Bank of Bihar Ltd. v. Mahabir Lal & Ors.

Judgment

CIVIL APPELLATE JURISDICTION: Civil .Appeal No. 340 of 1960. Appeal from the judgment and dec.ree dated March 11, 1958, of the Patna High Court in F. Appeal .No. 230of1950. Sarjoo Prasad and R. G. Prasad, for the appellant. N. G. Chatterjee, JJf. K. Ramamurthy, R. K. Garg, S. (J. Agarwala and D. P. Singh, for the respondent No. 1. 1963. February 7. The Judgment of the Court was delivered by MUDHOLKAR, .J.-This is an appeal by a certificate granted by the Patna High Court allowing the appeal preferred before it by the defendants l and 2 and dismissing the claim of the plaintiff Bank (the appellant before us) for a 1um of Rs. 35,000/-. 196! B•nk of Bihar Lt~. Mih•6ir Lal Mudl1olkar, J. &.le •I Boho< Ltd. Molvbtr UI M"'°"11l01, J. According to the Bank, defendants I and 2 carried on busilless at Bihar Sharif under the name ar.d style of Messrs. Jogilal Prabhu Chand.

On February 17, 1941, they executed a cash credit agreement in favour of the Bank under which cash credit facilities were sanctioned up to a limit of Rs. 50,000/· against cloth bales on certain terms. Under that agreement a sum of Rs. 15,000/· was advanced to the Firm on that very day. On August 28, 1947 the Firm executed a promissory note in favour of the Bihar Sharif branch of the Bank for Rs. 50,000/· and approached the Manager for immediate advance of Rs. 35,000/- a~ they required that amount for paying the price of certain cloth al lotted to them by M/s. Manohardas Jainarain, wholesale dealers of Patna. Then according to the Bank, an arrangement was entered into between the Firm and the Manager of the Bihar Sharif branch of the Bank under which the Firm was allowed to draw on the security of the promissory note on its agreeing to pledge the bales of cloth as further security after they were received from the wholesalers.

On the basis of this agreement, the Finn drew a cheque for Rs. 35,000/- on August 29, 1947 in favour of the second defendant, which was, according to the Bank, actually passed for payment by the Manager of the Bihar Sharif Branch of tne Bank and the·amount was paid to the second defendant. Further, according to the Bank, on August 30, l!J-!7 a "false and mischievous" telegram purporting to · be from defendant No. 2, Mahabir Lal, was received by the Manager of the Bihar Sharif branch of the Bank saying that the Potdar of the Bank who was sent along with him with the money by the Manager had not deposited it and that the Potdar could not be traced. The telegram contained a further request that the amount of Rs. 35,000/· be made available to the firm immediately. On September 1, 194 i the Manager informed the Finn that the allegations in the telegram were altogether false.

On September 9, 194 7 the Manager 1 s.c.R. received a letter signed by Mahabir Lal alleging that in collusion with the Potdar he, (the Manager) had misappropriated the sum of Rs. 35,000/-. These allegations are said by the Bank to be false and the suit out of which this appeal arises was instituted for the recovery of the amount for which the cheque was drawn by the Firm on August 29, 1947 and actually cashed by the Manager. The defendants denied the claim of the Bank as false. According to them, the suit was a counterblast to a criminal case instituted by them against the Manager and the Potdar of the Bihar Sharif branch of the Bank charging them with misappropriation. While tht' defendants admitted that they had made arrangements with the Bihar Sharif branch of the Bank for a loan of Rs. 35,000/- as alleged by the Bank for taking delivery of 42 bales of cloth which had been .allotted to them by M/s. Manohardass J ainarain, wholesale dealers of Patna, they contended that the second defendant was informed that under the rules the Bank could advance a loan only upon the goods actually kept in the custrdy of the Bank.

They fu,rther alleged that the Manager said that in order to oblige the Firm he was prepared to advance Rs. 35,0uO/- provided certain conditions were fulfilled. Those conditions were : (I) that the Firm should execute a loan bond as well as 'a promissory note for Rs. 50,000/- as further security; (2) that the firm should draw a cheque for Rs. 35,000/- endorsed to self ; ( 3) that the second defendant should furth·r agree that instead of taking the amount in cash with himself he should let the amount be sent by the Manager, Mr. Kapur, thcough Ram Bharosa Singh, Potdar of the Bank for being paid to M/s. Manohardassjainarain, and (4) that after payinl( the amount the said Potdar would take delivery of the bales of cloth allotted to the Firm and bring them to the premises of the Bank at Bihar Sharif where they wo•1ld remain pledged until the loan was repair! 196.1 Ba•1k nf liiha~ ltd, Mah.ab;, Lal Mudholkar, .I. BanJ; qf Bihm Lid. Mahabir Lal Aludhol/;ll', J. SUPREME COURT REJ;'ORTS (1964]

VOL. The Firm thus denied that the sum of Rs.35,000/- was acfaally paid, or advanced to them by the Manager .of the Bihar Shari{ branch of the Bank . A<;cording to the ;Firm, a cheque was drawn at 5.00 a. m. on 'th~ next morning ani;I after it w~ handed over to Mr. Kapur, he went i11si9,e the treasury of the Bank \'-lone \Yith the potdar and returned with something wrapped in Ji gamchhrJ and tied it round the waist of the Potdar .and said that the latter would hand over the money to M/s. Manohardas~ jainarain, take delivery_ of the goods and bring them to the premises of the Bank -where they would. be kept in pledge. Thereafter the Potd~r '.and the second defendant, alon.g with one Mahadeo Ra!Il, a serva9t ,of the Firm left for Patna by bns. ,Op reaching the ekka stand of Patna, the Potdar asked the se<;ond defendant to proceed to the pr<;I\lises of M/s. Mano- - hardassjainarain saying that as. Ile had to go to the Patna City Branch of "th~ .l,3ihar Bank, he .would follow later.

He assured the second defendant that he would bring along witn him the sum of Rs. 3ii,OOO/-. The second. defendant· then went to the pn:mises ol M/s. Manohardass J ainarai!l and. waited for the Potdar to tllrn up. As he <lid not come. within a rea~ona_bte· time, he w,cnt ro tlu; Patna City Branch of the Baqk only to discover that the Potdar was not there either. lt was after, this that the telegram mentioned in the plaint was sent to Mr .. ,,Kapu~·and a report l6dged with the Police at P.atna. , The second defendant says that on his return to Bihar Sharif on August 30, he saw Mr.. Kapur and tola the whole story to him where.upon Mr. Kapur said that he should nQ,t worry anq that he would see to it that the bales were ~eleased soon by M/s. Manohardass Jaiparain. Nothing, however, happened and, there· fore, the defondants filed a criminal complaint against Mr. Kapur a' well as tlie fotdar., Eventually, however, the complaint filed· by the defendants failed. 1 S.C.R. In its judgment the trial court has said :

"Moreover even if it be accepted for the 1ake of argument that Ram Bharosa Singh went with th~ money aloug with Mahabir Lal as alleged according to the term of the con tract he would be deemed to be a temporary servant of Mahabir Lal for that purpose which fact is evident from the defendants' evidence also as according to their evidence Mahabir Lal met the cost of his Nashta (breakfast) and fare of the bus." Apparently because of this, when the Firm's appeal was being argued before the High Court, the Bank's counsel Mr. B. C. De conceded that Ram Bharosa Singh, Potdar, did take the money to Patna where he went along with the second defendant, which implies that the defendant No. 2 was not actually paid the amount for which the cheque was drawn by the Firm. In this connection we would quote the following statement appearing in the judgment of the High Court : "Mr. B. C. De, who appeared for the plaintiff conceded at the outset that, in fact, Rambharosa Singh, Potdar, had taken the money to Patna City to pay to the Firm of Manohardass J ainarain as is the case of the contesting defendants.

He however, urged that, even then, the defendants would be liable for the· claim of the plaintiff. He urged that Rs. 35,000/· had gone out of the coffers of the Bank against the cheque for R.s. 35,000 issued by the defendants. The Bank was, therefore, not responsible as to who, in fact, got the money after it was duly presented and honoured by the Bank." The High Court then pointed out that Mr. De placed reliance upon certain decisions of the Calcutta and Bombay High Courts and s. 85 of the Negotiable Bank •/ Bi"•' I td Mahabir Loi Mudholkor, /, ' '·. 1953 Banl of Bi0.a1' Lid. Mallabir I..I Mutiholkar, J. I Instruments Act. Before . us, however;·. if iSurged on behalf of the Bank that no such concession was made by Mr. De. The. second defendent has filed an affidavit which counters the Statement made on behalf of the Bank.

In our. opinion where a statement appears in the judgment of a ·court that a _ particular thing happened or did not happen before · It, it ought not ordinarily to. be permitted to be 'challenged by a party unless of course both the · parties to the litigation agree that the statement is wrong, or.'. the court itself admits that .the statement is erroneous. If the High C..mrt had proceeded on an erroneous impression that Mr. De .had conceded that the money was taken.along with him by Ram .. Bharosa Singh to Patna, there was nothing easier for the Bank than . to prefer an application for review before the High Court after the judgment was pronounced or if the judgment was read out in court immediately draw the· attention of the court to the error in the statement. Nothing of the kind was done by the Bank. It is too late for the Bank now to say that the statement was wrong.

It appears to have been ar5ued on behalf of the Bank in the trial court alternatively that even on the assumption that the money was taken to Patna by Ram Bharosa -Singh, the suit must be decreed. \Ve, therefore, see nothing strange in !\fr. De making a concession of · the kind attributed· to him by the High Court. In the circumstances. we decline to go behind what is contained in the judgment of the High Court, quoted earlier. The next questiori is whether the sum of Rs. 35,000/- could be said to have been paid by the Bank to the Firm. Upon the admitted position that the amount of Rs. 35.000/- was not actually received by the Firm in the sense that it was not handed over ·to the second defendant who had presented the cheque. could it be said that it must be deemed to have been paid to the firm since it was handed over 1 S.C.R. to the Potdar for taking it to Patna ?

It is no doubt true that the Potdar did accompany the second defendant to Patna but it is difficult to hold that he being a servant or an agent of the Bank could also be said to have been constituted by the Firm as irs agent for carrying the money to Patna. It is not the Bank's case that it was at the suggestion of the defendant No. 2 that the money was handed over to the Potdar. Perhaps it was not the. normal duty of a . Potdar .to carry money on behalf of the Bank for payment to a party at its place of business. · But · even if it is not, we cannot overlook the fact that the arrangement which was arrived at between the Firm ·and Mr. Kapur was also an unusual one. Mr. Kapur admittedly had no authority to . pay Rs. 35,000/- to the Firm before the goods or documents of title relating to the .goods were placed in the custody of the Bank. Since Mr. Kapur wanted to help the Firm without at the sametime breaking the rules of the Bank, what he must have intended in handing over the money to the Potdar was to constitute him as the agent of the Bank for the purpose of paying the money to the Firm of l\fanohardass Jainarain and taking simultaneously delivery of the goods and the documents of title relating to the goods from that Firm.

There would have been no point in the Potdar accompanying,the second defendant to Patna and carrying money along with him if he were not to be the agent of the Bl\l)k. It is the Firm's case that the second defendant did not go alone to the Bank on the morning of August 29, but that he went along with his servant Mahadeo. Two of them being together, they could surely not have wanted a third person to go along with them just for carrying the cash. We are therefore, of the opinion that the money not having passed into the actual custody of the Firm or that of the custody of a person who was a servant or agent of the Firm, the Firm cannot be held liable for it. Bank of. Billar Lid. Ma/whir Lqt Mu4holkar, J Rank of /Jjh., ltd, lifahabir I.al Mudholl.or 1 /, In regard to s. 85 of the Negotiable Instruments Act, 1881 (2Ci of U?81) and the decision of Jagjivandas, .lamnadas v. The Xoyar Central Bank Ltd., (1), which is founded on that section upon which reliance was placed before the High Court, it is sufficient to say that before the provisions of s.

85 can assist the Bank, it had to be established that payment had iu fact been made to the firm or to a prrson on behalf of the Firm. Payment to a person who had nothing to do with the Firm or a payment to an agent of the Bank would not be a payment to the Firm. Section 118 of the Negotiable Instruments Act on which reliance was placed before us docs not have any bearing upon the case at all. It was then urged on behalf of the Bank that even assuming that the money was misappropriated by the Potdar the Bank could not be held responsible for his act because his act was a criminal act. In support of this contention the learned counsel relied upon the decisions in Gopal Chandra BhattaclwrjP.e v. The Ser.retary of Suiw for lndi<I ('), and Cheshire v. Bailey(').

The rule of law upon which these decisions are based is that the liability of the master for the misconduct of the servant extends only to the fraud of his servant committed in the course of his employment and for the masler's benefit and that a master is not liable for the misconduct of the servant C©mmitted for the servant's own private benefit. It is difficult to appropriate how these cases arc of any assl5tance to the Bank. Here, what the Bank wants to do is to fasten liabili1y upon the firm with respect to the amount for which It had drawn a cheque. Before the firm could be made liable, the amount for which the cheque was drawn had to he shown to have heen paid to the firm. On the contrary it was handrd over by the Bank to its Potdar ;wowedly with the object of paying it to the firm of :\fanohardass Jainarain, but was not in fact so paid by him. Assuming that he misappropriated the money how (1) (1925) l.I..R. 50 Dom. 118. (2\ (190Q; 1.1..R. Cal.% 647. (3) [1905] l K.H. 237. '1 s.c.R. can the Bank seek to hold the Firm of the defendants liable?

This is not a case where the defendants arc seeking to hold the Bank liable for a criminal act of one of its servants or employees. But it is a case where the Bank wants to fasten liability on the Firm for the criminal act of the Bank's own servant. Such a proposition is insupportable in law. For, vicarious liability may, in appropriate cases, rest on the master with respect to his servant's acts but it cannot possibly rest on a stranger with respect to the criminal acts of a servant of another. The ·principle on which the master's liability for certain acts of the servant rests is that the servant, when he commits such act, acts within the scope of his authority. IC the servant was not acting within the scope of his authority, the master would not be liable and it is the person who did the particular act, that is the servant, would alone be liable.

If a third party sustains damage or loss by reason of an act of the servant, he can hold the servant liable and also if the servant's act falls within the scope of his duties or authority, the master as well. That principle can obviously have no application for founding a liability against a stranger from whom the servant can in no sense be regarded as deriving any authority. We arc, therefore, clear that whether the money had been misappropriated, by the Potdar or by the Manager, it is the Bank who is their employer that must bear the loss. The drawers of the cheque, that is, the Firm to whom no part of the money was paid by the Bank cannot be held liable to make it good to the Bank. For these reasons we affirm the decree appealed from and dismiss the appeal with costs. Appeal dismissed • 196J Bank of Biw Lii. M.w;, t.I MuJMl!w, /,