MERCANTILE BANK OF INDIA LIMITED Vs. AJMASCARENHAS

JUDGEMENT

(1.) This appeal raises one of those difficult questions where one of two innocent parties has to suffer for the fraud of a third, On the evidence before us it is clear that the plaintiff has been defrauded by his trusted agent one Fernandes, who has forged the endorsements on certain Improvement Trust debentures entrusted to his charge and has since absconded. The modus operandi of the fraud was as follows. Taking the old debenture No. 2483 as an example, this debenture (which was transferable by endorsement) wan originally issued on September 29, 1903, by the Trustees for the Improvement of the City of Bombay in favour of the Bank of Bombay or order. Subsequently by endorsement this debenture became payable to the plaintiff or order. Fernandes at a later stage forged the signature of the plaintiff so as to make the debenture payable to himself (Fernandes) or order. Then subsequently after a transaction with the Bank of India, he endorsed the debenture in favour of the Alliance Bank of Simla, and they in their turn renewed the debenture by giving it up together with a companion debenture No. 2484 and receiving in lieu of those two debentures a new debenture No. 5286, dated December 13, 1918, and payable to the Alliance Bank of Simla or order for Kb. 1,000 the aggregate amount of the two old debentures.

(2.) An important point to notice is that the Alliance Bank thus became possessed of a new debenture. They in their turn endorsed the new debenture over for value to the Mercantile Bank or order, who are the 3 defendants and the present appellants. Subsequently, the plaintiff discovered Fernandes fraud, and he brought this suit against Fernandes and the Alliance Bank and the Mercantile Bank. Fernandes, as I have already said, absconded and did not appear at the hearing. The Alliance Bank have been struck out of the proceedings, and the remaining defendant is the Mercantile Bank.

(3.) The plaint was framed on the basis that the plaintiff was the owner of the thirty-one old debentures as well as of the twelve new ones. He, accordingly, claimed inter alia that the Mercantile Bank might be ordered to transfer and hand over to him all those debentures or alternatively to pay him Rs. 14,800 being the value thereof together with all interest thereon. The defence of the Mercantile Bank is really set out in their solicitors letter of December 22, 1924, where they say that the renewed debentures were issued to the Alliance Bank, and by that Bank endorsed to our clients who obtained possession of them for value without notice of any irregularity or fraud. They claim to hold them as security for the amount owing to them by Mr. Fernandes, and they are therefore unable to admit the right of any party to take delivery of the debentures until the amount owing to them by Mr. Fernandes has been paid of. In other words, the Bank claim to be bona fide holders for value without notice. Their transactions with Fernandes, I will deal with later.