Bank of Bihar Ltd. Vs. Mahabir Lal
& Ors  INSC 20 (7 February 1963)
07/02/1963 MUDHOLKAR, J.R.
CITATION: 1964 AIR 377 1964 SCR (1) 842
Negotiable instrument--Firm presents cheque
to Bank--Amount kept in the hands of Potdar of Bank-If payment to firmStatement
in judgment about happening in court---Challenge if and when
permitted-Vicarious liability for criminal act of servant-Negotiable
Instruments Act, 1881 (XXVI Of 1881), ss. 85, 118.
Respondents 1 and 2 carried on business under
the name and style of M/s.Jogilal Probhu Chand. Under a cash credit agreement
in favour of the Bihar Sharif Branch of the Bank and on the strength of a
promissory note executed by the firms, the firm drew a cheque on the Bank which
was passed for payment. The High Court found that the money was not paid to the
firm but was kept in the hands of the Potdar a servant or agent of the Bank for
being paid to another firm at Patna. This person accompanied the respondents up
to Patna but failed to meet the respondents at the shop of the Patna firm which
was the place agreed upon. Before the High Court the counsel for the present
appellant conceded that the Potdar had taken the money with him.
Before this Court it was contended on behalf
of the appellant that no concession was made as stated in the judgment of the
High Court, to the effect that the Potdar took the money with him. It was
further contended that the payment to the Potdar should be deemed to be payment
to the firm. Reliance was alsoplaced on ss. 85 and 118 of the Negotiable
instruments Act,1881. Finally it was contended that the Bank could not be held
responsible for the money misappropriated by the Potdar because his act was a
Held, that where a statement appears in the
judgment of a court that a particular thing happened or did not happen before
it, it ought not ordinarily to be permitted to be challenged by a party unless
both parties to the litigation agree that the statement is erroneous.
843 The money not having passed into the
actual custody of the firm or that of the custody of a person who was servant
or agent of the firm, the firm cannot be held liable for it.
In order to avail of the provisions of s. 85
of the Negotiable Instruments Act it has to be established that payment had in
fact been made to the firm or to a person on behalf of the firm. Section 118 of
the Act was held not to have any bearing upon the case at all.
Jugjivandas Jamnadas v. The Nagar Central
Bank, Ltd. (1925) I. L. R. 50 Bom. 118, distinguished.
Vicarious liability may in appropriate cases,
rest on the master with respect to his servant's acts but it cannot possibly
rest on a stranger with respect to the criminal acts of a servant of another.
Gopal Chandra Bhattacharjee v. The Secretary
of State for India (1909) I. L. R. 36 Cal. 647 and Cheshire v. Bailey,  1
K. 9. 237, distinguished.
CIVIL, APPELLATE JURISDICTION : Civi Appeal
No. 340 of 1960.
Appeal from the judgment and decree dated
March 11, 1958, of the Patna High Court in F. Appeal No. 230 of 1950.
Sarjoo Prasad and R. C. Prasad, for the
N.C. Chatterjee, M. K. Ramamurthy, R. K.
Garg, S. C. Agarwala and D. P. Singh, for the respondent No. 1.
1963. February 7. The judgment of the Court
was delivered by MUDHOLKAR, J.-This is an appeal by a certificate granted by
the Patna High Court allowing the appeal preferred before it by the defendants
1 and 2 and dismissing the claim of the plaintiff Bank (the appellant before
us) for a sum of Rs. 35,000/-.
844 According to the Bank, defendants 1 and 2
carried on business at Bihar Sharif under the name and style of Messrs.jogilal
Prabhu Chand. On February 17, 1941, they,executed a cash credit agreement in
favour of the Bank under which cash credit facilities were sanctioned up to a
limit of Rs. 50,000/against cloth bales on certain terms.
Under that agreement a sum of Rs. 15,000/was
advanced to the Firm on that very day. On August 28, 1947 the Firm executed a
promissory note in favour of the Bihar Sharif branch of the Bank for Rs.
50,000/and approached the Manager for immediate advance of Rs. 35,000/as they
required that amount for paying the price of certain cloth allotted to them by
M/s. Manohardas jainarain, wholesale dealers of Patna. Then according to the
Bank, an arrangement was entered into between the Firm and the Manager of the
Bihar Sharif branch of the Bank under which the Firm was allowed to draw on the
security of the promissory note on its agreeing to pledge the bales of cloth as
further security after they were received from the wholesalers. On the basis of
this agreement, the Firm drew a cheque for Rs. 35,000/on August 29, 1947 in
favour of the second defendant, which was, according to the Bank, actually
passed for payment by the Manager of the Bihar Sharif Branch of the Bank and
the amount was paid to the second defendant. Further, according to the Bank, on
August 30, 1947 a "false and mischievous" telegram purporting to be
from defendant No. 2, Mahabir Lal, was received by the Manager of the Bihar
Sharif branch of the Bank saying that the Potdar of the Bank who was sent along
with him with the money by the Manager had not deposited it and that the Potdar
could not be traced. The telegram contained a further request that the amount
of Rs. 35,000/be made available to the firm immediately. On September 1, 1947
the Manager informed the Firm that the allegations in the telegram were
altogether false. -On September 9, 1947 the Manager 845 received a letter
signed by Mahabir Lal alleging that in collusion with the Potdar he, (the
Manager) had misappropriated the sum of Rs. 35,000/-. These allegations are
said by the Bank to be false and the suit 'Out of which this appeal arises was
instituted for the recovery of the amount for which the cheque was drawn by the
Firm on August 29, 1947 and actually cashed by the Manager.
The defendants denied the claim of the Bank
According to them, the suit was a
counterblast to a criminal case instituted by them against the Managerand the
Potdar of the Bihar Sharif brunch of the Bank charging them with
misappropriation. While the defendants admitted that they had made arrangements
with the Bihar Sharif branch of the Bank for a loan of Rs. 35,000/as alleged by
the Bank for taking delivery of 42 bales of cloth which had been allotted to
them by M/s. Manohardass jainarain, wholesale dealers of Patna, they contended
that the second defendant was informed that under the rules the Bank could
advance a loan only upon the goods actually kept in the custody of the Bank.
They further alleged that the Manager said that in order to oblige the Firm he
was prepared to advance, Rs. 35,000/provided certain conditions were fulfilled.
Those conditions were : (1) that the Firm should execute a loan bond as well as
a promissory note for Rs. 50,000/as further security ; (2) that the firm should
draw a cheque for Rs, 35,000/endorsed to self ; (3) that the second defendant
should further agree that instead of taking the amount in cash with himself he
should let the amount be sent by the Manager, Mr. Kapur, through Ram Bharosa
Singh, Potdar of the Bank for being paid to M/s. Manohardass jainarain, and (4)
that after paying the amount the said Potdar would take delivery of the bales
of cloth allotted to the Firm and bring them to the premises of the Bank at
Bihar Sharif where they would remain pledged until the loan was repaid.
846 The Firm thus denied that the sum of
Rs.35,000/was actually paid or advanced to them by the Manager of the Bihar
Sharif branch of the Bank. According to the Firm, a cheque was drawn at 5.00 a.
in. on the next morning and after it was handed over to Mr. Kapur, he went
inside the treasury of the Bank alone with the potdar and returned with
something wrapped in a gamchha and tied it round the waist of the Potdar and
said that the latter would hand over the money to M/s. Manohardass jainarain,
take delivery of the goods and bring them to the premises of the Bank where
they would be kept in pledge. Thereafter the Potdar and the second defendant,
along With one Mahadeo Ram, a servant of the Firm left for Patna by bus. On
reaching the ekka stand of Patna, the Potdar asked the second defendant to
proceed to the premises of M/s. Manohardas jainarain saying that as he had to
go to, the Patna City Branch of the Bihar Bank, he would follow later. He
assured the second defendant that he would bring along with him the sum of Rs.
35,000/-. The second defendant then went to the promises of M/s. Manohardass
jainarain and waited for the Potdar to turn up.
As he did not come within a reasonable time,
he went to the Patna City Branch of the Bank only to discover that the Potdar
was not there either. It was after this that the telegram mentioned in the
plaint was sent to Mr. Kapur and a report lodged with the Police at Patna. The
second defendant says that on his return to Bihar Sharif on August 30, he saw
Mr. Kapur and told the whole story to him whereupon Mr. Kapur said that he
should not worry and that he would see to it that the bales were released soon
by M/s. Manohardass jainarain. Nothing, however, happened and, therefore, the
defendants filed a criminal complaint against Mr. Kapur a,; well as the Potdar.
Eventually, however, the complaint filed by the defendants failed.
847 In its judgment the trial court has said
"Moreover even if it be accepted for the sake of argument that Ram Bharosa
Singh went with the money along with Mahabir Lal as alleged according to the
term of the contract he would be deemed to be a temporary servant of Mahabir
Lal for that purpose which fact is evident from the defendants' evidence also
as according to their evidence Mahabir Lal met the cost of his Nashta
(breakfast) and fare of the bus." Apparently because of this, when the
Firm's appeal was being argued before the High Court, the Bank's counsel Mr. B.
De conceded that Ram Bharosa Singh, Potdar,
did take the money to Patna where he went along with the second defendant,
which implies that the defendant No. 2 was not actually paid the amount for
which the cheque was drawn by the Firm. In this connection we would quote the
following statement appearing in the judgment of the High Court "Mr. B. C.
De, who appeared for the plaintiff conceded at the outset that, in fact, Rambharosa
Singh, Potdar, had taken the money to Patna City to pay to the Firm of
Manohardass jainarain as is the case of the contesting defendants. He however,
urged that, even then, the defendants would be liable for the claim of the
plaintiff. He urged that Rs.
35,000/had gone out of the coffers of the
Bank against the cheque for Rs. 35,000 issued by the defendants. The Bank was,
therefore, not responsible as to who, in fact, got the money after it was duly
presented and honoured by the Bank." The High Court then pointed out that
Mr. De placed reliance upon certain decisions of the Calcutta and Bombay High
Courts and s. 85 of the Negotiable 848 Instruments Act. Before us, however, it
is urged on behalf of the Bank that no such concession was made by Mr. De. The
second dependent has filed an affidavit which counters the Statement made on
behalf of the Bank. In our opinion where a statement appears in the judgment of
a court that a particular thing happened or did. not happen before it, it ought
not ordinarily to be permitted to be challenged by a party unless of course
both the parties to the litigation agree that the statement is wrong, or the
court itself admits that the statement is erroneous. If the High Court had
proceeded on an erroneous impression that Mr. De had conceded that the money
was taken along with him by Ram Bharosa Singh to Patna, there was nothing
easier for the Bank than to prefer an application for review before the High
Court after the judgment was pronounced or if the judgment was read out in
court immediately draw the attention of the court to the error in the
Nothing of the kind was done by the Bank. It
is too late for the Bank now to say that the statement was wrong. It appears to
have been argued on behalf of the Bank in the trial court alternatively that
even on the assumption that the money was taken to Patna by Ram Bharosa Singh,
the suit must be decreed. We, therefore, see nothing strange in Mr. De making a
concession of the kind attributed to him by the High Court. In the
circumstances we decline to go behind what is contained in the judgment of the
High Court, quoted earlier.
The next question is whether the sum of Rs.
35,000/could be said to have been paid by the Bank to the Firm. Upon the
admitted position that the amount of Rs. 35 000/was not actually received by
the Firm in the sense that it was not handed over to the second defendant who
had presented the cheque. could it be said that it must be deemed to have been
paid to the firm since it was handed over 849 to the Potdar for taking it to
Patna ? It is no doubt true that the Potdar did accompany the second defendant
to Patna but it is difficult to hold that he being a servant or an agent of the
Bank could also be said to have been constituted by the Firm as its agent for
carrying the money to Patna. It is not the Bank's case that it was at the
suggestion of the defendant No. 2 that the money was handed over to the Potdar.
Perhaps it was not the normal duty of a Potdar to carry money on behalf of the
Bank for payment to a party at its place of business. But even if it is not, we
cannot overlook the fact that the arrangement which was arrived at between the
Firm and Mr. Kapur was also an unusual one, Mr. Kapur admittedly had no
authority to pay Rs. 35,000/to the Firm before the goods or documents of title
relating to the goods were placed in the custody of the Bank. Since Mr. Kapur
wanted to help the Firm without at the same time breaking the rules of the
Bank, what he must have intended in handing over the money to the Potdar was to
constitute him as the agent of the Bank for the purpose of paying the money to
the Firm of Manohardass.jainarain and taking simultaneously delivery of the
goods and the documents of title relating to the goods from that Firm. There
would have been no point in the, Potdar accompanying the second defendant to
Patna and carrying money along with him if he were not to be the agent of the
Bank. It is the Firm's case that the second defendant did not go alone to the
Bank on the morning of August 29, but that he went along with his servant
Two of them being together, they could surely
not have wanted a third person to go along with them.' just for carrying the
cash. We are therefore, of the opinion that the money not having passed into
the actual custody of the Firm or that of the custody of a per-son who was a
servant or agent of the Firm, the Firm cannot be held liable for it.
850 In regard to s. 85 of the Negotiable
Instruments Act, 1881 (26 of 1881) and the decision of Jagjivandas, Jamnadas v.
The Nagar Central Bank Ltd., (1), which is founded on that section upon which
reliance was placed before the High Court, it is sufficient to say that before
the provisions of s. 85 can assist the Bank, it had to be established that
payment had in fact been made to the Firm or to a person on behalf of the Firm.
Payment to a person who had nothing to do with the Firm or a payment to an
agent of the Bank would not be a payment to the Firm. Section 118 of the Negotiable
Instruments Act on which reliance was placed before us does not have any
bearing upon the case at all.
It was then urged on behalf of the Bank that
even assuming that the money was misappropriated by the Potdar the Bank could
not be held responsible for his act because his act was a criminal act. In
support of this contention the learned counsel relied upon the decisions in
Gopal Chandra Bhattacharjee v. The Secretary of , State for India (1), and
Cheshire v. Bailey(2). The rule of law upon which these decisions are based is
that the liability of the master for the misconduct of the servant extends only
to the fraud of his servant committed in the course of his employment and for the
master's benefit and that a master is, not liable for the misconduct of the
servant committed for the servant's own private benefit. It is difficult to
appropriate how these cases are of any assistance to the Bank. Here, what the
Bank wants to do is to fasten liability upon the Firm with respect to the
amount for which it had drawn a cheque. Before the Firm could be made liable,
the amount for which the cheque was drawn had to be shown to have been paid to
the Firm. On the contrary it was handed over by the Bank to its Potdar avowedly
with the object of paying it to the firm of Manohardass jainarain, but was not
in fact so paid by him. Assuming that he misappropriated the money how (1)
(1925) I.L.R. 50 Bom. 118. (2) (1900) I.L.R. Cal. 36 647.
(3)  1 K.B. 237.
851 can the Bank seek to hold the Firm of the
defendants liable? This is not a case where the defendants are seeking to hold
the Bank liable for a criminal act of one of its servants or employees. But it
is a case where the Bank wants to fasten liability on the Firm for the criminal
act of the Bank's own servant. Such a proposition is insupportable in law. For,
vicarious liability may, in appropriate cases, rest on the master with respect
to his servant's acts but it cannot possibly rest on a stranger with respect to
the criminal acts of a servant of another. The principle on which the master's
liability for certain acts of the servant rests is that the servant, when he
commits such act, acts within the scope of his authority. If the servant was not
acting within the scope of his authority, the master would not be liable and it
is the person who did the particular act, that is the servant, would alone be
liable. If a third party sustains damage or loss by reason of an act of the
servant, he can hold the servant liable and also if the servant's act falls
within the scope of his duties or authority, the master as well. That principle
can obviously have no application for founding a liability against a stranger
from whom the servant can in no sense be regarded as deriving any authority. We
arc, therefore, clear that whether the money had been misappropriated, by the
Potdar or by the Manager, it is the Bank who is their employer that must bear
the loss. The drawers of the cheque, that is, the Firm to whom no part of the
money was paid by the Bank cannot be held liable to make it good to the Bank.
For these reasons we affirm the decree appealed from and dismiss the appeal