Holding

A bank that takes possession of a customer's goods acts only as a bailee, not as an agent or trustee, so no fiduciary relationship arises, but the bank is strictly liable to return the goods or pay their value for failure to deliver.

Summary

The plaintiff, a textile dealer, maintained a current account with UCO Bank and alleged an oral agreement that the bank would receive, store and deliver his goods, acting as his trustee or agent. He paid for the goods but the bank failed to deliver them, leading to a suit for damages and delivery. The trial court and High Court inferred a fiduciary relationship based on debit entries in the current account. The Supreme Court held that such inferences were unwarranted; a bank taking possession of goods is merely a bailee, not an agent or trustee, and no fiduciary relationship arises from ordinary banking operations. Nonetheless, the bank was found liable for conversion and ordered to return the goods or pay their value. The appeal by the bank was dismissed.

Issues considered

Whether an agreement existed between the bank and the plaintiff regarding receipt, storage and delivery of goods
Whether the bank acted as a trustee or agent of the plaintiff in respect of the goods
Whether a fiduciary relationship existed between the bank and the plaintiff
Whether the bank’s role was that of a bailee and what liability arises from non‑delivery of the goods

Legislation cited

Indian Contract Act, 1872

Subjects

bankingbailmentagencyfiduciary relationshipbanker‑customer relationshipconversionliabilitycurrent accountgoods delivery

Judgment

UCO BANK A
V,
HEM CHANDRA SARKAR

APRIL 25, 1990

[K. JAGANNATHA SHETfY AND M. FATHIMA BEEVJ, JJ.] B

Indian Contract Act, 1872: Chapters lX and X-Bailment-
Agency-Distinguishing features-Duty of Banker-bailee-What is-
.- Bank entrusted with charge of goods/documents by customer-Whether
an agent or bailee-Whether any fiduciary relationship exists between
parties. c
Banking Law-Bank and Customer-Existence of fiduciary
relationship-Whether could be inferred from entries in current
account.

The respondent, who was indenting and lifting goods fro,;. textile D
mills situated in different places, and was maintaining a current
account with the appellant-Bank for this purpose, filed a suit against
the Bank for accounts, damages, compensation and delivery of goods or
their equivalent in money, for non-delivery of goods despite receiving
payment thereof, contending that there was an oral agreement with the
appellant-Bank, regarding receipt and payment of bills, etc. and receipt E
( and storage of goods on his behalf, and delivery of goods to him as and
when required. and that under the said terms and conditions, the
Banker constituted himself and acted as an express trustee and/or agent
of the respondent in relation to the said goods and documents and thus
stood in fiduciary relationship with the respondent.
F
.. The appellant. denying the allegations, contended that it had
never acted as an agent. trustee or depositee of the respondent in
respect of the goods and docun1ents and that no fiduciary relatioµship
existed between the parties.

The trial court decreed the suit holding that from the evidence G
and entries in the current account, it could be inferred that there was
agreement or arrangement between the parties, and the appellant acted
as agentjtrustee of the respondent, and that there was fiduciary rela-
tionship between the parties.

The High Court, affirming the decree of the trial court, held that H

709
710 SUPREME COURT REPORTS [ 1990] 2 S.C.R.

if the respondent had paid the value of the goods and the appellant Bank
A
neither delivered the goods nor rendered accounts, a fiduciary relation-
ship could exist between the respondent and the Bank in respect of the
goods for which value was paid by the respondent.

In the appeal, by special leave, on behalf of the appellant Bank it
B was contended that the Bank was only a collecting agent for the supply
of goods, and not an agent or trustee for the respondent; adjustment of
bills by debiting to the current account without cheques from the re-
spondent would not change the ordinary relationship of bank and -....(
customer; no special relationship was created either by opening the
current account or storing the goods meant for delivery to the respon-
"'I
dent and there was nothing to take the parties outside the usual course
c of banking business; and the bank received and took charge of the goods
only as bailee and any inference of fiduciary relationship between.
parties was unwarranted and unjustified.

Dismissing the appeal. this Court.
r
D
HELD: I. The courts below were not justified in holding that a
fiduciary relationship could exist between the parties in respect of goods
for which the suit claim was base<'. This inference was drawn primarily
from the debit entries in the respondent's current account. Collection of
bills. remittances to mills. meeting expenses of storing the goods and
__....
E debiting the same to the current account even without cheques from the
respondent could not lead to an inference that the Bank acted as agent
of the respondent and that there was fiduciary relationship between
parties. There is nothing in this method of operation t_o take the parties
outside the ordinary relationship of banker and customer. This is the

F
normal method of banking operation and the maintenance of the cur-
rent account in the instant case is not outside this principle. [716D-G I ...
Law of Banking by Lord Chorley oth ed. at 167-168 and Pager's >--.
Law of Banking, 9th ed. at 8->83, referred to.

1. l Banks take charge of goods, articles, securities as bailee and
G not as trustee or agent. Bailment is the delivery or transfer of possession
of a chattel or other item of personal property with a specific mandate
which required the identical res either to be returned to the bailor or to
be dealt with in a particular way by the bailee as per directions of the
bailor. One important' distinguishing feature between agency and bail- ~
ment is that the bailee does not represent the bailor. He merely exer-
H cises. with the leave of the bailor under contract or otherwise, certain
UCO BANK v. H.C. SARKAR 711

powers of the bailor in respect of his property and the bailee has no
A
power to make .contracts on the bailor's behalf: nor can he made the
bailor simply as bailor liable for any acts he does. [7170-F]

Fridman's Law of Agency 5th ed. p. 23, referred to.

In the instant case, there is nothing to indicate that the Bank B
represented some of the parties or the respondent with authority to
change the contractual or _legal relationship of parties. It cannot, there-
fore, be held that the Bank acted as agent of the respondent. [717G]

2.2. The banker bailee, gratuitous or for reward, is bound to take
- the same care of the property entrusted to him as a reasonable, prudent
and careful man may fairly be expected to take of !,is own property of c
the like description. A paid bailee must use the greatest possible care
and is expected to employ all precautions . in respect of the goods
deposited with him. If the property is not delivered to the true owner
the banker cannot avoid his liability in conversion. [718C-D]
D
Having regard to the finding of fact recorded by the courts below,
it is immaterial whether the Bank acted as bailee or in any other capa-
city. On the evidence adduced by the parties it has been established that
the respondent did pay the price of the gobds in respect of which he
based his claim in the suit. The ·Bank having received the price of the
goods from the respondent has failed to deliver the same. This fmdiug E
has not been seriously disputed and the evidence adduced by the Bank
was insufficient to establish the factum of delivery of goods ·to the
respondent. Therefore the bank could not avoid the liability to return
the goods as agreed upon or to pay an equivalent amount to the respon-
+ . dent. Even if it is assumed that the goods were delivered to a wrong
person, the Bank has to own the responsibility to pay the respondent. F
- ,.j The liability of the banker to customer in such a case is absolute even if
no negligence is proved.1[717H; 718A; B, El

Halsbury's Laws of England 4th ed. Vol. 3 paras 93 and 94. The
Law Relating to Banking by T.G. Reeday 4th ed. p. 81 and Law and
Practice relating to Banking by F.E. Ferry 5th ed. p. 21, referred to. G
3. In practice, the bankers do not set up the statute of limitations
against their customers or their legal representatives. There is no
reason for making an exception to this practice in the in.slant case.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3566 H
of 1989.
712 SUPREME COURT REPORTS I1990] 2 S.C.R.
A From the Judgment and Order dated 17.2.1989 of the Gauhati
High Court in F.A. No. 7 of 1972.

K.N. Bhatt, H.N. Salve, A.K. Sil and G. Joshi for the Appellant.
•
--
S. Parekh for the Respondent.
B
The Judgment of the Court was delivered by
~ .•
K. JAGANNATHA SHETTY, J. The question of law which is
concerned in this appeal is whether in the circumstances of the case,

C
the appellant ("Bank") was required to act as agent of the respondent
or as bailee in respect of goods entrusted for delivery to the respon-
dent against payment.
-
In 1945 the respondent ~as carrying on the business of wholesa.Je
and retail dealership in textile yam and cloth at Agartala and in the
course of that business he was appointed as a Government nominee to
D
indent for and lift the quantities of cloth and yam to Agartala from
different mills situated in Bengal, Bombay, Ahmedabad and other
places.

For the purpose of that business, the respondent had maintained
Current Account No. 391 with the Agartala Branch of the United
E Commercial Bank Limited which has since been styled as 'UCO
Bank', the appellant in this appeal.

The case of the respondent-plaintiff was that there was an oral
agreement with the Bank on September 2, 1950 under which the latter
inter alia was to receive bills, documents and air receipts sent by or on
F behalf of the plaintiff from his agents or suppliers and would release
and/or take dehvery of goods sent by them, as and when the goods
arrive at Agartala. The Bank would hold or keep the said goods stored
in its godown for and on behalf of and on account of the plaintiff for his
benefit etc. It was also alleged that payment of the bills in respect of
goods despatched to the Bank should be made by the plaintiff. He
G should be given delivery of the goods and air receipts by the Bank
according to his convenience and requirement. It was further stated
that under the said terms and conditions, the Banker constituted him-
self and acted as an express trustee and/or agent of the plaintiff in
relation to the said goods and air receipts and. thus stood in fiduciary
relationship with the plaintiff.
H
UCO BANK v. H.C. SARKAR [SHETIY, J.) 713

Complaining non-delivery of goods even after receiving payment A
thernof, the plaintiff brought a suit for accounts, damages, compensa-
tion and delivery of goods or their equivalent in money, valued at
Rs.2,68, 198.97.

The Bank has denied all the allegations and asserted thaUt never
B
acted as an agent, trustee or depositee of the plaintiff in respect of the
goods and documents. The existence of fiduciary relationship between
• ,...- the parties was also denied. It was however stated that certain parties
from Calcutta were supplying goods to various parties in Agartala
including the plaintiff and they used to send bills with air receipts ~ver-
.,,, ing the goods to the Bank for presentation to the drawees and the
Bank would deliver the same against payment. The Bank collected bill c
amounts on behalf of those parties in the usual course of business. It
was further admitted that some parties from Calcutta engaged the
) - Bank to collect the amounts of the bills drawn on the plaintiff, tp clear
the goods despatched by them from the Airways on their behalf, to
store them in Bank's godown and to allow the drawee (plaintiff) to
take delivery of the goods against payment of their costs and charges D
including the salaries of the godown staff, handling and insurance
charges etc. Those charges and costs were recovered from the plaintiff
by '.the Bank on behalf of the parties sending the goods to the plaintiff.
The Bank maintained that it had dealt with such goods of the Calcutta
.,al' parties, recovered monthly charges at the instructions of the drawers
I"" and the drawee (plaintiff) and debited to the account of the plaintiff. E
When there was no amount available in the plaintiff's account or when
the plaintiff defaulted in retiring the bills, the said charges were
recovered from the drawers. The goods in the custord of the Bank on
behalf of the Calcutta parties which were paid for by the plaintiff
...,.._would be delivered to the plaintiff and the goods for which no payment
. was made by the plaintiff would be returned to the drawers of the bills. F

-~ Th~ trial court framed among others, the following three issues:

(9) Was there any agreement and/or ,arrangements between the
parties as alleged in the plaint?
G
( 10) Was the defendant a trustee and/or agent of the plaintiff as
• alleged in the plaint? and

(11) Was there any fiduciary relationship between the parties as
alleged by the plaintiff?
H
714 SUPREME COURT REPORTS I1990] 2 S.C.R.

The trial court recorded findings on all these issues in the
A
affirmative and in favour of the plaintiff. On Issue No. (9) as to the
existence of agreement, it was observed:

"The evidence on record shows that regular accounts of
goods for the plaintiff would be maintained by the
B defendant Bank. Although the purpose of current account
No. 391 of the plaintiff cannot alter the nature being that of
debtor and creditor attributable to the account, the factum
of the _account and its operation also indicate that there was
an agreement between the parties. This does not however
exclude necessary agreement or arragement by the bank
with the Calcutta parties.Debits in the account of the
c plaintiff started to be made from 13. 9 .SO in connection with
transactions of the plaintiff, whereas the alleged agreement
between the bank and S.T. Bros, occured in March, 1951.
All these factors lead to the inference that there was an
agreement or arrangement between the bank and the
D plaintiff regarding payment of bills and charges for the
account of the plaintiff and otherwise and regarding storing
of those goods received by the Bank in its godowns, of
which the plaintiff came to be owner and for delivery of
those goods as and when required by the plaintiff. These
are the minimum terms deducible from the evidence on
E record. To this extent the issue is answered in favour of the
plaintiff."

Issue No. (10) was determined as follows:

"It is in evidence that the Bank collected bills, made
F remittances to mills, applied for purchasing drafts on
behalf of the plaintiff, met expenses of storing the goods by
debiting account No. 391 of the plaitiff, collected treasury
bills of the plaintiff and vide Ext. P-56 series made adjust-
ment of bills by debiting account No. 391 without cheques
issued by the plaintiff and did similar other works. All this
G leads to the reasonable inference that the bank also acted
as agent of the plaintiff. In this suit, such agency of the
defendant involved a relation of trust and confidence and
the goods which came to be owned by the plaintiff on pay-
ment of value thereof and which remained in the hands of
the bank were impressed with trust for the benefit of the
•
plaintiff. As matter of fact, the defendant bank's position
UCO BANK v. H.C. SARKAR [SHETIY, J.] 715

was that of an intermiedtary owing duties to both the
A

-- Calcutta parties and the plaintiff."

Issue No. (11) as to the fiduciary relationship between the Bank
and plaintiff, it was remarked:

"The bank collected cheques issued in its favour and under B
advice of the plaintiff remitted the money to the mills and
the Calcutta parties to meet the value of the bills drawn by
the mills and.the agents of the plaintiff (Calcutta parties). It
has to be noted in this connection that the Calcutta parties
acted as agents of the plaintiff in so far as they acted on
behalf of the plaintiff in lifting the controlled commodities
from the mills and arranging for their despatch to Agartala.
c
The bank also made adjustment of bills by debiting account
No. 391 without any cheques being issued by the plaintiff,
vide Ext. P-56 series, and met the expenses of storing the
goods by debiting from the account No. 391 of the plaintiff.
From Ext. P-61, stock register, it is seen that the bank D
stocked goods on account of the plaintiff in its godowns on
those premises, according to the learned counsel for the
plaintiff, there is no escape from the conclusion that the
bank stood in a fiduciary relationship with the plaintiff.
Learned counsel for the defendant bank urged that save
and except relationship of banker and customer there was E
no other relationship between the plaintiff and defendant
bank. But in view of the materials on record I find that
there was fiduciary relationship between the plaintiff and
the defendant bank. This issue is decided in favour of the
t plaintiff."
F
Accordingly, the suit was decreed in part directing delivery of goods or
the value equivalent to Rs.1,26,500. A Commissioner was also
appointed to take accounts with regard to the transactions.

The High Court of Calcutta has affirmed the decree of the trial
court. As to the question of relationship between the Bank and G
customer, the High Court observed:

"In our opinion if we find that the plaintiff paid the value of
the goods and the appellant bank neither delivered the
goods nor rendered accounts, a fiduciary relationship could
exist between the plaintiff and the bank in respect of the H
716 SUPREME COURT REPORTS [1990] 2 S.C.R.

goods for which value was paid by the plaintiff."
A
~
The Bank by obtaining leave has now appealed to this court. .~

In opening the appeal, Counsel for the appellant urged that the
case of the plaintiff based on oral agreement which is expressly con-
B trary to banking transactions ought not to be relied upon. It was
claimed that the Bank was a collecting agent for the supplier of goods
and not an agent or trustee for the respondent. Adjustment of bills by
debiting to the current account without cheques from the respondent
would not change the ordinary relationship of bank and customer.
There was no 'special relationship' created either by opening the cur-
""'
~
rent account or storing the goods meant for delivery to the plaintiff
c and there was nothing to take the parties outside the usual course of
banking business. It was further argued that the Bank received and

D
took charge of the goods only as bailee and any inference of fiduciary -
relationship between parties was unwarranted and unjustified.

Counsel for the appellant appears to be very particular to get rid
of the finding recorded by the Courts below as to the fiduciary rela-
•
tionship in bank and customer relationship. We agree with him that
the High Court and the trial court were not justified in holding that a
fiduciary relationship could exist between the parties in respect of
goods for which the suit claim was based. This inference was drawn
~
E primarily from the debit entries in the plaintiff's current account.
Reference was made to collection of bills, remittances to mills, meet-
ing expenses of storing the goods and debiting the same to the current
account even without cheques from the plaintiff. These acts according
to the trial court would lead to an inference that the Bank acted as
agent of the plaintiff and there was thus fiduciary relationship between
F parties. But we do not find anything in this method of operation to
....
take the parties outside the ordinary relationship of banker and
customer. Lord Chorley says that "the main mass of daily banking J..~
activity in branch banks is concerned with the operations of current
accounts which thus provide a sort of hub round which the wheels of
the whole set up of commercial banking revolve ..... There is no
G accepted definition of a current account; though in its normal form it is
easily recongnised in practice. The principal feature of such an account
is the fact that the customer gets his money repaid from it, or any
advances which he is receiving from his banker by way of loan: and this -t~
•
is so whether the repayment is to himself or to a third party. Normally
the repayment is made through the machinery of the cheque and con-
H versely unless otherwise indicated by the customer it is implied that
UCO BANK v. H.C. SARKAR [SHETfY, J.] 717

cheques paid in are for the credit of the current account, and that they
A
) will be so credited ..... We have seen that overdrawings by the

--·· ! customer when allowed by the banker are treated as loans. They will
be debited to the current account. Indeed it is through the current
account, and by means of overdrafts on it that loans and advances are
normally made by bankers to their customers". (Law of Banking by
Lord Chorley 6th ed. at 167-168). In Paget's Law of Banking, 9th ed. B
at 82-83, it is stated that "the current or drawing account may be either
a credit or an overdrawn account. A credit account is made up of
moneys paid in by the customer, the proceeds of cheques and bills
collected for him, coupens collected, interest and dividends paid direct
to the banker and from various other sources, less any money properly

- paid out. Moneys from different sources, once they have found their
way into the current account, afe treated as one entire debt." This il-
the normal method of banking operation arid the maintenance of the
C

current account in this case appears to be not outside this principle and
therefore, no inference could be drawn that the· Bank stood in
fiduciary relationship with the plaintiff.
D
Next question for consideration is whether the Bank acted as
agent of the plaintiff in respect of the goods in question? Here also
Counsel appears to be right in his submission. Banks take charge of
goods, articles, securities as bailee and not as trustee or agent. Bail-
ment is the delivery or transfer of possession of a chattel (or other item
of personal property) with a specific mandate which requires the E
identical res either to be returned to the bailor or to be dealt with in a
particular way· by the bailee as per directions of the bailor. One
important distinguishing feature between agency and bailment is that
the bailee does not represent the bailor. He merely exercises, with the
leave of the bailor (under contract or otherwise), certain powers of the
bailor in respect of his property. Secondly, the bailee has no power to F
make contracts on the bailor's behalf; nor can he make the bailor
. liable, simply as bailor, for any acts he does. (See Fridffian's Law of
Agency 5th ed. p. 23). In the instant case, there is nothing to indicate
that the Bank represented the Calcutta parties or the plaintiff with
authority to change the contractual or legal relationship of parties and
therefore, there is no justification to hold that the Bank acted as agent G
of the plaintiff.

But that however, does not mean that the Bank could succeed in
this appeal. Having regard to the finding of fact recorded by the
Courts below, it is immaterial whether the Bank acted as bailee or in
any other capacity. On the evidence adduced by the oarties it has been H
718 SLPREME COURT REPORTS [ 1990] 2 S.C.R.

established that the plaintiff did pay the price of the goods in respect of
A which he based his claim in the suit. The Bank, however, took the plea
that the goods were delivered to one Shishu Ranjan Sen, who was the
authorised agent of the plaintiff. But at the relevant time the plaintiff
had his own agent called Dhani Ram and he did not receive the goods.
--
The Bank has neither examined Shishu Ranjan Sen nor Dhani Ram.
B The Bank examined one Dhawan (DW-2) to prove some initials of
Shishu Ranjan Sen on certain documents but his evidence has not been
accepted. The fact, therefore, remains that the Bank having received
the price of the goods from the plaintiff has failed to deliver the same
to him. This finding has not been seriously disputed and indeed cannot
be disputed since the Bank having chosen not to call Shishu Ranjan
Sen or Dhani Ram to give evidence. The evidence adduced by the
C ij_ank was thus insufficient to establish the factum of delivery of goods
to the plaintiff. The banker bailee gratuitous or for reward is bound to
take the same care of the property entrusted to him as a reasonably
prudent and careful man may fairly be expected to take of his own
property of the like description. (See: Halsbury's Laws of England 4th
D ed. Vol. 3 para 93). In fact a paid bailee must use the greatest possible
care and is expected to employ all precautions in respect of the goods
deposted with him. If the property is not delivered to the true owner,
the banker cannot avoid his liability in conversion. (See: (i) The Law
Relating to Banking by T.G. Reeday 4th ed. p. 81; (ii) Law And
Practice relating to Banking by F.E. Ferry 5th ed. p. 21). In the light of
E these principles the Bank could not avoid the liability to return the
goods as agreed upon or to pay an equivalent amount to the plaintiff.
Even if we assume that the goods were delivered to a wrong person,
the Bank has to own the responsibility to pay the plaintiff. The liability
of banker to customer in such a case is absolute even if no negligence is
proved. In Halsbury's Laws of England (supra, para 94), it is stated
F "where the bank delivers the goods to the wrong person, whereby they
are lost to the owner, the liability of the bank is absolute, though there
is no element of negligence, as where delivery is obtained by means of
an artfully forged order. In law the banker could contract out of this
liability, but he would be unlikely to do so in practice."
Before parting with the case, we may also state that in practice,
0 bankers do not set up the statute of limitations against their customers
or their lega! representatives, and we see no reason why this case
should be an exception to that practice.
In the result, the appeal is dismissed with costs, but not for all the
reasons stated by the trial court and the High Court.
H
N.P.V. Appeal dismissed.