BANK OF INDIA LTD Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) THIS is a summons taken out by the Bank of India Ltd. , (hereinafter called the claimants) for an order against the Official Liquidator as the liquidator of the National Security Bank Ltd. , (hereinafter called the bank) to pay to the claimants an aggregate sum of Rs. 5,000 on the ground that such sum was held by the bank in trust for the claimants. The amount represents the proceeds of three cheques for RS. 1000, Rs. 2,000 and Rs. 2,000 respectively drawn on the Talod branch of the bank, which the claimants sent to the head office of the bank in Bombay for collection. The cheques were duly forwarded by the bank to their branch at Talod. The Talod branch debited the amounts to the account of its customer and credited them to the account of the head office and forwarded two credit notes in respect thereof to the head office. These credit notes are dated 15th and 21st February 1947, respectively; but they did not reach the head office until after they suspended payment on 21st February 1947. The earlier of these credit notes bears an endorsement that it was received on 26th February 1947. The other credit note bears no endorsement but could not obviously have been received on 21st February 1947, which is the date which it bears. On 21st February 1947, a petition for winding up was presented to this Court on which an order for compulsory winding up of the bank has been made, which in law relates back to the time of the presentation of the petition.

(2.) WHERE a bank collects a cheque, it may do so as a holder for value or as a mere agent of the holder for the purpose of collection. In the latter case, it is well established that the proceeds of the cheque are held by the bank as a trustee for the holder of the cheque. See Indian Hume Pipe Co. , Ltd. v. Travancore National and Quilon Bank, Ltd. , 1942-2 M. L. J. 128 : (A. I. R. (29) 1942 Mad. 646. WHERE a customer pays the cheque into his account with a bank, a question may well arise as to whether the bank received it as holders for value or as mere agents for collection. See Farrow's Bank Ltd. , In re, (1923) 1 Ch. 41 : (92 L. J. ch. 153 ). But inasmuch as, in the present case, the claimants had no account with the bank, no such question arises. Moreover, the letters with which these cheques were forwarded to the bank for collection have been produced and they are in these terms : "we beg to enclose a cheque for Rs. . . . . . . for collection on yourselves and request you to remit the proceeds less your charges by a cheque drawn in our favour on a bank in Bombay. " It cannot, therefore, be disputed that in the present case the bank acted as the agents for collection of the claimants in respect of these three cheques.

(3.) BUT there is a further argument on behalf of the Official Liquidator that the cheques cannot be said to have been collected when the Talod branch debited its customers and credited its head office; they can only be considered as collected when the credit notes were received and accepted by the head office. If the cheques had been drawn not on a branch of the bank but on a different bank, then it may have been that until the credit notes sent by the Talod bank were accepted by the bank in liquidation there was no receipt of money by the latter. Thus, in the passage above cited Sir Montague Smith observed (p. 330) : "if they had been separate and distinct banks, it may be that the remittance by the Murrumburrah Bank to the bank at Sydney of this draft to be put to the credit of the New South Wales Bank, would, if so accepted, have been equivalent to a receipt on the part of the Sydney Bank of money from the Murrumburrah Bank to be held for the New South Wales Bank " It would appear from this passage that there must be acceptance of the credit (which incidentally is not the same thing as acceptance of a credit note) by the collecting bank before it can be said that they received money or its equivalent. In the case of distinct banks, unless there is any binding agreement between them, the collecting bank may well refuse to accept the credit and insist on payment in cash; and therefore until it accepts the credit, it cannot be said to have realised the amount of the cheque. Is the position any different when the cheque is drawn not on a separate bank but on a branch of the collecting bank ?