Case Note & Summary
The dispute arose from the encashment of a forged cheque drawn on the account of Bihta Co-operative Development Cane Marketing Union Ltd., a society registered under the Bihar and Orissa Co-operative Societies Act, 1935, maintained with the Bank of Bihar Ltd. The society and its secretary, as plaintiffs, sued the bank, its manager, three employees, and two society office bearers—joint secretary Babu Lal Varma and treasurer Ram Janame Varma—alleging conspiracy and gross negligence leading to the fraudulent withdrawal of Rs. 11,000. The bank account was operated jointly by Babu Lal Varma and Ram Janame Varma under a resolution dated 16 April 1947. On 16 April 1948, a loose cheque form surrendered by an ex-constituent was converted into a cheque purporting to bear both signatures, but the signature of Babu Lal Varma was later found forged at trial. Criminal proceedings ended in acquittal of all accused. The Subordinate Judge decreed the suit against defendants 1, 2, 4, 5 and 7 jointly, finding the cheque forged and that defendants 4, 5 and 7 acted in collusion. The bank and its manager appealed to the Patna High Court. The High Court concurred on merits, holding the society was not negligent and the bank's employees were involved, but dismissed the suit on the ground that the civil court's jurisdiction was ousted by Section 48(9) read with Section 57 of the Bihar and Orissa Co-operative Societies Act, 1935. The society appealed to the Supreme Court by certificate. The core legal issue was whether the dispute between a registered society and a non-member bank fell within Section 48(1) of the Act, thereby requiring reference to the Registrar and barring civil court jurisdiction. The Supreme Court examined the pre- and post-1948 amendment scheme of Section 48. It held that before the amendment, non-members except sureties were outside the section, and the Explanation merely clarified admitted debt disputes. The 1948 amendment inserted clause (e), bringing certain non-members within the Registrar's jurisdiction, but only those with financing banks. Since the society was not a financing bank, clause (e) did not apply. The Explanation, even after amendment, could not be read to add a new head to the categories under Section 48(1); it must harmonise with the main section. Relying on Sagauli Sugar Works (Pvt.) Ltd. v. Asstt. Registrar, Co-operative Societies, Motihari, the Court held that the Explanation did not widen the scope to include claims by societies against all non-members. On merits, because the signature of Babu Lal Varma was forged, there was no valid mandate from the society to the bank, and the society was not negligent. The bank was negligent in failing to verify the genuineness of signatures, and circumstances of encashment showed fraud by some bank officers, attracting the principle in London Joint Stock Bank Ltd. v. Macmillan. Accordingly, the Supreme Court allowed the appeal, set aside the High Court judgment, and restored the trial court decree against the bank and the other liable defendants, ruling that the civil court had jurisdiction and the bank was liable for the forged cheque.
Headnote
A) Co-operative Societies - Dispute Referral to Registrar - Sections 48(1), 57 Bihar and Orissa Co-operative Societies Act, 1935 - A dispute between a registered co-operative society and a non-member bank over withdrawal of funds through a forged cheque was not covered under clauses (a) to (e) of Section 48(1); clause (e) applied only to disputes with a financing bank, and the appellant society was not a financing bank - The High Court erred in holding that the civil court's jurisdiction was ousted under Section 48(9) read with Section 57; the Supreme Court set aside the High Court judgment and held the suit was maintainable before the civil court. Held that the dispute did not fall within the enumerated categories requiring reference to the Registrar, so civil court jurisdiction was not ousted. (Paras Not mentioned) B) Statutory Interpretation - Explanation to Section - Clarificatory Role - Bihar and Orissa Co-operative Societies Act, 1935, Explanation (1) to Section 48(1) - The Explanation cannot be read as adding a new head to the categories of disputes referable to the Registrar; it only clears up ambiguity and must harmonise with the main section - The 1948 amendment inserted clause (e) for financing bank disputes, and the Explanation was correspondingly expanded to include non-members, but that did not widen the substantive scope of Section 48(1) to cover claims by societies against all non-members. Held that the Explanation did not bring the society's claim against the bank within the purview of Section 48(1). (Paras Not mentioned) C) Banking Law - Liability for Forged Cheque - Duty to Verify Signatures - Common law of banker and customer - Since the signature of one joint account operator was forged, the bank acted without a valid mandate from the society; the bank was negligent in failing to ascertain the genuineness of the signatures and in circumstances surrounding encashment - The Supreme Court held that the society was not negligent, and the bank was liable for the amount paid on the forged cheque. Held that the bank's negligence and fraudulent conduct of some officers established its liability for the loss. (Paras Not mentioned)
Issue of Consideration
Whether the suit filed by a registered co-operative society against a bank and others for recovery of money withdrawn through a forged cheque was barred by Section 48(1) read with Section 57 of the Bihar and Orissa Co-operative Societies Act, 1935, and whether a civil court had jurisdiction to entertain it.
Final Decision
The Supreme Court allowed the appeal, set aside the Patna High Court judgment, and restored the decree of the Subordinate Judge against the bank and other liable defendants. The Court held that the dispute between the society and the non-member bank was not covered by Section 48(1) of the Bihar and Orissa Co-operative Societies Act, 1935, as the bank was not a financing bank under clause (e), and the Explanation could not enlarge the scope; civil court jurisdiction remained. The Court also held the bank liable for the forged cheque as there was no valid mandate due to the forged signature, and the bank was negligent.
Law Points
- Legal points not extracted
- Disputes under Section 48(1) of Bihar and Orissa Co-operative Societies Act
- 1935 must be referred to Registrar only if covered by clauses (a) to (e)
- Explanation to Section 48(1) does not create a new category
- Clause (e) applies only to non-members with financing bank
- Forgery of one joint signature destroys any mandate to bank
- Bank negligent if fails to verify genuineness of signatures
- Customer not negligent when one authorized signature forged
- Civil court jurisdiction not ousted for society's claim against non-financing bank
