question whether the collecting Bank received the payment in good faith and without negligence is a question of fact. The question whether the collecting banker has or has not been negligent depends upon the aforesaid factors “and that the mere fact that the cusomter had no title to the cheque does not render the banker liable to the true owner of the cheque”.

28. Chagla J. in Bapulal Prem Chand v. Nath Bank Ltd. (AIR 1946 Bom. 482) (2) observed that the expression “without negligence” means “without want of reasonable care in authority the customer purports to have”. Thus the expression without negligence in S. 131 is really meant for the protection of a true owner. If the endorsement had been proper and did nto have suspicious circumstances attending thereto, there would have been no occasion for the collecting banker to make any enquiry. But if the endorsement was doubtful or suspicious it called for enquiry by the collecting Bank.

29. In the present case the fact remains that the endorsement was in Urdu whereas the contents of the draft were in English. Again, the Manager who confirmed the enforsement never knew Urdu. Mr Pai who appeared on behalf of Canara Bank Limited stated that two other employees of their branch knew Urdu but they have had no chance to deal with the draft. Mangal Sen, who purports to have endorsed the draft on behalf of M/s Mithan Lal Mangal Sain in favour of defendant 3, never disclosed his status in the firm Mithan Lal Mangal Sain. He did not even mention that he was a partner. A partner has an implied authority to endorse cheque on behalf of the firm to which he is a partner. But in the endorsement Manga Sen never disclosed the status vis-a-vis M/s Mithan Lal Mangal Sain and thus the authority of Mangal Sen to make the endorsement on behalf of the firm mentioned in the draft was missing. This infact itself casts a doubt on the title of their customer.

30. In the written statement the plea of the Canara Bank was that their Bank Manager endorsed the endorsement in favour of Universal Traders in view of the verification of their customer. This is really no verification. Once an endorsement was found to be suspicious the Manager of the Bank should have been immediately on his gurad and he should have verified the endorsement from independent source.

31. In Sheldon's Practice and Law of Banking, Tenth Edition the learned author observed on pages 116 and 117 as under:—

“A cheque payable to “Smith Jones and Co.” may be indorsed “Smith Jones and Co.”, or “Smith Jones and Co., H. Brown, Partner.” The last indorsement would generally be accepted, because partners have implied authority to indorse by the name of the firm only, but if the word “Partner” is omitted, the indorsement would require confirmation, as the indorsement contains no indication that Brown has authority to sign.”

32. It is clear from the endorsement in the present case that Mangal Sen did not mention that he was a partner. The endorsement by Mangal Sen would require confirmation. The confirmation by the customer was no confirmation as he was out to cheat the collecting Bank itself. The same learned author at page 11 while dealing with the question of endorsement in characters other than Latin characters observed as under:—

‘If a bill or cheque is presented indorsed in characters other than Latin characters, e.g Russian or Arabic, Sir John Paget considered that the paying banker is entitled to return the instrument with the answer “Indorsement illegible,” or “Indorsement requires confirmation,” unless his is satisfied “that the Oriental characters represent the equivalent of the name of the person whose indorsement is necessary.” A notarially certified translation would be acceptable in lieu of a banker's confirmation.”

33. It is thus clear that according to their own case, the Manager of Canara Bank Limited could not read the endorsement nor did he make any enquiry from anybody, and merely relied upon the confirmation of their own customer for confirming the endorsement made by one Mr Mangal Sen action for M/s Mithan Lal Mangal Sain. The verification contempted by ‘Sheldon’ in the aforesaid treaties as to the status of Mangal Sen was the verification independent of the customer who is presenting the draft for collection. In United Australia Ltd. v. Barclaya Bank Ltd., 1940(4) All ER 20(3) at page 33 Lord Atkin observed as under:—

“The third cheque, which is the one in question, was indorsed as follows:

“Pay to the order of the M.F.G Trust Ltd., for and on behalf of United Australia Ltd., A.H Emons, Secretary.

How it reached M.F.G Trust Ltd., is not disclosed, but it was indorsed “for and on behalf of M.F.G Trust Ltd., J.C Gould, Accountant,” and was paid into the defendant bank by someone not identified in evidence on a paying-in slip dated November, 12. The teller not unnaturally referred the matter to the manager, endorsing the paying-in-slip to that effect. In these days, every bank clerk sees the red light when a company's cheque is indorsed by a company's official into an account which is not the company's. The manager, however, made no inquiries. The cheque was collected and the proceeds placed to the customer's accountant. Though the bank pleaded the provisions of the Bills of Exchange Act, 1882, which by S. 82 profects them if they receive payment of a crossed cheque for a customer in good faith and without negligence, they called no evidence, and that section passes out of the case.”

Similarly the endorsement in the present case should have made the Bank Manager “see the red light”. Admittedly, no enquiry whatsoever was made by the collecting bank and it cannot be therefore said that they acted “without negligence”. I, therefore, confirm the finding of the learned trial court that the appellant Canara Bank Limited is not entitled to the protection of S. 131 of the Negotiable Instruments Act.

34. Coming to the case of Bank of Baroda to whom the draft was sent for collection, the question arises whether they are entitled to the protection of S. 85-A. S. 85-A has to be read with S. 10 and they are reproduced herebelow:—

“85-A. Where any draft, that is, an order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand, purports to be indorsed by or on behalf of the payee, the bank is discharged by payment in due course.”

“10. “Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in posession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.”

35. Had there been no confirmation of endorsement by the collecting bank on the revrese of the draft there can be no doubt that the payee bank, Bank of Baroda would also have not been entitled to the protection of S. 85-A. But it appears to me that they are protected in view of the endorsement of the collecting bank. When the collecting bank confirm the endorsement in faovur of Universal Traders the payees bank i.e Bank of Baroda woud be naturally entitled to assume that the collecting bank had performed his duty without negligence. The drawee bank would rely upon the fact that the collecting bank could have discharged his duty of scrutinizing and satisfying about the title to the draft of its customer. In fact the Division Bench in the aforesaid case of Central Bank of Inida Limited as page 521 observed:—

“What we wish to emphasis is that, when a draft is being presented for collection before the drawee bank by the collecting bank on behalf of one of its customers, the drawee bank can rely on and rest assured that the collecting bank would have discharged its duty of scrutinising and satisfying itself about the title to the draft of its own customer. In other words, in such a case, the law does not demand the same care and caution that is expressed of a drawee bank in a case where the draft is produced for encashment at the counter by an unknown person. Otherwise, crossing of a draft and paying in through a collecting bank become pointless.”

I am, therefore, of the view that the decision of the learned tria Court regarding the liability of Bank of Baroda Limited, Defendant 2 is erroneous.

36. I would, therefore, dismiss the appeal filed on behalf of Canara Bank Limited (RFA No. 325 of 1970) with costs. The costs shall be payable to Respondents 1 to 3 of this appeal.

37. The appeal of Bank of Baroda Limited (RFA No. 459 of 1970) is accepted and the decree passed by the learned Sub-ordinate Judge against it is set aside and the suit of the plaintiff against it is dismissed.

38. We are now left with the cross-objections field on behalf of the plaintiffs. The larned trial court had dismissed the claim of interest of the plaintiffs without assigning any reason. So far as the Defendant 1 against whom I have confirmed the decree passed by the trial Court is concerned, they have themselves been victims of fraud by their customer and they were sent notice dated 19-2-1966 and the clam was made from them for payment of the amount of draft collected from them. This notice was sent on 19-2-1966 and interest was claimed therein at the rate of 1 per cent per mensem. I would have been inclined to grant interest against M/s Universal Traders, Defendant 3 who actually made use of the draft but Universal Traders remained ex-parte in the trial court and have also not appeared to oppose the cross-objections. The Canara Bank Limited had, soon after the decree, deposited the amount in Court. Looking at the entire facts of the case they came to know about the cheating only when the trial court found that the endorsement was not made by the Plaintiff 3 in favour of their customer.

39. I do not, therefore, find it a fit case to award interest before the suit or during the pendency of the suit. As stated earlier the deposited amount was paid to the plaintiffs soon after it was deposited. No purpose will be served in awarding interest against Defendant 3 whom the plaintiffs have not been able to trace till today. The result is that cross-objections fail and are dismissed.

40. Thus, the decree of the learned trial Court is modified to the extend that the suit against the Bank of Baroda Limited, the Defendant 2 is also dismissed.

S.V Cross objections dismissed. Decree partly modified.