# llO KESHARit':BAND IAISUKBAL v. THE SHILLONG BANKING CORPORATION

- **Citation:** [1965] 3 S.C.R. 110
- **Court:** Supreme Court of India
- **Decided:** 1965-02-16
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/llo-kesharit-band-iaisukbal-v-the-shillong-banking-corporation-3379
- **Pages:** 12

## Headnote

llO
KESHARit':BAND IAISUKBAL
v.
THE SHILLONG BANKING CORPORATION
February 16, 1965
A
(RAGHUBAR DAYAL, J. R.
MUDHOLKAR,
R. S. BACHAWAT AND
B
V. RAMASWAMI, JJ.]
Banker and Customer-Nature of relationship between.
Indian Limitation Act (9 of 1908), Art. 81>--Mutual dealings between Banker and Customer-If article applicable.
The appellant had a combined overdraft and deposit account,
C
also described as a mutual open and current account, with the respondent bank. In December 1946, the respondent credited two chegues
to the appellant's account one for Rs. 8,200 and the other
for Rs. 600 and sent them for· collection to the Shillong branch of
the Bharati Central Bank, on which they were drawn. Instead of
obtaining cash from that Bank, the respondent accepted a cheque
on the Nath Bank. This the respondent did without consulting the D
appellant and on its own responsibility. When the respondent presented the cheque to the Nath Bank, it was returned with a note
"full · cover not received". The respondent thereupon debited the
appellant with the sum· of Rs. 8,800 in the accounts without inform·
ing him.
On the instructions of the appellant, who was informed
about the dishonouring of the cheque, the respoJldent accepted a
demand draft from the Bharati Central Bank drawn on its Calcutta B
branch for the amount. The Calcutta branch of the Bharati Central
Bank however. requested the respondent to present it to the Shillong branch. The respondent presented the draft to the Shillong\
branch of the Bharati Central Bank, but the Bank applied for moratorium and closed its business, in January 1947 and the draft was
not cashed. In the proceedings for the reconstruction of the Bharati
Central Bank, the respondent asked to h€ treated as a preferential .F
creditor in respect of the amount of the draft, and was so treated.
The dealings between the appellant and respondent continued till
December 1950. In May 1953, the respondent Bank was ordered to
be wound up and the liquidator presented an application to 'the High
Court under s. 45D of the Banking Companies Act, 1949, for settlement of the list of debtors, claiming a decree for about Rs. 6,000 and
interest, against the appellant. The appellant resisted the claim but
the High Court decreed it.
G
In the appeal to the Supreme Court, it was contended that (i) the
respondent acted negligently and in breach of its duty
as
collecting agent of the appellant and was bound to give credit for
.. the sum of Rs. 8,800 and (ii) the claim was barred by limitation.
HELD: (per Raghubar Dayal, Bachawat and Ramaswami. JJ.)-
(i) It was not shown that the respondent acted negli!iently or in
H
breach of its duties or contrary to any instructions given by the
appellant or any lawful
usages prevailing amongst bankers and
therefore was not bound to give credit to the appellant for the sum
of Rs. 8,800. r114 H]
A banker entrusted by its customer With the collection of a
cheque is bound to act according to the directions given by a customer, and in the absence of such directions, according to the usages
prevailing at the place where the banker conducts his business
A
B
c
D
E
F
G
H
KESliARICl!AND V. S.B. CO.RP.
111
and applicable to the matter in hand. The banker is also J?ound to
use reasonable skill and diligence in presenting and securmg payment of cheques and placing the proceeds to his customers' accounts
and in taking such other steps as may be proper to secure the customer's interests. The respondent in the iristant case. received the
two cheques for coJlection in the usual way as agent of the appel-.
!ant and not with the intention of acquiring title to them. The appellant, instead of disowning the various acts of the respondent in
respect of the collection of the cheques, had ratified them, By preferring a claim as creditor .in respect of 'the draft, in the 1-iquidation
proceedings of the Bharati Central Bank, the respondent was not
accepting the draft in satisfaction of its dues from the appellant. It
was only prese

## Text

llO
KESHARit':BAND IAISUKBAL
v.
THE SHILLONG BANKING CORPORATION
February 16, 1965
A
(RAGHUBAR DAYAL, J. R.
MUDHOLKAR,
R. S. BACHAWAT AND
B
V. RAMASWAMI, JJ.]
Banker and Customer-Nature of relationship between.
Indian Limitation Act (9 of 1908), Art. 81>--Mutual dealings between Banker and Customer-If article applicable.
The appellant had a combined overdraft and deposit account,
C
also described as a mutual open and current account, with the respondent bank. In December 1946, the respondent credited two chegues
to the appellant's account one for Rs. 8,200 and the other
for Rs. 600 and sent them for· collection to the Shillong branch of
the Bharati Central Bank, on which they were drawn. Instead of
obtaining cash from that Bank, the respondent accepted a cheque
on the Nath Bank. This the respondent did without consulting the D
appellant and on its own responsibility. When the respondent presented the cheque to the Nath Bank, it was returned with a note
"full · cover not received". The respondent thereupon debited the
appellant with the sum· of Rs. 8,800 in the accounts without inform·
ing him.
On the instructions of the appellant, who was informed
about the dishonouring of the cheque, the respoJldent accepted a
demand draft from the Bharati Central Bank drawn on its Calcutta B
branch for the amount. The Calcutta branch of the Bharati Central
Bank however. requested the respondent to present it to the Shillong branch. The respondent presented the draft to the Shillong\
branch of the Bharati Central Bank, but the Bank applied for moratorium and closed its business, in January 1947 and the draft was
not cashed. In the proceedings for the reconstruction of the Bharati
Central Bank, the respondent asked to h€ treated as a preferential .F
creditor in respect of the amount of the draft, and was so treated.
The dealings between the appellant and respondent continued till
December 1950. In May 1953, the respondent Bank was ordered to
be wound up and the liquidator presented an application to 'the High
Court under s. 45D of the Banking Companies Act, 1949, for settlement of the list of debtors, claiming a decree for about Rs. 6,000 and
interest, against the appellant. The appellant resisted the claim but
the High Court decreed it.
G
In the appeal to the Supreme Court, it was contended that (i) the
respondent acted negligently and in breach of its duty
as
collecting agent of the appellant and was bound to give credit for
.. the sum of Rs. 8,800 and (ii) the claim was barred by limitation.
HELD: (per Raghubar Dayal, Bachawat and Ramaswami. JJ.)-
(i) It was not shown that the respondent acted negli!iently or in
H
breach of its duties or contrary to any instructions given by the
appellant or any lawful
usages prevailing amongst bankers and
therefore was not bound to give credit to the appellant for the sum
of Rs. 8,800. r114 H]
A banker entrusted by its customer With the collection of a
cheque is bound to act according to the directions given by a customer, and in the absence of such directions, according to the usages
prevailing at the place where the banker conducts his business
A
B
c
D
E
F
G
H
KESliARICl!AND V. S.B. CO.RP.
111
and applicable to the matter in hand. The banker is also J?ound to
use reasonable skill and diligence in presenting and securmg payment of cheques and placing the proceeds to his customers' accounts
and in taking such other steps as may be proper to secure the customer's interests. The respondent in the iristant case. received the
two cheques for coJlection in the usual way as agent of the appel-.
!ant and not with the intention of acquiring title to them. The appellant, instead of disowning the various acts of the respondent in
respect of the collection of the cheques, had ratified them, By preferring a claim as creditor .in respect of 'the draft, in the 1-iquidation
proceedings of the Bharati Central Bank, the respondent was not
accepting the draft in satisfaction of its dues from the appellant. It
was only preserving all the .rights in respect of the draft and was
acting in his bes~ interests. fl14 A, F-H; 115 A-Bl
(ii) The respondent gave loans on overdrafts and the appellanl
made deposits. The loans and deposits created mutual obligations.
Since the account was mutual and continued to be so until December 1950, the claim against the appellant was not barred by limitation having regard to s. 45 (0) of the Banking Companies Act.
[116 B, E]
Per Mudholkar, J. (Dissenting), the appellant's name could not
be included in the list of the respondent's debtors. f121 A]
Where a customer hands in a cheque to his banker for collection, the banker accepting the performance of that duty becomes
the agent of the customer for the purpose of collection. But if a
banker credits a cheque in the customer's account with the bank,
the banker would not necessarily be deemed to be the customer's
agent, when he takes steps for collecting the amount payable under
the cheque. The facts, that the cheques when paid in, were credited
in the appellant's account with the respondent and that when the
cheques were returned unpaid, the respondent made a debit entry
against the appellant's account without informing the appellant show
that the respondel).t accepted the position that it was acting
in the matter not as the appellant's agent but as a payee, Since the
appellant had a mutual. open and current account with the respondent, the respondent would, with respect to the amounts for whir.h
the cheques were drawn, have become upon realisation of tl1e cheques
drawn by the appellant an actual recipient of the money
from the appellant. Therefo~e. though it is true that the amount
was not received by the respondent in cash it must be deemed to
have received the sum either by reason of the fact that it obtained
from the Bharati Central Bank a cheque for the amount on the
Nath Bank, or by the acceptance of the demand draft. Having claimed as against the Bharati Central Bank to be treated as a preferential creditor for the sum of Rs. 8,800 whatever rights the respondent would be against that Bank and not against the appellant.
f118 H; 120 A, C, F-Hl
CIVIL APPELLATE JurusmcnoN: Civil Appeal No. 892 of
1963.
Appeal by special leave from the judgment and order dated
December 22, 1958, of the Assam High Court in Misc. (First) No.
39 of 1955.
D. N. Mukherjee, for the appellant.
P. K. Chatterjee, for the respondent.
112
SUPREME
COURT
REPORtS
(1965] 3 S.C.R.
The Judgment of RAGHUBAR DAYAL, R. S.
BACHAWAT and
A
v. RAMASWAMI, JJ. was delivered by BACHAWAT, J. MUDHOLKAR,
J. delivered a separate Opinion.
Bachawat, J. The respondent is a banking company now in
liquidation. The appellant had a combiμed overdraft and deposit
account with the Shillong branch of the respondent. On December
B
9, 1946, the appellant gave the respondent for collection two cheques for Rs. 8,200 and Rs. 600 respectively drawn on the Bharati
Central Bank, Shillong. On receipt of the cheques, the respondent
credited the appellant with the sum of Rs. 8,800 in the accounts.
The respondent then sent the cheques to the Bharati Central Bank,
Shillong for collection . .Instead of paying cash, the Bharati Cenc
tral Bank sent to the respondent a cheque dated December 9, 1946
for Rs. 8,800 drawn by the Bharati Central
Bank on the Nath
Bank, Shillong in favour of the respondent. The respondent accepted this cheque on its own responsibility without consulting the
appellant. On December I 0, 1946, the respondent presented the
cheque to the Nath Bank for payment. The Nath Bank returned
D
the cheque w'th the remark "f:ull cover not received". The respondent orally informed the appellant of the non-payment of the
cheque on the Nath Bank, and on December 11, 1946 under oral
instructions from the appellant, represented the cheque to Nath
Bank for payment. The Nath Bank again returned the
cheque
with the remark "ful.l cover not received", and the
respondent E
thereupon debited the appellant with the sum of Rs. 8,800 in the
accounts. On the same day, the respondent wrote to the Bharati
Central Bank demanding cash payment of the two cheques drawn •
on them and dated December 9. 1946. The respondent also contacted the appellant. Under instructions from the appellant,
the
refpondent accepted from the Bharati Central
Bank a demand
F
draft for Rs. 8,800 dated December 13, 1946 drawn .by its Shillong
Branch on its Calcutta Head Office towards payment of the two
cheques. The respondent presented the draft to the Bharati Central Bank, Calcutta for payment, but instead of making payment,
the Bharati Central Bank wrote on December 16, 1946 requesting
the respondent to obtain payment from its Shillong Branch. The
G
respondent orally communicated this advice to the appellant. On
several dates thereafter, the respondent presented the draft to the
Bharati Central Bank for payment. but the draft was not paid. On
January 2, 1947, the Bharati Central Bank closed its business.
On January 11, 1947,, the respondent wrote to the appellant
H
stating that it was holding the demand draft as also the cheque on
the Nath Bank and would be glad to receive further instructions
in the matter for necessary action. As the appellant refused to give
any instructions, the respondent continued to hold the securities on
account of the appellant. In respect of the draft, the respondent
duly preferred a claim in the liquidati.on of the Bharati Central
Bank, and was admitted as a preferential creditor for ·the· amount
KESHARICHAND v. s.n. CORP. (Bachr>wat, J.)
1!3
A
of the draft. On January 28. 1947, the appellant wrote to the respondent alleging that the respondent had accepted the. demand
draft at its own risk and responsibility and was bound to give credit
to the appellant for the sum of Rs. 8,800. The dealings between
:he appellant and the respondent continued, and the last entry in
the combined overdraft and deposit account is dated December
B
29, 1950.
c
D
On February 26. 1953, a petition was presented in the Assam
High Court for the winding up of the respondent. By order dated
May 24. 1953, the respondent was ordered to be wound up. On
June 28, 1954 the liquidator of the respondent Bank presented an
applicat'on to the Assam High Court under s. 45(D) 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. The two issues, which are now
material, are:-
(J) Is the suit barred by l'mitation, and
14) Whether the respondent is bound to give credit to the
appellant for the sum of Rs. 8,800? •
A learned single Judge of the Assam High Court answered both
the issues in the negative, and decreed the claim. An appeal preferred to a Division Bench of the High Court was dismissed. The
E
appellant now appeals to this Court by special leave.
The main contention of the appellant in the Courts below was
that the respondent had accepted the demand draft on its own responsibility. The High Court held th~t the respondent accepted the
draft w'th the cor..rnt and sanction of the appellant. This finding
is no longer challenged. But the appellant before us contends that
F
the respondent having credited the appellant's a;count with
the
amount of the two cheques on the Bharati Central
Bank and
having accepted on its own responsibility from the Bharati Central
Bank the cheque dated December 9, 1945 on the
Nath Bank
ought not to be allowed to say that it received the cheque on ac·
count of and as agent of the appellant, and that in any event the
G respondent acted negl'gently and in breach of its duty as the collecting agent of the appellant and is bound to give credit for the
sum of Rs. 8,800. These contentions in the present form were not
raised in th~ Courts below. Nevertheless, we allowed the appellant
to raise these contentions, but we think that there is no substance
in them.
H
According to the uncontradicted testimony of the
witnes>"
called on behalf of the respondent, the two cheques on !he Bhara,.
Central Bank were entrusted by the appellant to the respondent
for collection. In paragraph 2 of its objections, the appellant admitted that the cheques were entruste:I to the respondent for realis1tion. Bevond doubt. on Dec::mber 9, 1946 the respondent received the two cheques for collection in the usual way as agent of
SUPlll!JIE
COURT
REPORTS
(1965] 3 s.c.R.
the appellant and not with the intention of acquiring title to them.
A
On the same day, the respondent credited the appellant's account
with the amount of the cheques before the cheques were cleared.
But on December II, 1946, before the appellant drew upon this
amount and as soon as the cheque on Nath Bank received in course
of collection of the two cheques was· dishonoured, the respondent
debited the appellant's account with the like amount. It does not B
appear that the credit entry .in the accounts was contemporaneously communicated to the appellant. Nor does the appellant prove
any arrangement that the appellant was entitled to draw against
the amount of the cheques before they were cleared. In the circumstances. the fact that the appellant's account was credited with the
amount of the two cheques does not show that the respondent
C
ceased to be an agent for collection of the cheques.
The respondent duly presented the cheques on the Bharati
Central Bank for payment. Instead of paying the cheques in cash.
the Bharati Central Bank sent its own cheque on the Nath Bank.
According to the uncontradicted testimony of the witness called D
on behalf of the respondent, it was not the usual practice of the
banks at ShillO!!g to collect cash in all .~ses in respect of cheques
entrusted for collection. When
the respondent found that the
drawee Bank instead of paying cash offered to pay by a cheque,
the respondent acting in good faith in the int~'.'ests of the appellant, accepted the cheque on its own responsibility. On being inE
formed of the dishonour of the cheque on Nath Bank, the appellant adopted and ratified the respondent's acceptance of the cheque,
and on that footing, asked the respondent to represent the cheque.
Subsequently, the appellant instructed the respondent to accept 11
demand draft drawn by the Bharati Central
Bank on the head
office in lieu of its cheque on the Nath Bank, and approved of all
F
steps taken by the respondent in the matter of coUection of the
draft. Instead of disowning the acts of the respondent in respect
of the collection of the cheques on the Bharati Central Bank, the
appellant ratified them. In the circumstances, it is not open to the
appellant now to say that the respondent accepted the cheque on
the Nath Bank or the draft of the Bharati Central Bank on the G
respondent's own account and not as agent of the appellant.
A banker entrusted by its customer with the collection of a
cheque is bound to act according to the directions given by the
customer, and in the absence of such directions, according to the
usages prevailing at the place where the banker conducts his business and applicable to the matter in hand. The banker i~ also bound B
to use reasonable skill and diligence in presenting and securing
payment of the cheque and placing the proceeds to his customer's
accounts and in taking such other steps as may be proper, to secure
the customer's interests. In the instant case, it is not shown that
the respondent acred negligently of in breach of its duties or contrary to any instructions given by the appellant or
any lawful •
usages prevailing amongst bankers at Shillong.
KESIU.RICllAND V. 8.B, CLRP. (Bachalliat, J.)
115
l
There is no substance in the further contention of the appellant that by preferring a claim as creditor in respect of the draft
in the liquidation of the Bharati Central Bank, the respondent accepted the draft in satisfaction of its dues from the appellant. The
respondent owed a duty to the appellant to take steps In the
liquidation proceedings for the realisation of the amount of the
B draft. By preferring the claim, the respondent preserved all rights
in respect of the draft and acted in the best interests of the appellant. In the circumstances, the Courts below rightly gave appropriate directions on the respondent for giving credit to the appellant for all sums which may be realised by the respondent from the
Official Liqu;dator of the Bharati Central Bank. The Courts below
C rightly answered issue No. 4 in the negative.
The next point in issue is whether the proceedings are governed by Art. 85 of the Indian Limitation Act, 1908, and if so,
whether the suit is barred by limitation. The argument before us
proceeded on the footing that an application under s. 45(0) of the
D Banking Companies Act is governed by the Indian Limitation Act,
and we must decide this case on that footing. But we express no
opinion one way or the other on the question of the applicability
of the Indian Limitation Act to an application under s. 45(0). Now,
Art. 85 of the Indian Limitation Act, 1908 provides that the period
of limitation for the balance due on a mutual, open and current
E account, where there have been reciprocal demands between the
parties is three years from the close of the year in which the last
item admitted or proved is entered in the account; such year to be
computed as in the account. It is not disputed that the account between the parties was at all times an open and current one. The dis
1
pute is whether it was mutual during the relevant period.
a
Now in the leading case of Hirada Basappa v. Gadigi Muddappa('). Holloway, Acting C. J. observed:
"To be mutual there must be transactions on each side
creating independent obligations on the other, and not
merely transactions which create obligations on the one
side, those on the other being merely complete or partial
discharges of such obligations."
These observations were followed and applied in Tea Financing
Syndicate Ltd. v. Chandrakamal Bezbaruah(') and Monotosh
B
K. Chatterjee v. Central Calcutta Bank Ltd.('), and the first mentioned Calcutta case was approved by this Court in Hindustan
Forest Company v. Lal Chand('). Holloway, Acting C.J. laid
down the test of mutuality on a construction of s. 8 of Act XIV of
1859, though that section did not contain the words "where there
(') [1871) VI Modraa High Court Reports. 142, 144.
(1) [1931) l.L.R. !\80.I. 60
(1) (1953] 91 C.L.J. 16.
(') (1960) I $.C.R. 563.
116
SUPREME
COURT
REPORTS
[1965) 3 S.C.R.
have been reciprocal demands, between the parties". The addition of A
those words in the corresponding Art. 87 of Act IX of 187l, Art.
85 of Act XV of 1877 and Art. 85 of the Act of 1908 ·adopts and
emphasises the test of mutuality laid down in the Madras case.
In the instant case. there were mutual dealings between the
parties. The respondent Bank gave
loans on overdrafts, and
the appellant made deposits. The loans by the respondent created
B
obligations on the appellant to repay them. The respondent was
under independent obligations to repay the amourit of the cash
deposits and to account for the cheques, hundis and drafts deposited for collection. There were thus transactions on each side
creating independent obligations on the other, and both sets of
transactions were entered in the same account. The deposits made c
by the appellant were not merely complete or partial discharges of
its obligations to the respondent: There were shifting balances; on
many occasions the balance was in favour of the appellant and on
many other occasions. the balance was in favour of the respondent.
There were reciprocal demands between the part'es. and the account was mutual. This mutual account was fairly active up to
D
~une 25, 1947. It is not shown that the account ceased to be
mutual thereafter. The parties contemplated the possibility of
.mutual dealings in future. The mutual account cont'nued until
December 29, 1950 when the last entry in the account was made.
It is conceded on behalf of the appellant that if the account was
mutual and continued to be so until December 29, 1950, the suit E
is not barred by limitation, having regard to s. 45 (0) of the Banking Companies Act. The Courts below, therefore, rightly answered
issue No. 1 in the negative.
The claim by the respondent on account of interest was contested in the Courts below, but that claim is no longer contested
before us.
The High Court discussed at length the legal characteristics of
a demand draft as also questions relating to the interpretation of
s. 45(0) of the Banking Companies Act. In view of the contentions
raised before us, those questions do not arise, and we do not propose to express any opinion thereon.
In the result, the appeal is dism'ssed with costs.
F
Mudholkar, J. I regret my inability to agree with the judgment
of my learned brother Bachawat. This appeal arises out .of a petition made under s. 45-D of the Banking Companies Act, 1949 (] 0
of 1949) by 'the Liquidator of the respondent, the Shillong Ban~-
ing Corporation for inclusion of the name of the appellant in the
H
list of debtors of the Bank. The liquidator filed a list of 20 debtors
of the Company with necessary particulars in Annexure A, to the
application. One of the debtors mentioned therein is the appellant
and the amount of debt due from him to the Bank is stated
therein to be Rs. 5,965-5-9. Annexure A appears to have been prepared in accordance with the rules framed under- the Banking Companies Act. The fourth item in the Annexure is "Description of
KESHARHHAND V. 8.B. CORP. (Murlho/br. J.)
11 T
A papers, writings and documents, if any, relating to each debt". In
respect of this item the following particulars ha vc been set out:
B
"A cheque for Rs. 8.800 on Bharati Central Bank Ltd.,
Shillong was realised by the Bank 'on behalf "of the pcuty'
by a Demand Draft on Calcutta Branch of the Bharati
Central Bank Limited. but the said Demand-D; aft could
not be realised due to the suspension of business by Bharati Central Bank Ltd. The Bank's claim to be treated as
preferential Creditor has been adm;tted."
A notice of this claim having been served on the appellant he preferred an objection before the Court. There, the
appellant bad
C contendd that the claim of the Bank is barred by time. Paras
2, 3. and 5 of the objection are material and it would be convenient to set them out ;n full. They run as follows:
D
E
F
"2. That it is a fact that this opposite-party did give
a cheque for Rs. 8,800 to the Bank on the Bharati Central Bank Ltd., Shillong for realisation in
1947 and in
normal course it reafaed the amount in cash but either
for its own convenience or for remitting its own money
to Calcutta it accepted a draft from the Bharati Central
Bank Limited on its branch at Calcutta without any instruction or ;ntimation to this opposite party and also
this opposite-party withdrew their amount by a cheque
after this and if in the meantime the said bank stopped
its business this opposite-party cannot be held liable for
the same.
(3) That had the bank not received any cash payment
in case of the opposite-party's cheque as it should have
received it should have informed them in time.
•
*
•
*
•
•
(5) That it ;s not a fact that the demand-draft was
accepted by the bank instead of cash payment with any
knowledge of this opposite-party and as such the claim of
the Bank is false and frivolous."
G Deka J., who heard the application framed
four issues one of
which related to limitation and the fourth was as follows:
"Issue No. 4, whether the plaintiff bank is bound to
give credit to the defendant for a sum of Rs. 8,800 covered by a cheque or cheques on the Bharati Central Bank
Limited, Shillong Branch?"
H
The only oral evidence tendered was that of
Narendra
Nath
Dutta, Assistant of the respondent Bank. Upon a cons;deration
of the evidence of Dutta and the documents placed on record
Deka J. found against the appellant on these issues and passed a
decree in favour of the Bank for Rs.
5,965-5-9 .in addition to
Rs. 2,000 by way of interest. He further allowed Rs. 300 as costs
and 6 per cent p.a. inter1!61 on the decretal amount till realisation.
An appeal was preferred by the appellant under the Letters Patent
118
SUPREME
COURT
REPORTS
(1965] 3 8.C.B.
and that having been dismissed he has come up before this court A
by special leave. It is the case of the respondent Bank that the
appellant had a mutual open and current account with the Bank.
It is upon that basis that they have met the appellant's contention that the suit was barred by time .. On December 9, 1946 the
respondent credited two cheques to the appellant's account one
for Rs. 8,200 and another for Rs. 600 and sent them for collection
B
to the Bharati Central Bank Ltd., Shillong Branch upon which
they were drawn. Instead of obtaining cash from the Bharati Cen·
tral ·Bank the respondent obtained and accepted from that Bank a
cheque on the Nath Bank Limited. This the respondent did, as ad-
'
mitted by Dutta, without consulting the appellant. Dutta has
further admitted that the respondent Bank obtained the cheque on
C
their own responsibility. They then presented the cheque to the
Nath Bank on December 10, 1946. The Nath Bank returned the
cheque with a note "full cover not received". According to the
witness the Bank referred the matter to the appellant and with his
specific instruction the cheque was presented the next day to the
Nath Bank, when also it was returned. Thereafter, the witness proD
ceeds, the respondent contected the appellant for instructions.
On December 13, 1946 they accepted a demand draft from the
Bharati Central Bank for an identical amount which they sent to
their Calcutta Branch for collection. When the demand draft was
presented to the Calcutta Branch of the Bharati Central Bank
they requested by letter dated December 16, 1946 to present it to
the Shillong Branch. Then, according to Dutta. on the advice of
the appellant they presented the draft to the Shillong Branch of
the Bharati Central Bank. In the meanwhile the Bharati Central
Bank had applied for moratorium and this demand draft was not
cashed. It would appear that in the proceedings for reconstructing
the Bharati Central Bank the respondent asked to be treated as
preferential creditors in respect of the amount for which the draft
had been made out and have been so treated.
lt is contended on behalf of the appellant that the respondent
having accepted the demand draft on their own responsibilicy and
having sought to be treated as preferential creditors of the Bharati Central Bank and having in fact been so treated cannot now
G
turn round and say that the appellant's cheques were not honoured
and that, therefore, they are entitled to claim the sum of Rs.5,965-5-9
and interest from him. The question to which I would address
myse1f is whether the respondent has to be regarded as the appellant's agent only for the collection of these two cheques or
whether they received these 'two cheques for being credited in the H
mutual and open current account between themselves and the
appellant. It is no doubt that where a customer hands in a cheque
to his banker for collection the banker accepting the performance
of that duty becomes the agent of the customer for the purpose
of collection. But if a banker credits a cheque in the customer's
account with the bank would the banker be necessarily deemed
to be his agent when he takes the step of collecting the amount
KESllARICBAND v. s. B. CORP. (Mudholk1r, J.)
119
A payable under the cheque. If the customer makes an endorsement
on the cheque to the effect that it is handed in for collection no
difficulty would arise. But if there were no such endorsement
what would be the position? The accepted position in banking
law is that when a banker receives money from a customer he does
not hold it in a fiduciary capacity. (see Practke and Law of BankB ing by H.P. Sheldon, 8th edn. p. 20 I). As the author points out
"To pay that money is 'deposited' with a banker is likely to cause
misapprehension. What really happens is that the money is not
deposited with, but lent to the banker. and all that the banker engages to do is to d;scharge the debt by paying over an equal
amount when called upon." Sheldon has quoted the following obC servations of Lord Cottenham in Foley v. Hill (1948).
D
B
"Money, when paid into a bank, ceases altogether to
be the money of the principal; it is then the money of
the banker, who, is bound to return an equivalent by paying a similar sum to that deposited with him when he is
asked for it. The money paid into the banker's is money
known by the princ;pal to be placed there for the purpose of being under the control of the banker; it is then
the banker's money; he is known to deal with it as his
own; he makes what profit he can, which profit he retains
to himself, by paying back only the principal, according
to the custom of bankers in some places, or the principal
and a small rate of interest, according to the custom
of bankers in other places ......... That being established
to be the relative situations of banker and customer, the
banker is not an agent or factor, but he is a debtor."
What would be the position if instead of paying in cash the custoF mer hands in cheques or bills? With regard to this Sheldon has
said as follows :
"In Joachimson v. Swiss Bank Corporation, 1921
Lord Justice Atkin gave an admirable summary of the
position. He stated that the banker undertakes to receive
money and collect bills for his customer's account, and
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that money so received is not held in trust for the customer but borrowed from him with a promise to repay
it or any part of it .. .. . .. .. against the customer's written order addressed to the bank at such branch." (pp.
201-202),
In the appeal before us the two cheques for Rs. 600 and Rs. 8.200
·s have not been placed on record and so we do not know in whose·
favour they were drawn and if they were drawn by the appellant
in favour of "self" what endorsement he had made on the hack
of the cheques. The cheques could have been drawn by the appellant either in his own favour or in favour of the. bank. Whichever be the position the fact remains that these two cheques were
credited by him in his account with the respondent. That is not
all. Since the appellant had a mutual open and current account
120
SUPREME
COURT
REPORTS
[1965] 3 s.c.ii.
with the respondent it may well be that money was owing by him
A
to the respondent on that date and, therefore, he drew these two
cheq'ues on the Bharati Central Bank and credited them in his
account with the rei;pondent. Or it may be that the appellant merely credited the money in his own account even though nothing
may have been owing from him to the respondent on that date.
Whether it was one or the other the respondents would, with resB
· peel
to the amounts for
which
the cheques were drawn,
have
become actual
recepients
of the
money from the appellant~ upon realisation of the cheques drawn by the appellant.
Indeed, as the cheques were returned unpaid by the drawee bank
the respondent have made a debit entry on December 11, 1960 of
Rs. 8,800 against the appellant in his account with them. This
C
would show that the respondent accepted the position that they
were acting in this matter not as the appellant's agents but as
payees. This explains why, as admitted by Dutta. the respondent
accepted from the Bharati Central Bank cheques on Nath Bank
r>n their own responsibility instead of insisting upon cash. Indeed.
as pointed out at p. 300 in Chalmers on Bills of Exchange (8th edl
D
"consequently an authority to an agent to receive a payment due
to his principal is not in itself an authority to receive it by bill or
cheque". Therefore, the respondents would not have acted in the
way they did had they regarded themselves as merely agents of
the appellant for collecting his cheques. Dutta has, in his evidence,
stated that no formal note in writin_g was sent to the appellant by
E
the respondents about the dishonouring of the cheque by the Nath
Bank. Nor did they inform him of having debited his account with
Rs. 8.800. No doubt, according to him. after a demand draft was
issued to them by the Bharati Central Bank the respondents informed the appellant. B'ut after that-draft was
dishonoured on
presentation. no information whatsoever was· given to the appelF
!ant. This would further strengthen the conclusion
that the respondents were acting for themselves at every stage after the cheques for Rs. 600 and Rs. 8,200 were credited in his account with
them by the appellant. Therefore, though it is true that. the sum
of Rs. 8,800 was not received by the respondent in cash they must
be deemed to have received the sum either by reason of the fact
G
that they obtained from the Bharati Central Bank a cheque for
Rs.· 8,800 on the Nath Bank or by the acceptance by them of a
demand draft drawn by the Bharati Central Bank, Shillong,
on
their Calcutta Branch. It is difficult to see how they can hold the
appellant, whose account with the Bharati Central Bank has been
debited by that Bank to the extent of Rs. 8,800, as being still liable
H
upon those cheques. Whatever rights the respondents have. are
against the Bharati Central Bank and not the appellant. Indeed,
having claimed, as against the Bharati Central BanK to be treated
as preferential creditors of that Bank to the t'une of Rs. 8,800,
particularly on their own showing what was owing to them from
the appellant was something less than Rs. 6,000 they cannot now
he Reard to say that they merely acted as the appellant's agents.
KESHARICHAND V. s. B. CORP. (Mudholkar, J.)
121
A
For these reasons, disagreeing with the High Court, I hold
that the appellant's name cannot be included in the list of the respondent's debtors. I would, therefore, allow the appeal and dismiss the application of the Liquidator under s. 45-D of the Banking Companies Act in so far as it relates to the appellant, with
costs throughout and would direct further that the respondents pay
B
the appellants costs both here and in the High Court.
ORDER BY COURT
In accordance with the opinion of the majority, this ap~cal
is dismissed with costs.