# SARKAR v. RA.1AGOPALA AYYANGU AND J. Jt MUDHOLKAR., 11.)

- **Citation:** [1965] 2 S.C.R. 249
- **Court:** Supreme Court of India
- **Decided:** 1964-11-25
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sarkar-v-ra-1agopala-ayyangu-and-j-jt-mudholkar-11-3402
- **Pages:** 16

## Headnote

I
A
SITA RAM JHUNJHUNWALA
II.
BOMBAY BULLION ASSOCIATION L1D. & ORS.
November 25, 1964
B
[A.
K.
SARKAR,
N.
RA.1AGOPALA
AYYANGU AND
J. Jt
MUDHOLKAR., 11.)
c
D
E
F
BankU., practic~heque-"Certi{i4d as good for payment", Scope
of.
The members of the Bombay Bullion Asaociation, respondent herein,
were permitted under the Forward Contracts Control Act (Bom. Act 64
of 1947) to carry on forward dealings in bullion subject to tbe bye-laws
framed by the Association.
The appellant who was a member of the
Association and was carrying on business as bullion merchant, defaulted
in performing bis obligation to tender silver of which he was the forward
seller, on the settlement day, and so tbe Association, purporting to act
under its bye-laws, purchased a quantity of silver •t the risk of the appellant
and claimed from him the difference in price.
The appellant paid the
amount and challenging the legality of bis being treated as in default
filed a suit for its refund. The suit was dismissed by the High Court. In
appeal to tbe Supreme Court it was contended that tbe Association should
not have made tbe purchase because the purchasers bad not fulfilled tbc
terms of their obligations under tbe bye-laws in making their payments to
the Association. The contentions were that : (i) certain of the purchasers
who had made payments into the Clearing House of the Association by
cheques, dra"ND on their account in the Clearing House, had not had the
cheques certified as good for payment as required by bye-law 137-B,
and (ii) one payment was made by a purchaser, by a cheque drawn,
not on the Clearing House but on a branch of the Clearing House in the
city, and which besides was not certified good for payment as required
by the bye-law.
HELD: (i) Where a payment was made by a cheque drawn on an
account with the Clearing House and the amount represented by that cheque
was transferred to the Clearing House Account of the Association, it is
virtually a payment in cash, though in form a payment by cheque. Si11ce
payment in cash is one of the modes of payment recognised by the byiolaw it satisfied the requirement of a valid payment.
(255 E-F; 262 G-H]
ArS<ne A. Larocque v. Hyacinthia Beauckemin, (1897) A.C. 358, referred to.
(ii) Where the Clearing House had accepted the cheque and credited
G
it to the Association after ascertaining from the branch on which it wu
drawn, that the drawer of the cheque had enough funds at that branch
for meeting of the cheque, the cheque need not be certified as good for
payment.
The position with respect to such a cheque is the same ••
when the cheque is drawn on an account in the same branch, because the
certificate of the banker that i• referred to in the bye-law is the certificate
of a bank different from that into which the cheque i• being paid. In any
event, when the staff of the Clearing House ascertained from the branch
H
that the cheque wa' backed by sufficient funds to the credit of the customer in the branch on which it was drawn, it satisfied the requirements
of a cheque certified as good for payment within the bye-law.
(260 B;
262 A.C; 263 O·HJ
lJSup .16S-17
250
SUPIU!MB C:OU.T llBPORTS
[1965]2 S.C.R.
CML APPELLATE JURISDICTION : Civil Appeal No. S6 of A
1962.
Appeal by special leave from the judgment and decree dated
March 3, 4, 1958 of the Bombay High Court in Appeal No. 27 of
1957.
Purshottam Tricumdas, I. B. Dadachanjl, 0. C. Mathur and
B
Ravinder Narain, for the appellant. ·
H. N. Sanyal, Solicitor-General, N. P. Nathwani, AtiqurRehman and K. L. Hathi, for respondents Nos. 1-3, 5, 6, 8-17, 19
and 20.

## Text

_Characters 0–39,853 of 42,000. This is a partial read: ask again with offset=39853 for what follows._

I
A
SITA RAM JHUNJHUNWALA
II.
BOMBAY BULLION ASSOCIATION L1D. & ORS.
November 25, 1964
B
[A.
K.
SARKAR,
N.
RA.1AGOPALA
AYYANGU AND
J. Jt
MUDHOLKAR., 11.)
c
D
E
F
BankU., practic~heque-"Certi{i4d as good for payment", Scope
of.
The members of the Bombay Bullion Asaociation, respondent herein,
were permitted under the Forward Contracts Control Act (Bom. Act 64
of 1947) to carry on forward dealings in bullion subject to tbe bye-laws
framed by the Association.
The appellant who was a member of the
Association and was carrying on business as bullion merchant, defaulted
in performing bis obligation to tender silver of which he was the forward
seller, on the settlement day, and so tbe Association, purporting to act
under its bye-laws, purchased a quantity of silver •t the risk of the appellant
and claimed from him the difference in price.
The appellant paid the
amount and challenging the legality of bis being treated as in default
filed a suit for its refund. The suit was dismissed by the High Court. In
appeal to tbe Supreme Court it was contended that tbe Association should
not have made tbe purchase because the purchasers bad not fulfilled tbc
terms of their obligations under tbe bye-laws in making their payments to
the Association. The contentions were that : (i) certain of the purchasers
who had made payments into the Clearing House of the Association by
cheques, dra"ND on their account in the Clearing House, had not had the
cheques certified as good for payment as required by bye-law 137-B,
and (ii) one payment was made by a purchaser, by a cheque drawn,
not on the Clearing House but on a branch of the Clearing House in the
city, and which besides was not certified good for payment as required
by the bye-law.
HELD: (i) Where a payment was made by a cheque drawn on an
account with the Clearing House and the amount represented by that cheque
was transferred to the Clearing House Account of the Association, it is
virtually a payment in cash, though in form a payment by cheque. Si11ce
payment in cash is one of the modes of payment recognised by the byiolaw it satisfied the requirement of a valid payment.
(255 E-F; 262 G-H]
ArS<ne A. Larocque v. Hyacinthia Beauckemin, (1897) A.C. 358, referred to.
(ii) Where the Clearing House had accepted the cheque and credited
G
it to the Association after ascertaining from the branch on which it wu
drawn, that the drawer of the cheque had enough funds at that branch
for meeting of the cheque, the cheque need not be certified as good for
payment.
The position with respect to such a cheque is the same ••
when the cheque is drawn on an account in the same branch, because the
certificate of the banker that i• referred to in the bye-law is the certificate
of a bank different from that into which the cheque i• being paid. In any
event, when the staff of the Clearing House ascertained from the branch
H
that the cheque wa' backed by sufficient funds to the credit of the customer in the branch on which it was drawn, it satisfied the requirements
of a cheque certified as good for payment within the bye-law.
(260 B;
262 A.C; 263 O·HJ
lJSup .16S-17
250
SUPIU!MB C:OU.T llBPORTS
[1965]2 S.C.R.
CML APPELLATE JURISDICTION : Civil Appeal No. S6 of A
1962.
Appeal by special leave from the judgment and decree dated
March 3, 4, 1958 of the Bombay High Court in Appeal No. 27 of
1957.
Purshottam Tricumdas, I. B. Dadachanjl, 0. C. Mathur and
B
Ravinder Narain, for the appellant. ·
H. N. Sanyal, Solicitor-General, N. P. Nathwani, AtiqurRehman and K. L. Hathi, for respondents Nos. 1-3, 5, 6, 8-17, 19
and 20.
The Judgment of the Court was delivered by
Ayyangar, I. This appeal, by special leave, raises for con"
C
sideration a very short point regarding the proper construction of
bye-law 137-B of the Bombay Bullion Association Ltd., which
will hereafter be referred to as the 'Association' and in particular
whether on the facts established in this case the· requirements of
the said bye-law has been satisfied.
The appellant is a member of the first respondent-the Association and carries on business as a bullion merchant. . By a notification dated March 14, 1949, the Government of Bombay in exer- ·
cise of the powers conferred by s. 6 of the Bombay Forward Contracts Control Act,' 1947 (Bombay Act LXIV of 1947) sanctioned
D
by the bye-laws framed by the Association. Under the said Act
JI:
the members of the Association were permitted to carry on forward
dealings in bullion subject to the said bye-laws. The appeal is
concerned with the regularity of a purchase effected by the Association purporting to act under its bye-laws, of a quantity of silver
at the risk of the appellant, on the footing that he had defaulted ·
in pedonning his contract as a seller on February 3, 1953 which P
was a settlement day. The Association made this purchase treating the appellant as a defaulter and claimed from him the difference which amouE1ted to Rs. 1,37,880-12-0. The appellant paid
this sum when demanded on the 5th February under protest but
on the next day he filed the suit out of which the present appeal
arises against the Association and its Directors for its refund on G
the ground that the purchase at his risk by the Association was
invalid as contrary to the bye-laws and was, therefore, not binding
on him. The appc:llant did not dispute that he defaulted in performing his obligation to tender the bullion of which he was the
forward seller on the settlement day as he was bound to do under
the relevant bye-laws but the point on which he attacked the purchase was that no purchase could be made unless the forward
purchasers for that settlement had fulfilled the tenns of their
B
I
•
JHUNJHUNWALA v. BULLION ASSCN. (Ayyangar, I.)
211
A obligations under the bye-laws and that as they had failed to do
ao, the Association had no right to effect a purchase on behalf
and for the benefit of such defaulting purcpasers.
The suit was tried before Coyajee J. on the Original Side ·of
the Bombay High Court. The learned Judge recorded a finding
B that there had been no default on the part of the purchasers and
he, therefore, dismissed the suit.
An appeal preferred by the
appellant to a Division Bench also failed and it is the correctneu
of this decision of the High Court that is challenged in this appeal.
Though the evidence went into minute details as to the thinp
C that hapP!'ned on the Vaida day-February 3, 1953 and in particular whether the several parties who figured as purchasers on the
Vaid a day had or had not paid in their cheques into the Cle.aring
House of the Association on February 3, 1953 as they were bound
to do under the bye-laws, it is not necessary for us to go into this
matter because there is a concurrent finding of fact of both the
D Courts that each one of the cheques of the several purchasers was
paid into the aearing House on February 3, 1953, though it is
now clear from the evidence that entries in regard to some of
these transactions which took place on February 3, 1953 were
made by the receiving bank or by the Clearing House only on the
4th. It is on the basis of this finding which could not be and
I
was not challenged before us that we propose to deal .with the
points urged before us in this appeal.
There is also one other matter which is referred to in the pleadings as well as in the judgments of the High Court which also we
lll'C putting aside. This relates to a plea by the appellant that the
1
Directors of the Association had acted mala fide in permitting
certain infractions of bye-laws on the 3rd February by purchasers
who would otherwise be in default and treating them as if they
had fulfilled their obligations. The suggestion was that some of
the members of Board of Directors had, in their individual capacity, figured as purchasers at the said settlement and that it was
G this personal interest of theirs that led to their favouring the group
of purchasers as against the sellers at this Vaida. There was nothing
in the evidence in support of this plea and Coyajee, J. having negatived it, the same does not appear to have been pressed before the
Division Bench. Mr. Purshotam-learned Counsel for the appellant did not seek to reagitate this matter, as indeed he could not,
e and hence this aspect also might be excluded from consideration.
This leads us to the main question which it would be apparent
from the above narrative is whether those who made forward
212
SUPllMB OOU&T 1.BPOllTS
[196') 2 S.C.ll.
purchases for this Vaida had fulfilled their obligations under the
A
bye-laws. Now, the first matter that requires to be noticed is that
the settlement for the Maha V aida was originally fixed to February
2, 1953. Bye-law 32 of the Association empowers the Board to fix
the da~ of settlement in these terms :
"32. (1) The settlement days shall be fixed by the
Board or the Sub-Committee appointed by it keeping in
mind the provisions of these Rules and bye-laws."
but cl. (3) of the same bye-law empowers the Board :
"If of opinion that circumstances exist which require
an alteration of days so fixed [by cl. (1)) the Board may
postpone such settlement day for a period not exceeding
5 days."
It was in exercise of this power that the Vaida day was postponca
from February 2, 1953 to February 3, I 953. No dispute wasraised
by the appellant regarding the competence of the Board to effect
B
c
this change of date or to the validity of the change effected thereby.
D
Bye-law 120 makes provision for the establishment of a Clearing
House for eff!bcting a settlement on the Vaida days. This bye-law
reads:
"120. Clearing House :-A Gearing House shall be
established under the jurisdiction of the Board to act as
an ordinary agent of the members for settling forward
transactions effected between members in gold, silver and
sovereigns by exchanging delivery orders as also for making payment of the amounts of difference through the
Clearing House."
I
Un<!er the powers thus conferred the Bank. of Baroda which opened
F
a branch at the premises of the Association were appointed as the
Clearing House. Bye-law 125 provides for the appointment of a
Clearing House Committee by the Board of Directors of the
Association. Bye-law 127 specifies the powers and duties of the
Gearing House Committee and this runs :
G
"127. Powers and duties of the Clearing House Committee:-
( 1) The Clearing House Committee shall settle forms
of clearing shee:ts, delivery forms, "Kaplis" (slips) relating
to payment of differences and delivery of goods and other
necessary documents for being used for the work relating·
to the Clearing House and every member shall have t<i use
the said forms or other forms of the same size and with
ff
•
JHUNJHUNWALA v. BULLION ASSCN. (A.yyangar, J.)
213
A
similar writing. The said Committee shall from time to
time fix charges for the said forms.
B
c
D
E
1
G
H
(2) It shall L~ue instructions with regard to the work
of the Clearing House and every member shall act
acrording to the same.
(3) If any member does not act according to any such
instructions or commits any error or mistake in filing in
any form or other document or writes so illegibly that it
cannot be deciphered or makes delay in submitting, any
such form or document to the Clearing House, then in
every such case, the Clearing House Committee can
impose on any member a penalty not exceeding Rs. 500.
Sul>-Committee can be appointed for attending to the
work relating to this sub-clause.
(4) It shall fix Havala rates in respect of outstanding
transactions (transactipns, which are not squared up)
between two members and all members shall enter
Havalas in respect of such outstanding transactions (which
ar" not squared up) at tlwse rates and also prepare statement of differences at those rates. Delivery orders also
shall be issued at these very rates. The Havala rates in
l"l'.Gpcct of transactions are given to facilitate the settlement. That does not in any way reduce the liability in
rei:pcct of transactions.
(5) The Clearing House Committee may declare any
member as a defaulter and for that purpose, it shall have
power to pas.> such resolutions and orders as it deems
proper and necessary.
( 6) If, in connection with any forward settlement,
the Clearing House finds, it difficult to make settlement on
the days fixed for. settlement, then the Clearing House
Committee shall have power ·to make a change of 48
hours at the maximum in all or any settlement days
relating to that forward settlement."
Bye-law 134(1) read~ :
"134. (1) The member who wants to have his transactions settled through the Clearing House shall have
to send to the Clearing Honse a clearing sheet in the
settled form (form No. 1) on the days fixed for that purpose (which day will hereafter be known as the Clearance
Day)."
254
SUPREMB COUllT REPOl.TS
[I 96S) 2 S.C.ll.
Bye-law 137 specifies the obligations of members of the AssociaA
tion who give delivery and it reads :
"13 7. The member who has to give delivery shall
have to submit to the clearing house as many delivery
orders signed by him as there would be, upon a calculation
on the basis of every delivery order being either for five
a
bars of silver or for 1,000 tolas of gold bar, or for 1,000
sovereigns. If any member has sent delivery orders without signing he shall attend the Clearing House at l 0 A.M.
in the morning on the date fixed for giving delivery
orders by the Clearing House and shall sign the delivery
orders. If the Clearing House finds it necessary it can
C
call for further delivery orders from any member, and
the member shall have to furnish the same forthwith but
if the goods are with a bank he shall have to give delivery
orders on the bank directly as mentioned above."
Bye-law 137-A(l) deals with the obligations of a member whose
clearance sheet shows outstanding sales and it reads :
D
"137-A(l). A member whose Clearance Sheet shows
outstanding sales shall submit to the Clearing House with
his delivery orders a complete list of bars (gold or silver)
in his possession or in the possession of his Banker in
Bombay with their number and marks, to be delivered
E
against such delivery orders."
As stated earlier, it is now common ground that the appellant did
not carry out his obligations under this bye-law. Bye-law 137-B
whose proper construction is raised by this appeal deals with the
obligations of members whose Clearance Sheet shows outstanding
purchases. · It reads :
F
"137-B. A member whose Clearance Sheet shows
outstanding purchases will submit to the Clearing House
with his Clearance Sheet a cheque certified "good for pay- '
ment" or a demand draft on a Bank or a Bank's payslip
or cash for an amount sufficient to pay for all his outstanding purchases at the rate fixed by the Association.
Failing payment as aforesaid the purchases outstanding in
the Clearance Sheet or a part thereof will be auctioned at
the purchaser's risk on the same day.
The cheques, demand drafts etc., so received by the
Clearing House will be paid into the Clearing House
Account in the Bank of Baroda Ltd., Bullion Hall Subbranch, and crossed cheques payable to bearer or payslips
G
H
.~
-·
B
JHUNJHUNWALA v. BULLION ASSCN. (A.yyangar, /.)
255
of the said Banlc in favour of the sellers whose delivery
orders are given by the Clearing House to the purchasers
will be handed over by the Clearing House to the said
purchasers. The sellers shall give delivery of the goods
covered by the delivery order to the said purchasers
against such cheques or payslip issued by the said banlc.
Refusal by a seller to give delivery of goods covered by
his delivery order to the purchaser against such a cheque
or payslip during the time fixed for giving delivery, will
amount to failure to give delivery and consequences in
Bye-law 147 will ensue.''
C It was not contested that if by the transactions to which we shall
refer presently, members whose Clearance Sheets showed outstanding purchases had fulfilled their obligations under Bye-law 137-B,
the Association was entitled to effect the purchases at the risk and
cost of the appellant under the succeeding bye-laws which confer
upon the Association this power to effect purchases or sales to
D square the transactions of defaulting members.
An analysis of the bye-law 137-B would show that a member
whose Clearance Sheet showed outstanding purchases had, on the
Vaid a day, to file his Clearance Sheet and to make a payment into
the Clearing House of an amount sufficient to pay for all his outE
standing purchases at the rate fixed by ·the Association. This payment had to be made along with the Clearance Sheets and had to
be in one of four forms: (a) a cheque certified good for payment,
or (b) a Demand Draft on a bank, or (c) a bank's pay-in-slip, or
( d) cash. The question raised in this appeal relates to whether
certain of the purchasers had made payments into the Clearing
F
House of the amounts payable by them in any of the permitted
modes.
Before proceeding further we might add that the Bank
of Baroda which was the Clearing House admitted that the amounts
required . to be paid by the several purchaser-members had been
received by it on the 3rd and the total amounts represented by
G
these payments were credited to the Association.
Before setting out the matters in controversy as regards the form
of payment adopted by certain purchasers under bye-law 137-B, it
is necessary to premise the narrative by a few facts.
As already
stated, the Bank of Baroda Ltd. had been appointed as the Clearing
House of the Association under bye-law 120 in or about 1949
H
and had been functioning as such ever since. To facilitate payments by and between members the Bank had opened a special
branch call~ .. ~.:JJullion Hall Sub-branch' in the premises of the
256
SUPIU!VJI COU&T IU!POltTS
[1965] 2 S.C.ll.
Association itself. Bye-law 17 4(3) required every member to open
A
an account in the Bank, so that it might be convenient to pay or
draw cheques for effecting clearance.
All the members had, in
pursuance of aI)d in obedience to this bye-law, opened such
accounts.
The Banlc issued special pay-in-slips for doing its business as
IJ.
a Clearing House. These slips were in triple foil, all of which had
to be filled in by the member making the payment. When a member made a payment into the Bullion Exchange Branch of the Bank
the extrcm~ right of the three parts which recited the payment to
the credit of the Clearing House of the Association by the member
named and of t.'1e amount, also specifying the particulars of the cpayment would be signed or initialled by the Cashier and Ledger
Keeper and be retained with the Bank.
The paying-in-slip consisting of the other two parts in which similar entries were made
and bearing the signature or initials of the Bank authorities was
handed over to the member making the payment. He had thereafter to present this slip to the Clearing House along with the D
Valan or the Clearance Sheet, and thereupon the Clearing House
· department would endorse receipt on the part to the extreme left
which would be returned to the member-the other part being
retained by the Clearing Hou~.
The settlement for the Vaida on February 3, 1963 appears to E
have been an exceptionally heavy one on account of the very large
volume of sales and purchases for that settlement and there was a
total outstanding sale of 1897 bars of silver with, of course, corresponding purchases of the same number.
Sellers of 1,004 bars
gave delivery orders as required by bye-laws 137 and 137-A but
the appellant who had an outstanding sale of 85 3 bars failed to F
submit to the Clearing House the necessary delivery orders. The
purchasers of the 1,897 bars had, under the bye-laws, to submit
their Clearance Sheets and make payments into the Clearing House
in the manner provided by bye-law
13 7-B of a total sum of
Rs. 88,31,050 by February 3, 1953.
By reason of the extraordinary situation created by the heavy payments having to be . G
made coupled with a strike of the Clerks of the members on the
previous day, the Directors of the Association passed a resolution
extending the time for payment and delivery of Clearance Sheets
beyond the usual banking hours to 7 P.M. on the 3rd February.
The point in controversy in the appeal is whether this amount K
had been paid into the Bank on the 3rd February to the credit
of the Clearing House in the manner provided by bye-law 13 7-B.
Out of the Rs. 88,31,050, some a!l).ount was paid in cash,
JHUNJHUNWALA v. BULLION ASSCN. (Ayyangar, I.)
257
A Rs. 42,99,400 by cheques drawn by members on their respective
accounts with the Bullion Hall Sub-branch of the Bank of Baroda
Ltd. in favour of the Association's Clearing House account,
Rs. 24,64,050 by four pay slips of other banks in favour of the
Bank of Baroda Ltd., Rs. 15,30,150 by transfers by two members
from their accounts with the Jhaveri Bazar branch of the Bank
B
of Baroda Ltd., to the Bullion Hall Sub-branch for payment to the
Association, Rs. 4,65,000 was by a cheque drawn by a member
on his account with the Fort Branch of the Bank of Baroda Ltd.,
in favour of the Association, Clearing House Account. Of these,
the submission of the appellant was that only the cash payment
was a proper one and that the rest were not made in accordance
C with bye-law 137-B. Before dealing with it, however, it might-be
stated that the Bank of Baroda Ltd. Clearing House submitted a
statement on February 4, 1953 stating that all the payments totalling
Rs. 88,31,050 had been received by it as a Clearing House and
had been credited to the Association.
D
Now, taking first the amounts paid by cheques drawn by members on their accounts in the Bullion Hall Sub-branch, several
points were urged in support of the contention. The first was this :
On February 3, 1953 the banking hours ended at 2.30 P.M. and
several of the payments into the Clearing House Account by cheques
E drawn on the Banking account at this branch were made after that
hour. It was, therefore, contended that even if there was enough
money in the accounts of the several members to meet the cheques
drawn by them, still their cheques could not be treated as cash as
the banking hours had passed. This was answered by the Division
Bench by pointing out that there·was nothing illegal in the bank
F functioning for the purpose of the members of the Clearing House
after 2.30 P .M. that day. There was evidence before the Court
that the ledgers and . other books of account in the bank were
available for being looked into to ascertain whether a member's
account had sufficient funds to meet the. cheques which had been
drawn. There was also evidence that the state of the member's
G account was ascertained before the triplicate form was accepted by
the bank and the two left side foils passed on to the depositing member for being handed over to the Clearing House and, as we stated
earlier, on the next day the bank submitted a statement acknowledging receipt of the amount of the several cheques and showed
their amounts to the credit of the ASsociation. In these circumH stances, the learned Judges of the High Court came to the conclusion that there had been a payment as required by the byelaw 137-B on February 3, 1953.
L3Sup./6S
258
SUPllEMB COURT REPOl.TS
[196S) 2 S.C.I..
We entirely agree with the High Court as regards the alleged
A
illegality said to have been i:aused by the Bank accepting cheques
after the close of the usual Banking hours. It would be noticed
that the extension of the banking hours from 2.30 P.M. to 7 P.M.
that day was not in contravention of any statute and whatever the
position might have been, if such extension acted to the detriment ·
of a constituent of the bank, in the case on hand it was really for
B
the benefit of the customer. In those circumstances, there was
nothing illegal and, of course, nothing improper in the banking
business having continued so long as the work of the bank as a
Clearing House continued.
There were also other objections raised to support the argument c
that these payments were contrary to bye-law 137-B. To appreciate
them it would be necessary to state a few more facts. From the
analysis that we have made of payments that were made into the
Clearing House by the purchasers in satisfaction of the amounts
due by them for the settlement, Rs. 42,99,400 were by way of
cheques drawn on the Bullion Hall Sub-branch of the bank. We D
have also stated that the stafi of the bank to whom the cheques
were presented had endorsed on the slips that there were sufficient
funds in the account to enable the cheque to be cleared and that
it was after this process that the pay-in-slips were presented to the
Clearing House with the Clearance Sheets in fulfilment of their
obligations under the bye-law. ·1n regard to these payments by
E
transfer entries to the credit of the Association it was urged :
(1) That several of the members numbering about
17 or st>, did not, in fact, have enough funds in their
accounts before 7 P .M. that day to enable the cheques
which they drew in favour of the Clearing House to be
F
honoured and that in consequence notwithstanding the
acceptance of the cheques by the bank, such a payment
could not be deemed within bye-law 137-B.
It was common ground that at 2.30 P.M. on the 3rd of
February the amount to the credit of several of these members was
not sufficient to enable the cheques which they issued later in the G
day to be cleared. But before the cheques were· actually presented
the purchaser-members paid into their accounts (a) refunds which
they obtained of margin moneys which they had deposited with the
Association and to which they were entitled under the bye-laws
and (b) other cheques in favour of the Bank of Baroda. Taking up
first the margin money refunds, purchasers had, under the bye-laws,
to pay margin mon,eys on their purchases and these had to be
refunded to them on fulfilment of certain conditions. The amounts
H
'
JHUNJHUNWALA v. BULLION ASSCN. (Ayyangar, /.)
259
A originally paid as margin by the purchasers had been credited to.
the Association and when the amount had to be refunded payment
orders were made out by the Association on the 3rd of February
of the amounts due to be refunded and these refund orders were
paid by the respective purchasers to the credit of their accounts
and their accounts were so credited with the Bullion Hall SubB
branch. It was not the case of the appellant that the members
were not entitled to the refund granted by the Association but what
was objected to was that die refunds were really not due that day
and had been improperly paid over by the Association in advance
of the time when it was due. Bye-law 33-C(2) deals with the refund
C
of margin money and it reads :
D
"Where the conditions described in clause (a) or (b)
as the case may be, cease to exist, the Association shall
return the margin amount to the members concerned on
the day following the next clearance day after making
the necessary adjustment."
On this the appellant's case was that the margin money could have
been returned only on the 4th and that the Association acted
improperly in refunding the amounts to the purchasers on the 3rd
itself to enable them to utilise that money for the purpose of making
their payments towards the settlement. We ·do not see any subE
stance in this complaint, nor do we see any relevance of this to the
point now in controversy, viz .• whether there had been a compliance
with bye-law 137-B. As already pointed out, the Vaida was originally fixed for the 2nd of February and if that had stood the
amount would have been refundable on the 3rd. It was, however,
owing to a strike of the Gumashtas of the members that a situation
F
had ariSen by reason of which the V aida had to be postponed by
a day. Whether as urged by Mr. Purshottam, that upon the proper
construction of bye-law 33-C that when a Vaida day is shifted the
day fixed for the refund of the margin money also gets shifted or
whether it would be payable on the day originally fixed, would,
in our opinion, make no difference to the result.
The bye-law
G imposes an obligation on the Association to refund the margin
money on the day next after the Vaida. On its terms, however, if
the conditions of els. (a) & (b) cease to exist, and obviously they
ceased to exist in the present case even on the 2nd, there is nothin1
in the bye-Jaw to preclude the Association from refunding the marH
gin money. Again, even if the margin money were returned before
such refund could be legally enforced, the propriety or impropriety of the refund would have no bearing on the only point for
consideration relevant to the question whether bye-law 137-B was
260
SUPRBMB COUllT REPORTS
[1965] 2 S.C.ll.
complied with or not viz .• whether the accounts of the members
A
were in credit at the time the cheques were. presented.
·
(2) The next category of objection under this head was in
relation to the bank having given credit to one of the members
for the amount of a cheque of Rs. 2,00,000/- which was drawn
·on the Bank of India, Australia and China. Now, the evidence
B
in the case was that this constituent-Khimji Poonja & Co. had
to pay Rs. 4,65,000/- as a purchaser. He had a credit balance at
2.30 P.M. on the 3rd of Rs. 1,93,215/13/5. To enable him to
meet the cheque for Rs. 4,65,000/- which he drew on the Bullion
Hall Sub-Branch he paid into his account Rs. 1,05,500/- as refund C
of margin money. Besides, he drew a cheque for Rs. 2,00,000/-
on his account with the Bank of India, Australia & Chlna in favour
of the Bank of Baroda and paid this cheque to the credit of his
account with the Head Office of the Bank of Baroda. The Head
· Office intimated this credit to the Bullion Exchange Branch and
when he presented his cheque for Rs. 4,65,000/- to the Bullion D
Exchange Branch the same was honoured and the amount credited
to the Association. The learned Judges accepted this evidence and
the explanation and held that this constituent had enough funds
with the Bank to meet the cheque of Rs. 4,65,000/- which he drew.
Mr. Purshottam challenged the credibility of this evidence.
We
do not, however, propose to go into it for the reason that if, as
E
a matter of fact, the Bank of Baroda as a Banking Institution gave
Khimji Poonja & Co. credit for Rs. 2 lakhs that was a matter between those two parties and is not a matter which bears upon the ·
validity of the payment for Rs. 4,65,000/- which Khimji made. It
is not disputed, or rather it cannot be disputed that the Head Office
of the bank credited Khimji Poonja & Co. with the sum of F
Rs. 2,00,000/- and there is evidence as to the intimation of this
credit by the Head Office. Of course, the cheque by Khimji on
the Chartered Bank was not certified "good for payment" but that
was not a payment under bye-law 137-B. The Head Office accepted
it and therefore l)othing follows from their not having insisted on
that cheque being certified. The fact remains that the Head Office
G
accepted that cheque; we shall take it in anticipation of being
cleared, and as a fact it was cleared the next day. With the propriety of the Head Office of the Bank crediting the constituent
with the amount of that cheque before actual realisation neither
the Bullion Exchange Branch nor the Association to whose account
the sum of Rs. 4,65,000/- represented by the cheque drawn in H
their favour was credited, nor the appellant are concerned. When
once the Bank credited that sum into the account there was enough
' ·•
JHUNJHUNWALA v. BULLION ASSCN. (Ayyangar, /.)
261
A credit for meeting the cheque of Rs. 4,65,000/- which is the only
point we arc concerned with.
(3) The third head of objection that was raised, and this was
the one which was the subject of strenuous contest in the High
Court and before us, was whether the cheques on the Bullion ExB
chang~ Sub-branch which were paid in with the Clearance Sheets
were "certified good for payment" within bye-law 137-B. It was
urged that only four modes of payment were recognised and that
a cheque even on the customer's account in the same bank was still
a cheque and that unless it was certified good for payment it did
not satisfy the requirement of a valid payment within bye-law
C
137-B. In thi~ connection it was stressed that having regard to the
consequences flowing from a payment or non-payment on the
terms of the bye-laws a strict and literal construction of the bye-law
was called for and that the Courts should so construe the bye-law
and hold that a literal and not merely a substantial compliance with
it in the sense of the Clearing House having received payment would
D satisfy the rule. In connection with the submission that cheques
drawn against the customer's account in the same branch of the
bank could not be "cheques certified good for payment" even though
there were enough funds to meet the cheques, lelrned Counsel drew
our attention to the fact that certification of a cheque wa.~ a well·
known form of commercial procedure which bankers adopted for
E the purpose of clearance. by which the certifying and the Clearing
bank became bound to each other. Reliance was, in this connection, placed on the observations of the Privy Council in Gaden v.
The Newfo11ndiand Savings Bank(') where it is stated:
''The only etfoct of the certifying is to give the cheque
F
additional currency by shewing on the face that it is drawn
in good faith on fund~ sufficient to meet its payment,
and by adding to the credit of the drawer that of the b:mk
on which it is drawn."
Roference was also made to the judgment of Lord Wright. in Bank
G of Baroda v. Punjab National Bank(') where the histroy of certification or marking of cheques in India is dealt with. We do not,
however, derive any assistance from these decision.> on the point
now in controversy. The first thing to be noticed about this objection as to certification is that there is no question of certification
where a cheque drawn on an account in a branch of a bank is paid
H
into the same branch to the credit of another party who has an
account in that branch. Certification is a method adopted when a
(I) [1899) A.C. 281 at p. 28S.
(2) 71 I.A. ! 24.
262
SUPllEMB COURT REPORTS
(1965] 2 S.C.R.
bank on which a cheque is drawn verifies the customer's account on A
which it is drawn and indicates on the cheque that there are enough
funds in his account to meet that cheque. _It is obvious that there
could be no question of such a certification by a bank of a cheque
drawn on an account in a branch when the drawer pays it to the
credit of a different account in the same branch. The verification
of the account of the constituent for the purpose of ascertaining B
whether there is enough credit to meet the cheque which precedes
a certification takes place at the very moment when the cheque is
cleared.
There is therefore no question then of two banks--a
certifying bank on which the cheque is drawn and a clearing bank
into which that cheque is paid. In such circumstances, we should · C
consider that the proper view to take of the payment would be that
it is really a payment in cash. The Privy Council had, in Arsene A.
Larocque v. Hyacinthe Beauchmin, (') to consider whether the
payment a company by receipts given by it on account of the purchase price of the property which they sold was a payment in cash.
In dealing with this question Lord Macnaghten quoted with
D
approval the following from the judgment of James L. J. in
Spargo's( 2 ) case :
"It was said by the Lord Chancellor, and we entirely
concurred with him, that it could not be right to put any
construction upon that section (s. 25 of the Companies
Act, 1867) which would lead to such an absurd and unjustifiable result as this, than an exchange of cheques
would not be payment in cash, or that an order upon a
banker to transfer money from the account of a company
would not be a payment in cash."
and another passage from the judgment of Mellish, L.J. :-
P
"It is a general rule of law that in every case where
a transaction resolves itself into paying money by A to B
and then handing it .back again by B to A, if the parties
meet together and agree to set one demanil against the
other, they need not go through the form and ceremony
of handing the money backwards and forwards."
G
We consider these observations apposite and hold that where a
payment was made by a cheque drawn on an account with the
Bullion Exchange Sub-branch and the amount represented by that
cheque was transferred to the Clearing House Account of the
Association it is virtually a payment in cash, though in form a
H
payment by cheque.
(1) 11897] A.C. 358.
(2) LR. 8 Ch. 407.
JHUN.JHUNWALA v. BULLION ASSCN. (A.yyangar, /.)
283
.A
The next transaction to which objection was taken . was a
payment into the Bullion Hall Sub-branch of a sum of
Rs. 4,65,000/ - by one Sri Bansilal & Sons.
The evidence was
that the cheque was drawn not on his account on the Bullion Hall
Sub-branch of the Bank of Baroda but with the branch of the
Bank at the Fort, Bombay. The evidence which the Court accepted
B was ihat on the presentation of the cheque the staff ascertained that
the constituent had enough funds in the bank for the cheque to
be cleared and accepted it and credited the same to the account
of the Bullion Exchange Association. The objection raised to the
receipt of this payment was also founded on the cheque not being
certified as good for payment. It will be noticed that the only point
C of difference between this cheque and the cheques which were
drawn on accounts of members with the Bullion Hall branch which
we have dealt with just now is, that the cheque for Rs. 4,65,000/·
was not drawn on the drawer's account with the Bullion Hall Subbranch but on an account in the same bank at the Fort branch.
·D
For the purpose of considering this point it is not necessary to enter
on any examination of the question as to what extent the two
branches of the same bank are separate entities. There is no doubt
that a customer cannot claim to draw cheques except on the branch
where his moneys are deposited and on the account in respect of
which the cheque is issued. But that is not what is in controversy in
E the present case. Here a cheque drawn on the Fort Branch is paid
into the Bullion Hall Sub-branch to the credit of the Association.
The Bullion Hall Sub-branch of the bank accepts that cheque and
credits it to the Association after ascertaining that the drawer of
the cheque has enough funds at the Fort branch for meeting that
cheque.
The only question is whether the payment could be
F
treated as by a cheque which is certified as good for payment. We
consider that what we have stated earlier as to the position in regard
to a cheque drawn on an account in the same branch would also
apply to the present case and that a certificate of the banker that
is referred to in the bye-law is a certificate of a bank different from
that into which the cheque is being paid. Even if there be any
G doubt in this matter we are satisfied that when once the staff at the
Bullion Hall Sub-branch ascertained that the cheque was backed
by sufficient funds to the credit of the customer in the account on
which it is drawn, it satisfies the requirements of a cheque certified
as good for payment within bye-law 137-B. The learned Judges
of the High Court, therefore, rightly held that this payment was
B
not outside the payments permitted by the !said bye-law.
The last of the cases concerns a payment by one Jethalal
Sangji Shalt of a cheque for Rs. 1,16,250/-. The cheque was
•
4
264
SUPllB:U:B COUllT l.U!PORTS
[1965] 2 S.C.R.
made in favour of the Bank of India Ltd. not certified good for
A
payment and was paid into the Bullion Hall Sub-branch.
The
Clearing House received this cheque from Jethalal Sangji Shah
after obtaining a declaration from him that he had enough credit
in his account with the Bank of India for meeting that cheque.