Holding

The bank was not negligent in opening the account nor in collecting the cheques and is therefore protected by section 131 of the Negotiable Instruments Act.

Summary

Industrial Chain Concern sued Indian Overseas Bank for Rs.26,383.49, alleging that the bank negligently allowed its manager, Sethuraman, to open a fictitious account in the firm's name, deposit stolen drafts and cheques, and collect the proceeds. The bank contended it acted in good faith, declined an overdraft facility, and had no reason to suspect fraud. The trial court and Madras High Court held the bank negligent in opening the account and collecting the cheques, denying it protection under section 131 of the Negotiable Instruments Act. The Supreme Court examined the standard of care required of banks in opening accounts and collecting cheques, and found no evidence of negligence or any circumstance that should have aroused suspicion. Consequently, the Court held that the bank was entitled to the statutory immunity of section 131 and set aside the lower courts' judgments.

Issues considered

Whether the bank was negligent in opening an account for Sethuraman without verifying his claim of proprietorship.
Whether the bank was negligent in collecting the cheques and drafts paid into the account.
Whether the bank can invoke the protection of section 131 of the Negotiable Instruments Act, 1881.
What standard of care is required of a banker before accepting a customer and while collecting cheques.

Legislation cited

Cheques Act, 1957s. 4
Negotiable Instruments Act, 1881s. 131

Subjects

Negotiable Instruments ActSection 131bank negligenceopening of accountcollecting bankerconversionstatutory protectionduty of carebanking practice

Judgment

INDIAN OVERSEAS BANK
-A
v.
INDUSTRIAL CHAIN CONCERN

NOVEMBER 7, 1989

[K.N. SAIKIA AND M. FATHIMA BEEVI, JJ.] B

Negotiable Instruments Act-Section 131-Bank can avail of
immunity as collecting banker-Opening of account-Duties of bank.

The plaintiff-respondept filed original suit No. 7667 of 1975
against the appellant-Bank in the City Civil Court Madras for recovery C
of Rs.26,383.49 p. together with interest and costs, being the amount of
loss suffered by it on account of the negligence and conversion on the
part of the appellant who negligently allowed one Sethuraman,
Manager of the plaintiff''s firm to open a "fictitious account" in the
name of "Industrial Chain Concern" as its proprietor and helped him
to pay in stolen drafts and cheques drawn in favour of the plaintiff, and o
by collecting the same and paying the proceeds thereof to Sethuraman,
and closing the account thereafter. The plaintiff's case was that it was
doing extensive business in steel Roller chains and sprockets with lead-
ing Industries and Government undertakings and had supplied goods to
seven parties who sent to it drafts and chequ•S for Rs.26,383.49 p.
which were received by Sethuraman, its Manager, who opened ficti- E
tious account in the name of the firm with the bank, and withdrew the
. amount defrauding the plaintiff. According to the plaintiff the Bank
was neglig~nt and guilty of conversion iri opening the account as also in
collecting the cheques. Hence it was liable to make. good the loss
suffered by it. The appellant-Bank denied the allegations of negligence
levelled by the plaintiff. It stated that Sethuraman, who was a College- F
mate of the Manager of the Bank was known to him earlier and at the
time of opening the account he had represented to the Bank that he, as
proprietor, had started a firm under the name and style of "Industrial
Chain Concern" and had shown in that connection some business
papers on the basis of which the Manager gave the introduction neces-
sary to open the Account but the manager declined to grant overdraft G
facility asked for by him. The bank asserted that it acted in good faith
throughout the dealings till the closure of the account.

The Trial Court held that the appellant bank had acted in good
faith but not without negligence in opening the account and operating the
same .in the process of collection of cheques/drafts and that it was not H

27
28 SUPREME COURT REPORTS [ 1989] Supp. 2 S.C.R.
J
A entitled to protection of section 131 of the Negotiable of Insiruments
Act. Accordingly it decreed the plaintiff's suit Bank's appeal to the High
Court against the detree of the trial Court was dismissed. Hence this
appeal by Special Leave.

Allowing the appeal, this Court,
B
HELD: As a general rule a banker before accepting a customer,
must take reasonable care to satisfy himself that the person in question
is of good reputation, and if he fails to do so he will run the risk of
forfeiting the protection under section 131 of the Negotiable Instru-
ments Act. What is "reasonable care", will depend on the facts and
c circumstances of the case. [45F-G]

The courts have tended to accept the practices and procedures
which bankers lay down for themselves, but that can by no means be
decisive. [45G]
[)
Till an account is opened, no bankerRcustomer relationship exists
between the bank and the person proposing to open an account. Once
the account is open, the relationship is created and with it mutual rights
and obligations between the hanker and the customer are created under
law. Opening an account by depositing cash is slightly different from
opening one by a cheque as in that case, the Bank has to act according
E to the tenor of that instrument and its collection and payment involves
the Bank's avowed duty to its real owner if the proposer happens not to
be its real owner. Even when an account is opened by depositing cash
but so soon after the opening of the account any cheque is paid into it as
to make it part of the same transaction with the opening, the same duty
may be implied by law. [34D-F]
F
One of the tests of deciding whether the Bank was negligent,
though not always conclusive, is to see whether the Rules or instructions
of the Banks were followed or not. In the instant case, Sethuraman
having been known to the Manager who gave the introduction there was
no violation of any instruction or Rules. [35E; J6D]
G
Except when circumstances of a case so justify in making inquiries
the bankers attitude may be solicitious and not detective. It is difficult
to hold that the Bank was negligent in opening the account, accepting
the deposit of cash by a person known to the Manager of the Bank
under the circumstances. [37G; 38B] ._
H
INDIAN OVERSEAS BANK v. INDUSTRIAL CHAIN 29
~-
The bank normally has an obligation to collect the customer's
A
cheques paid into his account. [42H]

In every case of opening an account bank takes a mandate and,
until changed, controls the operation of the account. In the instant case
having already opened the account the Bank was not concerned to
question the customer's title to a cheque paid in by him, when a cheque B
was drawn in favour of 'Industrial Chain Concern'. I41A-B]

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 instructions 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 conver- c
sion 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. [4!D-E]

To enable a bank to avail the immunity under section 131 as a D
collecting banker he has to bring himself within the conditions for-
mulated by the section. Otherwise he is left to his common law liability
for conversion or for money had and received in case of the person from
whom he took the cheques having no title or defective title. The condi-
!ions are: (a) that the banker should act in good faith and without
negligence in receiving a payment, that is, in the process of collection, E
(b) that the banker should receive payment for a customer on behalf of
him and thus acting as a mere agent in collection of the cheque and not
as an account holder (c) that the persons for whom the banker acts must
be his customer and (d) that the cheque should be one crossed generally
or especially to himself. The receipt of payment contemplated by the
section is one from the drawee bank. It is settled law that the onus of F
bringing himself within the section rests on the hanker. There is very
little evidence relating to the deposit and particulars of cheques
deposited and hence it is difficult to hold th.at the Bank ignored obvious
indications and was negligent at that time. [41G-H; 42A; 48G]

Commissioner of Taiation v. English Scottish & Australian G
Bank, [1920] AC 683; Ladbroke & Co. v. Todd, [1914] 30 TLR 433;
Turner v. London & Provincial Bank, [1903] 2 Legal Decisions Affect-
ing Bankers 33; Marfani & Co. v. Midland.Bank, [1968] 2 ALL E.R.
573 at 582; Lloyds Bank Ltd. v. E.B. Savory & Company, [1933] AC
201; Capital & Counties Bank v. Gordon, [1903] AC 240; Barclays
-" Bank Ltd. v. Astley Industrial Trust Ltd .. [1970] I All E.R. 719; Arab H
30 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.

A Bank Ltd. v. Ross, [1952] l All E.R. 709; Karak Rubber Co. Ltd. v.
Burden (No. 2), [1972] l All E.R. 1210; Penmount Estates Ltd. v.
National Provincial Bank Ltd., [1945] 173 LT 344; Motor Traders
Guarantee Corpn. v. Midland Bank Ltd., [1937] 4 All E.R. 90; Bharat
Bank Ltd. v. Kishanchand Chellaram, AIR 1955 Mad. 402; Sanyasilin-
gam v. Exchange Bank of India, AIR 1948 Bombay I; Woodbrier v.
B Catholic Bank, AIR 1958 Kerala 316; Orbit Mining & Trading Co. v.
Westminister Bank, [1962] 3 ALL E.R. 565; Underwood v. Bank of
Liverpool, [1924] I K.B. 775; Bapulal Premchand v. Nath Bank Ltd.,
AIR 1946 Bom. 482; Lloyds Bank Ltd. v. Chartered Bank of India,
Australia & China, [1929] I K.B. 40 and Ross v. London County,
Westminister & Parr's Bank Ltd., [1919] I K.B. 678, referred to.
C CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2842
of 1982.
From the Judgment and Order dated 1.10.1981 of the Madras
High Court in Appeal No. 516 of 1977.
C. Seetharamiah, P. Krishna Rao and K.R Nagaraja for the
D Appellant.
S. Balakrishnan for the Respondent.
I
The ;udgment of the Court was delivered by
K.N. SAIKIA, J. This defendant's appeal by special leave is
E from the Judgment of the High Court of Judicature at Madras dated
1.10.1981 passed in Appeal No. 516 of 1977 dismissing the appeal and
affirming the decree in O.S. No. 7667 of 1975.
The respondent-Industrial Chain Concern as plaintiff filed
Original Suit No. 7667 of 1975 in the City Civil Court, Madras for
recovery of Rs.26,383.49p. together with interest and costs, being the -·
F total amount of loss sustained by it on account of the alleged negli-
gence and conversion on the part of the defendant-Indian overseas
Bank having its central office at 151, Mount Road, Madras-2, here-
inafter referred as 'the Bank', by negligently allowing one Sethura-
man, Manager of the plaintiff firm at Madras to open a 'fictitious
account' in the name of 'Industrial Chain Concern' as its proprietor
(Ji and helping him to pay in stolen drafts and cheques drawn in favour of
the plaintiff and collecting the same and paying to Sethuraman the
proceeds thereof and closing the account thereafter. It was the case of
the plaintiff that it was doing extensive business in Steel Roller Chains
and Sprockets with leading industries and Government undertakings.
H Its head office was situate at 36, Linghi Chetti Street, Madras-I. It had
supplied goods to seven parties who sent to it drafts and cheques in its
-
-- INDIAN OVERSEAS BANK v. INDUS1RIALCHAIN !SAIKIA, J.]

uame amounting to Rs.26,383.49 and those drafts and cheques had
been received by Sethuraman, its Manager, who after opening the
31

A
'fictitious account' in the Bank's Nungambakkam Branch paid in the
stolen drafts and cheques and the Bank collected those and allowed
Sethuraman to withdraw the same defrauding the plaintiff. The
plaintiff averred that the Bank was negligent and guilty of conversion
in opening of the account, collection of the cheques and drafts and B
allowing Sethuraman to withdraw the same and therefore, it was liable
to make good the plaintiff's loss.
The appellant Bank as defendant resisted the suit contending,
inter alia, that it was not negligent in allowing Sethuraman to open the
account inasmuch as approaching the Bank Sethuraman represented
that he, as proprietor, had started a firm under the name and style of c
"Industrial Chain Concern" and proposed to open an account in that
name. Since the Manager of the Bank at Nungambakkam Branch was
i erstwhile classmate of Sethuraman he (the Manager) knew him and
' gave the introduction relying on which the current account was opened
and after opening the account, which was a real account and not a
'fictitious account' as allleged, various cheques and drafts had been D
' paid into the account by the customer for collection and the Bank in
' good faith and without negligence, in course of its business, collected
them and credited the account and Sethuraman as customer withdrew
money from his account, and that neither at the time of opening the
account for at the time of paying in and collection of the cheques, nor
at the time of allowing money to be withdrawn there was anything to E
arouse any suspicion regarding the bona [ides of the representation
made by Sethuraman. Later on the customer having expressed a desire
to close the account because, as he said, he was winding up his busi-
ness, the account was closed. There was, therefore, no negligence on
the part of the Bank acting in good faith and it was not liable for
conversion. F

At the trial the plaintiff firm examined its Manager D.R. Murthy
(PW-1) while the defendant Bank also examined its Manager S.P.
Muthukrishnan (DW-1). The trial court decreeing the suit held that
the defendant Bank had acted in good faith but not without negligence
in opening the account and operating the same and in the process oi G
collection of the cheques and drafts and it was not entitled to invoke
the protection of section 131 of the Negotiable Instruments Act and,
consequently, it was liable to make good the loss with interest as
claimed by the plaintiff. The Bank having appealed therefrom, the
High Court agreed with the findings of the trial court and dismissed
the appeal. H
32 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.

A Mr. C. Seetharamiah. the learned counsel for the appellant sub-
mits, inter alia, that the finding of the courts below that the defendant
Bank was negligent in opening the account is contrary to law inasmuch
as there were no circumstances antecedent or present to arouse any
suspicion and there was no obligation on the part of the Bank to
compare and verify the name and address given by Sethuraman as
B proprietor, Industrial Chain Concern with the address of the then
existing plaitiff's firm of the same name; that the High Court's finding
that the Bank was negligent in clearing the amounts of the cheques is
equally contrary to law inasmuch as there was nothing ex facie to put
the Bank on guard and there was no warning or indication of defective
title on the face of the cheques and drafts to arouse suspicion of the
Bank and it was not necessary for it to make thorough enquiry about
C the cheques and drafts to have been entitled to invoke the protection
of section 131 of the Negotiable Instruments Act: and that even assum-
ing, but not admitting that the Bank was negligent, the plaintiff itself
contributed to it by entrusting Sethuraman to receive the cheques and
drafts and to deal with them for a long time and that even when the
D complaint was made to Deputy Commissioner of Police on 19.2.1975 it
was about two cheques only, and there was still no complaint about
other cheques and drafts.
The first question to be decided, therefore, is whether the Bank
was negligent in opening the account in the name of Sethuraman, as
E proprietor, Industrial Chain Concern. Mr. S. Balakrishnan, for the
respondent, defends the High Court's Judgment.
Evidence of DW-1 Muthukrishnan, Mal)ager of the Bank at the
relevant time is that the account was opened by Ext. B-1, the Account
Opening From, on 3.10.1974 by Sethuraman under the title Industrial
Chain Concern, the sole proprietary concern. It was signed by
p Sethuraman for Industrial Chain Concern with a rubber stamp as
proprietor. Muthukrishnan, DW-1 deposed:
"This account was opened by R. Sethuraman under the
title Industrial Chain Concern sole proprietary concern.
Sethuraman is the sole proprietor. Before that date I knew
Sethuraman. He was ni y college mate in 1955-57 in
G
Vivekananda College. I was meeting him in social gather-
ing. When he went to open an account, he represented that
he had just started as commission agent under the name
and style of Industrial Chain Concern as sole proprietary
concern. He wanted to open an account with Overdraft
facility. I declined his request for overdraft because he him-
H
self stated that he had just started commission business. I
INDIAN OVERSEAS BANK v. INDUSTRIAL CHAIN [SAIKIA, J.] 33

was able to identify him as the college mate and to open his A
account I have signed the introduction in my personal
capacity. . . . . . . . . . . . . . . It was an ordinary current
deposit account. The introduction given by me was in the
~ormal course of banking business. Before opening
account, he showed me some business correspondence and
orders. Some of the orders were placed by India Sugars and B
Refineries and Madras Fertilisers. At that time there was
nothing to show that the Industrial Chain Concern was not
a proprietary concern or that Sethuraman was an employee
of the firm. He opened an account with cash deposit of
Rs.100 as he described himself as a proprietary concern
and as he just then started the business and as I did not
grant loan facility there was no occasion for calling credit
c
reports from other bankers. There was normal operation of
the account. Cheques given in the name of the concern
were deposited in the account and after realisation they
were withdrawn."
D
Comparing the statement of Account and Ext. B 1 with the above
evidence there is nothing to doubt this witness. He denied that at any
stage the Bank had acted with negligence or without good faith or that
there was no proper introduction for opening an account. He clearly
said that the address given in Ext. B 1 was Nullathambi Mudali Chetti
Street and that he knew the location and it was far away from
E
Nungambakkam. That was the place of business of Sethuraman
mentioned at the opening of account and the Mount Road Branch of
the defendant Bank was the nearest Branch for that place. Opening of
an account by Sethuraman with a trading place at Nallathambi Street
with Nungambakkam Branch occurred to him as unusual but it did not
create any suspicion as he asked Sethuraman why he wanted to open F
an account in Nungambakkam Branch and Sethuraman replied: "I am
• a commission Agent. I want overdraft facility. Your are the only agent
known to me and that is why I have come to Nungambakkam Branch."
DW-1 also said that in opening the Current Account he glanced
through the order and correspondence shown to him by Sethuraman
regarding supplies but he did not check up the address given in the G
correspondence by these companies in the name of the Industrial
Chain Concern. He denied that he had not checked up the business
credentials for the account to be opened in the name of the business
concern and that he was negligent in that aspect. He sadi: "I declined
overdraft facility. That itself shows that I was not negligent. Once I
declined overdraft facility it did not strike me to refer Sethuraman to H
the nearest branch from his trading place. I did not refer him to the
34 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.

A Mount Road Branch. I suggested he can go to the Mount Road
Branch. He came with another request that his overdraft application
might be considered after the period of about one year, after his busi-
ness had improved. Therefore, he wanted to open an account in
Nungambakkam Branch." Both Courts below held that the Bank
acted in good faith. We agree. The question is whether the Bank could
B be held to have been negligent while opening the account.
It is, however, necessary to bear in mind that this question is
often associated with the question of negligence in collecting cheques,
etc. for the customers paid into the account. This is because till an
account is opened no banker-customer relationship exists between the
bank and the person proposing to open an account. Once the account
C is opened, that relationship is created and with it mutual rights and
obligation between the banker and the customer are created under
law. Opening an account by cash is a little different from opening an
account by a cheque as in that case the Bank has to act according to the
· tepor of that instrument and its collection and payment involves the
Bank's duty owed to its real owner if the proposer happens not to be its
D real owner. Even when an account is opened by depositing cash but so
soon after the opening of the account any cheque is paid into it as to
make it part of the same transaction with the opening, the same duty
may be implied by law.
What is the standard pf care to be taken by a Bank in opening an
E account? In the Practice and Law of Banking by H.P. Sheldon, I Ith
Edition, in Chapter five at page 64 it is said:
"Before opening an account for a customer who is not
already known to him, a banker should make proper pre-
liminary inquiries. In particular, he should obtain referen-
ces from responsible persons with regard to the identity,
F integrity and reliability of the proposed customer.
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."
G M.L. Tannan in Banking Law and Practice in India, 18th Edition
at page 198 says:
"Before opening a new account, a banker should take
certain precautions and must ascertain by inquiring from
the person wishing to open the account, if such person is
H unknown to the banker, as to his profession or trade as well
as the nature of the account he proposes to open. By mak-
INDIAN OVERSEAS BANK v. INDUSTRIAL CHAIN [SAIKIA, J.} 35
··---...
ing necessary inquiries from the references furnished by the
A
new customer, the banker can easily verify such informa-
tion and judge whether or not the person wishing to open
an account is a desirable cnstomer. It is necessary for a
bank to inquire, from responsible parties, given as refe-
rences by the customer, as to the latter's integrity and
respectability, an omission of whi~h may result in serious B
consequences not only for the banker conceffied, but also
for other bankers and the general public." ·
One of the tests of deciding whether the Bank was negligent,
though not always conclusive, is to see whether the Rules or instruc-
tions of the Banks were followed or not. We may accordingly consult
those instructions. Ext. B6 contains the general instructions regarding C
constituent accounts for bank. Mark II deals with opening of accounts.
It says:
"Except at large branches where the sub-agent or accoun-
tant may be authorised to open Current Accounts, no new
Current Account shall be opened without the authority of D
the agent manager who is solely responsible for all Current
Accounts being opened in the proper manner. A written
application on the appropriate form must be submitted and
will be initialled by the agent· at the top left corner after he
has satisfied himself of the respectability of the aplicant(s).
It is important that every party must be introduced to the E
Bank by a respectable person known to the Bank, who
must normally call at the Bank and sign in the column
specially provided for the purpose in the account opening
form. In all cases his signature must be verified with the
specimen lodged and attested. The agent or accountant
may introduce constituents to the Bank provided they are F
known to him personally and in such cases he should sign
the application form at the appropriate place in his per-
sonal capacity. When the introduction of any other member
of the staff is accepted, the agent must invariably make
independent inquiry and record his findings on the account
opening form for future reference if the need arises G
,,

Mark IV deals with accounts of proprietary concerns. It says:
"An individual trading in the name of concern should fill in
form F.S. 5 and sign it in his personal name and also affix
his signature on behalf of the concern as proprietor in the H
space provided."
36 SUPREME COURT REPORTS [1989) Supp. 2 S.C.R.

A If the Banker was negligent in following up the references given at
opening of account and subsequently cheques etc. are collected for the
customer paid into that account and those happened to be of someone
else_~. Bank may be liable for conversion, unless protected by law. In
the instant case, Sethuraman having been known to the Manager who
gave the introduction, there was no violation of any instruction or
B Rules.
It was held in Commissioner of Taxation v. English Scottish and
Australian Bank, [1920) AC 683, that a negligence in collection is not a •
question of negligence in opening an account, though the circum-
stances connected with the opening of an account may shed light on
the question whether there was negligence in collecting a cheque.
c In Ladbroke & Co. v. Todd, [1914] 30 TLR 433, the plaintiff
drew a cheque and sent it to the payee by post. The letter was stolen
and the thief took it to the defendant, a banker, and used it for the
purpose of opening an account-for the purpose of which he forged the
payee's endorsement. The defendant accepted believing him to be the
D payee. He was not introduced to the Bank and no references were
obtained. The defendant opened the account and the cheque was
specially cleared at the request of the thief, and he drew out the pro-
ceeds on the next day. On the discovery of the fraud the plaintiff
brought an action against the defendant for conversion. One of the
main questions raised was whether the account having been opened by
E payment in all the cheques to be collected the defendant could be
properly regarded as having received payment for a customer. It was
held that as account was already opened when the cheque was col-
lected, payment had been received for a customer. The drawer there-
upon sent another cheque to the real payee and took an assignment of
his rights in the stolen cheque and, as holders of the cheque or alterna-
F lively as assignees, brought an action against the bank to recover the
proceeds collected by the bank as money had and received to their use.
Evidence was given that it was the general practice of bankers to
obtain a satisfactory introduction or reference. It was held that the
banker had acted in good faith, but was guilty of negligence in not
taking reasonable precautions to safeguard the interests of the true
G owner of the cheque and that therefore he had put himself outside the
protection of section 82 of the Bills of Exchange Act, 1882. Bailhache,
J. also said that the banker would have been entitled to the protection
of the section as having received payment for a customer, but had lost
it owing to his want of due care. It was also held that the relation of
banker and customer began as soon as the first cheque was handed in
H to the banker for collection, and not when it was paid.
INDIAN OVERSEAS BANK v. INDUSTRIALCHAIN (SAIKIA, J.] 37

In Turner v. London and Provincial Bank, [1903] 2 Legal Deci-
sions Affecting Bankers 33, evidence was admitted as proof of negli- A
gence, that the customer had given a reference on opening the account
and that this was not followed up.
In the instant case there was no question of a reference inasmuch
as the Manager himself knew Sethuraman and gave the introduction.
The account was not opened by depositing any cheque but by deposit- B

- ing case of Rs.100. The first cheque was paid into the account later and
there is nothing to show that it formed part of the same transaction. No
particulars have been proved as to the tenor of that cheque. The
Manager made several inquiries which in the facts and circumstances
.of the case, in our view, were sufficient, for it is an accepted rule that
the banker may refrain from "making inquiries which it is improbable c
will lead to detection of the potential customer's purpose if he is dis-
honest and which are calculated to offend him and may drive away his
customer if he is honest," Marfani & Co. v. Midland Bank, [1968] 2
All E.R. 573 (582). Except when circumstances of a case so justifies, in
making inquiries the banker's attitude may be solicitous and not detec-

- tive. Sethuraman was believed when he said that he was the proprietor
of Industrial Chain Concern which he recently started. He showed
some orders and references in proof of his business. The banker
believed in existence of his business but did not meticulously examine
D

the addresses. Sethuraman was asked as to why he wanted to come to
that branch and his reply was that he expected there to have overdraft
facility and when that was refused he expressed that after his business E
• improved he would expect to be granted overdraft facilities after one
year. There is no doubt that Sethuraman was a rogue, but he prepared
the plan intelligently and the banker in good faith believed in his
statements. We, therefore, find it difficult to hold that the Bank was

- negligent in opening the account accepting the deposit of cash by a
person known to the Manager of the Bank under the above cir-
cumstances.
Mr. Balakrishnan has argued that a cheque for Rs.2,800 was pata
F

in on the same date which was a stolen cheque and it ought to have
aroused suspicion of the banker. But there is nothing to show that it
formed part of the same transaction. As we have already observed, G
once an account is opened the relationship of banker and .customer
begins. Duration is not of the essence. As was held in Ladbroke & Co.
(supra) the mere opening of an account without the actual transaction
was sufficient to constitute the relationship and this view was followed
in Commissionec of Taxation v. English Scottish and Australian Bank
(supra) and it was stated that the word 'customer' signifies a relation- H
ship of which duration is not of the essence. The contract is not bet-
38 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.
ween a habitue and a newcomer, but between a person for whom the
A bank performs a casual service ............... and a person who has
an account of his own at the bank. Lord Chorley has even expressed
the view that for the purpose of establishing the relationship of banker
and customer there appears to be no logic in the actual opening of the
account, and when the banker agrees to accept the customer the rela-
B tionship comes into existence at that time though the account may not
be opened until later. According to the author "the relationship being
contractual should be subjected to the normal rules of contract law and
the ·making of the contract depends on the acceptance of the offer.
This contract could clearly be effected before an account had actually
been opened though it would state that there must be an agreement to
open an acco'!.nt before the banker and customer relationship can
C exist." In the instant case there is, therefore, no doubt that the first
· cheque was subsequently paid in by Sethuraman as a customer and the
Bank was to collect it on account of the customer. The Bank, there-
fore, in collecting the cheque and paying the proceed to Sethuraman
acted as a Collecting Banker and can be held negligent, if at all, only as
D such as it was to collect it on account of the customer. In fact, from the
statement of account it is clear that the account was opened on
October 3, 1974 and was closed on February 1, 1975 and there were a
number of transactions of deposits and withdrawals. The detailed
particulars of the cheques paid into the account are not in evidence, it
is, therefore, difficult to know whether each individual cheque or draft
E should have aroused suspicion in the mind of the Banker before
accepting the same for collection from its customer.
The High Court did not analyse the legal position and did not
consider the facts and circumstances in this regard in proper perspec-
tive. We are not inclined to hold the Bank negligent in opening the
account considered alone.
F
The next question is whether the Bank was negligent in collect-
ing the cheques. In collecting a cheque on account of a customer the
banker is protected by section 131 of the Negotiable Instruments Act,
1881 (26 of 1881) hereinafter referred to as 'the Act' which reads:

G "131. Non-liability of banker receiving payment of
cheque-A banker who has in good faith and without negli-
gence 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
H payment.
Explanation-A banker receives payment of a cros-
INDIAN OVERSEAS.BANK v. INDUSTRIALCHAIN [SAIKIA, J.] 39

sed cheque for a customer within the meaning of this sec- A
lion notwithstanding that he credits his customer's account
with the amount of the cheque before receiving payment
thereof."
In the section the words 'a cheque crossed generally or specially to
himself' are important to be noted. Section 131 corresponded to sec-
tion 82 of the Bills of Exchange Act; 1882 of England which was
B
repealed by the Cheques Act, 1957 and the protection there is now
given by section 4 of the Cheques Act, 1957. English decisions can,
therefore, be guide in this regard.
In Lloyds Bank Ltd. v. E.B. Savory and Company, l1933) AC
201, the bank was held to be negligent (depriving it of the protection of
section 82) not to ask a customer though respectively introduced the
c
name of his employer and in the case of a married woman the name of
her husband's employer. This is a case where a fraud had arisen
through an employee stealing cheques from his employer and placing
them into the credit of his account. Had the bank known his employer,
enquiries would have been made. D
The request for special collection as in case of Ladbroke & Co.
(supra) was absent in this case as the account continued for quite some
time. Even in case of special collection it was held that it was desired
for the purpose of learning quickly whether or not the cheques will be
paid. This case was mentioned in Marfani and Co: Ltd. v. Midland
E
Bank Ltd., (supra) where the Midland Bank had make a special collec-
tion without being asked by their customer. lt was decided that this did
not indicate that the bank's suspicions were aroused which would
require further inquiry. It was found that the bank took upon a special
collection for the reasons (a) that the cheque was for a large sum, so
that it was in their interest to collect quickly and (b) that the customer

- about to buy a restaurant might require the proceeds quickly. In the
Court of Appeal, Diplock LJ said that the 'significance' of the special
clearance depends upon the Judge's assessment of tbe credibility of the
bank officials who gave evidence; and he saw no reason to differ from
F

him. In the instant case we have no reason to disbelieve what was said
by the Manager, DW-1.
G
In the instant case in the absence of any evidence giving the
details of the cheques and their tenor, we are unable to hold that there
were notices and circumstances which ought to arouse suspicion on the
part of the bank. The bank normally has an obligation to collect the
customer's cheques paid into his account. In Halsbury Laws of H
England, 4th Edn., Vol. 3 at para 46 we read:
40 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R

"46. Customer's title to money paid in. In the absence oi
A notice, express or implied the banker is not concerned tc
question the customer's title to money paid in by him.
although if a person entrusted with a cheque wrongfull)
pays it to the bank to the crei:lit of someone who is no1
entitled to it, the true owner, if he has given notice to !ht
B bank of his title while the credit remains, may recover th<
amount from the bank as money had and received; or a'
damage; for conversion .......... .
A banker should be very cautious in accepting for ~
customer's account any cheque drawn by him as agent upon
his principal's account, however broad may be the autho-
c rity .to draw. If the court detects circumstances which
should arouse suspicion that the agent was abusing his
authority, the banker will be liable to the principal even
though the cheque was crossed."
This is because in every case of opening an account bank takes a
D mandate and, until changed, controls the operation of the account. In
the instant case, having already opened the account the Bank was not
concerned to question the customer's title to money paid in by him,
when a cheque was drawn in favour of Industrial Chain Concern.
In Capital and Counties Bank v. Gordon, [1903] AC 240, the
House of Lords accepted the position that a bank acts basically as a
E 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 presen-
F talion of the cheques for paymet 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
G 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.
In the instant case in the absence of evidence on record we find it
difficult to ascertain whether the bank was collecting the cheques
H merely as agent of the customer or as holder for value or as holder in
due course. Some of the entries in the statement do show deposits and
INDIAN OVERSEAS BANK v. INDUSTRIAL CHAIN [SAIKJA, J.] 4J

withdrawals of lesser amounts on the same date, but that is net enough
for arriving at any conclusion whether the bank was collecting as a A
holder for value and not merely as an agent of the customer.
To enable a bank to avail the immunity under section 131 as a ·
collecting banker he has to bring himself within the conditions
formulated by the section. Otherwise he is left to his common law
liability for conversion or for money had and received in case of the B
person from whom he took the cheques having no title or defective
title. The conditions are: (a) that the banker should act in good faith
and without negligence in receiving a payment, that is, in the process
of collection, (b) that the banker should receive payment for a
customer on behalf of him and thus acting as a mere agent in collection
of the cheque and not as an account holder (c) that the person for c
whom the banker acts must be his customer and (d) that the cheque
should be one crossed generally or especially to himself. The receipt of
payment contemplated by the section is one from the drawee bank. It
is settled law that the onus of bringing himself within the section rests
on the banker. In Capital and Counties Bank v. Gordon, (supra) as we
have seen, the conception of a collecting banker was that of "receiving D
the cheque from the customer, presenting it and receiving the money
for the custOil)er, and then, and not till then, placing it to the custo-
mer's credit, exercising functions strictly analogous to those of a clerk
of the customer sent to a bank to cash an open cheque for his
employer." If the banker performs these functions in course of his
business, in good faith and without negligence he will be within section E
131 of the Act.
We have already observed that the principle enunciated in the
Commissioners of Taxation v. English Scottish and Australian Bank,
(supra) is that the opening of the account is material as shedding light

- on the question whether there was negligence in collecting a cheque
does bring out the true position that there must bi:·sufficient connec-
tion established between the opening of the account and the collection
of the cheque before a defence under section 131 could be held to be
F

barred. The question would then be one of facts as to how far the two
stages can be regarded as sci intimately associated as to be considered
as one transaction. We have already found that in the instant case G
there was no evidence to show that the opening of the account and the
collection of the cheques and drafts formed part of the same transac-
tion. Where a banker in good faith and without negligence receives
payment for a customer of a cheque and the customer has no title or a
defective title to the cheque, the banker does not incur any liability to
the true owner of the cheque by reason only of having received such H
payment. The banker is not to be treated for purposes of the protective
42 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.

section as having been negligent by reason only of his failure to con-
A cern himself with absence of, or irregularity in, indorsement of the
cheque or other instrument to which the section applies. This has to be
so because the drawer of the cheque is not a customer of the bank
while the payee is. Where the protection attaches, it covers the receipt
of the cheque and every step taken in the ordinary course of business
B and intended to lead up to the receipt of payment. Even if there was
negligence in opening of the account that act ipso facto would not
result in loss to the true owner of the cheque collected. While collect-
ing the cheque for a customer the bank is under obligation to present it
promptly so as to avoid any loss due to change of position. When it
receives the money collected then also there is no direct loss to the true
owner. It is only when the amount is paid or ·withdrawn by the
C customer that the loss results. During this period what is important to
note is that at every step in collection of the money and making pay-
ment the banker is bound by the banker-customer relatioship and
rights and obligations flowing therefrom. Even so, if there was any-
thing to rouse suspicion regarding the cheque and ownership of the
D customer the banker may find itself beyond the protection of section
131. The scope or ambit of possible suspicion will depend on various
situations that may have prevailed between the drawer of the cheque
and the customer. In the instant case Sethuraman having been
believed to have been the proprietor of Industrial Chain Concern the
cheques payable to Industrial Chain Concern left little scope to have
E aroused any suspicion in the minds of the Bank. The position may have
been different if Sethuraman was known as acting as an employee of
Industrial Chain Concern and the cheques were payable to that con-
cern, but were deposited into personal account of the employee which
was not the case here. The requirement of receiving payment for a
customer enunciated clearly in Capital and Counties Bank Ltd. v.
F Gordon, (supra) was extended in Barclays Bank Ltd. v. Astley Indust-
rial Trust Ltd., [1970] I All E.R. 719 wherein it was held that the
banker may receive payment for himself and yet be entitled to the
protection where, acting in a purely collecting capacity, he has
nevertheless a lien or is otherwise a holder for value.
There can be no doubt that the existence of a Current Account
G created relationship of banker and customer in this case. Sethuraman
would be a customer evn if his account was over drawn until that
account was closed. In Halsbury's Laws of England, 4th Edn., Vol. 3
at para 103 it is said:
"If the banker wishes to plead'the statutory protection, his
H dealings throughout must be in good faith and without
negligence. The alternative liability arising!rom negligence
INDIAN OVERSEAS BANK v. INDUSTRIAL CHAIN [SAIKIA, J.] 43

renders the question of good faith practically superfluous,
and it is seldom, if ever, raised. Negligence in this connec- A
tion is breach of a duty to the possible true owner, not the
customer, created by the statute itself, the duty being not
to disregard the interests of the true owner."
It is a settled law that the test ·of negligence for the purpose of section
131 of the Act is whether the transaction of paying in any given cheque B
coupled with the circumstances antecedent and present is so out of the
ordinary course that it ought to arouse doubts in the banker's mind and
cause him to make inquiries. Lloyds Bank Ltd. v. E.B. Savory and

- Co., (supra), Marfani & Co. Ltd. v. Midland Bank Ltd., (supra), Arab
Bank Ltd. v. Ross, [ 1952] 1 All E.R. 709 and karak Rubber Co. Ltd.
v. Burden, (No. 2) [1972] 1 All E.R. 1210. are some of the authorities-laying
down the above rule. The banker is bour.d to make inquiries when
c
there is anything to rouse suspicion that the cheque is being wrongfully
.dealt with in being paid into the customer's account. However, the
banker is not called upon to be abnormally suspicious, as was held in
Penmount Estates Ltd. v. National Provincial Bank Ltd., [1945] 173
LT 344. It was held in Motor Traders Guarantee Corpn. v. Midland D
Bank Ltd., [1937] 4 All E.R. 90, that disregard of the bank's own
regulations may be evidence of negligence. In the instant case no
such regulation of the bank has been produced so as to establish that in
collecting the cheque and allowing the customer to withdraw the bank
violated its own regulations. Nor has the plaintiff been able to show
that the transactions in paying in the drafts and cheques coupled with E
the circumstances antecedent and present were so out of the ordinary
that it ought to arouse doubts in the Banker's mind and cause him
make inquiries. As we have observed that the Bank's negligence in not
making inquiries as to the customer upon opening an account if there

-
was any, could shed light in its negligence in collecting the cheques for
him. But we have found that there was no such negligence in this case. F
Mr. Balakrishnan's submission that in this case while opening the
account, the appellant should have inquired of the plaintiff's firm does
not reasonably follow in view of the fact that what Sethuraman said
was that he was the proprietor off the newly established firm "Indust-
rial Chain Concern" and if that was the name of the payee in the
cheques, Sethuraman having been accepted as its proprietor there G
would be no room for suspicion that the firm's cheques were being
paid into the proprietor's personal account. There is no allegation and
proof that the collection and payment were made contrary to the

-·
tenors of the instruments. Carelessness could occur at the time of
collection .especially if there was failure to pay due attention to the
actual terms of the mandate. The actual circumstances at the time of H
44 SUPREME COURT REPORTS [1989) Supp. 2 S.C.R.

paying in for collection, if the amount was very large one might raise
A suspicion. But in this case the first cheque paid in was of 2,800.17p.
which could not be regarded as such a large amount to have aroused
suspicion considering the fact that the firm was 'Industrial Chain Con-
cern', dealing in industrial chains and pulleys.
Bharat Bank Ltd. v. Kishanchand Che/la ram, AIR 1955 Madras
B 402; Sanyasilingam v. Exchange Bank of India, AIR 1948 Bombay 1;
Woodbrier v. Catholic Bank, AIR 1958 Kerala Jlo, applied the
accepted principles to the facts. In Orbit Mining & Trading Co. v.
Westminister Bank, [1962) 3 All E.R. 565, Harm LJ said: "It cannot at
any rate be the duty of a bank continually to keep itself upto date as to
the identity of a customer's employer", though he is presumably
c required to know the indentity of the employer. That case is disting-
uishable on facts. Underwood v. Bank of Liverpool, [ 1924] 1 K.B 775,
was a case of a Director paying into his own private account cheques in
favour of the company duly endorsed by himself as sole J;)irector and
as such distinguishable on facts.
D In Bapulal Premchand v. Nath Bank Ltd., AIR 1946 Born. 482,
Chagla J, as he then was, in the facts of that case expressed that in his
opinion, there was no absolute and unqualified obligation on a bank to
make inquiries about a proposed customer and that modern banking
practice required that a customer should be properly introduced or the
bank should act on the reference of some one whom it could trust.
E Therefore, perhaps in most cases it would be wiser and more prudent
for a bank not to accept a customer without some reference. But he
was nor prepared to go so far as to suggest that after a bank had been
given a proper reference with regard to a proposed customer and
although there was no suspicious circumstances attendant upon the
opening of the account, it was still incumbent upon the bank to make
p
further inquiries with regard to the customer. In that case the manager
of the defendant-bank accepted the reference of the cashier Modi and
also in fact made certain inquiries of Modi as to the position and status
of the customer. It was held that it was not obligatory upon the
defendant-bank to make any further inquiries about his customer and
in having failed to make any such further inquiries in his Judgment
G they were not guilty of negligence. In the instant case the Manager
himself gave the introduction.

As a general rule a banker before accepting a customer, must
take reasonable care to satisfy himself that the person in question is of
H
good reputation; and if he fails to do so he will run the risk of forfeiting
the protection given by section 131 of the Act but 'reasonable care' will
-
INDIAN OVERSEAS BANK v. INDUSTRIALCHAIN (SAIKIA, J.] 45

depend on the facts and circumstances of the case. The courts have
A
tended to accept the practices and procedures which bankers lay down
for themselves, but that can by no means be decisive. The "type of
necessary inquiry at the opening of an account seems to be less strin-
gent at present than it was a generation ago, and it is difficult to spell
out from the cases any hard and fast rules." This is so because, in the
words of Lord Chorley, the use of banking facilities at the present day B
"has become so wide spread and has penetrated so far into social strata
where banking accounts were previously unknown, that precautions at
one time considered necessary are now difficult in the press of business
to apply. One of the obvious problems is that of the dishonest
employee who may wish to open a bank account for the purpose of
getting cheques collected for which he has stolen from his employer. If
the banker is aware of his employment he will naturally watch that c
those cheques of which the employer is payee, or in which he is
otherwise interested, do not pass through the account. But how far can
he be expected to keep himself informed of the employment of all his
customers? This is typical of the problems which have faced the
judges, and on which their views have tended to vary from time to D
time, and indeed from judge to judge."
The above problem has been realised by the courts in England
and India. In Marfani & Co. v. Midland Bank (supra) a man called
Kureshy who was minded to cheat his employers, the plaintiffs in the
case went to a branch of the defendant bank and asked to open an
account giving the name of Sheik Eliaszade and also those of the E
referees. He was allowed to do so immediately, before the references
had been taken up, and paid £50 the same day. The next day he paid in
a further £35 in cash and the plaintiffs' cheque for £3,000 made pay-
able to one Eliaszade which he had stolen from them. His object in
opening the account was to get this cheque collected by the defendant
bank. F

The defendants in fact had this cheque collected specially on the
day it was paid in, and on the same day wrote to the referees. On the
next day the defendants received the proceeds of the cheque, and one
of the officers of the bank on same day had an interview with one of
the referees who was a customer at the same branch and who gave a G
favourable account of Eliaszade which satisfied the manager-the·
other referee never replied. During the following days Kureshy drew
out the whole of the £3,000; indeed he tried to draw out substantially
more. On discovering the fraud the plaintiffs sued the defendant bank
for the conversion of their cheque. When the defendants pleaded sec-
tion 4 of the Cheques Act, 1957, the plaintiffs contended that they had H
been negligent under four heads:
46 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.
f
•.
(i) They had taken no steps to identify the proposed customer,
A without which the referee's good opinion was valueless.

(ii) No inquiry was made as to the antecedents of Kureshy.
(iii) Only one referee responded to the bank's inquiry
B (iv) The cheque was in fact collected before the references had
been taken up.

The defendants called evidence that they had done all that was usual in
such a case, and claimed that this proved that they had acted with due \
care. It was held that the defence succeeded.
c
It is thus clear that the question of negligence or no negligence
depends entirely on the facts of each individual case and thus makes it
difficult to judge in advance how any particular litigation involving
allegations of negligence will go. In the instant case Sethuraman had in
effect opened another account in the name of the plaintiff firm and
D operated it himself as its proprietor.

As we have already observed, carelessness on the part of the
bank is most likely to occur at the time of collection of cheques espe-
cially in failure to pay due attention to the actual terms of the
mandate. It is not here a case of playing the detective but of a careful
E examination of everything which appears on the front and back of the
instrument. Each set of circumstances produces its own requirements.
The instruments, crossing, type of crossing, per pro, pay cash or order
etc. are important. The banker may be negligent in acting contrary to
such mandate under appropriate circumstances. In the instant case,
however, no details regarding such mandates on the alleged cheques
F are available.

The High Court took the view that if the Manager of the Bank
gave the introduction of Sethuraman to open the account in the
plaintiff's name showing him as its proprietor without making any
enquiry as to its true relationship with the concern then he was taking a
G risk and when it transpired that Sethuraman had made fraudulent
repesentation then the Manager should be taken to have acted negli-
gently. We are not inclined to agree inasmuch as while dealing with a
customer for collecting a cheque, there is no contractual relation bet-
ween the collecting banker and the true owner. The duty is implied by
law. A conduct beneficial to the customer at the expense of the true.
I-! owner when the Bank acts in good faith and without negligence, is no -·
INDIAN OVERSEAS BANK v. INDUSTRIAL CHAIN [SAJKJA, J.] 47

breach of that duty. It is from this position of the true owner that
question of negligence under section 131 of the Act has to be viewed. A
The formula approved in Lloyds Bank Ltd. v. Chartered Bank of
India, Australia and China, [1929] 1 K.B. 40, is that broadly speaking,
the banker must exercise the same care and forethought in the interest
of the true owner, with regard to cheques paid in by customer, as a
reasonable man would bring on similar business of his own. Lord
Dunedin in Commissioner of Taxation (supra) said that the bank's B
action must be in accordance with the ordinary practice of banking and
bank cannot be held liable merely becase they have not subjected an
account to a 'microscopic examination'.

In Ross v. London County, Westininister and Parr's Bank Ltd.,
[1919] 1 K.B. 678, Bailhache J. took the view that the clerks and c
cashiers of the defendant bank would be attributed the degree of intel-
ligent and knowledge oridinarily required of a person in their position
to fit them for the discharge of their duties but that no microscopic
examination of cheques paid in for collection was necessary and that it
was not expected that officials of banks should also be 'amateur detec-
tives'. It could not be said that before opening an account in the name D
of a firm the Bank would be required to enquiry always whether any
firm of the same name was already in existence or not. What facts
ought to be known to the Bank, what inquiries he should have made
and what facts were sufficient to cause the Bank reasonabiy to suspect
that Sethuraman was not the true owner in the facts and circumstances
of the case would depend on current banking practice. What was the E
practice long time back when the use of banking facilities by the
general public was much less widespread may not be a proper guide. Ii
should also be noted that the duty of care owed by the Bank to the
plaintiff as owner of the cheque did not arise until the cheque was
delivered to the Bank by the customer Sethuraman. It was then only
that duty to make inquiries about the cheque arose. Those inquiries F
would depend on the apparent tenor of the cheque and the knowledge
of facts that earlier inquiries ascertained. What we have to do is to
look at all the circumstances at the time of the paying in of the cheque
by Sethuraman and to see whether those circumstances were such as
would cause a reasonable banker possessed of the information
gathered ·.about Sethuraman to suspect that he was not the true owner of G
the cheque. There is very little evidence relating to the deposit and
particulars of the cheques deposited and hence it is difficult to hold
that the Bank ignored obvious indications and was negligent at that
time. It is difficult to accept so speculative a proposition as what would
have happened if inquiries had been made which were not made. It
.does not constitute any lack of reasonable care to refrain from making H
48 SUPREME COURT REPORTS [1989] Supp. 2 S.C.R.

A such inquiries which it was improbable to have led to detection of the
customer's fraud.

While arriving at the above conclusion we have borne in mind
the standard of reasonable care and the banking practices and its trend
B in a developing banking system in the country. Any stricter liability
may not be conducive. It will also be observed that expansion of the
banker's liability and corresponding narrowing down of the banker's
protection under the provision of section 131 of the Act may make the
banker's position so vulnerable as to be disadvantageous to the expan-
sion of banking business under the ever expanding banking system.
This is because a commercial bank, as distinguished from a Central
C bank, has the following characteristics, namely (a) that they accept
money from, and collect cheques for, their customers and place them
to their credit; (2) that they honour cheques or orders drawn on them
r-
by their customers when presented for payment and debit their
customers accordingly; and (3) that they keep currentn account in
D their books in which the credits and debits are entered. The ~eceipt of
money by banker from or qn accout of his customer constitute it the
debtor of the customer. The bank borrows the money and undertakes
to repay it or any part of it at the branch of the bank where the account
is kept during banking hours and upon payment being demanded. The
banker has to discharge this obligation and normally the banker would
E not question the customer's title to the money paid in. Applying the
above principles of law to the facts of the instant case we are not
inclined to hold that the Bank was negligent either in collecting the
cheques and drafts or allowing Sethuraman to withdraw the proceeds.

As we have takan the view that the bank was not negligent, it is
F not necessary to deal with the question of contributory negligence. Let
the loss lie where it falls.

In the result, this appeal succeeds. The impugned judgments are
set aside and the appeal is allowed, but without any order as to costs.

Y. Lal Appeal allowed.