Allowed Bank of Baroda's appeal against liability for honoring three stolen demand drafts. Held that no duty existed to doubt the instruments as the issuing bank failed to notify the theft, and the clearing bank lacked knowledge of fraud.
The appeal was allowed and the impugned order setting aside the lower court decree was also set aside.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
BANK OF BARODA
..... Appellant
Through: Mr.Amit Mahaliyan, Advocate.
Versus
STATE BANK OF INDIA & ANR.
..... Respondents
Through: Mr. U.C. Mittal and Mr.S. Rana, Advs.
CORAM: HON'BLE MR. JUSTICE NAJMI WAZIRI O R D E R % 02.01.2018
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evidently, because he was known to the Bank for many years. On the latter Account Opening Form, a reference to “Natraj Plastics” with its Current Account No. 1365 was made. M/s. Natraj Plastics, a partnership firm at 4215, Lawrence Road, Rampura, Delhi-35 had two partners viz Vijender Kumar Aggarwal and Rishi Prakash Aggarwal. Its Current Account No. 1365 was opened and operational with effect from 5.3.1988. Historically, this Current Account No. 1365 was opened with Traders’ Bank Limited which was subsequently taken over by Bank of Baroda.
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the very next day. By a letter dated 3.12.1999, the State Bank of India informed the Bank of Baroda that the three encashed Demand Drafts were fraudulent since the relevant Demand Drafts leafs bearing No. 844501 to 846000 in the form of 15 books (total 1500 leaves) were looted from the SBI Branch of Rajgir, Bihar, regarding which FIR No. 241/99 was registered in PS Rajgir, Bihar.
"9. What is the standard of care to be taken by a bank in opening an account? In the Practice and Law of Banking by H.P. Sheldon, 11th Edn., in chapter 5 at page 64 it is said—
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"Before opening an account for a customer who is not already known to him, a banker should make proper preliminary inquiries. In particular, he should obtain references from responsible persons with regard to the identity, integrity and reliability of the proposed customer.
Sh. M.L. Tannan In Banking Law and Practice in India, 18th edn., at page 198 says:
"Before opening a new account, a banker should take certain precautions and must ascertain by inquiring from the person wishing to open the account, if such person is unknown to the banker, as to his profession or trade as well as the nature of the account he proposes to open. By making necessary inquiries from the references furnished by the new customer, the banker can easily verify such information and Judge whether or not the person wishing to open an account is a desirable customer. It is necessary for a bank to inquire, from responsible parties, given as references by the customer, as to the letter's integrity and respectability, an omission of which may result in serious consequences not only for the banker concerned, but also for other bankers and the general public."
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Overseas Bank (supra) is misplaced because the judgment itself notes that ascertainment of other details of the account holder could be necessary only if the customer was not already known to the banker.
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and was alerted of their possible misuse, therefore, it ought to have specifically checked all DDs, including the three presented by the appellant before encashing them. Having encashed them by its own admission or lapse, the SBI cannot blame the appellant.
NAJMI WAZIRI, J.
JANUARY 02, 2018
acm
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2 issues framed by the court
Whether a bank clearing agency for negotiable instruments is liable for fraudulently encashed demand drafts when the industrial loss-report sheet (DD leafs) were not flagged before clearance.
Whether the burden lies with the beneficiary bank to check stolen leaf numbers when the issuing bank fails to communicate the theft prior to clearing.
Colour shows how this judgement treated each authority
Indian Overseas Bank v. Industrial Chain ConcernDistinguished¶33
Indian Overseas Bank V. Industrial Chain Concern, 1990 (1) SCO 484
Canara Bank Vs Citi Bank n.a.Distinguished¶6
Canara Bank Vs Citi Bank n.a. & ors. 182 (2011) DLT 189 · Who else cites this
1 provisions across 1 enactments
Bank of Baroda
State Bank of India
Najmi Waziri
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
