Banking Law & Incidental matters
Summary of Question- Both civil suit and 138 can go simultaneously.
Question –Whether action u/s 138 of NI Act and civil suit for recovery can go simultaneously.
It has been held by the Hon’ble Supreme Court reported in (2009 )13SCC 729 that there cannot be any doubt or dispute that a creditor can maintain a civil and criminal proceeding at the same time. Both the proceeding, thus, can run parallely. The fact required to be proved for obtaining a decree in the civil suit and a judgment of conviction in the criminal proceedings may be overlapping but the standard of proof in a criminal case vis-a-vis a civil suit, indisputably is different. Whereas in a criminal case the prosecution is bound to prove the commission of the offence on the part of the accused beyond any reasonable doubt; in a civil suit `preponderance of probability' would serve the purpose for obtaining a decree.
Summary of Question- Liability of Collecting Bank
Question- What is the legal position if a suit is filed against a collecting bank for compensation on the ground that the collecting bank has collected a cheque for a customer who is not true owner of the cheque.
Answer- The legal position is that the suit will fail against the collecting Bank if the Collecting Bank is able to prove that the account of customer was opened in accordance with the extant guidelines of the Bank and regular transaction was going on in the account prior to the collection of the cheque in issue and it is not the case that the account was opened just for collection of the cheque.
1. At first, it is relevant to refer to the case reported in AIR 2000 Madras 363). Facts of the case, in short, are that one Natarajan opened a S.B. account on 7-1-1978 in syndicate bank by depositing a cash of Rs. 10/-. Within 5 days on 12-1-1978, he deposited an order form for collection of Rs. 4,000/- purported to have been issued by the one A. Padma who was having S. B. A/c No. 1517 in the Indian Bank. The Syndicate Bank sent the order form to the Indian bank for collection of the amount. The Indian bank honoured the order form and paid a sum of Rs. 4,000/- by making deduction from the account of A. padma. The Syndicate Bank after collection brought a sum of Rs. 4,000/- into the account of the Natrajan who withdrew a sum of Rs. 3,800/- on 16-1-1978. When the fact was made known to A Padma, she wrote a letter objecting deduction of a sum of Rs. 4,000/- from her account as she has not issued the order form. Thereafter, the Indian bank complained to the Inspector of Police, Crime Branch, Madurai. In the meantime, the Indian Bank issued a notice through its lawyer to the Syndicate Bank bringing out the facts. The Syndicate Bank gave a reply stating that it was done in the usual course of business and there was no negligence on its part. Indian Bank ultimately filed civil suit.
1.1. The Syndicate Bank who was the collecting bank claimed protection under Section 131 of the Negotiable Instruments Act and further contended that there was no negligence on their part and, on the contrary, it was the Indian Bank who was negligent in passing the forged cheque of its own customer and the liability is entirely on them only.
1.2. The Hon’ble Court observed at para 6 that opening of an account is entirely a different transaction and the negligence in collection on the part of the collecting bank is a fact which has to be considered separately ; In certain circumstances the opening of an account and the negligence of the collecting bank in collecting the cheque go together. The Hon’ble Court relied on following decisions on this point :-
(i). In Commissioner of Taxation v. English, Scoettish and Australian Bank, 1920 AC 683, it was held that a negligence in collection is not a question of negligence in opening an account, though the circumstances connected with the opening of an account may shed light on the question whether there was negligence in collecting a cheque.
(ii) A Division Bench of the Hon’ble Madras High Court in Bharat Bank Ltd. v. Kishinchand Chellaram, held that if the opening of the account and the deposit of cheque are really part of the same transaction or if the cheque was put into the account so shortly after the opening of the account, it may lead to an inference that the collection was part of the opening of the account, then the negligence on the part of the bank in the opening of the account must be treated as negligence in the matter of realisation of the cheques as well.
(iii) In another decision, a Division Bench of the Madras High court in Indian Bank v. Catholic Syrian Bank Ltd. held that if the opening of the account lead to an inference that the collection was part of the opening of the account, the negligence, if any, on the part of the collecting bank in opening of the account can be also considered.
1.3. The Hon’ble Court observed that the order form was dated one day earlier to the opening of the account and the account was opened by depositing Rs. 10/- only and the order form was presented on the fifth day thereafter. The Hon’ble Court, in the facts and circumstances of the case, inferred that it would lead to the inference that the S. B. account was opened only for the purpose of encashing the order form and observed that it is a case where the circumstances connected with the opening of the account would throw sufficient light on the negligence of the Syndicate bank.
1.4. In the facts and circumstances of the case, Syndicate Bank’s appeal was dismissed.
2. It is also relevant to refer to the Hon’ble Supreme Court Judgment reported in 2004 (2) SCC 425 . In this case a cheque for Rs.1,00,000/- was stolen in post and was altered to read as if it was payable to one Mr. K . A person calling himself K opened a bank account with a bank (1st. respondent) on 24.12.1982 with a sum of Rs.20/-. He then deposited Rs.80/- to have a minimum balance of Rs.100/- so that he could obtain a chequebook. Thereafter, on 29.12.1982, the said cheque of Rs.1,00,000/- was deposited in the account and the same was collected by the 1st. respondent Bank. On 30.12.1982, a sum of Rs.50,000/- was withdrawn from the account . Mr. K was turned out to be a fictitious person. He was never traced again. The 1st. respondent bank claimed from protection of section 131 of the N.I.Act . The Apex court referred to various decisions and held that the 1st. respondent Bank has not discharged the burden which lay upon it show that it had acted in good faith and without negligence. In the other words 1st. respondent Bank could not get protection under N.I.Act.
Summary of Question- Compromise Decree binding only on parties the suit.
Question- If a person wishes to deposit a Compromise Decree as security to secure a loan, whether the Bank should accept the Compromise Decree as an Equitable Mortgage thinking that the Compromise Decree is binding on the Bank also and it (Bank) need not go for further legal examination of the matter to see whether the depositor has acquired title on the basis of Compromise Decree.
Answer- A Compromise Decree is binding only on the parties to the suit in which there is compromise decree and as such the Bank need go for further legal examination of the matter to see whether the depositor has acquired title on the basis of Compromise Decree.
1. In the light of following two decisions of the Hon’ble Supreme Court, a compromise decree is binding only on the parties to the suit:
(i) The observation in the case reported in AIR 2006 SC 2628] ( in the matter a compromise decree under Or.23 Rule 3 of the CPC) is -
“The said Rule consists of two parts. The first part provides that where it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties, the court shall order such agreement or compromise to be recorded and shall pass a decree in accordance therewith. The second part provides that where a defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the court shall order such satisfaction to be recorded and shall pass a decree in accordance therewith. The Rule also makes it clear that the compromise or agreement may relate to issues or disputes which are not the subject-matter of the suit and that such compromise or agreement may be entered not only among the parties to the suit, but others also, but the decree to be passed shall be confined to the parties to the suit whether or not the subject matter of the agreement, compromise or satisfaction is the same as the subject matter of the suit”
(ii) The observation in the case reported in (2009) 6 SCC 194 is :
“Order XXIII, Rule 3 of the Code of Civil Procedure provides that a compromise decree is not binding on such defendants who are not parties thereto”
2. Suppose fact of a case be that ‘A’ has made gift of his certain immovable property to ‘B’ but the instrument of Gift is not Registered as required by Law. ‘B’ files a Suit for Permanent Injunction and made ‘A’ and some of his other relative as defendants in the Suit. The suit is compromised and a Compromise Decree is passed to this effect also that 'B’ has got title over the property.
2.1. The suit was for permanent injunction only but this was also compromised that the plaintiff has acquired valid title over the suit property and this compromise was allowed by the court because there is provision in the amended order 23 , rule 3 of CPC that a matter which is not a subject matter of a suit may also be compromised. But this does not mean that such the compromise decree shall be binding on a person who is not a party to the suit more particularly when the Gift Deed is un-registered. The legal effect of the Gift Deed being un-registered also need be examined by the Bank.
2.2. In this connection, reference is also worthwhile to the Apex Court decision in the case reported in AIR 1996 Supreme Court 196 , paragraphs 13, 17 and 18 thereof are quoted below: .
“13. In other words, the court must enquire whether a document has recorded unqualified and unconditional words of present demise of right, title and interest in the property and included the essential terms of the same; if the document, including a compromise memo, extinguishes the rights of one and seeks to confer right, title or interest in praesenti in favour of the other, relating to immovable property of the value of 100 and upwards, the document or record or compromise memo shall be compulsorily registered.
17. It would, therefore, be the duty of the court to examine in each case whether the parties have pre-existing right to the immovable property, or whether under the order or decree of the court one party having right, title or interest therein agreed or suffered to extinguish the same and created right, title or interest in praesenti in immovable property of the value of Rs. 100 or upwards in favour of other party for the first time, either by compromise or pretended consent. If latter be the position, the document is compulsorily registrable.
18. The legal position qua Clause (vi) can, on the basis of the aforesaid discussion, be summarised as below :
(1) Compromise decree if bona fide, in the sense that the compromise is not a device to obviate payment of stamp duty and frustrate the law relating to registration, would not require registration. In a converse situation, it would require registration.
(2) If the compromise decree were to create for the first time right, title or interest in immovable property of the value of Rs. 100 or upwards in favour of any party to the suit, the decree or order would require registration
2.3. Section 123 of Transfer of Property Act provides that for the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument. Further, section 17(1)(a) of the Registration Act makes registration of an instrument of gift of immovable property compulsory. The resultant effect of non-registration of Gift Deed of immovable property is that title to the gifted property does not pass to the donee by virtue of such an un-registered Gift Deed.
2.3.1. In the fact of the case, the factual position is that the suit property (in respect of which permanent injunction had been prayed) was gifted by an un-registered gift deed. As such, title to the suit property did not pass to the plaintiff by virtue of the un-registered Gift deed i.e., plaintiff was not having pre-existing title over the suit property.
2.3.2. Since the plaintiff was not having pre-existing title over the suit property (due to gift deed being un-registered) and if in the compromise petition it is stated that the plaintiff shall also acquire title over the suit property, the legal position is that it is the compromise by which the plaintiff has tried to create title over the suit property. In other words, it is the compromise vide which title over the suit property has been tried to be created. Therefore, in view of the Apex Court decision, the compromise decree requires to be registered and the Bank should not accept Unregistered Compromise Decree as Equitable Mortgage.
Summary of Question – Criminal action against loanee for non-payment
Question- Whether a Criminal Action against a loanee , who has just defaulted in repaying Bank’s loan, on the ground of having committed misappropriation or cheating can be sustained in the court of Law?
Answer- No. It wouild be difficult for a Bank to succeed in sustaining criminal action on the ground of having committed misappropriation or cheating against a loanee in court of law if the defaulting borrower has just defaulted in repaying the Bank’s loan.
1. Section 403 of the I.P.C reads as under:
“Section 403 - Dishonest misappropriation of property
Whoever dishonestly misappropriates or converts to his own use any movable property, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.”
1.1. The essence of an offence under section 403 IPC is that a property of one person comes into the possession of another person and that other person misappropriates or converts such property to his own use. In other words, it has to be first established for the applicability of section 403 that a property which has been misappropriated by the accused does not belong to the accused but to some other person. In this connection, it is relevant to refer to the case of Indian Oil Corporation vs. NEPC India Ltd. [AIR 2006 SC 2780] decided by the Hon’ble Supreme Court. Short fact of this case was that Indian Oil Corporation entered into two contracts- one with the NEPC India Ltd. and the other with its sister company Skyline NEPC Limited agreeing to supply to them aviation turbine fuel and aviation lubricants. There was hypothecation of Aircrafts to secure the outstanding amounts arising out of supplied fuel. In respect of the aircraft fuel supplied under the said contracts, there mounted heavy dues. IOC filed criminal complaint against NEPC and its directors ; one of the sections under which the criminal complaint was filed was section 403 of the IPC on the allegation that NEPC had removed the engines of the aircraft. The Apex Court observed as quoted below:
“ Section 403 deals with the offence of dishonest misappropriation of property. It provides that "whoever dishonestly misappropriates or converts to his own use any movable property", shall be punished with imprisonment of either description for a term which may extend to 2 years or with fine or both. The basic requirement for attracting the section are : (i) the movable property in question should belong to a person other than the accused; (ii) the accused should wrongly appropriate or convert such property to his own use; and (iii) there should be dishonest intention on the part of the accused. Here again the basic requirement is that the subject matter of dishonest misappropriation or conversion should be someone else's movable property. When NEPC India owns/possesses the aircraft, it obviously cannot 'misappropriate or convert to its own use' such aircraft or parts thereof. Therefore Section 403 is also not attracted.”
1.2. It would , therefore, be difficult for a Bank to succeed in a case for dishonest misappropriation against a defaulter borrower. A question will arise in the court as to what property of the Bank has been misappropriated by the accused defaulter? Hypothecated property cannot be successfully be argued to be the Bank’s property as owner. Resultantly, mere sale of hypothecated property and non-deposit of the sale proceeds thereof in the Bank by a defaulter would not be not sufficient to constitute an offence under section 403 of the I.P.C.
2. Section 415 of IPC is reproduced below:
“Section 415 - Cheating
Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat".
Explanation,--A dishonest concealment of facts is a deception within the meaning of this section.”
2.1. From the text of the said section 415, essential ingredients of an offence of cheating are:-
(i) The accused have deceived the complainant fraudulently or dishonestly
(ii) By means of the said deceit, the complainant have been induced to change his position –
(a) by delivering any property to any person
or (b) by doing, omitting to do, anything which he would not do, or omit, if he were not so deceived and such act or omission causes or likely to cause damage or harm to the complainant in body, mind, reputation or property.
2.2. It is, therefore, clear that first and foremost ingredient of an offence of cheating is deception. If a person makes a false representation with a view that other person should act upon it, then it amounts to cheating. It is also necessary, for an offence of cheating, that the person deceived must have acted under the influence of deceit. i.e., there must be proximate connection between the deception practiced by the accused on the complainant & his being induced to part with some money / property.
2.3. Vide the decision of the Hon’ble Supreme Court in the case reported in AIR 1973 SC 326, to hold a person guilty of offence of cheating it must be shown that dishonest intention of cheating existed at time of making promise ; such dishonest intention cannot be inferred from mere fact that accused cannot subsequently fulfill his promise .
2.4. There is another case of Hon’ble Supreme Court reported in AIR 1974 SC 301. The brief facts of the case were that the appellant wanted to start some business and in that connection talked to the respondents. The respondents then stated that they would start transport business under the name and style of Drang Transport Corporation. The respondents further stated that the appellant would be the proprietor of the said Corporation and the respondents would work as his agents. The appellant paid Rupees 35,000 to the respondents. Later on the appellant found that the respondents were doing transport business but the appellant was not shown as the proprietor of that business. The appellant asked for the refund of his money. The respondents had also agreed to settle the business accounts in the month of December every year. Despite the aforesaid commitment, the respondents failed to render accounts and refund the money . When the respondents failed to comply with the demand of the appellant, he filed a criminal case of cheating. The Apex Court observed and held –
“ There is nothing in the complaint to show that the respondents had dishonest or fraudulent intention at the time the appellant parted with Rs. 35,000. There is also nothing to indicate that the respondents induced the appellant to pay them Rs. 35,000 by deceiving him. It is further not the case of the appellant that a representation was made by the respondents to him at or before the time he paid the money to them and that at the time the representation was made, the respondents knew the same to be false. The fact that the respondents subsequently did not abide by their commitment that they would show the appellant to be the proprietor of Drang Transport Corporation and would also render accounts to him in the month of December might create civil liability for them, but this fact would not be sufficient to fasten criminal liability on the respondents for the offence of cheating.”
2.5. Observation of the Hon’ble Supreme Court in the case reported in 2009 (1) SCC 516 is quoted below:
“It is settled law, by catena of decisions, that for establishing the offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. From his making failure to keep up promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed.”
2.6. The Apex Court has made following observation in the case reported in 2010 (10) SCC 361:
“It is well settled that in order to constitute an offence of cheating, it must be shown that the accused had fraudulent or dishonest intention at the time of making the representation or promise and such a culpable intention right at the time of entering into an agreement cannot be presumed merely from his failure to keep the promise subsequently.”
2.7. In CRIMINAL APPEAL NO. 9 of 2019 (Satishchandra Ratanlal Shah vs. State of Gujarat), decided on 3rd. January 2019, the Hon’ble Supreme Court observed and held:
"The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence."
2.8. Therefore, it would be difficult for a Bank to succeed in a criminal action of cheating against a loanee because it may be difficult for the Bank to fulfill the ingredients of section 415 and establish in the court that the loanee had made fraudulent or dishonest representation to the Bank at the time of taking of the loan and the Bank gave loan to him under the influence of such deception. Merely this fact that a borrower has not repaid the loan as agreed and has become defaulter is not sufficient to succeed in an action of cheating against such defaulter.
Summary of Question- Debit of Customer’s account without consent
Question- Whether a bank can debit a sum from a customer’s account if credit of that sum has been made by mistake of a 3rd. person i.e., if the mistake is not on the part of the Bank.
Answer- A bank cannot debit a sum from a customer’s account if credit of that sum has not been made by the mistake on the part of the Bank but mistake of 3rd. person because under section 72 of the Indian Contract Act, which provides that a person to whom money has been paid by mistake is bound to repay the money paid by mistake, applies if mistake is between two persons- one paying the money and the other receiving the money.
1. In the case reported in A.I.R. 1967 S.C. 540, fact, in briefs, is that one Sultan Mohd. had borrowed a sum of Rs. 40,000/-. Before the bank advanced the loan, the Government was approached and it was arranged that the Government would collect land-revenue of certain villages from the Jagir of Sultan Mohd. and the same will be credited in the loan account. What happened that due to some fault in the Govt machinery, a sum of Rs. 28,029=15 was erroneously credited to the account of Sultan Mohd. When the mistake was found, the Government asked the Bank to reverse the entries and the Bank reversed the entries. The Bank filed suit for recovery of Rs.31,025=11, which was arrived at after taking back the said credit of Rs28,029=15 i.e., the amount of reverse entries ; Had that credit been retained in the account, the outstanding balance would have been only Rs2,995=12. It was contended on behalf of borrower that the reversal of entries by the Bank was unauthorized and not binding on him and, therefore, the loan outstanding was only Rs.2,995=12. The Apex court dismissed the Bank’s Appeal. The ruling of the Apex court made at para 7 is quoted below:-
“There is no doubt that section 72 of the Contract Act provides that a person to whom money has been paid or anything delivered by mistake or under coercion must repay or return it. That section in our opinion will only apply when we are dealing with a case of two persons one paying the money and the other receiving the money on behalf of the person paying it. In such a case if the payment is made by mistake the person receiving the money must return it. But section 72 in our opinion has no application to a case where money is paid by a person to a bank with instructions that it should be deposited in the account of a third person who is a constituent of the bank. As soon as the money is so deposited in the account of the third person, who is a constituent of the bank, the money becomes the money of the constituent, and it is not open to the bank in such circumstances to reverse the entry of credit made in the account of the constituent and in effect pay back the money to the person who had deposited it even though it might have been deposited by mistake.”
2. The said decision of the Hon’ble Supreme Court has been referred and distinguished on facts by the Hon’ble Kerala High Court in the case of Ameen Trading Company vs. Bank of Baroda [decided on 15.7.1993]. Short fact of this case is that certain amounts were due from a party at Jaigaon to Ameen Trading Company (the defendant partnership firm). Payments were being made through Jaigaon Branch of the Bank of Baroda. On 22-3-1985, the Jaigaon Branch of the Bank sent a telegram to the Kannur Branch, transferring a sum of Rs. 50, 000/- to be credited to the account of defendant firm. The Kannur Branch credited that amount, which was subsequently withdrawn by the defendants. On 23-3-1985 also, a similar telegram transferring Rs. 50,000/- was received by the Kannur Branch from the Jaigaon Branch and that amount was also credited to the account of the firm. The firm withdrew that amount also through their Bank. In 1987, the Auditors of the Bank discovered that there was mistake in crediting the second sum of Rs. 50,000/- and actually payment to the Jaigaon Branch was to the tune of Rs. 50,000/- only and it was by mistake that the second telegram dated 23-3- 1985 was sent to the Kannur Branch. When this mistake was discovered, the plaintiff Bank sent a letter to the defendant calling upon them to pay back the amount with interest received by them by mistake. Defendants sent a reply, denying their liability to pay, whereupon the Bank filed the suit. The trial court decreed the suit in favour of the Bank, finding that the case is one falling under S. 72 of the Contract Act. Aggrieved by that, the defendants filed appeal in the High Court. The Appellant argued that the case does not fall under S. 72 of the Contract Act. Heavy reliance was placed by the defendant firm on the said decision given in Jammu and Kashmir Bank Ltd. v. Attra Ul-Nisa that when money is credited to the account of the firm, whether by mistake or not, it becomes the money of the firm, and the Bank is not entitled to reverse the entry and claim that amount to be repaid by the firm.
2.1 The Hon’ble High Court observed as quoted below:
“This argument cannot be accepted for the reason that the present case is not similar to the case before the Supreme Court. There, the mistake was committed by the Government, by the treasury as well as the Accountant General, sending hundis or treasury bills whereupon, both were being credited to the account of Sultan Mohammed. Here, actually there was no payment by Raghavan at Jalgaon of the second sum of Rs. 50,000/-. He paid only Rs.50,000/- on 22.3.1985 for which telegraphic transfer was effected by the Jalgaon Branch of the Bank. By mistake, a second telegram was also sent the next day, when there was no actual payment at all and it was only a duplication. The Kannur Branch on the basis of the second telegram, credited another sum of Rs. 50,000/- to the account of the defendant firm. Here, the mistake is not of the person who has paid the money, but it was the mistake by the Jalgaon Branch of the Bank in sending two telegrams for transfer of amounts, when there was only one payment. In such a situation, the credit made in the transferee branch of the Bank is not irreversible for the reason that there was no money actually paid by Raghavan and it was by sheer mistake that the sum was credited. In such circumstances S.72 of the Contract Act squarely applies.”
Summary of Question – Equitable Mortgage on Sale Certificate
Question- Can Equitable Mortgage be created by deposit of sale certificate issued by court or DRT while the sale certificate is un-registered under Registration Act.
Answer- Yes. Equitable Mortgage can be created without a Sale certificate being unregistered.
1. In this connection, it is also worthwhile to refer to a judgment of the Hon’ble Apex Court, reported in (2007) 5 SCC 745 in the case of B Arvind v/s Govt. of India. In this case, the Apex Court observed and held in para 12 as quoted below:
“ When a property is sold by public auction in pursuance of an order of the court and the bid is accepted and the sale is confirmed by the court in favour of the purchaser, the sale become absolute and the title vests in the purchaser. A sale certificate is issued to the purchaser only when the sale becomes absolute. The sale certificate is merely the evidence of such title. It is well settled that when an auction purchaser derives title on confirmation of sale in his favour, and a sale certificate is issued evidencing such sale and title, no further deed of transfer from the court is contemplated or required. In this case, the sale certificate itself was registered, though such a sale certificate issued by a court or an officer authorized by the court, does not require registration. Section 17(2)(xii) of the Registration Act, 1908 specifically provides that a certificate of sale granted to any purchaser of any property sold by a public auction by a Civil or Revenue Officer does not fall under the category of non-testamentary documents which require registration under sub-section (b) and (c) of Section 17(I) of the said Act. We therefore hold that the High Court committed a serious error in holding that the sale certificate did not convey any right, title or interest to plaintiff’s father for want of a registered deed of transfer.”
2. Vide section 17(2) (xii) of the Registration Act, any certificate of sale granted to the purchaser of any property sold by public auction by a Civil or Revenue Officer does not require registration. In the case reported in AIR 1991 Supreme Court 1880], the Apex Court held at para 6-
“ there is no need to read the term ‘revenue officer’ in any restricted sense and that it is wide enough to include T.R.O who effects a compulsory sale for recovery of the income- tax demand”.
2.1. As such, the term ‘Revenue Officer’ in section 17(2)(xii) of the Registration Act covers a ‘Tax Recovery Officer’ also under I. Tax Act & Rules.
3. Now the question is whether a Recovery Officer under DRT Act is a Revenue Officer within the meaning of section 17(2)(xii) of the Registration Act so that a certificate of sale granted by the Recovery Officer of DRT also does not require registration.
3.2. Chapter IV of the ‘Recover of Debts due to Banks and Financial Institutions Act’ (DRT Act) dealing with ‘Recovery of debts determined by the Tribunal’ contains section 25 to 30. Section 29 provides that the provisions of 2nd. & 3rd. Schedule to the I. Tax Act and the Income tax (Certificate Proceedings) Rules, 1962 shall apply. As such, in the matter of recovery of Debts determined by the DRT the provisions of 2nd. & 3rd. Schedule of Income tax Act and Income Tax ( Certificate proceedings) Rules, 1962 apply. Therefore, a Recovery Officer under DRT Act exercises the same power which a Tax Recovery Officer can use under I. Tax Certificate Proceedings Rules and the 2nd. & 3rd. schedule. That being the position a Recovery Officer under DRT Act is equivalent to a Tax Recovery Officer under I. Tax Act. Consequently, Recovery Officer is a Revenue Officer within the meaning of section 17(2)(xii) of the Registration Act in the light of the Judgment of the Apex Court in the case of Smt. Shanti Devi.
Summary of Question- Oral Family settlement
Question- Validity of oral family settlement.
Answer- It is settled law by the Hon’ble Supreme Court that if a family settlement is bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family and it is voluntary and not be induced by fraud, coercion or undue influence, then the family arrangement is valid.
Vide (1976 )3 SCC 119.
Summary of Question- Payment of cheque brearing Forged Signature
Question- Whether a Paying Bank gets discharge if it makes payment of a cheque bearing the signature not of the customer / a forged signature of the customer.
Answer- No. The protection given to paying bank by Section 85 of N.I Act is not available to the bank in respect of a forged cheque. The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques. There is a duty of the customer to inform the bank of irregularities when he comes to know of them. The customer can be estopped when he remained silent even after knowing the truth of matter.
1. The relationship between a bank and its customer in the matter of payment of a cheque arose for consideration before the Hon’ble Supreme Court of India in the case reported in AIR 1967 SC 389). In the above case, a suit was filed for illegal withdrawal of Rs. 11000/- from the bank. The suit was decreed and affirmed by the High Court. When the case came before the Supreme Court of India, the plea taken by the bank was that if the customer chooses to dispense with the ordinary precautions and permits a forgery to be committed and if owing to the negligence 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. In support, reliance was placed on a derision of House of Lords given in the case of London Joint Stock Bank Ltd v. Macmillan (1918 AC 777). The Apex Court , however, opined that what was said in Macmillan's case would not be applicable because the accepted principle of law is that if signature on the cheque is genuine and there is a mandate by the customer to pay then the banker has no obligation but to discharge the liability but if the signatures on the cheque is not genuine, then there is no mandate on the part of customer to pay and there would no question of any negligence on the part of the customer.
2. The ratio of above decision of Supreme Court was followed in the later decision of the Supreme Court reported in AIR 1987 SC 1603. In this case , the Chief Accounts Officer of the Company who was attending the maintenance of the company's accounts and was also in charge and custody of the cheque books forged 42 cheques for a total amount of Rs. 3,26,047.92 between 1957 and 1961. The bank contended that the customer was estopped from claiming the amounts by reason of it own negligence on account of its acquiescence in and ratification of, the payments made by the bank as the customer was being supplied by the bank monthly statement of accounts and half yearly accounts over a period of four years & he had to raise any objection at the appropriate time to the correctness of the accounts. The Apex Court observed that when a cheque duly signed by a customer is presented before a bank, it carries a mandate to the Bank to pay ; If a cheque is forged, then there is no such mandate. The bank can escape liability only if it can establish knowledge to the customer of the forgery in the cheques. The Apex Court observed that there is no duty for a customer to inform the bank about the fraud committed on him of which he was unaware. There is a duty of the customer to inform the bank of irregularities when he comes to know of them. He can be estopped when he remained silent even after knowing the truth of matter.
3. In the case reported in (1988) 64 comp. Cas 461, Hon’ble Calcutta High Court relied upon the decision of the Apex Court and held that the mandate of the customer to bank to pay the cheque signed by him for the bearer, which is statutorily recognised by Section 85(2) the Negotiable Instruments Act ceases as soon as it is proved that the cheque paid by the bank was a forged one because a forged cheque is no cheque issued by the customer. Therefore, the protection given to the bank by Section 85 is not available to the bank in respect of a forged cheque. The bank is not liable to debit the said amount of the cheque even if it is found that the customer did not take proper care to keep the cheque or the relevant cheque book in proper custody. It was held that the bank cannot avoid the liability by merely proving that it made payment in due course according to the apparent tenor of the cheque or by verifying the signatures on the cheque with the specimen signature and finding no apparent discrepancy.
4. In the case reported in 2003(1)JKJ719, a Division of Hon’ble Jammu & Kashmir held that money paid by the bank under a forged cheque cannot be debited merely on the ground that the customer was negligent that he allowed his cheque book to remain unlocked.
Summary of Question- Can Written Off Debt be recovered
Question- Whether borrower / guarantor can take this plea that the Bank’s loan cannot be recovered because it has been written off by the Bank.
In AIR 2006 Supreme Court 2218, on the point whether a written off debt can be recovered, the Hon’ble Supreme Court at para 17 of the judgment observed:-
“ …….The write off is only an internal accounting procedure to clean up the balance sheet, and it does not affect the right of the creditor to proceed against the borrower to realize his dues…”
Summary of Question- Whether a Trust is a Legal Entity
Question- Whether a Bank should give loan to a Trust created for advancement of public education (e.g., to run a school or college) as a legal entity ?
Answer- A Trust created for advancement of public education on the basis of a registered Trust Deed is not a legal entity and as such loan should not be given to the Trust created as legal entity.
In the case reported in ILR1985KAR1950, nine persons formed a Trust called 'Ananda Social and Educational Trust' and a Trust Deed was registered on 10-1-1980. One Suit was filed by Trust represented by its Chairman and a Trustee against 8 other Trustees and others seeking inter alia declarations, permanent injunction etc. The Hon’ble court held the action not maintainable and relied on a Division Bench decision of the Hon’ble Delhi High Court in the case reported in AIR 1984 Del 145 in which it has been observed and held as quoted below:-
"It is well known that a Trust is not a legal entity as such. In fact, a Trust may be defined as an obligation imposed on the ostensible owner of property to use the same for a particular object for the benefit of a named beneficiary or a charity. Thus all Trustees in law are owners of the property to use the same for a particular object for the benefit of a named beneficiary or charity. If a number of trustees exist, they are joint owners of the property. It is not like a Corporation which has a legal existence of its own and therefore can appoint an agent. A Trust is not in this sense a legal entity.”
Summary of Question – Necessity of Endorsement by payee on cheque
Question- Whether there should be endorsement by the payee on a crossed cheque, which is in his (payee’s) favour, for crediting in his (payee’s) account or for collection in his (payee’s) account
1. Section 85 (1) of the Negotiable Instruments Act says - where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course. But with regard to a crossed cheque, there appears no similar provision in the Negotiable Instruments Act that a crossed cheque must be endorsed by the payee before accepting it for payment or collection in the account of the payee.
1.1. What is required to be complied with regarding payment of crossed cheques is contained in sections 128 of N.I. Act. This section 128 protects a paying banker if he pays a crossed cheque (i) in accordance with the crossing and (ii) the payment is in due course as defined in section 10 of the N.I.Act. Section 10 of the N.I Act provides that a payment is “payment is in due course” if it is (a) in accordance with the apparent tenor of the instrument (b) in good faith and without negligence (c) to a person in possession thereof (d) under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment.
1.2. As such, it may not be correct to say N.I Act requires that a crossed cheque must be endorsed by the payee of the cheque for its credit in the account of the payee. It might be a matter of practice that a payee of a crossed cheque signs on the reverse of the cheque or signs after writing –“please credit in my account no………”.
2. In the matter of collection of a crossed cheque, section 131 of the NI Act provides that a collecting banker is entitled to protection if it has acted in good faith and without negligence. This section 131 also does not provide that a crossed cheque presented for collection must be endorsed by the payee.
3. It may, therefore, not be correct to say that a crossed cheque must be endorsed by the payee under N.I. Act before it is accepted for payment or for collection in the account of the payee.
Summary of Question- Power of Attorney in Foreign Country
Question- If an Indian, in a Foreign Country, is in need to execute a Power of Attorney and / or Affidavit to give to a Bank in India for some banking transaction, then how should he move and act in the Foreign Country so that such power of attorney and / or Affidavit be legally effectual in India
Answer- The Power of Attorney / Affidavit be executed before the Diplomatic and Consular Officer.
1. Section 3 of the DIPLOMATIC AND CONSULAR OFFICERS (OATHS AND FEES) ACT, 1948 which reads as under:-
“ Every diplomatic or consular officer may, in any foreign country or place where he is exercising his functions, administer any oath and take any affidavit and also do any notarial act which any notary public may do within a State; and every oath, affidavit and notarial act administered, sworn or done by or before any such person shall be as effectual as if duly administered, sworn or done by or before any lawful authority in a State”.
1.1. By the said provision, the Diplomatic and Consular Officers have been empowered to administer oath and take any affidavit and also to do any notarial act in any foreign country which a Notary Public in India may do. The documents notarized by such officers would be considered as validly notarized in India. The notarial act of the Diplomatic or Consular Officer of India in the foreign country is made as effectual as the notarial act of any Notary in India.
1.2. In this connection, it is noteworthy that section 18 (1) of the Indian Stamp Act (which reads:- “Every instrument chargeable with duty executed only out of India ………may be stamped within three months after it has been first received in India” ), is not applicable if a document is executed outside India before by a Consular Officer thereat in terms of section 3(1) of the DIPLOMATIC AND CONSULAR OFFICERS (OATHS AND FEES) ACT, 1948.
2. In this connection 85 of the Evidence Act is also relevant which provides that if a power of attorney is executed before and authenticated by a notary public, the court shall presume as to its execution and authentication. Such power of attorney is not required to be registered.
3. If a power of attorney is executed before and authenticated by a Consular Officer in a foreign country then such POA shall be as effectual as it has been executed before and authenticated by a notary public in India, and such POA shall also not be required to be stamped and registered in India.
Summary of Question- Return of Mortgaged Deed on Succession Certificate
Question – Whether a bank is leggaly bound to return sale deed (which was deposited by a deceased borrower as an equitable mortgage) on the basis of Succession Certificate to a person who has obtained succession certificate in his favour.
1. Answer to the question mainly depends on the issue whether a succession certificate can be granted in respect of an immovable property.
1.1. In this connection, it is relevant to refer to a Division decision of the Hon’ble Kerala High Court reported in AIR 2006Ker 255. In this case a petition was filed under Sections 371 and 372 of the Indian Succession Act praying for a succession certificate in respect of certain bank deposits and in respect of some landed property. The court below allowed the petition granting a succession certificate in respect of the bank deposits but disallowed relief in respect of the immovable property. Aggrieved by that part of the order which has declined to grant a succession certificate in respect of the immovable property, appeal was preferred to the High Court.
2.2. The Hon’ble Court held that the court below was perfectly justified in declining to grant a succession certificate in respect of the immovable property. Following observation from the judgment is noteworthy:
“ A reading of Sections 370 and 372 of the Act, particularly, Clause (f) of Sub-section (1) of Section 372 of the Act, will show that a succession certificate can be applied for only in respect of debts and securities . The expression "Debt" has not been defined under the Act. The said expression has not been defined under the General Clauses Act as well. If so, one has to go by the ordinary meaning of the said expression. A debt means any pecuniary liability whether payable in presenti or in future to another in return for money, services, goods or any other obligation . A debt is also property in the form of a chose in action and is heritable and assignable as understood in law. In the case of securities Sub-section 2 of Section 370 of the Act enumerates the various securities envisaged by the section. They are as under:
(a) any promissory note, debenture, stock or other security of the Central Government or of a State Government;
(b) any bond, debenture, or annuity charged by Act of Parliament (of the United Kingdom) on the revenues of India;
(c) any stock or debenture of, or share in, a company or other incorporated institution:
(d) any debenture or other security for money issued by, or on behalf of, a local authority;
(e) any other security which the (State Government) may, by notification in the Official Gazette, declare to be a security for the purposes of this Part.
The fact that a succession certificate can be issued only in respect of a debt or security is further reinforced from the wording of Sub-section (3) of Section 372 which clarifies that an application for a succession certificate can be made in respect of any debt or debts due to a deceased creditor or in respect of portions thereof.”
Summary of Question- Compensation under RTI Act.
Question – Whether compensation can be ordered by Information Commission in case of complaint.
The Hon'ble Delhi High Court in LPA No. 195 of 2011, decided on 09.4.2013, observed and held as quoted below :
" It is quite evident from a perusal of the above referred provisions contained in Section 19 of the Act that compensation to the complainant for any loss or other detriment suffered by him can be awarded by the Commission only while deciding an appeal filed before it. Similar power can also be exercised by the State Information Commission, while passing an order in appeal preferred before it. The aforesaid Section does not provide for grant of compensation merely on the basis of a complaint made to the Commission, without an appeal having been preferred to it.”
Summary of Question- Agreement stamped with stamp of Improper description
Question – Whether an agreement stamped with stamp of improper description would be valid.
Answer- No. It will be valid only after the collector certify by endorsement that it is duly stamped as per Stamp Rules applicable in the Stated concerned.
1. There is a case reported in (2007) 8 SCC 514 decided a three judge bench of the Hon'ble Supreme Court. This case pertained to the State of Madhya Pradesh in which an agreement for tenancy was affixed with a notarial stamp of Rs.4/- whereas under Indian Stamp Act, an agreement of this nature required affixture of a stamp of Re.1/- under Schedule I, Item 42 of the Stamp Act (hereinafter called the Act) .
2. The Apex Court referring to the Rule 19 of the Madhya Pradesh Stamp Rules, 1942 [which reads -When an instrument bears a stamp of proper amount but of improper description, the Collector may, on payment of the duty with which the instrument is chargeable, certify by endorsement that it is duly stamped:
Provided that if application is made within three months of the execution of the instrument, and Collector is satisfied that the improper description of stamp was used solely on account of the difficulty of inconvenience of procuring one of the proper description, he may remit the further payment of duty prescribed in this rule.] observed and held as quoted below:
“13. Section 37 of the Act would be attracted where although the instrument bears a stamp of sufficient amount but such stamp is of improper description, as in the present case where the proper stamp duty of Re.1/- under the Act has not been paid but a notarized stamp of Rs.4/- was affixed on the document. The sufficient amount of the stamp duty has been paid but the duty paid by means of affixture of notarized stamp is of improper description. By virtue of Rule 19 of the Madhya Pradesh Stamp Rules, 1942, the Collector of Stamp is authorized to receive the proper stamp duty on an instrument which bears a stamp of proper amount but of improper description, and on payment of the adequate duty chargeable under the Act he would certify by endorsement on the instrument that the instrument is duly stamped. Under the proviso to the Rule, the Collector may pardon the further payment of duty prescribed in this Rule provided the person holding the original instrument moves the Collector within three months of the execution of the instrument for certification by endorsement and the Collector is satisfied that the stamp of improper description was used solely on the account of the difficulty or inconvenience of the holder of the instrument to procure the adequate stamp duty required to be paid on the instrument…………..”
3. Akin to the Rule 19 of the Madhya Pradesh Stamp Rules , there may be similar Rules in other States also.