LexCANARA BANK versus CANARA SALES CORPORATION & ORS
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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CANARA BANK
v .
. CANARA SALES CORPORATION & ORS..
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er... • ,.,,.APRIL 22, 1987.,
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[V. KHALID AND G.L. OZA, JJ.]
Negotiable Instruments Act, 1881-Sections 6, 31, 77, 85 and
117-Bank and customer of the Bank-Relationship between-That of a
creditor and debtor-Cheque duly signed by a customer presented-
Mandate to Bank to pay the amount-Element of trust between Bank
C and its customer-Exists.
Banking Law-Bank and Customer-Entries in pass book and
statement of accounts furnished by bank-Customer whether duty
bound to intimate discrepancies.
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The respondent-company had a current account with the
lant-bank in its Mangalore Bonder Branch. The Managing
Director of the company and the General Manager of a sister concern
of the company had been authorised to operate the said current
account. The second defendant was attending to the maintenance of
accounts of the respondent -company and was also in charge and had the
E custody of the cheque book issued by the Bank to the respondent·
company. During the process of brinaing the accounts upto date certain
irregularities . were noticed in the account and on verification it was
found that cheques purporting to bear the signature of the Managing
Director were encashed, though they did not hear his signature. A com•
plaint was lodged hy the respondent Company with the police and a special
F audit of the company's accounts for the years 1957·58 to 1960·61 by a
firm of Chartered Accountants disclosed that the second defendant had
withdrawn a sum of Rs.3,26.047 .92 under 42 cheques. A suit was filed
for the recovery of the said amount on the plea that the amounts as per
the forged cheques were not utilised for the purpose of the respondent
company, that they were not authorised ones, that there was no
G acquiescence or ratification open or tacit on the part of the respondent
company and that the respondent was unaware of the fraud till the new
accountant discovered it.
The appellant-bank resisted the suit on the grounds (1) that the
·cheques were not forged ones; (2) that even if they were forged ones, the
H company was not entitled to recover the amount on account of its own
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CANARA BANK v. CANARA SALES
1139
negligence; (3) that there was settlement of accounts between the parties A
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from time to time and as such. the company was not entitled to reopen
the same and claim the sums paid under the cheques; and !4) that the
suit was barred by limitation. The second defendant pleaded that the
cheques were 11tilised for the purpose of the company. The trial
Court negatived the contentions of the bank and passed a decree for the
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sum claimed with interest at 6'1<.
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_ . In appeal the Division Bench confirmed the judgment of the trial
court but_ as the case involved substantial questions of law of general
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public importance it granted a certificate to tile the appeal.
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In the appeal before this Court it was contended on behalf of the c
appellant that: U) after reasonable opportunities are given to the
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customer to examine the bank statements, its debit entries should be
deemed to be final and will not be open for reconstruction to the detri-
ment of the hank; (2) a representalion may be made either by statement
or by conduct, and conduct included negligence, silence, acquiescence
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or encouragement, and if a customer of a bank, by.his negligence, to give
timely information of forged cheques, allows amount to be drawn on
such cheques_. the debit will stand for the whole amount and the con-
sumer will be estopped from· claiming the amount; and (3) in-action for
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a long period would amount to such negligence as would persuade a
court to impute to the customer with knowledge or at any rate construe-
tive knowledge, to decline him relief in an action for recovery of amounts E
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which would be to the detriment of an innocent party, namely, the bank.
Dismissing the appeal.
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HELD: 1. When a cheque duly signed by a customer is presented
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before a bank .with whom he has an account there is a mandate on the
bank to pay. the amount covered by the cheque. However. if the signa-
tu re on the cheque is not genuine. there is no mandate on the bank to
pay. The bank. when it makes payment on such a cheque, cannot resist
the claim of the custo111er with the defence of negligence on his part such
as leaving the chequExcerpt shown. Read the full judgment & AI analysis in Lexace.