Madras High Court
M/S.Axis Bank Ltd vs Indian Overseas Bank on 24 April, 2023
W.P.No.4104 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 24.04.2023
CORAM :
THE HON'BLE MR. JUSTICE R. MAHADEVAN
AND
THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ
W.P.No.4104 of 2019 &
W.M.P.Nos.4604, 4608 and 4612 of 2019
M/s.Axis Bank Ltd.,
(Formerly known as UTI Bank Ltd.)
Represented by its Authorized Signatory,
J-14, III Avenue,
Anna Nagar East,
Chennai - 600 102. ... Petitioner
Vs.
1.Indian Overseas Bank,
Central Clearing Office,
(Now City Back Office),
No.762, Anna Salai,
Chennai - 600 002.
2.M/s.Orion Trading Corporation,
Rep. by its Prop. Shri.Mahendran,
Old No.1/1, New No.1, 2nd Floor,
Anna Nagar, Chennai - 600 040.
3.The Registrar,
Debts Recovery Appellate Tribunal,
4th Floor, Indian Bank Zonal Office Building,
55, Ethiraj Salai,
Chennai - 600 008. ... Respondents
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W.P.No.4104 of 2019
Writ Petition filed under Article 226 of the Constitution of India seeking to
issue a Writ of Certiorari, to call for the records comprised in the order of
proceedings dated 10.12.2018 passed by the Debts Recovery Appellate Tribunal
in R.A.No.58 of 2015 and set aside the same inasmuch as the impugned order is
without consideration of the relevant material on record, appreciation of facts and
contrary to law.
For petitioner : Mr.Rahul Balaji
For respondents : Mr.P.Rakesh Kumar
for Mr.N.K.S.Rukmangathan for R-1
No appearance for R-2
ORDER
(Order of the Court was made by R. MAHADEVAN, J.)
This writ petition has been filed praying to set aside the order dated
10.12.2018 passed by the third respondent / Debts Recovery Appellate Tribunal
(“DRAT” in short), Chennai, in R.A.No.58 of 2015.
2.The facts of the case, as stated by the petitioner herein, are as under:
M/s.Axis Bank Limited, Anna Nagar, Chennai is the petitioner herein. It is a
Private Bank offering various financial products to its customers and has multiple
branches across the country. The second respondent-company has approached
the Anna Nagar Branch, Chennai of the petitioner’s Bank for opening a current
account for the purpose of its business. The second respondent was introduced to
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the bank and a current account was opened, after complying with all the banking
norms and practices prevailing, including the Know Your Customer norms (“KYC”
in short), on 15.06.2005. Thereafter, during the course of its business, the second
respondent presented three Demand Drafts (“DD” in short), totaling to the tune of
Rs.23,81,340/- which were issued by the first respondent Bank. Subsequently,
after clearance of the DDs, the second respondent withdrew a sum of
Rs.15,50,000/- on various dates between 01.07.2005 and 05.07.2005. While so,
the first respondent Bank vide letters dated 06.07.2005 and 07.07.2005 suddenly
informed the petitioner Bank that the said instruments were counterfeit, by which
time, the second respondent had withdrawn the amount. The letters also
demanded that the petitioner Bank has to refund such amounts to the first
respondent Bank. In its reply dated 01.08.2005 to the first respondent Bank, the
petitioner Bank pointed out that the petitioner was unaware of the fact that the
DDs in question were altered, forged and misused by the second respondent and
that, the withdrawal of funds from the accounts being prior to the intimation given
to the petitioner, they could in no stretch of imagination, be held liable for the
withdrawals by the second respondent as the same were beyond its control, and
finally stating that the petitioner Bank is fully protected under the provisions of
the Negotiable Instruments Act, 1881 and hence, the first respondent Bank has to
take up their claim with appropriate persons.
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3.It is further stated in the affidavit filed in support of this writ petition that
as per the Circular issued from the Indian Bank’s Association vide Memo
No.CIR/BOD/OP/44-38/2004-2005 dated 13.12.2004 along with Reserve Bank of
India’s Letter No.DBS.FrMC.765/23.04.2001/2004-05, it is the duty of the paying
bank to ensure that the instrument issued is not a forged one by verifying all
necessary materials, but the first respondent failed to verify the veracity of the
instruments and merely issued a notice seeking refund of amount.
4.It is also stated that the petitioner Bank, on receiving such intimation that
the second respondent had indulged in fraudulent activities, immediately lodged a
complaint bearing No.508/2005 with Cyber Crime Branch, Chennai. Thus,
according to the petitioner, they fully cooperated with Police Department at all
stages for the purpose of investigation and hence, under no circumstances, the
petitioner can be held liable for the fraudulent actions of the second respondent.
In these circumstances, the petitioner received a legal notice dated 17.10.2005
from the first respondent Bank demanding the total payment as aforesaid, within
a period of one week, for which the petitioner once again denied its liability
pointing out to the general accepted practice that the Bank issuing instruments is
under a bona fide duty to verify its security features, the signature made on it,
secret marks of identification etc. Only upon receipt of information from the first
respondent Bank, the petitioner Bank came to know about the fraudulent
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activities of the second respondent. Thereafter, i.e., after a period of three years,
the first respondent once again sent a notice to the petitioner Bank repeating its
averments for which the petitioner Bank has responded denying its liability and
pointing out the steps taken such as immediately blocking the second
respondent’s account, its cooperation for investigation before CCB, Chennai
including production of all documents before the police authorities as well as the
first respondent Bank in order to fasten liability on the second respondent.
5.In the circumstances, the petitioner Bank was shocked to know that the
first respondent Bank had approached the Debts Recovery Tribunal-II, Chennai on
27.06.2008 for recovering a sum of Rs.37,57,843.28 with interest at the rate of
16.75% per annum with monthly rests from the date of application till the date of
realization and costs under Section 19(1) of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993. By order dated 08.01.2015 in O.A.No.191 of
2014, the DRT ruled in favour of the petitioner by holding that the O.A. was
dismissed as not maintainable and that, the first respondent herein was not
entitled to recovery certificate as prayed for. Aggrieved by the same, the first
respondent Bank approached the Debt Recovery Appellate Tribunal and the
Appellate Tribunal, vide order dated 10.12.2018 in R.A.No.58 of 2015, set aside
the order of the DRT holding that the first respondent is entitled to recover a sum
of Rs.8.41 lakhs from the petitioner herein which is lying in the account of the
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second respondent herein along with accrued interest and for the remaining
balance amount of Rs.15.40 lakhs, the first respondent is entitled for 25% of the
amount, ie., Rs.3.85 lakhs from the petitioner Bank. The petitioner states that
they are greatly prejudiced by the said order, which has failed to take into
consideration the fact that the amounts departed by the first respondent herein
would under no circumstances form a ‘debt’ for the purpose of Section 19 of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and that, the
reason for clearance of such instruments were in fact, granted by the first
respondent Bank negligently.
6. With the above background, the present writ petition has been filed by
the petitioner Bank.
7.The learned counsel for the petitioner Bank has submitted that under a
bona fide belief and without any negligence, the petitioner sent the DDs for
clearance as if the second respondent is to be the true owner of the same. After
knowing from the first respondent that the instruments are fraud, the petitioner
has taken all steps by immediately blocking the second respondent’s bank account
and they have fully cooperated with the police for investigation at all stages.
However, the DRAT has erroneously recorded that protection under Section
131/131A of the Negotiable Instruments Act, 1881 is not available to the
petitioner herein. The learned counsel further submitted that the DRAT has failed
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to take note of the fact that the Original Application was barred by the principles
of waiver, estoppels and acquiescence on the ground that the petitioner merely
collected the aforesaid drafts from the second respondent and in good faith and
without any negligence, forwarded the same to the first respondent for clearance
and only after getting clearance from the first respondent Bank, the amount was
credited to the second respondent’s account; and that, the DRAT failed to
consider the fact that the issuing bank / first respondent was at a better position
to verify the veracity of the DDs since it had knowledge about all salient features
of the same. It is also submitted that the DRAT failed to explain as to how the
quantum of 25% of Rs.15.40 lakhs had been arrived at and there is no
justification for the said liability and no rationale has been provided in arriving at
the amount of Rs.3.85 lakhs payable by the petitioner. With these submissions,
the learned counsel prayed for allowing this writ petition by setting aside the
order passed by the DRAT.
8.Referring to the averments stated in the counter affidavit, the learned
counsel for the first respondent Bank submitted that after crediting an amount of
Rs.7,88,830/- by way of first demand draft to the second respondent’s account,
the second respondent withdrew Rs.3,00,000/- each on two occasions by cash
and after depositing a sum of Rs.7,72,810/- towards second demand draft, sums
of Rs.3,00,000/-, Rs.4,00,000/-, and Rs.2,50,000/- have been permitted to be
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withdrawn. Thus, the petitioner bank had allowed the second respondent to
withdraw substantial sums within a short span of time, ie., from 01.07.2015 to
05.07.2005, in the newly opened account leaving a paltry sum in the account. The
third demand draft for a value of Rs.8,19,700/- was credited in the second
respondent’s account on 05.07.2005 and the same was withheld by the petitioner
Bank at the request of the first respondent Bank. When the first respondent Bank
had sought for the introducer’s details and the statement of accounts of the
second respondent’s account from the date of opening the account, the same was
refused to be given with a view to defeat the legitimate claim of the first
respondent Bank. Since the petitioner Bank had denied their liability to refund the
amount of Rs.23,81,340/-, the first respondent sent the Legal Notice dated
17.10.2005 seeking refund of the same with interest and costs, for which the
petitioner sent a reply admitting that they will release the frozen amount of
Rs.8,19,700/- being the amount involved in the third demand draft provided the
first respondent gives an indemnity for the total claim amount of Rs.23,81,340/-.
However, nothing progressed. Therefore, the first respondent Bank filed
O.A.No.98 of 2008 before the DRT, which was dismissed. Aggrieved by the same,
appeal was filed before DRAT by the first respondent Bank and the DRAT, by
order made in R.A.No.58 of 2015, held that the petitioner Bank also was negligent
and hence, the first respondent Bank is entitled to receive a sum of Rs.8.41 lakhs
from the petitioner Bank, which is lying in the account of the second respondent
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and that, for the remaining balance amount of Rs.15.40 lakhs, the first
respondent is entitled to 25% of the amount, ie., Rs.3.85 lakhs, to be received
from the petitioner Bank and the further remaining amount along with interest
has to be recovered from the second respondent herein.
9.The learned counsel for the first respondent further submitted that
opening an account on the strength of the copy of the lease agreement with
address of the concern mentioned along with the name of the proprietor and Pan
Card Copy of the proprietor as proof of identity, is against the guidelines issued by
the Reserve Bank of India and therefore, the petitioner Bank had not ensured
proper customer identification. In the account opening form, introduction was not
obtained and none of the other identification documents were obtained, which
gave rise to the impression that the then Bank Manager of the petitioner Bank
had colluded with the second respondent in opening the account and allowing
operation to commit fraud against the first respondent bank. It is also submitted
by the learned counsel that even though the account was authorized to be
opened on 07.07.2005, the entire fraud had been committed before that period,
which could not have been possible, but only with the active connivance of the
then Branch Manager of the petitioner Bank. Considering all these aspects, the
DRAT has rightly concluded that protection under Section 131 and 131A of the
Negotiable Instruments Act, is not available to the petitioner Bank. In support of
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the said submissions, reliance has been placed on the Delhi High Court Judgment
in Axis Bank vs. Punjab National Bank and another, made in
W.P.(C)No.6201 of 2014 dated 20.03.2015 to state that the amount claimed
by the first respondent is legally recoverable and hence, it is a ‘debt’ under
Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act,
1993. Thus, according to the learned counsel, the order impugned herein does
not require any interference at the hands of this court.
10.Heard the learned counsel for the petitioner and the learned counsel for
the first respondent Bank and also perused the materials available on record
carefully and meticulously. Despite the service of notice, there is no
representation on behalf of the second respondent.
11.The challenge made by the petitioner bank in this writ petition is to the
order dated 10.12.2018 passed by the third respondent, in R.A.No.58 of 2015.
12.It is the specific case of the petitioner Bank that the second respondent
customer opened a current account, after complying with all the banking norms
and practices prevailing, including the Know Your Customer norms (“KYC” in
short), on 15.06.2005; that, the petitioner bank was unaware of the fact that the
DDs in question were altered, forged and misused by the second respondent; and
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that, since the withdrawal of funds from the accounts of the second respondent
being prior to the intimation given to the petitioner, the petitioner bank could in
no stretch of imagination be held liable for the withdrawals by the second
respondent. It is further stated that on receiving the information from the first
respondent, the petitioner Bank took immediate steps by immediately blocking the
second respondent’s account, its cooperation for investigation before CCB,
Chennai including production of all documents before the police authorities as well
as the first respondent Bank in order to fasten liability on the second respondent.
It is also stated by the petitioner Bank that they are fully protected under the
Negotiable Instruments Act; and that, as per the Circular issued from the Indian
Bank’s Association vide Memo No.CIR/BOD/OP/44-38/2004-2005 dated
13.12.2004 along with Reserve Bank of India’s Letter
No.DBS.FrMC.765/23.04.2001/2004-05, it is the duty of the bank issuing
instrument to ensure that the instrument is not a forged one by verifying all
necessary materials, whereas, the first respondent without verifying the veracity
of the instruments, directed the petitioner bank to refund of amount for the
wrong committed on the part of the second respondent customer.
13.According to the first respondent Bank, after opening of the account by
the second respondent, the petitioner Bank had allowed the second respondent to
withdraw substantial sums within a short span of time, ie., from 01.07.2015 to
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05.07.2005, in the newly opened account leaving a paltry sum in the account.
When the first respondent Bank had sought for the introducer’s details and the
statement of accounts of the second respondent’s account from the date of
opening the account with the petitioner bank, the same was refused to be given
with a view to defeat the legitimate claim of the first respondent Bank. It is the
further stand of the first respondent Bank that opening an account on the
strength of the copy of the lease agreement with address of the concern
mentioned along with the name of the proprietor and Pan Card Copy of the
proprietor as proof of identity, is against the guidelines issued by the Reserve
Bank of India and therefore, the petitioner–Bank had not ensured proper
customer identification. Thus, according to the first respondent, in the account
opening form, introduction was not obtained and none of the other identification
documents were obtained, which would go to show that the then Bank Manager
of the petitioner Bank had colluded with the second respondent in opening the
account and allowing operation to commit fraud against the first respondent bank.
14.It is seen from the pleadings and records that for the wrong committed
by the second respondent, the first respondent bank initiated the recovery
proceedings before the DRT, Chennai, against the petitioner bank and the said
application was dismissed in favour of the petitioner. Challenging the same, the
first respondent preferred appeal before the DRAT. After due contest, the DRAT
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has given a finding that both the petitioner Bank as well as the first respondent
Bank have been negligent on the issue. It has been held by the DRAT that the
first respondent is entitled to recover a sum of Rs.8.41 lakhs from the petitioner
herein which is lying in the account of the second respondent herein along with
accrued interest and for the remaining balance amount of Rs.15.40 lakhs, the first
respondent is entitled for 25% of the amount, ie., Rs.3.85 lakhs from the
petitioner Bank. However, in the given factual scenario, we are unable to find any
material to show that the petitioner Bank failed to exercise due care in presenting
the three demand drafts for collection. It is further seen that though the DDs
have been forged and altered, the fact that the forgery could not be detected by
the first respondent Bank itself, would show that the first respondent Bank has
failed to verify the security features, signature and the secret marks of
identification in the Demand Drafts, before giving clearance; and that, they have
not raised any doubt as to the genuineness of the drafts at the time of receiving
them. It is also seen that only upon the receipt of clearance from the first
respondent Bank, the petitioner Bank, in good faith, credited the amounts to the
bank account of the second respondent bank. Furthermore, there is no reference
to any enquiry or due scrutiny made on the officials of the clearing house
representing Indian Overseas Bank. In such circumstances, it cannot be said that
the petitioner Bank is liable to pay any amount to the first respondent bank, for
the wrong committed by the second respondent customer. In the given
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circumstances, the decision in Axis Bank case (supra) relied on the side of the
first respondent, is not applicable to the facts of the present case. Therefore, the
finding of the DRAT that the first respondent bank is entitled to recover the
alleged loss of Rs.23.81 lakhs by way of three transactions from the petitioner
bank, cannot be allowed to be sustained and the same deserves to be interfered
with to certain extent, in the opinion of this court.
15.In such perspective of the matter, the order of the DRAT in holding that
for remaining balance amount of Rs.15.40 lakhs, the first respondent bank is
entitled for 25% of the amount i.e., Rs.3.85 lakhs from the petitioner bank, is set
aside. However, the portion of the order passed by the DRAT in holding that the
first respondent herein is entitled to recover a sum of Rs.8.41 lakhs from the
petitioner bank, which is lying in the account of the second respondent herein
along with accrued interest; and that, the remaining amount has to be recovered
from the second respondent by the first respondent Bank in accordance with law,
stands confirmed.
16.Accordingly, this writ petition stands disposed of. No costs.
Consequently, connected miscellaneous petitions are closed.
[R.M.D,J.] [M.S.Q, J.]
rk 24.04.2023
Speaking (or) Non-Speaking Order
Internet : Yes.
Index : Yes /No
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To
The Registrar,
Debts Recovery Appellate Tribunal,
4th Floor, Indian Bank Zonal Office Building,
55, Ethiraj Salai,
Chennai - 600 008.
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W.P.No.4104 of 2019
R. MAHADEVAN, J.
and
MOHAMMED SHAFFIQ, J.
rk
W.P.No.4104 of 2019 &
W.M.P.Nos.4604, 4608 and 4612 of 2019
24.04.2023
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