Supreme Court sets aside High Court judgment, finds Bank liable for negligence in fund withdrawal.

The Supreme Court allowed the appeal, setting aside the judgment of the High Court and restoring the decree of the Subordinate Judge. It held that the civil court had jurisdiction over the dispute and found the Bank of Bihar Ltd. liable for the fraudulent withdrawal of funds due to its gross negligence. The Union was absolved of contributory negligence. The appeal was allowed, and other respondents were ordered to pay the costs of the appeal.

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Issues Involved:
1. Jurisdiction of the civil court in light of Sections 48(1) and 57 of the Bihar and Orissa Co-operative Societies Act, 1935.
2. Liability of the Bank for the fraudulent withdrawal of funds.
3. Negligence and contributory negligence of the parties involved.

Detailed Analysis:

1. Jurisdiction of the Civil Court:
The primary issue was whether the civil court had jurisdiction over the dispute, considering Sections 48(1) and 57 of the Bihar and Orissa Co-operative Societies Act, 1935. Section 48(1) mandates that disputes involving certain classes of persons and societies registered under the Act must be referred to the Registrar of Co-operative Societies for adjudication. Section 57(1) further stipulates that no civil court shall have jurisdiction over disputes required to be referred under Section 48(1).

The High Court ruled that the civil court's jurisdiction was ousted by the combined operation of Sections 48(9) and 57 of the Act. However, the Supreme Court examined whether the dispute fell under any of the categories mentioned in Section 48(1)(a) to (e). The Court concluded that the dispute did not fall within these categories, as it was not between a financing bank and a non-member, nor did it involve sureties of members. The Court ruled that the Explanation to Section 48(1) did not widen the scope of the section to include all disputes between a registered society and non-members. Consequently, the High Court was not justified in ousting the civil court's jurisdiction on this ground.

2. Liability of the Bank:
The second issue was the liability of the Bank of Bihar Ltd. for the fraudulent withdrawal of Rs. 11,000 from the Union's account. The Subordinate Judge found that the cheque in question was forged and that defendants 4, 5, and 7 colluded to withdraw the sum fraudulently. The High Court concurred with these findings but absolved defendant No. 2 from liability due to lack of negligence.

The Supreme Court upheld the finding that the cheque was a forged document and that the bank's employees acted in collusion to withdraw the funds fraudulently. The Court emphasized that the bank was negligent in not verifying the authenticity of the signatures on the cheque. The fraudulent withdrawal was facilitated by the bank's gross negligence and the complicity of its employees.

3. Negligence and Contributory Negligence:
The third issue was whether the plaintiff society was also negligent, thereby contributing to the fraud. The High Court found no negligence or lack of reasonable precaution on the part of the Union. The Supreme Court agreed, stating that the negligence of the bank and its employees was the proximate cause of the loss. The Court referred to the principle established in London Joint Stock Bank, Limited v. Macmillan & Arthur, which held that a bank cannot debit a customer's account based on a forged cheque unless there is a mandate from the customer.

The Court found that the Union had taken reasonable precautions by requiring two signatures on the cheque. The fraud was perpetrated due to the bank's negligence and the fraudulent actions of its employees, not due to any negligence on the part of the Union.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgment of the Patna High Court and restoring the decree of the Subordinate Judge. The Court ruled that the civil court had jurisdiction over the dispute and that the Bank of Bihar Ltd. was liable for the fraudulent withdrawal of funds due to its gross negligence. The Union was found to be free from any contributory negligence. The appeal was allowed, and the other respondents were ordered to pay the costs of the appeal.

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