Valmiki J Mehta, J.@mdashBy the present first appeal u/s 96 of the Code of Civil Procedure, 1908 (CPC), the Appellant bank impugns the
judgment and decree dated 12.1.1996 of the trial Court whereby the suit for recovery filed by the Respondent No. 1/Plaintiff was decreed. The
suit for recovery was filed by the Respondent No. 1/Plaintiff bank on account of the said bank having been forced to pay twice with respect to one
transaction i.e. under a second/duplicate bank draft which was issued by the Respondent No. 1 bank at the request of the Appellant bank and on
the Appellant having furnished an indemnity bond dated 12.8.1981 (Ex.PW1/2) in favor of the Respondent No. 1 bank.
2. Though the judgment of the trial Court is a detailed judgment inasmuch as it deals with the liability not only of the Appellant bank which was
arrayed as Defendant Nos. 1 & 2 in the trial Court, but also because the same deals with the liability of the collecting banker/Defendant No.
3/State Bank of Indoor who collected the proceeds of the first bank draft which was said to be materially altered. Though the State Bank of
Indoor was also held liable, the said bank has not challenged the impugned judgment and decree.
3. The facts of the case are that the Appellant bank approached the Respondent No. 1 bank for issue of a duplicate bank draft at the request of its
customer M/s. Packard Watch Company. The first bank draft was payable in favor of M/s. Rivex Sales Corporation at the request of the
customer of the Appellant bank. This first bank draft was issued by the Chandni Chowk Branch of the Respondent/Plaintiff bank and was payable
at the Rajkot Branch of the Respondent bank. On account of the fact that this first bank draft was not received by M/s. Rivex Sales Corporation,
the customer of the Appellant bank M/s. Packard Watch Company approached the Appellant bank for issue of a duplicate/second bank draft.
The first bank draft was dated 10th July, 1981 for Rs. 57,525.07/-. On 12.8.1981, the Respondent bank issued a duplicate bank draft on the
basis of indemnity bond Ex. PW 1/2.
4. After the payment was made under the second bank draft it transpired that the first bank draft was already enchased earlier on 24.7.1981 at the
Gwalior Branch of the Respondent bank. Since the Respondent No. 1 bank had to make two payments under the same transaction, thus relying
on the indemnity bond Ex. PW1/2 executed by the Appellant bank the Respondent No. 1 bank sued the Appellant bank as also the collecting
banker M/s. State Bank of Indoor. It is this suit which has-been decreed in favor of the Respondent bank by the impugned judgment and the
decree.
5. Before this Court, the learned Counsel for the Appellant has argued his case under two broad heads. The first argument is that in terms of the
indemnity bond, liability of the Appellant was to arise only in case the first bank draft was encased after the submission of the indemnity bond and
liability cannot arise in case the first bank draft was encased before giving of the indemnity bond. The second argument was that the encashment of
the first bank draft, whether pre or post the grant of indemnity bond, cannot be of any avail to the Respondent No. 1/Plaintiff inasmuch as the
Respondent No. 1 did not act in due course and on the contrary acted with gross negligence thereby disentitling it to any defense either under the
indemnity bond or under the provisions of the Negotiable Instruments Act, 1881.
Per contra, the counsel for the Respondent No. 1 has raised arguments under four broad heads. The first argument is that the indemnity bond is a
complete defence because but for the indemnity bond the Respondent No. 1 bank would have never issued a second bank draft. The second
argument is that the construction of the indemnity bond should be as per the intention of the parties and the doctrine of contra prefrentum applies
because even if there was an ambiguity in the language of the indemnity bond the same must be interpreted against its maker namely the Appellant
bank. The third argument is that there is in fact no negligence on behalf of the Respondent No. 1/Plaintiff in making the payment of the second bank
draft because payment of the same was made in due course and reliance for this argument is placed upon Section 89 of the Negotiable Instruments
Act, 1881. The last and fourth argument was that once there is detailed judgment of the trial Court, this Court sitting in appeal should not interfere.
6. In order to appreciate the controversy, it is necessary to firstly reproduce the applicable provisions being Sections 10, 87, 89 and 131A of the
Negotiable Instruments Act, 1881. These provisions read as under:
Section 10. Payment in due course.-""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 under circumstances which do not afford a reasonable ground for believing that he is
not entitled to receive payment of the amount therein mentioned.
Section 87. Effect of material alteration .-Any material alteration of negotiable instrument renders the same void as against anyone who is a party
thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the
original parties; Alteration by indorse, And any such alteration, if made by an indorse, discharges his endorser from all liability to him in respect of
the consideration thereof. The provisions of this section are subject to those of Sections 20, 49, 86 and 125.
Section 89. Payment of instrument on which alteration is not apparent.- 1[(1)]Where a promissory note, bill of exchange or cheque has been
materially altered but does not appear to have been so altered, or where a cheque is presented for payment which does not at the time of
presentation appear to be crossed or to have had a crossing which has been obliterated, payment thereof by a person or banker liable to pay, and
paying the sum according to the apparent tenor thereof at the time of payment and otherwise in due course, shall discharge such person or banker
from all liability thereon; and such payment shall not be questioned by reason of the instrument having been altered, or the cheque crossed.
Section 131A. Application of Chapter to drafts.-The provisions of this Chapter shall apply to any draft, as defined in Section 85A, as if the draft
were a cheque.]
Along with the aforesaid provisions, it would be necessary to refer to the language of the indemnity bond dated 12.8.1981 and the same is
therefore reproduced below:
The Manager Place DELHI
Canara Bank Date 12 Aug 81
Chandni Chowk
DELHI
Dear Sirs,
In consideration of your issuing to us a duplicate of the Demand Draft No.DCJ/034464/17764 dated 10/7/81 for Rs.57525/07 (Rupees Fifty
Seven thousand five hundred twenty five and Paisa seven only) favouring M/S RIVEX SALES ENTERPRISERS, AJKOT which original draft
has been lost, the undersigned (1) Mercantile Bank Limited Chandni Chowk, DELHI (2) _________ Surety) (Name & address)
______________ Undertake to indemnify you and hold you harmless against any loss or damage, claim mands which you may sustain in
consequence of issuing to us a duplicate of the above Demand Draft, by reason of any subsequent production or negotiation of the missing original
Demand Draft or by any action or proceedings in respect thereof. We (NO.1) do hereby declare that the said original Demand Draft has been
lost. Enclosed is a letter from M/S Rivex Sales Enterprisers, Rajkot, the ayee of the said draft to the effect that they have not come into possession
thereof.
We do hereby undertake to return the original draft in case it case it comes into our possession hereafter without dealing with it in any manner.
Witnesses: Yours faithfully
Besides the indemnity bond, the subject bank draft namely the first bank draft will also have to be examined alongwith relevant pleadings and the
testimonies of the witnesses of both the parties. This first bank draft is reproduced as under:
7. Before I take note of the issues on which the present appeal has to be decided, I may note that it is not the case of the Respondent No.
1/Plaintiff bank that even if it is guilty of negligence or that payment under the first bank draft was made in spite of a material alteration, even then, it
was still exempted from any liability for payment under the indemnity bond.
8. Now to crystallize the issues. The issues are two in number. The first issue is that whether in terms of the language contained in the indemnity
bond, the Respondent No. 1 bank was indemnified only if there was encashment of the first bank draft subsequent to giving of the indemnity bond
and would not indemnify the Respondent No. 1 bank if the first bank draft has already been encased prior thereto. The second issue, and which is
the issue which I will in fact deal with first, as it is the main and the only issue really to be decided, is whether the payment of the first bank draft
was a payment in due course and the material alteration or fraud was not such which could have been detected by the Respondent No. 1/Plaintiff
bank for it to take benefit of Section 89 of the Negotiable Instrument Act, 1881.
9. I have already reproduced the indemnity bond and the subject bank draft being the first bank draft above. A reference to the subject bank draft
shows that undoubtedly the bank draft which as originally drawn was payable at the Rajkot branch of the Respondent No. 1/Plaintiff bank,
however, the name of the original paying/drawee branch has been scored off and the word Gwalior Branch has been written in place thereof.
There is thus a clear cut material alteration in the bank draft and which is obvious on the face of the instrument. However, there is an important
aspect in this bank draft, and which will be crucial for determination of the present appeal, and which is that there is a second genuine signature of
the person/officer who made the bank draft on behalf of the Respondent No. 1/Plaintiff adjoining the name of the altered drawee branch. Can it be
thus argued that by virtue of the second signature there is authentication of the change of paying branch and thus payment has been made in due
course as per apparent tenor.
A reference to Sections 89 and 10 reproduced above shows that in case the payment is made in due course, then, Respondent No. 1/Plaintiff
would be entitled to claim the amount under the indemnity bond. Can it be said that payment has been made in due course and there is no apparent
alteration in the subject bank draft (payment having been made as per the apparent tenor) so as to entitle the Respondent No. 1/Plaintiff to the
benefit of the indemnity bond and Section 89 read with Section 10 of the Negotiable Instruments Act, 1881.
10. Before I examine this issue further, I may state that in the plaint, the Respondent No. 1/Plaintiff has taken up a specific case of payment having
been made in normal and regular course of business in para 6. The Appellant bank has in its written statement taken up a specific defense that
payment has not been made in ordinary course of business, vide preliminary objection No. 2(iii) of the written statement. The issue which then
arises is that whether these respective pleadings have been proved by the respective parties. Undoubtedly, this is a peculiar case where though
there is a material alteration of the branch at which the subject bank draft is drawn from payment from Rajkot to Gwalior, however, there
admittedly appears a genuine signature of the officer who made out the bank draft and in a manner it can be so read to suggest authentication of the
change for sustaining the stand of payment in due course as per the apparent tenor of the bank draft that it was in fact payable at changed Gwalior
Branch. On this second signature existing on the subject bank draft it can be argued that it led the officer at the altered branch in the bank draft to
arrive at a bonafide conclusion that the original branch at which the payment had to be made has been scored off from Rajkot to Gwalior with a
due authentication. If the Respondent No. 1/Plaintiff in its evidence had accordingly so averred, then, in my opinion, it was open to the Respondent
No. 1/Plaintiff to claim that the payment was made without any negligence and in due course and apparent tenor in terms of Section 89. However,
the fact of the matter is that none of the witnesses of the Respondent No. 1/Plaintiff bank, much less a witness from the Gwalior branch has
stepped into the witness box, that the Respondent No. 1''s officers took the second signature as authentication of change of the drawee branch
from Rajkot to Gwalior. Not only that, in the cross-examination of the Respondent No. 1/Plaintiffs witness PW-4 Sh. Bhawani Shankar has
volunteered to say that the second signature was merely because he had got the power of signing only a few days back and therefore in order to
avoid any discrepancies in the signature and resultant inconvenience to the parties a second signature was put on the bank draft i.e. the witness did
not say that the second signature is for authentication for the changed branch. The issue thus which boils down for being decided is whether by
putting a second signature on the bank draft, has the Respondent No. 1/Plaintiff bank in any manner allowed the forgery/material alteration to take
place on the subject bank draft and consequently it cannot claim the benefit of payment in due course as per apparent tenor.
11. At this stage, it would be fruitful to refer to the observations made by the Supreme Court in the case of Canara Bank Vs. Canara Sales
Corporation and Others, , which read as under:
26. xxxxxxx According to the learned Lord Chancellor, leaving blank spaces on either side of the figure ''2'' in the cheque amounted to a clear
breach of duty which the customer owed to the banker. The learned Lord Chancellor said: (AC p. 811) ""If the customer chooses to dispense with
ordinary precautions because he has complete faith in his clerk''s honesty, he cannot claim to throw upon the banker the loss which results. No one
can be certain of preventing forgery, but it is a very simple thing in drawing a cheque to take reasonable and ordinary precautions against forgery. If
owing to the neglect of such precautions it is put into the power of any dishonest person to increase the amount by forgery, the customer must bear
the loss as between himself and the banker.
27. The principles so settled by the House of Lords was pressed into service before this Court in the above case. This Court held that the principle
settled by the House of Lords could not help the bank. The accepted principle that if the signatures on the cheque is genuine, there is a mandate by
the customer to the bank to pay was reiterated. It was also held that if an unauthorized person got hold of such a cheque and encased it, the bank
might have had a good defense but, however, if the signatures on the cheque or at least one of the signatures are or is not genuine, there is no
mandate on the bank to pay and the question of any negligence on the part of the customer, such as leaving the cheque book carelessly so that a
third party could easily get hold of it would afford no defense to the bank. This Court distinguished Macmillan case 2 observing, that if any of the
signatures was forged the question of negligence of the customer in between the signature and the presentation of the cheque never arose. The suit
was however, dismissed on another point and that of jurisdiction.
(Emphasis added)
Two propositions emerge from a reading of the ratio of the Supreme Court in the aforesaid judgment in Canara Bank''s case. Firstly, any
negligence is not good enough to exempt the drawer of a cheque from making the bank which has made payment under the cheque liable, and, it is
only a case where negligence is such that it has put power in the hands of a dishonest person to increase the amount of forgery, is the customer
liable to bear the loss as between himself and the banker. Secondly there is no mandate only if the signatures are forged and which is not the issue
in the facts of the present case as the Respondent No. 1 does not deny the signatures of its officer on the first bank draft.
Applying the first proposition to the present case one finds that the positioning of the second signature in the subject bank draft in the facts of the
present case is therefore very crucial. The positioning of the second signature on the subject bank draft is such that I would hold that the officer of
the bank has allowed the forgery and material alteration to be committed in the bank draft. This I say so because the second signatures are
immediately adjoining the branch which had to make the payment originally under the draft viz Rajkot Branch. If a second signature appears near
the branch which had to make the payment, the bank officers with their expertise, wisdom and experience ought to know that this second signature
could be taken for altering the designated branch where the payment had to be made. In fact, I would go to the extent of saying that the peculiar
facts of this case are such that the existence of a second signature would have ordinarily entitled the Respondent No. 1/Plaintiff of the defense of
payment in due course inasmuch as the second signature put by the bank officer could have been used as abases to prove that it is this honest
action which made the officer at the Gwalior Branch made the payment so that the payment becomes payment in due course, however, I have
already noted above, the testimonies of the witnesses on behalf of the Respondent no1./Plaintiff are not so given that these signatures caused an
honest belief in the officer at the branch at Gwalior for making payment. Clearly, therefore, the making of the second signature has allowed material
alteration/forgery in the bank draft and the positioning of the second signature in the peculiar facts of this case read with the ratio of the judgment of
Canara Bank leads to the conclusion that the Respondent No. 1/Plaintiff has caused more than necessary negligence so as to enable a material
alteration on the bank draft. Consequently, the blame must squarely lie at the door of the Respondent no. 1/Plaintiff and its experienced officers
who made this mistake because the resultant position is that payment has been made under a bank draft which on the face of it is materially altered
and thus payment under the same is not in due course as per the apparent tenor to enable the Respondent No. 1 to claim the benefit of Sections 10
and 89 of the Negotiable Instruments Act, 1881.
12. The second issue is with regard to the language of the indemnity bond. The issue is that can the language of the indemnity bond indemnify the
Respondent no. 1/P plaintiff because the object and intention allegedly of the said contract/indemnity bond is to exempt the Respondent No.
1/Plaintiff from any and every action and any and every liability on account of encashment of the first bank draft. I have already reproduced the
complete indemnity bond above. There is no doubt that a contract would be read against its maker, i.e., the person, who drafted the same and also
that it should be read in accordance with the intention of the parties however, I do not find that the language of the indemnity bond is in any manner
ambiguous or uncertain so as to call for different interpretations of the same. A reading of the indemnity bond shows that the Respondent no
1/Plaintiff was indemnified by the Appellant bank for any and every loss for issuing of the duplicate demand draft by reason of subsequent
production or negotiation of the first missing original bank draft. It is an admitted fact that in the present case, the payment under the first bank draft
was made prior to the giving of the indemnity bond and not post the execution of the indemnity bond. A literal construction of the indemnity bond
therefore may lead to the conclusion that the liability of the Appellant should only arise if the first bank draft was paid prior to execution of the
indemnity bond. In this case, however, I need not go to the niceties of the interpretation of the language and decide this second issue because the
admitted stand of both the parties is that if payment of the first bank draft, whether pre-execution of the indemnity bond or post execution of the
indemnity bond, is such that the same amounts to clear cut gross negligence on behalf of the Respondent No. 1/Plaintiff, then, the language of the
indemnity bond will not entitle Respondent No. 1/Plaintiff still to claim benefit of the indemnity bond and file a case for recovery against the
Appellant/bank.
Learned Counsel for the Respondent No. 1/Plaintiff placed great emphasis on paragraphs 76 to 78 of the impugned judgment to contend that
these findings of the trial Court are correct findings and therefore should be upheld and the Appellant bank should be held liable. To this argument,
all I need to say is that in terms of the judgment of the Supreme Court in the case of Canara Bank, and the peculiar facts of the positioning of the
second signature by experienced bank officers clearly leads to the conclusion that it is in fact the Respondent No. 1/Plaintiff who has caused
negligence and therefore the loss upon itself.
13. The final argument on behalf of the Respondent No. 1/Plaintiff was that this Court should not interfere in the exercise of its powers u/s 96 once
two views are possible because the view of the trial Court is one possible view. Of course, there cannot be any cavil to this aspect, however, it is
equally settled law that where the judgment of the first court clearly miss-reads and mis-applies the relevant provisions of law in the facts of the
individual case, and which causes grave injustice and prejudice, this Court is entitled as the first appellate Court to interfere with the findings of the
trial Court. This Court as the first appellate Court is entitled to examine the findings of both the facts and the law to see that the same are not
perverse/illegal and the powers of an appellate Court in this behalf are distinguishable and wider than the power of Courts which exercise re
visionary powers u/s 115 CPC jurisdiction or jurisdiction of superintendence under Article 227 of the Constitution of India. As I have already dealt
with in detail above, in the present case, the language of the indemnity bond does not assist Respondent No. 1/Plaintiff in the peculiar facts where
the second signature has caused the language of the bank draft to be materially altered and forgery be caused upon the same. Further as again
already stated above, it is not the evidence of any of the witnesses of the Respondent No. 1/Plaintiff that the payment was made at the Gwalior
Branch because the second signature was taken as authentication of the change from the Rajkot to the Gwalior Branch.
14. In view of the above, the impugned judgment and decree to the extent which holds the Appellant liable is clearly to be faulted with. The
impugned judgment and decree is therefore to the extent it holds the Appellant liable to be set aside and the suit against the Appellant/Defendants
no 1 and 2 shall stand dismissed leaving the parties to bear their own costs.
Learned Counsel for the Appellant states that the Respondent No. 1/Plaintiff has received the amount under the impugned judgment and decree in
execution of the decree. If that be so, it is open to the Appellant bank to apply for restitution in terms of Section 144 CPC. Trial court record be
sent back.