TaxTMI 
TaxTMI 
2022 (3) TMI 1
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....ed 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 the post offices before the maturity date at a lower value after 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, Lucknow, 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/signatures on the transfer application from the record with the issuing post office. The process, they were forewarned, being time-consuming and cumbersome would require several visits to the post office. The Post Master, Head Post Office Chowk, Lucknow h....
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..... 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. 7. The respondents in the written statement contested 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 contract 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 8th 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 violated the law. M.K. Singh referred to a criminal case already pending against him and that the consumer complaint was not maintai....
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.... 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 instrument as defined by Section 4 4. "Promissory note."-A "Promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional 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. 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. 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. Section 13 13. "Negotiable instrument".- (1) A "negotiable instrument" means a promissory note, 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 in....
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....o 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 accredited agent such as a banker acting as an agent for collection, 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, 22nd Edition (2019). the maker or acceptor 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 payable to the bearer or has been indorsed in blank, and in such cases the maker, acceptor or indorser of a n....
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....n 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 of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if Subs. by Act 8 of 1919. s. 2, for "payable to, or to the order of, a payee," [payable to order,] before the amount mentioned in it became payable, and without having 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 for 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 c....
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....is by examination of the circumstances in which payment is made. In other words, antecedent and 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. Bank of Maharashtra v. M/s. Automotive Engineering Co., (1993) 2 SCC 97 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 in 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 131 131. Non-liability of banker receiving payment of cheque.- A banker who has in good faith and without negligence received payment 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 cheq....
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.... 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 6th 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 due diligence and ordinary care to verify fraud, forgery or tampering apparent on the face of the instrument. Therefore, the bank can escape 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 bank will have to meet the statutory conditions, and the courts w....
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....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 title 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 should take a security of this kind from another without using reasonable caution. Delving on the words "sufficient cause to believe" The expression "sufficient cause to believe" has been used in Section 9 of the NI Act. where lack of good faith and negligence is alleged, reference is made to Bhashyam and Adiga on the Negotiable Instruments Act (15th 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....
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....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, while 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 bearer before receiving the same. The enquiry regarding the satisfaction of this requirement invariably depends upon the facts 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 circumstances of each case. 22. In our opinion, the presumption under clause (g) to Section 118 would no....
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....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 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 deceased holder of a savings certificate from recovering from the 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 agains....
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....ificate, 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 the prescribed authority. of the GSC Act states that notwithstanding anything contained in any other law for the time being in force, no transfer of the savings certificate shall be valid unless it is made with previous consent in writing of the 'prescribed' authority. The word 'prescribed' defined in Section 2(b) 2(b) "prescribed" means prescribed by rules made under this Act; means prescribed by the rules under the GSC Act. 28. Before we advert to the aspect of standard of care required to be exercised by the post office under the 1988 Rules while encashing KVPs or other instruments, we would like to briefly consider whether 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 t....
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....d at the time of the final discharge of the certificate or in case of its loss, a declaration of such loss shall be furnished to the Post Office." 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 encashable 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 encashment and discharge. 30. Rule 13 deals with premature encashment and prescribes in the table the am....
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.... (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 Postmaster General's Circulars; (d) That the certificate has not been attached by a Court of law; (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 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 time by the holder as having been lost, s....
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....er 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 office 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 card containing holder's photograph issued by a proper authority. The particulars of such a proof having been produced should be recorded on the certificate under the signature of the supervising officer. The attestation should be in the following terms: ....
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....mself; 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.- 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 due, 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....
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....ing 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 where 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 written 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 the 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 slip, is presented for encashment at the post office other than the registered post office. It mandates that the presenter shall make an applicati....
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.... owe his banker a wider duty of care. This duty is in the form of an undertaking by the customer to exercise 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 they can use their influence, as they have in the past, to seek to persuade the legislature that they should be granted by statute further 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. Th....
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....efendant. 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 would 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 complex and would 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 concluded that the payment was made in violation of the statutory mandate of Section 10 of the NI Act and, therefore, there is no valid di....
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....aud etc., was perpetrated by the servant/employee during the course of his employment. Once this is established, the employer would be liable for the employee's wrongful act, even if they amount to a crime. Whether the fraud is committed during 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 Volume-II, i.e., procedure for encashment of certificates purchased from other than the office of issue. The Enquiry Officer has also agreed in enquiry report that the procedure outlined in Rule-23(1) of PO SB Manual Vol-II was not followed. The Enquiry Officer has also agreed that the inve....