# BANK OF BIHAR LTD. Febnuzr.J, 7 v. MAHABIR LAL & ORS

- **Citation:** [1964] 1 S.C.R. 842
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Case number:** Civil .Appeal No. 340 of 1960
- **Bench:** K. SuBBA R.t.o, RAOHUBAR DAY.Ar, J. R. MuonoLKAR
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bank-of-bihar-ltd-febnuzr-j-7-v-mahabir-lal-ors-2817
- **Pages:** 10

## Headnote

lfegoliahle I...trumtnt-Firm ;prmnl• ch•q~ to &nk-
.Amovnl lupl in IM hand8 of Poldar of Bank-If paymtnl lo
Ji,.,._Sl!Jltmtnl
in judgmenJ
about liapptning in courl-
~
Cllallt11ge if and when permiUtd-VicarivUll liability /or criminal
all of aertJant-ll'egotiable
lrulrume11~ Acl, 1881 (XXV[ of
1881), ... 86, ll8.
Rcspondenl3 I and 2 carried on business under the name
and style of M/s.Jogilal Prohhu Chanel. Under a cash credit
agreement in favour of the B1har Sharif Branch of the Bank and
on the strength of a promissory note executed by the firms. tho
firm drew a cheque on the Bank whir,h was pao;scd for payment.
' ·
The High Court found that the money was not paid to the
firm but was kept in the hands of the l'otdar a servant or
agent of the Bank
fo1 being paid to anotl1er firm at Patna.
This person accompanied the r.,pondcnts up to Patna but failed
to meet the respondents at the shop of the Patna firm which
was the place agreed upon.
Before the High 0ourt the couns:I
for the present appellant co11ceded that the Potdar had taken
the money with him.
Before this Court it w"' contended on behalf of the
appellant that no concession wa• m>de as stated in the judgment of the High Court, to the effec1 that the Potdar took the
money with him.
It was further contended that the payment
to the Potdar should be deemed to be payment to the firm.
Reliance was also placed on ss. 85 and 118 of the Negotiable
Instruments Act,
1881.
Finally it was contended that the
Bank could not be hr.Id responsible for the money misappropriated by the Potdar because his act was a criminal act.
Held, that where a statement appears in the judgment of
a court that a particular thing happened or did not happen
befor it, it ought not ordinarily to be permitted to be challenged by a party unless both parti.. to the litigation agree that
the statement is erroneous.
I S.C.R. SUPREME COURT REPORTS
843
The money not having passed into the actual oustody
of the firm or that of the custody of a person who was servant
or agent of the firm, the firm cannot be held liable for it.
In 01 der to avail of the provisions of s. 85 of the Ne[l'otiable Instruments Act it has to be established that payment
had in fact been made to the firm or to a person on behalf of
the firm. Section 118 of the Act was held not to have any
bearing upon the case at all.
Jugjivanda" J~mnadaB v. The Nagar Central Bank, Ltd.
(1925) I. L. R. 50 Born. ll8, distinguished.
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.
Gopal Chandra Bhattacharjee v. The Secretary of Stat• for
India (1909) I. L. R. 36 Cal. 647 and Cheshire v. Bailey, [1905]
1 K. B. 237, distinguished.

## Text

842
SUPREME COURT REPORTS [1964) \IOI..
1963
BANK OF BIHAR LTD.
Febnuzr.J, 7.
v.
MAHABIR LAL & ORS.
(K. SuBBA R.t.o, RAOHUBAR DAY.Ar. and
J. R. MuonoLKAR, Jj.)
lfegoliahle I...trumtnt-Firm ;prmnl• ch•q~ to &nk-
.Amovnl lupl in IM hand8 of Poldar of Bank-If paymtnl lo
Ji,.,._Sl!Jltmtnl
in judgmenJ
about liapptning in courl-
~
Cllallt11ge if and when permiUtd-VicarivUll liability /or criminal
all of aertJant-ll'egotiable
lrulrume11~ Acl, 1881 (XXV[ of
1881), ... 86, ll8.
Rcspondenl3 I and 2 carried on business under the name
and style of M/s.Jogilal Prohhu Chanel. Under a cash credit
agreement in favour of the B1har Sharif Branch of the Bank and
on the strength of a promissory note executed by the firms. tho
firm drew a cheque on the Bank whir,h was pao;scd for payment.
' ·
The High Court found that the money was not paid to the
firm but was kept in the hands of the l'otdar a servant or
agent of the Bank
fo1 being paid to anotl1er firm at Patna.
This person accompanied the r.,pondcnts up to Patna but failed
to meet the respondents at the shop of the Patna firm which
was the place agreed upon.
Before the High 0ourt the couns:I
for the present appellant co11ceded that the Potdar had taken
the money with him.
Before this Court it w"' contended on behalf of the
appellant that no concession wa• m>de as stated in the judgment of the High Court, to the effec1 that the Potdar took the
money with him.
It was further contended that the payment
to the Potdar should be deemed to be payment to the firm.
Reliance was also placed on ss. 85 and 118 of the Negotiable
Instruments Act,
1881.
Finally it was contended that the
Bank could not be hr.Id responsible for the money misappropriated by the Potdar because his act was a criminal act.
Held, that where a statement appears in the judgment of
a court that a particular thing happened or did not happen
befor it, it ought not ordinarily to be permitted to be challenged by a party unless both parti.. to the litigation agree that
the statement is erroneous.
I S.C.R. SUPREME COURT REPORTS
843
The money not having passed into the actual oustody
of the firm or that of the custody of a person who was servant
or agent of the firm, the firm cannot be held liable for it.
In 01 der to avail of the provisions of s. 85 of the Ne[l'otiable Instruments Act it has to be established that payment
had in fact been made to the firm or to a person on behalf of
the firm. Section 118 of the Act was held not to have any
bearing upon the case at all.
Jugjivanda" J~mnadaB v. The Nagar Central Bank, Ltd.
(1925) I. L. R. 50 Born. ll8, distinguished.
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.
Gopal Chandra Bhattacharjee v. The Secretary of Stat• for
India (1909) I. L. R. 36 Cal. 647 and Cheshire v. Bailey, [1905]
1 K. B. 237, distinguished.
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.
1963
&.le •I Boho< Ltd.
••
Molvbtr UI
M"'°"11l01, J.
844 SUPREME COURT REPORTS[l964) VOL.
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.
SUPREME COURT REPORTS
845
.
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.
1969
BanJ; qf Bihm Lid.
•..
Mahabir Lal
' --
Aludhol/;ll', J.
0,
846
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.
SUPREME COURT REPORTS
8!7
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.
\ .
\
v.
Mallabir I..I
Mutiholkar, J.
-- '-. .
·,
I
- - -
'
848
SUPREME COURT REPORTS [1964JVOL.
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.
SUPREME COURT REPORTS
849
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.
1963
Bank of. Billar Lid.
•.
Ma/whir Lqt
Mu4holkar, J
1963
Rank of /Jjh., ltd,
v.
lifahabir I.al
Mudholl.or 1 /,
850 SUPREME COURT REPORTS (1964] VOL.
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.
SUPREME COURT REPORTS
851
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, /,