Appeal No 892 of 1963
Appeal by special leave from the judgment and order dated December 22 1958 of the Assam High Court in Misc
First No 39 of 1955
DN Mukherjee for the appellant
PK Chatterjee for the respondent
112 The Judgment of RAGHUBAR DAYAL RS BACHAWAT and V RAMASWAMI JJ was delivered by BACHAWAT J MUDHOLKAR J delivered a separate Opinion
Bachawat J
The respondcnt is a banking company now in liquidation
The appellant had a combined overdraft and deposit account with the Shillong branch of the respondent
On December 9 1946 the appellant gave the respondent for collection two cheques for Rs 8200 and Rs 600 respectively drawn on the Bharati Central Bank Shillong
On receipt of the cheques the respondent credited the appellant with the sum of Rs 8800 in the accounts
The respondent then sent the cheques to the Bharati Central Bank Shillong for collection
Instead of paying cash the Bharati Central Bank sent to the respondent a cheque dated December 9 1946 for Rs 8800 drawn by the Bharati Central Bank on the Nath Bank Shillong in favour of the respondent
The respondent accepted this cheque on its own responsibility without consulting the appellant
On December 10 1946 the respondent presented the cheque to the Nath Bank for payment
The Nath Bank returned the cheque with the remark full cover not received
The respondent orally informed the appellant of the non payment of the cheque on the Nath Bank and on December II 1946 under oral instructions from the appellant represented the cheque to Nath Bank for payment
The Nath Bank again returned the cheque with the remark full cover not received and the respondent thereupon debited the appellant with the sum of Rs 8800 in the accounts
On the same day the respondent wrote to the Bharati Central Bank demanding cash payment of the two cheques drawn on them and dated December 9 1946
The respondent also contacted the appellant
Under instructions from the appellant the respondent accepted from the Bharati Central Bank a demand draft for Rs 8800 dated December 13 1946 drawn by its Shillong Branch on its Calcutta Head Office towards payment of the two cheques
The respondent presented the draft to the Bharati Central Bank Calcutta for payment but instead of making payment the Bharati Central Bank wrote on December 16 1946 requesting the respondent to obtain payment from its Shillong Branch
The respondent orally communicated this advice to the appellant
On several dates thereafter the respondent presented the draft to the Bharati Central Bank for payment but the draft was not paid
On January 2 1947 the Bharati Central Bank closed its business
On January 11 1947 the respondent wrote to the appellant stating that it was holding the demand draft as also the cheque on the Nath Bank and would be glad to receive further instructions in the matter for necessary action
As the appeilant refused to give any instructions the respondent continued to hold the securities on account of the appellant
In respect of the draft the respondent duly preferred a claim in the liquidation of the Bharati Central Bank and was admitted as a preferential creditor for the amount 113 of the draft
On January 28 1947 the appellant wrote to the respondent alleging that the respondent had accepted the demand draft at its own risk and responsibility and was bound to give credit to the appellant for the sum of Rs 8800
The dealings between the appellant and the respondent continued and the last entry in the combined overdraft and deposit account is dated December 29 1950
On February 26 1953 a petition was presented in the Assam High Court for the winding up of the respondent
By order dated May 24
1953 the respondent was ordered to be wound up
On June 28
1954 the liquidator of the respondent Bank presented an application to the Assam High Court under section 45D of the Banking Companies Act 1949 for settlement of the list of debtors claiming a decree for Rs 5965 8 9 and interest against the appellant
The appellant resisted the claim
The two issues which are now material are 1 Is the suit barred by limitation and 4 Whether the respondent is bound to give credit to the appellant for the sum of Rs 8800 A learned single Judge of the Assam High Court answered both the issues in the negative and decreed the claim
An appeal preferred to a Division Bench of the High Court was dismissed
The appellant now appeals to this Court by special leave
The main contention of the appellant in the Courts below was that the respondent had accepted the demand draft on its own responsibility
The High Court held that the respondent accepted the draft with the consent and sanction of the appellant
This finding is no longer challenged
But the appellant before us contends that the respondent having credited the appellant s account with the amount of the two cheques on the Bharati Central Bank and having accepted on its own responsibility from the Bharati Central Bank the cheque dated December 9 1945 on the Nath Bank ought not to be allowed to say that it received the cheque on account of and as agent of the appellant and that in any event the respondent acted negligently and in breach of its duty as the collecting agent of the appellant and is bound to give credit for the sum of Rs 8800
These contentions in the present form were not raised in the Courts below
Nevertheless we allowed the appellant to raise these contentions but we think that there is no substance in them
According to the uncontradicted testimony of the witness called on behalf of the respondent the two cheques on the Bharan Central Bank were entrusted by the appellant to the respondent for collection
In paragraph 2 of its objections the appellant admitted that the cheques were entrusted to the responsible for realisation
Beyond doubt on December 9 1946 the respondent received the two cheques for collection in the usual way as agent of 114 the appellant and not with the intention of acquiring title to them
On the same day the respondent credited the appellant s account with the amount of the cheques before the cheques were cleared
But on December 11 1946 before the appellant drew upon this amount and as soon as the cheque on Nath Bank received in course of collection of the two cheques was dishonored the respondent debited the appellant s account with the like amount
It does not appear that the credit entry in the accounts was contemporaneously communicated to the appellant
Nor does the appellant prove any arrangement that the appellant was entitled to draw against the amount of the cheques before they were cleared
In the circumstances
the fact that the appellant s account was credited with the amount of the two cheques does not show that the respondent ceased to be an agent for collection of the cheques
The respondent duly presented the cheques on the Bharati Central Bank for payment
Instead of paying the cheques in cash the Bharati Central Bank sent its own cheque on the Nath Bank
According to the uncontradicted testimony of the witness called on behalf of the respondent it was not the usual practice of the banks at Shilling to collect cash in all cases in respect of cheques entrusted for collection
When the respondent found that the drawer Bank instead of paying cash offered to pay by a cheque the respondent acting in good faith in the interests of the appellant accepted the cheque on its own responsibility
On being informed of the dishonour of the cheque on Nath Bank the appellant adopted and ratified the respondent s acceptance of the cheque
and on that footing asked the respondent to represent the cheque
Subsequently the appellant instructed the respondent to accept a demand draft drawn by the Bharati Central Bank on the head office in lieu of its cheque on the Nath Bank and approved of all steps taken by the respondent in the matter of collection of the draft
Instead of disowning the acts of the respondent in respect of the collection of the cheques on the Bharati Central Bank the appellant ratified them
In the circumstances it is not open to the appellant now to say that the respondent accepted the cheque on the Nath Bank or the draft of the Bharati Central Bank on the respondent s own account and not as agent of the appellant
A banker entrusted by its customer with the collection of a cheque is bound to act according to the directions given by the customer and in the absence of such directions according to the usages prevailing at the place where the banker conducts his business and applicable to the matter in hand
The banker is also bound to use reasonable skill and diligence in presenting and securing payment of the cheque and placing the proceeds to his customer s accounts and in taking such other steps as may be proper to secure the customer s interests
In the instant case it is not shown that the respondent acted negligently or in breach of its duties or contrary to any instructions given by the appellant or any lawful usages prevailing amongst bankers at Shillong
115 There is no substance in the further contention of the appellant that by preferring a claim as creditor in respect of the draft in the liquidation of the Bharati Central Bank the respondent accepted the draft in satisfaction of its dues from the appellant
The respondent owed a duty to the appellant to take steps in the liquidation proceedings for the realisation of the amount of the draft
By preferring the claim the respondent preserved all rights in respect of the draft and acted in the best interests of the appellant
In the circumstances the Courts below rightly gave appropriate directions on the respondent for giving credit to the appellant for all sums which may be realised by the respondent from the Official Liquidator of the Bharati Central Bank
The Courts below rightly answered issue No 4 in the negative
The next point in issue is whether the proceedings are governed by article 85 of the Indian Limitation Act 1908 and if so whether the suit is barred by limitation
The argument before us proceeded on the footing that an application under section 45D of the Banking Companies Act is governed by the Indian Limitation Act and we must decide this case on that footing
But we express no opinion one way or the other on the question of the applicability of the Indian Limitation Act to an application under section 45D
Now article 85 of the Indian Limitation Act 1908 provides that the period of limitation for the balance due on a mutual open and current account where there have been reciprocal demands between the parties is three years from the close of the year in which the last item admitted or proved is entered in the account such year to be computed as in the account
It is not disputed that the account between the parties was at all times an open and current one
The dispute is whether it was mutual during the relevant period
Now in the leading case of Hirada Basappa vs Gadigi Muddappa1
Holloway Acting C J observed To be mutual there must be transactions on each side creating independent obligations on the other and not merely transactions which create obligations on the one side those on the other being merely complete or partial discharges of such obligations These observations were followed and applied in Tea Financing Syndicate Ltd vs Chandrakamal Bezbaruah2 and Monotosh K Chatterjee vs Central Calcutta Bank Ltd3 and the first mentioned Calcutta case was approved by this Court in Hindustan Forest Company vs Lal Chand4
Holloway Acting C J laid down the test of mutuality on a construction of section 8 of Act XIV of 1859 though that section did  not contain the words where there 1 1871 Vl Madras High Court Reports
142 144
2 1931 LLR
55Cal
642 3 4 116 have been reciprocal demands between the parties
The addition of those words in the corresponding article 87 of Act IX of 1871 article 85 of Act XV of 1877 and article 85 of the Act of 1908 adopts and emphasises the test of mutuality laid down in the Madras case
In the instant case there were mutual dealings between the parties
The respondent Bank gave loans on overdrafts and the appellant made deposits
The loans by the respondent created obligations on the appellant to repay them
The respondent was under independent obligations to repay the amount of the cash deposits and to account for the cheques hundis and drafts deposited for collection
There were thus transactions on each side creating independent obligations on the other and both sets of transactions were entered in the same account
The deposits made by the appellant were not merely complete or partial discharges of its obligations to the respondent
There were shifting balances on many occasions the balance was in favour of the appellant and on many other occasions
the balance was in favour of the respondent
There were reciprocal demands between the parties and the account was mutual
This mutual account was fairly active up to June 25 1947
It is not shown that the account ceased to be mutual thereafter
The parties contemplated the possibility of mutual dealings in future
The mutual account continued until December 29 1950 when the last entry in the account was made
It is conceded on behalf of the appellant that if the account was mutual and continued to be so until December 29 1950 the suit is not barred by limitation having regard to section 45 O of the Banking Companies Act
The Courts below therefore rightly answered issue No 1 in the negative
The claim by the respondent on account of interest was contested in the Courts below but that claim is no longer contested before us
The High Court discussed at length the legal characteristics of a demand draft as also questions relating to the interpretation of section 45O of the Banking Companies Act
In view of the contentions raised before us those questions do not arise and we do not propose to express any opinion thereon
In the result the appeal is dismissed with costs
Mudholkar J I regret my inability to agree with the judgment of my learned brother Bachawat
This appeal arises out of a petition made under section 45 D of the Banking Companies Act 1949 10 of 1949 by the Liquidator of the respondent the Shillong Banking Corporation for inclusion of the name of the appellant in the list of debtors of the Bank
The liquidator filed a list of 20 debtors of the Company with necessary particulars in Annexure A to the application
One of the debtors mentioned therein is the appellant and the amount of debt due from him to the Bank is stated therein to be Rs 5965 5 9
Annexure A appears to have been prepared in accordance with the rules framed under the Banking Companies Act
The fourth item in the Annexure is Description of 117 papers writings and documents if any relating to each debt
In respect of this item the following particulars have been set out A cheque for Rs 8800 on Bharati Central Bank Ltd Shillong was realised by the Bank on behalf of the party  by a Demand Draft on Calcutta Branch of the Bharati Central Bank Limited but the said Demand Draft could not be realised due to the suspension of business by Bharati Central Bank Ltd The Bank s claim to be treated as preferential Creditor has been admitted
 A notice of this claim having been served on the appellant he preferred an objection before the Court
There the appellant had contended that the claim of the Bank is barred by time
Paras 2 3 and 5 of the objection are material and it would be convenient to set them out in full
They run as follows 2
That it is a fact that this opposite party did give a cheque for Rs 8800 to the Bank on the Bharati Central Bank Ltd Shillong for realisation in 1947 and in normal course it realised the amount in cash but either for its own convenience or for remitting its own money to Calcutta it accepted a draft from the Bharati Central Bank Limited on its branch at Calcutta without any instruction or intimation to this opposite party and also this opposite party withdrew their amount by a cheque after this and if in the meantime the said bank stopped its business this opposite party cannot be held liable for the same
3 That had the bank not received any cash payment in case of the opposite party s cheque as it should have received it should have informed them in time
5 That it is not a fact that the demand draft was accepted by the bank instead of cash payment with any knowledge of this opposite party and as such the claim of the Bank is false and frivolous Deka J who heard the application framed four issues one of which related to limitation and the fourth was as follows Issue No 4 whether the plaintiff bank is bound to give credit to the defendant for a sum of Rs 8800 covered by a cheque or cheques on the Bharati Central Bank Limited Shillong Branch The only oral evidence tendered was that of Narendra Nath Dutta Assistant of the respondent Bank
Upon a consideration of the evidence of Dutta and the documents placed on  record Deka J found against the appellant on these issues and passed a decree in favour of the Bank for Rs 5965 5 9 in addition to Rs 2000 by way of interest
He further allowed Rs 300 as costs and 6 per cent pa interest on the decretal amount till realisation
An appeal was preferred by the appellant under the Letters Patent 118 and that having been dismissed he has come up before this court by special leave
It is the case of the respondent Bank that the appellant had a mutual open and current account with the Bank
It is upon that basis that they have met the appellant s contention that the suit was barred by time
On December 9 1946 the respondent credited two cheques to the appellant s account one for Rs 8200 and another for Rs 600 and sent them for collection to the Bharati Central Bank Ltd Shillong Branch upon which they were drawn
Instead of obtaining cash from the Bharati Central Bank the respondent obtained and accepted from that Bank a cheque on the Nath Bank Limited
This the respondent did as admitted by Dutta without consulting the appellant
Dutta has further admitted that the respondent Bank obtained the cheque on their own responsibility
They then presented the cheque to the Nath Bank on December 10 1946
The Nath Bank returned the cheque with a note full cover not received
According to the witness the Bank referred the matter to the appellant and with his specific instruction the cheque was presented the next day to the Nath Bank when also it was returned
Thereafter the witness proceeds the respondent connected the appellant for instructions
On December 13 1946 they accepted a demand draft from the Bharati Central Bank for an identical amount which they sent to their Calcutta Branch for collection
When the demand draft was presented to the Calcutta Branch of the Bharati Central Bank they requested by letter dated December 16 1946 to present it to the Shillong Branch
Then according to Dutta
on the advice of the appellant they presented the draft to the Shillong Branch of the Bharati Central Bank
In the meanwhile the Bharati Central Bank had applied for moratorium and this demand draft was not cashed
It would appear that in the proceedings for reconstructing the Bharati Central Bank the respondent asked to be treated as preferential creditors in respect of the amount for which the draft had been made out and have been so treated
It is contended on behalf of the appellant that the respondent having accepted the demand draft on their own responsibility and having sought to be treated as preferential creditors of the Bharat Central Bank and having in fact been so treated cannot now turn round and say that the appellant s cheques were not honoured and that therefore they are entitled to claim the sum of Rs5965 5 9 and interest from him
The question to which I would address myself is whether the respondent has to be regarded as the appellant s agent only for the collection of these two cheques or whether they received these two cheques for being credited in the mutual and open current account between themselves and the appellant
It is no doubt that where a customer hands in a cheque to his banker for collection the banker accepting the performance of that duty becomes the agent of the customer for the purpose of collection
But if a banker credits a cheque in the customer s account with the bank would the banker be necessarily deemed to be his agent when he takes the step of collecting the amount 119 payable under the cheque
If the customer makes an endorsement on the cheque to the effect that it is handed in for collection no difficulty would arise
But if there were no such endorsement what would be the position The accepted position in banking law is that when a banker receives money from a customer he does not hold it in a fiduciary capacity
see Practice and Law of Banking by HP Sheldon 8th edn
p 201
As the author points out  To pay that money is deposited  with a banker is likely to cause misapprehension
What really happens is that the money is not deposited with but lent to the banker and all that the banker engages to do is to discharge the debt by paying over an equal amount when called upon
 Sheldon has quoted the following observations of Lord Cottenham in Foley vs Hill 1948 Money when paid into a bank ceases altogether to be the money of the principal it is then the money of the banker who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it
The money paid into the banker s is money known by the principal to be placed there for the purpose of being under the control of the banker it is then the banker s money he is known to deal with it as his own he makes what profit he can which profit he retains to himself by paving back only the principal according to the custom of bankers in some places or the principal and a small rate of interest according to the custom of bankers in other places  
That being established to be the relative situations of banker and customer the banker is not an agent or factor but he is a debtor
 What would be the position if instead of paying in cash the customer hands in cheques or bills With regard to this Sheldon has said as follows In Joachimson vs Swiss Bank Corporation 1921 Lord Justice Atkin gave an admirable summary of the position
He stated that the banker undertakes to receive money and collect bills for his customer s account and that money so received is not held in trust for the customer but borrowed from him with a promise to repay it or any part of it   against the customer s written order addressed to the bank at such branch pp
201 202
In the appeal before us the two cheques for Rs 600 and Rs 8200 have not been placed on record and so we do not know in whose favour they were drawn and if they were drawn by the appellant in fayour of self what endorsement he had made on the back of the cheques
The cheques could have been drawn by the appellant either in his own favour or in favour of the bank
Whichever be the position the fact remains that these two cheques were credited by him in his account with the respondent
That is not all
Since the appellant had a mutual open and current account 120 with the respondent it may well be that money was owing by him to the respondent on that date and therefore he drew these two cheques on the Bharati Central Bank and credited them in his account with the respondent
Or it may be that the appellant merely credited  the money in his own account even though nothing may have been owing from him to the respondent on that date
Whether it was one or the other the respondents would with respect to the amounts for which the cheques were drawn have become actual recipients of the money from the appellant upon realisation of the cheques drawn by the appellant
Indeed
as the cheques were returned unpaid by the drawee bank the respondent have made a debit entry on December 11 1960 of Rs 8800 against the appellant in his account with them
This would show that the respondent accepted the position that they were acting in this matter not as the appellant s agents but as payee
This explains why as admitted by Dutta
the respondent accepted from the Bharati Central Bank cheques on Nath Bank on their own responsibility instead of insisting upon cash
Indeed
as pointed out at p 300 in Chalmers on Bills of Exchange 8th ed consequently an authority to an agent to receive a payment due to his principal is not in itself an authority to receive it by bill or cheque
Therefore the respondents would not have acted in the way they did had they regarded themselves as merely agents of the appellant for collecting his cheques
Dutta has in his evidence stated that no formal note in writing was sent to the appellant by the respondents about the dishonouring of the cheque by the Nath Bank
Nor did they inform him of having debited his account with Rs 8800
No doubt according to him
after a demand draft was issued to them by the Bharati Central Bank the respondents informed the appellant
But after that draft was dishonoured on presentation no information whatsoever was given to the appellant
This would further strengthen the conclusion that the respondents were acting for themselves at every stage after the cheques for Rs 600 and Rs 8200 were credited in his account with them by the appellant
Therefore
though it is true that the sum of Rs 8800 was not received by the respondent in cash they must be deemed to have received the sum either by reason of the fact that they obtained from the Bharati Central Bank a cheque for Rs 8800 on the Nath Bank or by the acceptance by them of a demand draft drawn by the Bharati Central Bank Shilling
on their Calcutta Branch
It is difficult to see how they can hold the appellant whose account with the Bharati Central Bank has been debited by that Bank to the extent of Rs 8800 as being still liable upon those cheques
Whatever rights the respondents have
are against the Bharati Central Bank and not the appellant
Indeed having claimed as against the Bharati Central Bank to be treated as preferential creditors of that Bank to the rune of Rs 8800 particularly on their own showing what was owing to them from the appellant was something less than Rs 6000 they cannot now be heard to say that they merely acted as the appellant s agents
121 For these reasons disagreeing with the High Court I hold that the appellant s name cannot be included in the list of the respondent s debtors
I would therefore allow the appeal and dismiss the application of the Liquidator under section 45 D of the Banking Companies Act in so far as it relates to the appellant with costs throughout and would direct further that the respondents pay the appellants costs both here and in the High Court
ORDER BY COURT In accordance with the opinion of the majority this appeal is dismissed with costs


Summary:
The appellant had a combined overdraft and deposit account also described as a mutual open and current account with the respondent bank
In December 1946 the respondent credited two cheques to the appellant s account one for Rs 8200 and the other for Rs 600 and sent them for collection to the Shillong branch of the Bharati Central Bank on which they were drawn
Instead of obtaining cash from that Bank the respondent accepted a cheque on the Nath Bank
This the respondent did without consulting the appellant and on its own responsibility
When the respondent presented the cheque to the Nath Bank it was returned with a note full cover not received
The respondent thereupon debited the appellant with the sum of Rs 8800 in the accounts without informing him
On the instructions of the appellant who was informed about the dishonouring of the cheque the respondent accepted a demand draft from the Bharati Central Bank drawn on its Calcutta branch for the amount
The Calcutta branch of the Bharati Central Bank however requested the respondent to present it to the Shillong branch
The respondent presented the draft to the Shillong branch of the Bharati Central Bank but the Bank applied for moratorium and closed its business in January 1947 and the draft was not cashed
In the proceedings for the reconstruction of the Bharati Central Bank the respondent asked to be treated as a preferential creditor in respect of the amount of the draft and was so treated
The dealings between the appellant and respondent continued till December 1950
In May 1953 the respondent Bank was ordered to be wound up and the liquidator presented an application to the High Court under section 45D of the Banking Companies Act 1949 for settlement of the list of debtors claiming a decree for about Rs 6000 and interest against the appellant
The appellant resisted the claim but the High Court decreed it
In the appeal to the Supreme Court it was contended that i the respondent acted negligently and in breach of its duty as collecting agent of the appellant and was bound to give credit for the sum of Rs 8800 and ii the claim was barred by limitation
HELD per Raghubar Dayal Bachawat and Ramaswami
JJ i It was not shown that the respondent acted negligently or in breach of its duties or contrary to any instructions given by the appellant or any lawful usages prevailing amongst bankers and therefore was not bound to give credit to the appellant for the sum of Rs 8800
114 H A banker entrusted by its customer with the collection of a cheque is bound to act according to the directions given by a customer and in the absence of such directions according to the usages prevailing at the place where the banker conducts his business 111 and applicable to the matter in hand
The banker is also bound to use reasonable skill and diligence in presenting and securing payment of cheques and placing the proceeds to his customers  accounts and in taking such other steps as may be proper to secure the customer s interests
The respondent in the instant case received the two cheques for collection in the usual way as agent of the appellant and not with the intention of acquiring title to them
The appellant instead of disowning the various acts of the respondent in respect of the collection of the cheques had ratified them
By preferring a claim as creditor in respect of the draft in the liquidation proceedings of the Bharati Central Bank the respondent was not accepting the draft in satisfaction of its dues from the appellant
It was only preserving all the rights in respect of the draft and was acting in his best interests
114 A F H 115 A B ii The respondent gave loans on overdrafts and the appellant made deposits
The loans and deposits created mutual obligations
Since the account was mutual and continued to be so until December 1950 the claim against the appellant was not barred by limitation having regard to section 45 0 of the Banking Companies Act
116 B E Per Mudholkar J Dissenting the appellant s name could not be included in the list of the respondent s debtors
121 A Where a customer hands in a cheque to his banker for collection the banker accepting the performance of that duty becomes the agent of the customer for the purpose of collection
But if a banker credits a cheque in the customer s account with the bank the banker would not necessarily be deemed to be the customer s agent when he takes steps for collecting the amount payable under the cheque
The facts that the cheques when paid in were credited in the appellant s account with the respondent and that when the cheques were returned unpaid the respondent made a debit entry against the appellant s account without informing the appellant show mat the respondent accepted the position that it was acting in the matter not as the appellant s agent but as a payee
Since the appellant had a mutual open and current account with the respondent the respondent would with respect to the amounts for which the cheques were drawn have become upon realisation of the cheques drawn by the appellant an actual recipient of the money from the appellant
Therefore though it is true that the amount was not received by the respondent in cash it must be deemed to nave received the sum either by reason of the fact that it obtained from the Bharati Central Bank a cheque for the amount on the Nath Bank or by the acceptance of the demand draft
Having claimed as against the Bharati Central Bank to be treated as a preferential creditor for the sum of Rs 8800 whatever rights the respondent would be against that Bank and not against the appellant
118 H 120 A C F H