Pradeep Kumar and Another v. Post Master General and Others
SANJIV KHANNA, J.
The aforementioned civil appeals preferred by Pradeep Kum ar
and Raj Rani (hereinafter wherever required referre d to as ‘the
appellants’) assail the judgment dated 15 th May 2015 passed by the
National Consumer Disputes Redressal Commission, New Delhi , the
‘NCDRC’ for short, whereby their complaint registered as C onsumer
Case No. 148 of 2001 against the Post Master General, U.P. Ci rcle,
Lucknow, Uttar Pradesh, Senior Superintendent of Posts, Lucknow
Division, Post Master, Head Post Office Chowk, Lucknow and M. K.
Singh, Sub-Post Master, Post Office, Yahiyaganj, Lucknow (hereinafter
wherever required collectively referred to as ‘the respondents’) has been
dismissed, albeit allowed and decreed against Rukhsana.
2. The appellants during the years 1995 and 1996 had purchased
Kisan Vikas Patras, ‘KVPs’ for short, in joint names from various post
offices located in the State of Uttar Pradesh in different denominations
and with varying dates of maturity. The combined face value on maturity
was Rs.32.60 lacs; however, the KVPs were encashable at th e post
offices before the maturity date at a lower value afte r the stipulated/
lock-in period of holding.
3. As per the appellants, in the last week of February 2000, they
had approached the Post Master, Head Post Office Chowk, Luck now,
with the request to transfer the KVPs to the Chowk Post Office,
Lucknow. The appellants were asked to apply with the Chowk Post
Office. They were informed that the transfer request would be allowed
after due verification of the KVPs and the identity/signature s on the
transfer application from the record with the issuing post of fice. The
process, they were forewarned, being time-consuming and cumbersome
would require several visits to the post office. The Post Ma ster, Head
Post Office Chowk, Lucknow had recommended that they take services
591
of Rukhsana, an agent appointed by the State of Uttar Prade sh and
associated with the post office. As per the appellants, they were misled
to believe that without the help of an agent like Rukhsana the transfer
would not be possible and she would take care of their interest. Rukhsana,
during the interaction, had informed the appellants that she had been
working and associated with the post office for fifteen years, and being
aware of the procedures would get the transfer effected without difficulty.
On 03.03.2000, Rukhsana came to the residence of the appellants, and
as instructed, the appellants signed the original KVPs on the backside
and handed them over to Rukhsana. She also took the Monthly Income
Scheme (MIS) passbook stating that it was required t o process the
transfer. Rukhsana executed a receipt and gave it to the appellants
confirming receipt of the KVPs.
4. Rukhsana did not on her own revert to the appellants and when
contacted had assured them apropos the transfer. Meanwhile, appellant
No.1, i.e. Pradeep Kumar, had to leave Lucknow to join the official duty
in Motihari, Bihar. Raj Rani, the second appellant, remained in touch
with Rukhsana, who had informed that the process was taking time.
5. In June 2000, the appellants learnt that Rukhsana had cheated
several investors and had been arrested by the police. Thereu pon, the
appellants made enquiries and discovered that the KVPs had been
encashed from the Yahiyaganj Post Office and Lal Bagh Post Office. A
sum of Rs. 25,54,000/- was paid in cash to Rukhsana, who had pocketed
the entire amount. The appellants state that their enquiries reveal
involvement of M.K. Singh, Sub-Post Master, Post Office, Yahiyaganj,
the fourth respondent before us, who, contrary to the rules, had paid the
maturity proceeds in cash and not by cheque in the names of the appellants.
Underpinning the argument are the Kisan Vikas Patra Rules, 1988, ‘1988
Rules’ for short, and the Post Office Saving Bank Manual (Volume II),
which we will refer to and delineate later.
6. The appellants made several representations to whic h the
respondents did not respond, whereupon they filed the aforesaid complaint
under the Consumer Protection Act before the NCDRC, prayi ng that
the respondents and Rukhsana should be directed to pay the appellants
Rs. 25,54,000/- along with interest @ 18% per annum. Additional prayer
was for compensation of Rs. 1,00,000/- on account of the mental agony
and harassment along with interest @ 10% per annum and Rs.10,000/-
by way of litigation expenses.
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
7. The respondents in the written statement contest ed the
complaint. They had inter alia pleaded that the appellants, having signed
the KVPs in token of receipt of the discharge value, cannot complain.
Rukhsana was not an agent appointed by the post office. The co ntract
and understanding were between the appellants and Rukhsana, and the
fraud having been committed by Rukhsana in her individual capacity, the
respondents are not vicariously liable. Reference was made to the
instructions issued by the Ministry of Finance, Government of India vide
letter No. F3/37/91-NS II dated 8 th November 1993, which we would
allude to subsequently. M.K. Singh, Sub-Post Master, Post Office,
Yahiyaganj, Lucknow filed a separate written statement pleading that
the complaint was not maintainable as he had paid the amount to the
right person and there was a valid discharge. He had not violat ed the
law. M.K. Singh referred to a criminal case already pending against him
and that the consumer complaint was not maintainable.
8. Rukhsana, after entering appearance, did not file her defence.
She was proceeded ex parte. Rukhsana was prosecuted and convic ted
on the charges of cheating, criminal breach of trust, etc.
9. In the impugned judgment, the NCDRC, while accepting that
some negligence could be attributed to the respondents in maki ng the
payment, dismissed the complaint against the respondents holding that
they had acted in accordance with Rules 14 and 15 of the 1988 Rules.
Rule 19, requiring payment by cheque when discharge value i s more
than Rs. 20,000/-, came into force and is effective from 28-29 th August
2001, whereas in the present case, the KVPs were enc ashed at an
earlier point of time. Further, the appellants had not been truthful as it
was difficult to fathom as to why they had signed and acknowledged
payment on the backside of the KVPs and thereafter the KVP s were
given to an unknown agent. The appellants, having done so, acted with
open eyes and at their own peril and risk. The claim that the KVPs were
handed over to Rukhsana without transfer application is unbelievable as
appellant No.1 is a well-educated person. The appellants had remained
silent for three months and did not make enquiries from the Post Office,
Yahiyaganj located merely 800 metres from their res idence. The
appellants being negligent, the complaint against the respondents, including
the fourth respondent, was dismissed. Rukhsana, being a service provider,
was held liable to pay Rs. 25,54,000/- with interest @ 9% per a nnum
from the date of release of amount from the post office till t he date of
593
realisation by the appellants. Rukhsana was also liable to pay Rs. 1,00,000/
- as compensation and Rs. 10,000/- as litigation expenses. If the appellants
are unable to recover the amounts due from Rukhsana, they (the
appellants) were at liberty to sue the state government for its omission
and commission in appointing Rukhsana as an agent.
10. Rukhsana has neither entered appearance before us to contest
this appeal nor has challenged the judgment allowing the complaint against
her, which has attained finality.
11. Section 3 1 of the Negotiable Instruments Act, 1881, ‘NI Act’
for short, states that a ‘banker’ includes any person act ing as a banker
and any post office savings bank. In terms of this section, a post office
savings bank is a banker under the NI Act.
12. KVPs issued by the post office are a promissory inst rument
as defined by Section 4 2 of the NI Act, as it is an unconditional undertaking
signed by the maker to pay a certain sum of money to, or to the order of
a certain person, or the bearer of the instrument. 3 Section 13 4 of the NI
Act states that a negotiable instrument may be payable either to order or
to bearer. A negotiable instrument is payable to order, which is expressed
to be so payable or which is expressed to be payable to a particular
1 3. Interpretation-clause.—In this Act— 4 * * * * * “Banker”.—5 [“banker” includes
any person acting as a banker and any post offi ce savings bank;
2 4. “Promissory note.”—A “Promissory note” is an ins trument in writing (not being a
bank-note or a currency-note) containing an uncondi tional undertaking, signed by the
maker, to pay a certain sum of money only to, or to the order of, a certain person, or to
the bearer of the instrument.
3 In the present case, we are not required to examine whether a KVP would be a ‘bill of
exchange’ in terms of Section 5 of the NI Act.
4 13. “Negotiable instrument” .— (1) A “negotiable instrument” means a promissorynote,
bill of exchange or cheque payable either to order or to bearer.
Explanation ( i).—A promissory note, bill of exchange or cheque is payable to the order
which is expressed to be so payable or which is expressed to be payable to a particular
person, and does not contain words, prohibiting transfer or indicating an intention that
it shall not be transferable.
Explanation ( ii ).—A promissory note, bill of exchange or cheque is payable to bearer
which is expressed to be so payable or on which the only or last endorsement is an
endorsement in blank.
Explanation ( iii ).—Where a promissory note, bill of exchange or cheque, either originally
or by endorsement, is expressed to be payable to th e order of a specified person, and
not to him or his order, it is nevertheless payable to him or his order at his option.
(2) A negotiable instrument may be payable to two or more payees jointly, or it may be
made payable in the alternative to one of two, or o ne or some of several payees.
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
person but does not contain words prohibiting transfer or indica te an
intention that the instrument shall not be transferable. It is an accepted
position that KVPs are negotiable instruments in terms of Section 13 of
the NI Act. Sections 15 and 16 of the NI Act define ‘indorseme nt’,
‘indorsee’, ‘indorser’ and ‘indorsement in blank’ and ‘in full’. Indorsement
for the purpose of negotiation is made by the maker or holde r of the
negotiable instrument when he signs on the back or face of thereof, on a
slip of paper annexed thereto or on a stamp paper for the purp ose of
negotiation. The person signing is called the indorser. If the instrument is
signed by the indorser in his name only, it is an indorsement in blank. If
the indorser also specifies the person to whom payment i s to be made,
the indorsement is said to be ‘in full’, and the person so specified is
called the indorsee.
13. Sections 78 and 82 of the NI Act read:
“78. To whom payment should be made.—Subject to the
provisions of section 82, clause (c), payment of the amount due
on a promissory note, bill of exchange or cheque must, in order to
discharge the maker or acceptor, be made to the holder of th e
instrument.”
xx xx xx
82. Discharge from liability.—The maker, acceptor or indors er
respectively of a negotiable instrument is discharged from liability
thereon— (a) by cancellation.—to a holder thereof who cancels
such acceptor’s or indorser’s name with intent to discharge him,
and to all parties claiming under such holder; (b) by release.—to
a holder thereof who otherwise discharges such maker, acceptor
or indorser, and to all parties deriving title under such holder after
notice of such discharge; (c) by payment.—to all parties thereto,
if the instrument is payable to bearer, or has been indorsed in
blank, and such maker, acceptor or indorser makes payment in
due course of the amount due thereon.”
14. Section 78 states that when payment is to be made to the
‘holder’ of the instrument, which would include his accredit ed agent
such as a banker acting as an agent for collection, 5 the maker or acceptor
5 See Maddali Tirumala Ananta Venkata Veeraraghavaswami v. Srimat Kilambi
Mangamma and Another , AIR 1940 Mad. 90 and Raghubir Mahto v. Ramasray Bhagat,
AIR 1939 Pat.347 and also pg. 533 of Bhashyam & Adiga on The Negotiable
Instruments Act, 22 nd Edition (2019).
595
is discharged from liability. However, Section 78 is subject to and does
not apply to payments covered under clause (c) to Section 82 of the NI
Act. Clause (c) to Section 82 applies to an instrument payabl e to the
bearer or has been indorsed in blank, and in such cases the maker,
acceptor or indorser of a negotiable instrument is discharged from liability
when such maker, acceptor or indorser makes ‘payment in due course’
of the amount due thereon. The expressions ‘holder’ and ‘payment in
due course’ are ‘terms of art’ as Section 8 defines the expression ‘holder’,
whereas Section 10 defines the expression ‘payments in due c ourse’.
On a harmonious reading of Section 78 and clause (c) of Section 82, it
follows that different principles apply for discharge from liability when
the negotiable instrument is payable to bearer or has be en indorsed in
blank, in which case payment must be made in terms of Sec tion 10,
whereas when the negotiable instrument is payable to order, the maker,
acceptor or endorser would be discharged from liability when payment
is made to the ‘holder’ of the instrument.
15. Section 8 of the NI Act, defines the expression ‘holder’ as:
“8. “Holder”.—The “holder” of a promissory note, bill of exchange
or cheque means any person entitled in his own name to the
possession thereof and to receive or recover the amount due
thereon from the parties thereto. Where the note, bill or cheque is
lost or destroyed, its holder is the person so entitled at the time of
such loss or destruction.”
The requirements of Section 8 are two-fold, and both requirements
have to be satisfied. A holder means a person (i) entitled to possession
of a promissory note, bill of exchange or a cheque, and (ii) entitled to sue
the maker, acceptor or indorser of the instrument for the recovery of the
amount due thereon in his name 6. Thus, a person who is in possession of
the instrument but has no right to recover the amount due thereon from
the parties thereto is not a ‘holder’. On a harmonious reading of Sections
8 and 78, it follows that payment made to a person in possession of the
instrument, but not entitled to receive or recover the amount due thereon
in his name, is not a valid discharge.
6 In the context of the present case, we need not examine the controversy and difference
of opinion on the issue of Benami owner, which aspect and issue have been the subject
matter of several decisions, including Subba Narayana Vathiyar and Others v.
Ramaswami Aiyyar (1907) 30 Mad. 88 (F.B.), Bacha Prasad v. Janki Rai and Others ,
AIR 1957 Pat. 380 and Bhagirath v. Gulab Kanwar , AIR 1956 Raj. 174.We express no
opinion in the regard.
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
16. Before we reproduce and refer to Section 10, distinction is
required to be drawn between ‘holder’ and ‘holder in due course’ , an
expression defined in Section 9 in the following manner:
“9. “Holder in due course”.—”Holder in due course” means any
person who for consideration became the possessor o f a
promissory note, bill of exchange or cheque if payable to bearer,
or the payee or indorsee thereof, if 7[payable to order,] before the
amount mentioned in it became payable, and without havi ng
sufficient cause to believe that any defect existed in the title of
the person from whom he derived his title.”
As per Section 9, a ‘holder in due course’ is a person who f or
consideration has become a possessor of the instrument if payable to a
bearer or if payable to the order to the person mentioned, i.e. the payee,
or becomes the indorsee thereof. Holder in due course means the original
holder or a transferee in good faith, who has acquired possession of the
negotiable instrument for consideration, without having sufficient cause
to believe that there was any defect in the title of the person from whom
he has derived the title. Negotiation in case of transfer should be before
the amount mentioned in the negotiable instrument becomes paya ble.
Clause (g) to Section 118 8 states that unless contrary is proved the ‘holder’
of a negotiable instrument is presumed to be a ‘holder in due course’.
But the proviso qualifies the presumption, where the instrument has been
obtained from its lawful owner or a person in lawful custody thereof by
means of an offence or fraud or has been obtained from the ma ker or
acceptor thereof by means of an offence or fraud or by an unl awful
consideration. In such cases the burden of proving that the ‘holder’ is a
‘holder in due course’ lies on the person claiming to be so.
17. This brings us to Section 10 of the NI Act, which defines the
expression ‘payment in due course’ and reads as follows:
7 Subs. by Act 8 of 1919. s. 2, for “payable to, or t o the order of, a payee,”
8 “118. Presumptions as to negotiable instruments. — Until the contrary is proved, the
following presumptions shall be made:—
x x x x x x
“(g) that holder is a holder in due course:— that the holder of a negotiable instrument is
a holder in due course:
provided that, where the instrument has been obtain ed from its lawful owner, or from
any person in lawful custody thereof, by means of a n offence or fraud, or has been
obtained from the maker or acceptor thereof by mean s of an offence or fraud, or for
unlawful consideration, the burden of proving that the holder is a holder in due course
lies upon him.”
597
““Payment in due course” means payment in accordance with
the apparent tenor of the instrument in good faith and without
negligence to any person in possession thereof unde r
circumstances which do not afford a reasonable ground for
believing that he is not entitled to receive payment of the amount
therein mentioned.”
When payment is made in accordance with the apparent tenor of
the instrument in good faith and without negligence to a person in
possession thereof, it is payment in due course. The requirement in Section
10 that the payment should be in both good faith and without negligence
is cumulative. Thus, mere good faith is not sufficient. Consequent ly,
Section 3(22) of the General Clauses Act, 1897, which defines ‘g ood
faith’ as an act done honestly, whether done negligently or not, i s not
sufficient to hold that the payment made was ‘payment in due course’
under the NI Act. Ascertainment of whether the act of payme nt is in
good faith and without negligence is by examination of the circumstances
in which payment is made. In other words, antecedent an d present
circumstances should not afford a reasonable ground for believing that
the person to whom payment is made is not entitled to receive payment
of the amount mentioned. 9 While it would not be advisable or feasible to
strait-jacket the circumstances, albeit value of the instrument, other facts
that would raise doubts about the reliability and identity of the person
entitled to receive payment and genuineness of the instrument i n the
payer’s mind are relevant considerations.
18. Elucidation on the aspect of care required to be exercised by
the bankers to seek statutory protection under Section 131 10 of the NI
Act is to be found in Indian Overseas Bank v. Industrial Chain
9 Bank of Maharashtra v. M/s. Automotive Engineering Co., (1993) 2 SCC 97
10 131. Non-liability of banker receiving payment of c heque.— A banker who has
in good faith and without negligence received payme nt for a customer of a cheque
crossed generally or specially to himself shall not, in case the title to the cheque proves
defective, incur any liability to the true owner of the cheque by reason only of having
received such payment.
Explanation I.— A banker receives payment of a crossed cheque for a customer within
the meaning of this section notwithstanding that he credits his customer’s account with
the amount of the cheque before receiving payment t hereof.
Explanation II.—It shall be the duty of the banker who receives payment based on an
electronic image of a truncated cheque held with hi m, to verify the prima facie
genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent
on the face of the instrument that can be verified with due diligence and ordinary care.
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
Concern ,11 wherein extensive reference has been made to the earlier
case laws, Halsbury’s Laws of England and English decisions. When
deciding whether the bank is negligent it is necessary to see whether the
rules or instructions of the bank are followed or not, though this may not
always be conclusive. Till an account is opened, banker and custom er
relationship is not created, but once the account is opened contra ctual
relationship is created. Moreover, mutual rights and obligations between
the banker and customer are also created under law. In case of fraudulent
encashment of cheques, the collection and payment embraces the bank’s
duty to the real owner, if the customer happens not to be the real owner.
In such cases, the bank’s liability is protected on the satisfaction of the
conditions mentioned under Section 131 of the NI Act and not otherwise.
This is so because the drawer of the cheque is not the cus tomer of the
bank while the payee is. Consequently, if there is anything to arouse
suspicion regarding the cheque and the ownership of the customer, the
bank may find itself beyond the protection of Section 131 of the NI Act.
Suspicion may arise when the amount is very large, credibility and identity
of the customer is pied etc. Further, negligence may be established when
collection and payment is made contrary to the tenor of the instrument.
Carelessness occurs when there is failure to pay due atte ntion to the
actual terms of the mandate. At the same time we must be realistic and
pragmatic not to narrow down banker’s protection under Section 131 of
the NI Act to make the banker’s position vulnerable. This woul d be
disadvantageous to the expansion of banking business. Banking has
penetrated and is widespread and, therefore, precautions at one time
may not be a proper guide. Corresponding standard of reasonable care
and not stricter liability is conducive and the correct test. The officers of
the banks are not required to be amateur detectives, albeit they can be
attributed the degree of intelligence ordinarily required from a person in
their position. Therefore, microscopic examination of the cheque paid in
collection may not ordinarily be necessary, but this may be required when
facts are sufficient to raise reasonable ground to suspect that there may
be a wrongdoing.
19. Explanation II to Section 131 of the NI Act inserted with
effect from 6 th February 2003 states that it is the duty of every banker
who receives payment based on an electronic image of a truncated
cheque to verify the prima facie genuineness of the cheque, and exercise
11 (1990) 1 SCC 484
599
due diligence and ordinary care to verify fraud, forgery or ta mpering
apparent on the face of the instrument. Therefore, the bank can e scape
only when the banker acts in good faith and without negligence . The
latter is the sine qua non for a banker to get absolved under Section
131 of the NI Act. Hence, to claim statutory protection the ba nk will
have to meet the statutory conditions, and the courts will not accept any
attempt to override and get over the obligation.
20. The judgment in Kerala State Co-operative Marketing
Federation v. State Bank of India and Others ,12 with reference to
Sections 131 and 131A of the NI Act, which incorporate a general rule
protecting the collecting banker against the true owner in the event the
customer from whom the collecting bank collects the draft or cheque
has no title or defective title, observes that the conditions for good faith
and without negligence must be strictly complied with, and the onus of
proving that the banker had acted in good faith and without negligence is
on the collecting bank. The standard of care to be exercised by the
collecting banker to escape the charge of negligence depends upon the
general practice of the bankers, which may change from ti me to time,
further with the enormous spread of banking activities and cases decided
a few decades ago may not probably offer unfailing g uidance in
determining the question of negligence at a later point of time. The standard
of care expected from a collecting banker does not require him to subject
the cheque to a minute and microscopic examination, yet disregarding
circumstances about the cheque, which on the face of it gives rise to
suspicion, may amount to negligence on the part of the collecting banker.
Further, the question of good faith and negligence is to be judged from
the standpoint of the true owner towards whom the banker owes no
contractual liability but statutory duty by these provisions . It is a price
that the banker pays for seeking protection under the s tatute from
otherwise more extensive liability the bank would be exposed to under
the common law. Another significant observation is that the allegation of
contributory negligence against the paying banker could provide no
defence for the collecting banker who has not collected the amo unt in
good faith and without negligence. The aforesaid observations regarding
Sections 131 and 131A of the NI Act would be applied by us appropriately
to the facts of the present case in terms of the mandate of Section 10 of
the NI Act. We would, however, clarify that we have not pronounced on
the applicability of Section 131 to the KVPs as encashed.
12 (2004) 2 SCC 425
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
21. This Court in U. Ponnappa Moothan Sons, Palghat v.
Catholic Syrian Bank Limited and Others ,13 has elaborately considered
and elucidated on Sections 9, 10 and clause (g) of Section 118 of the NI
Act. English Law states that the holder in taking the instrument should
act in good faith. When he has no knowledge of the defect in the tit le
and acts honestly, whether he is negligent or not, he is deemed to have
acted in good faith. Indian law is stricter than the English law and requires
the person to exercise due diligence, which means no person s hould
take a security of this kind from another without using reasonable caution.
Delving on the words “sufficient cause to believe” 14 where lack of good
faith and negligence is alleged, reference is made to Bhashyam and
Adiga on the Negotiable Instruments Act (15 th Edition at page 171),
which quotes a passage from Chalmer’s book ‘The law relating to
Negotiable Instruments in British India’ (4th Edition) and the legal
position explained by Chitty. The relevant passages and the conclusion
drawn by the Court in U. Ponnappa Moothan Sons, Palghat (supra)
are as under:
“13. However, with regard to the legal importance of negligence
in appreciating the principle of “sufficient cause to be lieve” a
passage from Chalmers’ book “The Law Relating to Negotiable
Instruments in British India” (4th Edn.) may usefully be noted:
“All the circumstances of the transactions whereby the holder
became possessed of the instrument have a bearing on the
question whether he had “sufficient cause to believe” that any
defect existed.
It is left to the Court to decide, in any case where the holder
has been negligent in taking the instrument without close enquiry
as to the title of his transferor, whether such negligence is so
extraordinary as to lead to the presumption that the holder had
cause to believe that such title was defective .”
(Emphasis supplied)
This view is more sound and logical. The legal position as explained
by Chitty may be noted in this context which reads as under:
“While the doctrine of constructive notice does not apply in
the law of negotiable instruments the holder is not entitled to
disregard a “red flag” which has raised his suspicions.”
13 (1991) 1 SCC 113
14 The expression “sufficient cause to believe” has been used in Section 9 of the NI Act.
601
We, therefore, modify the view taken by the Allahabad High Court
in Durga Shah case to the extent that though the failure to prove
bona fide or absence of negligence would not negative the claim
of the holder to be a holder in due course, yet in the circumstances
of a given case, if there is patent gross negligence on his part
which by itself indicates lack of due diligence, it can negative his
claim, for he cannot negligently disregard a “red flag” which
arouses suspicion regarding the title. In this view of the matter
we hold that the decision in Raghavji case does not lay down
correct law. We agree with the view taken by the Allahabad High
Court with above modification.
xx xx xx
17. From the above discussion it emerges that the Indian definition
imposes a more stringent condition on the holder in due course
than the English definition and as the learned authors have noted
the definition is based on Gill case. Under the Indian law, a holder,
to be a holder in due course, must not only have acquired the bill,
note or cheque for valid consideration but should have acquired
the cheque without having sufficient cause to believe that any
defect existed in the title of the person from whom he derived his
title. This condition requires that he should act in good faith and
with reasonable caution. However, mere failure to prove bona
fide or absence of negligence on his part would not negative his
claim. But in a given case it is left to the Court to decide whether
the negligence on the part of the holder is so gross and extraordinary
as to presume that he had sufficient cause to believe that such
title was defective. However, when the presumption in his favour
as provided under S.118(g) gets rebutted under the circumstances
mentioned therein then the burden of proving that he is a ‘holder
in due course’ lies upon him. In a given case, the Court, whil e
examining these requirements including valid consideration must
also go into the question whether there was a contract express or
implied for crediting the proceeds to the account of the bea rer
before receiving the same. The enquiry regarding the satisfaction
of this requirement invariably depends upon the fac ts and
circumstances in each case. The words “without having sufficient
cause to believe” have to be understood in this background.”
The Court also affirmed that the enquiry regarding satisfaction of
the requirements invariably depends upon the facts and circumst ances
of each case.
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
22. In our opinion, the presumption under clause (g) to Section
118 would not apply as Rukhsana is not an indorsee and the instrument
was in the name of the appellants. Further, Rukhsana is not a ‘holder in
due course’, for she had, and the respondents accept, obtained possession
of the instrument from the lawful owners, i.e. the appellants, by means
of an offence or fraud. It is an admitted case of the parties that Rukhsana
was convicted and sentenced for the fraud committed. However, Section
78 uses the expression ‘holder’ and not ‘holder in due course’. Rukhsana
was not the ‘holder’ as defined under Section 8 of the NI Act. She was
not entitled to sue the maker, acceptor or indorser of the instrument of
the amount due thereon in her name. Further as elucidated be low are
primarily predicating our decision on the application of clause (c) to Section
82 read with Section 10 of the NI Act as the KYPs w ere bearer
instruments. The respondent can claim discharge under Section 82(c) of
the NI Act by showing that they had complied with the requirements of
Section 10, that is, they had acted in good faith and without negligence.
23. 1988 Rules have been issued in terms of the power conferred
on the Central Government under Section 12 of the Government Savings
Certificate Act, 1959 (for short, the “GSC Act”). The section states that
the Central Government can make rules to carry out the purposes of the
GSC Act and in particular the rules can be framed for issue and discharge
of such certificates, and transfer and conversion of saving c ertificates
and fees to be levied in respect thereof. The ‘holder’ as defined in clause
(a) in Section 2 in the GSC Act means an individual who holds the savings
certificate in accordance with the provisions of this Act and any rules
made thereunder. Clause (d) to Section 2 defines ‘transfer’ as a transfer
inter vivos and does not include a transfer by operation of law.
24. Section 4 of the GSC Act deals with holding of the savin gs
certificates by or on behalf of the minors; Section 5 deals with payment
where savings certificate is held by or on behalf of the minor; Section 6
deals with nomination by holders of the savings certificates; and Section
7 deals with payment of the savings certificates on dea th of a holder.
Sections 4 and 6 of the GSC Act are non-obstante provisions that prevail
notwithstanding anything contained in any law for the time being in force.
25. However, what is important for us are Sections 8 and 11 of
the GSC Act which read:
“8. Payment to be a full discharge. –– (1) Any payment made
in accordance with the foregoing provisions of this Act to a minor
603
or to his parent or guardian or to a nominee or to any other person
shall be a full discharge from all further liability in respect of the
sum so paid.
(2) Nothing in sub-section (1) shall be deemed to preclude any
executor or administrator or other representative of a dece ased
holder of a savings certificate from recovering from th e person
receiving the same under section 7 the amount remaining in his
hands after deducting the amount of all debts or other demands
lawfully paid or discharged by him in due course of administration.
(3) Any creditor or claimant against the estate of a holder of a
savings certificate may recover his debt or claim out of the sum
paid under this Act to any person and remaining in his hands
unadministered, in the same manner and to the same extent as if
the latter had obtained letters of administration to the estate of the
deceased.
xx xx xx
11. Protection of action taken in good faith. -–– No suit or
other legal proceeding shall lie against any office r of the
Government or any prescribed authority in respect of any thing
which is in good faith done or intended to be done under this Act.”
In our opinion, Sections 8 and 11 of the GSC Act have no application
in the present case. Section 8 states that payment would be in full
discharge when payment is made in accordance with the fore going
provisions of the GSC Act, that is, payment, where the certificate is held
by or on behalf of the minor, in terms of Section 5 and payment on the
death of a holder in terms of Section 7. The expressions ‘minor ’, ‘his
parent’ or ‘guardian’ in Section 8 of the GSC Act are pe rsons referred
to in Section 5 of the GSC Act and the word ‘nominee’ and ‘any other
person’ are persons referred to in Section 7 of the GSC Act. The
expression ‘any other person’ in our opinion would refer to the persons
covered by sub-section (5) to Section 7 of the GSC Act, which reads as
under:
“7. Payment on death of holder. –
xx xx xx
(5) Nothing contained in this section shall be deemed to require
any person to receive payment of the sum due on a savings
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
certificate before it has reached maturity or otherwise tha n in
accordance with the terms of the savings certificate.”
26. Thus, sub-section (1) to Section 8 would come to the aid of
the respondents only when the payment is made where the sav ings
certificate is held by or on behalf of the minor and to the nominee or to
a person mentioned in sub-section (5) of Section 7 on death of the holder.
It is not a provision of general or universal application and does not
discharge the respondents of their liability when Sections 5 and 7 of the
GSC Act do not apply. Section 8(1) does not protect payments not covered
and governed by Sections 5 and 7 of GSC Act. Sections 5 and 7 do not
apply to the present case.
27. Similarly, Section 11 protects any officer of the Government
or any prescribed authority in respect of anything done or intended to be
done under the GSC Act. The subject matter of the present proceedings
does not relate to anything which is done or intended to be done by the
respondents under the GSC Act. No such plea or defence has be en
pleaded and raised by the respondents. Interestingly, Section 3 15 of the
GSC Act states that notwithstanding anything contained in any ot her
law for the time being in force, no transfer of the savi ngs certificate
shall be valid unless it is made with previous consent in writi ng of the
‘prescribed’ authority. The word ‘prescribed’ defined in Section 2(b) 16
means prescribed by the rules under the GSC Act.
28. Before we advert to the aspect of standard of care require d
to be exercised by the post office under the 1988 Rules while encashing
KVPs or other instruments, we would like to briefly consider whethe r
the KVPs in question were bearer instruments or payable to order. It
appears to be the stand of the respondents, though not specifically stated
and argued, that the KVPs were bearer instruments and hence encashable
by the bearer of the instrument. This stand of the respondents , in our
opinion, is partially correct as KVPs are encashable in terms of the 1988
Rules. KVPs are bearer instruments with conditions to be satisfied before
payment is made to the ‘physical holder’ and presenter of the instrument
for encashment, an aspect we would elaborate. The respondent s are
15 3. Restrictions on transfer of savings certificate. –Notwithstanding anything
contained in any law for the time being in force, n o transfer of a savings certificate,
whether made before or after the commencement of this Act, shall be valid unless it has
been made with the previous consent in writing of t he prescribed authority.
16 2(b) “prescribed” means prescribed by rules made un der this Act;
605
not under an obligation to honour KVPs unless the conditions specified
are satisfied. However, once we accept the position that KVPs are
bearer instruments, the maker, i.e. the respondents, would be discharged
when they make payment in terms of clause (c) to Section 82 of the NI
Act, that is, ‘payment made in due course’ as defined by Section 10 of
the Act. For clarity, we would also state that if the KVPs are held to be
payable to order, then the maker, that is, the respondents , would be
discharged from liability in terms of Section 78 of the NI Act when they
make payment to the ‘holder’, which as per Section 8 of the Act means
a person who is entitled to possession of the instrument and is also entitled
to sue to recover the amount from the maker of the instrum ent. The
respondents as the maker of KVPs have not discharged the liabili ty in
terms of Section 78 as payment to Rukhsana was not made to the ‘holder’
of the KVPs. To repeat, Rukhsana was not entitled to sue the m aker,
acceptor or indorser of the instrument for the recovery of the a mount
due thereon in her name. The KVPs were not indorsed in fa vour of
Rukhsana.
29. To decide whether the KVPs were simple bearer instruments
or a bearer instrument with conditions, it is essential to glean the relevant
1988 Rules. These Rules are also relevant when we examine the question
of good faith and negligence. Rule 11 of the 1988 Rules, which relates to
the place of encashment, postulates as under:
“11. Place of encashment: - A certificate shall be encashable at
the Post Office of its issue: - Provided that a certif icate may be
encashed at any other Post Office if the officer-in-charge of that
Post Office is satisfied on production of identity sl ip or on
verification from the Post Office of issue that the person presenting
the certificate for encashment is entitled thereto.”
Rule 11 refers to the identity slip which is issued in terms of Rule
9 and reads:
“9. Identity slip :- (1) if a request for the issue of an identity slip
is made at any time by holder or holders of a certificate, an identity
slip shall be issued to such holder or holders on his or their signing
the identity slip.
(2) The identity slip shall be surrendered at the time of the fin al
discharge of the certificate or in case of its loss, a declaration of
such loss shall be furnished to the Post Office.”
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
Therefore, in terms of Rule 9, an identity slip is to be issued to the
holder or the holders of the certificate when they request to the said
effect when and after the KVPs are issued. The holder/holders have to
sign the identity slip. Sub-rule (2) to Rule 9 states that the identity slip
shall be surrendered at the time of final discharge of the certificate, or in
case of loss, a declaration of the said loss shall be furnished to the post
office. Rule 11 states that a certificate shall be encas hable at the post
office which issued it. However, a KVP can also be encashed at any
other post office if the Officer-in-charge of that post office is satisfied,
on production of the identity slip or on verification from the post office of
issue, that the person presenting the certificate for encashment is entitled
to encashment. Thus, it cannot be said that the KVPs are simple bearer
instruments payable to anyone who presents the same for enc ashment
and discharge.
30. Rule 13 deals with premature encashment and prescribe s in
the table the amount payable, albeit we need not reproduce the said
rule, for even in such cases, Rule 11 read with Rule 9 will apply.
Significantly, the respondents have issued Post Office Bank Manual
(Volume II), which vide clauses 23(1) and 23(2) mandate as under:
“ENCASHMENT OF CERTIFICATE
23(1) A certificate may be presented for encashment at any Post
Office in India doing S.B. work. If it neither stands registered at
the office nor is it accompanied by an Identity slip, the holder will
be requested to make an application expressing his desire to encash
the certificate at that office giving therein the name of t he Post
Office at which it stands registered, the full particular s of the
certificate, viz., the serial number with the prefixed letters , date
of issue and the registration number and the full name and address
as given in the application for purchase. Below his signature should
be given his present address. The particulars of the cert ificate
shall be verified by the Postmaster from the original ce rtificate
which shall be returned to the holder for presentation after about
a week. The application thus obtained shall be date-stamped and
sent to the office of registration for verification and return within
3 days. The office at which payment is desired by the holder
should remind the office of registration if no reply is recei ved
within a week. In the meantime enquiries may be made at the
local address about the identity of the applicant. On receipt back
607
of the application from the office of registration, the holder will be
informed of the fact and requested to present the certificate for
encashment. For revised procedure in such cases see rule 3 1.
The certificate to be encashed should be examined to see:
(a) whether the period of non-encashability has expired. In the
following circumstances, however, a certificate may be encashed
before the expiry of the period of non-encashability :-
(i) On the death of the holder or both of the holders in case of
joint holders;
(ii) On forfeiture by a pledgee being gazetted, Government
Officer;
(iii) When the holding is in excess of the prescribed limits;
(iv) When the certificate has been issued in contravention of
the Rules;
(v) When ordered by a Court of law; and
(vi) On the death of one of the joint holders in case of KVP
and N.S.C. (VIII-Issue)
(b) That the name of the holder, the number of the certificate and
date of its issue appearing in the application or the identity slip,
corresponds with the entries on the certificate;
(c) That the certificate is not the one which has been reported as
lost or stolen before issue from Post Offices in the Postma ster
General’s Circulars;
(d) That the certificate has not been attached by a Court of la w;
(e) That the identity slip if issued to the holder is surrendered, and
it is in prescribed form. In case the identity slip is one on which
the specimen signature of the holder is pasted, it should be carefully
scrutinized to see that the specimen signature is not a substituted
one and the stamp impression on it is intact;
(f) That the certificate is not the one in lieu of which a duplicate
has been issued;
(g) If full maturity value is claimed, the correctness of the date of
maturity should be verified with reference to the Date Stamp and
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
the date of issue noted on the certificate and the application or the
identity slip; and
(h) That the certificate has not been reported at any tim e by the
holder as having been lost, stolen or destroyed. In such cases
procedure laid down in Note 2 below Sub-Rule(2) of Rule 43 will
be followed.
Note: Procedure for encashment of saving certificat es
accompanied by Identity Slips in office other than the offic e of
registration :-
In case the holder presents Identity Slip, prior verific ation from
the office of registration is not necessary. A reference may be
made to the office of registration/issue to reconfirm the identity
of the holder/genuineness of the Identity Slips. No undue
harassment of delay should be caused to a bonafide investor/holder.
If National Savings Certificates are presented for en cashment
with Identity Slip at an office other than office of registrat ion
after one year from the date of maturity of the certif icate, a
reference may be made to the office of registration f or prior
verification, if Postmaster considers it necessary.
(2) If the counter Assistant is satisfied on all the above points, he
will calculate the amount payable and then ask the holder to sign
the endorsement on the certificate “Received paymen t of
Rs..............” in words and figures in his presence. If the certificate
is presented for encashment through a messenger, th e
endorsement should have been signed already and the certificate
accompanied by a letter of authority containing the specimen
signature of the messenger. It should be seen wheth er the
signature below the endorsement and the letter of authority if any,
agrees with that on the application or the identity slip. The
certificate will then be placed before the Postmaster w ho will
satisfy himself about the authenticity of the certificate and the
title of the holder. He will also ensure that the examination of the
certificate has been carried out in the manner prescribed and that
the amount payable as noted on the certificate is correct. He will
then pass order ‘Pay’ under his signature at a suitable place above
the place for the holder’s signature to authorize payment. Payment
will then be made by the counter Assistant. When payment is
609
made to a messenger, his signature or thumb impression must be
taken in addition to the signature of the holder, below the holder’s
endorsement, “Received payment of Rs.................”. In case the
signature of the holder below the endorsement does not agree
with that on record, payment will be made only after the holder
has been identified and his signature has been attested by the
identifier (other than the agent or messenger of the holder) who is
known to the post office or by anyone of the following indicated
at items (i) to (v) below with whose signature and seal of offic e
the post office is familiar or on production of any proof mentioned
in item (vi) below:
(i) District organizers of the National Savings Organization;
(ii) Justice of Peace, Magistrates (including honorary Magistrates)
and Judges;
(iii) Members of Parliament or a Legislative Assembly/Council,
Presidents of Municipalities Local Bodies and Sarpanches of
Panchayats;
(iv) Principals of colleges and Head of high schools recommended
by the Education Secretary or Directors of Public Institutions;
(v) A Government officer under his seal of office; and
(vi) A Postal identity card, a passport or any other identity c ard
containing holder’s photograph issued by a proper authority. The
particulars of such a proof having been produced shoul d be
recorded on the certificate under the signature of the supervising
officer.
The attestation should be in the following terms:
“The applicant is known to me and has signed/his thumb impression
has been taken in my presence”.
The date of discharge and payment of interest of each certificate
will be entered against the entry relating to the certificate on the
reverse of the application under the dated initials of the
Postmaster.”
31. Letter No. 95-8/98-SB dated 18.08.1999 issued by the Director
General, Postal Services, states that any payment exceeding Rs.20,000/
- is to be made by cheque. It reads:-
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
“The D.G posts has instructed that the discharge value of Kisan
Vikas Patras exceeding Rs. 20,000 should be paid by cheque rather
than by cash by the post offices in future.”
The impugned judgment, however, refers to the “Post Office Small
Savings Scheme” (Part one) written by Mr. A.N Dureja, Assistant
Director General (Retd.), P&T Accounts and Finance Service s, vide
Rule 19, which reads:
“19. Payment of discharge value of Kisan Vikas Patras by cheque:-
The discharge value of Kisan Vikas Patras if it is Rs.20,000/- or
more should be paid by cheque only by the post offices as provided
in Section 269-T of the Income Tax Act. [D.G Posts letter No. 5-
20/UP-06/2000-INV dated 28/29.8.2001]”.”
Relying on this circular, the NCDRC held that the afore said
stipulation had come into force with effect from 28/08/2001-29/08/2001.
Impugned judgment does not refer to the letter No. 95-8/98-SP dated
18.08.1999 quoted above. To ascertain the correct position, we had asked
the learned counsel appearing for the respondents to state whether t he
mandate issued vide letter No. 95-8/98-SB dated 18.08.1999 that the
payment for the discharge value of KVPs, if such value is Rs. 20,000/-
or more, should be by cheque rather than by cash is correct. The learned
counsel for the respondents took time but has not revert ed, which we
treat as an acknowledgement that the stand taken by the appe llants is
correct.
32. At this stage, it would be relevant to refer to Rules 14 and 15
of the 1988 Rules, which read as under:
“14. Discharge of certificate.–
(1) The person entitled to receive the amount due under a certificate
shall, on its encashment, sign on back thereof in token of having
received the payment.
(2) In the case of a certificate purchased on behalf of a minor
who has since attained majority, the certificate shall be signed by
such a person himself; but his signature shall be attested either by
the person who purchased it on his behalf or by any other person
who is known to the Postmaster.
15. Responsibility of Post Office.–
611
The Post Office shall not be responsible for any loss caused to a
holder by any person obtaining possession of a certificate and
fraudulently encashing it.”
While examining the said Rules, we shall also deal with the
allegation of contributory negligence on the part of the appellants. Rule
14(1) states that the person entitled to receive the amount d ue, on the
encashment of the certificate, shall sign on the back thereof in token of
having received the payment. It prescribes a procedure for discharge of
the instrument and the requirement of signature on the back of the
certificate by the person receiving the amount in token of having received
the payment. It is not the case of the respondents that the appellants had
received the payment. Rule 14(1), to our mind, has nothing to do with
the question of good faith and negligence on the part of the banker, that
is, the Post Office. Rule 14(1) would not absolve the Post Office from
the statutory obligation and consequent liability in terms of clause (c) to
Section 82 read with Section 10 of the NI Act. Rule 15 sta tes that the
Post Office shall not be responsible for any loss caused to the holder if
any other person obtains possession of the certificate and fraudulently
encashes the same. Rule 15 does not absolve the respondents in case of
negligence or absence of good faith. It applies when the post o ffice
otherwise acts in accordance with law in good faith and without
negligence. Rule 15 would not protect when an officer of the post office
is involved or a perpetrator of the fraud.
33. When we turn to the facts of the present case and exami ne
the question of negligence (and also lack of good faith as indicated) on
the part of the respondents, the following factual matrix is established:
(i) The KVPs were in the name of the appellants.
(ii) The KVPs had not been endorsed in the name of Rukhsana,
though the appellants had signed the same at the place
mentioned for discharge and payment of the KVPs.
(iii) The KVPs were not presented for encashment at the pos t
office of its issue. In terms of Rule 11, the KVPs could
have been encashed at a post office other than the post
office which issued them, only when the Officer-in-charge
of the post office is satisfied, on the production of the identity
slip or on verification from the post office of issue, that the
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
person presenting the KVPs for encashment is entitled
thereto.
(iv) The KVPs, when presented, were without the identity slip
of the appellants. As per the mandate of Rule 9, identity
slip had to be surrendered at the time of discharge of the
certificate or in case of loss, a declaration of such loss had
to be furnished to the post office. No declaration wa s
furnished.
(v) There is nothing on record to suggest that the Officer-in-
charge of the post office was satisfied on the production of
the identity slip or on verification from the post office of
issue that the person presenting the certificate fo r
encashment, namely Rukhsana, is entitled thereto. Thus,
there was violation of Rules 9 and 11 of the 1988 Rules. It
also follows that Rukhsana was not the ‘holder’.
(vi) There is also violation of Clauses 23(1) and 23(2) of the
Post Office Bank Manual (Volume 2), which have been
quoted above. Clause 23(1) states that when a KVP is
presented for encashment at any post office in India doing
savings bank work, but such KVP is not registered in that
post office and not accompanied by an identity slip, the
holder will be required to make an application expressing
his desire to encash the KVP at such other post office and
in the application state the name of the post office wher e
the KVP stands registered, full particulars of the certificate,
that is, the serial number, date of issue and the registration
number. In addition, he is also required to give his full name
and address as given in the application for purchase. The
application should also state, below the presenter’s signature,
his present address. In the present case, no writte n
application was made by the appellants and filed along with
the certificates presented for encashment by Rukhsana.
Rukhsana, as noticed above, is not the ‘holder’ of t he
instrument which was issued in the name of the appellants
who were entitled to payment.
(vii) Clause 23(1) prescribes a detailed procedure for verification
by the post master when a KVP, not accompanied by identity
613
slip, is presented for encashment at the post office other
than the registered post office. It mandates that the presenter
shall make an application which shall be date stamped. After
one week, the post master would return the original
certificate to the holder for presentation. The verificatio n
exercise includes ascertaining the authenticity of the
signature on the application with the signature of the person
in whose name the certificate was issued. In case of a
mismatch, a detailed procedure for authentication o f
signature is prescribed.
(viii) The KVPs were in the name of the appellants. Rukhsana
was an agent appointed by the State of Uttar Pradesh for
facilitating the customers/holders of the savings instruments.
Payment of huge amount of Rs. 25,54,000/- to Rukhsana in
cash by itself per se is an act of negligence. It indicates
lack of bona fides and consequently absence of good faith.
Further, this is a case of fraud by an officer of the post
office. The payment in cash was contrary and in violation
of letter No.95-8/98-SB dated 18.08.1989, which mandates
that payments exceeding Rs.20,000/- should be paid by
cheque and not in cash.
34. We would now examine the issue and question of contributory
negligence. Legal position on contributory negligence has been stated in
Kerala State Co-operative Marketing Association (supra). Exhaustive
discussion on the said aspect is to be found in Canara Bank v. Canara
Sales Corporation and Others, 17 which was a case where forged
cheques were encashed and the customer had raised a claim amo ngst
others against its banker. The bank had raised the plea of negligence of
the customer. On the aspect of civil obligation of a customer in terms of
banking contract and in tort law, this decision approves the f ollowing
observations made by the Privy Council in Tai Hing Cotton Mill Ltd. v.
Liu Chong Hing Bank Ltd. and Others :18
“37. Then the Privy Council proceeded to consider the weightier
submissions advanced by the bank (1) a wider duty on the part of
the customer to act with diligence which must be implied into the
contract and alternatively that such a duty arises in tort from the
17 (1987) 2 SCC 666
18 (1985) 2 All ER 947
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
relationship between banker and customer. The Privy Council
parted company with the observation by the Court of Appeal here
and repelled the plea that it was necessary to imply into a contract
between a banker and the customer a wider duty and that it was
not a necessary incident of banker/customer relationship that the
customer should owe his banker a wider duty of care. This duty is
in the form of an undertaking by the customer to ex ercise
reasonable care in executing his written orders so as not to mislead
the bank or to facilitate forgery. The Privy Council accepted that
an obligation should be read into the contract as the nature of this
contract implicitly requires. In other words “the term sought to be
implied must be one without which the whole transaction would
become futile and inefficacious”. After referring to some earlier
decisions, the Privy Council rejected the implied term submission
and set out the limits of the care of the customer and the functions
of the banks in the following words: (All ER p. 956)
“One can fully understand the comment of Cons JA that the
banks must today look for protection. So be it. They can
increase the severity of their terms of business, and th ey can
use their influence, as they have in the past, to seek to persuade
the legislature that they should be granted by statute f urther
protection. But it does not follow that because they may need
protection as their business expands the necessary incidents
of their relationship with their customer must also change. The
business of banking is the business not of the customer but of
the bank. They offer a service, which is to honour their
customer’s cheques when drawn on an account in credit or
within an agreed overdraft limit. If they pay out on cheques
which are not his, they are acting outside their mandate and
cannot plead his authority in justification of their debit to his
account. This is a risk of the service which it is their business
to offer. The limits set to the risk in the Macmillan and
Greenwood cases can be seen to be plainly necessary incidents
of the relationship. Offered such a service, a customer mus t
obviously take care in the way he draws his cheque, and must
obviously warn his bank as soon as he knows that a forger is
operating the account.””
Significantly the judgment states that the bank, when it make s
payment of a forged cheque, it cannot resist the claim of the cust omer
615
with the defence of negligence on the customer’s part. The bank can
succeed on the plea of negligence of the customer when it est ablishes
adoption, estoppel or rectification on the customer’s part. On the aspect
when negligence constitutes estoppel, it was held:
“29… For negligence to constitute an estoppel it is necessary to
imply the existence of some duty which the party against whom
estoppel is alleged owes to the other party. There is a d uty of
sorts on the part of the customer to inform the ban k of the
irregularities when he comes to know of it. But by mere negligence
one cannot presume that there has been a breach of duty by the
customer to the bank. The customer should not by his conduc t
facilitate payment of money on forged cheques. In the absence
of such circumstances, mere negligence will not pre vent a
customer from successfully suing the bank for recovery of the
amount.”
On the question of acquiescence on part of the customer, Canara
Bank (supra) holds:
“30. A case of acquiescence also cannot be flourished against the
plaintiff. In order to sustain a plea of acquiescence, it is necessary
to prove that the party against whom the said plea is raise d, had
remained silent about the matter regarding which the pl ea of
acquiescence is raised, even after knowing the truth of the matter.
As indicated above, the plaintiff did not, during the relevant period,
when these 42 cheques were encashed, know anything about the
sinister design of the second defendant. If the bank had proved to
the satisfaction of the court that the plaintiff had with full knowledge
acknowledged the correctness of the accounts for the relevant
period, a case of acquiescence against the plaintiff wo uld be
available to the bank. That is not the case here.”
35. In addition to the aforesaid legal position, we find that the
NCDRC had been rather harsh in holding that the appellants were silent
and, therefore, guilty of negligence. The finding overlooks that no one
would like to avail services of a stranger or an agent if the work, that is,
transfer of KVP certificates, could be otherwise handled and done with
ease. Further, no one would like to lose money to a stranger. Necessarily,
we would accept that the appellants had remained in touch with Rukhsana
but were given the impression that the exercise is compl ex and would
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
take time. Further they had belief that the post office would take care of
their interest, act in good faith and would not be negligent.
36. In the light of the aforesaid discussion, it can be conc luded
that the payment was made in violation of the statutory m andate of
Section 10 of the NI Act and, therefore, there is no valid dis charge
under clause (c) to Section 82 of the NI Act. Further, as held a bove,
Rukhsana not being a ‘holder’, payment to her is not a valid disc harge
under Section 78 read with Section 8 of the NI Act. The respo ndents
would have avoided the liability and claimed valid discharge if they had
accepted the KVPs with the identity slip 19 or if they had made payment
by cross cheque, in which case, they would have satisfied the condition
that they had made payment in good faith and there was no negligence,
a requirement of clause (c) to Section 82 read with Section 10 of the NI
Act.
37. Now, we advert to the second issue as to whethe r the
respondents would be liable for the wrongs and act of M.K. Singh,
respondent No. 4, in connivance or at the behest of Rukhsana. We begin
by noting that M.K. Singh is not a third person but an officer and a n
employee of the Post Office. Post Office, as an abstract entity, functions
through its employees. Employees, as individuals, are capable of being
dishonest and committing acts of fraud or wrongs themselves or in
collusion with others. 20 Such acts of bank/post office employees, when
done during their course of employment, are binding on the bank /post
office at the instance of the person who is damnified by the fraud and
wrongful acts of the officers of the bank/post office. Such acts of bank/
post office employees being within their course of employment will give
a right to the appellants to legally proceed for injury, as this is their only
remedy against the post office. Thus, the post office, like a bank, can
and is entitled to proceed against the officers for the loss caused due to
the fraud etc., but this would not absolve them from their liability if the
employee involved was acting in the course of his employment and duties.
38. This Court in State Bank of India (Successor to the Imperial
Bank of India) v. Smt. Shyama Devi 21 held that for the employer to be
liable, it is not enough that the employment afforded the servant or agent
19 In which case, Rukhsana would be a ‘holder’ under Section 8 of the NI Act and on the
KVPs being indorsed in her favour, the respondents could not have denied payment to
her under Section 78 of the NI Act.
20 See Punjab National Bank v. Smt. Durga Devi and Others (1977) SCC Online Del 93
21 (1978) 3 SCC 399
617
an opportunity of committing the crime, but what is relevant is whether
the crime, in the form of fraud etc., was perpetrated by t he servant/
employee during the course of his employment. Once this is established,
the employer would be liable for the employee’s wrongful ac t, even if
they amount to a crime. Whether the fraud is committed duri ng the
course of employment would be a question of fact that needs to be
determined in the facts and circumstances of the case.
39. In the context of the factual background of the present case,
we have no doubt in our mind that the fraud was committed by M .K.
Singh, respondent No. 4, in and during the course of his employment.
This is clear from the findings recorded in the departmental proceedings,
which are as follows:
“I have gone through the records of the case, enquiry report and
other related documents of the case and have come to conclusion
that the charged official Shri M.K. Singh utterly failed to observe
the Rule 23(1) of PO S.B. Manual V olume-II, i.e., procedure for
encashment of certificates purchased from other than the office
of issue. The Enquiry Officer has also agreed in enquiry repor t
that the procedure outlined in Rule-23(1) of PO SB Manual V ol-
II was not followed. The Enquiry Officer has also agreed that the
investor has not given any application NC-032 for transfer of KVPs
as provided in Rule 37 (1) and Rule 37(5) of PO SB Manual
V olume II and Rule 3(1) (ii) of CCS (Conduct) Rules 1964 as
mentioned in Article-I of Memo of Charges.
The Enquiry Officer in his enquiry report has agreed that the
investor is a literate person and thus the endorsement of investor
at the time of payment of KVPs should have been obtained in the
handwriting of investor as provided in Rule 23(2) of SB Manual
Vol-II. Otherwise if it was encashed through messenger (NS
Agent) / authority letter should be produced. The Enquiry Officer
has also agreed that the endorsement on KVPs at the time of
payment was made by Smt. Rukhsana NS Agent. As such it is
clear that the payment was made on the basis of alread y signed
endorsement for receipt of payment. The charged official did not
observe the procedure outlined in Rule 23(2) of SB Man. V olume-
II. Thus it was against the provisions of Rule 23(2) of SB Manual
V olume-II and Rule-3(1)(ii) of CCS (Conduct) Rules 1964 as
mentioned in article II of Memo of Charges.
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]
The Enquiry Officer in his enquiry report has suspected whether
the payment of KVP was made to the investor or not. Thus it was
against the provision of Rules 3(1)(i) and 3(1)(iii) of CCS (Conduct)
Rules 1974 as mentioned in article-II of Memo of charges.”
40. On behalf of the respondents, it is urged that the aforesaid
observations are limited and confined to only one KVP. In our opinion,
this contention would not help the respondents since it is apparent to us
that the respondents were faced with a difficult position as they wanted
to act against M.K. Singh, and at the same time also protect themselves
against any liability and claims of the appellants. Faced with this dilemma,
the respondents acted half-heartedly and took action in the proceedings
initiated against M.K. Singh, while they wanted to p rotect their
commercial interests and defend themselves against claims made by the
appellants. The findings recorded in the inquiry report, which became
the basis for the order of dismissal, which punishment was subsequently
converted to compulsory retirement, would, in our opinion, equally apply
to the encashment of all the KVPs. No valid distinction can b e drawn
between the case that became the subject matter of departmental enquiry
and other cases of encashment of the KVPs. Hence, the pos t office/
bank can be held liable for the fraud or wrongs commi tted by its
employees. Accordingly, the respondents will be held liable for the acts
of M.K. Singh during the course of his employment.
41. In view of the aforesaid findings, we allow these appeals and
set aside the impugned order passed by the NCDRC dismissing the
consumer case filed by the appellants. The order and directions against
Rukhsana remain undisturbed. We would allow the consumer case by
issuing the following directions:
(i) Respondent Nos. 1 to 4 would be jointly and severa lly liable
to pay the maturity value of the KVPs as on the date the
KVPs were presented to the post office for encashment,
along with 7% simple interest per annum from the said date
till the date of payment.
(ii) The appellants would be entitled to a compensation of Rs.
1,00,000/- and costs of Rs. 10,000/-.
(iii) The amounts as directed above would be paid within eight
weeks from the date of pronouncement of this judgment.
In case of failure to pay the compensation amount within
619
the aforesaid time, the respondents would be additionally
liable to pay simple interest @ 7% per annum on the
compensation amount of Rs.1,00,000/- from the date of
pronouncement of this judgment till the date of payment.
Nidhi Jain and Anurag Bhaskar Appeals allowed.
(Assisted by : Priyanshu Agarwal, LCRA)
PRADEEP KUMAR AND ANOTHER v. POST MASTER
GENERAL AND OTHERS [SANJIV KHANNA, J.]