Source: https://mynation.net/docs/27868-2016/
Timestamp: 2019-04-21 20:54:37+00:00

Document:
M/S ADYA GLOBAL EXPORT INC.
1. This writ petition assails the order dated 09.10.2014 passed by the Debts Recovery Appellate Tribunal, Delhi („Appellate Tribunal‟, for short) in Appeal No.185/2014 arising from O.A. No.08/2010 (DRT-III), Delhi.
2. Briefly stated, case of the petitioners is that the petitioner No.1, „M/s Adya Global Export Inc.‟, is proprietorship concern of petitioner No.2, Mrs. Sweety Kumari and was engaged in the business of exporting basmati rice.
3. On 12.10.2007, the petitioner No.2 had opened a current account with Canara Bank, the respondent-bank, at 433, Behra Enclave, Paschim Vihar branch.
4. The petitioners, on 31.10.2008, had deposited with the respondent-bank Cheque No.375380 dated 24.10.2008 for US$ 62,400 issued by the Jacques Admiralty Law Firm, P.C. 645 Griswold, Swite 1370, Detroit, Michigan, USA and drawn on Bank of America, Troy, Michigan, USA. On 08.12.2008, Rs.31,45,696/- was credited in the current account of the petitioners with the respondent-bank.
5. Petitioners state and claim that the aforesaid cheque was for export of rice to a party based in Uganda. Satisfied with credit of Rs.31,45,696/-, the petitioners had exported the consignment of rice to the customer in Uganda on 08.01.2009.
6. Subsequently, on 25.08.2009, the petitioners were served with the legal notice issued on behalf of the respondent-bank to remit/refund Rs.31,45,696/- as they had been intimated by their Foreign Department that the corresponding/collecting bank in USA vide letter dated 05.08.2009 had informed that the cheque was “Altered Cheque”. Accordingly, payment of Rs.31,45,696/- was reversed. Petitioners had contested the notice stating and highlighting the above facts and also asserted that Foreign Inward Remittance Certificate (“FIRC”) had been issued on 27.02.2009 by the respondent-bank.
7. On 31.10.2009, a criminal complaint was lodged by the respondent-bank against the petitioners with the Economic Offence Wing, New Delhi stating that the aforesaid cheque was returned as “Altered Cheque” and that earlier another cheque had been returned being a “Counterfeit Cheque”.
8. On 31.12.2009, the respondent-bank filed Original Application No.08/2010 before the Debt Recovery Tribunal-III, Delhi („Tribunal‟ in short) for recovery of Rs.31,95,860/- with pendente lite and future interest against the petitioners. Original Application was allowed vide the order dated 10.05.2013 by the Tribunal directing the petitioners to pay Rs.31,45,696/- to the respondent-bank within a period of 30 days with simple interest @ 14% p.a.from the date of filing of the Original Application till its realization.
9. Aggrieved, the petitioners preferred Appeal No.185/2014 before the Appellate Tribunal along with an application under Section 21 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 seeking waiver of pre-deposit of 75% of the awarded amount.
10. On 21.03.2014, the Appellate Tribunal had directed the petitioners to pre-deposit 40% of the amount awarded by the Tribunal. Aggrieved, petitioners had filed WP(C) No.2886/2014 before this High Court. Without commenting on merits, a Division Bench of this Court vide order dated 09.05.2014 had set aside the direction to pre-deposit 40%, with the direction to the Appellate Tribunal to hear the appeal on merit.
11. The Appellate Tribunal heard the Appeal No.185/2014 on merits and vide the impugned order has dismissed the appeal.
12. The petitioners had challenged the impugned order by filing Writ Petition No.1429/2015 before this Court along with an application for stay of proceeding before the Recovery Officer. By the order dated 08.04.2015, proceedings pending before the Recovery Officer were stayed. However, vide the order dated 29.02.2016, the writ petition was withdrawn due to deficiency in pleadings with liberty to file a fresh writ petition.
13. It is in these facts that the petitioners have preferred the present writ petition. We have heard learned counsel for the parties and have gone through the record of the case.
14. Learned counsel for the petitioners submits that the Appellate Tribunal had not taken into account the fact that the petitioners were informed by the respondent-bank that the cheque was doctored or altered after approximately 10 months of deposit. The amount was credited in the account of the petitioners by the respondent-bank on 08.12.2008. If the respondent-bank had informed the petitioners about the altered cheque well in time, the petitioners would not have shipped/exported the goods to the party in Uganda.
15. Learned counsel for the petitioners also relies on Section 131 of the Negotiable Instruments Act, 1881 („Act‟, for short). It is submitted that the cheque deposited with the respondent-bank was sent to the corresponding/ collecting bank in the USA and that the respondent-bank was under an obligation to take “due diligence” and “ordinary care”. This care and diligence is also enunciated and mandated by the Reserve Bank of India in relation to such transactions. Even after the amendment of the Act, introducing Explanation II in Section 131, the onus was on the respondent-bank to show that it acted in good faith and without negligence and, therefore, the respondent bank was liable and not entitled to recover the amount.
16. To buttress his arguments, learned counsel for the petitioners relies on United Bank of India v. M/s. AT Ali Hussain & Co. a firm & Ors., AIR 1978 Cal 169 and Indian Overseas Bank v. Industrial Chain Concern, (1990)1 SCC 484.
17. Learned counsel for the respondent-bank refutes the said contentions and submits that the respondent-bank had acted in good faith as well as with due care and diligence and states that there was no negligence on its part and thus claims protection under Section 131 of the Act.
“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.
19. Section 131 of the Act applies when the true owner of the crossed cheque initiates proceedings against the collecting bank that had received payment on behalf of their customer/client. This customer/client would be a third person and not the true owner who has sued the collecting bank. The collecting bank that has credited or made payment to the customer/client can defend the proceedings initiated against them by the true owner by showing that they had acted in good faith and were not negligent when they had credited and made payment to their customer/client. Strictly, Section 131 of the Act applies when the collecting bank is sued by the true owner and not when the collecting bank sues its customer/client to recover the amount paid. Section 131 of the Act is a protection and shield meant for the collecting bank that had received and had made payment. Since the collecting bank acts as an agent of its customers/clients, it is not expected to take direct responsibility for the cheque crossed, generally or specially, to the true owner when it acts in good faith and without negligence. In such cases the collecting bank is not liable to the true owner by reason of only having received payment.
20. In the present case, payment was made and credited to the account of the petitioners. The petitioners are not aggrieved by the credit and payment made. They accepted and admitted that the credit was to the petitioner’s benefit. They are defending the recovery proceedings initiated by their bank. Further, as elucidated below the cheque in question was an altered one and the name of the holder as well as the amount was changed and altered as payable to the petitioners. Clearly the petitioners were not the true owners.
21. Assuming that Section 131 of the Act applies, we would examine the expressions “good faith” and “without negligence” and consider whether the respondent-bank was liable and cannot recover the money paid to the petitioners under the forged cheque presented to them for payment by the petitioners. The said elucidation would be also relevant when we consider the contention of the petitioners that even if Section 131 of the Act was not applicable, the petitioners were entitled to defend the proceedings for recovery initiated by the respondent-bank on the ground of negligence and lack of due diligence on the part of the respondent-bank.
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23. The Calcutta High Court in the above-mentioned case, further added that the question as to whether a bank is guilty of negligence depends on the particulars of each case, albeit the onus of proving good faith and absence of negligence is on the banker.
“23. In Capital and Counties Bank v. Gordon 1903 AC 240, the House of Lords accepted the position that a bank acts basically as a mere agent or conduit pipe to receive payment of the cheques from the banker on whom they are drawn and to hold the proceeds at the disposal of its customer. Unless crossed the banker himself is the holder for value. He may be a sum collecting agent or he may take as holder for value or as holder in due course. As an agent of the customer for collection he is bound to exercise diligence in the presentation of the cheques for payment within reasonable time. If a banker fails to present a cheque within a reasonable time after it reaches him, he is liable to his customer for loss arising from the delay. A banker receiving instruments paid in for collection and credit to a customer’s account may collect solely for a customer or for himself or both. Where he collects for the customer he will be liable in conversion if the customer has no title. However, if he collects in good faith and without negligence he may plead statutory protection under Section 131 of the Act. ….
26. In Kerala State Co-operative Marketing Federation v. State Bank of India & Ors., II (2004) BC 1 (SC), the Supreme Court had on the principles governing the liability of a collecting banker held:- “(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.
27. Thus, a collecting bank, in order to avail of the statutory protection of Section 131 of the Act, must show and establish that it had acted in good faith and no negligence can be attributed to it at the time of “receiving” the payment. The test to determine and decide whether the bank had acted in good faith and with due diligence, depends upon general practice of the banks. In some cases it could extend to opening of accounts in which the cheque was deposited. However, the bank is not required to subject the cheque to minute and microscopic examination. On the face of it, the instrument should give rise to suspicion. Lastly, contributory negligence it has been observed is of no consequence.
29. In London Joint Stock Bank, Limited v. Macmillan & Arthur,  A.C. 777, it was held by the House of Lords that if the customer chooses to dispense with ordinary precautions because he has complete faith in his clerk’s honesty, he cannot claim to throw upon the banker the loss which results. No one can be certain of preventing forgery, but it is a simple thing to take reasonable and ordinary precautions while drawing a cheque against forgery. If owing to the neglect of such precautions a dishonest person indulges in forgery, the customer must bear the loss as between himself and the banker. The banker is bound to make inquiries when there is anything to arouse suspicion that the cheque is being wrongly dealt with while being paid into the customer‟s account. The banker, however, is not called upon to be “abnormally suspicious” as was held in Penmount Estates Limited v. National Provincial Bank Limited; Stanley Moss & Pilcher (Third Party) 5 LDAB 418.
30. The Appellate Tribunal, while relying on Section 72 of the Indian Contract Act, 1872, has held that the Section makes no distinction between the mistake of facts or mistake of law. Money paid under a mistake induced by fraud of third party may be recovered. The legislative object of Section 72 of the Contract Act is to prevent unjust enrichment and ensure restitution. The principle of unjust enrichment requires that the defendant has been enriched by the receipt of the benefit and that the enrichment is at the expense of the plaintiff, and lastly, that retention of enrichment is unjust. In the present case, there is no doubt that the payment was made to the petitioners under a mistake of fact, that it was due when actually it was not due. The respondent-bank did not know that the cheque was altered. The petitioners have certainly been enriched at the expense of the respondent-bank and the retention of this enrichment is unjust. The payment in the present case was made by mistake due to fraud. Since respondent-bank was merely a collecting agent, what is to be considered in such a case is whether there was any negligence on its part in making the payment and what was the cause of delay, and legal effect of the delay.
31. Test of negligence for the purpose of Section 131 of the Act is whether the transaction of paying in any given cheque, coupled with the circumstances antecedent and present is so out of the ordinary circumstances, that it ought to arouse doubts in the bankers’ mind and cause him to make enquiries. We are unable to find any material to demonstrate lack of good faith or failure to exercise due diligence or ordinary care when the cheque was presented for collection. Impugned order reveals that the drawer of the cheque had earlier tampered a cheque, which fact was known to the petitioners. The petitioners were aware given the past conduct that there was a probability that the cheque in question could be tampered. They should have been more vigilant and should have exercised care before exporting rice. This was the risk taken by the petitioners. The respondent-bank could not have entertained any doubts as to the genuineness of the cheque at the time of receiving the cheque from the petitioners or for making it over to the drawee bank for collection. The tampering could not have been deduced by the respondent-bank. The petitioners had presented the instrument as the true owners.
33. In Imperial Bank of Canada v. Bank of Hamilton, 1903 AC 49, the Privy Council has followed the rule laid down in Kelly’s case (supra). In this case, cheque for a certain amount certified by the bank’s stamp was fraudulently altered to a bigger amount and paid by the respondent to the appellant, a holder for value under a mistake of fact, which was not discovered till the next day. Privy Council held that the respondent was entitled to recover from the appellant-bank. Thus the rule laid down in Kelly’s case (supra) is that if a person acting under a mistake pays money to another, the latter must repay the same.
“Having considered the submissions made before me, I am clear in mind that apparently no negligence neither is being attributed nor can be attributed to the bank. The respondent in this case acting as a collecting agent of the appellants for the cheque they have deposited. The submission by the counsel for the appellants that on an earlier occasion the bank had pointed out certain defects in a cheque which was given by the same importers on 3.9.2008 for an amount of Pound 89000 which was deposited with the bank on 15/16.9.2008. This cheque was found counterfeit cheque and the same was received back within 20 days of its deposit. The appellants contend that accordingly they had never exported the goods. The counsel would plead that if the bank had been vigilant enough to detect any alteration in the present cheque, the present situation could have been avoided. This can equally and truly apply to the conduct of the appellants as well. The appellants was also well aware that the same importer had earlier given them a counterfeit cheque which they had deposited with the bank, when it was found to be counterfeited one and returned. This would have been enough for the appellants to put themselves to a proper notice, but still they continued to deal with the same importer. This time cheque was not found counterfeit, but had been altered. This was for an amount of US$ 59.29 and was altered to $62400.Once the appellants had received the cheque they were also required to ensure that this was a genuine one and could have easily detected If any alteration was visible to naked eye for which they are holding the bank responsible. The mere fact that the cheque was encashed and the money received would show that there, perhaps, could not be any negligence on the part of the bank. It is subsequently that the alteration was detected and the amount which was received was called back. Under such circumstances, the appropriate remedy for the appellants is to take action against the importer to whom rice had been exported. In equity or law no reasons can be made out for which the bank can be asked to suffer this loss. The respondent bank was only a collecting agent and certainly is not required to bear this heavy loss on account of fraud having been played which may be by the importer or even could be on the part of the appellants as well. The counsel for the bank is justified in pleading that so far as the appellants had not taken any action against the importer for alteration of the cheque either to recover this amount or to proceed against him for any other liability in accordance with law. The bank has on its part has not only sought recovery of this amount, but has also filed a complaint with the Economic Wing which statedly is in process.
35. To decide the controversy, the following facts have to be noticed. Cheque bearing No.375380 for US$ 62,400 drawn on Bank of America was sent by the respondent bank for collection through their Foreign Department. The cheque was thereafter sent to the United State of America and presented for encashment through J.P. Morgan Chase Bank. Thereafter, funds were received by the Foreign Department in US value on 17.11.2008. In these circumstances, after the waiting period was over, the respondent bank had credited proceeds of Rs.31,45,696/- in the current account of the petitioner on 8.12.2008. Subsequently, on 21.1.2009, Bank of America had written and forwarded their claim to J.P. Morgan Chase stating that the cheque in question was an altered one. Firstly, the name of the original payee Genaro G. Mautinez had been altered to Adya Global Export Inc. i.e. the petitioner No.1. Secondly,the original amount of US$ 59.29 had been altered to US$ 62,400. The Bank of America had enclosed letter of Jaques Admiralty Law Firm regarding cheque fraud claim with an affidavit regarding altered status of the cheque. The Bank of America, therefore, had issued certificate dated 21.1.2009 for adjustment/recovery to J.P. Morgan Chase Bank through whom the cheque was presented for encashment. J.P. Morgan Chase Bank had thereupon made payment of US$ 62,400 to the Bank of America as per Article 4-208 of the Uniform Commercial Code. J.P. Morgan Chase Bank had stated that they had accepted the item for deposit and presented it for payment under certain warranties, which had been breached. Thereafter, the Foreign Department had informed the respondent bank and letter dated 5.8.2009 was issued for remission of Rs.31,45,696/-.
36. It is clear from the aforesaid correspondence placed on record that initially the cheque was not objected to by the foreign bankers and credit was made/forwarded. Accordingly, the payment was credited to the account of the petitioners. Subsequently, it came to light that the cheque was altered in respect of the name of the payee as well as the amount payable. Consequently, Bank of America had raised the claim, which was forwarded to J.P. Morgan Chase Bank and then to the Foreign Department of the respondent-bank. The cheque was altered and this had come to light and knowledge after the Bank of America had made claim vide letter dated 21.1.2009. Clearly, the respondent-bank was not negligent when they had credited Rs.31,45,696/- to the account of the petitioners earlier on 08.12.2008. It is also pertinent to note that the respondent-bank had only credited the amount after clearance from its Foreign Department. The respondent-bank would have acted contrary and against the law if they had not credited Rs.31,45,696/-. Subsequently and in terms of the international banking norms, US$ 62,400 had to be refunded/paid back to the Bank of America in view of the claim made on 21.01.2009. Therefore, the petitioners were liable to refund and repay the amount credited and now debited. The respondent-bank cannot be held liable/responsible for the payment/credit. Notably, the petitioners did not suspect that the cheque in question was altered and tampered with. Neither had the respondent-bank noticed the alleged tampering. Indeed, even the foreign bankers had no reason to suspect alteration. In these circumstances, we would hold that the petitioners would be liable, and the liability cannot be transferred and fastened on the respondent-bank, which had acted as an agent to collect the money. The respondent-bank had acted as per the banking norms, rules and regulations and it was for the petitioners to familiarise themselves with the norms.
37. In the present case, we do not find any circumstance or reason which could have caused any doubt in the mind of a prudent bank to initiate inquiries, rather the facts of the case demonstrate that the respondent-bank and the petitioners were in the same position. The mere fact that the collecting bank has made a payment to its customer who deposited the tampered cheque does not raise an estoppel against the paying bank if later on it is found that the cheque is forged. The respondent-bank was not called upon to be overtly suspicious. The standard of care expected from a banker in collecting the cheque did not require him to subject the cheque to a minute and microscopic examination. The collecting bank has its remedies against its clients for indemnification by asking them to return the money. In turn the clients, i.e., the petitioners have remedies against the drawer of the cheque or her customer to recover the amount from them as per law. The judgments relied upon by learned counsel for the petitioners, as discussed hereinabove, are of no help to the petitioners, in view of the factual matrix.
38. In view of the aforesaid discussions, we do not find any flaw or infirmity in the impugned order passed by the Appellate Tribunal. Hence, we do not find any merit in the writ petition and the same is dismissed. Pending application is also dismissed. However, the parties are left to bear their own costs.

References: Application No.08
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