2. Brief facts of the case are that the respondents No.1 and 2 applied for a demand draft for Rs.50,00,000/- to the respondent No.3 State Bank of Patiala (now merged with State Bank of India) and the draft dated 9.4.2009 was issued to the respondent Nos.1 & 2 in the name of

"U.P. Cooperative Federation District Purchase". However, it was alleged by the respondent Nos.1 & 2 that the draft was lost in transit and therefore, they requested to respondent No.3 State Bank of Patiala to issue another draft on 20.4.2009. Respondent No.2 also requested respondent No.3 to issue 'stop payment' order to the appellant State Bank of India and the same was issued on 18.04.2009. However, later, the same draft was presented to the appellant Bank for payment on 30.4.2009 from respondent No.4 Bank to be credited to the account of

"U.P. Cooperative Federation Ltd." maintained with the respondent No.4. The appellant bank passed the bank draft for payment and released the payment to the account of "U.P. Cooperative Federation" maintained by respondent No.4. Respondent No.3 got the information from the appellant bank that the draft was already paid on 30.4.2009. The demand draft in lieu of the original demand draft was not issued by respondent No.3.

3. Aggrieved, the respondent No.1 and 2 filed consumer complaint before the State Commission being consumer complaint No.67 of 2009. The complaint was resisted by all the three opposite parties on different grounds, however, the State Commission vide its order dated11.09.2015.allowed the complaint and passed the following order:-

"Complaint of the complainant is allowed and the Respondent No.2 is directed to pay an amount of Rs.50.00 Lacs in Demand Draft No.111651 to the complainant within a period of one month and with interest of 12% per annum from the date of payment of draft dated 30.4.2009 till its payment and in this regard the respondent No.2 shall pay an amount of Rs.5,000/- towards the cost of the case separately."

4. Aggrieved by this order of the State Commission, the present appeal has been filed.

5. Heard the learned counsel for the parties and perused the record.

6. Learned counsel for the appellant bank stated that the order passed by the State Commission is being challenged mainly on two grounds. The first is that the complainant federation is not a consumer within the meaning of consumer in the Consumer Protection Act, 1986 as the draft was issued for the purpose of their trading account. Clearly purpose of issuing the draft was commercial and thus, the services availed by the complainant federation was of commercial nature and therefore, the complainant federation cannot be held to be a consumer. The second ground is that it was the primary duty of respondent No.4 Purvanchal Grameen Bank to have verified the details of the account and the details of the demand draft before endorsing the same for payment by the appellant bank. Clearly, the respondent No.4 Purvanchal Grameen Bank endorsed wrongly as the account in which the payment was to go was in the name of "U.P. Cooperative Federation Ltd." and the draft was payable to "UP. Cooperative Federation District Purchase". The appellant bank in good faith and relying upon the endorsement made by the respondent No.4 released the payment and discharged the demand draft. The learned counsel for the appellant relied upon the judgment of the Hon'ble High Court of Delhi, in Canara Bank Ltd. Vs. Govind Ram Rajinder Kumar, decided on 25.09.1980, wherein the following has been held:-

"35. Had there been no confirmation of endorsement by the collecting bank on the

2

reverse 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 confirms the endorsement in favour of Universal Traders the payees bank i.e. Bank of Baroda would 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 India Limited as page 521 observed:-

"What we wish to emphasise 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 trial Court regarding the liability of Bank of Baroda Limited, Defendant 2 is erroneous."

7. On the basis of the above authority, learned counsel for the appellant bank stated that the sole responsibility lies on respondent No.4 as the respondent No.4 wrongly endorsed the demand draft and payment was released in good faith relying upon this endorsement.

8. Learned counsel for the appellant bank argued that as per Section 85A of the Negotiable Instrument Act, 1881, the responsibility of the payee bank is discharged once the endorsement is made by the other bank. Hence, the total responsibility is of respondent No.4 and not of the appellant bank as a proper endorsement was made by the respondent No.4.

9. Learned counsel for the appellant bank further stated that the respondent No.4 in their written statement has accepted that a person namely Ram Prasad Asthana opened an account in Bargadwa, District Gorakhpur with the respondent No.4- Purvanchal Gramin Bank Gorakhpur in the name and style of U.P. Co-operative Federation Limited. As regards the crediting of amount of the draft, it has been submitted that the amount of the draft was credited to the account of the account holder i.e. U.P. Co-operative Federation Limited maintained with the respondent No.4 at Pipiganj Branch District Gorakhpur.

10. Learned counsel for the appellant bank asserted that the FIR was lodged in the matter and the person behind the fraud is one employee of the complainant organisation itself who opened fictitious account with respondent No.4 and after depositing the draft amount in the fictitious account took out all the money within a short period. The police have already filed a charge sheet against the responsible persons found guilty in the matter. As the employee of the complainant has fraudulently credited the amount of draft in his account and taken away all the money, the complainant can proceed against that employee to recover that amount. Moreover, in this situation when the employee of the complainant is involved in the matter, the complainant cannot deserve any interest on the amount even if the same is required to be paid

3

by the appellant or by the respondent No.4.

11. On the other hand, learned counsel for the complainant stated that when the draft was lost the complainant made request by letter dated 18.04.2009 to the respondent No.3 for advising the appellant bank to stop payment of the draft and the same was done by the respondent No.3 on the same date. The draft was prepared in the name of 'U.P. Cooperative Federation District Purchase Account'. However, the appellant bank has paid the amount to the account namely

"U.P. Cooperative Federation Limited". Thus, appellant bank is guilty of paying the draft amount in a wrong account. Moreover, the stop payment order from the respondent No.3 was received by the appellant bank on 18.04.2009. However, the payment has been made after receiving the stop payment order. Thus, appellant bank has clearly either connived with the culprit and paid the amount in the wrong account irrespective of the "stop payment" order or the appellant bank has negligently paid the amount in the wrong account and that too ignoring stop payment advice. In both the situations, the appellant bank is liable to pay the amount of draft to the complainant along with interest and the order of the State Commission does not suffer from any shortcoming in this regard. The complainant is only interested in getting their draft amount along with interest, whether it is paid by the appellant bank or by respondent No.4 bank or by both.

12. Learned counsel for the respondent No.4 stated that first of all Section 85A of the Negotiable Instruments Act, 1881 applies to the branches of one bank only and if two banks are involved this Section is not applicable. It was further pointed out by the learned counsel for the respondent No.4 that the account in which the amount has been deposited was correctly opened by following all the rules of the bank. As the name of the account was quite similar to the account payee name in the bank draft, the draft was inadvertently endorsed in the name of the account namely, "U.P. Cooperative Federation Limited". It was the duty of the appellant bank to have verified the name of the account before making the payment. Moreover, there should not have been any occasion for the appellant bank to have released the payment once the stop payment advice was received by them. Learned counsel finally stated that the State Commission has considered all the issues and has found negligence on the part of the appellant bank only. The police investigation is already concluded and the charge-sheet has already been filed in the matter, therefore, no liability can be fastened on respondent No.4 until the criminal case is decided. So far as Section 85A of the Negotiable Instruments Act, 1881 is concerned, it was asserted by the learned counsel for respondent No.4 that this Section is only applicable when two branches of the same bank are involved and not when two different banks are involved. The Section reads as under:-

"85A. Drafts drawn by one branch of a bank on another payable to order.- 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."

13. Learned counsel for the respondent No.4 stated that in the light of Section 131 of the Negotiable Instruments Act, 1881, the bank receiving the payment in the account of its customer even if the title of the cheque is wrong is not liable towards the actual payee. Hence, no liability can be fastened on the respondent No.4.

4

14. I have given a thoughtful consideration to the arguments advanced by the learned counsel for the parties and have examined the material on record.

15. So far as the argument of the learned counsel for the petitioner bank in respect of the complainant not being a consumer is concerned, it is seen that the service of the bank was obtained only for giving a bank draft after the payment was made by the complainant. Whether the draft is prepared for a commercial use or for non-commercial use, the service remains the same and also the consideration for such service remains the same. Moreover, all the bank services are covered under Section 2(1)(o) of the Consumer Protection Act, 1986. This Commission in Harsolia Motors Vs. National Insurance Co. Ltd. [I (2005) CPJ 27 (NC)] and Madan Kumar Singh Vs. Distt. Magistrate, Sultanpur [(2009) 9 SCC 79], has held as follows:-

"16. Further, what is commercial purpose is discussed by the Apex Court in various decisions.

We would refer to few relevant judgments:

In Regional Provident Fund Commissioner Vs. Shiv Kumar Joshi, (2000)

1 SCC 98, the Court elaborately considered the provisions of Sections 2(1)(d) and 2(1)(o) as well as earlier decisions and held that The combined reading of the definitions of consumer and service under the Act and looking at the aims and object for which the Act was enacted, it is imperative that the words consumer and service as defined under the Act should be construed to comprehend consumer and services of commercial and trade-oriented nature only. Thus any person who is found to have hired services for consideration shall be deemed to be a consumer notwithstanding that the services were in connection with any goods or their user. Such services may be for any connected commercial activity and may also relate to the services as indicated in Section 2(1)(o) of the Act.

17. The aforesaid ratio makes it abundantly clear that services may be for any connected commercial activity, yet it would be within the purview of the Act.

23. Further, from the aforesaid discussion, it is apparent that even taking wide meaning of the words for any commercial purpose it would mean that goods purchased or services hired should be used in any activity directly intended to generate profit. Profit is the main aim of commercial purpose. But, in a case where goods purchased or services hired in an activity which is not directly intended to generate profit, it would not be commercial purpose."

16. Thus, based on the above observations of this Commission, I do not find any force in the argument that the complainant is not a 'consumer'.

17. The undisputed facts are that the bank draft was prepared by respondent No.3 and the same was lost by the complainant and intimation was given to respondent No.3 whereby the respondent No.3 issued "stop payment" advice to the appellant bank. Even after receiving the stop payment advice, the appellant bank paid the amount of the lost demand draft to the

5

account "U.P. Cooperative Federation Limited", which was opened with respondent No.4 on the endorsement of respondent No.4 on the back of the bank draft. The appellant bank is clearly at fault on two counts. First, that the appellant/bank released the payment inspite of the

"stop payment" advice and secondly, the appellant bank did not tally the account in which the amount has been released with the account mentioned in the bank draft. Clearly, the bank draft was in the name of "U.P. Cooperative Federation Purchase" and the account which was endorsed by the respondent no.4 was "UP Cooperative Federation Ltd.". Learned counsel for the appellant has relied upon the decision of the Hon'ble High Court of Delhi in Canara Bank Ltd. Vs. Govind Ram Rajinder Kumar, (supra) and emphasised that once the endorsement has been made by the collecting bank, the liability of the paying bank stands discharged as soon as the payment is made. It is true that if a bank draft is endorsed by the collecting bank it takes the responsibility of having verified the details of the draft as well as of the account in which the same is to be deposited, but it does not absolve completely the payee bank from the responsibility to still at least cross check the details of the draft and the name and account of the person in whose name the draft amount is being released. The case relied upon by the learned counsel for the appellant viz Canara Bank Ltd. Vs. Govind Ram Rajinder Kumar

(supra) does not seem to be application in the present case due to major differences in the facts of the two cases. In the present case, the payment has been made inspite of "stop payment"

advice from the draft issuing bank whereas in the refund case there was no such advice. It is admitted by the appellant bank that the payment of the draft has been made after the receipt of

"stop payment" advice. Clearly, the appellant bank is guilty of negligence on two counts. First is that the appellant bank made payment of the draft in question even after receiving the

"stop payment" advice i.e. the payment was made ignoring "stop payment" advice. Secondly, the appellant bank released the payment on the endorsement of the respondent No.4 bank i.e. the collecting bank without verifying the account for which the endorsement was made from the actual account for which the demand draft was issued. Thus, clearly the appellant bank is guilty of deficiency in service as they have handed the draft in question negligently, which resulted in loss to the complainant.

18. On the other hand, respondent No.4 bank is also guilty of deficiency in service as they wrongly endorsed the bank draft without verifying the actual account for which the endorsement was made and the account mentioned in the bank draft. Endorsing the bank draft for payment in a particular account is an important responsibility that should have been discharged by the respondent No.4 with due care and precaution. It is true that Section 85A of the Negotiable Instruments 1881seem to be applicable to the two branches of the same bank but so far as Section 131 of the Negotiable Instruments Act, 1881 is concerned, it reads as under:-

"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 cheque before receiving payment thereof.]

6

[Explanation II.—It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.]"

19. Though the learned counsel for respondent No.4 has tried to take shelter under the above Section, but this Section is only applicable when the bank in good faith and without negligence receives payment, whereas, in the present case, the respondent No.4 bank has clearly been negligent in endorsing the demand draft thereby receiving wrong payment. Moreover, on the basis of Explanation-II, it is clear that the banker receiving the payment is duty bound to check all the details of the cheque or the bank draft and this responsibility has not been properly discharged by the respondent No.4. Based on these reasons, the exemption granted to the collecting bank under this Section cannot be provided to the respondent No.4.

20. Thus, in the present matter, the appellant bank and the respondent No.4 bank both are guilty of deficiency in service. As the State Commission has found only the appellant bank as deficient in service, I deem it appropriate to clearly apportion the deficiency shown by both these banks. As the major responsibility remains of the appellant bank for wrong payment because they ignored the "stop payment" advice and released the payment in a wrong account without verification. In my view, the responsibility of the appellant bank should be 70% for payment of compensation and the remaining 30% should be for the respondent No.4.

21. Learned counsel for the appellant bank has also argued that there is no justification for granting 12% p.a. interest on the amount of draft as ordered by the State Commission. It is seen that an employee of the complainant has stolen the said bank draft and has deposited with respondent No.4 bank after opening the account in the name of a similar entity. Thus, in fact, the draft was not lost, rather, it was stolen by one of the employees of the complainant. Criminal case is already proceeding against that employee and other persons, who were found to be involved in fraudulent payment. It is not clear whether any effort has been made for recovery of the draft amount by the complainant from the culprits. No information has been submitted in this regard by any of the parties. Keeping the involvement of the employee of the complainant in view, the issue of contributory negligence on the part of the complainant cannot be totally ignored. Keeping this in view, I am of the opinion that the interest granted @ 12% p.a. by the State Commission is on a higher side and interest @8% p.a. shall be reasonable and sufficient in the facts and circumstances of the case.

22. On the basis of the above discussion, the first appeal no.826 of 2015 is partly allowed and the following modifications are made in the order of the State Commission:

(i) The appellant bank shall pay an amount of Rs.35,00,000/- (rupees thirty five lakh only) to the complainant and the respondent No.4 bank shall pay Rs.15,00,000/- (rupees fifteen lakh only) to the complainant.

(ii) On the above amounts, the interest shall be paid by the respective banks @8% p.a. instead of 12% p.a. as ordered by the State Commission.

7

23. The order of the State Commission as modified by this order be complied with by the appellant and respondent no.4 within a period of 45 days from the date of this order.

......................

PREM NARAIN

PRESIDING MEMBER

8