Bank Of India v. Senior Pharmaceuticals Ltd.

K.J Paratwar, Presiding Officer:— This is an application for recovery of Rs. 17,81,633.40 with interest on Rs. 10,96.157/- @ 16.50% per annum with quarterly rests from the date of filing the original application till full realization.

2. The claim arises out of wrong payment of the cheque of Rs. 10,96,157/- issued by defendant No. 4 in the name of the applicant account defendant No. 1.

3. The defendant No. 1 company, now in liquidation—the liquidator having been unnecessarily made separate party—(for the purpose of convenience is referred to as the defendant No. 1 or company) was the applicant's constituent. In of about March 1987, the applicant granted pending grant and disbursement by defendant No. 4 of term loan-bridge loan of Rs. 15 lakh to the defendant No. 1. The same was to be paid within 3 months from disbursement by defendant No. 4 of the term loan. The defendant No. 4 had agreed that it would make payment directly to the applicant Bank as and when disbursement was made. The defendant No. 4 drew a cheque dated 16th April, 1987 for Rs. 10,96,157/- in favour of the applicant account, defendant No. 1. However, the defendant No. 4 wrongly and negligently handed over the same to the defendant No. 1 though the cheque had been specifically crossed. The defendant No. 1 deposited it with defendant No. 3 who wrongfully received it for collection. The defendant No. 3 sent the cheque—through clearing—for payment to the defendant No. 2 on whom the cheque had been drawn. The defendant No. 2 negligently and in breach of duty and obligation paid the amount of the cheque to defendant No. 3. The defendant No. 2 knew or should have known from the apparent tenor of the cheque that the cheque was presented for payment by defendant No. 3 as Banker of No. 1 and not by the rightful party i.e the applicant. The defendant No. 2 acted not only in negligent manner but its act lacked bona fide and was not in ordinary course of business as also not in accordance with apparent tenor of the instrument. The defendant No. 3 placed the proceeds of the cheque at the disposal of defendant No. 1 who withdrew the same in due course. The defendant No. 3 well did not perform as collecting Bank and acted otherwise than in ordinary course of business. The defendant No. 4 as said earlier was negligent in giving the cheque to defendant No. 1 instead of sending to the applicant Bank. Thus, as direct consequence of gross negligence, breach of duty and obligation and want of care and caution on the part of defendant Nos. 2 to 4 and as a result of mischief played by defendant No. 1, the applicant is deprived of the money for recovery of which this original application is filed.

4. The defendant No. 1/5 in written statement at Exhibit 17 has given the ???ctual matrix about its appointment by the Hon'ble High Court of Judicature at Bombay. The Official Liquidator has understandably pleaded ignorance about the facts.

5. The defendant No. 2 in written statement (Exhibit 9) has admitted that it had presented for clearing the cheque but the presentation was in ordinary course of business without having any reason to believe that defendant No. 3 was not acting as agent of the payee or of the true owner of the cheque. The defendant No. 3 has thus admitted that it acted as collecting Banker for collection of the cheque in question. Apart from above stated material facts, this defendant has in the verbose written statement averred so many other facts having no bearing on the lis. The dismissal of the original application is sought for in the end.

6. Vide written statement at Exhibit 10, the defendant No. 3 has disputed the liability. It is however admitted that cheque in question was deposited with it by the defendant No. 1. This defendant has come out with a case that even though the cheque was drawn in the applicant's favour it was for the benefit of defendant No. 1. The defendant denies that the applicant Bank is true and rightful owner of the cheque. The defendant claims to have acted in good faith without negligence and to have received the cheque in due course and as per apparent tenor thereof. The defendant has expressed ignorance about the circumstances in which the defendant No. 4 had drawn the cheque. The dismissal of the original application is sought for on above grounds.

7. The evidence in this case comprises claim affidavit of Mr. U.D Vaidya (Exhibit 26) on behalf of the Bank, of Mr. Abharasan (Exhibit 58) on behalf of the defendant No. 2 and of Mr. G.N.S.R Shastri (Exhibit 61) on behalf of defendant No. 3. The material documents are the cheque (Exhibit 60). the copy of letter dated 13th June, 1986 by defendant No. 4 to the applicant (Exhibit 28), office copies of letters dated 18th July, 1986 (Exhibit 29), dated 4th August, 1986 (Exhibit 30) and dated 4th April, 1987 (Exhibit 31) by the applicant to defendant No. 4. The defendant No. No. 1/5's letter dated 2nd April, 1987 addressed to the defendant No. 4 is annexed to Exhibit 31. At Exhibit 39 is copy of defendant No. 4 letter dated 8th October, 1987 addressed to the Bank informing that the document was handed over to the M.D of the defendant No. 1/5 as per the written request. Exhibit 10 is the copy of defendant No. 1's letter dated 8th September, 1987 to the defendant No. 4 seeking rather surprisingly reimbursement for wrongful and illegal conversion of the cheque. At Exhibits 41 to 54 are the letters exchanged, namely by the applicant, defendant Nos. 3 and 4. The defendant No. 3 also filed some correspondence at Exhibits 63 to 65.

8. The arguments advanced by the learned Counsel representing the rival parties marked the end of the hearing.

9. The uncontroverted facts may be set out in the beginning. They are: in or about 1986 the defendant No. 4 was to sanction term loan of Rs. 66 lakh to the defendant No. 1/5. During the pendency of the formalities, the applicant sanctioned term loan of Rs. 25 lakh. The defendant No. 4 however had undertaken to release the term loan to the extent of Rs. 25 lakh directly to the applicant Bank on account of defendant No. 1. Accordingly, after the defendant No. 4 eventually sanctioned and disbursed the loan, a part thereof to the tune of Rs. 10,96,157/- was disbursed by account payee cheque (Exhibit 60) drawn on Canara Bank payable at its Fort Branch in the name of the applicant account defendant No. 1. Instead of sending the cheque directly to the Bank, the defendant No. 4 handed over the same, may be at the request of the defendant No. 1 to the latter. The company deposited the cheques in its account with defendant No. 3 Bank, who as collecting Bank remitted the cheque to defendant No. 2 paying Bank. Both these Banks ignored the special crossing of the cheque and the fact that the applicant being payee-true owner thereof, cleared the cheque. The credit was given to proceeds in the account of the defendant No. 1 who eventually withdrew the amount. It is in the above facts of the case that the company is held liable as borrower, the defendant Nos. 2 and 3 respectively as paying and collecting Banks, for their negligence and wrongful clearance/payment of the cheque. The liability is sought to be fastened on defendant No. 4 being negligent in handing over the cheque to the company and not sending it directly to the applicant as was promised by it.

10. The first and foremost question is about this Tribunals subjectwise jurisdiction. The question was specifically raised on behalf of the defendant No. 3 whose learned Counsel Mr. Rajesh Nagori vehemently contended that the liability claimed against his client cannot be said to have arisen during the course of any business activity undertaken by the applicant Bank. He urged that the claim does not constitute debt within the meaning of Section 2(g) of RDDBFI Act, 1993. If the word ‘debt’ is construed narrowly it may appear that liability not only of defendant No. 3 but also of defendant Nos. 2 and 4 had not arisen during the Banking activity, with the applicant. But the higher Court has held and reiterated that definition of ‘debt’ in Section 2(g) of RDDBFI Act, 1993 has to be construed widely

11. There cannot be any dispute that the claim as against defendant No. 1 is a debt. The cheque in question was meant to be by way of repayment of the debt. If the cheque had landed in its destination, there would not have been any claim against any of the defendants, but for the acts/omissions, of defendant Nos. 2 to 4, proceeds of the cheque would have reached the applicant Bank in clearance of the debt. The original application is thus substantially for recovery of the debt which, but for the misdeeds of defendant Nos. 2 to 4, did not land in the hands of the applicant. Therefore, the claim as against defendant Nos. 2 to 4 has also to be construed to be debt. That apart, segregation of the liability of defendant No. 1 on one hand and defendant Nos. 2 to 4 on the other hand, arising from the same transaction, is not permissible. I thus do not find any merit in the objection raised particularly on behalf of defendant No. 3 that this Tribunal does not have subjectwise jurisdiction.

12. I now turn to the applicant's case as against the defendants one after another.

As against defendant No. 1/5.

13. I have already stated that defendant No. 1 owed the claimed amount to the applicant who was rightful owner of the cheque in question. The original application as against it therefore would have been straightaway allowed. However, the applicant had, probably subsequent to the filing of this original application, filed comprehensive suit (being No. 2269 of 1990) for recovery of money also under other facilities in the High Court of Judicature at Bombay. Though the original-application was allowed, it was transferred to this Debts Recovery Tribunal and numbered as Original Application No. 864 of 2001. In miscellaneous application No. 9 of 2003, this Tribunal has issued recovery certificate for the amounts admittedly including the claim in this original application. Therefore if this original application is allowed, there would be two recovery certificates for the same amount in favour of the applicant and against defendant No. 1/5. This cannot be allowed to be done, this original application therefore cannot be allowed as against defendant No. 1/5.

14. The learned defence Counsel has in this connection submitted that in view of the above facts and because the applicant received certain amount, may be by settlement, from one of the guarantors, mis original application is untenable. In reply, the learned Counsel for the applicant Bank drew my attention to the statement of calculation (Exhibit 97) showing that a sum of Rs. 20,90,339.85 was received on 12th March, 1995 but, even after giving credit to said amount, the outstanding from defendant No. 1/5 is Rs. 90 lakh and odd amount. Without going to the correctness of the calculation, it can be safely said that the applicant's claim as against defendant No. 1/5 has not been satisfied. It cannot be said that the applicant would be doubly benefited or unjustly enriched by the recovery of the amount in this original application. It cannot also be said that the money received by the applicant in the account of defendant No. 1 was towards the claim of this original application and covered the same. This contention advanced by Mr. Nagori therefore will have to be disapproved.

As against defendant No. 2

15. The defendant No. 2 is the paying Bank. As noted earlier, the cheque was crossed specially. Provisions of Section 126 of the Negotiable Instruments Act, 1881 enjoin the defendant No. 2 on whom the cheque was drawn not to pay otherwise than to the Banker to whom it is crossed—A/c Payee—or his agent for collection. The cheque in question was in the name of M/s. Bank of India account Senior Pharmaceuticals Ltd. Thus, the applicant Bank was its true owner. The defendant No. 2 therefore should have made payment to the applicant or its agent. Therefore, before making payment, it was incumbent for defendant No. 2 to have ensured that the payment is going to the applicant Bank which the defendant No. 3 herein did not do. It is nobody's case that defendant No. 3, who had presented the cheque to defendant No. 2, was the collecting Banker for the applicant Bank. In law (Section 129 of the Negotiable Instruments Act, 18 81), therefore, the defendant No. 2 is liable to sustain loss caused to the applicant.

As against defendant No. 3.

16. The learned Counsel for the Bank has aptly relied on latest Apex Court judgment reported in II (2004) BC 1 (SC) : I (2004) SLT 826 : (2004) 2 SCC 425, Kerala State Cooperative Marketing Federation v. State Bank of India. Their Lordships have culled down the principles governing the liability of the collecting Banker in para No. 11. The relevant clauses from which are reproduced for ready reference:

“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 no 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 131-A 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 fath and without negligence.

(4) The standard…….

(5) Negligence is a…….

(6) Negligence in opening…….

(7) The standard of care expected from a Banker in collecting the cheque does not require him to subject the cheque to a minute and microscopic examination but disregarding the circumstances about the cheque which on the face of it gives rise to suspicion may amount to negligence on the part of the collecting Banker.

(8) The question of good faith and negligence is to be judged from the stand-point of the true owner towards whom the Banker owes no contractual duty but the statutory duty which is created by this section and it is a price which the Banker pays for seeking protection, under the statute, from the otherwise larger liability he would be exposed to under common law.

(9) Allegation of contributory negligence against the paying Banker could provide no defence for a collecting Banker who has not collected the amount in good faith and without negligence.

The liability of defendant No. 3 is beyond any shade of doubt in the light of above law made down by the Apex Court.

17. The defendant No. 3 the collecting Bank thus was obliged in law to ensure that the cheque was not deposited for the collection except at the behest of the applicant. In other words, on the face of the cheque being in the name of the applicant, the defendant No. 3 should not have accepted for collection from the defendant No. 1. The protection of Section 138 of the Negotiable Instruments Act, 1881 is available only to the Banker who has acted in good faith and without negligence received payment for a customer of the especially crossed cheque. It cannot be said by any stretch of imagination that the payment received by the defendant No. 3 on behalf of its customer (defendant No. 1) was in good faith and in due course understood by Section 10 of the Negotiable Instruments Act, 1881. It is strange that the defendant No. 3 being itself a nationalized Bank has ventured to take in the written statement plea that the defendant No. 1 was a true owner of the cheque. This shows either defendant No. 3's blatant ignorance of the legal position or apparent negligence in either of which case the liability befalls on it.

As against defendant No. 4.

18. It may be recalled that the defendant No. 4 had undertaken that if and when it sanctions term loan to the defendant No. 1, it would directly send to the applicant on the account to the defendant No. 1, the payment. There is letter to the above effect dated 13th. June, 1986 (Exhibit 28) on the record. The applicant Bank has filed on record office copy of letter dated 4th August, 1986 (Exhibit 30) enquiring with defendant No. 4 as to when the payment can be expected which letter shows the applicant's concern for payment. In the office copy of letter dated 4th April, 1987 (Exhibit 31) by the applicant to defendant No. 4 the applicant requested for direct payment of the term loan to it. Along with said letter, defendant No. 1's letter dated 2nd April, 1987 addressed to defendant No. 4 requesting to make direct payment to the applicant Bank is also annexed, In the office of the applicant's yet another letter dated 18th July, 1986 (Exhibit 29) it is stated that the payment of the loan sanctioned by the defendant No. 4 may be directly sent to the Bank. On the face of the above correspondence and in particular commitment by defendant No. 4, it was wrong on the part of defendant No. 4 to have handed over the cheque to the defendant No. 1. The letter by defendant No. 4 dated 8th August, 1987 (Exhibit 39) to the applicant states that the cheque was handed over on written request to the Managing Director of defendant No. 1. It is beyond comprehension as to how the defendant No. 4 could concede to such request. Had the defendant No. 4 not given the cheque directly, the defendant No. 1 could not have deposited it with defendant No. 2; who could not have presented it for collection to defendant No. 3; who could have made payment thereof. Thus, the negligence on the part of defendant No. 4 was genesis of everything and was directly responsible for the loss to the applicant.

19. Yet, the loss is not attributable exclusively to defendant No. 4's negligence. Defendant Nos. 2 and 3 played their roles. Had the defendant Nos. 2 and 3 performed their duties and been vigilant, the loss could have been averted. This is case of contributory negligence which is why defendant Nos. 2 to 4 are jointly and severally liable.

20. The applicant thus succeeds but not for the amount claimed in the original application. Said outstandings have been calculated by levying interest @ 16.50% per annum with quarterly rests. The liability to pay interest does not arise from out of any agreement. Under Section 80 of the Negotiable Instruments Act, 1881 the liability is to pay simple interest @ 18% per annum. The original application therefore is liable to be allowed for the amount of the cheque and simple interest @.16.50% per annum.

(A) The original application as against defendant Nos. 2 to 4 is allowed with costs but as against defendant No. 1 is not allowed since the original application amount is covered by the recovery certificate issued by this Tribunal in miscellaneous application No. 9 of 2003 (Original Application No. 864 of 2001).

(B) The defendant Nos. 2 to 4 do jointly and severally pay to the applicant Rs. 10,96,157/-(Rs. ten lakh ninety-six thousand one hundred fifty, seven only) with interest @ 16.50% per annum from 15th April, 1990 till full payment.

(C) Issue recovery certificate accordingly.

Original Application allowed.