1966 (10) TMI 168 - SC - Indian Laws

Bank held liable for unauthorized withdrawal due to employee fraud; appeal successful, judgment reinstated with costs.

Bihta Co-operative Development Cane Marketing Union Ltd. and Ors. Versus The Bank of Bihar and Ors.

Bihta Co-operative Development Cane Marketing Union Ltd. and Ors. Versus The Bank of Bihar and Ors. - AIR 1967 SC 389 Issues Involved:1. Jurisdiction of the civil court under Section 48(1) read with Section 57 of the Bihar and Orissa Co-operative Societies Act, 1935.2. Liability of the Bank of Bihar Ltd. for the unauthorized withdrawal of Rs. 11,000.3. Negligence and complicity of the parties involved.Detailed Analysis:1. Jurisdiction of the Civil Court:The primary issue was whether the suit was entertainable by a civil court given the provisions of Section 48(1) read with Section 57 of the Bihar and Orissa Co-operative Societies Act, 1935. Section 48(1) enumerates disputes that must be referred to the Registrar of Co-operative Societies, and Section 57(1) prohibits civil courts from having jurisdiction over such disputes. The High Court allowed the appeal of the bank on the ground that the jurisdiction of the civil court was ousted by the combined operation of these sections. However, the Supreme Court found that not all disputes involving a registered society fall within the ambit of Section 48(1). The dispute must fit within the specific categories listed in sub-clauses (a) to (e) of Section 48(1). The Court concluded that the dispute in this case did not fall within any of these categories, and thus, the High Court was not justified in allowing the bank's appeal on this ground.2. Liability of the Bank of Bihar Ltd.:The plaintiffs alleged that the bank was liable for the unauthorized withdrawal of Rs. 11,000 from the Union's account due to gross negligence. The Subordinate Judge found that the cheque in question was forged and that defendants 4, 5, and 7 conspired to withdraw the amount fraudulently. The High Court concurred with these findings but absolved defendant No. 2 from liability on grounds of negligence. The Supreme Court upheld the findings that the bank and its employees were negligent and fraudulent in handling the cheque. The bank was found to have allowed the withdrawal based on a forged cheque, which did not come from the Union's cheque book but was a loose form returned by an ex-constituent.3. Negligence and Complicity:The High Court found no negligence or lack of reasonable precaution on the part of the Union. The Supreme Court agreed, emphasizing that the negligence of the bank's 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 states that a customer must take reasonable precautions to prevent forgery. However, in this case, the Union had taken such precautions by requiring two signatures on the cheque. The fraud was perpetrated due to the complicity of the bank's employees, not due to any negligence by the Union. The Court also noted that the fraudulent activities of the bank's employees, including the use of a loose cheque form and suspicious entries in the register, indicated a lack of bona fides.Conclusion:The Supreme Court allowed the appeal, set aside the judgment of the Patna High Court, and restored the decree of the Subordinate Judge. The bank was held liable for the unauthorized withdrawal due to the negligence and fraudulent actions of its employees. The Union was found to have taken reasonable precautions, and the negligence of the bank's employees was the proximate cause of the loss. The appeal was allowed with costs to be paid by the other respondents, except respondent No. 7, against whom no decree was sought by the appellants.