(Prayer: This Rfa Is Filed U/S 96 Of Cpc Against The Judgment And Decree Dt: 02.01.2007 Passed In Os. No. 2715/2001 On The File Of The X Addl. City Civil Judge, Bangalore, Cch-26, Decreeing The Suit For Recovery Of Money.)
1. This is an appeal filed by the plaintiff of an original suit in O.S.No.2715/2001 which was pending on the file of the City Civil Court Hall No.26, presided over by X Addl. City Civil Court, Bangalore. Respondents herein are the defendants 1 and 2 in the said suit. Parties will be referred to as plaintiff and defendants as per their ranking given in the Trial Court. Suit filed by the plaintiff has been decreed against defendant No.2 only. Being aggrieved by the dismissal of suit against defendant no. 1, plaintiff has filed this appeal under Section 96 of CPC.
2. Suit had been filed for the recovery of money to an extent of Rs.8.55 lakhs with interest at 18% p.a. thereon from 17.04.1998 till the date of payment. The plaintiff had prayed for a joint and several decree against both the defendants. The said suit has been decreed in part granting the relief of recovery of money against defendant No.2 only. Suit has been dismissed against defendant No.1. Being aggrieved by the dismissal of the suit against defendant No.1, the plaintiff has approached this Court by filing an appeal under Section 96 of CPC challenging the same on various grounds as set out in the appeal memo.
3. Plaintiff is an associate of State Bank of India having several branches throughout the country and has its Head Office in Avenue Road, Bangalore, and it is represented by its Principal Officer. First defendant is a Co-operative Society established under the Karnataka Co-operative Societies Act, and has its branch at Basavanagudi in Bull Temple Road, Bangalore-560 004. Second defendant is a Savings Bank Account holder in the first defendant-Bank.
4. The case of the plaintiff is that defendant No.1, being the collecting banker presented to plaintiff bank in all nine demand drafts stated to have been drawn in favour of second defendant by the Hosur Branch of plaintiff Bank. The details of the demand drafts with reference to the date of issue, amount and the details on which they were cleared are mentioned below:
| Demand Draft No. | Date of Issue of D.D | Amount of D.D | Paid in clearing on |
| 836131 | 30-3-1998 | 95,000/- | 25-4-1998 |
| 836132 | 30-3-1998 | 95,000/- | 18-4-1998 |
| 836133 | 30-3-1998 | 95,000/- | 17-4-1998 |
| 836134 | 30-3-1998 | 95,000/- | 18-4-1998 |
| 836135 | 30-3-1998 | 95,000/- | 17-4-1998 |
| 836136 | 30-3-1998 | 95,000/- | 25-4-1998 |
| 836137 | 30-3-1998 | 95,000/- | 24-4-1998 |
| 836138 | 30-3-1998 | 95,000/- | 25-4-1998 |
| 836140 | 30-3-1998 | 95,000/- | 24-4-1998 |
| Â | Total | 8,55,000/- | Â |
6. According to the plaintiff, defendant No.1 did not act diligently after receiving the said nine drafts from the second defendant and is stated to have transmitted the same for clearance without verifying the antecedents of defendant No.2 and his earlier transactions. The collection of these nine demand drafts by the first defendant on being presented to it by the second defendant is stated to be a negligent act, that too, without any good faith. The first defendant is stated to have collected the above demand drafts which are forged ones as a result of which defendant No.2 is stated to have made unlawful gain.
7. It is in this regard, the plaintiff-bank issued a notice to defendant No.1 on 07.09.1999 calling upon them to refund the amount paid to them in respect of the above said nine demand drafts with applicable interest from the date of receiving the payment under the demand drafts till the entire amount is paid. First defendant is stated to have given an untenable reply. It is the case of the plaintiff that a criminal complaint is lodged with Upparpet Police Station in respect of above nine forged demand drafts along with other nine similar forged demand drafts favouring the plaintiff drawn on different banks. The said complaint was registered as Crime No.996/1998 and after investigation, police have submitted a final report on 20.03.2000 stating that accused was not traceable. Hence, the plaintiff got issued a notice through its counsel on 08.03.2000 to both the defendants calling upon them to pay the proceeds of the above nine demand drafts with interest at 18% p.a. The defendants did not respond to the said legal notice and hence both the defendants are jointly and severally liable to pay the said amount. It is the case of the plaintiff that defendant No.1 being the collecting banker will not get any protection against the Negotiable Instruments Act, since it has collected the amounts under forged documents, that too without acting in good faith.
8. Second defendant account holder remained exparte before the Trial Court. First defendant alone has filed detailed written statement denying all the averments in regard to the negligence attributed to the first defendant and first defendant acting without any good faith. According to the first defendant, plaintiff itself is guilty of suppression of material facts. It is further averred that the plaintiff did not verify the forged documents in the clearing agency. The suit is stated to be bad and untenable. The negligence is on the part of the plaintiff and according to the first defendant, plaintiff's omissions and commissions are apparent. Plaintiff is stated to have not acted in good faith. It is further averred that defendant No.1 had only sent the negotiable instruments for collection and the same having been cleared by the plaintiff in the clearing house, it has collected the proceeds and credited the amount to the account holder. It is further averred that the plaintiff should not have cleared the instruments without verifying the genuineness of the same and therefore, plaintiff cannot escape the liability of its own negligence. First defendant is stated to have acted diligently and in good faith and therefore it is entitled for protection under the Negotiable Instruments Act. With these pleadings the first defendant had requested the Court to dismiss the suit.
9. On the basis of the above pleadings, the following issues have been framed:
1. Does plaintiff prove that 9 DDs each for Rs. 95,000/- referred to in para No. 4 of the plaint which were presented by defendant 2 to defendant No.1 bank for encashment worth Rs. 8,55,000/- are forged DDs as contended in the plaint?
2. Does plaintiff further prove that the defendant No. 1 bank due to its negligence, commissions and omissions collected the above 9 forged DDs from defendant ?
3. Does plaintiff prove that the defendants 1 and 2 jointly and severally liable to pay DD amount of Rs. 8,55,000/- and interest amount of Rs. 4,41,800/- at the rate of 18% p.a. with quarterly interest as prayed?
4. Does defendant No. 1 prove that the plaintiff bank itself due to its negligence commissions and omissions without confirming the genuineness of the 9 DDs cleared them and paid the amount of Rs. 8,55,000/- and the plaintiff bank is trying to shift its negligence and carelessness to defendant No. 1 bank as contended in the w/s?
5. Does defendant No. 1 further prove that it is not liable to pay the suit amount to the plaintiff bank since it had just forwarded the 9 DDs for clearance to the plaintiff bank as contended in the w/s?
6. Does defendant No. 1 further prove that this suit is not tenable in view of non-compliance of the requirements u/s 125 of Karnataka Co- operative Societies Act 1959?
7. What Order or decree?
10. On behalf of the plaintiff, one Rajendra Kumar, the Chief Manager of plaintiff's branch, Avenue Road, Bangalore, has been examined as PW1 and Mr.Parthiban, who was the Manager at plaintiff's branch has been examined as PW2. On behalf of the defendant No.1 K.Manohar, the then Manager of Basavanagudi Branch of first defendant is examined as DW1. On behalf of the plaintiff, as many as 14 documents have been got marked. Ex.D1 is the authorization letter issued by the first defendant-bank in favour of DW1 to depose in the suit.
11. After hearing the arguments, the learned Judge has answered issue No.1 in the affirmative against defendant No.2 and negative against defendant No.1 and issue No.2 has been answered in the negative. Issue No.3 has been answered affirmatively against defendant No.2 and negative against defendant No.1. Issues 4 and 5 have been answered in the affirmative and issue No.6 has been held in the negative. Ultimately suit is decreed as against defendant No.2 only. Suit against first defendant is dismissed. Hence, appeal is filed under Section 96 of CPC before this Court by the plaintiff.
12. Several grounds have been urged in the appeal memo filed under Section 96 of CPC. We have heard the learned counsel appearing for the plaintiff and the first defendant at length.
13. Learned counsel for the appellant has vehemently argued that the first defendant, being a collecting banker, has not acted in good faith and that it had collected the nine demand drafts presented to it by the second defendant without verifying his antecedents and earlier transactions. It is argued that the Trial Court has failed to frame a very important issue in regard to the protection claimed by the first defendant under Section 131 of Negotiable Instruments Act, as a collecting banker. It is argued that the Trial Court has adopted wrong approach to the real state of affairs and that it has not assessed the evidence on the basis of preponderance of probabilities. It is vehemently argued that the Trial Court has misdirected itself in dismissing the suit against first defendant without looking to the inability of the first defendant to discharge its responsibility for claiming protection under Section 131 of N.I.Act. It is argued vehemently that the first defendant should have placed acceptable materials before the Trial Court in regard to the verification of the antecedents of the second defendant who had just opened the account in the month of April 1998. It is argued that non-verification of the nine demand drafts sent to clearing by the first defendant at the instance of the second defendant cannot be taken advantage of by the first defendant without discharging its liability to verify the antecedents of the first defendant who had presented to it as many as nine drafts within a span of one week.
14. Learned counsel for the appellant has relied upon a decision of the Hon'ble Apex Court in the case of KERALA STATE COOPERATIVE MARKETING FEDERATION VS. STATE BANK OF INDIA reported in (2004) 2 SCC 425. It is argued that the Hon'ble Apex Court has laid down as many as nine broad guidelines in regard to the responsibility of a collecting banker that too based on the earlier decisions of the Hon'ble Apex Court. It is argued that when the first defendant has made known in its written reply sent to the plaintiff that it had not made any verification as to whether the account holder was a genuine account holder under it or not, he has requested the Court to allow the appeal in its entirety and decree the suit as prayed for. He has submitted an alternative argument to the effect that the appeal may be allowed and the matter may be remitted to the Trial Court to frame an appropriate issue casting burden on the first defendant as per the mandate of Section 131 of Negotiable Instruments Act, and thereby to afford an opportunity to both the parties to lead additional evidence in this regard.
15. Per contra, the learned counsel for the first defendant has argued that when the plaintiff itself is guilty of suppression of material facts and non- verification of the genuineness of the nine demand drafts would not entitle the plaintiff to seek a decree. It is argued that the first defendant is only a collecting banker and it has not done anything wrong to defraud the plaintiff. It is further argued that an inhouse enquiry should have been held by the plaintiff's authorities before suing first defendant in the Trial Court in order to know as to whether the blank forms of the demand drafts in question did really belong to the plaintiff branch at Hosur Road and whether anybody in the plaintiff-bank had colluded with the second defendant. Hence it is argued that plaintiff has not discharged its liability as contemplated under Section 128 of N.I.Act. He has argued that unless the initial burden cast upon the plaintiff is effectively discharged, the onus does not shift on the other side and that the plaintiff cannot take the weaknesses, if any, of the first defendant as its trump card. He has argued that the question of remand does not arise, when the plaintiff has not discharged its initial burden. Hence, he has prayed to dismiss the appeal.
16. After going through the records and hearing the arguments of the learned counsel following points arise for our consideration:
1. Whether the Trial Court is justified in decreeing the suit against second defendant only without framing a relevant issue as contemplated under Section 131 of Negotiable Instruments Act, 1881, relating to the protection available to a collecting banker?
2. Whether any interference is called for by this Court and if so, to what extent?
Re.Point No.1:
17. Case of the plaintiff is that the second defendant who is the account holder in the bank of the first defendant had forged as many as eighteen demand drafts and out of them nine were presented to the first defendant-Bank. These 9 demand drafts are marked as Exs.P1 to P9. According to the plaintiff, all the forged demand drafts appear to have been issued on 30.03.1998 by Hosur Branch of the plaintiff and that the factum of the forged demand drafts came to its knowledge during the course of reconciliation of its accounts. It is specifically averred that the first defendant, being the collecting banker, has not discharged its responsibility properly and it was expected to make a proper verification of the antecedents of the second defendant. According to the plaintiff, the first defendant cannot claim any benefit under Section 131 of N.I. Act.
18. Per contra, the first defendant has specifically denied all the averments made in regard to the negligence attributed to its officials in collecting the nine demand drafts presented to it by the second defendant and sending the same to the clearing agency. It is specifically averred that the plaintiff's representatives did not properly verify these demand drafts and therefore they cannot attribute any malafides to the act of the first defendant. It is further averred that the omission and commission of the plaintiff is apparent and the negligence is on the part of the plaintiff itself in regard to the clearing of the said instruments at the time of clearing them. It is further averred in paragraph-7 of the written statement that the demand drafts presented by defendant No.2 through his savings bank account were sent through normal procedure and credit was made to the account of the defendant No.2 the demand drafts were cleared. It is further averred that when the plaintiff has cleared the demand drafts without any objection and when the amount of those demand drafts were credited to the account of the second defendant, no negligence could be imputed to the first defendant on the ground that they were forged demand drafts. In paragraph-8 of the written statement, the first defendant has specifically averred as follows:
"It is incorrect and false that the collection of DDs by this Defendant is negligent, wrongful and not in good faith. This Defendant had only sent the DDs presented by Defendant No. 2 through his said SB Account for collection and had acted bonafide in the course of its business and in good faith. It was the Plaintiff at the time of clearance of the said DDs, to have properly scrutinized and verified the veracity of the DDs before clearing the same for payment, which were born at the Plaintiff bank itself. The Plaintiff has not acted bonafide muchless with good faith nor diligently in the matter. The negligence, wrongful conduct, and commissions and omissions on the part of the Plaintiff is apparent. The plaintiff deliberately attempted to shift its omissions and commissions, acts of negligence to this Defendant, which impermissible and untenable."
19. On the basis of the said averment, the Trial Court has chosen to cast burden on defendant No.1 vide issue No.4 which is as follows:
Does defendant No. 1 prove that the plaintiff bank itself due to its negligence commissions and omissions without confirming the genuineness of the 9 DDs cleared them and paid the amount of Rs. 8,55,000/- and the plaintiff bank is trying to shift its negligence and carelessness to defendant No. 1 bank as contended in the w/s?
20. It is true that on a cursory look at the demand drafts marked as Exs.P1 to P9 it would appear that they were issued by the Manager, State Bank of Mysore, Hosur Branch and they were drawn on the service branch of State Bank of Mysore, Bangalore. It is true that these demand drafts were cleared at the instance of a responsible representative of the plaintiff-Bank. If the demand drafts so presented by the second defendant to the first defendant were not cleared, proceeds of the same would not have been credited to his account by the first defendant. Admittedly, Exs.P1 to P9 are not cheques drawn on the plaintiff-bank by the second defendant, since he did not have any account with any of the branches of the plaintiff-Bank.
21. It is true that when as many as 18 demand drafts favouring the second defendant were sent to clearing agency, the authenticity of the same should have been verified on the ground that the plaintiff's representative had not properly verified the demand drafts. Hence on this ground whether the first defendant could be absolved of its responsibility of verifying the antecedents of the second defendant is the question.
22. On going through the entire pleadings of the parties, it is evident that defendant No.1 has made an attempt to take shelter as per the provisions of Section 131 of Negotiable Instruments Act, on the ground that it has acted bonafidely and that it had just sent the nine demand drafts presented to it by the second defendant to the clearing house and that is the normal procedure.
23. Section 131 of the N.I. Act has been well dealt at length by the Hon'ble Supreme Court in the case of Kerala State Cooperative Marketing Federation Vs. State Bank of India and Others reported in (2004) 2 SCC 425. What is held in the said decision, relying upon as many decisions of the Hon'ble Apex Court and various Courts, is that the onus to prove that the collecting banker has acted in good faith and without diligence is always on the collecting banker, which claims protection under Section 131 of N.I. Act. The decision reported in (1990) 1 SCC 484 in the case of Indian Overseas Bank VS. Industrial Chain Concern, has been relied upon in the said decision. What is the standard of care to be taken by a banker in opening an account has been dealt with at length. Practice and care of banking by H.P.Sheldon, 11th Edn., Chapter 5 has been relied upon in regard to the caution to be taken by a banker to open an account. It is specifically held that if a banker does not act prudently and in accordance with current banking practice when obtaining references concerning a proposed customer, he may later have cause for regret.
24. Following are the nine broad principles laid down by the Hon'ble Apex Court in the case of Kerala State Cooperative Marketing Federation Vs. State Bank of India And Others reported in (2004) 2 SCC 425 in para-11 in regard to the onus of the collecting banker under Section 131 of N.I. Act:
11. 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 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 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 of 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."
25. In the case of Syndicate Bank vs. United Commercial Bank reported in (1991) 70 Comp Cas 748, this Court has held that the appellant-Bank therein had failed to prove that it had acted in good faith and without negligence, more particularly, when the customer had just opened the account with the bank and had only one transaction with the Bank, namely, the encashment of the cheque. According to this Court, the Bank had not acted in good faith and without any negligence. This decision has been referred to and followed in Kerala State Cooperative Marketing Federation's case.
26. In the case of Brahma Shum Shere Jung Bahadur Vs. Chartered Bank of India reported in AIR 1956 Cal 399, Hon'ble High Court of Calcutta has held that the onus of proving "good faith" and "absence of negligence" is on the banker claiming protection under Section 131 of the Negotiable Instruments Act. It is further held that in deciding whether a collecting banker has or has not been negligent, it becomes necessary to take into consideration many factors such as the customer, the account and the surrounding circumstances. It is further held that if the cheque is of a large amount, then the bank has to be more careful unless the customer was a customer of longstanding, good repute and with great personal credit and was one who was regularly depositing and withdrawing the cheques of larger amounts. The same principles have been reiterated by the Hon'ble High Court of Madras in the case of Central Bank of India Ltd., Vs. Gopinathan Nair reported in 1972 KLT 518.
27. As per the decision in the case of Indian Overseas Bank Vs. Bank of Madura Ltd., reported in (1992) 75 Company Cases 481 (Mad), Hon'ble High Court of Madras has held on facts that the receiving banker i.e., collecting banker was held on facts guilty of negligence and lack of good faith, inasmuch as it had allowed the opening of an account with a small amount and shortly thereafter ie., within nine days had allowed withdrawal of a sum of Rs.9,500/-. It is held that the opening of the account, the presentation of the draft and withdrawal of the amount were part and one integral scheme. It is further held that the non- examination of the account holder who introduced the new account holder, was held against the bank.
28. As per the decision reported in the case of Kerala State Cooperative Marketing Federation Vs. State Bank of India and Others reported in (2004) 2 SCC 425, the appellant-marketing federation had received a cheque for Rs.1 lakh from the third respondent therein and the same had been drawn on the second respondent bank. The appellant had sent a cheque by post along with some other cheques, but the cheque in question was stolen and was altered to read as though it was payable to K.Narayhanan, who had opened an account calling himself as K.Narayhanan with the first defendant Bank on 24.12.1982. Account had been opened by the said person posing himself as K.Narayhanan by paying a sum of Rs.20/- only and he had asked for supplying a cheque book to him. The bank had told him that a cheque book would not be issued unless a minimum sum of Rs.100/- was deposited. Later on, he deposited a sum of Rs.80/- into the account and later on he was issued with a cheque book. On 29.12.1982 i.e., just five days after opening of the account, he deposited into his account a cheque for Rs.1,00,000/- drawn in his favour and the same was collected by the first respondent Bank on behalf of its client. On 30.12.1982 a sum of Rs.50,000/- was withdrawn from the account just prior to stop-payment instructions was being received. Later on, the said K.Narayhanan turned out to be a fictitious person and was never traced again. The remaining balance of Rs.50,000/- was ultimately returned to the appellant. When a claim was made for Rs.50,000/- against the first respondent, the first respondent had claimed protection under Section 131 of N.I.Act. The suit was decreed by the Trial Court but the same was reversed by the High Court, as against which a Special Leave Petition was filed before the Hon'ble Supreme Court and the Special Leave Petition bearing Cvl. Appeal No.151/98 was ultimately allowed, holding that the collecting banker was not entitled for protection under Section 131 of N.I.Act.
29. In the present case, the facts had disclosed that the second defendant had opened the S.B.account with the first defendant bank during April 1998 and one of its account holders had introduced the second defendant to the first defendant. Since records were not produced by the first defendant in regard to the opening of the S.B.Account by the second defendant, DW1 could not tell the name and address of the person who introduced the second defendant. To a specific question as to whether he had produced the application form for opening the S.B. Account by the second defendant with it, his reply was in the negative. To another question DW1 has deposed that no action was initiated against the account holder after receiving the notice from the plaintiff.
30. In the present case, all nine demand drafts presented by the second defendant to the first defendant were dated 30.03.1998. They were all for Rs.95,000/- each. They were not presented at one stretch but were presented on different dates but during the month of April itself. On 17.04.1998 D.D. bearing No.836133 and 836135 were cleared. On 18.04.1998 D.D. bearing No.836132 and 836134 were cleared. On 25.04.1998 remaining five demand drafts were cleared. Nothing is placed on record as to whether all these nine demand drafts were sent on the same day or on different dates by the collecting banker to the clearing house. Nothing is also forthcoming from the evidence of DW1 as to whether they were presented to it by the second defendant on one date or on different dates. Though these demand drafts appeared to have been issued on 30.03.1998 by the plaintiff's branch at Hosur, they were presented to the first defendant only after opening an account.
31. We do not see any evidence in regard to the person who introduced the second defendant at the time of opening the S.B. account and we do not see any evidence in regard to the amount deposited by the second defendant at the time of opening the account. Similarly there is absolute no evidence in regard to the antecedents of the second defendant, more particularly, when he could not be traced after the amount was withdrawn by him in respect of these demand drafts.
32. More emphasis is laid by the Trial Court in regard to certain omissions and commissions on the part of the plaintiff. As already discussed, it is true that the plaintiff's representative should have been diligent at the time of clearing all these nine demand drafts and other nine demand drafts which are stated to be forged. It is also true that an inhouse limited enquiry should have been conducted by the plaintiff-bank when it came to know that the demand drafts in question were forged, while reconciling the accounts. Just because such an inhouse enquiry is not held by the plaintiff as to whether the forms used for forging these demand drafts really belonged to the plaintiff's branch at Hosur Road or whether some of the employees of the plaintiff's branch at Hosur had colluded with him, it would not give a leverage to the defendant No.1 to claim protection under Section 131 of N.I.Act. Unfortunately, the Trial Court has failed to take into account the scope of the suit, more particularly, in the light of a specific defence being taken by the first defendant on the ground of having acted bonafidely and without any negligence. Though the Trial Court has framed an issue casting burden on the first defendant to prove the alleged omissions and commissions of the plaintiff in the matter of clearance of these nine demand drafts, the Trial Court has not framed any issue in regard to the protection claimed by the first defendant is not impliedly under Section 131 of N.I.Act. A specific issue to that effect was absolutely required for effective determination of the lis.
33. An issue should have been framed by the Trial Court casting burden on the first defendant in regard to the protection available to it under Section 131 of N.I.Act. Without there being an issue to that effect, the Trial Court should not have dismissed the suit against the first defendant. Issues are framed not only on the basis of material averments found in the plaint and specific denial thereof, but also on specific defence taken by the defendants. The initial burden is always upon the collecting banker which takes up the plea of having acted bonafidely without any negligence, under Section 131 of N.I.Act. The purpose of framing an issue is to focus the actual controversy involved in the suit and to direct the parties to lead evidence and address the arguments on the same.
34. It is true that the plaintiff-Bank should have called upon the first defendant to produce all the materials in regard to the opening of the S.B.Account by the second defendant with it, with reference to the details of the person who introduced him to the first defendant-Bank, the amount deposited at the time of opening of the account and other details regarding the antecedents of the second defendant.
35. Ex.P10 is the notice issued by the plaintiff- Bank on 07.09.1999 to the first defendant calling upon it to pay back the amount of the nine demand drafts for being negligent in collecting the demand drafts presented to it by the second defendant. Plaintiff had addressed a letter to the first defendant on 22.09.1998. This was replied by the first defendant on 28.09.1998 and the copy of the said reply is marked as Ex.P11. In paragraph-2 of the said Ex.P11, the first defendant- Bank has specifically mentioned that it was not aware as to whether the payee i.e., the second defendant was a genuine person or not and that the account had been opened on the introduction of another account holder of their branch and that they had not acted negligently. The exact reply found in para-2 of Ex.P11 is relevant and the same is reproduced below:
"We are not aware as to whether the payee of the instruments is a genuine person or not. The account has been opened on the introduction of another account holder of our branch. We have not acted negligently."
36. In paragraph-1 of Ex.P11, the name and residential address of the second defendant is mentioned. Apart from this, the number of the S.B. account is mentioned as 2146. Apart from this, the date on which it was opened and the details of the account holder who introduced the second defendant to it, the amount deposited at the time of opening the account are not forthcoming in Ex.P11. Only Rs.200/- was found as balance in the said S.B. account as on that day. The contents of paragraph-2 are reiterated again in the reply issued by the first defendant to the plaintiff on 28.09.1998 vide Ex.P11.
37. Of course, no specific allegation of collusion interse between the first defendant's officials and the second defendant is made in the plaint. But on that count alone, the first defendant cannot claim any benefit. In a case like this, too much of negligence cannot be attributed to the plaintiff, more particularly, when the demand drafts had been sent by the collecting bank. If some forged demand drafts had been presented by the account holder of a payee bank, it would have been something different. Under such circumstances, the payee Bank will be expected to verify the signatures found on the demand drafts and the antecedents of the account holder. In a case like this, the demand drafts were presented to a different bank in which the second defendant had opened an account and as such, the first defendant, being the collecting banker had sent them to the clearing house. The factum of forgery came to the knowledge of the plaintiff only when the accounts were reconciled.
39. What is argued before this Court by the learned counsel for the first respondent is that the Trial Court has held Issue No.1 in the affirmative without sufficient evidence being placed by the plaintiff in regard to the forgery of the DD's. It is true that the officer of the plaintiff's branch at Hosur should have been examined to prove the Demand Drafts i.e., Exs.P1 to P9 which allegedly bear the forged signatures of the concerned officer at Hosur entrusted with the responsibility of preparing and affixtures on the Demand Drafts. There appears to be some force in regard to the contention raised by the learned counsel while submitting his arguments, more particularly when the plea of forgery and fraud requires a little higher degree of proof. But the fact of the matter is that when PW-1 has asserted in his evidence to the effect that Exs.P1 to P9 are forged Demand Drafts, the same is not challenged seriously while cross examining him. As rightly pointed out, nothing is placed on record as to whether the plaintiff has filed similar suits against the collecting banker/s in respect of the remaining nine(9) Demand Drafts and if filed what is the out come of the same.
40. Suffice to state that in the light of specific issue being not framed in regard to the protection under Section 131 of N.I.Act, the Court has misdirected itself in dismissing the suit against the first defendant. On that ground, the appeal cannot be allowed in its entirety and liability cannot be mulcted on the first defendant as joint and several liability. An opportunity has to be given to the Trial Court to frame a specific issue in regard to Section 131 of N.I. Act, casting burden on the first defendant to claim protection of having acted bonafidely and without any negligence and also to permit the plaintiff to lead evidence in regard to the forgery of nine demand drafts. Then the parties will have to be permitted to adduce additional evidence and thereafter to dispose of the matter. Hence, point No.1 is answered in the negative.
Re.Point No.2:
40. In view of our negative finding on point No.1 absolute interference is called for by this Court. Appeal will have to be allowed by setting aside the judgment of the Trial Court. The matter has to be remitted to the Trial Court for framing a specific issue casting burden as mentioned below:
"Whether the first defendant is entitled for protection under Section 131 of Negotiable Instruments Act, 1881, on the ground of having acted bonafidely and without any negligence in collecting the nine demand drafts presented to it by the second defendant?
ORDER
Appeal filed under Section 96 of the Civil Procedure Code, is allowed by setting aside the judgment of the Trial Court . Matter is remitted to the Trial Court to consider the issue proposed in this appeal and provide opportunities to the plaintiff as well as the first defendant to lead additional evidence, if any, and thereafter, to dispose of the matter at the earliest but not later than 30th April 2015.
Parties shall appear before the Trial Court on 7th October 2014 without fail and cooperate with the learned Judge in disposing of the matter within the time stipulated by this Court.
In the light of allowing the appeal, entire Court fee be refunded to the plaintiff.
Registry is directed to return LCR with a copy of the judgment at the earliest.
A copy of this judgment shall be sent to the Principal Secretary, Department of Law and Justice, Government of Karnataka, Bangalore, so that the Law Secretary, can take up the issue of sensitizing the Bank Managers and officials working in the Co-operative Banks in the State pertaining to liability of collecting and paying Bank.