Collecting bank protection under cheque law upheld where altered instrument caused mistaken credit and restitution was required.

Section 131 of the Negotiable Instruments Act protects a collecting bank that receives payment on a crossed cheque in good faith and without negligence; on the facts, the bank processed the altered cheque through normal banking channels and had no reason to suspect tampering when credit was made, so the statutory protection applied. Because the mistaken credit arose from an altered instrument later found to be invalid, the customer could not retain the benefit of the payment, and restitution was required. The court found no material showing lack of due diligence or ordinary care by the bank, and unjust enrichment supported recovery of the credited sum from the customer.

---

---

Issues: (i) whether the respondent-bank was entitled to protection under Section 131 of the Negotiable Instruments Act, 1881, despite crediting the petitioners' account on the basis of an altered cheque later found to be tampered with; (ii) whether the petitioners were liable to refund the amount credited and whether any negligence could be attributed to the respondent-bank in the collection process.

Issue (i): whether the respondent-bank was entitled to protection under Section 131 of the Negotiable Instruments Act, 1881, despite crediting the petitioners' account on the basis of an altered cheque later found to be tampered with.

Analysis: Section 131 protects a collecting banker acting in good faith and without negligence when payment is received for a customer on a crossed cheque. The provision is directed to the bank's liability to the true owner and not to a bank's recovery claim against its own customer. On the facts, the cheque was processed through the foreign banking channel, credit was made only after clearance, and the alteration in the name of the payee and the amount was detected only later. No circumstance was shown that should have alerted the bank to suspect fraud at the time of collection.

Conclusion: The respondent-bank was entitled to rely on the statutory protection, and Section 131 did not bar recovery from the petitioners.

Issue (ii): whether the petitioners were liable to refund the amount credited and whether any negligence could be attributed to the respondent-bank in the collection process.

Analysis: The altered cheque resulted in a mistaken credit that was subsequently reversed after the foreign bank raised a claim. The bank acted in accordance with banking practice and on the basis of the apparent genuineness of the instrument. The court found no material showing lack of good faith or failure to exercise due diligence or ordinary care. The petitioners, having benefited from the credit, could not shift the loss to the bank, and the equitable principle against unjust enrichment supported restitution.

Conclusion: The petitioners were liable to refund the amount, and no negligence was attributable to the respondent-bank.

Final Conclusion: The writ petition failed because the collecting bank had acted bona fide and without negligence, while the petitioners could not retain the benefit of the mistaken credit arising from the altered cheque.

Ratio Decidendi: A collecting bank that acts in good faith and without negligence while receiving payment on a crossed cheque is protected under Section 131 of the Negotiable Instruments Act, 1881, and may recover a mistaken credit from the customer when the instrument is later found to be altered or forged, as the customer cannot retain an unjust enrichment.

---