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PETITIONER: BANK OF BIHAR LTD.

       Vs.

RESPONDENT: MAHABIR LAL & ORS.

DATE OF JUDGMENT: 07/02/1963

BENCH: MUDHOLKAR, J.R. BENCH: MUDHOLKAR, J.R. SUBBARAO, K. DAYAL, RAGHUBAR

CITATION:  1964 AIR  377            1964 SCR  (1) 842

ACT: Negotiable lnstrument--Firm presents cheque to  Bank--Amount kept  in  the hands of Potdar of Bank-If  payment  to  firm- Statement  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.

HEADNOTE: 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 judg- ment  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 beheld responsible for the money misappropriated by the Potdarbecause his act  was a criminal act. 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.

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In  order to avail of the provisions of s. 85 of  the  Nego- tiable 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, [1905] 1 K. 9. 237, distinguished.

JUDGMENT: 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 appellant. 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

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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  as  false. According to them, the suit was a counterblast to a criminal case instituted by them against the Manager- and 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

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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.  C. 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,  Rambha-               rosa  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  statement. 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

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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  Mahadeo. 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

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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) [1905] 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  with costs. Appeal dismissed. 852