Bihta Co-Operative Development Cane
Marketing Union Ltd. Vs. The Bank of Bihar & Ors  INSC 216 (12
12/10/1966 MITTER, G.K.
CITATION: 1967 AIR 389 1967 SCR (1) 848
CITATOR INFO :
R 1973 SC1034 (23) F 1985 SC 582 (49) R 1987
SC1603 (25) R 1989 SC 227 (32)
Bihar and Orissa Co-operative Societies Act
(6 of 1935), s. 48 as amended by Bihar Act 16 of 1948 and s. 57Dispute between
registered society and non-member-Jurisdiction of Civil Court, when ousted.
The first plaintiff was a Society registered
under the Bihar and Orissa Co-operative Societies Act, 1935, and the second
plaintiff was its Secretary. The Society had an account with the first
defendant Bank. The 6th and the 7th defendants were the joint secretary and
treasurer of the Society respectively, who were jointly authorised to operate
on the account. A sum of Rs. 11,000 was withdrawn from the account by means of
a cheque which did not come out of the cheque book of the Society but which was
a loose cheque form surrendered by an ex-constituent of the Bank. The spurious
cheque bore the signature of the 7th defendant and the forged signature of the
6th defendant. The suit against the Bank, its manager (the 2nd defendant) its
employees (the 3rd, 4th and 5th defendants) and ,defendants 6 and 7 was decreed
against defendants 1, 2, 4, 5 and 7 jointly. On appeal by the 1st and 2nd
defendants, the High Court found in favour of the plaintiffs-on the merits of
the case, but dismissed the suit on the ground that the jurisdiction of the
civil court was ousted by the combined operation of ss. 48(9) and 57 of the
On appeal to this Court, the defendants
sought to support the judgment of the High Court on the ground that the words in
Explanation (1) to s. 48(1) of the Act must be understood in their widest
amplitude, so that, even if a dispute between a registered society and a
non-member did not fall within any of the categories 48(1) (a) to (e), it would
still be within the purview of the section by reason of the Explanation.
HELD: The judgment of the High Court should
be set aside. [858 A] (i) The scheme of s. 48(1) is that certain disputes
touching the business of a registered society should be referred to the
Registrar and not be taken to civil courts and made the subject matter of
prolonged litigation. Before the Act was amended by Bihar Act 16 of 1948
disputes in which a Society might be involved with non-members (except as
sureties) were not within the section. Therefore, the Explanation to the
section as it then stood, made no mention of non-members as such and only
served to clear up the doubt as to whether a dispute was referable to the
Registrar when the debt or demand was admitted and the only point at issue was
the ability to pay or the manner of enforcement of payment. The amendment in
1948, introduced cl. (e) in s. 48(1) by which a dispute in which one of the
disputants was not a member of a society was also covered by the section.
But only those non-members who bad disputes
with a financing bank were made amenable to the jurisdiction of the Registrar,
and in the present case the Society was not a financing bank. Therefore cl. (e)
would not apply. Nor would the amended Explanation apply, because the
Explanation had to include non-members after the insertion of category (e) in
a. 48(1), but, by such inclusion, the Explanation did not widen the scope of s.
48(1) so as to include claims by societies against all non-members ,even if
they were not included in cl. (e). The Explanation cannot be read 849 as adding
a new head to the categories under s. 48 (1) (a) to (e) of disputes which may
be referred to the Registrar.
It must be read only so as to harmonise with
and clear up any ambiguity in the main section. [854 B, E.H; 855 A-C] Sagauli
Sugar Works (Pw.) Ltd. v. Asstt. Registrar, Cooperative Societies, Motihari,
 Supp. 3 S.C.R. 804, followed.
(ii) Because the signature of the 6th
defendant was forged, there never was any mandate by the Society to the Bank.
Therefore, there was no negligence on the
part of the Society. On the Contrary, there was negligence on the part of the
Bank in not ascertaining whether the signatures on the cheque were genuine and
the circumstances attending the encashment of the cheque showed conclusively
that the Bank was negligent and some of its officers fraudulent [857 E-G]
London Joint Stock Bank, Ltd. v. Macmillan,  A.C.
777, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 699 of 1964.
Appeal from the judgment and decree dated
April 14, 1961 of the Patna High Court in Appeal from Original Decree No. 162
A. K. Sen, B. R. L. Iyengar and A. G.
Ratnaparkhi, for the appellants.
S. V. Gupte, Solicitor-General and R. C.
Prasad, for respondents Nos. 1 and 2.
R. S: Sinha, K. N. Srivastava and K. K.
Sinha, for respondent No. 7.
The Judgment of the Court was delivered by
Mitter J. This is an appeal from a judgment and decree of the Patna High Court
on a certificate granted by it.
The main question in this appeal is, whether
the suit out of which this appeal arises was entertainable by a civil court, in
view of the provisions of s. 48(1) read with S. 57 of the Bihar and Orissa
Co-operative Societies Act, 1935. Broadly speaking, s. 48(1) enumerates
disputes between certain classes of persons and/or the societies registered
under the Act which have to be referred to the Registrar of Cooperative
Societies for adjudication and S. 57(1) provides that no civil court shall have
jurisdiction in respect of any dispute required by s. 48(1) to be so referred.
This point was not taken in the written statement of any of the defendants. The
Subordinate Judge decreed the suit against several of the defendants including
the Bank of Bihar Ltd.
On appeal, the learned Judges of the Patna
High Court concurred, in the main, with the findings of the Subordinate Judge
but gave effect to the contention raised on behalf of two of the
defendant-appellants on the basis of s. 48(9) read with s. 57 of the Act. The
appellants before this Court are the plaintiffs. The only contesting
respondents are the Bank of Bihar Ltd., Madan Mohan Pandit and Babu Lal Varma
(defendants 1, 2 and 6 in the suit).
850 In order to find out whether s. 48(1)
embraces the dispute between the parties in this case, we have to examine the
facts out of which this appeal arises. The first appellant, Bihta Co-operative
Development Cane Marketing Union Ltd.
(hereinafter referred to as the Union) is a
society registered under the Bihar and Orissa Co-operative Societies Act, 1935
(hereinafter referred to as the Act). The second plaintiff was a Secretary of
the Union at the time when the suit was filed in 1951. Under a Resolution dated
the 16th April, 1947 of the Executive Committee of the Union, the defendant No.
6, Babu Lal Varma, Joint Secretary of the Union and Ram Janame Varma, defendant
No. 7, the Treasurer of the Union, were jointly authorised to withdraw moneys
of the Union from the 1st defendant, the Bank of Bihar Ltd., with which it had
a running account. On the 26th of May, 1948, defendant No. 6 and defendant No.
7 went to the bank to encase a cheque on behalf of the Union and then they came
to learn that the funds in the account of the Union were not sufficient to meet
the cheque. It appears that on the 16th of April, 1948 a sum of Rs. 11,000/had
been withdrawn from the said account by means of a cheque which did not come
out of the cheque book of the Union and that a loose cheque form surrendered by
an ex-constituent of the bank issued to someone on the 23rd March, 1948 had
been converted into a cheque purporting to bear the signatures of defendant No.
6 and defendant No. 7. It is not necessary to state the facts in detail and it
will be sufficient to note that the spurious cheque bore the signature of
defendant No. 7 but the purported signature of the defendant No. 6 thereon was
found to be a forgery at the trial of the suit. Criminal proceedings were
started and five defendants including defendants Nos. 6 and 7 were put on
trial. Defendants Nos.
3, 4 and 5 were employees of the
Ultimately, however, all the accused were
acquitted. The suit was instituted by the two plaintiffs against seven
defendants, all of whom have already been mentioned except the second defendant
who was the Manager of the Bank and in charge of its affairs and management at
the relevant time.
The cause of action for the suit as against
defendants 3 to 7 was that they, in collusion and conspiracy with one another
had authorised an illegal withdrawal of Rs. 11,000/out of funds of the Union
lying with the bank. The bank was sought to be made liable on the ground that
it was a trustee for the Union and had abused the trust by allowing the amount
in question to be embezzled through its gross negligence. All the defendants
put in written statements, some doing so jointly while others did so
individually. A large number of witnesses were examined and the Subordinate
Judge came to the conclusion that the cheque in question was a forged and
fabricated document and that defendants 4, 5 and 7 acting in collusion and
conspiracy with one another had withdrawn the sum of Rs. 11,000/from the
plaintiff's account with the bank fraudulently by means of the said forged
cheque. He, however, thought that 851 there was no sufficient evidence against
defendants 3 and 6 and passed a decree as against defendants 1, 2, 4, 5 and 7
jointly. Defendants 1 and 2 only went up in appeal to the Patna High Court. The
High Court agreed with the finding of the Subordinate Judge that defendants 4,
5 and 7 were parties to the conspiracy resulting in the withdrawal of the sum
of Rs. 11,000/-, but absolved the defendant No. 2 from any liability on the
ground of negligence.
Before the High Court, a further contention
was put forward on behalf of the bank that even if the bank was otherwise
liable for the negligence of its employees, it should not be held to be liable
because defendants 6 and 7 who were the agents of the Union were negligent and
dishonest in the discharge of the duty entrusted to them by the Union. The High
Court, on an examination of the evidence, found itself unable to hold that
there was any negligence or lack of reasonable precaution on the part of the
Union. It further held that Ram Janame Varma may have been a party to the
conspiracy which culminated in the withdrawal of the money through the disputed
cheque, but the Union could not be said to be negligent or lacking in
reasonable precaution merely because of that.
Having found in favour of the plaintiffs on
the merits of the case, the High Court allowed the appeal of the bank on the
ground that the jurisdiction of the civil court was ousted by the combined
operation of s. 48(9) read with s. 57 of the Act. There is no controversy
before us that if the dispute in the suit is covered by s. 48(1) it could not
be agitated in a civil court but had to be referred to the Registrar of
Co-operative Societies. It is, therefore, necessary to, set out the relevant
portion of s. 48(1) which reads as follows:"48. (1) If any dispute
touching the business of a registered society (other than a dispute regarding
disciplinary action taken by the society or its managing; committee against a
paid servant of the society) arises(a) amongst members, past members, persons
claiming through members, past members or deceased member and sureties of
members, past members or deceased members, whether such sureties are members or
non-members; or (b) between a member, past member, persons claiming through a
member, past member or deceased member, or sureties of members, past members or
deceased members, whether such sureties are members or non-members, and the
society, its managing committees or any officer, agent or servant of the
society; or (c) between the society or its managing committee and any past or
present officer, agent or servant of the society; or 852 (d) between the
society and any other registered society; or (e) between a financing bank
authorised under the provisions of sub-section (1) of section 16 and a person
who is not a member of a registered society such disputes shall be referred to
Provided that no claim against a past member
or the estate of a deceased member shall be treated as a dispute if the
liability of the past member or of the estate of the deceased member has been
extinguished by virtue of section 32 or section 63.
Explanation-(1) A claim by a registered
society for any debt or demand due to it from a member, nonmember, past member
or the nominee, heir or legal representative of a deceased member or non-member
or from sureties of members, past members or deceased members, whether such
sureties are members or nonmembers, shall be a dispute touching the business of
the society within the meaning of this sub-section even in case such debt or
demand is admitted and the only point at issue is the ability to pay or the
manner of enforcement of payment.
It will be noticed that not all disputes in
which a registered -society may be involved are within the mischief of the
section. Assuming that the dispute in this case touches the business of the Union
which is a registered society, the question is: is it one which ,comes under
any of the heads mentioned in sub-cls. (a) to (e) of the subsection? Sub-cl.
(a) has no operation if one of the disputants is the society itself. So far as
sub-cl. (b) is concerned, a dispute between the society and a non-member would
only fall within this clause if the non-member was a surety of a member. Cl.
(c) can have no operation unless one party to the dispute was a past or present
officer, agent or servant of the society. Clause (d) is restricted to disputes
between two societies. Clause (e) which was introduced by way of an amendment
in 1948 (Bihar Act XVI of 1948) would certainly include a dispute in which one
of the disputants is not a member of the society, but it is only operative when
the other party to the dispute is a financing bank authorised under the
provisions of sub-s. (1) of s. 16.
The definition of "financing bank"
was included for the first time in the Act by s. 2 of the Bihar Co-operative
Societies Act XVI of 1948. Under the definition, a 'financing bank' means a
registered society whose main object is to make advances in cash or kind to
other registered societies or to agriculturists etc. It is nobody's case that
the dispute in this case is one between a financing bank and a non-member. The
question then arises whether the first Explanation to the section widens the
853 scope of sub-s. (1) of s. 48 so as to include claims by registered
societies against non-members even if the same are not covered by clause (e).
It is to be noted that the word "non-member" was not to be found in
the Explanation to the section before its Amendment of' 1948. The history of
legislation with regard to co-operative societies in general and Bihar and
Orissa Co-operative Societies Act in particular was traced in a decision of
this Court i.e., Sagauli Sugar Works (Private) Ltd. v. Assistant Registrar,
Co-operative Societies, Motihari & Others(1). In that case, there was a
dispute between the appellant, a company registered under the Indian Companies
Act and a society.
registered under the Act. The Society claimed
a sum of Rs. 1,20,809/from the appellant company as commission and interest for
the supply of sugar cane and referred the same to the first respondent. The
preliminary objection of the appellant to the jurisdiction of the first
respondent to adjudicate upon the dispute was over-ruled. The appellant went to
the Patna High Court under Articles 226 and 227 of the Constitution for
quashing the orders of the first respondent. The High Court following a
previous decision in Union of India v. Registrar, Co-operative Societies
Patna(2) summarily dismissed the application. Before this Court, in appeal, it
was contended that the dispute was beyond the pale of s. 48 and as such, not
referable thereunder. The Court took into consideration the various amendments
which were introduced by the Act of 1948 and observed:
"Before the amendments introduced by the
Act of 1948, the disputes which could be entertained by the Registrar were disputes
among members, past members or their heirs, or their sureties or between a
society and its officers, agents or servants, or between a society and other
registered societies (without meaning to ekhaust all the categories). But
before the amendments, one who was not a member of society or was not claiming
through a member or a past member or a deceased member, or was not a surety of
a member or a deceased member, was not subject to the jurisdiction of the
Registrar under s. 48. That is to say, any dispute between a society or its
members, past members or deceased members or sureties of such members on the
one hand and non-members on the other was not within the purview of the
section, so that the appellant company, which is not a registered society or a
member of a registered society, could not have its claim, or a claim against it
by a registered society, referred to the Registrar for decision, under this
section." According to the Court, the effect of the amendments introduced
by the Act of 1948 was "that a claim by a financing bank against a (1)
(1962] Supp. 3 S.C.R, 804-A.I.R. 1962 S.C. 1367.
(2) I.L.R. 40 Patna, 7.
854 non-member to whom the former had made an
advance in cash or kind, with the sanction of the Registrar under s. 16(1),
would be entertainable by the Registrar, on a reference, but that does not mean
that a claim which is not of the description referred to in s. 16(1) read with
s. 2(c), by a registered society against any nonmember, who is not an
agriculturist, is within the purview of s. 48(1) read with the Explanation. The
Explanation cannot be read as adding a new head to the categories (a) to (e)
under s. 48(1) of disputes which may be referred to the Registrar. Originally,
the Explanation had been added only to make it clear that even if a debt or
demand is due and the only point at issue is the ability to pay or the manner
of enforcement of payment the dispute would come within the purview of the main
section 48(1). The addition of the word 'non-member' by the Amending Act of 1948,
to the First Explanation has not enlarged the scope of the main section 48(1)
so as to make all kinds of disputes between a registered society and a
non-member cognizance by the Registrar, thus excluding the jurisdiction of the
ordinary courts." Appearing for the respondents 1 and 2, the learned
Solicitor General in effect contended that the above decision required
reconsideration and the words in the Explanation must be understood in their
widest amplitude so that even if a dispute between a registered society and a
non-member which did not fall within any of the categories (a) to (e) it would
still be within the purview of the section by reason of the Explanation.
We find ourselves unable to accept this
contention. Before the amendments introduced in 1948, the Explanation to the
section made no mention of non-members and non-members had to be included in
the Explanation because of the inclusion of this class of persons in category
(e) of sub-s. (1) of s.
48. The Explanation must be read so as to
harmonise with and clear up any ambiguity in the main section. It should not be
so construed as to widen the ambit of the section.
The scheme of sub-section (1) of s. 48 seems
to be that certain disputes touching the business of a registered society
should not be taken to civil courts and made the subject matter of prolonged
litigation. The legislature took pains to specify the persons whose disputes,
were to be subject matter of reference to the Registrar. Non-members did not
come into the picture at all. Non-members other than officers, agents or
servants of the society do not figure in sub-cls. (a) to (d) except as sureties
By sub. cl. (e) only those non-members who
had disputes with a financing bank authorised under the provisions of sub-s.
(1) of s. 16 were made amenable to the
jurisdiction of the Registrar. It was probably thought desirable in the
interest of the financing bank which might otherwise be faced with litigation
in a civil court in respect of its ordinary day-to-day transactions of advances
to agriculturists 855 who were non-members that disputes between the society
and this class of persons should be quickly and inexpensively adjudicated upon
by the Registrar. Before the amendment of 1948, the Explanation only served to
clear up the doubt as to whether a dispute was preferable to the Registrar when
the debt or demand was admitted and the only point at issue was the ability to
pay or the manner of enforcement of payment.
As already pointed out by this Court, the
Explanation had to include non-members after the. insertion of category (e) in
sub-s. (1) of s. 48. The purpose of the Explanation never was to enlarge the
scope of sub-s. (1) of s. 48 and the addition of category (e) to that
sub-section and the inclusion of non-members in the Explanation cannot have
In our opinion, the High Court was not
justified in allowing the appeal of the bank on that ground.
The learned Solicitor General then sought to
support the judgment of the High Court on the ground that its decision on the
merits of the case was not correct. His argument in substance was that even
though there was negligence on the part of the bank and its employees, the
plaintiff society was not altogether free from blame or negligence in that but
for the part played by at least one of its employees in the matter of
encashment of the cheque for Rs. 11,000/the fraud could not have been
perpetrated. It was argued that if both parties were negligent or blameworthy,
the plaintiffs' claim ought not to succeed. He referred us to the judgment of
the House of Lords in London Joint Stock Bank, Limited v.
Macmillan & Arthur(1) in support of his
argument. The facts in that case were as follows.
The plaintiffs, Messrs. Macmillan and Arthur
brought a suit for a declaration that the defendant, the London Joint Stock
Bank, was not entitled to debit the plaintiffs with a cheque for pound 120. The
plaintiffs had in their employ a confidential clerk who had been with them for
They left to him the copying of their books
and filling up cheques for signatures. The usual practice in the office of the
plaintiffs seems to have been for the clerk to present cheques for signatures
to get petty cash usually for pound
3. On a certain day, the clerk made out a
cheque for pound 2 and asked one of the partners to sign it which the partner
did. As the clerk did not turn up the next day, the partners became suspicious
and went to the bank. There they learnt that the clerk had presented a cheque
for pound 120 which had been paid. The clerk was a thief and had absconded with
the money. :The learned trial Judge found that at the time when the cheque was
presented to the partner for signature the figure '2' was written thereon with
enough space on either side for insertion of additional figures and the clerk
had taken advantage thereof and altered the figure '2' to 120. The (1) 
856 question was, whether the plaintiffs had
been so negligent with regard to the cheque that their action against the bank
should fail. The trial Judge found that the respondents were not guilty of any
negligence in the mode of signing the cheque and assuming that they had been
guilty of negligence, the negligence was not the proximate cause of the loss.
He therefore ordered judgment to be entered for the plaintiffs.
The Court of Appeal upheld this decision.
This was, however, reversed in appeal to the House of Lords. Lord Finlay L. C.
"As the customer and the banker are
under a contractual relation in this matter, it appears obvious that in drawing
a cheque the customer is bound to take usual and reasonable precautions to
prevent forgery. Crime is indeed, a very serious matter, but everyone knows
that crime is not uncommon. If the cheque is drawn in such a way as to
facilitate or almost invite an increase in the amount by forgery if the cheque
should 'get into the hands of a dishonest person, forgery is not a remote but a
very natural consequence of negligence of this description." The learned
Lord Chancellor observed further at page 795:
"Of course the negligence must be in the
transaction itself, that is, in the manner in which the cheque is drawn. It
would be no defence to the banker, if the forgery had been that of a clerk of a
customer, that the latter had taken the clerk into his service without
sufficient inquiry as to his character.
Attempts have often been made to extend the
principle of Young v. Grote, 4 Bing. 253 beyond the case of negligence in the
immediate transaction, but they have always failed." According to the
learned Lord Chancellor, leaving blank spaces on either side of the figure '2'
in the cheque amounted to a clear breach of duty which the customer owed to the
banker. The learned Lord Chancellor said:
"If the customer chooses to dispense
with ordinary precautions because he has complete faith in his clerk's honesty,
he cannot claim to throw upon the banker the loss which results. No one can be
certain of preventing, forgery, but it is a very simple thing in drawing a
cheque to take reasonable and ordinary precautions against forgery. If owing to
the neglect of such precautions it is put into the power of any dishonest
person to increase the amount by forgery, the customer must bear the loss as
between himself and the banker." 857 According to Lord Shaw the responsibility
of what happens between the signature and presentation of the cheque, a period
wholly in the customer's control, lies entirely with him.
The principle of this case cannot help the
respondent before us. If the signatures on the cheque had been genuine so that
there was a mandate by the customer to the banker but the cheque was somehow
got hold of by an unauthorised person and encashed by him, the bank might have
had a good defence. If the signatures on the cheque or at least that of one of
the joint signatories to the cheque are not or is not genuine, there is no
mandate on the bank to pay and the question of any negligence on the part of
the customer, such as, leaving the cheque book carelessly so that a third party
could easily get hold of it would afford no defence to the bank.
According to Halsey's Laws of England (3rd
Edition) Vol. 2 article 380 :
"A document in cheque form to which the
customer's name as drawer is forged or placed thereon without authority is not
a cheque, but a mere nullity. Unless the banker can establish adoption or
estoppel, he cannot debit the customer with any payment made on such
document." In this case, the finding is that one of the signatures was
forged so that there never was any mandate by the customer at all to the banker
and the question of negligence of the customer in between the signature and the
presentation of the cheque never arose. Not only was there negligence on the
part of the banker in not ascertaining whether the signatures on the cheque
were genuine, the circumstances attending the encashment of the cheque show
conclusively that the banker was negligent and some of its officers fraudulent
right from the beginning. The cheque form did not come out of the customer's
cheque book. A loose cheque form returned by ,in ex-constituent had been used
for the purpose of making out a cheque purported to be drawn by the customer.
The entries in the register for the issue of such loose forms were so
suspicious that it is difficult to believe that the employees of the bank
concerned with the encashment of the cheque were acting bonafide. There was no
negligence on the part of the customer according to whose resolution, the
cheque had to be signed jointly by two persons. The fraud could only be
perpetrated because of the complicity of the employees of the bank, no doubt,
with the help of one of the officers of the Union. The dishonesty of a
particular officer of the Union was not the proximate cause of the loss to the
bank. In our opinion, the case of G. C. Kurbar & Another v. Balaji Ramji
Dange(1) referred to in the judgment of the High Court has no application to
the facts of this case.
(1) A. 1. R. 1941 Bombay 274.
M17Sup.CI/66-10 858 In the result, the appeal
succeeds, the judgment of the Patna High Court is set aside and that of the
Subordinate Judge restored. The appellants do not want a decree against
respondent No. 7. Consequently, there will be no decree as against the said
respondent. The other respondents must pay the costs of this appeal.