BOMBAY MERCANTILE BANK LTD Vs. ORIOL INDUSTRIES LTD

JUDGEMENT

(1.) THIS appeal raises a very interesting question relating to the law of banking. The respondent company was incorporated on 15-5-1945,' and Poddar Chacko and Co. , were appointed as managing agents. On 21-5-1945, the company passed a resolution to open an account with the appellant bank and pursuant to that resolution an account was opened on 28-5-1945. Between 28-5-1945, and 31-7-1945, twenty eight cheques were drawn on this account aggregating to Rs. 28,882-13-0. On 28-8-1946, the company passed a special resolution for winding up and appointed one Rao as liquidator. On 28-9-1948, the company by its liquidator filed the present suit from which this appeal arises and in the suit the company sought to recover from the bank the sum of Rs. 28, 882-13-0 which had been paid on the cheques drawn upon it. On 25-9-1953, the plaint in the suit was amended as a result of the Court holding that the special resolution for winding up was null and void. The amendment was to strike out the name of the liquidator and to make the suit as if it was instituted by the company itself. Mr. Justice Tendolkar passed a decree in favour of the company in respect of one cheque for Rs. 20,000 and non-suited the company in respect of the other cheques aggregating to Rs. 8, 882-13-0. The bank has come in appeal against the judgment of Tendolkar J. in respect of the sum of Rs. 20,000 and the respondent company has filed cross-objections in respect of the sum of Rs. 8,882-13-0 in respect of which no relief was given by the learned Judge.

(2.) IN limine Mr. Modi has contended that the suit filed by the company was barred by limitation, and the contention was that the suit should be deemed to have been instituted on 25-9-1953, when the plaint was amended. Mr. Modi says that when the suit was filed on 28-9-1948, the liquidator had no authority to file the suit, and if the suit was filed on 25-9-1953, it would be clearly barred because the cause of action would accrue to the company when it demanded the refund of the moneys paid by cheque on 28-2-1946, and that demand was refused by the bank. The question whether the suit is barred by limitation or not depends upon the provisions of Section 22, Limitation Act. That section provides:

(3.) TURNING first to the important documents in the case, we have in the first place the resolution passed by the company on 21-5-1945, and that re-solution authorises the appellant bank to honour cheques, bills of exchange and promissory notes drawn, accepted or made on behalf of the company by the managing agents Poddar Chacko and Co. , by both the directors of the managing agents' firm, namely, Mr. Keshavdeo Poddar and Mr. M. J. Chacko and to act on any instructions so given relating to the account whether the same be overdrawn or not, or relating to the transactions of the company. We have then the account opening form where the name of the account is stated to be the Oriol Industries Limited and the form bears the signatures of Mr. Chacko and Mr. Poddar. They have also signed the specimen signature slip and to this form is annexed a copy of the resolution to which reference has just been made. We have then the account opened in the appellant bank and the account is headed "the Oriol Industries Ltd. " It is stated in the account that instructions are that the account will be operated by Poddar and Chacko jointly. We have also the entry in the appellant's book relating to the issue of cheques which shows that one cheque book was issued bearing cheques Nos. 4276 to 4300 On 28-5-1945, and another cheque book bearing cheques Nos. 4501 to 4524 bearing the date 18-6-1945. It is not in dispute that the cheques in suit, 28 in number, were all drawn from these two cheque books. The contention of the respondent company was that the name of the company did not appear on any of the cheques and the cheques were not drawn by or on behalf of the company. It was solely on this ground that the respondent company contended that the cheques were improperly honoured by the bank and the bank was liable to refund the amount of the cheques. A plea of negligence against the bank was made in the plaint, an issue was raised at the trial, but that issue was expressly given up by the respondent company, and it is pertinent to note that in the plaint there is no averment at all of any mala fides against the bank. It is on these facts and these documents that the interesting question arises as to whether a bank which honours a cheque pursuant to the instructions issued by a corporation is liable to refund the amount of the cheque if the cheque on the face of it does not purport to have been drawn by the company or on behalf of die company or on account of the company. The respondent company is right when it urges that when you look at the cheque of Rs. 20,000 in respect of which the appellant has preferred this appeal -- and that is also true of the other cheques -- there is no indication that the cheque was drawn by the respondent company. It is signed by Poddar and Chacko, but the signatories do not state that they arc drawing or signing this cheque on account 01 or on behalf of the respondent company. It is by reason of the form in which the cheque is drawn that the respondent company puts forward the contention that the company cannot be bound by any negotiable instrument which on the face of it docs not make it clear that it was drawn by or on account of the company itself. The learned Judge accepted this contention of the respondent company, but he took the view that there was an equitable principle which, in the case of cheques aggregating to Rs. 8,882-13-0, came to the relief of the bank, and die equitable' principle was that if it is established that die cheques honoured by the bank although the cheques were not in proper form were in fact utilized for the purpose of discharging the liabilities of the company, then equity would prevent the company from recovering the amount from the bank. The learned Judge held that to the extent of Rs. 8,882-13-0 the bank had established that this amount had in fact been utilized to discharge the liabilities of the company, and with regard to Rs. 20,000 the learned Judge held that the bank had failed to prove that this amount had also been utilized to discharge the liability of the company. Therefore, as pointed out, the learned Judge passed a decree in favour of the company with regard to this sum of Rs. 20,000.