PRS Hygiene Ltd. vs Axis Bank And Ors.

Ranjit Singh, J

The Tribunal below has allowed the claim of the respondent Bank for recovery of Rs. 34 lacs from the appellant. Aggrieved against the said order, the appellant has filed the present appeal. The appellant was operating a current account with the respondent Axis Bank. As per the Bank, respondent No. 3, with mala fide intention issued one cheque on 25.2.2010 for a sum of Rs. 25 lacs in favour of respondent No. 5. Respondent No. 5 deposited this cheque with ICICI Bank. The above said cheque was presented in clearing by the presenting ICICI Bank on 24/25.5.2010 on Axis Bank. The appellant was not having sufficient amount in its account. However, due to software upgradation process, the respondent Bank could not process the said cheque on the day of presentation and hence could not return the cheque in time. In the meantime the presenting Bank released credit to respondent No. 5 who withdrew the amount from its account. When the respondent Bank came to know that the appellant did not have sufficient amount in its account to honour the cheque, it addressed a letter to ICICI Bank, but ICICI Bank had already credited the amount in the account of respondent No. 5. Alleging that this payment was made by way of mistake, the respondent Bank demanded the amount from the appellant and respondents 2, 3 and 4. The appellant had raised a demand of Rs. 25 lacs with interest @ 18% p.a. and thus filed O.A. for recovery of Rs. 34 lacs.

The appellant and respondents 2 to 4 appeared and raised a plea that the Tribunal had no territorial jurisdiction over the case. Respondents 2 to 4 would plead that they had no account with the respondent Bank and they were not necessary parties. Respondent No. 3 also denied to have issued the cheque. It was stated that there was dispute between the appellant and respondent No. 5 because of which the respondent No. 5 was requested not to present the cheque. The appellant had alleged that respondent No. 5 in connivance with the officials of the respondent Bank and ICICI Bank had presented and got encashed the cheque knowing fully that there was no sufficient funds in the account. Accordingly, the appellant and respondents 2 to 4 pleaded that the Bank was not entitled to recover this amount.

Respondent No. 5 filed a separate statement contending that it had no privity of contract with the respondent Bank. Respondent No. 5 had entered into some agreement with the appellant for which respondent No. 5 had deposited with the appellant an amount of Rs. 25 lacs as security. When the agreement was terminated, appellant was asked for refund of this security amount, so the cheque was issued. Respondent No. 5 presented the cheque which was received for valid consideration and respondent No. 5 was not liable for any claim.

In the above noted background, one of the issues which was framed by the Tribunal was that if there was any negligence on the side of the respondent Bank in dealing with the cheque and in its honouring. The Tribunal has found that there is no dispute that the appellant had issued the disputed cheque in favour of respondent No. 5 and when the cheque was issued there was no sufficient fund in the account of the appellant. After noticing the stand of the Bank regarding software updating, the Tribunal has found that since the respondent Bank did not timely given information to the ICICI Bank, no fault would lie on the ICICI Bank. The Tribunal has then held that this is a clear case of payment by mistake. After making reference to Section 72 of the Indian Contract Act, the Tribunal has observed that a person to whom money has been paid or anything delivered, by mistake or under coercion must repay or return it.

The Tribunal, thereafter, has observed that it would be necessary to consider whether there was any negligence on the side of the respondent Bank in dealing with the cheque. The Tribunal has observed that timely information should be given whenever cheque is received for payment from the collecting Bank, but has taken note of the stand of the Bank that because of software upgradation process carried out by the respondent Axis Bank, it could not process the cheque on the day of presentation. This explanation was considered reasonable and was accepted. The Tribunal accordingly did not find any negligence on the part of the respondent Bank while dealing with the cheque.

The Counsel for the appellant would challenge this finding returned by the Tribunal whereas the Counsel for the respondent Bank would vehemently support the finding and urge that there was no negligence on the part of the Bank and it was only a mistake which led to this payment.

I have considered the submissions made before me. The payment has resulted primarily because the respondent Bank could not provide timely information to ICICI Bank to stop payment as the appellant did not have sufficient fund in its account. Would it pass of as a mistake? Mistake would be if some payment is made which would not be due. Mistake could be when a cheque is forged or fabricated and the payment is made which is not due. The Bank can certainly be expected to be vigilant. It cannot hide the duty expected from it under the garb of some software being updated and so it could not provide timely information to ICICI Bank that the appellant did not have sufficient funds in its account. The Counsel for the appellant would allege that there is a clear negligence on the part of the Bank, showing deficiency in service.

The Hon'ble Supreme Court in the case of Indian Overseas Bank v. Industrial Chain Concern, 1989 (SLT Soft) 430 : I (1990) BC 103 (SC) : (1990) 1 SCC 484, has considered the issue of Bank's negligence in receiving cheque for its customer in the light of Section 131 of the Negotiable Instruments Act. The Court has observed that the Bank acts basically as 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. Where the Bank collects for the customer, he will be liable in conversion if the customer has no title. However, if he collects in good faith and without negligence he may plead statutory protection under Section 131 of the Act. The Court has further held that to enable the Bank to avail the immunity under Section 131 as a collecting Banker he has to bring himself within the conditions formulated by this 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.

This is not a case where payment has been received on account of defective title or defective cheque. The receipt of the payment contemplated by this section is one from the drawee Bank. The onus of bringing himself within the section rests with the Banker. The test of negligence for the purpose of Section 131 of the Act is to see whether the transaction of paying in any given cheque coupled with the circumstances antecedent and present is so out of the ordinary course that it ought to arose doubts in the Banker's mind and cause him to make inquiries. The Banker is bound to make inquiries when there is anything to rouse suspicion that the cheque is being wrongfully dealt with in being paid into the customer's account. The Banker is not expected to be abnormally suspicious. As 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 given by Section 131 of the Act. Reasonable care will depend on the facts and circumstances of the case.

In case of United Bank of India v. M/s. A.T. Ali Hussain & Co., a Firm & Ors., AIR 1978 Cal 169, the Court has considered the law in England as to restitution of money or property to a person who paid or delivered the same to another by mistake. The Court has noticed that law in England is based on equitable consideration. Referring to the case of Kelly v. Solari, (1841) 9 M and W 54, the Court in this case has observed that if the amount is paid under impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to show due diligence to enquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it. This principle has been followed by the Privy Council in the case of Imperial Bank of Canada v. Bank of Hamilton, 1903 AC 49. It, therefore, follows that when a case comes within the purview of the law laid down in Kelly's case (supra) the plaintiff should succeed notwithstanding that the receipt of the money also acted in good faith and parted with the same to another person without a chance of recovery of the same. The rule laid down in Kelly's case (supra) thus is that if anybody acting under a mistake pays money or delivers any property to another, the latter must repay or deliver the same to the former.

The Courts have held that it is indisputable that if money is paid under a mistake of fact and is re-demanded from the person who received it before his position has been altered to his disadvantage, the money must be repaid. Thus, there is no scope of application of doctrine of estoppel which was disapproved in Kelly's case (supra). Otherwise, the Calcutta High Court in the case United Bank (supra) has taken note of Section 72 of the Indian Contract Act, which provides that a person to whom money is paid, or anything delivered, by mistake or coercion, must repay or return it. The High Court has observed that there is no indication in this section as to the application of doctrine of estoppel. The view expressed in some of the judgments was that Section 72 of the Contract Act is to be read subject to doctrine of estoppel. The High Court then considered this question whether the said section is to be read as subject to doctrine of estoppel or should it be construed on the basis of the doctrine of equitable restitution notwithstanding the conduct of the parties. It is held that prima facie, this section comprises within it the principle of English Law without any reservation or limitation. This is a case where the payment has been released to respondent No. 5 only because the respondent Bank could not communicate in time that there was no sufficient funds in the account of the appellant. This is neither a case of fraud nor of a mistake in the payment. The payment has resulted only on account of some lapse on the part of the Bank. The issue of restitution would have arisen in case the payment had not been made to respondent No. 5 by the time Bank woke up. There is not much delay, but whatever was the delay it has resulted in change of position. No doubt, the appellant could be expected to issue cheque only in case it had sufficient funds in its account, but if the Bank had been vigilant, then this payment certainly could have been stalled once there was no fund available in the account. Primarily it is due to the act of the Bank 'that has resulted in the payment. Thus, it is the negligence on the part of the Bank, which may be due to some updating of software that has resulted in this situation. It certainly would not appear to be a case of any mistake. The finding returned by the Tribunal below that this payment was made on account of mistake thus cannot be sustained. The Bank is held responsible for negligence to some extent if not fully leading to payment. At the same time the appellant can also not be allowed to escape liability for issuing cheque fully knowing that there was no amount lying in the account to honour the cheque. Due to some negligence, the Bank may be held not entitled to recover the full amount claimed but the appellant would be under obligation to reimburse the Bank which has paid the amount on being forced by the situation. The amount here is paid under the impression of the truth that amount is lying in the account of the appellant, a fact which is untrue. The Bank is entitled to recover this amount in equity. The Bank thus is held entitled to cheque amount of Rs. 25 lacs instead of the amount as allowed by the Tribunal below. The appeal is allowed in the above terms.