Case: The Kerala State Coop.Mktg. Federation Vs. State Bank Of India

banker and customer began as soon as the first cheque was handed in to the banker for collection, and not when it was paid.15. In Turner vs. London and Provincial Bank (1903) 2 Legal Decisions Affecting Bankers 33 : (1903) XXIV Journal of Institute of Bankers 220), evidence was admitted as proof of negligence, that the customer had given a reference on opening the account and that this was not followed up." 10. 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 conversation 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 not 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 S. 131 or S.131A 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 or proving that he acted in good faith and without negligence.(4) The standard of care to be exercised by the collecting banker to escape the charge of negligence depends upon the general practice of bankers which may go on changing from time to time with the enormous spread of banking activities and cases decided a few decades ago may not probably offer an unfailing guidance in determining the question about negligence today.(5) Negligence is a question of fact and what is relevant in determining the liability of a collecting banker is not his negligence in opening the account of the customer but negligence in the collection of the relevant cheque unless, of course, the opening of the account and depositing of the cheque in question therein from part and parcel of one scheme as where the account is opened with the cheque in question or deposited therein so soon after the opening of the account as to lead to an inference that the depositing the cheque and opening the account are interconnected moves in a integrated plan.(6) Negligence in opening the account such as failure to fulfill the procedure for opening an account which is prescribed by the bank itself or opening an account of an unknown person or non-existing person or with dubious introduction may lead to a cogent, though not conclusive, proof of negligence particularly if the cheque in question has been deposited in the account soon after the opening thereof.(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 give rise to a 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". 11. On the basis of the above law, let us now see whether the 1st Respondent bank has discharged the burden which lay upon it to show that it had acted in good faith and without negligence. 12. The facts narrated hereinabove indicate that the transaction of opening of the account, depositing the exact amount for being entitled to receive a cheque book, depositing of the cheque of Rs. 1,00,000/- and the withdrawal of the sum of Rs. 50,000/- were all part of the same transaction. All these took place in close proximity to each other. 13. The 1st Respondents Branch Manager gave evidence. From his evidence it is clear that the person who called himself K. Narayhanan opened an account on the introduction of an account holder by name Dharman Panicker. In the Account Opening Form the address is given only as "Kaniyarath P.O. Kallisseri". Thus an absolutely vague address was given. The Bank made no enquiries as to the credit worthiness of the said K. Narayhanan or as to his full address or even about his telephone number. Thereafter even though initially the account was opened with only Rs. 20/- the exact amount of Rs. 80/- was deposited for purposes of receipt of a cheque book. The 1st Respondent bank does not seem to have put on its guard, even when a cheque for a very large amount i.e. Rs. 1,00,000/- was deposited soon thereafter. In cross-examination the Branch Manager admits that in the Account opening form neither the name nor the occupation of the person introducing had been filled up. He admits that no enquiry was made regarding the nature of business of K. Narayhanan or where the place of business was. Even after it was found out that that a cheque had been forged and stop payment notice had been issued, no enquiry was made by the Bank with the introducer. When asked why no enquiries were made, the answer given was that the bank has no responsibility to look into it. Another factor which mitigates against the 1st Respondent Bank is that it made no attempt to lead the evidence of the person who had introduced the account holder.14. It appears to us that the above mentioned facts discloses that the 1st Respondent bank has not discharged the burden which lay upon it to show that it had acted in good faith and without negligence.

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

Explanation:
1[ds]From his evidence it is clear that the person who called himself K. Narayhanan opened an account on the introduction of an account holder by name Dharman Panicker. In the Account Opening Form the address is given only as "Kaniyarath P.O. Kallisseri". Thus an absolutely vague address was given. The Bank made no enquiries as to the credit worthiness of the said K. Narayhanan or as to his full address or even about his telephone number. Thereafter even though initially the account was opened with only Rs. 20/- the exact amount of Rs. 80/- was deposited for purposes of receipt of a cheque book. The 1st Respondent bank does not seem to have put on its guard, even when a cheque for a very large amount i.e. Rs. 1,00,000/- was deposited soon thereafter. In cross-examination the Branch Manager admits that in the Account opening form neither the name nor the occupation of the person introducing had been filled up. He admits that no enquiry was made regarding the nature of business of K. Narayhanan or where the place of business was. Even after it was found out that that a cheque had been forged and stop payment notice had been issued, no enquiry was made by the Bank with the introducer. When asked why no enquiries were made, the answer given was that the bank has no responsibility to look into it. Another factor which mitigates against the 1st Respondent Bank is that it made no attempt to lead the evidence of the person who had introduced the account holder.14. It appears to us that the above mentioned facts discloses that the 1st Respondent bank has not discharged the burden which lay upon it to show that it had acted in good faith and without negligence.