Case: U. Ponnappa Moothan Sons, Palghat Vs. Catholic Syrian Bank Ltd. And Others

the customer account does not by itself alter his position but that however is a question of fact in each case namely whether there was such a contract express or implied that the customer should be entitled to draw against the amount of cheque before it is cleared. ( 15. ) In A. L. Underwood Ltd. v. Bank of Liverpool and Martins, Same v. Barclays Bank (1924) All ER (Reprint) 230 at page 241, Atkin, LJ dealing with the protection that can be availed by a banker in such case, observed as under: "It is sufficient to say that the mere fact that the bank, in their books, enter the value of the cheques on the credit side of the account on the day on which they receive the cheques for collection does not, without more, constitute the bank a holder for value. To constitute value there must be in such a case a contract between banker and customer, express or implied, that the bank will, before receipt of the proceeds, honour cheques of the customer drawn against the cheques. Such a contract can be established by course of business and may be established by entry in the customers pass book, communicated to the customer and acted upon by him. Here there is no evidence of any, such contract." (Emphasis supplied) To the same effect is the ratio laid down in Baker v. Barclays Bank Ltd. (1955) 2 All ER 571. After applying the dictum of Atkin, LJ in Underwoods case, it is observed therein that "it was not enough to show merely that the bank had entered the value of the cheques on the credit side of the account on which the bank received the cheques. To constitute value there must be in such a case a contract between banker and customer, express or , implied, that the bank will before receipt of the proceeds honour cheques of the customer drawn against the cheques." ( 16. ) We find another passage in the above decision at page 581 which reads thus: "What is suggested is that the bank did not give value, and the question arises which often arises in cases of this sort, namely, whether, when a cheque is given to a bank in these circumstances, the bank takes the cheque giving value for it, and then becoming a holder in due course, or whether the bank takes the cheque merely to collect the amount of the cheque for someone else. That is a question of fact. The true relationship has to be inferred from the acts of the parties." (Emphasis supplied) ( 17. ) From the above discussion it emerges that the Indian definition imposes a more stringent condition on the holder in due course than the English definition and as the learned authors have noted the definition is based on Gills case (1824 (107) ER 806). Under the Indian law, a holder, to be a holder in due course, must not only have acquired the bill, note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. This condition requires that he should act in good faith and with reasonable caution. However, mere failure to prove bona fide or absence of negligence on his part would not negative his claim. But in a given case it is left to the Court to decide whether the negligence on part of the holder is so gross and extraordinary as to presume that he had sufficient cause to believe that such title was defective. However, when the presumption in his favour as provided under S. 118(g) gets rebutted under the circumstances mentioned therein then the burden of proving that he is a holder in due course lies upon him. In a given case, the Court. while examining these requirements including valid consideration must also go into the question whether there was a contract express or implied for crediting the proceeds to the account of the bearer before receiving the same. The enquiry regarding the satisfaction of this requirement invariably depends upon the facts and circumstances in each case. The words "without having sufficient cause to believe" have to be understood in this back-ground. ( 18. ) In the instant case there is sufficient evidence establishing the fact that the defendants were allowed credit facilities up to a limit of Rs. 35,00,000.00 by the Bank and this fact is not in dispute. The pledging of the title deed by 5th defendant of her properties with the Bank with an intention to create an equitable mortgage to secure the repayment of the amounts due from Ist defendant and the fact that a pronote for an amount of Rs. 35,00,000.00 executed by defendants Nos. 2 to 4 in favour of the 5th defendant was endorsed in favour of the plaintiff Bank would establish that there was an express contract for providing the credit facilities. It should therefore necessarily be inferred that there is also an implied contract to credit the proceeds of the cheques in favour of defendant No. 1 to his account before actually receiving them. As a question of fact this aspect is established by the evidence on record. In such a situation the plaintiff need not make enquiries about the transactions of supply of goods etc. that were going on between defendants Nos. 1 and 6. Even if defendant No. 1 has not supplied the goods in respect of which the cheque in question were issued by defendant No. 6 there was no cause at any rate sufficient cause for the plaintiff to doubt the title of defendant No. 1 nor can it be said that the plaintiff acted negligently disregarding red flag raising suspicion. Viewed from this background it cannot be said that there was sufficient cause to doubt the title nor there is scope to infer gross negligence on the part of the plaintiff.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The above two passages indicate that the Banker who is asked to collect a cheque can credit the customer with the amount before the proceeds are received and if he has acted in good faith he has the necessary statutory protection and crediting the customer account does not by itself alter his position but that however is a question of fact in each case namely whether there was such a contract express or implied that the customer should be entitled to draw against the amount of cheque before it is16. ) We find another passage in the above decision at page 581 which reads thus:"What is suggested is that the bank did not give value, and the question arises which often arises in cases of this sort, namely, whether, when a cheque is given to a bank in these circumstances, the bank takes the cheque giving value for it, and then becoming a holder in due course, or whether the bank takes the cheque merely to collect the amount of the cheque for someone else. That is a question of fact. The true relationship has to be inferred from the acts of the parties." (Emphasis17. ) From the above discussion it emerges that the Indian definition imposes a more stringent condition on the holder in due course than the English definition and as the learned authors have noted the definition is based on Gills case (1824 (107) ER 806). Under the Indian law, a holder, to be a holder in due course, must not only have acquired the bill, note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. This condition requires that he should act in good faith and with reasonable caution. However, mere failure to prove bona fide or absence of negligence on his part would not negative his claim. But in a given case it is left to the Court to decide whether the negligence on part of the holder is so gross and extraordinary as to presume that he had sufficient cause to believe that such title was defective. However, when the presumption in his favour as provided under S. 118(g) gets rebutted under the circumstances mentioned therein then the burden of proving that he is a holder in due course lies upon him. In a given case, the Court. while examining these requirements including valid consideration must also go into the question whether there was a contract express or implied for crediting the proceeds to the account of the bearer before receiving the same. The enquiry regarding the satisfaction of this requirement invariably depends upon the facts and circumstances in each case. The words "without having sufficient cause to believe" have to be understood in this18. ) In the instant case there is sufficient evidence establishing the fact that the defendants were allowed credit facilities up to a limit of Rs. 35,00,000.00 by the Bank and this fact is not in dispute. The pledging of the title deed by 5th defendant of her properties with the Bank with an intention to create an equitable mortgage to secure the repayment of the amounts due from Ist defendant and the fact that a pronote for an amount of Rs. 35,00,000.00 executed by defendants Nos. 2 to 4 in favour of the 5th defendant was endorsed in favour of the plaintiff Bank would establish that there was an express contract for providing the credit facilities. It should therefore necessarily be inferred that there is also an implied contract to credit the proceeds of the cheques in favour of defendant No. 1 to his account before actually receiving them. As a question of fact this aspect is established by the evidence on record. In such a situation the plaintiff need not make enquiries about the transactions of supply of goods etc. that were going on between defendants Nos. 1 and 6. Even if defendant No. 1 has not supplied the goods in respect of which the cheque in question were issued by defendant No. 6 there was no cause at any rate sufficient cause for the plaintiff to doubt the title of defendant No. 1 nor can it be said that the plaintiff acted negligently disregarding red flag raising suspicion. Viewed from this background it cannot be said that there was sufficient cause to doubt the title nor there is scope to infer gross negligence on the part of the plaintiff.