SECRETARY OF STATE Vs. BANK OF INDIA LTD

JUDGEMENT

(1.) This is an appeal from a judgment of the High Court in appeal at Bombay, which affirmed a judgment of Wadia, J., as trial Judge. These judgments rejected the claim of the appellant to be indemnified by the respondents against a liability which he had incurred and been compelled to satisfy under the circumstances of the case which were shortly as follows. A lady named Gangabai was the indorsee and holder of a Government promissory note for Rs. 5000. A broker named Acharya, having possession of the note on the lady's behalf, forged her indorsement to it in his favour and indorsed it for value to the respondents. The respondents acting in good faith applied to the Public Debt Office under the Indian Securities Act, 1920 to have a renewed promissory note payable to them issued in exchange for the note which the respondents gave up in exchange. The lady, becoming aware of the fraud practised by Acharya, and the dealing with her note on the part of the respondents and the appellant, which constituted a conversion of her property by either or both as well as by Acharya, sued the appellant in conversion and recovered the appropriate damages. The appellant then brought the present action against the respondents, claiming to be indemnified against the loss thus sustained by him on the principle that the Public Debt Office had issued the renewed note at the request of the respondents and was accordingly entitled to be indemnified against the damage resulting from the fact that what had been done involved an injury to a third party's rights. So far as the renewed note was concerned, it was rightly accepted on both sides before their Lordships that it constituted a new contract between the Government and the respondents, which was not affected by the circumstances under which it was issued and certain contentions raised in the Courts below were abandoned by the appellant. Only questions of liability and of principle were argued before their Lordships, matters of amount being left for subsequent settlement if the necessity should arise.

(2.) It is convenient first of all to refer to the material sections of the Indian Securities Act, 1920 which having replaced the repealed Act of 1886, dealing with the same matters, now regulates the legal position of these Government promissory notes. Such notes circulate in large numbers in India; hence the importance to the parties and to the Indian public generally of the question of principle involved in this appeal. It appears from the print of the note in question contained in the record, that the note was originally issued in 1854 and payable to a named payee or order. The actual note in question was a renewal note which had been issued in April 1925. On its back spaces had been provided for 10 indorsements. The forged indorsement occupied the fifth space, and Acharya's indorsement to the respondents occupied the sixth space. At the foot of these spaces was a receipt signed by the respondents for a renewed note in lieu of the note. It is clear that the system of renewing notes is largely used in ordinary practice. It is obviously convenient to have a clean note, in addition to the circumstance that in the course of years the spaces available for indorsements become exhausted. And the holder of a renewed note, obtains a new promise from the Government free from any equities or disputes which might have attached to the prior note. S. 16 of the Act provides in terms that a renewed Government promissory note is to be deemed to constitute a new contract between the Government and the person to whom it is issued and all persons deriving title through him.

(3.) The Act contains express provisions for regulating the issue of renewed notes. In particular, S. 12 provides that subject to the provisions of S. 13, a person claiming to be entitled to a Government promissory note may on applying to the prescribed officer and on satisfying him of the justice of his claim and delivering the promissory note receipted in the prescribed manner, and paying the prescribed fee, if any, obtain from such officer a renewed promissory note payable to him. S. 13 deals with a case where there is a dispute as to the title to one of these notes, and enables the officer to refuse to act save on a judicial decision or on the result of a formal enquiry. S. 21 on which the judgment under appeal was based, provides that notwithstanding anything in certain specified sections, including S. 12, the prescribed officer might in any case arising, (i) issue a renewed security upon the applicant giving the prescribed indemnity against the claims of all persons claiming under the security so renewed, or (ii) refuse to issue a renewed security unless such indemnity is given. Rules have been made under the Act to "prescribe", the indemnity which may be exacted, which is to be a bond of the applicant with two sureties in double the face amount of the note. In the present case the Government officer when issuing the renewed note to the respondents, did not exact a security under S. 21. The question is whether the appellant is debarred from relying on an indemnity implied under the Common law of India which in this respect is identical with that of England. The statement of the principle under which such an indemnity is implied is stated by Lord Halsbury L. C. in Sheffield Corporation V/s. Barclay, (1905) AC 392 to be correctly expressed in a quotation from counsel's argument in Dugdale V/s. Lovering, (1875) LR 10 CP 196 which runs as follows :