Case Note & Summary
The present appeal arose from a suit filed by the appellant, Bank of Bihar Ltd., against respondent firm Messrs. Jogilal Prabhu Chand, carried on by Mahabir Lal and another, for recovery of Rs. 35,000 advanced under a cash credit agreement. The bank had sanctioned cash credit facility up to Rs. 50,000 against cloth bales on 17 February 1941, and on 28 August 1947 the firm executed a promissory note for Rs. 50,000 and sought an immediate advance of Rs. 35,000 to pay wholesalers M/s. Manohardass Jainarain of Patna for cloth allotted to the firm. According to the bank, the firm drew a cheque for Rs. 35,000 on 29 August 1947 in favour of the second defendant, which was passed for payment and the amount paid to him. The firm, however, denied receiving the money. It alleged that the bank manager insisted that the loan be sent through the bank's Potdar, Ram Bharosa Singh, to Patna to pay the wholesaler, who would then deliver cloth bales to be pledged with the bank. The Potdar accompanied the second defendant to Patna, but after reaching the ekka stand, asked the defendant to go ahead to the wholesaler's shop, saying he would follow after visiting the Patna City Branch. He never arrived. The firm sent a telegram to the manager and later filed a criminal complaint against the manager and Potdar, which failed. The bank sued for recovery. The trial court decreed the suit, observing that even if the Potdar went with the money, he would be deemed a temporary servant of the firm. On appeal by the defendants, the Patna High Court noted that the bank's counsel conceded that the Potdar had taken the money to Patna, and allowed the appeal, dismissing the bank's claim. Before the Supreme Court, the bank challenged the recorded concession and argued that payment to the Potdar should be deemed payment to the firm under Sections 85 and 118 of the Negotiable Instruments Act, 1881, and that the bank could not be liable for the criminal act of its servant. The Court refused to go behind the High Court's record of the concession, holding that a statement in a judgment about what happened in court cannot ordinarily be challenged unless both parties agree it is wrong or the court admits error, and the bank had not sought review. On merits, the Court held that payment to the bank's own Potdar did not constitute payment to the firm because the Potdar was not an agent of the firm; the money never passed into the firm's actual custody. Section 85 required establishing that payment had in fact been made to the firm or to a person on its behalf. Section 118 had no bearing. Vicarious liability cannot rest on a stranger for the criminal acts of another's servant. Accordingly, the Supreme Court dismissed the appeal, affirming the High Court's decision, and the bank was not entitled to recover the Rs. 35,000 from the firm.
Headnote
A) Negotiable Instruments - Payment to Customer - Section 85, Negotiable Instruments Act, 1881 - Payment to bank's own servant/agent does not amount to payment to customer firm unless servant was agent of firm; no actual receipt by firm; hence bank cannot recover loan amount - Held that the money not having passed into actual custody of firm or a person who was servant or agent of firm, firm cannot be held liable for it; bank's payment to its own Potdar did not constitute payment to firm under Section 85 (Paras 842-846). B) Negotiable Instruments - Presumptions - Section 118, Negotiable Instruments Act, 1881 - Section 118 has no bearing on question whether payment was made to firm; it deals with presumptions as to consideration, date, time of acceptance, etc., not with fact of payment - Held that Section 118 was not applicable to determine whether payment to bank's Potdar constituted payment to firm (Paras 842-846). C) Civil Procedure - Concession in Judgment - Statement in Judgment Cannot Be Challenged Unless Both Parties Agree or Court Admits Error - No specific act - Where a statement appears in judgment of 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 both parties agree statement is erroneous or court itself admits error; failure to seek review or correction immediately precludes later challenge - Held that Bank's belated challenge to High Court's record of counsel's concession was not permitted (Paras 842-846). D) Law of Agency - Vicarious Liability - Master Liable for Servant's Acts but Stranger Not Liable for Criminal Acts of Another's Servant - No specific act - Vicarious liability may rest on master with respect to his servant's acts but cannot rest on stranger with respect to criminal acts of servant of another; bank cannot shift loss to customer on ground that its own servant's misappropriation was criminal - Held that Bank remained responsible for its Potdar's misappropriation and could not recover amount from firm (Paras 842-846).
Issue of Consideration
Whether payment to a Potdar (servant/agent of bank) constituted valid payment to the customer firm under Section 85 of Negotiable Instruments Act, 1881; whether the concession of counsel recorded in High Court judgment could be challenged in Supreme Court; whether Section 118 of the Act had any application; whether the bank could avoid liability on the ground that the Potdar's misappropriation was a criminal act
Final Decision
The appeal was dismissed. The Supreme Court affirmed the Patna High Court's judgment and held that the bank was not entitled to recover the sum of Rs. 35,000 from the firm. Payment to the bank's own Potdar did not constitute payment to the firm, and the bank could not shift the loss to the customer.
Law Points
- Payment under Section 85 Negotiable Instruments Act requires actual payment to firm or authorized person
- payment to bank's own servant not payment to firm
- Section 118 has no bearing
- concession recorded in judgment cannot be challenged unless both parties agree or court admits error
- vicarious liability cannot be imposed on stranger for criminal acts of another's servant
- bank cannot recover amount from customer when money never reached customer's custody
