Case Note & Summary
The appeal arose from liquidation proceedings of the Shillong Banking Corporation under the Banking Companies Act, 1949. The appellant Kesharichand Jaisukhal maintained a combined overdraft and deposit account with the bank's Shillong branch. The dispute concerned two cheques for Rs. 8,200 and Rs. 600 drawn on the Bharati Central Bank, Shillong, which the appellant entrusted to the respondent bank for collection in December 1946. The respondent credited the appellant's account with Rs. 8,800, sent the cheques for collection, and instead of receiving cash accepted a cheque drawn by the Bharati Central Bank on the Nath Bank. That cheque was dishonoured with the remark 'full cover not received'. The respondent debited the appellant's account with Rs. 8,800. Later, under instructions from the appellant, the respondent accepted a demand draft for Rs. 8,800 from the Bharati Central Bank drawn on its Calcutta branch, but the draft remained unpaid when the Bharati Central Bank closed in January 1947. The respondent claimed preferential creditor status for the draft amount in the liquidation of the Bharati Central Bank. The dealings between the appellant and respondent continued until December 1950. In May 1953, the respondent bank was ordered to be wound up. Its liquidator presented an application under Section 45D of the Banking Companies Act, 1949, for settlement of the list of debtors, claiming a decree for Rs. 5,965-8-9 and interest against the appellant. The appellant resisted the claim on grounds of negligence and limitation. The Assam High Court single judge decreed the claim, and a Division Bench dismissed the appeal. The appellant then appealed to the Supreme Court by special leave. The appellant contended that the respondent had credited the cheques and accepted the Nath Bank cheque and the demand draft on its own responsibility, acted negligently, and was bound to give credit for Rs. 8,800; further, the claim was barred by limitation. The respondent argued that it received the cheques for collection as the appellant's agent, followed banking usages, obtained the appellant's ratification for the steps taken, and that the mutual open and current account kept the claim alive under Article 85 of the Indian Limitation Act, 1908, read with Section 45O of the Banking Companies Act. The Supreme Court majority held that a banker entrusted with collection of a cheque acts as agent of the customer and must follow directions or usages with reasonable skill and diligence. The credit and debit entries without any communicated drawing arrangement did not convert the agency into ownership. The appellant had ratified the bank's acts concerning the demand draft. Therefore, the bank was not liable to give credit for Rs. 8,800. On limitation, the combined overdraft and deposit account was a mutual open and current account; the loans and deposits created mutual obligations; since the account remained mutual until December 1950, the claim was not barred, having regard to Section 45O. Justice Mudholkar dissented, holding that the bank acted as payee and not agent, and having claimed preferential creditor status against the Bharati Central Bank, its rights lay against that bank, not the appellant. The Supreme Court dismissed the appeal and upheld the decree in favour of the liquidator.
Headnote
A) Banker and Customer - Nature of Relationship - Banker as Agent for Collection - Indian Limitation Act, 1908, Article 85; Banking Companies Act, 1949, Section 45D, Section 45O - The respondent bank received two cheques for collection as agent of the appellant, credited the account but later debited upon dishonour, and accepted a demand draft under appellant's instructions. The Court held that the credit entry without communicated drawing arrangement did not convert the bank into owner; the bank was not negligent and the appellant ratified the collection steps; therefore the bank was not bound to give credit for Rs. 8,800 (Page 114 A, F-H; 115 A-B). B) Limitation - Mutual Dealings Between Banker and Customer - Applicability of Article 85 - Indian Limitation Act, 1908, Article 85 - The combined overdraft and deposit account constituted a mutual open and current account; loans by bank and deposits by customer created mutual obligations; the account remained mutual until December 1950, thus the claim was not barred by limitation read with Section 45O of the Banking Companies Act (Page 116 B, E). C) Dissenting Opinion - Collection of Cheques - Bank as Payee and Deemed Recipient - Banking Companies Act, 1949 - Mudholkar J dissented, holding that the bank acted as payee, not agent, because it credited the account and unilaterally debited upon dishonour; having claimed preferential creditor status for the draft in Bharati Central Bank's liquidation, the bank's rights lay against that bank, not the appellant (Page 118 H; 120 A, C, F-H; 121 A).
Issue of Consideration
Whether the respondent bank acted negligently or in breach of duty as collecting agent of the appellant and was bound to give credit for Rs. 8,800; whether the claim was barred by limitation considering the mutual open and current account and Section 45O of the Banking Companies Act, 1949.
Final Decision
Appeal dismissed; decree upheld. Majority held respondent not bound to give credit for Rs. 8,800; claim not barred by limitation. Mudholkar J dissented.
Law Points
- Banker as agent for collection of cheque
- obligation to follow customer directions and banking usages
- reasonable skill and diligence
- ratification of agent's acts
- mutual open and current account
- reciprocal demands
- Article 85 Indian Limitation Act 1908
- Section 45O Banking Companies Act 1949
- preferential creditor claim in liquidation
